<PAGE> 1
US SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[x] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 [FEE REQUIRED]
For the fiscal year ended: December 31, 1996
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [NO FEE REQUIRED]
Commission file number: 0-16284
National TechTeam, Inc.
-------------------------------
(Name of issuer in its charter)
Delaware 38-2774613
- ------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
835 Mason, Suite 200, Dearborn, MI 48124
--------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (313) 277-2277
Securities registered under Section 12(b) None
of the Securities Exchange Act:
Securities registered under Section 12(g) Common Stock, $.01 par value
----------------------------
of the Securities Exchange Act: (Title of Class)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.
[x] Yes [ ] No
Indicate by check mark if the disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [x]
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of March 10, 1997 was approximately $311,330,000.
Revenues for issuer's most recent fiscal year ended December 31, 1996 were
$69,150,996.
The number of outstanding shares of the issuer's common stock as of March 10,
1997 was 14,859,867.
DOCUMENTS INCORPORATED BY REFERENCE
National TechTeam, Inc.'s definitive Proxy Statement to be filed no later than
120 days after the end of the year covered by this report is incorporated by
reference into Part III.
<PAGE> 2
PART I
ITEM 1. BUSINESS
GENERAL
National TechTeam, Inc. ("National TechTeam," "TechTeam" or "Company") is a
leading provider of information technology outsourcing support services to large
national and multi-national corporations, government agencies and service
organizations. The Company offers its services through two global business
units: (i) Call Center Services, which provides its clients with inbound
telephone support for their computer product end-users and (ii) Corporate
Computer Services, which provides corporations with technical staffing
(principally on-site help desk support), systems integration and instructor-led,
computer-based training. TechTeam's client base includes Hewlett-Packard, Ford,
Chrysler, First Chicago NBD, United Parcel Service, Owens-Corning, Novell and
Sun Microsystems. Many of TechTeam's clients utilize services offered by both of
TechTeam's business units. The Company has experienced rapid growth as the trend
toward outsourcing has increased. Between 1992 and 1996, revenues increased from
$10.9 million to $69.2 million and net income increased from $766,000 to $4.8
million. This represents compounded annual growth rates of 58.7% and 58.0% in
revenues and net income, respectively.
INDUSTRY BACKGROUND
The IT services market is large and growing rapidly as corporations
continue to focus on their core business and seek to outsource technical support
to third-party providers. In addition, the availability, complexity and number
of end-users of computer processing systems have increased, further spurring the
demand for IT support services. Dataquest estimates that from 1995 to 1999, the
overall IT services market will grow from $50.7 billion to $79.0 billion;
technical support services provided in-house and by third parties, such as those
provided by call centers and on-site help desks, are expected to increase from
$20.6 billion to $31.5 billion; and technical support services outsourced to
third-party vendors are expected to increase from $2.6 billion to $7.2 billion.
This represents compound annual growth rates of 11.7%, 11.2% and 29.0%,
respectively. In addition, the Gartner Group estimates that by 1998 over 40% of
companies will outsource corporate help desk services, a part of technical
support services, compared to only 15% today.
TechTeam's growth has been driven by several major business trends
affecting the IT services market. Continued rapid technological change, more
frequent upgrade cycles, the increased need for specialized knowledge to plan
and implement IT strategies, the large capital expenditures necessary to
maintain an IT infrastructure and the desire to convert fixed employee costs to
variable costs are all factors which have led businesses to outsource an
increasing portion of their computer and IT functions. The Company anticipates
the outsourcing trend to continue as corporations reduce resources dedicated to
non-core activities.
SERVICES
The Company originally commenced operations as a value added reseller of
computer hardware and software that also provided training for its computer
products. During the late 1980's the Company added IT staffing and systems
integration services as a complement to its existing training business. In 1993,
as a result of the Company's growing expertise in providing IT staffing of
on-site help desks, TechTeam entered the call center industry. Today, the
Company's IT outsourcing services are intended to cover a broad range of IT,
including planning, design, implementation and support. Although the Company's
services are complementary, TechTeam has divided its service offerings into two
divisions (i) Call Center Services and (ii) Corporate Computer Services
(technical staffing, systems integration and training), which are described in
more detail as follows:
CALL CENTER SERVICES
The Company is currently one of the largest international suppliers of
call center services. TechTeam focuses on two types of customers: (i)
manufacturers of hardware and software products, such as Hewlett-Packard,
contract TechTeam to resolve their customers' inbound technical support
calls regarding use of features, troubleshooting, problem diagnosis, and
operating assistance; and (ii) major corporations, such as Chrysler, have
selected TechTeam to provide off-site telephone-based support for their
employees and/or customers on a national and international basis. TechTeam
also provides services to support its clients throughout their sales cycle,
including such services as market research, lead generation, new product
launch support, pre-sales support, order fulfillment and entitlement. The
following chart illustrates a representative sales cycle for a typical
technology vendor:
2
<PAGE> 3
[SALES CYCLE GRAPHIC]
TechTeam's four domestic call centers, located in the metropolitan areas of
Detroit (2), Chicago, and Dallas, and its Pan-European center in Brussels,
Belgium, provide live agent and interactive voice response services. Currently,
TechTeam has over 792 workstations available for three shifts, 24 hours a day, 7
days a week, 365 days per year and is able to provide services in 18 different
languages. Call Center Services is currently staffed by 815 trained and
experienced technical professionals who support over 500 software applications,
hardware components, Internet sites and proprietary systems. The Company's
state-of-the-art call centers are equipped with sophisticated telephony
infrastructure, efficient networks, call distribution software, and productivity
management tools which aid in increasing efficiency and utilization.
CORPORATE COMPUTER SERVICES
Technical Staffing. This largest component of TechTeam's Corporate Computer
Services unit consists principally of on-site help desk personnel which are
provided to clients almost exclusively on long-term assignments. For
multi-national clients such as Ford and Chrysler, TechTeam establishes full
service multi-product, multi-platform help desks that are resident on the
clients' sites and are fully integrated with their operations. Clients'
employees contact the help desks for assistance with product usage, network
administration, product acquisition, and corporate computing standards. These
productivity centers provide over-the-phone and deskside assistance for
employees at all levels. Because of TechTeam's proximity to the client's
technology and business practices, the Company is often asked to provide
peripheral staffing services for contract programming, database design, graphics
development and network management. Through its on-site help desk services,
TechTeam develops a proprietary awareness of its clients' technology
requirements and can provide creative solutions through the implementation of
customized training programs.
Systems Integration. Through systems integration services, TechTeam works
closely with its clients in the design and integration of advanced technology
systems. These systems, which are the IT foundation for many corporations today,
require significant planning to assure that the various hardware and software
components are compatible and will work together to achieve fast and reliable
communications. Key services provided by TechTeam include: LAN/WAN design,
installation, administration and support; World Wide Web development and a
complete package of Internet services; Novell, NT Server and Lotus Notes
implementation; QS 9000 and ISO 9000 software; hardware and software sales,
installation, troubleshooting and maintenance.
3
<PAGE> 4
Training. Over the past several years, TechTeam has grown into a
leading provider of customized corporate computer training in North America
with training offerings ranging from general end-user modules to complex
technical courses for IT professionals. The Company is a
manufacturer-authorized training provider for many products produced by
Novell, Microsoft, IBM, Lotus, SABRE and Sun Microsystems and is a Sylvan
Prometric Testing Center in order to provide clients with certification
access. Offerings include a wide array of applications within the office
automation, network and client server marketplace. Although most training
is delivered on client sites, TechTeam operates six training facilities
located in Michigan (3), Massachusetts, Indiana and Illinois. Clients are
offered a full range of delivery capabilities including course catalogs,
registration, equipment, networks, course materials, certified trainers,
evaluation options, desk-side tutorials, testing, feedback to help desks
and reporting. TechTeam's documentation department works with clients to
provide professional, customized reference materials including
comprehensive systems manuals, newsletters, training materials, translation
services, quick reference cards and product information flyers.
COMPETITIVE STRENGTHS
TechTeam possesses several key competitive strengths that it believes will
enable it to continue to expand its business by further penetrating existing
client relationships and by attracting new clients. These strengths, which have
contributed to TechTeam's rapid growth, are as follows:
Internationally Recognized Client Base. National TechTeam provides its
services to large national and multi-national clients who have a reputation for
excellence in their market segments. These industry leaders impose high
standards of performance on TechTeam, often requiring the Company to adopt
best-in-class business practices. TechTeam has gained expertise in such
best-in-class practices as customer service, end-user productivity, client
server technology, computer integration, project management, and the formation
of Intranet and World Wide Web sites across automotive, financial,
manufacturing, computer, health care and consumer service industries. As
TechTeam has met these standards of performance, it has received additional
opportunities to expand its service offerings with clients such as Ford,
Chrysler, First Chicago NBD, Hewlett-Packard, Novell, Sun Microsystems and
others. The Company believes its established relationships and performance
record with its demanding clients provide TechTeam with significant credibility
and referral potential with new clients.
Multiple Service Offerings. The demand for IT outsourcing support services
is accelerating as more businesses seek outside expertise as a cost effective
alternative to managing their increasingly complex technological requirements.
TechTeam's broad array of service offerings evolved by reacting to its clients'
needs and developing outsourcing support services designed to improve their
productivity. The Company's largest clients utilize multiple elements of
TechTeam's call center, technical staffing, systems integration and training
service offerings. Rather than purchase services from a variety of vendors who
specialize in a single offering, many clients seek to reduce their purchasing
costs and create greater vendor accountability by using a select group of
business partners for a broad range of IT needs. As TechTeam penetrates each
account and becomes an integral long-term partner, it is able to reduce sales
cost per customer, and is well positioned to retain its incumbent role as the
preferred IT services provider.
Technically Proficient Employee Base. As an established growth
organization, TechTeam has been successful in recruiting and retaining a
technically proficient employee base who seek both advancement opportunities and
stability through a managed career path. TechTeam has a rigorous and continuing
in-house training program that is designed to keep its professionals proficient
with respect to the latest technologies and business methods. As the Company has
grown, it has increased the number of employees from 136 in January 1992 to
1,294 in December 1996. While service-based companies are supported by
technology, they are ultimately defined by the quality of their professional
staff. In order to develop and retain high quality professionals, the Company
applies comprehensive employee care practices, which include stringent
recruiting requirements, ongoing training for improved performance and career
advancement, periodic individual expectation and goal setting, employee
recognition programs and competitive benefits and compensation.
Recognition for Delivery of Quality Services. TechTeam is firmly committed
to providing its clients with the highest quality of call center and corporate
computer services, and has tailored its quality programs to address directly
individual client requirements. TechTeam believes that consistent, high quality,
cost-effective service delivery is the product of standardized business
practices coupled with advanced technology and performance tracking. The
Company's aggressive focus since mid-1993 on quality certification is the result
of two key drivers: (i) rapid growth with strong profit margins is sustainable
only through high client satisfaction, and (ii) many major corporations are now
requiring, or will soon require, formal third-party quality certification of
their business partners. TechTeam has been recognized for its delivery of
quality services by being awarded ISO 9001 certification, an international
standard for quality assurance and operating consistency. Within its call
centers, TechTeam employs a comprehensive performance tracking system that
measures
4
<PAGE> 5
objective and subjective attributes of service delivery. These quality criteria
are customized for each project to reflect accurately the service delivery as
perceived by the caller and with respect to the broader goals of the client.
The Company believes that its delivery of high quality services results from
close supervision and management. When combined with its clients' performance
evaluations, these operational practices provide a strategic advantage in
competing for additional business. National TechTeam encourages and assists
clients with direct connections to TechTeam's systems from their sites for real
time access to operational statistics and performance. This sharing of key
management information is intended to position National TechTeam as a business
partner rather than a discrete third-party service provider.
Advanced Technology Infrastructure. The Company believes that its
technology enables it to maintain a leading position as a provider of IT support
services, particularly in call center services. As such, National TechTeam's
relationship with some of the world's leading companies has meant that TechTeam
often receives challenging assignments requiring the use of advanced technology
and methodologies. To meet these challenges, the Company continually trains its
employees and clients in the latest product and service innovations. In
addition, National TechTeam has built four new call centers in the last 18
months, investing substantial capital to build a technology infrastructure that
features state-of-the-art call centers with sophisticated telephony, efficient
networks, call distribution software and productivity management tools.
GROWTH STRATEGY
The Company intends to increase revenues and to continue to grow its
operations through the following growth strategy:
Further Penetrate Existing Clients, Attract New Clients and Extend Service
Lines. National TechTeam intends to market its call center and corporate support
services aggressively through further penetration within existing accounts,
pursuing new clients and through the addition of new service offerings.
Historically, many of TechTeam's clients initially have engaged the Company to
provide a specific service to a single division or business unit. National
TechTeam believes that the provision of additional services to its existing
client base represents a significant growth opportunity and that the access,
contacts and goodwill provided by its existing client relationships afford it
significant advantages in marketing additional services. The Company also
intends to target new clients by continuing to leverage the credibility of its
blue chip client list, its outstanding service delivery record and broad service
offerings. In addition, TechTeam plans to extend its service line to meet its
client's needs. Offerings have recently been added throughout a client's sales
cycle such as pre-launch support, pre-sales support and order fulfillment, among
others to complement the Company's strong post-sales support service.
Leverage Technology and Training for Higher Margins. As part of the
Company's expansion program, it built four state-of-the-art call centers and
made other enhancements to its technological infrastructure. The investment for
high-capacity advanced-function PBX phone switches, interactive voice response
technology, automated call distributors, disaster recovery, back-up generators,
technician training programs and facilities are fixed costs that can be spread
across a larger revenue base. TechTeam's call centers operate 7 days a week, 24
hours a day, 365 days per year. National TechTeam also attempts to improve its
margins by generating off-peak call center traffic to create a balance at each
call center to supplement peak utilization between 7 a.m. and 9 p.m. EST. The
Company is able to maintain activity at its call centers during off-peak hours
by providing its services to Internet end-users and by providing international
support, such as direct T1 access to service contracts from Australia, Europe,
and the Pacific Rim.
National TechTeam's roots in corporate training have greatly impacted the
development of all of the Company's service lines and continue to play a key
role in service evolution. With a professional staff of over 50 certified
trainers and a large team of degreed instructional designers, TechTeam is
afforded a unique opportunity to make use of extensive training resources,
course materials, infrastructure, equipment, labs, and facilities across all
aspects of the business. The Company believes that these training assets provide
three distinct benefits to National TechTeam, each of which improve employee
productivity and reduce operating costs: (i) staff retention is improved by
continuing to challenge employees and preparing them for advancement; (ii)
cross-trained employees can be moved between projects to meet client needs and
to increase utilization; and (iii) professional training is an affordable way to
keep employees current on emerging technologies and business practices.
TechTeam has added four new call centers and two new training facilities in
the period between January 1, 1995 and December 31, 1996. The Company has the
capacity to nearly double both its present call volumes and training volumes
without incurring additional material facility and operating infrastructure
expenses.
5
<PAGE> 6
Expand Globally. National TechTeam's business development and expansion
strategy is based on a combination of anticipating and responding to client
needs and selective acquisitions. As major corporations redefine themselves to
compete in the global marketplace, TechTeam is responding by delivering services
on a multi-national basis to many of its largest clients. In particular, the
Company opened its 75%-owned, joint-venture operated call center in Brussels,
Belgium in May 1996 in order to provide its U.S.-based clients with Pan-European
call center services. During 1996, TechTeam has also opened facilities in Troy,
Michigan; Harper Woods, Michigan; and Indianapolis, Indiana. TechTeam services
many of its clients' international requirements by operating its domestic call
centers on a 24-hour basis and offering its services in 18 foreign languages.
The Company believes that its record of responding to its clients' geographic
demands has greatly strengthened its relationship and opportunities with its
clients. National TechTeam continually monitors and evaluates additional
expansion opportunities and is prepared to act when justified by client demand.
Pursue Selective Acquisitions, Joint Ventures and Alliances. Many industry
analysts believe that the IT industry, which has been proliferating, is likely
to enter a consolidation phase within the next several years. National TechTeam
continually monitors the marketplace for appropriate opportunities and intends
to maintain flexibility in finding ways to increase TechTeam's resources and
capabilities. The Company also seeks joint venture partners when it determines
that a partnership arrangement will be beneficial when offering a new line of
business or entering a new marketplace. In opening its Brussels call center,
TechTeam entered into a joint venture with Paratel N.V., a Pan-European provider
of call center services.
National TechTeam believes that its services are enhanced by establishing
mutually beneficial partnerships with computer industry leaders, niche players,
and other key suppliers of software, hardware and services. Alliances have
resulted in contracts directly with manufacturers such as Sun Microsystems,
Novell, Palindrome, Shiva and Hewlett-Packard for product training, network
implementation and technical support.
Continue a Strong Commitment to Quality Service. TechTeam's commitment to
quality service and its continued efforts to obtain additional certification and
recognition for its quality methodologies forms the basis of the Company's
ongoing strategy. This strategy is essential to TechTeam's ability to generate
new business because many companies already require their suppliers to adopt the
QS and ISO quality systems and the Company believes many more will require
compliance in the near future. National TechTeam has received ISO 9001
certification and the Ford Q1 quality award. As a remarketer of System 9000
software and a training provider for this enterprise-wide quality management
tool, TechTeam assists other companies in obtaining QS and ISO certification and
in implementing quality control systems. Other elements of the Company's quality
program which are key to its overall strategy are the recruitment, training and
retention of a highly qualified and dedicated work force.
TECHNOLOGY
As an IT outsourcing company, National TechTeam relies upon technology to
offer its clients efficient, high quality call center services. TechTeam has
invested in high performance, scalable, manageable telecommunications and data
networks and infrastructure. TechTeam's call centers are equipped with Aspect
ACD's, Dialogic IVR's, and other leading call processing technologies including
all of the latest enhancements to allow the most innovative and cost effective
advanced call center and call processing capabilities in the industry.
TechTeam's call center agents are equipped with state-of-the-industry PC's from
leading manufacturers, and its world wide data communication network allows the
Company to manage its networks in the most cost effective manner, and with the
highest availability, possible. National TechTeam's call centers are equipped
with fault tolerant fiber-based telecommunication equipment and networks from
leading carriers allowing TechTeam to assure its clients the most reliable call
center services available. All of these investments allow the Company to lower
start up cost for its clients and to offer one of the lowest total cost
structures in the industry without sacrificing quality of service.
National TechTeam has also built a "Foundation Platform" using technology
developed by Webcentric Communications, Inc. The Foundation Platform is a set of
industry standard technologies and systems combined into a unique and powerful
vehicle to enable TechTeam to connect its clients and its clients' customers
with an expert in nearly any language and in virtually any location. This
technology platform will enable TechTeam to maximize utilization of its human
resources dedicated to Call Center Services.
6
<PAGE> 7
National TechTeam's strategy is to use technology to create competitive
advantage. TechTeam will continue to pursue this strategy by creating
innovative applications that allow its clients and its clients' customers to
improve their own operational efficiencies. All of the features of the
Foundation Platform can be deployed within the Company's corporate accounts as
well as its OEM and ISV customers. By leveraging this platform, National
TechTeam expects its cost of service to be reduced through the use of "Virtual
Agents". Virtual Agents are agents which can be deployed through the Foundation
Platform anywhere in the world where agents have access to a Netscape browser
and a simple telephone and analog line. This innovative application allows
TechTeam to lower infrastructure costs, maintain operational controls and
address the challenge of recruiting qualified professional support agents.
MARKETING, SALES AND CLIENTS
The Company's sales and marketing strategy is to generate new business
opportunities and to develop stronger relationship with existing customers. To
implement this strategy, National TechTeam currently employs 33 sales
professionals, a three-fold increase in sales professionals since 1995. In
addition, the Company has put in place an organizational structure consisting of
three focused teams: (i) Central Support Services, dedicated specifically to
call center outsourcing opportunities; (ii) Corporate Computer Services, which
is divided into a major accounts group and national accounts group and (iii)
European Operations. The principal objective of this structure is to assign
marketing representatives with a thorough knowledge of the clients' needs and
the requisite sales experience to afford the maximum opportunity for cross-
selling TechTeam's services and leveraging the Company's experience with major
clients into new client relationships. Marketing efforts include direct
solicitations, attendance at industry and trade shows, and invitations for
clients to visit the Company's business offices and three types of delivery
venues: National TechTeam's call centers, help desks located on client
facilities, and in-progress training sessions.
TechTeam's client base is comprised principally of large national and
multi-national corporations, service organizations and governmental units. The
automobile industry accounts for a major portion of the Company's revenues,
although the percentage of revenues represented by clients in other industries
has been steadily increasing. Combined sales to National TechTeam's five largest
clients in 1996 accounted for 67.7% of total revenues. In 1996, the combined
revenues from Ford Motor Company and Chrysler Corporation totaled 31.5% of the
Company's revenues. Although TechTeam has historically been and continues to be
dependent upon Ford for a significant portion of its total revenues,
Hewlett-Packard became the Company's largest client in 1996. The percentage of
total revenues derived from Ford declined to 23.6% in 1996 from 37.4% in 1995
and from 47.1% in 1994 even while revenues from Ford increased 14.9% during that
same period. Total revenues from non-Ford clients increased at a 82.0% compound
annual growth rate from 1994 to 1996. Although TechTeam's management recognizes,
and has acted upon, the need to diversify its client base, National TechTeam
continues to seek additional business from its largest clients and those clients
will continue to constitute a high percentage of TechTeam's total revenues in
the foreseeable future. The Company does not have exclusive arrangements with
any clients, and most contracts are cancelable by either party on short notice.
In addition, most clients may reduce the use of TechTeam's services unilaterally
without penalty or with the payment of certain start up costs if canceled early.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Impact of Business With Major Clients."
The following is a selected list of TechTeam's clients:
Automobile Club of Michigan Meijers
Blue Cross/Blue Shield of Michigan Micrografx
Chrysler Corporation Novell
Comdisco Inc. Owens-Corning
Concentric Network Corporation Rockwell International
First Chicago NBD Sun Microsystems
Ford Motor Company United Parcel Service
Hewlett-Packard Wayne County Government
Intelliquest
7
<PAGE> 8
INTELLECTUAL PROPERTY RIGHTS
National TechTeam's success is dependent upon certain methodologies it
utilizes in designing and delivering Corporate Computer Services and Call Center
Services. TechTeam's business includes the development of custom software in
connection with specific client engagements. Ownership of such software is
generally assigned to the client. The Company also develops certain foundation
and application software products, or software "tools," which remain the
property of the Company.
National TechTeam relies upon a combination of nondisclosure and other
contractual arrangements and trade secret, copyright and trademark laws to
protect its proprietary rights and the proprietary rights of third parties from
whom TechTeam licenses intellectual property. The Company enters into
confidentiality agreements with its employees and limits distribution of
proprietary information. There can be no assurance that the steps taken by
National TechTeam in this regard will be adequate to deter misappropriation of
proprietary information or that TechTeam will be able to detect unauthorized use
and take appropriate steps to enforce its intellectual property rights.
Although the Company believes that its services do not infringe on the
intellectual property rights of others and that it has all rights necessary to
utilize the intellectual property employed in its business, National TechTeam is
subject to the risk of litigation alleging infringement of third-party
intellectual property rights. Any such claims could require the Company to spend
significant sums in litigation, pay damages, develop non-infringing intellectual
property or acquire licenses of the intellectual property which is the subject
of asserted infringement.
TechTeam(R) and Support Central(R) are servicemarks that are registered
with the United States Patent and Trademark Office. Federal servicemark
registrations may be renewed indefinitely as long as the underlying servicemark
remains in use. Aside from the foregoing, the Company holds no other trademarks,
servicemarks or patents.
COMPETITION
National TechTeam faces intense competition in the markets served by both
its Call Center and Corporate Computer Services divisions. In the call center
market, TechTeam competes with other call center companies, some of which have
substantially greater resources including more call center locations, greater
financial resources, a larger client base and more name recognition. In the
corporate computer services markets, the Company competes with many entities
including systems integration firms, application software firms, staffing firms,
"Big Six" accounting firms, facilities management firms and computer consulting
firms. Many of these firms have far greater resources, clients and name
recognition than National TechTeam. TechTeam also faces significant competition
in both markets from its own clients and potential clients whose internal
resources represent a fixed cost to the client. Such competition may impose
additional pricing pressures on the Company. National TechTeam competes
principally on the basis of quality of customer service, being able to provide a
broad range of IT services, price, experience and reputation in the industry,
technological capabilities, quality practices, rapid response to client needs
and referrals from existing clients.
HUMAN RESOURCES
At December 31, 1996, TechTeam had a total of 1,294 employees of which 132
were part-time. The functional responsibilities of these employees are as
follows: 751 client support agents and related employees in Call Center
Services; 247 professionals in technical staffing; 113 professionals in systems
integration; 86 instructors and related employees in training; 34 employees in
sales and marketing; and 63 employees in management and administration. National
TechTeam believes its relationship with its employees is excellent.
