<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _____ TO _____.
Commission file number: 0-27794
SEGUE SOFTWARE, INC.
(Exact name of registrant as specified in its charter)
Delaware 95-4188982
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
201 Spring Street Lexington, MA 02421
(Address of principal executive offices)
Registrant's telephone number, including area code: (781) 402-1000
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such a shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES [X] NO [_]
The number of shares of Registrant's Common Stock outstanding as of
August 3, 1998, was 8,203,460.
<PAGE>
SEGUE SOFTWARE, INC.
INDEX
<TABLE>
<CAPTION>
Page No.
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<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements:
Consolidated Balance Sheets (unaudited)
June 30, 1998 and December 31, 1997 2
Consolidated Statements of Operations (unaudited)
Three and six months ended June 30, 1998 and 1997 3
Consolidated Statements of Cash Flows (unaudited)
Six months ended June 30, 1998 and 1997 4
Notes to Consolidated Financial Statements (unaudited) 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 6. Exhibits and Reports on Form 8-K 12
Signatures 13
Exhibits Index 14
</TABLE>
1
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
SEGUE SOFTWARE, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 36,922 $ 22,975
Short-term investments - 14,385
Accounts receivable, net of allowances of $415 and $345 7,219 4,308
Other current assets 1,729 615
-------- --------
Total current assets 45,870 42,283
Property and equipment, net 1,884 2,252
Other assets 1,628 1,502
-------- --------
Total assets $ 49,382 $ 46,037
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term subordinated notes payable $ 883 $ 883
Accounts payable 906 860
Accrued compensation and benefits 1,381 1,127
Accrued expenses 1,185 1,268
Deferred revenue 2,970 2,477
Accrued royalties 347 147
-------- --------
Total current liabilities 7,672 6,762
Subordinated notes payable 3,532 3,532
Stockholders' equity:
Series A Preferred Stock, par value $.01 per share; noncumulative;
4,000 shares authorized; no shares issued and outstanding - -
Common Stock, par value $.01 per share; 30,000 shares
authorized; 8,142 and 7,630 shares issued and outstanding 81 76
Additional paid-in capital 49,810 48,479
Unearned compensation (33) (105)
Cumulative translation adjustment (3) -
Accumulated deficit (11,677) (12,707)
-------- --------
Total stockholders' equity 38,178 35,743
-------- --------
Total liabilities and stockholders' equity $ 49,382 $ 46,037
======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
2
<PAGE>
SEGUE SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
------------------------ ---------------------------
1998 1997 1998 1997
---------- ------------ ----------- --------------
<S> <C> <C> <C> <C>
Revenue:
Software $6,018 $3,864 $11,697 $ 7,870
Services 2,786 1,488 4,568 2,883
------ ------ ------- -------
Total revenue 8,804 5,352 16,265 10,753
Cost of revenue:
Cost of software 557 188 979 387
Cost of services 1,295 677 2,049 1,221
------ ------ ------- -------
Total cost of revenue 1,852 865 3,028 1,608
Gross margin 6,952 4,487 13,237 9,145
Operating expenses:
Sales and marketing 4,149 2,823 8,032 5,400
Research and development 1,663 1,288 3,166 2,377
General and administrative 905 783 1,767 1,563
------ ------ ------- -------
Total operating expenses 6,717 4,894 12,965 9,340
------ ------ ------- -------
Income (loss) from operations 235 (407) 272 (195)
Other income, net 413 546 814 1,080
------ ------ ------- -------
Income before provision for
income taxes 648 139 1,086 885
Provision for income taxes 30 8 56 56
------ ------ ------- -------
Net income $ 618 $ 131 $ 1,030 $ 829
====== ====== ======= =======
Net income per common share - basic $ .08 $ .02 $ .13 $ .11
Net income per common share - diluted $ .07 $ .02 $ .12 $ .10
Weighted average common shares
outstanding - basic 8,041 7,299 7,902 7,261
Weighted average common shares
outstanding - diluted 8,740 7,883 8,645 7,996
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
3
<PAGE>
SEGUE SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Six months ended
June 30,
--------------------------------
1998 1997
----------- ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,030 $ 829
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization 1,088 459
Noncash compensation charges 19 72
Net changes in operating assets and
liabilities:
Accounts receivable (2,911) (1,173)
Other current assets (1,037) (617)
Accounts payable 46 209
Accrued expenses, compensation and 171 (121)
benefits
Accrued royalties - (100)
Deferred revenue 493 370
------- --------
Net cash used in operating activities (1,101) (72)
------- --------
Cash flows from investing activities:
Additions to property and equipment (236) (1,004)
Increase in other assets (490) (1)
Maturities of short-term investments 16,200 33,000
Purchases of short-term investments (1,815) (32,067)
------- --------
Net cash provided by (used in) investing activities 13,659 (72)
------- --------
Cash flows from financing activities:
Proceeds from stock options and stock purchase
plan 1,389 465
------- --------
Net cash provided by financing activities 1,389 465
------- --------
Net increase in cash and cash equivalents 13,947 321
Cash and cash equivalents, beginning of period 22,975 7,112
------- --------
Cash and cash equivalents, end of period $36,922 $ 7,433
======= ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
4
<PAGE>
SEGUE SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. The financial statements included herein have been prepared by the Company,
without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations. The Company believes that the disclosures are adequate to make the
information presented not misleading. However, it is suggested that these
financial statements be read in conjunction with the Company's audited financial
statements for the year ended December 31, 1997, included in its 1997 Annual
Report on Form 10-K.
This financial information reflects, in the opinion of management, all
adjustments of a normal recurring nature necessary to present fairly the results
for the interim periods. Results of interim periods may not be indicative of
results for the full year.
2. The following table sets forth the computation of basic and diluted
earnings per share (in thousands, except per share data):
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
------------------- -------------------
1998 1997 1998 1997
------ ------ ------ ------
<S> <C> <C> <C> <C>
Net income $ 618 $ 131 $1,030 $ 829
Weighted average shares used in net
income per share - basic 8,041 7,299 7,902 7,261
Effect of dilutive securities:
Employee and director stock
options 699 584 743 735
------ ------ ------ ------
Weighted average shares used in net 8,740 7,883 8,645 7,996
income per share - diluted ====== ====== ====== ======
Net income per common share - basic $ .08 $ .02 $ .13 $ .11
Net income per common share - diluted $ .07 $ .02 $ .12 $ .10
</TABLE>
Options to purchase 174,000 and 664,000 shares of common stock outstanding
at June 30, 1998 and 1997, respectively, were excluded from the calculation of
diluted earnings per share because the exercise prices of those options exceeded
the average market price of common stock for the three month periods ended June
30, 1998 and 1997, respectively. Options to purchase 415,000 and 629,000 shares
of common stock outstanding at June 30, 1998 and 1997, respectively, were
excluded from the calculation of diluted earnings per share because the exercise
prices of those options exceeded the average market price of common stock for
the six month periods ended June 30, 1998 and 1997, respectively.
5
<PAGE>
3. In March 1998, the Company entered into an agreement with a vendor whereby
the vendor licensed specific software to the Company for purposes of marketing
and distribution. Under the terms of the agreement, the Company paid a
nonrefundable non-recurring engineering and initial license fee ("NRE") of
$480,000 during the second quarter of 1998 and $300,000 of the guaranteed
$500,000 royalties, the remainder of which will be paid by September 30, 1998.
The NRE fee is being amortized into cost of software revenue over two years,
beginning in the second quarter of 1998, and the royalty expense will be
recognized as cost of software revenue based upon sales of the related product.
As of June 30, 1998, there were minimal sales of the related product.
4. In April 1998, the Company entered into a nine year lease commitment for
40,500 to 67,500 square feet, effective August 1, 1998, which expires in October
2007. The Company has the right to terminate the lease on September 30, 2004
for a fee of approximately $2.2 million.
Future minimum payments under the lease are as follows (in thousands):
<TABLE>
<S> <C>
August 1, 1998 - December 31, 1998 $ 523
1999 1,860
2000 2,093
2001 2,093
2002 2,093
Thereafter 10,406
-------
$19,068
=======
</TABLE>
5. The Company recorded provisions for state income taxes of $30,000 and
$8,000 for the second quarter of 1998 and 1997, respectively, and a total of
$56,000 for the six month periods ended June 30, 1998 and 1997, but no
provisions for federal income taxes due to utilization of net operating loss
carryforwards.
6. Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130 ("SFAS 130"), "Reporting Comprehensive Income".
SFAS 130 requires the reporting of comprehensive income in addition to net
income from operations. Comprehensive income is a more inclusive reporting
methodology that includes disclosure of certain financial information that
historically has not been recognized in the calculation of net income. The
adoption of SFAS 130 had no impact on the Company's net income or stockholders'
equity. Total comprehensive income, net of taxes, for the three and six months
ended June 30, 1998, was $610,000 and $1,027,000, respectively, which consists
of net income and the net changes in foreign currency translation adjustment.
For the three and six months ended June 30, 1997, comprehensive income equaled
net income.
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
REVENUE
Revenue from Software. Software revenue increased 56% to $6.0 million
during the second quarter of 1998 from $3.9 million in the second quarter of
1997. For the six month period ended June 30, 1998, software revenue increased
49% to $11.7 million from $7.9 million for the first six months of 1997. The
increases in software revenue are primarily the result of increased unit
shipments due to an increase in the demand for automated testing products; the
introduction of new and upgraded products; increased market acceptance of the
families of products including Web application testing and load testing products
introduced in 1997; and expansion of sales and marketing activities. The
absolute dollar increase in software revenue came largely through the direct
domestic channel. International revenue accounted for 13% and 11% of total
software revenue in the second quarter of 1998 and 1997, respectively. For the
six months ended June 30, 1998 and 1997 respectively, international revenue
accounted for 13% and 10% of total software revenue.
In addition, the mix of software revenue changed during the three and six
months ended June 30, 1998 from the three and six months ended June 30, 1997.
SilkTest and SilkPerformer, which target the e-commerce testing markets, were
not available until May 1997 and September 1997, respectively. SilkTest and
SilkPerformer represented 52% and 47% of total software revenue in the three and
six months ended June 30, 1998, respectively. SilkTest represented 18% and 9%
of total software revenue in the three and six months ended June 30, 1997,
respectively. QA Performer and SilkPerformer, which target the load testing
markets, in total represented 19% and 18% of total software revenue in the three
and six months ended June 30, 1998, respectively. QA Performer represented 2%
of total software revenue in the three and six months ended June 30, 1997,
respectively.
Revenue from Services. Service revenue increased 87% to $2.8 million during
the second quarter of 1998 from $1.5 million in the second quarter of 1997
driven by the increase in maintenance revenue and training and consulting
revenue related to the increase in software licenses sold. For the three month
period ended June 30, 1998, training and consulting revenue increased 200% and
maintenance revenue increased 35% over the comparable period in 1997. For the
six month period ended June 30, 1998, service revenue increased 58% to $4.6
million from $2.9 million for the corresponding prior year period. For the six
month period ended June 30, 1998, training and consulting revenue increased
101%, while maintenance revenue increased 36% over the comparable period in
1997. These increases were driven largely by an increase in software licenses
sold. The increase in training and consulting revenue is also due to the
introduction of the LiveQuality scenario testing solutions, which consist of a
combination of product and consulting services, in the second quarter of 1998.
7
<PAGE>
COST OF REVENUE
Cost of Software. Cost of software increased 196% to $557,000 during the
second quarter of 1998 from $188,000 in the second quarter of 1997. For the six
month period ended June 30, 1998, cost of software increased 153% to $979,000
from $387,000 for the six month period ended June 30, 1997. As a percent of
software revenue, costs in the current quarter increased to 9% from 5% in the
corresponding prior year period. For the six month period ended June 30, 1998,
cost of software as a percent of software revenue increased to 8% from 5% in the
corresponding prior year period. These increases are due to the amortization of
intangible assets primarily related to the SQLBench acquisition, the
internationalization of QA Partner, and the NRE fee noted below. These
increases are also attributable to the cost of upgrading the installed base with
new versions of various products as well as royalties payable to third parties.
In March 1998, the Company entered into an agreement with a vendor whereby
the vendor licensed specific software to the Company for purposes of marketing
and distribution. Under the terms of the agreement, the Company paid a
nonrefundable non-recurring engineering and initial license fee ("NRE") of
$480,000 during the second quarter of 1998 and $300,000 of the guaranteed
$500,000 royalties, the remainder of which will be paid by September 30, 1998.
The NRE fee is being amortized into cost of software revenue over two years,
beginning in the second quarter of 1998, and the royalty expense will be
recognized as cost of software revenue based upon sales of the related product.
As of June 30, 1998, there were minimal sales of the related product. The
amortization and the guaranteed royalty payments may cause the cost of software
to increase as a percentage of revenue.
Cost of Services. Cost of services increased 91% to $1.3 million during
the second quarter of 1998 from $677,000 in the second quarter of 1997. For the
six month period ended June 30, 1998, cost of services increased 68% to $2.0
million from $1.2 million for the six months ended June 30, 1997. For the three
months ended June 30, 1998 and 1997, cost of services as a percent of services
revenue was 46%. For the six months ended June 30, 1998, cost of services as a
percent of services revenue increased to 45% from 42% in the corresponding prior
year period. The increases, in absolute dollars, in the current quarter over
the prior year and for the current six months over the comparable six month
period in the prior year are largely due to the fact that the Company began to
use third party consultants to assist in LiveQuality solution implementations in
the second quarter of 1998. The Company expects to continue using third party
consultants in the future. The increases are also due to the increase in the
number of employees in both the training and consulting and technical support
groups.
OPERATING EXPENSES
Sales and Marketing. Sales and marketing expenses increased 47% to $4.2
million during the second quarter of 1998 from $2.8 million in the second
quarter of 1997. For the six months ended June 30, 1998, sales and marketing
expenses increased 49% to $8.0 million from $5.4 million for the first six
months of 1997. Sales and marketing expenses were 47% and 53% of total revenue
in the second quarter of 1998 and 1997, respectively, and 49% and 50% of total
8
<PAGE>
revenue during the six month periods ended June 30, 1998 and 1997, respectively.
The absolute dollar increases in the current quarter over the prior year and for
the current six months over the comparable six month period in the prior year
are largely due to increases in the number of sales personnel, commissions as a
result of higher revenue levels, and travel costs.
Research and Development. Research and development expenses increased 29%
to $1.7 million during the second quarter of 1998 from $1.3 million in the
second quarter of 1997. For the six months ended June 30, 1998, research and
development expenses increased 33% to $3.2 million from $2.4 million for the
first six months of 1997. Research and development expenses were 19% and 24% of
total revenue in the second quarter of 1998 and 1997, respectively, and 20% and
22% of total revenue during the six month periods ended June 30, 1998 and 1997,
respectively. The absolute dollar increases in the current quarter over the
prior year and for the current six months over the comparable six month period
in the prior year are largely due to the increase in the number of employees,
including employees from the December 1997 SQLBench acquisition.
General and Administrative. General and administrative expenses increased
16% to $905,000 during the second quarter of 1998 from $783,000 in the second
quarter of 1997. For the six months ended June 30, 1998, general and
administrative expenses increased 13% to $1.8 million from $1.6 million for the
first six months of 1997. General and administrative expenses were 10% and 15%
of total revenue during the second quarter of 1998 and 1997, respectively, and
11% and 15% of total revenue during the six month periods ended June 30, 1998
and 1997, respectively. The absolute dollar increases in the current quarter
over the prior year and for the current six months over the comparable six month
period in the prior year are largely attributable to increased employment of
both executive and administrative personnel and increased professional fees
associated with the growth of the Company.
OTHER INCOME, NET
Other income, net decreased 24% to $413,000 during the second quarter of
1998 from $546,000 in the second quarter of 1997. For the six months ended June
30, 1998, other income, net decreased 25% to $814,000 from $1.1 million for the
first six months of 1997. These decreases are largely due to interest expense
of $97,000 and $191,000 recognized in the second quarter of 1998 and the six
month period ended June 30, 1998, respectively, related to the subordinated
notes payable which were issued in December 1997.
PROVISION FOR INCOME TAXES
The Company recorded provisions for state income taxes of $30,000 and
$8,000 for the second quarter of 1998 and 1997, respectively, and a total of
$56,000 for the six month periods ended June 30, 1998 and 1997, but no
provisions for federal income taxes due to utilization of net operating loss
carryforwards.
