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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark one)
[X] ANNUAL REPORT PURSUANT
TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __ to__.
Commission File No. 0-20698
BROOKTROUT TECHNOLOGY, INC.
(Exact name of registrant as specified in its charter)
MASSACHUSETTS 04-2184792
(State or other (I.R.S. Employer
incorporation or organization) Identification No.)
410 FIRST AVENUE, NEEDHAM, MASSACHUSETTS 02494
(Address of principal executive offices)(Zip Code)
Registrant's telephone number, including area code: (781) 449-4100
Securities registered pursuant to Section 12(b) of the Act:
NAME OF EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
_________ __________
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
Securities registered pursuant to Section 12(g) of the Act: Common Stock
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ].
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
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As of March 24, 1999, the aggregate market value of the voting stock
held by non-affiliates of the registrant was approximately $112.6 million, based
on the closing price on such date of the Company's Common Stock on the Nasdaq
("Nasdaq") National Market.
As of March 24, 1999, 10,907,012 shares of Common Stock, $.01 par value
per share, were outstanding.
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DOCUMENTS INCORPORATED BY REFERENCE
Portions of (i) the Company's Annual Report for the fiscal year ended
December 31, 1998 are incorporated into Part II of this Form 10-K and (ii) the
Company's Proxy Statement relating to the 1999 Annual Meeting of Shareholders of
the Company are incorporated into Part III of this Form 10-K.
"TR114", "Universal Port", "QuadraFax", "Show N Tel", "BTStack323",
"ActiveCall", "System 1000", "System 500", "PowerBlock", "BOSTon", "TR2001",
"Real-Time Fax", "TR1000", "Vantage" and "IP/FaxRouter" are trademarks of
Brooktrout Technology, Inc. "Rhetorex", "TR Series" and "TruFax" are registered
trademarks of Brooktrout Technology, Inc. "MVIP" is a trademark of Natural
MicroSystems, Inc. "Touch-Tone" is a registered trademark and "UNIX"is a
trademark of AT&T. "Merlin" is a registered trademark and "Legend", "Merlin
Legend", "Merlin Mail", "Merlin Multi-Lingual Version", "RealCT" and "Partner
Mail" are trademarks of Lucent Technologies Inc. ("Lucent", formerly a division
of AT&T) "Microsoft" and "MS-DOS" are registered trademarks and "Microsoft
Windows Sound System" and "Windows NT" are trademarks of Microsoft Corporation.
"OS/2" is a registered trademark of International Business Machines Corp.
"UnixWare" is a trademark of Univel. "QNX" is trademark of QNX, Inc. "Netaccess"
and "Instant ISDN" are trademarks of Netaccess, Inc. "Instant RAS" is a
registered trademark of Netaccess, Inc.
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PART I
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT
OF 1995
This Annual Report contains certain statements that are "forward-looking
statements" as that term is defined under the Private Securities Litigation
Reform Act of 1995 (the "Act") and releases issued by the Securities and
Exchange Commission. The words "believe," "expect," "anticipate," "intend,"
"estimate" and other expressions which are predictions of or indicate future
events and trends and which do not relate to historical matters identify
forward-looking statements. Forward-looking statements involve known and unknown
risks, uncertainties and other factors, which may cause the actual results,
performance or achievements of the Company to differ materially from anticipated
future results, performance or achievements expressed or implied by such
forward-looking statements. The Company undertakes no obligation to publicly
update or revise any forward-looking statement, whether as a result of new
information, future events or otherwise.
ITEM 1. BUSINESS
Brooktrout Technology, Inc. ("Brooktrout" or the "Company") is a
Massachusetts corporation founded in 1984 to design, manufacture and market
computer hardware and software for use in electronic communications applications
in telecommunications and networking environments. Brooktrout is a supplier of
advanced software and hardware products for system vendors and service providers
in the electronic communications market. The Company's products enable its
customers to deliver a wide range of solutions for the integration and
management of image (fax), voice and data communications in telecommunications
and networking environments. The Company sells its products primarily to service
providers, original equipment manufacturers ("OEMs") and value added resellers
("VARs") both domestically and internationally through a direct sales force and
a two-tier distribution system. The Company has direct sales offices in
California, Illinois, North Carolina, Maryland, Georgia, Florida, New Jersey,
New Hampshire and Massachusetts and has established sales and support offices in
Belgium, England and Singapore. The Company's international sales efforts,
principally exports from the United States, are initiated from corporate
headquarters in the United States and internationally located sales and support
offices. In addition to direct international sales, significant additional
revenue is derived from international sales by Brooktrout's customers of systems
which incorporate Brooktrout's products.
On April 1, 1993, the Company acquired all of the assets of DAFcom
Corporation ("DAFcom"), a producer of fax routing products for private data
networks. DAFcom, based in Dallas, Texas, is now operating as a wholly owned
subsidiary of the Company under the name "Brooktrout Networks Group, Inc."
On May 29, l996, the Company acquired Technically Speaking, Inc.
("TSI"), a supplier of graphical, object-oriented software application
development tools for the electronic messaging market. TSI is now operating as a
division of the Company.
On June 30, 1997, the Company acquired the assets and assumed certain
liabilities of Netaccess, Inc. ("Netaccess"), a worldwide supplier of Primary
Rate and Basic Rate ISDN network interface products and multiport modem products
for standards-based, open remote access and computer telephony systems.
Netaccess is now operating as a wholly-owned subsidiary of the Company.
During 1997, the Company formed Interspeed, Inc. ("Interspeed") a new
wholly-owned subsidiary that will focus exclusively on high-speed network access
in the data communications segment.
In June 1998, the Company entered into two-tier distribution with its
TR114 Series fax and voice boards, expanding coverage of the market and
simplifying the reseller's purchasing process. The Company signed a distribution
agreement with Tech Data Corporation, a leading networking supplier, and in
September 1998, signed an additional distribution agreement with Ingram Micro, a
leading wholesale distributor of computer technology
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products and services.
On December 17, 1998, the Company acquired the assets and assumed
certain liabilities of the Computer Telephony Products ("CTP") business of
Lucent. The CTP business provides technologies for the voice processing industry
and manufactures hardware and software components that connect PCs and LANs with
telephone networks. CTP is now operating as a wholly-owned subsidiary of the
Company.
BROOKTROUT'S PRODUCTS
The Company's first products were voice processing boards and voice mail
systems based on those boards. The Company became a significant supplier of
personal computer-based voice mail systems to OEMs of small telephone systems.
As it developed its voice processing business, the Company began to
explore computer-based fax processing using digital signal processing ("DSP")
technology. DSP is a technology which permits the complex signals transmitted
through the telecommunications network, including voice and fax signals, to be
interpreted and rapidly processed in much the same manner as basic numerical
data. The Company introduced its first TR Series fax processing product in 1987
and followed this with more advanced fax products in subsequent years.
In addition to hardware products, the Company has emphasized the
development of firmware and software development tools that support rapid and
flexible applications development by software developers. Initially, the Company
began making software drivers for its hardware products. In August 1991, the
Company introduced a higher-level TR Series Fax & Voice Applications Programming
Interface ("API"). The API provides a development environment which permits
access to the functionality of Brooktrout's TR Series hardware products. Using
the API, a developer of fax or voice software may readily program commands to
direct a TR Series hardware product to carry out any of its signal processing
functions by calling routines within the API that interpret the program's
instructions in the form of detailed hardware commands. In May 1996, the Company
added Show N Tel, a graphical object oriented software application development
tool to the software product line through the acquisition of TSI.
In 1993, the Company formed Brooktrout Networks Group, Inc., through the
acquisition of all of the assets of DAFcom, to develop a new product which
provides fax networking solutions.
In June 1997, the Company added multi-channel Primary Rate ISDN,
multi-channel Basic Rate ISDN, and multiport modem products by acquiring
Netaccess. These products provide data and networking capabilities for remote
access applications and for integration into computer telephony systems.
In June 1997, the Company introduced the Brooktrout Open System
Telephony architecture ("BOSTon"), a next generation Universal Port software
architecture for electronic messaging applications. BOSTon will enable the
Company to provide (i) a comprehensive universal port development environment
for electronic messaging applications, (ii) development tools that reduce the
time and cost of maintaining application software, and (iii) cost-effective DSP
resource boards for a wide variety of applications and system configurations.
In September 1997, the Company announced that it would add to its TR
Series product line new software and hardware products for real-time
transmission of voice and fax over packet data networks using the Internet
Protocol (IP). These products include DSP resource boards, firmware,
communication protocol "stacks" and enhancements to the TR Series API.
In December 1997, the Company introduced an Enhanced Call Control
application programming interface (API) which extends its TR Series fax and
voice development tools to incorporate Primary Rate and Basic Rate ISDN products
from Netaccess.
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In January 1998, the Company introduced high density versions of its
popular TR114 Series multichannel fax and voice boards, including 12 and 16
channel boards, and an 8 channel board with an integrated T1 network interface
card that can be combined with the 16 channel card to support up to 24 channels
using just 2 PC slots. This enables developers to reduce deployment costs and
build higher density systems for large enterprises and service providers. The
TR114 Series high density boards are extensions of Brooktrout's TR114 Series fax
and voice boards so they provide the same features and functionality, and are
transparent to applications, so existing applications that support TR114
products can utilize these new boards immediately, thus providing investment
protection and a migration path.
In March 1998, the Company introduced the TR2001 IP Telephony platform.
The TR2001 IP Telephony fax and voice boards provide up to 60 channels of IP
voice and IP fax in a single PCI slot, an integrated Primary Rate ISDN network
interface, and an integrated Ethernet port eliminating the need for stand-alone
network interface boards.
In March 1998, Brooktrout Software, a division of the Company,
introduced ActiveCall, an add-on to its Show N Tel application development
platform. ActiveCall includes server-side tools for collecting, tracking, and
managing call information and exchanging data with client applications (screen
pop); components for adding telephony functions to both off-the-shelf, help-desk
and telemarketing software, as well as custom applications; and switch
"middleware" links via TSAPI, TAPI, and native PBX APIs.
In March 1998, the Company introduced its Real-Time Fax API. When used
with the Company's TR Series fax and voice API and TR114 Series boards, the
Real-Time Fax API reduces the complexity of developing IP Fax gateways.
In March 1998, the Company introduced the TR1000 Universal Port fax and
voice boards, its next generation of high density multichannel fax and voice
platform for service providers and developers of enhanced fax services, unified
messaging and LAN fax systems for large enterprises.
In October 1998, Interspeed entered into beta testing with its new
generation of carrier-class Digital Subscriber Line ("DSL") solutions. These
systems, designed as true data communications platforms, enable Internet Service
Providers ("ISPs"), Competitive Local Exchange Carriers ("CLECs"), and Local
Exchange Carriers ("LECs") to provide high speed data access using existing
copper wiring. The systems provide all of the functionality required to provide
a high speed DSL Internet access service in a single platform.
In December 1998, the Company added voice products, application
programming interfaces, software utilities and algorithms, and network interface
cards, through the acquisition of Lucent Technologies' CTP business unit. These
products provide small and medium businesses with technologies for messaging and
digital recording applications. The products enable customers to connect PCs and
LANs with telephone networks.
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The Company has six major product lines, all of which serve the
electronic communications market: IP telephony boards, voice messaging, fax
processing, high-speed access and network interface, Interspeed DSL solutions,
and Brooktrout Software. The following table describes Brooktrout's principal
products and the markets which they serve:
<TABLE>
<CAPTION>
Products Description Target Customers
-------- ----------- ----------------
<S> <C> <C>
IP/TELEPHONY
________________________________________________________________________________________________
TR2001 Series boards Multichannel boards that Service providers and
support voice and fax OEMs implementing
transmission over IP networks medium and high density
"gateways" and other IP
telephony systems
VOICE MESSAGING
________________________________________________________________________________________________
Vantage Series 4 to 32 port ISA and PCI voice OEMs, VARs, application
and fax boards. The PCI boards developers, and system
also include an optional H.100 integrators developing
interface and optional fax highly scalable
capability voice/fax solutions
RealCT High level API that shields Service providers, OEMs
developers from the and VARs developing CT
complexities of telephone solutions
connection and switching
Ensemble 100 A compact PC platform that VARs and OEMs developing
includes the Quartet 4 port voice processing solutions
analog, half-sized card
Prelude Series Half-size, low-cost, full VARs and OEMs developing
featured voice processing voice solutions
platforms for PC systems that
include the Duel 2-port
analog half-size card, and the
Quartet 4-port analog half-
size cards
RDSP Series PC voice processing platforms OEMs and VARs developing
that include up to 24 ports computer telephony
of voice applications
MerlinMail and Voice messaging systems Provided to Lucent on a
PartnerMail systems for designed for Lucent's Merlin private label basis for sale
Lucent Technologies Partner and Merlin Legend to purchasers of Merlin
telephone switches Partner and Merlin
Legend telephone systems
FAX PROCESSING
________________________________________________________________________________________________
TR114 Series Universal Multichannel boards with Service providers, OEMs
Port Fax & Voice boards advanced fax and voice and VARs implementing
processing capabilities medium to high density
available with 2, 4, 8, 12 fax and voice systems
or 16 channels/board
TruFax Series Fax boards Multi-channel 2 port fax boards OEMs and VARs
providing an entry port for fax implementing work group
server communications and medium-size business
communication servers
TR1000 Series boards High density multichannel fax Service providers, OEMs
and voice PCI boards providing and developers of
up to 60 ports of intelligent enhanced fax services
fax and half-duplex voice
</TABLE>
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<TABLE>
<CAPTION>
Products Description Target Customers
-------- ----------- ----------------
<S> <C> <C>
TR Series API C-language application Service providers, OEMs
development software for the TR and VARs developing high
Series TruFax boards and IP performance fax and voice
telephony products applications with specific
custom requirements
Real-Time Fax API An API that reduces the and Service providers, OEMs
cost complexity of developing and VARs developing real-
real-time IP/Fax gateways time fax gateways
IP/FaxRouter An embedded system platform OEMs and VARs
for routing faxes over the providing solutions for
Internet and other IP networks businesses with high fax
transmission expenses that
have access to the Internet
or other IP network
services
HIGH-SPEED ACCESS AND NETWORK INTERFACE
________________________________________________________________________________________________
PRI/BRI WAN Interface boards Multi-span ISDN/T1/E1/BRI OEMs and system
boards for data, voice and video integrators implementing
applications available in data networking and
multiple bus types computer telephony
applications
TRNIC Series Network interface cards that Service providers, OEMs
provide up to 24 channels, in and VARs integrating
either ISA or PCI form factors, fax and voice systems
for connecting fax and voice with T1 lines
systems to T1 phone lines
Instant RAS Open Remote A family of remote access OEMs, VARs and system
Access Server products software and hardware for integrators providing
industry standard platforms remote access solutions
providing analog and digital for office and
connectivity departmental applications
Enhanced Call Control API An API which extends the TR Service providers, OEMs
Series fax and voice development and VARs developing
tools to incorporate high-speed applications for different
access products telephone systems
worldwide
RTNI Series Network interface cards that OEMs and VARs adding voice
provide from 2 T1/E1 to 24 processing and call
analog interfaces; compatible switching PC systems
communication interfaces for
the RDSP and Vantage Series
INTERSPEED DSL SOLUTIONS
________________________________________________________________________________________________
System 500 and 1000 DSL high-speed Internet access Telephone companies and
carrier-class DSL solutions platforms Internet service providers
</TABLE>
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<TABLE>
<CAPTION>
Products Description Target Customers
-------- ----------- ----------------
<S> <C> <C>
BROOKTROUT SOFTWARE
________________________________________________________________________________________________
Show N Tel Windows NT rapid application Service providers, OEMs
development platform for and VARs developing
computer telephony applications enterprise computer
telephony systems seeking
an easy-to-use application
development and
prototyping tool
ActiveCall An add-on tool to Show N Tel Computer telephony system
allowing developers to extend integrators and VARs
voice response systems with developing CTI solutions
advanced CTI capabilities
Software Utilities Complete family of software OEMs and VARs developing
and Algorithms utilities and algorithms for voice and fax processing
developing next-generation voice systems
processing systems
</TABLE>
IP/Telephony
TR2001 Series. In March 1998, the Company introduced the TR2001 IP
Telephony platform. The TR2001 IP Telephony fax and voice boards provide up to
60 channels of IP voice and IP fax in a single PCI slot, an integrated Primary
Rate ISDN network interface, and an integrated Ethernet port eliminating the
need for stand-alone network interface boards. By increasing the number of ports
per slot and eliminating the need for stand-alone interface boards, the TR2001
reduces the complexity and cost of delivering high density IP Telephony systems
for large enterprises and service providers.
Voice Messaging
The Vantage Series. Versatile voice and fax processing platforms for
developing robust, highly scalable, high density applications on a variety of
platforms. The Vantage Series are universal port boards that provide from 4 to
32 ports of voice and fax on a single resource card, in either ISA or PCI form
factors. The PCI boards include optional H.100 open standards interface and
optional fax capability. The Vantage Series support a variety of computer
telephony solutions including messaging, digital recording, interactive voice
response, outbound telemarketing, and audiotext. This provides OEMs, VARs,
application developers and system integrators the ability to offer voice/fax
solutions which can be packaged to better meet market demand.
RealCT. RealCT is a high level application programming interface (API)
that shields developers from the complexities of telephone connection and
computer telephony resource switching, eliminates unnecessary development costs
and reduces development time of CT solutions. RealCT is a Microsoft Windows
Dynamic Link Library (DLL). It incorporates a user-friendly graphical user
interface that simplifies the configuration of hardware and software and manages
Multi-Vendor Integration Protocol (MVIP) switching. Using this method, hardware
resources can easily be allocated and redistributed in real time without any
need for code change.
The Ensemble 100. A flexible, low-cost PC-based platform designed as an
ideal host for compact voice processing solutions. The Ensemble 100 consists of
a compact PC platform bundled with the Quartet, a 4-port analog, half-sized
card. This provides VARs and OEMs developing voice processing solutions a unique
technology combination that offers superior performance over other compact
platforms and is priced less than if the components were sold separately.
Prelude Series. A family of half-size, low-cost, full featured voice
processing platforms for PC systems. The Prelude Series includes the Duet 2-port
analog half-size card, and the Quartet 4-port analog half-size card that enables
developers to build voice systems based on "miniature" PC architecture, reducing
overall costs while maintaining full voice processing functionality.
RDSP Series. PC voice processing platforms that provide developers with
voice processing for ISA bus-compatible computers. The RDSP Series includes up
to 24 ports of voice on a single resource card that supports development of
robust solutions for messaging, digital recording, and other computer telephony
applications.
Merlin Legend Mail and Partner Mail Since 1990, Brooktrout has been the
supplier of the Merlin Mail voice messaging/automated attendant system for the
Lucent Merlin small business telephone system. In 1991, the Company introduced a
second generation of Merlin Mail designed for Lucent's Merlin Legend system, a
new, small business telephone system. In 1992, the Company introduced the
Partner Mail voice messaging/automated attendant system for Lucent's Partner
small business telephone system. In 1993, the Company introduced the third
generation of Merlin Mail: Merlin Mail Multi-Lingual Version which incorporates
English, Spanish and French languages in one system and is integrated with
Lucent's Merlin Legend system. In 1997, the Company began shipping Merlin Legend
Mail which delivers the Merlin Mail application software in a low-cost board
integrated into the Merlin Legend system. The Merlin Mail, Partner Mail, Merlin
Legend Mail and Merlin Mail Multi-Lingual Version products are based on the
voice boards developed and manufactured by the Company.
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Fax Processing
TR114 Series. Introduced in 1992 and periodically enhanced since then,
the TR114 Series Universal Port boards are designed for high performance fax and
fax and voice messaging systems, such as those used by telecommunications
service providers, messaging system vendors and network communication server
vendors. The TR114 Series Universal Port boards offer full fax and voice
processing on each channel of a single multi-channel board. Advanced fax and
voice features, such as file conversions and file transfer protocols, are
supported on the TR114 Series. Boards are available in a range of
configurations; with two, four, eight, twelve or sixteen channels per board. The
TR114 Series boards are designed to be approved by telecommunications regulatory
agencies worldwide and have been approved for use in more than 31 countries
including the United States, Japan, England, France and Germany.
The range of the TR114 Series configurations allows developers
flexibility in designing systems from small corporate systems to large telephone
company service systems in a cost effective manner. The TR114 Series two and
four channel analog boards support loop start, DID, and Basic Rate ISDN
telephone service. The TR114 Series boards are designed to be used in ISA and
PCI-bus computers which may be used as platforms for smaller systems, and
special purpose computers providing expansion slots for up to 20 boards to serve
the needs of large service providers. TR114 Series four, eight, twelve and
sixteen channel digital boards with interfaces for popular Pulse Code Modulation
("PCM") highways, such as MVIP, SC Bus and PCM Expansion Bus ("PEB"), offer
developers options in designing systems for digital network services (such as
T1, E1 and ISDN) or with other resources, such as voice recognition, from other
vendors.
TruFax Series. Released in January 1995, the TruFax Series fax boards
are fax processing boards designed for small to medium scale, general purpose
fax servers and systems. TruFax Series products incorporate many of the
functions that contribute to the high reliability of TR114 Series products but
do not support many of their advanced fax features, or voice processing. TruFax
Series products are lower-priced than TR Series products. The first TruFax
Series product, the TruFax 200, is a two channel fax board. At the core of each
channel is a fax modem controlled by a microprocessor. The TruFax 200 is
available with loop start telephone system interfaces.
TR1000 Series. In March 1998, the Company introduced the TR1000
Universal Port fax and voice boards, its next generation of high density
multichannel fax and voice platform for service providers and developers of
enhanced fax services, unified messaging and LAN fax systems for large
enterprises. The TR1000 platform provides up to 60 ports of intelligent fax and
half-duplex voice in a single PCI slot with integrated T1 and Primary Rate ISDN
network interfaces. With greater processing resources than current products, the
TR1000 supports capabilities currently available on the TR114 Series, as well as
support resource-intensive new features including V.34 fax, new image and
compression formats support for on-the-fly conversion, and Kanji characters.
TR Series API. The TR Series API, originally introduced in 1991 and
periodically enhanced since then, enables developers to quickly develop
sophisticated fax and voice applications. This API is a complete C language
library of fax, voice, tone signaling and call processing function calls. It
also includes BTStack323 - an H.323 protocol stack, time-saving sample
applications, utilities and debugging tools. The API is operating-system
independent and will support most operating systems, including Windows NT, UNIX,
UnixWare, AIX, Solaris, QNX, OS/2, Windows 95 and MS DOS. Applications developed
with the API run on all of the Company's TR Series and TruFax Series products
that support the features.
Real-Time Fax API. In March 1998, the Company introduced its Real-Time
Fax API. When used with the Company's TR Series fax and voice API and TR114
Series boards, the Real-Time Fax API reduces the complexity of developing IP Fax
gateways. Developers can develop and deploy a real-time IP Fax system today and
migrate seamlessly to future real-time IP Fax standards such as T.Ifax2.
IP/FaxRouter. In June, l996, Brooktrout introduced the IP/FaxRouter, an
Ethernet peripheral which sends facsimile traffic via IP wide area networks
including the Internet. The IP/FaxRouter was developed to address the escalating
costs associated with facsimile transmission. By routing fax traffic over IP
data networks like the Internet,
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it can reduce or eliminate fax transmission charges normally incurred from the
telephone company. In organizations with significant international fax traffic,
the IP/FaxRouter can significantly reduce telephone charges by routing faxes
over an existing data network. Configuration Network Management System ("CNMS")
software and Account Data Management System ("ADMS") software are also available
with the IP/FaxRouter for centralized and remote system management as well as
tracking account activity in service organizations.
High-Speed Access and Network Interface
PRI/BRI ISDN/TI/E1 Interface Boards. Originally introduced in 1991 and
periodically enhanced since then, the ISDN interface boards give OEMs and
systems integrators easy to implement digital wide area network interface
solutions. When combined with Instant ISDN Software and application interface,
customers can develop data networking and computer telephony solutions quickly
with world wide certifications. Boards are available in several bus formats
including ISA, VME, and PCI with up to four interfaces per board and include
computer telephony interfaces such as MVIP.
TRNIC Series. Network interface cards that provide a seamless, easy path
to connect TR114 fax and voice systems to digital telephone lines. The TRNIC's
are single slot ISA and PCI add-in cards that provide an interface to a North
American T1 phone line for up to 24 fax and voice channels via the PEB or MVIP
telephony bus.
Instant Remote Access Server Products. Introduced originally in 1995 as
the Multiport Modem product, the Instant RAS product family provides remote
access capability for industry standard platforms, such as Microsoft's Windows
NT Server. These products are designed for end users requiring economical access
to corporate networks through a variety of connection mechanisms, including
analog modem and digital ISDN interfaces. Instant RAS products provide reliable,
easy to install and maintain, and low price per port connections for small
offices, branch offices, departments of larger corporations, and small Internet
Service Providers. These products leverage the Company's expertise in developing
network interface products for its OEM partners.
Enhanced Call Control API. In December 1997, the Company introduced an
Enhanced Call Control application programming interface ("API") which extends
its TR Series fax and voice development tools to incorporate the Company's
Primary Rate and Basic Rate ISDN products. The Enhanced Call Control API
includes a set of high level call control functions which enable developers to
easily incorporate the Company's ISDN products into their applications without
requiring the developer to learn ISDN or API specifics. This simplifies
development by allowing developers to write a single application that can be
used in many different system implementations, from low density to high density,
using a variety of telephony services.
RTNI Series. A family of advanced telephony network interface cards that
offer OEM and VAR developers a reliable, flexible and scalable solution for
adding voice processing and call switching to PC systems. The RTNI family
includes: 2 T1 (48 channels), 2 E1 (60 channels), and 24 analog interfaces. Each
network interface card provides a T1/E1 compatible and analog communication
interface for the RDSP and Vantage Series voice and fax platforms through the
MVIP bus.
Interspeed Digital Subscriber Line (DSL) Solutions
System 500 and 1000. Developed by Interspeed, the System 500 and System
1000 Digital Subscriber Line ("DSL") high speed Internet access platforms are
the industry's first and only DSL products to provide all the components
required to offer DSL services in a single platform, including high-performance
modems, DSLAMs, switches and routers. This integrated approach provides Internet
Service Providers ("ISPs"), Competitive Local Exchange Carriers ("CLECs") and
Local Exchange Carriers ("LECs") with significant cost savings over separate
purchases for these devices. Unlike other DSL solutions designed to enable voice
services, but modified to support data, the System 1000 and System 500 are
robust, efficient data-oriented platforms that offer the speed capacity,
redundancy and scalability required to support broadband data communications.
Brooktrout Software
Show N Tel. Show N Tel is a leading Windows NT rapid application
development platform for computer telephony applications including Integrated
Voice Response ("IVR"), call center and unified messaging solutions. The open
Show N Tel client/server platform addresses the demands of data-integrated
telecommunications by reducing the time required to develop complex applications
for the enterprise that include voice, fax, email and telephony features.
ActiveCall. In March 1998, the Company introduced ActiveCall, an add-on
to its Show N Tel application
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development platform. ActiveCall includes server-side tools for collecting,
tracking, and managing call information and exchanging data with client
applications (screen pop); components for adding telephony functions to both
off-the-shelf help-desk and telemarketing software, as well as custom
applications; and switch "middleware" links via TSAPI, TAPI, and native PBX
APIs. ActiveCall addresses the growing market for call center automation and
telecommunications- based messaging solutions, allowing developers to extend
voice response systems with advanced CTI capabilities, and reduce the cost,
complexity, and time to market for delivering CTI solutions.
Software Utilities and Algorithms. A complete family of powerful
software utilities for voice processing platforms designed to make PC-to-PBX
integration quick and easy. The software utilities include AccuCall Wizard for
interfacing to analog switches or CO lines; Prompt Studio that provides
versatile analog signal manipulation; AccuSpan which speeds installation and
configuration of T1 and E1 applications; and RDSPTest which speeds setup and
installation of voice boards. Additional DSP algorithms including AccuTalk,
AccuDigit, AccuPulse, AccuRate, AccuPitch, Accutone, Positive Voice Control,
AccuSwitch, and Caller ID/ANI detection, provide OEMs and VARs all the functions
necessary to develop next-generation voice processing systems.
SALES AND MARKETING
The Company markets its products primarily to service providers, OEMs
and VARs. The Company's products provide fax and voice processing, computer
telephony or fax routing functionality for systems sold by these customers.
Network interface boards provide analog and digital connectivity for data, voice
and video applications in multiple bus types. The Company's OEM systems
encompassing a complete solution are sold to Lucent as part of that customer's
products sold to end users. Digital Subscriber Line solutions provide Internet
Service Providers, Competitive Local Exchange Carriers, and Local Exchange
Carriers with significant cost savings over separate purchases for these
devices. The Company's software line provides rapid application development for
computer telephony applications.
Service Providers and Original Equipment Manufacturers (OEMs)
Providers of enhanced telecommunications services develop, or purchase
from developers, large, complex systems incorporating the Company's products to
deliver electronic communications applications. These systems typically require
long development times and result in periodic deployments of large systems. OEMs
design, manufacture and market electronic communications systems that include
the Company's products. OEMs generally have long product design and development
processes that precede the release of products.
Making sales to both of these types of customers can be a complex and
time-consuming process which is often focused on technical requirements. To
serve these customers in North America, the Company sells its products through a
direct sales force located in Massachusetts, California, Illinois, Maryland, New
Hampshire, Florida, Georgia, New Jersey, and North Carolina.
Value-added Resellers (VARs)
VARs typically purchase the Company's products for resale to an end-user
customer together with application software purchased from an ISV. The Company
has established a network of resellers, including many who are designated
Brooktrout Authorized Resellers. The Company employs direct sales people and
manufacturers' representatives to recruit, train and assist VARs. The Company
also uses a two-tier distribution system for some of its fax, network interface
and multiport modem products, utilizing national distributors who then sell to
VARs.
Distribution Channels
In 1998, the Company began marketing its TR114 Series fax and voice
boards through Tech Data Corporation, a leading networking supplier, and Ingram
Micro, a leading wholesale distributor of computer technology products and
services. Under the two-tier arrangement, Tech Data and Ingram Micro distribute
several versions of the TR Series multichannel fax boards.
International
The Company sells its products to service providers, OEMs and VARs
internationally through a direct sales force organized by region. The Company
has established sales offices in Belgium, England and Singapore.
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<PAGE> 13
The Company's international sales efforts are initiated from corporate
headquarters in the United States and internationally located sales and support
offices. International sales, principally exports from the United States,
accounted for approximately $20.2 million or 20% of revenue for the year ended
December 31, 1998, $13.7 million or 19% of revenue for the year ended December
31, 1997 and $10.6 million or 18% of revenue for the year ended December 31,
1996. In addition to direct international sales, significant additional revenue
is derived from international sales by Brooktrout's customers of systems, which
incorporate Brooktrout's products.
Most countries require technical approvals from their telecommunications
regulatory agencies for products which operate in conjunction with the telephone
system. Obtaining these approvals is generally a prerequisite for sales in a
given jurisdiction. Obtaining requisite approvals may require from two months to
a year or more depending on the product and the jurisdiction. Approval of the
Company's fax products in Germany, France and Japan has taken up to twelve
months or more. The Company does not believe that these delays have had a
material impact on the Company's operations. The Company has not yet encountered
any situation in which it has proved impossible to obtain approval in a foreign
jurisdiction. The Company, its distributors or its customers have received
product approvals for Brooktrout fax and voice products from agencies in
Australia, Canada, France, Germany, Hong Kong, Italy, Japan, Malaysia,
Netherlands, New Zealand, Singapore, Sweden, Switzerland, Mexico, Ireland,
Norway, Denmark, India, Czech Republic, the United Kingdom, Austria, Belgium,
Finland, Greece, Luxembourg, Portugal, Spain, China, Thailand, Argentina,
Iceland and the United States.
TECHNICAL SUPPORT
Brooktrout seeks to deliver unmatched support and service to customers.
By listening to customers and thoroughly understanding their requirements, the
Company believes it can provide innovative high-value products which meet or
exceed customer expectations. Beyond delivery, Brooktrout backs its products
with responsive, engineering level support. Generally, the Company's technical
support staff members hold bachelor's degrees in electrical engineering or
computer science. Staff members place the highest priority on providing timely,
accurate information as well as advice on how to take advantage of Brooktrout's
sophisticated product line. Brooktrout's technical support personnel have been a
source of product improvements and new features and functions due to close
working relationships with customers. Brooktrout's technical support department
in Needham reports directly to the President as further evidence of Brooktrout's
commitment to provide partnership-level support to customers. The Company's
technical support activities represent an integral element of its marketing
strategy. The Company believes that its technical support capability represents
a significant competitive advantage.
The Company warrants its hardware products against defects in materials
and workmanship generally for twelve to thirty-six months. Extended warranties
have been provided to some customers under contractual agreements or for
additional consideration.
The Company ordinarily sells its products on the basis of purchase
orders received from customers. The Company has entered into agreements with
many of its customers, which establish terms and conditions for sales made under
these agreements from time to time. These agreements generally do not establish
any long-term fixed purchase or supply commitments for either party. CTP
generally has one year Volume Purchase Agreements with its most significant
customers and a few very large customers have custom Buy/Sell Agreements.
In 1996, 1997 and 1998, sales to Lucent, the Company's largest customer,
accounted for 33%, 30%, and 22%, respectively, of the Company's total revenues.
The Company sells essentially all of its major products to a number of separate
business units within Lucent, although sales of the Merlin Legend Mail, Merlin
Mail Multi-Lingual Version and Partner Mail systems have constituted 88%, 82%
and 83% of the revenue from Lucent in 1996, 1997 and 1998, respectively. Merlin
Legend Mail and Partner Mail and other products are sold to Lucent under
purchase orders issued by Lucent on an as-required basis. The Company and Lucent
consult closely with
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<PAGE> 14
respect to expected future requirements and timing of orders. No other single
customer accounted for more than 10% of the Company's total sales in 1996, 1997
or 1998.
PRODUCT DEVELOPMENT
The market for electronic communications products is characterized by
rapid technological change, changes in customer requirements, frequent new
product introductions and enhancements and emerging industry standards. The
Company focuses significant resources on improving its products in response to
changes in operating systems, application software, computer and telephony
hardware, networking software, programming tools and computer language
technology. During the years ended December 31, 1996, 1997 and 1998, the Company
spent approximately $7.2 million, $13.6 million and $22.1 million, or 12%, 19%
and 22% of revenue, respectively, on research and development. Research and
development expenses have generally been charged to operations as incurred. The
Company is continuing its development efforts for its current products, as well
as developing next generation versions of its current products. Research and
development expenses have generally been charged to operations as incurred. The
Company believes significant investments in product development are required to
remain competitive. As a consequence, the Company intends to continue to
increase the dollar amount of its product development expenditures in the
future.
The Company believes that its software and hardware development team
provides a significant competitive advantage for the Company. The team is
comprised of members with experience in computer-based fax, voice processing,
telephony, device driver development, object-oriented software development,
graphical user interface ("GUI") development, and computer networking. The
Company believes this assembly of diverse technical expertise contributes to the
highly integrated functionality of its products. The Company's ability to
attract and retain highly qualified employees will be one of the principal
determinants of its success in maintaining technological leadership.
COMPETITION
The Company is in direct competition with companies offering similar
products or products responsive to similar applications in each of its six major
product lines. In addition, there is always the potential for new entrants into
the Company's markets by other companies in related computer and communications
companies including the Company's customers and suppliers. The Company believes
that the principal competitive factors affecting the market for the Company's
products and services include product functionality and features, product
quality, performance and price, ease of product integration, and quality of
customer support services. The relative importance of each of these factors
depends upon the specific customer environment. Although the Company believes
that its products and services currently compete favorably with respect to such
factors, there can be no assurance that the Company can maintain its competitive
position against current and potential competitors.
Many of the Company's current and potential competitors have longer
operating histories, significantly greater financial, technical, product
development and marketing resources, greater name recognition and larger
customer bases than the Company. The Company's present or future competitors may
be able to develop products comparable or superior to those developed by the
Company, adapt more quickly than the Company to new technologies, evolving
industry trends or customer requirements, or devote greater resources to the
development, promotion and license of their products than the Company.
Accordingly, there can be no assurance that competition will not intensify or
that the Company will be able to compete effectively in its market.
The Company expects that it will face increasing pricing pressures from
its current competitors and new market entrants. The Company's competitors may
engage in pricing practices that cause the Company to reduce the average selling
prices of its products. To offset declining average selling prices, the Company
believes that it must successfully develop and introduce on a timely basis new
products or products that incorporate new
14
<PAGE> 15
features that can be sold at gross margins comparable to those on existing
products. To the extent that such new products are not developed in a timely
manner, do not achieve customer acceptance, or do not generate comparable gross
margins, the Company's profitability may decline.
BACKLOG
At December 31, 1998, the Company's backlog of orders for products and
services was approximately $8,952,000 compared with approximately $12,532,000 at
December 31, 1997. All of the backlog is expected to be shipped or provided
before the end of 1999. All orders believed to be firm for products or services
to be shipped or provided in the future are included in the backlog. The Company
regards all orders as firm orders and has experienced an order cancellation rate
in the past which the Company considers to be immaterial, although no assurance
can be given that adverse effects may not result from order cancellations in the
future. Because of the possibility of customer changes in delivery schedules or
cancellation of orders, the Company's backlog as of any particular date may not
be indicative of actual sales for any particular future period. The period of
time between placement of an order and delivery of the product varies from one
day for certain TR Series products to ten months for certain OEM systems
products.
MANUFACTURING
Brooktrout's manufacturing operations consist primarily of final
assembly and testing of components, systems and subsystems. The Company tests
its products at various stages in the manufacturing process. Each product
undergoes a final load and functional test at the Company's Needham,
Massachusetts, Salem, New Hampshire or Los Gatos, California facility prior to
shipment.
The Company uses independent manufacturers, one of which is Lucent, to
perform printed circuit board assembly and testing. The Company believes it has
good relationships with its subcontractors and has generally experienced timely
delivery of products and satisfactory quality with respect to products
manufactured by subcontractors. In December 1995, the Company's Needham,
Massachusetts facility achieved ISO 9002 certification.
PROPRIETARY TECHNOLOGIES
The Company does not hold patents on a large part of its product line.
The Company's software and firmware are protected by copyright laws. Because
on-board and downloadable firmware represent an important element of the value
of the Company's hardware products, the Company believes that it obtains
significant protection for its proprietary interest in its hardware products, as
well as its software products, from copyright laws. Certain design features,
including ASICs (application specific integrated circuits), software and
firmware, receive some protection under trade secret laws. Each employee of the
Company has executed a proprietary information agreement designed to protect the
trade secrets of the Company, inventions created in the course of employment
with the Company and other proprietary information of the Company. There can be
no assurance, however, that copyright and trade secret protection will be
sufficient to prevent competitors from developing software and other technology
similar to the software and other technology upon which the Company relies for a
significant portion of its revenue.
The Company has acquired licenses under certain patents covering aspects
of voice processing technology, and licenses from third parties of software for
its voice and fax products. The Company pays royalties under these licenses with
respect to its sales of certain products. The licenses generally extend for the
life of the patent in question (in the case of patents) or in perpetuity (in the
case of software), and are subject to termination only in the event of a breach.
Royalties constitute a percentage of sales of particular products or product
elements, or a fixed amount per unit of hardware or software distributed, and do
not account for a material part of the Company's
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<PAGE> 16
cost of product sold.
The Company has periodically received, and may receive in the future,
communications from third parties asserting patent rights with respect to
certain of the Company's products and features. The Company is a defendant in
one patent infringement case which it believes will not have a material effect
on the Company. Except as described under Legal Proceedings below, there is no
pending litigation against the Company regarding any of these claims, nor has
the Company to date believed it necessary to license any patent rights referred
to in such communications, except as described above and except for certain
other minor cases involving no payment of ongoing royalties.
EMPLOYEES
As of December 31, 1998, the Company had 416 full-time employees, of
which 163 were engaged in engineering and product development, 50 in
administration, 52 in manufacturing and 151 in sales, marketing and technical
support. None of the Company's employees are represented by any labor union and
the Company believes its relations with its employees are good.
EXECUTIVE OFFICERS
The executive officers of Brooktrout as of March 15, 1999 are as
follows:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Eric R. Giler .................. 43 President and Director
David W. Duehren ............... 41 Vice President of Research and
Development, Clerk and Director
Patrick T. Hynes ............... 40 Vice President of Advanced Product
Engineering and Director
Stephen A. Ide ................. 55 Senior Vice President, Brooktrout
Technology, Inc., President,
Interspeed, Inc.
Robert C. Leahy ................ 46 Vice President of Finance and
Operations and Treasurer
R. Andrew O'Brien .............. 40 Vice President of Business
Development
Jonathan J. Sirota ............. 57 Vice President, Brooktrout
Technology, Inc., President, Salem
Division
Mark D. Flanagan ............... 45 Vice President, Brooktrout
Technology, Inc., President,
Brooktrout Software
</TABLE>
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<PAGE> 17
M. Kenneth Lavine .............. 54 Vice President, Brooktrout
Technology, Inc., President, Los
Gatos Division
Eric R. Giler is a Company founder and has been President and a Director
of Brooktrout since the Company's inception in 1984. Prior to founding the
Company, Mr. Giler worked primarily in the area of technical marketing and sales
as a product manager with Teradyne, Inc. and an applications engineering manager
for Intec Corp. Mr. Giler is Chairman of the Massachusetts Telecommunications
Council. He received a Bachelor of Science degree from Carnegie-Mellon
University and a Master of Business Administration degree from the Harvard
Business School. Mr. Giler is a director of various public and privately-held
high technology corporations.
David W. Duehren is a Company founder and has been Vice President of
Research and Development and a Director of Brooktrout since the Company's
inception in 1984. Mr. Duehren is the chairman of the Telecommunications
Industry Association Committee TR29.1, the subcommittee responsible for Group 3
fax enhancements, and also contributes to worldwide International
Telecommunications Union -- Telephony (ITU-T) facsimile standards. Mr. Duehren
is also a member of the Institute of Electrical Electronic Engineers (IEEE) and
has been a member of the SCSA work group on facsimile API standards. Mr. Duehren
received a Bachelor of Science degree and Master of Science degree in Electrical
Engineering from the Massachusetts Institute of Technology.
Patrick T. Hynes is a Company founder and has been Vice President of
Advanced Product Engineering since January 1994 and a Director of Brooktrout
from the Company's inception in 1984. Mr. Hynes was Vice President of
Engineering from the Company's inception to December 1993. Mr. Hynes is a member
of the Institute of Electrical Electronic Engineers (IEEE). Mr. Hynes received a
Bachelor of Science degree in Electrical Engineering from the Massachusetts
Institute of Technology and a Master of Science degree in Electrical Engineering
from Columbia University.
Stephen A. Ide has been Senior Vice President of Brooktrout and
President of Interspeed, Inc. since January 1997. Mr. Ide was Senior Vice
President of Sales and Marketing of Brooktrout from January 1993 to December
1996 and was Vice President of Sales and Marketing of Brooktrout from July 1987
to December 1992. Prior to joining Brooktrout, Mr. Ide was co-founder and
president of Computer Telephone Corporation. Mr. Ide also served as vice
president of operations for Rolm of New England Corporation.
Robert C. Leahy has been Vice President of Finance and Operations and
Treasurer of Brooktrout since March 1988. Prior to joining Brooktrout, Mr. Leahy
held the position of corporate controller and treasurer for Cambridge Robotics.
Mr. Leahy is an active member in the Financial Executive Institute. Mr. Leahy
received a Bachelor of Science degree in accounting and a Master of Business
Administration degree from Bentley College.
R. Andrew O'Brien has been Vice President of Business Development of
Brooktrout since July 1998 and Vice President of Marketing and Business
Development from July 1993 to June 1998. Mr. O'Brien was Director of Marketing
and Business Development from January 1993 to June 1993. Prior to joining
Brooktrout, Mr. O'Brien was a consultant with McKinsey & Company, Inc. from
September 1986 to January 1993. Mr. O'Brien received a Bachelor of Arts degree
from Yale University and a Master of Business Administration degree from the
Harvard Business School.
Jonathan J. Sirota has been Vice President of Brooktrout and President
of the Salem Division since September 1998. Mr. Sirota was Vice President of
Engineering from January 1994 to August 1998. Prior to
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<PAGE> 18
joining Brooktrout, Mr. Sirota was Senior Vice President of Engineering and
Operations for ERGO Computing, Inc. from March 1989 to January 1994. Mr. Sirota
received a Bachelor of Science degree in Electrical Engineering from Rensselaer
Polytechnic Institute and a Master of Science degree in Electrical Engineering
from Massachusetts Institute of Technology.
Mark D. Flanagan has been Vice President of Brooktrout and President of
Brooktrout Software since January 1998. Prior to joining Brooktrout, Mr.
Flanagan was executive vice president of Lernout & Hauspie's Dictation Division
and general manager of its PC Applications Group. Previously, he held senior
management positions with International Data Group, Lotus Development
Corporation and International Thomson Organization. Mr. Flanagan holds a
Bachelor of Arts degree from the University of Rochester and he also attended
The Graduate School of Management at Boston College.
M. Kenneth Lavine has been Vice President of Brooktrout and President of
the Los Gatos Division since December 1998. Prior to joining Brooktrout, Mr.
Lavine was President and General Manager of Lucent Technologies Inc.'s Computer
Telephony Products business. Previously, he was President/CEO of Time and Space
Processing, Inc., a wholly owned subsidiary of GTE Corporation from 1991 to 1993
and a wholly owned subsidiary of Graphic Scanning from 1986 to 1991. Mr. Lavine
received Bachelor of Science and Masters of Engineering degrees in Chemical
Engineering from Cornell University and a Master of Business Administration from
the Graduate School of Business, Stanford University.
ITEM 2. PROPERTIES
The Company leases a stand-alone facility in Needham, Massachusetts that
is approximately 38,000 square feet. The lease commenced March 1, 1996 and
expires October 31, 2006. The facility accommodates corporate headquarters as
well as research and development, engineering, sales, marketing and
administration.
The Company also leases approximately 16,515 square feet in
Southborough, Massachusetts, which it took over as a lessee in connection with
its acquisition of TSI. This facility accommodates research and development,
engineering and technical support. The lease for this facility commenced on May
1, 1995 and expires on April 30, 2001.
In 1997, the Company signed an additional lease for its manufacturing
operations in Needham, Massachusetts. The stand alone facility is approximately
31,000 square feet. The lease commenced April 7, 1997 and expires April 6, 2006.
Netaccess leases approximately 26,000 square feet in Salem, New
Hampshire, for administrative, sales, marketing, engineering, and manufacturing
operations. This lease commenced on May 1, 1997 and expires on August 31, 2000.
Netaccess also leases sales office space in Columbia, Maryland and Sunnyvale,
California both of which are leased for six month periods with automatic renewal
clauses.
Brooktrout Networks Group, Inc. leases approximately 3,200 square feet
in Richardson, Texas for research and development. The Company signed a new
lease for this facility which commenced on February 1, 1998 and expires on
January 31, 2001.
The Company has also signed operating lease commitments for office space
in Belgium, Singapore, California and North Carolina. The Belgium lease is for a
period of 2 years and the California lease is for 5 years, while the rest of the
leases are for 1 year or less.
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<PAGE> 19
Due to the acquisition of CTP in December 1998, the Company acquired
leased space of approximately 33,000 square feet in Los Gatos, California for
administrative, sales, marketing, engineering, and manufacturing operations.
This lease commenced on February 1, 1996 and expires on January 31, 2001 with
the option to renew for a 5 year period. In addition, CTP leases sales office
space in the UK under a lease that runs for 3 years.
The Company recently signed a 5 year lease for a 33,000 square foot
manufacturing and sales facility in North Andover, Massachusetts to accommodate
the growth of Interspeed, Inc.
The Company believes that its present facilities are adequate for its
current needs and that suitable additional space will be available as needed.
ITEM 3. LEGAL PROCEEDINGS
Dialogic Corporation Matters.
In August 1995, Spectron Microsystems, Inc. ("Spectron"), a subsidiary
of Dialogic Corporation ("Dialogic"), filed a lawsuit against the Company in
Federal District Court for the District of New Jersey, alleging infringement by
the Company's products of patents owned by Spectron and seeking damages, special
damages and injunctive relief. The Company filed an Answer and Counterclaim
asserting noninfringement and further asserting that the patent was licensed to
the Company, and seeking declaratory and monetary relief. In February 1996, on
motion of the Company, this action was transferred to the Federal District Court
for the District of Massachusetts. The Company has filed a motion for summary
judgment because Dialogic sold Spectron's assets, including the two patents on
which it has sued the Company, to Texas Instruments, Incorporated on February
17, 1998. The motion was argued on March 17, 1999 and is under advisement. A
trial date has been set for September 13, 1999.
In November 1995, the Company filed, in the Federal District Court for
the District of Massachusetts, a lawsuit against Dialogic and certain affiliated
parties, seeking rescission of a Settlement Agreement entered into in settlement
of prior litigation, damages, multiple damages, an order vacating the dismissal
of the previously litigated cases, and specific enforcement of an earlier
agreement regarding the settlement. Dialogic filed an Answer and Counterclaim on
January 30, 1996. The Counterclaim seeks an award of damages and special
damages. This litigation was settled by agreement of the parties and a
stipulation of dismissal was filed with the court on February 8, 1999.
Syntellect Technology Corp. Matters.
On October 4, 1996, Syntellect Technology Corp. ("Syntellect") filed a
Complaint against the Company in the United States District Court for the
Northern District of Texas (the "Texas Court"), alleging infringement of certain
patents then owned by Syntellect relating to certain aspects of "automated
attendant" technology (the "Syntellect Complaint"). The Syntellect Complaint
sought injunctive relief, damages in an unspecified amount, and multiple damages
on account of alleged willful infringement. In October 1997, the Company filed a
Motion for Summary Judgement which was granted by the Texas Court on May 10,
1998. On June 10, 1998, the period for Syntellect to appeal the summary judgment
decision expired.
On September 22, 1998, Syntellect served the Company with notice that it
intended to pursue arbitration of a claim based on an alleged breach of a patent
license agreement. On October 5, 1998, the Company filed a Complaint against
Syntellect (the "Complaint") in the United States District Court for the
District of Massachusetts (the "Massachusetts Court") seeking a declaratory
judgement that Syntellect does not have the right to pursue its claim in
arbitration. On October 7, 1998, the Company filed a motion to stay
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<PAGE> 20
Syntellect's arbitration claim, which the Massachusetts Court denied on November
2, 1998. On December 17, 1998, the Massachusetts Court denied the Company's
renewed motion to stay arbitration and ordered that all other matters be held in
abeyance until completion of the arbitration proceedings.
On October 22, 1998, Syntellect filed a demand for arbitration, with the
American Arbitration Association (the "AAA") in Dallas, Texas, in which
Syntellect asserts that Brooktrout failed to pay certain royalties under a
patent license agreement. On December 15, 1998, the Company filed an opposition
to Syntellect's supplemental motion to dismiss. On December 16, the AAA granted
the Company's request that any arbitration hearing be conducted by the Boston
Regional Office of the AAA. On January 6, 1999, the Company filed an answering
statement in the arbitration proceedings, in which all claims were denied. The
parties to the arbitration have submitted their preferences for selection of an
arbitrator. The Company intends to vigorously defend against Syntellect's claims
in the arbitration.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
None.
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<PAGE> 21
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDERS MATTERS
Information in response to this item appears under the caption "Stock
Market Information" of the Company's Annual Report for the year ended December
31, 1998, which is incorporated in this report by reference.
ITEM 6. SELECTED FINANCIAL DATA
Information in response to this item appears under the caption "Selected
Consolidated Financial Data" of the Company's Annual Report for the year ended
December 31, 1998, which is incorporated in this report by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
Information in response to this item appears under the caption
"Management's Discussion & Analysis of Financial Condition and Results of
Operations" contained in the Company's Annual Report for the year ended December
31, 1998, which is incorporated in this report by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Information in response to this item appears under the caption
"Quantitative and Qualitative Disclosures about Market Risk" contained in the
Company's Annual Report for the year ended December 31, 1998, which is
incorporated in this report by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Information in response to this item is contained in the Company's
Annual Report for the year ended December 31, 1998, which is incorporated in
this report by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
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<PAGE> 22
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS. The information appearing under the caption "Information
Regarding Nominees and Directors" of the Company's Proxy Statement for its 1999
Annual Meeting of Stockholders is incorporated in this report by reference.
EXECUTIVE OFFICERS. Information with respect to executive officers
appears under the caption "Executive Officers" in Item 1 of this report.
ITEM 11. EXECUTIVE COMPENSATION
Information in response to this Item appears under the caption
"Executive Compensation" of the Company's Proxy Statement for its 1999 Annual
Meeting of Stockholders, which is incorporated in this report by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information in response to this Item appears under the captions
"Principal Stockholders" and "Ownership by Management of Equity Securities" of
the Company's Proxy Statement for its 1999 Annual Meeting of Stockholders, which
is incorporated in this report by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
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<PAGE> 23
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) Financial Statements
The following is included in Part II of this report, incorporated by
reference from the Company's Annual Report for the year ended December 31, 1998
filed as Exhibit 13 hereto:
Page No.
--------
Independent Auditors' Report
Consolidated Balance Sheets as of December 31, 1998 and 1997
Consolidated Statements of Income for the Years Ended
December 31, 1998, 1997 and 1996
Consolidated Statements of Comprehensive Income (Loss) for
the Years Ended December 31, 1998, 1997 and 1996
Consolidated Statements of Stockholders Equity (Deficiency)
for the Years Ended December 31, 1998, 1997 and 1996
Consolidated Statements of Cash Flows for the
Years Ended December 31, 1998, 1997 and 1996
Notes to Consolidated Financial Statements
(a)(2) Financial Statement Schedule
The following are contained on the indicated pages of this annual report
on Form 10-K:
Page No.
--------
Independent Auditors' Report on Schedule.......................
Schedule IX Valuation and Qualifying Accounts..................
Schedules not listed above are omitted because they are not required or
because the required information is given in the Consolidated Financial
Statements or Notes thereto.
(a)(3) Exhibits
The following exhibits are filed as part of this report. Where such
filing is made by incorporation by reference to a previously filed statement,
such statement is identified.
Exhibit
No. Title Page No.
- ------- ----- --------
3.1 Restated Articles of Organization of the Company (1)
3.2 Articles of Amendment to the Restated Articles of
Organization of the Company
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<PAGE> 24
3.3 Amended and Restated By-laws of the Company (2)
4.1 Specimen certificate for shares of Common Stock, $.01 par
value, of the Company (2)
4.2 Brooktrout Technology, Inc. 1992 Stock Incentive Plan (3)
4.3 Second Amendment to Brooktrout Technology, Inc. 1992 Stock Incentive
Plan (4)
4.4 Brooktrout Technology, Inc. Amended and Restated 1992 Stock Purchase
Plan (4)
4.5 First Amendment to Brooktrout Technology, Inc. Amended and Restated
1992 Stock Purchase Plan (4)
10.1 Lease between the Company and Trustees of Needham 152
Second Avenue Trust dated April 7, 1997 (5)
10.2 Lease between the Company and NAM Partners, L.P. dated
December 28, 1998
10.3 Assignment and Assumption of Lease between the Company and
Lucent Technologies Inc. dated December 17, 1998
10.4 Lease between the Company and Pacific Gateway Properties,
Inc., dated August 15, 1995, as amended
13 1998 Annual Report of Brooktrout Technology, Inc.
21 Subsidiaries of the Company
23 Independent Auditors' Consent
27 Financial Data Schedule
- ------------------------
(1) Filed as an exhibit to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1992, as filed on March 31, 1993.
(2) Filed as an exhibit to the Company's Registration Statement on Form S-1 with
respect to its initial public offering of Common Stock as initially filed on
August 28, 1992 (File No. 33-51424).
(3) Filed as an exhibit to the Company's Registration Statement on Form S-8
filed with the Commission on September 19, 1996, File No. 333-12313.
(4) Filed as an exhibit to the Company's Registration Statement on Form S-8
filed with the Commission on September 4, 1998, File No. 333-62959.
(5) Filed as an exhibit to the Company's Annual Report on Form 10-K for the
Fiscal year ended December 31, 1997, as filed on March 30, 1998.
