<PAGE>
PART I.
ITEM 1. BUSINESS
Background
Boston Technology, Inc. ("Boston Technology" or the "Company") is a leading
worldwide provider of communications and information processing systems and
applications that enable telecommunications carriers to provide their
residential, business, wireless and cable subscribers with enhanced services,
such as call answering, voice messaging, fax processing, pager notification
and other multimedia capabilities. Enhanced services allow subscribers to
improve their communications through the recording, storage, access and
distribution of messages and other information. The Company develops,
manufactures, markets and supports standard and customized solutions
comprising enhanced systems platforms and software applications. The
Company's products are used in wireline, cable wireline and wireless networks,
operating with existing network switching equipment to deliver services
accessible through commonly available telephones, fax machines, pagers and
personal computers. The Company's customers include Ameritech, AT&T, Bell
Atlantic, Bell South, Nippon Telegraph and Telephone Corporation, SBC
Communications, Sprint Spectrum, L.P., Telebras, Telstra, and Telmex,
representing approximately half of the world's twenty largest telephone
companies.
Boston Technology's enhanced services platforms are its Access NP, first
shipped in October 1995, and its CO ACCESS Network Services Platform, first
shipped in November 1988. The Company's platforms employ a distributed system
architecture and modular design in order to achieve the high capacity,
scalability and reliability needed by telecommunications carriers to deploy
enhanced services on a mass scale. The design of the Company's platforms
enables customers to purchase selected enhanced services applications and to
add additional applications as needed in the future.
Boston Technology's AccessMAX Application Software Environment, an object-
oriented software environment designed to facilitate development of
applications for its Access NP and CO ACCESS platforms, allows the Company,
telecommunications carriers and third-party developers to create and adapt
service offerings to meet changing market needs and introduce new services.
As of January 31, 1997, the Company had shipped 236 Access NP platforms and
360 CO ACCESS platforms to 32 customers in 13 countries.
The Company's executive offices are located at 100 Quannapowitt Parkway,
Wakefield, Massachusetts 01880; its telephone number is (617) 246-9000. A
predecessor of the Company was incorporated on April 7, 1986. On January 31,
1987, the Company was merged into its predecessor. On November 1, 1989,
the Company was reincorporated in Delaware.
Market
The Company's principal market is telecommunications network operators. This
market includes the international network operators, Regional Bell Operating
Companies ("RBOCs"), wireless operators, cable companies, independent telephone
companies, competitive access providers ("CAPS"), and interexchange (long
distance) carriers, as well as Post Telegraph & Telephone ("PTT") organizations.
The wireless operators include companies deploying cellular and personal
communication services ("PCS").
-1-
<PAGE>
<PAGE>
The network operators purchase, install and maintain the Company's platforms
in or near their central switching offices, exchanges or wireless switching
centers, and offer enhanced services through their networks to their
residential, business, wireless and cable customers. For a monthly flat rate
and/or usage-based charges, these customers receive access to a variety of
enhanced services, through the operators' network, without having to assume the
capital, administrative or maintenance requirements of purchasing their own
enhanced services systems.
Network operators typically serve large populations of customers, requiring
large-capacity equipment that can support enhanced services deployed on a mass
scale with the corresponding high volume of usage. The capacity needs of a
network operator will vary with the number of customers served. In addition,
network operators have established an extremely high standard of service
reliability and availability, with stringent engineering requirements for
equipment intended for use within the telephone company central office
switching environment.
Customer Base
Boston Technology's customers include a variety of domestic and international
network operators, RBOCs, wireless operators, cable companies, local exchange
providers, service bureaus and universities. The Company's significant
customers typically serve large populations of customers, requiring large
capacity equipment that can support enhanced services deployed on a mass scale
with the corresponding high volume of usage. In addition, the Company's
customers have typically established an extremely high standard of service
reliability and availability, with stringent engineering requirements for
equipment intended for use within the telephone company central office
switching environment.
North America
North American revenues increased from $42,480,000 in fiscal year 1996 to
$134,627,000 in fiscal 1997, representing an increase of 217%, compared to a
decline in North American revenues from $59,404,000 in fiscal 1995 to
$42,480,000 in fiscal 1996, representing a decrease of 28%. Sales to Bell
Atlantic accounted for 10%, 13% and 48% of the Company's revenues during
fiscal 1997, 1996 and 1995, respectively. Sales to SBC Communications
accounted for 17% and 11% of the Company's revenues during fiscal 1997 and
1996, respectively. Sales to SBC Communications for fiscal year 1995 were
less than 10% of the Company's revenues. Sales to AT&T accounted for 23% of
the Company's revenues during fiscal 1997, but were less than 10% of the
Company's revenues in fiscal 1996 and 1995.
Boston Technology has agreements with a variety of North American RBOCs, cable
companies, local exchange providers, service bureaus and universities to
purchase the Company's platforms and applications software. RBOC customers
include Ameritech, Bell Atlantic, BellSouth and SBC Communications, which use
the Company's platforms to offer enhanced services to residential, business
and wireless subscribers in selected areas. During the fiscal year ended
January 31, 1997, the Company entered into new agreements with SBC
Communications wireline and SBC Communications wireless, and extended its
relationship with Bell Atlantic. Boston Technology's new customers during
fiscal 1997 include Cox California PCS, Inc., and Sprint Spectrum, L.P.
-2-
<PAGE>
<PAGE>
International
International revenues decreased from $62,787,000 in fiscal year 1996 to
$57,831,000 in fiscal year 1997, representing a decrease of 8%. International
revenues increased from $29,652,000 in fiscal year 1995 to $62,787,000 in
fiscal year 1996, representing an increase of 112%. In fiscal 1996 and 1995,
sales to customers outside of North America accounted for approximately 60% and
33%, respectively, of the Company's revenues. In fiscal 1997, international
revenue was 30% of total revenues, with DDI, a wireless carrier in Japan,
accounting for 13% of the Company's total revenues.
During the fiscal year ended January 31, 1997, the Company entered into
purchase agreements with the following international customers: Dalian Telecom
Bureau, Hangzhou Telecom Bureau, and Hebei Provincial Telecom Authority,
three customers located in China; Escotel Mobile Communications Limited, which
provides wireless communications services in India; Guangdong Mobile
Communications Corporation, a mobile operator in China; Infostrada S.p.A.,
a network operator in Italy; TelecomAsia Corporation Public Co., Ltd. and
Sahaviriya Infortech Computer Co., Ltd, a distributor in Thailand; and
Univoice Service Bureau, a network operator in China.
Products
The Company's product strategy is to offer highly-customized, reliable,
scalable and flexible systems and applications built upon a distributed
hardware architecture. The Company's platforms provide large processing
capabilities to run its enhanced services applications on a mass scale through
wireline and wireless networks, as well as to support domestic and most
international signaling protocols. The Company also offers the AccessMAX
Application Software Environment, which is an object-oriented tool written in
C++ programming language that allows application developers to design and
implement applications to run on the Company's platform. This also allows
Boston Technology customers to create, customize, and modify new or existing
services.
Boston Technology manufactures and distributes two network services platforms,
Access NP and its predecessor CO ACCESS, which allow its customers to run the
Company's suite of enhanced services applications. The open architecture of
the Company's platforms gives carriers the flexibility to operate different
network interfaces simultaneously, so that a single system can interface with
multiple networks and multiple terminal devices. The platforms also provide
operations, administration and management functions for the customer.
Network operators purchase, install and maintain the Company's platforms in or
near their central switching offices, exchanges or wireless switching centers,
and offer enhanced services through their networks to their residential,
business, wireless and cable customers. For a monthly flat rate and/or usage-
based charges, these customers receive access to a variety of enhanced services
through the operators' networks without having to assume the capital,
administrative or maintenance requirements of purchasing their own enhanced
services systems.
-3-
<PAGE>
<PAGE>
The platforms are built with a proprietary distributed hardware architecture.
The Access NP Network Services Platform subsystems are linked by a parallel,
redundant Ethernet local area network. The hardware "front end" consists of a
queuing digital switching matrix ("DSM") that routes incoming calls from the
network to their assigned application processing unit ("APU") ports. One
incoming port on a platform corresponds to one incoming facility or trans-
mission path from the network switch. Voice processing applications run on
one or more APUs, each of which has local disk storage for voice prompts and
messages. A master control unit directs all system operations, including
assignment of incoming calls to APU ports and directing the DSM to make the
connection. Auxiliary interface subsystems support system administration,
connection to other voicemail systems, customer billing, and connection to a
GSM message center.
Boston Technology's platforms are designed to help carriers take advantage of
the Intelligent Network architecture by operating as either a Service Node or
Intelligent Peripheral. By providing a Service Node compliant architecture
with switching, service logic and resource elements all on one platform,
Boston Technology supplies operators worldwide with capabilities that maximize
Intelligent Network-based applications. The open architecture of Boston
Technology's platforms gives operators the flexibility to run different
network interfaces simultaneously, including ISDN, SS7, ISUP/TCAP and IS41,
so a single system can interface with multiple networks and multiple terminal
devices.
The Company's platform configurations provide the following capacities:
<TABLE>
<CAPTION>
System Type CO ACCESS Access NP
600S 60 (3)
<S> <C> <C>
Subscriber Configuration Limit (1) 80,000 300,000
Maximum Busy Hour Calls (2) 24,000 60,000
Available Ports (T1/E1) 24 to 768 24/30 to 768/960
Available Storage Hours (1) 55 to 3,520 135 to 12,960 hours
</TABLE>
(1) Dependent on user profile and system configuration.
(2) Varies with network integration.
(3) Can be clustered to provide higher capacity if required.
-4-
<PAGE>
<PAGE>
Subscriber applications, network and interfaces to operational support systems
are nearly identical across both the Access NP and CO ACCESS platforms,
allowing network operators to serve single markets with either system.
Furthermore, migration tools allow customers to manage traffic engineering
requirements in order to accommodate systems growth.
The Access NP platform offers the following features:
Capacity. Depending on user profile, the Access NP Network Services Platform
supports up to 300,000 mailboxes with a configuration of up to 960 ports. It
provides redundant storage for up to 12,960 hours of voice storage. Its non-
blocking digital switch accepts calls even during periods of peak demand.
Scalability. The Access NP platform enables network operators to install the
features they initially require and add on as their subscriber base and demand
grow. Application Processing Units or disk drives can be added to the system
for increased capacity. In addition, innovative procedures for balancing
resources across systems allow networks to grow without interruption to
service.
Availability. The Access NP platform is designed to deliver a very high
standard of availability. For reliability, redundancy options in major areas
of operation eliminate single points of failure within the platform
architecture.
Flexibility. The Access NP platform offers the flexibility and adaptability
required to accommodate different types of media as the enhanced services
market grows and matures. The digital signal processing capabilities of the
platform are designed to provide a "universal port" to handle a variety of
multimedia services.
Serviceability. Major components are "hot-swappable" allowing quick slide-in
replacement with convenient single-sided access. Diagnostics are performed on-
line, with little or no downtime required. On-line documentation, visual
indicators and multiple level alarming are available to assist in identifying
any failed components.
Other capabilities currently offered on the Access NP and CO ACCESS platforms
include:
Digital Message Networking. Digital Message Networking allows operators to
support area-wide exchange of voice messages among voice mailboxes located on
multiple platforms residing in dispersed central offices. Subscribers are able
to send, reply to and forward messages among subscriber mailboxes regardless
of the location of the originating or destination mailboxes.
Addressing Domain. Addressing Domain allows operators to group together Voice
Messaging subscribers into common areas, such as area codes, city codes or
corporate networks, including customized numbering plans for subscribers in
these areas.
-5-
<PAGE>
<PAGE>
Multiple Language Support. With Multiple Language Support, subscribers hear
instructions in the language specified by the platform administrator or the
subscribers. Languages that have been implemented by the Company include
Arabic, Cantonese, English, Japanese, Mandarin, Portuguese, Spanish and Thai.
Operations, Administration and Maintenance. The Company provides a number of
features to assist platform administrators in managing subscriber mailboxes,
administering billing, collecting and reporting platform data, tracking alarm
conditions and ensuring platform security. These capabilities are designed
to integrate easily with existing network operations and engineering systems
and to allow operators to manage subscriber growth in a cost-effective manner.
Enhanced Services Applications
Below is a brief description of enhanced services applications currently
offered on the Access NP and CO ACCESS platforms.
Call Answering
Answers telephone automatically with personalized greeting and allows callers
to leave a private voice message.
Partitioned Mailboxes
Allows subscribers to create individual submailboxes within a household or
small business.
Voice Messaging
Allows subscribers to create and send voice messages to other mailbox
subscribers, including the ability to reply to, forward and send copies of
messages.
Fax Services
Enables facsimile documents to be stored within a subscriber's mailbox and
outdialed and delivered to a fax machine.
Virtual Telephone Service
Provides subscribers with a mailbox that is associated with a telephone number
but not a telephone.
Reminder Service
Allows subscribers to record a reminder message for future delivery to
themselves.
Pager Notification
Enables subscribers to be notified by their pagers when messages have been
deposited in their mailbox.
Special Delivery
Allows subscribers to be notified when messages are received from designated
telephone numbers.
QuickACCESS Automated Attendant
Used by a business to automatically answer incoming calls and route callers
to the desired party or redirect calls when a line is busy or unanswered.
Bulletin Board
Allows businesses and other organizations to provide an automated way for
callers to obtain information about their services or offerings.
-6-
<PAGE>
<PAGE>
AccessMAX Application Software Environment
The Company's AccessMAX Application Software Environment is an object-oriented
tool written in C++ programming language. The AccessMAX environment has been
designed to provide the Company's customers with a tool to differentiate their
services in the increasingly competitive telecommunications market. The
AccessMAX environment allows application developers to design and implement
applications to run on both the Access NP and the CO ACCESS platforms.
Using the telecommunications services object library and a workstation, the
developer is able to change existing applications or build new applications by
pointing, clicking, dragging and dropping services icons. This software
allows the Company, and its customers to create or adapt service offerings to
meet changing market needs and introduce new services.
Recently Released Product
Unified Mailbox Applications. AccessWEB Internet Messaging is an application
that will give end users access to their voice and fax messages from anywhere
in the world via the World Wide Web. Subscribers will be able to view messages
on a personal computer screen, listen to messages in a real-time environment
and store the messages. AccessWEB Internet Messaging will also allow the
creation of custom distribution lists via the user's personal computer.
Product Development
Boston Technology believes that the ongoing, timely development of new products
and applications and enhancements to existing products are essential to
maintain its competitive position. The Company also commits research and
development resources to meet specific customer requests for particular
hardware or software features when the volume of potential business justifies
such an investment. In addition, the Company believes that quality control
programs are essential to its success. The Company's quality control programs
are designed to maintain strict tolerances during the manufacturing process
and to test all of its products. The Company received ISO 9001 qualification
in January 1997. The Company's research and development resources are
decentralized, allowing for teams of personnel to focus on specific projects
and activities to completion. Project managers maintain close relationships
with the Company's customers, thereby creating an environment receptive to
understanding customer needs. Research and development expenses for fiscal
years 1997, 1996 and 1995, net of customer-funded research and development and
reclassifications, were $38,787,000, $21,884,000 and $13,709,000, respectively.
In addition, from time to time the Company engages in research and development
activities that are customer funded. During fiscal 1997, 1996 and 1995, the
Company received approximately $3,349,000, $5,051,000 and $8,162,000,
respectively, for such research and development.
Service and Support
Boston Technology's Worldwide Customer Service and Support organization
provides the Company's customers with a variety of hardware and software
support services. These services include technical training, full systems
installation and network integration. The Company places a high priority on
providing timely, accurate information as well as advice on how to take
advantage of the Company's products. As a result of close working relation-
ships with customers, service and support personnel have been a source of
product improvements and new features and functions. The Company's service and
support activities represent an integral element of its marketing strategy,
and the Company believes its service and support capabilities and commitment
represent a competitive advantage.
-7-
<PAGE>
<PAGE>
The Company's standard warranty policy is to repair or replace faulty
equipment during the warranty period, which is usually for a period of one year
from system installation. Boston Technology also offers a supplemental
and higher level of service coverage during the warranty period as part of
its Systems Installation Service and also offers post-warranty service under
its Service Max Service Program. The Company maintains a centralized worldwide
Technical Assistance Center at its headquarters in Wakefield, Massachusetts and
has regional satellite centers in Hong Kong and Tokyo, which provide technical
support services 24 hours a day, seven days a week.
Sales and Marketing
The Company sells and licenses its systems in North America to network operators
through a direct sales organization. Because of the stringent technical and
support requirements of the network operators, the Company has developed
close working relationships with many of its customers. By doing so, the
Company believes that it is able to better identify and meet future needs for
new system features and capabilities. Internationally, the Company works with
both direct sales and local representatives to market and distribute its
products. The Company has entered into distribution and marketing agreements
with telecommunications companies in, among other places, Brazil, China, Japan,
Malaysia, Thailand and Taiwan, which the Company believes will help to expand
sales of its products to international network operators.
A goal of the Company is to increase the market for and usage of its systems by
assisting its existing and prospective customers in developing the market for
enhanced services. The Company's MEDALIST Market Success Program, which is a
key component of its overall marketing effort, is designed to assist the
Company's customers in developing and implementing marketing programs for the
enhanced services supported by the Company's platforms. In connection with the
program, the Company provides consulting support, marketing materials, seminars
and other marketing tools to customers.
The Company currently has sales and/or technical support offices in the
following areas: Wakefield, Massachusetts; San Ramon, California; Atlanta,
Georgia; Park Ridge, Illinois; St. Louis, Missouri; Dallas, Texas; McKinney,
Texas; Reston, Virginia; Seattle, Washington; Brookfield, Wisconsin; Canada;
England; Hong Kong; Japan; Mexico; Malaysia; and Australia.
Backlog
The Company's backlog at January 31, 1997 was approximately $103,000,000,
compared to $33,000,000 at January 31, 1996. The Company includes in backlog
all purchase orders and other purchase commitments shippable within the next
12 months. Products shipped for customer trials are not included in backlog or
revenue. The Company's backlog at any particular time may not be indicative
of future revenues because of the possibility of order cancellations or
changes.
-8-
<PAGE>
<PAGE>
Competition
The enhanced services industry is highly competitive, and the Company expects
that competition will intensify as the market continues to grow and mature.
The Company's principal competitors in the telecommunications network operators
market are Brite Voice Systems, Centigram Communications Corporation, Comverse
Technology, Inc., Glenayre Electronics, Inc., Octel Communications Corporation,
Tecnomen Oy and Unisys Corporation. The Company believes competition for the
sale of enhanced services to telecommunications carriers is based principally
on capacity, high reliability and ability to provide multiple-application
platforms integrated with telecommunications networks. The Company expects to
continue to encounter substantial competition from its existing competitors,
and that other companies will enter the North American and international
enhanced services markets. Certain existing and future competitors possess
considerably greater financial, technical, marketing and sales resources than
the Company. There can be no assurance the Company will be able to compete
successfully with existing or future competitors. In addition, the Company
currently faces competition from sources outside of the telecommunications
carrier market, such as PC-based enhanced services and home answering machines,
and there can be no assurance the Company will not in the future encounter
increased competition from these and other technologies. See "Risk Factors -
- - - Competition."
Manufacturing
Boston Technology's manufacturing operations consist primarily of final
assembly, integration, test and quality control of subsystem and system
products. The Company presently uses third parties to perform printed
circuit card assembly and sheet metal fabrication. The Company supplements
the standard parts and equipment that are procured from multiple sources with
that of specific custom designed and contract manufactured assemblies. The
Company currently procures digital switches, baseboards, voice cards and power
supplies for its systems from sole source suppliers. The Company maintains
stocking and/or manufacturing licensing arrangements with its key suppliers to
mitigate the effects of any short-term delivery delays or interruptions.
Alternate sources of all its components are available; however, the inability
to obtain adequate supplies of any essential component could adversely affect
the Company's operations. The Company currently has approximately 27,000
square feet of space allocated to system assembly, integration, testing,
quality control and inventory storage for manufacturing activities.
Employees
As of February 28, 1997, the Company employed 904 persons, including 177
contractors/temporary employees, of which 517 people were employed in research
and development, 239 people employed in sales, marketing, and support, 75
people employed in operations and 73 people employed in finance and
administration. The Company believes that its future growth and success will
depend upon its ability to continue to attract and retain highly qualified
personnel, who are in great demand. None of the Company's employees is
represented by a labor union. The Company has never had a work stoppage and
considers its employee relations to be good.
Government Regulation
The Company attempts to stay abreast of regulatory issues in the areas of the
world where it does business as countries move to open up markets to
competition. Regulatory changes sometimes occur rapidly, and are not always
predictable. Sudden or unforeseen changes in the regulatory environment may
have an impact of the Company's revenues and/or costs in any given part of
the world.
-9-
<PAGE>
<PAGE>
North America
Regulatory and judicial decisions at both the Federal and State level in the
United States continue to impact the market for enhanced services. At the
state level, regulatory activities have opened many states to competition in
the local exchange market. The Company believes the February 1996 passage of
the Telecommunications Act of 1996 is expected to produce favorable conditions
for expanded deployment of enhanced services by further opening the local
telephone, long distance telephone, and cable markets to competition. Local
and long distance telephone companies, wireless providers, cable companies and
utilities are now able to compete for telephone and cable customers. Electric
utilities and cable companies have already deployed telephone service over
their own fiber optic networks. Implementation of the Telecommunications Act
has enabled a broader range of enhanced services such as information services
and fax messaging to be offered.
Additionally, the auctions held over the past several years to award licenses
for Personal Communications Services (PCS) have increased the number of wireless
providers throughout the United States, thus increasing competition in the
wireless market. Boston Technology has designed its network services software
and platforms to support new enhanced services and believes it is well
positioned to take advantage of the additional opportunities created by
regulatory and technological changes. The Company believes that the domestic
telephone market for traditional and new enhanced services will drive demand
for Boston Technology's product and services as this market continues to expand.
International
Telecommunications deregulation around the world will also impact the demand
for enhanced services in international markets. On February 15, 1997 the World
Trade Organization reached a significant agreement to liberalize trade in
telecommunications services. Nearly 70 countries, representing an over-
whelming share of the world market, agreed to open their markets to foreign
competition and to abide by an agreed set of rules: independent regulators,
transparency in licensing and a defined appeals process. The agreement is
scheduled to be put into effect on January 1, 1998 and is expected to
accelerate the deregulation that was already underway in many countries.
While only 20% of the $600 billion world market is currently open to
competition, it is predicted that within several years it will increase to 75%
due to the European Union's opening of markets on January 1, 1998, the World
Trade Organization agreement, deregulation in Japan, and the
Telecommunications Act of 1996.
Effective January 1, 1998, the European Union has committed to the complete
opening of all telecommunications services to competition and liberalization of
their markets. England, Sweden and Finland have already opened their markets;
in England cable telephony has been successful in reaching consumers by
bundling cable and telephony services at competitive rates. Companies are
already active in forming consortiums, partnerships and other joint ventures
to position themselves as the European alternative operators when the markets
are opened, and these new entrants are investing billions of dollars in
building networks and alliances.
-10-
<PAGE>
<PAGE>
Deregulation is also prevalent outside of Europe. Developing countries such as
the Philippines, Malaysia and Chile have already dismantled the state-owned
telephone monopolies and allowed competitors to enter the market. A key
driver in these countries is the much needed capital investment to build the
telecommunications infrastructure. In Japan, NTT has agreed with the
government to split itself into a long distance service provider and two
regional companies handling local service with all three companies to be
owned by a holding company. Australia plans to liberalize its tele-
communications sector in July 1997 and South Korea saw an acceleration of
deregulation in 1996 with the government licensing 27 new entrants.
The company believes that opportunities for enhanced services will be created
by both technological changes and regulatory actions in the international
market.
Intellectual property
The Company relies on a combination of patent, trade secret and copyright law,
license, escrow and non-disclosure agreements, and technical measures to
protect its rights in its products.
Patents
The Company currently holds 12 United States patents, three Australian patents,
two New Zealand patents, and two Canadian patents. The Company's patents
expire at various times beginning in 2008. The Company believes intellectual
property protection is important in the highly competitive market for enhanced
service systems, and intends to seek additional patent protection. There can
be no assurance, however, that any patent application filed by the Company
will result in a patent being issued, or that any patent issued to the Company
will be held valid if challenged. Furthermore, the Company may become the
subject of claims that the Company's products infringe upon the propriety
rights of others, and there can be no assurance that any claims against the
Company will not result in costly litigation or require the Company to license
the intellectual property rights of third parties.
Trademarks and Service Marks
QUICKACCESS (and design), CO ACCESS, MEDALIST and ACCESSMAX are registered
trademarks of the Company. ACCESS NP, ACCESSWEB, ACCESSPOINT, and ACCESSFAX
are trademarks of the Company. Connect With Success, Communications for the
Way We Live and ACCESSMAX Connect Alliance are service marks of the Company.
Technology Licenses
Boston Technology has entered into patent license agreements with five
companies, under which the Company has obtained non-exclusive licenses to make,
have made, use and sell certain inventions relating to voice messaging and
voice processing covered by the claims of the licensors' products.
The Company has a perpetual, fully-paid license to certain technology owned by
Northern Telecom to facilitate integration of the Company's products to
Northern switches. Boston Technology has obtained certain non-exclusive, non-
transferable, non-assignable source code licenses from The Santa Cruz
Operation, Inc. that allow the Company to use specified source code and
related documentation for certain support and maintenance of the Company's
CO ACCESS systems. No royalty payments are required under Boston Technology's
license with the Santa Cruz Operation, Inc.
-11-
<PAGE>
<PAGE>
ITEM 2. PROPERTIES
As of January 31, 1997, the Company leased approximately 200,000 square feet in
Wakefield, Massachusetts pursuant to a lease that expires in fiscal 2009. The
Company also leases approximately 76,552 square feet in Andover, Massachusetts
pursuant to a lease which is due to expire in August 2002. Additionally, the
Company also leases approximately 30,000 square feet in a second location in
Wakefield, Massachusetts pursuant to a lease which is due to expire February
1998. The Company also has a commitment to lease additional space of
approximately 168,000 square feet in a new office building to be constructed
adjacent to its Corporate headquarters in Wakefield, Massachusetts. Approval
of the building permit is expected in April 1997, and occupancy is expected by
mid May 1998 for a lease term of twelve years.
The Company also leases sales and support offices in five different locations
throughout the United States and one in each of the United Kingdom, Hong Kong,
Japan, Malaysia and two locations in Mexico. The current aggregate annual
base rent for all leased offices for fiscal 1998 will be approximately
$5,111,000.
-12-
<PAGE>
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
On or about November 16, 1995, a complaint was filed in the United States
District Court for the Eastern District of Pennsylvania captioned John Eades
v. Boston Technology, Inc., Greg C. Carr, Francis E. Girard, Joseph E. Norberg,
Paul W. DeLacey, William J. Burke and John C.W. Taylor, Civil Action
No. 95-CV-7236. On or about November 20 and 21, 1995, respectively,
essentially identical complaints were filed in the same court captioned Jacob
Turner v. Boston Technology, Inc., Greg C. Carr, Francis E. Girard, Joseph E.