8
<PAGE> 9
ITEM 2. PROPERTIES
The following table sets forth the primary real properties which TechTeam
leases and occupies:
<TABLE>
<CAPTION>
LEASE TERM
BEGINNING AND SQUARE
LOCATION FUNCTION EXPIRING FOOTAGE
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Dearborn, MI . . . . . . . World Headquarters and 01/01/97 - 12/31/05 54,859
North American Training
Center Headquarters
Southfield, MI . . . . . . World Call Center 11/01/93 - 12/31/00 57,403
Headquarters and
Training Center
Dallas, TX . . . . . . . . Regional Office and 10/01/95 - 09/30/00 34,061
Call Center
Harper Woods, MI . . . . . Call Center 06/15/96 - 06/14/97 17,775
Chicago, IL . . . . . . . Regional Office, Call 3/1/94 - 2/28/00 13,195
Center and Training
Center
Boston, MA . . . . . . . . Training Center 9/5/96 - 9/30/97 5,214
Troy, MI . . . . . . . . . Training Center 01/01/96 - 12/31/98 2,345
Omaha, NB . . . . . . . . WebCentric Operations 1/1/97 - 12/31/02 2,174
Indianapolis, IN . . . . . Training Center 01/01/96 - 12/31/00 1,881
Brussels, Belgium . . . . Call Center * 1,356
- ----------
</TABLE>
* As part of its joint-venture with Paratel N.V., TechTeam has the right to
occupy space which is cancellable on 180 days notice. Although the Company does
not foresee the loss of this right in the near future, the Company believes
that suitable replacement facilities are readily available.
TechTeam believes that the facilities it occupies are well maintained and
in good operating condition. These facilities include general office space and
22 well-equipped computer training classrooms. Because some TechTeam services
are performed at client sites, the cost of maintaining multiple offices is
minimized. In addition to the properties listed in the above table, TechTeam
employs personnel and performs ongoing business in California, New Jersey and
the United Kingdom.
ITEM 3. LEGAL PROCEEDINGS
TechTeam is not aware of any material legal proceedings against it.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of 1996.
9
<PAGE> 10
PART II
ITEM 5. MARKET FOR REGISTRANT'S SECURITIES AND RELATED STOCKHOLDER MATTERS
The following table sets forth the reported high and low sales prices of
the Company's common stock for the quarters indicated as reported on the Nasdaq
National Market. The Company's common stock trades on the Nasdaq National Market
tier of the Nasdaq Stock Market under the symbol "TEAM."
<TABLE>
<CAPTION>
HIGH LOW
------- ------
<S> <C> <C>
1995
First Quarter . . . . . . . . . . . . . . . . . . . . . . . $ 5.250 $ 3.500
Second Quarter . . . . . . . . . . . . . . . . . . . . . . $ 6.875 $ 3.875
Third Quarter . . . . . . . . . . . . . . . . . . . . . . . $ 7.500 $ 5.250
Fourth Quarter . . . . . . . . . . . . . . . . . . . . . . $ 6.125 $ 4.875
1996
First Quarter . . . . . . . . . . . . . . . . . . . . . . . $ 6.250 $ 4.750
Second Quarter . . . . . . . . . . . . . . . . . . . . . . $17.875 $ 5.063
Third Quarter . . . . . . . . . . . . . . . . . . . . . . . $27.500 $ 7.500
Fourth Quarter . . . . . . . . . . . . . . . . . . . . . . $30.125 $19.875
</TABLE>
The Company has never paid any dividends on its common stock and expects
for the foreseeable future to retain all of its earnings from operations for use
in expanding and developing its business. Any future decision as to payment of
dividends will be at the discretion of the Company's Board of Directors and will
depend upon the Company's earnings, financial position, capital requirements and
such other factors as the Board of Directors deems relevant.
TechTeam had 757 shareholders of record as of March 10, 1997.
10
<PAGE> 11
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth certain selected consolidated financial data
and is qualified by the more detailed Consolidated Financial Statements and
notes thereto included in Item 8 in this Form 10-K Report. The Statement of
Financial Position Data as of December 31, 1992, 1993, 1994, 1995, and 1996, and
the Statement of Operations Data for each of the five years in the period ended
December 31, 1996 have been derived from the Company's consolidated financial
statements for such years, which have been audited by Ernst & Young LLP,
independent auditors.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------
1996 1995 1994 1993 1992
------- ------- ------- ------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF OPERATIONS DATA:
<S> <C> <C> <C> <C> <C>
Revenues
Call Center Services . . . . . . . . . . . . . . $33,697 $15,123 $ 7,173 $ 2,326 $ -
Corporate Computer Services ------- ------- ------- ------- -------
Technical staffing . . . . . . . . . . . . . 15,608 14,732 12,837 10,085 6,052
Systems integration . . . . . . . . . . . . . 12,819 7,840 5,530 2,647 1,079
Training programs . . . . . . . . . . . . . 7,027 4,018 4,613 5,386 3,771
------- ------- ------- ------- -------
Total Corporate Computer Services . . . . . . . 35,454 26,590 22,980 18,118 10,902
------- ------- ------- ------- -------
Total revenues . . . . . . . . . . . . . . . . . . 69,151 41,713 30,153 20,444 10,902
Cost of services delivered . . . . . . . . . . . . 52,600 32,337 23,099 15,821 8,459
------- ------- ------- ------- -------
Gross profit . . . . . . . . . . . . . . . . . . . 16,551 9,376 7,054 4,623 2,443
------- ------- ------- ------- -------
Other expenses/(income)
Selling, general and administrative . . . . . . 9,341 5,349 3,872 1,787 1,359
Interest expense . . . . . . . . . . . . . . . . 128 24 34 67 53
Interest income . . . . . . . . . . . . . . . . (937) (74) (71) - -
Gain on sale of investment . . . . . . . . . . . - - (152) - -
------- ------- ------- ------- -------
8,532 5,299 3,683 1,854 1,412
------- ------- ------- ------- -------
Income before tax provisions . . . . . . . . . . . 8,019 4,077 3,371 2,769 1,031
Tax provisions . . . . . . . . . . . . . . . . . . 3,245 1,678 1,400 1,097 265
------- ------- ------- ------- -------
Net income . . . . . . . . . . . . . . . . . . . . $ 4,774 $ 2,399 $ 1,971 $ 1,672 $ 766
======= ======= ======= ======= =======
Primary and fully diluted earnings per share . . . $ 0.38 $ 0.21 $ 0.18 $ 0.18 $ 0.09
======= ======= ======= ======= =======
Weighted average number of common shares and
common share equivalents outstanding
Primary . . . . . . . . . . . . . . . . . . . 12,520 11,361 10,891 9,306 8,422
Fully diluted . . . . . . . . . . . . . . . . . 12,544 11,361 11,079 9,523 8,733
<CAPTION>
DECEMBER 31,
------------------------------------------------------
1996 1995 1994 1993 1992
------- ------- ------- ------- --------
(IN THOUSANDS)
STATEMENT OF FINANCIAL POSITION DATA:
<S> <C> <C> <C> <C> <C>
Current assets . . . . . . . . . . . . . . . . . . $ 98,900 $16,191 $12,890 $ 6,173 $ 3,085
Current liabilities . . . . . . . . . . . . . . . . 8,341 3,839 1,173 2,006 2,037
Total assets . . . . . . . . . . . . . . . . . . . 111,962 22,286 17,149 10,300 4,130
Long-term liabilities . . . . . . . . . . . . . . . 162 555 146 214 104
Total shareholders' equity . . . . . . . . . . . . 103,459 17,892 15,829 8,080 1,989
</TABLE>
11
<PAGE> 12
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
Overview
The Company originally commenced operations as a value added reseller of
computer hardware and software that also provided training for its computer
products. During the late 1980's the Company added IT staffing and systems
integration services as a complement to its existing training business. In 1993,
as a result of the Company's growing expertise in providing IT staffing of
on-site help desks, TechTeam entered the call center industry. Today, the
Company's IT outsourcing services cover a broad range of IT, including planning,
design, implementation and support. Although the Company's services are
complementary, TechTeam has divided its service offerings into two divisions,
Call Center Services and Corporate Computer Services (technical staffing,
systems integration and training programs). Revenues from all service offerings
are recognized as services are performed.
Call Center Services consist of international telephone support for
end-users of computer hardware, software products and services. Call Center
Services are billed on a fee per call, fee per time spent on calls or per agent
basis, each as negotiated with clients. Under the terms of certain Call Center
Services contracts, clients are required to pay certain amounts at the
commencement of the contract, which payments are non-refundable and as to which
the Company has no further service obligation. Amounts billed under this
provision of such contracts aggregated $618,100 in 1996; $1,655,700 in 1995; and
$19,600 in 1994. National TechTeam has recognized these amounts as revenues when
they were billed. Absent unusual circumstances, in the future the Company
expects to negotiate these contracts so that the revenues are recognized over
the life of the contract.
Technical staffing includes a variety of technical services, including the
placement of computer personnel at client sites to support end-user applications
through on-site help desks, as well as selected programming and consulting
services. Systems integration consists of database design, computer product
sales and networking services. Contracts for technical staffing and systems
integration are generally negotiated on an hourly rate basis or are priced on a
project basis. Training programs consist of instructor-led, computer-based
training for word processing, spreadsheets, graphics, data bases, desktop
publishing, operating systems, and systems administration for NetWare, JAVA, NT,
Windows, OS/2 and UNIX and mainframe operating systems. For training programs,
clients pay a fee per student trained or a fee for classes offered, in some
cases with an advance payment for the cost of the necessary training materials.
Cost of services delivered consists of direct personnel compensation,
statutory and other benefits associated with such personnel, facility and
computer equipment costs, and other direct costs associated with providing
services to clients. Selling, general and administrative costs consist of sales,
marketing and administrative personnel compensation, statutory and other
benefits associated with such personnel, facility and equipment costs and other
indirect costs associated with the sales, marketing and administrative functions
of the Company.
12
<PAGE> 13
The following table sets forth the percentage relationship to revenues of
certain items in the Company's Consolidated Statements of Operations:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Revenues
Call Center Services . . . . . . . . . . 48.7% 36.3% 23.8%
----- ----- -----
Corporate Computer Services . . . . . .
Technical staffing . . . . . . . . . 22.6 35.3 42.6
Systems integration . . . . . . . . . 18.5 18.8 18.3
Training programs . . . . . . . . . . 10.2 9.6 15.3
----- ----- -----
Total Corporate Computer Services . . . 51.3 63.7 76.2
----- ----- -----
Total revenues . . . . . . . . . . . . . . 100.0 100.0 100.0
Cost of services delivered . . . . . . . . . 76.1 77.5 76.6
----- ----- -----
Gross profit . . . . . . . . . . . . . . . . 23.9 22.5 23.4
----- ----- -----
Other expenses/(income)
Selling, general and administrative . . 13.5 12.8 12.8
Interest expense . . . . . . . . . . . . 0.2 0.1 0.1
Interest income . . . . . . . . . . . . (1.4) (0.2) (0.2)
Gain on sale of investment . . . . . . . -- -- (0.5)
----- ----- -----
12.3 12.7 12.2
----- ----- -----
Income before tax provisions . . . . . . . 11.6 9.8 11.2
Tax provisions . . . . . . . . . . . . . . . 4.7 4.0 4.7
----- ----- -----
Net income . . . . . . . . . . . . . . . . 6.9% 5.8% 6.5%
===== ===== =====
</TABLE>
Between 1994 and 1996, TechTeam's revenues increased at a compound annual
rate of 51.4%. The Company believes that its growth has benefited from the trend
among large corporations to outsource much of their information technology needs
and TechTeam's ability to provide services that address a broad range of those
needs. The Company believes that the outsourcing trend will continue and will
provide continuing opportunities for both of its service lines. TechTeam further
believes that its service offerings are influenced substantially by its clients'
desires to focus on their core businesses and to leave information technology
needs to the Company for which information technology is its core business.
TechTeam's training programs have encountered cyclical enrollment trends,
influenced by the timing and extent to which clients are upgrading desk top
software.
National TechTeam's business is based on client relationships with major
corporations. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Impact of Business with Major Clients."
Comparative Performance -- 1996 versus 1995
National TechTeam earned net income of $4,773,632, or $0.38 per share, for
1996 as compared to a net income of $2,399,067 or $0.21 per share, for 1995.
Revenues -- National TechTeam's total revenues increased by $27,437,364 in
1996 to $69,150,996, a 65.8% increase over revenues in 1995. Changes in
revenues resulted from the following:
Call Center Services -- Revenues from Call Center Services increased
by $18,574,150 in 1996. This was a 122.8% increase over Call Center
Services revenues in 1995. The increase was due to an increase to 36
contracts in place at December 31, 1996 compared to the 18 contracts at
December 31, 1995, increased business with existing customers, primarily
Hewlett-Packard, and fees of $2.1 million related to licensing of its
Foundation Platform software to others.
13
<PAGE> 14
Technical staffing -- Revenues from technical staffing increased by
$876,187 in 1996. This was a 5.9% increase over technical staffing revenues
in 1995. The increase was due to continued client demand for TechTeam's
help desk and computer services personnel at Ford and other major accounts.
Systems integration -- Revenues from systems integration increased by
$4,977,961 in 1996. This was a 63.5% increase over systems integration
revenues in 1995. The increase was due principally to a growing demand by
existing clients for TechTeam's networking services.
Training programs -- Revenues from training programs increased by
$3,009,066 in 1996. This was a 74.9% increase over training revenues in
1995. The increase was due to increased enrollments in the Company's
training programs and the sale of $350,000 of computer-based training
materials to a new client.
Cost of services delivered -- The cost of services delivered increased by
$20,262,802 in 1996. This was a 62.7% increase over the cost of services
delivered in 1995. The increase was due principally to compensation costs for an
increased number of technical personnel, statutory and other benefits associated
with such personnel, facility and computer equipment costs, and other direct
costs associated with providing an increased volume of services to clients.
These costs were 76.1% and 77.5% of revenues in 1996 and 1995, respectively.
Selling, general and administrative -- Selling, general and administrative
expenses increased by $3,991,834 in 1996. This was a 74.6% increase over
selling, general and administrative expenses in 1995. The increase was due
principally to compensation costs for an increased number of sales and
administrative personnel, statutory and other benefits associated with such
personnel, facility and equipment costs, and other indirect costs needed to
support the growth of the Company. These expenses were 13.5% of revenues in 1996
compared with 12.8% of revenues in 1995. This increase was due primarily to
expansion of National TechTeam's sales and internal management information
systems staffs to support the growth of the Company.
Interest income -- Commencing in October 1996, National TechTeam began
earning significant amounts of interest income on cash generated by the 1996
public stock offering.
Tax provisions -- TechTeam recognized $2,536,699 of Federal income tax in
1996, resulting in an effective tax rate of 34.7% compared to an effective tax
rate of 34.6% for 1995. The Michigan Single Business Tax in 1996 was $709,000,
with an effective tax rate of 8.8% compared to an effective tax rate of 10.1% in
1995, the reduction reflecting tax credits generated by the creation of new jobs
in Michigan.
Comparative Performance -- 1995 versus 1994
National TechTeam earned net income of $2,399,067, or $0.21 per share, for
1995 as compared to a net income of $1,971,049, or $0.18 per share, for 1994.
Revenues -- The Company's total revenues increased by $11,560,661 in 1995
to $41,713,632, a 38.3% increase over 1994 revenues. Changes in revenues
resulted from the following:
Call Center Services -- Revenues from Call Center Services increased
by $7,950,297 in 1995. This was a 110.8% increase over Call Center Services
revenues in 1994. The increase was due to an increase to 18 contracts in
place at December 31, 1995 compared to the seven contracts at December 31,
1994.
Technical staffing -- Revenues from technical staffing increased by
$1,895,098 in 1995. This was a 14.8% increase over technical staffing
revenues in 1994. The increase was due to continued client demand for
TechTeam's help desk and computer services personnel at Ford and other
major accounts.
Systems integration -- Revenues from systems integration increased by
$2,310,827 in 1995. This was a 41.8% increase over systems integration
revenues in 1994. The increase was due principally to a growing demand by
existing clients for TechTeam's networking and applications development
services.
14
<PAGE> 15
Training programs -- Revenues from training programs decreased by
$595,561 in 1995. This was a 12.9% decrease from training revenues in 1994.
The decrease was due to a reduced scope of training services for a major
client.
Cost of services delivered -- The cost of services delivered increased by
$9,238,101 in 1995. This was a 40.0% increase over the cost of services
delivered in 1994. The increase was due principally to compensation costs for an
increased number of technical personnel, statutory and other benefits associated
with such personnel, facility and computer equipment costs, and other direct
costs associated with providing an increased volume of services to clients.
These costs were 77.5% and 76.4% of revenues in 1995 and 1994, respectively.
Selling, general and administrative -- Selling, general and administrative
expenses increased by $1,476,875 in 1995. This was a 38.1% increase over
selling, general and administrative expenses in 1994. The increase was due
principally to compensation costs for an increased number of sales and
administrative personnel, statutory and other benefits associated with such
personnel, facility and equipment costs, and other indirect costs needed to
support the growth of the Company. These expenses were 12.8% of revenues in both
1995 and 1994.
Tax provisions -- National TechTeam recognized $1,268,236 of Federal income
tax in 1995, resulting in an effective tax rate of 34.6% for 1995 compared to an
effective tax rate of 35.7% for 1994. In 1995, TechTeam reversed $25,000 of
Federal income tax reserve, resulting in the reduced effective tax rate. The
Michigan Single Business Tax in 1995 was $410,000, with an effective tax rate of
10.1% compared to an effective tax rate of 9.1% for 1994.
Impact of Business with Major Clients
Historically, National TechTeam has been heavily dependent upon Ford for a
major portion of its revenues. Management recognizes the need to diversify its
client base from both a client and industry perspective. The Company has had
some success in this regard as Hewlett-Packard became TechTeam's largest client
in 1996. However, the Company continues to seek additional business from its
largest clients and those clients will continue to constitute a high percentage
of National TechTeam's total revenues for the foreseeable future. TechTeam's
services are not specific to any single industry and can be beneficial to most
large corporations. National TechTeam's technical staffing and training programs
cover most of the popular software applications and can be customized to improve
the productivity of microcomputer users in most companies. Continuing efforts
to increase sales outside of Ford have produced positive results, as total
revenues from non-Ford clients were $52,839,227 in 1996, $26,128,668 in 1995,
and $15,957,118 in 1994, a compound annual growth rate of 82.0%.
15
<PAGE> 16
Impact of Business with Major Clients -- continued
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Hewlett-Packard Company
Revenues for the period . . . . . . . . . . . . . . . $19,266,318 $ 7,269,445 $ --
Percentage increase from prior period . . . . . . . . 165.0% --_* -- %
Percentage of total revenues . . . . . . . . . . . . . 27.9% 17.4% -- %
Ford Motor Company
Revenues for the period . . . . . . . . . . . . . . . $16,311,769 $15,584,964 $14,195,853
Percentage increase from prior period . . . . . . . . 4.7% 9.8% 3.6%
Percentage of total revenues . . . . . . . . . . . . . 23.6% 37.4% 47.1%
Chrysler Corporation
Revenues for the period . . . . . . . . . . . . . . . $ 5,485,038 $ 4,162,419 $ 3,294,788
Percentage increase from prior period . . . . . . . . . 31.8% 26.3% 160.2%
Percentage of total revenues . . . . . . . . . . . . . 7.9% 10.0% 10.9%
Corel Corporation
Revenues for the period . . . . . . . . . . . . . . . $ 268,459 $ 2,737,601 $ 3,687,298
Percentage increase/(decrease) from prior period . . . (90.2)% (25.8)% 789.4%
Percentage of total revenues . . . . . . . . . . . . . 0.4 % 6.6 % 12.2%
Novell, Inc.
Revenues for the period . . . . . . . . . . . . . . . $ -- $ 522,973 $ 2,260,203
Percentage increase/(decrease) from prior period . . . (100.0)% (76.7)% 31.6%
Percentage of total revenues . . . . . . . . . . . . . -- 1.3 % 7.5%
</TABLE>
- ------------
* First year of business relationship
Services provided to Ford and Chrysler consist of contract computer
end-user support including on-site help desks and call center services,
programming services, documentation services, and classroom training programs.
TechTeam provides these services to virtually all Ford divisions and two
finance-related Ford subsidiaries. Services provided to Hewlett-Packard, Corel
and Novell consist of technical product post-sales support provided from
TechTeam call center sites.
Revenues from Hewlett-Packard first commenced in mid-1995 with the award of
the first contract for call center services. 1996 was the first full year of
services under that contract. Additional contracts have been awarded in 1996.
Revenues from Corel first commenced in late 1993 and continued into early
1996 at which time Corel made a strategic decision to bring its call center
outsourcing service back in-house. The Company believes Corel's decision is
unrelated to the Company's performance.
Revenues from Novell (product support related to WordPerfect application
software) first commenced in mid-1993 and continued until late 1995 at which
time Novell discontinued outsourced telephone support for its customers. The
Company believes Novell's decision is unrelated to the Company's performance
and, shortly after discontinuation of service, the WordPerfect business unit was
sold to Corel Corporation.
16
<PAGE> 17
LIQUIDITY AND CAPITAL RESOURCES
Over the three year period commencing January 1, 1994, the Company's
business has been financed by cash provided by operations and the issuance of
common stock, primarily $5,020,834 of private placements in 1994, shares issued
throughout the period under stock option plans and $77,851,500 from a public
offering in 1996. Indicators of the Company's financial strength are summarized
below:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Working capital . . . . . . . . . . . . . . . . . . $ 90,559,459 $12,352,915 $11,716,501
Current ratio . . . . . . . . . . . . . . . . . . . 11.9 4.2 11.0
Debt as a percentage of total capitalization . . . 0.0% 2.4% 0.0%
Shareholders' equity . . . . . . . . . . . . . . . $103,458,639 $17,891,966 $15,829,026
</TABLE>
The Company's working capital was $90,559,459 at December 31, 1996, an
increase of 633.1% from December 31, 1995. This increase was due primarily to
funds provided by the public stock offering in 1996 and 1996 operating results
(reflected primarily in higher accounts receivable balances due to increased
sales).
TechTeam has a line-of-credit agreement with NBD Bank which provides for
short-term borrowings of up to $6,000,000; the credit is unsecured. The line of
credit is at the prime rate. There were no borrowings under the credit agreement
at December 31, 1996.
In 1995, National TechTeam invested $1,057,000 in telecommunications
hardware and software which was financed through a five year bank term note.
Management believes sufficient cash resources exist to support its current
growth strategies through currently available cash, future operations, and the
Company's existing bank credit arrangement.
17
<PAGE> 18
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following consolidated financial statements of National TechTeam, Inc.
and Subsidiaries are included in Item 8:
<TABLE>
<CAPTION>
PAGE
<S> <C>
Report of Ernst & Young LLP, Independent Auditors . . . . . . . . . . . . . . . . . . . 20
Consolidated Statements of Operations -- Years Ended December 31, 1996,
1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Consolidated Statements of Financial Position -- December 31, 1996
and December 31, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22-23
Consolidated Statements of Shareholders' Equity -- Years Ended December 31, 1996,
1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Consolidated Statements of Cash Flows -- Years Ended December 31, 1996,
1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Notes to the Consolidated Financial Statements. . . . . . . . . . . . . . . . . . . . . 26-34
</TABLE>
The following financial statement schedules of National TechTeam, Inc. and
Subsidiaries are included pursuant to the requirements of Item 14(d): None.
All schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under the
related instructions or are not applicable and, therefore, have been omitted.
18
<PAGE> 19
This Page Intentionally Left Blank
19
<PAGE> 20
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
BOARD OF DIRECTORS
NATIONAL TECHTEAM, INC.
We have audited the accompanying consolidated statements of financial
position of National TechTeam, Inc. and subsidiaries as of December 31, 1996 and
1995 and the related consolidated statements of operations, shareholders'
equity, and cash flows for each of the three years in the period ended December
31, 1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on those financial
statements based on our audits.
We conducted our audits in accordance with general 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 National
TechTeam, Inc. and subsidiaries at December 31, 1996 and 1995, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1996, in conformity with generally
accepted accounting principles.
ERNST & YOUNG LLP
February 26, 1997
Detroit, Michigan
20
<PAGE> 21
NATIONAL TECHTEAM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
REVENUES - NOTE B
Call Center Services . . . . . . . . . . . . . $33,697,444 $15,123,294 $ 7,172,997
----------- ----------- -----------
Corporate Computer Services
Technical staffing . . . . . . . . . . . . . 15,608,237 14,732,050 12,836,952
Systems integration . . . . . . . . . . . . 12,818,545 7,840,584 5,529,757
Training programs . . . . . . . . . . . . . 7,026,770 4,017,704 4,613,265
----------- ----------- -----------
Total Corporate Computer Services . . . . . . . 35,453,552 26,590,338 22,979,974
----------- ----------- -----------
TOTAL REVENUES . . . . . . . . . . . . . . . . . . 69,150,996 41,713,632 30,152,971
COST OF SERVICES DELIVERED . . . . . . . . . . . . 52,599,818 32,337,016 23,098,915
----------- ----------- -----------
GROSS PROFIT . . . . . . . . . . . . . . . . . . . 16,551,178 9,376,616 7,054,056
----------- ----------- -----------
OTHER EXPENSES/(INCOME)
Selling, general and administrative . . . . . . 9,340,868 5,349,034 3,872,159
Interest expense . . . . . . . . . . . . . . . 128,213 24,109 33,911
Interest income . . . . . . . . . . . . . . . . (937,234) (73,830) (71,467)
Gain on sale of investment . . . . . . . . . . -- -- (152,471)
----------- ----------- -----------
8,531,847 5,299,313 3,682,132
----------- ----------- -----------
INCOME BEFORE TAX PROVISION . . . . . . . . . . . 8,019,331 4,077,303 3,371,924
TAX PROVISIONS - NOTE F . . . . . . . . . . . . . 3,245,699 1,678,236 1,400,875
----------- ----------- -----------
NET INCOME . . . . . . . . . . . . . . . . . . . . $ 4,773,632 $ 2,399,067 $ 1,971,049
=========== =========== ===========
PRIMARY AND FULLY DILUTED EARNINGS PER SHARE . . . $ 0.38 $ 0.21 $ 0.18
=========== =========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES AND
COMMON SHARE EQUIVALENTS OUTSTANDING
Primary . . . . . . . . . . . . . . . . . . . . 12,520,424 11,360,768 10,981,183
Fully diluted . . . . . . . . . . . . . . . . . 12,543,878 11,360,768 11,079,136
</TABLE>
See accompanying notes.