9
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
In the first six months of 1998, the Company used $1.1 million for
operating activities, resulting from the growth in accounts receivable and other
current assets, offset by net income and deferred revenue.
The Company generated $13.7 million from investing activities in the first
six months of 1998, mainly as a result of maturities of short-term investments.
The Company generated funds from financing activities of $1.4 million in
the first six months of 1998, related to the exercise of stock options and
issuance of stock pursuant to the employee stock purchase plan.
In April 1998, the Company entered into a nine year lease commitment for
40,500 to 67,500 square feet, effective August 1, 1998, which expires in October
2007. The Company has the right to terminate the lease on September 30, 2004
for a fee of approximately $2.2 million.
Future minimum payments under the lease are as follows (in thousands):
<TABLE>
<S> <C>
August 1, 1998 - December 31, 1998 $ 523
1999 1,860
2000 2,093
2001 2,093
2002 2,093
Thereafter 10,406
-------
$19,068
=======
</TABLE>
Long-term cash requirements, other than normal operating expenses, are
anticipated for the completion of the new corporate headquarters facility, the
development of new software products and enhancements of existing products, the
opening of additional international offices, and the possible acquisition of
software products or technologies complementary to the Company's business.
Assuming there is no significant change in the Company's business, the
Company believes that the existing cash and short-term investments as well as
cash flows from operations will be sufficient to meet its working capital
requirements for at least the next twelve months.
YEAR 2000 COMPLIANCE
The Company recognizes that it must ensure that its products and operations
will not be adversely impacted by year 2000 software failures (the "Year 2000
issue") which can arise in time-sensitive software applications which utilize a
field of two digits to define the applicable year. In such applications, a date
using "00" as the year may be recognized as the year 1900 rather than the year
2000. In general, the Company expects to resolve Year 2000 issues through
planned replacement or upgrades. In addition, the Company expects that any costs
incurred to modify its internal systems will not be material. Although
management does not expect Year 2000 issues to have a material impact on its
business or future results of operations, there can be no assurance that there
will not be interruptions of operations or other limitations of system
functionality or that the Company will not incur significant costs to avoid such
interruptions or limitations.
10
<PAGE>
IMPORTANT FACTORS RELATED TO FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS
This Quarterly Report on Form 10-Q contains forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934. The Company's actual results could
differ materially from those set forth in the forward-looking statements.
Various important factors, including but not limited to the following, may cause
the Company's future results to differ materially from those set forth in the
forward-looking statements: risks associated with the Company's limited
operating history; the dependence upon license revenues from the Company's
principal products; uncertainties regarding the development of the automated
software testing marketplace; the dependence upon the growth of a viable
commercial marketplace for the Internet's World Wide Web and Internet-related
products; changes in technology and industry standards; the Company's ability to
develop and introduce product enhancements and new products; risks related to
the management of the Company's growth; risks related to the Company's ability
to integrate acquisitions already completed as well as others that may occur;
risks related to the development of the Company's sales and marketing strategy;
risks related to Year 2000 compliance of the Company's internal systems; the
Company's ability to attract, train and retain qualified personnel; the
development of an international market and distribution channel for the
Company's products; the Company's ability to develop strategic partnerships; the
timing of the receipt of orders from major customers; increased competition,
including competition from the recent consolidation in the automated software
quality market; and general economic conditions. In addition, the Company has
significantly changed the executive management team and the sales management
team under the direction of a new Chief Executive Officer. In conjunction with
these management changes, the Company has refocused its sales and marketing
approach to focus on e-commerce applications. There can be no assurance that
the Company will be able to effectively manage such change. Furthermore, a
significant portion of the Company's revenue within a quarter is typically not
realized until late in that quarter. As a result, it may be difficult for the
Company to predict its total revenue for a quarter or to quickly adapt its
spending levels within a quarter to reflect changes in demand for its products.
The market price of the Company's common stock has been, and in the future will
likely be, subject to significant fluctuations in response to variations in
quarterly operating results and other factors, such as announcements of
technological innovations or new products by the Company or its competitors, or
other events. For a more detailed discussion of those factors affecting future
operating results, see the discussion contained in the Company's Annual Report
on Form 10-K for the year ended December 31, 1997, under the heading "Certain
Factors Affecting Future Operating Results".
11
<PAGE>
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Company's Annual Meeting of Stockholders held on June 5, 1998, the
following individuals were elected to the Board of Directors:
<TABLE>
<CAPTION>
Votes For Votes Withheld
--------- --------------
<S> <C> <C>
James H. Simons 5,703,086 346,775
Stephen B. Butler 5,703,086 346,775
Leonard E. Baum 5,703,086 346,775
Ronald D. Fisher 5,703,086 346,775
John R. Levine 5,703,086 346,775
Howard L. Morgan 5,703,086 346,775
</TABLE>
The following proposals were approved at the Company's Annual Meeting:
<TABLE>
<CAPTION>
Votes Votes Votes
For Against Withheld
----- ------- --------
<S> <C> <C> <C>
1. Amendment of the Company's Amended and
Restated Incentive and Non-Qualified
Stock Option Plan, increasing the
maximum number of shares of common stock
available for issuance from 3,000,000 to
3,250,000. 5,109,671 935,436 4,754
2. Amendment to the Company's 1996 Employee
Stock Purchase Plan to increase the
maximum number of shares of Common Stock
that may be purchased from 100,000
to 200,000 shares. 5,950,333 94,224 5,304
3. Ratification of the appointment of
PricewaterhouseCoopers LLP as independent
public accountants for the fiscal
year ending December 31, 1998. 6,041,223 1,465 7,173
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
10.14 Sublease Agreement dated March 31, 1998 by and between
Media One of Delaware, Inc. and Segue Software, Inc.
27.1 Financial Data Schedule
(b) Reports on Form 8-K:
None.
12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: August 14, 1998
SEGUE SOFTWARE, INC.
/s/ STEPHEN B. BUTLER
---------------------
Chief Executive Officer
/s/ CARL D. BLANDINO
--------------------
Chief Financial Officer and
Senior Vice President
of Administration
<PAGE>
INDEX TO EXHIBITS
Exhibit
No. Description
- --- -----------
10.14 Sublease Agreement dated March 31, 1998 by and between Media One
of Delaware, Inc. and Segue Software, Inc.
27.1 Financial Data Schedule
<PAGE>
EXHIBIT 10.14
SUBLEASE AGREEMENT
This Sublease Agreement ("Sublease") is made and entered into by
Sublandlord and Subtenant as of the 31st day of March, 1998. For valuable
consideration, the receipt and adequacy of which are hereby acknowledged,
Sublandlord and Subtenant agree as follows:
1. Definitions. In this Sublease, the following terms have the meaning
-----------
given to them:
(a) Sublandlord: MediaOne of Delaware, Inc., a Delaware corporation.
(b) Subtenant: Segue Software, Inc., a Delaware corporation.
(c) Master Lease: Lease dated May 19, 1997 between Edward H. Linde,
Trustee of 191 Spring Street Trust under Declaration of Trust dated May 6,
1985 recorded with the Middlesex South District Registry of Deeds
("Registry") in Book 16197, Page 583 as amended by Trustee's Certificate
dated as of April 15, 1994 recorded with the Registry in Book 24475, Page
408 but not individually and without personal liability, as Master Landlord
("Master Landlord"), as landlord, and Sublandlord as Tenant.
(d) Subleased Premises: The premises consisting of the Initial
Subleased Premises, the First Expansion Space and the Second Expansion
Space, all as shown on Exhibit A to this Sublease along with the
---------
appurtenant right to use common facilities as set forth in Section 2.2 of
the Master Lease. The Subleased Premises will be occupied by Subtenant in
accordance with the Occupancy Schedule attached to this Sublease as
Exhibit B.
---------
(e) Building: The building located on the Property.
(f) Property: The land located at 201 Spring Street, Lexington,
Massachusetts, along with any and all improvements located thereon during
the term of this Sublease as more particularly described in Exhibit D
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attached.
(g) Commencement Date: August 1, 1998.
(h) Expiration Date: October 31, 2007.
<PAGE>
(i) Monthly Rent: (subject to waiver pursuant to Sections 3(e) and
3(1) below).
Time Period Monthly Rent
8/1/98-12/31/98 $104,625
1/1/99-6/30/99 $135,625
7/1/99-6/30/03 $174,375
7/1/03-10/31/07 $180,000
(j) Security Deposit: See Section 5(f) below.
(k) Rentable Area of the Subleased Premises:
8/1/98-12/31/98 40,500 square feet
1/1/99-6/30/99 52,500 square feet
7/1/99-10/31/07 67,500 square feet
(l) Rentable Area of the Building: Approximately 102,500 square feet.
The area of approximately 3,800 square feet in the basement of the
building (the "Basement Storage Space") is presently vacant and not
included in the Rentable Area of the Building of 102,500 square feet
stated in this Sublease. In the case that the Sublandlord sublets or
uses the Basement Storage Space for purposes other than limited access
storage, then the impact of the use and occupancy of the Basement
Storage Space should be accounted for reasonably and equitably for
purposes of calculating Operating Expenses, by increasing the Rentable
Area of the Building for purposes of this Sublease by a reasonable and
equitable amount considering the nature of the use of the Basement
Storage Space and the impact of that use on Operating Expenses.
(m) Operating Expenses Base: The actual Operating Expenses for the 12
month period commencing on the Commencement Date, adjusted pursuant to
Section 5(c) below to reflect occupancy of 100% of the Rentable Area
of the Building.
(n) Subtenant's Share:
8/1/98-12/31/98 39.512%
1/1/99-6/30/99 51.220%
7/1/99-10/31/07 65.853%
(determined by dividing the Rentable Area of the Subleased Premises by
the Rentable Area of the Building and rounding to the nearest one
thousandth of one percent).
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<PAGE>
(o) Parking Spaces:
From 8/1/98 to 12/31/98 142
From 1/1/99 to 6/30/99 184
From 7/1/99 to 10/31/07 236
All parking spaces are unassigned, non-reserved, and non-designated
parking spaces in those surface parking lots made available to
Sublandlord pursuant to the Master Lease. Subtenant's use of the
Parking Spaces shall be in common with use by other tenants and
subtenants of the Building and other buildings in the business park,
and shall be subject to the parking rules and regulations referenced
in Section 2.2.1 of the Master Lease.
(p) Brokers: Sublandlord's Broker is Grubb & Ellis and Subtenant's
Broker is McCall & Almy.
(q) Exhibits: The following exhibits are attached to this Lease and
are made part of this Lease:
Exhibit A Subleased Premises
Exhibit B Occupancy Schedule
Exhibit C Garden Level Space
Exhibit D Legal Description of the Property
2. Agreement. Sublandlord subleases the Subleased Premises to Subtenant,
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and Subtenant subleases the Subleased Premises from Sublandlord, according to
the terms of this Sublease.
3. Plans/Construction/Commencement Dates.
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(a) Delivery of Possession. Sublandlord will be deemed to have
----------------------
delivered possession of the Initial Subleased Premises to Subtenant, and the
obligation of Subtenant to pay Monthly Rent and Additional Rent shall begin, on
the Commencement Date, and thereafter, Sublandlord will be deemed to have
delivered possession of the First Expansion Space and the Second Expansion
Space, respectively, on the dates set forth for delivery of such expansion
premises on the Occupancy Schedule (each, a "Delivery Date").
(b) Subtenant Plans. Subtenant acknowledges and agrees that, pursuant
---------------
to the terms of the Master Lease, Master Landlord will construct or install in
the Subleased Premises the improvements (the "Subtenant's Improvements") in
accordance with Subtenant's Plans (as defined below). Further, Subtenant shall
obtain the Master Landlord's approval of the Subtenant's Plans in accordance
with the procedure for such approval set forth in Article 3 of the Master Lease,
3
<PAGE>
provided, however, that for purposes of this Sublease, references in the Master
Lease to: (1) "Tenant Plan Submission Date" shall mean "Subtenant's Plan
Submission Date," (2) "Tenant Plans" shall mean "Subtenant's Plans," and (3)
"Tenant Plan Costs" shall mean "Subtenant Plan Costs," all terms as hereinafter
defined. Sublandlord shall have the right to review and approve the Subtenant's
Plans, and any changes thereto, concurrently with the period for the Master
Landlord's review of the Subtenant Plans, provided that Sublandlord shall not
unreasonably withhold, delay or condition its approval of Subtenant's Plans. To
the extent applicable, the provisions of Article III of the Master Lease shall
be deemed incorporated in this Sublease for the benefit of Subtenant in order to
provide a process for construction of Subtenant's Improvements consistent with
the Master Lease. For example, without implied limitation, the Subtenant shall
have the following rights under this Sublease and the Sublandlord will cooperate
with Subtenant (i.e. by joining in or forwarding notices and requests to the
Master Landlord) in order to achieve the benefit for Subtenant of such rights of
Sublandlord under the Overlease:
(1) the right to submit schematic plans for purposes of
estimating costs pursuant to the second paragraph of Section 3.1 of the
Master Lease.
(2) the right to authorize initiation of work or to modify the
Subtenant's Plans in response to Master Landlord's determination of
Subtenant Plan Cost pursuant to Section 3.1(B) of the Master Lease.
(3) the right to review and approve items of work to be bid and
subcontractors pursuant to Section 3.1(B) of the Master Lease.
(4) the right to observe work and give notice of defects pursuant
to Section 3.4 of the Master Lease.
(c) On or before the day which is 42 days after the date of execution
and delivery of this Sublease by both parties (the "Subtenant's Plan Submission
Date"), Subtenant shall submit to both Sublandlord and Master Landlord a
detailed floor plan, construction drawings and written instructions prepared by
Subtenant consistent with the definition of Tenant Plans in the Master Lease
(the "Subtenant's Plans"). Subtenant's Plans are subject to Master Landlord's
review, approval and any conditions to such approval as may be required by
Master Landlord pursuant to the Master Lease.
(d) Subtenant acknowledges that neither Sublandlord nor its agents or
employees have made any representations or warranties as to the suitability or
fitness of the Subleased Premises for the conduct of Subtenant's business or as
to the physical condition or actual dimensions of the Subleased Premises or the
Building, nor has Sublandlord or its agents or employees agreed to undertake any
alterations or construct any tenant improvements to the Subleased Premises.
4
<PAGE>
(e) In the event that Master Landlord fails to substantially complete
the Subtenant's Improvements on or before the Commencement Date, then this
Sublease will not be void or voidable, and Sublandlord will not be liable to
Subtenant for any resultant loss or damage; provided, however, Monthly Rent and
Additional Rent shall be waived for the period between the Commencement Date and
the date on which Master Landlord substantially completes the Subtenant's
Improvements in accordance with the Subtenant's Plans. For purposes of this
Sublease, "substantially completes" shall have the same meaning as is given for
"substantially completed" in Section 3.2(A) of the Master Lease. Subtenant
shall have no right to claim a rent abatement under this subparagraph (e) to the
extent the Master Landlord's time schedule for completion of Subtenant's
Improvements in accordance with the Subtenant's Plans (as approved and
authorized for construction by Subtenant in accordance with Section 3.1(B) of
the Master Lease) (the "Schedule") demonstrates that the delay in substantial
completion of Subtenant's Improvements beyond the Commencement Date is due in
whole or in part to: (1) Long Lead Item(s) (as defined below), or (2)
Subtenant Delays (as defined below). For purposes of this Sublease, the term
"Long Lead Item" shall mean any Subtenant Improvement or portions of the
Subtenant's Improvements (i) which the Master Landlord indicates in the
Schedule cannot be completed by the Commencement Date, and (ii) either (x) the
completion of which item or items is not a condition precedent to the issuance
of a certificate of occupancy (be it temporary or permanent) for the Subleased
Premises (the "Certificate of Occupancy"), and the failure of such item or items
to be completed or the later process of completion or such item or items shall
not substantially interfere with the Subtenant's use and occupancy of the
Subleased Premises, and the Subtenant refuses to permit the substitution of a
functionally equivalent alternative of comparable quality as proposed by Master
Landlord and which can procured and installed before the Commencement Date) or,
(y) while the completion of which item or items is a condition precedent to the
issuance of a Certificate of Occupancy", Subtenant refuses to permit the
substitution of functionally equivalent alternative of comparable quality as
proposed by Master Landlord and which can be procured and installed before the
Commencement Date.
