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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, 1999
or
[ ] 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 0-21529
GIGA INFORMATION GROUP, INC.
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(Exact name of registrant as specified in its charter)
Delaware 06-1422860
----------------------- ---------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
ONE LONGWATER CIRCLE
NORWELL, MA 02061
(781) 982-9500
-------------------------------------------
(Address, including zip code, and telephone
number, including area code, of principal
executive offices)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. [X] Yes [ ] No
As of July 31, 1999, there were 10,016,098 shares of Common Stock, $.001 par
value, of the registrant outstanding.
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<PAGE>
GIGA INFORMATION GROUP, INC.
INDEX
<TABLE>
<CAPTION>
PAGE
----
PART I - FINANCIAL INFORMATION
<S> <C>
Item 1. Financial Statements
Condensed Consolidated Statements of Operations for the
three and six months ended June 30, 1999 and
June 30, 1998 (unaudited) 3.
Condensed Consolidated Balance Sheets at June 30, 1999 (unaudited)
and December 31, 1998 4.
Condensed Consolidated Statements of Cash Flows for the six
months ended June 30, 1999 and June 30, 1998
(unaudited) 5.
Notes to Condensed Consolidated Financial Statements (unaudited) 6.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 8.
PART II - OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds 18.
Item 4. Submission of Matters to a Vote of Security Holders 19.
Item 6. Exhibits and Reports on Form 8-K 20.
SIGNATURE PAGE 21.
INDEX TO EXHIBITS 22.
</TABLE>
2
<PAGE>
PART 1 - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
GIGA INFORMATION GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited, in thousands, except share and per share data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
June 30, June 30,
1999 1998 1999 1998
--------------- ---------------- --------------- ---------------
<S> <C> <C> <C> <C>
Revenues:
Continuous information services $ 10,815 $ 7,604 $ 21,169 $ 14,408
Other services 2,075 1,508 3,661 3,256
--------------- ---------------- --------------- ---------------
Total revenues 12,890 9,112 24,830 17,664
Costs and expenses:
Cost of services 7,472 5,231 13,412 9,693
Sales and marketing 8,573 6,537 15,355 12,318
Research and development 397 299 651 638
General and administrative 2,124 1,744 4,242 3,096
Depreciation and amortization 440 414 819 799
--------------- ---------------- --------------- ---------------
Total costs and expenses 19,006 14,225 34,479 26,544
--------------- ---------------- --------------- ---------------
Loss from operations (6,116) (5,113) (9,649) (8,880)
--------------- ---------------- --------------- ---------------
Interest income 210 122 464 159
Interest expense (33) (694) (70) (780)
Foreign exchange gain/(loss) (172) 65 (416) 49
--------------- ---------------- --------------- ---------------
Loss from operations before income taxes (6,111) (5,620) (9,671) (9,452)
Income tax (benefit)/charge 10 (4) 52 -
--------------- ---------------- --------------- ---------------
Net Loss (6,121) (5,616) (9,723) (9,452)
=============== ================ =============== ===============
Results per common share:
Historical - basic and diluted:
Net loss $ (0.61) $ (2.60) $ (0.98) $ (4.42)
=============== ================ =============== ===============
Weighted average number of shares 9,988,216 2,161,542 9,972,176 2,138,715
=============== ================ =============== ===============
</TABLE>
The accompanying notes are an integral part of the condensed
consolidated financial statements.
3
<PAGE>
GIGA INFORMATION GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
-------------- ----------------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 11,071 $ 14,149
Marketable securities 2,766 6,908
Trade accounts receivable, net of allowance for uncollectible accounts of $436
and $410 at June 30, 1999 and December 31, 1998, respectively 10,344 15,017
Unbilled accounts receivable 4,398 4,606
Prepaid expenses and other current assets 5,034 4,911
-------------- ----------------
Total current assets 33,613 45,591
Property and equipment, net 4,724 3,430
Other assets 190 192
-------------- ----------------
Total assets $ 38,527 $ 49,213
============== ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable 1,769 1,989
Deferred revenues 28,226 29,470
Accrued expenses and other current liabilities 7,075 7,443
Debt - other, current portion 684 461
-------------- ----------------
Total current liabilities 37,754 39,363
Long-term debt - other - 444
-------------- ----------------
Total liabilities 37,754 39,807
Stockholders' equity:
Preferred Stock, $.001 par value; 5,000,000 shares authorized, zero issued and
outstanding at June 30, 1999 and December 31, 1998, respectively - -
Common Stock, $.001 par value: 60,000,000 shares authorized, 10,000,594 and 9,943,502
shares issued and outstanding at June 30, 1999 and December 31, 1998, respectively 10 10
Additional paid-in capital 80,598 80,550
Deferred compensation (1,304) (1,614)
Accumulated deficit (79,380) (69,657)
Accumulated other comprehensive income 849 117
-------------- ----------------
Total stockholders' equity 773 9,406
-------------- ----------------
Total liabilities and stockholders' equity $ 38,527 $ 49,213
============== ================
</TABLE>
The accompanying notes are an integral part of the
condensed consolidated financial statements.