Norberg, Paul W. DeLacey, William J. Burke and John C.W. Taylor, Civil Action
No. 95-CV-7295, and Gerald Tobin v. Boston Technology, Inc., Greg C. Carr,
Francis E. Girard, Joseph E. Norberg, Paul W. DeLacey, William J. Burke and
John C.W. Taylor, Civil Action No. 95-CV-7317. Each of the plaintiffs purports
to represent a class of purchasers of the common stock of the Company between
and including May 17, 1995 through November 15, 1995. Each complaint claims
that the named defendants violated Section 10(b) of the Securities Exchange
Act of 1934 and Rule 10b-5 promulgated pursuant thereto, by virtue of false
or misleading statements made during the class period. Each complaint claims
that the individual defendants are liable as "control persons" under Section
20(a) of that Act. In addition, the complaints claim that the individual
defendants sold some of their own common stock of the Company, during the
purported class period, at times when the market price for the stock allegedly
was inflated. No response has been made to the three complaints, which have
been consolidated by the Court. The plaintiffs filed an Amended Complaint on
May 6, 1996, and on June 20, 1996 the defendants filed a Motion to Transfer
the case to the Eastern District of Massachusetts. On November 14, 1996, the
United States District Court of the Eastern District of Pennsylvania ordered
the cases transferred to the United States District court for the District
of Massachusetts. On January 19, 1997, the defendants filed a Motion to
Dismiss on the grounds that the Amended Complaint fails to state a claim under
the relevant sections of the Securities Exchange Act of 1934, and under the law
as applied by the United States Court of Appeals for the First Circuit. Oral
argument was held on the Motion to Dismiss and the Plaintiffs Reply to the
Motion on March 20, 1997. A decision is expected by August 1997.
Boston Technology and the defendants continue to deny the allegations and will
continue to contest these cases vigorously. The outcome of this lawsuit is
neither probable nor estimable; accordingly, no loss provision has been made
for this lawsuit.
On March 3, 1997, Comverse Technology, Inc. filed a complaint with the
United States District Court, for the Eastern District of New York, against
Boston Technology, Inc., Enhanced Communications Corporation, ("ECC"), a
company acquired by the Company in February 1997, and William Rovin, the
previous stockholder of ECC, as defendants, claiming a breach of contractual
and fiduciary obligations, unfair competition, and other allegations related to
the Company's acquisition of ECC. On April 14, 1997, Comverse agreed to
withdraw the complaint pending further discussion with the Company.
-13-
<PAGE>
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this report.
PART II.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
<TABLE>
<CAPTION>
1997 Fiscal Quarter Ended
-------------------------
April 30 July 31 October 31 January 31
-------- ------- ---------- ----------
Common stock prices
<S> <C> <C> <C> <C>
High $17.38 $18.88 $17.13 $30.88
Low $12.00 $13.50 $12.75 $16.88
</TABLE>
<TABLE>
<CAPTION>
1996 Fiscal Quarter Ended
-------------------------
April 30 July 31 October 31 January 31
-------- ------- ---------- ----------
Common stock prices
<S> <C> <C> <C> <C>
High $16.75 $20.63 $19.13 $15.63
Low $12.13 $13.50 $12.25 $11.00
</TABLE>
The common stock is presently listed on the New York Stock Exchange under the
symbol "BSN". Prior to January 13, 1997, the common stock was quoted and traded
on the Nasdaq National Market. The table above sets forth on a per share basis
for the fiscal periods indicated, the high and the low closing prices of the
common stock on the New York Stock Exchange or the Nasdaq National Market, as
the case may be, and may not reflect higher or lower individual stock trades.
As of April 2, 1997, there were approximately 1,616 holders of record of
the Company's common stock.
No cash dividends have been paid on the Company's common stock. The Company
currently intends to retain all of its earnings to finance future growth and,
accordingly, does not anticipate paying any cash dividends in the foreseeable
future. In addition, the Company's line of credit prohibits the payment of
dividends without the consent of the lender.
-14-
<PAGE>
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following tables should be read in conjunction with the Consolidated
Financial Statements of the Company and the notes thereto and with "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
appearing elsewhere in this report.
<TABLE>
<CAPTION>
Consolidated Statements of Operations:
For years ended January 31,
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Revenues $192,458 $105,267 $89,056 $70,315 $49,451
Cost and expenses:
Cost of revenues 91,283 46,585 31,544 25,025 19,260
Research and development 38,787 21,884 13,709 15,000 10,338
Marketing, general and
administrative 40,257 31,565 26,217 21,360 16,146
Warrants & other costs
associated with AT&T
contract acquisition (see note
8 to the consolidated
financial statements) -- 21,000 -- -- --
------ ------ ------ ------ ------
Income(loss) from operations 22,131 (15,767) 17,586 8,930 3,707
Interest(expense) income, net (305) 1,004 891 367 290
Other expense (865) (22) (6) (2) --
------ ------ ------ ------ ------
Income(loss) before provision
for income taxes 20,961 (14,785) 18,471 9,295 3,997
Provision for income taxes 6,812 105 5,527 2,598 927
------ ------ ------ ----- -----
Net income (loss) $14,149 $(14,890) $12,944 $6,697 $3,070
====== ====== ====== ===== =====
Net income (loss) per share $.51 $(.60) $.50 $.27 $.13
=== === === === ===
Weighted average number of common and
common equivalent shares outstanding
27,585 24,859 25,751 25,107 23,475
</TABLE>
-15-
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Consolidated Balance Sheet Data:
As of January 31,
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
( in thousands )
<S> <C> <C> <C> <C> <C>
Working capital $40,411 $38,629 $44,316 $31,284 $22,326
Total assets 128,173 84,661 80,289 65,274 41,270
Short term debt,
including current portion
of long term debt 1,000 275 542 155 180
Long term debt,
excluding current portion 1,000 -- 500 1,042 190
Stockholders' equity 76,492 54,314 56,792 40,841 31,643
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Management's Discussion and Analysis of Financial Condition and Results of
Operations
General. This annual report on Form 10-K contains forward-looking statements
that involve a number of risks and uncertainties, including without limitation
information regarding trends in the telecommunications industry and the impact
of governmental regulation, the Company's future financial results, including
revenues and expenses, and the Company's plans, strategies and expectations
for its business. There are a number of factors that could cause the Company's
actual results to differ materially from those forecasted or projected in such
forward-looking statements. These factors include, without limitation, those
set forth below under the caption "Future Operating Results and Risk Factors."
Readers are cautioned not to place undue reliance on these forward-looking
statements which speak only as of the date hereof. The Company undertakes
no obligations to publicly release the result of any revisions to these forward-
looking statements which may be made to reflect events or circumstances after
the date hereof or to reflect the occurrence of unanticipated events.
Significant Transactions. During the fourth quarter of fiscal 1996, the
Company entered into an agreement with AT&T Corporation (AT&T) for the supply
of the Company's Access NP Network Services Platform and its AccessMAX object-
oriented software. The original service offering targeted by AT&T with this
platform was community telephone messaging for the 110,000 primary and secondary
schools in the United States as a part of the AT&T Learning Network announced
October 31, 1995. During fiscal 1997, AT&T has expanded its planned
offerings to include call answering and voice messaging for its consumer and
business, wireline and wireless, and local and long distance customers.
-16-
<PAGE>
<PAGE>
Pursuant to the original agreement, the Company issued to AT&T warrants to
purchase 4,908,800 shares of Boston Technology's Common Stock at an exercise
price of $14.00 per share. The warrants vest over a five year period.
In conjunction with the issuance of the warrants and the start-up costs
associated with the agreement, Boston Technology took a non-cash, non-tax
deductible charge of $21,000,000 to earnings in the fourth quarter of fiscal
1996. The $21,000,000 charge was due primarily to the valuation placed on the
warrants (see Note 8 to the Consolidated Financial Statements).
Excluding the $21,000,000 charge for the AT&T contract, fiscal 1996 pro forma
income from operations, net income and earnings per common share versus fiscal
1997 would have been as follows:
<TABLE>
<CAPTION>
For the twelve months ended
January 31,
1997 1996
---- ----
(actual) (pro forma)
<S> <C> <C>
Income from operations, excluding AT&T charge $22,131,000 $5,233,000
Net income $14,149,000 $4,918,000
Net income per share $.51 $.19
Weighted average common and common
equivalent shares outstanding 27,585,000 26,014,000
</TABLE>
-17-
<PAGE>
<PAGE>
Results of Operations
Years Ended January 31, 1997 and 1996
Revenues. Total revenues for the year ended January 31, 1997 were $192,458,000,
an increase of $87,191,000, or 83%, over fiscal 1996. Total North American
revenues, generated primarily by sales to RBOCs, AT&T and independent telephone
companies, were $134,627,000, an increase of $92,147,000, or 217%, over fiscal
1996. Total international revenues were $57,831,000, a decrease of $4,956,000,
or 8%, versus fiscal 1996. In fiscal 1997, international revenues comprised
30% of the Company's total revenues compared to 60% in fiscal 1996. Sales to
AT&T, DDI, Bell Atlantic and SBC Communications accounted for 23%, 13%, 10%,
and 17% of total revenues for fiscal year 1997, respectively. In fiscal 1998,
the Company anticipates both North American and international revenues to
increase over fiscal 1997 levels.
Gross Profit. Gross profit for the fiscal year ended January 31, 1997 increased
over the corresponding prior year period by $42,493,000, or 72%, to
$101,175,000. As a percentage of revenues, gross profit was approximately 53%
for fiscal 1997 compared to approximately 56% for the comparable prior year
period. The decrease in gross profit as a percentage of revenues in fiscal
1997 was primarily due to competitive pricing pressures as well as an increase
in the number of smaller systems shipped, which traditionally have lower
margins. The Company anticipates that gross profit as a percent of revenues
will increase during fiscal 1998, assuming a stabilization of prices with
increased revenues, as capacity and additional functionality is added to the
small systems shipped in fiscal 1997.
Research and Development Expenses. Net research and development expenses for
fiscal 1997 of $38,787,000 increased by $16,903,000, or 77%, over fiscal 1996.
As a percentage of revenues, net research and development expenses decreased to
20% for fiscal 1997 compared to 21% for fiscal 1996. Excluding the effect of
customer funding offsets and other reclassifications, gross research and
development spending of $46,318,000 in fiscal 1997 increased $17,471,000, or
61%, over fiscal 1996, reflecting customers' increased demand for unique
products as well as for custom modifications and enhancements for their
installed base of equipment.
The Company is involved in several research and development programs that are
funded in whole or in part by its customers. Customer funding is recorded as
a reduction to research and development expense, and is recognized as
development activities occur. Customer funding offsets against research and
development expense for the years ended January 31, 1997 and 1996 amounted to
$3,349,000 and $5,051,000, respectively. Additionally, the Company
periodically capitalizes expenditures incurred under long-term custom
modification contracts. These expenditures are classified as work in process
and are recognized in cost of sales as product is delivered. Reclassifications
against expense for these long term custom modification contracts for fiscal
1997 and 1996 amounted to $4,182,000 and $1,912,000, respectively. Software
development costs incurred after the establishment of technological feasibility,
which would be eligible for capitalization, have not been significant and have
not been capitalized.
-18-
<PAGE>
<PAGE>
The Company continues to improve its products and to develop new products and
system features, including hardware enhancements, advanced networking and call
processing applications and enhancements to its software to meet market
requirements. Research and development expenses, both on a gross and net
spending basis, for fiscal year 1998 are expected to increase from fiscal 1997
levels as the Company continues to develop new applications and enter new
markets. The Company plans to provide the appropriate level of staffing to
support its growth, and, as a result, expects research and development expenses
in fiscal 1998 to increase in absolute dollars but to remain consistent
with fiscal 1997 as a percent of revenue.
Marketing, General and Administrative Expenses. Marketing, general and
administrative expenses were $40,257,000, an increase of $8,692,000, or 28%,
over fiscal 1996 to fiscal 1997. The absolute spending increases in fiscal
1997 were due primarily to the Company's additional staffing in the worldwide
sales, customer service and administration organizations to support the
Company's growth. As a percentage of total revenues, marketing, general and
administrative expenses decreased to 21% in fiscal 1997 from 30% in fiscal 1996.
The Company plans to continue expanding its international presence as well as
provide the appropriate level of staffing to support its growth, and, as a
result, expects marketing, general and administrative expenses in fiscal 1998
to increase in absolute dollars but to decline as a percent of revenue.
Operating Income (Loss). The Company had income from operations of $22,131,000
in fiscal 1997 compared to a loss from operations of $15,767,000 in fiscal 1996.
The fiscal 1996 loss was due primarily to a $21,000,000 charge associated with
the acquisition of a contract with AT&T (see Note 8 to the Consolidated
Financial Statements and "Significant Transactions" section above).
Interest. Interest income of $881,000 for fiscal 1997 decreased by $288,000
from fiscal 1996 due primarily to lower average cash and investment balances
offset partially by interest income on sales type leases. Interest expense of
$1,186,000 for fiscal 1997 increased by $1,021,000 primarily as a result of
borrowings against the Company's line of credit.
Other Expense. In fiscal 1997, other expense increased by $843,000 over fiscal
1996 to $865,000. This increase was due primarily to a charge of $479,000 for
the Company's share of a loss incurred by a joint venture in Brazil (see Note 6
to the Consolidated Financial Statements) and a loss of $127,000 associated
with the disposal of fixed assets.
Income Taxes. For fiscal year 1997, the Company recorded a provision for
income taxes of $6,812,000 representing an effective tax rate of 32.5%. This
rate differed from the federal statutory rate of 35% primarily as a result of
research and development tax credits and the benefit related to the Company's
foreign sales corporation. For fiscal year 1996, the Company recorded a
provision for income taxes of $105,000, which was higher than expected due
principally to the non-recognition of the tax benefits related to the warrants
issued to AT&T. For fiscal 1998, the Company expects its effective tax rate to
increase to approximately 35%.
-19-
<PAGE>
<PAGE>
Years Ended January 31, 1996 and 1995
Revenues. Total revenues for the year ended January 31, 1996 were $105,267,000,
an increase of $16,211,000, or 18%, over fiscal 1995. Total North American
revenues, generated by sales to RBOCs, independent telephone companies, a cable
company and a competitive access provider, were $42,480,000, a decrease of
$16,924,000, or 28%, versus fiscal 1995. This decrease in revenue was due
primarily to a reduction in volume from Bell Atlantic and also to lower
average system prices in fiscal 1996 due to a higher volume of smaller system
sales. Total international revenues were $62,787,000, an increase of
$33,135,000, or 112%, versus fiscal 1995. This increase was due to additional
sales to existing international customers, particularly in Japan, expansion
into new geographic markets, and custom modification and enhancement activities.
In fiscal 1996, international revenues comprised 60% of the Company's total
revenues compared to 33% for fiscal 1995. Sales to DDI, Bell Atlantic, SBC
Communications and NTT DoCoMo accounted for 13%, 13%, 11%, and 22% of total
revenues for fiscal year 1996, respectively.
Gross Profit. Gross profit for the fiscal year ended January 31, 1996 increased
over the corresponding prior year period by $1,170,000, or 2%, to $58,682,000.
As a percentage of revenues, gross profit was approximately 56% for fiscal 1996
compared to approximately 65% for the comparable prior year period. This
decrease in gross profit as a percentage of revenues was due primarily to a
significantly higher number of smaller system sales, which carry lower profit
margins, compared to the increased sales of system upgrades in fiscal 1995,
which carry higher profit margins.
Research and Development Expenses. Net research and development expenses for
fiscal 1996 of $21,884,000 increased by $8,175,000, or 60%, over fiscal 1995.
As a percentage of revenues, net research and development expenses increased to
21% for fiscal 1996 compared to 15% for fiscal 1995. Excluding the effect of
customer funding offsets and other reclassifications, gross research and
development spending of $28,847,000 in fiscal 1996 increased $3,274,000, or
13%, over fiscal 1995. Customer funding offsets against research and
development expense for the years ended January 31, 1996 and 1995 amounted to
$5,051,000 and $8,162,000, respectively. Reclassifications against expense for
long term custom modification contracts for fiscal 1996 and 1995 amounted to
$1,912,000 and $3,702,000, respectively. Software development costs incurred
after the establishment of technological feasibility, which would be eligible
for capitalization, have not been significant and have not been capitalized.
Marketing, General and Administrative Expenses. Marketing, general and
administrative expenses were $31,565,000, an increase of $5,348,000, or 20%,
over fiscal 1995 to fiscal 1996. The absolute spending increases in fiscal
1996 were primarily due to the Company's additional staffing in the marketing
and worldwide sales and service organizations to support the Company's growth.
As a percentage of total revenues, marketing, general and administrative
expenses increased to 30% in fiscal 1996 from 29% in fiscal 1995.
-20-
<PAGE>
<PAGE>
Operating (Loss) Income. The Company had a loss from operations of
$15,767,000 for fiscal 1996, versus income from operations of $17,586,000 in
fiscal 1995. The loss was due primarily to a $21,000,000 charge in the fourth
quarter of fiscal 1996 for the acquisition of a contract with AT&T (see Note 8
to the Consolidated Financial Statements and "Significant Transactions"
section above).
Interest. Net interest income for fiscal 1996 was $1,004,000, versus $891,000
in fiscal 1995. This increase was due partially to higher average investment
balances, to slightly higher interest rates and to interest income on sales
type leases.
Income Taxes. For the fiscal year ended January 31, 1996, the Company
recorded a provision for income taxes of $105,000, which was higher than
expected due principally to the non-recognition of the tax benefits related to
the warrants issued to AT&T. For the fiscal year ended January 31, 1995, the
Company recorded a provision for income taxes of $5,527,000, which includes a
reduction of the valuation allowance for the utilization of research and
development tax credits.
Future Operating Results and Risk Factors
The reader should consider the following important factors, among others, which
in some cases have affected, and in the future could affect, the Company's
actual results in future quarters and fiscal years to differ materially from
those expressed in forward-looking statements made by, or on behalf of, the
Company.
Historically, a substantial portion of the Company's revenues have been
attributed to a limited number of customers. In fiscal 1997, AT&T Corporation
("AT&T"), SBC Communications, DDI and Bell Atlantic accounted for 23%, 17%,
13% and 10%, respectively, of the Company's total revenues. The Company
expects to continue to rely on a limited number of customers for a significant
portion of its revenue. In addition, the Company also has a high average
system revenue per transaction, therefore, the loss of any one customer, or a
significant decline in their volume, could have a material adverse effect on
the Company's business and its results of operations. The Company's ability to
increase future revenues may depend on its ability to generate sufficient
revenues to substitute for reduced purchases by one or more major customers.
In addition, the Company's operating expenses are incurred ratably throughout
each quarter and are relatively fixed in the short term. As a result, if
projected revenues are not realized in the expected period, the Company's
operating results for that period could be adversely affected.
The Company's industry is subject to rapid technological change. The Company's
revenue stream depends on its ability to enhance its existing software products
and to introduce new products on a timely and cost-effective basis. This
includes any customer-required custom software enhancements required in the
normal course of product delivery. The Company's products involve sophisticated
hardware and software technology platforms that perform critical functions to
highly demanding standards. There can be no assurance the Company's current or
future products will not develop operational problems, which could have a
material adverse effect on the Company. In addition, if the Company were to
delay the introduction of new products, or to delay the delivery of specific
custom software enhancements, the Company's operating results could be
adversely affected.
-21-
<PAGE>
<PAGE>
The international portion of the Company's business, which represented 30% of
fiscal 1997 revenues, is subject to a number of inherent risks, including
difficulties in building and managing international operations and
international reseller networks, international service and support of the
Company's products, difficulties or delays in translating products into foreign
languages, fluctuations in the value of foreign currencies, import/export
duties and quotas, and unexpected regulatory, economic or political changes
in international markets. Due to the competitive environment in the
international marketplace, certain international customers may require
longer payment terms resulting in greater difficulty in accounts receivable
collection. In addition, while the Company's products are designed to meet the
regulatory standards of foreign markets, any inability to obtain foreign
regulatory approvals or to meet other required standards on a timely basis
could have a material adverse effect on the Company's operating results.
As a result of the expected increase in international business, the Company's
revenues may increasingly be denominated in foreign currencies. To date,
foreign currency fluctuations have not had a material adverse effect on the
Company's operating results. While the Company has periodically engaged in
hedging transactions to cover its currency translation exposure, the expected
increase in international business may require the Company to engage in these
types of transactions more frequently to mitigate the effect of foreign
currency fluctuations.
Although at January 31, 1997, backlog was $103,000,000, up from $33,000,000 at
January 31, 1996, historically, the Company has operated with minimal backlog.
Although this backlog increase has provided greater visibility for near-term
revenues, revenues earned in any quarter will continue to be largely dependent
on orders booked, built, and shipped in that quarter. Other factors that
may impact the Company's ability to convert backlog into revenues for any given
quarter are development efforts that may span several quarters, the ability to
secure hardware components from single source suppliers and the fact that
orders may be canceled or delivery schedules modified. The Company has also
experienced a pattern of recording the majority of its quarterly revenues in
the third month of the quarter.
The Company sells substantially all of its product to companies in the
telecommunication industry. This industry is undergoing significant change
as a result of deregulation and privatization worldwide, reducing restrictions
on competition in the industry. Unforeseen changes in the regulatory
environment may have an impact on the Company's revenues and/or costs in any
given part of the world. The worldwide enhanced services systems industry is
already highly competitive and the Company expects competition to intensify.
The Company believes that it will continue to encounter substantial competition
from its existing competitors, and that other companies, many with considerably
greater financial, technical, marketing and sales resources than Boston
Technology, may enter the enhanced services systems markets.
-22-
<PAGE>
<PAGE>
Certain components of the Company's products are currently purchased from a
single source and, although the Company believes that alternate sources are
available, any interruption or discontinuation in the supply of such components
could adversely affect the Company's operating results.
The Company's growth and success depend upon its ability to attract, motivate
and retain highly skilled employees, especially technical employees and key
executives. Qualified technical employees are in great demand and are likely
to remain a limited resource for the foreseeable future. There can be no
assurance the Company will be successful in hiring and retaining the required
personnel.
The growth of the Company has placed and is expected to continue to place
significant demands on the Company's operational, administrative and financial
resources. There can be no assurance the Company will be able to maintain its
historic growth rate or that any future growth will not have a material adverse
effect on the Company.
The Company's ability to compete effectively will depend to a significant extent
on its ability to protect its proprietary rights and operate without infringing
the proprietary rights of others, and there can be no assurance the Company
will be able to do so. In addition, any litigation involving such proprietary
rights could have a material adverse effect on the Company.
Liquidity and Capital Resources
The Company has funded its operations to date primarily through cash flow from
operations and its bank lines of credit. At January 31, 1997, 1996 and 1995,
the Company had available cash and cash equivalents of $14,032,000, $13,929,000
and $19,715,000, respectively, and working capital of $40,411,000, $38,629,000
and $44,316,000, respectively. The Company maintains a $35,000,000 revolving
credit facility with two banks. Borrowings are collateralized by the
Company's accounts receivable and inventories and bear interest at the prime
rate (8.25% at January 31, 1997) or the LIBOR rate plus 175 basis points.
The credit facility is scheduled to expire on November 19, 1998. This
revolving credit facility also has a 1/2 of 1% annual commitment fee on the
unused portion. The facility contains quarterly covenants which, among other
things, require the Company to maintain certain financial ratios, specified
levels of equity and other restrictions. The Company also has available an
aggregate $50,000,000 of uncollateralized lines of credit for forward foreign
exchange contracts with two banks. These lines of credit are scheduled to
expire on July 6, 1997. The balance of these lines of credit were zero at
January 31, 1997.
-23-
<PAGE>
<PAGE>
Net cash provided by operating activities for the years ended January 31, 1997
and 1996 was $20,333,000 and $4,310,000, respectively, and net cash used by
operating activities was $3,043,000 for the year ended January 31, 1995.
In fiscal year 1997, net cash provided by operating activities consisted
primarily of net income of $14,149,000, an increase in accrued expenses of
$9,515,000, an increase in deferred revenue of $5,403,000, and an increase in
income tax payable of $8,675,000, offset by a increase in accounts receivable
of $27,615,000. In fiscal year 1996, net cash provided by operating
activities consisted primarily of a non- cash charge of $18,600,000 for warrants
issued to AT&T, and an increase in accounts payable of $6,373,000, offset by a
net loss of $14,890,000 and increase in inventories of $8,653,000. In fiscal
year 1995, net cash used in operating activities consisted primarily of an
increase in accounts receivable of $15,692,000 and a decrease in deferred
customer funding of $5,914,000, offset by net income of $12,944,000 and an
increase of accrued expenses of $4,799,000.
Net cash used in investing activities for the years ending January 31, 1997,
1996 and 1995 was $25,813,000, $2,086,000 and $7,084,000, respectively. This
primarily reflects purchase of property and equipment of $22,482,000,
$6,546,000 and $4,442,000, respectively, consisting primarily of computer work
stations, as a result of increased headcount and moving the Company from an
Apple to a PC based enterprise-wide computing system, and test equipment
resulting from the growth of revenues.
Net cash provided by financing activities for the years ended January 31,
1997 and 1995 were $5,472,000 and $1,816,000, respectively, and net cash used in
financing activities was $8,309,000 for the year ended January 31, 1996. In
fiscal year 1997, net cash provided by financing activities was a result of
proceeds from exercise of common stock options of $4,879,000 and proceeds from
employee stock purchase plan of $868,000. In fiscal year 1996, net cash used
in financing activities was a result of purchases of treasury stock of 750,000
shares of common stock at an average price of $14.22 per share totaling
$10,663,000, offset by proceeds from issuance of common stock of $2,506,000.
In fiscal year 1995, net cash provided by financing activities was a result of
proceeds from issuance of common stock of $1,471,000.
The Company believes that its cash and cash equivalents, along with cash
generated from operations and unused credit facilities will be sufficient to
meet the Company's cash requirements and to fund operations at least through
January 31, 1998.
-24-
<PAGE>
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
<CAPTION>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND CONSOLIDATED
FINANCIAL STATEMENT SCHEDULE
Description
Page Number
<S> <C>
Report of Independent Accountants ........................................ 26
Consolidated Balance Sheets as of January 31, 1997 and 1996............... 27
Consolidated Statements of Operations for the Years Ended
January 31, 1997, 1996 and 1995........................................... 28
Consolidated Statements of Stockholders' Equity for the Years
Ended January 31, 1995, 1996 and 1997..................................... 29
Consolidated Statements of Cash Flows for the Years Ended
January 31, 1997, 1996 and 1995........................................... 30
Notes to Consolidated Financial Statements................................ 31
Report of Independent Accountants ........................................ 52
Schedule II-Valuation and Qualifying Accounts for the Years
Ended January 31, 1997, 1996 and 1995..................................... 53
</TABLE>
All other schedules are omitted since they are either not required, not
applicable, or the information is otherwise shown in the Consolidated
Financial Statements or the Notes thereto.
-25-
<PAGE>
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of Boston Technology, Inc.:
We have audited the accompanying consolidated balance sheets of Boston
Technology, Inc. as of January 31, 1997 and 1996, and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
three fiscal years in the period ended January 31, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Boston Technology,
Inc. as of January 31, 1997 and 1996, and the consolidated results of its
operations and its cash flows for each of the three fiscal years in the period
ended January 31, 1997 in conformity with generally accepted accounting
principles.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
April 24, 1997
-26-
<PAGE>
<PAGE>
BOSTON TECHNOLOGY, INC.