(b) Reports on Form 8-K
An 8-K/A was filed by the Company on March 2, 1999. This report
presented pro forma financial information and unaudited financial statements for
the Computer Telephony Products division of Lucent Technologies Inc.
acquisition.
24
<PAGE> 25
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
BROOKTROUT TECHNOLOGY, INC.
By: /s/ Eric R. Giler
-----------------------
Eric R. Giler
President
Date: March 29, 1999
SIGNATURES
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 in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signatures Title Date
---------- ----- ----
<S> <C> <C>
/s/ Eric R. Giler President and Director (Principal March 29, 1999
- ------------------------ Executive Officer)
Eric R. Giler
/s/ Robert C. Leahy Vice President of Finance March 29, 1999
- ------------------------ and Operations and Treasurer
Robert C. Leahy (Principal Financial and
Accounting Officer)
/s/ David W. Duehren Vice President and Director March 29, 1999
- ------------------------
David W. Duehren
/s/ Patrick T. Hynes Vice President and Director March 29, 1999
- ------------------------
Patrick T. Hynes
/s/ Robert G. Barrett Director March 29, 1999
- ------------------------
Robert G. Barrett
/s/ David L. Chapman Director March 29, 1999
- ------------------------
David L. Chapman
/s/ W. Brooke Tunstall Director March 29, 1999
- ------------------------
W. Brooke Tunstall
</TABLE>
25
<PAGE> 26
INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENT SCHEDULE
To the Board of Directors and Stockholders of
Brooktrout Technology, Inc.:
We have audited the consolidated financial statements of Brooktrout Technology,
Inc. and subsidiaries as of December 31, 1998 and 1997, and for each of the
three years in the period ended December 31, 1998, and have issued our report
thereon dated February 10, 1999, which is incorporated by reference in this
Annual Report on Form 10-K. Our audits also included the financial statement
schedule of Brooktrout Technology, Inc., listed in Item 14. This financial
statement schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion based on our audits. In our opinion,
such financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, present fairly in all
material respects the information set forth therein.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
Boston, Massachusetts
February 10, 1999
26
<PAGE> 27
SCHEDULE IX
BROOKTROUT TECHNOLOGY, INC.
VALUATION AND QUALIFYING ACCOUNTS
(In Thousands)
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO BALANCE
BEGINNING COST AND ADDITIONAL AT END
OF YEAR EXPENSES DEDUCTIONS EXPENSE OF YEAR
-----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ALLOWANCE FOR DOUBTFUL ACCOUNTS:
For the year ended December 31, 1996 449 144 (69) -- 524
For the year ended December 31, 1997 524 748 (108) -- 1,164
For the year ended December 31, 1998 1,164 958 (447) 638 2,313
ACCRUED WARRANTY COSTS:
For the year ended December 31, 1996 337 207 (98) -- 446
For the year ended December 31, 1997 446 672 (268) -- 850
For the year ended December 31, 1998 850 948 (484) -- 1,314
</TABLE>
27
<PAGE> 1
EXHIBIT 3.2
FEDERAL IDENTIFICATION
NO. 04-2814792
THE COMMONWEALTH OF MASSACHUSETTS
WILLIAM FRANCIS GALVIN
Secretary of the Commonwealth
One Ashburton Place, Boston, Massachusetts 02108-1512
ARTICLES OF AMENDMENT
(GENERAL LAWS, CHAPTER 156B, SECTION 72)
We, Eric R. Giler , President
------------------------------------------------------------------
and David W. Duehren , Clerk
----------------------------------------------------------------------
of Brooktrout Technology, Inc. ,
-----------------------------------------------------------------------------
(Exact name of corporation)
located at 410 First Avenue, Needham, MA 02194 ,
---------------------------------------------------------------------
(Street address of corporation in Massachusetts)
certify that these Articles of Amendment affecting articles numbered:
III
- --------------------------------------------------------------------------------
(Number those articles 1, 2, 3, 4, 5 and/or 6 being amended)
of the Articles of Organization were duly adopted at a meeting held on
May 29 , 1996 , by vote of:
- --------------------- -------
4,362,363 shares of Common of 6,016,803 shares outstanding;
- ----------- -------------------- -----------
(type, class & series, if any)
___________shares of _______________________of___________shares outstanding; and
(type, class & series, if any)
___________shares of _______________________of___________shares outstanding;
(type, class & series, if any)
(1)**being at least a majority of each type, class or series outstanding and
entitled to vote thereon:
(1) For amendments adopted pursuant to Chapter 156B, Section 70.
(2) For Amendments adopted pursuant to Chapter 156B Section 71.
<PAGE> 2
To change the number of shares and the par value (if any) of any type, class or
series of stock which the corporation is authorized to issue, fill in the
following:
The total presently authorized is:
___________________________________________________________________________
|
WITHOUT PAR VALUE STOCKS | WITH PAR VALUE STOCKS
- --------------------------------------------|------------------------------
TYPE | NUMBER OF SHARES | TYPE | NUMBER OF SHARES | PAR VALUE
- ------------|------------------|-------------------------------|-----------
Common: | XXXX | Common: | 7,500,000 | $ .01
- ------------|------------------|------------|------------------|-----------
| | | |
- ------------|------------------|------------|------------------|-----------
Preferred: | XXXX | Preferred: | 100,000 | $1.00
- ------------|------------------|-------------------------------|-----------
| | | |
____________|__________________|____________|__________________|___________
Change the total authorized to:
___________________________________________________________________________
|
WITHOUT PAR VALUE STOCKS | WITH PAR VALUE STOCKS
- --------------------------------------------|------------------------------
TYPE | NUMBER OF SHARES | TYPE | NUMBER OF SHARES | PAR VALUE
- ------------|------------------|-------------------------------|-----------
Common: | XXXX | Common: | 25,000,000 | $ .01
- ------------|------------------|------------|------------------|-----------
| | | |
- ------------|------------------|------------|------------------|-----------
Preferred: | XXXX | Preferred: | 100,000 | $1.00
- ------------|------------------|-------------------------------|-----------
| | | |
____________|__________________|____________|__________________|___________
<PAGE> 3
The foregoing amendment(s) will become effective when these Articles of
Amendment are filed in accordance with General Laws, Chapter 156B, Section 6
unless these articles specify, in accordance with the vote adopting the
amendment, a later effective date not more than thirty days after such filing,
in which event the amendment will become effective on such later date.
Later effective date:_______________________________.
SIGNED UNDER THE PENALTIES OF PERJURY, this 29 day of MAY , 19 96 ,
-------- ------------- -----
/s/ Eric R. Giler , President
- ---------------------------------------------------------------------
Eric R. Giler
/s/ David W. Duehren , Clerk
- -------------------------------------------------------------------------
David W. Duehren
*Delete the inapplicable words
<PAGE> 4
THE COMMONWEALTH OF MASSACHUSETTS
ARTICLES OF AMENDMENT
(GENERAL LAWS, CHAPTER 156B, SECTION 72)
========================================
I hereby approve the within Articles of Amendment and, the filing fee in the
amount of $ ______ having been paid, said articles are deemed to have been filed
with me this __________ day of________________________ 19_________.
Effective date:________________________________________________________
WILLIAM FRANCIS GALVIN
Secretary of the Commonwealth
TO BE FILLED IN BY CORPORATION
PHOTOCOPY OF DOCUMENTS TO BE SENT TO:
Laurie I. Gelb, Esq.
-------------------------------------
Goodwin, Procter & Hoar, LLP
-------------------------------------
Exchange Place, Boston, MA 02109
-------------------------------------
(617) 570-1035
-------------------------------------
<PAGE> 1
EXHIBIT 10.2
ARTICLE I - BASIC LEASE PROVISIONS
Each reference in this Lease to titles or terms contained in Article I
shall be deemed to incorporate the applicable definitions or data. The Exhibits
attached to this Lease are incorporated by reference.
Date of Lease: December 28, 1998
Commencement Date: March 1, 1999, Anticipated per Article III
Rent Commencement Date: March 1, 1999
Landlord: NAM Partners, L.P.
Landlord's Mailing NAM Partners, L.P.
Address: c/o Yale Properties USA
6256 Greenwich Drive
Suite 230
San Diego, CA 92122
Tenant: Brooktrout Technology, Inc.,
a Massachusetts corporation
Tenant's Mailing Brooktrout Technology, Inc.
Address: Attn: Stephen A. Ide
152 Second Avenue
Needham, MA 02194
Premises: Approximately Thirty Six Thousand One Hundred
Seventy Nine (36,179) square feet shown on
Exhibit in portions of the Buildings (the
"Building") located in that certain
Office/Industrial Park entitled "North Andover
Mills" (the "Park"), and situated on the
property (the "Property") legally described in
the description attached hereto as Exhibit B.
Term: Five (5) Years, beginning on the Commencement
Date.
Permitted Use: All or any part of the Premises may be used for
the following permitted uses: Office, research
and development, light assembly, and light
"high-tech" manufacturing provided same (a) does
not cause noise, odors, vibrations, waste, or
other emanations, and (b) are in character with
and harmonious with office use; and further
provided all of the foregoing are permitted by
applicable laws, rules and regulations, and for
no other use or purpose.
Base Rent: Minimum Base Monthly Rental shall be as follows:
Year 1 3/l/99-2/28/00 $21,666.67
Year 2 3/l/00-2/28/01 $37,384.97
Year 3 3/l/01-2/28/02 $39,254.22
<PAGE> 2
Year 4 3/l/02-2/28/03 $41,216.93
Year 5 3/l/03-2/28/04 $43,277.77
Lease Year: Twelve (12) month period beginning on the
Commencement Date (plus any partial month) and
each anniversary thereof.
Additional Rent: All sums, other than Base Rent, due from Tenant
pursuant to the terms of this Lease.
Pro Rata Share: Tenant's Pro Rata Share shall be determined from
time to time during the Term by Landlord and
shall be based upon the ratio between the
rentable square footage of the Premises and the
rentable square footage of the space in all of
the buildings located on the Property which
utilize the specific utility or service provided
by Landlord.
Base Year: 1999
Security Deposit: N/A
Rent Payable Upon Execution: $21,666.67 for the period March 1, 1999 through
March 31, 1999.
Broker: Fallon, Hines & O'Connor
ARTICLE II - PREMISES
2.1 PREMISES. On the terms set forth herein, Landlord leases to
Tenant, and Tenant accepts from Landlord, the Premises.
2.2 COMMON AREAS. The term "Common Areas" shall mean all areas within
the Property which are available for the common use of tenants of the Property
from time to time, as designated by Landlord, including but not limited to,
parking areas, driveways, sidewalks, loading areas, access roads, landscaping
and planted areas, as well as lobbies, corridors, elevators, and stairways which
provide access to the Premises. In addition, if the Premises include less than
the entire rentable floor area of any floor, the term "Common Areas" shall
include the common toilets, corridors and elevator lobby of such floor. Landlord
may, from time to time, change the size, location, nature and use of any of the
Common Areas, in any manner whatsoever. Tenant acknowledges that such activities
may result in an inconvenience or interruption to Tenant, but Tenant shall not
be entitled to any reduction in rent, or damages resulting from such
interference or interruption, unless such change(s) substantially impair
tenant's ability to continue its use of the Premises as set forth in this Lease.
Landlord shall use reasonable efforts to minimize any inconvenience or
interruption to Tenant In the event such activity by Landlord results in
interruption of Tenants use of the Premises for a period which exceed
twenty-four (24) hours, and such interruption has a material adverse effect on
Tenant's ability to continue its permitted use of the Premises, the Base Rent
shall, be reduced proportionately based on the area of the Premises effected and
therefore not used by Tenant until the earlier of when the interruption of use
is corrected or when Tenant begins using the area.
2
<PAGE> 3
Tenant shall have the non-exclusive right to use the Common Areas
(excepting the parking areas which are addressed in Section 2.4 below) for the
intended purposes, subject to reasonable rules and regulations established by
Landlord from time to time. Tenant shall abide by such rules and regulations;
shall, to the extent Tenant becomes or is made aware of any violation by an
invitee of Tenant, advise such invitee of such violation, and request that such
invitee conform to Landlord's rules and regulations, and shall not interfere
with the rights of Landlord, other tenants or any other person entitled to use
the Common Areas. At any time, Landlord may close, relocate, or reconstitute any
Common Area, improve the Property or to protect Landlord's rights with respect
to the Property, as long as said activity does not have a material adverse
effect on Tenants ability to continue its permitted use of the Premises.
Landlord shall maintain or arrange to repair and maintain the Common Areas and
machinery and equipment serving Common Areas, in good condition, subject to
reasonable wear and tear.
2.3 LANDLORD'S RESERVATIONS. Landlord reserves the right, from time to
time, provided Landlord uses reasonable efforts to limit unreasonable
interference with Tenant's use: (a) to install use, maintain repair, replace and
relocate for service to the Premises and other parts of the Building (or
either), pipes, ducts, conduits, wires and appurtenant fixtures, wherever
located in the Premises or Building, and (b) to alter or relocate any other
common facility, provided that substitutions are substantially equivalent to or
better than the Original Installations, replacements and relocations referred to
in clause (a) above shall be located so far as reasonable in the central core
area of the Building, above ceiling surfaces, below floor surfaces or within
perimeter walls of the Premises. Landlord also reserves the right, from time to
time, to: (x) change the name or street address of the Building, (y) install and
maintain signs on the exterior and the interior of the Building, and (z) possess
passkeys to the Premises.
Landlord acknowledges that such activities as described above may
adversely affect Tenants use of the Premises and agrees to make reasonable
efforts not to interfere with Tenants use of the Property. Landlord shall not
enter the Premises to perform said activities without prior reasonable notice to
Tenant. Landlord shall, however, have the right to enter the premises in case of
an emergency or after an Event of Default, without notice to Tenant.
2.4 PARKING. Tenant shall be entitled to park in common with other
tenants of Landlord, and receive its pro-rata share of unreserved parking
spaces. Tenant agrees not to overburden the parking facilities by utilizing more
than its pro-rata share of parking and agrees to cooperate with Landlord and
other Tenants in the use of parking facilities. Said parking spaces shall be
used for parking by vehicles no larger than full-size passenger automobiles or
pick-up trucks, herein called "Permitted Size Vehicles." Vehicles other than
Permitted Size Vehicles shall be parked and loaded or unloaded as directed by
Landlord. Landlord reserves the right, in its absolute discretion, to determine
whether parking facilities are becoming overcrowded, and in such event, to
allocate parking spaces among Tenants or to designate areas within which Tenant
must park. Tenant and Tenant's employees, visitors and customers assume all
responsibility for damage and theft to vehicles. Tenant shall provide Landlord
with the license plate numbers of all of its employees who commute by
automobile. Landlord reserves the right to cause to be towed the automobiles of
Tenant's employees, agents, customers or visitors who park outside the
designated parking areas. Tenant's rights hereunder may not be transferred.
ARTICLE III - TERM; LANDLORD'S AND TENANT'S WORK
3.1 TERM. The term of this Lease shall be as specified in the Basic
Lease Provisions set forth in Article 1. The term of this Lease shall also
include any fraction of a calendar month between the commencement of the Term
("Commencement Date") and the first day of the first full calendar month
thereof.
3
<PAGE> 4
3.2 COMMENCEMENT DATE. The Commencement Date shall be the earlier of
(i) the date on which Landlord tenders possession of the Premises or any part
thereof or (ii) the date on which Leasehold Improvements (as set forth in
Exhibit C) are substantially completed. Substantial completion of the Leasehold
Improvements, for purposes of this provision shall mean completion of
construction sufficient for Tenant to occupy the Premises for fixturing or for
the use intended, including completion of HVAC, electrical service and floor
finishes, and Landlord's obtaining a temporary certificate of occupancy, subject
only to punchlist items and Landlord obtaining a fire certificate of occupancy
for the Premises.
(a) Possession of the Premises shall be deemed tendered to Tenant
("Tender of Possession") when (1) the Leasehold improvements to be provided by
Landlord under this Lease are substantially completed, (2) the Building
utilities are ready for use in the Premises, and (3) Tenant has reasonable
access to the Premises. Landlord and Tenant shall execute an amendment to this
Lease, in the form attached hereto as Exhibit F, establishing the date of Tender
of Possession or the actual taking of possession by Lessee, whichever first
occurs, as the Commencement Date.
3.3 EXTENSION OPTION. Notwithstanding anything to the contrary set
forth in the Lease, Landlord hereby grants to Tenant one (1) option (the
"Option") to extend the Term of the Lease for a period of three (3) years (the
"Option Term"). The Option must be exercised, if at all, by written notice (the
"Option Notice") delivered by the Tenant to Landlord not earlier than Twelve
(12) months nor later than NINE (9) months prior to the end of the initial Term.
Further, the Option shall not be deemed to be properly exercised if, as of the
date of the Option Notice, Tenant (i) is in default under the lease beyond
applicable grace or cure periods as set forth in this Lease, or (ii) has
assigned or sublet all or any portion of the Lease or Tenants interest therein
to any party to which a sublet or assignment is not permitted under the term of
this Lease. Provided Tenant has properly and timely exercised the Option, the
initial Term shall be extended by the Option Term, and all terms, covenants and
conditions of the Lease shall remain unmodified and in full force and effect,
except that the Rent shall be modified as set forth below.
(a) The Rent payable for the Option Term shall be the
"fair-market" rental rate. For the purposes of this Paragraph only,
"fair-market" rental rate shall mean the projected prevailing gross rental rate
as of the first day of the Option Term, charged to renewal tenants, for similar
rentable space situated in similar buildings located in the North Andover area.
Included with the Option Notice, Tenant shall provide Landlord with its estimate
of "fair-market" rental rate. Within Sixty (60) days of receipt of the Option
Notice, Landlord shall provide notice to Tenant, in writing Landlord's estimate
of "fair-market" rental rate. Said notification of the annual rent may include a
provision for escalation of rent during the renewal term. Tenant shall have
FIFTEEN (15) days ("Tenant's Review Period") after receipt of the Landlord's
written notice of the "fair-market" rental rate within which to accept such
"fair-market" rental rate in writing. In the event Tenant objects to the
"fair-market" rental rate submitted by Landlord, Landlord and Tenant shall
attempt in good faith to agree upon such "fair-market" rental rate, using
good-faith efforts. If Landlord and Tenant fail to reach agreement on such
"fair-market" rental rate within THIRTY (30) days following Tenant's Review
Period (the "Outside Agreement Date"), then each party's determination shall be
submitted to appraisal in accordance with the following:
(i) Landlord and Tenant shall each appoint one (1)
independent appraiser who shall by profession be a real estate broker
active over the previous five (5) year period ending on the date of such
appointment in the leasing of commercial properties in the North Andover
area. The determination of the appraiser shall be limited solely to the
issue of whether Landlord's or Tenant's submitted "fair-market" rental
rate for the Premises is closest to the actual fair-market rental rate
for the Premises as determined by the appraisers, taking into account
the requirements set forth above. Such decision shall be based upon the
projected prevailing fair-market rental rate as of the commencement date
of the Option Term. Each such appraiser shall be appointed within
FIFTEEN (15) days after the Outside Agreement Date.
4
<PAGE> 5
(ii) The two (2) appraisers so appointed shall within
FIFTEEN (15) days after the date of the appointment of the last
appointed appraiser agree upon and appoint a third appraiser who shall
be qualified under the same criteria set forth above for the initial two
(2) appraisers.
(iii) The three (3) appraisers shall, within THIRTY (30)
days after the appointment of the third appraiser, reach a decision as
to whether the parties shall use Landlord's or Tenant's submitted
"fair-market" rental rate, and shall notify Landlord and Tenant in
writing thereof.
(iv) The decision of a majority of the three (3)
appraisers shall be binding upon Landlord and Tenant. If either Landlord
or Tenant fails to appoint an appraiser within the time period specified
herein above, the appraiser appointed by one of them shall reach a
decision based upon the same procedure set forth above (i.e., by
selecting either Landlord's or Tenant's submitted "fair-market" rental
rate), and shall notify Landlord and Tenant thereof and such appraiser's
decision shall be binding upon Landlord and Tenant.
(v) If the two (2) appraisers fail to agree upon and
appoint a third appraiser, both appraisers shall be dismissed and the
matter to be decided shall be submitted to arbitration under the
provisions of the American Arbitration Association based upon the same
procedures set forth above (i.e., by selecting either Landlord's or
Tenant's submitted "fair-market" rental rate).
(vi) The costs of appraisal hereunder, and arbitration if
necessary, shall be paid by Landlord and Tenant equally.
(b) In no event shall any rent during the Option Term fall
below the Rent in effect for the month immediately preceding the expiration of
the initial Term of the Lease.
(c) Landlord and Tenant hereby agree to execute an amendment to
the Lease promptly after Tenant's exercise of the Option in order to incorporate
the extension of the initial Term and the lease terms thereof into the Lease.
3.4 LANDLORD'S WORK. Except for Landlord's Work described in the Work
Letter Agreement attached hereto as Exhibit C, the Premises shall be delivered
"AS IS", subject to all title matters, all applicable zoning, and Laws and
Insurance Regulations, as defined in Section 5.1 (a), and except as set forth in
this Lease, Landlord shall not be required to make any repairs or replacements
(hereafter jointly "Repairs") or improvements, alterations or additions
(hereafter collectively "Improvements") to the Premises. Tenant acknowledges
that Tenant has inspected (or had the opportunity to inspect) the Premises, is
satisfied with the condition thereof subject to completion of Landlord's Work.
Tenant agrees that all claims with respect to Landlord's Work shall be made
within One (1) year of the Commencement Date or, in the case of latent defects,
not later than thirty (30) days following the manifestation of such defect, and
that all claims not made within such periods shall be forever waived.
The parties acknowledge that Landlord will be constructing certain
improvements ("Leasehold Improvements") to the Building in accordance with the
Work Letter Agreement attached hereto as Exhibit C. Landlord shall use
reasonable efforts to complete the construction of the Leasehold Improvements
and deliver the Premises on or before the anticipated Commencement Date set
forth in the Basic Lease Information. If Landlord has been unable to complete
such Leasehold Improvements and deliver the Premises on or before the
anticipated Commencement Date, Landlord shall not be liable for such failure,
such failure shall not affect the validity of this Lease. If Landlord has been
unable to construct the Leasehold Improvements or deliver the Premises because
Tenant has failed to comply with its obligations under the Work Letter Agreement
attached as Exhibit C, or if Tenant has otherwise delayed Landlord in completing
the Leasehold Improvements or obtaining any certificate or approval for same,
then the
5
<PAGE> 6
Commencement Date shall be the date that the Premises would have been "ready for
occupancy" but for such Tenant-caused delay. "Ready for occupancy" shall be
defined as the date upon which construction of the Leasehold Improvements would
have been substantially completed (as defined above) as reasonably determined by
Landlord and contractor(s) performing said improvements. If possession of the
Premises is not delivered to Tenant within ninety (90) days after the
anticipated Commencement Date, as the same may be extended under the terms of a
Work Letter executed by Landlord and Tenant, Lessee may, at its option, by
notice in writing to Lessor within ten (10) days after the end of said ninety
(90) day period, cancel this Lease, in which event the parties shall be
discharged from all obligations hereunder. The ninety (90) day period following
the Commencement Date before which Tenant's right to cancel this Lease accrues
under paragraph 3.4, shall be deemed extended to the extent of any Tenant delays
caused by acts or omissions of Tenant's agents, employees and contractors and as
defined in the Work Letter Agreement attached hereto as Exhibit C.
3.5 TENANT'S WORK. Tenant shall not make nor cause to be made any
Alterations or Utility installations in, on, under or about the Premises without
Landlord's prior written consent. Tenant may, however, at its sole cost and
expense, make non-structural Alterations or Utility Installations to the
interior of the Premises (excluding the roof) without Landlord's consent but
upon notice to Landlord, so long as they are not visible from the outside of the
Premises, do not involve puncturing, relocating or removing the roof or any
existing walls, or changing or interfering with the fire sprinkler or fire
detection systems and the cumulative cost thereof during each Lease Year does
not exceed $10,000.00. Said notice to Landlord shall include a detailed
description of said work and plans therefore. Landlord shall have the
opportunity to review said notice and require reasonable modifications the
proposed Alterations or Utility Installations. Any Alterations or Utility
Installations that Tenant shall desire to make and which require the consent of
the Landlord shall be at Tenant's sole cost and expense and shall be presented
to Landlord in written form with detailed plans. Approval by Landlord shall not
be deemed or construed to mean that Tenant's Plans comply with applicable laws,
rules, regulations, ordinances, or codes. In the event that Landlord approves
Tenant's Plans, Tenant shall submit all subsequent changes or amendments thereto
to Landlord for its review and approval. If Landlord rejects Tenant's Plans,
Tenant shall promptly revise and correct the same and promptly resubmit said
plans and specifications to Landlord for its review and approval.
Upon Landlord's approval of Tenant's Work, Tenant shall, at its sole
cost and expense, promptly perform Tenant's Work in a good and workmanlike
manner using first-class new materials and equipment, in accordance with
Tenant's Plans which have been approved by Landlord, and in accordance with the
requirements of all applicable Laws and Insurance Regulations.
Prior to the commencement of Tenant's Work, in the event Tenant's work
will cost in excess of $10,000, Tenant shall, upon reasonable request of
Landlord, at Tenant's sole cost and expense, deliver to Landlord a performance
bond and statutory lien bond from companies reasonably acceptable (or other form
of security reasonably acceptable Landlord) in an amount equal to the estimated
cost of Tenant's Work, if requested by Landlord. Tenant shall hold Landlord free
and harmless from any liability for labor or materials supplied for such work
and for any loss in connection with Tenant's Work or any other work performed
in, on, or about the Premises, and Tenant shall keep the Premises free from
mechanic's liens of any kind by obtaining waivers therefor and removing any such
lien in accordance with Section 6.3.
Any and all structural alterations, additions or improvements shall
become the property of Landlord promptly after installation.
6
<PAGE> 7
ARTICLE IV - RENT
4.1 BASE RENT AND ADDITIONAL RENT. Tenant shall pay Base Rent monthly,
in advance, on the Rent Commencement Date and on the first day of each calendar
month thereafter. Any additional sums due under the terms of this Lease
("Additional Rent") payable by Tenant shall be paid when due. If (i) Base Rent
and/or any Additional Rent is not received by Landlord or otherwise paid within
5 days of the due date, or (ii) Tenant's check is not honored, and because
actual damages result from late payments and dishonored checks are difficult to
fix, Tenant agrees to pay (a) $500.00 as liquidated damages for (i) each late
payment not made before the 5th day after the same was due, and (ii) each
dishonored check, and (b) an additional $100.00 per day after said 5th day until
said payment is made. In addition, Landlord may charge interest from the initial
due date at the rate of the lesser of 18% or the maximum legal rate on all
amounts not paid or received by Landlord within 10 days of the due date.
Notwithstanding the above Landlord shall provide Tenant with two (2)
written notices of late payments and/or dishonored checks within any Lease Year
without penalties set forth above, provided Tenant cures the rental payment
default within five (5) days of said notice. In the event Tenant is late paying
rent in excess of twice a year, the above penalties shall apply without the
necessity of further notice from Landlord.
Notwithstanding the fact that Base Rent may not commence until the Rent
Commencement Date, all other obligations hereunder commenced on the Commencement
Date, including without limitation, Tenant's obligation to pay Tax Rent (defined
herein), Operating Cost Rent, utilities, and the like.
4.2 SECURITY DEPOSIT. N/A.
4.3 ADDITIONAL RENT. Tenant shall pay to Landlord during the term
hereof, in addition to the Base Rent, Tenant's Share, as hereinafter defined, of
the amount by which all Operating Expenses, as hereinafter defined, for each
Comparison Year exceeds the amount of all Operating Expenses for the Base Year
such excess being hereafter referred to as the "Operating Cost Rent", in
accordance with the following provisions:
(a) "Tenant's Share" is defined, for purposes of this Lease, as
the percentage based upon the ratio between the rentable square footage of the
Premises and the rentable square footage of the space in all of the buildings
located on the Property which utilize the specific utility or service provided
by Landlord.
(b) "Base Year" is defined as the calendar year in which the
Lease term commences.
(c) "Comparison Year" is defined as each calendar year during
the term of this Lease subsequent to the Base Year; provided, however, Tenant
shall have no obligation to pay a share of the Operating Expense Increase
applicable to the first twelve (12) months of the Lease Term (other than such as
are mandated by a governmental authority, as to which government mandated
expenses Tenant shall pay Tenants Share, notwithstanding they occur during the
first twelve (12) months). Tenant's Share of the Operating Expense Increase for
the first and last Comparison Years of the Lease Term shall be prorated
according to the portion of such Comparison Year as to which Tenant is
responsible for a share of such increase. Operating Expenses shall include the
following:
(i) "TAX RENT" which shall include real estate taxes,
assessments, sales or use taxes, sewer entrance fees, and other public
charges on or relating to the Park and the Property including, without
limitation, the Building, other improvements, land and personalty, taxes
on rentals, and taxes in addition to or in lieu of existing taxes,
foreseen and unforeseen, ordinary and extraordinary, and all costs
related to attempts to secure a refund or abatement (together called
"Taxes"). Tenant also
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shall pay before the due date all taxes attributable to Tenant's signs
or personal property, and all Tax increases resulting from the Leasehold
Improvements or Tenant's Improvements to the Premises. Landlord's
income, estate, succession, inheritance and transfer taxes shall be
excluded from "Taxes"; provided, however, that if at any time during the
Term the present system of ad valorem taxation of real property shall be
changed so that as a substitute for, or in addition to, the whole or any
part of the ad valorem tax on real property, there shall be assessed on
Landlord any tax including a capital levy or other tax on the gross
rents received with respect to the Property, or a federal, state,
county, municipal, or other local income, franchise, excise or similar
tax, assessment, levy or charge (distinct from any now in effect in the
jurisdiction in which the Property is located), and whether or not now
customary or in the contemplation of the parties, measured by or based,
in whole or in part, upon any such gross rents, then any and all of such
taxes, assessments, levies or charges, to the extent so measured or
based, shall be deemed to be included within the term "Taxes".
Landlord shall have sole control of all tax abatement
proceedings, and the pendency of abatement proceedings or Landlord's
withholding of tax payments shall not affect Tenant's obligations to pay
Taxes as provided herein. The amount of any abatement proceeds with
respect to any year on account of which Tenant shall have made a payment
of Tax Rent shall, after deduction therefrom of any expenses reasonably
incurred in their collection and not included in Taxes for said year, be
allocated to Tenant in the same proportion as was used to determine
Tenant's payment of such Tax Rent and Landlord shall at its option
either pay such amount to Tenant or credit such amount against monthly
installments of Base Rent and Additional Rent next thereafter ensuing,
except with respect to such abatement proceeds as are received after the
end of the Tenn, with respect to which Landlord shall make payment to
Tenant within thirty (30) days upon receipt.
(ii) "OPERATING COST RENT" which shall include all costs
and expenses of every kind and nature incurred by Landlord in operating,
managing, equipping, lighting, cleaning, maintaining, insuring,
repairing and replacing the Premises, the Building, the Park and the
Property ("Operating Costs"), including without limitation, premiums for
insurance carried with respect to the Property, (ii) compensation and
all fringe benefits, workers' compensation insurance premiums and
payroll taxes paid by Landlord to, for or with respect to all persons
actually engaged in the operating, maintaining, or cleaning of the
Building, Park or Property, (iii) steam, water, sewer, electric, gas,
oil and telephone charges (excluding utility charges separately
chargeable for additional or special services); (iv) code of building
and cleaning services and equipment; (y) cost of maintenance, cleaning
(including window cleaning) and repairs (other than repairs for which
Landlord has received reimbursement from contractors under guaranties);
(v) snow removal and landscaping; (vii) payments under service contracts
with independent contractors, including security services, legal,
accounting and other professional fees, and management fees; (viii)
costs (including financing charges) of improvements to the Property that
are designed to increase safety or reduce or limit increases in
Operating Costs, are required to comply with any law imposed after the
initial completion of the Building, or are deemed necessary or desirable
by Landlord, all such improvements to be amortized using generally
accepted accounting principles; and (ix) all other reasonable or
necessary expenses paid in connection with the operation, maintenance,
replacement and repair of the Property and properly chargeable against
income. Any of the above services may be performed by Landlord or its
affiliates, provided that fees for the performance of such services
shall be reasonable and competitive with fees charged by unaffiliated
entities for the performance of such services in comparable buildings.
Operating Costs shall not include leasing commissions, repair costs to
the extent paid by insurance proceeds or by any tenant or third party,
or any tenant improvements provided for any tenant. Regardless of the
actual percentage of occupancy of the Building, for the purpose of this
Section 4.4, (i) the Operating Costs will be extrapolated or
proportionately reduced as though the buildings in the Park were one
hundred percent (100%) occupied; and (ii) in the case of any services
that are not rendered to all building areas on a comparable basis, the
proportion of the expense of
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such service allocable to the Premises shall be in the same proportion
which the rentable floor area of the Premises to which the service is
rendered bears to the total rentable floor area to which such service is
rendered.
Operating Expenses shall not include the following: (i) any
expenses paid by any lessee directly to third parties, or as to which
Lessor is otherwise reimbursed by any third party, other tenant or by
insurance proceeds; (ii) the costs of correcting defects in the original
construction of the Building; (iii) any land rent payable by Lessor
pursuant to any land lease; (iii) any fines, penalties payable by
Lessor, its employees or agents incurred due to the violation of any
valid applicable laws as a result of default of negligence; (iv)
original acquisition or construction costs relating to any expansion of
the building; (v) any leasing commissions, tenant improvement costs, and
advertising costs related to leasing the Building; (vi) any expenses
incurred to supply services and/or maintenance exclusively to other
lessees of the Building; (vii) expenses incurred due to the violation of
any lessee (other than Lessee) of any terms and conditions of the other
leases in the Office Building Project
Operating Cost Rent and Tax Rent shall be paid to Landlord monthly with
Base Rent in the amount which Landlord estimates, from time to time, will
represent Tenant's Pro Rata Share of Operating Costs Rent and Tax Rent Increases
over the base year. Landlord shall notify Tenant of its actual Pro Rata Share
within ninety (90) days of the end of each calendar year (provided Landlord's
failure to so notify Tenant shall not reduce Tenant's liability when such notice
is issued), and any excess paid by Tenant shall be applied to Tenant's next
Operating Cost or Tax Rent payment and any deficiency shall be paid within
fifteen (15) days of such notice.
In addition to Operating Cost Rent and Tax Rent, Tenant shall reimburse
Landlord for Tenant's "Direct Reimbursable Expenses." "Direct Reimbursable
Expenses" means operating costs of any nature which can be attributable directly
to the operating, maintenance, repair and/or replacement of the premises of an
individual tenant. Such expenses shall be due and payable by Tenant within
fifteen (15) days of receipt of a bill.
Tenant shall have sixty (60) days after receipt of Landlord's statement
of Tenant's actual pro-rata share to notify Landlord of any objections they have
to such statement or of their intention to review supporting documentation for
such statement. If Tenant does not so notify Landlord, such statement shall
conclusively be deemed correct and Tenant shall have no right thereafter to
dispute or review support for such statement, any item therein, or the
computation of Operating Costs. If Tenant does so notify the Landlord within the
sixty (60) day period, Tenant may, after reasonable notice to Landlord, and
during normal business hours, inspect Landlord's records concerning operating
expenses for the preceding calendar year in question. In no event may such
inspection be made by a person or firm which is being paid on a contingency fee
basis. Tenant shall have six (6) months from the date of receipt of Landlord's
statement to complete their review of the supporting documentation and notify
Landlord of all objections, if any, to such statement. Landlord and Tenant
hereby agree that Tenant will submit in writing to Landlord on or before the end
of said six-month period, all objections to Landlord's statement. Landlord and
Tenant hereby agree that after said six-month period, Tenant has no further
rights to review any supporting documentation to Landlord's statement. Pending
resolution of any dispute, Tenant shall nevertheless continue to pay the amounts
required by the provisions of this Article 4.
If Landlord and Tenant are unable to resolve any dispute relating to the
objections to Landlord's statement, a certification as to the proper amount(s)
shall be made by an independent certified public accountant appointed by
Landlord and Tenant. The certification shall be final and conclusive of the
disputes relating to the Landlord's statement.
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If Tenant disputes Landlord's statement and Landlord designates a
certified public accountant to perform an audit, the accountant shall have the
power to, and shall inquire into and determine, not only whether or not Tenant
was overcharged for any Operating Expenses, but whether or not Tenant was
undercharged for any Operating Expenses. The certification shall what Tenant's
Share of Operating Expenses should have been had Landlord strictly complied with
the provisions of this Lease. If Landlord overcharged Tenant for Tenant's Share
of Operating Expenses, the amount of the overcharge shall be returned to Tenant
within thirty (30) days following the issuance of the certification. If Tenant
was undercharged for Tenant's Share of Operating Expenses, Tenant shall pay the
amount of such undercharge to Landlord within thirty (30) days following the
issuance of the certification.
Should the certification show errors in excess of ten percent (10%) of
the Operating Expenses, then Landlord shall be responsible for all reasonable
fees incurred by Tenant with respect to the audit but in no event shall Landlord
be responsible for the amount of any such fees which is in excess of the total
amount of the overcharge determined by the accountant. Should the certification
show errors of less than three percent (3%) of the Operating Expenses, then
Tenant shall be responsible for all the reasonable fees incurred by Landlord
with respect to the audit. Should the certification show errors of between three
percent (3%) and ten percent (10%) of the Operating Expenses, then each party
shall be responsible for all fees incurred by it with respect to the dispute.
Tenant's rights and remedies with respect to any errors and/or
overcharges made by Landlord with respect to Operating Expenses shall be limited
to those expressly set forth in this Article. Neither Tenant nor Tenant's agents
or representatives shall reveal the results of any inspection or audit performed
pursuant to the provisions of this Article to any third party except as may be
required in connection with obtaining any amounts due to Tenant hereunder.
ARTICLE V - TENANT'S COVENANTS AND LANDLORD'S OBLIGATIONS
5.1 GENERAL COVENANTS. In addition to Tenant's other Lease covenants,
Tenant shall, at its expense:
(a) Use the Premises solely and continuously for the Permitted
Use and for no other purpose, procure all required licenses and permits, and not
use the Premises in violation of any laws, ordinances, orders or regulations of
any public authority or of any insurer, Board of Fire Underwriters, or similar
insurance rating bureau having jurisdiction over the Premises, including without
limitation, the State Building Code and the Americans With Disabilities Act of
1990, as amended, and any and all regulations promulgated thereunder (hereafter
collectively "Laws and Insurance Regulations") or in a manner which may be
injurious to or adversely affect the general character of the Premises and not
conduct any auction, bankruptcy or similar sale thereon;
(b) comply with sign criteria imposed by applicable
governmental authorities;
(c) pay, as they become due, all charges for utilities for the
Premises and pay for all taxes imposed upon or relating to Tenant's business and
Tenant's personal property;
(d) keep the Premises, including, without limitation, doors,
windows, plumbing, electrical, and all fixtures and equipment appurtenant to the
Premises, in a neat, clean, sanitary condition and in good order and repair
(making replacements as necessary); replace broken glass with the same quality
glass; paint (exterior and interior) and refurbish the Premises and restore or
replace the floor covering at reasonable intervals, and in any event at such
times as may reasonably be required to keep the Premises attractive in
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appearance; not overload, damage or deface the Premises; properly store and
dispose of all trash, and maintain service contracts with reputable companies
for any janitorial services.
(e) make Improvements and Repairs of whatever nature required
by Laws and Insurance Regulations to the extent such improvements or
replacements are related solely to the Tenant's particular use of the Premises;
(f) pay for all Repairs to the Premises, the Building, the
Park, and the Property required by Tenant's act or omission or that of Tenant's
Affiliates;
(g) not act in any manner which prevents Landlord or Tenant
from obtaining, or makes void or voidable, any insurance, or creates extra
premiums for or increases the rate of insurance, and if Tenant causes extra
premiums or increased rates, Tenant will pay the increased cost upon demand;
(h) not act in any manner which prevents Landlord or Tenant
from obtaining, or causes the revocation of, any government license, permit, or
authority, and if as a direct or indirect result of Tenant's business an
addition to or change in the same is required by Laws or Insurance Regulations,
Tenant shall pay for the addition or change;
(i) abide by reasonable rules and regulations made by Landlord
from time to time.
5.2 ENVIRONMENTAL COVENANTS.
(a) DEFINITION. As used in this Lease, the term "Hazardous
Material" means any flammable items, explosives, radioactive materials,
hazardous or toxic substances, material or waste or related materials, including
any substances defined as or including in the definition of "hazardous
substances", "hazardous wastes", "infectious wastes", "hazardous materials" or
"toxic substances" now or subsequently regulated under any federal, state or
local laws, regulations or ordinances including, without limitation, oil,
petroleum-based products, paints, solvents, lead, cyanide, DDT, printing inks,
acids, pesticides, ammonia compounds and other chemical products, asbestos, PCBs
and similar compounds, and including any different products and materials which
are subsequently found to have adverse effects on the environment or the health
and safety of persons. The term "Hazardous Materials Laws" shall mean, without
limitation, each and every law, rule, order, statute or regulation described
above in this Section, together with (i) any amendments thereto or regulations
promulgated thereunder, and (ii) any other laws pertaining to the protection of
the environment or governing the use, release, storage, generation or disposal
of Hazardous Materials, whether now or existing or hereafter enacted or
promulgated.
(b) GENERAL PROHIBITION. Tenant shall not cause or permit any
Hazardous Material to be generated, produced, brought upon, used, stored,
treated, discharged, released, spilled or disposed of on, in, under or about the
Premises, Building, Park, or property. Tenant shall indemnify, defend and hold
Landlord harmless from and against any and all actions (including, without
limitation, remedial or enforcement actions of any kind, administrative or
judicial proceedings, and orders or judgments arising out of or resulting
therefrom), costs, claims, damages (including, without limitation, punitive
damages), expenses (including, without limitation, attorneys', consultants' and
experts', fees, court costs and amounts paid in settlement of any claims or
actions), fines, forfeitures or other civil, administrative or criminal
penalties, injunctive or other relief (whether or not based upon personal
injury, property damage, or contamination or adverse effects upon, the
environment, water tables or natural resources), liabilities or losses arising
from a breach of this prohibition by Tenant or Tenant's Affiliates.
(c) NOTICE. In the event that Hazardous Materials are
discovered upon, in, or under the Premises, Building, Park, or Property, and any
governmental agency or entity having jurisdiction over the
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Premises, Building, the Park, or Property requires the removal of such Hazardous
Materials, Tenant shall be responsible for removing those Hazardous Materials
arising out of or related to its use or occupancy of the Premises, Building, the
Park, or Property, as the case may be, by Tenant or Tenant's Affiliates.
Notwithstanding the foregoing Tenant shall not take any remedial action without
first notifying Landlord of Tenant's intention to do so and affording Landlord
the opportunity to protect Landlord's interest with respect thereto. Tenant
immediately shall notify Landlord in writing of: (i) any spill, release,
discharge or disposal of any Hazardous Material in, on or under the Premises, or
any portion thereof, (ii) any notice, enforcement, clean-up, removal or other
governmental or regulatory action instituted, contemplated or threatened (if
Tenant has notice thereof) pursuant to any Hazardous Materials Laws; (iii) any
claim made or threatened by any person against Tenant or the Premises, Building,
Park, or Property relating to Hazardous Materials; and (iv) any reports made to
any governmental agency or entity arising out of or in connection with any
Hazardous Materials in, on, under or about or removed from the Property,
including any complaints, notices, warnings, reports or asserted violations in
connection therewith.
(d) SURVIVAL. The respective rights and obligations of Landlord
and Tenant under this subsection shall survive the expiration or earlier
termination of this Lease.
5.3 LANDLORD'S COVENANTS. Landlord, subject to reimbursement pursuant
to Section 4.3, shall (i) maintain or arrange to maintain the Common Areas in
good condition subject to reasonable wear and tear, keeping them reasonably
clear of snow and ice and free of rubbish and trash (ii) subject to Article
VIII, perform capital repairs to the structural columns and the roof of the
Building, unless such repair is necessitated by the act or omission of Tenant or
Tenant's Affiliates, and (iii) furnish services, and supplies as set forth on
EXHIBIT C. Landlord warrants to Tenant that to Landlord's actual knowledge the
Premises, in the state existing on the date that the Lease term commences, but
without regard to alternations or improvements made by Tenant or the use for
which Tenant will occupy the Premises, does not violate any covenants or
restrictions of record, or any applicable building code, regulation, law or
ordinance in effect on such Lease term Commencement Date. Subject to the terms
and conditions set forth herein, Landlord agrees that Tenant is entitled to and
shall have, the quiet enjoyment of the Premises.
ARTICLE VI - CONDITION OF PREMISES
6.1 IMPROVEMENTS. Except as Specifically set forth herein, Landlord
shall have no obligation to improve the Premises and shall deliver the Premises
in its "AS-IS" condition. Except as provided in Section 3.4 of this Lease,
Tenant may not make structural or non-structural Improvements to the Premises
without Landlord's prior written consent, which shall not be unreasonably
withheld or delayed. At the end of the Tenn, except to the extent Tenant is
directed by Landlord to remove any Improvements that Landlord required to be
removed at the time Landlord consented to installation of the improvement and to
repair damage relating to such removal, the Premises shall remain in the altered
condition with all Improvements.
6.2 FIXTURES: YIELD-UP. Except as Landlord directs in writing, Tenant
shall remove its personal property signs and trade fixtures, and peaceably
yield-up the Premises, broom-clean and in good order, repair, and condition at
the end of the Tenn, with all Repairs, including painting and patching to the
Premises required by such removal, having been made and all utility lines left
exposed or unconnected having been capped. If Tenant fails to remove its
property or to make the Repairs by the end of the Term, Landlord may remove and
store Tenant's property in a public warehouse at Tenant's expense or sell same
at public auction, and make the Repairs, and Tenant promptly shall reimburse
Landlord for its costs.
6.3 MECHANIC'S LIENS. Tenant shall immediately discharge any
mechanic's, materialmen's or other lien against the Premises, Building, Park, or
Property and/or Landlord's interest therein arising out of
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any payment due, or purported to be due, for any labor, services, materials,
supplies, or equipment alleged to have been furnished to or for Tenant.
ARTICLE VII - INSURANCE
7.1 INSURANCE. Tenant shall maintain at its sole expense, the
following coverages:
(a) COMMERCIAL GENERAL LIABILITY INSURANCE covering the insured
against claims of bodily injury, personal injury and property damage arising out
of Tenants operations, assumed liabilities or use of the Premises, Building,
Park, or Property, including the performance by Tenant of the indemnities set
forth herein, with a combined single limit of not less than $3,000,000.00 (or
such higher limits as or may be reasonably required by Landlord based upon
inflation, increased liability awards, recommendations of Landlord's mortgagee
("Mortgagee") or professional insurance advisors.
(b) CASUALTY INSURANCE. 100% replacement cost all-risk,
extended coverage property insurance covering the Tenant's personal property,
Leasehold Improvements, and all other improvements, which insurance shall
contain a sprinkler leakage endorsement and a rent loss endorsement which shall
provide for the payment of Base Rent and Additional Rent for a period of at
least one year.
(c) BOILER AND MACHINERY INSURANCE. If Tenant shall receive
Landlord's prior written consent to operate on the Premises a boiler or other
pressured vessels, Tenant shall, as a pre-condition to installing the same,
place and maintain Boiler Insurance with limits of liability in an amount not
less than $250,000 per occurrence or as needed, and provide coverage for the
full replacement value thereof.
(d) WORKER'S COMPENSATION/EMPLOYER'S LIABILITY INSURANCE.
Worker's Compensation Insurance or similar statutory coverage containing
statutorily prescribed limits and Employer's Liability with limits reasonably
acceptable to Landlord.
If (i) any insurance policy carried by Landlord with respect to the
Property shall be canceled or cancellation shall be threatened or the coverage
thereunder reduced or threatened to be reduced in any way by reason of the use
or occupation of the Premises or any part thereof by Tenant, and (ii) Tenant
fails to remedy the condition giving rise to cancellation, threatened
cancellation or reduction of coverage within forty-eight (48) hours after notice
thereof, such failure shall be deemed a default under this Lease, and Landlord
may exercise its option to either terminate this Lease or to enter upon the
Premises and attempt to remedy such condition, in which event Tenant shall pay
immediately to Landlord the costs associated with such termination or entry and
attempt to remedy as Additional Rent. Landlord shall not be liable for any
damage or injury caused to any property of Tenant or of others located in the
Premises as a result of such an entry.
7.2 TENANT'S RISK. Except as modified by statute, all merchandise,
furniture, fixtures and property which may be on or about the Premises,
Building, the Park, or Property shall be at the sole risk and hazard of Tenant.
7.3 GENERAL REQUIREMENTS. All insurance policies required to be
procured by Tenant hereunder shall be with companies qualified to do business in
Massachusetts and acceptable to Landlord, and shall name Landlord, Landlord's
mortgagee(s), and any other party designated by Landlord, as insured parties on
casualty policies and additional named insureds on liability policies. In
addition, all liability insurance obtained by Tenant shall be (a) primary
insurance as to all claims thereunder and provide that any insurance carried by
Landlord is not excess and is non-contributing with any insurance of Tenant; (b)
contain cross liability endorsements or a severability of interest clause
acceptable to Landlord, (c) be written on an
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occurrence basis; and (d) specifically cover the liability assumed by Tenant
under this Lease including, but not limited to, Tenant's obligations under
Section 7.4. Tenant shall deliver a copy of the policies or certificates of all
insurance to Landlord prior to the earlier of entry on the Premises or the
Commencement Date, and copies of the new policies or new certificates not later
than 30 days prior to the expiration of each policy. Each policy shall provide
(and the certificate shall evidence) that it will not expire, or be canceled or
modified without 30 days prior written notice to Landlord and, if Landlord
requests, to Landlord's mortgagee(s).
7.4 INDEMNITY. Tenant shall indemnify and hold harmless Landlord and
its agents, Landlord's master ground landlord, if any, partners and lenders,
from and against any and all claim for damage to the person or property of
anyone or any entity arising from Tenants use of the Premises, Building and
Park, or from the conduct of Tenants business or from any activity, work or
things done, permitted or suffered by Tenant in or about the Premises or
elsewhere and shall further indemnify and hold harmless Landlord from and
against any and all claims, costs and expenses, including, but not limited to,
loss of rents and/or damages, costs, liens, judgments, penalties, loss of
permits, attorneys' and consultants' fees, expenses and/or liabilities arising
out of, involving, or in connection with, the occupancy of the Premises by
Tenant, arising from any breach or default in the performance of any obligation
on Tenant's part to be performed under the terms of this Lease, or arising from
any act or omission of Tenant or any of Tenant's agents, contractors, employees,
or invitees, and from and against all costs, attorneys fees, expenses and
liabilities incurred by Landlord as the result of any such use, conduct,
activity, work, things done, permitted or suffered, breach, default or
negligence, and in dealing reasonably therewith, including but not limited to
the defense or pursuit of any claim or any action or proceeding involved
therein; and in case any action or proceeding be brought against Landlord by
reason of any such matter, Tenant upon notice from Landlord shall defend the
same at Tenant's expense by counsel reasonably satisfactory to Landlord and
Landlord shall cooperate with Tenant in such defense. The foregoing shall
include, but not be limited to, the defense or pursuit of any claim or any
action or proceeding involved therein, and whether or not (in the case of claims
made against Landlord) litigated and/or reduced to judgment. Landlord need not
have first paid any such claim in order to be so indemnified. Tenant, as a
material part of the consideration to Landlord, hereby assumes all risk of
damage to property of Tenant or injury to persons, in, upon or about the
Premises, Buildings and Park arising from any cause and Tenant hereby waives all
claims in respect thereof against Landlord.
7.5 WAIVER OF SUBROGATION. Landlord and Tenant release each other and
each other's officers, directors, employees and agents from liability or
responsibility for any loss or damage to their respective property to the extent
of actual net insurance proceeds received (or to the extent said loss would have
been covered if the party had complied with the provisions of this Lease). This
release shall apply to the parties and anyone claiming through or under the
parties by way of subrogation or otherwise, even if the occurrence was caused by
the fault or negligence of a party or anyone for whom a party is responsible.
Landlord and Tenant each agree that, to the extent it is required to maintain
insurance policies hereunder, its policies will include such a provision if
available without extra cost, or if the other party pays the extra cost, and
each promptly shall notify the other of any extra cost.
7.6 LANDLORD'S INSURANCE. Landlord shall obtain and keep in force
during the term of this Lease a policy or policies of insurance covering loss or
damage to the Property improvements, but not Tenants personal property,
fixtures, equipment or tenant improvements (other than initial tenant
improvements), in the amount of the full replacement cost thereof, as the same
may exist from time to time, providing protection against all perils included
within the classification of fire, extended coverage, vandalism, malicious
mischief plate glass, and such other perils as Landlord deems advisable or may
be required by a lender having a lien on the Property. The policies required by
hereby shall contain such deductibles as Landlord or the aforesaid lender may
determine. In the event that the Premises shall suffer an insured loss, the
deductible amounts under the applicable insurance policies shall be deemed an
Operating Expense.
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Tenant shall not do or permit to be done anything which shall invalidate the
insurance policies carried by Landlord. Tenant shall pay the entirety of any
increase in the property insurance premium for the Property over what it was
immediately prior to the commencement of the term of this Lease if the increase
is specified by Landlord's insurance carrier as being caused by the particular
nature of Tenants occupancy (aside from general office use) or any act or
omission of Tenant.
ARTICLE VIII - CASUALTY AND EMINENT DOMAIN
8.1 DAMAGE. If the Premises become untenantable in whole or part
because of (a) fire or other casualty covered by insurance ("Casualty"), or as
the result of a taking of the Premises (or any building thereon) in connection
with the exercise of any power of eminent domain, condemnation, or purchase
under threat or in lieu thereof ("Taking"), then unless the Lease is terminated
in accordance with Section 8.7, Landlord, with reasonable dispatch (but subject
to delays for adjustment of insurance proceeds or taking awards, as the case may
be, and causes beyond Landlord's reasonable control), shall repair the damage in
the event of a Casualty so that the Premises are in substantially the same
condition as on delivery of possession (and in the event of a Taking, shall
restore the balance of the Premises not so taken to substantially the same
condition as is reasonably feasible), all subject to rights of mortgagees,
zoning laws, and building codes then in existence, and provided Landlord shall
not be required to expend more than the net insurance proceeds Landlord receives
for damage to the Premises or the net taking award attributable to the Premises.
"Net" means the insurance proceeds or taking award less all costs and expenses,
including adjusters and attorney's fees, of obtaining the same. Tenant
immediately shall give written notice to Landlord of any damage to the Premises.
8.2 TERMINATION RIGHTS. If (a) the Premises or Building are damaged
to the extent of 10% or more of its insurable value, or by a risk not covered by
insurance with a cost to repair in excess of $100,000.00, or the damage is of a
character that it cannot reasonably be repaired within sixty (60) days of the
date on which repair work commences, or (b) if 25% or more of either (i) the
floor area of the Building, or (ii) the land which constitutes the Property is
subject to a taking, Landlord may elect to terminate this Lease by Written
notice to Tenant within 30 days after the damage or within 6 months of the date
on which the condemning authority has the right to possession ("Taking Date') in
which case the Lease shall terminate as of the Taking Date. If the entire
Premises are taken by eminent domain, except for temporary use, this Lease shall
terminate automatically as of the Taking Date.
8.3 ABATEMENT. If a portion of the Premises is damaged or taken,
except for temporary use, and this Lease is not terminated, the Base Rent shall
be reduced proportionately based on the area of the Premises damaged and
therefore not used by Tenant or taken until the earlier of when Landlord's
Repairs to the Premises are completed or Tenant begins using the damaged area.
8.4 TAKING FOR TEMPORARY USE. If the Premises are taken for temporary
use, this Lease and Tenant's obligations shall continue, except to the extent
the taking renders compliance impossible or impracticable.
8.5 DISPOSITION OF AWARDS. Except for any separate award for Tenant's
movable trade fixtures or relocation expenses all taking awards to Landlord or
Tenant shall be Landlord's property without Tenant's participation.