21
<PAGE> 22
NATIONAL TECHTEAM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------
ASSETS 1996 1995
---- ----
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . $ 46,771,797 $ 1,717,543
Securities available-for-sale . . . . . . . . . . . . . . . . . 27,169,703 --
Accounts receivable Note B . . . . . . . . . . . . . . . . . 22,482,927 13,269,272
Note receivable - current portion . . . . . . . . . . . . . . . -- 53,333
Refundable income tax . . . . . . . . . . . . . . . . . . . . . 1,205,561 --
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . 647,565 769,545
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 622,865 381,751
------------ -----------
98,900,418 16,191,444
------------ -----------
PROPERTY, EQUIPMENT AND PURCHASED SOFTWARE
Office furniture and equipment . . . . . . . . . . . . . . . . 12,214,673 6,622,953
Purchased software . . . . . . . . . . . . . . . . . . . . . . 1,742,007 --
Leasehold improvements . . . . . . . . . . . . . . . . . . . . 1,380,140 681,223
Transportation equipment . . . . . . . . . . . . . . . . . . . . 192,907 154,395
------------ -----------
15,529,727 7,458,571
Less - Accumulated depreciation and amortization . . . . . . . 5,101,211 2,898,257
------------ -----------
10,428,516 4,560,314
------------ -----------
OTHER ASSETS
Goodwill (less accumulated amortization of $551,081 at
December 31, 1996 and $345,512 at December 31, 1995) . . . . 1,509,437 1,252,585
Investment in WebCentric - Note H . . . . . . . . . . . . . . 804,516 --
Note receivable - long term . . . . . . . . . . . . . . . . . -- 102,222
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 319,171 178,958
------------ -----------
2,633,124 1,533,765
------------ -----------
TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . $111,962,058 $22,285,523
============ ===========
</TABLE>
See accompanying notes.
22
<PAGE> 23
NATIONAL TECHTEAM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY 1996 1995
---- ----
<S> <C> <C>
CURRENT LIABILITIES
Current portion of long-term debt . . . . . . . . . . . . . $ -- $ 96,884
Accounts payable . . . . . . . . . . . . . . . . . . . . . 3,574,363 893,965
Accrued payroll, related taxes and withholdings . . . . . . 3,382,612 2,037,446
Deferred income tax - Note F . . . . . . . . . . . . . . . 112,643 89,839
Federal income tax payable . . . . . . . . . . . . . . . -- 160,116
Deferred revenues and unapplied receipts . . . . . . . . . 255,940 431,967
Accrued expenses and taxes . . . . . . . . . . . . . . . . 874,329 106,042
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . 141,072 22,270
------------ -----------
8,340,959 3,838,529
------------ -----------
LONG-TERM LIABILITIES
Deferred income tax - Note F . . . . . . . . . . . . . . . 87,813 116,066
Long-term debt, less current portion - Note D . . . . . . . -- 438,962
Minority interest . . . . . . . . . . . . . . . . . . . . . 74,647 --
------------ -----------
162,460 555,028
------------ -----------
SHAREHOLDERS' EQUITY - - NOTES E, G, J AND K
Preferred stock, par value $.01
Authorized 5,000,000 shares
None issued
Common stock, par value $.01
Authorized 45,000,000 shares
Issued:
15,008,291 shares at December 31, 1996 . . . . . . . 150,083
11,407,666 shares at December 31, 1995 . . . . . . . 114,077
Additional paid-in capital . . . . . . . . . . . . . . . . 93,189,700 12,601,925
Retained earnings . . . . . . . . . . . . . . . . . . . . 10,856,604 6,082,972
------------ -----------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . 104,196,387 18,798,974
Less - - Treasury stock (161,983 shares at
December 31, 1996 and 200,000 shares at
December 31, 1995). . . . . . . . . . . . . . . . . . . . . 737,748 907,008
------------ -----------
Total shareholders' equity. . . . . . . . . . . . . . . . . 103,458,639 17,891,966
------------ -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY . . . . . . . . . . $111,962,058 $22,285,523
============ ===========
</TABLE>
See accompanying notes.
23
<PAGE> 24
NATIONAL TECHTEAM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN RETAINED TREASURY
STOCK CAPITAL EARNINGS STOCK
-------- ----------- ----------- --------
<S> <C> <C> <C> <C>
Balance at January 1, 1994 . . . . . . . . . . . . . . . . $ 96,198 $ 6,270,498 $ 1,712,856 $ --
Proceeds from issuance of 1,060,731 shares of
Common stock - Note G . . . . . . . . . . . . . . . 10,607 5,010,227 -- --
Proceeds from issuance of 308,625 shares under
stock option plans - Note J . . . . . . . . . . . . 3,087 574,123 -- --
Tax benefit from exercise of employee stock options
and other . . . . . . . . . . . . . . . . . . . . . -- 180,381 -- --
Net income for 1994 . . . . . . . . . . . . . . . . . . -- -- 1,971,049 --
-------- ----------- ------------ ----------
Balance at December 31, 1994 . . . . . . . . . . . . . . . 109,892 12,035,229 3,683,905 --
Proceeds from issuance of 418,500 shares under
stock option plans - Note J . . . . . . . . . . . . 4,185 256,475 -- --
Tax benefit from exercise of employee stock options
and other . . . . . . . . . . . . . . . . . . . . . -- 310,221 -- --
Purchase of common stock - Note K . . . . . . . . . . . -- -- -- (907,008)
Net income for 1995 . . . . . . . . . . . . . . . . . . -- -- 2,399,067 --
-------- ----------- ------------ ----------
Balance at December 31, 1995 . . . . . . . . . . . . . . . 114,077 12,601,925 6,082,972 (907,008)
Proceeds from issuance of 3,225,000 shares of
common stock - Note G . . . . . . . . . . . . . . . 32,250 77,819,250 -- --
Proceeds from issuance of 289,100 shares under
stock option plans - Note J . . . . . . . . . . . . 2,891 778,469 -- --
Shares issued to acquire Coup, Inc. . . . . . . . . . . 800 259,200 -- --
Shares issued to acquire U.S.A. Computer Training
Centers, Inc. . . . . . . . . . . . . . . . . . . . 65 76,277 -- --
Tax benefit from exercise of employee stock options
and other . . . . . . . . . . . . . . . . . . . . . -- 1,654,579 -- --
Contributions to 401(k) plan and other . . . . . . . . -- -- -- 169,260
Net income for 1996 . . . . . . . . . . . . . . . . . . -- -- 4,773,632 --
-------- ----------- ------------ ----------
Balance at December 31, 1996 . . . . . . . . . . . . . $150,083 $93,189,700 $ 10,856,604 $ (737,748)
======== =========== ============ ==========
</TABLE>
See accompanying notes.
24
<PAGE> 25
NATIONAL TECHTEAM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,773,632 $ 2,399,067 $ 1,971,049
Adjustments to reconcile net income to net cash provided by/
(used in) operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . . . 2,645,544 1,594,250 1,037,279
Provision for uncollectible accounts receivable . . . . . . . . 25,000 123,143 30,308
Treasury stock contributed to 401(k) plan . . . . . . . . . . . 169,260 -- --
Provision for deferred income tax . . . . . . . . . . . . . . . (60,924) (89,631) 138,310
(Gain) on sale of investment . . . . . . . . . . . . . . . . . . -- -- (152,471)
(Gain)/loss on sales of equipment and other . . . . . . . . . . (17,860) 55,209 (3,878)
Changes in current assets and liabilities:
Accounts receivable . . . . . . . . . . . . . . . . . . . . . (9,238,655) (5,640,614) (2,725,807)
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . 121,980 (269,797) (130,574)
Other current assets . . . . . . . . . . . . . . . . . . . . (241,114) (40,420) (168,268)
Accounts payable . . . . . . . . . . . . . . . . . . . . . . 2,680,398 606,562 (173,373)
Accrued payroll, related taxes and withholdings . . . . . . . 1,345,166 1,543,265 128,159
Federal income tax . . . . . . . . . . . . . . . . . . . . . (1,365,677) 544,374 (892,231)
Deferred revenues and unapplied receipts . . . . . . . . . . (176,027) 384,427 (99,091)
Accrued expenses and taxes . . . . . . . . . . . . . . . . . 768,287 106,042 --
Other current liabilities . . . . . . . . . . . . . . . . . . 118,802 (115,852) (182,233)
----------- ----------- -----------
Net cash provided by/(used in) operating activities . . . . . . 1,547,812 1,200,025 (1,222,821)
----------- ----------- -----------
INVESTING ACTIVITIES
Purchases of property, equipment and software . . . . . . . . . . . (8,156,819) (3,187,027) (864,798)
Development of training manuals . . . . . . . . . . . . . . . . . . (211,027) (117,970) (116,722)
Purchases of securities available-for-sale . . . . . . . . . . . . . (27,169,703) (100,000) (12,388,000)
Proceeds from sale of temporary investments . . . . . . . . . . . . -- 3,600,000 8,888,000
Proceeds from sale of investment . . . . . . . . . . . . . . . . . . -- -- 160,000
Investment in WebCentric . . . . . . . . . . . . . . . . . . . . . . (804,516) -- --
Collection/(issuance) of note receivable . . . . . . . . . . . . . . 155,555 (160,000) --
Proceeds from sales of property and equipment and other assets . . . 11,000 22,630 23,227
Other assets - net . . . . . . . . . . . . . . . . . . . . . . . . . (69,641) (12,293) 13,082
----------- ----------- -----------
Net cash provided by/(used in) investing activities . . . . . . (36,245,151) 45,340 (4,285,211)
----------- ----------- -----------
FINANCING ACTIVITIES
Proceeds from short-term borrowings . . . . . . . . . . . . . . . . 8,116,575 -- --
Proceeds from long-term borrowings . . . . . . . . . . . . . . . . 480,212 565,998 --
Proceeds from issuance of common stock . . . . . . . . . . . . . . . 78,632,860 260,660 5,598,044
Tax benefit from exercise of employee stock options . . . . . . . . 1,654,579 310,221 180,381
Purchase of Company common stock . . . . . . . . . . . . . . . . . . -- (907,008) --
Payments on short-term borrowings . . . . . . . . . . . . . . . . . (8,213,459) -- --
Payments on long-term borrowings . . . . . . . . . . . . . . . . . . (919,174) (170,252) (432,471)
----------- ----------- -----------
Net cash provided by financing activities . . . . . . . . . . . 79,751,593 59,619 5,345,954
----------- ----------- -----------
Increase/(decrease) in cash and cash equivalents . . . . . . . . 45,054,254 1,304,984 (162,078)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR . . . . . . . . . . . . . 1,717,543 412,559 574,637
----------- ----------- -----------
CASH AND CASH EQUIVALENTS AT END OF YEAR . . . . . . . . . . . . . . . . $46,771,797 $ 1,717,543 $ 412,559
=========== =========== ===========
</TABLE>
See accompanying notes.
25
<PAGE> 26
NATIONAL TECHTEAM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation: The consolidated financial statements include the
accounts of National TechTeam, Inc., its wholly-owned subsidiaries TechTeam
Europe, Ltd. and National TechTeam of Illinois, Inc., formerly Micro Systems
Group, Inc. ("MSG") and the Company's 75% interest in National TechTeam Europe,
N.V., a joint venture. Collectively, these companies are referred to as the
"Company" or "TechTeam." Intercompany accounts and transactions have been
eliminated as appropriate. Certain reclassifications have been made to the 1995
and 1994 financial statements in order to conform to the 1996 financial
statement presentation.
Cash and cash equivalents: Cash includes both interest bearing and
non-interest bearing deposits which are available on demand. Cash equivalents
include all liquid investments with a maturity of three months or less when
purchased, including money market funds held at banks.
Securities available-for-sale: The Company's management determines the
appropriate classification of securities at the time of purchase and
re-evaluates such designation as of each balance sheet date. The December 31,
1996 securities available-for-sale are stated at market value which approximates
cost. Securities available-for-sale are invested primarily in obligations of
states and other political subdivisions.
Inventories: Inventories are stated at the lower of cost (determined by the
first-in, first-out method) or market and consist principally of computer
equipment and software.
Property, equipment and purchased software: Property, equipment and
purchased software are stated at cost. Property and equipment are depreciated on
the straight-line method over their estimated useful lives, ranging from 3 to 10
years. Leasehold improvements are amortized on a straight-line basis over the
lesser of the lease term or the estimated useful lives of the improvements.
Purchased software is amortized over 3 years.
Goodwill: Represents the excess cost over the fair value of net assets
acquired in the acquisition of MSG, Coup, Inc., U.S.A. Computer Training
Centers, Inc. and others and is amortized on a straight-line basis over 10
years. The carrying value of goodwill will be reviewed if the facts and
circumstances suggest that it may be impaired.
Revenue recognition: Revenues from Call Center Services and Corporate
Computer Services are recognized as services are performed. Revenues from
product sales are recognized when title is transferred to the client. Under the
terms of certain Call Center Services contracts, clients are required to pay
certain amounts at the commencement of the contract, which payments are
non-refundable and as to which the Company has no further service obligation.
Amounts billed under this provision of such contracts aggregated $618,100 in
1996; $1,655,700 in 1995; and $19,600 in 1994. All such amounts were recognized
as revenues when billed.
Deferred revenue: TechTeam receives advance payments from clients under
certain lease and maintenance agreements. These payments are recognized as
revenues when earned. All deferred revenue recorded at December 31 is expected
to be earned in the subsequent year.
Deferred income taxes: Deferred tax assets and liabilities are determined
based on differences between financial reporting and tax bases of assets and
liabilities and are measured using the enacted tax rates and laws that will be
in effect when the differences are expected to reverse.
26
<PAGE> 27
NATIONAL TECHTEAM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
Stock options: TechTeam accounts for employee stock options under
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" and related Interpretations.
Earnings per share: Earnings per share is computed using the weighted
average number of common shares and common share equivalents outstanding during
each year presented. Common share equivalents consist of stock options and
warrants and are calculated using the treasury stock method.
Use of estimates: Preparation of financial statements in conformity with
generally accepted accounting principles requires the Company's management to
make estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from the
estimates and assumptions made.
NOTE B - DESCRIPTION OF THE BUSINESS
The Company provides call center services and corporate computer services
for major companies on an international scale. Revenues and accounts receivable
from major clients are summarized as follows.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Hewlett Packard Company
Revenues for the period . . . . . . . . . . . $19,266,318 $7,269,445 $ --
Accounts receivable at end of period . . . . 3,104,422 2,923,934 --
Ford Motor Company
Revenues for the period . . . . . . . . . . . 16,311,769 15,584,964 14,195,853
Accounts receivable at end of period . . . . 5,052,263 4,863,948 2,487,263
Chrysler Corporation . . . . . . . . . . . . . .
Revenues for the period . . . . . . . . . . . 5,485,038 4,162,419 3,294,788
Accounts receivable at end of period . . . . 1,843,888 1,221,121 1,457,237
Corel Corporation
Revenues for the period . . . . . . . . . . . 268,459 2,737,601 3,687,298
Accounts receivable at end of period . . . . -- 268,550 537,972
Novell, Inc.
Revenues for the period . . . . . . . . . . -- 522,973 2,260,203
Accounts receivable at end of period . . . . 11,220 193,682 508,736
</TABLE>
Allowances for potentially uncollectible accounts receivable were as
follows: December 31, 1996 - $225,000; December 31, 1995 - $200,000. The
Company generally does not require collateral from its clients. Credit losses
experienced have been consistent with the Company's management's expectations.
27
<PAGE> 28
NATIONAL TECHTEAM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
NOTE C - LEASES
The Company leases its call center facilities, corporate and other offices
and certain office equipment under noncancelable operating leases. These leases
are renewable with various options and terms. Total rental expense was
$1,939,611 in 1996, $1,344,574 in 1995, and $1,000,992 in 1994.
Minimum future payments under noncancelable operating leases with initial
terms of one year or more were:
DECEMBER 31,
YEAR 1996
------------------- ----------
1997 . . . . . . . . $ 2,260,775
1998 . . . . . . . . 2,358,089
1999 . . . . . . . . 2,350,547
2000 . . . . . . . . 2,090,168
2001 . . . . . . . . 887,671
NOTE D - FINANCING ARRANGEMENTS AND LONG-TERM DEBT
TechTeam has an agreement with NBD Bank which provides for short-term
borrowings of up to $6,000,000; the credit is unsecured. Borrowings are at the
prime rate. There were no borrowings under the agreement at December 31, 1996.
The following amounts relate to short-term borrowings:
MAXIMUM AMOUNT AVERAGE DAILY AVERAGE COST OF
PERIOD BORROWED AMOUNT BORROWED BORROWINGS
- ----------------------- -------------- --------------- ---------------
Year ended December 31,
1996 . . . . . . . . . . . $ 6,000,000 $535,792 8.25%
1995 . . . . . . . . . . . -- -- --
1994 . . . . . . . . . . . 1,220,000 114,767 5.30
Long-term debt consists of the following:
DECEMBER 31,
----------------------------
1996 1995
---- ----
Total amounts due under term notes . . . $ -- $ 535,846
Less current portion . . . . . . . . . . -- 96,884
--------- ---------
$ -- $ 438,962
========= =========
Interest paid was $128,213 in 1996, $24,109 in 1995, and $33,911 in 1994.
28
<PAGE> 29
NATIONAL TECHTEAM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
NOTE E - EMPLOYEE RETIREMENT PLAN
The Company has a 401(k) Retirement Savings Plan which covers substantially
all employees. Under the provisions of the Plan, the Company will match employee
contributions in amounts up to 3% of gross compensation; contributions were
$350,425 in 1996, $247,181 in 1995, and $163,087 in 1994. The Company's policy
is to fund employee contributions and the Company's matching contributions each
pay period. Contributions are deposited with the trustee, NBD Bank, and then
invested in six funds at the direction of the participants. Effective in 1996,
the Company's matching contributions are credited only to the National TechTeam
Stock Fund for the benefit of each participant.
NOTE F - TAX PROVISIONS
Tax provisions are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Federal income tax:
Currently payable . . . . . . . $2,597,623 $1,357,867 $ 956,690
Deferred (credit) . . . . . . . (60,924) (89,631) 138,310
---------- ---------- ----------
Total . . . . . . . . . . . . . 2,536,699 1,268,236 1,095,000
Michigan single business tax . . . 709,000 410,000 305,875
---------- ---------- ----------
$3,245,699 $1,678,236 $1,400,875
========== ========== ==========
Tax payments . . . . . . . . . . . $2,310,000 $ 905,000 $2,022,000
========== ========== ==========
</TABLE>
A reconciliation of the Federal income tax provision and the amount
computed by applying the Federal statutory income tax rate to income before
Federal income tax follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Income tax at Federal statutory rate of 34% . . . . . . . . $2,485,513 $1,246,883 $1,042,457
Goodwill, intangibles and other permanent differences . . . 75,376 46,353 52,543
Tax reserve reversed . . . . . . . . . . . . . . . . . . . (24,190) (25,000) --
---------- ---------- ----------
$2,536,699 $1,268,236 $1,095,000
========== ========== ==========
</TABLE>
29
<PAGE> 30
NATIONAL TECHTEAM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
NOTE F - TAX PROVISIONS - Continued
The principal components of deferred Federal income tax balances, and the
classification thereof in the Consolidated Statements of Financial Position, are
as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------------
1996 1995
------------------------- -------------------------
ASSETS LIABILITIES ASSETS LIABILITIES
-------- ----------- -------- -----------
<S> <C> <C> <C> <C>
Allowance for uncollectible
accounts receivable . . . . . . $ 76,500 $ -- $ 68,000 $ --
Other . . . . . . . . . . . . . . 62,200 -- 15,226 --
Prepaid expenses . . . . . . . . . -- 112,643 -- 89,839
Accelerated tax depreciation . . . -- 87,813 -- 116,066
-------- -------- -------- --------
$138,700 $200,456 $ 83,226 $205,905
======== ======== ======== ========
</TABLE>
30
<PAGE> 31
NATIONAL TECHTEAM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
NOTE G - STOCK TRANSACTIONS
A summary of stock transactions other than those discussed in Notes H and J
for the three years ended December 31, 1996 is as follows:
<TABLE>
<CAPTION>
SHARES PROCEEDS
--------- -----------
<S> <C> <C>
1994
Warrants issued in 1990 and 1991 and exercised in 1994 . . . 41,667 $ 45,834
Private placement of common shares at
$5.00 per share . . . . . . . . . . . . . . . . . . 618,000 3,090,000
$4.70 per share . . . . . . . . . . . . . . . . . . 401,064 1,885,000
--------- -----------
1,060,731 $ 5,020,834
========= ===========
1995
None . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1996
Public offering of shares @ $24.14, net of underwriters
discount . . . . . . . . . . . . . . . . . . . . . . 3,225,000 $77,851,500
========= ===========
</TABLE>
NOTE H - ACQUISITION AND SUBSEQUENT EVENT
TechTeam acquired 15% of the shares of WebCentric Communications, Inc.
("WebCentric") in September 1996 and the remaining 85% of the shares in January
1997. The transaction was structured as a cash and stock-for-stock exchange.
Cash totalling $2,330,449 and 270,848 shares (valued at $3,995,183) of
TechTeam's unrestricted and restricted common stock were issued. The purchase
method of accounting was used to record the acquisition and $6,408,081 was
recorded as goodwill.
NOTE I - RELATED PARTY TRANSACTIONS
TechTeam was involved in the following related party transactions:
a) Paid legal fees of $306,641 in 1996, $119,876 in 1995, and $73,591 in
1994 to law firms whose members included directors, officers or
shareholders of TechTeam.
b) Paid $480,488 in 1996, $39,587 in 1995, and $42,444 in 1994 for
employee travel expenses to a travel agency which is 50%-owned by a
TechTeam director.
c) Advanced $243,800 to Executive Officers in 1995, which was repaid in
1995.
d) Advanced $107,000 to an insurance company in 1995 that carries an
insurance policy on the life of an Executive Officer.
e) Loaned $160,000 to an Executive Officer in 1995 which was repaid in
1996.
f) Paid $59,626 in 1996 for rental expense for an office building leased
from an Executive Officer.
g) Guaranteed a loan of $375,000 to an Executive Officer in 1996.
31
<PAGE> 32
NATIONAL TECHTEAM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
NOTE J - STOCK OPTIONS
The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" (APB 25) and related
Interpretations in accounting for its employee stock options because, as
discussed below, the alternative fair value accounting provided for under FASB
Statement No. 123, "Accounting for Stock-Based Compensation," requires use of
option valuation models that were not developed for use in valuing employee
stock options. Under APB 25, because the exercise price of the Company's
employee stock options equals or exceeds the market price of the underlying
stock on the date of grant, no compensation expense is recognized.
The Company's 1990 Nonqualified Stock Option Plan has authorized the grant
of options to management personnel and others for up to 3,800,000 shares of the
Company's common stock. Generally, options granted have 6 year terms and vest
and become exercisable ratably over the first five years of their term.
Pro forma information regarding net income and earnings per share is
required by Statement 123, and has been determined as if the Company had
accounted for its employee stock options under the fair value method of that
Statement. The fair value for these options was estimated at the date of grant
using a Black-Scholes option pricing model with the following weighted-average
assumptions for 1995 and 1996: a range of risk-free interest rates of 5.38% to
7.08% based on the expected life of the options; a volatility factor of the
expected market price of the Company's common stock of .786; and a
weighted-average expected life of the option of 3 years.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma information follows:
1996 1995
---- ----
Pro forma net income . . . . . . . . . . $4,060,702 $2,237,901
Pro forma primary and fully diluted . .
earnings per share . . . . . . . . $ 0.32 $ 0.20
32
<PAGE> 33
NATIONAL TECHTEAM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
NOTE J - STOCK OPTIONS - Continued
A summary of the Company's stock option activity, and related information,
follows:
<TABLE>
<CAPTION>
EMPLOYEES DIRECTORS OTHERS
------------------------- ---------------------- ----------------------
TOTAL
SHARES SHARES PRICE SHARES PRICE SHARES PRICE
------- ------- --------- ------- --------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Outstanding
January 1, 1994 . . . . 953,250 563,250 0.59-4.82 235,000 0.59-4.82 155,000 0.59-3.00
Granted . . . . . . . . 335,500 235,500 5.00-6.38 100,000 7.00 --
Exercised . . . . . . . (308,625) (153,625) 0.59-2.88 -- (155,000) 0.59-3.00
Cancelled . . . . . . . (22,500) (22,500) 3.81-6.38 -- --
------- ------- ---------- ------- -------
Outstanding
December 31, 1994 . . . 957,625 622,625 0.59-6.38 335,000 0.59-7.00 -- --
Granted . . . . . . . 338,000 338,000 (1) 4.50-5.31 -- -- -- --
Exercised . . . . . . . (418,500) (233,500) 0.59-2.88 (185,000) 0.59 -- --
Cancelled . . . . . . . (208,000) (208,000)(1) 4.50-6.38 -- -- -- --
------- ------- ---------- ------- -------
Outstanding
December 31, 1995 . . . 669,125 519,125 1.20-6.38 150,000 4.82-7.00 -- --
Granted . . . . . . . 657,000 522,000 5.00-25.75 135,000 5.00-25.75 -- --
Exercised . . . . . . . (289,100) (259,100) 1.20-7.00 (30,000) 4.82-7.00 -- --
Cancelled . . . . . . . (117,500) (57,500) 4.50-25.75 (60,000) 5.00 -- --
------- ------- ---------- ------ ---------- -------
Outstanding
December 31, 1996 919,525(2) 724,525 2.00-25.75 195,000 4.82-25.75 -- --
======= ======= ======= =======
</TABLE>
- ------------
(1) In February 1995, the Company cancelled 183,000 options at prices ranging
from $5.00 to $6.38 and regranted them at $4.50.