(f) Subtenant Delays. Any delay of the achievement of Substantial
----------------
Completion of the Tenant's Improvements due to unreasonable interference created
by Subtenant, change orders or changes to plans requested by Subtenant, or
delays in completion of necessary work to be performed by Subtenant, or the
failure of Subtenant to respond to critical deadlines defined in this Sublease
and in the Master Lease as incorporated herein (e.g. Subtenant's Plan Submission
Date), shall be referred to as a "Subtenant Delay". The Drop Dead Date shall be
extended for one day for each day of Subtenant Delay.
(g) Subtenant Finish Allowance. Sublandlord has agreed to provide
--------------------------
Subtenant with a tenant finish allowance for the Subleased Premises of $30.00
per rentable square foot of the Subleased Premises ($30 x 67,500 square feet =
$2,025,000 total) (the "TI Allowance"). The TI Allowance shall be credited
against Tenant Plan Costs (as defined in the Master Lease) attributable to the
Subleased Premises (the "Subtenant Tenant Plan Costs") and for reimbursement of
the Subtenant's Direct Improvement Expenses (as defined below). The reasonable
out of pocket
5
<PAGE>
costs incurred by Subtenant in connection with the construction of Subtenant's
Improvements to the Subleased Premises and for preparation of the Subleased
Premises for occupancy, including, without implied limitation, the cost of
preparation of Subtenant's Plans (defined consistently with the term Tenant's
Plan Preparation Costs in the Master Lease), the cost of architectural and
engineering fees for preparing plans and reviewing the execution of Subtenant's
Improvements by the Master Landlord, the expense of purchasing and installing
Subtenant's fixtures in the Subleased Premises, and the expense of purchasing
and installing Subtenant's voice and data cabling and telecommunications
equipment shall be defined as the "Subtenant's Direct Improvement Expenses").
Notwithstanding the foregoing, in no case shall Subtenant's Direct Improvement
Expenses include any expenses incurred by Subtenant in connection with moving
Subtenant's personal property, equipment and furniture. As Subtenant incurs the
Subtenant's Direct Improvement Expenses, Subtenant shall submit to Sublandlord,
no more often than monthly, a demand for reimbursement with a statement of
expenses which are paid or payable with attached copies of receipts and invoices
in a form reasonably acceptable to Sublandlord, which reimbursement shall be
made by Sublandlord to Subtenant within 10 days of receipt by Sublandlord. To
the extent that the Subtenant Tenant Plan Costs exceed the TI Allowance (less
the amount of the Subtenant's Direct Improvement Expenses previously
reimbursed), Subtenant shall pay such excess Subtenant Tenant Plan Costs as
Additional Rent within 10 days after Subtenant's receipt of Sublandlord's
statement of such excess Subtenant Tenant Plan Costs, in a manner consistent
with the provisions of Sublandlord's obligation to pay Tenant Plan Excess Costs
under Section 3.1.2 of the Master Lease (for example, without limitation,
Subtenant shall pay 90% of each statement as rendered with a final payment to be
made upon substantial completion of the work). If Subtenant does not use the
entire TI Allowance for the remodeling of the Subleased Premises, Subtenant may
use such unused portion of the TI Allowance up to a maximum amount of $7.50 per
rentable square foot of the Subleased Premises, as a rent credit to be applied
during the 1998 calendar year only.
(h) Subtenant's Construction Early Entry: The rights of early entry to
------------------------------------
the Subleased Premises set forth in this Section 3(h) shall be subject to all of
the terms and conditions of this Sublease, as if the Commencement Date had
occurred upon Subtenant's entry to the Subleased Premises, except that there
shall be no obligation for the Subtenant to pay Monthly Rent or Additional Rent.
Provided that Master Landlord consents to Subtenant's entry into the Subleased
Premises prior to the Commencement Date, and provided that such early entry does
not delay Master Landlord's substantial completion of Subtenant's Improvements,
Subtenant shall be permitted entry to the Subleased Premises (and the Expansion
Spaces described on the Occupancy Schedule) prior to the Commencement Date (and
the applicable Delivery Dates for the Expansion Spaces) for the purpose of
installing Subtenant's computer cables and fixtures to support Subtenant's
computer network, as well as Subtenant's equipment, furniture and fixtures, or
for any other purpose permitted by Master Landlord and Sublandlord("Construction
Early Entry"). Such Construction Early Entry will be at Subtenant's sole risk
and subject to all the provisions of the Sublease as though the Commencement
Date had occurred, except for the payment of Monthly Rent and Additional Rent.
Subtenant, its agents or employees will not interfere with or delay
6
<PAGE>
Master Landlord's completion of construction of the improvements. All rights of
Subtenant under this Section 3(h) will be subject to the requirements of all
applicable building codes, zoning requirements, and federal, state, and local
laws, rules, and regulations, so as not to interfere with Master Landlord's
compliance with all laws, including the obtaining of a Certificate of Occupancy
for the Subleased Premises.
(i) Subtenant's Early Occupancy. In addition to the foregoing, and
---------------------------
conditioned upon the substantial completion of the Subtenant's Improvements for
the portion of the Expansion Spaces in question, Subtenant shall have the
right, upon written notice to Sublandlord, to occupy the First Expansion Space,
and/or the Second Expansion Space, as the case may be, subsequent to substantial
completion of Subtenant's Improvements in the applicable Expansion Space(s) and
prior to the applicable Delivery Date for each such Expansion Space (such early
occupancy shall be referred to as "Early Occupancy"). Early Occupancy will be
subject to all of the terms and provisions of this Sublease, except for the
payment of Monthly Rent and Additional Rent. Notwithstanding anything to the
contrary in the foregoing, from and after the date that Subtenant commences
Early Occupancy of either the First Expansion Space or the Second Expansion
Space, and until the respective Delivery Date for such Expansion Space,
Subtenant shall reimburse the Sublandlord for all variable expenses included in
Additional Rent or in Operating Expenses, including for example increased
cleaning costs and utility costs (the "Variable Expenses") which increased
Variable Expenses are reasonably and equitably attributable to the increased
occupancy of the Building resulting from the Subtenant's occupancy of the
portion of the First Expansion Space or Second Expansion Space occupied by
Subtenant pursuant to Early Occupancy.
(j) Subtenant's Investigation. Subtenant hereby represents and
-------------------------
warrants to Sublandlord that Subtenant has made its own investigation and
examination of all the relevant data relating to or affecting the Subleased
Premises and is relying solely on its own judgment in entering into this
Sublease. Subtenant agrees that Subtenant will accept the method of
calculation, the square footage measurements, and the dimensions and
configuration of the Subleased Premises and the Building as are set forth in the
Master Lease.
(k) Drop Dead Date: In the event that the Subtenant's Improvements to
--------------
the Initial Subleased Premises have not been Substantially Completed and the
Initial Subleased Premises have not been actually delivered to Subtenant on or
before December 31, 1998 (the "Drop Dead Date") the Subtenant shall have the
option to terminate this Sublease effective on the date which is 30 days after
the date of Subtenant's written notice to Sublandlord that Subtenant elects to
terminate pursuant to this Section 3(k), provided that the Subtenant's
Improvements to the Initial Subleased Premises have been Substantially Completed
and the Initial Subleased Premises have been actually delivered to Subtenant on
or before the effective date of termination pursuant to this Section 3(k) then
Subtenant's termination notice given pursuant to this Section 3(k) shall be of
no further force and effect. Upon the effective date of termination pursuant to
this Section 3(k), this Sublease shall terminate and shall be of no further
force and effect except for obligations and covenants which expressly survive
such termination. In the event of termination
7
<PAGE>
pursuant to this Section 3(k), Sublandlord shall refund to Subtenant all funds
paid to or deposited with Sublandlord by Subtenant under this Sublease.
(l) Expansion Premises: In the event that Subtenant's Improvements
------------------
for the First Expansion Premises or the Second Expansion Premises, respectively,
have not been Substantially Completed on or before the time of the Delivery Date
specified for the First Expansion Premises or the Second Expansion Premises,
respectively, then subject to the conditions for a waiver of rent set forth in
Section 3(e) above, Subtenant shall receive a waiver of Monthly Rent in
proportion to the increase in Monthly Rent scheduled to occur on the Delivery
Date in question, and a waiver of Additional Rent in proportion to the increase
in the size of Subtenant's Share scheduled to occur on the Delivery Date in
question.
4. Term. The term of this Sublease will begin on the Commencement Date
----
and will end on the Expiration Date; provided, however, that this Sublease shall
terminate earlier in the event of termination of the Master Lease, including
without limitation in the case of termination of the Master Lease pursuant to
Section 33 below.
5. Rent.
----
(a) Base Rent. Beginning on the Commencement Date, (subject to the
---------
provisions for a waiver of Monthly Rent in Sections 3(e) and 3(l) above)
Subtenant will pay Monthly Rent to Sublandlord as rent for the Subleased
Premises as set forth in Section 1(i) above. Monthly Rent which is due for any
partial calendar month will be prorated on a per diem basis based on the actual
number of days in that month. Monthly Rent will be paid to Sublandlord in
advance on or before the first day of each month of the term at Sublandlord's
address as set forth in Section 21 below, or to such other person or place as
Sublandlord designates to Subtenant in writing.
(b) Additional Rent. In addition to Monthly Rent, beginning on the
---------------
Commencement Date (subject to Sections 3(e) and (l) above), Subtenant will pay:
(1) the Electricity Charges (as defined below), (2) the cost of any Excess
Services (as defined below), and beginning on the first anniversary of the
Commencement Date (3) Subtenant's Share of the amount, if any, by which the
Operating Expenses paid, payable or incurred by Sublandlord in each calendar
year or partial calendar year during the Term exceeds the Operating Expenses
Base. If Operating Expenses are calculated for a partial calendar year, the
Operating Expenses Base will be appropriately prorated.
(c) Operating Expenses. As used in this Lease, the term "Operating
------------------
Expenses" shall mean (1) "Operating Expenses Allocable to the Premises", as
defined in the Master Lease, together with (2) "Landlord's Tax Expenses
Allocable to the Premises", as defined in the Master Lease. Beginning on the
first anniversary of the Commencement Date, during each calendar year or partial
calendar year in the Term, in addition to Monthly Rent, Subtenant will pay to
8
<PAGE>
Sublandlord an amount equal to the product of Subtenant's Share multiplied by
the excess of the Operating Expenses over the Operating Expenses Base for that
calendar year. On the first day of each month of the Term, Subtenant shall pay
to Sublandlord an amount equal to 1/12 of the product of Subtenant's Share
multiplied by the Estimated Operating Expenses (as defined below) for that
calendar year. "Estimated Operating Expenses" for any calendar year shall mean
Sublandlord's reasonable estimate of Operating Expenses for such calendar year
less the Operating Expenses Base and shall be subject to revision according to
the further provisions of this Article 5. During any partial calendar year
during the Term, Estimated Operating Expenses will be estimated on a full-year
basis. During each December during the Term, or as soon after each December as
practicable, Sublandlord will give Subtenant written notice of Estimated
Operating Expenses for the ensuing calendar year; however, if such written
notice is not given in December, Subtenant will continue to make monthly
payments on the basis of the prior year's Estimated Operating Expenses until the
month after such written notice is given, at which time Subtenant will commence
making monthly payments based upon the revised Estimated Operating Expenses. In
the month Subtenant first makes a payment based upon the revised Estimated
Operating Expenses, Subtenant will pay to Sublandlord the difference between the
amount payable based upon the revised Estimated Operating Expenses and the
amount payable based upon the prior year's Estimated Operating Expenses, for
each month which has elapsed since December. If at any time or times it
reasonably appears to Sublandlord that the actual Operating Expenses for any
calendar year will vary from the Estimated Operating Expenses for such calendar
year, Sublandlord may, by written notice to Subtenant, revise the Estimated
Operating Expenses for such calendar year, and subsequent payments by Subtenant
in such calendar year will be based upon such revised Estimated Operating
Expenses. If during the period when the Operating Expenses Base is calculated,
as specified above, less than 100% of the Rentable Area of the Building is
occupied or if any of the Operating Expenses during that period are at a level
reflecting that less than 100% of the Rentable Area of the Building is occupied,
then the Operating Expenses Base shall be equitably and reasonably extrapolated
to reflect the level that the Operating Expenses Base would have been if 100% of
the Rentable Area of the Building had been fully occupied at the time that the
Operating Expenses Base was calculated.
(d) Annual Settlement. Within 30 days after Sublandlord receives any
-----------------
of Master Landlord's statements regarding Landlord's Operating Expenses,
Operating Expenses Allocable to the Premises and Landlord's Tax Expenses
Allocable to the Premises pursuant to the Master Lease, or as soon after such
30-day period as practicable, Sublandlord will deliver to Subtenant a statement
of amounts payable under Section 5(c) for such calendar year or other relevant
time period prepared and certified by Sublandlord. If such statement shows an
amount owing by Subtenant that is less than the estimated payments previously
made by Subtenant for such calendar year, the excess will be held by Sublandlord
and credited against the next payment or payments of Rent; however, if the Term
has ended and Subtenant has no further obligations to Landlord, Sublandlord will
refund the excess to Subtenant within thirty (30) days. If such statement shows
an amount owing by Subtenant that is more than the estimated payments previously
made by Subtenant for such calendar year, Subtenant will pay the deficiency to
Sublandlord within 30 days
9
<PAGE>
after the delivery of such statement. In the event, and only in the event, that
Sublandlord, or any designee of Sublandlord, has not previously exercised
Sublandlord's right to examine the Master Landlord's books and records for the
then applicable calendar year pursuant to the Section 2.6 of the Master Lease,
and Subtenant makes its request to examine the Master Landlord's books to
Sublandlord within the applicable time frame set forth in Section 2.6 of the
Master Lease, then Sublandlord shall permit Subtenant to exercise Sublandlord's
right to examine such books and records of the Master Landlord, all at
Subtenant's sole cost and expense. Subtenant shall have right to audit the
statements of Operating Expenses rendered by Sublandlord on a basis consistent
with Sublandlord's right to conduct an audit pursuant to Section 2.6 of the
Master Lease. In any event, if Subtenant exercises its right to conduct an audit
pursuant to this subparagraph 4(d), Subtenant shall provide Sublandlord with a
copy of the audit report within 30 days of Subtenant's completion of such audit,
but in any event within 180 days of Subtenant's notice of its intent to conduct
such audit. If Sublandlord exercises its right to conduct an audit pursuant to
Section 2.6 of the Master Lease, Sublandlord shall provide Subtenant with a copy
of the audit within 30 days of Sublandlord's completion of such audit. In the
event of any overpayment on account of Operating Expenses made by Subtenant, the
amount of overpayment will be credited against the next payment or payments of
Rent; however, if the Term has ended and Subtenant has no further obligations to
Sublandlord, Sublandlord will refund the excess to Subtenant within thirty (30)
days. In the event of any underpayment on the account of Operating Expenses made
by Subtenant, Subtenant will deliver the amount of the underpayment to
Sublandlord within 30 days of Subtenant's delivery of the audit report to
Sublandlord.
(e) Electricity Charges. As used in this Sublease, the term
-------------------
"Electricity Charges" shall mean the cost to Sublandlord for electricity
provided for lighting, outlets and supplemental HVAC installed by Subtenant or
at Subtenant's request, to the Subleased Premises. Subtenant acknowledges and
agrees that the electricity provided to the Subleased Premises will be sub-
metered and that Subtenant will be billed monthly for the Electricity Charges.
Notwithstanding the foregoing, Electricity Charges does not include electricity
costs incurred by Sublandlord in connection with the furnishing of those
services, the cost of which is included in the Operating Expenses. Subtenant
shall have the right to excess services consistent with Section 4.1.2 of the
Master Lease which are in excess of standard services as defined in Section
4.1.1 and Exhibit D of the Master Lease ("Excess Services"). Subtenant shall
reimburse Sublandlord for the cost of providing such Excess Services as
Additional Rent. Sublandlord acknowledges and agrees that in no case shall
Operating Expenses include the costs of excess or additional services provided
to any subtenant or other occupant of the Building which are directly billed to
such subtenant or occupant. Sublandlord agrees that the electricity provided to
each subtenant or other occupant of the Building shall be separately metered
from that of Subtenant in a manner consistent with the submetering of
electricity provided to the Subtenant and that no such submetered electricity
provided to any subtenant or other occupant of the Building shall be included
within Operating Expenses. In no case shall the Excess Services provided to the
Subtenant include charges for standard services as defined in Section 4.1.1 and
Exhibit D of the Master Lease. All subtenants or other occupants of the
Building shall be charged directly for all
10
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services provided to those subtenants in excess of the building standard
services in a manner consistent with the method by which Subtenant is charged
for excess services, and in no event shall the cost on any such Excess Services
be included in Operating Expenses.