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ARTICLE IX - DEFAULTS AND REMEDIES
9.1 TENANT'S DEFAULT. The following conditions shall be considered a
"Default" by Tenant:
(a) failure to pay Base Rent, Additional Rent or any other
charge within five days of the due date, subject to Article 4.1 of this Lease;
(b) Tenant's leasehold estate is taken by execution or other
process of law; or Tenant is liquidated, dissolved, commits an act of
bankruptcy, is declared bankrupt or insolvent according to law or admits in
writing its inability to pay debts generally as they become due, or an
assignment of Tenant's property is made for the benefit of creditors or a
receiver, guardian, conservator, trustee or assignee, or any other similar
officer or person is appointed to take charge of any part of Tenant's property;
or any reorganization or similar proceedings are commenced by or against Tenant
under any bankruptcy or insolvency law and not dismissed within 30 days from its
commencement, or any court enters an order providing for the modification of
rights of Tenant's creditors;
(c) vacating of the Premises or closing for business for an
aggregate period during the Term exceeding 180 days except for fires and
unavoidable casualties;
(d) a Transfer without Landlord's prior written consent;
(e) failure to perform or observe any other Lease terms or
covenants for a period of 30 days after notice, or if same shall reasonably take
longer than 30 days, if Tenant fails to commence same promptly and to complete
same with due diligence and in any event within 60 days from the notice; or
(f) any other breach for which the Lease gives Landlord the
right of termination.
If Tenant Defaults, Landlord may at any time either (i) terminate this
Lease by written notice effective on the date of the notice or on any date
specified in the notice, or (ii) without demand or notice, re-enter take
possession and repossess the Premises and, with a court order and at Tenant's
risk, expel Tenant and those claiming under Tenant and remove, store and sell
their effects at public action, all without prejudice to any remedies for
arrearages or preceding Defaults. The net proceeds of any sale shall be applied
to sums due to Landlord from Tenant and the balance paid to Tenant. Tenant
waives all statutory rights (including rights of redemption) to the extent such
rights may be lawfully waved. With or without terminating this Lease, Landlord
may re-let all or any part of the Premises from time to time for periods, at
such rental, and upon the terms and conditions as Landlord deems advisable, and
may make Improvements and Repairs to the Premises. No re-entry or taking of
possession by Landlord shall terminate this Lease unless Landlord gives a
written notice of such intention to Tenant, nor shall Landlord's right to re-let
constitute an obligation to re-let or to mitigate damages.
9.2 DAMAGES. Tenant's liability and obligations under this Lease
shall survive termination or repossession, and Tenant shall pay as current
damages the Base Rent, Additional Rent and other sums up to what would have been
the end of the Term in the absence of the termination or repossession, with a
credit for the net proceeds, if any, Landlord receives from any reletting of the
Premises, after deducting all of Landlord's reasonable expenses in connection
with the reletting including, without limitation, expenses of preparing the
Premises for the reletting. Tenant shall pay the current damages to Landlord on
the days Base Rent would have been payable if not for the termination or
repossession. In addition, and notwithstanding any Lease provision or the
termination of this Lease, Tenant shall reimburse Landlord for any free rent and
construction allowance, and all expenses and liabilities incurred by Landlord in
connection with Tenant's Default including without limitation brokerage
commissions, reasonable attorneys' fees and alteration costs.
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After any termination or repossession, whether or not Landlord has
collected any current damages, Tenant shall pay to Landlord, at Landlord's
option and on demand, liquidated final damages in lieu of all current damages
beyond the date final damages are paid. The final damages shall be the amount by
which (i) all rent and other charges which would be payable from the date to
which Tenant paid current damages through what would have been the unexpired
Term exceeds (ii) the then market rental value of the Premises for the same
period. If any law validly limits the amount of final liquidated damages to less
than described above, Landlord shall be entitled to the maximum amount legally
allowed.
9.3 LANDLORD'S SELF-HELP. If Tenant Defaults, Landlord may, at its
option, without waiving its right to terminate this Lease or its claim for
damages, cure the Default, and Tenant shall reimburse Landlord for any amount
paid or contractual liability incurred by Landlord in doing so; provided
Landlord may immediately cure any default or failure by Tenant to perform any
Lease obligation if the cure or performance is reasonably necessary to protect
the Premises or Landlord's interests, or to prevent injury or damage to persons
or property.
9.4 LANDLORD'S DEFAULT. Landlord shall not be deemed to be in default
hereunder unless its default continues for 10 days, or such additional time as
is reasonably required to correct its default after Tenant has given written
notice to Landlord specifying the nature of the alleged default.
ARTICLE X - SUBORDINATION
10.1 SUBORDINATION. Provided Tenant is provided with a commercially
reasonable non-disturbance agreement, Tenant's rights and interests under this
Lease shall be (i) subject and subordinate to any existing or future mortgages,
deeds of trust, overlease, or similar instruments covering the Premises and to
all advances, modifications, renewals, replacements, and extensions thereof
("Mortgages"), or (ii) if the Mortgagee elects, prior to the lien of any present
or future Mortgagee. Tenant further shall attorn to and recognize any successor
Landlord, whether through foreclosure or otherwise, as if the successor Landlord
were the originally named Landlord. Tenant concurrently shall give Mortgagee the
same notices given to Landlord, and Mortgagee shall have the same opportunity
and rights as is available to Landlord to cure a default provided Mortgagee
shall have an additional thirty (30) days after the expiration of Landlord's
cure period within which to commence a cure or such longer period as may be
reasonably necessary. Mortgagee's curing of any of Landlord's default shall be
treated as performance by Landlord.
10.2 REQUEST BY MORTGAGEE. If a Mortgagee or prospective Mortgagee
requests any Lease modification which does not have a material adverse effect on
Tenant's rights, Tenant will enter into a written modification agreement in
recordable form (which shall have the same force as a Lease amendment) if the
Mortgagee forecloses or takes similar action.
ARTICLE XI - MISCELLANEOUS PROVISIONS
11.1 PARTIES BOUND. Except as otherwise provided, the Lease agreements
and conditions to be performed and observed by Landlord or Tenant shall bind and
inure to the heirs, legal representatives, successors and assigns of each,
provided no reference to Tenant's successors and assigns will constitute a
consent to a Transfer by Tenant. If Tenant consists of more than one person or
entity, or if there is a guarantor, then all such persons, entities and
guarantors shall be jointly and severally liable and the word "Tenant," as used
in this Lease, including Article IX includes such person, entities, and
guarantors. The word "Landlord" means only the owner, or the tenant if this
Lease becomes subject to an overlease, or the mortgagee in possession of the
Premises such that, all prior Landlords, including Landlord, shall be relieved
of all Landlord covenants and obligations accruing after a transfer. If the
entity which holds Landlord's
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interest in this Lease is a trust, then the Landlord obligations shall be
binding upon the trustees of said trust, as trustees and not individually, and
not upon the trust estate.
11.2 LANDLORD'S LIABILITIES AND ADDITIONAL RIGHTS.
(a) Landlord shall have no obligation or liability with respect
to or in any way connected with the Premises, the Building, the Park, the
Property, or services to be provided from same, except to the extent
specifically set forth in this Lease. The obligations of Landlord set forth in
this Lease do not constitute personal obligations of the Landlord, or trustees,
partners, directors, officers, or shareholders of Landlord, and Tenant shall not
seek recourse against the Landlord, trustees, individual partners, directors
officers, or shareholders of Landlord or any of their personal assets for
satisfaction of any liability in respect to this Lease except as otherwise set
forth in Section 11.2(c) below. Landlord shall not be deemed to have committed a
breach of any repair obligations of Landlord hereunder unless it makes repairs
negligently or fails to commence repairs within a reasonable time after Landlord
receives notice from Tenant, and Landlord's liability in any case shaft be
limited to the cost of making the required repairs.
(b) Landlord shall not be liable for indirect or consequential
damages for any reason, or for any inconvenience, interruption or consequences
resulting from the failure of utilities or any service, making repairs,
improvements or resulting from leaks of steam, gas, electricity, water, or any
other substance from pipes, wires or other conduits, or from the bursting or
stoppage thereof, or from leaks of water, snow, or rain.
(c) Tenant agrees for itself and each succeeding holder of
Tenant's interest, or any portion thereof, that any judgment, decree or award
obtained against Landlord, or any succeeding owner of Landlord's interest, which
is related to this Lease or the Property, whether at law or in equity, shall be
satisfied out of Landlord's equity in the Premises, and further agrees to look
only such assets and to no other assets of Landlord for satisfaction.
(d) Landlord reserves the right at any time or times within the
Term and without charge, abatement or reduction in rent (i) to examine and to
show the Premises at reasonable times; (ii) to perform such work as may be
required by this Lease, any public authority, or to facilitate making repairs or
improvements to the Building, the Property or any portion thereof provided that
unless any such work is of an emergency nature, Landlord shall give reasonable
notice and shall use reasonable efforts to minimize interference with Tenant's
operations; and (iii) to enter upon, and use portions of the Premises for the
foregoing purposes.
(e) Landlord shall have no liability to Tenant for inconve-
nience, annoyance, or injury to business resulting from Landlord's repairs or
improvements made hereunder except as set forth in this Lease.
11.3 HOLDING OVER. If Tenant or anyone claiming under it holds over
after end of the Term, the party shall, prior to Landlord's acceptance of rent,
be a Tenant at sufferance, and, after Landlord's acceptance of rent, be a Tenant
at will subject to the provisions of this Lease insofar as the same may be made
applicable to a tenancy at will; provided that Tenant shall pay Base Rent for
the period of such tenancy at 200% of the highest rate of Base Rent payable
during the Term, and, in addition, Tenant shall be liable for all damages
incurred by Landlord (including consequential damages) as a result of the
holding over.
11.4 QUIET ENVIRONMENT. Provided Tenant timely pays all rent and
performs and observes the terms, conditions and covenants of the Lease, Tenant
may peaceably and quietly have, hold and enjoy the
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Premises as provided in the Lease, without hindrance or molestation from
Landlord or anyone claiming legally under Landlord, subject to the terms of this
Lease and any instruments having priority.
11.5 NO BROKERAGE. Tenant warrants and represents that it has dealt
with no broker in connection with this Lease except the Broker identified herein
(if any). Tenant agrees to defend and indemnify Landlord against any brokerage
claims related to this Lease other than by the Broker.
11.6 CERTIFICATES. Within 10 days after Landlord's request, Tenant
shall deliver to Landlord or to any prospective Mortgagee or purchaser (a) an
estoppel certificate in recordable form stating such information as Landlord
reasonably requests, and (b) such financial statements as are available to the
public to verify the net worth of Tenant or any Transferee, and Tenant
represents and warrants that each such financial statement shall be true and
accurate as of the date thereof.
11.7 NOTICES. Any notice, consent, or other communication relating to
this Lease shall be given in writing and by hand, by registered or certified
mail or overnight express mail such as "Federal Express", postage or charges
prepaid, to the other party's Notice Address or for Tenant to the Premises, to
such other address or addresses as may be designated by the party by notice, and
if to a Mortgagee, to such address as the Mortgagee shall designate.
11.8 NO WAIVER. Landlord's failure to complain of any Tenant act or
omission shall not be deemed a waiver of any of Landlord's rights. Landlord's
waiver, express or implied, of any breach of this Lease shall not be deemed a
waiver of a breach of any other provision or a consent to any subsequent breach
of the same or any other provision. Landlord's consent to or approval to any
action on one occasion shall not be deemed a consent to or approval of any other
action or to such action on any subsequent occasion. Tenant's payment or
Landlord's acceptance of a lesser amount than is due from Tenant to Landlord
shall not be deemed anything but payment on account and Landlord's acceptance of
a check for a lesser amount with an endorsement or statement thereon or upon a
letter accompanying the check that the lesser amount is payment in full shall
not be deemed an accord and satisfaction, and Landlord may accept the check
without prejudice to recover the balance due or pursue any other remedy. All of
Landlord's rights and remedies under this Lease or by operation of law, either
at law or in equity, for any breach shall be distinct, separate, cumulative and
non-exclusive and shall not be deemed inconsistent with each other.
11.9 FORCE MAJEURE. With the exception of the payment of money, if any
party's performance of any act is delayed, or prevented because of strikes,
lockouts, labor troubles, inability to procure materials, power failures,
restrictive Laws, riots, insurrection, war, or other causes beyond such party's
reasonable control, then said performance shall be excused for the period of the
delay and any time period shall be extended for an equivalent period.
11.10 RECORDING. Tenant shall not record this Lease, but may record a
notice thereof in the form attached hereto as Exhibit G.
11.11 WAIVER OF JURY TRIAL. LANDLORD AND TENANT HEREBY WAIVE TRIAL BY
JURY IN ANY ACTION, PROCEEDING, OR COUNTERCLAIM BROUGHT BY EITHER OF THE PARTIES
HERETO AGAINST THE OTHER, OR IN RESPECT OF ANY MATTER WHATSOEVER ARISING OUT OF
OR IN ANY WAY CONNECTED WITH THIS LEASE.
11.12 PARAGRAPH HEADINGS. All paragraph headings are for convenience and
reference only, and shall not be held to explain, modify, amplify or aid in the
construction, interpretation or meaning of the provisions of this Lease.
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11.13 GOVERNING LAW. This Lease shall be governed by the laws of the
Commonwealth of Massachusetts.
11.14 SEVERABILITY: CONSTRUCTION AND INTERPRETATION. If any Lease term
or provision or the application thereof to any person or circumstance is invalid
or unenforceable, the remainder of this Lease, or the application of the term or
provision to other persons or circumstances shall not be affected, and the Lease
shall be valid and be enforced to the fullest extent permitted by law. If any
Lease provision is capable of two constructions, then the provision shall have
the meaning which renders it valid.
11.15 WHEN LEASE BECOMES BINDING; ENTIRE AGREEMENT. Landlord's
employees or agents have no authority to make or agree to make a lease or any
other agreement or undertaking and the submission of this document for
examination and negotiation does not constitute an offer to lease, or a
reservation of or option for, the Premises, and this document shall become
effective and binding only upon the execution and delivery by both Landlord and
Tenant. All negotiations, considerations, representations, and understandings
between Landlord and Tenant are incorporated herein, and no oral statements or
prior or contemporaneous written matter, whether by the parties or otherwise,
which is not specifically incorporated herein shall be of any force or effect.
11.16 ASSIGNMENT AND SUBLETTING.
(a) LANDLORD'S CONSENT REQUIRED. Tenant shall not voluntarily
or by operation of law assign, transfer, mortgage, sublet, or otherwise transfer
or encumber all or any part of Tenant's interest in the Lease or in the
Premises, without Landlord's prior written consent, which Landlord shall not
unreasonably withhold. Landlord shall respond to Tenant's request for consent
hereunder in a timely manner and any attempted assignment transfer, mortgage,
encumbrance or subletting without such consent shall be void, and shall
constitute a material default and breach of this Lease without the need for
notice to Tenant under Section IX. "Transfer" within the meaning of this Section
11.17 shall include the transfer or transfers aggregating: (a) if Tenant is a
corporation, more than fifty percent (50%) of the voting stock of such
corporation, (except in the case that Tenant is corporation whose stock is
publicly traded),or (b) if Tenant is a partnership, more than fifty percent
(50%) of the profit and loss participation in such partnership.
(b) TENANT AFFILIATE. Notwithstanding the provisions of
paragraph 11.16 (a) hereof, Tenant, upon written notice to Landlord may assign
or sublet the Premises, or any portion thereof, without Landlord's consent to
any corporation which controls, is controlled by or is under common control with
Tenant, or to any corporation resulting from the merger or consolidation with
Tenant or to any person or entity which acquires all the assets of Tenant as a
going concern of the business that is being conducted on the Premises, all of
which are referred to as "Tenant Affiliate"; provided that before such
assignment shall be effective, (a) said assignee shall assume, in full, the
obligations of Tenant under this Lease and (b) Landlord shall be given written
notice of such assignment and assumption. Any such assignment shall not, in any
way, affect or limit the liability of Tenant under the terms of this Lease even
if after such assignment or subletting the terms of this Lease are materially
changed or altered without the consent of Tenant, the consent of whom shall not
be necessary.
(c) TERMS AND CONDITIONS APPLICABLE TO ASSIGNMENT AND
SUBLETTING. Regardless of Landlord's consent, the following terms and conditions
shall apply to any subletting by Tenant of all or any part of the Premises and
shall be deemed included in all subleases under this Lease whether or not
expressly incorporated therein:
(1) Regardless of Landlord's consent, no assignment or
subletting shall release Tenant of Tenant's obligations
hereunder or alter the primary liability of Tenant
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to pay the rent and other sums due Landlord hereunder
including Tenant's Share of Operating Expense Increase, and
to perform all other obligations to be performed by Tenant
hereunder.
(2) Landlord may accept rent from any person other than
Tenant pending approval or disapproval of such assignment.
(3) Neither a delay in the approval or disapproval of
such assignment or subletting, nor the acceptance of rent,
shall constitute a waiver or estoppel of Landlord's right
to exercise its remedies for the breach of any of the terms
or conditions of this paragraph 11.16 of this Lease.
(4) If Tenant's obligations under this Lease have been
guaranteed by third parties, then an assignment or
sublease, and Landlord's consent thereto, shall not be
effective unless said guarantors give their written consent
to such sublease and the terms thereof.
(5) The consent by Landlord to any assignment or
subletting shall not constitute a consent to any subsequent
assignment or subletting by Tenant or to any subsequent or
successive assignment or subletting by the sublessee.
However, Landlord may consent to subsequent subletting and
assignments of the sublease or any amendments or
modifications thereto without notifying Tenant or anyone
else liable on the Lease or sublease and without obtaining
their consent and such action shall not relieve such
persons from liability under this Lease or said sublease;
however, such persons shall not be responsible to the
extent any such amendment or modification enlarges or
increases the obligations of the Tenant or sublessee under
this Lease or such sublease.
(6) In the event of any default under this Lease,
Landlord may proceed directly against Tenant, any
guarantors or any one else responsible for the performance
of this Lease, including the sublessee without first
exhausting Landlord's remedies against any other person or
entity responsible therefor to Landlord, or any security
held by Landlord or Tenant.
(7) Landlord's written consent to any assignment or
subletting of the Premises by Tenant shall not constitute
an acknowledgment that no default then exists under this
Lease of the obligations to be performed by Tenant nor
shall such consent be deemed a waiver of any then existing
default except as may be otherwise stated by Landlord at
the time.
(8) The discovery of the fact that any financial
statement relied upon by Landlord in giving its consent to
an assignment or subletting was materially false shall, at
Landlords election, render Landlord's said consent null and
void.
(9) In connection with any proposed assignment of the
Lease or Sublease of all or any portion of the Premises,
Tenant shall deliver to Landlord, for Landlord's review and
written approval, all such information concerning the
proposed assignee or sublessee as Landlord may reasonably
require or request, including, but not limited to, any
financial statements or other financial information and all
terms of the proposed assignment or sublease.
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(10) Notwithstanding anything to the contrary set forth in
the Lease, Tenant hereby assigns and transfers to Landlord
One Hundred Percent (100%) of all of Tenant's interest in
and to all rent and other consideration which is in excess
of the then-current Rent, after deduction of any
commissions or tenant improvement funds actually paid by
Tenant arising from any assignment or sublease of the
Premises hereafter made by Tenant and Landlord may collect
such rent and other consideration and apply same toward
Tenant's obligations under the Lease.
(11) Landlord shall not, by reason of this or any other
assignment of such sublease to Landlord nor by reason of
the collection of the rents from a sublessee, be deemed
liable to the sublessee of any failure of Tenant to perform
and comply with any of Tenant's obligations to such
sublessee under such sublease. Tenant hereby irrevocably
authorizes and directs any such sublessee, upon receipt of
a written notice from Landlord stating that a default
exists in the performance of Tenant's obligations under
this Lease, to pay to Landlord the rents due and to become
due under the sublease. Tenant agrees that such sublessee
shall have the right to rely upon any such statement and
request from Landlord, and that such sublessee shall pay
such rents to Landlord without any obligation or right to
inquire as to whether such default exists and
notwithstanding any notice from or claim from Tenant to the
contrary. Tenant shall have no right or claim against said
sublessee or Landlord for any such rents so paid by said
sublessee to Landlord.
(12) Subject to the provisions of paragraph 11.16(b), no
sublease entered into by Tenant shall be effective unless
and until it has been approved in writing by Landlord. In
entering into any sublease, Tenant shall use only such form
of sublease as is reasonably satisfactory to Landlord, and
once approved by Landlord, such sublease shall not be
changed or modified without Landlord's prior written
consent. Any sublessee shall, by reason of entering into a
sublease under this Lease, be deemed, for the benefit of
Landlord, to have assumed and agreed to conform and comply
with each and every obligation herein to be performed by
Tenant other than such obligations as are contrary to or
inconsistent with provisions contained in a sublease to
which Landlord has expressly consented in writing.
(13) In the event Tenant shall default in the performance
of its obligations under this Lease, Landlord at its option
and without any obligation to do so, may require any
sublessee to attorn to Landlord, in which event Landlord
shall undertake the obligations of Tenant under such
sublease from the time of the exercise of said option to
the termination of such sublease; provided, however,
Landlord shall not be liable for any prepaid rents or
security deposit paid by such sublessee to Tenant or for
any other prior defaults of Tenant under such sublease.
(14) No sublessee shall further assign or sublet all or
any part of the Premises without Landlord's prior written
consent.
(15) With respect to any subletting to which Landlord has
consented, Landlord agrees to deliver a copy of any notice
of default by Tenant to the sublessee. Such sublessee shall
have the right to cure a default of Tenant within three (3)
days after service of said notice of default upon such
sublessee, and the sublessee shall
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have a right of reimbursement and offset from and against
Tenant for any such defaults cured by the sublessee.
(d) LANDLORD'S EXPENSES. In the event Tenant shall assign or
sublet the Premises or request the consent of Landlord to any assignment or
subletting or if Tenant shall request the consent of Landlord for any act Tenant
proposes to do then Tenant shall pay Landlord's reasonable costs and expenses
incurred in connection therewith, including attorneys', architects', engineers'
or other consultants' fees.
(e) PROCEDURE AND CONDITIONS FOR CONSENT. In the event Tenant
wishes to sublet or assign the Premises, or any portion thereof, the following
procedure shall apply:
(1) Tenant shall submit in writing to Landlord (A) the
name of the proposed sublessee or assignee, (B) a statement
describing the nature of the business to be carried on in the
Premises, (C) a copy of the proposed sublease or assignment,
including all terms and conditions thereof, (D) Landlord's lease
application form, completed by the proposed assignee or
sub-Tenant, (E) financial statements for the proposed assignee or
sublessee, which shall include, at a minimum, prior year and year
to date (current to within six months) balance sheets, income and
expense statements and sources and uses of cash statements, and
(F) such other reasonable financial information regarding such
sublessee or assignee as Landlord shall reasonably request.
(2) At any time within twenty (20) days after Landlord's
receipt of all the information specified in Paragraph
11.17(e)(1), Landlord may, by written notice to Tenant, elect to:
(A) sublet or assign the Premises upon the same terms and
conditions as those offered to the proposed sublessee or
assignee; or (B) cancel and terminate this Lease with respect to
the portion of the Premises proposed to be sublet or assigned,
with a proportionate abatement of rent payable hereunder, or (C)
consent to such sublease or assignment, in which event such
consent may be conditioned upon the agreement by Tenant to pay
over to Landlord all or any portion of the amount by which any
rent or other consideration received by Tenant from the sublessee
or assignee exceeds the amount of rent actually payable by Tenant
to Landlord pursuant to this Lease during the period of the
proposed assignment or sublease; or (D) withhold Landlord's
consent. If Landlord fails to respond to Tenant's request for
consent within thirty (30) days after receipt of all of the
information specified in Paragraph 11.17(e)(1) above, Landlord's
consent will be deemed to have been given.
It shall be reasonable for Landlord to consider in deciding whether to
consent to an assignment or sublease, any or all of the following factors
regarding the proposed assignee or sublessee: (A) whether the proposed assignee
or sublessee has continuing financial strength, (B) proposed use of the Premises
by the assignee or sublessee, including the applicability of any covenants not
to compete undertaken by Landlord to other lessees in the Building, whether made
before or after execution of this Lease; (C) the proposed assignee's or
sublessee's business reputation; (D) the tenant mix within the Building; (E) the
applicability and effect upon any percentage rental provisions; and (F) the
business capability, experience and other qualifications of the proposed
assignee or sublessee.
[INTENTIONALLY LEFT BLANK]
23
<PAGE> 24
11.17 EXECUTION. This Lease may be executed in any number of original
counterparts. Each fully executed counterpart shall be deemed an original.
LANDLORD: NAM Partners, L.P.
______________________________________
By: Robert Mashaal, Manager NAM Mills,
L.L.C., its General Partner
TENANT: Brooktrout Technology, Inc., a
Massachusetts corporation
By: /s/ Robert C. Leahy By:
------------------------------- ----------------------------------
(Authorized Officer) (Authorized Officer)
Print Name: Robert C. Leahy Print Name:
----------------------- --------------------------
Title: Vice President Title:
---------------------------- -------------------------------
24
<PAGE> 25
EXHIBIT A
PLAN OF PREMISES
25
<PAGE> 26
EXHIBIT A
PLAN OF PREMISES
This plan is intended only to show the general layout of the property or a part
thereof. Lessor reserves the right to alter, vary, add to or omit, in whole or
in part, any structures, and/or improvements, and/or common areas, and/or land
areas shown on this plan. All measurements and distances are approximate. This
plan is not to be scaled.
[Graph]
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<PAGE> 27
EXHIBIT A
PLAN OF PREMISES
This plan is intended only to show the general layout of the property or a part
thereof. Lessor reserves the right to alter, vary, add to or omit, in whole or
in part, any structures, and/or improvements, and/or common areas, and/or land
areas shown on this plan. All measurements and distances are approximate. This
plan is not to be scaled.
[Graph]
27
<PAGE> 28
EXHIBIT B
LEGAL DESCRIPTION OF PROPERTY
28
<PAGE> 29
EXHIBIT B
LEGAL DESCRIPTION OF PROPERTY
[Legal Description]
29
<PAGE> 30
EXHIBIT C
WORK LETTER AGREEMENT
This Work Letter Agreement shall set forth the terms and conditions
relating to the construction of the Tenant Improvements in the Premises. This
Work Letter Agreement is essentially organized chronologically and addresses the
issues of the construction of the Premises, in sequence, as such issues will
arise during the actual construction of the Premises. All references in this
Work Letter Agreement to Articles or Sections of "this Lease" shall mean the
relevant portion of Articles 1 through 11 of the Lease to which this Work Letter
Agreement is attached as Exhibit C and of which this Work Letter Agreement forms
a part. The terms, covenants and conditions set forth herein are intended to and
shall have the same force and effect as if set forth at length in the body of
the Lease.
Landlord and Tenant hereby acknowledge and agree that certain
improvements shall be constructed by Landlord in the Premises (the "Tenant
Improvements"), in accordance with the procedures set forth herein.
1. BRIEF DESCRIPTION OF TENANT IMPROVEMENTS TO BE CONSTRUCTED BY
LANDLORD. Landlord shall construct the Tenant Improvements in substantial
conformance with mutually agreeable space plan and specifications attached
hereto as Exhibit C-1. Any and all other improvements to the Premises shall be
made at Tenant's sole cost and expense.
2. PLANS AND SPECIFICATIONS.
(a) Within ten (10) business days of mutual execution of the
Lease, Landlord shall deliver the Final Plans to Tenant, and within five (5)
business days after Tenants receipt thereof, Tenant shall notify Landlord in
writing of either Tenants approval or disapproval thereof, including any
corrections or changes required by Tenant to the Final Plans. Landlord shall
deliver to Tenant revised Final Plans which incorporate Tenant's proposed
changes, provided such proposed changes (i) are reasonable, (ii) are made in
good-faith and with particularity and precision and (iii) are in conformance
with Exhibit C- I attached hereto. In the event Landlord does not receive
written notice from Tenant for any requested changes to the Final Plans within
the time period specified herein, the Final Plans shall be conclusively deemed
approved by Tenant.
(b) Landlord shall not be required to furnish professional
interior design services to Tenant and shall not be required to pay for
professional interior design services engaged by Tenant. Further, Tenant's
interior furnishings, i.e., specification, supply and installation of furniture,
furnishings, and moveable equipment shall be the sole responsibility of Tenant.
All of Tenant's installation of interior furnishings and equipment shall be
coordinated with any work being performed by Landlord in the Premises or
elsewhere in the Building in such manner as to maintain harmonious labor
relations and not damage the Building or the Premises or interfere with Building
operations; provided, however, that without Landlord's prior consent, Tenant may
not install any interior furnishings in advance of the date on which the
Premises are Ready for Occupancy.
3. CONSTRUCTION. Following final approval of the Final Plans, Landlord
shall rely upon the Final Plan and use commercially reasonable efforts to
complete the Tenant Improvements described in the Final Plans prior to the
scheduled anticipated Commencement Date of as set forth the Lease. Landlord's
contractor (and its subcontractors) shall construct the Tenant Improvements in
accordance with the Final Plans, (a) unless a Change Order is made in accordance
with Section 4 of this Agreement, and (b) subject to delays as described in
Section 5 of this Agreement and delays due to governmental regulation, unusual
30
<PAGE> 31
scarcity of or inability to obtain labor or materials, labor difficulties,
casualty or other causes reasonably beyond Landlord's control.
4. CHANGE ORDERS. If the Tenant requests any change, addition or
alteration to the Final Plans or in Landlord's construction and completion of
the Tenant Improvements ("Changes"), Landlord shall promptly give Tenant an
estimate of the cost of such Changes and the resulting delay in the delivery of
the Premises to Tenant Within two (2) days after Tenant's receipt of such
written estimate from Landlord, Tenant shall give Landlord written notice
indicating whether or not Tenant elects to proceed with any such Changes. If
Tenant elects to proceed with such Changes and if, and only if, Landlord
approves such Changes, Landlord shall, at Tenants sole cost land expense,
promptly make such Changes. If Tenant elects not to proceed with such Changes or
fails to timely notify Landlord of Tenant's election within such two (2) day
period, Landlord shall complete the Tenant Improvements in the Premises without
making such Changes. In the event Tenant desires to proceed with such changes,
no different work shall be done unless and until Tenant shall first execute a
written agreement concerning the scope of the revised work or materials desired
by Tenant, cost of such work or materials and the effect of any resulting delay
(each, a "Change Order"). Further, a Change Order shall be required and executed
in the event Tenant selects materials or quantities that differ from those
specified in the Final Plans. All costs for labor and materials resulting from a
Change Order, including the cost of all plans prepared pursuant thereto, shall
be billed directly to Tenant by Landlord upon completion of construction of the
Tenant Improvements, and Tenant shall pay the amount of such bill as Additional
Rent within thirty (30) days after receipt thereof. All Work required pursuant
to a Change Order shall be undertaken by Landlord's contractor or its
subcontractor and not by Tenant.
5. TENANT'S DELAYS. To the extent that the Commencement Date of the
Term has not occurred because Landlord was delayed in substantially completing
the Tenant Improvements as a result of the following (collectively, "Tenant
Delays"):
(i) Tenant's failure to complete any action item on or before
the due date which is the responsibility of Tenant to complete, or
(ii) Tenant's request for Changes or the construction of such
Changes by Landlord, or
(iii) Tenant's request for materials, finishes, or
installations other than those specified and reasonably provided by
Landlord, or
(iv) Any delay by Tenant in making any payment(s) to
Landlord, or
(v) Any act or failure to act by Tenant, Tenant's employees,
agents, architects, independent contractors, consultants and/or any
other person performing or required to perform services on behalf of
Tenant, then
then, notwithstanding anything to the contrary set forth in the
Lease or this Work Letter Agreement and regardless of the actual date of
the Substantial Completion of the Premises, the Lease Commencement Date
shall be deemed to be the date the Lease Commencement Date would have
occurred if no Tenant delay or delays, as set forth above, had occurred.
If Landlord's contractor is required to work beyond the anticipated
Commencement Date as a result of Tenant-caused delays (then Tenant shall be
responsible for and shall pay to Landlord upon completion of the Tenant
Improvements the additional supervisory and general conditions costs incurred by
Landlord.
31
<PAGE> 32
6. UNAVOIDABLE DELAYS. If the performance by Landlord or any act
required herein or elsewhere in the Lease is prevented or delayed by reason of
strikes, lockouts, labor disputes, governmental delays, acts of God, fire,
floods, earthquake, epidemics, freight embargoes, unavailability of materials
and supplies, development moratoriums imposed by any governmental authority, or
any other cause beyond the reasonable control of Landlord (including any "Tenant
Delay" (as hereinabove defined)), Landlord shall be excused from performance for
the time period equal to the time period of the prevention or delay.
7. TENANT IMPROVEMENT ALLOWANCE FOR VOICE AND DATA NETWORK. Landlord
shall contribute a "Tenant Improvement Allowance" for Tenant to utilize for the
design and construction of its Voice and Data Network, as proposed in that
certain proposal from Mahon Communications Corporation, dated November 5, 1998
and attached hereto as Exhibit C-2, in an amount which may equal, but shall not
exceed, Fifty Thousand dollars ($50,000.00). The Tenant Improvement Allowance
shall be disbursed by Landlord within 15 days following receipt of Tenant's
requests for disbursement which shall include invoices and conditional lien
releases (if applicable) which shall be approved by Tenant or Tenant's designer.
Any such Improvements shall be made in accordance with Paragraph 3.4 of the
Lease. Landlord and Tenant hereby acknowledge and agree that Landlord shall not
be obligated to construct and complete any work related to the Tenant's voice
and data network as set forth in the above referenced proposal, and Landlord
shall not be responsible, in any manner whatsoever, for the design and
construction of Tenant's voice and data network or any improvements within the
scope of work set forth in above referenced proposal. Tenant hereby agrees to
indemnify and defend Landlord and hold Landlord harmless from and against any
and all claims, costs, expenses or liability (including, without limitation,
Tenant's failure to obtain any necessary permits, approvals or certificates from
the applicable governmental authorities and/or actual attorney's costs and fees,
and court costs), arising from Tenant's design, construction and operation
Tenant's voice and data network in, on or about the Premises.
Tenant shall not be entitled to receive any payment or credit, or any
offset or deduction against any monetary obligation of Tenant under the Lease,
for any portion of the Tenant Improvement Allowance which is not expended by
Landlord.
8. WINDOW TINTING. In addition to the work to be performed by
Landlord, as set forth above, Landlord shall install window tinting in
Building #12.
LANDLORD: NAM Partners, L.P.
______________________________________
By: Robert Mashaal, Manager NAM Mills,
L.L.C., its General Partner
32
<PAGE> 33
TENANT: Brooktrout Technology, Inc.
By:
---------------------------------
(Authorized Officer)
Print Name: -------------------------
Title: ------------------------------
BY: /s/ Robert C. Leahy
----------------------------------
(AUTHORIZED OFFICER)
Print Name: ROBERT C. LEAHY
--------------------------
Title: VICE PRESIDENT
-------------------------------
33
<PAGE> 34
[GRAPH]
34
<PAGE> 35
EXHIBIT D
LANDLORD'S SERVICES
I. JANITORIAL Landlord will provide no Janitorial or Cleaning Services in
the Premises
II. HEATING, VENTILATING, AIR CONDITIONING
A. Landlord shall furnish space heating and cooling as normal
seasonal changes may require to provide reasonably comfortable
space temperature and ventilation for occupants of the Premises
under normal business operation, daily from 8:00 a.m. to 8:00
p.m., Saturdays and Sundays 10:00 a.m. to 3:00 p.m., holidays
excepted.
If Tenant shall require air conditioning or heating or
ventilation outside the hours and days above specified, Landlord
shall furnish such service at Tenant's expense.
B. The air conditioning system is based upon an occupancy of not
more than one person per 150 square feet of usable floor area,
and upon a combined lighting and standard electrical load not to
exceed 3.5 watts per square foot of usable area. In the event
Tenant exceeds this condition or introduces onto the Premises
equipment which overloads system, and/or in any other way causes
the system not adequately to perform their proper functions,
supplementary systems, may at Landlord's option be provided by
Landlord at Tenant's expense.
III. WATER
A. Landlord shall furnish cold water at temperatures supplied by the
water mains for drinking, lavatory, and toilet purposes and hot
water for lavatory purposes only from regular building supply at
prevailing temperatures
V. ELECTRICAL SERVICE
Tenant to pay all charges associated with electricity to and for the
Premises.
35
<PAGE> 36
EXHIBIT E
RULES AND REGULATIONS
1. The purpose of this Exhibit is hereby agreed to be: To adopt a workable
code of regulations protecting the Landlord and Tenant of the Building
toward the goal of creating a harmonious atmosphere of high professional
competence in the Property.
2. Landlord agrees that Tenant is entitled to and shall have the quiet
enjoyment of the Premises.
3. Tenant and Tenant's employees shall not loiter in the entrance or
corridors of the Building, or in any way obstruct the sidewalks, halls,
stairways and elevators, and shall use the same only as a means of
passage to and from their respective offices.
4. The water closets, urinals and other plumbing shall be used for the
purpose for which they were constructed and no rubbish, newspapers or
other substances of any kind shall be thrown into them.
5. All electric and telephone wiring shall be installed as directed by
Landlord and boring or cutting of floors and partitions for wires will
not be permitted, except with the written consent of Landlord.
6. Tenant shall not install or use any machinery in the Premises which may
cause any unreasonable noise, jar or tremor to the floors or walls, or
which by its weight might injure the floors of the Building. Landlord
shall prescribe the weight, size and position of all files, safes and
heavy equipment used in the building, which in all cases shall stand on
a wood or metal base of size and type designated by Landlord. All damage
to the Building caused by installing or removing any safe, furniture,
equipment or other property shall be repaired at the expense of Tenant.
7. Tenant and Tenant's agents and employees shall not play any musical
instrument including radio and television, in a loud or objectionable
manner, or make or permit any improper noises in the Building, or
interfere in any way with other tenants or those having business with
them or bring into or keep within the Building any animal, bird or
vehicle.
8. Tenant shall not conduct any auction on the Premises.
9. All furniture, equipment and height shall be moved into and out of the
Building only during such hours as shall be reasonably approved by and
under the supervision of Landlord. Landlord will not be responsible for
loss of or damage to any furniture, equipment or freight from any cause.
10. All keys to the Premises or the Building shall be returned to Landlord
upon the termination of Tenant's lease. Tenant shall not change the
locks or install other locks on doors of the Premises unless otherwise
provided in the Lease or approved in advance by Landlord.
11. Landlord reserves the right to exclude or expel from the Building any
person who, in the judgment of the Landlord, is intoxicated or under the
influence of liquor or drugs, or who shall do any act in violation of
the rules and regulations of the Building.
12. Landlord reserves the right to close and keep locked all entrance and
exit doors of the Building during hours Landlord may reasonable deem
advisable for the adequate protection of the property. Except to those
having keys to the Building, use of the Building before 7:00 a.m. or
after 6:00 p.m., on Monday through Saturday, or at any time during
Sundays or legal holidays shall be permissive
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<PAGE> 37
and subject to the rules and regulations Landlord may reasonably
prescribe. Landlord assumes no responsibility and shall not be liable
for any damage resulting from the entry of any authorized or
unauthorized person to the Building.
13. Landlord shall have the right to prohibit any advertising by any agent
which in Landlord's opinion, tends to impair the reputation of the
Building or its desirability as a Building for offices, and upon written
notice from Landlord, such Tenant shall refrain from or discontinue such
advertising.
14. No Tenant will install blinds, shades, awnings or other form of inside
or outside window covering, or window ventilators or similar devices
without the prior written consent of Landlord.
15. Tenant shall give Landlord prompt notice of any accidents to or defects
in the water pipes, gas pipes, electric lights and fixtures, heating
apparatus or any other service equipment.
16. Tenant shall not use, keep or permit to be used or kept any foul or
noxious gas or substance in the Premises, or permit or suffer the
Premises to be occupied or used in a manner offensive or objectionable
to Landlord or other occupants of the Building by reason of noise, odors
and/or vibrations, or interfere in any way with other tenants or those
having business therein.
17. No cooking shall be done or permitted by Tenant on the Premises, except
in areas specifically designed for the purpose, without the consent of
Landlord, nor shall the Premises be used for the storage of merchandise,
for washing clothes, for lodging, or for any improper, objectionable or
immoral purposes.
18. Tenant shall not use or keep in the Premises of the building any
kerosene, gasoline or inflammable or combustible fluid or material, or
use any method of heating or air conditioning other than that permitted
or approved.
19. Tenant shall see that the doors of the Premises are closed and securely
locked before leaving the Premises, and must observe strict care and
caution that all water faucets or water apparatus are shut off before
Tenant or Tenant's employees leave, and that all electricity shall
likewise be carefully shut off, so as to prevent waste or damage, and
for any default or carelessness Tenant shall make good all injuries
sustained by other tenants or occupants of the Building or Landlord.
20. No commercial vending machine or machines of any description shall be
installed, maintained or operated upon the Premises without the written
consent of Landlord.
21. Tenant shall not disturb, solicit or canvass any occupant of the
Building and shall cooperate to prevent same.
22. All parking authorized by the Lease shall be for the personal
transportation to and from the Building of Tenant and its employees, and
not for long-term (i.e., for more than forty-eight hours) storage of
automobiles or for short- or long-term storage of boats, trailers,
recreational vehicles, motorcycles or other vehicles or equipment.
23. From time to time it may become advantageous to the Project for Landlord
to make further revisions to these rules and regulations. To the extent
consistent with and permitted by the Lease, Landlord reserves the right
to make such revisions by giving notice to Tenant.
24. There shall be no smoking allowed within the Building and the entry
areas of the Building. Smoking shall be permitted only in areas
designated by Landlord.
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<PAGE> 38
25. Tenant's building operating hours shall be 8:00AM to 8:00PM Monday
through Friday and 10:00AM through 3:00PM on Saturdays and Sundays. HVAC
charges shall be $15 per hour for any requests made at any time other
than Tenant's building operating hours.
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EXHIBIT E
LEASE COMMENCEMENT MEMORANDUM/AMENDMENT
This Lease Commencement Memorandum/Amendment is executed on this ____
day of _________, 1999 by and between by and between NAM Partners, L.P, and
Brooktrout Technology, Inc. The terms, covenants and conditions set forth herein
are intended to and shall have the same force and effect as if set forth at
length in the body of the Lease. To the extent that the provisions of this
Amendment are inconsistent with any provisions of the Lease, the provisions of
this Addendum shall supersede and control. Lessor and Lessee hereby agree and
amend the Lease as follows:
1. Possession of the Premises has been tendered to Lessee.
2. Commencement Date and Term. Pursuant to Paragraph 3 of the Lease,
the Commencement Date of the Lease is hereby established for all purposes as and
the term, of the Lease shall expire on ____________.
LANDLORD: NAM Partners, L.P.
_______________________________________________
By: Robert Mashaal, Manager NAM Mills, L.L.C.,
its General Partner
TENANT: BROOKTROUT TECHNOLOGY, INC.
By:____________________________________________
(Authorized OFFICER)
Print Name:____________________________________
Title:_________________________________________
By:____________________________________________
(Authorized OFFICER)
Print Name:____________________________________
Title:_________________________________________
39
<PAGE> 40
EXHIBIT C-1
PRICING NOTES, AS SUPPLEMENT TO PLAN
INTERSPEED JOB - NORTH ANDOVER MILLS
DRAWING DATED: DECEMBER 8, 1998
1. Drop ceiling to be installed at following areas only:
- Eight private offices
- Demo Room
- Tech Support Lab
- Small Conference Room
- Large Conference Room
- Computer Room & P.C. Storage
2. Flooring to be building standard level loop carpet, glue direct, unless
noted otherwise on drawing. Exception 1) Computer Room to receive Anti
Static Tile (ESD), Exception 2) Lounge Area to receive VCT.
3. All new wall surfaces to receive smooth coat and paint
4. All drop ceiling areas to receive building standard 2' x 4' fluorescent
fixtures
5. All areas not receiving drop ceiling will use existing lighting system
6. Computer Room will contain approximately 12 desk top type computers.
This room needs to be climate controlled, so if a drop ceiling is
required, contractor to price accordingly. Further, provide adequate
power for 12 computer systems.
7. Provide One power drop per 4-6 work stations throughout all areas of
workstations
8. Caged Stock Rooms require 8' high wire-way partition enclosure as per
the drawing. Openings to be sliding gates no less than 6' wide. These
rooms need minimal wall electricity - one duplex per hard wall in each
9. Manufacturing lab to receive a total of 12 power drops, locations to be
determined
10. Provide 2 duplex outlets and one mud ring per private office
11. Provide 4 duplex outlets in large conference room, evenly spread, and
one mud ring
12. Provide 2 duplex outlets in small conference room, evenly spread, and
one mud ring
13. Provide 4 duplex outlets in demo room, evenly spread, and one mud ring
14. Provide 1 duplex outlet in reception area in floor as shown, and one mud
ring
15. Provide one 4-plex floor outlets in center of Large Conference Room,
Small Conference Room & Demo Room (only Large Conference Room and Demo
Room are shown on plan).
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16. Provide one unisex shower, in location to be determined, but in close
proximity to either the existing restrooms or the new counter and sink -
see note
17. All new walls to be 10', drywall capped
18. No improvements are required, other than carpet, at Growth Workstations
19. Millwork in Demo Room to be building standard Lowers only.
20. Millwork in Equipment Room to be building standard Lowers and Uppers.
Price to exclude Telcom/Data except for mud rings/pull strings where indicated
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EXHIBIT C-1
TENANT IMPROVEMENT SPECIFICATIONS
INTERSPEED JOB - NORTH ANDOVER MILLS
DECEMBER 15,1998
________________________________________________________________________________
ITEM DESCRIPTION
________________________________________________________________________________
Cabinets Plastic laminate with plastic laminate counter tops.
Shelves shall be Melamine. Plastic laminate shall be
Wilsonart or equal.
________________________________________________________________________________
Vestibule addition Kawneer (or equal) bronze aluminum framing with 1/4"
clear glass, tempered as required by code. Interior
"roof" of vestibule shall be gypsum.
________________________________________________________________________________
Side light glazing 1/4" clear, tempered where required by code.
________________________________________________________________________________
Interior doors 5 ply solid core red oak, 3' x 7' with clear field
finish
________________________________________________________________________________
Door frames Painted hollow metal
________________________________________________________________________________
Door hardware Standard ADA compliant lever hardware by Schlage,
Arrow or Falcon. Ball bearing hinges, standard door
stops. No closers
________________________________________________________________________________
Drywall 3-5/8" metal studs with one layer of 5/8" gypsum
each side. Walls are 10' and braced to each other.
Sound insulation at conference rooms only. Short
walls at Manufacturing to receive gypsum cap.
________________________________________________________________________________
Acoustic ceiling Armstrong 2 x 4 square edge lay in fissure tile in
standard grid.
________________________________________________________________________________
Vinyl composition tile Armstrong standard colors
________________________________________________________________________________
Static disapative tile VPI standard colors
________________________________________________________________________________
Carpet Shaw Industries 26 ounce loop pile "Potential", "On
Line", of "Sea Island" lines.
________________________________________________________________________________
Vinyl base Johnsonite standard colors
________________________________________________________________________________
Paint Standard Benjamin Moore colors, primer plus two
coast. No polynix.
________________________________________________________________________________
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EXHIBIT C-2
Mahon Communications Corporation
November 5, 1998
Mr. Todd Pearlman
Yale, Properties
6356 Greenwich Dr.
Suite 230
San Diego, CA 92122
RE: Highspeed voice and Data Network
For Interspeed at North Andover Mills
Todd,
MCC is providing the following Scopes of work for your review.
Scopes of work and quantities are calculated from Beth Loepers drawings and
Interspeeds needs.
With the height of the ceiling in some areas, MCC is recommending modular
furniture to come in contact with either the I-Beams, outside walls or interior
hardwalls.
MCC can not install power poles of the lengths that would be needed in those
areas, therefore MCC is requesting, if needed building owner to supply Conduit
Access to those areas.
During MCC's walk through with Interspeed on October 26, 1998, it was noted that
the office space was a non plenum environment allowing for PVC cabling. If this
is to change please notify MCC to adjust pricing to plenmun cable.
Scope 1:
Install 118 Standard locations. Each location consisting of 4 Cat 5 4pr.
PVC cables. All cables to terminate on modular patch panels in equipment
room, and in 1 -- outlet box at the station location.
Material: $19,056.60
Labor: $15,611.40
Tax: $ 952.83
----------
Total: $35,620.83
Scope 2:
Install I - 300Pr. Voice feel and 1 - 12 Strand multimode fiber from the
main cross connect room (MC) to the intermediate cross connect room (ICC).
The 300Pr. Voice feed to terminate 2 pairs each onto modular patch panels.
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<PAGE> 44
MCC
Mahon Communications Corporation
At the MC and ICC there will be, I - 24 Port Patch Panel to the 110 Voice
wall field to cross connect outside service lines to equipment.
A 12" Ladder tray will be installed above the 19" Equipment racks for cable
access.
Material: $ 7,898.85
Labor: $ 4,233.60
Tax: $ 394.95
----------
Total: $12,527.40
Scope 3:
Relocate Interspeeds Bay Networks high speed data network.
Labor Only: $880.00
Scope 4:
Relocate AT&T Merlin Telephone System.
Labor Only: $960.00
All Scopes of work to be done on normal working hours Monday through Friday.
Summary: Scope 1: $35,056.60
Scope 2: $12,527.40
Scope 3: $ 880.00
Scope 4: $ 960.00
Total all above Scopes Off Work
$49,424.00
Thank you for your interest in our company and its services.
Sincerely,
Steve Mahon, RCDD
Project Manager
44
<PAGE> 45
Mahon Communications Corporation
803 Summer Street Boston, MA 02127
Main: 617-269-7100 Fax: 617-269-4306
Quote # C-249
Company: Interspeed
Contact: Steve Ide
Project: Stations Scope 1
Quotation:
Qty Part No. Description
________________________________________________________________________________
94000 004240500 Cat 5 4Pr. CMR
236 OR-60950009 Dual Cat 5 RJ45 Jack
118 OR-40300158 Faceplates
119 OR-40300164 Blank Inserts
118 2348 Work Boxes
30 MPLS Pre Wire Brackets
4 55053-703 19" Equipment Racks
2 11729-703 Double Vertical Section
11 OR-851044791 48 Port Patch Panel
22 OR-60400046 Cable Support Bar
11 OR-808004410 Wire Manager
118 KMPT-1 Station Labels
472 KMPT-2 Patch Panel Labels
4 MICK Mounting Clamp Kit
Lot CAD Cat 5 Cat 5 Caddy Supports
300 2300 BAC Station Wire Mold
140 PCCAT510 10' Statio Cat 5 Cords
70 PCCAT55 5' Patch Cords Cat 5
70 PCCAT57 7' Patch Cords Cat 5
Lot Cat 5 T&D Cat 5 Test & Doc.
1 As Built As Built Drawing
Lot Permit Wiring Permit
________________________________________________________________________________
Sub-Total Material: $19,056.60
Installation, Staging, Testing and Project Management: $15,611.40
Tax: $ 952.83
________________________________________________________________________________
*TOTAL INVESTMENT: $35,620.83
*Note: Investment does not include sales tax, shipping and handling.
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<PAGE> 46
Quote # C-249
Company: Interspeed
Contact: Steve Ide
Project: Feeds Scope 2
Quotation:
Qty Part No. Description
________________________________________________________________________________
400 300240300 300 Pair Level 3 CMR
8 OR-851044791 48 Port Patch Panel
10 OR-808004410 Wire Manager
18 OR-60400046 Cable Support Bar
300 25240300 25Pr. Level 3 CMR
2 OR-851044801 24 Port Patch Panels
17 11OAW2-1 00 100 Pair Blocks
50 11OC-4 Connecting Clips C-4
10 11OC-5 Connecting Clips C-5
2 188BI Voice Managers
8 150BI Desi Strip Labels
432 KMPT-l Patch Panel Labels
8 KMPT-110 Voice Labels
400 12 MM CMR 12 Strand M/M Fiber CMR
400 1" Inner CMR 1" Innerduct CMR
2 OR-625MCC-12PR. 2 - 12 Port Rack Mt. LIU Loaded
28 P202OC-C-125 ST/MM Fiber Connectors
4 3MTSTST Fiber Patch Cord M/M
4 10250-012 12" Ladder Tray 10'
Lot L-Kit Ladder Tray Install Kit
8 11301-001 Butt-Splice Kit
4 11421-1-12 Wall Angle Support
________________________________________________________________________________
Sub-Total Material: $ 7,898.85
Installation, Staging, Testing and Project Management: $ 4,233.60
Tax: $ 394.95
________________________________________________________________________________
*TOTAL INVESTMENT: $12,527.40
*Note: Investment does not include sales tax, shipping and handling.
46
<PAGE> 47
SUBMISSION NOT AN OPTION
THE SUBMISSION OF THIS LEASE FOR EXAMINATION AND NEGOTIATION DOES NOT CONSTITUTE
AN OFFER TO LEASE, A RESERVATION OF, OR OPTION FOR THE PREMISES AND SHALL VEST
NO RIGHT IN ANY PARTY. TENANT OR ANYONE CLAIMING UNDER OR THROUGH TENANT SHALL
HAVE THE RIGHTS TO THE PREMISES AS SET FORTH HEREIN AND THIS LEASE SHALL BECOME
EFFECTIVE AS A LEASE ONLY UPON EXECUTION, ACKNOWLEDGMENT AND DELIVERY THEREOF BY
LANDLORD AND TENANT, REGARDLESS OF ANY WRITTEN OR VERBAL REPRESENTATION OF ANY
AGENT, MANAGER OR EMPLOYEE OF LANDLORD TO THE CONTRARY.
LANDLORD: NAM Partners, L. P.
TENANT: Brooktrout Technology, Inc., a
Massachusetts corporation
PREMISES: Approximately 36,179 square feet located in
North Andover Mills, North Andover, Massachusetts
47
<PAGE> 48
TABLE OF CONTENTS
Page
ARTICLE I - BASIC LEASE PROVISIONS............................................1
ARTICLE II - PREMISES.........................................................2
2.1 Premises....................................................2
2.2 Common Areas................................................2
2.3 Landlord's Reservations.....................................3
2.4 Parking.....................................................3
ARTICLE III - TERM; LANDLORD'S AND TENANT'S WORK..............................3
3.1 Term........................................................3
3.2 Commencement Date...........................................4
3.3 Extension Option............................................4
3.5 Tenant's Work...............................................6
ARTICLE IV - RENT.............................................................7
4.1 Base Rent and Additional Rent...............................7
4.2 Security Deposit............................................7
4.3 Additional Rent.............................................7
ARTICLE V - TENANT'S COVENANTS AND LANDLORD'S OBLIGATIONS
....................................................................10
5.1 General Covenants..........................................10
5.2 Environmental Covenants....................................11
5.3 Landlord's Covenants.......................................12
ARTICLE VI - CONDITION OF PREMISES
....................................................................12
6.1 Improvements...............................................12
6.2 Fixtures: Yield-Up.........................................12
6.3 Mechanic's Liens...........................................12
ARTICLE VII - INSURANCE
....................................................................13
7.1 Insurance..................................................13
7.2 Tenant's Risk..............................................13
7.3 General Requirements.......................................13
7.4 Indemnity..................................................14
7.5 Waiver of Subrogation......................................14
7.6 Landlord's Insurance.......................................14
ARTICLE VIII - CASUALTY AND EMINENT DOMAIN
....................................................................15
8.1 Damage.....................................................15
8.2 Termination Rights.........................................15
8.3 Abatement..................................................15
(i)
<PAGE> 49
8.4 Taking for Temporary Use...................................15
8.5 Disposition of Awards......................................15
ARTICLE IX - DEFAULTS AND REMEDIES...........................................16
9.1 Tenant's Default...........................................16
9.2 Damages....................................................16
9.3 Landlord's Self-Help.......................................17
9.4 Landlord's Default.........................................17
ARTICLE X - SUBORDINATION....................................................17
10.1 Subordination..............................................17
10.2 Request by Mortgagee.......................................17
ARTICLE XI - MISCELLANEOUS PROVISIONS........................................17
11.1 Parties Bound..............................................17
11.2 Landlord's Liabilities and Additional Rights...............18
11.3 Holding Over...............................................18
11.4 Quiet Environment..........................................18
11.5 No Brokerage...............................................19
11.6 Certificates...............................................19
11.7 Notices....................................................19
11.8 No Waiver..................................................19
11.9 Force Majeure..............................................19
11.10 Recording..................................................19
11.11 Waiver of Jury Trial.......................................19
11.12 Paragraph Headings.........................................19
11.13 Governing Law..............................................20
11.14 Severability: Construction and Interpretation..............20
11.15 When Lease Becomes Binding; Entire Agreement...............20
11.16 Assignment and Subletting..................................20
11.17 Execution..................................................24
(ii)
<PAGE> 1
EXHIBIT 10.3
ASSIGNMENT AND ASSUMPTION OF LEASE
THIS ASSIGNMENT AND ASSUMPTION OF LEASE ("Agreement") is made this 17th
day of December, 1998 by and between LUCENT TECHNOLOGIES INC., a Delaware
corporation, having an address at 475 South Street, Morristown, New Jersey,
07962 ("Assignor") and BROOKTROUT TECHNOLOGY, INC., a Massachusetts corporation,
having an address at 410 First Avenue, Needham, Massachusetts, 02192
("Assignee")
WITNESSETH:
WHEREAS, Los Gatos Business Park, a general partnership, as Landlord,
and Rhetorex, Incorporated ("Rhetorex"), as Tenant, entered into a lease dated
November 16, 1995 (the "Lease"), a complete copy of which is attached hereto as
Exhibit A, in which Landlord leased to Rhetorex and Rhetorex hired from Landlord
approximately 33,290 rentable square feet (the "Premises") located at 151
Albright Way, Los Gatos, California (the "Building");
WHEREAS, Octel Communications Corporation ("Octel") became successor by
merger to Rhetorex;
WHEREAS, Octel assigned its right, title and interest in and to the
Lease to Assignor, parent corporation of Octel, pursuant to an Assignment and
Assumption of Lease dated March 1, 1998;
WHEREAS, in accordance with Section 21 of the Lease, Assignor desires
to assign all its right, title and interest in the Lease to Assignee, pursuant
to the acquisition by Assignee of substantially all of the former assets of
Rhetorex by Assignee, and Assignee desires to accept such assignment, on the
terms set forth herein.