CONSOLIDATED BALANCE SHEETS
( in thousands )
<TABLE>
<CAPTION>
January 31,
----------
1997 1996
ASSETS ---- ----
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 14,032 $ 13,929
Accounts receivable, less allowances
of $3,656,000 and $1,554,000 54,405 28,892
Net investment in sales type leases 645 2,771
Inventories 19,046 16,951
Net taxes receivable -- 3,886
Prepaid expenses and other current assets 2,771 2,130
------ ------
Total current assets 90,899 68,559
Net investment in sales type leases -- 357
Property and equipment, net 25,568 10,597
Deferred taxes 4,284 2,080
Other assets 7,422 3,068
------- ------
TOTAL ASSETS $128,173 $84,661
======= ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 1,000 $ 275
Accounts payable 15,235 11,253
Net taxes payable 2,618 --
Accrued expenses 21,556 9,981
AT&T contract accrual -- 2,060
Deferred customer funding 1,140 2,825
Deferred revenues 8,939 3,536
------ ------
Total current liabilities 50,488 29,930
Long-term debt and other long-term liabilities 1,193 417
Commitments and contingencies (Note 11)
Stockholders' equity:
Common stock, $.001 par value, 60,000,000 shares
authorized; 25,501,691and 25,344,814 shares issued 25 25
Additional paid-in capital 60,557 57,048
Retained earnings 15,516 5,557
Treasury stock, at cost, none and 613,119 shares -- (8,599)
Cumulative translation adjustment 394 283
------ ------
Total stockholders' equity 76,492 54,314
------- ------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $128,173 $84,661
======= ======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
-27-
<PAGE>
<PAGE>
BOSTON TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
( in thousands, except per share data )
<TABLE>
<CAPTION>
For the Years Ended January 31,
------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Revenues $192,458 $105,267 $ 89,056
Costs and expenses:
Cost of revenues 91,283 46,585 31,544
Research and development 38,787 21,884 13,709
Marketing, general and administrative 40,257 31,565 26,217
Warrants & other costs associated with
AT&T contract acquisition (see Note 8) -- 21,000 --
------- ------- ------
170,327 121,034 71,470
Income (loss) from operations 22,131 (15,767) 17,586
Interest income 881 1,169 1,098
Interest expense (1,186) (165) (207)
Other expense (865) (22) (6)
------ ----- -----
Income (loss) before provision for
income taxes 20,961 (14,785) 18,471
Provision for income taxes 6,812 105 5,527
------ ------ ------
Net income (loss) $ 14,149 $(14,890) $ 12,944
====== ====== ======
Net income (loss) per share $ .51 $ (.60) $ .50
====== ====== ======
Weighted average number of common and common
equivalent shares outstanding 27,585 24,859 25,751
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
-28-
<PAGE>
<PAGE>
BOSTON TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the Years Ended January 31, 1995, 1996 and 1997
(in thousands, except share data)
<TABLE>
<CAPTION>
Additional Cumulative Total
Common Stock Paid-In Retained Treasury Stock Translation Stockholders'
Shares Amount Capital Earnings Shares Amount Adjustment Equity
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, January 31, 1994 24,217,183 $24 $32,072 $8,745 -- -- -- $40,841
Exercise of stock options 482,431 1 1,470 -- -- -- -- 1,471
Employee stock purchase plan 59,688 -- 500 -- -- -- -- 500
Tax benefit of disqualifying
dispositions of incentive
stock options -- -- 1,052 -- -- -- -- 1,052
Translation adjustments (16) (16)
Net income for the year
ended January 31, 1995 -- -- -- 12,944 -- -- -- 12,944
---------------------------------------------------------------------------------------
Balance, January 31, 1995 24,759,302 25 35,094 21,689 -- -- (16) 56,792
Common stock purchased -- -- -- -- (750,000) (10,663) -- (10,663)
Issuance of treasury stock
upon exercise of stock options -- -- -- (1,146) 109,334 1,649 -- 503
Issuance of treasury stock for
employee stock purchase plan -- -- -- (96) 27,547 415 -- 319
Exercise of stock options 557,967 -- 2,003 -- -- -- -- 2,003
Employee stock purchase plan 27,545 -- 296 -- -- -- -- 296
Tax benefit of disqualifying
dispositions of incentive
stock options -- -- 1,055 -- -- -- -- 1,055
Stock warrants issued -- -- 18,600 -- -- -- -- 18,600
Translation adjustments -- -- -- -- -- -- 299 299
Net loss for the year
ended January 31, 1996 -- -- -- (14,890) -- -- -- (14,890)
---------------------------------------------------------------------------------------
Balance, January 31, 1996 25,344,814 25 57,048 5,557 (613,119) (8,599) 283 54,314
Issuance of treasury stock
upon exercise of stock options -- -- -- (3,993) 542,456 7,534 -- 3,541
Issuance of treasury stock for
employee stock purchase plan -- -- -- (197) 70,663 1,065 -- 868
Exercise of stock options 156,877 -- 1,338 -- -- -- -- 1,338
Tax benefit of disqualifying
dispositions of incentive
stock options -- -- 2,171 -- -- -- -- 2,171
Translation adjustments -- -- -- -- -- -- 111 111
Net income for the year
ended January 31, 1997 -- -- -- 14,149 -- -- -- 14,149
---------------------------------------------------------------------------------------
Balance, January 31, 1997 25,501,691 $25 $60,557 $15,516 -- -- $394 $76,492
=======================================================================================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
-29-
<PAGE>
<PAGE>
BOSTON TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
For the Years Ended January 31,
------------------------------
1997 1996 1995
---- ---- ----
Cash flows provided by (used in) from
operating activities:
<S> <C> <C> <C>
Net income (loss) $ 14,149 $(14,890) $ 12,944
Reconciliation of net income (loss)
to cash flows provided by (used in)
operating activities:
Depreciation and amortization 8,361 4,822 3,756
Provision for bad debt 2,102 755 509
Payments in excess of rent expense (192) (195) (153)
Deferred income taxes (2,204) (1,897) (92)
Loss on disposal of fixed assets 127 -- --
Non-cash charge for warrants issued -- 18,600 --
Changes in operating assets and liabilities:
Accounts receivable (27,615) 829 (15,692)
Net investment in sales type leases 2,483 1,224 (1,679)
Inventories (2,095) (8,653) (2,958)
Prepaid expenses and other current assets (641) (1,266) (102)
Accounts payable 3,982 6,373 923
Accrued expenses 9,515 1,812 4,799
Deferred revenues 5,403 1,795 15
Deferred customer funding (1,685) (1,442) (5,914)
Other long-term liabilities (32) (57) 147
Income taxes 8,675 (3,500) 454
Cash flows provided by (used in) ------ ----- ------
operating activities 20,333 4,310 (3,043)
Cash flows used in investing activities:
Purchase of property and equipment (22,482) (6,546) (4,442)
Purchase of investments -- (3,429) (14,946)
Redemption of investments -- 9,486 12,694
Investment in joint venture (2,000) (1,000) --
Purchase of license agreements
and other assets (1,331) (597) (390)
------ ----- -----
Cash flows used in investing activities (25,813) (2,086) (7,084)
Cash flows provided by (used in)
financing activities:
Principal payments under
financing obligations (275) (767) (155)
Proceeds from issuance of common stock 4,879 2,506 1,471
Proceeds from employee stock
purchase plan 868 615 500
Purchases of treasury stock -- (10,663) --
Borrowing under revolving line of credit 30,600 -- --
Repayments under revolving credit
agreements (30,600) -- --
------ ------ -----
Cash flows provided by (used in) from
financing activities 5,472 (8,309) 1,816
----- ----- -----
Effect of exchange rate changes on cash 111 299 (17)
Net increase (decrease) in cash
and cash equivalents 103 (5,786) (8,328)
Cash and cash equivalents at
beginning of year 13,929 19,715 28,043
------ ------ ------
Cash and cash equivalents at end of year $ 14,032 $ 13,929 $ 19,715
====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
Supplemental disclosures of cash flow information:
<S> <C> <C> <C>
Interest paid $ 138 $ 185 $ 163
Income taxes paid 2,234 5,047 4,300
Supplemental disclosures of non-cash investing and
financing activities:
Tax benefit of disqualifying dispositions of
incentive stock options $ 2,171 $ 1,055 $ 1,052
License agreement acquired for debt 2,000 -- --
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
-30-
<PAGE>
<PAGE>
Notes To Consolidated Financial Statements
1. DESCRIPTION OF BUSINESS
Boston Technology, Inc. ("Boston Technology" or the "Company") is a leading
worldwide provider of communications and information processing systems and
applications that enable telecommunications carriers to provide their
residential, business, wireless and cable subscribers with enhanced services,
such as call answering, voice messaging, fax processing, pager notification
and other multimedia capabilities.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries. All intercompany balances and transactions have
been eliminated. The equity method of accounting is used for an investment in
a joint venture.
Reclassifications
Certain amounts in fiscal 1996 and fiscal 1995 financial statements have been
reclassified to conform to the fiscal 1997 presentation. Certain customer
service expenses classified as marketing, general and administrative expenses
for fiscal 1993 through 1996 have been reclassified to cost of revenues to
conform to the fiscal 1997 presentation. These reclassifications from
marketing, general and administrative expenses to cost of goods sold were
$5,498,000, $3,287,000, $2,330,000 and $2,014,000 for the years ending January
31, 1996, 1995, 1994 and 1993, respectively.
Cash and Cash Equivalents
All highly liquid investments purchased with an original maturity of three
months or less are considered to be cash equivalents.
The Company estimates the fair value of cash and cash equivalents to approximate
its carrying value.
Risks, Uncertainties, and Estimates
Financial instruments that potentially expose the Company to concentrations
of credit risk consist primarily of cash equivalents and accounts receivable.
Management believes the Company's cash equivalents are maintained in high
quality securities placed with major international banks and financial
institutions. The Company's investment policy limits its exposure to
concentrations of credit risk. The Company's customer base includes telephone
companies in North America, South America, Australia, and Asia. Although the
Company is directly affected by the strength of the telecommunications industry,
management does not believe significant credit risk exists at January 31, 1997
and addresses this risk on a regular basis.
-31-
<PAGE>
<PAGE>
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates. Significant estimates
included in these financial statements include the reserve for bad debts,
reserve for warranty, inventory valuation reserve, and certain accrued
liabilities.
Inventories
Inventories are carried and charged to revenue at standard cost, which is
updated regularly and which approximates the lower of cost (first-in,
first-out) or market. Inventories are subject to rapid technological
obsolescence.
Property and Equipment
Property and equipment are stated at cost and depreciated on a straight line
basis over the estimated useful life of the assets as follows:
Manufacturing and test equipment 3 - 7 years
Office equipment and furniture 5 - 7 years
Equipment leased to others 5 years
Leasehold improvements and other assets 3 - 8 years
Leasehold improvements and assets under capital lease are amortized on a
straight line basis over the estimated useful life of the asset or the related
lease term, whichever is shorter. Certain manufacturing and test equipment
is subject to technological obsolescence. Maintenance and repair costs are
charged to operations when incurred; additions and improvements are capitalized.
Upon retirement or sale, the cost of the asset disposed of and the related
accumulated depreciation are removed from the accounts and any resulting gain
or loss is credited or charged to income.
Intangible Assets
Patent and software license agreements are carried at cost less accumulated
amortization, which is calculated on a straight-line basis over their estimated
useful lives. These assets are amortized generally over periods from three to
ten years. At January 31, 1997 and 1996, approximately $4,253,000 and
$1,975,000, respectively, of net intangible assets are included in other assets.
At January 31, 1997 and 1996, accumulated amortization is $2,009,000 and
$1,032,000, respectively. In fiscal 1996, the Company wrote off approximately
$200,000 of intangible assets considered to be impaired. The carrying value of
intangible assets is reviewed on a regular basis for the existence of facts or
circumstance that may suggest impairment. The Company measures the amount of
impairment based on the discounted expected future cash flows. Cash flow
estimates used contain management's best estimates, using appropriate and
customary assumptions and projections at that time.
-32-
<PAGE>
<PAGE>
Forward Foreign Exchange Contracts
The Company periodically enters into forward foreign exchange contracts to
hedge specific scheduled foreign currency denominated sales. Effects of changes
in currency rates are therefore minimized and any gains or losses are recognized
as part of the underlying transactions being hedged. The parties to these
financial instruments consist of large financial institutions. The Company
monitors its positions and the credit ratings of the parties to these financial
instruments, and by policy limits the amounts of credit exposure to any one
party. While the Company may be exposed to potential losses due to credit
risk in the event of non-performance by the parties to these financial
instruments, it does not anticipate losses. There were no open foreign exchange
contracts at January 31, 1997.
Royalty Expense
Royalty expense with respect to sales of product under royalty agreements is
recorded when revenue is recognized.
Warranty Costs
The Company generally warrants its products for one year after delivery. A
provision for estimated warranty costs is recorded at the time revenue is
recognized.
Revenue Recognition
Product revenues are recognized at the time the hardware and/or software is
shipped, collection is probable and no significant post shipment obligations
remain. Unearned billings are recorded as deferred revenues. Products shipped
for customer trials are carried in finished goods inventory until customer
acceptance is obtained, at which time revenue is recognized. Installation fees
are recognized when products are installed. Revenue from sales-type leases and
the associated cost of revenue is recognized upon shipment of the equipment
to customers. Interest income is recognized over the life of the sales-type
lease. Rental income on equipment under operating leases is recognized ratably
over the lease term, and the related equipment is depreciated over its estimated
useful life. Maintenance revenue is recognized ratably over the term of the
maintenance contract.
The Company's products are standard hardware and software configurations which
are developed according to internally generated product specifications.
Development costs for standard product configurations are charged to research
and development expense as incurred. Development work is frequently required
for new customers in order to adapt otherwise standard products to specific
languages, user interfaces and network interfaces. From time to time, customers
may contract for custom modifications and enhancements to standard product
configurations. The proceeds from the sale of such modifications and
enhancements as well as the excess of customer funding received over and above
associated costs are included in revenues upon shipment of the related hardware
and/or software. Such revenues for the fiscal years ended January 31, 1997,
1996, and 1995 were approximately $3,263,000, $2,978,000 and $10,483,000,
respectively.
-33-
<PAGE>
<PAGE>
Software Development Costs
Software development costs are expensed as incurred until technological
feasibility has been established. At the present time, the Company believes
that under its current process for developing software, the software is
essentially completed concurrently with the establishment of technological
feasibility. Software development costs incurred after the establishment of
technological feasibility, which would be eligible for capitalization, have not
been significant.
Contract Accounting
Earnings on long-term contracts are determined on the percentage of completion
method, based on the ratio of costs incurred to date to the total estimated
costs or the ratio of the number of units completed to date to the total number
of units to be completed. Provisions are made currently for all known or
anticipated losses. Costs or earnings in excess of billings are classified in
inventory as work-in-process and represent amounts not yet billed under the
terms of the contract but which are recoverable from customers. As of January
31, 1997 and 1996, the Company has included in inventory $1,249,000 and
$675,000, respectively, in costs related to custom development contracts.
Customer Funding
The Company is involved in several software research and development programs
that are funded in whole or in part by its customers. Customer funding is
recognized as a reduction to research and development expense, and is
recognized as development activities occur. Amounts received from customers for
research and development funding are included on the balance sheet as deferred
customer funding until they are recognized. Customer funding offsets against
research and development expense for the years ended January 31, 1997, 1996 and
1995 amounted to approximately $3,349,000, $5,051,000 and $8,162,000,
respectively.
Income Taxes
Deferred tax assets and liabilities are determined based on the difference
between the financial statements and tax bases of assets and liabilities using
enacted tax rates in effect in the years in which the differences are expected
to reverse.
Net Income Per Share
Net income per share is computed based on the weighted average number of
common and dilutive common equivalent shares outstanding. Dilutive common
equivalent shares consist of stock options and warrants using the treasury
stock method. Fully diluted earnings per share are not materially different
from reported primary earnings per share for all periods presented.
-34-
<PAGE>
<PAGE>
Newly Issued Accounting Standard
In February 1997, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards (FAS) No. 128, " Earnings per Share". FAS 128
specifies the computation, presentation and disclosure requirements for
earnings per share and is designed to improve earnings per share information by
simplifying the existing computational guidelines, revising the disclosure
requirements, and increasing the comparability of per share data on an inter-
national basis. FAS 128 must be adopted in the Company's fiscal 1998 financial
statements. The Company is currently reviewing the adoption and impact of
this standard, but does not expect it to have a material impact on the Company's
results of operations or its financial position.
3. SALES TYPE LEASES
The Company has entered into several sales-type leases for its products. At
January 31, 1997, the future minimum payments receivable under these
arrangements are as follows:
<TABLE>
<CAPTION>
Sales-type
leases
----------
<S> <C>
Year Ending January 31, 1998 $1,450,000
Less: unearned income (805,000)
--------
Net current investment in sales type leases $ 645,000
========
</TABLE>
4. INVENTORIES
<TABLE>
<CAPTION>
Inventories at January 31, consist of: 1997 1996
---- ----
<S> <C> <C>
Materials and purchased parts $ 7,735,000 $ 8,179,000
Work in process 9,585,000 6,858,000
Finished goods 1,726,000 1,914,000
---------- ----------
$19,046,000 $16,951,000
========== ==========
</TABLE>
-35-
<PAGE>
<PAGE>
5. PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
Property and equipment at January 31, consist of:
1997 1996
---- ----
<S> <C> <C>
Manufacturing and test equipment $34,939,000 $20,531,000
Office equipment and furniture 12,279,000 5,741,000
Equipment leased to others 227,000 207,000
Leasehold improvements and other assets 1,104,000 542,000
---------- ----------
48,549,000 27,021,000
Less: accumulated depreciation
and amortization (22,981,000) (16,424,000)
---------- ----------
$25,568,000 $10,597,000
========== ==========
Depreciation expense totaled $7,384,000, $4,423,000 and $3,108,000 for the
years ended January 31, 1997, 1996 and 1995, respectively.
In fiscal 1997, the Company disposed of gross assets of approximately
$954,000 with accumulated depreciation of $827,000.
-36-
<PAGE>
<PAGE>
6. JOINT VENTURE
During fiscal 1996, the Company entered into a joint venture with a company
that formerly acted as distributor of the Company's products in Brazil. Under
the terms of the joint venture agreement, the Company was committed to provide
a minimum of $3,000,000 for working capital purposes, of which $1,000,000 was
paid at January 31, 1996. The remaining $2,000,000 was paid in January 1997.
There are no further capital contribution requirements. The Company's ownership
interest in the joint venture is 30%, which is accounted for using the equity
method.
In addition to all necessary personnel, assets and related business activities,
the former distributor has assigned its exclusive distribution agreement with
the Company to the joint venture, thereby establishing the joint venture as
the exclusive distributor of the Company's products in Brazil. The Company has
committed to provide all necessary marketing, sales and customer service
personnel to assist the joint venture in developing marketing and sales plans,
and to provide technical assistance on customer service matters. The Company's
share of the net loss of the joint venture for fiscal 1997 was $479,000 and is
included in other expenses.
At January 31, 1997 and 1996, the joint venture partner owed the Company
approximately $2,298,000 and $7,321,000, respectively, resulting from
transactions with the Company prior to the establishment of the joint venture,
which is included in accounts receivable and investment in sales type leases.
7. ACCRUED EXPENSES
</TABLE>
<TABLE>
<CAPTION>
Accrued expenses at January 31, consist of:
1997 1996
---- ----
<S> <C> <C>
Accrued payroll, vacation and bonuses $ 3,365,000 $ 1,664,000
Accrued commissions 3,050,000 1,683,000
Accrued warranty 2,964,000 1,352,000
Accrued cost of sales 4,898,000 --
Other accrued expenses 7,279,000 5,282,000
---------- ---------
$21,556,000 $ 9,981,000
========== =========
</TABLE>
-37-
<PAGE>
<PAGE>
8. AT&T CONTRACT ACCRUAL
In November 1995 the Company entered into an agreement with AT&T to supply its
Access NP Network Services Platform and AccessMAX object-oriented software.
Pursuant to this agreement, the Company issued to AT&T warrants to purchase
4,908,800 shares of its common stock at an exercise price of $14.00 per share.
The warrants become exercisable in five equal annual increments of 981,760
shares each, commencing with the first anniversary date of the grant, and
remain exercisable for thirty months after first becoming exercisable. In the
event that any person or entity acquires a majority of the Company's
outstanding voting securities, the warrants will become immediately exercisable
in full. Any stock issued as a result of the exercise of the warrants would
be for AT&T's investment purposes only, and would be "restricted securities"
under Rule 144 of the Securities Act of 1933. Through December 31, 2000, AT&T
is restricted from acquiring greater than a 30% ownership of Boston Technology's
outstanding common stock. As of January 31, 1997, warrants to purchase 981,760
shares of common stock are vested and exercisable; none have been exercised.
At commencement of the contract, the Company estimated that compliance with the
terms of the agreement would result in a $21,000,000 loss, which was recognized
in the fourth quarter of fiscal 1996, establishing the AT&T Contract Accrual.
Included in the $21,000,000 was a charge of $18,600,000 relating to the value
of the warrants issued to AT&T, based on an evaluation performed by an
independent investment banking firm. As of January 31, 1997, all of the related
expenses have been paid and no accrual balance remains.
-38-
<PAGE>
<PAGE>
9. FINANCING ARRANGEMENTS
<TABLE>
<CAPTION>
Long-term debt at January 31, consists of:
1997 1996
---- ----
<S> <C> <C>
Notes payable--patent license agreements $ 2,000,000 $ 275,000
Less: current portion (1,000,000) (275,000)
--------- --------
$ 1,000,000 $ --
========= =======
</TABLE>
The note payable of $2,000,000 at January 31, 1997 represents the amount due to
AudioFAX resulting from a patent license settlement agreement and is payable
in four equal installments in each of February and August of both 1997 and 1998.
The Company estimates the fair value of the outstanding notes payable to
approximate its carrying value.
The Company has entered into several patent license agreements (the
"Agreements") whereby the Company obtained a non-exclusive license to make, have
made, use and sell certain inventions relating to voice messaging, voice
processing, and facsimile applications covered by the claims of the patents.
The license fees are due in installments through fiscal year 1999.
In addition, certain of the Agreements provide that the Company shall pay to
the licensor a royalty based on a percentage of defined revenues derived by the
Company from the use, sale, lease or rental of the products incorporating the
licensed technology. Royalty expense relating to the Agreements was
$6,076,000, $902,000 and $199,000 for the years ended January 31, 1997, 1996
and 1995, respectively.
Credit Agreements
The Company maintains a $35,000,000 revolving credit facility with two banks.
Borrowings are collateralized by the Company's accounts receivable and
inventories and bear interest at the prime rate (8.25% at January 31, 1997) or
the LIBOR rate plus 175 basis points. The credit facility is scheduled to
expire on November 19, 1998. This revolving credit facility also has a 1/2
of 1% annual commitment fee on the unused portion. The facility contains
quarterly covenants which, among other things, require the Company to maintain
certain financial ratios, specified levels of equity, and other restrictions.
Stand-by letters of credit reduce the amount available from the $35,000,000
revolving credit facility. At January 31, 1997 and 1996, stand-by letters of
credit of approximately $3,476,000 and $203,000, respectively, had
been issued under this agreement.
The Company also has available an aggregate $50,000,000 of uncollateralized
lines of credit for foreign exchange contracts with two banks. These lines of
credit are scheduled to expire on July 6, 1997. At January 31, 1997 and 1996,
there were no outstanding forward foreign exchange contracts.
-39-
<PAGE>
<PAGE>
10. INCOME TAXES
<TABLE>
<CAPTION>
The provision for income taxes at January 31, consists of the following:
1997 1996 1995
Federal and foreign income taxes: ---- ---- ----
<S> <C> <C> <C>
Currently payable $ 8,341,000 $ 1,689,000 $ 5,135,000
Deferred (2,095,000) (1,584,000) (95,000)
--------- --------- ---------
6,246,000 105,000 5,040,000
State income taxes:
Currently payable 675,000 313,000 483,000
Deferred (109,000) (313,000) 4,000
------- ------- -------
566,000 -- 487,000
Total $ 6,812,000 $ 105,000 $ 5,527,000
========= ======= =========
</TABLE>
The difference between taxes at the statutory federal income tax rate and the
Company's effective income tax rate for the years ended January 31, is as
follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Tax at the federal income tax rate $ 7,336,000 $(5,105,000) $ 6,465,000
State income tax, net of federal tax benefit 368,000 -- 539,000
Tax credits (978,000) (708,000) (1,723,000)
Tax effect of AT&T warrants issued for
which no deduction is available -- 6,510,000 --
Meals and entertainment 321,000 53,000 60,000
Foreign sales corporation benefit (477,000) (466,000) (204,000)
Other 242,000 (179,000) 390,000
--------- ------- ---------
Provision for income taxes $ 6,812,000 $ 105,000 $ 5,527,000
========= ======= =========
</TABLE>
A valuation reserve against net deferred tax assets is required if, based upon
weighted available evidence, it is more likely than not that some or all of
the deferred tax assets will not be realized. Based on the Company's projection
of future earnings, management believes that sufficient income will be generated
in the future to realize the deferred tax asset. Accordingly, the Company has
provided no valuation reserve for deferred tax assets at January 31, 1997.
The amount of the deferred tax asset considered realizable, however, could be
reduced in the near term if future taxable income is reduced.
-40-
<PAGE>
<PAGE>
The components of the net deferred tax asset as of January 31, consist of:
<TABLE>
<CAPTION>
1997 1996
Deferred tax assets: ---- ----
<S> <C> <C>
Reserves $ 5,284,000 $ 3,081,000
Inventory capitalization (460,000) --
Equity in joint venture 176,000 --
Other 75,000 131,000
--------- ---------
Total deferred tax assets 5,075,000 3,212,000
--------- ---------
Deferred tax liabilities:
Depreciation 588,000 665,000
Deferred compensation (21,000) 22,000
Sales type lease 224,000 445,000
--------- ---------
Total deferred tax liabilities 791,000 1,132,000
--------- ---------
Net deferred tax asset $ 4,284,000 $ 2,080,000
========= =========
</TABLE>
At January 31, 1997, the Company had income tax payable of $2,618,000. At
January 31, 1996, the Company had income taxes receivable of $3,886,000,
primarily representing estimated refunds receivable resulting from federal
and state income tax payments made during fiscal 1996. The tax benefits
related to the $18,600,000 charge for the AT&T warrants (see Note 8 to the
Consolidated Financial Statements) are contingent upon the timing of the
exercise of the warrants and the stock value at that time. The tax benefit,
if any, is not included in the deferred tax asset.
-41-
<PAGE>
<PAGE>
11. COMMITMENTS AND CONTINGENCIES
The Company leases a building in Wakefield, Massachusetts which is used as its
principal manufacturing facility and corporate headquarters. The lease expires
in fiscal 2009. In addition, the Company has the option to purchase the
property at the greater of $35,500,000 or fair market value, at any time after
November 15, 1995. The Company also has a commitment to lease an additional
space of approximately 168,000 square feet in a new office building to be
constructed adjacent to its Corporate headquarters in Wakefield, Massachusetts.
Approval of the building permit is expected in April 1997, and occupancy is
expected by mid May 1998 for a lease term of twelve years.
The Company also leases office facilities and certain equipment under various
operating leases, expiring at various dates through fiscal 2002.
As of January 31, 1997, the future minimum payments under real estate
operating leases are as follows:
<TABLE>
<CAPTION>
Years Ending January 31,
<S> <C>
1998 $ 5,111,000
1999 5,672,000
2000 7,000,000
2001 6,934,000
2002 6,942,000
Beyond 52,794,000
----------
Total minimum lease payments $84,453,000
==========
</TABLE>
Rent expense was $4,328,000, $2,875,000 and $2,071,000 for the years ended
January 31, 1997, 1996 and 1995, respectively.
-42-
<PAGE>
<PAGE>
On or about November 16, 1995, a complaint was filed in the United States
District Court for the Eastern District of Pennsylvania captioned John Eades v.