(f) Security Deposit\Letter of Credit. During the Term, Subtenant
---------------------------------
shall have no obligation to provide Sublandlord with a Security Deposit as long
as Subtenant's current assets (cash and equivalents, short term investments,
marketable securities, receivables and the like) ("Current Assets") are at least
$20,000,000. On or before March 31 of each year during the Term, Subtenant
shall provide Sublandlord with Subtenant's most recent audited financial
statements pursuant to Section 38 below (the "Financials") for purposes of
demonstrating that Subtenant's Current Assets are $20,000,000 or more. If at
any time during the Term of the Sublease, Subtenant's Financials evidence that
Subtenant's Current Assets are less than $20,000,000, Subtenant, at its sole
cost and expense, shall within thirty (30) days after Subtenant's delivery of
the Financials evidencing Current Assets of less than $20,000,000 either, (1)
deliver evidence reasonably acceptable to Sublandlord that Subtenant's Current
Assets are again $20,000,000 or more, or (2) deliver to Sublandlord an
irrevocable letter of credit from a solvent, domestic lending institution
reasonably acceptable to Sublandlord, and in a form reasonably acceptable to
Sublandlord (the "Letter of Credit"), and shall keep such Letter of Credit, or
extension or renewals thereof, in effect throughout the Term, as a guaranty and
security for the performance of Subtenant's obligations under this Sublease on
the following terms and conditions:
(1) The Letter of Credit, or renewal or extension thereof,
approved by Sublandlord, shall be kept in effect without notice from
Sublandlord from the delivery of the Initial Letter of Credit (as defined
herein) throughout the remainder of the Term of the Sublease (including any
extensions thereof, if any). The amount of the initial Letter of Credit
(the"Initial Letter of Credit") shall be calculated as follows:
[$2,500,000 - ($350,000 X the number of consecutive 12 month periods having
passed from the Commencement Date to the date on which the Letter of Credit
is required pursuant to this subparagraph 5(f)]. By way of example, if on
March 1, 2001, Subtenant's Financials reveal Current Assets of less than
$20,000,000, Subtenant will deliver to Sublandlord an initial Letter of
Credit in the amount of $1,800,000. (Such amount having been calculated as
follows: $1,800,000 = [$2,500,000 - ($350,000 X 2))]. The Initial Letter
of Credit shall be for a term of not less than one year. Subtenant shall,
not later than 30 days prior to the expiration date of the Initial Letter
of Credit or the then effective extension or renewal of any Letter of
Credit, as the case may be, and in each year of the Term thereafter, and
without notice from Sublandlord, present Sublandlord with a one year
extension or renewal of the Letter of Credit, in a form and from a lending
institution reasonably acceptable to Sublandlord, provided, however, that
as long as there are no outstanding Events of Default under the Sublease,
the amount of the Letter of Credit shall be reduced by $350,000 on each and
every anniversary of the posting of the Initial Letter of Credit.
Subtenant agrees that upon an Event of Default by Subtenant or a
termination of this Sublease (due to an Event of Default hereunder),
Sublandlord shall have the right
11
<PAGE>
to present the Letter of Credit (or any renewal or extension) for payment,
with amounts received to be held and applied in accordance with
subparagraph (3) below. The Letter of Credit will not be deemed a
limitation on Sublandlord's damages or a payment of liquidated damages or a
payment of the Rent due for the last month of the term. If the Sublandlord
holds any Letter of Credit which has not been presented for payment,
Sublandlord shall return the Letter of Credit to the issuer (A) within 10
days of the expiration or termination of the Term of this Sublease, or (B)
within 30 days of receipt of notice from Subtenant, which notice shall
include updated Financials, that Subtenant's Current Assets are again
$20,000,000 or more. Within 15 business days after notice of Sublandlord's
transfer of Sublandlord's interest in the Sublease, which notice shall
include a request for amendment to the Letter of Credit, Subtenant shall,
at its sole cost and expense, obtain an endorsement to the Letter of Credit
evidencing such transfer for the benefit of Sublandlord's successor-in-
interest under the Sublease.
(2) If an Event of Default occurs under this Sublease and
Sublandlord presents the Letter of Credit (or any renewal or extension) for
payment, Subtenant, within five days after demand, will present Sublandlord
with a new Letter of Credit, in a form and from a lending institution
reasonably acceptable to Sublandlord, in the amount of the then current
Letter of Credit (the "Default Letter of Credit"). Thereafter, and
notwithstanding anything to the contrary contained in subparagraph (1)
above, at all times during the Term of the Sublease, the amount of the
Letter of Credit to be provided Sublandlord under this Sublease shall be in
the amount of the Default Letter of Credit.
(3) If an Event of Default occurs, Sublandlord may use, apply or
retain all or a portion of the amounts received under the Letter of Credit,
if any, for the payment of any rent or other charge in the default or for
the payment of any other sum for which the Sublandlord may become obligated
by reason of Subtenant's default, or to compensate Sublandlord for any loss
or damage which Sublandlord may suffer as a result thereof in accordance
with the Sublease. Upon final determination of Subtenant's liability under
the Sublease, any amounts drawn upon the Letter of Credit that are not
applied for payment of amounts in accordance with the foregoing provision
shall be returned to the issuer, without payment of interest.
(4) Subtenant shall be responsible for payment of all fees
charged by the lending institution issuing the Letter of Credit, including,
but not limited to, any fees related to any renewal, extension, or transfer
or assignment, except for fees which result from the presentation of any
Letter of Credit for payment by Sublandlord when Sublandlord had no
reasonable belief that Sublandlord was entitled to present such Letter of
Credit for payment under the terms of this Sublease, in which case all
resulting fees shall be paid by Sublandlord.
12
<PAGE>
6. Use. Subtenant will use the Subleased Premises only for general
---
office use and for related uses in all cases as contemplated by the Permitted
Uses (as defined in Section 1.1 of the Master Lease), and for no other purpose.
Subtenant will not use or permit the Subleased Premises to be used or occupied
for any purpose or in any manner prohibited by any applicable laws. Subtenant
will not commit waste or suffer or permit waste to be committed in, on, or about
the Subleased Premises. Subtenant will use the Subleased Premises in a careful,
safe, and proper manner. Subtenant will conduct its business and control its
employees, agents, and invitees in such a manner as not to create any nuisance
or to interfere with, or unreasonably annoy, or disturb any other tenant or
occupant of the Building or Master Landlord in its operation of the Building.
7. Alterations. Subtenant shall not make any alterations, additions, or
-----------
improvements to the Subleased Premises without Sublandlord's prior written
consent (which consent shall not be unreasonably withheld), Master Landlord's
consent and in compliance with the Master Lease. Any improvements to which
Master Landlord and Sublandlord consent must be constructed and installed in
accordance with all requirements contained in the Master Lease. Sublandlord
agrees not to withhold, condition or delay its consent to any alterations or
improvements if Master Landlord has approved such alterations or improvements,
provided, however, that if, with respect to Subtenant's improvements, Master
Landlord requires assurances from Sublandlord pursuant to Sections 5.2 and/or
3.3 of the Master Lease, Subtenant will provide Sublandlord with corresponding
assurances as are reasonably acceptable to Sublandlord.
8. Services. The Subleased Premises shall be furnished with those
--------
services provided by Master Landlord under the terms of the Master Lease. Such
services shall be provided subject to the terms of the Master Lease, and
Sublandlord will not be obligated to provide any such services should Master
Landlord fail to do so. Sublandlord will not be in default under this Sublease
or, except as otherwise provided herein, be liable to Subtenant or any other
person, for direct or consequential damages, for any failure of Master Landlord
to provide heat, air conditioning, elevator, cleaning, lighting, or for surges
or interruptions of electricity, or other services, if any, to be provided by
Master Landlord under the terms of the Master Lease; provided, however, that in
the event that Master Landlord's failure to provide services to pursuant to the
Master Lease results in a default of the Master Landlord under Section 7.2 of
the Master Lease, and the Master Landlord's failure to provide such services
materially interferes with Subtenant's use and occupancy of the Subleased
Premises, Subtenant shall be entitled to treat such failure to provide services
as a default by Sublandlord hereunder. Notwithstanding the foregoing, if Master
Landlord and Sublandlord fail to provide such utilities or services, or such
utilities or services are otherwise interrupted, and only if Sublandlord
---
receives an abatement or reduction of rent for such interruption pursuant to
Section 4.2 of the Master Lease, Subtenant shall be entitled to an abatement of
Rent equal to Subtenant's Share of the Insurance Amount (as defined in the
Master Lease) as its sole remedy. Sublandlord shall cooperate reasonably with
Subtenant by forwarding or joining in notices to Master Landlord in order that
Subtenant may realize the benefit of Subtenant's rights under this Section 8.
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<PAGE>
9. Maintenance and Repair. Subtenant shall maintain the Subleased
----------------------
Premises in a manner consistent with the obligations of Sublandlord for
maintenance and repair in Section 5.2 of the Master Lease.
10. Damages. Subtenant shall as soon as reasonably practicable advise
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Sublandlord and Master Landlord of any damage to the Subleased Premises or the
Building of which Subtenant is aware.
11. Subtenant's Insurance.
---------------------
(A) At all times during the term, Subtenant will carry and maintain,
at Subtenant's sole cost and expense, the following insurance, in the amounts
specified below, with insurance companies and on forms satisfactory to
Sublandlord:
(i) Bodily injury and property damage liability insurance, with a
combined single occurrence limit of not less than $1,000,000 (with an
overriding umbrella coverage for excess liability of not less than
$2,000,000.00 in the aggregate). All such insurance will be equivalent to
coverage offered by a Commercial General Liability form, with a broad form
comprehensive liability endorsement covering the Premises, including,
without limitation, premises-operations, personal injury and contractual
liability.
(ii) Insurance covering all of Subtenant's furniture and trade
fixtures, machinery, equipment, stock and any other personal property owned
and used in Subtenant's business and found in, on or about the Subleased
Premises, in an amount not less than the full replacement cost. Property
forms will provide coverage on a broad form basis insuring against "all
risks of direct physical loss."
(iii) Worker's compensation insurance insuring against and
satisfying Subtenant's obligations and liabilities under the worker's
compensation laws of the state in which the Subleased Premises are located,
including employer's liability insurance in the limits required by the laws
of the state in which the Property is located.
Certificates of insurance, together with copies of the endorsements when
applicable, shall be delivered to Sublandlord prior to Subtenant's occupancy of
the Subleased Premises and from time to time at least 10 days prior to the
expiration of the term of each such policy. Subtenant's insurance policies may
provide for umbrella coverage. All Commercial General Liability or comparable
policies maintained by Subtenant shall name Sublandlord, Master Landlord and
Master Landlord's managing agent as additional insureds. All such policies
maintained by Subtenant will provide that they may not be terminated, nor may
coverage be reduced, except after 30 days' prior written notice to Sublandlord.
All Commercial General Liability and property policies maintained by Subtenant
will be written as primary policies, not contributing with and not supplemental
to the coverage that Sublandlord may carry. All insurance required to be
maintained by Subtenant
14
<PAGE>
pursuant to this Sublease shall be maintained with responsible companies
qualified to do business, and in good standing, in the Commonwealth of
Massachusetts and which have a rating of at least "A-" and are within a
financial size category of not less than "Class VIII" in the most current Best's
Key Rating Guide or such similar ratings as may reasonably be selected by Master
Landlord if such Guide is no longer published. Notwithstanding the foregoing,
and only in the event that the Commencement Date has passed but a Certificate of
Occupancy for the Subleased Premises has not yet been issued, Subtenant shall be
relieved of its obligations under this Article 11 until the earlier of the (i)
the date on which a Certificate of Occupancy is issued for the Subleased
Premises, or (ii) the date on which Subtenant exercises any right of
Construction Early Entry or Early Occupancy pursuant to Article 3 above.
(B) Any insurance carried by either Subtenant or Sublandlord with
respect to the Subleased Premises or property therein or occurrences thereon,
shall, if it can be so written without additional premium or with an additional
premium which the other party agrees to pay, include a clause or endorsement
denying to the insurer rights of subrogation against the other party to the
extent rights have been waived by the insured prior to occurrence of injury or
loss. Subtenant and Sublandlord, each on their own behalf, hereby waives any
rights of recovery against the other for injury or loss due to hazards covered
by such insurance to the extent of the coverage received under such insurance
policy.
12. Assignment and Subletting. No portion of the Subleased Premises or of
-------------------------
Subtenant's interest in this Sublease may be acquired by any other person or
entity, whether by assignment, mortgage, sublease, transfer, operation of law or
act of Subtenant, without the prior written consent of Sublandlord which shall
not be unreasonably withheld, conditioned or delayed. Any instrument of transfer
entered into without consent shall be void ab initio.
Notwithstanding and without implied limitation of the foregoing,
Subtenant shall have the right to assign this Sublease or to sub-sublet the
Subleased Premises (in whole or in part) to any parent or subsidiary corporation
of Subtenant or to any corporation into which Subtenant may be converted or into
which it may merge or to any entity which acquires all or substantially all of
the assets of Subtenant or to any entity under common control and affiliated
with Subtenant, provided that the entity to which this Sublease is so assigned
has a creditworthiness (e.g. assets on a pro forma basis using generally
accepted accounting principles consistently applied and using the most recent
financial statements) which is the same or better than Subtenant as of the time
of such assignment.
In connection with this Sublease, the Subtenant and Sublandlord shall
enter into a separate agreement with the Master Landlord as required by Section
5.6.6 of the Master Lease, which shall include the agreement of the Subtenant to
be bound by certain terms of the Master Lease. The right of Subtenant to enter
into an assignment of this Sublease or to sublease the Subleased Premises shall
be subject to the requirements of the separate agreement with the Master
Landlord described above.
15
<PAGE>
13. The Master Lease.
----------------
(a) This Sublease is subject and subordinate to all the terms and
conditions of the Master Lease, and all rights of Landlord thereunder.
Subtenant acknowledges that it has received a copy of the Master Lease (with
material economic terms deleted therefrom), and is familiar with the terms and
conditions thereof. Except with respect to payment of rent under the Master
Lease or as otherwise expressly provided in this Sublease, Subtenant hereby
agrees to comply in all respects with Sublandlord's obligations under the Master
Lease insofar as the same are applicable to the Subleased Premises. Subtenant
will not cause or allow to be caused any default under the Master Lease.
Subtenant will indemnify Sublandlord against any loss, liability, and expenses
(including reasonable attorneys' fees and costs) arising out of any default
under the Master Lease caused solely by Subtenant. In the event the Master
Lease terminates for any reason prior to the expiration or termination of this
Sublease for reasons other than a default by Sublandlord, under either the
Master Lease or this Sublease, Subtenant shall not have any claim whatsoever
against Sublandlord arising or resulting from such termination of the Master
Lease. In any event, however, Sublandlord agrees not to exercise its early
termination right set forth in Section 2.4.1 of the Master Lease, without the
prior written approval of Subtenant. Sublandlord further agrees that, during
the Term of this Sublease, Sublandlord will not enter into any amendment of the
Master Lease or take any action which would materially impair or increase
Subtenant's rights and obligations under this Sublease (and except insofar as
any such further obligations are required by law).
(b) Subtenant shall expend commercially reasonable diligent efforts to
obtain, and Sublandlord agrees to cooperate with Subtenant, at no cost to
Sublandlord, in requesting from Master Landlord a nondisturbance and recognition
agreement to be entered into by Subtenant and Master Landlord in a form agreed
to by Subtenant and Master Landlord and otherwise reasonably acceptable to
Sublandlord.
(c) The Sublandlord covenants to act with due diligence and in a
commercially reasonable manner to fulfill its obligations under the Master
Lease, to avoid any default on behalf of Sublandlord under the Master Lease.
Sublandlord shall cooperate reasonably with Subtenant, as necessary, by
forwarding or joining in notices, requests or demands made by Subtenant to the
Master Landlord for purposes of enforcing the rights of the Subtenant under this
Sublease or the rights of the Sublandlord under the Master Lease to the extent
that such rights of the Sublandlord have been assigned to the Subtenant pursuant
to Section 31 herein. Sublandlord shall indemnify Subtenant from any loss to
Subtenant arising from a voluntary termination of the Master Lease made without
Subtenant's consent, or from a default hereunder by Sublandlord or from a
default under the Master Lease on behalf of Sublandlord.