(2) Of the 919,525 options outstanding at December 31, 1996
a) 59,625 are currently exercisable through the fourth quarter 1998;
b) 115,000 are currently exercisable through the fourth quarter 1999;
c) 232,900 are currently exercisable through the fourth quarter 2006; and
d) 512,000 will be exercisable in the first quarter 1997 through the
third quarter 2002.
33
<PAGE> 34
NATIONAL TECHTEAM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
NOTE K - STOCK BUY-BACK PROGRAM
In February, 1995, the Board of Directors of the Company authorized a stock
buy-back program. The program provided for the open market purchase of up to
$4,000,000 of the Company's common stock. The repurchase program terminated July
31, 1995 with 200,000 shares repurchased at a total cost of $907,008.
NOTE L - SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Quarterly consolidated results of operations are summarized as follows:
<TABLE>
<CAPTION>
QUARTER ENDED
------------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
-------- ------- ------------ -----------
<S> <C> <C> <C> <C>
1994
Revenues . . . . . . . . . . . . . . . . . $ 6,826,655 $ 7,630,114 $ 8,027,097 $ 7,669,105
Income before tax provisions . . . . . . . 462,465 1,199,772 1,099,303 610,384
Net income . . . . . . . . . . . . . . . 273,599 720,606 621,538 355,306
Earnings per share . . . . . . . . . . . . 0.03 0.07 0.06 0.03
1995
Revenues . . . . . . . . . . . . . . . . . $ 8,427,595 $ 9,588,283 $10,555,833 $13,141,921
Income before tax provisions . . . . . . . 908,662 1,264,894 676,675 1,227,072
Net income . . . . . . . . . . . . . . . . 539,227 775,109 346,540 738,191
Earnings per share . . . . . . . . . . . . 0.05 0.07 0.03 0.07
1996
Revenues . . . . . . . . . . . . . . . . . $14,407,611 $15,831,227 $18,390,472 $20,521,686
Income before tax provisions . . . . . . . 1,491,731 1,772,156 1,666,692 3,088,752
Net income . . . . . . . . . . . . . . . 865,731 1,044,156 962,692 1,901,053
Earnings per share . . . . . . . . . . . . 0.08 0.09 0.08 0.13
</TABLE>
Quarterly earnings per share may not add to annual earnings per share
because of rounding and new shares issued during the year.
34
<PAGE> 35
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURES
There were no changes in accountants, disagreements, or other events
requiring reporting under this Item.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information required is set forth under the caption "Election of Directors
and Management Information" in the Proxy Statement relating to the 1997 Annual
Meeting of Shareholders to be held on May 14, 1997, which is incorporated herein
by reference.
Information required pertaining to compliance with Section 16(a) of the
Securities and Exchange Act of 1934 is set forth under the caption "Section
16(a) Beneficial Ownership Reporting Compliance" in the Proxy Statement relating
to the 1997 Annual Meeting of Shareholders to be held on May 14, 1997, which is
incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
Information required is set forth under the caption "Executive
Compensation" in the Proxy Statement relating to the 1997 Annual Meeting of
Shareholders to be held on May 14, 1997, which is incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information required is set forth under the caption "Election of Directors
and Management Information - Information Regarding Beneficial Ownership of
Principal Shareholders, Directors and Executive Officers" in the Proxy Statement
relating to the 1997 Annual Meeting of Shareholders to be held on May 14, 1997,
which is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required is set forth under the caption "Executive Compensation
- - Certain Relationships and Related Transactions" in the Proxy Statement
relating to the 1997 Annual Meeting of Shareholders to be held on May 14, 1997,
which is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Certain documents filed as part of the Form 10-K
See Item 8. Financial Statements and Supplementary Data and (d) below.
(b) Reports on Form 8-K
Reports on Form 8-K filed by the Company during the last quarter of
the year ended December 31, 1996: None
(c) Exhibits required by Item 601 of Regulation S-K
The response to this portion of Item 14 is submitted as a separate
section of this Report under the caption, Index of Exhibits
(d) Financial statements schedules required by Regulation S-X
The response to this portion of Item 14 is submitted as a separate
section of this Report under the caption, Item 8. Financial Statements
and Supplementary Data.
35
<PAGE> 36
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
NATIONAL TECHTEAM, INC.
Date: March 17, 1997 By: /s/Lawrence A. Mills Lawrence A. Mills
-------------- -------------------- Senior Vice President,
Chief Financial Officer
and Treasurer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons in the capacities indicated on
March 17, 1997.
/s/William F. Coyro, Jr. Director, Chairman of the Board,
- ------------------------------------- Chief Executive Officer
William F. Coyro, Jr.
/s/Kim A. Cooper Director
- -------------------------------------
Kim A. Cooper
/s/Wallace D. Riley Director
- -------------------------------------
Wallace D. Riley
/s/Richard G. Somerlott Director
- -------------------------------------
Richard G. Somerlott
/s/LeRoy H. Wulfmeier III Director
- -------------------------------------
LeRoy H. Wulfmeier III
/s/Karen J. Matheny Controller
- -------------------------------------
Karen J. Matheny (Chief Accounting Officer)
36
<PAGE> 37
INDEX OF EXHIBITS
All exhibits listed below that include a * indicate exhibits that are
incorporated by reference. See the footnotes following the list of exhibits to
locate those exhibits. All other exhibits are filed as part of this Form 10-K
Report.
EXHIBIT PAGE
NUMBER EXHIBIT NUMBER
- ------- ------- ------
10.1 Purchase Order dated August 4, 1988 by and between the *1
Company as Vendor and Ford Motor Company as Vendee for End
User Computer Training Classes and User Assistance Services
10.2 Purchase Order dated January 1, 1992 by and between the *3
Company as Vendor and Ford Motor Company as Vendee for
Agency Programmer Services
10.3 Lease Agreement for office space in Southfield, Michigan *4
known as Suite 171, 17197 N. Laurel Park Drive between the
Company and Eleven Inkster Associates dated September 29,
1993
10.4 Lease Amendment for office space in Southfield, Michigan *4
known as Suite 171, 17197 N. Laurel Park Drive between the
Company and Eleven Inkster Associates dated December 7, 1993
10.5 Purchase Order dated November 6, 1986 by and between the *5
Company as Vendor and Ford Motor Company as Vendee for
Support Services, together with currently effective
Amendment dated August 23, 1993.
10.6 Lease Amendment for office space in Southfield, Michigan *5
known as Suite 171, 17197 N. Laurel Park Drive between the
Company and Eleven Inkster Associates dated January 23, 1995
10.7 Supplier Contract dated July 1, 1994 by and between the *5
Company as Vendor and Geometric Results Incorporated (doing
business as "PeopleNet") as Vendee for Personnel Services,
together with currently effective Amendment dated February
6, 1995
10.8 Purchase Order dated March 23, 1995 by and between the *6
Company as Vendor and Ford Motor Company as Vendee for
Support for Ford 2000, together with currently effective
amendment dated February 23, 1996
10.9 Agreement dated June 21, 1995 between the Company and *6
Hewlett-Packard Company for Technical Support Assistance
10.10 Lease for office space in Dallas, Texas known as Lyndon *6
Plaza between the Company and Dallas Lyndon Corporation
dated August 17, 1995
10.11 Agreement dated September 15, 1995 between the Company and *6
NBD Bank for End User Computer Training
10.12 Lease for office space in Troy, Michigan known as Troy *6
Officenter B between the Company and WRC Properties, Inc.
dated November 16, 1995
10.13 Office Space Lease for office space in Indianapolis, Indiana *6
known as Market Square Center Building between the Company
and MET Life International Real Estate Partners Limited
Partnership dated November 27, 1995
37
<PAGE> 38
EXHIBIT PAGE
NUMBER EXHIBIT NUMBER
- ------- ------- ------
10.14 Currently effective Purchase Order Amendment dated January *6
6, 1996 by and between the Company as Vendor and Ford Motor
Company as Vendee for End User Computer Training Classes and
User Assistance Services
10.15 Currently effective Purchase Order Amendment dated February *6
21, 1996 by and between the Company as Vendor and Ford Motor
Company as Vendee for Programming Services
10.16 1990 Nonqualified Stock Option Plan *2
10.17 Form of Stock Option Agreement used for grant of options to *3
employees under the 1990 Nonqualified Stock Option Plan
10.18 1996 Nonemployee Directors Stock Plan *7
10.19 Third Amendment Lease Agreement dated March 29,1996 for *7
office space in Southfield, Michigan between Eleven Inkster
Associates and the Company
10.20 Agreement dated May 30, 1996 between the Company and Hewlett *7
Packard Company for technical phone support for H-P
Advantage Center
10.21 Purchase Order dated April 4, 1996 from Chrysler Corporation *7
to the Company for dealer support in France, Germany and
Italy
10.22 Agreement dated May 9, 1996 between United Parcel Service *7
and the Company for technical help desk support
10.23 Agreement dated December 15, 1995 between Owens-Corning *7
Fiberglass Corporation and the Company for technical support
10.24 Agreement dated March 5, 1996 between Price Waterhouse LLP *7
and the Company for help desk support
10.25 Joint Venture Agreement dated July 26, 1996 between Paratel *7
N.V. and the Company
10.26 Master Demand Business Loan Note in the principal amount of *7
$6,000,000 between the Company and NBD Bank dated June 17,
1996
10.27 Lease for office space in Dearborn, Michigan between the 41-74
Company and Dearborn Atrium Associates Limited Partnership
dated November 18, 1996
10.28 Agreement and Plan of Merger dated December 23, 1996 between *8
National TechTeam, Inc., TechTeam Training Inc., WebCentric
Communications, Inc. and Daniel L. Kemp
11. Statement re: Computation of per share earnings 40
27. Financial Data Schedule
- ------------
*1 Incorporated by reference to the Company's Registration Statement on
Form S-4 (Registration No. 33-26689).
*2 Incorporated by reference to the Company's Annual Report on Form 10-K
for the year ended December 31, 1990.
*3 Incorporated by reference to the Company's Registration Statement on
Form S-2 (Registration No. 33-67904).
*4 Incorporated by reference to the Company's Annual Report on Form 10-KSB
for the year ended December 31, 1993.
*5 Incorporated by reference to the Company's Annual Report on Form 10-K
for the year ended December 31, 1994.
38
<PAGE> 39
*6 Incorporated by reference to the Company's Annual Report on Form 10-K
for the year ended December 31, 1995.
*7 Incorporated by reference to the Company's Registration Statement on
Form S-3 (Registration No. 333-10687).
*8 Incorporated by reference to the Company's Form 8-K Report dated January
3, 1997.
39
<PAGE> 1
EXHIBIT 10.27
DEARBORN ATRIUM OFFICE CENTER
LEASE
This Lease is made between the Landlord and Tenant hereinafter
identified in Sections 1(b) and 1 (c) hereof, respectively, and constitutes a
Lease between the parties of the "DEMISED PREMISES" in the "BUILDING," as
defined in Sections 2.2 and 2.1 hereof, respectively, on the terms and
conditions and with and subject to the covenants and agreements of the parties
hereinafter set forth.
WITNESSETH:
1 . Basic Lease Provisions.
The following are certain basic lease provisions, which are part of, and in
certain instances referred to in subsequent provisions of, this Lease:
(a) Date of this Lease November 18, 1996
(b) Landlord: DEARBORN ATRIUM ASSOCIATES LIMITED PARTNERSHIP, a
Michigan limited partnership
(c) Tenant NATIONAL TECH TEAM, INC., a Delaware corporation
(d) Demised Premises: Suites 100, 145, 160, 185, 195, 200 and 295,
comprising 54,859 square feet of floor area, including a 9%
common area factor, all located in a building at 835 Mason,
Dearborn, Michigan
<TABLE>
<CAPTION>
SUITE NO. USEABLE SQ. FT. LEASABLE SQ. FT. (9% FACTOR)
--------- ---------------- ---------------------------
<S> <C> <C>
Suite 100 5,985 6,524
Suite 145 2,490 2,714
Suite 185 740 807
Suite 195 2,525 2,752
Suite 295 6,473 7,056
------ ------
Subtotal 18,213 19,853
====== ======
Suite 160 4,424 4,822
Suite 200 27,692 30,184
------ ------
Subtotal (160 & 200) 32,116 35,006
====== ======
TOTALS 50,329 54,859
====== ======
</TABLE>
At present, Tenant occupies all but Suites 160 and 200 in the
Building (the currently occupied space being referred to in
this Lease as the "EXISTING SPACE"), under several Leases dated
variously August 17, 1988 (Suite 100), May 5, 1993 (Suite 145),
October 1 0, 1992 (Suite 185), August 31, 1992 (Suite 195) and
September 8, 1993 (Suite 295) (together the "OLD LEASES") which
Old Leases shall be superseded in their entirety with respect to
the existing Space effective on and from and after the
Commencement Date (and shall continue pursuant to its terms until
the Commencement Date). Tenant also occupies certain space in a
separate building located at 22000 Garrison Road, Dearborn,
Michigan (the "SEPARATE SPACE"), under a lease with another
landlord (the "SALISBURY BUILDING LEASE"), which will by its own
terms expire on March 31, 1997, and under which Tenant shall
continue to be entitled to possession through that date
(regardless of whether or not it has vacated that space and moved
to the Demised Premises). The Basic Rental hereafter provided in
Section 5.1 hereof has been adjusted by providing for a deduction
from that Basic Rent all rent and additional rent which Tenant is
required to pay under the Salisbury Building Lease for the
Separate Space between the Commencement Date and March 31, 1996.
(e) Anticipated Commencement Date January 1, 1997
(f) Expiration Date: March 31, 2006 (the period between the
Commencement Date and the Expiration Date being the "TERM" of
this Lease)
-1-
<PAGE> 2
(g) Basic Rental: $16.00 per square foot ($877,744.00/Lease Year;
$73,145.33/month), plus all utilities (except for the months of
January-March, 1997, as provided in Section 5.1 hereof)
(h) Base Expenses: 1997 Base Year (i.e., expenses incurred during or
accrued with respect to calendar year 1997 - being the first "LEASE
YEAR")
(i) Base Taxes: 1997 Base year (i.e., Taxes incurred or assessed for or
with respect to the first Lease Year)
(j) Tenant's Share: 54,859/118,298 = 46.37%
(k) Tenant's Use: General office and classrooms
(l) Deposit: None
(m) Tenant's Address for Notices: National Tech Team, Inc.
835 Mason, Suite 200
Dearborn, Michigan 48124
(n) Landlord's Address for Notices: Dearborn Atrium Associates Limited
Partnership
250 Martin Street, Suite 100
Birmingham, Michigan 48009
(o) Guarantor: None
(p) Guarantor's Address for Notices: N/A
2. Building and Demised Premises.
2.1. Landlord is the owner of certain land and improvements, more
particularly described on Exhibit A hereto, at 835 Mason Street, Dearborn,
Michigan, upon which Landlord has constructed a building (hereinafter referred
to as the "BUILDING"), consisting of three stories and 118,298 sq. feet of
interior floor area, together with certain interior and exterior common and
public areas and facilities, as well as exterior on-grade parking areas
(hereinafter referred to as the "COMMON AREAS") as may be designated by Landlord
for use by tenants of the Building, and their employees, guests, customer's or
prospective customers, agents and invitees. The Building, parking deck and
parking areas (hereinafter referred to as the "PARKING AREAS") and all Common
Areas and appurtenance are hereinafter collectively referred to as the
Development. Except as specifically provided in Section 42 hereof, this Lease
does not grant Tenant any rights to utilize the Interior Parking Areas.
2.2. Subject to the terms, covenants, agreements and conditions herein
set forth, Landlord hereby leases to Tenant, and Tenant hereby leases from
Landlord, those certain premises (herein referred to as the "DEMISED PREMISES')
designated in Section 1(d) hereof, as shown on the floor plan(s) attached
hereto as Exhibits B-1 and B-2, together with the nonexclusive right to use the
Common Areas and the Parking Areas, including 93 parking spaces reserved for
Tenant's use within the Parking Areas (as provided in Paragraph 42, below).
2.3. Landlord reserves (a) the right from time to time to make
changes, alterations, additions, improvements, repairs or replacements in or to
the Building (including the Demised Premises) and the fixtures and equipment
thereof, as well as in or to the street entrances, halls, passages, elevators,
escalators and stairways and other parts of the Building, and to erect,
maintain, and use pipes, ducts and conduits in and through the Demised Premises,
all as Landlord may reasonably deem necessary or desirable; and (b) the right to
eliminate, substitute and/or rearrange the Common Areas (which may theretofore
have been so designated) as Landlord deems appropriate in its discretion.
Tenant's nonexclusive right to utilize the Common Areas shall be in common with
Landlord, other tenants and occupants of the Building and others to whom
Landlord grants such rights from time to time.
2.4. [INTENTIONALLY OMITTED]
3. Term.
3.1. The Term shall commence on that date (hereinafter referred to as
the "COMMENCEMENT DATE") being the later to occur of the "ANTICIPATED
COMMENCEMENT Date" set forth in Section 1(e) hereof
-2-
<PAGE> 3
and the date Landlord has substantially completed the improvements to be
constructed or installed by Landlord pursuant to the provisions of Exhibit C
hereto as provided in Section 4 hereof and, unless sooner terminated as
hereinafter provided, shall end on the "EXPIRATION DATE" set forth in Section 1
(f) hereof: provided, however, that if Tenant, with Landlord's prior written
approval, shall take occupancy of the Demised Premises for any purpose
whatsoever prior to the Commencement Date, as defined above, the Commencement
Date shall be deemed to have occurred on the earlier date Tenant takes such
occupancy.
3.2. If Landlord, for any reason whatsoever, cannot deliver possession
of the Demised Premises to Tenant on the Anticipated Commencement Date, this
Lease shall not be void or voidable, nor shall Landlord be liable to Tenant for
any loss or damage resulting therefrom, except as otherwise provided in this
Lease, and the Expiration Date shall not be affected. Tenant may continue to
occupy the Existing Space at the current rental rate applicable under the
Existing Leases until the Commencement Date, even if later than March 31, 1996.
Notwithstanding the foregoing, if possession of the Demised Premises has not
been delivered to Tenant within six (6) months following the Anticipated
Commencement Date, either Landlord or Tenant, at its option at any time within
thirty (30) days thereafter, but prior to the delivery of possession, may
terminate this Lease by and upon written notice to the other, and Landlord and
Tenant shall thereupon be released from all obligations under this Lease.
4. Completion of Improvements.
Except as provided in Section 3.2 hereof, prior to the Anticipated
Commencement Date, Landlord shall complete the floor(s) on which the Demised
Premises are located and shall construct or install in the Demised Premises the
improvements to be constructed or installed by Landlord pursuant to the
provisions of Exhibit C hereto, provided that Landlord shall not be required to
incur overtime costs and expenses in performing such construction and/or
installation. Landlord shall construct all improvements included on the
attached Exhibit C, at Landlord's sole cost and expense, subject to the
following:
4.1. Landlord shall provide for renovation of suites 100, 145, 185,
195 and 295 (i.e., painting and similar cosmetic work) as reasonably directed by
Tenant, up to a maximum cost allowance of $2.00/sq. ft. (19,853 sq. ft. x
$2.00/sq. ft. = $39,706 renovation allowance), and additional renovation
services beyond that amount only to the extent paid for by Tenant under
arrangements satisfactory to Landlord in the exercise of its reasonably
judgment.
4.2. Landlord shall construct within Suites 160 and 200 those
improvements provided on the attached Exhibit C, up to a maximum cost allowance
of up to $15.00/square foot (35,006 sq. ft. x $15.00/sq. ft. = $525,090 maximum
improvement allowance), and additional construction beyond that amount only to
the extent paid for by Tenant under arrangements satisfactory to Landlord.
Tenant shall construct or install in the Demised Premises all improvements and
work required and not to be performed by Landlord pursuant to Exhibit C hereto,
all as more particularly set forth on Exhibit C hereto. The Demised Premises
shall be deemed completed and possession delivered to Tenant when Landlord has
substantially completed its improvements subject only to the completion of
details of construction, decorations and mechanical adjustments which do not
materially interfere with Tenant's use of the Demised Premises, and a temporary
or final certificate of occupancy has issued with respect to the Demised
Premises permitting Tenant to take occupancy thereof, and Tenant shall accept
the same upon notice from Landlord that such improvements have been so completed
and Tenant shall commence Tenant's work upon, and not before, the receipt of
such notice. If any dispute shall arise as to whether Landlord has completed
its improvements, a certificate furnished by Landlord's architect certifying the
date of such completion shall be conclusive and binding of that fact and date
upon Landlord and Tenant. Within thirty (30) days after Tenant occupies the
Demised Premises, Tenant shall compile a punch list of Landlord's work which
Tenant considers yet to be fully and/or properly performed and/or completed by
Landlord. Failure to present such a list shall be conclusively deemed to
constitute Tenant's acceptance of all such work (and Tenant shall provide
Landlord with a written acknowledgment of that acceptance thereafter upon
Landlord's request). Landlord shall complete and/or correct those items on the
punchlist which are within its responsibility and obligation under Exhibit C
within sixty (60) days after receiving that punch list. If not so completed by
Landlord, Tenant may separately provide for their completion and shall, upon
presentation to Landlord of reasonable evidence of the reasonable and necessary
direct cost and expense thereof, be entitled to reimbursement therefor from
Landlord. If not so reimbursed within 15 days thereafter, Tenant may deduct the
amount thereof from the next sums coming due under this Lease with respect to
Basic Rental. Landlord shall advise Tenant of the anticipated date of
completion at least thirty
-3-
<PAGE> 4
(30) days prior thereto, but the failure to give such notice shall not
constitute a default hereunder by Landlord. In the performance of Tenant's
work, Tenant shall engage the services of such licensed contractor(s) who will
work in harmony with Landlord's contractors and the contractors employed by the
other tenants so that there shall be no labor disputes which would interfere
with the operation, construction and completion of the Building. Upon
completion of Landlord's work, or at any other time after the Commencement Date
upon Landlord's request, Tenant shall provide Landlord with a written
acknowledgment of the completion and its acceptance of Landlord's work, or state
with specificity which elements thereof Tenant claims to be yet unperformed or
improperly performed and the elements or steps necessary to complete or correct
that work.
5. Rental.
5.1. Except as specifically provided in this Section 5.1, Tenant shall
pay to Landlord as rental for the Demised Premises the Basic Rental set forth in
Section 1 (g) hereof, which shall be payable in equal monthly installments in
advance, together with the rentals provided for in Section 5.3 hereof. For that
portion of each month during the Term of this Lease which falls between January
1 , 1996 and March 31, 1996, Tenant shall pay, as Basic Rent, an adjusted
monthly sum equal to $73,145.33/month less all sums which Tenant shall actually
to pay as rental on a current basis for those corresponding months (including
all additional rental, if any) to its landlord under and with respect to the
Salisbury Lease.
5.2. The following terms shall have the following meanings.
(a) The term "EXPENSES" shall mean the actual cost incurred by Landlord
with respect to the operation, maintenance, repair and replacement and
administration of the Development, including, without limitation or duplication,
(1) the costs incurred for heating and air conditioning of common areas;
mechanical ventilation; heating; cleaning (including janitorial services);
rubbish removal; snow removal; general landscaping and maintenance; parking lot,
parking deck (net of any rental, cost reimbursement or other compensation
received by Landlord from the owner or tenants of the adjacent building located
at 22000 Garrison Road - the Salisbury Building - which also uses that parking
deck) and any additional parking services; window washing, elevators,
escalators, porter and matron services, electric current for Common Areas;
management fees; protection and security services; repairs, replacement, and
maintenance; fire, extended coverage, boiler, sprinkler, apparatus, public
liability and property damage insurance (including loss of rental income
insurance); supplies; wages, salaries, disability benefits, pensions,
hospitalization, retirement plans and group insurance respecting service and
maintenance employees and management staff; accounting and administrative staff;
uniforms and working clothes for such employees and the cleaning thereof;
expenses imposed pursuant to any collective bargaining agreement with respect to
such employees; payroll, social security, unemployment and other similar taxes
with respect to such employees and staff; sales, use and other similar taxes;
Landlord's Michigan Single Business Tax water rates and sewer charges;
advertising, public relations and promotions; depreciation of movable equipment
and personal property, which is, or should be, capitalized on the books of
Landlord, and the cost of movable equipment and personal property, which need
not be so capitalized, as well as the cost of maintaining all such movable
equipment, and any other costs, charges and expenses which, under generally
accepted accounting principles and practices, would be regarded as maintenance
and operating expenses, and (2) the cost of any capital improvements made to the
Building by Landlord after the Commencement Date that are intended to reduce
other Expenses, or made to the Building by Landlord after the date of this Lease
that are required under any governmental law or regulation that was not
applicable to the Building at the time a was constructed, such cost to be
amortized over such reasonable period as Landlord shall determine, together with
interest on the unamortized balance at the rate of two percent (2%) in excess of
the then current "prime rate" of National Bank of Detroit (as defined in Section
5.5 hereof) or such higher rate as may have been paid by Landlord on funds
borrowed for the purpose of constructing such capital improvements. Expenses
shall not include "Taxes," as defined in Section 5.2(d) hereof; depreciation on
the Building other than depreciation on standard exterior window coverings
provided by Landlord and carpeting in Common Areas and other than as set forth
above; costs of services or repairs, replacements and maintenance which are paid
for by proceeds of insurance, by other tenants (in a manner other than as
provided in Section 5.3 hereof); or third parties; tenant improvements, real
estate brokers' commissions, interest and capital items other than those
referred to in clause (2) above, and those other exclusions from Expenses which
are described in the attached Exhibit F.