4
<PAGE>
GIGA INFORMATION GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-------------------------------------
1999 1998
---------------- ----------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(9,723) $(9,452)
Adjustments to reconcile net loss to net cash used in continuing
operating activities:
Depreciation and amortization 819 799
Amortization of discount on notes payable - 337
Provision for doubtful accounts 21 (80)
(Gain) loss on sale of fixed assets 8 1
Compensation expense related to stock options 223 140
Other non-cash items - 18
Change in assets and liabilities:
Decrease (increase) in accounts receivable 4,519 4,046
Decrease (increase) in prepaid expenses and other current assets (116) 218
(Decrease) increase in deferred revenues (1,018) (311)
(Decrease) increase in accounts payable and accrued liabilities 367 (1,428)
---------------- ----------------
Net cash provided by (used in) operating activities:
Net cash provided by (used in) continuing operations (4,900) (5,712)
Net cash used in discontinued operations - (288)
---------------- ----------------
Net cash provided by (used in) operating activities (4,900) (6,000)
---------------- ----------------
Cash flows from investing activities:
Acquisition of equipment and improvements (2,136) (1,028)
Purchases of marketable securities (6,174) -
Proceeds from maturities of marketable securities 10,316 -
Other, net 4 -
---------------- ----------------
Cash provided by (used in) investing activities 2,010 (1,028)
---------------- ----------------
Cash flows from financing activities:
Proceeds from issuance of Common Stock under stock option plans 96 163
Proceeds from issuance of Common Stock due to exercise of warrants 38 -
Proceeds from issuance of Series D Convertible Preferred Stock, net of
issuance costs of $81 - 1,919
Proceeds from issuance of note payable, net of origination fee of $200 - 9,800
Repayments of principal to related parties - (400)
Principal payments on long-term debt, current portion (221) (1,211)
---------------- ----------------
Cash provided by (used in) financing activities (87) 10,271
---------------- ----------------
Effect of exchange rates on cash (101) (69)
Net increase (decrease) in cash and cash equivalents (3,078) 3,174
Cash and cash equivalents, beginning of period 14,149 3,539
---------------- ----------------
Cash and cash equivalents, end of period $ 11,071 $ 6,713
================ ================
Supplementary cash flow information:
Income taxes paid $ 52 $ 8
Interest paid $ 70 $ 512
</TABLE>
The accompanying notes are an integral part of the
condensed consolidated financial statements.
5
<PAGE>
GIGA INFORMATION GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Interim Condensed Consolidated Financial Statements
The accompanying condensed consolidated financial statements of Giga
Information Group, Inc. ("Giga") at June 30, 1999 and for the three and six
months ended June 30, 1999 and 1998, respectively, are unaudited and have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. All adjustments (consisting only of normal recurring
adjustments) have been made which, in the opinion of management, are necessary
for a fair presentation. The results of operations for the periods presented are
not necessarily indicative of the results that may be expected for any future
period. For further information, refer to Giga's audited consolidated financial
statements included in its Annual Report on Form 10-K, for the period ended
December 31, 1998, as filed with the Securities and Exchange Commission.
2. Computation of Earnings per Share of Common Stock
Due to the losses incurred by Giga for the three and six month
periods ended June 30, 1999 and 1998, respectively, common equivalent shares
resulting from the assumed exercise of outstanding stock options and warrants
have been excluded from the computation of diluted net loss per share as their
effect would be anti-dilutive. Options and warrants to purchase 3,160,070 and
2,136,882 shares of Common Stock were outstanding at June 30,1999 and 1998,
respectively.
3. Comprehensive Income (Loss)
The table below sets forth "Comprehensive Income (Loss)" as defined
by SFAS No. 130 (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1999 1998 1999 1998
--------------- -------------- --------------- --------------
<S> <C> <C> <C> <C>
Net loss $(6,121) $(5,616) $(9,723) $(9,452)
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustment 197 (157) 732 (83)
--------------- -------------- --------------- --------------
Comprehensive loss $(5,924) $(5,773) $(8,991) $(9,535)
=============== ============== =============== ==============
</TABLE>
6
<PAGE>
GIGA INFORMATION GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
4. Segment Information
Giga has determined that it operates in one reportable segment,
information technology ("IT") advisory services. Revenues from the products and
services within, and in support of, Giga's IT advisory services are presented in
detail in Giga's Condensed Consolidated Statements of Operations.
Giga conducts business principally in the United States and United
Kingdom. Operations in France, Germany and Italy have been aggregated
(collectively "Other International"). Revenues are reflected in the geographic
area in which the sales are made. The table below presents information about
Giga's reported revenues and total assets for the three and six months ended
June 30, 1999 and 1998, respectively (in thousands).