NOW, THEREFORE, in consideration of the mutual promises contained
herein and other good and valuable consideration, the receipt and sufficiency of
which is acknowledged by the parties, Assignor and Assignee agree as follows:
1. Assignor hereby assigns and transfers all of its right, title and
interest in and to the Lease to Assignee to have and to hold the same from the
18th day of December, 1998 (the "Effective Date"), for all the rest of the term
of the Lease, and subject to all the terms, covenants, conditions and provisions
therein contained.
2. Assignee accepts the Assignment and assumes and agrees to perform,
from and after the Effective Date in a direct obligation to Landlord, all of the
terms, covenants, conditions and provisions of the Lease, as though the Assignee
were the original signatory to the Lease. Assignee shall make all payments of
rent, additional rent and all other sums due under the Lease accruing from and
after the Effective Date in accordance with the terms of the
<PAGE> 2
Lease and shall send the same directly to Landlord as provided in the Lease.
Assignee agrees to look solely to Landlord for provision of services under the
Lease.
3. Assignor shall be responsible for all of the terms, covenants,
conditions, payments and provisions of the Lease prior to the Effective Date.
Assignor shall continue to be secondarily liable for all of the terms,
covenants, conditions, payments and provisions of the Lease for the remaining
term of the Lease.
4. This Agreement shall be binding upon and inure to the benefit of
the parties hereto and their personal representatives, successors and assigns.
IN WITNESS WHEREOF, Assignor and Assignee have executed the instrument
the date first above written.
LUCENT TECHNOLOGIES INC.
(ASSIGNOR)
By: /s/ Deborah J. Quok
---------------------------------
Name: Deborah J. Quok
-------------------------------
Title: Transaction Manager
------------------------------
BROOKTROUT TECHNOLOGY, INC.
(ASSIGNEE)
By: /s/ ROBERT C. LEAHY
---------------------------------
Name: Robert C. LeahY
-------------------------------
Title: Vice President
------------------------------
The undersigned hereby acknowledges, agrees and consents to the above assignment
pursuant to Section 21 of the Lease. The undersigned further agrees to look to
Assignee as Lessee under the Lease and acknowledges that the attached Lease has
not been amended and that to the best of the undersigned's knowledge, Assignor
is not in default under the Lease, nor will assignment cause the Lease to be in
default.
LOS GATOS BUSINESS PARK
By: /s/ Howard White
---------------------------------
Name: Howard White
-------------------------------
Title: General Manager
------------------------------
2
<PAGE> 3
LEASE
THIS LEASE is made on the 16th day of November, 1995 by and between Los
Gatos Business Park (hereinafter called "Lessor") and Rhetorex, Incorporated, a
California Corporation (hereinafter called "Lessee").
IN CONSIDERATION OF THE MUTUAL PROMISES HEREIN CONTAINED,
THE PARTIES AGREE AS FOLLOWS:
1. PREMISES. Lessor leases to Lessee, and Lessee leases from Lessor, upon
the terms and conditions herein set forth, those certain Premises
("Premises") situated in the Town of Los Gatos, County of Santa Clara,
California, as outlined in Exhibit "A" attached hereto and described as
follows: +/- 33,290 square foot building commonly known as 151 Albright
Way, Los Gatos, California. Lessee's pro-rata share of the building is
100%.
2. TERM. The term of this Lease shall be for five (5) years, commencing
the later of (a) February 1, 1996 and (b) the date by which all of the
following have occurred: (1) Lessor has substantially completed the
improvements set forth on Exhibit B in accordance with the terms of
this Lease (the "Improvements"); (ii) there remains no incomplete or
defective item of Improvements that would adversely affect Lessee's
intended use of the Premises: (iii) Lessor has delivered legal
possession of the Premises to Lessee; and (iv) Lessor has obtained all
approvals and permit from the appropriate governmental authorities
required to be obtained by Lessor for the legal occupancy of the
Premises (the "Commencement Date").
3. RENT. Lessee shall pay to Lessor rent for the Premises of Thirty-Four
Thousand Nine Hundred Fifty-Five and 00/100 Dollars ($34,955.00) per
month in lawful money of the United States of America, subject to
adjustment as provided in Section A of this Paragraph. Rent shall be
paid without deduction or offset, prior notice, or demand, at such
place as may be designated from time to time by Lessor as follows:
$34,955.00 shall be paid upon execution of the Lease, which sum
represents the amount of the first month's rent. A deposit of
$34,955.00 as a Security Deposit shall be made by Lessee and held by
Lessor pursuant to Paragraph 5 of this Lease, and shall be paid upon
execution of the Lease. If Lessee is not in default of this Lease, this
sum, without interest thereon, shall be applied toward the rent due for
the last month of the term of this Lease or the extended term, pursuant
to any extension of the initial term in accordance with the provisions
of this Lease. Rent shall be paid in advance on the first (1st) day of
each calendar month as follows:
Months Monthly Rent/nnn
------ ----------------
01-12 $34,955.00
13-24 $36,953.00
25-36 $36,952.00
37-48 $37,951.00
3
<PAGE> 4
49-60 $38,949.00
Rent for any period during the term hereof which is for less than one (1) full
month shall be a pro-rata portion of the monthly rent payment. Lessee
acknowledges that late payment by Lessee to Lessor of rent or any other payment
due Lessor will cause Lessor to incur costs not contemplated by this Lease, the
exact amount of such costs being extremely difficult and impracticable to fix.
Such costs include, without limitation, processing and accounting charges, and
late charges that may be imposed on Lessor by the terms of any encumbrance and
note secured by any encumbrance covering the Premises. Therefore, if any
installment of rent or other payment due from Lessee is not received by Lessor
within five (5) days following the date it is due and payable, Lessee shall pay
to Lessor an additional sum of five percent (5%) of the overdue amount as a late
charge. The parties agree that this late charge represents a fair and reasonable
estimate of the costs that Lessor will incur by reason of late payment by
Lessee. Acceptance of any late charge shall not constitute a waiver of Lessee's
default with respect to the overdue amount, nor prevent Lessor from exercising
any of the other rights and remedies available to Lessor.
If, for any reason whatsoever, Lessor cannot deliver possession of the
Premises on February 1, 1995, this Lease shall not be void or voidable, nor
shall Lessor be liable to Lessee for any loss or damage resulting therefrom.
Notwithstanding anything to the contrary in this Lease, if the Commencement Date
has not occurred on or before May 1, 1996, then, in addition to Lessee's other
rights and remedies, Lessee may terminate this Lease by written notice to
Lessor, whereupon any monies previously paid by Lessee to Lessor shall be
reimbursed to Lessee or, at Lessee's election, the date Lessee is otherwise
obligated to commence payment of rent shall be delayed by one day for each day
that the Commencement Date is delayed beyond such date. In the event that Lessor
shall permit Lessee to occupy the Premises prior to the commencement date of the
term, such occupancy shall be subject to all of the provisions of this Lease,
excluding the obligation to pay rent at the same monthly rate as that prescribed
for the first month of the Lease term.
A. COST-OF-LIVING INCREASE. Not applicable.
B. All taxes, insurance premiums, Outside Area Charges, late
charges, costs and expenses which Lessee is required to pay
hereunder, together with all interest and penalties that may
accrue thereon in the event of Lessee's failure to pay such
amounts, and all reasonable damages, costs, and attorney's fees
and expenses which Lessor may incur by reason of any default of
Lessee or failure on Lessee's part to comply with the terms of
this Lease, shall be deemed to be additional rent (hereinafter,
"Additional Rent"), and, in the event of non-payment by Lessee,
Lessor shall have all of the rights and remedies with respect
thereto as Lessor has for the non-payment of monthly installment
of rent.
4
<PAGE> 5
4. OPTION TO EXTEND TERM.
A. Lessee shall have the option to extend the term on all the
provisions contained in this Lease for one (1) five (5) year
period ("extended term(s)") at an adjusted rental calculated as
provided in Subparagraph B below on the condition that:
(1) Lessee has given to Lessor written notice of exercise of
that option ("option notice") at least six (6) months
before expiration of the initial term or extended term(s),
as the case may be.
(2) Lessee is not in default of the Lease on the date of giving
the option notice, and Lessee is not in default on the date
that the extended term is to commence.
B. RENT FOR OPTION PERIOD: The rent during the extended term shall
be the then current fair market monthly rent ("Fair Market Rent")
for the Premises as of the commencement date of the applicable
extended term, as determined by the agreement of the parties or,
if the parties cannot agree within sixty (60) days prior to the
commencement of such extended term, then by an appraisal. All
other terms and conditions contained in the Lease as the same may
be amended from time to time by the parties in accordance with
the provisions of the Lease, shall remain in full force and
effect and shall apply during the Option term.
If it becomes necessary to determine the fair market rental value
for the Premises by appraisal, real estate appraiser(s), all of
whom shall be members of the American Institute of Real Estate
Appraisers and have at least five (5) years experience appraising
office space located in the vicinity of the Premises and none of
whom shall have worked for either Lessor or Lessee in the five
(5) year period preceding the commencement date of the applicable
extended term, shall be appointed and shall act in accordance
with the following procedures:
1. If the parties are unable to agree on the Fair Market
within the allowed time, either party may demand an
appraisal by giving written notice to the other party,
which demand to be effective must state the name, address
and qualifications of an appraiser selected by the party
demanding an appraisal (the "Notifying Party"). Within ten
(10) days following the Notifying Party's appraisal demand,
the other party (the "Non-Notifying Party) shall either
approve the appraiser selected by the notifying party or
select a second property qualified appraiser by giving
written notice of the name, address and qualification of
said appraiser to the Notifying Party. If the Non-Notifying
Party fails to select an appraiser within the ten (10) day
period, the appraiser selected by the Notifying Party shall
be deemed selected by both parties and no other appraiser
shall be selected. If two appraisers are selected, they
shall select a third appropriately qualified appraiser. If
the two appraisers fail to select a third qualified
appraiser, the third appraiser shall be appointed
5
<PAGE> 6
by the then presiding judge of the county where the
Premises are located upon application by either party.
2. If only one appraiser is selected, that appraiser shall
notify the parties in simple letter form of its
determination of the Fair Market Rent for the Premises
within fifteen (15) days following his selection, which
appraisal shall be conclusively determinative and binding
on the parties as the appraised Fair Market Rent.
3. If multiple appraisers are selected, the appraisers shall
meet no later than ten (10) days following the selection of
the last appraiser. At such meeting the appraisers shall
attempt to determine the Fair Market Rent for the Premises
as of the commencement date of the extended term by the
agreement of at least two (2) of the appraisers.
4. If two (2) or more of the appraisers agree on the Fair
Market Rent for the Premises at the initial meeting, such
agreement shall be determinative and binding upon the
parties hereto and the agreeing appraisers shall, in simple
letter form executed by the agreeing appraisers, forthwith
notifying both Lessor and Lessee of the amount set by such
agreement. If multiple appraisers are selected and two (2)
appraisers are unable to agree on the Fair Market Rent for
the Premises, all appraisers shall submit to Lessor and
Lessee an independent appraisal of the Fair Market Rent for
the Premises in simple letter form within twenty (20) days
following appointment of the final appraiser. The parties
shall then determine the Fair Market Rent for the Premises
by averaging the appraisals; provided that any high or low
appraisal, differing from the middle appraisal by more than
ten percent (10%) of the middle appraisal, shall be
disregarded in calculating the average.
5. The appraisers' determination of Fair Market Rent shall be
based on rental of space of the same age, construction,
size and location as the Premises with the improvements
installed therein at Lessor's expense and shall take into
account Lessee's obligations to pay additional rent under
this Lease. In determining Fair Market Rent, the appraisers
shall not consider any alterations installed in the
Premises at Lessee's expense.
6. If only one appraiser is selected, then each party shall
pay one-half of the fees and expenses of that appraiser. If
three appraisers are selected, each party shall bear the
fees and expenses of the appraiser it selects and one-half
of the fees and expenses of the third appraiser.
5. SECURITY DEPOSIT. Lessor acknowledges that Lessee has deposited with
Lessor a Security Deposit in the sum of $34,955.00 to secure the full
and faithful performance by Lessee of each term, covenant, and
condition of this Lease. If Lessee shall at any
6
<PAGE> 7
time fail to make any payment or fail to keep or perform any term,
covenant, or condition on its part to be made or performed or kept
under this Lease, Lessor may, but shall not be obligated to and without
waiving or releasing Lessee from any obligation under this Lease, use,
apply, or retain the whole or any part of said Security Deposit (a) to
the extent of any sum due to Lessor; or (b) to compensate Lessor for
any loss, damage, attorneys' fees or expense sustained by Lessor due to
Lessee's default. In such event, Lessee shall, within five (5) days of
written demand by Lessor, remit to Lessor sufficient funds to restore
the Security Deposit to its original sum. No interest shall accrue on
the Security Deposit. Should Lessee comply with all the terms,
covenants, and conditions of this Lease and, at the end of the term of
this Lease, leave the Premises in the condition required by this Lease,
then said Security Deposit or any balance thereof, less any sums owing
to Lessor, shall be returned to Lessee within fifteen (15) days after
the termination of this Lease and vacancy of the Premises by Lessee.
Notwithstanding the foregoing, within thirty (30) days after the
termination of this Lease, Lessor shall return to Lessee the entire
Security Deposit except for amounts that Lessor has deducted therefrom
that are needed by Lessor to cure defaults of Lessee under this Lease
or compensate Lessor for damages for which Lessee is liable pursuant to
this Lease. Lessor can maintain the Security Deposit separate and apart
from Lessors general funds, or can co-mingle the Security Deposit with
the Lessor's general and other funds.
6. USE OF THE PREMISES. The Premises shall be used exclusively for the
purpose of general office, sales, marketing, engineering and research
and development, board repair and assembly for voice processing
software and hardware products and related materials.
Lessee shall not use or permit the Premises, or any part
thereof, to be used for any purpose or purposes other than the purpose
for which the Premises are hereby leased without Lessor's prior written
consent; and no use shall be made or permitted to be made of the
Premises, acts done, which will increase the existing fate of insurance
upon the building in which the Premises are located unless Lessee pays
the cost of any such increase or cause a cancellation of any insurance
policy covering said building, or any part thereof, nor shall Lessee
sell or permit to be kept, used, or sold, in or about the Premises, any
article which may be prohibited by the standard form of fire insurance
policies. Lessee shall not commit or suffer to be committed any waste
upon the Premises or any public or private nuisance or other act or
thing which may disturb the quiet enjoyment of any other tenant in the
building in which the premises are located; nor, without limiting the
generality of the foregoing, shall Lessee allow the Premises to be used
for any improper, immoral, unlawful, or objectionable purpose.
Lessee shall not place any harmful liquids in the drainage system
of the Premises or of the building of which the Premises form a part.
No waste materials or refuse shall be dumped upon or permitted to
remain upon any part of the Premises outside of the building proper
except in trash containers placed inside exterior enclosures designated
for that purpose by Lessor, or inside the building proper where
designated by Lessor. No materials, supplies, equipment, finished or
semi-finished products, raw materials, or articles of any nature shall
be stored upon or permitted to remain on any portion of the Premises
outside of the building proper. Lessee shall
7
<PAGE> 8
comply with all the covenants, conditions, and/or restrictions ("C.C. &
R.'s") affecting the Premises.
Lessor represents and warrants to Lessee that to the best of its
knowledge (i) there are no Toxic or Hazardous materials present on, at
or under the Premises, which shall be deemed to include underlying land
and groundwater, at the time of Lessee's occupancy, (ii) no underground
storage tanks or asbestos containing materials are present on the
Premises, and (iii) no action, proceeding, or claim is pending or
threatened concerning the Premises concerning any Toxic or Hazardous
material or pursuant to any environmental Law. Lessor shall indemnify,
defend and hold harmless Lessee, its partners, directors, officers,
employees, lenders, and successors against all claims, obligations,
liabilities, demands, damages, judgements, and costs, including
reasonable attorneys' fees arising from or in connection with any prior
Toxic or Hazardous materials that existed prior to Lessee's occupancy
of the Premises or arising out of or based upon the Presence of any
Toxic or Hazardous materials on, under, in or about the Premises,
unless Lessee or Lessee's agents, employees, contractors or invitees
caused the presence of such Toxic or Hazardous materials in, on, about
or under the Premises. Lessee in turn represents to Lessor that it does
not now and will not in the future permit the use or storage on the
Premises of Toxic or Hazardous materials, excluding, however basic
janitorial, maintenance and office supplies, and materials commonly
used in connection with Lessee's business as described in paragraph 6
hereof and the substances listed on Exhibit D hereto. For purposes of
this paragraph 6 "Toxic or Hazardous Materials" shall mean any product,
substance, chemical, material or waste whose presence, nature, quality
and/or intensity or existence, use, manufacture, disposal,
transportation, spill, release or effect, either by itself or in
combination with other materials expected to be on the leased premises,
is either (i) potentially injurious to the public health, safety or
welfare, the environment, or the leased premises; (ii) regulated or
monitored by any governmental authority and pertaining to health,
safety or the environment or (iii) a basis for potential liability of
Lessee and Lessor to any governmental agency or third party under any
applicable statute or common law theory and pertaining to health,
safety or the environment. "Toxic or Hazardous Materials" shall
include, but not be limited to, hydrocarbons, petroleum, gasoline,
crude oil or any products or by-products thereof.
Lessee hereunder shall be responsible for and indemnify, and hold
Lessor and its partners, directors, officers, employees, lenders,
successors and assigns harmless from all claims, obligations,
liabilities, demands, damages, judgments and costs, including
reasonable attorneys' fees arising at any time during or in connection
with Lessee or Lessee's agents, employees, contractors or invitees
causing any materials referred to under any governmental provisions or
regulatory scheme as "hazardous" or "toxic" or which contain petroleum,
gasoline, or other petroleum product, to be brought upon, stored,
manufactured, generated, handled, disposed, or used, on, under or about
the Premises.
Lessee's and Lessor's obligations hereunder shall survive the
termination of this Lease. If, at any time during the term of this
Lease, Lessor suspects that toxic waste, spillage, or other
contaminants may be present on the Premises, Lessor may order a soils
report, or its equivalent, at Lessee's expense and Lessee shall pay
such costs within fifteen (15) days from the date of the invoice by
Lessor if it is determined that
8
<PAGE> 9
Lessee or Lessee's agents, employees contractors or invitees released
or caused Toxic or Hazardous materials on or about the Premises. If any
such toxic waste, spillage, or other contaminants are found upon the
Premises which were released by Lessee or Lessee's agents, employees or
invitees Lessee shall deposit with Lessor, within fifteen (15) days of
notice from Lessor to Lessee to do so, the amount necessary to remove
the substances and remedy the problem.
Lessee shall abide by all laws, ordinances, and statutes, as they
now exist or may hereafter be enacted by legislative bodies having
jurisdiction thereof, relating to its use and occupancy of the
Premises.
Notwithstanding anything to the contrary in this Lease, (i) at
the Commencement Date, the Premises shall conform to all requirements
of covenants, conditions, restrictions and encumbrances ("CC&R's"), all
underwriter's requirements, and all rules, regulations, statutes,
ordinances, laws and building codes (including the Americans with
Disabilities Act of 1990) (collectively, "Laws") applicable thereto,
including without limitation, all Laws governing Toxic or Hazardous
materials.
In addition, and notwithstanding anything to the contrary in this
Lease, if the Premises should become not reasonably suitable for
Lessee's use as a consequence of cessation of utilities or other
services required to be provided to the Premises by Lessor,
interference with access to the Premises, legal restrictions or the
presence of any Toxic or Hazardous material which is not released or
caused by Lessee, Lessee's agents, employees, contractors or invitees,
and in any of the foregoing cases the interference with Lessee's use of
the Premises persists for seven (7) consecutive calendar days, then
Lessee shall be entitled to an equitable abatement of rent to the
extent of the interference with Lessee's use of the Premises occasioned
thereby.
7. IMPROVEMENTS: Lessor will provide an allowance of $14.00 per square
foot for improvements to the Premises as specified in Exhibit "B"
attached hereto and by this reference made a part hereof. Further,
Lessor agrees to provide an additional $2.50 per square foot for
improvements, to be amortized as Additional Rent, over the term of the
Lease at a rate of Bank of America's Prime plus 2%. Said payments shall
be due and payable by Lessee on the first of each month with the
monthly rent payment. However, should Lessee exercise its Option to
Expand as referred to in Section 35 of this Lease, Lessor shall waive
the monthly amortized payment effective upon Lessee's taking occupancy
of the Expansion Space. Lessor will make reasonable efforts to complete
such improvements prior to February 15, 1996. Possession of the
promises, pursuant to Paragraph 13 of this lease, shall be deemed
tendered on the Commencement Date. Lessor shall construct the
improvements described in the plans and specifications attached to this
Lease as Exhibit B at Lessor's sole cost and expense. The improvements
shall be constructed in accordance with such attached plans and
specifications and all applicable Laws, in a good and workmanlike
manner, free of defects and using new materials and equipment of good
quality. Within thirty (30) days after the Commencement Date, Lessee
shall have the right to submit a written "punch list" to Lessor,
setting forth any defective item of construction, and Lessor shall
promptly cause such items to be corrected. The improvements shall be
constructed in accordance with the Work Letter attached hereto as
Exhibit E, except that the "Expansion Space" shall mean the "Premises".
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8. TAXES AND ASSESSMENTS.
A. Lessee shall pay before delinquency any and all taxes,
assessments, license fees, and public charges levied, assessed,
or imposed upon or against Lessee's fixtures, equipment,
furnishings, furniture, appliances, and personal property
installed or located on or within the Premises. Lessee shall
cause said fixtures, equipment, furnishings, furniture,
appliances, and personal property to be assessed and billed
separately from the real property of Lessor. If any of Lessee's
said personal property shall be assessed with Lessor's real
property, Lessee shall pay to Lessor the taxes attributable to
Lessee within ten (10) days after receipt of a written statement
from Lessor setting forth the taxes applicable to Lessee's
property.
B. All property taxes or assessments levied or assessed by or
hereafter levied or assessed by any governmental authority
against the Premises or any portion of such taxes or assessments
which accrued during the term of this Lease shall be paid by
Lessor. Lessee shall pay to Lessor Lessee's proportionate share
of such taxes or assessments by the later of (i) ten (10) days
prior to the date such taxes are due and (ii) ten (10) days of
receipt of Lessor's invoice demanding such payment. Lessee's
liability hereunder shall be prorated to reflect the commencement
and termination dates of this Lease.
Notwithstanding anything to the contrary in this Lease,
Lessee shall not be required to pay any portion of any tax or
assessment expense (i) in excess of the amount which would be
payable if such tax or assessment expense were paid in
installments over the longest possible term; or (ii) occasioned
by Lessor's failure to pay timely or perform any obligation of
Lessor, provided that Lessee has timely paid its share of said
taxes or assessments. Lessee may in good faith contest any tax or
assessment, provided that Lessee indemnifies Lessor from any loss
or liability in connection therewith.
9. INSURANCE.
A. INDEMNITY. Lessee agrees to indemnify and defend Lessor against
and hold Lessor harmless from any and all demands, claims, causes
of action, judgments, obligations, or liabilities, and all
reasonable expenses incurred in investigating or resisting the
same (including reasonable attorneys' fees) on account of or
arising from Lessee's use of said Premises.
Lessor also agrees that it shall not be released or
indemnified from and shall indemnify and defend Lessee against
and hold Lessee harmless from any and all demands, claims, causes
of action, judgements, obligations, or liabilities and all
reasonable expenses incurred in investigating or resisting the
same (including reasonable attorneys fees) on account or arising
from Lessor's use and/or ownership of said Premises, Lessor's
violation of any Law or a breach of Lessor's obligations under
this Lease.
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B. LIABILITY INSURANCE. Lessee shall, at its expense, obtain and
keep in force during the term of this Lease a policy of
comprehensive public liability insurance insuring Lessor against
any liability arising out of the condition, use, or occupancy of
the Premises. Such insurance shall be in an amount not less than
one million dollars ($1,000,000) for bodily injury or death as a
result of one occurrence, and five hundred thousand dollars
($500,000) for damage to property as a result of any one
occurrence. The insurance shall be with companies rated A or
better by Best's Rating. Lessee shall deliver to Lessor a
certificate of insurance evidencing the existence of the policy
upon the request of Lessor which (1) names Lessor as an
additional insured, (2) shall not be canceled or reduced without
thirty (30) days' prior written notice to Lessor, (3) insures
performance of the indemnity set forth in Section A of Paragraph
9, and (4) coverage is primary and any coverage by Lessor is in
excess thereto to the extent it is available from Lessee's
insurance carrier.
Lessor also agrees to maintain during the term of this
Lease a policy of comprehensive public liability insurance
protecting Lessor for interest in such Property. Such insurance
shall be in an amount not less than one million dollars
($1,000,000) for bodily injury or death as a result of one
occurrence, and five hundred thousand dollars ($500,000) for
damage to Property as a result of any one occurrence.
C. PROPERTY INSURANCE. Lessor shall obtain and keep in force during
the term of this Lease a policy or policies of "all-risk,
extended coverage" property insurance covering loss or damage to
the Premises, in the amount of the full replacement value
thereof. Lessee shall pay to Lessor its pro-rata share of the
cost of said insurance within twenty (20) days of Lessee's
receipt of Lessor's invoice demanding such payment. Lessee
acknowledges that such insurance procured by Lessor shall contain
a deductible which reduces Lessee's cost for such insurance, and,
in the event of loss or damage, Lessee shall be required to pay
to Lessor the amount of such deductible. Lessor, agrees that in
no event shall said deductible exceed $1,000 per occurrence.
Lessee agrees to maintain an All Risk Property policy
covering Lessee's owned contents and improvements.
D. EARTHQUAKE INSURANCE. Lessor does not currently carry earthquake
insurance. However, Lessor reserves the right to do so should it
become available at a commercially reasonable rate. If available,
earthquake premium rates shall not exceed 2 times the rate paid
for All Risk Property insurance.
E. Notwithstanding anything to the contrary in this Lease, the
parties hereto release each other and their respective agents,
employees, successors, assigns; and subleases from all liability
for injury to any person or damage to any property that is caused
by or results from a risk which is actually insured against or
which is required to be insured against under this Lease, without
regard to the negligence or willful misconduct of the entity so
released. Each party shall use its best efforts to cause such
insurance policy it obtains to
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provide that the insurer thereunder waives all right of recovery
by way of subrogation as required herein in connection with any
injury or damage covered by the policy. If the insurance policy
cannot be obtained with the waiver of subrogation, or if the
waiver of subrogation is available only at additional cost and
the party for whose benefit the waiver is not obtained does not
pay additional cost, then the party obtaining the insurance
immediately shall notify the other party of that fact.
10. REIMBURSABLE EXPENSES AND UTILITIES. Lessor represents that heating,
ventilation, air conditioning, water, gas, electricity, sewer and waste
pick-up utilities and services to the Premises as are reasonable and
customary for tenants engaged in Lessee's business at facilities of
comparable size and location to the Premises are available to the
Premises, and Lessor shall provide Lessee with access to the Premises
twenty-four (24) hours a day, seven (7) days a week. Lessee shall pay
for all water, gas, light, heat, power, electricity, telephone, trash
removal, landscaping, sewer charges, and all other services, including
normal, reasonable and customary property management fees, supplied to
or consumed on the Premises. In the event that any such services are
billed directly to Lessor, then Lessee shall pay Lessor for such
expenses within ten (10) days of Lessee's receipt of Lessors invoice
demanding payment.
11. REPAIRS AND MAINTENANCE.
A. Subject to provisions of paragraph 15, Lessor shall keep and
maintain in good order, condition and repair the structural
elements of the Premises including the roof, roof membrane,
paving, floor slab, foundation, exterior walls, landscaping,
irrigation and elevators. Lessor shall make such repairs,
replacements, alterations or improvements as Lessor deems
reasonably necessary with respect to such structural elements and
Lessee shall pay to Lessor, within ten days of Lessor's invoice
to Lessee therefor, Lessee's pro-rata share of such repairs,
replacements, alterations or improvements: provided however, that
replacement and improvement costs shall be amortized over the
useful-life of such replacements or improvements, and Lessee
shall be obligated to Pay on a monthly basis, as additional rent,
only the monthly-amortized amounts which coincide with the term
of the Lease, including any extensions. Notwithstanding the
foregoing, if the reason for any repair, replacement, alteration
or improvement is caused by Lessee or arises because of a breach
of Lessee's obligations under this Lease, then Lessee shall pay
100% of the costs or expense to remedy the same.
B. Except as expressly provided in Subparagraph A above, Lessee
shall, at its sole cost, keep and maintain the entire Premises
and every part thereof, including, without limitation, the
windows, window frames, plate glass, glazing, truck doors, doors,
all door hardware, interior of the Premises, interior walls and
partitions, and electrical, plumbing, fighting, heating, and air
conditioning systems in good and sanitary order, condition, and
repair. Lessee shall, at all times during the Lease term and at
his expense, have in effect a service contract
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for the maintenance of the heating, ventilating, and
air-conditioning (HVAC) equipment with an HVAC repair and
maintenance contractor approved by Lessor which provides for
periodic inspection and servicing at least once every three (3)
months during the term hereof. Lessee shall further provide
Lessor with a copy of such contract and all periodic service
reports.
Notwithstanding anything to the contrary in this Lease,
Lessor shall perform and construct, and Lessee shall have no
responsibility to perform, construct, pay directly, or to
reimburse Lessor for, any repair. maintenance or improvement (i)
necessitated by acts or omissions of Lessor or its agents,
employees or contractors, (ii) occasioned by fire, acts of God or
other casualty, subject to the provisions of Section 9, or by the
exercise of the power of eminent domain, (iii) for which Lessor
has a right of reimbursement from others, or (iv) which would be
treated as a "capital expenditures under generally accepted
accounting principles. Notwithstanding the foregoing, Lessee
shall pay for the costs set forth in (iv) as provided in Section
11.A hereof.
Should Lessee fail to maintain the Premises or make repairs
required of Lessee hereunder forthwith upon notice from Lessor,
Lessor, in addition to all other remedies available hereunder or
by law, and without waiving any alternative remedies, may make
the same, and in that event, Lessee shall reimburse Lessor as
additional rent for the cost of such maintenance or repairs on
the next date upon which rent becomes due.
Lessee hereby expressly waives the provision of Subsection
1 of Section 1932, and Sections 1941 and 1942 of the Civil Code
of California and all rights to make repairs at the expense of
Lessor, as provided in Section 942 of said Civil Code.
12. ALTERATIONS AND ADDITIONS. Lessee shall not make, any alterations,
improvements, or additions in, on, or about, or to the Premises any
part thereof, without prior written consent of Lessor and without a
valid building permit issued by the appropriate governmental authority.
Lessor retains, at his sole option, the right to retain a General
Contractor of his own choosing to perform all repairs, alterations,
improvements, or additions in, on, about, or to said Premises or any
part thereof. As a condition to giving such consent, Lessor may require
that Lessee agree to remove any such alterations, improvements, or
additions at the termination of this Lease, and to restore the Premises
to their prior condition. Any alteration, addition, or improvement to
the Premises, shall become the property of Lessor upon installation,
and shall remain upon and be surrendered with the Premises at the
termination of this Lease. Lessor can elect, however, within thirty
(30) days before expiration of the term or within five (5) days after
termination of the term, to require Lessee to remove any alterations,
additions, or improvements that Lessee has made to the Premises. If
Lessor so elects, Lessee shall restore the Premises to the condition
designated by Lessor in its election, before the last day of the term,
or within thirty (30) days after notice of election is given, whichever
is later. Alterations and additions which are not to be deemed as trade
fixtures include heating, lighting, electrical systems, air
conditioning, partitioning, electrical signs, carpeting, or any other
installation which has become an integral part of the Premises. In the
event that Lessor consents to Lessee's making any
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alterations, improvements, or additions, Lessee shall be responsible
for preparing and providing Lessor with a notice of non-responsibility,
which Lessor shall sign and return to Lessee for posting, which shall
remain posted until completion of the alterations, additions, or
improvements. Lessee's failure to post notices of non-responsibility as
required hereunder shall be a breach of this Lease.
Notwithstanding anything to the contrary in this Lease: (i)
Lessee may construct non-structural alterations, additions and
improvements that do not affect the HVAC or electrical systems, do not
penetrate the roof membrane or any structural element ("Alterations")
in the Premises without Lessor's Prior approval, if the cost of such
work does riot exceed Twenty-Five Thousand Dollars ($25,000): (ii)
Alterations constructed in the Premises by Lessee and Lessee's trade
fixtures, furniture, equipment and other personal property installed in
the Premises ("Lessee's Property") shall at all items be and remain
Lessee's property, and Lessee shall be entitled to all depreciation,
amortization and other tax benefits with respect thereto; (iii) Lessor
shall have no lien or other interest whatsoever in any item of Lessee's
property, and shall execute any document reasonably necessary to waive
any lien or interest in Lessee's property; and (iv) upon request,
Lessor shall advise Lessee in writing whether it reserves the right to
require Lessee to remove any alterations from the Premises upon
termination of this Lease.
Notwithstanding anything to the contrary herein, during the term
hereof, any alteration, addition, or change of any sort through all or
any portion of the Premises or of the building of which the Premises
form a part, is required by law, regulation, ordinance, or order of any
public agency, then if such legal requirement is not imposed because of
Lessee's specific use of the Premises and is not "triggered" by
Lessee's alterations or Lessee's application for a building permit or
any other governmental approval (in which instance Lessee shall be
responsible for 100% of the cost of such improvement), Lessor shall be
responsible for constructing such improvement and Lessee shall be
responsible for its proportional share of the cost for said improvement
amortized over the useful life of such improvement that coincides with
the remaining Lease term including any extensions.
13. ACCEPTANCE OF THE PREMISES AND COVENANT TO SURRENDER. By entry and
taking possession of the Premises pursuant to this Lease, Lessee
accepts the Premises as being in good and sanitary order, condition,
and repair, and accepts the Premises in their condition existing as of
date of such entry, and Lessee further accepts any tenant improvements
to be constructed by Lessor, if any, as being completed in accordance
with the plans and specifications for such improvements. Lessor shall
pass on to Lessee any warranties or guaranties it receives regarding
the construction of the improvements outlined on Exhibit B. On the
Commencement Date, the Premises shall be in good condition and repair
and the roof shall be watertight.
Lessee agrees on the last day of the term hereof, or on sooner
termination of this Lease, to surrender the Premises, together with all
alterations, additions, and improvements which may have been made in,
to, or on the Premises by Lessor or Losses, unto Lessor in good and
sanitary order, condition, and repair, excepting for such wear and tear
as would be normal for the period of the Lessee's occupancy casualties,
condemnation, Toxic or Hazardous materials (other than those released
or
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caused to be present by Lessee, Lessee's agents, employees, contractors
or invitees in or about the Premises) and Alterations with respect to
which Lessor has not reserved the right to require removal. Lessee, on
or before the end of the term or sooner termination of this Lease,
shall remove all its personal property and trade fixtures from the
Premises, and all property not so removed shall be deemed abandoned by
Lessee. Lessee further agrees that at the end of the term or sooner
termination of this Lease, Lessee, at its sole expense, shall have the
carpets steam cleaned, the walls and columns painted, the flooring
waxed, any damaged ceiling be replaced, the windows cleaned, the drapes
cleaned, and any damaged doors replaced if necessary to restore the
Premises to its original condition, normal wear and tear excepted.
If the Premises are not surrendered at the end of the term or
sooner termination of this Lease, Lessee shall indemnify Lessor against
loss or liability resulting from delay by Lessee in so surrendering the
Premises, including, without limitation, any claims made by any
succeeding tenant founded on such delay.
14. DEFAULT. Notwithstanding anything to the contrary in this Lease, Lessee
shall not be deemed to be in breach of or in default under this Lease
and Lessor shall not be entitled to cure any breach by Lessee or
exercise any remedy under this Lease, nor shall any late charge or
interest be imposed on account of (i) Lessee's failure to pay any sum
due to Lessor under this Lease, unless Lessee's failure to pay
continues for five (5) days after Lessee's receipt of written notice of
delinquency from Lessor, or (ii) Lessee's failure to perform any other
covenant of this Lease, unless failure to perform such covenant
continues for thirty (30) days after Lessee's actual receipt of written
notice, or such longer time as may reasonably required to cure the
default. In the event of any breach of this Lease by the Lessee, or an
abandonment of the Premises by the Lessee, the Lessor has the option of
(1.) removing all persons and property from the Premises and
repossessing the Premises, in which case any of the Lessee's property
which the Lessor removes from the Premises may be stored in a public
warehouse or elsewhere at the cost of, and for the account of, Lessee;
or (2.) allowing the Lessee to remain in full possession and control of
the Premises. If the Lessor chooses to repossess the Premises, the
Lease will automatically terminate in accordance with the provisions of
the California Civil Code, Section 19512. In the event of such
termination of the Lease, the Lessor may recover from the Lessee: (1.)
the worth at the time of award of the unpaid rent which had been earned
at the time of termination, including interest at Bank of America's
Prime rate plus 3%; (2.) the worth at the time of award of the amount
by which the unpaid rent which would have been earned after termination
until the time of award exceeds the amount of such rental loss that the
Lessee proves could have been reasonably avoided, including interest at
Bank of America's Prime rate plus 3%; (3.) the worth at the time of
award of the amount by which the unpaid rent for the balance of the
term after the time of award exceeds the amount of such rental loss
that the Lessee proves could be reasonably avoided; and (4.) any other
amount necessary to compensate the Lessor for all the detriment
proximately caused by the Lessee's failure to perform his obligations
under the Lease or which, in the ordinary course of things, would be
likely to result therefrom. "The worth at the time of award," as used
in (1.) and (2.) of this Paragraph, is to be computed by allowing
interest at Bank of America's Prime rate plus 3%. "The worth
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at the time of award," as used in (3.) of this Paragraph, is to be
computed by discounting the amount at the discount rate of the Federal
Reserve Bank of San Francisco at the time of award, plus one percent
(1%).
If the Lessor chooses not to repossess the Premises, but allows
the Lessee to remain in full possession and control of the Premises,
then, in accordance with provisions of the California Civil Code,
Section 1951.4, the Lessor may treat the Lease as being in full force
and effect, and may collect from the Lessee all rents as they become
due through the termination date of the Lease, as specified in the
Lease. For the purpose of this paragraph, the following do not
constitute a termination of Lessee's right to possession: (1.) acts of
maintenance or preservation, or efforts to relet the property; (2.) the
appointment of a receiver on the initiative of the Lessor to protect
his interest under this Lease.
Lessee shall be liable immediately to Lessor for all costs Lessor
incurs in reletting the Premises, including, without limitation,
brokers' commissions, expenses of remodeling the Premises required by
the reletting, and like costs. Reletting can be for a period shorter or
longer than the remaining term of this Lease. Lessee shall pay to
Lessor the rent due under this Lease on the dates the rent is due, less
the rent Lessor receives from any reletting. No act by Lessor allowed
by this Section shall terminate this Lease unless Lessor notifies
Lessee that Lessor elects to terminate this Lease. After Lessee's
default and for as long as Lessor does not terminate Lessee's right to
possession of the Premises, if Lessee obtains Lessor's consent, Lessee
shall have the right to assign of sublet its interest in this Lease,
but Lessee shall not be released from liability. Lessor's consent to a
proposed assignment or subletting shall not be unreasonably withheld.
If Lessor elects to relet the Premises as provided in this
Paragraph, rent that Lessor receives from reletting shall be applied to
the payment of: (1.) any indebtedness from Lessee to Lessor other than
rent due from Lessee; (2.) all costs, including for maintenance,
incurred by Lessor in reletting; (3.) rent due and unpaid under this
Lease. After deducting the payments referred to in this Paragraph, any
sum remaining from the rent Lessor receives from reletting shall be
held by Lessor and applied in payment of future rent as rent becomes
due under this Lease. In no event shall Lessee be entitled to any
excess rent received by Lessor. If, on the date rent is due under this
Lease, the rent received from reletting is less than the rent due on
that date, Lessee shall pay to Lessor, in addition to the remaining
rent due, all costs, including for maintenance, Lessor incurred in
reletting that remain after applying the rent received from the
reletting, as provided in this Paragraph.
Lessor, at any time after the notice and cure periods set forth
herein, can cure the default at Lessee's cost. If Lessor at any time,
by reason of Lessee's default, pays any sum or does any act that
requires the payment of any sum, the sum paid by Lessor shall be due
immediately from Lessee to Lessor at the time the sum is paid, and if
paid at a later date shall bear interest at Bank of America's Prime
rate plus 3% from the date the sum is paid by Lessor until Lessor is
reimbursed by Lessee. The sum, together with interest on it, shall be
additional rent.
Rent not paid when due shall bear interest at Bank of America's
Prime rate plus 3%.
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In addition to Lessee's other rights and remedies under this
Lease, if Lessor is in default of the Lease and has not cured such
default within thirty (30) days after Lessor's actual receipt of
written notice, or such longer time as may reasonably be required to
cure the default, then Lessee shall have the right to cure the default
and to demand reimbursement by Lessor of the cost of such cure.
15. DESTRUCTION. In the event the Premises are destroyed in whole or in
part from any cause, Lessor may, at its option, (1.) rebuild or restore
the Premises to their condition prior to the damage or destruction or
(2.) terminate the Lease.
If Lessor does not give Lessee notice in writing within thirty
(30) days from the destruction of the Premises of its election either
to rebuild and restore the Premises, or to terminate this Lease, Lessor
shall be deemed to have elected to rebuild or restore them, in which
event Lessor agrees, at its expense, promptly to rebuild or restore the
Premises to its condition prior to the damage or destruction. If Lessor
estimates that it cannot or does not complete the rebuilding or
restoration within one hundred fifty (150) days following the date of
destruction (such period of time to be extended for delays caused by
the fault or neglect of Lessee of because of acts of God, acts of
public agencies, labor disputes, strikes, fires, freight embargoes,
rainy or stormy weather, inability to obtain materials, supplies or
fuels, acts of contractors or subcontractors, or delay of the
contractors or subcontractors due to such causes or other contingencies
beyond control of Lessor), then Lessee shall have the right to
terminate this Lease by giving fifteen (16) days prior written notice
to Lessor. Lessor's obligation to rebuild or restore shall not include
restoration of Lessee's trade fixtures, equipment, merchandise, or any
improvements, alterations, or additions made by Lessee to the Premises.
Notwithstanding anything to the contrary in this Lease, Lessor shall
not have the right to terminate this Lease if damage to or destruction
of the Premises results from a casualty ordinarily covered by insurance
required to be carried by Lessor under this Lease. If the Premises are
damaged by any peril and Lessor does not elect to terminate this Lease
or is not entitled to terminate this Lease pursuant to its terms, then
within thirty (30) days thereof, Lessor shall furnish Lessee with a
written opinion of Lessor's architect or construction consultant as to
when the restoration work required of Lessor may be completed.
Lessee shall be entitled to a reduction in rent while such repair
is being made in proportion that the area of the Premises rendered
untenantable by such damage bears to the total area of the Premises.
Unless this Lease is terminated pursuant to the foregoing
provisions, this Lease shall remain in full force and effect. Lessee
hereby expressly waives the provisions of Section 1932, Subdivision 2,
and Section 1933, Subdivision 4, of the California Civil Code.
In the event that the building in which the Premises are situated
is damaged or destroyed to the extent of not less than thirty-three and
one-third percent (331/3%) of the replacement cost thereof, Lessor may
elect to terminate this Lease, whether the Premises be injured or not.
16. CONDEMNATION. If any part of the Premises shall be taken for any public
or quasi-public use, under any statute or by right of eminent domain,
or private purchase
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in lieu thereof, and a part thereof remains, which is susceptible of
occupation hereunder, this Lease shall, as to the part so taken,
terminate as of the date title shall vest in the condemnor or
purchaser, and the rent payable hereunder shall be adjusted so that the
Lessee shall be required to pay for the remainder of the term only such
portion of such rent as the value of the part remaining after taking
such bears to the value of the entire Premises prior to such taking.
Lessor and Lessee shall have the option to terminate this Lease in the
event that such taking causes a reduction in rent payable hereunder by
fifty percent (50%) or more. If all of the Premises or such part
thereof be taken so that there does not remain a portion susceptible
for occupation hereunder, as reasonably necessary for Lessee's conduct
of its business as contemplated in this Lease, this Lease shall
thereupon terminate. If a part of all of the Premises be taken, all
compensation awarded upon such taking shall go to the Lessor, and the
Lessee shall have no claim thereto, and the Lessee hereby irrevocably
assigns and transfers to the Lessor any right to compensation or
damages to which the Lessee may become entitled during the term hereof
by reason of the purchase or condemnation of all or a part of the
Premises, except that Lessee shall have the right to file its own claim
to recover its share of any award or consideration for (1.) moving
expenses; (2.) loss or damage to Lessee's trade fixtures, furnishings,
equipment, and other personal property; and (3.) business goodwill;
(4.) the Lease bonus value (the difference between the rent and fair
market value rent); (5.) the value of the condemned improvements Lessee
has the right to remove from the Premises; (6.) the unamortized value,
allocable to the remainder of the term of this Lease, of any
improvements installed at Lessee's expenses, which are not removable.
Each party waives the provisions of the Code of Civil Procedure,
Section 1266.130, allowing either party to petition the Superior Court
to terminate this Lease in the event of a partial taking of the
Premises.
17. FREE FROM LIENS. Lessee shall (1.) pay for all labor and services
performed for materials used by or furnished to Lessee, or any
contractor employed by Lessee with respect to the Premises, and (2.)
indemnify, defend, and hold Lessor and the Premises harmless and free
from any liens, claims, demands, encumbrances, or judgments created or
suffered by reason of any labor or services performed for materials
used by or furnished to Lessee or any contractor employed by Lessee
with respect to the Premises, and (3.) give notice to Lessor in writing
five (5) days prior to employing any laborer or contractor to perform
services related, or receiving materials for use upon the Premises, and
(4.) shall prepare and provide Lessor with a notice of
non-responsibility, which Lessor shall sign and return to Lessee for
posting, on behalf of Lessor, a notice of non-responsibility in
accordance with the statutory requirements of the California Civil
Code, Section 3904, or any amendment thereof. In the event an
improvement bond with a public agency in connection with the above is
required to be posted, Lessee agrees to include Lessor as an additional
obligee.
18. COMPLIANCE WITH LAWS. Subject to Section 12, Lessee shall, at its own
cost, comply with and observe all requirements of all municipal,
county, state, and federal authority now in force, or which may
hereafter be in force, pertaining to the use and occupancy of the
Premises.
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19. SUBORDINATION. Lessee agrees that this Lease shall, at the option of
Lessor, be subjected and subordinated to any mortgage, deed of trust,
or other instrument of security, which has been or shall be placed on
the land and building, or land or building of which the Premises form a
part, and this subordination is hereby made effective without any
further act of Lessee or Lessor. The Lessee shall, at any time
hereinafter, on demand, execute any instruments, releases, or other
documents that may be required by any mortgagee, mortgagor, trustor, or
beneficiary under any deed of trust, for the purpose of subjecting or
subordinating this Lease to the lien of any such mortgage, deed of
trust, or other instrument of security. Failure of Lessee to execute
and deliver any such documents or instruments shall be a breach of
Lessee's obligations under this Lease.
Notwithstanding anything to the contrary in this Lease, prior to
the Commencement Date, Lessor shall obtain from The Union Labor Life
Insurance Company a written agreement in substantially the form
attached hereto as Exhibit F. Further, as a condition to the
subordination of Lessee's leasehold interest to a future around lease
or instrument of security. Lessor shall obtain from any such ground
lessors or lenders a written recognition agreement in form
substantially similar to such form.
20. ABANDONMENT. Lessee shall not vacate or abandon the Premises at any
time during the term; and if Lessee shall abandon, vacate, or surrender
said Premises, or be dispossessed by process of law, or otherwise, any
personal property belonging to Lessee and left on the Premises shall be
deemed to be abandoned, at the option of Lessor, except such property
as may be mortgaged to Lessor, provided, however, that Lessee shall not
be deemed to have abandoned or vacated the Premises so long as Lessee
continues to pay all rents as and when due, and otherwise performs
pursuant to the terms and conditions of this Lease. Notwithstanding
anything to the contrary in this Lease, any property of Lessee
remaining in the Premises after the expiration or earlier termination
of this Lease shall be treated in accordance with California Civil Code
Section 1980, et seq.
21. ASSIGNMENT AND SUBLETTING. Lessee's interest in this Lease is not
assignable, by operation of law or otherwise, nor shall Lessee have the
right to sublet the Premises, transfer any interest of Lessee's
therein, or permit any use of the Premises by another party, without
the prior written consent of Lessor to such assignment, subletting, or
transfer of use.
If Lessee is a partnership, a withdrawal or change, voluntary,
involuntary, or by operation of law, of any partner(s) owning fifty
percent (50%) or more of the partnership, of the dissolution of the
partnership, shall be deemed as a voluntary assignment.
If Lessee consists of more than one person, a purported
assignment, voluntary, involuntary, or by operation of law, from one
person to the other or from a majority of persons to the others, shall
be deemed a voluntary assignment.
Notwithstanding anything to the contrary in this Lease, Lessee,
without Lessor's prior written consent and without being subject to any
of the provisions of this section, may sublet the Premises or assign
this Lease to: (i) a subsidiary, affiliate,
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<PAGE> 20
franchise, division or corporation controlled by or under common
control with Lessee; (ii) a successor corporation related to Lessee by
merger, consolidation, non-bankruptcy reorganization or government
action or (iii) a purchaser of substantially all of Lessee's assets. A
sale of Lessee's capital stock shall not be deemed an assignment,
subletting or other transfer of this Lease or the Premises requiring
Lessor's consent.
In the event of any subletting or transfer which is consented to,
or not consented to, by Lessor, a subtenant or transferee agrees to pay
monies or other consideration, whether by increased rent or otherwise,
in excess of or in addition to those provided for herein, then all of
such excess or additional monies or other consideration (after first
deducting therefrom from the costs to Lessee to effectuate the
assignment or sublease, including, the unamortized costs of any
alterations installed in the Premises at Lessee's expense, leasing
commissions and remodeling costs) shall be paid solely to Lessor, and
this shall be one of the conditions to obtaining Lessor's consent.
Lessee immediately and irrevocably assigns to Lessor, as security
for Lessee's obligations under this Lease, all rent from any subletting
of all or a part of the Premises as permitted by this Lease, and
Lessor, as assignee, may collect such rent and apply it toward Lessee's
obligations under this Lease; except that, until the occurrence of an
act of default by the Lessee, Lessee shall have the right to collect
such rent.
A consent to one assignment, subletting, occupation, or use by
another party shall not be deemed to be a consent to any subsequent
assignment, subletting, occupation, or use by another party. Any
assignment or subletting without such consent shall be void and shall,
at the option of the Lessor, terminate this Lease. Lessor's waiver or
consent to any assignment or subletting hereunder shall not relieve
Lessee from any obligation under this Lease unless the consent shall so
provide. If Losses requests Lessor to consent to a proposed assignment
or subletting, Lessee shall pay to Lessor, whether or not consent is
ultimately given, Lessor's reasonable attorneys' fees incurred in
conjunction with each such request.
22. PARKING CHARGES. Lessee agrees to pay upon demand, based on its percent
of occupancy of the entire Premises, its pro-rata share of any parking
charges, surcharges, or any other cost hereafter levied or assessed by
local, state, or federal governmental agencies in connection with the
use of the parking facilities serving the Premises, including, without
limitation, parking surcharge imposed by or under the authority of the
Federal Environmental Protection Agency.
23. INSOLVENCY OR BANKRUPTCY. Either (1.) the appointment of a receiver to
take possession of all or substantially all of the assets of Lessee, or
(2.) a general assignment by Lessee for the benefit of creditors, or
(3.) any action taken or suffered by Lessee under any insolvency or
bankruptcy act, if any such receiver, assignment or action is not
released or discharges within sixty (60) days, shall constitute a
breach of this Lease by Lessee. Upon the happening of any such event,
this Lease shall terminate ten (10) days after written notice of
termination from Lessor to Lessee. This section is to be applied
consistent with the applicable state and federal law in effect at the
time such event occurs.
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<PAGE> 21
24. LESSOR LOAN OR SALE. Lessee agrees promptly following request by Lessor
to (1.) execute and deliver to Lessor any documents, including estoppel
certificates presented to Lessee by Lessor, (a.) certifying that this
Lease is unmodified and in full force and effect, or, if modified,
stating the nature of such modification and certifying that this Lease,
as so modified, is in full force and effect and the date to which the
rent and other charges are paid in advance, if any, and (b.)
acknowledging that there are not, to Lessee's knowledge, any uncured
defaults on the part of Lessor hereunder, or stating the nature of any
defaults, and (c.) evidencing the status of the Lease as may be
required either by a lender making a loan to Lessor, to be secured by
deed of trust or mortgage covering the Premises, or a purchaser of the
Premises from Lessor, and (2.) to deliver to Lessor the current
publicly available financial statements of Lessee with an opinion of a
certified public accountant, including a balance sheet and profit and
loss statement, for the current fiscal year and the two immediately
prior fiscal years, all prepared in accordance with Generally Accepted
Accounting Principles consistently applied. Lessee's failure to deliver
an estoppel certificate within five (5) business days following such
request shall constitute a default under this Lease and shall be
conclusive upon Lessee that this Lease is in full force and effect and
has not been modified except as may be represented by Lessor. Failure
of Lessee to execute and deliver any such estoppel certificates within
the five (5) business days shall be a breach of Lessee's obligations
under this Lease.
The Provisions of this section shall be reciprocal and, within
ten (10) days after request by Lessee, Lessor shall execute a similar
estoppel in favor of Lessee.
25. SURRENDER OF LEASE. The voluntary or other surrender of this Lease by
Lessee, or a mutual cancellation thereof, shall not work a merger nor
relieve Lessee of any of Lessee's obligations under this Lease, and
shall, at the option of Lessor, terminate all or any existing Subleases
or Subtenancies, or may, at the option of Lessor, operate as an
assignment to him of any or all such Subleases or Subtenancies.
26. ATTORNEYS' FEES. If, for any reason, any suit be initiated to enforce
any provision of this Lease, the prevailing party shall be entitled to
legal costs, expert witness expenses, and reasonable attorneys' fees,
as fixed by the court.