16
<PAGE>
14. Events of Default. The occurrence of any one or more of the following
-----------------
events shall constitute an "Event of Default" under this Sublease:
(a) The entire Subleased Premises are left vacant or abandoned
(provided, however, that the Subleased Premises shall not be considered "vacant
or abandoned" in the event that the Subleased Premises are vacant during any
such period between the Commencement Date and the date on which the Subtenant's
Tenant Improvements are substantially completed pursuant to Article 3 herein or
if the Subtenant has voluntarily vacated the Sublease Premises while continuing
to pay Monthly Rent and to otherwise fulfill its obligations hereunder); (b) any
part of the rent is not paid when due (provided, however, that not more than two
times in any lease year, Sublandlord shall provide Subtenant with written notice
of nonpayment of rent with five days to pay such rent (together with a late fee
at the rate of 15% per annum on all unpaid amounts) before such nonpayment of
rent shall be considered an Event of Default hereunder).
(b) Any other default is made in any of the agreements by Subtenant in
this Sublease and Subtenant fails to cure such default on or before the earlier
of: (1) the date which is 20 days from the date on which Sublandlord gives
Subtenant notice of such default, or (2) the date which is 20 days from the date
on which Sublandlord gives Subtenant a copy of Master Landlord's notice to
Sublandlord given in accordance with Section 7.1 of the Master Lease.
15. Sublandlord's Remedies. If any Event of Default occurs, then
----------------------
Sublandlord shall have the right, at its election:
(a) To terminate this Sublease, in which case Subtenant's right to
possession of the Subleased Premises will cease and this Sublease will be
terminated as if the expiration of the term fixed in such notice were the end of
the Term. If this Sublease is terminated, Sublandlord will be entitled to
recover from Subtenant (1) the unpaid rent that had been earned at the time of
termination; (2) the present value of (calculated using the then current "prime
rate" or "base rate" of interest provided by BankBoston, N.A. or a comparable
alternative) the amount by which the unpaid rent that would have been earned
after termination until the time of award exceeds the amount of the rent loss
that Subtenant proves could reasonably have been avoided; (3) the present value
of (calculated using the then current "prime rate" or "base rate" of interest
provided by BankBoston, N.A. or a comparable alternative) the amount by which
the unpaid rent for the balance of the term of this Sublease after the time of
award exceeds the amount of the rent loss that Subtenant proves could reasonably
be avoided; and (4) any other amount necessary to compensate Sublandlord for all
damages proximately caused by Subtenant's failure to perform its obligations
under this Sublease or that in the ordinary course of things would be likely to
result from that failure.
(b) To reenter and take possession of the Subleased Premises, expel
Subtenant and remove the effects of Subtenant, using such force for such
purposes as may be necessary, without being liable for prosecution, and without
prejudice to any remedies for arrears of Base
17
<PAGE>
Rent or other amounts payable under this Sublease. In such case, Sublandlord
may, without being obligated to and without terminating the Sublease, relet the
Subleased Premises for the account of Subtenant on such conditions and terms as
Sublandlord may reasonably determine, and Sublandlord may collect and receive
the rent. Subtenant will pay to Sublandlord Base Rent and other sums as provided
in this Sublease that would be payable under this Sublease if such repossession
had not occurred, less the net proceeds, if any, of any reletting of the
Subleased Premises after deducting all of Sublandlord's reasonable expenses in
connection with such reletting.
(c) To cure any Event of Default and to charge Subtenant for the cost
of effecting such cure, including without limitation reasonable attorneys' fees
and interest provided that Sublandlord will have no obligation to cure any such
Event of Default of Subtenant.
Each right and remedy provided for in this Sublease is cumulative and is in
addition to every other right or remedy provided for in this Sublease or at law
or in equity. If a dispute arises under the terms of this Sublease or if any
payment required by this Sublease is not paid when due and if the matter ripens
to an Event of Default and the matter is turned over to an attorney, the
prevailing party in the dispute will be entitled to receive its reasonable
attorneys' fees in addition to the other damages and costs.
16. Requirements of Law. Subject to the obligations of the Master
-------------------
Landlord to construct the initial improvements to the Subleased Premises and to
the obligations of the Master Landlord for maintenance set forth in this
Sublease, Subtenant, at its sole expense, shall comply with all laws, statutes,
ordinances and governmental rules, regulations or requirements now in force or
in force after the date hereof, with the requirements of any board of fire
underwriters or other body constituted now or after the date hereof, with any
direction or occupancy certificate issued pursuant to any law by any public
officer, insofar as they relate to the condition, use or occupancy of the
Subleased Premises, provided that Subtenant shall not be responsible for any
alterations or additions to the Subleased Premise which would not have been the
responsibility of Sublandlord pursuant to Section 5.12 of the Master Lease.
(a) Subtenant's Obligations.
-----------------------
(1) Subtenant will not cause or permit the storage, treatment or
disposal of any Hazardous Waste in, on, or about the Subleased Premises or
any part of the Property by Subtenant, its agents, employees or
contractors. Subtenant will not permit the Property to be used or operated
in a manner that may cause the Property or any part of the Property to be
contaminated by any Hazardous Materials in violation of any Environmental
Laws. Notwithstanding the foregoing, Tenant in any case shall be
permitted to store and use normal and customary office supplies on the
Subleased Premises, provided such storage and use is in compliance with all
Environmental Laws.
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<PAGE>
(2) Subtenant will be solely responsible for and will defend,
indemnify, and hold Sublandlord, its agents and employees harmless from and
against all direct claims, costs, and liabilities, including reasonable
attorneys' fees and costs, arising out of or in connection with Subtenant's
introduction of Hazardous Materials to the Property or other breach of its
obligations in this Section.
(b) Mutual Obligations. Each party will promptly notify the other
------------------
party of (a) any and all enforcement, cleanup, remedial, removal, or other
governmental or enforcement cleanup or other governmental or regulatory actions
instituted, completed or threatened pursuant to any Environmental Laws relating
to any Hazardous Materials effecting any part of the Property; and (b) all
claims made or threatened by any third party against Subtenant, Sublandlord or
any part of the Property relating to damage, contribution, cost recovery,
compensation, loss or injury resulting from any Hazardous Materials on or about
the Property or any part of the Property.
(c) Definitions.
-----------
(1) "Hazardous Materials" means asbestos, explosives, radioactive
materials, hazardous waste, hazardous substances, or hazardous materials
including, without limitation, substances defined as "hazardous substances"
in the Comprehensive Environmental Response Compensation Liability Act of
1980, as amended, 42 U.S.C. (S)(S) 9601-9657 ("CERCLA"); the Hazardous
Material Transportation Act of 1975, 49 U.S.C. (S)(S) 1801-1812; the
Resource Conservation Recovery Acts of 1976, 42 U.S.C. (S)(S) 6901-6987;
the Occupational Safety And Health Act of 1970, 29 U.S.C. (S)(S) 651, et
seq.; or any other federal, state, or local statute, law, ordinance, code,
rule, regulation, order, or decree regulating, relating to, or imposing
liability or standards of conduct concerning hazardous materials, wastes,
or substances now or at any time hereinafter in effect (collectively,
"Environmental Laws").
(2) "Hazardous Waste" means hazardous waste as defined under the
Resource Conservation Recovery Act of 1976, 42 U.S.C. (S)(S) 6901-6987.
(d) The obligations of this Section shall survive the expiration or
other termination of this Agreement.
17. End of Term. At the end of this Sublease, Subtenant will promptly
-----------
quit and surrender the Subleased Premises broom-clean, in good order and repair,
ordinary wear and tear and casualty excepted. Subtenant will remove all of
Subtenant's personal property and equipment, as well as any improvements
installed in the Subleased Premises which Master Landlord requires to be removed
pursuant to Section 5.2 and/or Section 3.3 of the Master Lease, shall repair any
damage to the Subleased Premises as a result of such removal, and shall take all
measures to restore or readapt the Subleased Premises as may be required by
Master Landlord pursuant to
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Section 5.2 of the Master Lease. Subtenant's obligations under this Section will
survive the expiration or other termination of this Sublease.
18. Sublandlord's Name. Subtenant is prohibited from using Sublandlord's
------------------
name, logo, mark or any other identifying symbol as a business reference, in
advertising or sales promotion, or in any publicity matter without Sublandlord's
prior written consent.
19. Indemnity. Subtenant shall indemnify, defend and hold Sublandlord and
---------
its officers, directors, partners, employees, and agents entirely harmless from
and against all liabilities, losses, demands, actions, expenses, or claims,
including reasonable attorneys' fees and court costs, for injury to or death of
any person or for damages to any property arising out of or in any manner
connected with (a) the use, occupancy, or enjoyment of the Subleased Premises by
Subtenant or its agents, employees, or contractors, or any maintenance, repair,
work, activity, or other things allowed or permitted by Subtenant to be done or
left undone in or about the Subleased Premises; (b) any breach or default in the
performance of any obligation of Subtenant under this Sublease; and (c) any
negligent or willful act or failure to act of Subtenant. Notwithstanding the
foregoing, Subtenant shall not be liable to the extent that damage or injury is
ultimately determined to be caused by the gross negligence or willful misconduct
of Sublandlord, Sublandlord's employees, agents or invitees.
Sublandlord shall indemnify, defend and hold Subtenant and its
officers, directors, partners, employees, and agents entirely harmless from and
against all liabilities, losses, demands, actions, expenses, or claims,
including reasonable attorneys' fees and court costs, for injury to or death of
any person or for damages to any property arising out of or in any manner
connected with (a) any breach or default in the performance of any obligation of
Sublandlord under this Sublease; and (b) any negligent or willful act or failure
to act of Sublandlord. Notwithstanding the foregoing, Sublandlord shall not be
liable to the extent that damage or injury is ultimately determined to be caused
by the gross negligence or willful misconduct of Subtenant, Subtenant's
employees, agents or invitees.
20. Brokers. Sublandlord and Subtenant respectively represent and warrant
-------
to each other that neither of them has consulted or negotiated with any broker
or finder with regard to the Subleased Premises or this Sublease except
Sublandlord's Broker and Subtenant's Broker. Each of them will indemnify the
other against and hold the other harmless from any claims for fees or
commissions from anyone with whom either of them has consulted or negotiated
with regard to the Subleased Premises or this Sublease except their respective
Brokers. Sublandlord shall pay a commission to Subtenant's broker, McCall &
Almy, in the total amount of $236,250, to be paid (a) one half at the time of
execution and delivery of this Sublease by both parties, and (b) one half, pro-
rated in proportion to the Rentable Area of the Subleased Premises at the time,
respectively, on the Commencement Date, and on the Delivery Dates for the First
Expansion Space and the Second Expansion Space.
20
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21. Disputes. Any claim, controversy or dispute arising out of this
--------
Agreement shall be settled by arbitration in accordance with the applicable
rules of the American Arbitration Association, and judgment upon the award
rendered by the arbitrator may be entered in any court having jurisdiction
thereof. The arbitration shall be conducted in the county where the property is
located. There shall be no discovery other than the exchange of information
which is provided to the arbitrator by the parties. The arbitrator shall not
have authority to award punitive damages or other noncompensatory damages; the
parties hereby waive all rights to and claims for monetary awards other than
compensatory damages. Notwithstanding the foregoing, at Sublandlord's option,
the following claims, controversies or disputes need not be resolved by
arbitration: (1) any action by Sublandlord that seeks repossession of the
Subleased Premises as part of Sublandlord's remedy, (2) any action by
Sublandlord or Subtenant seeking an injunction or temporary restraining order,
and (3) any action by Sublandlord or Subtenant seeking any prejudgment remedy.
22. Notices. All notices and other communications required under this
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Sublease shall be in writing and shall be given by United States first class
mail, postage prepaid, registered or certified, return receipt requested,
nationally recognized overnight delivery service or by hand delivery (including
by means of a professional messenger service) addressed as follows:
(a) If to Sublandlord: MediaOne of Delaware, Inc.
Attn: Rick McPherson
Until March, 1998: 7800 Each Orchard Road, Suite 190
Englewood, CO 80111
As of March, 1998: 188 Inverness Drive West, 5/th/ Floor
Englewood, CO 80112
with a copy to: U S WEST Real Estate, Inc.
188 Inverness Drive West, 8th Floor
Englewood, CO 80112
Attn: Vice President, Operations
with a copy to: Legal Department
MediaOne of Delaware, Inc.
188 Inverness Drive
Englewood, CO 80112
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<PAGE>
(b) If to Subtenant: Prior to Commencement Date:
Segue Software, Inc.
1320 Centre Street
Newton Centre, MA 02159
Attn:
Chief Financial Officer
After Commencement Date:
Segue Software, Inc.
201 Spring Street
Lexington, Massachusetts
Attn:
Chief Financial Officer
with a copy to: Goodwin, Procter & Hoar LLP
Exchange Place
Boston, MA 02109
Attn: Michael H. Glazer, P.C.
Any such notice or other communication shall be deemed to be effective when
actually received or refused by Sublandlord or Subtenant. Either party by
similar notice given may change the address to which future notices or other
communications shall be sent.
23. Attorneys' Fees and Costs of Enforcement. In the event that either
----------------------------------------
party hereof commences an action to enforce any of the provisions of this
Sublease, which results from an either an Event of Default (in the case of an
action brought by Sublandlord) or a default hereunder on behalf of the
Sublandlord (in the case of an action brought by the Subtenant), the prevailing
party in such action shall be entitled to collect all of the reasonable out of
pocket costs of such action (including, without limitation, attorneys' fees and
court costs) from the other party.
24. Complete Agreement and Amendment. This Sublease sets forth the
--------------------------------
complete agreement between Sublandlord and Subtenant with respect to the subject
matter hereof, and this Sublease may not be terminated, amended or modified in
any respect except by agreement in writing executed by both Sublandlord and
Subtenant.
25. Governing Law. This Sublease will be governed by and construed
-------------
pursuant to the laws of the Commonwealth of Massachusetts.
26. Force Majeure. Except for a failure to deliver timely possession of
-------------
the Subleased Premises before the Drop Dead Date as set forth in Article 3
above, Sublandlord will have no liability to Subtenant, nor will Subtenant have
any right to terminate this Sublease or abate
22
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Monthly Rent or assert a claim of partial or total actual or constructive
eviction, because of Sublandlord's failure to perform any of its obligations in
the Sublease if the failure is due in part or in full to reasons beyond
Sublandlord's reasonable control, including without limitation, strikes or other
labor difficulties, inability to obtain necessary governmental permits and
approvals (including building permits or certificates of occupancy), war, riot,
civil insurrection, accidents, acts of God and governmental preemption in
connection with a national emergency (collectively referred to as "Force
Majeure"). Likewise, Sublandlord shall not have any right to terminate this
Sublease, because of Subtenant's failure to perform any of its obligations in
the Sublease if the failure is due to reasons beyond Subtenant's reasonable
control consistent with the definition of Force Majeure above.
27. Sublandlord's Representations and Warranties.
--------------------------------------------
(a) Sublandlord hereby represents and warrants to Subtenant that: (1)
to Sublandlord's actual knowledge, the Master Lease is in full force and effect
and neither Master Landlord nor Sublandlord is in default thereunder; (2)
Sublandlord has full right and authority to enter into this Sublease; and, (3)
to Sublandlord's actual knowledge, Sublandlord knows of no claims or defenses
or circumstances which, with the passage of time, would lead to claims or
defenses by Master Landlord against Sublandlord as tenant under the Master
Lease. Sublandlord further agrees to provide Subtenant with notice and a copy
of any amendments to the Master Lease that may hereafter be executed from time
to time by Sublandlord and Master Landlord.
(b) Subtenant hereby represents and warrants to Sublandlord that
Subtenant has full right and authority to enter into this Sublease.
28. Rooftop Antenna and Satellite Dish.
----------------------------------
(a) Subject to the consent of Sublandlord (which consent shall not be
unreasonably withheld) and the consent of Master Landlord, as well as any
conditions, approvals and requirements imposed by Sublandlord (in its reasonably
discretion), and Master Landlord (pursuant to the terms of the Master Lease),
Subtenant shall have a non-exclusive right, in common with the rights of Master
Landlord, Sublandlord, any affiliates of Sublandlord, and others as may be
designated or licensed by Master Landlord, to construct and install, at
Subtenant's sole cost and expense, Communications Equipment (as defined in
Section 8.25 of the Master Lease) on a portion of the roof of the Building, and
in such other portions of the Building outside the Subleased Premises as
Sublandlord (in its reasonable discretion) and Master Landlord may permit. The
location of the Communications Equipment and all plans and specifications for
installation of the same shall be subject to the prior written approval of
Sublandlord, which approval shall not be unreasonably withheld, conditioned or
delayed, as well as the prior written approval of Master Landlord pursuant to
Section 8.25 of the Master Lease.