-4-
<PAGE> 5
It is the specific intention of both Landlord and Tenant (i) that all
Expenses will be determined on a basis which will not unfairly allocate
Additional Expenses to either Landlord or Tenant, (ii) that Tenant shall pay as
Tenant's Share its fairly allocated portion of Additional Expenses which are
variable in amount based on the level of occupancy in the Building, and (ii)
that Tenant's Share of Additional Expenses which do not vary based on occupancy
within the Building not be greater or lesser because of different levels of
Building Occupancy. The following two examples illustrate the parties' concerns
in this regard:
(A) Where Landlord's cost for cleaning and janitorial services
(included in Expenses) are based on Building square footage of occupied
space, Tenant's Share should reflect those costs related to its pro-rata
share of Common Area cleaning and janitorial services plus its respective
costs for those services rendered to its own Demised Premises. If the
Building is less than 100% leased, however, simply allocating Tenant's
Share of those Additional Expenses on a percentage basis will not charge to
Tenant its fairly allocable share of the incremental increase, and will
result in Landlord actually paying at least a portion of the increase in
the cost of providing those services to Tenant. Moreover, the share
allocated to Tenant in each Lease Year could in the same manner depend on
the relative levels of occupancy in the Building during those Lease Years,
producing different levels of allocated Expenses in different Lease Years
even if the actual expenses incurred with respect to the Demised Premises
stayed precisely the same.
(B) Where Landlord incurs a truly Common Area Expense (i.e., not
allocable to leasable premises within the Building), Tenants actual cost
incurred as an Additional Expense should not vary based on the impact of
relative levels of occupancy, rather only on the amount of general Expense
itself. Therefore, if Landlord restripes only that portion of a parking
lot which is in proportion to a partial occupancy level in the Building, no
mechanism in the Lease should recalculate that Expense for allocation to
Tenant at a higher amount premised on an assumption of full occupancy and
the restriping of the entire parking lot, or for any other reason.
Thus, In determining both Base Expenses and Expenses for the purpose of
calculating Additional Expenses to be paid by Tenant under this Lease, the
following shall apply: (x) if less than 100% of the Building's total leasable
area (computed in the same manner as space in both the Premises and the Building
has been determined under this Lease) shall have been occupied by tenants and
fully used by them at any time during that Lease Year, Expenses which are
dependent upon or calculated based upon occupied and/or utilized area within the
Building shall be deemed to be increased to an amount equal to those Expenses
which would normally be expected to be incurred if that occupancy had been 100%
and all leasable space within the Building was fully utilized during that
period; and (y) if Landlord does not furnish any particular work or service (the
cost of which if performed by Landlord would otherwise be a proper Expense and
for which Landlord's cost is incurred on the basis of the leasable area for
which that work or service is rendered) to a tenant which has undertaken to
perform that work or service in lieu of Landlord, Expenses shall be deemed
increased by an amount equal to the Additional Expense which would reasonably
have been incurred by Landlord during that period if it had at its own cost
furnished that work or service to that tenant. However, where the foregoing
adjustments shall specifically involve cleaning or janitorial services, or other
services which are incurred on the basis of leasable area for which those
services within the Building are rendered, if a tenant of the Building shall
(pursuant to its lease) receive no such services, Tenants Share shall, insofar
as it addresses those services, be computed by excluding from the denominator of
the fraction by which Tenant's Share is computed the leasable area (including
common area factor) of those premises and not imputing to the actual Expenses to
be allocated any cost in addition to the actual Expense incurred.
(b) The term "BASE EXPENSES" shall mean the amount per square foot set
forth in Section 1 (h) hereof.
(c) The term "ADDITIONAL EXPENSES" shall mean the total dollar
increases, if any, over the Base Expenses paid or incurred by Landlord in the
respective calendar year, provided that Tenant's Share of Additional Expenses
shall not exceed in the aggregate $0.50/sq. ft./Lease Year (i.e., $27,430/Lease
Year) on a cumulative basis, commencing in 1998 (i.e., the annual cap shall be
cumulated beginning in the second Lease Year through the ninth Lease Year,
producing a cap of $0.50/sq. ft. during the second Lease Year and $4.00/sq. ft.
in the aggregate during the ninth Lease Year).
-5-
<PAGE> 6
(d) The term "TAXES" shall mean the amount incurred by Landlord of
all ad valorem real property taxes and assessments, special or otherwise,
levied upon or with respect to the Development, or the rent and additional
charges payable hereunder, imposed by any taxing authority having
jurisdiction. Taxes shall also include all taxes, levies and charges which
may be assessed, levied or imposed in replacement of, or in addition to, all
or any part of ad valorem real property taxes as revenue sources, and which
in whole or in part are measured or calculated by or based upon the
Development, the freehold and/or leasehold estate of Landlord or Tenant, or
the rent and other charges payable hereunder. Taxes shall include any
expenses incurred by Landlord in determining or attempting to obtain a
reduction of Taxes.
(e) The term "BASE TAXES" shall mean the amount per square foot
set forth in Section 1(i) hereof.
(f) The term "ADDITIONAL TAXES" shall mean the total dollar
increase, if any, over the Base Taxes paid or incurred by Landlord in the
respective calendar year.
(g) The term "TENANT'S SHARE" shall mean the percentage set forth
in Section 1 (j) hereof. Tenant's Share has been computed on the basis of the
square foot area of the Demised Premises divided by the total leasable square
foot area of the Building (including the Demised Premises). In the event the
square foot area of the Demised Premises or the leasable square foot area of
the Building shall be determined to differ from that utilized in computing
Tenant's Share, Tenant's Share shall be adjusted accordingly.
5.3.
(a) Commencing with the second Lease Year, on January 1, 1998, and
continuing during the balance of the Term thereafter, Tenant shall pay to
Landlord as Additional Rent Tenant's Share of Additional Expenses and
Additional Taxes in the manner and at the times herein provided.
(b) With respect to Additional Expenses, prior to the beginning of
each calendar year commencing January 1, 1998, or as soon thereafter as
practicable, Landlord shall give Tenant notice of Landlord's estimate of
Tenant's Share of Additional Expenses for the ensuing calendar year (prorated
for any partial Lease Years), and with respect to Additional Taxes, prior to
the beginning of each calendar year thereafter, or as soon thereafter as
practicable, Landlord shall give Tenant notice of Landlord's estimate of
Tenant's Share of Additional Taxes for the ensuing calendar year. On or before
the first day of each month during the ensuing calendar year, Tenant shall pay
to Landlord one-twelfth (1/12th) of such estimated amounts, provided that until
such notice is given with respect to the ensuing calendar year, Tenant shall
continue to pay the amount currently payable pursuant hereto until after the
month such notice is given. If at any time or times (including, without
limitation, upon Tenant taking occupancy of the Demised Premises) it appears to
Landlord that Tenant's Share of Additional Expenses or Tenant's Share of
Additional Taxes for the then current calendar year, will vary from Landlord's
estimate by more than five percent (5%), Landlord may, by notice to Tenant,
revise its estimate for such year and subsequent payments by Tenant for such
year shall be based upon such revised estimate.
Within ninety (90) days after the close of each calendar year, or as
soon after such ninety (90) day period is practicable, Landlord shall deliver
to Tenant a statement prepared by Landlord of Tenant's Share of Additional
Expenses and Additional Taxes, respectively, for such calendar year,
respectively. If on the basis of either of such statements, Tenant owes an
amount that is less than the estimated payments for such calendar year
previously made by Tenant, Landlord shall credit such excess amount against the
next payment(s) due from Tenant to Landlord of Additional Expenses or
Additional Taxes, as the case may be. If on the basis of such statement,
Tenant owes an amount that is more than the estimated payments for such
calendar year previously made by Tenant, Tenant shall pay the deficiency to
Landlord within the later of (i) the date when the next regular monthly of
installment of Basic Rent is due hereunder or (ii) fifteen (15) days after
delivery of such statement.
The statement prepared by Landlord and delivered to Tenant regarding
Tenant's Share of Additional Expenses and Additional Taxes shall be accompanied
by (i) copies of the tax bills serving as the basis of the determination of
Tenant's Share of Taxes, and (ii) a breakdown of all expenses (summarized by
category) for which Landlord seeks Tenant's reimbursement, together with a
calculation of Tenant's Share thereof. Tenant shall have the right, at its own
expense, to examine Landlord's books and records wiht respect to the foregoing
(limited to those necessary to verify the Additional Expenses and the Taxes
-6-
<PAGE> 7
incurred), upon providing Landlord with at least 15 days prior written notice
and upon payment to Landlord for the reasonable third party expenses directly
incurred by Landlord in the conduct of that inspection, if any. The inspection
shall be conducted at a place designated by Landlord and in a manner which does
not disrupt the conduct of Landlord's business or the management of the affairs
of the Development.
(c) If this Lease shall commence on a day other than the first day of
such calendar year, Tenant's share of Additional Expenses that is applicable to
the year in which such commencement shall occur shall be prorated on the basis
of the number of calendar days within such year as are within the Term. If this
Lease shall terminate on a day other than the last day of a calendar year,
Tenant's Share of Additional Taxes that is applicable to the calendar year in
which such termination shall occur shall be prorated on the basis of the number
of calendar days within such year as are within the Term.
5.4. The installment of the Basic Rental provided for in Section 5.1
hereof for the first full month of the Term shall be paid by Tenant to Landlord
upon commencement of the Lease Term. Basic Rental shall be paid to Landlord on
or before the first day of each and every successive calendar month in advance
after the first month during the Term. In the event the Commencement Date is
other than the first day of a calendar month, or the Expiration Date is other
than the last day of the calendar month, then the monthly rental for the first
and last fractional months of the Term shall be appropriately prorated.
5.5. Tenant shall pay as Additional Rent any money and charges
required to be paid by Tenant pursuant to the terms of this Lease, whether or
not the same may be designated "Additional Rent."
5.6. Except as otherwise specifically provided to the contrary under
the terms of this Lease or other written agreement between Landlord and Tenant
specifically regarding this Lease, Basic Rental and Additional Rental shall be
paid to Landlord without notice or demand and without deduction or offset, in
lawful money of the United States of America at Landlord's address for notices
hereunder or to such other person or at such other place as Landlord may from
time to time designate in writing. All amounts payable by Tenant to Landlord
hereunder, if not paid when due, shall bear interest from the due date until
paid at the rate equal to two percent (2%) in excess of the then current "prime
rate" of National Bank of Detroit, but not in excess of the highest rate
permitted by law. Such prime rate shall be the rate announced by such Bank as
its "PRIME RATE"; if no such prime rate is announced, the prime rate shall be
deemed to be fifteen percent (15%).
6. Other Taxes Payable by Tenant.
In addition to the monthly rental and other charges to be paid by Tenant
hereunder, Tenant shall reimburse Landlord upon demand for any and all taxes
payable by Landlord (other than net income taxes and taxes included within
Taxes) whether or not now customary or within the contemplation of the parties
hereto: (a) upon, measured by or reasonably attributable to the cost or value of
Tenants equipment, furniture, fixtures and other personal property located in
the Demised Premises or by the cost or value of any leasehold improvements made
in or to the Demised Premises by or for Tenant, other than building standard
tenant improvements made by Landlord, regardless of whether title to such
improvements shall be in Tenant or Landlord; (b) upon or with respect to the
possession, leasing, operation, management, maintenance, alteration, repair, use
or occupancy by Tenant of the Demised Premises or any portion thereof; and (c)
upon this transaction or any document to which Tenant is a party creating or
transferring an interest or an estate in the Demised Premises, excluding taxes
associated with Landlord's sale or transfer of the Development or any part
thereof or any interest therein. In the event that it shall not be lawful for
Tenant so to reimburse Landlord, the monthly rental payable to Landlord under
this Lease shall be revised to net to Landlord the same rental after imposition
of any such tax upon Landlord as would have been payable to Landlord prior to
the imposition of any such tax
7. Use.
7.1. The Premises shall be used only for the purposes of "TENANT'S
USE" as set forth in Section 1(k) hereof, and for no other purpose or purposes
whatsoever.
7.2. Tenant shall not do or permit to be done in or about the Demised
Premises, nor bring or keep or permit to be brought or kept therein, anything
which is prohibited by or will in any way conflict with any law, statute,
ordinance or governmental rule or regulation now in force or which may hereafter
be enacted or promulgated, or which is prohibited by the standard form of fire
insurance policy, or will in any way increase the existing rate of or affect any
fire or other insurance upon the Building or any of its contents,
-7-
<PAGE> 8
or cause a cancellation of any insurance policy covering the Building or any
part thereof or any of its contents, or adversely affect or interfere with any
services required to be furnished by Landlord to Tenant, or to any other
tenants or occupants of the Building, or with the proper and economical
rendition of any such service. Tenant shall not do or permit anything to be
done in or about the Demised Premises which will in any way obstruct or
interfere with the rights of other tenants of the Building, or injure or annoy
them, or use or allow the Demised Premises to be used for any improper,
immoral, unlawful or objectionable purpose, nor shall Tenant cause, maintain or
permit any nuisance in, on or about the Demised Premises or commit or suffer to
be committed any waste in, on or about the Demised Premises. If anything done,
omitted to be done or suffered to be done by Tenant, or kept or suffered by
Tenant to be kept in, upon or about the Demised Premises shall cause the rate
of fire or other insurance on the Building in companies acceptable to Landlord
to be increased beyond the minimum rate from time to time applicable to the
Building, Tenant shall pay the amount of any such increases. Tenant shall not
cause or permit the use, generation, storage or disposal in or about the
Demised Premises or the Building of any substances, materials or wastes subject
to regulation under federal, state or local laws from time to time in effect
concerning hazardous, toxic or radioactive materials, unless Tenant shall have
received Landlord's prior written consent, which Landlord may withhold or at
any time revoke in its sole discretion. Tenant hereby covenants to indemnify
and hold Landlord, its successors and assigns, harmless from any loss, damage,
claims, costs, liability or cleanup costs arising out of Tenant's use,
handling, storage or disposal of any such hazardous, toxin or radioactive
materials on the Demised Premises.
8 Services.
8.1. Landlord shall maintain the Common Areas including any
lobbies, stairs, elevators, corridors and restrooms, together with the windows
and exterior walls, roofs, foundations and structure itself of the Building and
the mechanical, plumbing and electrical equipment servicing the Building,
parking deck and parking lot, in good order and condition as reasonably
determined by Landlord and the cost shall be included in Expenses, except for
the repairs due to fire and other casualties (to the extent the cost of such
repairs are covered by insurance proceeds) and for the repair of damages
occasioned by the acts or omissions of Tenant, which Tenant shall pay to
Landlord in full.
8.2. Landlord will arrange for the furnishing of heat and
electricity (including electricity for air conditioning) to the Demised
Premises, and Landlord shall elect either: (i) to charge Tenant for
electricity as determined by metering at the applicable secondary rates filed
by Landlord with the proper regulating authorities in effect from time to time
covering such services, but not more than the secondary rates which would be
charged to Tenant by the public utility company; or (ii) to charge Tenant for
electricity based upon engineering surveys of the Demised Premises and the use
by Tenant thereof, including, at the option of Landlord, periodic spot check
demand and/or consumption metering by Landlord. Such charge to Tenant for
electricity shall be payable in monthly installments together with Basic Rental
in the amount invoiced to Tenant. In the event that Landlord shall fail to pay
to the providing utility any charges for utility services provided to the
Development, and as a result thereof that utility provider shall either make a
demand upon Tenant to pay the same or threaten to interrupt utility service to
the Demised Premises or the Common Areas of the Development, Tenant shall (upon
at least ten [101 days prior written notice to Landlord) have the right to pay,
within the five day period prior to any threatened shut-off, all utility
expenses which the utility provider demands in order to avoid any such shut-off
(and regardless of whether or not they apply to other areas within the
Development), those charges directly to the demanding utility provider, and
shall have the further right to offset any such payment against the next
installment(s) of Basic Rental and/or Additional Rent falling due hereunder.
Engineering surveys shall be performed by independent licensed professional
electrical engineering consultants selected by Landlord. From time to time
during the Term, Landlord may inspect the Demised Premises in order to evaluate
Tenants kilowatt hour electric consumption and demand, and if as a result of
such inspection, the amount charged to Tenant shall change because of changes
in demand and/or consumption, or in the cost of electricity to Landlord,
Landlord shall notify Tenant and commencing with the first day of the next
calendar month, Tenant shall pay such revised charge in monthly installments.
Notwithstanding anything herein contained to the contrary, Landlord reserves
the right to terminate the furnishing of electricity at any time upon thirty
(30) days notice to Tenant, in which event Tenant shall make application
directly to the utility company servicing the Building for Tenant's separate
supply of electric current, and Landlord shall permit its wires and conduits to
be used for such purposes, to the extent available and capable of being used
safely.
-8-
<PAGE> 9
8.3. At Tenant's cost, Landlord shall furnish the Demised Premises
with (a) heat, ventilation and air conditioning to the extent required for the
occupancy of the Demised Premises to standards of comfort and during such hours
in each case as reasonably determined by Landlord for the building (which
hours, until Landlord shall otherwise designate, shall be from 8:00 a.m. to
6:00 p.m. on weekdays and from 8:00 a.m. to 12:00 p.m. on Saturdays; in each
case except holidays), or as may be prescribed by any applicable policies or
regulations adopted by any utility or governmental agency, (b) elevator
service, and (c) janitorial service only to the areas of the Demised Premises
used for office purposes during the times and in the manner that services are
furnished in comparable first class office buildings in the area, provided that
Landlord shall not provide janitorial services to any portion of the Demised
Premises used for other than office purposes such as preparing, dispensing
or consumption of food or beverages or as an exhibition area or for storage,
shipping room, washroom or similar purposes, or as private restrooms or a shop
or for the operation of computer data processing, reproduction, duplicating or
similar equipment. Landlord shall not be in default hereunder or be liable for
any damages directly or indirectly resulting from, nor shall the rental herein
reserved by abated by reason of: (1) the installation, use or interruption of
use of any equipment in connection with the furnishing of any of the foregoing
services, (2) failure to furnish or delay in furnishing any such services when
such failure or delay is caused by accident or any condition beyond the
reasonable control of Landlord or, by the making of necessary repairs or
improvements to the Demised Premises or to the Building, or (3) any limitation,
curtailment, rationing or restriction on use of water, electricity, steam, gas
or any other form of energy serving the Demised Premises or the Building by any
governmental authority or any utility otherwise providing that service, or
caused by circumstances or events beyond Landlord's reasonable control.
Landlord shall use reasonable efforts diligently to remedy any interruption in
the furnishing of such services. Notwithstanding the provisions of this
Section 8.3, Landlord shall not be required to provide ventilation and air
conditioning to the Demised Premises to the extent that additional ventilation
and/or air conditioning is required due to Tenant's utilization in the Demised
Premises of heat generating equipment or lighting other than building standard
lights which affect the temperature otherwise maintained by the air
conditioning system or if the Demised Premises are occupied by a number of
persons in excess of the design criteria of the air conditioning system.
8.4. Tenant shall pay as Additional Rent the cost of providing all
heating, ventilating and air conditioning, excluding all costs associated with
the installation of meters for measuring the same, to the Demised Premises in
excess of that required for normal office use or during hours requested by
Tenant when heating, ventilating and air conditioning is not otherwise
furnished by Landlord. Tenant shall notify Landlord in writing at least
twenty-four (24) hours prior to the time it requires heating, ventilating and
air conditioning during periods the same are not otherwise furnished by
Landlord.
9. Alterations and Repairs.
9.1. Tenant shall not make or suffer to be made any alterations,
additions or improvements to or of the Demised Premises or any part thereof,
or attach any fixtures or equipment thereto, without first obtaining Landlord's
consent. All such alterations, additions and improvements shall be performed by
contractors and subject to conditions specified by Landlord. If any such
alterations, additions or improvements to the Demised Premises consented to by
Landlord shall be made by Landlord for Tenant's account, Tenant shall reimburse
Landlord for the cost thereof (including a reasonable charge for Landlord's
overhead related thereto) as the work proceeds within fifteen (15) days after
receipt of statements therefor. All such alterations, additions and
improvements shall become the property of Landlord upon their installation
and/or completion and shall remain on the Demised Premises upon the expiration
or termination of this Lease without compensation to Tenant unless Landlord
elects by notice to Tenant to have Tenant remove the same, in which event
Tenant shall promptly restore the Demised Premises to their condition prior to
the installation of such alterations, additions and improvements.
9.2. Subject to the provisions of Section 8.1 hereof, Tenant shall
keep the Demised Premises and every part thereof in good condition and repair.
All repairs made by or on behalf of Tenant shall be made and performed in such
manner as Landlord may designate, by contractors or mechanics approved by
Landlord and in accordance with the rules relating thereto annexed to this
Lease as Exhibit D and all applicable laws and regulations of governmental
authorities having jurisdiction. Tenant shall, subject to the provisions of
Section 9.1 hereof, at the end of the term hereof surrender to Landlord the
Demised Premises in the same condition as when received, ordinary wear and tear
and damage by fire, earthquake, act of God or the elements excepted. Landlord
has no obligation and has made no promise to alter, remodel, improve, repair,
decorate or paint the Demised Premises or any part thereof, and no
representations
-9-
<PAGE> 10
respecting the condition of the Demised Premises or the Building have been
made by Landlord to Tenant, except as expressly set forth herein.
10. Liens.
Any mechanic's lien filed against the Demised Premises or the Building
for work claimed to have been done or materials claimed to have been furnished
to Tenant shall be discharged by Tenant within thirty (30) days thereafter,
unless an earlier date is required under Landlord's mortgage upon the
Development, in which case all such lien's shall be discharged by Tenant with
ten (10) days thereafter. For the purposes hereof, the bonding of such lien
by a reputable casualty or insurance company reasonably satisfactory to
Landlord shall be deemed the equivalent of a discharge of any such lien.
Should any action, suit, or proceeding be brought upon any such lien for the
enforcement or foreclosure of the same, Tenant shall defend Landlord therein,
by counsel satisfactory to Landlord, and pay any damages and satisfy and
discharge any judgment entered therein against Landlord.
11. Destruction or Damage.
11.1. In the event the Demised Premises or any portion of the
Building necessary for Tenant's occupancy are damaged by fire, earthquake, act
of God, the elements or other casualty in each case insured against by
Landlord's fire and extended coverage insurance policy covering the Building
and, if Landlord's reasonable estimate of the cost of making such repairs does
not exceed the proceeds of such insurance by more than One Hundred Thousand
Dollars ($100,000), Landlord shall forthwith repair the same if such repairs
can, in Landlord's opinion, be completed within ninety (90) days after
commencement of such repairs. This Lease shall remain in full force and effect
except that an abatement of Basic Rental shall be allowed Tenant for such part
of the Demised Premises as shall be rendered unusable by Tenant in the conduct
of its business during the time such part is so unusable to the extent Landlord
is reimbursed therefor by loss of rental income or other insurance. If such
repairs cannot, in Landlord's opinion, be made within ninety (90) days, or if
such damage or destruction is not insured against by Landlord's fire and
extended coverage insurance policy covering the Building or if Landlord's
reasonable estimate of the cost of making such repairs exceeds the proceeds of
such insurance by more than One Hundred Thousand Dollars ($100,000), Landlord
may elect, upon notice to Tenant within thirty (30) days after the date of such
fire or other casualty, to repair or restore such damage, in which event this
Lease shall continue in full force and effect, but the Basic Rental shall be
partially abated as provided in this Section 11. 1. If Landlord elects not to
make such repairs, this Lease shall terminate as of the date of such election
by Landlord, or if Landlord shall fail to notify Tenant of Landlord's election,
this Lease shall terminate thirty (30) days after the date of such fire or
other casualty.
If Landlord shall diligently prosecute the adjustment of any insured
loss and proceed to restore the Building with reasonable dispatch, but the
required repairs are not completed (to the extent necessary to permit Tenant to
reoccupy the Demised Premises) within ninety (90) days after the occurrence of
the casualty, other than by reason of causes beyond Landlord's reasonable
control (e.g., strikes, lockouts, material shortages, weather delays and other
further acts of God) which do not extend for in excess of an additional thirty
(30) days, Tenant may elect, upon thirty (30) days notice to Landlord and its
Mortgagee (of which Tenant shall have written notice prior thereto) to
terminate as of the date of that election.
11.2. A total destruction of the Building shall automatically
terminate this Lease.
11.3. If the Demised Premises are to be repaired under this Article
11 , Landlord shall repair at its cost any injury or damage to the Building
itself and building standard tenant improvements in the Demised Premises to be
constructed or installed by Landlord as set forth in Exhibit C. Tenant shall
perform and pay the cost of repairing any other improvement in the Demised
Premises and shall be responsible for carrying such casualty insurance as it
deems appropriate with respect to such other tenant improvements.