27. NOTICES. All notices to be given to Lessee may be given in writing,
personally, or by depositing the same in the United States mail,
certified or registered, postage prepaid, and addressed to Lessee at
the said Premises, whether or not Lessee has departed from, abandoned,
or vacated the Premises and the address set forth below, or at such
other address as Lessee may have theretofore specified by notice
delivered in accordance herewith. Any notice or document required or
permitted by this Lease to be given Lessor shall be addressed to Lessor
at the address set forth below, or at such other address as it may have
theretofore specified by notice delivered in accordance herewith:
LESSOR: Los Gatos Business Park
900 Welch Road, Suite 10
Palo Alto, California 94304
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<PAGE> 22
LESSEE: Rhetorex, Inc.
151 Albright Way
Los Gatos, CA 95030
AND TO: Octel Communications Corporation
1001 Murphy Ranch Road
Milpitas, CA 95035-7912
Attn: Director of Real Estate and Facilities
Notices given hereunder shall be deemed to have been given (i) on
the third business day after mailing if such notice or report was
deposited in the United States mail, certified or registered, postage
Prepaid and (ii) when delivered if given by personal delivery.
28. TRANSFER OF SECURITY. If any security be given by Lessee to secure the
faithful performance of all or any of the covenants of this Lease on
the part of Lessee, Lessor may transfer and/or deliver the security, as
such, to the purchaser of the reversion, in the event that the
reversion be sold, and thereupon Lessor shall be discharged from any
further liability in reference thereto, upon the written assumption by
such transferee of lessors obligations under this Lease.
29. WAIVER. The waiver by Lessor or Lessee of any breach of any term,
covenant, or condition, herein contained shall not be deemed to be a
waiver of such term, covenant, or condition, or any subsequent breach
of the same or any other term, covenant, or condition herein contained.
The subsequent acceptance of rent hereunder by lessor shall not be
deemed to be a waiver of any preceding breach by Lessee of any term,
covenant, or condition of this Lease, other than the failure of Lessee
to pay the particular rental so accepted, regardless of Lessor's
knowledge of such preceding breach at the time of acceptance of such
rent.
30. HOLDING OVER. Any holding over after the expiration of the term or any
extension thereof, with the consent of lessor, shall be construed to be
a tenancy from month-to-month, at a rental of one and one-quarter (1
1/4) times the previous month's rental rate per month, and shall
otherwise be on the terms and conditions herein specified, so far as
applicable.
31. COVENANTS, CONDITIONS, AND RESTRICTIONS. Attached hereto, marked
Exhibit "C" and by this reference incorporated as if set out in full,
are Covenants, Conditions, and Restrictions pertaining to Los Gatos
Business Park. As a condition to this Lease, Lessee agrees to abide by
all of said Covenants, Conditions, and Restrictions. Moreover, such
reasonable rules and regulations as may be hereafter adopted by Lessor
for the safety, care, and cleanliness of the Premises and the
preservation of good order thereon, are hereby expressly made a part
hereof, and Lessee agrees to obey all such rules and regulations, so
long as any new rules and regulations do not increase Lessee's
obligations or decrease Lessee's rights under this Lease or
unreasonably interfere with Lessee's use of the Premises.
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<PAGE> 23
32. LIMITATION ON LESSORS LIABILITY. If Lessor is in default of this Lease,
and, as a consequence, Lessee recovers a money judgment against Lessor,
the judgment shall be satisfied only out of the proceeds of sale
received on execution of the judgment and levy against the right,
title, and interest of Lessor in the Premises, or in the building,
other improvements, and land of which the Premises are part, and out of
rent or other income from such real property receivable by Lessor or
out of the consideration, received by Lessor from the sale or other
disposition of all or any part of Lessors right, title, and interest in
the Premises or in the building, other improvements, and land of which
the Premises are part. Neither Lessor nor any of the partners
comprising the partnership designated as Lessor shall be personally
liable for any deficiency. The foregoing limitation shall not apply,
however, to any losses, costs, claim or damages arising from or
relating to the failure of a successor or assignee of Lessor to assume
liability for the defaults or obligations of Lessor as it pertains to
the security deposit and any prepaid rent which accrued prior to the
date of an assignment or other transfer of Lessor's interest in the
Premises.
33. QUIET POSSESSION. Lessor covenants that Lessee, on paying the rent and
performing the covenants aforesaid, shall and may peacefully and
quietly have, hold and enjoy the demised Premises for the term
aforesaid.
34. MISCELLANEOUS.
A. Time is of the essence of this Lease and of each and all of its
provisions.
B. The term "building" shall mean the building in which the Premises
are situated.
C. Lessee shall have the exclusive right to make reasonable use of
any driveways, sidewalks, and parking areas located on the parcel
of land on which the building is situated.
D. Lessee shall have the exclusive right to use all of the parking
spaces on the land on which the Premises are located, which shall
in no event be less than 108 parking spaces. Lessee's such
reasonable use of parking areas shall not exceed that percent of
the total parking areas which is equal to the ratio which floor
space of the Premises bears to floor space of the building.
E. The term "assign" shall include the term "transfer."
F. The invalidity or unenforceability of any provision of this Lease
shall not affect the validity or enforceability of the remainder
of this Lease.
G. All parties hereto have equally participated in the preparation
of this Lease.
H. The headings and titles to the Paragraphs of this Lease are not a
part of this Lease and shall have no effect upon the construction
or interpretation of any part thereof
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I. Lessor has made no representation(s) whatsoever to Lessee
(express or implied) except as may be expressly stated in writing
in this Lease instrument.
J. This instrument contains all of the agreements and conditions
made between the parties hereto, and may not be modified orally
or in any other manner than by agreement in writing, signed by
all of the parties hereto or their respective successors in
interest.
K. It is understood and agreed that the remedies herein given to
Lessor shall be cumulative, and the exercise of any one remedy by
Lessor shall not be to the exclusion of any other remedy.
L. The covenants and conditions herein contained shall, subject to
the provisions as to assignment, apply to and bind the heirs,
successors, executors, and administrators, and assigns of all the
parties hereto; and all of the parties hereto shall jointly and
severally be liable hereunder.
M. This Lease has been negotiated by the parties hereto and the
language hereof shall not be construed for or against either
party.
N. All exhibits to which reference is made are deemed incorporated
into this Lease, whether covenants or conditions, on the part of
Lessee shall be deemed to be both covenants and conditions.
O. Whenever this Lease requires an approval, consent, designation,
determination or judgment by either Lessor or Lessee, such
approval, consent, designation, determination or judgment shall
not be unreasonably withheld or delayed, and in exercising any
right or remedy hereunder, each party shall at all times act
reasonably and in good faith.
P. Any expenditure by a party permitted or required under this
Lease, for which such party is entitled to demand and does demand
reimbursement from the other party, shall be limited to the fair
market value of the goods and services involved, shall be
reasonably incurred and shall be substantiated by documentary
evidence available for inspection and review by the other party
or its representative during normal business hours.
Q. If either Lessor or Lessee shall bring any action or legal
proceeding to enforce, protect or establish any term or covenant
of this Lease, the prevailing party shall be entitled to recover
its reasonable attorneys' fees, court costs and experts' fees as
may be fixed by the court. "Prevailing party" as used herein
includes a party who dismisses an action for recovery hereunder
in exchange for sums allegedly due, performance of covenants
allegedly breached or consideration substantially equal to the
relief sought in the action.
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R. Lessee shall be entitled to install, at Lessee's sole cost and
expense, a monument sign in front of the Premises so long as said
signage complies with the Town of Los Gatos requirements and Los
Gatos Business Park standards.
S. Notwithstanding anything to the contrary in this Lease, Lessor
and Lessor's agents, except in the case of emergency, shall
provide Lessee with twelve (12) hours notice prior to entry of
the Premises. Any entry by Lessor and Lessor's agents shall not
impair Lessee's operations more than reasonably necessary, and
Lessee shall have the right to have an employee accompany Lessor
at all times that Lessor is Present on the Premises.
35. OPTION TO EXPAND. Lessor hereby represents and warrants that (i) it is
the landlord under the lease for the premises consisting of
approximately 14,700 square feet of space ("Expansion Space"), located
in a building known as 100 Albright Way, Los Gatos, California, and
more particularly described on Exhibit A hereto, (ii) the expiration
date of the lease of Expansion Space is August 31, 1997, and (iii) the
Expansion Space Lease does not contain any extension or renewal right
and Lessor agrees not to extend or renew said lease provided Lessee has
given notice of its intent to exercise its Option to Expand.
Lessor hereby grants to Lessee the option to expand the Premises
under this Lease to include Expansion Space, which option may be
exercised in Lessee's sole discretion. Lessee may exercise said option
to expand the Premises as follows:
(a) Provided Lessee does not receive a notice as set forth in
Section 36(b) below, Lessee may exercise its option to expand the
Premises by giving Lessor written notice of its' intention to exercise
the option no later than December 31, 1996. If Lessee delivers such a
notice, Lessee agrees to provide Lessor with a final space plan for the
Expansion Space (to be attached as Exhibit D) no later than February 1,
1997.
If Lessee has exercised its option to lease Expansion Space under
this Section 35(a) the Premises under this Lease shall expand to
include Expansion Space on the date (the "Expansion Space Effective
Date") which is the later of October 15, 1997, and the date by which
all of the following have occurred: (1) Lessor has substantially
completed the improvements set forth on Exhibit E in accordance with
the terms of this Lease (the "Improvements"); (ii) there remains no
incomplete or defective item of improvements that would adversely
affect Lessee's intended use of the Expansion Space (iii) Lessor has
delivered legal possession of the Expansion Space to Lessee; and (iv)
Lessor has obtained all approvals and permit from the appropriate
governmental authorities required to be obtained by Lessor for the
legal occupancy of the Expansion Space; and (v) all representations and
warranties of Lessor under Section 6 of this Lease Shall be true,
complete and correct with respect to Expansion Space; and (vi) the
Expansion Space has been vacated by the previous tenant.
Notwithstanding the foregoing, provided Lessee has given notice of its
intent to exercise its option under this Section 35(a), if all of the
foregoing have not occurred for any reason whatsoever on or before May
1, 1998, then, in addition to Lessee's other rights and remedies,
Lessee may terminate the Expansion Option with respect to the Expansion
Space by written notice to Lessor, or, at Lessee's election, the date
Lessee
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is otherwise obligated to commence payment of rent for the Expansion
Space shall be delayed by one day for each day that the Expansion Space
Effective Date is delayed beyond such date.
(b) If the current tenant in Expansion Space is unable to
fulfill its obligations of its Lease through the expiration date
(August 31, 1997) and is in default (after applicable notice and cure
periods) under its Lease, Lessor shall notify Lessee in writing of its
intent to evict the tenant. Lessee shall have five (5) business days to
notify Lessor of its intent to exercise its option to lease Expansion
Space. No response shall be deemed a rejection of the offer of
Expansion Space. If Lessee has exercised its option to lease Expansion
Space as set forth in this subsection (b), Lessee shall provide Lessor
with a final space plan (to be attached as Exhibit E) within twenty
(20) business days following Lessors notice. If Lessee has exercised
its option to lease Expansion Space as set forth in this subsection (b)
the Premises under this Lease shall expand to include Expansion Space
on the date (the "Expansion Space Effective Date") which is the later
of ninety (90) days after Lessor's notice to Lessee of its intent to
evict tenant, and the date by which all of the following have occurred:
(i) Lessor has substantially completed the improvements set forth on
Exhibit B in accordance with the terms of this Lease (the
"improvements"); (ii) there remains no incomplete or defective item of
improvements that would adversely affect Lessee's intended use of the
Expansion Space; (iii) Lessor has delivered legal possession of the
Expansion Space to Lessee; and (iv) Lessor has obtained all approvals
and permit from the appropriate governmental authorities required to be
obtained by Lessor for the legal occupancy of the Expansion Space; and
(v) all representations and warranties of Lessor under Section 6 of
this Lease shall be true, complete and correct with respect to
Expansion Space, and (vi) the Expansions Space has been vacated by the
previous tenant. Notwithstanding the foregoing, provided Lessee has
given notice of its intent to exercise its option under this Section
35(b), if all of the foregoing have not occurred for any reason
whatsoever within nine (9) months of the date in which Lessee delivered
its notice of intent, to exercise its option under this Section 35(b),
then, in addition to Lessee's other rights and remedies, Lessee may
terminate the Expansion Option with respect to the Expansion Space by
written notice to Lessor, or, at Lessee's election, the date Lessee is
otherwise obligated to commence payment of rent for the Expansion Space
shall be delayed by one day for each day that the Expansion Space
Effective Date is delayed beyond such date. Provided Lessee has given
Lessor notice of its intent to exercise its option under this Section
35(b), Lessor shall use commercially reasonable efforts to evict and
cause the current tenant to vacate the Expansion Space as quickly as
reasonably possible.
(c) If Lessee exercises its option to lease Expansion Space,
Lessor shall provide Lessee with an allowance of $220,500 for mutually
agreeable tenant improvements to be installed by Lessors contractor in
accordance with the work letter attached hereto as Exhibit E.
(d) Effective as of the Expansion Space Effective Date, this
Lease shall be modified as follows:
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(i) The monthly rent payable under this Lease shall be
increased to include Expansion Space at the same amount per rentable
square foot as the amount per rentable square foot of the existing
Premises. Lessor and Lessee acknowledge that the rentable square
footage of the existing Premises is as follows:
<TABLE>
<S> <C>
Months 01-12 following the Commencement Date of this Lease: $1.05 p.s.f.
Months 13-24 following the Commencement Date of this Lease: $1.08 p.s.f.
Months 25-36 following the Commencement Date of this Lease: $1.11 p.s.f.
Months 37-48 following the Commencement Date of this Lease: $1.14 p.s.f.
Months 49-60 following the Commencement Date of this Lease: $1.17 p.s.f.
</TABLE>
(ii) The term of this Lease shall be extended so that the
expiration date of this Lease is the seventh (7th) anniversary of the
Expansion Space Effective Date. Monthly rent during any extended term
of this Lease shall be payable in accordance with the following
schedule:
<TABLE>
<S> <C>
Months 61-72 following the Commencement Date of this Lease: $1.20 p.s.f.
Months 73-84 following the Commencement Date of this Lease: $1.23 p.s.f.
Months 85-96 following the Commencement Date of this Lease: $1.26 p.s.f.
Months 97-108 following the Commencement Date of this Lease: $1.29 p.s.f.
Months 109-120 following the Commencement Date of this Lease: $1.32 p.s.f.
</TABLE>
The foregoing table shall on no event be deemed to extend the
term of this Lease beyond the date which is the seventh (7th)
anniversary of the Expansion Space Effective Date.
(iii) Lessee shall have the right-to use its pro-rata share
of the building's 76 parking spaces.
(iv) Except as expressly provided in Sections 35 and 36
hereof, all of the terms a conditions of this Lease shall remain in
full force and effect with respect to the addition of the Expansion
Space, and this Lease shall not be modified as a result of the addition
of the Expansion Space.
36. OPTION TO EXTEND TERM AFTER LESSEE'S EXERCISE OF THE OPTION FOR THE
EXPANSION SPACE.
A. Notwithstanding anything to the contrary in this Lease, provided
that the Premises have expanded to include the Expansion Space as
set forth in Section 35 hereof, at the end of the term of the
Lease (as extended as provided in Section 35(d)(ii) hereof),
Lessee shall have the option to extend the term on all the
provisions contained in this Lease for one (1) five (5) year
period ("extended term(s)") at an adjusted rental calculated as
provided in Subparagraph B below on the condition that:
1. Lessee has given to Lessor written notice of exercise of
that option ("option notice") at least six (6) months
before expiration of the initial term or extended term(s),
as the case may be.
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2. Lessee is not in default of the Lease on the date of giving
the option notice, and Lessee is not in default on the date
that the extended term is to commence.
B. RENT FOR OPTION PERIOD: The rent during the extended term shall
be the then current fair market monthly rent ("Fair Market Rent")
for the Premises as of the commencement date of the applicable
extended term, as determined by the agreement of the parties or,
if the parties cannot agree within sixty (60) days prior to the
commencement of such extended term, then by an appraisal. All
other terms and conditions contained in the Lease and this
Addendum, as the same may be amended from time to time by the
parties in accordance with the provisions of the Lease, shall
remain in full force and effect and shall apply during the Option
term.
If it becomes necessary to determine the fair market rental
value for the Premises by appraisal, real estate appraiser(s),
all of whom shall be members of the American institute of Real
Estate Appraisers and have at least five (5) years experience
appraising office space located in the vicinity of the Premises
and none of whom shall have worked for either Lessor or Lessee in
the five (5) year period preceding the commencement date of the
applicable extended term, shall be appointed and shall act in
accordance with the following procedures:
1. If the parties are unable to agree on the Fair Market
within the allowed time, either party may demand an
appraisal by giving written notice to the other party,
which demand to be effective must state the name, address
and qualifications of an appraiser selected by the party
demanding an appraisal (the "Notifying Party"). Within ten
(10) days following the Notifying Party's appraisal demand,
the other party (the (the "Non-Notifying Party") shall
either approve the appraiser selected by the notifying
party or select a second property qualified appraiser by
giving written notice of the name, address and
qualification of said appraiser to the Notifying Party. If
the Non-Notifying Party falls to select an appraiser within
the ten (10) day period, the appraiser selected by the
Notifying Party shall be deemed selected by both parties
and no other appraiser shall be selected. If two appraisers
are selected, they shall select a third appropriately
qualified appraiser. If the two appraisers fall to select a
third qualified appraiser, the third appraiser shall be
appointed by the then presiding judge of the county where
the Premises are located upon application by either party.
2. It only one appraiser is selected, that appraiser
shall notify the parties in simple letter form of its
determination of the Fair Market Rent for the Premises
within fifteen (15) days following his selection, which
appraisal shall be conclusively determinative and binding
on the parties as the appraised Fair Market Rent.
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3. If multiple appraisers are selected, the appraisers
shall meet no later than ten (10) days following the
selection of the last appraiser. At such meeting the
appraisers shall attempt to determine the Fair Market Rent
for the Premises as of the commencement date of the
extended term by the agreement of at least two (2) of the
appraisers.
4. If two (2) or more of the appraisers agree on the Fair
Market Rent for the Premises at the initial meeting, such
agreement shall be determinative and binding upon the
parties hereto and the agreeing appraisers shall, in simple
letter form executed by the agreeing appraisers, forthwith
notifying both Lessor and Lessee of the amount set by such
agreement. If multiple appraisers are selected and two (2)
appraisers are unable to agree on the Fair Market Rent for
the Premises, all appraisers shall submit to Lessor and
Lessee an independent appraisal of the Fair Market Rent for
the Premises in simple letter form within twenty (20) days
following appointment of the final appraiser. The parties
shall then determine the Fair Market Rent for the Premises
by averaging the appraisals; provided that any high or low
appraisal, differing from the middle appraisal by more than
ten percent (10%) of the middle appraisal, shall be
disregarded in calculating the average.
5. The appraisers' determination of Fair Market Rent
shall be based on rental of space of the same age,
construction, size and location as the Premises with the
improvements installed therein at Lessor's expense and
shall take into account Lessee's obligations to pay
additional rent under this Lease. In determining Fair
Market Rent, the appraisers shall not consider any
alterations installed in the Premises at Lessee's expense.
6. If only one appraiser is selected, then each party
shall pay one-half of the fees and expenses of that
appraiser. If three appraisers are selected, each party
shall bear the fees and expenses of the appraiser it
selects and one-half of the fees and expenses of the third
appraiser.
37. RIGHT OF FIRST REFUSAL.
A. Lessor hereby represents and warrants to Lessee that (i) it is the
landlord under the lease for the premises consisting of approximately
10,584 square feet of space (the "Refusal Space"), located in a
building known as 100-A Albright Way, Los Gatos, California, and more
particularly described on Exhibit A hereto, (ii) the expiration date of
the lease of the Refusal Space (the "Refusal Space Lease") is January
24, 1998, and (iii) the Refusal Space Lease does not contain any
extension or renewal rights.
B. If, at any time during the term, as extended, the Refusal Space
shall become vacant or Lessor shall solicit or receive a bona fide
offer in writing ("Offer") from an unrelated third party to lease all
or any portion of the Refusal Space, Lessee shall have
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a right of first refusal ("Right of First Refusal") to lease the
Refusal Space upon the same terms and conditions as set forth in the
Offer, except that the term shall be deemed to be coterminous with the
term of the Lease, provided Lessee has exercised its option to lease
the Expansion Space. Lessor, promptly following Lessor's receipt of the
Offer, shall deliver written notice to Lessee specifying the terms and
conditions contained in the Offer. Lessee shall exercise its Right of
First Refusal by providing Lessor with written notice of its exercise
within five (5) business days after the date of the receipt of Lessor's
notice regarding the Offer. If Lessee exercises its Right of First
Refusal within the five (5) business day period, Lessor and Lessee
promptly shall execute an amendment to the Lease relating to the
Refusal Space, which includes the terms and conditions set forth in the
Offer, except as set forth above. If Lessee fails to provide Lessor
with its written notice of exercise within the five (5) business day
period, then Lessee shall be deemed to have elected not to exercise its
Right of First Refusal with respect to the particular Offer at issue.
38. RIGHT OF FIRST OFFER. If Lessor determines to lease any space in the
project owned by Lessor and known as Los Gatos Business Park (the
"Offer Space"), then Lessor shall notify Lessee of the terms on which
Lessor is willing to lease the Offer Space. If Lessee, within five (5)
business days after receipt of Lessor's written notice indicates in
writing its agreement to lease the Offer Space on the terms stated in
Lessor's notice, Lessor and Lessee promptly shall execute an amendment
to the Lease relating to the Offer Space, which includes the terms and
conditions set forth in Lessor's notice, except that the term shall be
deemed to be coterminous with the term of the Lease. If Lessee does not
indicate in writing its agreement to lease the Offer Space on the terms
contained in Lessor's notice within said five (5) business day period,
then Lessor thereafter shall have the right to lease the Offer Space to
a third party on the same terms stated in Lessor's notice. Lessee's
Right of First Offer as set forth herein shall be subject to existing
expansion and renewal rights, rights of first refusal and rights of
first offer of other tenants in the project, existing as of this date.
IN WITNESS WHEREOF, Lessor and Lessee have executed this Lease on the
date first above-written.
LESSOR: LESSEE:
Los Gatos Business Park Rhetorex, Inc.
By:________________________________ By:___________________________________
Date:______________________________ Date:_________________________________
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EXHIBIT A
[Map of Albright Way]
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EXHIBIT B
The Final Plans, approved by Lessee and Lessor, shall be attached to
the Lease as Exhibit B upon completion of the drawings.
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EXHIBIT E
EXPANSION SPACE WORK LETTER
1. Lessor shall construct the Improvements to the Expansion Space
(the "Improvements") in accordance with the preliminary plans prepared by Lessee
and approved by Lessor (the "Preliminary Plans") in accordance with the terms of
this work letter. The parties shall confer and negotiate in good faith to reach
agreement on the Preliminary Plans.
2. Lessor shall cause three (3) subcontractors for each trade to bid
for construction of the Improvements. If Lessee so desires, Lessee may also
select a qualified subcontractor to bid the work. All bids will be opened
together with Lessor selecting the subcontractors to construct the Improvements
(the "General Contractor"), subject to reasonable approval of Lessee.
3. Lessor shall cause to be prepared, as quickly as possible, final
plans, specifications and working drawings of the Improvements ("Final Plans"),
as well as an estimate of the total cost for the Improvements ("Cost Estimate")
all of which conform to or represent logical evolutions of or developments from
the Preliminary Plans. The Final Plans and Cost Estimate shall be delivered to
Lessee Immediately upon completion. Within five (5) business days after receipt
thereof, Lessee shall (a) approve the Final Plans and Cost Estimate, or (b)
deliver to Lessor the specific written changes to such plans that are necessary,
in Lessee's opinion, to conform such plans to the Preliminary Plans or to reduce
costs. If Lessee desires changes, Lessor shall not unreasonably withhold its
approval of such changes and the parties shall confer and negotiate in good
faith to reach agreement on modifications to the Final Plans, and the Cost
Estimate as a consequence of such change. As soon as approved by Lessor and
Lessee, Lessor shall submit the Final Plans to all appropriate governmental
agencies and thereafter Lessor shall use its best efforts to obtain required
governmental approvals as soon as practical.
4. After the Final Plans have been approved by Lessor and Lessee as
provided above, neither party shall have the right to require extra work or
change orders with respect to the construction of the Improvements without the
prior written consent of the other, which consent shall not be unreasonably
withhold or delayed. All change orders shall specify any change in the Cost
Estimate as a consequence of the change order.
5. Lessor shall thereafter commence construction of the Improvements
and shall diligently prosecute such construction to completion.
6. When the Improvements are complete, Lessor shall deliver
possession of the Expansion Space to Lessee.
7. Notwithstanding anything to the contrary in the Lease, effective
upon delivery of the Expansion Space to Lessee, Lessor does hereby warrant that
(a) the construction of the
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Improvements was performed In accordance with all rules, regulations, codes,
statutes, ordinances and laws of all governmental and quasi-governmental
authorities, in accordance with the Final Plans, and in a good and workmanlike
manner, (b) all material and equipment installed therein conformed to the Final
Plans and was of good quality, (c) the electrical, plumbing, and mechanical
systems servicing are in working order and in good condition, and (d) the roof
is in good condition and water tight.
8. The cost of the Improvements shall not include (and Lessee shall
have no responsibility for and the Allowance shall not be used for) the
following: a) costs Incurred to remove Hazardous Materials from the Expansion
space prior to Lessee taking occupancy of the Expansion Space or the surrounding
area; (b) costs Incurred as a consequence of delay (unless the delay is caused
by Lessee), construction defects or default by a contractor, (c) costs
recoverable by Lessor upon account of warranties and Insurance; (d) costs
Incurred as a result of alterations to the Expansion Space by the existing
tenant therein after the date of execution of the Lease; restoration costs in
excess of Insurance proceeds as a consequence of casualties.
9. In such event that the cost of the Improvements exceeds the
Allowance, Lessee shall pay to Lessor the amount of any such overage prior to
Lessors delivery of the Expansion Space to Lessee.
10. So long as such occupancy does not Interfere with Lessors
construction of the Improvements, Lessee shall have the right to occupy the
Expansion Space prior to the completion of the Improvements for the purpose of
installing its equipment, data, telecommunications system and trade fixtures.
Such occupancy shall be subject to all of the terms of the Lease except the
obligation to pay rent.
11. Within thirty (30) days after the delivery of the Expansion Space,
Lessee shall have the right to submit a written "punch list" to Lessor, setting
forth any defective term of construction, and Lessor shall promptly cause such
items to be corrected at Lessor's sole cost and expense.
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EXHIBIT F
SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT AGREEMENT
SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT AGREEMENT made as of the
____ day of November, 1994, by and between THE UNION LABOR LIFE INSURANCE
COMPANY, having an address at 111 Massachusetts Avenue, Washington D.C. 20001
("Lender") and ______________________ having an address at _______________
("Lessee")
WITNESSETH:
WHEREAS, Los Gatos Business Park, a California limited partnership
("Lessor") is the owner of the fee estate in that certain property located in
Los Gatos, California more particularly know as 100-160 Albright Way (the
"Property"); and
WHEREAS, Lessor and Lessee have entered into a lease dated
_____________ (the "Lease"), covering a portion of the Property (the "Leased
Premises"); and
WHEREAS, Lessor proposes to borrow certain sums from Lender, such loan
to be evidenced by a promissory note and secured by, INTER ALIA, a deed of trust
encumbering the Leased Premises (the "Deed of Trust"); and
WHEREAS, to induce Lender to make the loan to Lessor, Lessee has agreed
to subordinate the Lease to the Deed of Trust, and Lender has agreed that the
Lease shall remain in force and effect on the terms, and conditions hereinafter
set forth, notwithstanding any foreclosure or other proceedings for enforcement
of the Deed of Trust.
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, the parties hereto agree as follows:
1. The Lease and any extension, renewal, replacement or modification
thereof and all of the right, title and interest of Lessee in and to the Leased
Premises and the rights of Lessee under the Lease now are, and shall at all
times continue to be subject and subordinate to the lien and security interest
of the Deed of Trust and to each renewal, extension, modification or replacement
thereof, with the same force and effect as if the Deed of Trust had been
executed, delivered and recorded prior to the execution and delivery of the
Lease.
2. So long as Lessee is not in default in the payment of rents or in
this performance of any of the other terms, covenants or conditions of the Lease
requiring performance on the part of Lessee, (a) Lender will not join Lessee as
a party defendant in any action or proceeding for the purpose of terminating any
ownership, possession, interest or estate of Lessor because of any default under
the Deed of Trust. Unless Lessee is deemed a necessary party by the court, in
which event Lessee may be so named but such naming shall not otherwise be in
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derogation of the rights of Lessee set forth in this Agreement, and (b) the
Lease and the rights of Lessee thereunder shall not be divested by a sale on the
Deed of Trust or on the obligation secured by the Deed of Trust or the exercise
of any other right or remedy available to Lender against Lessor.
3. If the Property or any portion thereof which includes the Leased
Premises shall be transferred to and owned by Lender or any assignee of Lender,
or any purchaser at judicial sale or any transferee under an action in lieu
thereof, by reason of foreclosure or other remedial proceedings brought by
Lender or any assignee of Lender, or by any transferee or purchaser, or by any
other similar manner, or if the interest of Lessor is terminated or assigned by
any action of the Lender and Lessee is not in default in the Payment of rent or
in the performance of any of the other terms, covenants or conditions of the
Lease requiring performance on the part of Lessee, Lessee's rights shall not be
terminated thereby; rather, Lessee shall be bound by Lender or any such
assignee, purchaser or transferee (hereinafter referred to collectively as
"Successor Landlord") under all or the terms, covenants and conditions of the
Lease for the balance of the term thereof remaining, with the same force and
effect as if the Successor Landlord were the lessor under the Lease with the
Lease remaining in full force and effect, provided, however, that the Successor
Landlord shall not be:
(a) liable for any act or omission of any prior landlord, or for
the return of any security deposit unless actually received by the Successor
Landlord; or
(b) subject to any offsets or defenses which Lessee may have
against any prior landlord; or
(c) bound by any payment of rent which Lessee may have paid for
more than the then current month to any prior landlord, or bound by any
amendment, modification, extension or supplement of the Lease, made without the
written consent of Lender; or
(d) obligated to repair, replace, rebuild or restore the Leased
Premises, or any part thereof, in the event, of total or substantially total
damage or destruction beyond such repair, replacement, rebuilding or restoration
of the Leased Premises as can reasonable be accomplished from the net proceeds
of insurance actually received by, or made available to, Successor Landlord for
such purposes; or
(e) obligated to repair, replace, rebuild or restore the Leased
Premises, or any part thereof, in this event of partial condemnation beyond such
repair, replacement, rebuilding or restoration of the Leased Premises as can
reasonably be accomplished from the net proceeds of any award actually received
by, or made available to, Successor Landlord, as consequential damages allocable
to the part of the Leased Premises not taken; or
(f) obligated to make any capital improvements to the Leased
Premises, or to construct, erect or complete any construction or renovation of
all or any portion of the
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improvements at the Leased Premises, which Lessor may have agreed to make but
has not commenced or completed; or
(g) personally liable under the Lease, and the liability of the
Successor Landlord under the Lease shall be limited to the extent of the
interest of the Successor Landlord in the Property.
4. In the event of any occurrence referred to in Paragraph 3 hereof,
Tenant agrees to attorn to the Successor Landlord on the terms set forth in
Paragraph 3 hereof, said attornment to be effective and self operative upon
notice from the Successor Landlord without the execution of any further
instruments on the part of either of the parties hereto.
5. This Agreement shall remain in effect throughout the term of the
Lease, including all option periods, if any.
6. Lessee agrees to notify Lender of any default of the landlord
under the Lease which would entitle Lessee to cancel the Lease or abate the rent
payable under the Lease, and agrees that, notwithstanding any provision of the
Lease, no notice of cancellation of the Lease shall be effective unless Lender
has received said notice and has failed within thirty (30) days of the date
thereof to cure any default, or if such default cannot be cured by Lender within
thirty (30) days, has failed to commence and to diligently prosecute the curing
of any default which gave rise to such right of cancellation or abatement.
7. The provisions of this Agreement shall be self-operative and no
further instrument shall be necessary to effect the aforementioned continuation,
attornment, recognition and subordination. Nevertheless, in confirmation
thereof, Lessee shall execute and deliver, upon request of Lender or any other
party to whom Lessee has agreed to attorn, an appropriate certificate to confirm
such continuation, attornment, recognition and subordination.
8. All notices, demands, consents, approvals and other communications
(collectively, "Notices") hereunder shall be in writing and shall be sent by
hand, or by telecopy (with a duplicate copy sent by ordinary mail, postage
prepaid), or by postage prepaid, certified or registered mail, return receipt
requested, or by reputable overnight courier service, postage prepaid, addressed
to the party to be notified as set forth below:
If to Lender, The Union Labor Life insurance Company
Mortgage and Real Estate Department
111 Massachusetts Avenue, N.W.
Washington, D.C. 20001
Attn: Thomas C. Perkins
Telecopy No: 202-682-6784
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with a copy to, Manatt, Phelps & Phillips
11355 West Olympic Boulevard
Los Angeles, California 90064
Attn: Chris A. Carlson, Esq.
Telecopy No: 310-312-4224
if to Lessee, _____________________________
_____________________________
_____________________________
Attn:________________________
Telecopy No.:________________
with a copy to, _____________________________
_____________________________
_____________________________
Attn:________________________
Telecopy No.:________________
Notices shall be deemed given when delivered by hand or when a legible copy is
received by telecopier (with receipt being verified by telephone confirmation),
or if mailed, five (5) business days after mailing (or one business day for
overnight courier service), with failure to accept delivery constituting
delivery for this purpose. Any party hereto may change the addresses for Notices
set forth above by giving at least ten (10) days, prior Notice of such change in
writing to the other party as aforesaid and otherwise in accordance with these
provisions.
9. This Agreement shall begin upon and shall inure to the benefit of
Lender and Lessee, and their respective transferees, successors and assigns.
10. This Agreement may not be changed, waived, modified or discharged
orally, but only by an instrument in writing executed by the party against whom
enforcement of any change, waiver, modification or discharge is sought.
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IN WITNESS WHEREOF, the parties hereto have caused these presents to be
duly executed as of the date first set fort above.
THE UNION LABOR LIFE INSURANCE COMPANY
By:___________________________________
Title:________________________________
By:___________________________________
Title:________________________________
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EXHIBIT C
LOS GATOS BUSINESS PARK
COVENANTS, CONDITIONS AND RESTRICTIONS
RHETOREX, INC.
151 Albright Way
AGREED & ACCEPTED:
_________________ __________
Lessee Date
_________________ __________
Lessor Date
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LOS GATOS BUSINESS PARK
THIS DECLARATION is made on this 2nd day of February, 1976, by LOS
GATOS BUSINESS PARK, A LIMITED PARTNERSHIP organized under the laws of the State
of California.
The property described in Exhibit "A" is subject to this Declaration
and will be known as LOS GATOS BUSINESS PARK.
LOS GATOS BUSINESS PARK is being developed as a planned industrial
complex which will provide employment t opportunities for the residents of the
County of Santa Clara and the surrounding area. This Declaration is designed to
complement local government and municipal regulations. Except where the LOS
GATOS BUSINESS PARK RESTRICTIONS conflict with such local government and
municipal regulations, said Restrictions shall be binding upon all owners,
lessees, licensees, occupants, users of the property subject to these
Restrictions, and their successors in interest as set forth in this Declaration.
It is assumed that the users of industrial sites in the LOS GATOS BUSINESS PARK
will be motivated to preserve these qualities through mutual cooperation and by
enforcing not only the letter but the spirit of this Declaration.
ARTICLE I - DEFINITIONS
Unless the context otherwise specifies or requires, the terms defined
in this Article I shall, for all purposes of this Declaration, have the meanings
herein specified.
Section 1 - "ARCHITECT": The term "Architect" shall mean a person
holding a certificate to practice architecture in the State of California under
authority of Division 3, Chapter 3 of the Business and Professions Code of the
State of California.
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Section 2 - "BENEFICIARY": The term "Beneficiary" shall mean a
mortgagee under a mortgage, as well as a beneficiary under a deed of trust.
Section 3 - "DECLARATION": The term "Declaration" shall man the
COVENANTS, CONDITIONS AND RESTRICTIONS FOR LOS GATOS BUSINESS PARK.
Section 4 - "DEED OF TRUST": The term "Deed of Trust" or "Trust Deed"
shall mean a mortgage as well as a deed of trust.
Section 5 - "FILE": The term "File" shall mean, with reference to any
subdivision map, record of survey or parcel map, the filing of said map in the
Office of the Recorder of the County of Santa Clara, State of California.
Section 6 - "GRANTOR": The term "Grantor" shall mean LOS GATOS BUSINESS
PARK, a LIMITED PARTNERSHIP; and to the extent provided in Article VII - Section
I below, its successors and assigns.
Section 7 - "IMPROVEMENTS": The term "Improvements" shall include
buildings out-buildings, roads, driveways, parking areas, fences, screening
walls and barriers, retaining walls, stairs, decks, hedges, windbreaks,
plantings, planted trees and shrubs, poles, signs, loading areas and all other
structures or landscaping improvements of every type and kind.
Section 8 - "MORTGAGEE": The term "Mortgagee" shall mean a beneficiary
under, or a holder of a deed of trust as well as a mortgagee under a mortgage.
Section 9 - "LOS GATOS BUSINESS PARK": The term "LOS GATOS BUSINESS
PARK" shall mean all of the real property now or hereafter made subject to this
Declaration.
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Section 10 "LOS GATOS BUSINESS PARK RESTRICTIONS": The term "Los Gatos
Business Park Restrictions" shall mean the covenants, conditions and
restrictions set forth in this Declaration, as it may from time to time be
amended or supplemented.
Section 11 - "OWNER": The term "Owner" shall mean and refer to any
person having any estate in any site, excluding any person who holds such
interest as security for the payment of an obligation, but including any
mortgagee or other security holder in actual possession of any lot, by
foreclosure or otherwise, and any person taking title from any such security
holder.
Section 12 - "RECORD" - "RECORDED": The term "Record" or "Recorded"
shall mean, with respect to any document, the recordation of said document in
the Office of the County Recorder of the County of Santa Clara, State of
California.
Section 13 - "SIGN": The term "Sign" shall mean any structure, device
or contrivance, electric or non-electric, and all parts thereof which are
erected or used for advertising purposes upon or within which any poster, bill,
bulletin, printing, lettering, painting, device or other advertising of any kind
whatsoever is used, placed, posted, tacked, nailed, pasted, or otherwise
fastened or affixed to ground or improvements.
Section 14 - "SITE": The term "Site" shall mean all contiguous land
under one ownership.
Section 15 - "STREETS": The term "Streets" shall mean any street,
highway or other thoroughfare within or adjacent to the property and shown on
any recorded subdivision or parcel map, or record of survey, whether designated
thereon as street, boulevard, place, drive, road, terrace, way, land, circle or
otherwise.
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Section 16 - "VISIBLE FROM NEIGHBORING PROPERTY": The term "Visible
From Neighboring Property" shall mean, with respect to any given object, that
such object is or would be visible to a person six (6) feet tall, standing on
any part of such neighboring property at an elevation no greater than the
elevation of the base of the object being viewed.
Section 17 - "LOT": The term "lot" shall mean the fractional part of
blocks as divided and sub-divided on subdivision or parcel maps of the Official
Records of the Recorder of Santa Clara County, California, as they from time to
time become current.
ARTICLE II - PROPERTY SUBJECT TO THE LOS GATOS BUSINESS PARK RESTRICTIONS
Section 1 - GENERAL DECLARATION CREATING LOS GATOS BUSINESS PARK:
Grantor hereby declares that all of the real property located in the Town of Los
Gatos County of Santa Clara, State of California, described in Exhibit "A".
which is attached hereto and incorporated herein by this reference is and shall
be, conveyed, hypothecated, encumbered, leased, occupied, built upon or
otherwise used, improved or transferred in whole or in part subject to the LOS
GATOS BUSINESS PARK RESTRICTIONS, meaning the covenants, conditions and
restrictions set forth in this Declaration. All of said restrictions are
declared and agreed to be in furtherance of a general plan for the subdivision,
improvement and sale of said real property and are established for the purpose
of enhancing and perfecting the value, desirability and attractiveness of said
real property and every part thereof. All of the LOS GATOS BUSINESS PARK
RESTRICTIONS shall run with all of said real property for all purposes and shall
be binding upon and inure to the benefit of Grantor and all owners, lessees,
licensees, occupants and their successor in interest as set forth in this
Declaration.
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Section 2 - ADDITION OF OTHER REAL PROPERTY BY GRANTOR:
A. GRANTOR'S POWER: Grantor may at any time during the pendency of
this Declaration add all or a portion of any land now or hereafter owned by
Grantor to the property which is covered by this Declaration, and upon recording
of a notice of addition of real property containing at least the provisions set
forth in Section 2B of this Article 11, the provisions of this Declaration
specified in said notice shall apply to such added land in the same manner as if
it were originally covered by this Declaration. Thereafter, to the extent this
Declaration is made applicable thereto, the rights, powers and responsibilities
of Grantor and the owners, lessees, licensees and occupants of parcels within
such added land shall be the same as in the case of the land described in
Exhibit "A".
B. NOTICE OF ADDITION OF LAND: The notice of addition of real
property referred to in Section 2A above shall contain at least the following
provisions:
(1) A reference to this Declaration stating the date of
recording hereof and the book or books of the records of Santa Clara County,
California, and the page numbers where this Declaration is recorded;
(2) A statement that the provisions of this Declaration, or some
specified part thereof, shall apply to such added real property;
(3) A legal description of such added real property; and
(4) Such other or different covenants, conditions and
restrictions as Grantor shall, in its discretion, specify to regulate and
control the use, occupant and improvement of such added real property.
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ARTICLE III - REGULATION OF MOMENTS
Section 1 - APPROVAL OF PLANS:
A. APPROVAL REQUIRED: No improvement shall be erected, placed,
altered, maintained or permitted to remain on any land subject to this
Declaration until final plans and specifications shall have been submitted to
and approved in writing by Grantor. Such final plans and specifications shall be
submitted in writing in duplicate over the authorized signature of the owner,
lessee, licensee or other occupant of the site or his authorized agent. Such
plans and specifications shall be in such form and shall contain such
information as may be required by the Grantor, but in any event shall include:
(1) A site development plan of the lot showing the nature,
grading scheme, kind, shape, materials and location with respect to the
particular lot (including proposed front, rear and side setback lines) of all
structures, the location thereof with reference to structures on adjoining
portions of the property, and the number and location of all parking spaces and
driveways on the lot;
(2) A landscaping plan for the particular lot;
(3) A signing and lighting plan; and
(4) A building elevation plan showing dimensions, materials and
exterior color scheme and be in no less detail than required by the appropriate
governmental authority for the issuance of a building permit. Changes in
approved plans which materially affect building size, placement or external
appearance must be similarly submitted to and approved by Grantor.
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B. BASIS FOR APPROVAL: Approval shall be based, among other things,
on adequacy of site dimensions, adequacy of structural design, conformity and
harmony, of external design with neighboring structures, effect of location and
use of proposed improvements on neighboring sites, proper facing of main
elevation with respect to nearby streets, adequacy of screening of mechanical
air conditioning or other roof top installations, and conformity of the plans
and specifications to the purpose and general plan and intent of this
Declaration. No plans will be approved which do not provide for the underground
installation of power, electrical, telephone and other utility lines from the
property line to buildings. No plans will be approved which provide for
buildings covering more than fifty percent (50%) of the lot areas. Grantor shall
not arbitrarily or unreasonably withhold its approval of such plans and
specifications. Grantor shall have the right to disapprove any plans and
specifications submitted hereunder, including but not limited to any of the
following:
(1) Failure to comply with any of the Restrictions;
(2) Failure to include information in such plans and
specifications as may have been reasonably requested by Grantor;
(3) Objection to the exterior design, appearance of materials of
any proposed structure;
(4) Objection on the ground of incompatibility of any proposed
structure or use with existing structures or uses upon other lots or other
properties in the vicinity;
(5) Objection to the location of any proposed structure upon any
lot with reference to other lots in the vicinity;
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(6) Objection to the grading plan for any lot;
(7) Objection to the color scheme, finish, proportions, style or
architecture, height, bulk or appropriateness of any structure;
(8) Objection to the number or size of parking spaces, or to the
design of the parking area;
(9) Any other matter, which in the judgment of the Grantor,
would render the proposed structure or structures or use inharmonious with the
general plan for improvement of the property or with structures located upon
other lots or other properties in the vicinity.
C. APPROVAL: Upon approval by the Grantor of any plans and
specifications submitted hereunder, a copy of such plans and specifications as
approved, shall be deposited for permanent record with the Grantor, and a copy
of such plans and specifications bearing such approval, in writing, shall be
returned to the applicant submitting the same.
D. RESULT OF AN ACTION: If Grantor fails either to approve or
disapprove such plans and specifications within sixty (60) days after the same
have been submitted to it, it shall be conclusively presumed that Grantor has
disapproved said plans and specifications; provided, however, that if within
said sixty (60) day period Grantor gives written notice of the fact that more
time is required for the approval of such plans and specifications, there shall
be no presumption that the same are disapproved until the expiration of a
reasonable period of time as set forth in said notice.
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E. PROCEEDING WITH WORK: Upon receipt of approval from Grantor
pursuant to this Section the Owner or lessee to whom the same is given shall as
soon as practicable, satisfy all conditions thereof and diligently proceed with
the commencement and completion of all approved construction, refinishing,
altered and excavations. In all cases work shall be commenced within one (1)
year from the date of such approval. If there is a failure to comply with this
paragraph then the approval given pursuant to this Section shall be deemed
revoked unless Grantor upon request made prior to the expiration of said one (1)
year period extends the time for commencing work.
F. COMPLETION OF WORK: In any event, reconstruction, refinishing or
alteration of any such improvement shall be completed within two (2) years after
the commencement thereof except for so long as such completion is rendered
impossible or would result in great hardship due to strikes, fire, national
emergencies, natural calamities or other supervening forces beyond the control
of the Owner, lessee, licensee or occupant or his agents. Failure to comply with
this paragraph shall constitute a breach of the LOS GATOS BUSINESS PARK
RESTRICTIONS and subject the defaulting party or parties to all enforcement
procedures set forth in this Declaration and any other remedies provided by law
or in equity.
G. LIABILITY: Grantor shall not be liable for any damage, loss or
prejudice suffered or claimed on account of:
(1) The approval or disapproval of any plans, drawings and
specification whether or not defective;
(2) The construction or performance of any work, whether or not
pursuant to approved plans, drawings and specifications; or
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(3) The development of any property within the LOS GATOS
BUSINESS PARK.
H. REVIEW FEE: An architectural review fee shall be paid to Grantor
at such time as plans and specifications are submitted for approval based on the
following schedule;
(1) When the plans submitted are prepared by an architect, the
architectural review fee shall be Two Hundred Fifty Dollars ($250.00);
(2) In all other cases the architectural review fee shall be
Five Hundred Dollars ($500.00).
I. CONSTRUCTION WITHOUT APPROVAL: If any improvement shall be
altered, erected, placed or maintained upon any lot, or any new use commenced on
any lot, otherwise than in accordance with the approval by the Grantor pursuant
to the provisions of this Section, such alteration, erection, maintenance or use
shall be deemed to have been undertaken in violation of this Section and without
the approval required herein, and upon written notice from the Grantor, any such
structure so altered, erected, placed or maintained upon any lot in violation
hereof shall be removed or re-altered, and any such use shall be terminated so
as to extinguish such violation. If within fifteen (15) days after the notice of
such violation the Owner of the lot upon which such violation exists shall not
have taken reasonable steps toward the removal or termination of the same,
Grantor shall have the right, through its agents and employees, to enter upon
such lot, subject to any security controls imposed by the Government of the
United States (or any agency thereof) with respect to any operation being
conducted thereon, and to take such steps as may be necessary to extinguish
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such violation. Grantor or any such agent shall not thereby be deemed to have
trespassed upon such lot and shall be subject to no liability to the Owner or
occupant of such lot for such entry and any action taken in connection with the
removal of any violation. The cost of any abatement or removal hereunder shall
be a binding personal obligation of such mortgagee upon the lot in question. The
lien provided in this Section shall not be valid as against a bona-fide
purchaser (or bona-fide mortgagee) of a lot in question unless a suit to enforce
said lien shall have been filed in a court of record in Santa Clara County,
California, prior to the recordation among the land records of Santa Clara
County, California, of the deed (or mortgage) conveying the lot in question to
such purchaser (or subjecting the same to such mortgage).
Section 2 - LIMITATIONS ON IMPROVEMENTS:
A. MINIMUM SETBACK LINES: No improvements of any kind, and no part
thereof, shall be placed closer than permitted by Grantor to an interior
property line. No improvements of any kind, and no part thereof, shall be placed
closer than twenty-five (25) feet from a property line fronting streets.
B. EXCEPTIONS TO SETBACK REQUIREMENTS: The following structures and
improvements are specifically excluded from the foregoing setback requirements:
(1) Roof overhang subject to the specific approval of Grantor in
writing, provided it does not extend more than six (6) feet into the setback
area;
(2) Steps and walks;
(3) Paving and associated curbing except that vehicle parking
area shall not be permitted to extend within street setback area.
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(4) Fences, except that no fence shall be placed within the
street setback area unless specific approval is given by Grantor in writing;
(5) Landscaping;
(6) Planters, not to exceed three (3) feet in height, unless
specific written approval is given by Grantor;
(6) Signs identifying the owner, lessee or occupant subject to
the specific approval of Grantor in writing;
(7) Lighting facilities, subject to the specific approval of
Grantor in writing.
C. LANDSCAPING: Every site on which a building shall have been placed
shall be landscaped in accordance with plans and specifications submitted to and
approve by Grantor pursuant to Section 1 above. Landscaping as approved by
Grantor shall be installed within thirty (30) days of occupancy or completion of
the building, whichever occurs first, unless Grantor approves in writing another
completion date. After completion such landscaping shall be maintained in a
sightly and well-kept condition. The area of each site between any street and
any minimum setback line as defined by paragraphs A and B of this Section shall
be landscaped with an effective combination of street trees, trees, ground cover
and shrubbery. All other areas fronting on a street that are not utilized for
parking or driveways shall be landscaped in a similar manner. All areas of each
site not fronting on a street and not used for parking or storage shall be
landscaped utilizing ground cover and/or shrub and tree materials. Undeveloped
areas proposed for future expansion shall be maintained in a weed-free condition
and shall be landscaped if required by Grantor. Unpaved
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areas between the street curb line and the property line adjoining any street
shall be landscaped and maintained by Owner. An underground automatic landscape
irrigation system shall be provided by the owner over all landscaped areas.
Areas used for parking shall be landscaped, be or fenced in such a manner as to
screen said areas from view from adjacent streets Such screening shall extend at
least forty two (42) inches above the high point of the finished pavement in
said parking area. Plant materials used for this purpose shall consist of lineal
or grouped masses of shrubs and/or trees.
If, in the opinion and sole discretion of the Grantor, the required
landscape is not maintained in a sightly and well-kept condition, the Grantor
shall have the right, through its agents and employees, to enter onto any site
and to take such steps as may be necessary to maintain the landscaping in a
sightly and well-kept condition. Grantor, or any such agent or employee, shall
not thereby be deemed to have trespassed upon such site and shall be subject to
no liability to the owner or occupant of such site for such entry and any action
taken in connection with such necessary maintenance. The cost of any such
maintenance hereunder shall be a binding personal obligation of such Owner, as
well as a lien (enforceable in the same manner as a mortgage) upon the site in
question. The lien provided in this Section shall not be valid as against a
bona-fide purchaser (or bona-fide mortgagee) of a site in question unless a suit
to enforce said lien shall have been filed in a court of record in Santa Clara
County, California, prior to the recordation among the land records of Santa
Clara County, California, of a deed (or mortgage) conveying the site in question
to such purchaser (or subjecting the same to such mortgage).
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D. SIGNS:
(1) No sign shall be permitted on any site unless approved by
Grantor in writing. No sign shall be approved other than those identifying the
name, business and products of the person or firm occupying the premises and
those offering the premises for sale or for lease;
(2) The location of signs shall be governed by the setback
requirements set forth in Article III-Section 2 unless Grantor gives permission
for a non-conforming location;
E. PARKING AREAS:
(1) Adequate off-street parking shall be provided to accommodate
all parking needs for employee, visitor and company vehicles on the site. The
intent of this provision is to eliminate the need for any on-street parking;
provided that this provision does not prohibit on-street parking of public
transportation vehicles.
(2) On-Site: Required off-street parking shall be provided on
the site of the use served, or on a contiguous site, or within six hundred (600)
feet of this subject site. Where parking is provided on other than the site
concerned, a recorded document shall be filed with the Grantor and signed by the
Owners of the alternate site stipulating to the permanent reservation of the use
of the site for said parking.
(3) Paved Areas: Parking areas shall be paved so as to provide
dust-free, all-weather surfaces. Each parking space provided shall be designated
by lines painted on the paved surfaces and shall be adequate in area, and all
parking areas shall
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provide, in addition to parking spaces, adequate driveways and space for the
movement of vehicles.
(4) Parking Plan: The number of parking spaces required for each
site, and the specific location of the same, shall be designated in plans for
each site which have been submitted and approved in the manner set forth herein.
In determining the number of parking spaces and the location thereof of each
site, Grantor shall consider the exact nature of the use proposed for the site;
the anticipated number and manner of employment of persons on the site; the
nature and location of proposed structures on the site; and such other matters
as Grantor shall deem relevant.
(5) Limitation: No parking spaces shall be located on, and no
parking shall be permitted by the Grantor within designated street setback
areas.
F. STORAGE AND LOADING AREAS:
(1) Unless specifically approved by Grantor in writing, no
materials, supplies or equipment, including company-owned or operated trucks and
motor vehicles shall be stored in any area on a site except inside a closed
building, or behind a visual barrier screening such areas so that they are not
visible from the neighboring properties or public streets. Any storage areas
screened by visual barriers shall be located on the rear portions of the site,
unless approved by Grantor in writing. No storage areas shall extend into
setback lines as established herein unless approved by Grantor in writing.
(2) All provisions for vehicle loading shall be provided on the
site with on-street vehicle loading not permitted.
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(3) No loading dock, trucking or railroad activity shall be
permitted between the structure and any street, and no loading areas shall
encroach into setback areas unless specifically approved by Grantor.
(4) Loading dock areas shall be set back and screened so as not
to be visible from neighboring properties and streets, but in any event, the
docks shall not be closer than forty-five (45) feet from a property line
fronting any street unless specifically approved by Grantor in writing. ARTICLE
IV - REGULATION OF OPERATIONS AND USES
Section 1 - PERMITTED USES: Unless otherwise specifically prohibited
herein, any industrial operation and use will be permitted, provided Grantor
specifically consents to such use in writing, if it is performed or carried out
entirely within a building that is so designed and constructed that the enclosed
operations and uses do not cause or produce a nuisance to adjacent sites such
as, but not limited to vibration, sound, electro-mechanical disturbances and
radiation, electro-magnet disturbances, radiation, air or water pollution, dust,
emission of odorous, toxic and non-toxic matter. Certain activities which cannot
be carried on within a building may be permitted, provided Grantor specifically
consents to such activity in writing and further provided such activity is
screened so as not to be visible from neighboring properties and streets. All
lighting is to be shielded from adjacent sites.
Section 2 - RESTRICTIONS AND PROHIBITED USES:
A. PROHIBITED USES: The following operations and uses shall not be
permitted on any property subject to these restrictions:
(1) Residential of any type;
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(2) Trailer courts or recreation vehicle campgrounds;
(3) Hotels or motels;
(4) Junk yards or recycling facilities;
(5) Drilling for and/or the removal of oils gas or other
hydrocarbon substances (except that this provision shall not be deemed to
prohibit the entry of subject property below a depth of five hundred (500) feet
for such purposes);
(6) Commercial excavation of building or construction materials,
except in the course of approved construction as provided by Article III-Section
1 above;
(7) Distillation of bones;
(8) Dumping, disposal, incineration or reduction of garbage,
sewage, offal, dead animals or refuse;
(9) Fat rendering;
(10) Stockyard or slaughter of animals;
(11) Refining of petroleum or of its products;
(12) Smelting of iron, tin, zinc, or other ores;
(13) Cemeteries;
(14) Jail or honor farms;
(15) Labor or migrant worker camps;
(16) Truck terminals;
(17) Petroleum storage yards.