<TABLE>
<CAPTION>
REVENUES
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1999 1998 1999 1998
--------------- -------------- -------------- ---------------
<S> <C> <C> <C> <C>
United States $ 11,471 $ 8,144 $ 22,233 $ 15,996
United Kingdom 1,020 715 1,829 1,229
Other International 399 253 768 439
--------------- -------------- -------------- ---------------
Consolidated revenue $ 12,890 $ 9,112 $ 24,830 $ 17,664
=============== ============== ============== ===============
TOTAL ASSETS
JUNE 30,
1999 1998
-------------- ---------------
United States $ 33,645 $ 19,245
United Kingdom 2,587 1,679
Other International 2,295 1,331
-------------- ---------------
Consolidated total assets $ 38,527 $ 22,255
============== ===============
</TABLE>
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
STATEMENTS THAT ARE NOT HISTORICAL FACTS MAY BE CONSIDERED
FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995. SUCH FORWARD LOOKING STATEMENTS, INCLUDING THOSE
CONCERNING GIGA'S EXPECTATIONS, INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES
AND OTHER FACTORS WHICH MAY CAUSE THE ACTUAL RESULTS, PERFORMANCE OR
ACHIEVEMENTS OF GIGA, OR INDUSTRY RESULTS, TO BE MATERIALLY DIFFERENT FROM ANY
FUTURE RESULTS, PERFORMANCE, OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH
FORWARD LOOKING STATEMENTS. IN EVALUATING SUCH STATEMENTS AS WELL AS THE FUTURE
PROSPECTS OF GIGA, SPECIFIC CONSIDERATION SHOULD BE GIVEN TO VARIOUS FACTORS
INCLUDING THE FOLLOWING: GIGA'S PRIOR LOSSES AND ANTICIPATION OF FUTURE LOSSES;
GIGA'S NEED TO ATTRACT AND RETAIN QUALIFIED PERSONNEL; GIGA'S DEPENDENCE ON
SALES AND RENEWALS OF SUBSCRIPTION-BASED SERVICES; GIGA'S ABILITY TO ACHIEVE AND
SUSTAIN HIGH RENEWAL RATES; GIGA'S ABILITY TO MANAGE AND SUSTAIN GROWTH; GIGA'S
FUTURE CAPITAL NEEDS AND THE RISKS OF WORKING CAPITAL DEFICIENCY; GIGA'S
DEPENDENCE ON KEY PERSONNEL; COMPETITION; THE RISKS ASSOCIATED WITH THE
DEVELOPMENT OF NEW SERVICES AND PRODUCTS; THE POTENTIAL FOR SIGNIFICANT
FLUCTUATIONS IN QUARTERLY OPERATING RESULTS; CONTINUED MARKET ACCEPTANCE AND
DEMAND FOR GIGA'S SERVICES; UNCERTAINTIES RELATING TO PROPRIETARY RIGHTS; GIGA'S
DEPENDENCE ON THE INTERNET INFRASTRUCTURE; THE RISK OF SYSTEM FAILURE; THE RISKS
RELATED TO CONTENT; THE RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS AND OTHER
RISKS AS DETAILED FROM TIME-TO-TIME IN GIGA'S FILINGS WITH THE SECURITIES AND
EXCHANGE COMMISSION.
OVERVIEW
Giga is an information technology (IT) research and advisory firm
offering technology and management advise to IT decision-makers via innovative
research processes and a leading-edge Web interface. Giga's research focus is on
helping companies integrate their businesses with the Internet; it also covers
other issues pertaining to the computing, telecommunications and related
industries. Giga's four principal products and services are (i) Advisory
Service, (ii) e-Practice Services, (iii) Continuous Advisory Consulting and (iv)
Events and Publications. Giga provides its services primarily through GigaWeb,
its intelligent Internet-based information delivery interface.
Giga introduced its Advisory Service and GigaWeb in April 1996. In
July 1996, Giga introduced its IT Practice Services. The focus of Giga's IT
Practice Services was changed in June 1999 to concentrate on e-Business; hence,
the service was renamed "e-Practice Services." Advisory Consulting was
introduced in September 1997. Giga's Events and Publications product line was
acquired with the acquisition of BIS Strategic Decisions, Inc. (BIS) in April
1995. For financial reporting purposes, revenues from (i) Advisory Service,
e-Practice Services and Continuous Advisory Consulting are aggregated into
Continuous Information Services ("CIS"), and (ii) Events and publications and
other services, principally ad hoc consulting, are aggregated into Other
Services. Giga expects that CIS revenues will continue to increase as a
percentage of its total revenues.