12. Subrogation.
Landlord and Tenant shall each obtain from their respective insurers
under all policies of fire insurance maintained by either of them at any time
during the Term insuring or covering the Building or any portion thereof or
operations therein, a waiver of all rights of subrogation which the insurer of
one party might have against the other party, and Landlord and Tenant shall
each indemnify the other against any loss or expense, including reasonable
attorneys' fees, resulting from the failure to obtain such waiver and, so long
as such waiver is outstanding, each party waives, to the extent of the proceeds
received under such
-10-
<PAGE> 11
policy, any right of recovery against the other party for any loss covered by
the policy containing such waiver; provided, however, that if at any time their
respective insurers shall refuse to permit waivers of subrogation, Landlord or
Tenant, in each instance, may revoke said waiver of subrogation effective
thirty (30) days from the date of such notice, unless within such thirty (30)
day period, the other is able to secure and furnish (without additional
expense) equivalent insurance with such waivers with other companies
satisfactory to the other party.
13. Eminent Domain.
If all or any part of the Demised Premises shall be taken as a result of
the exercise of the power of eminent domain, this Lease shall terminate as to
the part so taken as of the date of taking, and, in the case of partial taking,
either Landlord or Tenant shall have the right to terminate this Lease as to
the balance of the Demised Premises by notice to the other within thirty (30)
days after such date; provided, however, that a condition to the exercise by
Tenant of such right to terminate shall be that the portion of the Demised
Premises taken shall be of such extent and nature as substantially to handicap,
impede or impair Tenant's use of the balance of the Demised Premises. In the
event of any taking, Landlord shall be entitled to any and all compensation,
damages, income, rent, awards, or any interest therein whatsoever which may be
paid or made in connection therewith, and Tenant shall have no claim against
Landlord for the value of any unexpired term of this Lease or otherwise. In
the event of a partial taking of the Demised Premises which does not result in
a termination of this Lease, the rental thereafter to be paid shall be reduced
on a per square foot basis.
14. Landlord's Insurance.
Landlord shall, during the Term, provide and keep in force or cause to
be provided or kept in force:
(a) Comprehensive general liability insurance with respect to
Landlord's operation of the Development for bodily injury or death and damage
to property of others (with a minimum coverage of $2,000,000 per
occurrence/general aggregate, together with a minimum of $5,000,000 aggregate
umbrella coverage, the latter of which may apply to other properties among
Landlord's affiliates);
(b) Fire insurance (including standard extended coverage
endorsement perils and leakage from fire protective devices) in respect of the
Building, excluding Tenants trade fixtures, equipment and personal property;
(c) Loss of rental income insurance;
together with such other insurance as Landlord, in its sole discretion, elects
to obtain. Insurance effected by Landlord shall be in amounts which Landlord
shall from time to time determine reasonable and sufficient (an in any event in
amounts which shall preclude the reduction of coverage for any insured casualty
by the operation s of co-insurance provisions), shall be subject to such
deductibles and exclusions which Landlord may deem reasonable and shall
otherwise be on such terms and conditions as Landlord shall from time to time
determine reasonable and sufficient. Tenant acknowledges that Landlord's loss
of rental income insurance may provide that (i) payments thereunder by the
insurer will be limited to a period of one year following the date of any
destruction and damage, and (ii) no insurance proceeds will be payable
thereunder in the case of destruction or damage caused by any occurrence other
than fire and other risks included in the standard extended coverage
endorsement perils of a fire insurance policy.
15. Indemnification and Tenant's Insurance.
15.1. Tenant hereby waives all claims against Landlord for damage to
any property or injury or death of any person in, upon or about the Demised
Premises arising at any time and from any cause whatsoever, and Tenant shall
hold Landlord harmless from any damage to any property or injury to or death of
any person arising from the use of the Demised Premises by Tenant, its
employees or invitees, with the exception of claims (i) caused by the
intentional action or gross negligence of Landlord, or (ii) directly caused by
faulty construction of the Building (other than by Tenant or at its direction),
subject nevertheless to the provisions of this Lease regarding waiver of
subrogation. The foregoing indemnity obligation of Tenant shall include
reasonable attorneys' fees, investigation costs and all other reasonable costs
and expenses incurred by Landlord from the first notice that any claim or
demand as to be made or may be made. The provisions of this Section 15.1 shall
survive the termination of this Lease with respect to any damage, injury or
death occurring prior to such termination.
-11-
<PAGE> 12
15.2. Tenant shall procure and keep in effect comprehensive general
liability insurance, including contractual liability, with minimum limits of
liability of One Million Dollars ($1,000,000) per occurrence for bodily injury
or death, and Two Hundred Fifty Thousand Dollars ($250,000) per occurrence for
property damage. From time to time, Tenant shall increase the limits of such
policies to such higher limits as Landlord shall reasonably require. Such
insurance shall name Landlord and its mortgagee(s) as additional named insureds,
shall specifically include the liability assumed hereunder by Tenant, and shall
provide that it is primary insurance and not excess over or contributory with
any other valid, existing and applicable insurance in force for or on behalf of
Landlord, and shall provide that Landlord shall receive thirty (30) days notice
from the insurer prior to any cancellation or change of coverage.
15.3. Tenant shall procure and keep in effect fire insurance
(including standard extended coverage endorsement perils and leakage from fire
protective devices) for the full replacement cost of Tenant's trade fixtures,
equipment, personal property and leasehold improvements.
15.4. Tenant shall deliver policies of the insurance required
pursuant to Sections 15.2 and 15.3 hereof or certificates thereof to Landlord
on or before the Commencement Date, and thereafter at least thirty (30) days
before the Expiration Dates of expiring policies.
16. Compliance with Legal Requirements.
Tenant shall promptly comply with all laws, statutes, ordinances and
governmental rules, regulations or requirements now in force or which may
hereafter be in force, with the requirements of any board of fire underwriters
or other similar body now or hereafter constituted, with any occupancy
certificate or directive issued pursuant to any law by any public officer or
officers, as well as the provisions of all recorded documents affecting the
Demised Premises and of which Tenant shall have been given actual notice by
Landlord, insofar as any thereof relate to or affect the condition, use or
occupancy of the Demised Premises, excluding requirements of structural changes
not related to or affected by improvements made by or for Tenant or not
necessitated by Tenant's act.
17. Assignment and Subletting.
17.1. Except as expressly permitted pursuant to this Article 17,
Tenant shall not, without the prior written consent of Landlord, assign,
encumber or hypothecate this Lease or any interest herein or sublet the Demised
Premises or any part thereof, or permit the use of the Demised Premises by any
party other than Tenant. This Lease shall not, nor shall any interest herein,
be assignable as to the interest of Tenant by operation of law without the
consent of Landlord. Sales aggregating fifty percent (50%) or more of the
capital or voting stock of Tenant (if Tenant is a nonpublic corporation) or
transfers aggregating fifty percent (50%) or more of Tenant's partnership
interest (if Tenant is a partnership) shall be deemed to be an assignment of
this Lease.
17.2. PERMITTED TRANSFERS. Landlord shall not unreasonably withhold
its consent to any request by Tenant to assign this Lease or sublet any portion
or all thereof, provide there shall be compliance with each of the following
conditions
(a) Tenant shall not be in material default under this Lease
(i.e., beyond any notice and cure periods provided herein), and no
condition shall exist that (with the giving of notice, the passage
of time, or both) would constitute such a material Default.
(b) The assignee or sublessee (the "SUCCESSOR TENANT") must be a
reputable person, and shall, in Landlord's reasonable judgment,
have sufficient assets and working capital with which to operate
its business upon the Demised Premises in accordance with the
terms and provisions of this Lease. Tenant shall provide
Landlord with all information reasonably requested by Landlord
concerning the proposed Successor Tenant and its proposed.use of
the Demised Premises.
(c) The business or other activity to be conducted from the
Demised Premises by the Successor Tenant must be consistent with
the uses within the Development and not conflict with any other
business or activity conducted by any other tenant within the
Development.
(d) In the event Tenant shall so sublet all or any portion of the
Demised Premises, or assign this Lease, all of the sums or
other economic consideration received by Tenant as a result
-12-
<PAGE> 13
of such subletting or assignment whether denominated rentals or
otherwise, under the sublease or assignment, which exceed in the
aggregate, the total sums which Tenant is obligated to pay
Landlord under this Lease (prorated to reflect obligations
allocable to that portion of the Demised Premises subject to
such sublease) shall be payable to Landlord as Additional Rent
under this Lease without affecting or reducing any other
obligation of Tenant hereunder.
(e) Tenant shall acknowledge in a separate writing reasonably
acceptable to Landlord in form and substance that no such
Transfer shall relieve Tenant from liability for payment of rent
or other sums herein provided or for the obligation to keep and
be bound by the terms, conditions and covenants of this Lease,
notwithstanding the fact that this Lease may be amended by
agreement between such assignee or subtenant and Landlord
(provided that Tenant shall not be liable for any greater sum or
performance than would accrue or arise under the terms of this
Lease prior to any such amendment).
(f) Tenant shall unconditionally release Landlord from all actual or
potential claims and Liabilities under or pursuant to the Lease
arising by reason of Landlord's default prior to the date of the
proposed Transfer, of which Tenant shall have any knowledge as of
that date, unless Tenant shall have served upon Landlord a
default notice in connection with which the claims specifically
set forth therein have not then been resolved.
(g) Any Successor Tenant which shall be an assignee shall agree in a
writing, reasonably acceptable to Landlord in both form and
substance, to assume all of Tenant's obligations of payment and
performance under and pursuant to this Lease.
(h) An assignment for the benefit of creditors or by operation of law
shall not be effective to transfer any rights to assignee
without the written consent of the Landlord first having been
obtained.
Tenant shall furnish Landlord with an executed counterpart of the agreement
under which any such permitted Transfer has been agreed to (which may be
redacted for confidential provisions, including the consideration to be paid,
unless the transaction as limited to the sale and/or assignment of the business
operations and/or assets upon the Demised Premises). Upon request by Tenant,
and if Landlord has so consented, Landlord shall give written consent to a
qualifying assignment acknowledging that it has no legal objection thereto and
that to Landlord's knowledge that Transfer conforms to the provisions and
requirements of this Lease. Prior to delivery of Landlord's consent, Tenant
shall deliver to Landlord (i) an executed counterpart of the assignment
conforming to the requirements of this Section, and providing for the
assumption by the Successor Tenant or other assignee of the Tenant's
obligations of payment and performance from and after the effective date of the
Assignment, and (ii) if a sublease is involved, an executed counterpart of the
sublease, which shall not extend beyond the Term of this Lease and shall
contain an agreement by the subtenant to be bound to the provisions of this
Lease with respect to assignments thereunder.
17.3. Notwithstanding the provisions of Section 17.1, but subject
to compliance with the requirements of Section 17.2 (with the exception of
those requirements in the first sentence of subsection 17.2[b], Tenant may
assign this Lease or sublet the Demised Premises or any portion thereof,
without Landlord's consent, to any corporation which controls, is controlled by
or is under common control with Tenant, or to any corporation resulting from
the merger or consolidation with Tenant, or to any person or entity which
acquires all the assets of Tenant as a going concern of the business that is
being conducted on the Demised Premises, provided that said assignee assumes,
in full, the obligations of Tenant under this Lease.
17.4. Regardless of Landlord's consent, no subletting or assignment
shall release Tenant of Tenant's obligation or alter the primary liability of
Tenant to pay the rental and to perform all other obligations to be performed
by Tenant hereunder. The acceptance of rental by Landlord from any other
person shall not be deemed to be a waiver by Landlord or any provision hereof.
Consent to one assignment or subletting shall not be deemed consent to any
subsequent assignment or subletting. In the event of default of any of the
terms hereof, Landlord may proceed directly against Tenant without the
necessity of exhausting remedies against such assignee or successor. Landlord
may consent to subsequent assignments or subletting of this Lease or amendments
or modifications to this Lease with
-13-
<PAGE> 14
assignees of Tenant, without notifying Tenant, or any successor of Tenant, and
without obtaining its or their consent thereto and such action shall not
relieve Tenant of liability under this Lease.
17.5. In the event Tenant shall assign this Lease or sublet the
Demised Premises or request the consent of Landlord to any assignment or
subletting or if Tenant shall request the consent of Landlord for any act that
Tenant proposes to do, then Tenant shall pay Landlord's reasonable attorneys'
fees and processing fees incurred in connection therewith.
17.6. In the event of a proceeding involving Tenant under the
Federal Bankruptcy Code, 11 U.S.C. 101 et seq., if this Lease is assumed by
Tenants trustee in bankruptcy (after he has cured all existing defaults,
compensated Landlord for any loss resulting therefrom and provided adequate
assurance of future performance), then this Lease may not be assigned by the
trustee to a third party, unless such party (i) executes and delivers to
Landlord an agreement in recordable form whereby such party assumes and agrees
with Landlord to discharge all obligations of Tenant under this Lease,
including, without limitation, the provisions relating to the permitted use of
the Demised Premises and the manner of operation thereof, and (ii) has a
tangible net worth at least equal to twice the annual Basic Rental payable
during the ensuing 12 months, an operating experience over an uninterrupted
period of at least the previous five years without material default under any
premises lease and free of any bankruptcy or similar debtor relief proceedings
having been filed by or against it, and a credit history (as reflected in
customary credit reports, litigation and lien searches) which is satisfactory
to Landlord in the exercise of its reasonable judgment taking into
consideration the materiality of the Lease revenue upon the financial well
being of the Development.
18. Rules.
Tenant shall faithfully observe and comply with the rules and
regulations annexed to this Lease as Exhibit D and, after notice thereof, all
reasonable modifications thereof and additions thereto from time- to time
promulgated in writing by Landlord. No such modifications or additions shall
unreasonably interfere with or materially and adversely affect any of Tenant's
rights under this Lease, materially and adversely increase Tenant's obligations
of performance as required under the terms of the Lease and the rules and
regulations in effect as of the Commencement Date or increase Tenant's Rental
obligations hereunder. Landlord shall not be responsible to Tenant for the
nonperformance by any other tenant or occupant of the Building of any of such
rules and regulations.
19. Entry by Landlord.
19.1. Landlord and its designees may enter the Demised Premises at
reasonable hours to (a) inspect the same, (b) exhibit the same to prospective
purchasers, lenders or tenants, (c) determine whether Tenant is complying with
all of its obligations hereunder, (d) supply janitor service and any other
services to be provided by Landlord to Tenant hereunder, (e) post notices of
nonresponsibility, and (f) make repairs required of Landlord under the terms
hereof or repairs to any adjoining space or utility services or make repairs,
alterations or improvements to any other portion of the Building; provided,
however, that all such work shall be done as promptly as reasonably possible.
Where circumstances reasonably permit prior notice to be given of any such
entry by Landlord, Landlord shall give such notice as shall be reasonable under
the circumstances, but shall not be liable or responsible to Tenant for the
result of any such entry which is delayed or obstructed by Tenant. In so
entering upon the Demised Premises, Landlord shall take reasonable steps under
the circumstances to not unreasonably disrupt or interfere with Tenant's
occupancy and quiet enjoyment of the Demised Premises. Tenant hereby waives
any claim for damages for any injury or inconvenience to or interference with
Tenant's business, any loss of occupancy or quiet enjoyment of the Demised
Premises or any other loss occasioned by such entry, other than (i) caused by
Landlord's gross negligence or (ii) for the costs of repairing or restoring the
Demised Premises as a direct result of actual damage to the Demised Premises,
beyond reasonable wear and tear, caused by Landlord's entry and which Landlord
does not repair or restore within a reasonable time thereafter.
19.2. Landlord shall at all times have and retain a key with which
to unlock all of the doors in, on or about the Demised Premises (excluding
Tenant's vaults, safes and similar areas designated in writing by Tenant in
advance); and Landlord shall have the right to use any and all means which
Landlord may deem proper to open said doors in any emergency in order to obtain
entry to the Demised Premises, and any entry to the Demised Premises obtained
by Landlord by any of said means, or otherwise, shall not under any
circumstances be construed or deemed to be a forcible or unlawful entry into or
a detainer of the
-14-
<PAGE> 15
Demised Premises or an eviction, actual or constructive, of Tenant from the
Demised Premises, or any portion thereof.
20. Events of Default.
20.1. The occurrence of any one or more of the following events
(hereinafter referred to as "EVENTS OF DEFAULT") shall constitute a breach of
this Lease by Tenant: (a) if Tenant shall fail to pay the Basic Rental and
regularly scheduled monthly installments of Additional Rental when and as the
same become due and payable after expiration of the Rent Grace and Notice
Period (defined below); or (b) if Tenant shall fail to pay any other sum when
and as the same becomes due and payable and such failure shall continue for
more than ten (10) days (after notice from Landlord, where any such payment is
due Landlord, as opposed to a third party); or (c) if Tenant shall fail to
perform or observe any other term hereof or of the rules and regulations
referred to in Article 18 hereof to be performed or observed by Tenant, such
failure shall continue for more than thirty (30) days after notice thereof from
Landlord, and Tenant shall not within such thirty (30) day period commence with
due diligence and dispatch the curing of such default, or, having so commenced,
shall thereafter fail or neglect to prosecute or complete with due diligence
and dispatch the curing of such default; or (d) if Tenant shall make a general
assignment for the benefit of creditors, or shall admit in writing its
inability to pay its debts as they become due or shall file a petition in
bankruptcy, or shall be adjudicated as insolvent or shall file a petition in
any proceeding seeking any reorganization, arrangements, composition,
readjustment, liquidation, dissolution or similar relief under any present or
future statute, law or regulation, or shall file an answer admitting or fail
timely to contest or acquiesce in the appointment of any trustee, receiver or
liquidator of Tenant or any material part of its properties; or (e) if within
ninety (90) days after the commencement of any proceeding against Tenant
seeking any reorganization, arrangement, composition, readjustment,
liquidation, dissolution or similar relief under any present or future statute,
law or regulation, such proceeding shall not have been dismissed, or if, within
ninety (90) days after the appointment without the consent of acquiescence of
Tenant, of any trustee, receiver or liquidator of Tenant or of any material
part of its properties, such appointment shall not have been vacated; or (f) if
this Lease or any estate of Tenant hereunder shall be levied upon under any
attachment or execution and such attachment or execution is not vacated within
thirty (30) days.
20.2. If, as a matter of law, Landlord has no right on the
bankruptcy of Tenant to terminate this Lease, then, if Tenant, as debtor, or
its trustee wishes to assume or assign this Lease, in addition to curing or
adequately assuring the cure of all defaults existing under this Lease on
Tenant's part on the date of filing of the proceeding (such assurances being
defined below), Tenant, as debtor, or the trustee or assignee must also furnish
adequate assurances of future performance under this Lease (as defined below).
Adequate assurance of curing defaults means the posting with Landlord of a sum
in cash sufficient to defray the cost of such a cure. Adequate assurance of
future performance under this Lease means posting a deposit equal to three (3)
months rent, including all other charges payable by Tenant hereunder, such as
the amounts payable pursuant to Article 5 hereof, and, in the case of an
assignee, assuring Landlord that the assignee is financially capable of
assuming this Lease, and that its use of the Demised Premises will not be
detrimental to the other tenants in the Building or Landlord. In a
reorganization under Chapter 11 of the Bankruptcy Code, the debtor or trustee
must assume this Lease or assign it within one hundred twenty (120) days from
the filing of the proceeding, or he shall be deemed to have rejected and
terminated this Lease.
20.3. For the purpose of this the forgoing Section 20.1, the "RENT
GRACE AND NOTICE PERIOD" shall be as provided in this Section 20.3. Monthly
installments of Basic Rental and regularly scheduled monthly installments of
Additional Rental (i.e., those regular payments of Additional Rental due under
this Lease with the payment of Basic Rental and of which Tenant has been given
prior notice as to amount, as required under this Lease) are each due and
payable on the first day of each month during the Term, but shall not be deemed
late until the fourth day of each month. An Event of Default shall not arise
with respect to either payment obligation unless the failure to pay those sums
shall continue for more than ten (10) days after notice to Tenant from
Landlord, as provided under this Lease. However, in the event that any such
payment is made after the foregoing four day grace period, Tenant shall be
liable and shall reimburse Landlord for any lawful penalty or default interest
(i.e., the interest assessed over the non-default rate) properly assessed
against Landlord under and pursuant to the terms of Landlord's then existing
first mortgage upon the Development by reason of the failure to make that
month's corresponding regularly scheduled payment of principal, interest and
tax and insurance escrows required thereunder. In order to be entitled to this
payment/reimbursement from Tenant, Landlord shall be required to establish that
it had
-15-
<PAGE> 16
sufficient additional funds on deposit with which to make the balance of that
required monthly payment on a timely basis if Tenant's payments had been
received as required under this Lease.
The foregoing provision has been agreed to (i) in light of Tenant's
request for a grace period and notice and cure rights with respect to the
affected payments and (ii) in light of the significance to Landlord of Tenant's
relative occupancy of the Building and the resulting importance of Tenant's
timely payments in order to permit Landlord to make correspondingly timely
payments on its first mortgage indebtedness. Landlord represents and warrants
to Tenant that Landlord's current first Mortgage Note requires the payment of
scheduled monthly installments on the first day of each month, imposes a 5%
late payment penalty upon any such late installment not paid by the 1Oth day of
any month, and in like fashion increases the applicable interest rate by adding
an aggregate 5% per annum thereto as the Default Rate, which is applicable to
debt at the Lender's option once a regular installment remains unpaid for more
than 10 days. Upon any refinancing of first mortgage indebtedness hereunder,
Landlord shall give Tenant notice of any change in the provisions for payments
thereunder, including applicable late payment charges and default interest
rate. Tenant shall not have any liability under this Section 20.3 for any such
charges which are assessed, or which accrue for any period of time, prior to
the fifth day of any month.
21. Remedies,.
If any of the Events of Default shall occur, then Landlord shall have
the following remedies:
(a) Landlord at any time after the Event of Default, at Landlord's
option, may give to Tenant ten (10) days notice of termination of this Lease,
and in the event such notice is given, this Lease shall come to an end and
expire (whether or not the Term shall have commenced) upon the expiration of
such ten (10) days, but Tenant shall remain liable for damages as provided in
Article 22 hereof.
(b) Either with or without terminating this Lease, Landlord may
immediately or at any time after the Event of Default or after the date upon
which this Lease shall expire, reenter the Demised Premises or any part
thereof, without notice, either by summary proceedings or by any other
applicable action or proceeding, or by force or otherwise (without being liable
to indictment, prosecution or damages therefor), and may repossess the Demised
Premises and remove any and all of Tenant's property and effects from the
Demised Premises.
(c) Either with or without terminating this Lease, Landlord may
relet the whole or any part of the Demised Premises from time to time, either
in the name of Landlord or otherwise, to such tenant or tenants, for such term
or terms ending before, on or after the Expiration Date, at such rental or
rentals and upon such other conditions, which may include concessions and free
rent periods, as Landlord, in its sole but reasonable discretion, may
determine. In the event of any such reletting, Landlord shall not be liable
for the failure to collect any rental due upon any such reletting, and no such
failure shall operate to relieve Tenant of any liability under this Lease or
otherwise to affect any such liability; and Landlord may make such repairs,
replacements, alterations, additions, improvements, decorations and other
physical changes in and to the Demised Premises as Landlord, in its sole but
reasonable discretion, considers advisable or necessary in connection with any
such reletting or proposed reletting, without relieving Tenant of any liability
under this Lease or otherwise affecting such liability.
(d) Landlord shall have the right to recover the rental and all
other amounts payable by Tenant hereunder as they become due (unless and until
Landlord has terminated this Lease) and all other damages incurred by Landlord
as a result of an Event of Default.
(e) The remedies provided for in this Lease are in addition to any
other remedies available to Landlord at law or in equity by statute or
otherwise.
22. Termination upon Default.
Upon termination of this Lease by Landlord pursuant to Article 21
hereof, Landlord shall be entitled to recover from Tenant the aggregate of: (a)
the worth at the time of award of the unpaid rental which had been earned at
the time of termination; (b) the worth at the time of award of the amount by
which the unpaid rental which would have been earned after termination until
the time of award exceeds the then reasonable rental value of the Demised
Premises during such period; (c) the worth at the time of the award of the
amount by which the unpaid rental for the balance of the term of this Lease
after the time of award exceeds the reasonable rental value of the Demised
Premises for such period; and (d) any other amount necessary to compensate
Landlord for all the detriment proximately caused by Tenant's failure to
perform
-16-
<PAGE> 17
its obligations under this Lease or which in the ordinary course of things
would be likely to result therefrom. The "WORTH AT THE TIME OF AWARD" of the
amounts referred to in clauses (a) and (b) above is computed from the date such
rent was due or would have been due, as the case may be, by allowing interest
at the rate of one percent (1%) in excess of the prime rate of National Bank of
Detroit or, if a higher rate is legally permissible, at the highest rate
legally permitted. The "wORTH AT THE TIME OF AWARD" of the amount referred to
in clause (c) above is computed by discounting such amount at the discount rate
of the Federal Reserve Bank of Chicago at the time of award, plus one percent
(1%).