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(b) Subtenant, at its sole cost and expense, shall obtain any and all
permits, consents or governmental approvals as may be reasonable or necessary
for the installation or operation of the Communications Equipment. Subtenant
shall, at its sole cost and expense, repair any damage to the Building resulting
from Subtenant's installation, operation, maintenance, repair, replacement or
removal of the Communications Equipment. Upon expiration or earlier termination
of this Sublease, Subtenant, at its sole cost and expense, shall remove the
Communications Equipment and restore the Building as nearly as practicable to
its condition prior to the installation thereof; provided, however, that
Subtenant shall not be required to remove any conduits and wiring for such
Communications Equipment which is located within walls or within ceiling plenums
of the Building. Subtenant agrees that the Communications Equipment shall be of
such types and frequencies that will not cause unreasonable interference with
any other present or future communications equipment on the Property installed
by Sublandlord or Master Landlord (including replacements thereof of the same
power and frequency), or with the telecommunications services of Sublandlord
(provided at the Property, or otherwise) or with the telecommunications services
to any other subtenants in the Building. In the event the Communications
Equipment causes such interference, notwithstanding any other provision in this
Sublease to the contrary, Subtenant shall immediately upon having notice of such
interference (whether such notice, in writing or otherwise, is from Sublandlord,
Master Landlord or other persons) take all steps necessary to correct and
eliminate the interference in a reasonable and timely manner, including
temporary disconnect and shut down of the Communications Equipment causing the
interference (except for intermittent operation for the purpose of testing,
after performing maintenance, repair, modification, replacement or other action
taken for the purpose of correcting such interference) until such interference
is eliminated. Subtenant's rights under this Section 28 are subject to
Subtenant's compliance with all of the conditions and limitations imposed on
Sublandlord as are set forth in Section 8.25 of the Master Lease, and as may be
imposed by Master Landlord and Sublandlord as part of their approvals of the
Communications Equipment.
(c) Subject to the limitations set forth in this subparagraph (c),
Sublandlord agrees not to grant any other subtenant of the Building any of its
rights to install Communications Equipment on the roof of the Building pursuant
to Section 8.25 of the Master Lease. Notwithstanding the foregoing, Subtenant
acknowledges and agrees that Sublandlord, and its affiliates, are in the
communications businesses and nothing in this Section 28 shall in any way limit
the rights of Sublandlord or any of its affiliates from exercising its rights
under Section 8.25 of the Master Lease.
29. Damage and Destruction. In the event that the Subleased Premises are
----------------------
damaged by fire or other casualty to such an extent that, pursuant to Section
6.1 of the Master Lease, Sublandlord has right to terminate under the Master
Lease, then Subtenant may, at its election, terminate this Sublease by notice
given to Sublandlord within 10 days following Subtenant's receipt from
Sublandlord of the Project Architect's Determination (as defined in the Master
Lease) and specifying the effective date of termination. The effective date of
termination specified by Subtenant shall be not less than 30 days nor more than
45 days after the date of Subtenant's notice
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of termination. Notwithstanding the foregoing, in the event the Subleased
Premises or the Building is damaged by fire or other casualty and the Master
Lease is terminated pursuant to Sections 6.0, 6.1 or 6.2 of the Master Lease,
this Sublease will terminate automatically on the date that the Master Lease
terminates.
30. Condemnation. Subject to Subtenant's rights set forth in Section
------------
32(b) below, In the event of a taking by condemnation or right of eminent domain
the Sublease shall terminate automatically on the date the Master Lease
terminates pursuant to Section 6.3 of the Master Lease. All proceeds of any
award made for damages to the Subleased Premises or Building shall be paid
consistently with the provisions of Section 6.4 of the Master Lease, provided
that Subtenant shall have the right to make a separate claim for damages
consistent with the Sublandlord's right to make a separate claim pursuant to the
second paragraph of Section 6.4 of the Master Lease.
31. Self-Help. In the event that the Master Landlord fails to make such
---------
repairs or to perform any other obligations as are required of Master Landlord
under the Master Lease, and to the extent that Sublandlord has the right (but
not the obligation) under Section 8.17 of the Master Lease to self-help, but
Sublandlord does not exercise its remedy of self-help under Section 8.17, then,
subsequent to the dates upon which Sublandlord had the right to invoke self-
help, and upon elapse of not less than 5 business days' after written notice to
Sublandlord and Master Landlord, Subtenant may exercise Sublandlord's right of
self-help under Section 8.17 of the Master Lease. Sublandlord shall cooperate
with Subtenant in triggering Sublandlord's right of self help under Section 8.17
of the Master Lease by delivering or joining in such notices to Master landlord
as reasonably requested by Subtenant.
If Subtenant shall at any time default in the performance of any obligation
under this Sublease, Master Landlord and Sublandlord shall have the right, but
shall not be obligated to, enter upon the Subleased Premises and to perform such
obligation notwithstanding the fact that there may be no specific provision for
such substitute performance by, Master Landlord or Sublandlord is made in this
Sublease or in the Master Lease with respect to such default. In performing
such obligation, Master Landlord and Sublandlord may make any payment of money
or perform any other act. All sums so paid by Master Landlord or Sublandlord
(together with interest at the rate of 1 1/2 percentage points over the then
prevailing prime rate in Boston as set by BankBoston, N.A.) and all costs and
expenses in connection with the performance of any such act of Master Landlord
or Sublandlord, shall be deemed to be Additional Rent under this Sublease and
shall be payable to Master Landlord or Sublandlord as the case may be on demand.
Master Landlord or Sublandlord may exercise the foregoing rights without waiving
any other of its rights or releasing Subtenant from any of its obligations under
this Sublease.
32. Subtenant's Rights Upon Expansion of Subleased Premises. In the event
-------------------------------------------------------
and at such time as the Subleased Premises under this Sublease are expanded to
include the entire Premises as defined in the Master Lease effective for the
entire remaining term of this Sublease (the achievement of such an expansion in
the Subleased Premises shall be referred to as a "100%
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Sublease"), then Subtenant shall receive benefit of the additional rights
described in this Section 32, subject to the continuing condition that the
Subleased Premises continue to include the entire Premises as defined in the
Master Lease:
(a) Approval Rights Under Section 2.1.1 of the Master Lease. So long
-------------------------------------------------------
as there is no outstanding and continuing Event of Default under the Sublease
then Subtenant shall be assigned the right of the Sublandlord pursuant to
Section 2.1.1 of the Master Lease. In any case where the consent of the
Sublandlord pursuant to Section 2.1.1 of the Master Lease is required,
Sublandlord shall notify Subtenant in writing of Subtenant's opportunity to
provide such approval which notice shall specify a time limit of not less than
ten business days for Subtenant to respond to the request for approval.
Sublandlord shall cooperate with Subtenant in communication to Master Landlord
regarding approval or rejection of Subtenant pursuant to Section 2.1.1 of the
Master Lease as assigned to Subtenant pursuant to this Section 32(a) of the
Sublease. In consideration of Sublandlord providing Subtenant such approval
right, Subtenant agrees that, in the event that Subtenant, in its exercise of
its right to approve pursuant to this Paragraph (a), either grants or withholds
such approval, and Sublandlord notifies Subtenant that it expressly disagrees
with Subtenant's decision regarding the approval, then Subtenant shall
indemnify and hold harmless Sublandlord from and against any claims, damages,
costs, or liabilities incurred by Sublandlord in connection with Subtenant's
approval of, or failure to provide such approvals pursuant to Section 2.1.1, as
the case may be.
(b) Notwithstanding anything to the contrary in Sections 29 and 30
above, in the event that Subtenant is a subtenant under a 100% Sublease, then
Subtenant shall have the right to exercise all of Sublandlord's rights to elect
to continue or terminate the Master Lease under Article VI of the Master Lease
in the event of a casualty or condemnation, subject to the conditions set forth
in Article VI of the Master Lease.
33. Subtenant's Right to Cause a Termination of the Master Lease. Subject
-------------------------------------------------------------
to the conditions of this Section 33, Tenant shall have the right to cause the
Sublandlord to exercise its termination right under Section 2.4.1 of the Master
Lease. Subtenant may, at its option, by written notice ("Subtenant's
Termination Notice") given by Subtenant to Sublandlord not later than September
30, 2003, elect to require Sublandlord to cancel and terminate the Master Lease
with respect to the Premises (as defined therein) prior to the scheduled
expiration of the Master Lease effective on the Early Termination Date (as
defined in the Master Lease) but in no event earlier nor later than said date.
Notwithstanding Subtenant's exercise of the option to require Sublandlord to
exercise its option to terminate the Master Lease pursuant to Section 2.4.1 of
the Master Lease, Subtenant shall pay Sublandlord all Monthly Rent, Additional
Rent, and other amounts due from Subtenant (including, but not limited to, all
past due amounts thereof) as such amounts and payments become due and payable in
accordance with the requisite provisions of this Sublease through the Early
Termination Date and on the Early Termination Date, Subtenant shall quit and
vacate the Subleased Premises and surrender the same to Sublandlord in the
condition required by the applicable provisions of this Sublease. In addition,
Subtenant shall pay Sublandlord a
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termination payment (the "Subtenant's Termination Payment") which shall be
determined as follows:
(a) Subtenant's Termination Payment shall be $2,000,000 unless the
conditions in subsection (b) below occur. [The following scenarios are provided
as examples of situations in which Subtenant's Termination Payment would be
$2,000,000: (i) If, in response to the Initial Section 38 Notice (as defined
in Section 38 below), Subtenant exercises its right to sublease, and subleases,
the Third Floor in accordance with the provisions of Section 38 below, then the
Subtenant's Termination payment shall remain $2,000,000; (ii) Likewise, if, in
response to the Initial Section 38 Notice, Subtenant does not exercise its
right to sublease the Third Floor in accordance with the provisions of Section
38 below, but does provide Sublandlord with Subtenant's Termination Notice
within 10 days after Subtenant's receipt of such Initial Section 38 Notice then
the Subtenant's Termination payment shall remain $2,000,000.]
(b) In the event that:
(i) Prior to September 30, 2003, the Third Floor becomes
available for sublease because the sublease of the existing subtenant, Ab
Initio Software Corporation ("Ab Initio"), is terminated due to a default
or anticipated default by Ab Initio (as reasonably determined by
Sublandlord), and/or its subleased premises are abandoned, and
(ii) within 10 business days of Subtenant's receipt of the
Initial Section 38 Notice arising from such termination or abandonment,
Subtenant not only (x) fails to exercise its right to sublease the Third
Floor, but also (y) fails to provide Sublandlord with Subtenant's
Termination Notice, then the amount of Subtenant's Termination Payment
shall thereafter be $2,300,000.
The parties acknowledge and agree that the Subtenant's Termination Payment is
not a penalty but which is compensation for the privilege of requiring
Sublandlord to terminate the Master Lease with respect to the Premises prior to
the scheduled expiration of the Term. Subtenant acknowledges and agrees that
the Subtenant's Termination Payment shall not be applied to or on account of any
Monthly Rent, Additional Rent or other sums due under this Sublease. Subtenant
shall deliver one half of the Subtenant's Termination Payment (i.e. $1,000,000
or $1,150,000, which is 1/2 of the amount determined pursuant to subparagraphs
(a) or (b) above) to Sublandlord in good funds on or before September 30, 2003
and Subtenant shall deliver the balance of the Subtenant's Termination Payment
(i.e. $1,000,000 or $1,150,000, which is 1/2 of the amount determined pursuant
to subparagraph (a) or (b) above) on or before the Early Termination Date. In
the event that any amounts required to be paid by Subtenant pursuant to the
second sentence of this Section are not finally determined as of the Early
Termination Date, Subtenant shall make payment on account as reasonably
estimated by Sublandlord, if so requested by Sublandlord and Subtenant shall
make final payment of any remaining amounts due within 10 days after final
billing by Sublandlord. In the event of overpayment by Subtenant on account of
any of the foregoing
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amounts, Sublandlord shall promptly refund to Subtenant the amount in excess of
the amount due by Subtenant. The provisions of the preceding sentences shall
survive the termination of the Sublease. Time is of the essence with respect to
all of the time periods, all of the payment terms and other provisions of this
Section. Notwithstanding the giving of the Subtenant's Termination Notice or the
termination of this Sublease, Sublandlord reserves the rights in the event
Subtenant fails to comply with any of its obligations under this Section, all of
which shall survive.
34. Extension of Master Lease. In the event that Sublandlord, in
-------------------------
Sublandlord's sole discretion, elects to extend the term of the Master Lease
pursuant to Section 2.4.2 therein or otherwise or to continue to lease the
Building commencing upon the expiration of this Sublease, then Sublandlord shall
offer Subtenant the opportunity to extend the Term of this Sublease for a
renewal term commencing on the day immediately succeeding the Expiration Date of
this Sublease, and expiring simultaneous with the expiration of the Master Lease
or Sublandlord's subsequent lease of the Building (the "Sublease Renewal Term"),
subject to the further provisions of this section:
(a) Subtenant must exercise the option with respect to the Sublease
Renewal Term, if at all, by giving notice of exercise ("Subtenant's Notice") to
Sublandlord on or before the date that is thirty (30) days after Subtenant's
receipt of notice from Sublandlord that Sublandlord has elected to extend the
term of the Master Lease or to continue to lease the Building. Subtenant will
have no right to renew the term of this Sublease if Subtenant's Notice is not
timely delivered or if there is an Event of Default under this Sublease at the
time Subtenant's Notice is delivered.
(b) The Renewal Term will be on the same terms and conditions as this
Lease, except Monthly Rent, which shall be the prevailing market rate (as
determined pursuant to subparagraphs (c) and (d) herein).
(c) If Sublandlord and Subtenant are unable to agree on the renewal
Monthly Rent for the Subleased Premises within 15 business days after
Subtenant's Notice, Sublandlord and Subtenant will each appoint a real estate
broker licensed in the State of Massachusetts specializing in the field of
commercial sales and leasing and having at least five years experience in their
field ("Qualified Broker") to determine the prevailing market rate for the
Subleased Premises. If either Sublandlord or Subtenant does not appoint a
Qualified Broker within 10 days after the other has given notice of the name of
its broker, the single Qualified Broker appointed will be the sole Qualified
Broker and will set the prevailing market rate for the Subleased Premises. If
two Qualified Brokers are appointed pursuant to this paragraph, they will meet
promptly and attempt to set the prevailing market rate for the Subleased
Premises. If they are unable to agree within 30 days after the second Qualified
Broker has been appointed, they will attempt to elect a third Qualified Broker,
meeting the qualifications stated in this paragraph, within 10 days after the
last day the two Qualified Brokers are given to set the prevailing market rate
of the Subleased
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Premises. If they are unable to agree on a third Qualified Broker, either
Sublandlord or Subtenant, by giving 10 days' prior notice to the other, can
apply to the then-presiding president of the local Board of Realtors for the
selection of a third Qualified Broker who meets the qualifications stated in
this paragraph. Sublandlord and Subtenant will each bear one-half of the cost of
appointing the third Qualified Broker and of paying the third broker's fee. The
third broker, however selected, must be a person who has not previously acted in
any capacity for either Sublandlord or Subtenant. Within 30 days after selection
of the third Qualified Broker, a majority of the Qualified Brokers will set the
prevailing market rate for the Subleased Premises.
(d) The "prevailing market rate of the Subleased Premises" means what
a Sublandlord under no unusual compulsion to sublease the Subleased Premises and
a Subtenant under no unusual compulsion to sublease the Subleased Premises would
determine as rent (including initial Monthly Rent and rental increases) for the
Term as of the time of Subtenant's Notice, taking into consideration the uses
permitted under this Sublease; the quality, size, design, and location of the
Subleased Premises; and the rent for comparable buildings located in the Route
128 sub-market, the term of the renewal period, and amenities such as parking,
location, and signage.
(e) Subtenant will have no further rights to extend the term beyond
the Sublease Renewal Term.