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B. NUISANCES: No nuisance shall be permitted to exist or operate upon
any site so as to be offensive or detrimental to any property in the vicinity
thereof or to its occupants. A "nuisance" shall include but not be limited to
any of the following conditions:
(1) Dirt, Dust and Waste Discharge: No use of the property will
be permitted which emits dust, sweepings, dirt or cinders into the atmosphere,
or discharges liquid, solid wastes or other harmful matter into any stream,
river or other body of water which, in the opinion of the Grantor may adversely
affect the health, safety, comfort of, or intended property use by persons
within the area. Nor shall waste or any substance or materials of any kind be
discharged into any public sewer serving the property, or any part thereof, in
violation of any regulations of any public body having jurisdiction.
(2) Fumes, Gases, Odors, Etc.: No fumes, odors, gases, vapors,
acids or other substances shall be permitted to escape or be discharged into the
atmosphere which, in the opinion of Grantor, may be detrimental to the health,
safety or welfare of persons, or may interfere with the comfort of, persons
within the area, or which may be harmful to property or vegetation.
(3) Glare or Heat: Any operation producing intense glare or heat
shall be performed only within an enclosed or screened area and then only in
such manner that the glare or heat emitted will not be discernible from any
exterior lot line.
(4) Noise: At no point outside of any property plane shall the
sound pressure level of any machine, device, or any combination of same, from
any individual plant or operation exceed the decibel levels in the designated
preferred octave bands shown below:
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OCTAVE BAND MAXIMUM SOUND PRESSURE
CENTER FREQUENCY LEVELS (DB) AT BOUNDARY
(HZ) PLANE OF LOT
31.5 78
63 72
125 65
250 59
500 55
1000 52
2000 50
4000 48
8000 47
A-scale levels for monitoring purposes are equivalent to 60 dB(A). The maximum
permissible noise levels for the octave bands shown above are equal to an NC-50
Noise Criterion curve when plotted on the preferred frequency scale. Noise from
motor vehicles and other transportation facilities are exempted. The operation
of signalling devices and other equipment having impulsive or non-continuous
sound characteristics shall have the following corrections applied:
CORRECTIONS
Pure tone content -5dB
Impulsive character -5dB
Duration for non-continuous
sounds in daytime only,
1 min/hr -5dB
10 sec/10 min -10dB
2 sec/10 min -15dB
The reference level for the dB values listed above is the pressure of 0.0002
microbar or 0.0002 dyne/em.
(5) Smoke and Particulate Matter: Visible emissions of smoke
will not be permitted (outside any building) which exceed Ringlemann No. 1 on
the Ringlemann
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Chart of the United States Bureau of Mines, other than the exhausts emitted by
motor vehicles or other transportation facilities. This requirement shall also
be applicable to the disposal of trash and waste materials. Wind-borne dust,
sprays and mists originating in plants will not be permitted.
(6) Vibration: Buildings and other structures shall be
constructed and machinery and equipment installed and insulated on each site so
that the ground vibration inherently and recurrently generated is not
perceptible without instruments at any point along any of the exterior lot
lines.
C. CONDITION OF PROPERTY: The Owner of any site or lot shall at all
times keep the premises, buildings, improvements and appurtenances in a safe,
clean and wholesome condition and comply in all respects with all government,
health, fire and police requirements and regulations, and the Owner will remove
at his or its own expense any rubbish of any character whatsoever which may
accumulate on such site or lot. In the event such Owner fails to comply with any
or all of such specifications or requirements, the Grantor shall have the right,
privilege and license to enter upon such premises and make any and all
corrections or improvements that may be necessary to meet such standards and to
charge such Owner the expenses incurred in doing so. Grantor or any of its
agents shall not thereby be deemed to have trespassed upon such lot and shall be
subject to no liability to the Owner or occupant of such lot for such entry and
any action taken in connection with the removal of any violation. The cost of
any abatement or removal hereunder shall be a binding personal obligation on
such Owner as well as a lien (enforceable in the same manner as a mortgage) upon
the lot in question. The lien provided in this Section shall not be valid as
against a
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bona-fide purchaser (or a bona-fide mortgagee) of a lot in question unless a
suit to enforce said lien shall have been filed in a court of record in Santa
Clara County, California, prior to the recordation among the land records Santa
Clara County, of the deed (or mortgage) conveying the lot in question to such
purchaser, or subjecting the same to such mortgage.
D. REPAIR OF BUILDINGS: No building or structure upon any site shall
be permitted to fall into disrepair, and each such building and structure shall
at all times be kept in good condition and repair and adequately painted or
otherwise finished.
E. RIGHT OF ENTRY: During reasonable hours and subject to reasonable
security requirements, Grantor, or its authorized representative, shall have the
right to enter upon and inspect any building, site or parcel and the
improvements thereon embraced for the purpose of ascertaining whether or not the
provisions of LOS GATOS BUSINESS PARK RESTRICTIONS have been or are being
complied with and neither Grantor nor its authorized representative, shall be
deemed to have committed a trespass or other wrongful act by reason of such
entry or inspection.
F. REFUSE COLLECTION AREAS: All outdoor refuse collection areas shall
be visually screened so as not to be visible from streets, freeways and
neighboring property. No refuse collection areas shall be permitted between a
street and the front of a building.
G. IMPROVEMENTS: The Grantor reserves the sole right to grant
consents for the construction and operation of street railways, interurban,
rapid transit or other public utility facilities, freight railways, electric
light, telephone and telegraph pole lines, aboveground or underground conduits,
and gas pipes in and upon any and all streets now
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existing or hereafter established upon which any portion of the premises may now
or hereafter front or abut. The Grantor reserves and is hereby granted the
exclusive right to grant consents and to petition the proper authorities for any
and all street improvements such as grading, seeding, tree planting, sidewalks,
paving, sewer and water installation, whether it be on the surface or
sub-surface which in the opinion of the Grantor are necessary in or to the
property subject to these restrictions. The Grantor reserves the right to
approve aboveground utility lines across any property subject to these
restrictions, when such utility lines, in the opinion of the Grantor, are
necessary to the property subject to these restrictions.
Section 3 - OTHER OPERATIONS AND USES: Operations and uses which are
neither specifically prohibited nor specifically authorized by these
restrictions may be permitted in a specific case if operational plans and
specifications are submitted to and approved in writing by Grantor. Approval or
disapproval of such operational plans and specifications shall be based upon the
effect of such operations or uses on other property subject to these
restrictions or upon the occupants thereof, but shall be in the sole discretion
of Grantor.
ARTICLE V - DURATION, MODIFICATION AND REPEAL
Section 1 - DURATION OF RESTRICTIONS: The LOS GATOS BUSINESS PARK
RESTRICTIONS shall continue and remain in full force and effect at all times
with respect to all property, and each part thereof, now or hereafter made
subject thereto (subject, however, to the right to amend and repeal as provided
for herein) until January 1, 2009. However, unless within one (1) year prior to
January 1, 2009, there shall be recorded an instrument directing the terminate
of the LOS GATOS BUSINESS PARK RESTRICTIONS signed by owners of not less than
two-thirds (2/3) of the property then subject to these restrictions, based on
the
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number of square feet subject to these restrictions (excluding dedicated
streets), the LOS GATOS BUSINESS PARK RESTRICTIONS, as in effect immediately
prior to the expiration date shall be continued automatically without any
further notice for an additional period of ten (10) years and thereafter for
such periods of ten (10) years unless within one (1) year prior to the expansion
of a such period the LOS GATOS BUSINESS PARK RESTRICTIONS are terminated as set
forth above in this Section.
Section 2 - TERMINATION AND MODIFICATION: This Declaration or any
provision thereof, or any covenant, condition or restriction contained herein,
may be terminated, extended, modified or amended, as to the whole of said
property or portion thereof, with the written consent of the owners of sixty six
and two-thirds (66-2/3%) of the property subject to these restrictions, based on
the number of square feet owned as compared to the total number of square feet
subject to these restrictions (excluding dedicated streets), provided, however,
that so long as Grantor owns at least twenty five percent (25%) of the property
subject to these restrictions, or for a period of fifteen (15) years from the
effective date hereof, whichever period is longer, no such termination,
extension modification or amendment shall be effective without the written
approval of Grantor thereto. Provided further, that the provisions of Article
III and Article IV hereof shall inure to the benefit of and be enforceable
solely by Grantor, shall be capable of being amended by Grantor without the
consent of any other owner, person or entity, and shall not give any third party
any right or cause of action on account of the terms of this Declaration. No
such termination, extension, modification or amendment shall be effective until
a proper instrument in writing has been
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executed and acknowledged and recorded in the County where the land affected
thereby is situated.
ARTICLE VI - ENFORCEMENT
Section 1 - ABATEMENT AND SUIT: Violation or breach of any restriction
herein contained shall give to Grantor the right to enter upon the property or
as to which said violation or breach exists and to summarily abate and remove at
the expense of the Owner, lessee or occupant thereof, any structure, thing or
condition that may be or exist thereon contrary to the intent and meaning of the
provisions hereof, or to prosecute a proceeding at law or in equity against the
person or persons who have violated or are attempting to violate any of these
restrictions to enjoin or prevent them from doing so, to cause said violation to
be remedied or to recover damages for said violation.
Section 2 - DEEMED TO CONSTITUTE A NUISANCE: The result of every action
or omission whereby any restriction herein contained is violated in whole or in
part is hereby declared to be and to constitute a nuisance, and every remedy
allowed by law or equity against an Owner, either public or private, shall be
applicable against every such result and may be exercised by Grantor.
Section 3 - ATTORNEY FEES: In any legal or equitable proceeding for the
enforcement of this Declaration or any provision hereof, whether it be an action
for damages, declaratory relief or injunctive relief, the losing party or
parties shall pay the attorney fees of the prevailing party or parties, in such
reasonable amount as may be fixed by the court in such proceedings, or in a
separate action brought for that purpose. The prevailing party shall be
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entitled to said attorney fees, even though said proceeding is settled prior to
judgment. All remedies provided herein or at law or in equity shall be
cumulative and not exclusive.
Section 4 - FAILURE TO ENFORCE NOT A WAIVER OF RIGHTS: The Grantor
shall have the right to waive or grant a variance from any requirement,
restriction or standard contained in these Restrictions. The failure of Grantor
to enforce any requirement, restriction or standard herein contained, shall in
no event be deemed to be a waiver of the right to do so thereafter, nor of the
right to enforce any other restriction.
ARTICLE VII - MISCELLANEOUS PROVISIONS
Section 1 - ASSIGNMENT OF RIGHTS AND DUTIES: Any and all of the rights,
powers and reservations of Grantor herein contained may be assigned to any
person, corporation or association which will assume the duties of Grantor
pertaining to the particular rights, powers and reservations assigned, and upon
any such person, corporation or association evidencing its consent in writing to
accept such assignment and assume such duties, he or it shall, to the extent of
such assignment, have the same rights and powers and be subject to the same
obligations and duties as are given to and assumed by Grantor herein. The term
"Grantor" as used herein includes all such assignees and their successors and
assigns. I f at any time Grantor ceases to exist and has not made such an
assignment, a successor Grantor may be appointed in the same manner as these
Restrictions may be terminated, extended, modified or amended under Article V -
Section 2. Any assignment or appointment made under this Section shall be in
recordable form and shall be recorded in the County where the land is situated.
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Section 2 - CONSTRUCTION NOISE AND ACCEPTANCE: Every person or other
entity who now or hereafter owns, occupies or acquires any right, title or
interest in or to any portion of the property made subject to these Restrictions
is and shall be conclusively deemed to have consented and agreed to every
covenant, condition and restriction contained herein, whether or not any
reference to this Declaration are contained in the instrument by which such
person or entity acquired an interest in said property.
Section 3 - WAIVER: Neither Grantor nor its successors or assigns shall
be liable to any Owner, lessee, licensee, or occupant of land subject to this
Declaration by reason of any mistake in judgment, negligence, nonfeasance,
action or inaction or for the enforcement or failure to enforce any provision of
this Declaration. Every Owner, lessee, licensee or occupant of any of said
property by acquiring his interest therein agrees that he will not bring any
action or suit against Grantor to recover any such damages or to seek equitable
relief.
Section 4 - MUTUALITY, RECIPROCITY - RUNS WITH LAND: All covenants,
conditions, restrictions and agreements contained herein are made for the
direct, mutual and reciprocal benefit of each and every part and parcel of the
property now or hereafter made subject to this Declaration, shall create mutual,
equitable servitudes upon each parcel in favor of every other parcel; shall
create reciprocal rights and obligations between the respective Owners of all
parcels and privity of contract and estate between all grantees of said parcels,
their heirs, successors and assigns; and shall, as to the owner of each parcel,
his heirs, successors and assigns, operate as covenants running with the land,
for the benefit of all other parcels, except as provided herein.
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Section 5 - RIGHTS OF MORTGAGEES: No breach of the restrictions and
other provisions contained herein, or any enforcement thereof, shall defeat or
render invalid the lien of any mortgage or deed of trust now or hereafter
executed upon land subject to these Restrictions; provided, however, that if any
portion of said property is sold under a foreclosure of any mortgage or under
the provisions of any deed of trust, any purchaser of such sale and his
successors and assigns shall hold any and all property so purchased subject to
all of the restrictions and other provisions of this Declaration.
Section 6 - PARAGRAPH HEADINGS: Paragraph headings, where used herein,
are inserted for convenience only and are not intended to be a part of this
Declaration or in any way to define, limit or describe the scope and intent of
the particular paragraphs to which they refer.
Section 7 - EFFECT OF INVALIDATION: If any provisions of this
Declaration is held to be invalid by any court, the invalidity of such provision
shall not effect the validity of. the remaining provisions hereof.
IN WITNESS WHEREOF, Grantor has executed this Declaration the day and
year first above written.
LOS GATOS BUSINESS PARK
A Limited Partnership
By: /s/ Howard J. White
------------------------------------
Howard J. White, III General Manager
Article VI, Section 4 entitled "Failure to Enforce Not a Waiver of
Rights" has been amended to read:
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The Grantor is hereby authorized and empowered to grant reasonable
variances from the provisions of this Declaration in order to overcome practical
difficulties and in order to prevent unnecessary hardship in the application of
the provisions contained herein, provided, however, that said variances shall
not materially alter or be inconsistent with the general plan and intent of this
Declaration. The failure of Grantor to enforce any requirement, restriction or
standard herein contained, shall in no event be deemed to be a waiver of the
right to do so thereafter, nor of the right to enforce any other restriction.
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LEASE GUARANTY
THIS LEASE GUARANTY is made as of the 17th day of November, 1995, by
Octel Communications Corporation, a Delaware corporation ("Guarantor"), in favor
of Los Gatos Business Park, a California limited partnership ("Lessor").
Guarantor recites as follows:
A. Lessor and Rhetorex, Incorporated, a California corporation
("Lessee"), have entered into that certain Lease (the "Lease") dated the date
hereof pursuant to which Lessor is leasing to Lessee certain premises located at
151 Albright Way, Los Gatos, California.
B. As a condition precedent to Lessor's execution and delivery of the
Lease, and as an inducement for Lessor to enter the Lease, Guarantor desires to
guaranty the payment of all rent under the Lease on the terms and conditions
described herein.
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Guarantor hereby guaranties and agrees as follows:
1. Guarantor absolutely and irrevocably guaranties the payment of all
monthly rent, real estate taxes, operating expenses and other amounts referenced
under Section 3.B of the Lease which may from time to time be due and owing by
Lessee to Lessor under the Lease (the "Guaranteed Obligations"). If Lessee at
any time fails to pay any Guaranteed Obligation prior to the expiration of any
applicable cure period under the Lease, Guarantor will, upon demand from Lessor,
pay the same. This Guaranty shall be continuing and shall terminate only upon
the full and complete payment of all Guaranteed Obligations.
2. This Guaranty is a guaranty of payment and not of collection, the
obligations of Guarantor under this Guaranty are independent of the obligations
of Lessee, and Lessor may enforce this Guaranty against Guarantor without first
(a) making any effort at collection or enforcement of any Guaranteed Obligations
from or against Lessee or any other party that may be liable therefor, other
than providing any notices and cure periods required under the Lease, (b)
exercising or asserting any other right or remedy which may be available in
connection with the Guaranteed Obligations or resorting to or exhausting any
other security, guaranty or collateral held with respect to the Guaranteed
Obligations, or (c) asserting or filing any claim against the assets of Lessee,
Guarantor, or any other guarantor or any other party whatsoever. Neither failure
by Lessor to enforce any or all of its rights under the Lease or to insist upon
strict payment by Lessee of the Guaranteed Obligations, nor any grant by Lessor
of any indulgences or extensions of time to Lessee for the payment of any
Guaranteed Obligations, shall release Guarantor or in any way affect or diminish
Guarantor's obligations under this Guaranty. Guarantor expressly waives any
notice of acceptance of this Guaranty, diligence, presentment, demand, protest,
extension of time for payment of the Guaranteed Obligations, and notice of any
kind whatsoever, other than any notices and cure periods required under the
Lease.
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3. This Guaranty shall remain and continue in full force and effect
notwithstanding (a) the commencement or continuation of any action or proceeding
by, against or concerning Lessee under any federal or state bankruptcy,
insolvency or other debtor-relief law, (b) the voluntary or involuntary
appointment of a receiver, trustee, keeper or other person who takes possession
of any of Lessees assets, regardless of whether such appointment occurs as a
result of insolvency or any other cause, or (c) any assignment by Lessee for the
benefit of its creditors.
4. This Guaranty may not be amended, modified, waived, discharged or
terminated orally or by course of conduct, but only by an instrument in writing
duly executed by both Lessor and Guarantor. No waiver by Lessor of any default
of Lessee or Guarantor or any other event shall be effective unless in writing,
nor shall it operate as a waiver of any other default or of the same default on
a future occasion.
5. This Guaranty shall inure to the benefit of any person or persons,
entity or entities who now or hereafter may be entitled to the benefits or
obligated to perform the duties of Lessor under the Lease and shall be binding
upon the heirs, legal representatives, successors and assigns of Guarantor. All
rights and remedies of Lessor under this Guaranty and the Lease are cumulative
and not restrictive of any other rights or remedies available at law or in
equity.
6. Any notice required or permitted to be given hereunder shall be in
writing and shall be deemed duly given (a) when personally delivered, (b) one
day after being sent by Federal Express or similar overnight delivery service,
charges prepaid, or (c) three (3) business days after being deposited in the
U.S. Postal Service, postage prepaid, registered or certified mail, return
receipt requested (or when actually received, if earlier), and addressed as
follows: if to Lessor, at 900 Welch Road, Suite 10, Palo Alto, California 94304;
if to Guarantor, at 1001 Murphy Ranch Road, Milpitas, California 95035,
Attention: Vice President of Real Estate and Facilities.
7. If either Lessor or Guarantor shall bring any action or legal
proceeding to enforce, protect or establish any term or covenant of this
Guaranty, the prevailing party shall be entitled to recover its reasonable
attorneys' fees, court costs and experts' fees as may be fixed by the court.
"Prevailing party" as used herein includes a party who dismisses an action for
recovery hereunder in exchange for sums allegedly due, performance of covenants
allegedly breached or consideration substantially equal to the relief sought in
the action.
8. The validity, effect, construction, performance and enforcement of
this Guaranty shall be governed in all respects by the laws of the State of
California (without regard to conflicts of laws). Whenever possible, each
provision of this Guaranty shall be interpreted in such manner as to be
effective and valid under applicable law, but if any provision of this Guaranty
shall be prohibited by or invalid under such law, such provision shall be
ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of this
Guaranty.
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IN WITNESS WHEREOF, the undersigned has executed this Guaranty, by its
duly-authorized representative, as of the day and year first above written.
OCTEL COMMUNICATIONS CORPORATION,
a Delaware corporation
By: /s/ James Engle
-----------------------------
Its: Treasurer
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EXHIBIT 10.4
STANDARD TENANT LEASE
THIS AGREEMENT OF LEASE made this 15th day of August, 1995 between
Pacific Gateway Properties, Inc. ("Landlord"), having an office at 101 Spear
Street, Suite 215, San Francisco, California, and Brooktrout Technology, Inc., a
Massachusetts corporation, having its principal place of business at 144 Gould
Street, Needham, Massachusetts 02192 ("Tenant").
W I T N E S S E T H:
1. PREMISES DEMISED.
(a) Landlord leases and demises to Tenant and Tenant hires from
Landlord the following space: the building located at 410 First Avenue, Needham,
Massachusetts (the "Building") located on a parcel of land described on the
attached Exhibit A (the "Land") containing 37,615 rentable square feet outlined
on the plan attached as Exhibit B, together with all parking areas, sidewalks,
walkways, driveways, access ways, improvements, easements and appurtenances
thereto. The Land, Building and other improvements on the Land are hereafter
called the "Premises".
(b) Except with regard to (i) Landlord's obligation to correct
any current code compliance issues with regard to the entire Premises, excluding
areas affected by "Tenant Improvements" (as hereinafter defined) or areas
concerning ADA and/or AAB compliance, (ii) Landlord's obligation to ensure that
the roof is watertight and all mechanical equipment, heating, ventilating and
air conditioning equipment and plumbing ("Operating Systems") are in good
operating condition, Tenant hereby accepts the Premises in their condition
existing as of the Lease commencement date or the date that Tenant takes
possession of the Premises, whichever is earlier, subject to all applicable
zoning, municipal, county and state laws, ordinances and regulations governing
and regulating the use of the Premises, and any covenants or restrictions of
record, and accepts this Lease subject thereto and to all matters disclosed
thereby and by any exhibits attached hereto. Except with regard to the condition
of the structure and Operating Systems as aforesaid, which Landlord warrants to
be sound and watertight (as to the structure) and in good operating condition
(as to the Operating Systems), Tenant acknowledges that neither Landlord nor
Landlord's agent has made any representation or warranty as to the present or
future suitability of the Premises for the conduct of Tenant's business.
<PAGE> 2
2. TERM.
(a) ORIGINAL TERM. The Original Term of this Lease shall be one
hundred and twenty-eight (128) months to commence on March 1, 1996 (the
"Commencement Date"). The Original Term will expire October 31, 2006, which is
one hundred and twenty-eight (128) months after the Commencement Date. As used
in this Lease, "Term" shall mean the Original Term and any "Option Term", as
defined below. Should Landlord tender possession of the Premises to Tenant for
the completion of Tenant's work prior to the Commencement Date, and Tenant
elects to accept such tender, such prior occupancy shall be subject to all
terms, covenants and conditions of this Lease excluding the payment of Annual
Base Rent and Real Property Taxes.
(b) OPTION TERMS. Tenant shall have the option to extend this
Lease for two (2) additional and successive terms of five (5) years each by
written notice to Landlord delivered at least 270 days prior to the expiration
of the Original Term or First Option Term as appropriate. If Tenant shall fail
to give any such notice within the aforesaid time limitation, Tenant's right to
exercise its option shall nevertheless continue until the earlier of the date
the Lease would otherwise terminate or ten (10) days after Tenant shall receive
notice from Landlord of Landlord's election to terminate such option ("Tenant's
Notice Period") and Tenant may exercise such option at any time until the
earlier of the date the Lease would otherwise terminate or the expiration of
Tenant's Notice Period, and, in such event, any Minimum Annual Rent or other
payments payable by reason of the exercise of any option for an Option Term so
exercised by Tenant shall be computed as if Tenant had seasonably exercised such
option. In the event that Tenant elects not to exercise such option during
Tenant's Notice Period, then this Lease shall terminate in accordance with its
terms, unless the parties agree otherwise.
In the event of any extension of the Term of this Lease by reason of
Tenant's exercise of any of the aforesaid options, this Lease shall be deemed
and shall forthwith be extended with the same force and effect as of the
expiration date of the Term of this Lease as so extended had been originally
specified herein as the expiration date of the Term of this Lease, and except as
otherwise provided for in this Lease, all of the terms, covenants, conditions
and provisions of this Lease shall continue in full force and effect, except
that this Section 2 shall not extend the Term of this Lease, or grant any option
to extend such Term, during or at the expiration of the Second Option Term.
3. RENTAL RATE.
ANNUAL BASE RENT. Tenant shall pay during the Term and any Option
Term to Landlord as Annual Base Rent (hereafter defined as "Rent") for the
Premises, the amount specified on Schedule D. Rent shall be payable in advance,
on the first day of each month of the term hereof. Rent for any period during
the term hereof which is for less than one month shall be a pro rata portion of
the monthly installment. Except as otherwise provided herein, Rent shall be
payable in lawful money of the United States to Landlord without deduction,
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offset (except as specifically provided herein), prior notice or demand at the
address stated herein or to such other persons or at such other places as
Landlord may designate in writing.
4. REAL PROPERTY TAXES.
(a) PAYMENT OF TAXES. Tenant shall pay when due the real
property tax (hereafter defined as "Additional Rent"), as defined in Paragraph 4
(b), applicable to the Premises during the term of this Lease directly to the
town of Needham, MA prior to the accrual of any interest charges or penalties.
Tenant shall promptly furnish Landlord with satisfactory evidence that such
taxes have been paid. If any such taxes paid by Tenant shall cover any period of
time prior to or after the expiration of the term hereof, Tenant's share of such
taxes shall be equitably prorated to cover only the period of time within the
tax fiscal year during which this Lease shall be in effect, and Landlord shall
reimburse Tenant to the extent required. If Tenant shall fail to pay any such
taxes, Landlord shall have the right to pay the same, in which case Tenant shall
repay such amount to Landlord with Tenant's next rent installment together with
interest at the prime Rate plus 4% (the "Default Rate"). Prime Rate shall be
defined as the prime rate published in the Wall Street Journal from time to time
as the Prime Rate.
(b) DEFINITION OF "REAL PROPERTY TAX". As used herein, the term
"real property tax" shall include any form of real estate tax or assessment,
general, special, ordinary or extraordinary, and any license fee, commercial
rental tax, improvement bond or bonds, levy or tax (other than inheritance,
personal income or estate taxes) imposed on the Premises by any authority having
the direct or indirect power to tax, including any city, state or federal
government, or any school, agricultural, sanitary, fire, street, drainage or
other improvement district thereof, as against any legal or equitable interest
of Landlord in the Premises or in the real property of which the Premises are a
part. The term "real property tax" shall also include any tax, fee, levy
assessment or charge (i) in substitution of, partially or totally, any tax, fee,
levy, assessment or charge hereinabove included within the definition of "real
property tax". Tenant shall have the right to pay any special or betterment
assessments over the longest period allowed by law and shall pay only such
portion as falls within the Term.
(c) PERSONAL PROPERTY TAXES.
(1) Tenant shall pay prior to delinquency all taxes
assessed against and levied upon trade fixtures, furnishings, equipment
and all other personal property of Tenant contained in the Premises or
elsewhere. When possible, Tenant shall cause said trade fixtures,
furnishings, equipment and all other personal property to be assessed
and billed separately from the real property of Landlord.
(2) If any of Tenant's said personal property shall be
assessed with Landlord's real property, Tenant shall pay Landlord the
taxes attributable to Tenant within 10 days after receipt of a written
statement setting forth the taxes applicable to Tenant's property.
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5. UTILITIES.
(a) PREMISES. Tenant shall pay for all water, gas, heat, light,
power, telephone and other utilities and services supplied to the Premises,
together with any taxes thereon (hereafter defined as "Additional Rent").
6. TENANT IMPROVEMENTS.
Landlord will provide Tenant with a Tenant Improvement Allowance of up
to $4.00 per square foot for the construction of Tenant Improvements. Landlord
shall reimburse Tenant up to a total of $150,460 promptly upon receipt of
invoices therefore and a Certificate of Completion and lien release certificates
from Tenant's Contractor and certification from Tenant's Chief Financial Officer
that the work has been completed. If Landlord fails to so reimburse Tenant
within thirty (30) days from receipt of such invoices, Tenant may set off such
Tenant Improvement Allowance against Rent. Tenant will construct the tenant
improvements (the "Tenant Improvements") in a first class and workmanlike manner
in compliance with all applicable Legal Requirements and only after Landlord has
reviewed and approved in writing said Tenant Improvements, such approval not to
be unreasonably withheld or delayed. Landlord shall be deemed to have approved
Tenant's plans if Landlord has not commented thereon under ten (10) business
days from receipt thereof. All materials used by Tenant shall be new and of
first class quality. Tenant guarantees for a period of one year from the
Commencement Date that any Tenant Improvements will be free from any defects in
design, workmanship and materials. The final space plan will be attached as
Exhibit C.
7. TENANT'S USE BEFORE COMMENCEMENT DATE.
Tenant may, at any time after execution of this Lease and prior to the
Commencement Date, without incurring any liability for payment of Rent, design
and layout the Tenant Improvements and Tenant's Property, and place and install
its personal property, furniture, furnishings, signs, telecommunication
equipment, equipment and trade fixtures ("Tenant's Property"), in the Premises
at Tenant's risk and expense. In exercising the foregoing rights, Tenant shall
not cause any material interference with or delay to Tenant's Contractor.
Tenant's indemnity in Paragraph 16 (f) shall apply to Tenant's entry under this
Paragraph 7.
8. USE.
Tenant shall have the right to use and occupy the Premises for general
office purposes and light assembly and distribution. Tenant represents and
warrants it will use its best efforts to acquire all covenants, restrictions,
easements, zoning and other Legal Requirements which may be necessary as of the
Commencement Date and as of the Commencement Date permit the use of the Premises
for general office purposes, storage, and uses accessory and incidental thereto.
In the event that any repairs, modifications, alterations or other improvements
in the structural elements of the Building, in any of the Operating Systems of
the Building or in any path-of-travel elements of the Building are made
necessary by Legal Requirements that relate
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to Tenant's particular use of the Premises, as opposed to the general use of the
Premises for office and light assembly and distribution, Tenant shall promptly
comply with and shall pay the full cost of complying with such Legal
Requirements. In the event that any such repairs, modifications, alterations or
other improvements in the structural elements of the Building, in any of the
Operating Systems of the Building or in any path-of-travel elements of the
Building result from Legal Requirements relating to the general use of the
Building for general office and light assembly and distribution purposes,
Landlord shall promptly comply with and pay the cost of such work, provided that
Landlord shall be entitled to amortize the cost of such work over the useful
life of such improvements at an interest rate equal to the Bank of America
Reference Rate plus two (2) percent and Tenant shall reimburse Landlord on a
monthly basis for the annual amortized cost thereof during the balance of the
Lease Term, commencing in the month following Tenant's receipt from Landlord of
a statement detailing the work done and the amortized cost thereof. Except as
specifically provided above, Tenant shall have full responsibility for complying
with and paying the cost of compliance with all Legal Requirements affecting the
Premises and Tenant's use thereof.
9. COMPLIANCE WITH LAWS.
Tenant shall comply with all Legal Requirements insofar as they pertain
solely to the particular manner in which Tenant shall use the Premises or ADA
and/or AAB compliance in the Building. Landlord shall comply with Legal
Requirements excluding ADA and/or AAB compliance in every other case, including
cases where Legal Requirements mandate repairs, alterations, changes or
additions to the Premises not caused by Tenant's particular use thereof.
10. ENVIRONMENTAL COMPLIANCE.
(a) Landlord agrees to defend, indemnify and hold harmless
Tenant against (i) all conditions currently existing on or about the Premises
which conditions may constitute a violation of M.G.L. c. 21E, the Massachusetts
Contingency Plan, 310 CMR ss.40, et seq., The Comprehensive Environmental
Response, Compensation and Liability Act, the Resource Conservation and Recovery
Act, and all other laws, unless regulations which pertain to contaminants or
pollutants ("Hazardous Substances") and the environment ("Environmental Law"),
and (ii) any future contamination of the Premises by Hazardous Substances as a
result of ground water or other subsurface contamination not caused by Tenant,
its agents, contractors or employees.
(b) Tenant agrees to defend, indemnify and hold harmless
Landlord from (i) any contamination by Hazardous Substances of the Premises, the
Building or the land underlying the Budding or any violation of Environmental
Law resulting from the acts or omissions of Tenant, its agents, contractors or
employees and (ii) except as provided in Section 10(a)(ii) above, any spill
discharge or disposal on the Premises, the Building or the land underlying the
Building of any Hazardous Substances in violation of Environmental Law during
the term of the Lease by any third party, excluding Landlord, its agents,
contractors or employees, provided that the scope of Tenant's indemnity under
this clause 10(b)(ii) shall not
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extend to any remediation or clean-up requirements existing after the expiration
of the Lease Term.
(c) Tenant agrees to comply with all applicable Environmental
Laws, rules and regulations insofar as they pertain solely to the particular
manner in which Tenant shall use the Premises.
(d) Tenant shall not generate, store, transport, treat, dispose
of or use on the Premises Hazardous Substances, except that Tenant's use on the
Premises of cleaning supplies, copying fluids, other office and maintenance
supplies and other substances normally and customarily used by tenants of space
similar to the Premises shall not be deemed a violation of this Paragraph 10
(d).
(e) Landlord and Tenant agree to indemnify, defend and hold
each other harmless from any claims, judgments, damages, penalties, fines,
costs, liabilities or loss, including reasonable attorneys' fees, consultant
fees, and expert witness fees, which arise from the indemnifying party's breach
of its representations, agreements and warranties contained in this Paragraph
10.
11. REPAIRS AND MAINTENANCE.
(a) TENANT'S OBLIGATIONS. Tenant shall keep in good order,
condition and repair the Premises and all non-structural portions of the
Building (whether or not such portion of the Premises requiring repair, or the
means of repairing the same are reasonably or readily accessible to Tenant, and
whether or not the need for such repairs occurs as a result of Tenant's use, any
prior use, the elements or the age of such portion of the Premises), including,
without limiting the generality of the foregoing, all lighting facilities,
interior walls, ceilings, floors, windows, doors, plate glass and skylights
located within the Premises. Tenant at Tenant's sole cost and expense shall also
maintain usual and customary service contracts on heating, ventilating and air
handling and conditioning equipment and shall be responsible to perform routine
maintenance on all plumbing, electrical and mechanical equipment.
(b) LANDLORD'S OBLIGATION. Landlord shall maintain the roof
except those areas where Tenant has installed equipment and structural portions
of the Building except those areas where Tenant has installed windows, and if
the roof or any structural component or any Operating Systems or any component
thereof require replacement during the Term hereof, such that the cost thereof
would be capitalized rather than expensed under generally accepted accounting
principles, Landlord shall pay the cost of such repair or replacement provided
that Landlord shall be entitled to amortize the cost of such work over the
useful life of such improvements at an interest rate equal to the Bank of
America Reference Rate plus two (2) percent, and Tenant shall reimburse Landlord
on a monthly basis for the annual amortized cost thereof during the balance of
the Lease Term and any Option Term exercised by Tenant, commencing in the month
following Tenant's receipt from Landlord of a statement detailing the work done
and the amortized cost thereof.
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(c) TENANT'S RIGHTS. If any condition which is the responsi-
bility of Landlord under Section (b) above arises, Tenant shall notify Landlord
in writing. If Landlord shall fail to commence repair/replacements within twenty
(20) days, Tenant may perform such repair or replacement and set off the cost
thereof (less Tenant's amortized portion delivered as provided in (b) above)
from Rent otherwise due hereunder.
(d) SURRENDER. On the last day of the term hereof, or on any
sooner termination, Tenant shall surrender the Premises to Landlord in the same
condition as when received (subject to Tenant Improvements), ordinary wear and
tear excepted, clean and free of debris. Tenant shall repair any damage to the
Premises occasioned by the installation or removal of Tenant's trade fixtures,
furnishings and equipment. Notwithstanding anything to the contrary otherwise
stated in this Lease, Tenant shall leave the air lines, power panels, electrical
distribution systems, lighting fixtures, space heaters, air conditioning,
plumbing and fencing on the premises in good operating condition.
(e) LANDLORD'S RIGHTS. If Tenant fails to perform Tenant's
obligations under this Paragraph 11, or under any other paragraph of this Lease,
Landlord may at its option (but shall not be required to) enter upon the
Premises after ten (10) days' prior written notice to Tenant (except in the case
of an emergency, in which case no notice shall be required), perform such
obligations on Tenant's behalf and put the same in good order, condition and
repair, and the cost thereof together with interest thereon at the Default Rate
shall become due and payable as additional rental to Landlord together with
Tenant's next rental installment.
12. ALTERATIONS.
(a) Tenant may, at its own expense, and without Landlord's
prior consent, change, alter, add or improve the Premises ("Alterations")
provided such changes, alterations, additions or improvements do not affect any
structural component of the Building or affect or increase the load on any
Operating System of the Building, and install such Tenant Property in the
Premises as will, in the judgment of Tenant, better adapt the same for its
purposes, Tenant must obtain Landlord's prior written consent for any
Alterations to the roof, the electrical system, exterior walls, foundation, and
support columns ("Structural Alterations"), which consent shall not be
unreasonably withheld, delayed or qualified.
(b) Tenant shall comply with all applicable Legal Requirements
arising, out of Tenant's activities under this Paragraph 12.
(c) Tenant shall defend, indemnify and save Landlord harmless
(including reasonable attorneys' fees and other costs of defense) from any and
all mechanic's liens placed on the Premises or the Property arising out of
Tenant's activities under this Paragraph 12.
(d) All Alterations made by Tenant (other than Tenant's
Property trade fixtures) shall become, upon the expiration of this Lease, the
property of Landlord and shall remain on the Premises, unless required to be
removed under Paragraph 11 (b). Not later than
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thirty (30) days after the expiration of the Term, Tenant shall remove all
Tenant Property and items required to be removed under Paragraph 12 (e) and
repair any damage to the Premises caused by such removal, except for ordinary
wear and tear.
(e) Anything in this Lease to the contrary notwithstanding,
Tenant shall not be required at any time to remove or restore (i) any
Alterations which cost less than $5,000.00 to install not requiring Landlord's
consent, or any Alterations that do require Landlord's consent, unless Landlord,
at the time it gives such consent, expressly requires in writing removal or
restoration of such Alterations; (ii) any of the Tenant Improvements described
on Exhibit E; or (iii) any partitions, flooring, floor covering, pipes, wires,
conduits run through a floor, ceiling, or partition, provided these are cut off
or capped in accordance with all applicable Legal Requirements.
13. ASSIGNMENT AND SUBLETTING.
(a) LANDLORD'S CONSENT REQUIRED. Except as set forth in Section
13(b), below, Tenant shall not voluntarily or by operation of law assign,
transfer, mortgage, sublet, or otherwise transfer or encumber all or any part of
Tenant's interest in this Lease or in the Premises, without Landlord's prior
written consent, which shall not be unreasonably withheld. Any attempted
assignment, transfer, mortgage, encumbrance or subletting without such consent
shall be voidable, and shall at Landlord's option constitute a breach of this
Lease that entitles Landlord to terminate this Lease. Tenant agrees that the
instrument by which any assignment or subletting consented to by Landlord is
accomplished shall be in a form reasonably satisfactory to Landlord, and shall
expressly provide that the assignee or subtenant will perform and observe all
the agreements, covenants, conditions and provisions to be performed and
observed by Tenant under this Lease as and when performance and observance is
due and that Landlord will have the right to enforce such agreements, covenants,
conditions and provisions directly against such assignee or subtenant. Any
subtenant shall, by reason of entering into a sublease under this Lease, be
deemed, for the benefit of Landlord, to have assumed and agreed to conform and
comply with each and every obligation of Tenant hereunder other than such
obligations as are contrary to provisions contained in a sublease to which
Landlord has expressly consented in writing.
(b) PERMITTED TRANSFERS. Notwithstanding the provisions of
Paragraph 13 (a) hereof, Tenant may assign or sublet the Premises, or any
portion thereof, without Landlord's consent, to any corporation which controls,
is controlled by or is under direct or indirect common control with Tenant, or
to any corporation resulting from the merger or consolidation with Tenant, or to
any person or entity which acquires all the assets of Tenant as a going concern
of the business that is being conducted on the Premises or to any entity with
which Tenant is participating in a joint venture of limited duration, provided
that said assignee assumes, in full, the obligations of the Tenant under this
Lease. Any such assignment shall not, in any way, affect or limit the liability
of Tenant under the terms of this Lease.
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(c) NO RELEASE OF TENANT. Regardless of Landlord's consent, no
subletting or assignment shall release Tenant of Tenant's obligation or alter
the primary liability of Tenant to pay the rent and to perform all other
obligations to be performed by Tenant hereunder, whether accruing before or
after such subletting or assignment, except as provided in Paragraph 13 (e)
below. The acceptance of rent by Landlord from any other person shall not be
deemed to be a waiver by Landlord of any provision hereof. Consent to one
assignment or subletting shall not be deemed consent to any subsequent
assignment or subletting. In the event of default by any assignee of Tenant or
any successor of Tenant in the performance of any of the terms hereof, Landlord
may proceed directly against Tenant without the necessity of exhausting remedies
against said assignee.
(d) NOTICE OF ASSIGNMENT OR SUBLETTING. Except as to Permitted
Transfers hereunder, before entering into any assignment of this Lease or into a
sublease of all or a part of the Premises, Tenant shall give written notice to
Landlord (i) identifying the intended assignee or subtenant by name and address,
(ii) describing the nature of the proposed business to be carried or in the
Premises, (iii) specifying the terms of the intended assignment or sublease, and
(iv) providing such financial and other business information as Landlord may
reasonably request concerning the proposed assignee or subtenant (including,
without limitation, a bank reference and financial statements for the most
recently completed fiscal year). Landlord shall respond to Tenant's request for
consent within five (5) business days of submission of all requested
information. Except in the case of a Permitted Transfer, for a period of ten
(10) business days after such notice, accompanied by all supporting documents,
is given, Landlord shall have the right by written notice to Tenant to terminate
this Lease as to the entire Premises in the event of an assignment, or terminate
the Lease as to such portion of the Premises as Tenant intended to sublet in the
event of a sublease of a portion of the Premises, as of the date specified in
such notice, which date shall not be less than thirty (30) days nor more than
sixty (60) days after such notice is given. If Landlord terminates this Lease,
Landlord may, if it elects, enter into a new lease covering the Premises with
the intended assignee or subtenant on such terms as Landlord and such person may
agree, or enter into a new lease covering the Premises with any other persons.
In such event Tenant shall not be entitled to any portion of profit, if any,
which Landlord may realize on account of such termination and reletting. From
and after the date of such termination of this Lease, Tenant shall have no
further obligation to landlord hereunder, except for matters occurring or
obligations arising hereunder prior to the date of such termination.
(e) CONDITION TO LANDLORD'S CONSENT. As a condition to
Landlord's consent to any assignment or subletting, Landlord shall be entitled
to receive, in the case of a subletting, 50% of the rent (however denominated
and paid) payable by the subtenant to Tenant in excess of that payable by Tenant
to Landlord hereunder and, in the case of an assignment, all of the
consideration given, directly or indirectly, by the assignee to Tenant in
connection with such assignment, after Tenant has first recovered its
unamortized costs of tenant improvements in the Premises (based upon a five year
amortization period) and any direct costs incurred by it in such assignment or
sublease such as brokerage commissions and tenant improvements made for the
sublessee or assignee. For purposes of this Paragraph, the
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term "rent" shall mean all consideration paid or given, directly or indirectly
for the use of the Premises or any portion thereof. The term "consideration"
shall mean and include money paid to acquire Tenant's interest in the Lease but
shall not include, in the case of a sublet, free rent or other concessions which
Tenant deems reasonably necessary to sublet any portion of the Premises. The
rent or other consideration which is to be passed through to Landlord by Tenant
pursuant to this Paragraph shall be paid to Landlord promptly upon receipt by
Tenant and shall be paid in cash, irrespective of the form in which received by
Tenant from any subtenant or assignee.
(f) LANDLORD'S EXPENSES. In the event Tenant shall assign or
sublet the Premises or request the consent of Landlord to any assignment or
subletting or if Tenant shall request the consent of Landlord for any act Tenant
proposes to do, then Tenant shall pay Landlord's reasonable costs and expenses
incurred in connection therewith, including, without limitation, reasonable
attorneys' fees, and Landlord may condition its consent on the payment thereof.
14. DAMAGE OR DESTRUCTION.
(a) If the Premises or the appurtenances thereto shall during
the term of this Lease, be damaged or destroyed by fire or other casualty or any
cause whatsoever required to be insured against hereunder, either in whole or in
part, Landlord shall forthwith remove any resulting debris and repair and/or
rebuild the damaged or destroyed structures and other improvements (excluding
any Tenant Improvements). Tenant and Landlord agree that any insurance proceeds
shall be made available to Landlord for the restoration and repair of the
building on the Premises. Tenant shall have sixty (60) days after completion of
Landlord's reconstruction to rebuild and restore Tenant Improvements. Tenant
shall have the use of the insurance proceeds to complete such restoration. Until
such time as the Premises are repaired, rebuilt and put in good and tenantable
order, or sixty (60) days from completion of Landlord's restorations, the Rent
or a fair and just proportion thereof according to the nature and extent of the
damage sustained, shall be abated. If the damage cannot be repaired within one
hundred and eighty (180) days as reasonably determined by Landlord, either party
shall have the right to terminate the Lease, which termination may be exercised
by Landlord within thirty (30) days from the occurrence and by Tenant within the
later of thirty (30) days after the casualty or fifteen (15) days after receipt
of notice from the Landlord of the time required to repair the Premises.
Further, if Landlord, for any reason whatsoever, fails to repair, rebuild and
put the structural component of the Premises and all Operating Systems in good
and tenantable order following damage or destruction arising from any cause
whatsoever within two hundred and seventy (270) days after the date when such
damage or destruction occurred or has not commenced such repairs in restoration
within thirty (30) days from the Landlord's receipt of insurance proceeds,
Tenant shall have the right and option to terminate the term of this Lease by
giving Landlord written notice of Tenant's election to do so, and upon such
notice being given within fifteen (15) days following the expiration of such
deadline, the term of this Lease shall automatically terminate and end effective
as of the date of damage or destruction. Anything herein to the contrary
notwithstanding, it is understood and agreed that (i) if the
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Premises should be damaged or destroyed by fire or other cause to such an extent
that the cost of restoration would exceed fifty percent (50%) of the amount it
would have cost to replace the Premises in their entirety at the time such
damage or destruction took place, and (ii) if at time of such damage or
destruction the term of this Lease is scheduled to expire within a period of one
(1) year, either Landlord or Tenant shall have the right and option to terminate
the term of this Lease by giving the other party to this Lease notice of such
election within thirty (30) days after such damage or destruction shall have
taken place, and if such notice is given, the term of this Lease shall terminate
as of the date Tenant vacates the Premises, which date shall be no later than
thirty (30) days after the giving of such notice; provided, however, that Tenant
shall have the right to nullify any such notice of termination given by Landlord
if at the time such notice is given an option herein granted Tenant to extend
the term of this Lease for an additional period of five (5) years or more
remains unexercised and Tenant shall exercise such option within thirty (30)
days after the receipt of such notice from Landlord, in which event Landlord's
notice of such termination shall be of no force or effect and Landlord shall
perform the restoration and other work required of Landlord under the terms of
this Section 14(a).
(b) TERMINATION - ADVANCE PAYMENTS. Upon termination of this
Lease pursuant to this Paragraph 14, an equitable adjustment shall be made
concerning advance rent and any advance payments made by Tenant to Landlord.
Landlord shall, in addition, return to Tenant so much of Tenant's security
deposit as has not theretofore been applied by Landlord.
15. CONDEMNATION.
If the Premises or any portion thereof or of the Building are taken
under the power of eminent domain, or sold under the threat of the exercise of
said power (all of which are herein called "condemnation"), this Lease shall
terminate as to the part so taken as of the date the condemning authority takes
title or possession, whichever first occurs. If such taking materially adversely
affects Tenant's ability to conduct business or reduces available parking to
below that required by law solely for Tenant's use, or deprives Tenant of access
to and from the Premises for more than sixty (60) consecutive days, Tenant may,
at Tenant option, to be exercised in writing only within thirty (30) days after
Landlord shall have given Tenant written notice of such taking (or in the
absence of such notice, within thirty (30) days after the condemning authority
shall have taken possession), terminate this Lease as of the date the condemning
authority takes such possession. If Tenant does not terminate this Lease in
accordance with the foregoing, this Lease shall remain in full force and effect
as to the portion of the Premises remaining, except that the rent shall be
reduced in the proportion that the floor area of the Premises taken bears to the
total floor area of the Premises. No reduction of rent shall occur if only
exterior areas of the Premises, or areas not within the Building are taken
unless access to the Premises is not available. Any award for the taking of all
or any part of the Premises under the power of eminent domain or any payment
made under threat of the exercise of such power shall be the property of
Landlord, whether such award shall be made as compensation for diminution in
value of the leasehold or for the taking of the fee, or as severance damages;
provided, however, that Tenant shall be entitled to any award for loss of or
damage to Tenant's trade fixtures and removable personal property or for
Tenant's moving
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expenses. Further, Tenant shall be entitled to receive from the proceeds of any
condemnation proceeding the lesser of (i) the amount by which Tenant
Improvements increase the fair market value of the Premises (less the amount
paid by Landlord therefor), or (ii) the unamortized cost of Tenant Improvements
or Alterations (less the amount paid by Landlord therefore). In the event that
this Lease is not terminated by reason of such condemnation, Landlord shall, to
the extent of severance damages received by Landlord in connection with such
condemnation, repair any damage to the Premises caused by such condemnation,
except to the extent that Tenant has been reimbursed therefor by the condemning
authority. Tenant shall pay any amount in excess of such severance damages
required to complete such repair.
16. INSURANCE.
(a) INSURING PARTY. As used in this Paragraph 16, "insuring
party" shall mean the party who has the obligation to obtain the Property
Insurance required hereunder. The insuring party shall be the Landlord. Landlord
shall also maintain the liability insurance described in paragraph 16 (b)
hereof, in addition to, and not in lieu of, the insurance required to be
maintained by Tenant under said paragraph 16 (b). Landlord shall name Tenant as
an additional insured on such policy. Tenant shall, as additional rent for the
Premises, pay the cost of all insurance required hereunder, except for that
portion of the cost attributable to Landlord's liability insurance coverage in
excess of $1,000,000 per occurrence. Tenant shall, within ten (10) days
following demand by Landlord, reimburse Landlord for the cost of the insurance
so obtained.
(b) LIABILITY INSURANCE. Tenant shall, at Tenant's expense
obtain and keep in force during the term of this Lease a policy of Combined
Single Limit, Bodily Injury and Property Damage insurance insuring Landlord and
Tenant against any liability arising out of the ownership, use, occupance or
maintenance of the Premises and all areas appurtenant thereto. Such insurance
shall be a combined single limit policy in an amount not less than $5,000.000
per occurrence. The policy shall insure performance by Tenant of the indemnity
provisions of this Paragraph 16. The limits of said insurance shall not,
however, limit the liability of Tenant hereunder.
(c) PROPERTY INSURANCE.
(1) The Landlord shall obtain and keep in force during
the term of this Lease a policy or policies of insurance covering loss or damage
to the Premises, in the amount of the full replacement value thereof, with a
deductible not to exceed $10,000, as the same may exist from time to time, but
in no event less than the total amount required by lenders having liens on the
Premises, against all perils included within the classification of fire,
extended coverage, vandalism, malicious mischief, flood (in the event same is
required by a lender having a lien on the Premises), and special extended perils
("all risk" as such term is used in the insurance industry). Said insurance
shall name Tenant as an additional insured and provide for payment of loss
thereunder to Landlord or to the holders of mortgages or deeds of trust on the
Premises, provided that such Lenders shall be required to disburse the proceeds
of
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this insurance for restoration of the Premises as herein provided. Landlord
shall, in addition, obtain and keep in force during the term of this lease a
policy of rental value insurance covering a period of reconstruction, with loss
payable to Landlord, which insurance shall also cover all real estate taxes and
insurance costs for said period. A stipulated value or agreed amount endorsement
deleting the coinsurance provision of the policy shall be procured with said
insurance as well as an automatic increase in insurance endorsement causing the
increase in annual property insurance coverage by 2% per quarter. If the
Landlord shall fail to procure and maintain said insurance the Tenant may, but
shall not be required to, procure and maintain the same, the cost of which
Tenant may set off against Rent otherwise due hereunder. Landlord shall provide
Tenant with a certificate evidencing this insurance when requested by Tenant.
(2) The Landlord will not insure Tenant fixtures or
equipment but shall insure the Tenant Improvements, and other future alterations
of a permanent nature which are approved by Landlord.
(d) INSURANCE POLICIES. Insurance required hereunder shall be
in companies holding a "General Policyholders Rating" of at least B plus, or
such other rating as may be required by a lender having a lien on the Premises,
as set forth in the most current issue of "Best's Insurance Guide". The Landlord
shall deliver to the other party copies of policies of such insurance or
certificates evidencing the existence and amounts of such insurance with loss
payable clause as required by this paragraph (d). No such policy shall be
cancelable or subject to reduction of coverage or other modification except
after thirty (30) days prior written notice to Landlord. Tenant shall not do or
permit to be done anything which shall invalidate the insurance policies
referred to in Paragraph (c). If Tenant does or permits to be done anything
which shall increase the cost of the insurance policies referred to in Paragraph
(c), then Tenant shall forthwith upon Landlord's demand reimburse Landlord for
any additional premiums attributable to any act or omission or operation of
Tenant causing such increase in the cost of insurance. If the insurance policies
maintained hereunder cover other improvements in addition to the Premises,
Landlord shall deliver to Tenant a written statement setting forth the amount of
any such insurance cost increase and showing reasonable detail the manner in
which it has been computed.
(e) WAIVER OF SUBROGATION. Tenant and Landlord each hereby
release and relieve the other, and waive their entire right of recovery against
the other for loss or damage arising out of or incident to the perils insured
against under paragraph (c), which perils occur in, on or about the Premises,
whether due to the negligence of Landlord or Tenant or their agents, employees,
contractors and/or invitees. Tenant and Landlord shall, upon obtaining the
policies of insurance required hereunder, give notice to the insurance carrier
or carriers that the foregoing mutual waiver of subrogation is contained in this
Lease.
(f) INDEMNITY. Tenant shall indemnify and hold harmless
Landlord from and against any and all claims arising from Tenant's use of the
Premises, or from the conduct of Tenant's business or from any activity, work or
things done, permitted or suffered by
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Tenant in or about the Premises or elsewhere, except to the extent such claims
result from or arise out of Landlord's gross negligence, and shall further
indemnify and hold harmless Landlord from and against any and all claims arising
from any breach or default in the performance of any obligation on Tenant's part
to be performed under the terms of this Lease, or arising from any negligence of
the Tenant, or any of Tenant's agents, contractors, or employees, and from and
against all costs, attorney's fee, expenses from liabilities incurred in the
defense of any such claim or any action or proceeding brought thereon; and in
case any action or proceeding be brought against Landlord by reason of any such
claim. Tenant upon notice from Landlord shall defend the same at Tenant's
expense by counsel satisfactory to Landlord. Tenant, as a material part of the
consideration to Landlord, hereby assumes all risk of damage to property or
injury to persons, in, upon or about the Premises arising from any cause other
than negligence or gross negligence of Landlord, its agents, servants, and
Tenant hereby waives all claims in respect thereof against Landlord.
(g) EXEMPTION OF LANDLORD FROM LIABILITY. Tenant hereby agrees
that Landlord shall not be liable for injury to Tenant's business or any loss of
income therefrom or for damage to the goods, wares, merchandise or other
property of Tenant, Tenant's employees except as provided in (f) above,
invitees, customers, or any other person in or about the Premises, not shall
Landlord be liable for injury to the person Tenant, Tenant's employees, agents
or contractors, whether such damage or injury is caused by or results from fire,
steam, electricity, gas, water or rain, or from the breakage, leakage,
obstruction or other defects of pipes, sprinklers, wires, appliances, plumbing,
air conditioning or lighting fixtures, or from any other cause, whether the said
damage or injury results from conditions arising upon the Premises or upon other
portions of the building of which the Premises are a part, or from other sources
or places and regardless of whether the cause of such damage or injury or the
means of repairing the same is inaccessible to Tenant. Landlord shall not be
liable for any damages arising from any act or neglect of any other tenant, if
any, of the building in which the Premises are located.