Giga's Continuous Information Services are typically sold through
annual contracts that generally provide for payment at the commencement of the
contract period. A small number of CIS contracts, however, are billed quarterly
or monthly. Amounts received in advance of services provided are reflected in
Giga's financial statements as deferred revenues and are recognized monthly on a
prorated basis over the term of the contract. Revenues from Other Services are
recognized as follows: events as they occur, publications as they are delivered
and consulting as such services are performed. Unbilled receivables are
primarily generated as a result of contractual quarterly or monthly billing
terms offered in connection with Giga's Continuous Information Services. Giga
also records the related commission obligation upon acceptance of a CIS contract
8
<PAGE>
and amortizes the corresponding deferred commission over the contract period in
which the related CIS revenues are earned. With continued growth in CIS contract
value and volume and the consistent application of the accounting policies
described above, trade accounts receivable, deferred revenues, unbilled accounts
receivable and deferred commissions are expected to increase.
Essentially all of Giga's current international operations are
located in the European Community and Canada. Giga operates in the European
Community primarily through wholly owned subsidiaries in the United Kingdom,
France and Germany. These subsidiaries manage direct sales personnel and
distributors in other countries as well. In Canada, Giga utilizes a full-scale
field sales force and provides business support to these salespersons through
its operations in the United States. Substantially all of Giga's revenues from
the European Community are denominated in foreign currencies, particularly the
British pound, while essentially all of Giga's revenues from Canada are
denominated in U.S. dollars. Giga markets in Spain, Portugal, Italy, Israel,
Argentina and Korea through representatives. Revenues from these representatives
have been and are expected to continue to be primarily denominated in U.S.
dollars. To date, such revenues have been insignificant. As a result of
fluctuations in exchange rates, transactions denominated in foreign currencies
inherently have financial risk. To date, however, Giga's cumulative translation
adjustments have been slightly favorable, although there can be no assurance
that this trend will continue in the future. Giga does not currently hedge its
exposure to foreign currency adjustments.
Giga believes that a leading measure of the volume of its CIS
business is the annualized value ("Annualized Value" or "AV") of its Continuous
Information Services agreements in effect at a given point in time. Giga
calculates Annualized Value each month as the cumulative annualized subscription
value payable under the agreements without regard to commencement date, duration
or risk of cancellation. Annualized Value at June 30, 1999 increased 47% to
$48.8 million from $33.3 million at June 30, 1998, while Annualized Value per
client increased 24% to $49,000 at June 30, 1999 from $39,500 at June 30, 1998.
Price pressure has continued this quarter as Giga's competitors have adjusted
their prices in response to what Giga believes is the superior value of its
services.
Giga also measures its performance on the basis of Net Annualized
Value Increase ("NAVI") which is calculated as the value of new agreements plus
upgrades, net of downgrades and cancellations. The sum of all past NAVI equals
Annualized Value. Alternatively, NAVI for a period can also be derived by
subtracting AV at the beginning of the period from AV at the end of the period.
Because of the simplicity of the calculation, Giga generally does not report
explicit NAVI data.
A majority of Giga's annual contracts renew automatically unless the
customer cancels the subscription. Giga's experience is such that substantial
portions of customers renew expiring contracts for an equal or greater value of
total CIS fees each year. Approximately 20% of contract value up for renewal in
the second quarter of 1999 cancelled, discontinuing all Continuous Information
Services, as compared to 24% for the same period of 1998. These cancellation
rates do not include contracts lost due to mergers, acquisitions and
bankruptcies. Giga believes that a direct comparison of its cancellation rate
and those of its major competitors may not be meaningful. This is due primarily
to Giga's unified Advisory Service model, the focus of which is an integrated
approach with fewer contracts/services per customer. The Giga model differs
significantly from the multiple-service models of Giga's major competitors.
Giga's operating expenses consist of cost of services, sales and
marketing, research and development, general and administrative, and
depreciation and amortization. Cost of services consists primarily of the direct
costs associated with the delivery of Giga's Continuous Information Services and
other services, including personnel expenses for analysts and other personnel,
direct expenses for events and conferences, expenses to create, print and
distribute publications and royalties to third party information providers.
Sales and marketing expenses include personnel expenses, promotional expenses,
and sales commissions. Sales commissions are typically deferred when earned and
recorded to expense as the related revenue is recognized. Research and
development expenses consist of personnel expenses, consulting fees and other
expenses to develop, enhance and operate GigaWeb. General and administrative
9
<PAGE>
expenses are primarily personnel costs and fees for professional services
supporting Giga's administrative functions.
Since its inception, Giga has incurred substantial costs to develop
its Continuous Information Services, establish its GigaWeb delivery system,
build a management team and recruit, employ and train research analysts, sales
personnel and support staff for its business. Giga expects to incur significant
losses into the year 2000 as Giga continues to strengthen, expand and develop
existing and new services, products and infrastructure.