35. Signage.
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(a) Subtenant has requested that Master Landlord permit Subtenant to
install signage on the side of the Building consistent with the restrictions set
forth in Section 8.21 of the Master Lease. Master Landlord has conditioned its
agreement to permit Subtenant the right to install signage in accordance with
Section 8.21 of the Lease upon Sublandlord's agreement to pay Master Landlord an
additional portion of the Assignment/Sublease Profits (as defined in the Master
Lease). Subject to the following conditions, Sublandlord will not object to
Subtenant's agreement with Master Landlord regarding signage:
(1) Subtenant's right to install signage is subject to all of the
restrictions and conditions set forth in Section 8.21(A) of the Master
Lease as if Sublandlord were the Master Landlord, and Subtenant were the
Tenant. Subtenant shall comply with Section 8.21 of the Master Lease and
any additional terms and conditions imposed by Master Landlord on
Subtenant's signage.
(2) Subtenant shall reimburse Sublandlord for fifty percent (50%)
of any portion of the Assignment/Sublease Profits which Sublandlord is
required to pay to the Master Landlord as a result of Subtenant's exercise
its right to install signage pursuant to this Section 35(a) (the "Signage
Reimbursement"). Subtenant acknowledges that, in the absence of Master
Landlord's agreement to permit Subtenant the right to install Building
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Signage, Sublandlord is required to pay to Master Landlord 50% of the
Assignment/Sublease Profits. Therefore, in the event that Subtenant
chooses to exercise its right pursuant to this Section 35(a), Subtenant
shall reimburse Sublandlord for fifty percent (50%) of any portion of the
Assignment/Sublease Profits paid to or to be paid to Master Landlord in
excess of the 50% of the Assignment/Sublease Profits payable to the Master
Landlord pursuant to Section 5.6.5 of the Master Lease. The Signage
Reimbursement shall be paid as Additional Rent commencing on the date on
which Subtenant exercises its right under this Section 35(a).
(3) In the event that: (A) Subtenant executes a 100% Sublease,
(B) there are no uncured Events of Default thereunder, and (C) the
Sublandlord's obligation to pay any portion of the Assignment/Sublease
Profits which Sublandlord is required to pay to the Master Landlord as a
result of Subtenant's exercise of its right to install signage pursuant to
this Section 35(a) to Master Landlord is terminated, then Subtenant
likewise shall be relieved of its obligation to pay the Signage
Reimbursement.
(b) Subject to the approval of Master Landlord, Subtenant shall have
the right (without any cost or expense to Subtenant) to an identification sign
at the Spring Street entrance to the office park which includes the Building and
to directional signs in the office park consistent with Section 8.21 of the
Master Lease and consistent with the description of the signage shown on the
plans entitled "Spring Street Office Park Signage Plan, Progress Print" dated
April 1, 1998 and prepared by Pressly Associates for Boston Properties, Inc.
(c) Subtenant shall have the right, exclusive of all other subtenants
in the building, to install a monument sign near the entrance to the Building
at Subtenant's expense and as otherwise reasonably approved by Master Landlord
and Sublandlord.
36. Right of First Refusal on Garden Level Space.
--------------------------------------------
(a) Subtenant shall have a one-time right of first refusal with
respect to the leasing of the entire Garden Level of the Building (exclusive of
that portion which is included within the Subleased Premises) and generally
depicted on Exhibit C to this Sublease (the "Garden Level Space"), subject to
---------
and in accordance with the terms and conditions set forth in this Section 36.
If Sublandlord receives a bona fide offer to sublease the Garden Level Space on
terms and conditions that Sublandlord would be willing to accept (an "Offer")
from a third-party offeror ("Third-Party Offeror"), then Sublandlord will
provide Subtenant with written notice of such Offer ("Sublandlord's Notice").
Subtenant will have the right to sublease the Garden Level Space that is the
subject of the Offer, on terms not less favorable to Subtenant than those of the
Offer, if and only if:
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(1) There is no current Event of Default under this Sublease at
the time Subtenant seeks to exercise such right or at the time the Garden
Level Space is added to the Subleased Premises.
(2) Subtenant delivers to Sublandlord written notice exercising
its right to Sublease the Garden Level Space within ten business days
following receipt of Sublandlord's Notice.
(b) If Subtenant exercises its right to Sublease the Garden Level
Space, but fails to execute the Offer Amendment (as hereafter defined) within
ten business days after presentation of the same to Subtenant, Subtenant will
have no further right to Sublease the Garden Level Space and this Section 36
shall be deemed to have no further force or effect whatsoever. If Subtenant
exercises its right to Sublease the Garden Level Space, Sublandlord and
Subtenant will enter into an amendment to this Sublease ("Offer Amendment"),
which shall be subject to the following terms and conditions.
(1) The Garden Level Space will be added to the Subleased
Premises on the same terms and conditions as the Sublease, except (A) the
economic terms of the Offer Amendment will be the same as those set forth
in the Offer, and (B) Subtenant shall not be entitled to any rent
abatement, rent credit, tenant improvement allowance, or any other
concessions, except as set forth in the Offer.
(2) The Garden Level Space will be added to the Subleased
Premises for a term concurrent with the Term, as the same may have been
extended.
(3) The commencement date for the leasing of the Garden Level
Space will be either (a) the date the Garden Level Space was to have been
leased pursuant to the offer in question, or (b) such earlier date as
agreed to by Subtenant.
(4) Subtenant will take the Garden Level Space in the condition
described in the Offer.
(5) The Subtenant shall be entitled to an allocation of parking
spaces for the Garden Level Space consistent with the number of spaces
specified in the Offer.
(c) The rights of Subtenant under this Section are appurtenant to this
Sublease and are not separately transferable.
(d) Subtenant shall be entitled to terminate any Sublease only with
respect to the Garden Level Space if Sublandlord fails to deliver possession of
the Garden Level Space within 60 days of the parties' agreed-upon commencement
date for the Sublease of the Garden Level
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Space. Subtenant shall not be liable for Monthly Rent or Additional Rent prior
to the date upon which possession of the Garden Level Space is delivered to
Subtenant.
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37. Right of First Offer on Garden Level of the Building.
----------------------------------------------------
(a) In the event that Subtenant fails to sublease the Garden Level
Space pursuant to Section 36 above, then, subject to, and subsequent to the
expiration or termination of any initial sublease with another subtenant for the
premises located on the Garden Level of the Building (the "Garden Level"),
Subtenant shall have a right of first opportunity with respect to the subleasing
of the Garden Level Space, subject to and in accordance with the terms and
conditions set forth in this Section 37. At such time which is subsequent to
the commencement of the initial sublease with another subtenant for premises in
the Garden Level, but prior to the expiration date of such initial sublease (as
opposed to any earlier termination of such initial sublease), that Sublandlord
desires to enter into negotiations for the subsequent sublease of the Garden
Level Space, Sublandlord will first give written notice to Subtenant as to such
expectation (the "Section 37 Notice"). Subtenant will have the right to
sublease the Garden Level Space, if and only if:
(1) The subtenant located in the Garden Level does not renew,
extend or expand its premises under its Sublease.
(2) There is no current Event of Default under this Sublease at
the time Subtenant seeks to exercise such right.
(3) Subtenant delivers to Sublandlord written notice
("Subtenant's Notice") exercising its right to sublease the Garden Level
Space within ten business days following receipt of the Section 37 Notice.
(4) If Subtenant fails to timely exercise its right to the Garden
Level Space, or fails to execute the Section 37 Amendment (as hereafter
defined) within 10 business days of presentation of the Amendment to
Subtenant), Subtenant will have no further right to sublease the Garden
Level Space except pursuant to sub-section 37(c) below. If Subtenant
exercises its right to sublease the Garden Level Space, Sublandlord and
Subtenant will enter into an amendment to this Sublease (the "Section 37
Amendment") providing for the following terms and conditions.
(A) The Garden Level Space will be added to the Subleased
Premises for a term concurrent with the Term.
(B) Monthly Rent per square foot for the Garden Level Space
(excluding the Interior Garden Level Space, as hereinafter defined)
shall be determined as follows: (i) from the Commencement Date through
July 30, 2003, Monthly Rent for the Garden Level Space shall be $31.00
per rentable square foot of the Garden Level Space; and (ii) from
August 1, 2003 through the Expiration Date, Monthly Rent for the
Garden Level Space shall be $32.00 per rentable square foot of the
Garden Level Space. Monthly Rent for any portion of the Garden Level
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Space that is identified on Exhibit C per square foot of such Interior
---------
Garden Level Space. hereto as the "Interior Garden Level Space") shall be
$24.50 per square foot of such Interior Garden Level Space.
(C) The commencement date for the subleasing of the Garden Level
Space will be the date the Garden Level Space is ready for occupancy.
(D) Subtenant will take the Garden Level Space in an "as-is"
condition.
(E) Subtenant shall not have the right hereunder to sublease less
than all of the Garden Level Space which is offered for sublease in the
Section 37 Notice.
(F) Within 10 business days after receipt from Sublandlord,
Subtenant shall execute and deliver to Sublandlord those instruments,
including the Section 37 Amendment, Sublandlord may reasonably request to
evidence any sublease of the Garden Level Space under this Section 37.
(G) The rights of Subtenant under this Section are appurtenant to
this Sublease and are not separately transferable.
(H) All other terms and conditions will be the same as contained
in this Sublease, provided, however, Subtenant shall not be entitled to
receive any tenant improvement allowance, rent concessions, rent abatement,
rent credit, any parking spaces (except those that may have been provided
to the initial subtenant in the initial sublease for the Garden Level
Space) or other concessions.
(b) Sublandlord shall not be liable for any damages to Subtenant for any
failure to deliver possession of the Garden Level Space by reason of holding
over by third parties, provided, however, that Subtenant shall be entitled to
terminate any sublease only with respect to the Garden Level Space if
Sublandlord fails to deliver possession of the Garden Level Space within 60 days
of the parties' agreed upon commencement date for the Sublease of the Garden
Level Space. Subtenant shall not be liable for Monthly Rent or Additional Rent
prior to the date upon which possession of the Garden Level Space is delivered
to Subtenant.
(c) If Subtenant declines to accept the offer to lease the Garden
Level Space pursuant to the Section 37 Notice and Sublandlord subsequently
subleases the Garden Level Space to another subtenant (a "Garden Level
Sublease"), then if: (1) such Garden Level Sublease expires or terminates prior
to the Expiration Date of this Sublease, and (2) Sublandlord again desires to
enter into negotiations for a sublease of the Garden Level Space, Sublandlord
shall again issue a Section 37 Notice to Subtenant and repeat the process set
forth in this Section 37.
34
<PAGE>
38. Right of First Offer on the Third Floor.
---------------------------------------
(a) In the event, and only in the event, of an early termination of
the Ab Initio Software Corporation ("Ab Initio") sublease for the entire third
floor of the Building (the "Third Floor) or if the Third Floor should
subsequently become available for sublease, or if Sublandlord has an option to
recapture the Third Floor as provided in Section 38 below or otherwise,
Subtenant shall have a right of first opportunity with respect to the subleasing
of the Third Floor, subject to and in accordance with the terms and conditions
set forth in this Section 38. At such time that Sublandlord desires to enter
into negotiations for the subsequent sublease of the Third Floor, or if
Sublandlord has an opportunity to recapture the Third Floor as provided in
Section 39 below or otherwise, Sublandlord will first give written notice to
Subtenant as to such expectation (the "Section 38 Notice"; provided, however,
that the first Section 38 Notice provided by Sublandlord to Subtenant may be
referred to in this Sublease as the "Initial Section 38 Notice"). Subtenant will
have the right to sublease the Third Floor, if and only if:
(1) There is no current Event of Default under this Sublease at
the time Subtenant seeks to exercise such right.
(2) Subtenant delivers to Sublandlord written notice ("Subtenant's
Notice") exercising its right to sublease the Third Floor within ten business
days following receipt the Section 38 Notice.
(3) If Subtenant fails to timely exercise its right to the Third
Floor, or fails to execute the Third Floor Amendment (as hereafter defined)
within 10 business days of presentation of the Third Floor Amendment to
Subtenant (and provided that the Subtenant and Sublandlord have determined the
Monthly Rent for the Third Floor in accordance with subparagraph (B) below),
Subtenant will have no further right to sublease the Third Floor and this
Section 38 shall be deemed to have no further force or effect whatsoever. If
Subtenant exercises its right to sublease the Third Floor, Sublandlord and
Subtenant will enter into an amendment to this Sublease ("Third Floor
Amendment") providing for the following terms and conditions.
(4) The Third Floor will be added to the Subleased Premises for a
term concurrent with the Term.
(5) Monthly Rent per square foot for the Third Floor shall be
determined as follows: (i) from the Commencement Date through October 31, 2002,
Monthly Rent for the Third Floor shall be $31.50 per rentable square foot of the
Third Floor; and (ii) from November 1, 2002 through the Expiration Date, Monthly
Rent for the Third Floor shall be $33.50 per rentable square foot of the Third
Floor.
(6) The commencement date for the subleasing of the Third Floor
will be the date the Third Floor is ready for occupancy.
35
<PAGE>
(7) If the Third Floor has been previously built out and occupied by
any subtenant, then the Subtenant shall accept the Third Floor in "as-is"
condition. If the Third Floor has not been previously built out and occupied
by another subtenant, then Subtenant shall be provided an allowance for
improvements of $25 per square foot of the Rentable Area of the Third Floor.
(8) Subtenant shall not have the right hereunder to sublease less than
all of the Third Floor which is offered for sublease in the Section 38 Notice.
(9) Within 10 days after receipt from Sublandlord, Subtenant shall
execute and deliver to Sublandlord those instruments, including the Third Floor
Amendment, Sublandlord may reasonably request to evidence any sublease of the
Third Floor under this Section 38.
(10) The rights of Subtenant under this Section are appurtenant
to this Sublease and are not separately transferable.
(11) All other terms and conditions will be the same as contained in
this Sublease, provided, however, Subtenant shall not be entitled to receive any
tenant improvement allowance, rent concessions, rent abatement, rent credit,
parking spaces (other than the number of parking spaces which were provided to
Ab Initio in its initial sublease of the Third Floor) or other concessions.
(b) Sublandlord shall not be liable for any damages to Subtenant for
any failure to deliver possession of the Third Floor by reason of holding over
by third parties, provided, however, that Subtenant shall be entitled to
terminate any sublease only with respect to the Third Floor if Sublandlord fails
to deliver possession of the Third Floor within 60 days of the parties' agreed
upon commencement date for the Sublease of the Third Floor. Subtenant shall not
be liable for Monthly Rent or Additional Rent prior to the date upon which
possession of the Third Floor is delivered to Subtenant.
(c) If Subtenant declines to accept the offer to lease the Third Floor
pursuant to the Section 38 Notice and Sublandlord subsequently subleases the
Third Floor to another subtenant (a "Third Floor Sublease"), then if: (1) such
Third Floor Sublease expires or terminates prior to the Expiration Date of this
Sublease, and (2) Sublandlord again desires to enter into negotiations for a
sublease of the Third Floor, Sublandlord shall again issue a Section 38 Notice
to Subtenant and repeat the process set forth in this Section 38.
39. Right of First Offer in the Event of Landlord's Recapture of Third
------------------------------------------------------------------
Floor Premises.
- --------------
(a) In any sublease for premises located on the third floor of the
Building between Sublandlord and any subtenant other than the initial subtenant
of such premises (a "Non-
36
<PAGE>
Initial Subtenant"), Sublandlord shall include a provision in such sublease
which allows Sublandlord the right, but not the obligation, to recapture any
portion of such third floor premises which the Non-Initial Subtenant attempts to
sublet to a third party (the "Recapture Space").
(b) Subtenant shall have a right of first opportunity with respect to
the subleasing of the Recapture Space, subject to and in accordance with the
terms and conditions set forth in Section 38 above. In the event that
Sublandlord has the opportunity to recapture the Recapture Space pursuant to a
recapture provision in such Non-Initial Subtenant's sublease, Sublandlord will
give written notice to Subtenant as to such opportunity (the "Recapture
Notice"). Subtenant will have the right to sublease the Recapture Space on terms
and conditions consistent with the requirements of Section 38 above.
40. Financial Reports. On or before March 31 of each year during the
-----------------
Term, Subtenant will furnish Sublandlord with Subtenant's most recent audited
financial statements (including any notes to them) to Sublandlord, or, if no
such audited statements have been prepared, such other financial statements (and
notes to them) as may have been prepared by an independent certified public
accountant, which financial statements will be provided to Sublandlord within
120 days of the last day of Subtenant's fiscal year. Sublandlord will not
disclose any aspect of Subtenant's financial statements which Subtenant
designates to Sublandlord as confidential except (a) to Sublandlord's lenders or
prospective purchasers of the Property, (b) in litigation between Sublandlord
and Subtenant, and (c) if required by court order.