23. Landlord's Right to Cure Defaults.
All covenants, terms and conditions to be performed by Tenant under
any of the terms of this Lease shall be at its sole cost and expense and
without any abatement of rental. If Tenant shall fail to pay any sum of money,
other than Basic Rental, required to be paid by it hereunder or shall fail to
perform any other act on its part to be performed hereunder and such failure
shall continue for thirty (30) days after notice thereof by Landlord, Landlord
may, but shall not be obligated so to do, and without waiving or releasing
Tenant from any obligations of Tenant, make any such payment or perform any
such other act on Tenant's part to be made or performed as in this Lease
provided. All sums so paid by Landlord and all necessary incidental costs
shall be deemed Additional Rent hereunder and shall be payable to Landlord on
demand, and Landlord shall have (in addition to any other right or remedy of
Landlord) the same rights and remedies in the event of the nonpayment thereof
by Tenant as in the case of default by Tenant in the payment thereof by Tenant
as in the case of default by Tenant in the payment of Basic Rental.
24. Attorneys' Fees.
If either party to this Lease uses the services of an attorney in
connection with (i) any breach or default in the performance of any of the
provisions of this Lease, in order to secure compliance with such provisions or
recover damages therefor, or to terminate this Lease or evict Tenant, or (ii)
any action brought by either party against the other, or (iii) any action
brought against Tenant or Landlord in which the other is made a party, the
non-prevailing party shall reimburse the other upon demand for any and ail
reasonable attorneys' fees and expenses so incurred by Landlord.
25. Subordination.
25.1. This Lease is and shall be subject and subordinate, at all
times, to the following:
(a) The lien of any mortgage or mortgages which may now
or hereafter affect the Building, and to all advances
made or hereafter to be made upon the security
thereof and to the interest thereon, and to any
agreements at any time made modifying, supplementing,
extending or replacing any such mortgages, provided
that such lien by its terms, or by separate agreement
with Tenant, provides that this Lease shall not
terminate as a result of the foreclosure of such
lien, and that Tenant's rights under this Lease shall
continue in full force and effect and its possession
be undisturbed, except in accordance with the
provisions of this Lease. Tenant agrees that it
will, upon request of the lienholder, be a party to
such an agreement, and will agree that if that
lienholder succeeds to the interest of Landlord,
Tenant will recognize that lienholder (or its
successor-in-interest) as its Landlord under the
terms of this Lease. Tenant shall execute and
deliver upon Landlord's demand those instruments
which comply with the foregoing provisions.
(b) Any ground or underlying lease which may now or
hereafter affect the Building, including all
amendments, renewals, modifications, consolidation,
replacements and extensions thereof.
Notwithstanding the foregoing, at the request of the holder of any of the
aforesaid mortgage or mortgages or the lessor under the aforesaid ground or
underlying lease, this Lease may be made prior and superior to such mortgage or
mortgages and/or such ground or underlying lease.
25.2. At the request of Landlord, Tenant shall promptly execute and
deliver such further instruments as may be reasonably required to implement the
provisions of this Article 25.
25.3. This Lease has been executed by Landlord and Tenant with the
following understandings: (i) the effectiveness of this Lease is specifically
subject to the written approval of Landlord's first mortgagee
-17-
<PAGE> 18
within ten (10) days after the execution of this Lease (the "MORTGAGE APPROVAL
PERIOD"); (ii) his Lease shall not be enforceable by or against either Landlord
or Tenant unless and until this Lease is approved in its current form by
Landlord's first mortgagee within the Mortgage Approval Period, unless that
Period is extended by written agreement between Landlord and Tenant; (iii)
Landlord's interest hereunder may, at the option of that mortgagee, be assigned
to that mortgagee as collateral security on a separate form to be provided by
and acceptable to that mortgagee; and (iv) Tenant may be required by that
Mortgagee to execute and deliver to that mortgagee a separate Attornment
Agreement provided by and acceptable to that mortgagee. If that Attornment
Agreement is inconsistent with the terms, provisions and requirements of this
Lease, Tenant shall have the right and option of terminating this Lease upon
written notice to Landlord within thirty (30) days after receipt of the
requested form. In addition, the parties hereto hereby incorporate herein and
agree to the provisions of Exhibit G attached hereto, which are specific
provisions required by the terms of Landlord's first mortgage.
25.4. [Intentionally Omitted]
25.5. If a mortgagee or any other person acquires title to the
Demised Premises pursuant to the exercise of any remedy provided for in the
mortgage, Tenant covenants and agrees to attorn to mortgagee or such person as
its new Landlord, and this Lease shall continue in full force and effect as a
direct lease between Tenant and mortgagee or such other person upon all the
terms, covenants, conditions and agreements set forth in the Lease, provided
that the mortgagee has entered into a non-disturbance agreement with Tenant.
However, in no event shall mortgagee or such person be (a) bound by any payment
of rent or Additional Rent made by the Tenant to the Landlord for more than one
(1) month in advance; or (b) bound by any amendment or modification of the
Lease adversely affecting the interest of mortgagee made without the written
consent of mortgagee; or (c) liable for any act or omission of any prior
Landlord (including Landlord); or (d) liable for the return of any security
deposit (unless any such security deposit has actually been received by
mortgagee); or (e) liable for any offsets, credits or other claims against
rentals for any prior periods and/or against any other party or Landlord
(including Landlord), except to the extent specifically provided for under this
Lease. Tenant agrees to execute all tenant estoppel certificates and attornment
agreements as mortgagee shall reasonably require, provided Tenant receives a
non-disturbance agreement from mortgagee.
26. Merger.
The voluntary or other surrender of this Lease by Tenant, or a mutual
cancellation hereof, shall not work a merger, and shall, at the option of
Landlord, terminate all or any existing subleases or subtenancies, or may, at
the option of Landlord, operate as an assignment to it of any or all such
subleases or subtenancies.
27. Nonliability of Landlord.
27.1. In the event the Landlord hereunder or any successor owner of
the Building shall sell or convey the Building, all liabilities and obligations
on the part of the original Landlord or such successor owner under this Lease
accruing thereafter shall terminate, and thereupon all such liabilities and
obligations shall be binding upon the new owner. Tenant shall attorn to such
new owner.
27.2. Landlord shall not be responsible or liable to Tenant for any
loss or damage that may be occasioned by or through the acts or omissions of
persons occupying adjoining areas or any part of the area adjacent to or
connected with the Demised Premises or any part of the Building or for any loss
or damage resulting to Tenant or its property from theft or a failure of the
security systems in the Building, or for any damage or loss of property within
the Demised Premises from any other cause whatsoever (except for Landlord's
negligence and/or intentionally tortious actions, but only if and to the extent
that any such loss or damage to Tenant or its property is not covered by
Tenant's insurance and applicable insurance deductibles), and no such occurrence
shall be deemed to be an actual or constructive eviction from the Demised
Premises or result in an abatement of rental.
27.3. If Landlord shall fail to perform any covenant, term or
condition of this Lease upon Landlord's part to be performed, and, if as a
consequence of such default, Tenant shall recover a money judgment against
Landlord, such judgment shall be satisfied only against the right, title and
interest of Landlord in the Development and out of rents and other income from
the Development, and/or insurance proceeds (net of any portion thereof to which
a mortgagee of the Development shall have a superior right), receivable by
Landlord, or out of the consideration received by Landlord from the sale or
other disposition of
-18-
<PAGE> 19
all or any part of Landlord's right, title and interest in the Development, and
Landlord shall not be liable for any deficiency.
28. Estoppel Certificate.
At any time and from time to time upon ten (10) days prior request by
Landlord, Tenant will promptly execute, acknowledge and deliver to Landlord, a
certificate indicating (a) that this Lease is unmodified and in full force and
effect (or, if there have been modifications, that this Lease is in full force
and effect, as modified, and stating the date and nature of each modification),
(b) the date, if any, to which rental and other sums payable hereunder have
been paid, (c) that no notice has been received by Tenant of any default which
has not been cured, except as to defaults specified in said certificate, and
(d) such other matters as may be reasonably requested by Landlord. Any such
certificate may be relied upon by any prospective purchaser, mortgagee or
beneficiary under any deed of trust of the Building or any part thereof.
29. No Light, Air or View Easement.
Any diminution or shutting off of light, air or view by any structure
which may be erected on lands adjacent to the Building shall in no way affect
this Lease or impose any liability on Landlord.
30. Holding Over.
If Tenant holds possession of the Demised Premises beyond the
expiration of the Term, such continued possession by Tenant shall not have the
effect of extending or renewing the Term for any period of time and Tenant
shall be presumed to occupy the Demised Premises against the will of Landlord
who shall thereupon be entitled to all remedies provided for the expulsion of
Tenant, including all claims for loss and damage; provided, however, that
Landlord may, at its option, give to Tenant at any time during such continued
possession by Tenant written notice that Tenant may continue to occupy the
Demised Premises under a tenancy from month to month and otherwise under such
terms and conditions (including rental) as Landlord may specify in said written
notice.
31. Abandonment.
If Tenant shall abandon or surrender the Demised Premises, or be
dispossessed by process of law or otherwise, any personal property belonging to
Tenant and left on the Demised Premises for a period in excess of fourteen (14)
days shall be deemed to be abandoned, or, at the option of Landlord, may be
removed by Landlord at Tenant's expense.
32. Security Deposit. [INTENTIONALLY OMITTED]
33. Waiver.
33.1. No waiver of any covenant or condition or of the breach of any
covenant or condition of this Lease shall constitute a waiver of any subsequent
breach of such covenant or condition, or justify or authorize the nonobservance
on any other occasion of the same or of any other covenant or condition hereof.
No custom or practice which may grow up between the parties in the
administration of the terms hereof be construed to waive or to lessen the right
of Landlord or Tenant to insist upon the performance by the other of the terms
hereof in strict accordance with said terms. The subsequent acceptance of
rental hereunder by Landlord shall not be deemed to be a waiver of any
preceding breach by Tenant of any agreement, condition or provision of this
Lease, other than the failure of Tenant to pay the particular rental so
accepted, regardless of Landlord's knowledge of such preceding breach at the
time of acceptance of such rental.
33.2. Landlord and Tenant hereby waive trial by jury in any action,
proceeding, or counterclaim brought by Landlord or Tenant against the other on
any matter whatsoever arising out of or in any way connected with this Lease,
the relationship of Landlord to Tenant, the use or occupancy of the Demised
Premises by Tenant or any person claiming through or under Tenant, any claim of
injury or damage, and any emergency or other statutory remedy; provided,
however, the foregoing waiver shall not apply to any action for personal injury
or property damage.
34. Notices.
Any notice, demand, request or consent made under this Agreement shall
be in writing, addressed to the party to whom that notice is to be given, and
shall be deemed to have been received by the
-19-
<PAGE> 20
addressee on (i) the day that notice is personally delivered to the addressee,
(ii) the 3rd day following the day that notice is deposited with the United
States postal service first class certified mail, return receipt requested,
(iii) the day following the day on which that notice is delivered to a
nationally recognized overnight courier delivery service, or (iv) the day upon
which facsimile transmission is confirmed after transmission by telecopy to the
telecopier number which the addressee shall have previously designated in
writing. All such notices shall be provided as follows: to Tenant at the
address set forth in Section 1 (m) hereof, or to such other place as Tenant may
form time to time designate in a notice to Landlord; to Landlord at the address
set forth in Section 1 (n) hereof, or to such other place as Landlord may from
time to time designate in a notice to Tenant; or, in the case of Tenant,
delivered to Tenant at the Demised Premises. Either party hereto may at any
time change the address to which notices are to be directed by the giving of
notice to the other party hereto in the manner set forth above.
35. Guaranty. [INTENTIONALLY OMITTED]
36. Complete Agreement.
There are no oral agreements between Landlord and Tenant affecting
this Lease, and this Lease supersedes and cancels any and all previous
negotiations, arrangements, brochures, agreements and understandings, if any,
between Landlord and Tenant or displayed by Landlord to Tenant with respect to
the subject matter of this Lease or the Building. There are no representations
between Landlord and Tenant other than those contained in this Lease and all
reliance with respect to any representations is solely upon such
representations. This Lease supersedes Tenant's present Lease for Suites 100,
145, 185, 195 and 295, effective upon the Commencement Date.
37. Corporate Authority.
If Tenant signs as a corporation, each of the persons executing this
Lease on behalf of Tenant does hereby covenant and warrant that Tenant is a
fully authorized and existing corporation, that Tenant has and is qualified to
do business in Michigan, that the corporation has full right and authority to
enter into this Lease, and that each and all of the persons signing on behalf
of the corporation are authorized to do so.
38. Inability to Perform.
If, by reason of the occurrence of unavoidable delays due to acts of
God, governmental restrictions, strikes, labor disturbances, shortages of
materials or supplies or for any other cause or event beyond Landlord's
reasonable control, Landlord is unable to furnish or is delayed in furnishing
any utility or service required to be furnished by Landlord under the
provisions of Article 8 hereof or any other provisions of this Lease or any
collateral instrument, or is unable to perform or make or is delayed in
performing or making any installations, decorations, repairs, alterations,
additions, or improvements, whether required to be performed or made under this
Lease or under any collateral instrument, or is unable to fulfill or is delayed
in fulfilling any of Landlord's other obligations under this Lease or any
collateral instrument, no such inability or delay shall constitute an actual or
constructive eviction in whole or in part, or entitle Tenant to terminate the
Lease or, except for a delay in delivering the Demised Premises to Tenant (in
which case all rent due hereunder shall be abated, and the Lease Term extended,
for a period equal to that delay), any abatement or diminution of rental or
other charges due hereunder or relieve Tenant from any of its obligations under
this Lease, or impose any liability upon Landlord or its agents by reason of
inconvenience or annoyance to Tenant, or injury to or interruption of Tenant's
business, or otherwise. Notwithstanding the foregoing, in the event that for
reasons not caused by Tenant, essential utility services are not rendered to
the Demised Premises for a period in excess of three days, and as a result
thereof, the Demised Premises are as a practical matter not reasonably
habitable or suitable for the conduct of Tenant's regular business operations,
and Landlord shall not have made a reasonable and effective interim substitute
therefor (i.e., portable heaters, generators, etc.), Rental shall abate during
the continuation of that interruption thereafter until restored.
39. Covenant of Quiet Enjoyment.
Upon Tenant paying the rental and other charges due hereunder and
performing all of Tenant's obligations under this Lease, Tenant may peacefully
and quietly enjoy the Demised Premises during the term of this lease; subject,
however, to the provisions of this Lease and to any mortgages referred to in,
and in accordance with the provisions of, Article 25 hereof.
-20-
<PAGE> 21
40. Miscellaneous.
40.1. The words "LANDLORD" and "TENANT" as used herein shall include
the plural as well as the singular. If there be more than one Tenant, the
obligations hereunder imposed upon Tenant shall be joint and several.
40.2. Submission of this instrument for examination or signature by
Tenant does not constitute a reservation of or option for lease, and it is not
effective as a lease or otherwise until execution and delivery by both Landlord
and Tenant.
40.3. The agreements, conditions and provisions herein contained
shall, subject to the provisions as to assignment, set forth in Article 17
hereof, apply to and bind the heirs, executors, administrators, successors and
assigns of the parties hereto.
40.4. Tenant shall not without the consent of Landlord, use the name
of the Building for any purpose other than as the address of the business to be
conducted by Tenant in the Demised Premises. Landlord reserves the right to
select the name of the Building and to make such changes of name as it deems
appropriate from time to time.
40.5. If any provisions of this Lease shall be determined to be
illegal or unenforceable, such determination shall not affect any other
provisions of this Lease and all such other provisions shall remain in full
force and effect.
40.6. This Lease shall be governed by and construed pursuant to the
laws of the State of Michigan.
40.7. Upon Landlord's written request, Tenant shall promptly furnish
Landlord, from time to time, financial statements reflecting Tenant's current
financial condition.
41. RIGHT OF FIRST REFUSAL/OPTION TO EXTEND
41.1. Providing Tenant is not in default of any of the terms or
conditions of this Lease at the time of exercise of the following option,
Tenant will have the right of first refusal to lease newly vacated space
("ADDITIONAL PREMISES") in the Building at any time during the initial or any
extended or renewal Term of this Lease, providing that Tenant shall exercise
this option in a writing served upon Landlord within fourteen (14) days of
receipt of Landlord's written notification to Tenant of available Additional
Premises. Landlord shall provide that notice to Tenant as and when Additional
Space becomes available. If Tenant's option is exercised, the Additional
Premises shall be added to this Lease under the same terms and conditions
contained in this Lease, with the exception that the Additional Premises shall
be added and accepted by Tenant in its then present condition, "As Is" and
without any requirement upon Landlord to repair or improve those Additional
Premises, except that if this right is exercised during the initial Term of
this Lease Landlord shall provide to Tenant a renovation/improvement allowance
(in the same manner and under the same terms, conditions and requirements as
provided in Article 4 hereof for renovations and improvements) as follows:
<TABLE>
<CAPTION>
Space Added to Lease
During Lease Year Allowance
----------------- ---------
<S> <C>
1-5 $15.00/sq. ft., reduced proportionately in proportion to reflect only the number of
days remaining in the original Term of the Lease as they relate to the full nine
year initial Lease Term
6 $3.00/sq. ft.
7 $2.00/sq. ft.
8-9 No allowance provided
</TABLE>
The addition of space to this Lease shall be effective as of the date when the
Additional Premises are delivered to Tenant by Landlord, with completion of
that work agreed to between Tenant and Landlord, including that provided for
out of the foregoing allowances. Tenant shall promptly provide all
information, documents, consents and approvals, and perform all work required
of Tenant, in order to provide for the
-21-
<PAGE> 22
design, costing, governmental approval and completion of the
renovation/improvement work, and the Additional Premises to this Lease, each as
soon as reasonably possible under the circumstances.
41.2. OPTION TO EXTEND. Tenant may extend the Term of this Lease for
one (1), additional period of five (5) years, on the terms and conditions set
forth herein except that Basic Rent during the extended term shall be
$22.00/sq. ft. (without a change in the Base Year), by notifying the Landlord
in writing not less than one hundred eighty (180) days prior to the then
pending Expiration Date. It is a precondition to Tenant's right to exercise the
foregoing option that, at the time of the exercise thereof and at all times
thereafter prior to the effective date of the commencement of the extended
Term, Tenant shall not be in material default under this Lease, nor shall there
exist any condition which, with the giving of Notice, the passage of time, or
both, would constitute such a material Default, unless that Default or other
condition is fully cured on or before the commencement of the extended Term.
42. PARKING.
Landlord hereby grants Tenant the right for its employees to use at
all times wherein Tenant is not in default, ninety-three (93) reserved parking
spaces in the Dearborn Atrium parking structure. Landlord, in its sole
discretion, shall be entitled to replace, reassign and/or relocate such spaces
within the parking structure, parking lot, or other lease parking areas
controlled by the Landlord.
43. SIGNAGE.
No sign and/or other display relative to Tenant or Tenant's business
shall be displayed in and about the Demised Premises, Building, and/or the
Development without the prior written consent of Landlord. Landlord shall, in
its sole discretion, determine the size, type, character, aesthetic quality,
and permissible location of any such sign and/or display, which determination
may be changed by Landlord from time to time, subject to the limitations of
this paragraph. The cost of any such sign and/or display shall be borne
exclusively by Tenant, except if, Landlord unilaterally, without request by
Tenant, requires a change to an existing sign and/or display to conform to a
general standard being applied by Landlord to all other exterior signage upon
the Building, in which event, Landlord shall pay the cost of replacing the
former sign with a newly approved sign. Notwithstanding the foregoing, Tenant
shall have the exclusive right to have its name placed on the exterior facade
of the Building, in a location and manner approved by Landlord in its sole but
reasonable discretion.
(a) COMPLIANCE WITH LAW. Tenant's signage shall comply with all
applicable laws. Landlord shall reasonably work, assist and
cooperate with Tenant in all respects with the application and
review process necessary for the approval of such signage as
required by any governmental entity; provided that Tenant
shall pay Landlord's reasonable costs and expenses associated
therewith.
(b) TENANT'S MAINTENANCE OF SIGN. Tenant shall maintain its sign
in a good state of repair and save Landlord harmless from any
loss, cost or damage as a result of the erection, maintenance,
existence or removal of the same and shall repair any damage
which may have been caused by the erection, existence,
maintenance or removal of such sign. Upon vacating the
Demises Premises, Tenant shall remove all signs and exterior
displays and repair all damage caused by that removal.
The foregoing exclusive building exterior signage right shall not restrict
Landlord from erecting a monument sign on the Development grounds, upon which
one or more Tenants names may appear at Landlord's discretion. However, that
monument sign shall not obscure the visibility of Tenant's Building sign.
44. ARBITRATION
44.1. Any controversy or claim between the parties hereto arising
out of or relating to an assertion of an Event of Default or disputes relating
to construction or reasonable evidence under this Lease, or any other dispute
or claim which by the explicit terms of this Lease is to be resolved by
Arbitration, shall (i.e., must) be submitted to binding arbitration before a
single arbitrator (unless the parties hereto otherwise consent in writing to
three arbitrators) conducted in accordance with the arbitration rules of the
American Arbitration Association ("AAA") as in existence at the time any such
arbitration is commenced, provided, however, that nothing contained herein
shall be construed as approving, authorizing or allowing arbitration for any
other matters and/or disputes arising under this.
-22-
<PAGE> 23
44.2. The provisions of this Section shall be construed as
independent of any other covenant or provision of this Lease; provided,
however, that if a court of competent jurisdiction or property appointed
arbitrator determines that any such provision is invalid or unenforceable in
any respect, such court or arbitrators shall modify or interpret such provision
to the minimum extent necessary to comply with applicable law and public
policy. Notwithstanding any provision of this Lease relating to the governing
Law of this Lease, all issues relating to arbitrability or the enforcement of
the agreement to arbitrate contained herein shall be governed by the Laws of
the State of Michigan, without reference to the principles of comity or
conflicts of Laws.
44.3. Judgment upon an arbitration award may be entered in any court
having competent jurisdiction, and shall be binding, final, and non-appealable.
Landlord and Tenant hereby waive to the fullest extent permitted by law, any
right to or claim for punitive or exemplary damages against the other, and
agree that in the event of a dispute between them, each shall be limited to the
recovery of any actual, and incidental damages sustained, along with reasonable
attorneys fees or court costs incurred in connection with any arbitration or
litigation related thereto and cost and expenses of investigation.
44.4. Upon initiation but prior to commencement of any arbitration
proceeding, Landlord or Tenant may, at their respective option, elect to have
the arbitrator conduct, in a separate proceeding prior to the actual
arbitration, a preliminary hearing, at which hearing testimony and other
evidence may be presented and briefs may be submitted, including, without
limitation, a brief setting forth the then applicable statutory or common law
methods of measuring damages in respect of the controversy or claim being
arbitrated.
44.5. The arbitration provisions contained this Lease shall be
deemed to be self-executing. Arbitration shall take place in the City of
Southfield, State of Michigan, unless otherwise agreed to in writing in each
specific instance by Landlord and Tenant.
44.6. Neither the termination of this Lease, nor the exercise of any
other right or remedy by a party hereto, shall terminate the right of either
party hereto to commence arbitration or, if permitted pursuant to the terms of
this Lease, litigation.
44.7. Notwithstanding anything contained herein to the contrary,
either party shall have the right to seek specific enforcement or an injunction
from a court of competent jurisdiction during the pendency of any arbitration
proceedings with regard to the actions of the other party which are the subject
matter at issue in connection with such proceedings.
44.8. Each of the parties hereto hereby irrevocably (i) agrees that
any suit, action or other legal proceeding against any of them arising with
respect to this Lease shall be brought in the courts of the United States
within the State of Michigan (Eastern District, Southern Division) or (if a
basis of federal jurisdiction does not exist) the Wayne County, Michigan
Circuit Court or applicable District Court having jurisdiction under the
circumstances; and (ii) waives any and all objections any of them might
otherwise now or hereafter have to the laying of the venue of any such suit,
action or proceeding in any of the courts referred to in this Section or to
service of any writ, summons or other legal process in accordance with any of
the provisions therefor set forth referred to in this Section.
45. TENANT'S ENVIRONMENTAL OBLIGATIONS
Except as shall exist upon the Commencement Date, or be caused by
Landlord or as shall migrate from a point source property other than the
Demised Premises, Tenant shall not cause or permit (with the exception of any
such substances may have been upon the Demised Premises when delivered to
Tenant by Landlord, other than as placed there by or at the instruction of
Tenant or its contractors or agents) any hazardous substances to be upon,
about, or a part of, the Demised Premises. Tenant shall, at its sole cost and
expense, promptly take all actions to comply fully with all present and future
federal, state, or local laws, ordinances, regulations, or governmental
policies concerning hazardous material (whether directed to Landlord or Tenant,
or both), and all actions to enable Tenant or Landlord to use and lease the
Demised Premises free of hazardous substances, in each case to the extent that
such hazardous substance was caused or permitted by Tenant to be there
("CORRECTIVE ACTIONS"). Corrective Actions include, without limitation the
investigation of the environmental condition, the preparation and delivery of
any notices, studies, or reports, and the performance of any cleanup, disposal,
removal, remedial, or restoration work. When any Corrective Actions affect the
condition of any area in the Demised Premises, even in the absence of hazardous
substances, Tenant shall, at Tenant's sole cost and expense, take the further
action of putting the affected area in a condition (without hazardous
substances) that is
-23-
<PAGE> 24
as good as or better than the condition the area was in or required to be in
before taking any Corrective Actions, whichever is better in Landlord's
opinion, despite any lower standard allowable under any regulations, or
applicable federal, state, or local laws, ordinances, or governmental policies.