Boston Technology, Inc., Greg C. Carr, Francis E. Girard, Joseph E. Norberg,
Paul W. DeLacey, William J. Burke and John C.W. Taylor, Civil Action No.
95-CV-7236. On or about November 20 and 21, 1995, respectively, essentially
identical complaints were filed in the same court captioned Jacob Turner v.
Boston Technology, Inc., Greg C. Carr, Francis E. Girard, Joseph E. Norberg,
Paul W. DeLacey, William J. Burke and John C.W. Taylor, Civil Action No.
95-CV-7295, and Gerald Tobin v. Boston Technology, Inc., Greg C. Carr,
Francis E. Girard, Joseph E. Norberg, Paul W. DeLacey, William J. Burke and
John C.W. Taylor, Civil Action No. 95-CV-7317. Each of the plaintiffs
purports to represent a class of purchasers of the common stock of the Company
between and including May 17, 1995 through November 15, 1995. Each complaint
claims that the named defendants violated Section 10(b) of the Securities
Exchange Act of 1934 and SEC Rule 10b-5 promulgated pursuant thereto, by virtue
of false or misleading statements made during the class period. Each complaint
claims that the individual defendants are liable as "control persons" under
Section 20(a) of that Act. In addition, the complaints claim that the
individual defendants sold some of their own common stock of the Company,
during the purported class period, at times when the market price for the
stock allegedly was inflated. No response has been made to the three
complaints, which have been consolidated by the Court. The plaintiffs filed
an Amended Complaint on May 6, 1996, and on June 20, 1996 the defendants filed
a Motion to Transfer the case to the Eastern District of Massachusetts. On
November 14, 1996, the United States District Court of the Eastern District of
Pennsylvania ordered the cases transferred to the United States District court
for the District of Massachusetts. On January 19, 1997, the defendants filed a
Motion to Dismiss on the grounds that the Amended Complaint fails to state a
claim under the relevant sections of the Securities Exchange Act of 1934, and
under the law of the United States Federal Courts for the First Circuit. Oral
argument was held on the Motion to Dismiss and the Plaintiffs Reply to the
Motion on March 20, 1997. A decision is expected by August 1997. Boston
Technology and the defendants continue to deny the allegations and will
continue to contest these cases vigorously. The outcome of this lawsuit is
neither probable or estimable, accordingly, no loss provisions has been made
for this lawsuit.
-43-
<PAGE>
<PAGE>
12. STOCKHOLDER RIGHTS PLAN
In May 1991, the Board of Directors of the Company adopted a Stockholder Rights
Plan, as amended, pursuant to which common stock purchase rights ("Rights")
were distributed as a dividend at the rate of one Right for each share of
common stock held as of May 31, 1991, and one Right will be issued for each
share of common stock issued after May 31, 1991 and before the Rights become
exercisable. Each Right entitles the holder of common stock to purchase
four-tenths of one share of common stock at an exercise price of $12.40 per
Right ($31.00 per share). The Rights will be exercisable only if a person or
group has acquired beneficial ownership of 20 percent or more of common stock
(excluding persons or groups beneficially owning 20 percent or more as of
May 9, 1991) or announces a tender or exchange offer that would result in such
person or group owning 30 percent or more of the common stock. If any person
becomes the beneficial owner of 25 percent or more of the common stock, except
pursuant to a tender or exchange offer for all shares at a fair price as
determined by the outside Board members, or if a 20 percent or more shareholder
consolidates or merges into or engages in certain self-dealing transactions
with the Company, or if there occurs any reclassification, merger or other
transaction or transactions which increases by more than one percent the
proportionate share of the Company's outstanding common stock held by a 20
percent or more shareholder, each Right not owned by a 20 percent or more
shareholder will enable its holder to purchase that number of shares of common
stock which equals the exercise price of the Right divided by one-half of the
current market price of such common stock at the date of the occurrence of the
event. The Company will generally be entitled to redeem the Rights at $.02 per
Right at any time until the tenth day following the public announcement that a
20 percent stock position has been acquired and in certain other circumstances.
The Rights expire on May 31, 2001 unless earlier redeemed or exchanged.
-44-
<PAGE>
<PAGE>
13. STOCK OPTIONS
The Company has issued options to purchase shares of common stock to officers
and employees under employment agreements, and to officers, employees and
directors under various Company stock option plans. The following table
summarizes stock option transactions under all plans:
<TABLE>
<CAPTION>
Weighted
Average
Option Option Price Exercise Number
Shares Range Price Exercisable
<S> <C> <C> <C> <C>
Outstanding, January 31, 1994 2,551,439 $ 2.00 - $11.50 $4.97 947,470
Granted 941,714 $ 8.75 - $17.75 $10.92
Exercised (482,431) $ 2.00 - $12.31 $3.05
Canceled (101,265) $ 2.13 - $11.50 $8.46
Outstanding, January 31, 1995 2,909,457 $ 2.00 - $17.75 $7.09 1,252,007
Granted 899,317 $ 11.06 - $15.75 $14.05
Exercised (667,301) $ 2.00 - $14.33 $3.76
Canceled (152,408) $ 3.25 - $12.75 $9.85
Outstanding, January 31, 1996 2,989,065 $ 2.00 - $17.75 $9.79 1,376,467
Granted 1,164,404 $ 13.25 - $29.75 $19.32
Exercised (699,333) $ 2.00 - $17.75 $7.10
Canceled (175,110) $ 2.75 - $17.75 $12.81
Outstanding, January 31, 1997 3,279,026 $ 2.00 - $29.75 $13.59 1,546,773
Exercisable at January 31, 1997 1,546,773 $ 2.00 - $16.56 $9.39
</TABLE>
The following table summarizes information concerning currently outstanding and
exercisable options:
<TABLE>
<CAPTION>
Weighted Weighted Weighted
Average Average Average
Range of Number Remaining Exercise Number Exercise
Exercise prices Outstanding Contractual life Price Exercisable Price
<S> <C> <C> <C> <C> <C>
$ 2.00 - $ 9.00 816,939 6.01 $ 6.21 775,108 $ 6.06
9.25 - 14.00 867,359 7.66 12.48 617,864 12.61
14.19 - 14.75 758,528 9.08 14.42 135,351 14.27
$ 14.88 - $ 29.75 836,200 9.63 $ 21.18 36,450 $ 15.00
--------- ---------
Total 3,279,026 1,564,773
========= =========
</TABLE>
-45-
<PAGE>
<PAGE>
In October 1995, the Financial Accounting Standards Board issued FAS No. 123
Accounting for Stock Based Compensation, which requires the measurement of the
fair value of stock options or warrants to be included in the statement of
operations or disclosed in the notes to the financial statements. The Company
has determined that it will continue to account for stock-based compensation
for employees under Accounting Principles Board Opinion No. 25 and elect the
disclosure-only alternative under FAS No. 123 for options granted in 1997 and
1996 using the Black-Scholes option pricing model. The weighted average
assumptions are as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Risk-free interest rate................. 6.63% 6.63%
Expected dividend yield................. --- ---
Expected lives.......................... 4 years 4 years
Expected volatility..................... 57.76% 57.76%
</TABLE>
Had compensation cost for these plans been determined consistent with FAS
No. 123, the Company's net pro forma income (loss) and pro forma net income
(loss) per share would have been as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Net Income (Loss) ..............As Reported $ 14,149 $ (14,890)
Pro Forma 11,863 (16,077)
Net Income (Loss) Per Share ....As Reported $ .51 $ (.60)
Pro Forma .45 (.66)
The above compensation costs does not include the fair value of the warrants
issued to AT&T (see Note 8 to the Consolidated Financial Statements) as the
fair value of such warrants were included in the 1996 Statement of Operations.
The affects of applying FAS 123 in this disclosure are indicative of future
amounts. FAS 123 does not apply to grants prior to 1995 and additional grants
in the future years are anticipated.
-46-
<PAGE>
<PAGE>
Directors' Stock Option Plan
In connection with the election of directors, the Company granted options to
purchase 20,000 shares of common stock at an exercise price of $2.81, vesting
immediately and exercisable at any time prior to December 5, 2001, in fiscal
1992. The exercise price for all options was the fair market value at date of
grant.
During fiscal 1993, the stockholders of the Company approved the 1992 Directors'
Stock Option Plan (the "1992 Directors' Plan"). The 1992 Directors' Plan
provides for the granting of non-transferable non-qualified options to purchase
a maximum of 135,000 shares of the Company's common stock to outside (i.e., non-
employee) directors of the Company. The option price is equal to the fair
market value at date of grant. Each eligible director was granted an option
to purchase 15,000 shares of common stock annually commencing March 1, 1992
through and including March 1, 1994, provided the individual was an eligible
director on the date of grant. All options granted under the 1992 Directors'
Plan are immediately exercisable in full upon grant, provided however, that
no options granted under the 1992 Directors' Plan may be exercised more than
six months after the optionee ceases to serve as a director of the Company, and
all options terminate on the tenth anniversary of the date of grant. The 1992
Directors' Plan terminates upon the earlier of December 31, 1994 or the date on
which all shares available for issuance under the 1992 Directors' Plan have been
issued.
During fiscal 1995, the stockholders of the Company approved an Amendment to
the 1992 Directors' Plan which increased the number of shares authorized to be
issued under the 1992 Directors' Plan from 135,000 to 150,000 shares of the
Company's common stock to outside directors of the Company. All other terms
and conditions of the 1992 Directors' Plan remained the same. During fiscal
1995, 1994 and 1993, options to purchase 60,000, 45,000 and 45,000 shares of
common stock, respectively, were automatically issued to eligible directors;
options to purchase 15,000 shares were exercised during 1996.
During fiscal 1996, the stockholders of the Company approved the 1995 Director
Stock Option Plan (the "1995 Director Plan"). The 1995 Director Plan provides
for the granting of non-transferable non-qualified options to purchase a
maximum of 180,000 shares of the Company's common stock to eligible outside
(i.e., non-employee) directors of the Company on March 1, 1995. Accordingly,
on March 1, 1995, 120,000 shares of the Company's common stock were issued to
the eligible directors at an exercise price of $13.63 per share, the closing
sale price of the Company's common stock on the Nasdaq National Market on the
date of grant. The 1995 Director Plan also provides that an option to purchase
30,000 shares shall be granted to an eligible director upon his or her initial
election as a director. All options granted under the 1995 Director Plan vest
and become exercisable in increments of 10,000 each on the date of the first,
second and third annual meetings of the stockholders following the date of
grant.
-47-
<PAGE>
<PAGE>
Employment Agreements
Under employment agreements, certain officers and employees have been granted
non-qualified options to purchase 394,450 shares of the Company's common stock
at prices ranging from $2.00 to $24.38, which equaled fair market value at the
date of grant. Options become exercisable in annual installments over one to
ten years and expire ten years from the date of grant. Options to purchase
5,242, 17,500 and 30,967 shares of common stock were exercised during the years
ended January 31, 1997, 1996 and 1995, respectively. As of January 31, 1997,
no shares remained available for future option grants.
1989 Stock Option Plan
During fiscal 1993, the stockholders of the Company approved an increase in the
number of shares reserved for issuance under the 1989 Stock Option Plan ("the
Plan") to an aggregate of 3,500,000 shares. The Plan was also amended to
authorize the grant of non-statutory options, in addition to incentive stock
options intended to qualify under Section 422 of the Internal Revenue Code of
1986. The maximum term for options granted under the Plan is ten years (five
years for holders of more than 10% of the Company's common stock). The exercise
price at which shares of common stock may be purchased upon exercise of options
granted under the Plan must equal at least 100% (110% for holders of more
than 10% of the Company's common stock) of the fair market value of the common
stock on the date of grant. The aggregate fair market value (determined at the
time of grant) of shares for which incentive stock options granted under the
Plan are exercisable for the first time by the optionee in any one calendar year
may not exceed $100,000. During the year ended January 31, 1997, options to
purchase 91,608 shares of common stock had been granted and were exercisable
at $24.38. As of January 31, 1997, 2,691,944 shares had been issued upon
option exercises and no shares remain available for future stock option grants.
1994 Stock Incentive Plan
During fiscal 1995, the stockholders of the Company, approved the 1994 Stock
Incentive Plan (the "1994 Incentive Plan"). The 1994 Incentive Plan provides
for the granting of a maximum of 1,500,000 shares issuable pursuant to incentive
stock options, non-statutory stock options, stock appreciation rights,
performance shares, restricted stock awards or non-restricted stock awards to
employees, officers, directors, consultants and advisors of the Company and its
subsidiaries. During the years ended January 31, 1997, 1996, and 1995,
161,843, 921,600, and 839,714 stock options had been granted at prices ranging
from $14.88 to $24.38, $11.06 to $15.75, and $8.75 to $17.75, respectively. As
of January 31, 1997, 276,242 shares had been issued upon exercise of options,
and 1,333 shares remained available for future option grants.
1996 Stock Incentive Plan
During fiscal year 1997, the stockholders of the Company approved the 1996
Stock Incentive Plan (the "1996 Incentive Plan"). The 1996 Incentive Plan
provides for the granting of up to 1,000,000 shares of common stock under
terms that are in all material respects similar to the 1994 Incentive Plan.
As of January 31, 1997, 974,691 stock options have been granted at prices
ranging from $13.25 to $29.75. No shares had been issued upon exercise of
stock options and 33,309 shares remained available for future option grants.
-48-
<PAGE>
<PAGE>
Options Granted by Stockholders
During fiscal 1993, the two founding stockholders of the Company, who were
also directors of the Company at the time the options were granted, granted
options to purchase an aggregate of 187,500 shares of common stock owned by
them to certain employees of the Company in recognition of the contributions
made by these employees to the Company. The options were granted at fair market
value at the time of grant. As of January 31, 1997, options to purchase 130,000
shares have been exercised at prices ranging from $3.31 to $5.00, and options
to purchase 57,500 shares remain outstanding and exercisable at prices ranging
from $3.31 to $5.00 per share.
14. MAJOR CUSTOMERS
Substantially all of the Company's revenues were attributable to sales to the
network operator market. The following table summarizes revenues from major
customers for the years ended January 31:
</TABLE>
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
AT&T 23% * *
SBC Communications 17 11% *
DDI 13 13 10%
Bell Atlantic 10 13 48
NTT DoCoMo * 22 *
</TABLE>
* Represents less than 10% of total revenue.
Geographically, the Company's revenues for the years ended January 31, are as
follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
North America 70% 40% 67%
Asia 26 52 29
South America 2 4 4
Other 2 4 --
---- ---- ----
Total 100% 100% 100%
==== ==== ====
</TABLE>
-49-
<PAGE>
<PAGE>
15. EMPLOYEE BENEFIT PLANS
The Company has an Employee Savings and Profit Sharing Plan (the "Savings
Plan"), under Section 401(k) of the Internal Revenue Code of 1986, as amended.
All employees of the Company, including executive officers, are eligible to
participate in the Savings Plan. A participating employee may elect to defer
up to 15% of his or her salary on a pre-tax basis. This amount, plus a
matching amount provided by the Company, is contributed to the Savings Plan.
All amounts granted vest in their entirety upon completion of one year of
service. The full amount vested in a participant's account will be distributed
to a participant upon termination of employment, retirement, disability or
death. Company contributions to the Savings Plan for the years ended January
31, 1997, 1996 and 1995 amounted to $472,000, $321,000 and $268,000,
respectively.
The Company does not currently offer postretirement benefits, and the
effect of postemployment benefits is immaterial. As of December 31, 1993,
the Company implemented the Officers' Deferred Compensation Plan (the "Plan")
providing elected officers with the opportunity to participate in an unfunded,
deferred compensation program. Under the Plan, officers may defer up to 100%
of their base salary and/or incentive compensation until retirement, separation
or a fixed date at least five (5) years from the date of election. The deferred
amounts are retained as Company assets and are included in other assets on the
Consolidated Balance Sheets. The deferred amounts are invested, at the
officer's election, in either treasury bonds or a designated mutual fund.
Officers are 100% vested in their deferral balances at all times. The total
amount deferred under the Plan, which is reflected in other long-term
liabilities, was $57,000 and $90,000 as of January 31, 1997 and 1996,
respectively. The expense for the Plan was $9,000 in fiscal 1995, there was no
expense in fiscal 1996 or fiscal 1997.
16. EMPLOYEE STOCK PURCHASE PLANS
Under the 1991 Employee Stock Purchase Plan (the "1991 Stock Purchase Plan"),
all employees who had completed three months of employment, except for those
employees who possessed at least 5% of the voting power of the Company's common
stock were entitled, through payroll deductions of amounts up to 10% of his or
her base salary, to purchase shares of the Company's common stock at the
lesser of 85% of the market price at the offering commencement date or the
offering termination date.
During fiscal 1994, the stockholders of the Company approved the 1993 Employee
Stock Purchase Plan (the "1993 Stock Purchase Plan"). The 1993 Stock Purchase
Plan was in all material respects identical to the 1991 Employee Stock Purchase
Plan. This plan was terminated during fiscal 1996 and was replaced by the 1995
Employee Stock Purchase Plan (the "1995 Stock Purchase Plan").
During fiscal 1996, the stockholders of the Company approved the 1995 Stock
Purchase Plan. The 1995 Stock Purchase Plan is in all material respects
identical to the 1991 and 1993 Employee Stock Purchase Plans. The number of
shares available for issuance under the 1995 Stock Purchase Plan is 200,000.
For the offering period ended February 28, 1997, 41,384 shares of common stock
were issued to employees at a price of $12.96 per share. The number of shares
available for subsequent offerings may be increased, at the election of the
Board of Directors, by the shares, if any, which were made available but not
purchased during any previous offerings.
-50-
<PAGE>
<PAGE>
17. UNAUDITED QUARTERLY FINANCIAL INFORMATION
<TABLE>
<CAPTION>
1997 Fiscal Quarter Ended
-------------------------
April 30 July 31 October 31 January 31
-------- ------- ---------- ----------
<S> <C> <C> <C> <C>
Revenue $35,751 $41,455 $52,818 $62,434
Gross Profit 17,775 22,263 27,097 34,040
Operating income 2,804 4,930 6,923 7,474
Net income 1,830 2,791 4,171 5,357
Net income per share (a) .07 .10 .15 .19
</TABLE>
<TABLE>
<CAPTION>
1996 Fiscal Quarter Ended
-------------------------
April 30 July 31 October 31 January 31
-------- ------- ---------- ----------
<S> <C> <C> <C> <C>
Revenue $26,021 $26,127 $19,519 $33,600
Gross Profit 15,185 16,674 9,547 17,276
Operating income(loss) 4,176 4,102 (4,991) (19,054)
Net income(loss) 3,278 2,960 (3,378) (17,750)
Net income(loss) per share (a) .13 .11 (.14) (.72)
</TABLE>
(a) Earnings per common share calculations for each of the quarters were based
on the weighted average number of shares outstanding for each period, and the
sum of the quarters may not necessarily be equal to the full year earnings per
common share amount.
18. SUBSEQUENT EVENTS
On February 20, 1997, the Company acquired all of the outstanding stock of
Enhanced Communications Corporation ("ECC"), a company providing outsourcing
of voice messaging for Bell South Telecommunications, Inc. and Bell South
Personal Communications, Inc. for 250,000 shares of the Company's Common Stock.
The combination will be accounted for as a pooling of interests in accordance
with APB 16.
-51-
<PAGE>
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
Our report on the consolidated financial statements of Boston Technology, Inc.
has been incorporated in this fiscal 1997 Annual Report to the Stockholders of
Boston Technology, Inc. on Form 10-K. In connection with our audits of such
financial statements, we have also audited the related financial statement
schedule listed in Item 14(a) 2 of this Form 10-K.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic consolidated financial statements taken as
a whole, presents fairly, in all material respects, the information required to
be included therein.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
April 24, 1997
-52-
<PAGE>
<PAGE>
Boston Technology, Inc.
Schedule II - Valuation and Qualifying Accounts
For the Years Ended January 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
Additions
Charged to
Balance at Revenues, Balance at
Beginning Costs and End
Description of Period Expenses Deductions of Period
Accounts Receivable Allowance -
deducted from accounts receivable
on the balance sheet:
For the period ended January 31:
<S> <C> <C> <C> <C>
1997 $1,554,000 $2,106,000 $ 4,000 $3,656,000
1996 799,000 997,000 242,000 1,554,000
1995 290,000 536,000 27,000 799,000
Reserve for inactive, obsolete and
surplus inventory - deducted from
inventories on the balance sheet:
For the period ended January 31:
1997 $807,000 $ 960,000 703,000 $1,064,000
1996 518,000 440,000 151,000 807,000
1995 350,000 440,000 272,000 518,000
</TABLE>
-53-
<PAGE>
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURES
None.
PART III.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by Item 10 is incorporated herein by reference to the
Company's Proxy Statement for the Annual Meeting of Stockholders to be held on
June 25, 1997 (the "Proxy Statement") under the captions "Election of Directors"
and "Executive Officers."
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 11 is incorporated herein by reference to the
Proxy Statement under the captions "Compensation Tables," "Director
Compensation," "Employment Agreements", "Employee Severance Benefit Plan" and
"Compensation Committee Interlocks and Inside Participation."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information required by Item 12 is incorporated herein by reference to the
Proxy Statement under the caption "Beneficial Ownership."
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Item 13 is incorporated herein by reference to the
Proxy Statement under the caption "Compensation Committee Interlocks and
Insider Participation."
PART IV.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of or are included in this
Annual Report on Form 10-K:
1. The financial statements listed in the Index to Consolidated Financial
Statements and Consolidated Financial Statement Schedule, filed as part of this
Annual Report on Form 10-K.
2. The financial statement schedule listed in the Index to Consolidated
Financial Statements and Consolidated Financial Statement Schedule, filed as
part of this Annual Report on Form 10-K.
3. The exhibits listed in the Exhibit Index filed with or incorporated into
this Annual Report on Form 10-K.
(b) Reports on Form 8-K: No reports on Form 8-K were filed by the
Company during the last quarter of the year ended January 31, 1997.
-54-
<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Date: April 30, 1997
BOSTON TECHNOLOGY, INC.
By: /s/ FRANCIS E. GIRARD
-----------------
Francis E. Girard
President and Chief
Executive Officer
Pursuant to the requirements of the Securities and Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <S> <S>
/s/ GREG C. CARR Chairman of the Board of Directors April 30, 1997
----------------------
Greg C. Carr
/s/ RICHARD J. CONNAUGHTON Director April 30, 1997
----------------------
Richard J. Connaughton
/s/ FRANCIS E. GIRARD Director, President and April 30, 1997
---------------------- Chief Executive Officer
Francis E. Girard (principal executive officer)
/s/ HERAN B. LEONARD Director April 30, 1997
----------------------
Herman B. Leonard
/s/ JOSEPH E. NORBERG Director April 30, 1997
----------------------
Joseph E. Norberg
/s/ ROBERT J. SLEZAK Director, Executive Vice President April 30, 1997
---------------------- Technology & Marketing
Robert J. Slezak
/s/ RICHARD K. SNELLING Director April 30, 1997
----------------------
Richard K. Snelling
/s/ CAROL B. LANGER Senior Vice President of Finance, April 30, 1997
---------------------- Chief Financial Officer, Treasurer
Carol B. Langer and Secretary
(principal financial officer)
/s/ DAVID J. BEAUREGARD Assistant Vice President and April 30, 1997
---------------------- Corporate Controller
David J. Beauregard (principal accounting officer)
</TABLE>
-55-
<PAGE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Numb Title
<S> <S> <S>
(3) 3.1 -Certificate of Incorporation of Registrant, as amended
(12) 3.2 -By-laws of the Registrant, as amended
(12) 4.1 -Specimen Common Stock Certificate
(13) 4.2 -Shareholder Rights Agreement dated as of May 9, 1991 between the Registrant
and The First National Bank of Boston
(5) 4.2(a) -Assignment of Shareholder's Rights Agreement
(5) 10.1 -$25 Million Credit Agreement dated January 31, 1996 between the Registrant
and Silicon Valley Bank and CoreStates Bank
(5)+ 10.2 -AT&T Memorandum of Agreement dated November 22, 1995
(8) 10.3 -Lease dated November 5, 1990 between the Registrant and Wakefield
Park Limited Partnership
(4) 10.4 -First Amendment dated as of March 31, 1993 to Lease dated November 5,
1990 between the Registrant and Wakefield Park Limited Partnership
(6) 10.5 -Second Amendment dated as of August 31, 1994 to Lease dated November 5,
1990 between the Registrant and Wakefield Park Limited Partnership
(12) 10.6 -License Agreement dated November 15, 1988 between the Registrant
and VMX, Inc.
(9) 10.7 -License Agreement dated January 22, 1990 between the Registrant
and Dytel Corporation
(7) 10.8 -Settlement Agreement dated December 28, 1993 between the
Registrant and Theis Research, Inc. and Peter F. Theis
(3)* 10.9 -1995 Director Stock Option Plan
(7)* 10.10 -1992 Directors' Stock Option Plan, as amended
(7)* 10.11 -1994 Stock Incentive Plan
(11)* 10.12 -1989 Incentive Stock Option Plan, as amended
(12)* 10.13 -Employee Savings and Profit Sharing Plan
(13)* 10.14 -Employee Severance Benefit Plan
(2) 10.15 -Loan Document Modification Agreement dated November 19, 1996
(10)* 10.20 -1996 Stock Incentive Plan
(1) 10.21 -Lease dated June 7, 1996 between Registrant and WBAM Limited Partnership
(1) 11. -Statement of Weighted Shares Used in Computation of Earnings Per Share
(1) 21. -Subsidiaries of the Registrant
(1) 23. -Consent of Coopers & Lybrand L.L.P
(1) 27. -Financial Data Schedule
</TABLE>
<TABLE>
<CAPTION>
<S> <S>
(1) Filed herewith.
(2) Incorporated by reference to the Registrant's Form 10-Q for the period ended October 31, 1996.
(3) Incorporated by reference to the Registrant's Form 10-Q for the period ended July 31, 1995.
(4) Incorporated by reference to the Registrant's Form 10-Q for the period ended October 31, 1993.
(5) Incorporated by reference to the Registrant's Form 10-K for the fiscal year ended January 31, 1996.
(6) Incorporated by reference to the Registrant's Form 10-K for the fiscal year ended January 31, 1995.
(7) Incorporated by reference to the Registrant's Form 10-K for the fiscal year ended January 31, 1994.
(8) Incorporated by reference to the Registrant's Form 10-K for the fiscal year ended January 31, 1991.
(9) Incorporated by reference to the Registrant's Form 10-K for the fiscal year ended January 31, 1990.
(10) Incorporated by reference to the Definitive Proxy Materials for the Registrant's Annual
Meeting of Stockholders held June 25, 1996.
(11) Incorporated by reference to the Definitive Proxy Materials for the Registrant's Annual
Meeting of Stockholders held July 14, 1992.
(12) Incorporated by reference to the Registrant's Form S-1 (Registration No. 33-32134).
(13) Incorporated by reference to the Registrant's Form 8-K dated May 9, 1991.
* Management contract, compensation plan or arrangement filed as an exhibit pursuant to
Item 14(c) of Form 10-K.
+ Confidential treatment requested as to certain portions.
</TABLE>
-56-
<PAGE>
LEASE
ARTICLE I
Fundamental Lease Provisions
1.1 Reference Subjects. Each reference in this Lease to any of the following
subjects shall be construed to incorporate the information stated for that
subject in this Section.
DATE: June 7, 1996
PREMISES: An office building of approximately 168,000 rentable square
feet (the "Building"), together with associated parking and related site
improvements, to be constructed on the lot described in Appendix A1 attached,
all of which are the "Premises".
PARK: The land and buildings thereon known as Wakefield Office Park more
particularly shown on Appendix A2 attached.