Giga has incurred substantial tax loss carryforwards since its
inception, and acquired tax loss carryforwards with its acquisition of BIS. Due
to the magnitude of these existing tax loss carryforwards, anticipated losses
into the year 2000, and substantial uncertainties associated with its business,
Giga is unable to conclude that it is more likely than not that the deferred tax
associated with these tax loss carryforwards will be realized. Accordingly, this
deferred tax asset has been fully reserved. This valuation allowance will be
reduced and the deferred tax asset will be recognized when and if it becomes
more likely than not that the deferred tax asset will be realized.
10
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth certain statement of operations data
as a percentage of revenues for the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1999 1998 1999 1998
--------------- -------------- --------------- --------------
<S> <C> <C> <C> <C>
Revenues:
Continuous information services 84% 83% 85% 82%
Other services 16% 17% 15% 18%
--------------- -------------- --------------- --------------
Total revenues 100% 100% 100% 100%
--------------- -------------- --------------- --------------
Costs and expenses:
Cost of services 58% 57% 54% 55%
Sales and marketing 67% 72% 62% 70%
Research and development 3% 3% 3% 4%
General and administrative 16% 19% 17% 17%
Depreciation and amortization 3% 5% 3% 4%
--------------- -------------- --------------- --------------
Total costs and expenses 147% 156% 139% 150%
--------------- -------------- --------------- --------------
Loss from operations (47%) (56%) (39%) (50%)
Interest income 1% 1% 2% 1%
Interest expense - (8%) - (4%)
Foreign exchange gain/(loss) (1%) 1% (2%) -
--------------- -------------- --------------- --------------
Loss from operations before income taxes (47%) (62%) (39%) (53%)
Income tax (benefit) charge - - - -
--------------- -------------- --------------- --------------
Net loss (47%) (62%) (39%) (53%)
=============== ============== =============== ==============
</TABLE>
In general, the decreases in the various operating expenses as a
percentage of total revenues are primarily due to leveraging those expenses over
increased revenues derived from a growing customer base.
11
<PAGE>
THREE MONTHS ENDED JUNE 30, 1999 COMPARED TO THREE MONTHS ENDED JUNE 30, 1998
Revenues. Total revenues increased 41% to $12.9 million for the three
months ended June 30, 1999 from $9.1 million for the same period in 1998. The
increase in total revenues was primarily due to the increase in revenues from
Continuous Information Services.
Revenues from Continuous Information Services increased 42% to $10.8
million for the three months ended June 30, 1999 from $7.6 million for the same
period in 1998. The increase in revenues was primarily due to growing market
acceptance of Giga's services.
Revenues from Other Services increased 38% to $2.1 million for the
three months ended June 30, 1999 from $1.5 million for the same period in 1998.
The increase was primarily due to conference revenues.
Cost of services. Cost of services increased 43% to $7.5 million for
the three months ended June 30, 1999 from $5.2 million for the same period in
1998. The increase in costs was primarily due to the expansion of analyst staff
to support an increased customer base and costs associated with GigaWorld IT
Forum, Giga's premier conference.
Sales and marketing. Sales and marketing expenses increased 31% to
$8.6 million for the three months ended June 30, 1999 from $6.5 million for the
same period in 1998. The increase was principally due to greater sales
commissions and a full three months of expenses for the field analyst program in
the second quarter of 1999. The field analyst program was not established until
the third quarter of 1998.
Research and development. Research and development expenses increased
33% to $397,000 for the three months ended June 30, 1999 from $299,000 for the
same three-month period in 1998. The increase was primarily due to outside
consulting fees for development services and recruiting fees to hire for
unfilled positions.
General and administrative. General and administrative expenses
increased 22% to $2.1 million for the three months ended June 30, 1999 from $1.7
million for the same period in 1998. The increase in expense was primarily due
to infrastructure costs and general corporate expenses.
Depreciation and amortization. Depreciation and amortization expense
increased 6% to $440,000 for the three months ended June 30, 1999 from $414,000
for the same period in 1998. The increase was primarily due to increased
depreciation costs resulting from computer equipment and software purchased for
new personnel and new applications.
Interest income and expense. Interest income increased to $210,000
for the three months ended June 30, 1999 from $122,000 for the same period in
1998 due to greater cash balances available for investment. Interest expense on
notes payable and long-term equipment financing decreased to $33,000 in the
second quarter of 1999 from $694,000 for the same period in 1998 due to
repayment of notes payable in 1998 and lower outstanding principal balances on
equipment leases.
Foreign exchange gain/(loss). Foreign exchange losses increased to
$172,000 for the three months ended June 30, 1999 from a gain of $65,000 for the
same period in 1998 due primarily to unrealized losses caused by weakening of
the German Mark, the French Franc and the British Pound versus the U.S. Dollar.
12
<PAGE>
SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO SIX MONTHS ENDED JUNE 30, 1998
Revenues. Total revenues increased 41% to $24.8 million for the six
months ended June 30, 1999 from $17.7 million for the same period in 1998. The
increase in total revenues was primarily due to the increase in revenues from
Continuous Information Services.