17. LANDLORD'S RIGHT OF ENTRY.
(a) Landlord has the right to enter the Premises at any
reasonable time during normal business hours upon prior written notice to
Tenant, or without notice in case of emergency, for the purpose of inspecting
the Premises or performing maintenance, repairs and replacements to the Premises
as are permitted under this Lease.
(b) During business hours and upon reasonable notice to Tenant,
Landlord may, during the Term, show the Premises to prospective purchasers and
mortgagees, and, during the twelve (12) months prior to expiration of this
Lease, to prospective tenants. In exercising its rights under Paragraph 18,
Landlord will not unreasonably interfere with or disrupt the normal operations
of Tenant's business.
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18. PARKING FACILITIES.
Tenant, its employees, agents, customers and visitors shall have the
right to use on an exclusive basis the parking facilities described on Exhibit
E. Landlord will permit Tenant to apply for designated reserved spaces that are
close to its main entrance, subject to city approval.
19. SIGNS.
With Landlord's prior review and written consent and necessary permits
and approvals, Tenant may at Tenant's sole cost and expense install an exterior
monument sign and may place the customary number of names in the Building
directory. Landlord hereby acknowledges that Tenant will place a sign on the
Building which is clearly visible from Route 128.
20. USE OF THE ROOF.
Tenant shall have the right (and in connection therewith, must obtain
all necessary permits and approvals), to use a portion of the roof of the
Building for installation and use of a microwave dish or other communications
radio antenna. Tenant shall have no obligation to pay Rent for such right, but
Tenant shall maintain any roof installation in good condition and repair.
21. DEFAULT; RIGHTS AND REMEDIES.
(a) The occurrence of any one or more of the following matters
constitutes a default by Tenant under this lease:
(1) failure by Tenant to pay Annual Base Rent within ten
(10) days after written notice hereof, provided, however, that Landlord shall
not be obligated to grant more than two (2) such notices during any calendar
year after which Tenant shall be in default if Rent is more than ten (10) days
late without requirement of further notice;
(2) failure by Tenant to pay Additional Rent within ten
(10) days after receipt of written notice of such failure to pay when due;
(3) failure by Tenant to observe or perform any other
covenant, agreement, condition or provision of this Lease, if such failure shall
continue for thirty (30) days after receipt of written notice from Landlord to
Tenant, except that if such default cannot be cured within such thirty (30) day
period, it shall not be considered a default if Tenant commences to cure such
default within such thirty (30) day period and proceeds diligently thereafter to
effect such cure.
(b) The occurrence of the following constitutes a default by
Landlord under this Lease: (i) failure by Landlord to pay within thirty (30)
days after written notice from
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Tenant, any monies required to be paid by Landlord under this Lease, and (ii)
the failure by Landlord to observe or perform any other covenant, agreement,
condition or provision of this Lease, if such failure shall continue for thirty
(30) days after receipt of written notice from Tenant to landlord, except that
if such default cannot be cured within such thirty (30) day period, this period
shall be extended, provided that Landlord commences to cure such default within
such thirty (30) day period and proceeds diligently thereafter to effect such
cure, provided that in a situation requiring immediate response, Tenant need
only give Landlord such notice as is practical under the circumstances.
(c) The occurrence of any one or more of the matters described
in Paragraph 23 (a) or 23 (b) shall, after the expiration of any applicable cure
period, be referred to as an "Event of Default" by Tenant or Landlord, as the
case may be.
(d) If an Event of Default by Tenant occurs: Landlord shall
have all the rights and remedies allowed by law, including the following, which
shall not operate to exclude or deprive the Landlord of any other right or
remedy permitted by law:
(1) Landlord may terminate this Lease, by giving Tenant
not less than ten (10) days' written notice of the Landlord's election to do so,
in which event the Term shall end, and all right, title and interest of the
Tenant hereunder shall expire, on the date stated in such notice;
(2) Landlord may terminate the right of the Tenant to
possession of the Premises without terminating the Lease by giving not less than
ten (10) days' written notice to Tenant.
(e) If an Event of Default by Landlord occurs, Tenant shall
have all rights and remedies available at law or in equity, including the right
to set off against Rent the amount required to cure any Event of Default on the
part of Landlord. If Tenant spends any money to cure such Event of Default,
Landlord shall reimburse Tenant for such expenditure with interest at the
Default Rate.
(f) LATE CHARGES. Tenant hereby acknowledges that late payment
by Tenant to Landlord of rent and other sums due hereunder will cause Landlord
to incur costs not contemplated by this Lease, the exact amount of which will be
extremely difficult to ascertain. Such costs include, but are not limited to,
processing and accounting charges, and late charges which may be imposed on
Landlord by the terms of any mortgage or trust deed covering the Premises.
Accordingly, if any installment of rent or any other sum due from Tenant shall
not be received by Landlord or Landlord's designee within ten (10) days after
such amount shall be due (or after written notice and expiration of the 10-day
cure period, as applicable), then, without any requirement for notice to Tenant,
Tenant shall pay to Landlord a late charge equal to 3 % of such overdue amount.
The parties hereby agree that such late charge represents a fair and reasonable
estimate of the costs Landlord will incur by reason of late payment by Tenant.
Acceptance of such late charge by Landlord shall in no event constitute a waiver
of
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Tenant's default with respect to such overdue amount, nor prevent Landlord from
exercising any of the other rights and remedies granted hereunder.
22. HOLDING OVER.
Should Tenant with Landlord's prior written consent remain in
possession of the Premises after the expiration of this Lease, Tenant shall
become a tenant from month-to-month of the Premises, under all the terms and
conditions of this Lease excepting the Rent shall be increased to one hundred
and fifty (150%) percent of the then current rental rate. Such month-to-month
tenancy may be terminated by either Landlord or Tenant as of the end of any
calendar month upon at least thirty (30) days prior written notice.
23. QUIET ENJOYMENT.
Landlord covenants that if and for so long as Tenant pays the Rent and
performs the covenants and conditions hereof, Tenant shall peaceably and quietly
have, hold and enjoy the Premises for the Tenn.
24. MUTUAL REPRESENTATION OF AUTHORITY.
(a) Landlord and Tenant represent and warrant to each other
that they have full right, power and authority to enter into this Lease without
the consent or approval of any other entity or person and make these
representations knowing that the other party will rely thereon.
(b) The signatory on behalf of Landlord and Tenant further
represent and warrant that they have full right, power and authority to act for
an on behalf of Landlord and Tenant in entering into this Lease.
25. LANDLORD'S CLAIMS.
Any claims by Landlord must be presented in writing by Landlord to
Tenant within three hundred and sixty-five (365) days after expiration or
termination of this Lease or shall be deemed irrevocably waived.
26. REAL ESTATE BROKERS.
(a) Tenant represents that Tenant has dealt directly with and
only with The Nordblom Company and Lynch Murphy Walsh and Partners
(collectively, the "Listed Brokers", whose commission shall be paid by Landlord
pursuant to separate agreement) in connection with this Lease and agrees to
defend, indemnify and save harmless Landlord against all claims, liabilities,
losses, damages, costs and expenses (including reasonable attorneys' fees and
other costs of defense) arising from Tenant's breach of this representation.
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(b) Landlord hereby agrees to defend, indemnify and save
harmless Tenant against all claims, liabilities, losses, damages, costs and
expenses (including reasonable attorneys' fees and other costs of defense)
arising from the claims or demands of the Listed Broker and any other brokers or
finders for any commission alleged to be due any such brokers or finders in
connection with this Lease or the transactions contemplated hereby.
27. ATTORNEYS' FEES.
In the event either party institutes legal proceedings against the
other for breach of or interpretation of any of the terms, conditions or
covenants of this Lease, the party against whom a judgment is entered, shall pay
all reasonable costs and expenses relative thereto, including reasonable
attorneys' fees of the prevailing party.
28. ESTOPPEL CERTIFICATE.
Tenant agrees, upon not less than twenty (20) days prior written
request by Landlord, to deliver to Landlord a statement in writing signed by
Tenant certifying (i) that this Lease is unmodified and in full force and effect
(or if there have been modifications, identifying the modifications); (ii) the
date upon which Tenant began paying Rent and the dates to which the Rent has
been paid; (iii) that, to the best of Tenant's knowledge, the Landlord is not in
default under any provision of this Lease, or, if in default, the nature
thereof; and (iv) that there has been no prepayment of Rent other than that
provided for in this Lease. Landlord, upon not less than twenty (20) days prior
written request from Tenant, shall furnish a similar statement in writing to
Tenant, covering the matters set forth above, to the extent applicable to
Landlord.
29. RECORDABLE MEMORANDUM.
Landlord and Tenant agree not to record this Lease, but each party
agrees, upon request by the other, to execute a memorandum of this Lease in
recordable form and in compliance with applicable law.
30. CONFIDENTIALITY.
Landlord shall not make, nor shall it permit the Listed Broker to make
any public announcement or press release concerning this transaction unless it
has received Tenant's written consent.
31. GOVERNING LAW.
This Lease shall be construed and interpreted in accordance with the
laws of the State in which the Premises are located.
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32. NOTICES.
Any notice by either party to the other shall be in writing and shall
be deemed to be duly given only if delivered personally or sent by registered or
certified mail return receipt requested, or overnight delivery service, to the
following:
If to Tenant: Brooktrout Technology, Inc.
460 First Street
Needham, Massachusetts 02192
Attention: Robert Leahy, CFO
Fax No.: _________________
with a copy to: Paul L. Baccari, Esquire
Masterman, Culbert & Tully
One Lewis Wharf
Boston, Massachusetts 02110
Fax No.: (617) 227-2630
If to Landlord: Pacific Gateway Properties, Inc.
One Rincon Center, Suite 215
San Francisco, California 94105
Attn: Vice President
Notice shall be deemed to have been given on the date received, if delivered
personally, or by overnight delivery service, or, if mailed, three (3) business
days after the date marked.
33. SCIENTIFIC CONDITION TO LEASE. Landlord and Tenant agree and
acknowledge that this Lease (and Tenant's obligations hereunder (other than
reasonable efforts to satisfy the "Specific Conditions"), including the payment
of all rent and other monetary obligations) is specifically contingent upon the
satisfactory completion, compliance or obtaining of the following "Specific
Conditions":
(a) TITLE INSURANCE. Tenant securing a leasehold policy of
title insurance within thirty (30) days from execution hereof from a nationally
recognized title insurance company insuring the Premises and the means of
ingress and egress thereto without exception (including costs of defense), and
such commitment shall continue in full force and effect until the Rent
Commencement Date. Landlord agrees to provide to Tenant promptly upon execution
hereof all information in Landlord's possession regarding title to the Premises.
(b) EXECUTION OF NON-DISTURBANCE AGREEMENT AND ATTORNMENT
AGREEMENT. Tenant's receipt of a non-disturbance agreement within forty-five
(45) days from the date of execution hereof by Landlord from any mortgagee of
the Premises in form reasonably acceptable to Tenant and in compliance with the
provisions of Section 3.7 hereof.
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Conditions 33(a) and (b) above shall be deemed satisfied if Tenant
fails to notify Landlord in writing that it is terminating the Lease for failure
of one of said conditions within five (5) days from the expiration of the period
set forth in such condition.
34. SUBORDINATION AND NON-DISTURBANCE AGREEMENT. This Lease and all
rights of Tenant shall be subject and subordinate to any institutional
mortgage(s) or deed(s) of trust that hereafter may be made a lien against the
Premises, and any renewals, extensions, modifications, consolidations or
replacements thereof, provided however, that any such mortgagee(s) or trustee(s)
shall execute and deliver to Tenant a nondisturbance agreement in form and
content substantially similar to that attached hereto as Exhibit F, and which
shall other-wise contain the following provisions (i) recognition of Tenant's
right of quiet enjoyment of the Premises as set forth herein for the Term, and
(ii) that each mortgage or deed of trust shall acknowledge the rights of
Landlord and Tenant to apply the proceeds of casualty insurance policies
maintained by Landlord and Tenant to be utilized for the restoration and repair
of the Premises following any casualty or partial eminent domain taking, and
shall recognize Tenant's interest in any condemnation or insurance proceeds, and
(iii) that each mortgage or deed of trust shall provide that any purchaser at a
foreclosure sale or the mortgagee or trustee upon entry, shall assume, perform
and be bound by the obligations of the Landlord hereunder. Each such mortgagee,
trustee or purchaser shall be obligated to perform Landlord's covenants
hereunder only after the earlier of taking possession of or title to the
Premises and only as to obligations which arise thereafter.
35. ENVIRONMENTAL.
Tenant acknowledges that Landlord has informed Tenant that the Building
contains asbestos or asbestos-containing materials. At Tenant's request,
Landlord shall make available to Tenant (but without warranty) at the Project
office during normal business hours, copies of any inspection reports, tests or
similar documents in Landlord's possession respecting the existence and the
location of asbestos and the presence (if any) of hazardous substances in or
about the Building. To the extent such reports, tests or other documents
indicate any asbestos or asbestos-containing material in or about the Building
or any release of hazardous materials, this Addendum and such documents shall
constitute notice and disclosure as required under Massachusetts Health and
Safety Code, as applicable, with respect to the presence of asbestos or
asbestos-containing material or the release of hazardous substances disclosed in
such documents.
36. ENTIRE AGREEMENT.
This Lease constitutes the entire agreement between the parties, there
being no other terms, oral or written, except as herein expressed. No
modification of this Lease shall be binding on the parties unless it is in
writing and signed by both parties hereto.
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IN WITNESS WHEREOF, the parties hereto have duly executed this Lease as
of the day and year first above written.
WITNESS:
__________________________________________
Landlord
__________________________________ By: Roger D. Snell
Title: President
__________________________________ By: Christopher M. Watson
Title: Vice President
WITNESS:
__________________________________________
__________________________________________
__________________________________________
Tenant
__________________________________ By: /s/ Robert C. Leahy
--------------------------------------
Title: Vice President Service & Operations
-----------------------------------
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EXHIBIT A
SITE PLAN
To be substituted
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EXHIBIT B
THE PREMISES
To be substituted
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EXHIBIT C
TENANT IMPROVEMENTS
To be substituted
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SCHEDULE D
ANNUAL BASE RENT
The Annual Base Rent to be paid to Landlord, pursuant to Paragraph 3 of
the Lease shall be:
3/l/96 - 10/31/96: Tenant shall be relieved of Annual Base Rent and
shall be responsible only for Additional Rent.
11/1/96 - 10/31/99: $7.10 per square foot per year net, net, net. In
addition to Annual Base Rent, Tenant shall pay
all Additional Rent.
11/1/99 - 10/31/01: $8.00 per square foot per year net, net, net. In
addition to Annual Base Rent, Tenant shall pay
all Additional Rent.
ll/l/99 - 10/31/06: $9.10 per square foot per year net, net, net. In
addition to Annual Base Rent, Tenant shall pay
all Additional Rent.
Option Terms: 95% of Fair Market Rent, determined as follows:
During each Option Term and for such entire
Option Term, Tenant shall pay Annual Base Rent
equal to 95 % of fair rental value as of the
date of the exercise of Tenant's Option. Tenant
shall include within Tenant's notice to extend
its estimate of fair rental value.
Within thirty (30) days from the date Tenant
exercises its Option to extend the Lease, the
parties shall meet (or conference by telephone)
and attempt to agree upon fair market rent.
If the parties are unable to agree within thirty
(30) days from the date of Tenant's notice, each
party shall, within the next thirty (30) day
period, choose an experienced commercial real
estate appraiser who shall have at least five
(5) years experience in appraising commercial
office space in the Metropolitan West Boston
area and who shall have the designation MAI or
SRA. The two so chosen shall promptly select a
third appraiser having the same qualifications.
The appraisers shall, within sixty (60) days of
selection of the final appraiser, each deliver
his/her opinion of fair rental value. The
average of the two closest appraisals shall
represent fair rental value, and Tenant shall
pay rent during the Option Term at 95 % of such
rate. If either party
25
<PAGE> 26
fails to select an appraiser in a timely manner,
then the appraiser chosen by the other party
shall act singly to determine fair rental value.
The appraisers may hold a hearing if they so
desire. Each party shall bear the expense if its
chosen appraiser and shall share the expense
attributable to the third appraiser.
26
<PAGE> 27
[Certificate of Insurance]
27
<PAGE> 28
EXHIBIT E
PARKING
To be substituted
28
<PAGE> 29
EXHIBIT F
SUBORDINATION AND NON-DISTURBANCE AGREEMENT
29
<PAGE> 30
EXHIBIT G
Mechanical Upgrade
Landlord agrees, at its sole cost and expense to undertake the supervision and
installation of the Mechanical Equipment Modification ("Mechanical Upgrades")
listed below:
1. Air Handler S- I/Filter Rack: Replace
2. Air Handler S-2:
Canvas connections Replace
Outside dampers Replace
Roll filter Replace
3. Carrier Air Handler
Insulation on exterior ductwork Repair
4. Air Dryer: Replace
5. Boiler
Combustion Air Dampers Replace
Fire eye control Replace
6. Condensor Water Pump
Shaft, seals and control valve Repair/Replace
7. Chiller
Chiller bundle head insulation Replace
Control timing relay Replace
8. Chilled water pump
Seals Replace
9. Tower
Float Assembly Repair
Landlord warrants the mechanical upgrades will be completed by a licensed
mechanical contractor using new materials and will be completed within thirty
(30) days of receiving written notice by tenant of its desire to have Landlord
commence the work. Landlord shall provide Tenant a certificate of completion
specifying the mechanical upgrade work has been completed.
30
<PAGE> 31
TABLE OF CONTENTS
PAGE
----
1. PREMISES DEMISED.....................................................1
2. TERM.................................................................1
3. RENTAL RATE..........................................................2
4. REAL PROPERTY TAXES..................................................2
5. UTILITIES............................................................3
6. TENANT IMPROVEMENTS..................................................4
7. TENANT'S USE BEFORE COMMENCEMENT DATE................................4
8. USE..................................................................4
9. COMPLIANCE WITH LAWS.................................................5
10. ENVIRONMENTAL COMPLIANCE.............................................5
11. REPAIRS AND MAINTENANCE..............................................6
12. ALTERATIONS..........................................................7
13. ASSIGNMENT AND SUBLETTING............................................8
14. DAMAGE OR DESTRUCTION...............................................10
15. CONDEMNATION........................................................11
16. INSURANCE...........................................................12
17. LANDLORD'S RIGHT OF ENTRY...........................................14
18. PARKING FACILITIES..................................................14
19. SIGNS...............................................................15
20. USE OF THE ROOF.....................................................15
(i)
<PAGE> 32
21. DEFAULT; RIGHTS AND REMEDIES.........................................15
22. HOLDING OVER.........................................................17
23. QUIET ENJOYMENT......................................................17
24. MUTUAL REPRESENTATION OF AUTHORITY...................................17
25. LANDLORD'S CLAIMS....................................................17
26. REAL ESTATE BROKERS..................................................17
27. ATTORNEYS' FEES......................................................18
28. ESTOPPEL CERTIFICATE.................................................18
29. RECORDABLE MEMORANDUM................................................18
30. CONFIDENTIALITY......................................................18
31. GOVERNING LAW........................................................18
32. NOTICES..............................................................18
33. SCIENTIFIC CONDITION TO LEASE........................................19
34. SUBORDINATION AND NON-DISTURBANCE AGREEMENT..........................19
35. ENVIRONMENTAL........................................................20
36. ENTIRE AGREEMENT.....................................................20
EXHIBITS
Exhibit A Site Plan
Exhibit B The Premises
Exhibit C Tenant Improvements
Schedule D Annual Base Rent
Exhibit E Parking
Exhibit F Subordination and Non-Disturbance Agreement
Exhibit G Mechanical Upgrade
(ii)
<PAGE> 33
FIRST AMENDMENT TO LEASE
Reference is made to a lease (the "Lease") dated December 15, 1995
between Pacific Gateway Properties, Inc. ("Landlord') and Brooktrout Technology
Inc. ("Tenant"), of premises (the "Demised Premises") located at 410 First
Avenue, Needham, Massachusetts.
For one dollar and other good and valuable consideration, the receipt
and sufficiency whereof are hereby acknowledged, Landlord and Tenant hereby
agree to amend the Lease as follows:
1. The following new paragraph 4.1 is hereby inserted at the end of
paragraph 4 of the Lease:
4.1 CAPITAL IMPROVEMENT PAYMENTS.
Commencing January 1, 1999, and continuing during the Term
and any Option Term through and including December 1, 2018 Tenant
shall pay to Landlord an amount equal to $599.28 per month,
payable in advance on the first day of each month. These
payments, comprising, reimbursement to Landlord for $63,181.04 of
expenses in connection with obtaining a Site Plan Special Permit
and with the exterior construction costs of converting the
manufacturing portions of the Demised Premises to office use,
shall, together with payments of real property tax, be considered
as "Additional Rent" along with all other items of Additional
Rent set forth in the Lease.
2. Tenant shall obtain and deliver to Landlord on or before January
10, 1999, a temporary or permanent certificate of occupancy relating to the
interior work completed by Tenant, converting the manufacturing portion of the
Demised Premises to office uses. If Tenant delivers a temporary certificate of
occupancy, Tenant shall also deliver evidence of the bond required by the Site
Plan Special Permit.
3. Tenant, at Landlord's expense, and prior to January 10, 1999,
shall complete the exterior improvements in accordance with all applicable legal
requirements and as required by the Needham Planning Board in its decision set
forth in the Site Plan Special Permit, application no. 98-9, dated September 1,
1998. Tenant shall reimburse Landlord for these expenses and Landlord's
permitting expenses in accordance with paragraph 1 of this Amendment. None of
such expenses shall be deemed to be included in the Tenant Improvement Allowance
more particularly described in Section 6 of the Lease.
4. Except as hereby amended, the Lease shall remain in full force
and effect as originally written. The agreements of the parties herein shall be
binding upon and enure to the benefit of the parties hereto and their respective
heirs, legal representatives and assigns.
<PAGE> 34
5. This First Amendment may be executed in any number of
counterparts, each of which shall be deemed an original and all of which
together shall comprise but a single document.
IN WITNESS WHEREOF, the parties hereto have hereunto set their hands
and seals as of this 31st day of December, 1998.
PACIFIC GATEWAY PROPERTIES, INC.
By: __________________________________
Raymond V. Marino, President
BROOKTROUT TECHNOLOGY INC.
By: /s/ Robert C. Leahy
-----------------------------------
Robert C. Leahy, Vice President
<PAGE> 35
SECOND AMENDMENT TO LEASE
Reference is made to that certain Standard Tenant Lease dated December
15, 1995 (the "Initial Lease") by and between Pacific Gateway Properties, Inc.
(the "Landlord") and Brooktrout Technology, Inc. (the "Tenant"), as amended by
that certain First Amendment to Lease dated as of December 31, 1998 (the "First
Amendment") (the Initial Lease and the First Amendment are hereinafter
collectively referred to as the "Lease").
WHEREAS, the Landlord and the Tenant wish to amend the Lease as more
particularly set forth below,
NOW, THEREFORE, in consideration of the promises contained herein and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged the parties hereto agree as follows:
1. Paragraph 4.1 of the Lease is hereby amended by deleting the
phrase "$599.28" in the third line thereof and inserting in its place "$644.08";
and by deleting the phrase "$63,181.04" in the fourth fine thereof and inserting
in its place "$67,903.44".
2. Paragraph 3 of the First Amendment is hereby amended by inserting
the following at the end thereof:
"Notwithstanding the foregoing, if and to the extent the cost to
complete the "Work", as such term is defined in that certain
Abbreviated Form of Agreement dated November 9, 1998 between the
Tenant, as owner, and Chapman Construction/Design Inc., as
contractor, exceeds $44,805.20, the Tenant shall pay such excess
at the Tenant's sole cost and expense and shall indemnify and
save harmless the Landlord from all costs, claims and damages
related thereto."
3. Except as herein specifically amended, the Lease shall remain and
continue in full force and effect in accordance with its terms and is hereby in
all respects ratified and confirmed.
4. The covenants, agreements, terms and conditions of this Second
Amendment shall bind and inure to the benefit of the parties hereto and their
respective successors.
5. This Second Amendment shall not be changed orally, but only by a
writing signed by the party against whom enforcement thereof is sought.
6. This Second Amendment may be executed in one or more counter-
parts, which collectively will constitute only one instrument.
<PAGE> 36
WITNESS our hands and seal this 19th day of January 1999.
PACIFIC GATEWAY PROPERTIES, INC.
By: /s/ Stephen J. LoPresti
----------------------------
Name: Stephen J. LoPresti
Title: Vice President
BROOKTROUT TECHNOLOGY, INC.
By: /s/ Robert C. Leahy
----------------------------
Name: Robert C. Leahy
Title: Vice President
<PAGE> 1
Exhibit 13
BROOKTROUT AT-A-GLANCE
IP TELEPHONY
MARKET OVERVIEW
Products and application tools to help customers develop voice and fax services
over the Internet and data networks that use the Internet protocol.
MAJOR PRODUCTS
TR2001(TM) Series IP telephony boards:
* Supports voice and fax
* Up to 60 channels per board
1998 HIGHLIGHTS
* Brooktrout Technology customers showcased applications developed with
Brooktrout's IP telephony products at CT Demo & Expo.
* Introduced Real-Time Fax API to simplify development of IP Fax gateways, a
key IP telephony application.
* Brooktrout joined with 21 other companies to form the Voice on Net Coalition
to educate regulators, legislators, media and consumers about technologies,
products, benefits, and practices.
VOICE
MARKET OVERVIEW
Enabling technologies for enterprise and service provider voice applications
such as voice messaging, call recording, call centers and enhanced services.
MAJOR PRODUCTS
RDSP Series Voice Boards:
* 2 to 24 channels
* Analog, MVIP, ISA
* Support all major OS
Vantage(TM) Series Voice Boards:
* 2 to 32 channels
* Analog, MVIP, H.100, ISA, PCI
* Support all major OS
* Advanced functionality
<PAGE> 2
RTNI Series Network Interface Cards:
* Dual E1/T1
* 8 to 24 analog-lines and telephone sets
Ensemble Platforms:
* Cost effective, voice-systems for OEMs and VARs targeted to small and medium
enterprises.
1998 HIGHLIGHTS
* Brooktrout Technology acquired the Computer Telephony Products business from
Lucent Technologies in December.
FAX
MARKET OVERVIEW
Hardware and software components to help partners develop enhanced fax and
network fax servers.
MAJOR PRODUCTS
TR114(TM) and TR1000(TM) Series Universal Port(TM) and TruFax(R) fax boards:
* Up to 60 channels
* PCI with MVIP or SCbus
1998 Highlights
* TR114(TM) Series certified for use in more than 30 European countries.
* Established new distribution agreements with Tech Data and Ingram Micro,
leading networking distributors.
* Achieved broad market acceptance with more than 25 of the network fax
applications now supporting the TR Series fax technology.
* Introduced TR1000 next generation fax and voice board supporting up to 60
ports of intelligent fax in a single PCI slot.
<PAGE> 3
HIGH-SPEED ACCESS
MARKET OVERVIEW
Global solutions for WAN Access and Remote Access applications using ISDN and
analog technologies.
MAJOR PRODUCTS
Instant RAS(R) remote access server cards:
* Supports any type of call coming into the corporate server: ISDN, V.90/56K,
or 33.6 analog.
WAN Access technology for OEM partnerships:
* Typical applications include: wireless communications, video/audio
conferencing, call center routing, voice response systems and WAN gateways
for voice, fax and data.
1998 Highlights
* Introduced domestic and international versions for Instant RAS family of
remote access server cards -- IRAS-8A, IRAS-8A ST, IRAS-24A, IRAS-30A.
* Introduced CompactPCI T1/E1 WAN Access card for high-density data, voice and
video applications.
INTERSPEED/DSL
MARKET OVERVIEW
Next generation of single system remote high speed Internet access solutions for
telephone companies and Internet Service Providers striving to deliver greater
speeds at lower costs.
MAJOR PRODUCTS
Carrier-class Digital Subscriber Line (DSL) solutions:
* System 1000(TM) supports up to 192 users
* System 500(TM) supports up to 48 users
* Faster, more reliable access to the Internet or private data networks over
existing copper phone lines.
<PAGE> 4
1998 Highlights
* Interspeed introduced System 1000 and System 500 products.
* Signed product interoperability agreement with Cayman Systems.
* Completed successful field testing of System 1000 and System 500.
* Products introduced by Log On America, Sterling Information Services, and
Waterville Online.
BROOKTROUT SOFTWARE
MARKET OVERVIEW
Windows NT telephony solutions, services, and rapid application development
platforms, Brooktrout Software's products reduce the expense and time required
to develop CT applications.
MAJOR PRODUCTS
Graphical User Interface Development Tools:
* Show N Tel(R) development software -- leading Windows NT(R) rapid application
development platform for integrated voice response, call center, and unified
messaging.
* ActiveCall client/server CTI development tool for Show N Tel
Consulting Services:
* Project management, small and large scale application development.
* System configuration, assembly, test and services.
1998 HIGHLIGHTS
* Brooktrout Software introduced ActiveCall platform.
* Announced Worldwide Business Partner Program.
* Agreements with Lernout & Hauspie and Philips Speech Processing to add
text-to-speech and speech recognition to Show N Tel.
<PAGE> 5
BROOKTROUT
LETTER TO SHAREHOLDERS
In the years ahead, we will look back on 1998 as a milestone for Brooktrout, one
that marked the start of several key events for the company and positioned us
well for continued growth.
Revenues grew by more than 39 percent in 1998 to reach the $100 million mark
for the first time in our 14-year history. Pro forma earnings per share
increased by 47 percent to $0.63 compared to $0.43 the year before and our
overall gross margin improved to 59 percent. But our most notable
accomplishments in 1998 were more fundamental.
KEY EVENTS OF THE YEAR
During the year:
* We acquired the Computer Telephony business from Lucent Technologies, giving
us a strong competitive position in voice messaging to complement our
leadership in fax and data.
* We introduced our first high-speed DSL systems from Interspeed.
* We also solidified our leadership in the network fax market and established
strong technical partnerships with a number of major customers.
* We released the TR Series PCI product line, the first commercially available
multichannel fax and voice boards for PCI (peripheral component interconnect)
bus computers.
* We also began offering the Brooktrout Netaccess Instant RAS Series of remote
access servers through Tech Data and Ingram Micro in the United States, and
through Brooktrout distributors internationally, a network of more than 2,000
resellers worldwide.
BECOMING A FULL-LINE SUPPLIER
We took an important step at the end of the year that will help us bring our
products to more markets, more efficiently. We reorganized our operations into
three well-defined divisions: Brooktrout Technology, Brooktrout Software, and
Interspeed.
Brooktrout Technology develops and manufactures software and hardware
components. These components provide the enabling technology that allows
<PAGE> 6
our customers to build products with fax, voice messaging, data access, and IP
telephony capabilities. The consolidation within a single division also allows
us to present one face to the customer.
Brooktrout Software is responsible for the company's award-winning Show N
Tel graphical user software and applications development tools for creating
interactive voice messaging and call management systems. In addition, we have
strengthened our Professional Services Group within the division to provide
customers with complete turn-key solutions. We can now provide consulting
services, application development, installation, and ongoing maintenance along
with the software and hardware. This is a growing need among companies now
adopting more extensive and complex messaging systems.
The third division is Interspeed, which was founded by Brooktrout in 1997
specifically to address the market for low-cost, high-speed access to the
Internet among small-to-medium size businesses, schools and colleges, office and
apartment buildings, the hotel industry, and government buildings.
ACQUISITION OF LUCENT CTP
In late December, we acquired Lucent's Computer Telephony Products business. The
CTP business became part of Brooktrout Technology, which now provides a full
range of technologies for the voice processing industry and manufactures
hardware and software components that connect PCs and LANs with telephone
networks. It fills out our product line and establishes Brooktrout Technology as
a single-source provider able to offer customers a complete line of voice, fax,
and data products in the marketplace. We can now play a major role in helping
our customers -- service providers, system OEMs and VARs -- to develop such
fast-emerging applications as unified messaging, interactive voice response,
digital recording, IP telephony, open systems remote access, and call center
CTI.
BREAKTHROUGH FOR INTERNET ACCESS
We also took a major step with the beta release late in the year of the new
Interspeed System 500 and System 1000 high-speed, digital subscriber line
products. This followed a series of successful customer trials. The new products
use state-of-the-art DSL
<PAGE> 7
technology to combine the functions of several modems, multiplexers, switches,
and routers into a single low-cost system that can provide high-speed Internet
access over existing copper phone wires.
Interspeed's System 500 and 1000 have received very positive reviews from
the industry press and market analysts. The System 500 and 1000 are the
industry's first and only DSL products to provide all the components required to
offer high speed Internet access in a single platform.
Considering the explosive growth that we're now seeing for everything
associated to the Internet, we expect these new Interspeed products to fill an
important need for additional low-cost bandwidth without a major investment in
infrastructure. We expect that to be very appealing to businesses now either
paying high prices for T1 service or those still using dial-up modems due to the
cost.
LOOKING TO THE MILLENNIUM
Brooktrout has never stood as strong as it does today. Our technologies
represent the leading edge in electronic communications, our products are best
in their class, our sales and distribution channels are strong and growing, our
customer relationships are healthy, and our markets are expanding. More than
ever, we look ahead to success in the new millennium as we help to redefine the
business of electronic communications.
Sincerely,
Eric Giler
President
<PAGE> 8
BROOKTROUT
1998 ACHIEVEMENTS
*Brooktrout revenues increased by 40 percent to reach the $100 million
mark for the first time. Pro forma earnings rose by 47 percent over the
prior year.
*Brooktrout Technology acquired the Computer Telephony Products
business of Lucent Technologies, making Brooktrout the largest
full-line supplier of enabling components for electronic communications
products.
*Interspeed introduced the Interspeed System 500 and System 1000
high-speed, digital subscriber line products for low-cost, high-speed
Internet access over existing copper phone wires.
*Brooktrout Technology expanded market acceptance of the Brooktrout
product line with more than 25 providers of fax software now supporting
the TR Series(TM) fax technology.
*Recognized by several industry groups and trade publications with
product excellence and product of the year awards for Brooktrout voice,
fax, ISDN, and IP telephony boards as well as for the Brooktrout
Software Show N Tel and ActiveCall products.
*Released the TR Series PCI product line, the first commercially
available multichannel fax and voice boards for PCI bus computers.
*Brooktrout Technology began offering the Brooktrout Technology TR114
and the Netaccess Instant RAS Series through Tech Data and Ingram Micro
in the United States, and through Brooktrout distributors
internationally, a network of more than 2,000 resellers worldwide.
*Brooktrout Software introduced ActiveCall(TM) call management software
to complement the popular Show N Tel development software.
<PAGE> 9
BROOKTROUT TECHNOLOGY
Brooktrout is at the center of a communications revolution.
It's a revolution of technology that is driving together the computer and the
telephone to create futuristic applications, innovative opportunities, and
totally new ways to communicate around the world.
IP TELEPHONY IS BRINGING EXCITING NEW NETWORK APPLICATIONS TO TELEPHONY.
IP TELEPHONY
As major an impact as computers have had thus far on telephony, the real promise
for the future lies with the convergence of voice and data networks like the
Internet. As we approach a new century, it's already clear that the Internet is
changing the way we do business and nearly everything related to the Internet is
expanding at a quickened pace.
Internet telephony enables callers to send and receive voice, fax, and data
over packet data networks such as the Internet instead of using more expensive
conventional phone lines. Calls are handled in much the same way as a regular
call, with the customer dialing a local number, or 800 number, to reach the
Internet access gateway and from there connect to anywhere in the world, all at
a substantially reduced cost.
To meet the growing demand for reliable, high-quality Internet telephony
equipment, Brooktrout Technology released its new TR2001 Series IP telephony
platform. The new fax and voice board can deliver higher densities with up to 60
channels of IP voice and IP fax in a single PCI slot. In addition, the TR2001
Series is a lower cost alternative including an integrated primary rate ISDN
network interface and an ethernet port, eliminating the need for, and the cost
of, stand-alone network interface boards.
The TR2001 Series is a suite of standards-based software and hardware that
enables customers to develop both Internet voice and Internet fax applications
using common software and hardware platforms. It is based on Brooktrout's
open-systems telephony architecture called BOSTon. BOSTon includes hardware
products and
<PAGE> 10
software utilities that enable Brooktrout customers to develop their own unique
messaging solutions. Its Universal Port approach makes it possible to combine
voice and fax on the same platform, eliminating the need for separate system
components for each function. And most important, BOSTon offers seamless
migration from a customer's existing applications, allowing customers to enhance
their existing applications without abandoning their software investment.
During the year, several leading IP telephony suppliers, including Nortel
Networks, introduced applications developed with Brooktrout Technology's TR2001
products. Nortel is now widely promoting its Internet Voice Button, a new web
capability that lets consumers get immediate voice connections with online
businesses simply by clicking a button on the company's web page; and Internet
Call Waiting, a unique application for home users, that pops up on screen to
notify them of an incoming voice call, and offers various options for handling
the call. Several other companies including Inter-Tel, Voice & Data Systems, and
InVADE announced new voice-over-IP and fax-over-IP applications developed using
Brooktrout's IP Telephony products.
BROOKTROUT TECHNOLOGY DELIVERS HIGH PERFORMANCE VOICE TECHNOLOGY
VOICE TECHNOLOGY
With the acquisition of the Computer Telephony Products business from Lucent
Technologies in December, Brooktrout Technology fulfilled its goal of offering
customers a full line of voice, fax, and data products and services. This
addition to the company's voice messaging business makes Brooktrout Technology a
major provider of voice technology to the small business messaging segment of
the market.
Like the fax business, Brooktrout's voice technology products consist of the
voice messaging board, the software that runs on it, the development
environment, and the ability to support a variety of customers on different
operating systems. The primary market is voice mail and messaging systems for
large and small businesses.
Most voice mail and messaging systems are sold at the same time a company is
installing a new telephone switchboard or PBX. Consequently, many PBX
manufacturers such as Inter-Tel and Comdial
<PAGE> 11
integrate Brooktrout voice messaging technology with their telephone switches.
In addition, Brooktrout sells through distributors and value-added resellers,
who provide added functionality to a switch at the customer's site. Customers
can now offer fast-emerging applications such as unified messaging and response,
digital recording, and computer telephony for call centers running on Brooktrout
platforms.
During the year, new products were added to the voice line to accommodate the
new industry standard PCI bus, making the division the first manufacturer to
ship PCI-bus voice products to its customers. The Vantage PCI Series boards
provide developers and systems integrators with a 4 or 8-channel PCI voice board
with optional standards-based switching on a single resource card. In addition,
the company took steps to make its products more modular, allowing customers to
easily embed key voice technology from Brooktrout into their product line. This
provides customers more cost-effective and high-performance solutions than
having to configure add-on systems.
Earlier, the division introduced its RealCT(TM) Release 2, a high-level
Application Programming Interface (API), that simplifies and speeds the
development process by shielding developers from the complexities of telephone
connection and computer telephony resource switching. Because RealCT makes it
easy to develop computer telephony applications in a Windows environment, it is
a valuable development tool for the growing number of customers now shifting to
the Windows NT platform.
Going forward, synergy between voice and fax, or voice and the Internet, will
become an increasingly important part of the Brooktrout Technology business.
THE KEY TO NETWORK FAXING IS SECURE DELIVERY RIGHT TO THE DESKTOP.
FAX TECHNOLOGY
The market for network fax technology continued to expand rapidly during 1998,
helped by a growing number of independent software applications that are now
written for full compatibility with the Brooktrout Technology TR114 Series
multichannel fax boards. More than
<PAGE> 12
a decade ago, Brooktrout first developed a way to receive faxes directly to
individual users while keeping those faxes completely secure. Today, there are
some 25 different fax applications that support Brooktrout boards running on the
Windows 95/98, Windows NT, Unix, and OS2 operating systems. Millions of
networked employees at companies around the world now use their own private fax
numbers made possible by Brooktrout's inbound routing technology using DID, BRI,
T1 and E1 PRI interfaces.
Brooktrout continues to offer the broadest range of software support in the
industry and has established technical partnerships with the leading makers of
network fax software -- including Alcom, Computer Associates, Copia, Equisys,
Esker, Fenestrae, Lane Telecom, Lotus, Open Port Technology, Optio, Optus,
Omtool, RightFAX, and T4 Systems. This ensures that Brooktrout hardware runs
smoothly with whichever major LAN fax or network fax software package our
customers might select.
In 1998, the company introduced the TR1000 Universal Port fax and voice
boards. The TR1000 provides up to 60 ports of intelligent fax and voice in a
single PCI slot. The TR1000 will support such new features as V.34 fax, new
image and compression formats, and Kanji characters.
During the year, Brooktrout Technology introduced its newest generation of
advanced fax boards, the TR Series PCI line. These are the first commercially
available multichannel fax and voice boards designed for the newly adopted PCI
bus standard. The line has been very well received by customers.
In addition to serving the network fax market, Brooktrout's fax boards meet
the reliability demands for the enhanced fax market made up of large service
providers such as Hong Kong Telecom, PR Newswire, JFax and others who provide
fax services to business customers and individuals. Enhanced fax service
combines computers with high-volume fax capabilities. It includes such
applications as fax broadcasting, sending one fax to many addresses
simultaneously; fax-on-demand, which lets callers request faxes for
transmission; never-busy fax, which can successfully send faxes without regard
for busy signals; personal fax mailboxes, which allow users to receive and store
faxes for later use;
<PAGE> 13
and store-and-forward faxing, which can hold faxes for transmission during
off-peak hours when the toll charges are lower. These services are rapidly
becoming more available in the marketplace and each is made possible by
Brooktrout Technology TR Series boards.
ISDN TECHNOLOGY OFFERS RELIABLE, HIGH-SPEED ANALOG SERVICE FOR NETWORK USERS.
HIGH-SPEED ACCESS
Brooktrout's high-speed access technology is represented by its Netaccess
operation which is now part of Brooktrout Technology. The Netaccess Division
designs, manufactures, and supports wide area network access products for OEM
Developers and remote access server solutions for PC server manufacturers using
ISDN and modem technology.
The company's strong heritage of creating technological advances produced the
industry's first ISDN Primary Rate PC card, as well as the first multiport
server modem card, and the first remote access server card that can handle
analog and digital calls simultaneously.
Today, Brooktrout's OEM developers are a constant source of innovative ideas.
It is through these partnerships that exciting, new products are developed.
Brooktrout's WAN Access ISDN boards and ISDN software make it very easy to
integrate high-speed WAN Access solutions into a customized product. A
wide-variety of applications use these cards as part of their product's
infrastructure to achieve wireless communications, video/audio conferencing,
remote access, computer telephony and gateways for voice, data and fax. A
Brooktrout OEM partnership provides customers with the tools and technology to
ensure a successful time to market.
In leveraging the expertise gained from its OEM developers, Brooktrout
Technology developed and announced a family of remote access products, the
Instant RAS(R) product line. This product line is marketed to PC server
manufacturers who want to offer remote access functionality to their customers.
1998 saw the introduction of five new remote access cards that let small to
medium sized businesses
<PAGE> 14
connect their telecommuters, road warriors and branch offices to the corporate
server. Worldwide remote access for the masses is here.
In August, this division of Brooktrout Technology shipped its milestone
20,000th wide area network access card to Motorola's Internet and Networking
Group in Mansfield, Massachusetts. Motorola ING has been a long-standing OEM
partner since 1990 and this is a relationship of which we are extremely proud.
For worldwide global access, OEM developers and PC server manufacturers look
to Brooktrout for outstanding technology and partnerships.
INTERSPEED DSL TECHNOLOGY DELIVERS SUPER-FAST INTERNET ACCESS OVER EXISTING
TELEPHONE LINES.
INTERSPEED
Brooktrout's newest company, Interspeed Inc., develops high-speed data access
solutions for telephone companies, competitive local exchange carriers (CLECs)
and Internet service providers (ISPs). Interspeed's products offer businesses
the opportunity to take advantage of the power the Internet has to offer without
the high cost associated with other access methods. The product line represents
a new generation of carrier-class digital subscriber line solutions for use by
companies that want faster Internet access at lower costs, as well as for office
buildings, apartment and hotel complexes, campus environments, and government
facilities.
The demand for high-speed data access has created a significant problem for
the regional telephone companies. The current infrastructure was designed to
handle low-bandwidth voice traffic over copper wires. It was never designed to
handle broadband data access. Nonetheless, the demand for faster, low cost data
access is exploding and shows no sign of slowing down.
Digital Subscriber Line (DSL) technology was originally developed to allow
consumer access to pay-per-view movies and video-on-demand over standard copper
wire. The market never developed, but the Internet did, and DSL has now been
re-engineered to meet the needs of business for high-speed access over existing
copper telephone lines.
<PAGE> 15
The Interspeed product line consists of two systems, the System 1000 and
System 500 DSL Access Routers. These are the only DSL products to integrate all
the components needed for complete DSL service including high-performance DSL
modems, switches, and routers. This integrated approach results in significant
cost savings over separate purchases for these devices. Interspeed's DSL
technology operates at more than 20 times the speed of even today's fastest
dial-up modems, and products are available in two sizes. System 500, about the
size of a desktop computer, can handle up to 48 users or networks. The System
1000 handles 192 users.
Depending on the customer, either model would be installed at the service
provider's site or at the central office of the phone company. The products
represent a technical breakthrough aimed at the millions of small businesses and
branch offices of larger businesses that need fast Internet access for an entire
network without the inconvenience of dial-up modems, or the cost of a high-speed
T1 line.
Early adopters of the new Interspeed systems include Log On America, a
competitive local exchange carrier offering voice, data, Internet, and cable
programming packages in Rhode Island; Waterville Online and Sterling Information
Services, two Internet services in Maine; and the town of Sanford, Maine, which
is using the equipment over its town-wide network.
BROOKTROUT SOFTWARE OFFERS SOLUTIONS AND PROFESSIONAL SERVICES TO FIT EACH
CUSTOMER.
BROOKTROUT SOFTWARE
Brooktrout Software was established as a separate division in 1998 to focus on
the interactive voice response and call management market with the Show N Tel
and ActiveCall products. In addition to developing application tools, Brooktrout
Software has a Professional Services Group that provides consulting services,
application design and development support, application maintenance support, as
well as the boards and systems to run voice response, call center, and unified
messaging applications.
<PAGE> 16
The primary market for Brooktrout Software is the Fortune 1,000 list of
global companies that use interactive voice response systems to automate such
processes as customer order status, news distribution, product availability,
automated attendant, and directory assistance. Brooktrout Software provides the
whole solution.
Show N Tel is the company's premier software product. It is a graphical user
interface that allows developers to easily create custom computer telephony
applications including audiotext, interactive voice response, fax-on-demand, fax
broadcast, voice and fax messaging, and intelligent call routing. Developers can
drag and drop more than 300 icons to create and apply a variety of messaging
applications. This innovative easy-to-master approach gives companies and
organizations of all sizes the flexibility to customize applications that would
be too expensive and time-consuming to handle any other way.
Computer Telephony magazine honored Show N Tel with a Judges' Choice Award,
calling it "a clear winner for its superior functionality and performance." And
"an excellent solution for developers building CT solutions."
In 1998, the division introduced an important call management product called
ActiveCall. ActiveCall complements Show N Tel with new features that allow
operators to better handle incoming calls. Together, Show N Tel and ActiveCall
are being widely adopted as standard development environments and integrated
into customer systems.
During the year, Brooktrout Software also announced new technology
partnerships with the leading speech technology companies to further expand the
capabilities of Show N Tel. The agreements with Lernout and Hauspie and Philips
Speech Processing will add text-to-speech and advanced speech recognition
technology to the Show N Tel development capability. The division also announced
support for the widely used E1 and T1 voice boards and on-board pulse detection,
offering computer telephony developers a cost-effective solution for developing
and deploying worldwide solutions without changing applications for different
countries.
<PAGE> 17
Brooktrout Technology, Inc.
Selected Consolidated Financial Data
(In Thousands, Except Share Data)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
STATEMENT OF OPERATIONS DATA 1998 1997 1996 1995 1994
-------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Revenue .................................... $100,851 $72,192 $58,827 $38,673 $24,888
Costs and expenses:
Cost of product sold .................... 40,884 32,381 26,059 17,759 12,055
Research and development ................ 22,106 13,627 7,175 4,822 3,523
In-process research and development (1) . 9,786 3,746 -- -- --
Selling, general and administrative ..... 29,902 19,970 13,666 9,144 5,686
Merger related charges .................. -- -- 1,236 -- --
-------- ------- ------- ------- -------
Income (loss) from operations ............. (1,827) 2,468 10,691 6,948 3,624
Other income (expense):
Interest/other income ................... 1,893 1,688 1,283 967 604
Interest expense ........................ (3) (11) (1) (7) (10)
-------- ------- ------- ------- -------
Total other income ................... 1,890 1,677 1,282 960 594
-------- ------- ------- ------- -------
Income before income tax provision (benefit) 63 4,145 11,973 7,908 4,218
Income tax provision (benefit) ............. (270) 1,494 5,108 2,705 1,589
-------- ------- ------- ------- -------
Net income ................................. $ 333 $ 2,651 $ 6,865 $ 5,203 $ 2,629
======== ======= ======= ======= =======
Basic income per common share:
Net income ............................... $ 0.03 $ 0.25 $ 0.69 $ 0.54 $ 0.27
Shares for basic ......................... 10,784 10,702 9,947 9,661 9,570
Diluted income per common share:
Net income ............................... $ 0.03 $ 0.23 $ 0.63 $ 0.52 $ 0.26
Shares for diluted ....................... 11,483 11,300 10,901 10,077 9,843
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Cash and marketable securities ..... $12,355 $36,378 $39,714 $22,154 $18,951
Working capital .................... 21,225 41,741 43,408 24,823 19,825
Total assets ....................... 73,209 65,415 58,366 34,581 25,461
Long-term debt, less current portion -- -- -- -- 6
Stockholders' equity ............... $50,129 $50,444 $47,592 $26,445 $20,898
</TABLE>
(1) In 1998 and 1997, the Company recorded charges of $9.8 million and $3.7
million, respectively, representing the portion of the purchase price allocated
to in-process research and development efforts related to the acquisitions of
the Computer Telephony Products business of Lucent Technologies Inc. and
Netaccess, Inc., respectively.
<PAGE> 18
MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
RESULTS OF OPERATIONS
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION
REFORM ACT OF 1995
This Annual Report contains certain statements that are "forward-looking
statements" as that term is defined under the Private Securities Litigation
Reform Act of 1995 (the "Act") and releases issued by the Securities and
Exchange Commission. The words "believe," "expect," "anticipate," "intend,"
"estimate," and other expressions, which are predictions of or indicate future
events and trends and which do not relate to historical matters, identify
forward-looking statements. Forward-looking statements involve known and unknown
risks, uncertainties and other factors, which may cause the actual results,
performance or achievements of the Company to differ materially from anticipated
future results, performance or achievements expressed or implied by such
forward-looking statements. The Company undertakes no obligation to publicly
update or revise any forward-looking statement, whether as a result of new
information, future events or otherwise.
The future operating results and performance trends of the Company may be
affected by a number of factors, including, without limitation, the following:
(i) the Company's ability to respond to rapidly developing changes in its
marketplace; (ii) the Company's ability to develop and market quality,
innovative products; (iii) the Company's ability to protect its proprietary
intellectual property; (iv) the Company's ability to integrate its recent
acquisitions; and (v) the Company's ability to retain relationships with its
major customers, including Lucent Technologies Inc. In addition to the
foregoing, the Company's actual future results could differ materially from
those projected in the forward-looking statements as a result of the risk
factors set forth in the Company's various filings with the Securities and
Exchange Commission and of changes in general economic conditions, changes in
interest rates and/or exchange rates and changes in the assumptions used in
making such forward-looking statements.
INTRODUCTION
Computer Telephony Products business of Lucent Technologies Inc.
On December 17, 1998, the Company acquired the assets and assumed certain
liabilities of the Computer Telephony Products (CTP) business of Lucent
Technologies Inc. CTP provides technologies for the voice processing industry
and manufactures hardware and software components that connect PCs and LANs with
telephone networks. The purchase price was $29.4 million, paid in cash, plus
$1.1 million of transaction costs, and the Company assumed certain liabilities
aggregating $1.9 million.
The acquisition has been accounted for as a purchase, and accordingly, the
results of operations of the CTP business have been included in the Company's
consolidated financial statements from the date of acquisition. The purchase
price has been allocated to the assets acquired based upon their fair values
using an independent appraisal. The fair value of the assets acquired and
liabilities assumed exceeded the purchase price resulting in a pro rata
reduction in identified non-current assets purchased.
<PAGE> 19
The valuation of the intangible assets acquired was based on management's
estimates of the after tax net cash flows and gives explicit consideration to
the SEC's views on purchased in- process technology as set forth in its
September 9, 1998 letter to the American Institute of Certified Public
Accountants. Specifically, the valuation gave consideration to the following:
(i) a fair market value premise was employed; (ii) comprehensive due diligence
concerning all potential intangible assets including trademarks/tradenames,
patents, copyrights, non-compete agreements, assembled workforce and customer
relationships and sales channels; (iii) the value of core technology was
explicitly addressed, with a view toward ensuring the relative allocations to
core technology and in-process technology were consistent with the relative
contributions of each to the final product; and (iv) the allocation to
in-process technology was based on a calculation that considered only the
efforts completed as of the transaction date, and only the cash flow associated
with said completed efforts for one generation of the products currently
in-process.
The Company recorded a one-time charge of $9.8 million ($5.9 million, net
of tax benefits) in the fourth quarter of 1998 for the purchased research and
development for seven projects that had not yet reached technological
feasibility, had no alternative future use, and for which successful development
was uncertain.
The seven projects include High Density (digital signal processor and
software technology), Digital Recording (software and hardware), DSPM and DSP
Fax (software and hardware), Asynchronous Software, PBX Integration, and VRS-32
fax on demand boards. At the time of acquisition, estimated costs to complete
the seven projects were approximately $6.9 million. Management expects that all
of the products being developed, except the PBX Integration which will be
available in fiscal 2000, will become available for sale in fiscal 1999;
however, no assurances can be given in this regard. The Company will begin to
benefit from the acquired research and development related to these products
once they begin shipping.
Significant assumptions used to determine the value of in-process
technology included several factors, including the following: First, a forecast
of net cash flows was prepared illustrating cash flows that were expected to
result from the development effort, using projections prepared by CTP management
and reviewed by management of the Company. Second, a percentage complete for
each project was estimated considering a number of factors, including the
expenditures to date relative to the expected total cost of the development
effort and the amount of progress completed as of the transaction date, an on
importance-weighted basis, relative to the overall technological achievements
required to achieve the intended functionality of the eventual product. The
technological issues were addressed by engineering representatives from both CTP
and the Company. Third, a discount rate of approximately 27.5% was used. The
discount rate was derived based on a weighted-average cost of capital and takes
into account the level of risk of the in-process technology.
Netaccess, Inc.
On June 30, 1997, the Company acquired the assets and assumed certain
liabilities of Netaccess, Inc. (Netaccess), a worldwide supplier of Primary Rate
ISDN network interface products and multiport modem products for open,
standards-based remote access and computer telephony systems. The purchase price
was $9.9 million, paid in cash, and the Company agreed to assume certain
liabilities aggregating $2.0 million.
<PAGE> 20
The acquisition has been accounted for as a purchase, and accordingly, the
results of operations of Netaccess, Inc. have been included in the Company's
consolidated financial statements from the date of acquisition. The purchase
price has been allocated to the assets acquired based upon their fair values
using an independent appraisal.
The Company has recorded a charge of $3.7 million ($2.3 million, net of tax
benefits) in 1997 representing the estimated value of Netaccess' research and
development efforts in-process. Such efforts had not yet reached technological
feasibility and did not possess alternative uses.
<PAGE> 21
YEARS ENDED DECEMBER 31, 1998 AND 1997
Revenue during the year ended December 31, 1998 increased by approximately
40%, to $100.9 million, up from $72.2 million in 1997. This growth was
principally attributable to increased shipments of TR Series products and to the
inclusion of sales of Primary Rate ISDN telephone network interface products
acquired through the acquisition of Netaccess, Inc. on June 30, 1997.. Increased
sales from the TR Series products reflect the growth in the local area
network/fax market segment served by the Company.