LANDLORD: WBAM LIMITED PARTNERSHIP
ORIGINAL ADDRESS OF LANDLORD: c/o Beal & Company, Inc.
177 Milk Street
Boston, MA 02109
LANDLORD'S MANAGING AGENT: Beal & Company, Inc.
177 Milk Street
Boston, MA 02109
TENANT: Boston Technology, Inc., a Delaware corporation.
ORIGINAL ADDRESS OF TENANT: 100 Quannapowitt Parkway
Wakefield, MA
ESTIMATED INITIAL TERM COMMENCEMENT DATE: 12 months after commencement of
construction of Landlord's Work.
INITIAL TERM EXPIRATION DATE: The date immediately preceding the 12th
anniversary of the Term Commencement Date (as defined in Section 2.4).
-57-
<PAGE>
<PAGE>
ANNUAL BASE RENT -- INITIAL TERM:
<TABLE>
<CAPTION>
Lease Year (1)Rent for Non-Storage Space (2)Rent for Storage Space* TOTAL RENT(1+2)
<S> <S> <S> <S>
1 $2,798,880.00 $33,600.00 $2,832,480.00
2 $2,798,880.00 $33,600.00 $2,832,480.00
3 $2,881,200.00 $34,440.00 $2,915,640.00
4 $2,881,200.00 $34,440.00 $2,915,640.00
5 $2,963,520.00 $36,120.00 $2,999,640.00
6 $2,963,520.00 $36,120.00 $2,999,640.00
7 $2,963,520.00 $36,120.00 $2,999,640.00
8 $3,128,160.00 $36,960.00 $3,165,120.00
9 $3,128,160.00 $36,960.00 $3,165,120.00
10 $3,128,160.00 $36,960.00 $3,165,120.00
11 $3,292,800.00 $37,800.00 $3,330,600.00
12 $3,292,800.00 $37,800.00 $3,330,600.00
</TABLE>
* At Tenant's election, up to 2% of the total rentable square footage within
the Building may be used for storage purposes (the "Storage Space"). Rentable
Square Feet will be as measured by Landlord based on the standards of the
Building Owners and Managers Association. The Rent amounts listed in columns
(1) and (2) above assume Storage Space of 2%; however, if Tenant designates
less than 2% of the Building as Storage Space, the Annual Base Rent shall be
adjusted in accordance with the schedule set forth below by multiplying the
applicable square footage for Non-Storage Space by the amount in column (A),
multiplying the applicable square footage for Storage Space by the amount in
column (B), and then totaling the column (A) and (B) products for each Lease
Year.
<TABLE>
<CAPTION>
Lease Year (A)Rent Per Rentable Square Foot of Non-Storage Space (B)Rent Per Rentable Square Foot of Storage Space
<S> <C> <C>
1 $17.00 $10.00
2 $17.00 $10.00
3 $17.50 $10.25
4 $17.50 $10.25
5 $18.00 $10.75
6 $18.00 $10.75
7 $18.00 $10.75
8 $19.00 $11.00
9 $19.00 $11.00
10 $19.00 $11.00
11 $20.00 $11.25
12 $20.00 $11.25
</TABLE>
EXTENSION TERMS: Two (2), five (5) year terms.
-58-
<PAGE>
<PAGE>
ANNUAL BASE RENT -- EXTENSION TERMS:
Ninety percent (90%) of Fair Market Rent as determined pursuant to Section
4.1.3, but not less than the Annual Base Rent (including Annual Base Rent
applicable to the Storage Space) payable during the year immediately preceding
the Term Expiration Date for the First Extension Term and not less than the
Annual Base Rent (including Annual Base Rent applicable to the Storage Space)
payable during the last year of the First Extension Term for the Second
Extension Term.
EXPANSION OPTIONS: As stated in Section 2.7.
ANNUAL FIXED RENT --
EXPANSION SPACE: Except as otherwise provided in Section 2.7, those
rates in effect as noted under Annual Base Rent -- Initial Term at the time
expansion space is taken through the end of the Initial Term; and if the Term
is extended, as provided above under Annual Base Rent -- Extension Terms.
SECURITY DEPOSIT: Not applicable.
PARKING SPACES: 672 spaces consisting of surface and structured parking to be
constructed substantially in accordance with Appendix C.
PERMITTED USES: General office use and all other uses permitted as of right
under the Wakefield zoning bylaw.
RIGHTS TO PURCHASE/
RIGHT OF FIRST OFFER: As stated in Section 2.6
PUBLIC LIABILITY INSURANCE: $1,000,000 with umbrella coverage of
$10,000,000
BROKER: Leggat, McCall/Grubb & Ellis
APPENDICES: Appendix A1 - Description of Premises
Appendix A2 - Park Plan
Appendix A3 - Description of Purchase Lot
Appendix B - Cleaning Specifications
Appendix C - Landlord's Work
ARTICLE II
Premises and Term
2.1 Premises. Landlord hereby leases to Tenant, and Tenant hereby leases from
Landlord, the Premises identified in Section 1.1, subject to and with the
benefit of the terms, covenants and conditions of this Lease, and of rights,
agreements, easements and restrictions of record applicable to the Premises,
all of which Tenant shall perform and observe. Subject to the rules and
regulations established by Landlord, Tenant shall have the appurtenant rights
in common with others to use (a) the exterior walkways, sidewalks and driveways
necessary for access to the Park and to the Premises; and (b) the lawns and
landscaped areas in the Park suitable for recreational activities.
-59-
<PAGE>
<PAGE>
Landlord excepts and reserves the right from time to time (a) to install, use,
maintain, repair, replace and relocate within the Premises, pipes, meters and
other equipment, machinery, apparatus and appurtenant fixtures; and (b) to
alter or relocate any entranceways, alter the shape and size of the lot
constituting the Premises, or grant and relocate easements affecting the
Premises (with Tenant's reasonable consultation), or other facilities
(including without limitation all access driveways, walkways and parking areas)
serving the Premises. Tenant shall be entitled to receive advance notice of
Landlord's exercise of the foregoing rights and work undertaken pursuant to
the foregoing rights shall be performed at reasonable times and in a manner so
as not to interfere unreasonably with Tenant's conduct of its business in the
Premises. Tenant shall have the right to object to the installation or
relocation of utilities and improvements in the Premises pursuant to the
foregoing rights if such utilities and improvements, once installed, will
materially and adversely affect Tenant's conduct of its business in the
Premises.
Landlord's rights to enter the Premises during the term, whenever set forth in
this Lease (including access by regular cleaning personnel), shall, except in
emergencies, be subject to Tenant's reasonable security procedures of which
Landlord has been given advance written notice. Such security procedures may,
without limitation, require that Landlord's employees, agents or contractors
enter certain areas of the Premises only when accompanied by a representative
of Tenant.
2.2 Acceptance of Premises. Tenant acknowledges that it has inspected the
Premises and accepts the same subject to Landlord's obligation to perform
Landlord's Work (as defined in Section 3.1 and Appendix C), it being expressly
agreed that Landlord shall have no obligation, liability or risk whatsoever
with regard to the Premises or their condition, except as expressly set forth
herein. Tenant further acknowledges that neither Landlord nor any agent or
employee of Landlord has made any representations or warranties, express or
implied, concerning the Premises, their condition or this Lease.
2.3 Delay in Delivering Possession. . Landlord shall endeavor in good faith
to deliver the Premises by the Estimated Initial Term Commencement Date,
subject always to Section 8.4. If Landlord shall be unable to deliver
possession of the Premises on the Estimated Initial Term Commencement Date
stated in Section 1.1, then Landlord shall not be subject to any liability
for the failure or delay in giving possession; but Tenant's obligation to pay
Annual Base Rent and additional rent shall not commence until the Premises are
delivered, unless Landlord's inability to deliver the Premises resulted from
the action or inaction of Tenant, in which event, Tenant's obligation to pay
Annual Base Rent and additional rent shall commence on the Estimated Initial
Term Commencement Date. No such failure of Landlord to give possession shall
in any respect affect the validity of this Lease (including the date on which
the Term ends) or any of the obligations of Tenant except as provided in this
Section 2.3.
2.4 Term. This Lease is for an Initial Term which shall begin at 12:01 a.m.
on the earlier to occur of the following (a) or (b), which date shall be the
"Initial Term Commencement Date," and shall end at 12:00 midnight on the
Initial Term Expiration Date set forth in Section 1.1.
-60-
<PAGE>
<PAGE>
(a) The date Tenant enters into possession of all or any portion of the
Premises for the conduct of its business. (The event described in the prior
sentence shall not be deemed to occur by virtue of the installation or testing
of computers or other equipment or the installation of other property of Tenant
in the Premises.)
(b) The date the Premises are delivered as defined in Section 3.1.1.
2.5 Option to Extend. The Lease may be extended for the Extension Terms set
forth in Section 1.1 by unconditional notice given at least 12 (but not more
than 18) months prior to the end of the then expiring Term (determined without
regard to the Extension Term being exercised), time being of the essence to
such exercise, so long as at the time of such notice and at the beginning of
the relevant Extension Term Tenant is not in material default.
2.6 Rights to Purchase/Right of First Offer.
2.6.1. Right of First Offer for the Purchase Lot. With respect to the vacant
lot adjacent to the Premises more particularly shown on Appendix A3 attached
(the "Purchase Lot"), for a period beginning with the execution of this Lease
and ending twenty-four (24) months after the Term Commencement Date (the
"Initial Purchase Lot First Offer Period"), Tenant shall have a right of first
offer (the "Purchase Lot First Offer Right") on the following terms and
conditions. Before marketing the Purchase Lot to the general public for either
sale or development, Landlord shall notify Tenant in writing of the price and
other material terms on which Landlord intends to market the property. Tenant
shall have sixty days after receipt of such notice to accept Landlord's terms
(which acceptance shall be accompanied by any deposit required), and forty-five
days thereafter to conclude a binding agreement with Landlord. If Tenant
fails timely to accept Landlord's terms, or accepts but the parties do not so
conclude a binding agreement, then Landlord may conclude a transaction with a
third party thereafter upon terms which, taken in the aggregate and after
allowance for respective creditworthiness of Tenant and such third party, are
no more favorable than the terms offered to Tenant. If Landlord so consummates
such a transaction to a third party, then the Purchase Lot First Offer Right
and Purchase Lot First Offer Period shall lapse and be of no further force and
effect. If Landlord desires to enter into a transaction to a third party upon
terms which, taken in the aggregate and after allowance for respective
creditworthiness of Tenant and such third party, are more favorable than the
terms offered to Tenant, then Landlord shall be required to repeat the process
set forth above prior to consummating such a transaction, but Tenant shall have
thirty days to accept such terms and fifteen days to enter into a binding
agreement. By written notice to Landlord given no less than six months before
the expiration of the Initial Purchase Lot First Offer Period, Tenant may elect
to extend its Purchase Lot First Offer Right for an additional two (2) years
at a cost of $100,000 per year payable from Tenant to Landlord in equal
monthly installments as additional rent.
-61-
<PAGE>
<PAGE>
2.6.1. Right of First Offer for a Purchase Lot Building Lease. Tenant shall
have a right of first offer to lease any future building which the Landlord may
build upon the Purchase Lot (the "Future Building Lease First Offer Right") on
the following terms and conditions. Before entering into a lease with a third
party for a building to be built upon the Purchase Lot, Landlord shall notify
Tenant in writing of the rent and other material terms on which Landlord
intends to lease such building. Tenant shall have twenty days after receipt of
such notice to accept Landlord's terms, and twenty days thereafter to conclude
a binding lease with Landlord. If Tenant fails timely to accept Landlord's
terms, or accepts but the parties do not so conclude a binding lease, then
Landlord may conclude a lease with a third party thereafter upon terms which,
taken in the aggregate and after allowance for respective creditworthiness of
Tenant and such third party, are no more favorable than the terms offered to
Tenant. If Landlord so consummates such a lease to a third party, then the
Future Building Lease First Offer Right shall lapse and be of no further force
and effect. If Landlord desires to enter into a lease to a third party upon
terms which, taken in the aggregate and after allowance for respective
creditworthiness of Tenant and such third party, are more favorable than the
terms offered to Tenant, then Landlord shall be required to repeat the process
set forth above prior to consummating such a transaction, but Tenant shall have
ten days to accept such terms and ten days to enter into a binding agreement.
2.6.2. Right to Purchase the Purchase Lot. Tenant shall have the right to
purchase the Purchase Lot by notice to Landlord at any time during the Initial
Purchase Lot First Offer Period and any extension thereof as follows: The
purchase price shall be $5,000,000 adjusted upward by the CPI Escalation
(defined below) from the date upon which this Lease is executed. "CPI" shall
mean the United States Bureau of Labor Statistics ("Bureau") Consumer Price
Index for Urban Wage Earners and Clerical Workers, Boston Metropolitan Area,
All Items (1982-84 = 100). If CPI is converted to a different standard
reference base or otherwise revised, a determination of CPI Escalation shall
be made with the use of such conversion factor, formula or table as may be
published by the Bureau or, if the Bureau shall not publish the same, then with
the use of such conversion factor, formula or table as may be published by any
nationally recognized publisher of statistical information, reasonably selected
by Landlord. If CPI shall cease to be published, then there shall be
substituted for CPI any substitute or successor index published by the Bureau
or other governmental agency, or if no such index is published, then such other
index published by any nationally recognized publisher of statistical
information as Landlord shall reasonably select. CPI means the CPI most
recently published prior to the date in question. "CPI Escalation" shall mean
the increase, if any, in CPI from the date or period from which CPI is measured
to the date or period to which CPI is to be measured, stated as a percentage.
(The foregoing may be illustrated by the following example: Assume CPI for
the initial date is 100; assume also that CPI for the date to which CPI is to
be measured is 110. CPI Escalation for such period would be 10%.)
-62-
<PAGE>
<PAGE>
Closing on the purchase ("Closing") shall occur on the date specified in
Tenant's notice, but in no event later than 30 days after Tenant gives its
notice of exercise of its right to purchase the Purchase Lot. At the Closing
Tenant shall pay to Landlord the balance (taking into account the deposit, if
any) of the Purchase Price, in current U.S. exchange and by certified or bank
check drawn on a Boston clearinghouse bank (or by federal funds wire transfer
if Landlord so directs). At the Closing, Landlord shall deliver a quitclaim
deed conveying Landlord's interest in the Purchase Lot, subject to existing
laws, real estate taxes not yet due and payable, eminent domain takings, damage
by casualty, matters which would be shown on a current survey, parties in
possession and the encumbrance of this Lease (and any encumbrances arising
hereunder), and any easements, rights or restrictions of record existing on the
Commencement Date or permitted by Section 2.1. Should Landlord be unable to
deliver such title at the Closing, then the Closing shall be extended for up
to 60 days to permit Landlord to deliver such title (Landlord being under no
obligation to expend any funds in excess of an amount equal to the deposit to
deliver such title), and if at such extended Closing Landlord is still unable
to perform, then at Tenant's election, either Tenant's obligation to purchase
will cease (in which case the deposit will be refunded), or Tenant will accept
such title as Landlord can then convey and shall pay the balance of the
Purchase Price without deduction. Should Tenant fail to perform at the
Closing, time being of the essence, then Landlord may retain the deposit as
liquidated damages, and at Landlord's election at any time thereafter by
written notice to Tenant, may also terminate this Lease effective upon the date
set forth in a notice thereof from Landlord to Tenant. The parties intend that
Tenant's right to purchase and right of first offer are personal to Tenant
alone, shall not be assignable except to an assignee of Tenant's leasehold
interest in a permitted transfer under Section 5.1.11, and that any transfer
except to a transferee of a permitted transfer under Section 5.1.11 shall
automatically render this purchase option immediately null and void.
2.6.3. Right of First Offer for the Premises. Tenant shall have a right of
first offer to purchase the Premises (the "Premises First Offer Right") on the
following terms and conditions. Before marketing the Premises to the general
public for either sale or development, Landlord shall notify Tenant in writing
of the price and other material terms on which Landlord intends to market the
property. Tenant shall have sixty days after receipt of such notice to accept
Landlord's terms (which acceptance shall be accompanied by any deposit
required), and forty-five days thereafter to conclude a binding agreement with
Landlord. If Tenant fails timely to accept Landlord's terms, or accepts but
the parties do not so conclude a binding agreement, then Landlord may conclude
a transaction with a third party thereafter upon terms which, taken in the
aggregate and after allowance for respective creditworthiness of Tenant and
such third party, are no more favorable than the terms offered to Tenant. If
Landlord so consummates such a transaction to a third party, then the Premises
First Offer Right shall lapse and be of no further force and effect. If
Landlord desires to enter into a transaction to a third party upon terms which,
taken in the aggregate and after allowance for respective creditworthiness of
Tenant and such third party, are more favorable than the terms offered to
Tenant, then Landlord shall be required to repeat the process set forth above
-63-
<PAGE>
<PAGE>
prior to consummating such a transaction, but Tenant shall have thirty days to
accept such terms and fifteen days to enter into a binding agreement. The
parties intend that Tenant's Premises First Offer Right is personal to
Tenant alone, shall not be assignable except to an assignee of Tenant's
leasehold interest in a permitted transfer under Section 5.1.11, and that any
transfer except to a transferee of a permitted transfer under Section 5.1.11
shall automatically render Tenant's Premises First Offer Right immediately
null and void.
2.7 Landlord's Termination Right. If, despite its reasonable efforts,
Landlord fails to receive either (i) all local, state, and other approvals
required for construction of the Premises; or (ii) a binding commitment from a
lender for financing of the Premises; then Landlord shall have the right to
terminate this Lease by written notice to Tenant. In the event Landlord so
terminates the Lease, all rights and obligations of the parties under the Lease
shall terminate upon the date of such termination without further recourse by
the parties.
2.8 Tenant's Termination Right. Subject to delays beyond its reasonable
control as provided in Section 8.4, Landlord shall endeavor to meet the
schedule for the events shown below (the "Benchmark Schedule"):
Event Approval Date
1. Town of Wakefield Approvals 8 1/2 months after execution of the Lease
2. Massachusetts Environmental
Protection Agency (MEPA) 11 months after execution of the Lease
3. Massachusetts Highway Department 12 1/2 months after execution of the Lease
4. Construction Commencement 13 months after execution of the Lease
If any event listed on the Benchmark Schedule does not occur by its scheduled
time (as the same is extended by Section 8.4), then Landlord shall give written
notice to Tenant of such failure. If Landlord does not cause the event in
question to occur within fifteen (15) business days from the date of notice,
then Tenant shall thereafter have the right at any time until such event occurs
to terminate the Lease by written notice to Landlord. In the event Tenant so
terminates the Lease, all rights and obligations of the parties under the
Lease shall terminate upon the date of such termination without further
recourse by the parties.
ARTICLE III
Landlord Work and Tenant Work
3.1 Landlord Work. Except as provided in Section 5.2 and in this Section 3.1,
Landlord shall not be required to perform any work in connection with Tenant's
occupancy of the Premises.
-64-
<PAGE>
<PAGE>
3.1.1 Construction. At its sole cost, Landlord shall diligently and
expeditiously cause the Premises to be constructed substantially as described
in the Improvement Plans defined in Appendix C, including the furnishing of all
signage therein provided for ("Landlord's Work"). Landlord's Work shall
comply with all building codes, laws and regulations applicable to such
construction. The Premises shall be deemed delivered thirty days after notice
from Landlord to Tenant of the estimated date of substantial completion so long
as substantial completion has occurred on or before such date, and further
provided that if Landlord has received a certificate of occupancy for less than
all of the Premises, then, notwithstanding anything to the contrary contained
herein, for such period until a certificate of occupancy has been received for
the remainder of the Premises, Annual Base Rent -- Initial Term and any
additional rent shall be proportionally abated, based on the square footage of
the Premises for which a certificate of occupancy has not been received.
"Substantial completion" shall mean the date Landlord has received a temporary
or partial certificate of occupancy for the Premises and Landlord's Work is
sufficiently complete that the Premises may be occupied for the intended uses,
subject only to punch-list items that do not materially interfere with Tenant's
occupancy. Punch-list items shall include finish items such as wall coverings,
window treatments and the like which Landlord shall be unable, having exercised
reasonable efforts, to obtain from suppliers without delay and for which Tenant
elects not to accept available substitutes. Punch-list items shall be
completed with reasonable diligence after substantial completion and as
materials become available. Tenant's taking possession of the Premises shall be
conclusive evidence that the Premises was substantially completed when Tenant
took possession, subject to any agreed punch-list and to latent defects in
Landlord's Work.
3.2 Tenant Work.
3.2.1 General. "Tenant Work" shall mean all work, including improvements,
additions and alterations, performed by Tenant in or to the Premises other than
the work set forth in Appendix C. Without limiting the generality of the
foregoing, Tenant Work shall specifically include all attached carpeting, all
signs visible from the exterior of the Premises, and any change in the exterior
appearance of the windows in the Premises (including shades, curtains and the
like). All Tenant Work shall be subject to Landlord's prior written approval,
which shall not be unreasonably withheld or delayed in the case of non-
structural alterations which do not reduce the value of the Premises, and shall
be arranged and paid for by Tenant as provided herein. All Building fixtures
and equipment shall be the property of Landlord, except that if Tenant's Work
involves alterations that are special purpose (as determined by Landlord in
its reasonable discretion at the time of Landlord's approval), then at
Landlord's request, the same will be removed at Tenant's sole expense at the
end of the Term. Tenant shall neither propose nor effect any Tenant Work (i)
which might in any manner adversely affect any structural component of the
Building (including, without limitation, exterior walls, exterior windows, core
walls, roofs, or floor slabs), (ii) which might in any respect be incompatible
with the electrical or mechanical components or systems of the Building, (iii)
which might affect in any respect the exterior of the Building, (iv) which
might diminish the value of the Premises for remodeling to any general purpose
office use, (v) or which might require any unusual expense to re-adapt the
Premises for any general purpose office use.
-65-
<PAGE>
<PAGE>
3.2.1.1 Identity. Tenant shall be permitted exterior signage on the Building
and on the ground in the Park as allowed by applicable bylaws and codes. Tenant
shall also have the right to install appropriate signage on the walls of the
main lobby, elevator lobbies and entrance doors of the Building. All signage
shall be subject to Landlord's approval, which approval shall not be
unreasonably withheld or delayed.
3.2.2 Construction Documents. No Tenant Work shall be effected except in
accordance with complete, consistent, final construction drawings and
specifications ("Construction Documents") approved in advance by Landlord in
writing, which approval shall not be unreasonably withheld or delayed. The
Construction Documents shall be prepared by an architect ("Tenant's
Architect") experienced in the construction of tenant space improvements in
buildings in the greater Boston area and approved by Landlord in writing.
Tenant shall be solely responsible for the liabilities of and expenses of
all architectural and engineering services relating to Tenant Work and for the
adequacy, accuracy, and completeness of the Construction Documents approved by
Landlord, even if Tenant's Architect has been otherwise engaged by Landlord in
connection with the Building. The Construction Documents shall set forth in
detail the requirements for construction of the Tenant Work (including all
architectural, mechanical, electrical and structural drawings and detailed
specifications), shall be fully coordinated with one another and with field
conditions as they exist in the Premises and elsewhere in the Building, and
shall show all work necessary to complete the Tenant Work including all
cutting, fitting, and patching and all connections to the mechanical and
electrical systems and components of the Building. Submission of the
Construction Documents to Landlord for approval shall be deemed a warranty by
Tenant and Tenant's Architect, jointly and severally, that all Tenant Work
described in the Construction Documents (i) complies with all applicable laws,
regulations, building codes and engineering or architectural design standards,
(ii) does not adversely affect any structural component of the Building
(including, without limitation, exterior walls, exterior windows, core walls,
roofs or floor slabs), (iii) is in all respects compatible with the electrical
and mechanical components and systems of the building, (iv) does not affect
the exterior of the Building) (v) conforms to floor loading limits, (vi) and
with respect to all materials, equipment and special designs, processes, or
products, does not, to the knowledge of Tenant, infringe on any patent or other
proprietary rights of others. Landlord's approval of Construction Documents
shall only signify Landlord's consent to the Tenant Work shown thereon and
shall not result in any responsibility of Landlord concerning compliance of
the Tenant Work with laws, regulations, or codes, coordination of any aspect of
the Tenant Work with any other aspect of the Tenant Work or any component or
system of the Building, or the feasibility of constructing the Tenant Work
without damage or harm to the Building, all of which shall be the sole
responsibility of Tenant, unless caused by the negligence of Landlord.
-66-
<PAGE>
<PAGE>
3.2.3 Performance of Tenant Work. The identity of any person or entity
(including any employee or agent of Tenant) performing any Tenant Work ("Tenant
Contractor") shall be subject to Landlord's prior written approval, which
approval shall not be unreasonably withheld or delayed. Once any Tenant
Contractor has been approved, then the same may thereafter be used by Tenant
until Landlord notifies Tenant that such Tenant Contractor is no longer
approved. Tenant shall procure all necessary governmental permits, licenses
and approvals before undertaking any Tenant Work. Tenant shall perform all
Tenant Work at Tenant's risk in compliance with all applicable laws, codes and
regulations and in a good and workmanlike manner employing new materials of
good quality and producing a result at least equal in quality to the other
parts of the Premises. When any Tenant Work is in progress, Tenant shall
cause to be maintained insurance as described in the Tenant Work Insurance
Schedule attached hereto as Appendix D and such other insurance as may be
required by Landlord covering any additional hazards due to such Work. It
shall be a condition of Landlord's approval of any Tenant Work that certificates
of such insurance , issued by responsible insurance companies qualified to do
business in Massachusetts and reasonably approved by Landlord, shall have been
deposited with Landlord, that Tenant has provided Tenant's certification of
the insurable value of the work in question for casualty insurance purposes,
and that all of the other conditions of the Lease have been satisfied. Tenant
shall reimburse Landlord's reasonable costs of reviewing proposed Tenant Work
and inspecting installation of the same. At all times while performing Tenant
Work, Tenant shall require any Tenant Contractor to comply with all applicable
laws, regulations, permits and policies relating to such work of the City. In
performing Tenant Work, each Tenant Contractor shall comply with Landlord's
reasonable requirements relating to the time and methods for such work, use
of delivery elevators and other Building facilities; and each Tenant Contractor
shall not unreasonably interfere or disrupt any other tenant or other person
using the Building. Each Tenant Contractor shall in all events work on the
Premises without causing labor disharmony, coordination difficulties, or delay
or impair any guaranties, warranties or obligations of any contractors of
Landlord. If any Tenant Contractor uses any Building services or facilities,
such Contractor, jointly and severally with Tenant, shall agree to reimburse
Landlord for the cost thereof based on Landlord's schedule of charges
established from time to time (and if no such charges have been established,
then based on Landlord's reasonable charge established at the time). Each
Tenant Contractor shall, by entry into the Building, be deemed to have agreed
to indemnify and hold the Indemnitees harmless from any claim, loss or expense
arising in whole or in part out of any act or neglect committed by such
person while in the Building, to the same extent as Tenant has so agreed in
this Lease, the indemnities of Tenant and Tenant Contractor to be joint and
several.