Revenues from Continuous Information Services increased 47% to $21.1
million for the six months ended June 30, 1999 from $14.4 million for the same
period in 1998. The increase in revenues was primarily due to growing market
acceptance of Giga's services.
Revenues from Other Services increased 12% to $3.7 million for the
six months ended June 30, 1999 from $3.3 million for the same period in 1998.
The increase was primarily due to conference revenues.
Cost of services. Cost of services increased 38% to $13.4 million for
the six months ended June 30, 1999 from $9.7 million for the same period in
1998. The increase in costs was primarily due to the expansion of analyst staff
to support an increased customer base, costs associated with GigaWorld IT Forum,
Giga's premier conference, and other costs associated with providing Continuous
Information Services.
Sales and marketing. Sales and marketing expenses increased 25% to
$15.4 million for the six months ended June 30, 1999 from $12.3 million for the
same period in 1998. The increase was principally due to higher personnel
expenses, higher sales commissions, a full six months of expenses in the second
quarter of 1999 for the field analyst program which was not established until
the third quarter of 1998, higher business travel expenses due to a change in
sales territories and higher mailing costs associated with promotions and
events.
Research and development. Research and development expenses increased
2% to $651,000 for the six months ended June 30, 1999 from $638,000 for the same
period in 1998. The increase was primarily due to personnel costs.
General and administrative. General and administrative expenses
increased 37% to $4.2 million for the six months ended June 30, 1999 from $3.1
million for the same period in 1998. The increase in expense was primarily due
to infrastructure costs and general corporate expenses.
Depreciation and amortization. Depreciation and amortization expense
increased 3% to $819,000 for the six months ended June 30, 1999 from $799,000
for the same period in 1998. The increase was primarily due to increased
depreciation costs resulting from computer equipment and software purchased for
new personnel and newly deployed applications.
Interest income and expense. Interest income increased to $464,000
for the six months ended June 30, 1999 from $159,000 for the same period in 1998
due to greater cash balances available for investment. Interest expense on notes
payable and long-term equipment financing decreased to $70,000 for the first six
months of 1999 from $780,000 for the same period in 1998 due to repayment of
notes payable in 1998 and lower outstanding principal balances on equipment
leases.
Foreign exchange gain/(loss). Foreign exchange losses increased to
$416,000 for the six months ended June 30, 1999 from a gain of $49,000 for the
same period in 1998 due primarily to unrealized losses caused by weakening of
the German Mark, the French Franc and the British Pound versus the U.S. Dollar.
13
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Prior to August 1998, Giga funded its operations primarily through
the private placement of equity securities and borrowings under promissory
notes. Giga received aggregate net proceeds of $42.4 million from the private
placement of equity securities since its inception, including $1.9 million (net
of issuance costs of $81,000) from the private placement of Series D Convertible
Preferred Stock and associated Series D warrants in April and May 1998. In April
1998, Giga also issued notes in the aggregate principal amount of $10.0 million
(the "Bridge Notes") and warrants to purchase an aggregate of 166,666 shares of
common stock at an exercise price of $3.00 per share. The notes were issued at a
stated interest rate of 12% per annum. The outstanding principal and interest on
the notes became due and payable upon the consummation of Giga's initial public
offering of 3,000,000 shares of common stock at $12.50 per share (the
"Offering") on August 4, 1998. Between August 4, 1998 and March 8, 1999 warrants
to purchase 60,665 shares of common stock were exercised for cash of $181,995,
at an exercise price of $3.00 per share. These warrants were originally issued
in April 1998 pursuant to the Loan and Warrant Purchase Agreement for the Bridge
Notes.
Net proceeds to Giga from its Offering aggregated approximately $33.8
million. Giga used $10.2 million of the net proceeds to repay obligations for
principal and remaining accrued interest under the Bridge Notes issued in April
1998. Also upon the consummation of the Offering, all outstanding shares of
Giga's Series A, B, C and D Convertible Preferred Stock automatically converted
into 4,686,784 shares of common stock.
At June 30, 1999, Giga had cash, cash equivalents and marketable
securities of approximately $13.8 million. During the six months ended June
30,1999, Giga's capital expenditures totaled approximately $2.1 million,
primarily for computer equipment and application software. Giga expects that
additional purchases of computer equipment and software will be made and placed
into service as Giga endeavors to enhance its infrastructure and as its employee
base and customer base grows. As of June 30, 1999, Giga had no material
commitments for capital expenditures, and Giga does not currently expect the
rate of capital spending to vary significantly through the end of 1999.
Net cash used in continuing operations was approximately $4.9 million
for the six months ended June 30, 1999 versus $5.7 million for the same period
of 1998. This decrease in net cash used in continuing operations was due
principally to changes in various balance sheet accounts, particularly accounts
receivable, accounts payable and accrued expenses.