Cost of product sold was $40.9 million, or 41% of revenue in 1998, compared
to $32.4 million, or 45% of revenue, in 1997. Gross profit percentage was 59%
for 1998 and 55% for 1997. The increase in gross profit percentage is the result
of the increased volume of TR Series and Primary Rate ISDN telephone network
interface products sold as a proportion of total sales. In addition, the TR
Series product family benefited from cost reduction efforts initiated by the
Company.
Research and development expense was $22.1 million, or 22% of revenue in
1998, compared with $13.6 million, or 19% of revenue in 1997. The increase
reflects the Company's development efforts for Interspeed, Inc., the next
generation of Netaccess products, and for continued development of the TR Series
product family, Brooktrout Open Systems Telephony Architecture (BOSTon), OEM
systems development as well as computer telephony software development tools.
The Company intends to continue to commit significant resources to product
development.
Selling, general and administrative expense was $29.9 million in 1998,
compared with $20.0 million in 1997. This higher expense level resulted from
increased staffing, promotional activities and depreciation. As a percentage of
revenue, selling, general and administrative expense was 30% of revenue for 1998
and 28% of revenue for 1997.
On December 17, 1998, the Company recorded a charge of $9.8 million,
representing the portion of the purchase price of the acquisition of Lucent
Technologies' Computer Telephony Products division allocated to in-process
research and development efforts as of the date of acquisition.
On June 30, 1997, the Company recorded a charge of $3.7 million,
representing the portion of the purchase price of Netaccess allocated to
in-process research and development efforts as of the date of acquisition.
Interest and other income was $1.9 million in 1998, compared with $1.7
million in 1997, reflecting higher investable cash balances prior to the
purchase of CTP.
The Company recorded a tax benefit of $270,000 for the year ended December
31, 1998 due to a permanent difference associated with the Company's foreign
sales corporation and a change in the rate at which its deferred taxes are
expected to reverse, offset by a permanent difference associated with travel and
entertainment expense. For the year ended December 31, 1997 income tax expense
was $1,494,000, an effective tax rate of 36%.
YEARS ENDED DECEMBER 31, 1997 AND 1996
<PAGE> 22
Revenue during the year ended December 31, 1997 increased by approximately
23%, to $72.2 million, up from $58.8 million in 1996. The increase in 1997
revenue was primarily attributable to an increase in Primary Rate ISDN telephone
network interface products sold.
Cost of product sold was $32.4 million, or 45% of revenue in 1997, compared
to $26.1 million, or 44% of revenue, in 1996. Gross profit percentage was 55%
for 1997 and 56% for 1996. The decrease in the gross profit percentage was
related to product mix caused by an increased proportion of lower margin network
interface cards. The decrease was partially offset by margin improvements
obtained through cost reduction programs instituted in 1997 on the TR Series
product line.
Research and development expense was $13.6 million, or 19% of revenue in
1997, compared with $7.2 million, or 12% of revenue in 1996. The increase
reflects the Company's development efforts for the next generation of Netaccess
products and for continued development of the TR Series product family, computer
telephony software development tools, Brooktrout Open Systems Telephony
Architecture (BOSTon), Interspeed, Inc., as well as fax and OEM systems
development. The Company intends to continue to commit significant resources to
product development.
Selling, general and administrative expense was $20.0 million in 1997,
compared with $13.7 million in 1996. This higher expense level resulted from
increased staffing, promotional activities and depreciation. Selling, general
and administrative staff levels increased from 75 employees at December 31, 1996
to 114 employees at December 31, 1997. As a percentage of revenue, selling,
general and administrative expense was 28% of revenue for 1997 and 23% of
revenue for 1996.
On June 30, 1997, the Company recorded a charge of $3.7 million,
representing the portion of the purchase price of Netaccess allocated to
in-process research and development efforts as of the date of acquisition.
Interest and other income was $1.7 million in 1997, compared with $1.3
million in 1996, reflecting higher investable cash balances prior to the
purchase of Netaccess.
The Company's effective tax rate was 36% for the year ended December 31,
1997 and 43% for the year ended December 31, 1996. The effective rate for 1997
decreased due to increased tax benefits derived from the use of a foreign sales
corporation for certain export sales and certain nondeductible merger costs
recorded in 1996 and not repeated in 1997.
<PAGE> 23
LIQUIDITY AND CAPITAL RESOURCES
On December 17, 1998, the Company acquired the assets and assumed certain
liabilities of the Computer Telephony Products (CTP) business of Lucent
Technologies Inc. The CTP business provides technologies for the voice
processing industry and manufactures hardware and software components that
connect PCs and LANs with telephone networks. The purchase price was $29.4
million, paid in cash, plus $1.1 million in transaction costs, and the Company
also assumed certain liabilities aggregating $1.9 million. Based upon an
independent appraisal, the Company has recorded a charge of $9.8 million ($5.9
million, net of tax benefits) representing the portion of the purchase price
allocated to CTP's research and development efforts in-process. The estimated
cost to complete these product development efforts approximates $6.9 million and
all work is expected to be completed and the products available for general
release by the end of 1999, except for one product which will be available in
2000. In addition, the Company recorded an expense in the current year of
approximately $957,000 reflecting a signing bonus paid to various employees of
CTP, substantially all of which will be paid in the first quarter of fiscal
1999.
On June 30, 1997, the Company acquired the assets and assumed certain
liabilities of Netaccess, Inc., a worldwide supplier of Primary Rate ISDN
network interface products and multiport modem products for open,
standards-based remote access and computer telephony systems. The purchase price
was $9.9 million, paid in cash, and the Company also assumed certain liabilities
aggregating $2.0 million. Based upon independent appraisals, the Company has
recorded a charge of $3.7 million ($2.3 million, net of tax benefits)
representing the portion of the purchase price allocated to Netaccess' research
and development efforts in-process.
During 1998, 1997 and 1996, the Company funded its operations primarily
through operating revenue. In August 1998, the Company renewed its working
capital line of credit. Under the renewed line of credit the Company may borrow
up to $10,000,000 on an unsecured basis, all of which may be used for issuance
of letters of credit, subject to compliance with certain covenants. The line of
credit will expire in July 1999 and at that time any outstanding balances would
be payable in full. Any amounts borrowed under the line would be subject to
interest at the bank's prime rate. At December 31, 1998 there were no
commitments outstanding on letters of credit; no borrowings have been made
during the three years presented.
The Company's working capital decreased from $41.7 million at December 31,
1997 to $21.2 million at December 31, 1998. The decrease in working capital was
primarily caused by the payment of $29.4 million in cash to acquire the assets
of CTP.
During 1998, 1997 and 1996, the Company purchased approximately $3,800,000,
$2,700,000, and $3,400,000, respectively, in equipment. The Company currently
has no material commitments for additional capital expenditures.
The pricing of the Company's products and costs of its goods are generally
determined by current market conditions. Market conditions can be impacted by
inflation, however, the Company believes that inflation has not had a
significant effect on its operations to date.
The Company has operating lease commitments for its office and
manufacturing facilities expiring through 2006. Certain lease agreements require
the Company to pay all of the building's taxes, insurance and maintenance costs
(see Note 7).
<PAGE> 24
The Company anticipates that cash flows from operations, together with
current cash and marketable securities balances and funds available under the
Company's line of credit, will be sufficient to meet the Company's working
capital and capital equipment expenditure requirements for the foreseeable
future.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company invests cash balances in excess of operating requirements in
short-term securities, generally with maturities of 90 days or less. In
addition, the Company's working capital line of credit agreement provides for
borrowings which bear interest at a variable rate based on a prime rate. As of
December 31, 1998 the Company did not have any borrowings outstanding pursuant
to the credit agreement. The Company believes that the effects, if any, of
possible near-term changes in interest rates on the Company's financial
position, results of operations and cash flows should not be material. The
Company owns publicly-traded corporate equity securities which are considered
available-for-sale for accounting purposes and any unrealized gain or loss is
deferred as a component of other comprehensive income (see Note 1).
The Company has limited exposure to fluctuations in foreign currencies as
it denominates substantially all sales in U.S. dollars and has limited expenses
denominated in foreign currencies, mainly from its limited operations in Belgium
and the United Kingdom. The Company, to date, has not attempted to hedge this
limited foreign currency exposure. The Company does not enter into financial
instrument transactions for trading or other speculative purposes.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 133, Accounting for
Derivative Instruments and Hedging Activities, effective for fiscal years
beginning after June 15, 1999. The new standard requires that all companies
record derivatives on the balance sheet as assets or liabilities, measured at
fair value. Gains or losses resulting from changes in the values of those
derivatives would be accounted for depending on the use of the derivative and
whether it qualifies for hedge accounting. Management is currently assessing the
impact of SFAS No. 133 on the financial statements of the Company. The Company
will adopt this accounting standard on January 1, 2000, as required.
<PAGE> 25
YEAR 2000
THE STATEMENTS IN THE FOLLOWING SECTION INCLUDE YEAR 2000 READINESS
DISCLOSURE WITHIN THE MEANING OF THE YEAR 2000 INFORMATION AND READINESS
DISCLOSURE ACT.
Year 2000 Readiness Disclosure
This section contains certain statements that are forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The
Company's Year 2000 compliance, and the eventual affects of the Year 2000 on the
Company may be materially different than currently projected. This may be due
to, among other things, delays in the implementation of the Company's Year 2000
Plan and the failure of key third parties with whom the Company has a
significant business relationship to achieve Year 2000 compliance.
The Year 2000 issue relates to a complex of potential problems arising from
the ways in which computer software can handle dates. Many older systems use a
two digit date format which may create ambiguities in passing into a new
century.
The Year 2000 is a special case in the Gregorian calendar which can create
problems with certain leap-year calculation routines. In addition, various
contemporary computer operating systems, including systems on which many of the
Company's and its suppliers' products are dependent, employ binary dating
conventions which cannot currently manage dates falling after certain times
after the year 2000 (e.g., the year 2038 in the case of most 32-bit Windows
software.)
The Company has a Year 2000 Plan, which it is actively pursuing to address
the Company's Year 2000 issues. The Company's Year 2000 Plan focuses on each of
the Company's internal systems, the Company's products, and third parties with
which the Company has a significant business relationship. However, no assurance
can be given that the Company or such third parties will successfully address
its or their Year 2000 issues.
The Company's Year 2000 Plan relating to its internal systems consists of
three phases - assessment, testing and implementation. The Company is currently
in the implementation phase and anticipates completing this phase during the
second quarter of 1999. The Company believes that all material systems will be
compliant by the Year 2000 and that the cost to address this issue is not
material. The Company does not have any contingency plans in the event that its
material systems are not Year 2000 compliant, however, if the Company determines
that its systems may not be compliant prior to 2000, it shall create and
implement contingency plans as necessary.
The Company has gathered, tested and produced information about the
Company's products impacted by the Year 2000 transition. Although the Company
believes that most of its products are in or will be (through maintenance
releases or patches) in Year 2000 compliance, the Company has determined that
certain of its older products are not and will not be compliant, although
customers generally will have upgrade paths available to move to the Company's
newer compliant products, generally requiring some change in the operating
environment. The Company is taking steps to inform such affected users of this
issue.
<PAGE> 26
All organizations dealing with the Year 2000 must address the effect this
issue will have on their significant business relationships with key third
parties. The Company's significant business relationships which may be adversely
impacted by the Year 2000 issue include certain contractual relationships with
key suppliers of components for the Company's products, service providers for
the Company's internal systems and major customers for the Company's products
(including one such customer which accounts for more than 20% of the Company's
revenue). The Company continues to work with key third parties to understand
their ability to continue providing services, products and demand for the
Company's products through the change to the Year 2000. If any significant Year
2000 problems are identified with key third parties, contingency plans will be
developed.
The Company continues to evaluate the estimated costs associated with
achieving Year 2000 readiness. To date, costs associated with achieving Year
2000 readiness are $300,000. Based on current estimates, the remaining costs
associated with the Company's Year 2000 Plan will be approximately $450,000.
The Company anticipates that substantial litigation may be brought against
vendors of all component products of systems that are unable to properly manage
data related to the Year 2000. The Company has not received any threats of such
litigation against it, but no assurance can be given that such litigation may
not be threatened or brought in the future. The Company's agreements with
customers typically contain provisions designed to limit the Company's liability
for such claims. It is possible, however, that these measures will not provide
protection from liability claims, as a result of existing or future federal,
state or local laws or ordinances or unfavorable judicial decisions.
Furthermore, the failure of the Company or the Company's key suppliers and/or
customers to be Year 2000 compliant may also result in litigation being brought
against the Company in addition to making it more difficult and/or costly for
the Company to manufacture and sell its products. Any such claims, with or
without merit, or the failure of the Company, its suppliers or customers to be
Year 2000 compliant could result in a material adverse affect on the Company's
business, financial condition and results of operations, including increased
warranty costs, customer satisfaction issues and potential lawsuits.
EURO ISSUE
Some of the countries in which the Company sells its products are Member
States of the Economic and Monetary Union (EMU). Beginning January 1, 1999
Member States of the EMU may begin trading in either their local currencies or
the euro, the official currency of EMU participating Member States. Parties are
free to choose the unit they prefer in contractual relationships during the
transitional period, beginning January 1999 and ending June 2002. The new
accounting system that the Company implemented can be upgraded to support the
euro and process transactions in either a country's local currency or the euro.
The Company does not anticipate a large demand from its customers to transact in
euros, so this upgrade is not planned for implementation until the fourth
quarter of 1999.
<PAGE> 27
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of Brooktrout Technology, Inc.:
We have audited the accompanying consolidated balance sheets of Brooktrout
Technology, Inc. and its subsidiaries as of December 31, 1998 and 1997, and the
related consolidated statements of income, comprehensive income (loss),
stockholders' equity, and cash flows for each of the three years in the period
ended December 31, 1998. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of the Company and its
subsidiaries at December 31, 1998 and 1997 and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1998, in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Boston, Massachusetts
February 10, 1999
<PAGE> 28
BROOKTROUT TECHNOLOGY, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1998 1997
------- -------
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents ............................................... $ 8,518 $27,916
Marketable securities .............................................. 3,837 8,462
Accounts receivable (less allowance for doubtful accounts of
$2,313 in 1998 and $1,164 in 1997 ............................... 15,837 9,804
Inventory........................................................... 10,668 7,801
Deferred tax assets ................................................ 3,853 1,861
Prepaid expenses ................................................... 1,242 613
------- -------
Total current assets ............................................ 43,955 56,457
------- -------
Equipment and furniture:
Computer equipment ................................................. 8,602 6,182
Furniture and office equipment ..................................... 6,336 3,696
------- -------
Total .......................................................... 14,938 9,878
Less accumulated depreciation and amortization ................. (5,973) (3,253)
------- -------
Equipment and furniture -- net .................................. 8,965 6,625
Deferred tax assets ................................................ 4,719 1,234
Acquired technology and other intangible assets .................... 14,746 --
Investments and other assets ....................................... 824 1,099
------- -------
Total ....................................................... $73,209 $65,415
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and other accruals ................................ $15,777 $10,510
Accrued compensation and commissions ............................... 4,529 2,321
Customer deposits .................................................. 614 325
Accrued warranty costs ............................................. 1,314 850
Accrued taxes ...................................................... 496 710
------- -------
Total current liabilities ....................................... 22,730 14,716
------- -------
Deferred rent ......................................................... 350 255
Commitments and contingencies ......................................... -- --
Stockholders' equity:
Preferred stock, $1.00 par value; authorized 100,000 shares;
issued and outstanding, none .................................... -- --
Common stock, $.01 par value; authorized 25,000,000
shares; issued and outstanding, 10,828,362 in 1998 and
10,741,195 in 1997 .............................................. 108 107
Additional paid-in capital ......................................... 32,528 31,978
Accumulated other comprehensive income (loss) ...................... (1,199) --
Retained earnings .................................................. 18,692 18,359
------- -------
Total stockholders' equity ......................................... 50,129 50,444
------- -------
Total ................................................................. $73,209 $65,415
======= =======
</TABLE>
See notes to consolidated financial statements.
<PAGE> 29
BROOKTROUT TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------
1998 1997 1996
-------- ------- -------
<S> <C> <C> <C>
Revenue .................................... $100,851 $72,192 $58,827
Cost and expenses:
Cost of product sold .................. 40,884 32,381 26,059
Research and development .............. 22,106 13,627 7,175
In-process research and development ... 9,786 3,746 --
Selling, general and administrative ... 29,902 19,970 13,666
Merger related charges ................ -- -- 1,236
-------- ------- -------
Total cost and expenses ........... 102,678 69,724 48,136
-------- ------- -------
Income (loss) from operations ......... (1,827) 2,468 10,691
Other income (expense):
Interest and other income ............... 1,893 1,688 1,283
Interest expense ........................ (3) (11) (1)
-------- ------- -------
Total other income ................ 1,890 1,677 1,282
-------- ------- -------
Income before income tax provision (benefit) 63 4,145 11,973
Income tax provision (benefit) ............. (270) 1,494 5,108
-------- ------- -------
Net income ................................. $ 333 $ 2,651 $ 6,865
======== ======= =======
Income per common share:
Basic ................................... $ 0.03 $ 0.25 $ 0.69
======== ======= =======
Shares for basic ........................ 10,784 10,702 9,947
======== ======= =======
Diluted ................................. $ 0.03 $ 0.23 $ 0.63
======== ======= =======
Shares for diluted ...................... 11,483 11,300 10,901
======== ======= =======
</TABLE>
See notes to consolidated financial statements.
<PAGE> 30
BROOKTROUT TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
1998 1997 1996
------- ------ ------
<S> <C> <C> <C>
Net income ......................................... $ 333 $2,651 $6,865
Unrealized gains (losses) on marketable securities (1,885) 8 (57)
Foreign currency translation adjustment .......... (49) -- --
------- ------ ------
Comprehensive income (loss) before income tax
provision (benefit) .............................. (1,601) 2,659 6,808
Income tax provision (benefit) related to items of
comprehensive income ............................. (735) 3 (22)
------- ------ ------
Comprehensive income (loss) ........................ $ (866) $2,656 $6,830
======= ====== ======
</TABLE>
See notes to consolidated financial statements.
<PAGE> 31
BROOKTROUT TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
ACCUMULATED
OTHER
COMMON STOCK ADDITIONAL COMPREHENSIVE
---------------------- PAID-IN INCOME RETAINED
SHARES AMOUNT CAPITAL (LOSS) EARNINGS TOTAL
---------- ------ ---------- ------------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1996 .................. 9,683,116 $ 97 $16,884 $ 49 $ 9,415 $ 26,445
Issuance of common stock for cash ......... 1,000,236 10 12,718 -- -- 12,728
Tax benefit of stock options .............. -- -- 2,183 -- -- 2,183
Unrealized losses on marketable securities -- -- -- (57) -- (57)
Distributions to stockholders ............. -- -- -- -- (572) (572)
Net income ................................ -- -- -- -- 6,865 6,865
---------- ---- ------- ------- -------- --------
Balance, December 31, 1996 ................ 10,683,352 107 31,785 (8) 15,708 47,592
Issuance of common stock for cash ......... 57,843 -- 193 -- -- 193
Tax benefit of stock options .............. -- -- -- -- -- --
Unrealized gains on marketable securities . -- -- -- 8 -- 8
Net income ................................ -- -- -- -- 2,651 2,651
---------- ---- ------- ------- -------- --------
Balance, December 31, 1997 ................ 10,741,195 107 31,978 -- 18,359 50,444
Issuance of common stock for cash ......... 87,167 1 443 -- -- 444
Tax benefit of stock options .............. -- -- 107 -- -- 107
Unrealized losses on marketable securities,
net of tax ........................... -- -- -- (1,150) -- (1,150)
Currency translation adjustment ........... -- -- -- (49) -- (49)
Net income ................................ -- -- -- -- 333 333
---------- ---- ------- ------- -------- --------
Balance, December 31, 1998 ................ 10,828,362 $108 $32,528 ($1,199) $ 18,692 $ 50,129
========== ==== ======= ======= ======== ========
</TABLE>
See notes to consolidated financial statements.
<PAGE> 32
BROOKTROUT TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income .............................................. $ 333 $ 2,651 $ 6,865
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation and amortization ........................ 2,852 1,815 586
Purchased research and development ................... 9,786 3,746 --
Amortization of (premium) discount on
marketable securities ............................. (47) (44) 18
Deferred income taxes ................................ (4,742) (2,369) (272)
Increase (decrease) in cash from (net of acquisition):
Accounts receivable ............................... (2,208) 1,083 (1,010)
(250) 957 (1,626)
Inventory
Other prepaid expenses ............................ (419) 346 (533)
Accounts payable and other accruals ............... 5,098 1,368 2,694
-------- -------- --------
Cash provided by operating
activities .................................. 10,403 9,553 6,722
-------- -------- --------
Cash flows from investing activities:
Expenditures for equipment and furniture ............. (3,797) (2,717) (3,413)
Acquisition of subsidiary (net of
cash acquired) ..................................... (29,400) (9,909) --
Other assets ......................................... 12 (258) 43
Investment ........................................... 95 (250) --
Purchases of marketable securities ................... (13,695) (8,754) (4,532)
Sales of marketable securities ....................... 16,433 9,320 3,405
-------- -------- --------
Cash used for investing activities ............. (30,352) (12,568) (4,497)
-------- -------- --------
Cash flows from financing activities:
Proceeds from the sale of common stock ............. 444 193 12,728
Tax benefit of stock options ....................... 107 -- 2,183
Distributions to stockholders ...................... -- -- (572)
Net proceeds from (repayments of) line
of credit ......................................... -- -- (50)
Repayment of long-term debt .......................... -- -- (6)
-------- -------- --------
Cash provided by financing activities .......... 551 193 14,283
-------- -------- --------
Increase (decrease) in cash and equivalents ............. (19,398) (2,822) 16,508
Cash and equivalents, beginning of year ................. 27,916 30,738 14,230
-------- -------- --------
Cash and equivalents, end of year ....................... $ 8,518 $ 27,916 $ 30,738
======== ======== ========
</TABLE>
See notes to consolidated financial statements.
<PAGE> 33
BROOKTROUT TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business -- Brooktrout Technology, Inc. (the Company) supplies electronic
communications products to system vendors, service providers, and VARs dependent
on electronic information exchange.
Use of Estimates -- 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 revenue and expenses during
the reporting periods. Actual results could differ from those estimates.
Principles of Consolidation -- The consolidated financial statements
include the accounts of the Company and its wholly-owned subsidiaries. All
significant intercompany balances and transactions have been eliminated.
Revenue Recognition -- Revenue from product or software sales is recognized
upon the shipment or delivery of product. Revenue from maintenance and support
contracts is deferred and recognized ratably over the service period.
Maintenance and support revenue included with an initial license fee is
unbundled and recognized ratably over the service period.
Concentration of Credit Risk -- The Company sells its products to various
customers in several industries. The Company generally requires no collateral;
however, to reduce credit risk the Company performs ongoing credit evaluations
of its customers and maintains allowances for potential credit losses. At
December 31, 1998 and 1997, 19% and 17%, respectively, of the Company's accounts
receivable were from one customer (see Note 6).
<PAGE> 34
BROOKTROUT TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Inventory -- Inventory is carried at the lower of cost (first-in, first-out
basis) or market and consisted of the following:
DECEMBER 31,
----------------------------
1998 1997
----------- ----------
Raw materials ............ $ 3,277,000 $3,268,000
Work in process .......... 2,164,000 1,606,000
Finished goods ........... 5,227,000 2,927,000
=========== ==========
Total ............. $10,668,000 $7,801,000
=========== ==========
Equipment and Furniture -- Purchased equipment and furniture is recorded at
cost. Depreciation and amortization are provided using the straight-line method
over the estimated useful lives of the related assets (three or five years).
Software Development Costs -- Certain software development costs are
capitalized following attainment of technological feasibility. No such costs
were incurred in 1998, 1997 or 1996.
Research and Development Costs -- Research and development costs, other
than software development costs, are expensed as incurred.
Intangible Assets - Intangible assets include acquired technology, customer
base, trademarks, and in-place workforce and are stated at acquisition cost.
Acquired technology is being amortized on a straight line basis over 5 to 10
years while all other intangibles are being amortized over periods of 3 to 5
years. Total accumulated amortization for the years ended December 31, 1998 and
December 31, 1997 was $100,000 and $25,000, respectively.
Warranty Costs -- Estimated costs of warranty repairs are provided at the
time of sale of the related product.
Income Taxes -- Deferred tax assets and liabilities are provided to
recognize temporary differences between the book and tax bases of the Company's
assets and liabilities. These assets and liabilities are measured using
currently enacted rates.
<PAGE> 35
BROOKTROUT TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Investments -- The Company has an investment in the common stock of a
company operating in the computer telephony industry. The Company's investment
aggregated $654,500 at December 31, 1998 and $500,000 at December 31,1997. The
investment represents less than 20% of the voting interest. Because the common
stock of the company is not readily marketable, the investment is carried at
cost and periodically assessed for potential impairment in value.
Cash Flow Information -- Cash equivalents include highly liquid securities
with remaining maturities of three months or less at the time of purchase.
Supplemental disclosure of cash flow information:
YEARS ENDED DECEMBER 31,
--------------------------------------------
1998 1997 1996
---------- ---------- ----------
Cash paid for interest ... $ 3,000 $ 11,000 $ 1,000
Cash paid for income taxes 3,992,000 2,401,000 3,702,000
Marketable Securities -- Marketable securities are classified as
available-for-sale and are carried at fair market value using current market
quotes. Unrealized gains or losses are included in comprehensive income (loss).
Marketable securities consist of publicly-traded corporate equity
securities and U.S. government securities with remaining maturities in excess of
three months. At December 31, 1998 and 1997, the amortized cost of these
securities was $0 and $8,461,000, respectively. Gross unrealized losses related
to the equity securities at December 31, 1998 were $1.9 million. During the
three years ended December 31, 1998, there were no significant realized gains or
losses from sales of these securities.
Income per Share - Basic income per share is computed using the weighted
average number of common shares outstanding during each year. Diluted income per
share reflects the effect of the Company's outstanding options (using the
treasury stock method), except where such options would be antidilutive.
<PAGE> 36
BROOKTROUT TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A reconciliation of weighted average shares used for the basic and diluted
computations is as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Weighted average shares for basic . 10,784,000 10,702,000 9,947,000
Dilutive effect of stock options .. 699,000 598,000 954,000
---------- ---------- ----------
Weighted average shares for diluted 11,483,000 11,300,000 10,901,000
========== ========== ==========
</TABLE>
Fair Value of Financial Instruments -- Financial instruments held or used
by the Company consist of cash, marketable securities, accounts receivable,
accounts payable and letters of credit issued under the Company's line of credit
(see Note 3). Marketable securities are carried at fair value at each balance
sheet date. Management estimates that carrying value approximates fair value for
all other financial instruments.
Stock-Based Compensation -- Compensation expense associated with awards of
stock or options to employees is measured using the intrinsic value method of
Accounting Principles Board Opinion No. 25.
Reporting Comprehensive Income -- Effective January 1, 1998, the Company
adopted the provisions of SFAS No. 130, Reporting Comprehensive Income. This
standard requires companies to report and display comprehensive income and its
components in a full set of general-purpose financial statements. A Statement of
Comprehensive Income (Loss) has been prepared to reflect the implementation of
this statement.
Disclosures about Segments of an Enterprise and Related Information --
Effective January 1, 1998, the Company adopted the provisions of SFAS No. 131,
Disclosures about Segments of an Enterprise and Related Information. The
standard requires the reporting of certain information about operating segments
including the basis for the presentation, geographic information and segment
profit or loss (see Note 11).
<PAGE> 37
BROOKTROUT TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS
No. 133, Accounting for Derivative Instruments and Hedging Activities, effective
for fiscal years beginning after June 15, 1999. The new standard requires that
all companies record derivatives on the balance sheet as assets or liabilities,
measured at fair value. Gains or losses resulting from changes in the values of
those derivatives would be accounted for depending on the use of the derivative
and whether it qualifies for hedge accounting. Management is currently assessing
the impact of SFAS No. 133 on the financial statements of the Company. The
Company will adopt this accounting standard on January 1, 2000, as required.
2. ACQUISITIONS
Computer Telephony Products business of Lucent Technologies Inc.
On December 17, 1998, the Company acquired the assets and assumed certain
liabilities of the Computer Telephony Products (CTP) business of Lucent
Technologies Inc. CTP provides technologies for the voice processing industry
and manufactures hardware and software components that connect PCs and LANs with
telephone networks. The purchase price was $29.4 million, paid in cash, plus
$1.1 million of transaction costs, and the Company assumed certain liabilities
aggregating $1.9 million.
The acquisition has been accounted for as a purchase, and accordingly, the
results of operations of the CTP business have been included in the Company's
consolidated financial statements from the date of acquisition. The purchase
price has been allocated to the assets acquired based upon their fair values
using an independent appraisal. The fair value of the assets acquired and
liabilities assumed exceeded the purchase price resulting in a pro rata
reduction in identified non-current assets purchased. This has been reflected in
the amounts presented in the table below. The following is a summary of the
purchase price allocation.
<PAGE> 38
BROOKTROUT TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Cash paid $29,400,000
Transaction costs 1,148,000
------------
Total purchase price $30,548,000
============
Allocated to tangible assets acquired $7,915,000
Allocated to liabilities assumed (1,863,000)
Purchased research and development 9,786,000
Existing technology 12,157,000
Customer base 1,276,000
Trademark 304,000
In-place workforce 973,000
------------
Total $30,548,000
============
The Company recorded a one-time charge of $9.8 million in the fourth
quarter of 1998 for purchased in-process technology related to seven development
projects that had not reached technological feasibility, had no alternative
future use, and for which successful development was uncertain.
Netaccess, Inc.
On June 30, 1997, the Company acquired the assets and assumed certain
liabilities of Netaccess, Inc., a worldwide supplier of Primary Rate ISDN
network interface products and multiport modem products for open,
standards-based remote access and computer telephony systems. The purchase price
was $9.9 million, paid in cash, and the Company agreed to assume certain
liabilities aggregating $2.0 million.
The acquisition has been accounted for as a purchase, and accordingly, the
results of operations of Netaccess, Inc. have been included in the Company's
consolidated financial statements from the date of acquisition. The purchase
price has been allocated to the assets acquired based upon their fair values
using an independent appraisal.
The Company has recorded a charge of $3.7 million ($2.3 million, net of tax
benefits) in 1997 representing the estimated value of Netaccess' research and
development efforts in-process. Such efforts had not yet reached technological
feasibility and did not possess alternative uses.
<PAGE> 39
BROOKTROUT TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table represents pro forma information as if the acquisitions
described had taken place at the beginning of each respective period.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------------------------
1998 (1) 1997 (2) 1996 (3)
------------ ------------ -----------
<S> <C> <C> <C>
Revenue $130,068,000 $108,106,000 $84,943,000
Net income $ 4,438,000 $ 5,417,000 $ 7,383,000
Basic income per share $ 0.41 $ 0.51 $ 0.74
Diluted income per share $ 0.39 $ 0.48 $ 0.68
</TABLE>
(1) Pro forma reflects the acquisition of CTP as if the acquisition had
taken place at the beginning of the period.
(2) Pro forma reflects the acquisitions of CTP and Netaccess as if both
acquisitions had taken place at the beginning of the period.
(3) Pro forma reflects the acquisition of Netaccess as if the acquisition
had taken place at the beginning of the period.
Technically Speaking, Inc. (TSI)
On May 29, 1996, the Company acquired TSI. In connection with the
acquisition, the Company issued 713,000 shares of common stock to TSI
stockholders in exchange for all of their interest in TSI. The acquisition was
accounted for as a pooling-of-interests. In connection with the acquisition, the
Company recorded a charge of $1,236,000 representing costs associated with this
transaction.
3. BANK LINE OF CREDIT
The Company has a line of credit with a bank. The Company may borrow up to
$10,000,000 on an unsecured basis, all of which may be used for issuance of
letters of credit, subject to compliance with certain covenants. At December 31,
1998, there were no commitments outstanding on letters of credit; no borrowings
have been made during any period presented. Any amounts outstanding under the
line of credit would bear interest at the bank's prime rate. The line is subject
to annual renewal and expires in July 1999.
<PAGE> 40
BROOKTROUT TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. INCOME TAXES
The provision (benefit) for income taxes is approximately as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Federal--current ................ $ 3,456,000 $ 3,092,000 $ 2,428,000
State--current .................. 857,000 771,000 769,000
Foreign--current ................ 53,000 -- --
Federal--deferred ............... (4,312,000) (1,886,000) (207,000)
State--deferred ................. (431,000) (483,000) (65,000)
Tax benefit of disqualifying
dispositions of stock options 107,000 -- 2,183,000
----------- ----------- -----------
Provision (benefit) ............. $ (270,000) $ 1,494,000 $ 5,108,000
=========== =========== ===========
</TABLE>
A reconciliation of the statutory federal rate to the effective tax rate is
as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Statutory tax rate ............................... 35% 34% 34%
State taxes, net of federal benefit .............. 4 6 6
Acquisition related charges not deductible for tax -- -- 3
Foreign sales corporation ........................ (400) (4) --
Meals and entertainment .......................... 152 -- --
Research and development credits ................. (220) -- --
---- --- --
Effective tax rate ............................... (429%) 36% 43%
==== === ==
</TABLE>
<PAGE> 41
BROOKTROUT TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The tax effects of significant items comprising the Company's net deferred
tax asset as of December 31, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Deferred Tax Assets:
Current:
Reserves and accruals not currently deductible
for tax purposes ............................ $3,505,000 $1,861,000
Purchased research and development, capitalized
for tax but expensed for book ............... 348,000 --
---------- ----------
Current tax assets ................................ 3,853,000 1,861,000
Long-Term:
Purchased research and development, capitalized
for tax but expensed for book ............... 4,719,000 1,234,000
---------- ----------
Long-term tax assets ................................ 4,719,000 1,234,000
---------- ----------
Net deferred tax asset .............................. $8,572,000 $3,095,000
========== ==========
</TABLE>
5. STOCKHOLDERS' EQUITY
Stock Option Plans -- The Company has three stock option plans in place
providing for the granting of options to purchase up to 3,814,000 shares of
common stock: the 1984 Plan, the Executive Plan and the 1992 Plan. No further
options are being granted under the 1984 Plan and the Executive Plan. Exercise
prices are at fair value at the date of grant, in the case of incentive stock
options, or at the discretion of the Board of Directors in the case of
nonqualified options. Options generally vest over five years; in some instances,
vesting can accelerate upon the completion of certain defined milestones set by
the Compensation Committee at the date of grant. There have been no option
grants at exercise prices different from fair value.
<PAGE> 42
BROOKTROUT TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following is a summary of stock option activity under all plans:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
NUMBER OF SHARES EXERCISE PRICE
----------------------------------
<S> <C> <C>
Outstanding at January 1, 1996 . 1,312,253 $ 5.31
Granted .................... 565,875 $22.50
Exercised .................. (367,078) $ 5.63
Expired .................... (1,687) $ 4.56
---------
Outstanding at December 31, 1996 1,509,363 $11.61
Granted .................... 478,875 $11.80
Exercised .................. (40,249) $ 0.82
Expired .................... (19,851) $17.07
---------
Outstanding at December 31, 1997 1,928,138 $11.92
Granted .................... 637,625 $14.14
Exercised .................. (53,959) $ 3.46
Expired .................... (20,500) $11.11
---------
Outstanding at December 31, 1998 2,491,304 $12.68
=========
</TABLE>
<PAGE> 43
BROOKTROUT TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table sets forth information regarding options
outstanding at December 31, 1998:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
WEIGHTED WEIGHTED EXERCISE
RANGE OF AVERAGE AVERAGE NUMBER PRICE FOR
EXERCISE NUMBER OF EXERCISE REMAINING CURRENTLY CURRENTLY
PRICES SHARES PRICE LIFE (YEARS) EXERCISABLE EXERCISABLE
<S> <C> <C> <C> <C> <C>
$ 0.20-$6.11 170,625 $ 2.05 3.08 166,912 $ 2.00
$ 6.33 576,179 $ 6.33 5.20 576,179 $ 6.33
$ 6.56-$10.63 394,745 $ 9.39 7.93 193,373 $ 8.94
$10.75-$12.94 261,480 $12.13 9.06 17,000 $11.54
$13.00-$14.50 50,625 $13.74 8.87 12,356 $13.19
$ 14.56 385,500 $14.56 9.96 -- --
$14.88-$22.00 121,775 $18.71 8.24 28,261 $18.77
$ 22.50 487,500 $22.50 7.47 365,625 $22.50
$23.50-$29.91 38,875 $26.39 7.76 19,931 $27.05
$31.50 4,000 $31.50 7.92 1,600 $31.50
------------- --------- ------ ---- --------- ------
$ 0.20-$31.50 2,491,304 $12.68 7.34 1,381,237 $11.16
============= ========= ====== ==== ========= ======
</TABLE>
At December 31, 1997 and 1996, options to purchase 1,164,233 and 630,371
shares were exercisable.
Stock Purchase Plan -- In August 1992, the Board of Directors adopted and
the stockholders approved the Company's 1992 Employee Stock Purchase Plan (the
Purchase Plan). The Purchase Plan provides for sales to participating employees
of up to 212,500 shares of common stock, at prices not less than 85% of fair
market value on the beginning or ending date of the six month offering period
provided for purchase, whichever is lower. Through December 31, 1998, 105,869
shares had been issued.
<PAGE> 44
BROOKTROUT TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Pro Forma Disclosure -- As described in Note 1, the Company uses the
intrinsic value method to measure compensation expense associated with grants of
stock options or awards to employees. Had the Company used the fair value method
to measure compensation, reported net income and earnings per share would have
been as follows:
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Net income (loss) $(2,249,000) $855,000 $5,078,000
Basic income (loss) per common share $ (0.21) $0.08 $0.51
Diluted income (loss) per common share $ (0.21) $0.08 $0.47
</TABLE>
For purposes of determining the disclosure required by Statement of
Financial Accounting Standards No. 123, the fair value of options on their grant
date was measured using the Black/Scholes option pricing model. Key assumptions
used to apply this pricing model were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Risk-free interest rate 4.5% 5.2% 5.6%
Expected life of option grants 5.0 years 5.0 years 5.0 years
Expected volatility of underlying stock 73% 82% 68%
</TABLE>
The pro forma presentation only includes the effects of grants made
subsequent to January 1, 1995. The estimated weighted average fair value of
option grants made during 1998, 1997 and 1996 was $8.91, $8.29, and $13.71,
respectively, per option. The estimated weighted average fair value of grants
made under the Purchase Plan during 1998, 1997, and 1996 was $3.46, $3.64, and
$7.61, respectively, computed using the assumptions described above with an
expected life of 6 months for the option feature present in the Purchase Plan
awards.
Reserved Shares -- The Company has reserved 3,051,696 shares of common
stock for issuance upon the exercise of stock options and purchase of stock
under the Purchase Plan.
<PAGE> 45
BROOKTROUT TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Subsidiary Stock Plans -- Two of the Company's subsidiaries have stock
option plans in place, providing for the grant of options to employees of that
subsidiary. None of these options are convertible into or can be settled in
Company stock. The following table demonstrates the dilutive effect of these
plans on the Company's ownership interest in each subsidiary assuming all
options in each category were exercised:
<TABLE>
<CAPTION>
MAXIMUM
DILUTION TO
COMPANY'S CURRENTLY MAXIMUM
INTEREST IN OUTSTANDING AVAILABLE
SUBSIDIARY OPTIONS OPTIONS
----------- ----------- ---------
<S> <C> <C> <C>
Subsidiary
A (Weighted exercise price of $1.20) 14% 694,000 1,620,000
B (Weighted exercise price of $0.50) 17% 360,000 400,000
</TABLE>
The options of Subsidiary A and Subsidiary B vest over a period of 5 years.
At December 31, 1998, 138,800 of the options of Subsidiary A were exercisable
and 93,537 options of Subsidiary B were exercisable.
To date, neither of these plans has been dilutive to the Company's interest
in the earnings of the affected subsidiaries.
6. MAJOR CUSTOMER
One customer accounted for 22%, 30%, and 33% of net revenue for the years
ended December 31, 1998, 1997 and 1996, respectively.
<PAGE> 46
BROOKTROUT TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. LEASE COMMITMENTS
The Company has various operating lease commitments for office and
manufacturing facilities expiring through October 2006. Some of the leases
contain renewal options ranging from 3 to 10 years.
Rent expense under all operating leases aggregated $2,106,000, $1,547,000,
and $660,000 for each of the years ended December 31, 1998, 1997 and 1996,
respectively.
Minimum Lease Payments Under Non-Cancelable Operating Leases
YEARS ENDING DECEMBER 31,
-------------------------
1999 ......... $1,872,000
2000 ......... 1,935,000
2001 ......... 1,250,000
2002 ......... 1,274,000
2003 ......... 1,107,000
Thereafter ... 1,712,000
----------
Total $9,150,000
==========
8. INTERNATIONAL SALES
International sales, principally exports from the United States, accounted
for approximately 20%, 19%, and 18% of revenue for the years ended December 31,
1998, 1997 and 1996, respectively.
9. CONTINGENCIES
The Company is a party to a number of legal actions which arise in the
normal course of business. The Company, taking into account advice of counsel,
does not believe the eventual outcome of these matters will have a material
effect on the Company's consolidated financial condition or results of
operations. No provision for any losses that might result from the resolution of
these matters has been made in the accompanying consolidated financial
statements.
10. RETIREMENT PLANS
<PAGE> 47
The Company has a 401(k) retirement plan available to qualified employees.
Employees are allowed to contribute up to 18% of their salary to the plan. The
Company matches contributions equal to $.25 per dollar contributed up to a
maximum of 6% of a participant's salary. The Company contributed $209,000,
$121,000 and $0 to the plan in 1998, 1997 and 1996, respectively.
BROOKTROUT TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. SEGMENT REPORTING
The Company is organized and reports the results of its operations in three
business segments (Brooktrout Technology, Inc., Brooktrout Software and
Interspeed, Inc.) based on the products and services provided to the
marketplace, customers served by each segment and distribution channels.
Brooktrout Technology, Inc. provides enabling technologies for customers to
deliver voice, fax and data solutions for the electronic communications market.
Brooktrout Software provides Windows NT Computer Telephony (CT) solutions,
services and rapid application development platforms that reduce the cost,
complexity, and time to market for developing CT applications. Interspeed, Inc.
develops single system, high-speed Internet access solutions for telephone
companies and Internet Service Providers (ISPs). The Company evaluates
performance and allocates resources based on revenue, gross margin and income or
loss from operations. The accounting policies of the segments are the same as
those described in the summary of significant accounting policies (see Note 1).
<TABLE>
<CAPTION>
1998 1997 1996
------------ ----------- -----------
<S> <C> <C> <C>
REVENUE:
Brooktrout Technology, Inc. $ 94,959,000 $67,558,000 $54,948,000
Brooktrout Software ....... 5,828,000 4,634,000 3,879,000
Interspeed, Inc. .......... 64,000 -- --
------------ ----------- -----------
Consolidated revenue ...... $100,851,000 $72,192,000 $58,827,000
============ =========== ===========
GROSS MARGIN:
Brooktrout Technology, Inc. $ 56,934,000 $37,339,000 $30,294,000
Brooktrout Software ....... 3,007,000 2,472,000 2,474,000
Interspeed, Inc. .......... 26,000 -- --
------------ ----------- -----------
Consolidated gross margin . $ 59,967,000 $39,811,000 $32,768,000
============ =========== ===========
</TABLE>
<PAGE> 48
BROOKTROUT TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
INCOME (LOSS) FROM OPERATIONS:
Brooktrout Technology, Inc.(1) . $ 6,309,000 $ 4,795,000 $ 10,447,000
Brooktrout Software ............ (3,759,000) (924,000) 276,000
Interspeed, Inc. ............... (4,377,000) (1,403,000) (32,000)
------------ ------------ ------------
Consolidated income (loss) from
operations ................... (1,827,000) 2,468,000 10,691,000
Other income (expense) ......... 1,890,000 1,677,000 1,282,000
------------ ------------ ------------
Consolidated income before
income tax provision (benefit) $ 63,000 $ 4,145,000 $ 11,973,000
============ ============ ============
DEPRECIATION AND AMORTIZATION
EXPENSE:
Brooktrout Technology, Inc. .... $ 2,149,000 $ 1,476,000 $ 449,000
Brooktrout Software ............ 488,000 247,000 135,000
Interspeed, Inc. ............... 215,000 92,000 2,000
------------ ------------ ------------
Consolidated depreciation and
amortization expense ......... $ 2,852,000 $ 1,815,000 $ 586,000
============ ============ ============
ASSETS:
Brooktrout Technology, Inc. .... $ 70,195,000 $ 64,043,000 $ 57,844,000
Brooktrout Software ............ 1,141,000 936,000 468,000
Interspeed, Inc. ............... 1,138,000 436,000 54,000
------------ ------------ ------------
Consolidated assets ............ $ 72,474,000 $ 65,415,000 $ 58,366,000
============ ============ ============
</TABLE>
(1) Included in Brooktrout Technology, Inc. are certain marketing and general
and administrative efforts, the cost of which have not been allocated for
internal reporting purposes.
<PAGE> 49
BROOKTROUT TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
----------- ------------ ----------- -------------
<S> <C> <C> <C> <C>
1998
Revenue ..................... $24,176,000 $ 26,104,000 $25,246,000 $25,325,000
Gross profit ................ 14,191,000 15,189,000 14,742,000 15,845,000
Income (loss) from operations 2,269,000 2,588,000 2,320,000 (9,004,000)
Net income (loss) ........... 1,713,000 1,988,000 1,764,000 (5,132,000)
Basic income (loss) per
common share ............. $ 0.16 $ 0.18 $ 0.16 $ (0.47)
Diluted income (loss) per
common share ............. $ 0.15 $ 0.17 $ 0.15 $ (0.47)
1997
Revenue ..................... $15,070,000 $ 14,725,000 $19,493,000 $22,904,000
Gross profit ........... 8,548,000 8,182,000 10,689,000 12,392,000
Income (loss) from operations 2,117,000 (2,936,000) 1,020,000 2,267,000
Net income (loss) ........... 1,560,000 (1,475,000) 816,000 1,750,000
Basic income (loss) per
common share ............. $ 0.15 $ (0.14) $ 0.08 $ 0.16
Diluted income (loss) per
common share ............. $ 0.15 $ (0.14) $ 0.07 $ 0.15
</TABLE>
<PAGE> 50
DIRECTORS & EXECUTIVE OFFICERS
DIRECTORS
Eric R. Giler
President
Brooktrout Technology, Inc.
David W. Duehren
Vice President of Research & Development
Brooktrout Technology, Inc.
Patrick T. Hynes
Vice President of Advanced Product Engineering
Brooktrout Technology, Inc.
Robert G. Barrett
General Partner
Battery Ventures, Inc.
W. Brooke Tunstall
President
Brooke Tunstall Associates
David L. Chapman
President
NorthPoint Software Ventures, Inc.
EXECUTIVE OFFICERS
Eric R. Giler
President
Brooktrout Technology, Inc.
David W. Duehren
Vice President of Research and Development
Brooktrout Technology, Inc.
Stephen A. Ide
President, Interspeed, Inc.
Senior Vice, President, Brooktrout Technology, Inc.
Robert C. Leahy
Vice President of Finance and Operations, and Treasurer
Brooktrout Technology, Inc.
Jonathan J. Sirota
President, Salem Division
Vice President, Brooktrout Technology, Inc.
<PAGE> 51
DIRECTORS & EXECUTIVE OFFICERS (CONTINUED.)
R. Andrew O'Brien
Vice President of Business Development
Brooktrout Technology, Inc.
Patrick T. Hynes
Vice President of Advanced Product Engineering
Brooktrout Technology, Inc.
Mark Flanagan
President, Brooktrout Software
Vice President, Brooktrout Technology, Inc.
M. Kenneth Lavine
President, Los Gatos Division
Vice President, Brooktrout Technology, Inc.
<PAGE> 52
Stock Price Information
<TABLE>
<CAPTION>
1998 1997
QUARTER ENDED HIGH LOW CLOSE QUARTER ENDED HIGH LOW CLOSE
<S> <C> <C> <C> <C> <C> <C> <C>
March 31 $18.88 $11.50 $18.88 March 31 $27.75 $14.50 $14.88
June 30 $21.50 $12.94 $13.88 June 30 $16.88 $10.00 $11.88
September 30 $18.38 $9.75 $13.59 September 30 $17.38 $9.50 $15.88
December 31 $17.88 $10.75 $17.13 December 31 $16.75 $9.50 $11.56
</TABLE>
GENERAL COUNSEL
Goodwin, Procter & Hoar LLP
Boston, Massachusetts
INDEPENDENT AUDITORS
Deloitte & Touche LLP
Boston, Massachusetts
TRANSFER AGENT
State Street Bank & Trust Company
Boston EquiServe, Limited Partnership
P.O. Box 8040
Boston, MA 02266-8040
781-575-3400
www.equiserve.com
INFORMATION REQUESTS
A copy of the Form 10-K filed with the Securities and Exchange Commission may be
obtained without charge upon written request to the Company.
PLEASE ADDRESS REQUESTS TO:
Investor Relations
Robert C. Leahy
Vice President of Finance and Operations, and Treasurer
Brooktrout Technology, Inc.
410 First Avenue
Needham, Massachusetts 02494-2722
ANNUAL MEETING
Thursday, May 13, 1999 at 9:30 a.m.
Fleet Bank
75 State Street
Boston, Massachusetts 02109
<PAGE> 53
OFFICES
CORPORATE HEADQUARTERS
Brooktrout Technology, Inc.
410 First Avenue
Needham, MA 02494-2722
[email protected]
www.brooktrout.com
Phone 781-449-4100
Fax 781-449-3171
Brooktrout Software
333 Turnpike Road
Southborough, MA 01772
[email protected]
www.brooksoft.com
Phone 508-229-7777
Fax 508-229-8777
SUBSIDIARIES
Netaccess, Inc.
18 Keewaydin Drive
Salem, NH 03079
[email protected]
www.netacc.com
Phone 603-898-1800
Fax 603-894-4545
Interspeed, Inc.
39 High Street
North Andover, MA 01845
[email protected]
www.interspeed.com
Phone 978-688-6164
Phone 978-688-6327
Fax 978-688-4798
Brooktrout Networks Group, Inc.
Arapaho Creek Business Park
1350 East Arapaho Road
Suite 234
Richardson, TX 75081
Phone 972-907-0885
Fax 972-907-0889
<PAGE> 54
OFFICES (CONTINUED.)
Brooktrout Technology, Inc. - Los Gatos Division
151 Albright Way
Los Gatos, CA 95032-1801
Phone 408-370-0881
Fax 408-370-1171
Brooktrout Technology Europe, Ltd.
Hoeilaart Office Center
Vandammestraat 5, Box 2
1560 Hoeilaart
Belgium
Phone +32-2-658-0170
Fax +32-2-658-0180
SALES & SUPPORT OFFICES
EAST COAST OFFICES
Brooktrout Technology, Inc.
410 First Avenue
Needham, MA 02494-2722
Phone 781-449-4100
Fax 781-449-3171
Brooktrout Technology, Inc.
2008 South Main Street
Suite 306
Wake Forest, NC 27587
Phone 919-562-8684
Fax 919-562-5709
Interspeed, Inc.
39 High Street
North Andover, MA 01845
Phone 978-688-6164
Fax 978-688-4798
Netaccess, Inc.
18 Keewaydin Drive
Salem, NH 03079
Phone 603-898-1800
Fax 603-894-4545
<PAGE> 55
OFFICES (CONTINUED.)
Brooktrout Technology, Inc. - Los Gatos Division
850 Dogwood Road
Suite A-400
Lawrenceville, GA 30044
Phone 770-985-6822
Fax 770-972-1482
Brooktrout Technology, Inc. - Los Gatos Division
532 Old Marlton Pike
Marlton, NJ 08053
Phone 609-489-5050
Fax 609-489-5050 x18
Brooktrout Technology, Inc. - Los Gatos Division
4060 Peachtree Road
Suite D-153
Atlanta, GA 30319
Phone 404-814-0019
Fax 404-814-0904
Brooktrout Technology, Inc. - Los Gatos Division
1297 N.W. 112 Way
Coral Springs, FL 33071
Phone 954-345-2424
Fax 954-341-3134
<PAGE> 56
OFFICES (CONTINUED.)
CENTRAL OFFICES
Brooktrout Technology, Inc.
1600 Golf Road, Suite 1200
Rolling Meadows, IL 60008
Phone 847-981-5062
Fax 847-981-5063
WEST COAST OFFICES
Brooktrout Technology, Inc.
2890 Zanker Road, Suite 107
San Jose, CA 95134
Phone 408-232-0300
Fax 408-232-0795
Brooktrout Technology, Inc. - Los Gatos Division
19900 MacArthur Blvd
Suite 1000
Irvine, CA 92612
Phone 949-253-2678
Fax 949-757-2078
INTERNATIONAL OFFICES
Brooktrout Technology Europe, Ltd.
Hoeilaart Office Center
Vandammestraat 5, Box 2
1560 Hoeilaart
Belgium
Phone +32-2-658-0170
Fax +32-2-658-0180
Brooktrout Technology, Inc.
UK Office
Stonebridge House
28-32 Bridge Street
Leatherhead, Surrey
United Kingdom KT22 8BZ
Phone +44-0-1372-379111
Fax +44-0-1372-379373
<PAGE> 57
INTERNATIONAL OFFICES (CONTINUED.)
Brooktrout Technology, Inc. - Los Gatos Division
Centennial Court
Easthampstead Road
Bracknell, Berkshire
United Kingdom RG12 1YQ
Phone +44-1344-380280
Fax +44-1344-380288
Brooktrout Technology, Inc.
International Plaza
10 Anson Road, #19-06A
Singapore 079903
Phone +65-224-0313
Fax +65-224-0337
<PAGE> 1
EXHIBIT 21
Brooktrout Technology, Inc.
Subsidiaries
Jurisdiction
Name Of Incorporation
---- ----------------
InterSpeed, Inc. Massachusetts
Brooktrout Networks Massachusetts
Group, Inc.
Technically Speaking Incorporated Massachusetts
Brooktrout Technology Massachusetts
Europe Limited (U.S.)
Brooktrout Technology United Kingdom
Europe Limited (U.K.)
Brooktrout Holdings, Inc. Delaware
NetAccess, Inc. Delaware
Brooktrout Foreign U.S. Virgin Islands
Sales Corp.
Brooktrout Business Massachusetts
Trust
Brooktrout Securities Massachusetts
Corporation
BTGP, Inc. Delaware
<PAGE> 1
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement No.
333-12313 on Form S-8 and Registration Statement No. 333-62959 on Form S-8 of
Brooktrout Technology, Inc. of our reports dated February 10, 1999, appearing in
and incorporated by reference in this Annual Report on Form 10-K of Brooktrout
Technology, Inc. for the year ended December 31, 1998.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
Boston, Massachusetts
March 29, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
BROOKTROUT TECHNOLOGY, INC.'S CONDENSED CONSOLIDATED BALANCE SHEET AND
STATEMENTS OF INCOME FOR THE PERIOD ENDED DECEMBER 31, 1998 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH BROOKTROUT TECHNOLOGY, INC.'S, 10-K FOR
THE PERIOD ENDED DECEMBER 31, 1998.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 8,518
<SECURITIES> 3,837
<RECEIVABLES> 15,837
<ALLOWANCES> 2,313
<INVENTORY> 10,668
<CURRENT-ASSETS> 43,955
<PP&E> 14,938
<DEPRECIATION> 5,973
<TOTAL-ASSETS> 73,209
<CURRENT-LIABILITIES> 22,730
<BONDS> 0
108
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 73,209
<SALES> 100,851
<TOTAL-REVENUES> 100,851
<CGS> 40,884
<TOTAL-COSTS> 40,884
<OTHER-EXPENSES> 61,794
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3
<INCOME-PRETAX> 63
<INCOME-TAX> (270)
<INCOME-CONTINUING> 333
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 333
<EPS-PRIMARY> .03
<EPS-DILUTED> .03
</TABLE>