-67-
<PAGE>
<PAGE>
3.2.4 Payment for Tenant Work. Tenant shall pay the entire cost of all Tenant
Work so that the Premises shall always be free of liens for labor or
materials. If any mechanic's lien (which term shall include all similar liens
relating to the furnishing of labor and materials) is filed against the Premises
or the Building or any part thereof which is claimed to be attributable to
Tenant, its agents, employees or contractors, Tenant shall promptly discharge
the same by payment or filing any necessary bond within 10 days after Tenant
has notice (from any source) of such mechanic's lien. Tenant shall indemnify
and hold harmless Landlord from and against all loss, cost, damage (including
consequential damages) and expense (including reasonable attorneys fees) arising
out of any mechanics lien filed against the Premises or the Building or any
part thereof which is claimed to be attributable to Tenant, its agents,
employees or contractors. Landlord may, as a condition of its approval of any
Tenant Work with a cost in excess of $25,000, require Tenant to deposit with
Landlord a bond, letter of credit or other similar security in the amount of
Landlord's reasonable estimate of the value of such Work securing Tenant's
obligations to make payments for such Work.
ARTICLE IV
Rent
4.1.1 Annual Base Rent. Annual Base Rent during the Term shall be the amount
of Annual Base Rent set forth in Section 1.1 for the Lease Year in question.
4.1.2 Alternative Annual Base Rent. Notwithstanding the provisions of
Section 4.1.1, by written notice to Landlord on or before 120 days from the
date this Lease is executed, Tenant may elect to defer its occupation of a
block of 25,000 rentable square feet of office space in the Building (the
"Banked Space") for one year (Tenant's "Banked Space Right"). Tenant's
exercise of its Banked Space Right shall not affect its obligation to pay rent
for the entirety of the Premises, including the Banked Space; however, if Tenant
exercises its Banked Space Right, then the Annual Base Rent set forth in
Section 1.1 shall be recalculated in accordance with the following rent
schedule by multiplying the applicable square footage for Non-Storage Space
(including the Banked Space) by the amount in column (C), multiplying the
applicable square footage for Storage Space by the amount in column (D), and
then totaling the column (C) and (D) products for each Lease Year.
<TABLE>
<CAPTION>
Lease Year(C)Rent Per Rentable Square Foot (D)Rent Per Rentable Square Foot
of Non-Storage Space of Storage Space(of up to 2%)
<S> <C> <C>
1 $14.50 $10.00
2 $17.50 $10.00
3 $17.50 $10.25
4 $18.00 $10.25
5 $18.50 $10.75
6 $18.50 $10.75
7 $18.50 $10.75
8 $19.50 $11.00
9 $19.50 $11.00
10 $19.50 $11.00
11 $20.50 $11.25
12 $20.50 $11.25
</TABLE>
Tenant's exercise of its Banked Space Right shall not in any way affect its
obligation to pay the full amount of additional rent set forth in
Sections 4.3.1 and 4.4.1.
-68-
<PAGE>
<PAGE>
4.1.3. Annual Base Rent -- Extension Term. If the Term is extended for the
Extension Term, then Annual Base Rent will be as set forth in Section 1.1.
Fair Market Rent for the Premises during the Extension Term, for the purpose of
calculating Annual Base Rent -- Extension Term under Section 1.1, shall be
ascertained as follows: Not later than nine months prior to the end of the
expiring term Landlord shall give written notice to Tenant setting forth
Landlord's determination of fair market rent for each of the Lease years of the
Extension Term in question (which may be different from year to year). Within
one (1) month following Landlord's notice Tenant shall either propose its
determination of fair market rent by giving notice thereof to Landlord or shall
accept Landlord's determination. Failure on the part of Tenant to give such
notice of its determination shall bind Tenant to Landlord's determination.
If Tenant proposes its determination of fair market rent, then Landlord and
Tenant shall meet for the purpose of reaching agreement. If the parties have
been unable to reach agreement by the beginning of the sixth month next
preceding the end of the expiring Term, then Landlord shall give notice to
Tenant of an appraiser whom Landlord designates to ascertain such rent. If
within 10 days of such notice Tenant objects to such person then Tenant shall
give notice to Landlord and designate another appraiser (and failure so to
notify Landlord shall bind Tenant to the appraiser designated by Landlord).
Both such appraisers shall meet and within 10 days after the designation by
Tenant of the second appraiser shall designate a third appraiser. Each
appraiser shall within 30 days of the designation of the third appraiser
ascertain fair market rent. The fair market rent for purposes of determining
Annual Base Rent during the relevant Extension Term shall equal the average of
the determinations of the three appraisers, provided that if the determination
by any appraiser is not within fifteen percent (15%) of the average of the
three appraisers, then such determination shall be disregarded. (If the two
appraisers fail to designate the third appraiser within such time, then either
Landlord or Tenant may request the then President of the Greater Boston Real
Estate Board, or successor organization to designate the third appraiser; and
if such person fails to designate a third appraiser within 30 days, then either
Landlord or Tenant may request the American Arbitration Association, Boston
Office to designate the third appraiser.) Any appraiser designated shall have
had at least 10 years experience in the leasing, ownership or management of
1,000,000 or more square feet of floor area of office buildings similar in
character to the Premises and shall be a member of A.S.R.E.C. (or successor
professional organization) and duly qualify as an expert witness over objection
to give opinion testimony addressed to the issue in a court of competent
jurisdiction.
-69-
<PAGE>
<PAGE>
Fair market rent shall be the Annual Base Rent which a willing tenant would pay
to lease the Premises for each year of the Extension Term in question under
terms and conditions substantially the same as those of this Lease, with the
Premises considered free and clear of this Lease and as though then available
for single or multiple occupancies for the Permitted Uses (or any higher and
better use then being made by Tenant, the mix of any multiple occupancies being
what is then customary in light of good real estate practice) in the condition
in which Tenant is required to maintain the Premises (or if in Landlord's
reasonable judgment Tenant Work has been installed which adversely affects
rental value and Landlord has the right to have Tenant remove such Work at the
termination of the Term, then as though such Tenant Work were removed), based on
rentals for comparable space over a comparable period with appropriate
adjustments made to such rentals as necessary to establish comparability, and
with rental historically paid under this Lease disregarded.
If the parties do not agree in writing on such rent, then the written opinion
of fair market rent of the appraiser so chosen shall conclusively establish such
rent ("Fair Market Rent"). Both parties shall have the opportunity to present
evidence in accordance with reasonable procedures prescribed by the appraiser,
and the fee of the appraiser giving his or her written opinion shall be paid
equally by the parties. If Landlord should delay in giving the notice which
begins the valuation procedures of this paragraph, or if the process should
otherwise be delayed for any reason, then such procedures shall nevertheless
remain in effect and be applicable when and as invoked with respect to Annual
Base Rent payable during the Extension Term; but until such procedures are
completed Tenant shall pay on account of Annual Base Rent at the rate
established for Annual Base Rent for the last twelve months of the expiring
term (and upon Fair Market Rent being established shall pay the same within
10 days retroactively to the beginning of the Extension Term in question).
4.2.1 Method of Payment. Tenant covenants and agrees to pay the Annual Base
Rent to Landlord in advance in equal monthly installments on the first day of
each calendar month during the Term beginning on the Commencement Date. "Lease
year" shall mean the twelve month period following the Commencement Date
(unless the Commencement Date is other than the first day of a month, in which
case "Lease year" shall mean the twelve month period following the initial
partial month). Tenant shall make ratable payment of Annual Base Rent for any
portion of a Lease year (or month) in which the same accrues, all payments of
Annual Base Rent and additional rent and other sums due hereunder to be paid in
current U.S. exchange at the Original Address of Landlord or such other place
as Landlord may by notice in writing to Tenant from time to time direct,
without demand and without set-off or deduction.
Without limiting the generality of the foregoing, Tenant's obligation so to pay
shall not be discharged or otherwise affected by reason of the application of
any law or regulation now or hereafter applicable to the Premises, or any other
restriction of or interference with the use thereof by Tenant, or (except as
and to the extent expressly provided herein) any damage to or destruction of
the Premises by casualty or taking, or on account of any failure by Landlord to
perform hereunder or otherwise, or due to any other occurrence; nor (except as
expressly provided herein) shall Tenant ever be entitled and Tenant hereby
waives all rights now or hereafter conferred by statute or otherwise to quit,
terminate or surrender this Lease or the Premises or any part thereof, or to
assert any defense in the nature of constructive eviction to any action seeking
to recover rent. Tenant shall, however, have and maintain, subject to the
provisions hereof, the right to seek and obtain from time to time judgments
for direct money damages occasioned by Landlord's breach of the covenants of
this Lease, including, without limitation, any breach by Landlord which could
have given rise to a claim of constructive eviction but for the provisions of
the foregoing sentence.
-70-
<PAGE>
<PAGE>
4.2.2 Net Return to Landlord. It is intended that Annual Base Rent, additional
rent and all other rent payable hereunder shall be a net return to Landlord
throughout the Term, free of expense, charge, offset, diminution or other
deduction whatsoever (excepting Landlord's financing payments and federal and
state income taxes), and all provisions hereof shall be liberally construed in
terms of such intent.
4.3.1 Additional Rent -- Landlord's Taxes. Tenant covenants and agrees to pay
to Landlord, as additional rent, all of Landlord's Taxes (hereafter defined)
for each fiscal tax period, or ratable portion thereof, included in the Lease
Term in monthly installments on the first day of each month in amounts
reasonably estimated from time to time by Landlord to provide for the fully
payment of Tenant's obligation with respect to Landlord's Taxes on the date
such taxes are due. Tenant shall furnish to Landlord all original bills
relating to any Landlord's Taxes within five days after Tenant's receipt
thereof. Without implying that other covenants do not survive, the covenants
of this Section shall survive the Term.
4.3.2 Landlord's Taxes - Definition. "Landlord's Taxes" shall mean all taxes,
assessments, betterments, excises, user fees and all other governmental
charges and fees of any kind or nature, or impositions or agreed payments in
lieu thereof or voluntary payments made in connection with the provision of
governmental services or improvements of benefit to the Premises (including
any so-called linkage, impact or voluntary betterment payments), and all
penalties and interest thereon (if due to Tenant's failure to make timely
payments on account of Landlord's taxes), assessed or imposed against the
Premises or the property of which the Premises are a part (including without
limitation any personal property taxes levied on such property or on fixtures
or equipment used in connection therewith), or upon Landlord by virtue of its
ownership thereof ("Landlord's Taxes"), other than a federal or state income
tax of general application. If during the Term the present system of ad
valorem taxation of property shall be changed so that, in lieu of or in
addition to the whole or any part of such ad valorem tax there shall be
assessed, levied or imposed on such property or Premises or on Landlord any
kind or nature of federal, state, county, municipal or other governmental
capital levy, sales, franchise, excise or similar tax, assessment, levy, charge
or fee (as distinct from the federal and state income tax in effect on the
Commencement Date) measured by or based in whole or in part upon Building
valuation, mortgage valuation, rents or any other incidents, benefits or
measures of real property or real property operations, then any and all of
such taxes, assessments, levies, charges and fees shall be included within the
term Landlord's Taxes.
-71-
<PAGE>
<PAGE>
Landlord's Taxes include reasonable expenses, including fees of attorneys,
appraisers and other consultants, incurred in connection with any efforts to
obtain abatements or reductions or to assure maintenance of Landlord's Taxes
for any tax fiscal year wholly or partially included in the Term, whether
or not successful and whether or not such efforts involve filing of actual
abatement applications or initiation of formal proceedings; provided that the
expenses related to an abatement application shall not be included in Landlord's
Taxes if such application is unsuccessful unless Tenant consented to the filing
of the abatement application. Tenant shall have the right, subject to
Landlord's reasonable approval, to pursue a tax abatement and Landlord shall
cooperate in such endeavor, provided that Tenant pays Landlord's out-of-pocket
expenses in connection with such cooperation.
4.4.1 Additional Rent - Operating Expenses. Tenant covenants and agrees to pay
to Landlord, as additional rent, all of the Landlord's Operating Expenses
(hereafter defined) for the Premises for each of Landlord's fiscal years, or
ratable portion, included in the Term. Such additional rent shall be payable
in monthly installments on the first day of each month in advance, based on
amounts reasonably estimated from time to time by Landlord, and with a final
payment adjustment between the parties within 14 days after Landlord provides
Tenant a statement of Landlord's Operating Expenses for Landlord's most recent
fiscal year.
4.4.2 Landlord's Operating Expenses - Definition. "Landlord's Operating
Expenses" means (a) all costs paid or incurred in servicing, operating,
managing, maintaining, and repairing the Premises and the land, facilities and
appurtenances thereto; and (b) Tenant's ratable share of Landlord's costs paid
or incurred in servicing, operating, managing, maintaining, and repairing the
areas in the Park available for use by Tenant in common with others (ratable
meaning the ratio of Rentable Square Feet of the Building to the total rentable
square feet of all buildings from time to time existing in the Park). Landlord's
Operating Expenses include without limitation the costs of the following:
(i) supplies, materials and total wage and labor costs and all costs and
expenses of independent contractors paid or incurred on account of all persons
engaged in the operation, maintenance, security, cleaning and repair of the
Premises and the land, facilities and appurtenances thereto, including social
security, unemployment compensation, pension, vacation, sick pay and other so-
called "fringe benefits"; (ii) services furnished generally to tenants of the
Park by Landlord; (iii) utilities consumed and expenses incurred in the
operation of the Premises and the land, facilities and appurtenances thereto;
(iv) casualty, liability, workmen's compensation and all other insurance
expenses (including the amount of any commercially reasonable deductible in
the event of an insured loss), all insurance to be in such amounts and
insuring against such risks as Landlord or Landlord's mortgagee may
reasonably require from time to time; (v) snow removal, planting, landscaping,
grounds and parking operation, maintenance and repair expenses; (vi) management
fees of 2.5%, and fees for required licenses or permits; and (vii) rental or
reasonable depreciation of equipment used in the operation of the Building and
the land, facilities and appurtenances thereto, and personal property taxes
assessed upon such equipment. In addition, if Landlord from time to time
repairs or replaces any existing improvements or equipment or installs any new
improvements or equipment to the Building that Landlord reasonably anticipates
will result in a savings in Landlord's Operating Expenses or are required by
laws coming into being after the date of this Lease (including without
limitation energy conservation improvements or other improvements), then the
-72-
<PAGE>
<PAGE>
cost of such items amortized over their reasonable life, together with an
actual or imputed interest rate (at the level then being charged by
institutional first mortgagees for new permanent first mortgage loans on
buildings in the area which are similar to the Building) shall be included in
Operating Expenses. Costs and expenses referred to in this Section shall be
ascertained in accordance with generally accepted accounting principles,
including allowance for appropriate reserves, and allocated to appropriate
fiscal periods on the accrual method of accounting.
Landlord shall prepare annually during the Term a budget of Landlord's
Operating Expenses. A copy of the budget for each calendar year shall be
delivered by Landlord to Tenant by November 1 of the previous calendar year
during the Term. Tenant may thereafter consult with Landlord with respect to
such budget and Tenant shall have the right reasonably to require Landlord to
obtain competitive bids for particular budget items. In addition to the
foregoing, Landlord shall cause to be kept books and records showing Landlord's
Operating Expenses in accordance with a good and appropriate system of account
and accounting practices and such books and records shall be made available to
Tenant on reasonable notice for inspection.
If Landlord incurs expenses of periodic testing to assure that the Premises
and surrounding land are free of hazardous materials, agents or substances and
to assure compliance with codes, regulations and laws, which testing is
performed by Landlord in response to a reasonable belief that Tenant or Tenant's
agents, employees or contractors may have caused a release of hazardous
materials, agents or substances or an event of noncompliance with codes,
regulations or laws, then such testing expenses shall be paid for by Tenant if
Tenant is determined to have caused such a release or noncompliance.
ARTICLE V
Additional Covenants
5.1 Tenant's Covenants. Except as otherwise provided in Section 5.2, Tenant
covenants that at all times during the Term and such further time as Tenant
(or persons claiming by, through or under it) occupies the Premises or any part
thereof, it shall perform and observe the following conditions, all at its
sole cost and expense:
5.1.1 Utilities and Services. Except for Landlord's Work, Tenant shall provide
and pay all charges and deposits for gas, water, sewer, electricity, and other
energy, and utilities used or consumed on the Premises during the Term which
now or hereafter serve the Premises. Landlord shall be under no obligation
whatsoever to furnish any such services to the Premises, and shall not be
liable for (nor suffer any reduction in any rent on account of) any interruption
or failure in the supply of the same.
-73-
<PAGE>
<PAGE>
5.1.2 Maintenance. Tenant shall maintain, repair and secure the Premises, all
improvements and appurtenances thereto, all access areas thereof, and all
utilities, facilities, installations and equipment used in connection therewith,
and shall pay all costs and expenses of so doing, keeping the Premises in good
order, repair and condition, reasonable wear and tear, and damage by casualty
and taking (to the extent Provided in Article VI only) excepted. Without
limiting the generality of the foregoing, Tenant shall keep all interior walls,
floor surfaces and coverings, glass, windows, doors, partitions, all fixtures
and equipment, utilities, pipes and drains and other installations used in
connection with the Premises in such good order, repair and condition and
shall provide all painting and floor covering to the Premises.
5.1.3 Use and Compliance with Law. Tenant shall use the Premises continuously
and uninterruptedly only for the Permitted Uses set forth in Section 1.1, and
then only as permitted under laws, regulations and orders applicable from time
to time, including without limitation municipal by-laws, land use and
environmental laws and regulations, and shall procure all approvals, licenses
and permits necessary therefor, in each case giving Landlord true and complete
copies of the same and all applications therefor. Tenant shall promptly comply
with all present and future laws applicable to Tenant's use of the Premises or
Tenant's signs thereon, foreseen or unforeseen, and whether or not the same
necessitate structural or other extraordinary changes or improvements to
the Premises or interfere with its use and enjoyment of the Premises, and shall
keep the Premises equipped with adequate safety appliances and comply with all
requirements, reasonable in light of the use Tenant is making of the Premises,
of insurance inspection or rating bureaus having jurisdiction. Landlord shall
not unreasonably withhold approval of improvements to the Premises, including
structural improvements, required by laws applicable to Tenant's use of the
Premises. If Tenant's use of the Premises results in any increase in the
premium for any insurance carried by Landlord, then upon Landlord's notice to
Tenant of such increase Tenant shall pay the same to Landlord upon demand as
additional rent. Tenant shall, in any event, indemnify and save Landlord
harmless from all loss, claim, damage, cost or expense (including reasonable
attorneys' fees of counsel of Landlord's choice against whom Tenant makes no
reasonable objection) on account of Tenant's failure so to comply with the
obligations of this Section (paying the same to Landlord upon demand as
additional rent). Landlord, as part of Landlord's Work, has undertaken to
cause the Building access to be in compliance in all material respects with
the Americans with Disabilities Act (42 U.S.C. sec.12101) ("ADA"). Tenant shall
be responsible for compliance in all material respects with the ADA within the
Premises. Landlord shall be responsible for the compliance of the Premises
with applicable building, zoning, and fire codes as of the Commencement Date,
provided that such compliance is not required by Tenant's particular use of
the Premises. Landlord shall also be responsible for compliance, if required
by law, with any changes occurring after the date of Lease execution to
applicable building, zoning, and fire codes, provided that such compliance is
not required by Tenant's particular use of the Premises. Except as set
forth in the preceding sentence, Tenant shall bear the sole risk of all
present or future laws affecting Tenant's use of the Premises or appurtenances
thereto, and Landlord shall not be liable for (nor suffer any reduction in any
rent on account of) any interruption, impairment or prohibition affecting the
Premises or Tenant's use thereof resulting from the enforcement of laws.
Tenant shall conform to all reasonable rules and regulations from time to time
promulgated by Landlord for the operation, care and use of the Building and
appurtenant improvements and areas in which Tenant is granted rights of use
by the terms of this Lease. Landlord shall give Tenant notice of any such
rules and regulations promulgated by Landlord.
-74-
<PAGE>
<PAGE>
5.1.4 Liens and Encumbrances. Tenant shall not create or suffer, shall keep
Landlord's property, the Premises and Tenant's leasehold free of, and shall
promptly remove and discharge, any lien, notice of contract, charge, security
interest, mortgage or other encumbrance which arises for any reason,
voluntarily or involuntarily, as a result of any act or omission by Tenant or
persons claiming by, through or under Tenant, or any of their agents,
employees or independent contractors, including without limitation liens which
arise by reason of labor or materials furnished or claimed to have been
furnished to Tenant or for the Premises.
5.1.5 Indemnity. Tenant shall assume exclusive control of all areas of the
Premises, including all improvements, utilities, facilities and installations
now or hereafter thereon, and all liabilities, including without limitation
tort liabilities, incident thereto; and Tenant shall indemnify, save harmless
and defend Landlord its partners, mortgagees, agents, employees, independent
contractors, invitees and other persons acting under Landlord (collectively
"Indemnitees") from all liability, claim or cost (including reasonable
attorneys' fees of counsel of an Indemnitee's choice against whom Tenant makes
no reasonable objection) arising in whole or in part out of any injury, loss,
theft or damage (except if such is due solely and directly to the negligence of
Landlord or its employees) to any person or property while on or about the
Premises, or in transit thereto or therefrom, or out of any condition within
the Premises, or arising out of any breach of any Lease covenant, or from any
act or omission of Tenant or persons claiming by, through or under Tenant, or
any of their agents, employees, independent contractors, or invitees (paying
the same to Landlord upon demand as additional rent). The provisions of this
Section shall survive the Term of this Lease, but shall apply only to
liabilities, claims and costs arising out of actions or events occurring during
the Term.
5.1.6 Landlord's Right to Enter. Landlord and its agents or employees may
upon reasonable notice enter the Premises during business hours (and in case
of emergency at any time) for the purpose of performing repairs or replacements,
or exercising any of the rights reserved to Landlord herein, or securing or
protecting Landlord's property or the Premises, or removing any alterations or
additions not consented to by Landlord, and similarly upon reasonable notice
may show the Premises to prospective purchasers and lenders, and during the
last 12 months of the Term to prospective tenants. Except in case of
emergency, Landlord shall be subject in entering the Premises to reasonable
security conditions, if any, set forth by Tenant in writing to Landlord and
shall exercise its rights hereunder so as to minimize any material adverse
affect on Tenant's conduct of its business in the Premises.
5.1.7 Personal Property at Tenant's Risk. All of the furnishings, fixtures,
equipment, effects and property of every kind, nature and description which,
during the occupancy of the Premises by Tenant (or persons claiming by, through
or under Tenant) may be on the Premises or elsewhere on Landlord's property,
shall be at the sole risk and hazard of Tenant. Except to the extent such
damage is caused by Landlord or its employees, Landlord shall not be liable for,
and Tenant expressly waives all claims against Landlord, its agents and
employees, for damage to person or property sustained by Tenant, or any person
claiming by, through or under Tenant, resulting from any accident or occurrence
in or on the Premises or the property of which the Premises are a Part,
including but not limited to, claims for damage resulting from water, wind, ice,
steam, explosion or otherwise, or from the rising of water or the leakage or
bursting of water pipes, steam pipes, gas pipes, the sprinkler system or other
pipes, or from theft, vandalism, lack of repair, defect, structural or non-
structural failure, or from any other cause whatsoever, and except only to
the extent provided above in this Section, no part of said loss or damage shall
be charged to or borne by Landlord or Landlord's agents or employees.
-75-
<PAGE>
<PAGE>
5.1.8 Overloading, Nuisance, Etc. Tenant shall not, either with or without
negligence, injure, overload, deface, damage or otherwise harm Landlord's
property, the Premises or any part or component thereof; commit any nuisance;
permit the emission of any hazardous agents or substances; allow the release
or other escape of any biologically or chemically active or other hazardous
substances or materials so as to impregnate, impair or in any manner affect,
even temporarily, any element or part of Landlord's property or the Premises,
or allow the storage or use of such substances or materials in any manner not
sanctioned by law or by the highest standards prevailing in the industry for
the storage and use of such substances or materials; nor shall Tenant bring
onto the Premises any such materials or substances except to use in the
ordinary course of Tenant's business, and then only after written notice is
given to Landlord of the identity of such substances or materials (the identity
of all such substances and materials, if any, so used on the date hereof being
set forth in a separate letter received by Landlord before the date of this
Lease); permit the occurrence of objectionable noise or odors; or make, allow
or suffer any waste whatsoever to Landlord's property or the Premises. Landlord
may inspect the Premises from time to time, and Tenant will cooperate with such
inspections. Without limitation, hazardous substances shall include such
substances described in the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended, 42 U.S.C. 9601 et seq. and the
regulations adopted thereunder, and hazardous materials shall include such
materials described in the Resource Conservation and Recovery Act, as amended,
42 U.S.C. 6901 et seq.; in the Massachusetts Hazardous Waste Management Act,
as amended, M.G.L. Chapter 21, and the Massachusetts Oil and Hazardous
Material Release Prevention Act, as amended, M.G.L. Chapter 21 E, and the
regulations adopted under these acts. In addition, Tenant shall execute
affidavits, representations and the like from time to time at Landlord's
request concerning Tenant's best knowledge and belief regarding the presence
or absence of hazardous materials on the Premises or land pertaining thereto.
In all events, Tenant shall indemnify Landlord and mortgagees in the manner
elsewhere provided from any release of hazardous materials on the Premises or
in the Park by Tenant, by Tenant's employees, agents or contractors or by those
claiming by, through or under Tenant. (At the request of Landlord, Tenant will
from time to time confirm such indemnity to mortgagees directly with such
mortgagees.) Landlord shall indemnify Tenant from any past or future release
of hazardous materials on the Premises or in the Park by Landlord, by
Landlord's employees, agents or contractors.
-76-
<PAGE>
<PAGE>
5.1.9 Yield Up. At the expiration or earlier termination of this Lease,
Tenant (and all persons claiming by, through or under it) shall, without the
necessity of any notice, surrender the Premises (including all Tenant Work and
all replacements thereof, except Tenant's trade fixtures and personal property
and except such additions, alterations and other Tenant Work as Landlord may
direct to be removed, which shall be removed by Tenant and the Premises
restored to their pre-existing condition) and all keys to the Premises, remove
all of its trade fixtures and personal property not bolted or otherwise attached
to the Premises (and such trade fixtures and other property bolted or attached
to the Premises as Landlord may direct), and all Tenant's signs wherever
located, in each case repairing damage to the Premises which results in the
course of such removal and restoring the Premises to a fully functional and
tenantable condition (including the filling of all floor holes, the removal of
all disconnected wiring back to junction boxes and the replacement of all
damaged ceiling tiles). Tenant may, at the time Tenant requests approval of
any Tenant Work, ask Landlord whether such Tenant Work will be required to be
removed at the expiration of the Term. If Landlord does not indicate in
response to such an inquiry that such Tenant Work will be subject to removal,
then Landlord may not require its removal at the expiration of the Term.
Tenant shall yield up the Premises broom-clean and in good order, repair and
condition, reasonable wear and tear and damage by casualty and taking (to the
extent provided in Article VI only) excepted. Any property not so removed
within thirty (30) days after the expiration or termination of the Lease shall
be deemed abandoned and may be removed and disposed of by Landlord in such
manner as Landlord shall determine, and Tenant shall pay to Landlord the entire
cost and expense incurred by it in effecting such removal and disposition and
in making any incidental repairs to the Premises.
5.1.10 Holding Over. If Tenant (or anyone claiming by, through or under
Tenant) shall remain in possession of the Premises or any part thereof after
the expiration or earlier termination of this Lease with respect to any portion
of the Premises without any agreement in writing executed with Landlord, the
person remaining in possession shall be deemed a tenant at sufferance, Tenant
shall thereafter pay Annual Base Rent at one and one-half times the amount
payable for the twelve month period immediately preceding such expiration or
termination and with all additional rent payable and covenants of Tenant in
force as otherwise herein provided, and Tenant shall be liable to Landlord for
all damages arising from such breach, including consequential damages with
respect to any portion of the Premises committed to a successor tenant if
Landlord has notified Tenant that Landlord has a successor tenant for all or a
portion of the Premises. After acceptance of the full amount of such rent by
Landlord the person remaining in possession shall be deemed a tenant from
month-to-month at such rent and otherwise subject to and having agreed to
perform all of the provisions of this Lease, but Landlord will not be deemed
to have relinquished any claims for damages, which shall not be unreasonably
withheld, conditioned or delayed.