Net cash provided by investing activities was approximately $2.0
million for the six-month period ended June 30, 1999 versus $1.0 million of cash
used in investing activities for the same period of 1998. The increase was
primarily due to maturity of marketable debt securities offset by purchases of
marketable securities and computer equipment and applications software.
Cash used in financing activities was approximately $87,000 for the
six-month period ended June 30, 1999 versus $10.3 million of cash provided by
financing activities for the same period of 1998. Giga did not undertake any
significant additional financing activity in 1999. During this same period of
1998, Giga raised net proceeds of $11.7 million by issuance of Bridge Notes and
Series D Convertible Preferred Stock and repaid outstanding debt and lease
obligations of $1.6 million.
To date, Giga has spent substantial amounts on capital and operating
expenditures, which have contributed to an accumulated deficit of $79.4 million.
Furthermore, Giga expects that capital and operating expenditures will continue
to outpace revenues due to numerous factors, including Giga's plans to increase
marketing efforts for its Continuous Information Services, the expected costs to
attract and retain qualified employees, the response of competitors to Giga's
services, Giga's plans to develop and market new services and products, the
further enhancement of the GigaWeb system and the expansion of Giga's
international operations.
14
<PAGE>
Giga believes that the remaining net proceeds from the Offering,
together with its existing cash, cash equivalents, and maturing marketable
securities and cash expected to be generated from operations, net of the
repayment of debt as it becomes due, will be sufficient to fund Giga's cash
needs until at least the second quarter of 2000.
However, in the event that Giga encounters difficulties in collecting
accounts receivable, experiences low or reduced subscription renewal rates or
otherwise has revenues that are lower than planned, Giga might require
additional working capital. Giga has access to an invoice factoring arrangement
with a commercial bank under which Giga could borrow up to $3.0 million or 80%
of eligible accounts receivable, whichever is less. If necessary, Giga would
consider various other sources of financing, including, but not limited to,
private placements, the sale of assets and strategic alliances, but there can be
no assurance that such financing would be available to Giga on terms that are
acceptable, if at all. If adequate funds are not available, Giga may be required
to reduce its fixed costs and delay, scale back or eliminate certain of its
services, any of which could have a material adverse effect on Giga's business,
financial condition and results of operations.
YEAR 2000 COMPLIANCE
Giga has commenced a readiness program to ensure that the computer
systems and applications upon which it relies for internal operations and
external communications with clients and others will function properly beyond
1999. Giga is leveraging the knowledge of its research staff to focus the
efforts of its readiness program. Giga's readiness program is an extension of
its ongoing effort to upgrade systems, applications and infrastructure that have
been rendered obsolete due to advances in technology and Giga's high growth.
Giga's products do not affect its client's internal systems. The
delivery mechanisms for Giga's Advisory Service are GigaWeb (access over the
Internet), IntraGiga (an FTP or HTTP download of Giga's Research for use on
internal networks) and GigaNotes (a Lotus Notes database of Giga's Research).
Giga does not provide software to enable clients to access research content.
Giga's products are not directly date dependent. Giga's primary
product, Advisory Service, consists in part of original written research content
created by Giga analysts. While some search or display capabilities of GigaWeb
may be affected, GigaWeb will not cease to function as a result of limitations
in processing date/time data.
GigaWeb uses enhanced database, search engine, and related technology
in order to provide clients with a total delivery solution for Giga research
content. Outlined below are some of the issues Giga is addressing with regard to
the GigaWeb Year 2000 Readiness Program. These are issues that exist in
GigaWeb's present form. An upgrade to GigaWeb, which will be available in the
fall of 1999, is expected to resolve these concerns. To the extent that these
improvements contain date dependent technology, they will be developed to be
fully Year 2000 compliant.
o Order Management: All dates used by Giga's order management
system are stored in a format that correctly represents and
enables manipulation of dates in the twentieth and
twenty-first centuries and beyond. Accordingly, we do not
anticipate any problems with passwords that would restrict our
user's ability to access GigaWeb.
o Search Capabilities: Giga uses a third-party search engine,
which is certified to be Y2K compliant by its manufacturer. We
do not anticipate any problems with searching and retrieving
GigaWeb content.
o Third Party Content: We are currently working with third-party
content providers to ensure that the manner in which
information is provided is free from Y2K associated problems.
15
<PAGE>
A few of Giga's e-Business Services incorporate a software component.
These software programs are designed to assist clients in evaluating their
internal IT projects and therefore should not have Y2K implications.
Prior to the commencement of Giga's Y2K readiness initiative, certain
internal business systems critical to the continuing operations of Giga had been
identified for replacement due to advances in technology and Giga's growth. In
addition, as a result of Giga's Y2K readiness program, internal business systems
that may require remediation or replacement specifically due to the Y2K issue
have been identified. In either case, the systems ranked highest in priority
have either been replaced or scheduled for replacement. Giga estimates that, as
of July 14, 1999, the replacement effort was approximately 95% complete for
software applications and approximately 90% complete for computer hardware.