41. Rule Against Perpetuities. Notwithstanding any other provision of
-------------------------
this Sublease, if the Commencement Date does not occur by the date ten (10)
years after the date of this Sublease, then this Sublease shall be deemed
canceled and terminated ten (10) years from the date hereof without the
necessity of any notice or act by Sublandlord or Subtenant. It is understood
and agreed that the provisions of the preceding sentence are intended to prevent
this Sublease from becoming unenforceable by reason of a claim that, without
such provisions, this Sublease might violate the rule against perpetuities, and
such provisions shall not operate so as to relieve Sublandlord or Subtenant from
performing and observing their respective obligations which are to be performed
or observed prior to the expiration of said ten (10) year period.
42. Severability. If any clause or provision of this Sublease is illegal,
------------
invalid, or unenforceable under present or future laws effective during the
Term, then in that event, it is the intention of the parties hereto that the
remainder of the Sublease shall not be affected thereby.
37
<PAGE>
Sublandlord and Subtenant have executed this Sublease as of the date first
above written.
SUBLANDLORD: SUBTENANT:
MEDIAONE OF DELAWARE, INC., a SEGUE SOFTWARE, INC., a Delaware
Delaware corporation corporation
By /s/ DOUG HOLMES By /s/ STEPHEN B. BUTLER
------------------------------ ------------------------------
Name Doug Holmes Name Stephen B. Butler
----------------------------- ------------------------------
Its EVP - Business Dev. Its CEO
------------------------------ ------------------------------
APPROVED AS TO LEGAL FORM by counsel to
Sublandlord:
Fisher & Sweetbaum, P.C.
By Margaret M. ^^^
-----------------------------
Date 4/7/98
-----------------------------
STATE OF Colorado )
-------------------------) ss.
COUNTY OF Douglas )
-------------
The foregoing instrument was acknowledged before me this 8th day of April,
1998, by Doug Holmes as EVP-BUS DEV as of MediaOne of Delaware, Inc., a Delaware
corporation.
WITNESS my hand and official seal.
/s/ ^^^
-----------------------
Notary Public
My commission expires ^^ August 18, 1999
-----------------------
38
<PAGE>
STATE OF Massachusetts )
---------------------------) ss.
COUNTY OF Middlesex )
--------------
The foregoing instrument was acknowledged before me this 6th day of
April Stephen B. Butler
_______________________________________, 1998, by______________________________
CEO
as _________________________________ of Segue Software, Inc., a Delaware
corporation.
WITNESS my hand and official seal.
/s/ Debra ^^^
------------------------
Notary Public
My commission expires September 6, 2002
--------------------
39
<PAGE>
EXHIBIT A
Initial Subleased Premises
--------------------------
40
<PAGE>
EXHIBIT A
Lower Level Space
---------------------
<PAGE>
EXHIBIT A
First Expansion Space
---------------------
<PAGE>
EXHIBIT A
Second Expansion Space
----------------------
<PAGE>
EXHIBIT B
Occupancy Schedule
------------------
Scheduled Delivery Date Subleased Premises
8/1/98-- 40,500 rentable square feet
generally depicted on Exhibit A attached hereto
---------
and identified as the "Initial Subleased
Premises".
1/1/99-- 12,000 rentable square feet
generally depicted on Exhibit A attached hereto
---------
and identified as the "First Expansion Space".
7/1/99-- 15,000 rentable square feet
generally depicted on Exhibit A attached hereto
---------
and identified as the "Second Expansion Space".
The term "Subleased Premises" as it is used in this Sublease will mean those
portions of the Building occupied by Subtenant in accordance with the above
schedule. The total rentable square feet of the Premises on July 1, 1999 will
be 67,500 rentable square feet.
43
<PAGE>
EXHIBIT C
GARDEN LEVEL SPACE
------------------
<PAGE>
EXHIBIT D
A CERTAIN PARCEL OF LAND SITUATED ON THE WESTERLY SIDE OF SPRING STREET IN
THE TOWN OF LEXINGTON AND THE WESTERLY SIDE OF SMITH STREET IN THE CITY OF
WALTHAM, IN THE COUNTY OF MIDDLESEX, COMMONWEALTH OF MASSACHUSETTS, BOUNDED AND
DESCRIBED AS FOLLOWS:
BEGINNING AT A POINT IN THE MOST NORTHWESTERLY END OF SMITH STREET AT THE
LEXINGTON-WALTHAM CITY LINE AT THE EASTERLY CORNER OF THE GRANTED PREMISES;
THENCE
S07-18-13W BY THE WESTERLY LINE OF SMITH STREET, A DISTANCE OF SIXTY-SIX
AND NO HUNDREDTHS FEET (66.00) TO A POINT AT LAND NOW OR
FORMERLY OF HONEYWELL, INC.; THENCE
N66-14-17W A DISTANCE OF NINE AND ELEVEN HUNDREDTHS FEET (9.11) TO A
CONCRETE BOUND; THENCE
N66-14-17W A DISTANCE OF ONE HUNDRED THIRTY-THREE AND TWENTY-EIGHT
HUNDREDTHS FEET (133.28) TO A DRILL HOLE; THENCE
N65-05-29W A DISTANCE OF ONE HUNDRED EIGHTY-ONE AND TWENTY-SIX HUNDREDTHS
FEET (181.26) TO A DRILL HOLE; THENCE
N65-53-34W A DISTANCE OF ONE HUNDRED THIRTY-SIX AND THREE HUNDREDTHS FEET
(136.03) TO A DRILL HOLE; THENCE
N65-14-54W A DISTANCE OF TWO HUNDRED THIRTY-THREE AND FIFTY HUNDREDTHS
FEET (233.50) TO A DRILL HOLE; THENCE
N61-43-52W A DISTANCE OF THIRTY-TWO AND THIRTY-FOUR HUNDREDTHS FEET
(32.34) TO A POINT; THENCE
N64-09-50W A DISTANCE OF SEVENTY-ONE AND SIXTY-SIX HUNDREDTHS FEET (71.66)
TO A POINT; THENCE
N69-26-07W A DISTANCE OF ONE HUNDRED SEVEN AND TWENTY-ONE HUNDREDTHS FEET
(107.21) TO A POINT; THENCE
<PAGE>
N66-07-42W A DISTANCE OF NINETY-EIGHT AND FIFTY-FOUR
HUNDREDTHS FEET (98.54) TO A POINT; THENCE
N62-12-30W A DISTANCE OF TWENTY-NINE AND NINETY HUNDREDTHS
FEET (29.90) FEET TO A POINT; THENCE
N69-32-17W A DISTANCE OF THIRTY AND ONE HUNDREDTH FEET (30.01)
TO A POINT; THENCE
N65-08-00W A DISTANCE OF ONE HUNDRED EIGHTY-THREE AND SIX
HUNDREDTHS FEET (183.06) TO A POINT; THENCE
N67-16-12W A DISTANCE OF ONE HUNDRED SEVENTY-THREE AND FIFTY-
SIX HUNDREDTHS FEET (173.56) TO A POINT; THENCE
N67-06-03W A DISTANCE OF TWELVE AND FIFTY-FOUR HUNDREDTHS FEET
(12.54) TO A POINT IN THE EASTERLY LINE OF NORTHERN
CIRCUMFERENTIAL HIGHWAY (ROUTE 128); THE PREVIOUS
FOURTEEN (14) COURSES BY LAND NOW OR FORMERLY OF
HONEYWELL, INC.; THENCE
NORTHERLY AND CURVING TO THE LEFT ALONG THE ARC OF A CURVE
HAVING A RADIUS OF FIVE THOUSAND ONE HUNDRED FIFTY
AND NO HUNDREDTHS FEET (5150.00), A LENGTH OF THIRTY-
EIGHT AND THIRTY-THREE HUNDREDTHS FEET (38.33) TO A
POINT OF TANGENCY; THENCE
N09-12-32W A DISTANCE OF TWENTY-FIVE AND THIRTY-THREE
HUNDREDTHS FEET (25.33) TO A POINT IN THE LEXINGTON-
WALTHAM CITY LINE; THENCE
N09-12-32W A DISTANCE OF ONE THOUSAND FOUR HUNDRED FORTY-
SEVEN AND THIRTEEN HUNDREDTHS FEET (1447.13) TO A
STONE BOUND AT RAMP TO ROUTE 2; THE PREVIOUS THREE
(3) COURSES BEING ALONG THE EASTERLY LINE OF
NORTHERN CIRCUMFERENTIAL HIGHWAY (ROUTE 128);
THENCE
-2-
<PAGE>
N39-48-23E A DISTANCE OF ONE HUNDRED THIRTY-TWO AND TWENTY-
TWO HUNDREDTHS FEET (132.22) TO A STONE BOUND; THENCE
N59-18-34E A DISTANCE OF THREE HUNDRED EIGHTY-FOUR AND SIXTEEN
HUNDREDTHS FEET (384.16) TO A POINT AT LAND NOW OR
FORMERLY OF DORIS FLOYD; THE PREVIOUS TWO (2)
COURSES BEING ALONG THE SOUTHEASTERLY LINE OF RAMP
TO ROUTE 2; THENCE
S26-59-10E A DISTANCE OF ONE HUNDRED TWENTY-FIVE AND SIXTEEN
HUNDREDTHS FEET (125.16) TO A DRILL HOLE; THENCE
S28-15-30E A DISTANCE OF FIFTY-THREE AND SEVENTEEN HUNDREDTHS
FEET (53.17) TO A DRILL HOLE; THENCE
S18-58-40E A DISTANCE OF FORTY AND NINETY HUNDREDTHS FEET
(40.90) TO A DRILL HOLE; THENCE
S27-06-00E A DISTANCE OF ONE HUNDRED TWENTY-THREE AND EIGHT
HUNDREDTHS FEET (123.08) TO A DRILL HOLE; THENCE
S26-34-20E A DISTANCE OF ONE HUNDRED SIXTY-SEVEN AND NO
HUNDREDTHS FEET (167.00) TO A DRILL HOLE; THENCE
S26-55-40E A DISTANCE OF TWO HUNDRED TWELVE AND NINETY-ONE
HUNDREDTHS FEET (212.91) TO A DRILL HOLE; THE PREVIOUS
SIX (6) COURSES BY LAND NOW OR FORMERLY OF DORIS
FLOYD; THENCE
S26-22-20E BY LANDS NOW OR FORMERLY OF DORIS FLOYD AND NOW OR
FORMERLY OF FRANCIS A. & THELMA P. GALLAGHER, A
DISTANCE OF TWO HUNDRED THIRTY-FIVE AND NINETY-
SEVEN HUNDREDTHS FEET (235.97) TO A DRILL HOLE; THENCE
S27-14-50E BY LANDS NOW OR FORMERLY OF FRANCIS A. & THELMA P.
GALLAGHER AND NOW OR FORMERLY OF EDWARD J. &
CHERYL B. PANJIAN, A DISTANCE OF TWO HUNDRED
SEVENTY-TWO AND EIGHTEEN HUNDREDTHS FEET (272.18) TO
A DRILL HOLE; THENCE
-3-
<PAGE>
S26-01-20E BY LAND NOW OR FORMERLY OF JACK PANJIAN & BARBARA
JONES, A DISTANCE OF ONE HUNDRED FIFTY-TWO AND
TWENTY-THREE HUNDREDTHS FEET (152.23) TO A DRILL
HOLE; THENCE
S29-19-00E A DISTANCE OF EIGHTY AND TWENTY-EIGHT HUNDREDTHS
FEET (80.28) TO A DRILL HOLE; THENCE
S25-07-40E A DISTANCE OF TWENTY-NINE AND FOURTEEN HUNDREDTHS
FEET (29.14) TO A POINT; THENCE
S25-07-40E A DISTANCE OF SIXTEEN AND NO HUNDREDTHS FEET (16.00)
TO A DRILL HOLE; THE PREVIOUS THREE (3) COURSES BY
LAND NOW OR FORMERLY OF GEORGE G. & MAUREEN G.
CAGLIUSO; THENCE
S30-43-20E BY LANDS NOW OR FORMERLY OF GEORGE G. & MAUREEN G.
CAGLIUSO AND NOW OR FORMERLY OF DOMINICK JR. &
CATHERINE P. MORLEY, A DISTANCE OF ONE HUNDRED SIX
AND NINETY-FIVE HUNDREDTHS FEET (106.95) TO A DRILL
HOLE; THENCE
S24-41-20E BY LANDS NOW OR FORMERLY OF DOMINICK JR &
CATHERINE P. MORLEY AND NOW OR FORMERLY OF WARREN
W. & ELIZABETH B. FOX, A DISTANCE OF TWO HUNDRED
ELEVEN AND THIRTY-TWO HUNDREDTHS FEET (211.32) TO A
DRILL HOLE; THENCE
S10-58-35E A DISTANCE OF SIXTEEN AND THIRTY-TWO HUNDREDTHS
FEET (16.32) TO A DRILL HOLE; THENCE
S26-50-00W A DISTANCE OF THIRTY-FOUR AND FORTY-ONE HUNDREDTHS
FEET (34.41) TO A DRILL HOLE; THENCE
S43-58-40W A DISTANCE OF THIRTY-FIVE AND TWENTY-SIX HUNDREDTHS
FEET (35.26) TO A DRILL HOLE; THENCE
-4-
<PAGE>
S38-40-15W A DISTANCE OF FIFTY-ONE AND ELEVEN HUNDREDTHS FEET
(51.11) TO A POINT; THENCE
S63-09-29E A DISTANCE OF FOUR HUNDRED SEVENTY-THREE AND NO
HUNDREDTHS FEET (473.00) TO A POINT IN THE WESTERLY
LINE OF SPRING STREET; THE PREVIOUS FIVE (5) COURSES BY
LAND NOW OR FORMERLY OF WARREN W. & ELIZABETH B.
FOX; THENCE
S06-40-02W BY THE WESTERLY LINE OF SPRING STREET, A DISTANCE OF
THREE HUNDRED FIFTY AND NO HUNDREDTHS FEET (350.00)
TO A POINT; THENCE
S66-17-44E ALONG THE LEXINGTON-WALTHAM CITY LINE, A DISTANCE
OF NINE AND NINETY-ONE HUNDREDTHS FEET (9.91) TO THE
POINT OF BEGINNING.
THE ABOVE DESCRIBED PARCEL OF LAND CONTAINS AN AREA OF 80,269 SQUARE FEET,
MORE OR LESS, OR 1.8428 ACRES, MORE OR LESS, IN WALTHAM AND 1,585,767 SQUARE
FEET, MORE OR LESS, OR 36.404 ACRES, MORE OR LESS, IN LEXINGTON AND IS MORE
PARTICULARLY SHOWN AS "ROAD A", PARCEL A, LOT 1 AND LOT 2 ON A PLAN ENTITLED
"PLAN OF LAND IN LEXINGTON & WALTHAM, MASS. (MIDDLESEX COUNTY PREPARED FOR: 191
SPRING STREET TRUST, SCALE: 80 FEET TO AN INCH, DATED MAY 15, 1996 BY BSC -
BEDFORD" RECORDED WITH THE MIDDLESEX SOUTH DISTRICT REGISTRY OF DEEDS AS PLAN
NO. 498 OF 1996.
-9-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1998
<PERIOD-START> APR-01-1998 JAN-01-1998
<PERIOD-END> JUN-30-1998 JUN-30-1998
<CASH> 36,922 0
<SECURITIES> 0 0
<RECEIVABLES> 7,634 0
<ALLOWANCES> 415 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 45,870 0
<PP&E> 4,327 0
<DEPRECIATION> 2,443 0
<TOTAL-ASSETS> 49,382 0
<CURRENT-LIABILITIES> 7,672 0
<BONDS> 0 0
0 0
0 0
<COMMON> 81 0
<OTHER-SE> 38,097 0
<TOTAL-LIABILITY-AND-EQUITY> 49,382 0
<SALES> 8,804 16,265
<TOTAL-REVENUES> 8,804 16,265
<CGS> 557 979
<TOTAL-COSTS> 1,852 3,028
<OTHER-EXPENSES> 6,717 12,965
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 97 191
<INCOME-PRETAX> 648 1,086
<INCOME-TAX> 30 56
<INCOME-CONTINUING> 618 1,030
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 618 1,030
<EPS-PRIMARY> .08 .13
<EPS-DILUTED> .07 .12
</TABLE>