-77-
<PAGE>
<PAGE>
5.1.11 Assignment, Subletting. Tenant shall not assign this Lease, or sublet
or license the Premises or any portion thereof, or advertise the Premises for
assignment or subletting or permit the occupancy of all or any portion of the
Premises by anybody other than Tenant (all of the foregoing actions are
sometimes collectively referred to as a "transfer") without obtaining, on each
occasion, the prior consent of Landlord, which shall not be unreasonably
withheld, conditioned or delayed. A transfer shall include, without limitation,
any transfer of Tenant's interest in this Lease by operation of law, merger or
consolidation of Tenant into any other firm or corporation, or any liquidation
of Tenant or a substantial part of Tenant's assets. Notwithstanding the
foregoing, a transfer shall not include a merger or consolidation of Tenant into
any other firm or corporation if the resulting firm or corporation is as a
matter of law directly and primarily liable to Landlord hereunder and if the
resulting firm or corporation has a net worth at least equal to the net worth
of Tenant prior to such merger or consolidation. Any transfer which relates
to 75% or greater of the rentable square footage of the Premises shall have the
effect of terminating the Rights to Purchase and Right of First Offer
contained in Section 2.6 of this Lease.
Tenant shall not offer to make or enter into negotiations with respect to a
transfer to (i) any tenant (or any affiliate of such tenant) in the Park, in
Ledgemont Research Park or in any building within a 10 mile radius in which,
to Tenant's knowledge, principals of The Beal Companies hold ownership
interests; (ii) any party with whom, to Tenant's knowledge, Landlord is then
negotiating with respect to space in the Park or Ledgemont Research Park; or
(iii) any party which would be of such type, character or condition as to be
inappropriate as a tenant for a first class office building. If Tenant
proposes a transfer of this Lease or a sub-letting of 75% or greater of the
rentable square footage of the Premises, Landlord may elect by written notice
to Tenant to terminate this Lease contingent upon the proposed transferee
becoming directly obligated to Landlord upon such proposed terms; and upon the
proposed assignee or sub-tenant so obligating itself, Tenant shall thereafter
be free of further obligation hereunder. Tenant shall have the right to assign
the Lease to an affiliated company, provided such company has an equal or better
financial condition in Landlord's reasonable opinion, than Tenant. If Tenant
does transfer with Landlord's consent, and if the consideration, rent, or
other charges payable to Tenant under such transfer (net of the cost of
brokerage commissions and of any tenant work allowance or other concession
granted by Tenant to the transferee, amortized over the term of the assignment
or sublease) exceed the rent and other charges to be paid hereunder (pro-rated
based on floor area in the case of a sub-letting, license or other occupancy of
less than the entire floor area of the Premises in question), then Tenant
shall pay to Landlord, as additional rent, fifty percent (50%) the amount of
such excess when and as received. Without limiting the generality of the
foregoing, any lump-sum payment or series of payments due (including for the
purchase of so-called leasehold improvements) on account of any transfer shall
be deemed to be in excess of rent and other charges in its or their entirety.
-78-
<PAGE>
<PAGE>
Notwithstanding any transfer of this Lease, Tenant's (and any guarantor's)
liability to Landlord shall in all events remain direct and primary. In the
case of any requested consent to a transfer, Tenant shall deliver to Landlord
at the time thereof (i) a true and complete copy of the proposed instrument
containing all of the terms and conditions of such transfer, and (ii) a
written agreement of the assignee, sub-tenant or licensee, in recordable form
reasonably approved by Landlord, agreeing with Landlord to perform and observe
all of the terms, covenants and conditions of this Lease. Tenant shall pay to
Landlord, as additional rent, Landlord's reasonable attorneys' fees in
reviewing any transfer contemplated by this Section, whether or not Landlord
consents to the same.
Any transferee of all or a substantial part of Tenant's interest in the
Premises shall be deemed to have agreed directly with Landlord to be jointly
and severally liable with Tenant for the performance of all of Tenant's
covenants under this Lease; and such assignee shall upon request execute and
deliver such instruments as Landlord reasonably requests in confirmation thereof
(and agrees that its failure to do so shall be subject to the default
provisions). Landlord may collect rent and other charges from such transferee
(and upon notice such transferee shall pay directly to Landlord) and apply the
net amount collected to the rent and other charges herein reserved, but no
transfer shall be deemed a waiver of the provisions of this Section, or the
acceptance of the transferee as a tenant, or a release of Tenant or any
guarantor from direct and primary liability for the performance of all of the
covenants of this Lease. The consent by Landlord to any transfer shall not
relieve Tenant from the obligation of obtaining the express consent of Landlord
to any modification of such transfer or a further assignment, subletting,
license or occupancy; nor shall Landlord's consent alter in any manner
whatsoever the terms of this Lease, to which any transfer at all times shall
be subject and subordinate.
5.2 Building Services. Landlord shall furnish the services and utilities
hereafter described as part of Landlord's Operating Expenses. Tenant may
obtain additional services from time to time if the same are obtainable by
Landlord upon reasonable advance request, or Landlord may furnish the same
without request if Landlord determines that Tenant's use or occupancy of the
Premises necessitates the same; and in either case Tenant shall pay for the
same at reasonable rates from time to time established by Landlord upon demand
as additional rent. Landlord's obligation shall be subject to the other
provisions of this Lease, reasonable wear and tear and damage caused by or
resulting from the acts or omissions of Tenant or its transferees (or their
agents, employees, invitees and independent contractors), fire, casualty or
eminent domain takings.
5.2.1 Landlord's Maintenance. Landlord shall reasonably maintain, in a manner
consistent with the maintenance standards generally applicable in first-class
quality office buildings in the Boston area competitive with the Building, the
foundations, exterior walls, masonry, structural floors and roof, the plumbing,
heating, ventilating and air conditioning systems, the elevators , and the
exterior walkways, sidewalks, driveways and parking areas referred to in
Section 2.1; but in no event shall Landlord be obligated to repair glass,
windows or doors of the Premises, whether interior or exterior (which
responsibility shall be Tenant's).
5.2.2 Grounds Maintenance/Snow Removal. Landlord shall reasonably maintain and
landscape the grounds adjacent to the Building; shall reasonably maintain the
walkways, driveways and parking areas referred to in Section 2.1 (including
maintenance of the lighting incidental thereto and striping of the parking
areas) and shall remove snow from such walkways, driveways and parking areas.
-79-
<PAGE>
<PAGE>
5.2.3 Security. Landlord shall provide reasonable security services for the
Building. Such security services will include (i) perimeter card access into
the Building using a system of individual magnetic badges with time and date
recording of individual identities and lock-out capability; (ii) an alarm
system for all access doors not equipped with perimeter card access; and
(iii) security guards during appropriate hours. Landlord shall consult with
Tenant at the beginning of the Term and from time to time during the Term in an
effort (i) to adjust the security services for the Building to meet Tenant's
reasonable security needs and (ii) to determine appropriate security and access
policies regarding Quannapowitt Parkway and other Park driveways. Landlord
may fulfill its obligations under this Section 5.2.3 by contracting with a
security service, provided that the identity of such security service shall
be approved by Tenant in its reasonable discretion; and in no event will
Landlord be liable to Tenant for any act or omission of any security service
approved by Tenant. At any time during the Term, upon written notice to
Landlord of not less than 60 days, Tenant may elect to perform or to contract
for such security services directly, in which event Landlord's Operating
Expenses shall be adjusted accordingly.
5.2.4 Elevator, Heat, and Cleaning. Landlord shall: (i) provide exclusive
elevator facilities ; (ii) furnish heat to the Premises during the normal
heating season on Mondays through Fridays excepting legal holidays (legal
holidays shall consist of ten days to be agreed upon by Landlord and Tenant
on an annual basis) from 8:00 a.m. to 6:00 p.m. (such hours on such days being
referred to as "business days", provided that such hours and days may be
modified from time to time at Tenant's request), and on any other days upon
Tenant's request; and (iii) cause the office areas of the Premises to be
reasonably cleaned provided the same are maintained and kept in good order by
Tenant. Cleaning specifications for the Building are attached hereto as
Appendix B. Landlord may from time to time modify such cleaning specifications
provided that Tenant is given notice thereof and provided that such
specifications shall in no event be modified in such a way as to fall below
cleaning standards generally applicable in first-class quality office buildings
in the Boston area competitive with the Building. Landlord shall provide trash
removal from the Building.
5.2.5 Air-Conditioning. Tenant shall be entitled to use such air-conditioning
equipment, as may be installed on the Premises in accordance with Appendix C.
If Tenant requires additional air-conditioning, for business machines
(including computers and computer terminals), meeting rooms or other purposes,
or because of unusual electrical loads, any additional air-conditioning units,
chillers, condensers, compressors, ducts, piping and other equipment will be
installed and maintained by Landlord at Tenant's sole cost and expense, but
only to the extent that the same are compatible with the Building and its
mechanical systems. All equipment installed pursuant to the preceding
sentence shall be the sole property of Landlord. Tenant agrees to cooperate
with Landlord and to abide by all reasonable Building regulations which Landlord
may, from time to time, prescribe for the proper functioning and protection
of any air-conditioning systems and in order to maximize the effect thereof
and to conserve air-conditioning.
5.2.6 Energy Conservation. Notwithstanding anything to the contrary in this
Section or otherwise in this Lease, Landlord may institute such policies,
programs and measures as may be appropriate for the conservation of energy or
energy services, or as may be required to comply with applicable codes, rules,
regulations or standards.
-80-
<PAGE>
<PAGE>
5.3 Interruptions. Landlord shall not be liable to Tenant in damages or by
reduction of rent or otherwise by reason of inconvenience or annoyance or for
loss of business arising from Landlord or its agents or employees entering the
Premises for any of the purposes authorized in this Lease or for repairing,
altering or improving the Building in a manner reasonable in light of the
circumstances, unless negligent in doing so. In case Landlord is prevented or
delayed from making any repairs or replacements or furnishing any services or
performing any other covenant or duty to be performed on Landlord's part by
reason of any cause reasonably beyond Landlord's control, Landlord shall not be
liable to Tenant therefor, nor shall the same give rise to a claim in Tenant's
favor that such failure constitutes actual or constructive, total or partial,
eviction from the Premises. If the heating or air conditioning systems shall
fail and Landlord provides such services from other facilities within the
Building, then Landlord and Tenant shall consult as to who shall pay the cost
of such replacement services. Landlord reserves the right to stop any service
or utility system, when necessary by reason of accident or emergency, or until
necessary repairs have been completed; provided, however, that in each instance
of stoppage, Landlord shall give Tenant such notice as is practicable under the
circumstances of the expected duration of such stoppage and will exercise
reasonable diligence to eliminate the cause thereof. Except in case of
emergency repairs Landlord will give Tenant reasonable advance notice of any
contemplated stoppage and will use reasonable efforts to avoid unnecessary
inconvenience to Tenant by reason thereof.
5.4 Real Estate Taxes. Except as otherwise permitted under G.L. c. 59 T64,
Landlord shall pay, on or before the date due, all real estate taxes on the
Building and the appurtenant land so long as Tenant has made timely payment of
all additional rent under Section 4.3.1.
ARTICLE VI
Insurance; Casualty; Taking
6.1.1 Public Liability Insurance. Tenant shall obtain and maintain throughout
the Term comprehensive public liability insurance against all claims and demands
for any injury to persons or property which may be claimed to have occurred on
or in connection with the Premises, naming Landlord and, if requested,
Landlord's mortgagees and other persons designated by Landlord as additional
insureds, in an amount which shall, at the beginning of the Term, be at least
equal to the amount set forth in Section 1.1, and from time to time during the
Term shall be for such higher amount, if any, as directed by Landlord based
on amounts customarily carried in the Boston metropolitan area with respect to
property similar to and used for similar purposes as Tenant then is using the
Premises. Such insurance shall provide that it will not be subject to
cancellation, termination or change except after at least 30 days prior written
notice to Landlord (and Landlord's mortgagees and such additional insureds).
The policy or policies, or a duly executed certificate or certificates for the
same, shall be deposited with Landlord at the beginning of the Term, and
renewals of such policies shall be so deposited not less than 30 days prior to
the expiration of coverage.
6.1.2 Insurance By Landlord. (a) In the event Tenant breaches any covenant or
fails to observe any condition set forth above in this Article VI, then without
limiting any other right or remedy, and notwithstanding any other provision
herein concerning notice and cure of defaults, Landlord may immediately and
with five days notice to Tenant obtain such insurance, and Tenant shall pay
the cost thereof and Landlord's expenses related thereto upon demand as
additional rent.
-81-
<PAGE>
<PAGE>
(b) As part of Landlord's Operating Expenses, Landlord shall maintain physical
damage insurance covering the Building shell, core, and Landlord's Work. Such
insurance shall be written on an "all risks" of physical loss or damage basis
for the full replacement cost of the covered items.
6.2 Waivers of Subrogation. To the extent reasonably obtainable, any insurance
carried by either Landlord or Tenant with respect to the Premises or property
therein or occurrences thereon shall include a clause or endorsement denying to
the insurer rights of subrogation against the other party to the extent rights
have been waived by the insured hereunder prior to occurrence of injury or loss.
Without limiting any other provisions of this Lease, each party hereby waives
any rights of recovery against the other for injury or loss due to hazards
covered by such insurance, to the extent only of the indemnification received
thereunder.
6.3 Damage or Destruction of Premises. If the Premises or any part thereof
shall be damaged by fire or other insured casualty, then, subject to the
following provisions of this Section, Landlord shall proceed with diligence,
subject to then applicable statutes, building codes, zoning ordinances and
other laws and regulations of any governmental authority, and at the expense
of Landlord (but only to the extent of insurance proceeds received and made
available to Landlord by any mortgagee) to repair or cause to be repaired such
damage, excluding any items installed or paid for by Tenant which Tenant is
permitted to remove upon expiration (which items shall be Tenant's
responsibility to repair.) However, if any act or neglect of Tenant or such
person prevents Landlord or its mortgagees from collecting all insurance
proceeds, then the cost of repairing the casualty damage shall be paid by
Tenant except to the extent any insurance proceeds are actually received by
Landlord or mortgagees (they being under no obligation to litigate their
entitlement), and there shall be no abatement of rent.
If (i) all or any substantial part (meaning more than 25% of floor area or of
insurable value) of the Premises is so damaged by fire or other casualty
(whether or not insured) that substantial alteration, reconstruction or
demolition of the Building shall in Landlord's sole discretion be appropriate
and a substantial expenditure shall in Landlord's sole discretion be required to
make the Premises habitable, or (ii) if any casualty occurs to the Premises
during the second to last year of the Term and its repair will reasonably cost
more than $750,000, or (iii) if any casualty occurs to the Premises during the
last year of the Term and its repair will reasonably cost more than $500,000,
then in any such case, this Lease and the Term hereof may be terminated at the
election of Landlord by a notice in writing of its election so to terminate
given to Tenant within six (6) months following adjustment of such casualty
loss with the insurer, the effective termination date being not less than one
hundred twenty (120) nor more than one hundred fifty (150) days thereafter.
In the case of clause (i) above, if a substantial expenditure is not required
to make the Premises habitable, Landlord may nonetheless terminate this Lease
if Landlord pays Tenant damages equal to the amount by which the then present
value of the fair market rent for the Premises for the balance of the Term
absent this Lease exceeds the then present value of the rent due under this
Lease for the balance of the Term.
-82-
<PAGE>
<PAGE>
Tenant shall be entitled to a just abatement of Annual Base Rent (but not for
additional rent on account of Landlord's Taxes and Operating Expenses) during
the period of impaired use of the Premises, in no event, however, exceeding 12
months, provided that Landlord shall be entitled to maintain rent continuation
insurance and include the premium therefor as part of Landlord's Operating
Expenses. If any mortgagee refuses to permit insurance proceeds to be applied
to replacement of the Premises, and neither Landlord nor such mortgagee has
commenced such replacement within six (6) months following adjustment of such
casualty loss with the insurer, then Tenant may, until any such replacement
commences, terminate this Lease by giving at least thirty (30) days prior
written notice thereof to Landlord. Tenant's obligation to pay all rent and
to perform and observe all other covenants and conditions of this Lease shall
not be affected by any damage or casualty except as provided herein with respect
to the area so damaged or taken, and the Term of this Lease and rent hereunder
shall continue nonetheless.
6.4 Eminent Domain. In the event that all or any substantial part of the
Premises or the Building (meaning in either case more than 25% of floor area)
are taken (other than for temporary use, hereafter described) by public
authority under power of eminent domain (or by conveyance in lieu thereof, of
which Landlord shall give Tenant advance notice), then by notice given within
three months following the recording of such taking (or conveyance) in the
appropriate registry of deeds, this Lease may be terminated at Landlord's
election 30 days after such notice, and rent shall be apportioned as of the
date of termination. If this Lease is not terminated as aforesaid, Landlord
shall within a reasonable time thereafter, diligently restore what may remain
of the Premises (excluding any items installed or paid for by Tenant which
Tenant is permitted or may be required to remove upon expiration) to a
tenantable condition. In the event more than 25% of the rentable floor area
of the Premises is taken (other than for temporary use) and such taking renders
the Premises unsuitable for the continuing conduct of Tenant's business therein,
then Tenant shall have the right to terminate this Lease within three months
following such taking by 30 days written notice to Landlord. In the event
some portion of rentable floor area is taken (other than for temporary use)
and this Lease is not terminated, Annual Base Rent shall be proportionally
abated for the remainder of the Term. In the event of any taking of the
Premises or any part thereof for temporary use, (i) this Lease shall be and
remain unaffected thereby and rent shall not abate, and (ii) Tenant shall be
entitled to receive for itself such portion or portions of any award made for
such use with respect to the period of the taking which is within the Term,
provided that if such taking shall remain in force at the expiration or earlier
termination of this Lease, then Tenant shall pay to Landlord a sum equal to
the reasonable cost of performing Tenant's obligations hereunder with respect
to surrender of the Premises and upon such payment shall be excused from such
obligations.
-83-
<PAGE>
<PAGE>
So long as Tenant is not then in breach of any material covenant or condition
of this Lease, any specific damages which are expressly awarded to Tenant on
account of its relocation expenses and rent if the Lease continues, and
specifically so designated, shall belong to Tenant. Except as provided in the
preceding sentences of this paragraph, Landlord reserves to itself, and Tenant
releases and assigns to Landlord, all rights to damages accruing on account of
any taking or by reason of any act of any public authority for which damages
are payable. Tenant agrees to execute such further instruments of assignment
as may be reasonably requested by Landlord, and to turn over to Landlord any
damages that may be recovered in any proceeding or otherwise; and Tenant
irrevocably appoints Landlord as its attorney-in-fact with full power of
substitution so to execute and deliver in Tenant's name, place and stead all
such further instruments if Tenant shall fail to do so after ten (10) days
notice.
-84-
<PAGE>
<PAGE>
ARTICLE VII
Default
7.1 Events of Default. (a) If Tenant fails to pay Annual Base Rent or any
additional rent or other sum or charge hereunder when due and such default
continues for ten (10) days; or (b) if more than two notices of default are
properly given in any twelve month period, or (c) if Tenant shall vacate or
abandon all or substantially all of the Premises, or (d) if any
assignment shall be made by Tenant (or any assignee, sublessee or guarantor of
Tenant) for the benefit of creditors, or (e) if Tenant's leasehold interest
shall be taken on execution or by other process of law, or (f) if a
petition is filed by Tenant (or any assignee, sublessee or guarantor of
Tenant) for adjudication as a bankrupt, or for reorganization or an arrangement
under any provision of any bankruptcy act then in force and effect, or (g) if
an involuntary petition under the provisions of any bankruptcy act is filed
against Tenant (or any assignee, sublessee or guarantor of Tenant) and such
involuntary petition is not dismissed within sixty (60) days thereafter, or
(h) if Tenant (or any assignee, sublessee or guarantor of Tenant) shall be
declared bankrupt or insolvent according to law, or (i) if a receiver, trustee
or assignee shall be petitioned for and not contested by Tenant for the whole
or any part of Tenant's (or such assignee's, sublessee's or guarantor's)
property, or if a receiver, trustee or assignee shall be appointed over Tenant's
(or such other person's) objection and not be removed within sixty (60) days
thereafter, or (j) if any representation or warranty made by Tenant shall be
untrue in any material respect, or (k) if Tenant fails to perform any other
covenant, agreement or condition hereunder and such default continues for thirty
(30) days after notice (provided, however, that such thirty (30) day period
shall be reasonably extended in the case of non-monetary default if the matter
complained of can be cured, but the cure cannot be completed within such period
and Tenant begins promptly to cure within such period and thereafter diligently
completes the cure; if such matters cannot be cured then there shall be no cure
period), then, and in any such case, Landlord and its agents and employees
lawfully may, in addition to and not in derogation of any remedies for any
preceding breach, immediately or at any time thereafter, without demand or
notice and with or without process of law, enter into and upon the Premises or
any part thereof in the name of the whole, or mail or deliver a notice of
termination of the Term addressed to Tenant at the Premises and thereby
terminate this Lease and repossess the same as of Landlord's former estate.
Upon such entry or mailing or delivery, as the case may be, the Term shall
terminate, all executory rights of Tenant and all obligations of Landlord
under this Lease shall immediately cease, and Landlord may expel Tenant and all
persons claiming by, through or under Tenant and remove its and their effects
without being deemed guilty of any manner of trespass and without prejudice to
any remedies which might otherwise be used for arrears of rent or prior breach
of covenants; and Tenant hereby waives to the extent permitted by law all
statutory and equitable rights to its leasehold (including without limitation
rights in the nature of further cure or of redemption, if any). Landlord may,
with notice, store Tenant's effects (and those of any person claiming by,
through or under Tenant) at the expense and risk of Tenant and, if Landlord
so elects, may sell such effects at public auction or auctions or at private
sale or sales after seven (7) days notice to Tenant (which notice Tenant agrees
is reasonable) and apply the net proceeds to the payment of all sums due to
Landlord from Tenant, if any, and pay over the balance, if any, to Tenant. If
any payment of Annual Base Rent, additional rent, or other payment due from
-85-
<PAGE>
<PAGE>
Tenant to Landlord is not paid when due, then Landlord may, at its option, in
addition to all other remedies hereunder, impose a late charge on Tenant equal
to 3% of the amount in question plus interest on the amount in question from
30 days after the date due at the rate of three percent (3%) per annum above
the rate of interest announced by State Street Bank and Trust Company from time
to time as its prime rate; provided interest shall never exceed the maximum
rate permitted under applicable law. Such late charge will be due upon demand
as additional rent.
Landlord's expenses incurred with respect to Landlord's Work and the like
(collectively "Tenant Inducements"), if any, have been agreed to by Landlord as
inducements for Tenant faithfully to perform all of its obligations. For all
purposes, upon the occurrence of any default and the lapse of the applicable
cure period, if any, any Tenant Inducements shall be deemed void as of the
date hereof as though such had never been included, and the aggregate amounts
(or value) thereof will be deemed to be additional rent then immediately due.
The foregoing will occur automatically without any further notice by Landlord,
whether or not the Term is then or thereafter terminated and whether or not
Tenant thereafter corrects such default.
7.2 Remedies for Default.
(a) Reletting Expenses Damages. If this Lease is terminated for default,
then Tenant covenants, as an additional cumulative obligation after such
termination, to pay all of Landlord's reasonable costs and expenses related
thereto or in collecting amounts due hereunder, including attorneys fees, and
all of Landlord's reasonable expenses in connection with such reletting,
including without limitation, tenant inducements, brokerage commissions, fees
for legal services, expenses of preparing the Premises for reletting and the
like ("Reletting Expenses"). It is agreed by Tenant that Landlord may (i)
relet the Premises or any part or parts thereof for a term or terms which may
at Landlord's option be equal to or less than or exceed the period which would
otherwise have constituted the balance of the Term, and may grant such tenant
inducements as Landlord in its sole judgment considers advisable given the then
current market conditions, and (ii) make such alterations, repairs and
decorations in the Premises as Landlord in its sole discretion considers
advisable, and no action of Landlord in accordance with the foregoing nor any
failure to relet or to collect rent under any reletting shall operate or be
construed to release or reduce Tenant's liability. Landlord's Reletting
Expenses together with all sums otherwise provided for in this Lease, whether
incurred prior to or after such termination, shall be due and payable
immediately from time to time upon notice from Landlord.
(b) Termination Damages. If this Lease is terminated for default, then
unless and until Landlord elects lump sum damages described in (c) below Tenant
covenants, as an additional cumulative obligation after any such termination,
to pay punctually to Landlord all the sums and perform all the obligations
which Tenant covenants in this Lease to pay and to perform in the same manner
and to the same extent and at the same time as if this Lease had not been
terminated. In calculating the amounts to be paid by Tenant pursuant to the
preceding sentence Tenant shall be credited with the net proceeds of any rent
then actually received by Landlord from a reletting of the Premises after
deducting all sums provided for in this Lease to be paid by Tenant and not
then paid.
-86-
<PAGE>
<PAGE>
(c) Lump Sum Damages. If this Lease is terminated for default, then Tenant
covenants, in lieu of the damage remedy set forth in paragraph (b) (which calls
for continued payments by Tenant over the balance of the Term), to pay forth-
with to Landlord at Landlord's election made by written notice to Tenant at any
time after termination, a single lump sum payment equal to the sum of (i) all
sums provided for in this Lease to be paid by Tenant and not then paid at the
time of such election, plus (ii) the excess of all of the rent reserved for
the residue of the Term (with additional rent on account of Operating Expenses
deemed to increase 10% in each year on a compounding basis) over all of the rent
which is actually received on account of the Premises during such period, which
rent from reletting shall be reduced by Landlord's Reletting Expenses described
above.
7.3 Remedies Cumulative. Any and all rights and remedies Landlord may have
under this Lease, and at law and equity, shall be cumulative and shall not be
deemed inconsistent with each other, and any two or more of all such rights and
remedies may be exercised at the same time insofar as permitted by law.
Nothing contained in this Lease shall, however, limit or prejudice the right of
Landlord to prove and obtain in proceedings for bankruptcy or insolvency by
reason of the termination of this Lease, an amount equal to the maximum allowed
by any statute or rule of law in effect at the time when and governing the
proceedings in which the damages are to be proved, whether such amount be
greater, equal to, or less than the amount of the loss or damages referred to
in the preceding Section.
7.4 Effect of Waivers of Default. Any consent or permission by Landlord to any
act or omission which otherwise would be a breach of any covenant or condition,
or any waiver by Landlord of the breach of any covenant or condition, shall not
in any way be held or construed to operate so as to impair the continuing
obligation of such covenant or condition, or otherwise operate to permit other
similar acts or omissions. No breach shall be deemed to have been waived unless
and until such waiver be in writing and signed by Landlord. The failure of
Landlord to seek redress for violation of or insist upon the strict
performance of any covenant or condition of this Lease, or the receipt by
Landlord of rent with knowledge of any violation, shall not be deemed a
consent to or waiver of such violation, nor shall it prevent a subsequent act,
which would otherwise constitute a violation, from in fact being a violation.