Tenant shall obtain Landlord's written consent before taking any actions, which
consent Landlord shall not unreasonably withhold or delay. In the event of any
communication between Tenant and any governmental authorities concerning
hazardous substances upon, about, as a part of, above, or beneath the Demised
Premises, Tenant shall promptly send Landlord copies of all such notices and
correspondence and promptly inform Landlord fully of all other such
communications. The foregoing restrictions shall not forbid Tenant's use or
storage of customary cleaning, copying and other agents in quantities customary
to office use, so long as that use and storage conforms to the requirements of
applicable law. Tenant shall indemnify Landlord against, hold Landlord
harmless from, and reimburse Landlord for, any and all claims, losses, damages,
costs, and expenses, including, without limitation, reasonable attorneys' fees,
court costs (whether at trial or appeal, in arbitration, or otherwise) and the
costs and expenses of investigation (collectively, "LIABILITY" or
"LIABILITIES", as appropriate), incurred by Landlord and which arise out of or
in connection with any or failure by Tenant to perform any covenant or
agreement of Tenant contained in this Section. Tenant's obligations hereunder
shall survive any termination of the Lease.
IN WITNESS WHEREOF, the parties hereto have executed this Lease as of
the date set forth in Section 1 (a).
WITNESS:
<TABLE>
<CAPTION>
DEARBORN ATRIUM ASSOCIATES LIMITED
PARTNERSHIP, a Michigan limited partnership
By: DEARBORN PARTNERS, a Michigan co-
partnership is General Partner
<S> <C>
Jacklyn L. Bisogni By: [sig.]
- ------------------------- ------------------------------------------
Jacklyn L. Bisogni Its: Managing Partner
------------------------------------------
Anna M. Betts "LANDLORD"
- -------------------------
Anna M. Betts
NATIONAL TECH TEAM, INC., a Delaware corporation
[sig.] By: [sig.]
- ------------------------- ------------------------------------------
[sig.] Its: Cheif Financial Officer
- ------------------------- ------------------------------------------
"TENANT"
</TABLE>
-24-
<PAGE> 25
EXHIBIT A
LEGAL DESCRIPTION
Lots 68 thru 72 & Lots 95 thru 99, inclusive of "Detroit Arsenal Ground"
subdivision, T2S, RIOE, City of Dearborn, Wayne County, Michigan, according to
the plot thereof as recorded in Volume "B" of Private Plots, Wayne County
Records.
-25-
<PAGE> 26
EXHIBIT B
-26-
<PAGE> 27
EXHIBIT C
BUILDING STANDARDS
DEARBORN ATRIUM OFFICE CENTER
By Landlord's Contractor:
The following work shall be performed by Landlord's Contractor
pursuant to plans and specifications (the "APPROVED PLANS") which shall be
mutually agreed upon by both Landlord and Tenant. The parties shall have a
period of fifteen (15) days after the execution of the Lease in which to agree
upon the Approved Plans. However, if they cannot do so within that period, the
Lease shall not terminate, but the Anticipated Commencement Date shall be
extended for a period equal to the number of days beyond that initial fifteen
(15) day period before the Approved Plans are in fact approved by both parties.
If the parties shall fail to agree upon the Approved Plans on or before
December 31, 1996, this Lease shall thereafter be terminable by either Landlord
or Tenant upon no less than five (5) days prior written notice to the other.
1. General Conditions
1.1. Standard Allowances:
The standard allowances as outlined below are maximum limits
to be provided at no cost to the Tenant, for the area of
35,006 square feet contained in Suites 160 and 200, subject to
the limitations set forth in Section 4.2 of the Lease.
2. Standard Work Performed by Landlord at Landlord's Cost:
2.1. Partitions and Wall Finishes:
Office partitions will be constructed of 5/8" drywall each
side of 3 5/8" - 25 ga. Metal studs, unless otherwise noted
on the Approved Plans, with one (1) coat primer and two (2)
coats flat latex paint.
3. Interior Doors and Hardware
Solid core oak doors, 3' x 9', stained finish in hollow metal frames,
painted with Building Standard latch sets. One (1) suite entry door
to be provided by Landlord as shown on Approved Plans.
4. Floor Covering and Base:
Landlord will furnish from landlord's sample board a carpet of
commercial quality, at a cost allowance of $15.00-$17.00 per square
yard installed, including a 4" straight vinyl base.
5. Electrical:
Wall receptacles - in accordance with the Approved Plans; Switches -
in accordance with the Approved Plans; Telephone outlets - in
accordance with the Approved Plans; Electrical outlets shall be 110
volt, standard.
6. Lighting:
Standard recessed 2' x 4', fluorescent lamp fixture to provide average
of 70 foot candles to work area, one (1) Lithonia fixture 2GT-44O-A12.
7. 2 x 4 lay-in ceiling - 9' O" high grid to be white painted metal.
Tile to be non-directional fissured numeral tile.
8. HVAC System:
Landlord will provide leased premises with Building Standards heating
and air conditioning so that the temperature does not exceed 78
degrees with 55 percent relative humidity in the summer time and is
not lower than 65 degrees in the winter time, in the times specified
in the Lease. If special Tenant equipment requires modification of
HVAC capacities, Tenant will be responsible for additional HVAC to
maintain above standards.
-27-
<PAGE> 28
9. Window Coverings:
The Landlord shall be responsible for repairing, replacing as
necessary and cleaning the existing mini-blinds.
10. Suite Signage:
Entrances will be signed by Landlord with Building Standard type faces
and mounted heights.
11. Keys:
The Tenant will comply with Landlord's keying system to be furnished
by Landlord.
12. Sprinkler Heads:
The Landlord will furnish sprinkler heads as required by the
municipality, based on the approved floor plans within the Approved
Plans.
13. Design Services:
Tenant shall utilize the services of Landlord's designer for the
preparation of the necessary Tenant layout, Approved Plans and working
drawings.
14. Tenant Work Above Building Standards:
If the Approved Plans approved by Tenant includes items of work above
the Building Standard allowances as outlined above, such Approved
Plans will be submitted by Landlord to the General Contractor for the
determination of cost of such items of work.
After the approval by Tenant of such above Building Standard costs,
Tenant will pay as follows:
At time of approval of cost;
When work is 50% completed;
Upon completion.
If there are any changes requested by Tenant after completion, Tenant
will be responsible for all architectural and engineering costs and
related design expenses resulting from such changes. No such changes
will be made without prior written approval of Landlord. Landlord
will respond within fifteen (15) days.
Landlord will not be responsible for delay in occupancy by Tenant
because of changes to plans after approval and sign-off by Tenant.
15. In the event the Tenant chooses wall finish, floor finish or base that
is other than those identified above, the allowances and cost
established by the Landlord shall remain in force, but such changes
shall first be approved by all parties to this Lease and if the finish
of the Demises Premises is delayed by such selections by the Tenant,
the Landlord shall not be responsible for the completion of the
Demised Premises as to the occupancy and completion date. All
finishes must be noted on the Approved Plans. Tenant may substitute
for Building Standard allowance as long as the price per unit of any
like substitution is not greater than that of the Building Standard.
16. On all existing space contained in suites 100, 145, 175, 185, 195 and
295, containing 19,853 square feet, a renovation allowance will be
given as provided in Section 4.1 of the Lease.
17. The allowances given to Tenant under this Lease shall not be available
for personal property (including without limitation furnishings,
cables and similar items). However, Landlord acknowledges that Tenant
has certain unique requirements which are peculiar to and necessary
for Tenant's business, particularly in the number of telephone and
cable outlets. In applying the allowances, therefore, Landlord shall
reasonably accommodate those unique requirements which exceed or do
not specifically come within the Building Standards (subject,
nevertheless, to a maximum overall expenditure by Landlord as provided
within each such allowance).
APPROVED BY TENANT: [sig.]
----------------------------------
Chief Financial Officer
-28-
<PAGE> 29
EXHIBIT D
BUILDING RULES AND REGULATIONS
Attached to and made a part of Lease dated November 18, 1996, between DEARBORN
ATRIUM ASSOCIATES LIMITED PARTNERSHIP ("LANDLORD") and NATIONAL TECH TEAM, INC.
("TENANT").
Tenant agrees for itself, its employees, agents, clients, customers, invitees,
and guests to comply fully with the following rules and regulations and with
such reasonable modifications thereof and additions thereto as Landlord may
make for the Building:
(a) Any sign, lettering, picture, notice or advertisement installed within
the Premises which is visible form the public corridors within the
Building shall be installed in such manner and be of such character
and style as Landlord shall approve in writing, which approval shall
not be unreasonably withheld. No sign, lettering, picture, notice or
advertisement shall be placed on any outside window or in a position
to be visible from outside the Building.
(b) Tenant shall not use the name of the Building for any purpose other
than that of the business address of Tenant, and shall not use any
picture or likeness of the Building in any circulars, notices,
advertisements or correspondence.
(c) Tenant shall not obstruct sidewalks, entrances, passages, courts,
corridors, vestibules, halls, elevators and stairways in or about the
Building, nor shall Tenant place objects against glass partitions,
doors or windows which would be unsightly from the Building's
corridors, or from the exterior of the Building.
(d) No animals or pets or bicycles or other vehicles shall be brought or
permitted to be in the Building or the Premises.
(e) Tenant shall not make excessive noise, cause disturbances or
vibrations, or use or operate any musical, electrical or electronic
devices or other devices that emit loud sounds or air waves which may
disturb or annoy other tenants or occupants of the Building.
(f) Tenant shall not make any room-to-room canvas to solicit business from
other tenants of the Building and shall cooperate to prevent the same.
(g) Tenant shall not create any odors which may be offensive to other
tenants of the Building.
(h) Tenant shall not waste electricity, water or air-conditioning and
shall cooperate fully with Landlord to assure the most efficient
operation of the Building's hearing and air-conditioning. Tenant
shall not adjust the controls other than room thermostats installed
for Tenant's use. Tenant shall not tie, wedge or otherwise fasten
open any water faucet or outlet. Tenant shall keep all corridor doors
closed.
(i) No additional locks or similar devices shall be attached to any door
and no locks shall be changed except by Landlord. Upon termination of
this Lease or of Tenant's possession of the Premises, Tenant shall
surrender all keys for door locks and other locks in or about the
Premises and shall make known to Landlord the combinations of all
locks, safes, cabinets and vaults which are not removed by Tenant.
(j) Tenant assumes full responsibility for protecting the Premises from
theft, robbery and pilferage. Except during Tenant's normal business
hours, Tenant shall keep all doors to the Premises locked and other
means of entry to the Premises closed and secured.
(k) Tenant shall not install or operate any machinery or mechanical
devices of a nature not directly related to Tenant's ordinary use of
the Premises.
(l) Tenant shall not employ any person or perform any cleaning, repairing,
janitorial, decorating, painting, or other services or work in or
about the Premises, except with the approval of Landlord, which
approval shall not be reasonably withheld.
(m) Tenant shall ascertain from Landlord the maximum amount of electrical
current which can safely be used in the Premises, taking into account
the capacity of the electric wiring in the Building and the Premises
and the needs of other tenants, and shall not use more than such safe
capacity.
-29-
<PAGE> 30
Landlord's consent to the installation of electric equipment shall not
relieve Tenant from the obligation not to use more electricity than
such safe capacity.
(n) Tenant shall no overload any floor and shall not install any heavy
objects, safes, business machines, files, or other equipment without
having received Landlord's prior written consent as to size, maximum
weight, routing, and location thereof. Safes, furniture, equipment,
machines, and other large or bulky articles shall be brought through
the Building and into and out of the Premises at such times and in
such manner as the Landlord shall direct (including the designation of
elevator) and at Tenant's sole risk and responsibility. Prior to
Tenant's removal of any such articles from the Building, Tenant shall
obtain written authorization therefor at the office of the Building
and shall present such writing to a designated employee of Landlord.
(o) Tenant shall not bring into the Building or Premises inflammables such
as gasoline, kerosene, naphtha and benzine, or explosives or any other
articles of an intrinsically dangerous nature. Tenant shall not in
any manner deface or damage the Building.
(P) Movement in or out of the Building of furniture of office equipment,
or dispatch or receipt by Tenant of any merchandise or materials other
than hand-delivered packages, which requires the use of elevators or
stairways or movement through the Building entrances or lobby, shall
be restricted to the hours designated by Landlord and in a manner to
be agreed upon between Tenant and Landlord by prearrangement before
performance. Tenant assumes all risk of damage to any and all
articles so moved, as well as injury to any person or property in such
movement, and hereby agrees to indemnify Landlord against any loss
resulting therefrom.
(q) Landlord shall not be responsible for any lost or stolen property,
equipment, money or jewelry from the leased Premises or the public
areas of the Building regardless of whether such loss occurs when the
leased Premises are locked or not.
(r) No food shall be prepared or cooked in the Demised Premises, and the
Premises shall not be used for housing, lodging, sleeping or for any
immoral or illegal purpose. Nothing contained in this clause,
however, shall be construed to prohibit Tenant's operation of an
employee coffee lounge facility in the Demised Premises, wherein a
microwave oven may be used. Further, Tenant shall not install or
operate and/or permit to be installed or operated, in the Demised
Premises, any vending machine of any kind whatsoever.
(S) The work of a janitor or cleaning personnel shall not be hindered by
Tenant after 5:30 p.m. and the windows may be cleaned at any time.
Tenant shall provide adequate waste and rubbish receptacles to prevent
unreasonable hardship to Landlord in discharging its obligations
regarding cleaning services.
(t) Tenant will refer all contractors and installation technicians
rendering any services for Tenant to Landlord for supervision and
approval before performance of any services. Tenant will not permit
any mechanic's liens to be placed against the Demised Premises and any
contract Tenant enters into for work to be performed on the Premises
will contain a waiver of mechanic's liens.
(u) Landlord shall designate, in its absolute discretion, the normal
business hours for the Building during which time the entrances to the
Building shall be unlocked. At all other times the entrances to the
Building shall be locked and Tenant shall not unlock or prop open any
entrance to the Building during any such time that the Landlord has
locked same.
(v) At all times that the Building has been locked, Tenant shall
personally open the door to allow its invited guests access to the
Building and upon such entrance Tenant shall personally escort such
guests to and from the Premises.
(w) Tenant agrees for itself, is employees, agents, clients, customers,
invitees and guests to not allow rollerblading, rollerskating, and
skateboarding on the Building premises.
Tenant shall be responsible for the observance of all of the foregoing rules
and regulations by Tenant's employees, agents, clients, customers, invitees and
guests.
-30-
<PAGE> 31
EXHIBIT E
JANITORIAL SERVICES
DAILY SERVICES (Five times per week)
1. Empty waste baskets.
2. Empty and clean ash trays, including ones in public areas.
3. Dust desk tops which are clear of working papers.
3.1. Dust reasonably accessible high areas and blinds.
4. Sweep or vacuum entire floor area - public and private.
5. Toilet rooms:
5.1. Empty all waste receptacles.
5.2. Sweep and wet mop floors.
5.3. Clean and disinfect all fixtures and clean mirrors and
shelves.
6. Clean and disinfect drinking fountains and water coolers.
7. Damp mop public vending areas. Damp wipe vending machines.
WEEKLY SERVICES:
1. Damp mop floors, stairways, lobbies and corridors.
2. Machine buff reception area, lunchroom and aisles.
3. Dust tops of file cabinets, ledges and baseboards, and heat
conductors.
4. Wash and disinfect all ceramic tile; toilet partitioning, fixtures and
waste receptacles in toilet rooms. Refill deodorant containers.
5. Removes smudges and scuff marks from all painted surfaces and glass
office partitions wherever possible - public and private areas.
Spot clean hall carpeting.
6. Police parking areas for rubbish and trash.
MONTHLY SERVICES:
1. Strip, wax and polish floor in reception area, lunchroom and aisles.
2. Wash entrance door glass and all glass in office partitions.
3. Wash outside and inside building entry mats.
QUARTERLY SERVICES:
1. Strip and rewax entire floor area with wax or floor treatment.
2. Wash first floor windows. (Upper floor windows shall be washed at six
month intervals)
-31-
<PAGE> 32
EXHIBIT F
EXCLUSIONS FROM EXPENSES
Expenses shall specifically exclude the following items:
(i) Expenses for amortization of any capital improvement which is erected
or installed for the use or benefit of a specific existing or
prospective tenant of the Development. Amortization expenses that are
included in operating expenses shall be reasonably determined by
Landlord in accordance with Generally Accepted Accounting Principles.
(ii) Expenses for painting, tenant improvements, redecorating, altering or
other special work, materials or services which Landlord performs with
respect to premises demised to other tenants in the Development or
provides specifically for any other tenant, or for which Landlord
receives direct reimbursement from another tenant.
(iii) Costs and expenses for repairs, replacement or other work occasioned
by a fire, windstorm or other casualty in excess of $5,000, which sum
represents Landlord's insurance deductible.
(iv) Costs and expenses arising in connection with any claim covered by an
insurance policy maintained or required to be maintained by Landlord
hereunder in excess of $5,000.00, which sum represents Landlord's
insurance deductible.
(v) Expenses incurred directly in procuring new tenants and retaining and
relocating existing tenants, including without limitation brokerage
commissions and expenses, legal, architectural, engineering and
other professional fees, advertising expenses and marketing expenses.
(vi) Principal, interest and/or prepayment charges of any kind paid or
payable with respect to any mortgage or obligation in the nature
of a mortgage.
(vii) All costs and expenses incurred in connection with any financing or
refinancing transaction.
(viii) All transaction costs associated with any sale or transfer of the
Landlord's interests.
(ix) Land rent or ground lease payments and costs and expenses related
thereto.
(x) Interest or penalty of any kind incurred as a result of any late
payment by Landlord, provided that the late payment is not occasioned
by a corresponding late payment or other default in payment or
performance by Tenant.
(xi) Property management fees in excess of five percent (5%) of all rental
and other charges payable by tenants in the Development.
(xii) Wages, salaries, benefits and other expenses of employing any person
over the rank of property manager or substantially equivalent title.
(xiii) Costs and expenses resulting from actual or alleged violation by
Landlord of the terms of any lease of space in the Development or of
any ground or underlying lease or mortgage, or of any law, rule
or regulation, of any governmental authority having jurisdiction over
the Development, except laws, rules or regulations adopted or first
having effect as a practical matter subsequent to the Commencement
Date, but only to the extent that they require physical changes to any
portion or all of the Development or changes in the current manner of
operating the Development in order to effect compliance (but there
shall not be included in any Common Area Expenses the cost of
remediation of any environmental condition which exists on or with
respect to the Development on or before the Commencement Date, or
caused by Landlord).
(xiv) Any costs incurred to affiliates of Landlord, except to the extent
such costs do not exceed the costs which would reasonably be incurred
for comparable services, materials or products from unrelated third
parties
(xv) Costs incurred for environmental remediation of conditions existing
prior to the date of this Lease.
-32-
<PAGE> 33
EXHIBIT G
SPECIAL LEASE PROVISIONS REQUIRED BY LANDLORD'S MORTGAGEE
Tenant agrees not to look to the holder of any first mortgage on the
Development (the "MORTGAGEE") as mortgagee, mortgagee in possession, or
successor in title to the premises, for accountability for any security deposit
required by the Landlord hereunder as security for the Tenant's performance of
this Lease.
Tenant agrees not to handle, store, or dispose of any hazardous or toxic
waste or substance upon the property comprising any portion or all of the
Development (for the purpose of this Exhibit G, the "PROPERTY") which are
prohibited by any federal, state or local statute, ordinance or regulation.
Tenant hereby covenants to indemnify and hold Landlord, its successors and
assigns, harmless from any loss, damage, claims, costs, liability or cleanup
costs arising out of Tenant's use, handling, storage or disposal of any such
hazardous or toxic wastes or substances on the property.
If Mortgagee or any other person acquires title to the Property pursuant
to the exercise of any remedy provided for in the Mortgage, Tenant covenants
and agrees to attorn to Mortgagee or such person as its new Landlord, and the
Lease shall continue in full force and effect as a direct Lease between Tenant
and Mortgagee or such other person upon all the terms, covenants, conditions
and agreements set forth in the Lease. However, in no event shall Mortgagee or
such person by (i) bound by any payment of rent or additional rent made by the
Tenant to the Landlord for more than one (1) month in advance; or (ii) bound by
any amendment or modification of the Lease adversely affecting the interest of
Mortgagee made without the written consent of the Mortgagee; or (iii) liable
for any act or omission of any prior Landlord (including Landlord); or (iv)
liable for the return of any security deposit (unless any such security deposit
has actually been received by Mortgagee); or (v) liable for any offsets,
credits or other claims against rentals for any prior periods and/or against
any other party or Landlord (including Landlord). Tenant agrees to execute all
Tenant estoppel certificates and attornment agreement as Mortgagee shall
require, provided that Tenant is given a non-disturbance and attornment
agreement by the mortgagee which is consistent with the provisions of the Lease
and reasonably satisfactory to Tenant.
Until Tenant is notified in writing to the contrary by Mortgagee, all sums
due under this Lease shall be paid to Mortgagee in accordance with any written
instructions Tenant receives from Mortgagee.
To the extent that the foregoing provisions are inconsistent with any
other provisions of the Lease, the foregoing provisions shall govern and
control.
-33-
<PAGE> 34
LEASE COMMISSION AGREEMENT
DEARBORN ATRIUM ASSOCIATES LIMITED PARTNERSHIP, a Michigan limited
partnership ("LANDLORD"), NATIONAL TECH TEAM, INC., a Delaware corporation
("TENANT") and GRUBB & ELLIS, Inc., a Delaware corporation ("BROKER"), in
consideration of the contemporaneous execution and delivery by each of a
certain "LEASE" between Landlord and Tenant, for Suites 100, 145, 160, 185,
195, 200 and 295, located in the Dearborn Atrium Office Building, at 835 Mason,
Dearborn, Michigan, hereby agree as follows:
Landlord shall be responsible for payment of all amounts due to Broker in
connection with the Lease, as provided under a Commission Agreement dated
September 16, 1996, between Landlord and Broker, which shall be paid in twelve
equal monthly installments (due on the first day of each month, with a 10 day
grace period), without interest, beginning on the Commencement Date, but to be
paid in full on or before December 31, 1997. However, in the event that
Landlord fails to make any payment under the Commission Agreement within 10
days after first due thereunder, and upon a further 10 days prior written
notice to Landlord by Tenant, Tenant may (but shall not be obligated to) make
any such payment to Broker and, in that event, the full amount of any such
payment may, at Tenant's option, be credited against and deducted from the next
payments of Basic Rental, Additional Rental or other charges otherwise payable
by Tenant to Landlord under the Lease, or Tenant may instead make a demand for,
and be immediately entitled to, full reimbursement thereof upon Landlord.
This Agreement has been executed as of the 15th day of November, 1996.
DEARBORN ATRIUM ASSOCIATES LIMITED
PARTNERSHIP, a Michigan limited partnership
By: DEARBORN PARTNERS, a Michigan co-
partnership as General Partner
By: [sig.]
--------------------------------------------
Its: Managing Partner
-------------------------------------------
"LANDLORD"
NATIONAL TECH TEAM, INC., a Delaware corporation
By: [sig.]
--------------------------------------------
Its: Chief Financial Officer
-------------------------------------------
"TENANT"
GRUBB & ELLIS, INC., a Delaware corporation
By: [sig.]
--------------------------------------------
Its: Sr. Vice President
-------------------------------------------
"BROKER"
<PAGE> 1
EXHIBIT 11 - STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1996 1995 1994
PRIMARY ---- ---- ----
<S> <C> <C> <C>
Average shares outstanding . . . . . . . . . . . . . . . . 12,193,689 11,204,971 10,339,072
Net effect of dilutive stock options and
warrants - based on the treasury stock method
using average market price . . . . . . . . . . . . . 326,735 155,797 642,111
----------- ----------- -----------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . 12,520,424 11,360,768 10,981,183
----------- ----------- -----------
Net income . . . . . . . . . . . . . . . . . . . . . . . . $ 4,773,632 $ 2,399,067 $ 1,971,049
=========== =========== ===========
Per share amount . . . . . . . . . . . . . . . . . . . . . $ 0.38 $ 0.21 $ 0.18
=========== =========== ===========
FULLY DILUTED
Average shares outstanding 12,193,689 11,204,971 10,339,072
Net effect of dilutive stock options and
warrants - based on the treasury stock method
using the quarter-end market price, if higher
than average market price . . . . . . . . . . . . . . 350,189 155,797 740,064
----------- ----------- -----------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . 12,543,878 11,360,768 11,079,136
=========== =========== ===========
Net income . . . . . . . . . . . . . . . . . . . . . . . $ 4,773,632 $ 2,399,067 $ 1,971,049
=========== =========== ===========
Per share amount . . . . . . . . . . . . . . . . . . . . . $ 0.38 $ 0.21 $ 0.18
=========== =========== ===========
</TABLE>
40
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 46,771,797
<SECURITIES> 27,169,703
<RECEIVABLES> 22,482,927
<ALLOWANCES> 225,000
<INVENTORY> 647,565
<CURRENT-ASSETS> 98,900,418
<PP&E> 15,529,727
<DEPRECIATION> 5,101,211
<TOTAL-ASSETS> 111,962,058
<CURRENT-LIABILITIES> 8,340,959
<BONDS> 0
0
0
<COMMON> 150,083
<OTHER-SE> 103,308,556
<TOTAL-LIABILITY-AND-EQUITY> 111,962,058
<SALES> 3,401,393
<TOTAL-REVENUES> 69,150,996
<CGS> 3,129,282
<TOTAL-COSTS> 52,599,818
<OTHER-EXPENSES> 9,340,868
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 128,213
<INCOME-PRETAX> 8,019,331
<INCOME-TAX> 3,245,699
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,773,632
<EPS-PRIMARY> 0.38
<EPS-DILUTED> 0.38
</TABLE>