7.5 No Accord and Satisfaction; No Surrender. No acceptance by Landlord of a
lesser sum than the Annual Base Rent, additional rent or any other sum or charge
then due shall be deemed to be other than on account of the earliest installment
of such rent, sum or charge due; nor shall any endorsement or statement on any
check or in any letter accompanying any check or payment be deemed an accord
and satisfaction, and Landlord may accept such check or Payment without
prejudice to Landlord's right to recover the balance of such installment or
pursue any other right or remedy available to it. The delivery of keys (or any
similar act) to Landlord or any agent or employee of Landlord shall not operate
as a termination of this lease or an acceptance of a surrender of the Premises.
7.6 Waiver of Jury. Landlord and Tenant hereby waive trial by jury in any
summary proceeding in any emergency or other statutory remedy, or in any action
based, in whole or in part, on non-payment of rent; and Tenant further agrees
that it shall not interpose any counterclaim or set-off in any such proceeding.
-87-
<PAGE>
<PAGE>
7.7 Landlord's Curing and Enforcement. If Tenant shall neglect or fail to
perform or observe any covenant or condition of this Lease not involving the
payment of money to Landlord and shall not cure such default within the
applicable cure period, Landlord may, at its option, without waiving any claim
for breach, at any time thereafter cure such default for the account of Tenant,
and any amount paid or any liability incurred by Landlord in so doing shall be
deemed paid or incurred for the account of Tenant, and Tenant shall reimburse
Landlord therefor, together with an administrative charge of fifteen (15%)
per cent of the amount thereof, on demand as additional rent; and Tenant shall
further indemnify and save Landlord harmless in the manner elsewhere provided
in this Lease in connection with all of Landlord's actions in effecting any
such cure unless caused by Landlord's negligence. Notwithstanding any other
provision herein concerning cure periods, Landlord may cure any default for the
account of Tenant after such notice to Tenant, if any, as is reasonable under
the circumstances (including telephone notice) if the curing of such default
prior to the expiration of the applicable cure period is reasonably
necessary to prevent likely damage to the Premises or other improvements or
possible injury to persons, or to protect Landlord's interest in its property
or the Premises. Tenant shall pay to Landlord on demand as additional rent
all of the costs and expenses of Landlord, including such administrative charge
and reasonable attorneys' fees, incurred in enforcing any covenant or condition
of this Lease. Without limiting any of its other rights or remedies, any sum
due hereunder shall, if not paid when due, be subject to the late charge set
forth in Paragraph 7.1.
7.8 Landlord's Default. In no event shall Landlord be in default unless
notice thereof has been given to Landlord (and all mortgagees of which Tenant
has notice) and Landlord (or any such mortgagee at its sole discretion) fails
to perform within 30 days (provided, however, that such 30 day period shall
be reasonably extended if such performance begins within such period and
thereafter is diligently pursued, or if such mortgagee notifies Tenant within
such period that it intends to cure on behalf of Landlord and thereafter begins
and diligently pursues curing with reasonable promptness).
-88-
<PAGE>
<PAGE>
ARTICLE VIII
Miscellaneous Provisions
8.1 Notice from One Party to the Other. All notices required or permitted
hereunder shall be in writing and shall be deemed duly served if mailed by
certified mail, postage prepaid, addressed, if to Tenant, at the Original
Address of Tenant or such other address as Tenant shall have last designated by
notice in writing to Landlord and, if to Landlord, at the Original Address of
Landlord or such other address as Landlord shall have last designated by notice
in writing to Tenant. If requested, Tenant shall send copies of all such
notices in like manner to Landlord's mortgagees and any other persons having an
interest in the Premises and designated by Landlord. Any notice so addressed
shall be deemed duly served on the second business day following the day of
mailing if so mailed by registered or certified mail, return receipt requested,
whether or not accepted.
8.2 Quiet Enjoyment. Landlord agrees that upon Tenant's paying all rent and
performing and observing all covenants, conditions and other provisions on its
part to be performed and observed, Tenant may peaceably and quietly have, hold
and enjoy the Premises during the Term without disturbance by Landlord or
anyone claiming by, through or under it, subject always to the terms of this
Lease, provisions of law, and rights or interests of record to which this Lease
may be or become subject and subordinate.
8.3 Limitation of Landlord's Liability. Landlord shall be liable only for
breaches of Landlord's obligations occurring while Landlord is owner of the fee
of which the Premises are a part (provided, however, that if Landlord shall ever
sell and lease-back such fee, or the ground thereof or the improvements thereon,
then "fee" shall, in such event, be deemed to mean Landlord's leasehold
interest). Tenant (and all persons claiming by, through or under Tenant) agrees
to look solely to Landlord's interest from time to time in the fee of which the
Premises are a part for satisfaction of any claim or recovery of any judgment
from Landlord; it being agreed that neither Landlord nor any trustee,
beneficiary, partner, agent or employee of Landlord shall ever be personally or
individually liable for any claim or judgment, or otherwise, to Tenant (or such
persons). In no event shall Landlord ever be liable to Tenant (or such persons)
for indirect or consequential damages; nor shall Landlord ever be answerable or
liable in any equitable judicial proceeding or order beyond the extent of its
interest in the fee of which the Premises are a part.
8.4 Excusable Delay. In any case where either party hereto is required to do
any act (other than the payment of Annual Base Rent, additional rent or any
other sum or charge, including without limitation ascertaining the dates when
such rental payments are payable), delays caused by or resulting from war,
civil commotion, fire, flood or other casualty, labor difficulties, shortages
or other unavailability of labor, materials, equipment, energy or utility
services, unusually severe weather, or other like causes beyond such party's
reasonable control shall not be counted in determining the time during which
such act shall be completed, whether such time be a fixed date, a fixed time or
"a reasonable time," and such time shall be deemed to be extended by the period
of such delay.
-89-
<PAGE>
<PAGE>
8.5 Applicable Law and Construction. This Lease may be executed in
counterpart copies and shall be governed by and construed as a sealed instrument
in accordance with the laws of The Commonwealth of Massachusetts. If any
provision shall to any extent be invalid, the remainder of this Lease shall
not be affected. Other than contemporaneous instruments executed and delivered
of even date, if any, this Lease contains all of the agreements between
Landlord and Tenant with respect to the Premises and supersedes all prior
dealings between them with respect thereto. There are no oral agreements
between Landlord and Tenant affecting this Lease. This Lease may be amended
only by an instrument in writing executed by Landlord and Tenant. The
enumeration of specific examples of a general provision shall not be construed
as a limitation of the general provision. Unless a party's approval or consent
is required by its terms not to be unreasonably withheld, such approval or
consent may be withheld in the party's sole discretion. If Tenant is granted
any extension or other option, to be effective the exercise (and notice thereof)
shall be unconditional, time always being of the essence to any options; and
if Tenant purports to condition the exercise of any option or vary its terms in
any manner, then the purported exercise will be ineffective. This Lease and all
consents, notices and other related instruments may be reproduced by any party
by photographic, microfilm, microfiche or other reproduction process and the
originals thereof may be destroyed; and each party agrees that reproductions
will be admissible in evidence to the same extent as the original itself in and
judicial or administrative proceeding (whether or not the original is in
existence and whether or not reproduction was made in the regular course of
business), and further reproduction will likewise be admissible. The titles of
the several Articles and Sections are for convenience only, and shall not be
considered a part hereof. The submission of a form of this Lease or any
summary of its terms shall not constitute an offer by Landlord to Tenant; but
a leasehold shall only be created and the parties bound when this Lease is
executed and delivered by both Landlord and Tenant.
8.6 Successors and Assigns. Except as herein provided otherwise, the
agreements and conditions in this Lease contained on the part of Landlord to be
performed and observed shall be binding upon Landlord and its legal
representatives, successors and assigns, and shall inure to the benefit of
Tenant and its legal representatives, successors and assigns; and the
agreements and conditions on the part of Tenant to be performed and observed
shall be binding upon Tenant (and any guarantor of Tenant) and Tenant's legal
representatives, successors and assigns and shall inure to the benefit of
Landlord and its legal representatives, successors and assigns.
8.7 Relationship of the Parties. Nothing herein shall be construed as
creating the relationship between Landlord and Tenant of principal and agent, or
of partners or joint venturers; it being understood and agreed that neither the
manner of fixing rent, nor any other provision of this Lease, nor any act of the
parties, shall ever be deemed to create any relationship between them other
than the relationship of landlord and tenant.
8.8 Estoppel Certificate. Within one week of either party's request, Landlord
and Tenant agree, in favor of the other, to execute, acknowledge and deliver
a statement in writing certifying that this Lease is unmodified and in full
force and effect (or, if there have been any modifications that the same is in
full force and effect as modified and stating the modifications), and the amount
-90-
<PAGE>
<PAGE>
and dates to which the Annual Base Rent (and additional rent and all other
charges) have been paid and any other information reasonably requested,
including without limitation Landlord's designation of the Purchase Lot under
Section 2.6. Both parties intend and agree that any such statement may be
relied upon by any prospective purchaser, mortgagee, or other person to whom the
same is delivered. Tenant acknowledges that prompt execution and delivery of
such statements, and all instruments referred to in Article X, constitute
essential requirements of any financings or sales by Landlord, and Tenant will
indemnify Landlord in the manner elsewhere provided against all costs and
damages (including consequential damages directly or indirectly resulting from
Tenant's failure to comply herewith (notwithstanding any grace period) or
Landlord's right to execute the same on Tenant's behalf.
8.9 Notice of Lease. Neither party shall record this Lease, but each party
will, upon request of the other, execute a recordable notice of lease in a form
reasonably approved by Landlord and, upon termination for whatever reason, a
like notice of termination of lease; and Tenant irrevocably appoints Landlord
as its attorney-in-fact, with full power of substitution, to execute,
acknowledge and deliver a notice of termination of lease in Tenant's name, place
and stead if Tenant fails so to do with five (5) days of any request.
8.10 Construction on Adjacent Premises. Landlord shall have the right, in
connection with any development adjacent to the Building or elsewhere within the
Park, to grant easements through the Building and the appurtenant parking for
access and egress to and from such development and for the installation,
maintenance, repair, replacement or relocation of utilities serving such
development and/or the Premises and for the installation, removal, maintenance,
repair and replacement of windows and walkways related to such development.
Such right shall include the right to grant such easements through the
Premises, provided that installations, replacements or relocations of
utilities in the Premises shall, as far as practicable, be placed above ceiling
surfaces, below floor surfaces or within perimeter walls. Notwithstanding
anything herein to the contrary, this Lease shall be subject and subordinate to
any easements so granted. (Such subordination shall be self-operative, but in
confirmation thereof Tenant shall execute and deliver whatever instruments may
be required to acknowledge such subordination in recordable form, and if Tenant
fails to do so within 10 days after demand, Tenant hereby irrevocably appoints
Landlord as its attorney-in-fact to do so in Tenant's name.) Landlord and its
agents, employees, licensees and contractors shall also have the right during
any construction period for any such development to enter the Premises to
undertake work pursuant to any easement granted pursuant to the above paragraph;
to shore up the foundations and/or walls of the Premises and Building; to erect
scaffolding and protective barricades around the Premises or in other
locations within or adjacent to the Building; and to do any other act necessary
for the safety of the Premises or Building or the expeditious completion of such
construction. Landlord shall not be liable to Tenant for any compensation or
reduction of rent by reason of inconvenience or annoyance or for loss of
business resulting from any act by Landlord pursuant to this Section unless
resulting from a breach of the provisions of this Section 8.10. Landlord
-91-
<PAGE>
<PAGE>
shall give Tenant reasonable advance notice of any work pursuant to this
Section in or about the Premises and Landlord shall use reasonable efforts so
as not to interfere unreasonably with the conduct of Tenant's business and to
minimize the extent and duration of any inconvenience, annoyance or disturbance
to Tenant resulting from such work, consistent with accepted construction
practice. It is not intended that the exercise of such rights will result in
any substantial permanent reduction in the floor area of the Premises, but if
any act by Landlord pursuant to this Section results in a permanent reduction
in the floor area of the Premises, Tenant shall be entitled to a proportional
abatement of Annual Base Rent and additional rent. Landlord shall give Tenant
reasonable advance notice of the construction in the Park of any new buildings
or any addition to an existing building to be undertaken by Landlord or an
affiliate of Landlord. Notwithstanding anything to the contrary in this
Section 8.10 or elsewhere in this Lease, neither Landlord nor any affiliate of
Landlord nor any successor in title shall construct any new building or any
addition to an existing building in the area between the Building and Lake
Quannapowitt.
8.11 Tenant as Business Entity. If Tenant is a business entity, then Tenant
warrants and represents that (a) Tenant is duly organized, validly existing and
in good standing under the laws of the jurisdiction in which such entity was
organized; (b) Tenant has the authority to own its property and to carry on its
business as contemplated under this Lease; (c) Tenant is in compliance with all
laws and orders of public authorities applicable to Tenant; (d) Tenant has duly
executed and delivered this Lease; (e) the execution, delivery and performance
by Tenant of this Lease (i) are within the powers of Tenant, (ii) have been
duly authorized by all requisite action, (iii) will not violate any provision
of law or any order of any court or agency of government, or any agreement or
other instrument to which Tenant is a party or by which it or any of its
property is bound, or (iv) will not result in the imposition of any lien or
charge on any of Tenant's property, except by the provisions of this Lease;
and (f) the Lease is a valid and binding obligation of Tenant in accordance
with its terms.
ARTICLE IX
9.1 Brokers. Tenant and Landlord each represent and warrant to the other that
it has not dealt with any broker (other than Landlord's Agent and the persons
identified as the Broker in Section 1.1) in connection with this Lease or the
Premises and each agrees to indemnify and save harmless the other from all
loss, claim, damage, cost or expense (including reasonable attorneys' fees)
arising from any breach of this representation and warranty. This warranty
and representation shall survive the Term or any early termination of this
Lease. The fees of Landlord's Agent and any Broker named in Section 1.1
will be paid by Landlord.
-92-
<PAGE>
<PAGE>
ARTICLE X
Landlord's Financing
10.1 Subordination and Superiority of Lease. Tenant agrees that this Lease
and the rights of Tenant hereunder will be subject and subordinate to the
present or future lien of any first mortgage, (and at Landlord's election, to
the lien of any subordinate mortgage or mortgages) and to the rights of any
lessor under any ground or improvements lease of the Premises (collectively
referred to in this Lease as a "mortgage" and the holder or lessor thereof
from time to time as a "mortgagee"), and to all advances and interest thereunder
and all modifications, renewals, extensions and consolidations thereof; provided
however, that with respect to future liens, the mortgagee of any mortgage
hereafter granted executes and delivers to Tenant an agreement in which the
mortgagee agrees that Tenant shall not be disturbed in its possession upon
Tenant's attornment to such mortgagee as Landlord and performance of its Lease
covenants (both of which conditions Tenant agrees with all mortgagees to
perform). Landlord shall use reasonable efforts to obtain such a nondisturbance
agreement from the present mortgagee of the Building. Tenant agrees that any
mortgagee may at its option unilaterally elect to subordinate, in whole or in
part and by instrument in form and substance satisfactory to such mortgagee
alone, the lien of its mortgage (or the priority of its ground lease) to some
or all provisions of this Lease.
Tenant agrees that this Lease shall survive the merger of estates of ground (or
improvements) lessor and lessee. Until a mortgagee (either superior or
subordinate to this Lease) forecloses Landlord's equity of redemption (or
terminates in the case of a ground or improvements lease), no mortgagee shall
be liable for failure to perform any of Landlord's obligations (and such
mortgagee shall thereafter be liable only after it succeeds to and holds
Landlord's interest and then only as limited herein). No mortgagee shall be
bound by any payment of rent more than one month in advance. Tenant shall, if
requested by Landlord or any mortgagee, give notice of any alleged non-
performance on the part of Landlord to any such mortgagee; and Tenant agrees
that such mortgagee shall have a separate, consecutive reasonable cure period
of no less than 30 days (to be reasonably extended in the same manner Landlord's
30 day cure period is to be extended) following Landlord's cure period during
which such mortgagee may, but need not, cure any non-performance by Landlord.
The agreements in this Lease with respect to the rights and powers of a
mortgagee constitute a continuing offer to any person which may be accepted by
taking a mortgage (or entering into a ground or improvements lease) of the
Premises.
10.2 Rent Assignment. If from time to time Landlord assigns this Lease or the
rents payable hereunder to any person as collateral security for a loan,
whether such assignment is conditional in nature or otherwise, such assignment
shall not be deemed an assumption by the assignee of any obligations of
Landlord; but the assignee shall be responsible only for non-performance of
Landlord's obligations which occur after it succeeds to and only while it
holds Landlord's interest in the Premises.
-93-
<PAGE>
<PAGE>
10.3 Other Instruments. The provisions of this Article shall be self-
operative; nevertheless, Tenant agrees to execute, acknowledge and deliver any
subordination, attornment or priority agreements or other instruments conforming
to the provisions of this Article (and being otherwise commercially reasonable)
from time to time requested by Landlord or any mortgagee in furtherance of the
foregoing, and further agrees that its failure to do so within 10 days after
written demand shall be subject to the monetary default provisions of this
Lease.
WITNESS the execution hereof under seal as of the date first set forth above.
TENANT: BOSTON TECHNOLOGY, INC.
By: /s/ Del Wnorowski
_________________________________
LANDLORD: WBAM LIMITED PARTNERSHIP
By: WBAM, Inc., its sole general partner
By: /s/ Robert Beal
__________________________________
Vice President
By: __________________________________
Assistant Treasurer
-94-
<PAGE>
<PAGE>
Appendix A1
Description of Premises
Lot 6 as shown on that certain plan of land entitled "Plan of Land in Wakefield,
MA (Middlesex County), being a subdivision of Lot 4 on LC Plan 25969-C",
prepared by Beals and Thomas, Inc. and dated April 9, 1996 (attached hereto
as Appendix A2).
Appendix A2
(attached)
Appendix A3
Description of Purchase Lot
Lot 5 as shown on that certain plan of land entitled "Plan of Land in Wakefield,
MA (Middlesex County), being a subdivision of Lot 4 on LC Plan 25969-C",
prepared by Beals and Thomas, Inc. and dated April 9, 1996 (attached hereto as
Appendix A2).
Appendix B
Cleaning Specifications
GENERAL CLEANING SERVICES (throughout the Premises, including office, assembly
and testing areas, conference rooms and cafeteria corridors)
NIGHTLY OFFICES (Monday through Friday, inclusive, Holidays excepted)
1. Empty and damp clean ashtrays
2. Empty waste baskets and remove trash
3. Vacuum all carpeting
4. Spot clean doors, walls and light switches, entrance door and glass
WEEKLY OFFICES
1. Dust and wipe clean all office furniture, woodwork and basewalls
2. Vacuum all carpet edges
MONTHLY OFFICE
1. Dust all window blinds
2. Dust tops of all files
3. Dust all ceiling diffusers
-95-
<PAGE>
<PAGE>
NIGHTLY LAVATORIES
1. Wash toilet seats, bowls, urinals and basins with approved germicidal
detergent
2. Sweep and wash floor with approved germicidal detergent
3. Clean all mirrors, shelves and bright work, etc. including flushometer and
receptacles
4. Spot clean doors, partitions and walls
5. Dust window sills
6. Remove wastepaper
7. Refill tissue holders, soap dispensers and towel dispensers
*SUPPLIES TO BE FURNISHED BY OWNER
MONTHLY LAVATORIES
1. Wash all partitions and walls
2. Clean all exhaust fan grills
QUARTERLY LAVATORIES
1. Machine scrub all flooring
NIGHTLY STAIRWELL AND CORRIDORS
1. Vacuum all carpeting
2. Sweep and damp mop all flooring
3. Dust all railings, edges and window sills
4. Empty and clean all ashtrays
5. Spot wash all walls
6. Wash basement stairs and corridor
WEEKLY STAIRWELL AND CORRIDORS
1. Wash all stairs
2. Corner vacuum all carpeting
NIGHTLY LOBBY
1. Vacuum all carpet
2. Vacuum at all entrance doors
3. Wet mop rear entrance lobby floor
4. Empty and clean ashtrays
5. Spot clean walls and base
6. Clean all entrance glass and doors
7. Sweep all entrance steps
WEEKLY LOBBY
1. Dust directory and plaques
-96-
<PAGE>
<PAGE>
NIGHTLY ELEVATORS AND ESCALATORS
1. Vacuum carpets
2. Clean walls
3. Clean stainless steel in and outside of elevators with approved cleaner
4. Remove trash from ceiling grill
WEEKLY ELEVATORS
1. Vacuum all elevator tracks
2. Dust ceiling fans
MONTHLY ELEVATORS
1. Dust ceiling grills
SNOW REMOVAL
1. After a 2" snowfall, the snow will be removed from walkways, driveways,
parking areas and steps.
2. In cases of ice storms or other icy conditions, sand or other de-icing
material shall be applied as necessary to walkways, driveways, parking areas
and steps.
BI-YEARLY
1. Windows will be cleaned twice a year.
-97-
<PAGE>
<PAGE>
APPENDIX C
Landlord's Work
C1. Improvement Plans. The Design Documents listed in Schedule 1 to this
Appendix C describe the improvements which Landlord will cause to be constructed
as Landlord's Work. Landlord will, at Landlord's cost, cause an architect or
engineer to prepare further drawings and specifications based upon the Design
Documents. As prints of any such drawings and specifications are available
they will be provided to Tenant for its approval, which shall not be
unreasonably withheld or delayed so long as the successive drawings and
specifications are based upon and elaborate concepts set forth in previously
approved drawings and specifications (including the Design Documents). If
Tenant does not disapprove any submission based on the foregoing standard
within two business days following receipt, in each case notifying Landlord in
reasonable detail of the respects in which the drawings and specifications are
disapproved (and the modifications which if made would result in approval), then
the submission in question shall be deemed to be approved. Landlord may make
changes in approved drawings and specifications so long as the same are
based upon and elaborate concepts set forth in drawings and specifications
previously approved at an earlier stage in development of the design; all such
material changes shall be subject to approval in the above manner by Tenant.
(Landlord may also make changes during the course of construction by issuing
so-called change orders without such approval so long as no change order
materially alters the scope of work set forth in previously approved drawings
and specifications; and if the scope of work is materially altered then the
change order shall be subject to Tenant's approval in the above manner). The
approved plans and specifications existing from time to time including all
changes are referred to as the "Improvement Plans".
C2. Tenant Space Change Orders and Finish Work. In accordance with
reasonable procedures established by Landlord, through timely written requests
to Landlord ("Tenant Space Change Orders") and at Tenant's cost, Tenant may
request that Landlord cause the contractor to perform additional work ("Tenant
Change Work"). In no event shall such Tenant Space Change Orders include (nor
will Landlord be obliged to request that its contractor perform) work not
customarily performed by Massachusetts construction trades, items in the nature
of furniture, trade or business fixtures, equipment or decorations, work which
is incompatible with the design, quality equipment or systems shown on the
Improvement Plans, or work which would delay the orderly or efficient
construction of Landlord's Work or prevent Landlord from complying with the
terms of any mortgage, code or law. In all events Tenant shall be solely
responsible for paying such contractor all costs thereof; and Tenant will
indemnify and hold Landlord harmless in the manner elsewhere provided in the
Lease from any cost or liability on account of Tenant Change Work.
-98-
<PAGE>
<PAGE>
C3. Punchlist Procedure. On or before the actual date of substantial
completion (as specified by prior notice from Landlord to Tenant), or the date
Tenant occupies all or any part of the Premises for its business if earlier,
Tenant shall cause its representative to be present with a representative of
Landlord and Landlord's contractor to walk the Premises for the purpose of
arriving at the final punchlist. Landlord shall prepare a draft punchlist,
noting any items contested by Tenant, for Tenant's approval (including deemed
approval) in same manner as provided above with respect to approval of drawings
and specifications ("Final Punchlist"). Items shall not be added to the Final
Punchlist by Tenant after it is approved by Tenant. With respect to items on
the Final Punchlist not in dispute, Landlord shall cause its contractor to
complete such items in a diligent manner during regular business hours, but in
a manner which will seek to minimize interference with Tenant's use.
C4. Landscaping. Landlord will, at Landlord's cost, landscape the grounds
of the Premises in a manner comparable to and consistent with the current
landscaping on the developed portion of the Park.
-99-
<PAGE>
Exhibit 11
Boston Technology, Inc.
Statement of Weighted Shares used in Computation of Earnings Per Share
(in thousands)
<TABLE>
<CAPTION>
For the years ended January 31,
1997 1996 1995
---- ---- ----
<S> <S> <S> <S>
Common stock outstanding, beginning of period 24,732 24,759 24,217
Weighted average common stock issued 462 394 228
Weighted effect of treasury stock -- (294) --
Weighted average common stock equivalents (a) 7,584 -- 2,663
Weighted average treasury shares acquired
using the treasury stock method (a) (5,193) -- (1,357)
----- ----- -----
Weighted average shares of common
stock outstanding 27,585 24,859 25,751
====== ====== ======
</TABLE>
Primary and fully diluted earnings per share are the same for all
periods presented.
(a) Weighted average common stock equivalents and treasury shares acquired
under the treasury stock method were not considered in the January 31, 1996
calculation since they would be anti-dilutive.
-100-
<PAGE>
Exhibit 21
Boston Technology, Inc.
Subsidiaries of Registrant
<TABLE>
<CAPTION>
Wholly owned subsidiaries Jurisdiction of Corporation
<S> <S>
Boston Technology International, Inc. State of Delaware
Boston Technology Limited Virgin Islands
Boston Technology Securities State of Delaware
Voice Mail One State of Delaware
Boston Technology Japan State of Delaware
Boston Technology Mexico State of Delaware
Boston Technology International Inc., S.A. de C.V. Mexico
Boston Technology Servicios Mexico S.C. Mexico
Boston Technology Far East Ltd. Hong Kong
Boston Technology Europe State of Delaware
Boston Technology Investments State of Delaware
Boston Technology Pac Rim State of Delaware
Boston Technology Australia/New Zealand State of Delaware
Boston Technology India State of Delaware
</TABLE>
-101-
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statements of
Boston Technology, Inc. on Form S-8 (File Nos. 33-35135, 33-42808, 33-52298,
33-52296, 33-80734, 33-80720, 33-60703, 33-60707 and 333-6863) of our reports
dated April 24, 1997, on our audits of the consolidated financial statements
and financial statement schedule of Boston Technology, Inc. as of January 31,
1997 and 1996, and for each of the three fiscal years in the period ended
January 31,1997, which reports are included in this Annual Report of Form 10-K.
By /s/Coopers & Lybrand
--------------------
Coopers & Lybrand
Boston, Massachusetts
April 30, 1997
-102-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
BOSTON TECHNOLOGY, INC.
FINANCIAL DATA SCHEDULE
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-31-1997
<PERIOD-END> JAN-31-1997
<CASH> 14032
<SECURITIES> 0
<RECEIVABLES> 58061
<ALLOWANCES> 3656
<INVENTORY> 19046
<CURRENT-ASSETS> 90899
<PP&E> 48549
<DEPRECIATION> 22981
<TOTAL-ASSETS> 128173
<CURRENT-LIABILITIES> 50488
<BONDS> 0
0
0
<COMMON> 25
<OTHER-SE> 76467
<TOTAL-LIABILITY-AND-EQUITY> 128173
<SALES> 192458
<TOTAL-REVENUES> 192458
<CGS> 91283
<TOTAL-COSTS> 91283
<INTEREST-EXPENSE> 1186
<OTHER-EXPENSES> 79044
<LOSS-PROVISION> 0
<INCOME-PRETAX> 20961
<INCOME-TAX> 6812
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14149
<EPS-PRIMARY> .51
<EPS-DILUTED> .51
</TABLE>