Giga's objective is to substantially complete the replacement of internal
business systems by November 1999. Replacement systems have been developed
internally and/or purchased from third party vendors. Internally developed
systems have been tested for compliance using simulated Y2K conditions including
leap year conditions. Newly purchased systems are or will be verified as Y2K
compliant by the vendors.
Giga has completed its review of older computer hardware, mainly
desktop systems, particularly in its European operations and has replaced
non-compliant equipment. This equipment is not critical to ongoing business
operations. As of July 1999, Giga has spent approximately $105,000 to replace
hardware with possible Y2K issues. The costs to replace the equipment are not
material and have been capitalized. Giga estimates that a total of approximately
$150,000 will be spent on this replacement effort.
Giga has identified significant service providers, vendors, suppliers
and customers believed to be most critical to its business operations and is
assessing the extent to which its operations are vulnerable if these vendors
fail to achieve Y2K compliance. For approximately 95% of the vendors identified,
Giga has surveyed their stage of Y2K readiness through questionnaires,
disclosures available from their websites and other available means. While these
vendors have plans and programs underway to become compliant, there is no
guarantee that their systems will be converted on a timely basis.
Giga presently believes that it may experience some disruption in its
business due to the Y2K issue. Giga is dependent on the Internet infrastructure
for providing reliable GigaWeb access. GigaWeb is an Internet based information
delivery interface and the primary delivery medium for Giga's Continuous
Information Services. Year 2000 issues could affect the power grid and
communications networks that provide the Internet's infrastructure. The
occurrence of such problems would be beyond Giga's control. The possible
consequences of Giga or its key suppliers or customers not being Y2K compliant
include, but are not limited to, (1) delays in delivery or an inability to
deliver its Continuous Information Services, (2) vendor or supplier delays in
delivery or an inability to deliver goods or services critical to Giga's
continuing operation, (3) delays in or an inability to bill and collect amounts
due from customers, and (4) delays in or an inability to remit on the part of
Giga's customers. As a result, the business and results of operations could be
materially adversely affected by a temporary inability to conduct ordinary
business for a period of time after January 1, 2000. However, Giga believes that
its actions and plans should significantly reduce the adverse effects of any
disruptions.
Concurrent with its readiness program, Giga is in the process of
developing and refining contingency plans in the event of possible interruptions
in business operations. These plans include the complete back-up of GigaWeb for
quick restoration at an alternate geographic site, available and compliant
replacement PC hardware and application software and the development of internal
diagnostic procedures to quickly identify work-arounds and solutions. These
contingency plans and their related costs will be continuously evaluated and
refined as new and additional information becomes available. Giga estimates the
costs of its contingency plan to be approximately $100,000.
16
<PAGE>
It is currently estimated that the total cost of Giga's Y2K efforts
will be approximately $415,000, or 4% of Giga's actual and projected IT costs
over the project period. Of these costs $20,000 are costs incurred for the
services of outside consultants and advisors and $395,000 are primarily payroll
costs for Giga's information technology groups, incurred exclusively in
connection with its Y2K efforts. This estimate does not include costs associated
with systems previously scheduled for upgrade or replacement. As of July 31,
1999, an approximate cumulative total of $377,000 has been spent for its Y2K
efforts, of which $18,000 is costs incurred for the services of outside
consultants and advisors and $359,000 is primarily payroll costs for Giga's
information technology groups, incurred exclusively in connection with its Y2K
efforts. For the seven months ended July 31, 1999, approximately $244,000 has
been spent on Giga's Y2K efforts, of which $7,000 is costs incurred for the
services of outside consultants and advisors and $237,000 is primarily payroll
costs for Giga's information technology groups, incurred exclusively in
connection with its Y2K efforts. These costs are being expensed as incurred and
funded through operating cash flow. These cost estimates do not include the
costs associated with contingency plans under development or the costs for
computer hardware and software replacement which would normally be capitalized,
estimated to be $100,000 and $150,000, respectively. The estimated costs of
Giga's readiness program are subject to change as the program progresses.
17
<PAGE>
PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
USE OF PROCEEDS
Giga's Registration Statement on Form S-1 (Registration No.
333-52899), (the "Registration Statement"), relating to the Offering was
declared effective by the Securities and Exchange Commission on July 29, 1998.
The sale of 3,000,000 shares of Giga's Common Stock, $0.001 par value, at $12.50
per share commenced on July 30, 1998 and was completed on August 4, 1998. The
managing underwriters for the Offering were Friedman, Billings, Ramsey & Co.,
Inc. and Prudential Securities Incorporated. The total price to the public was
$37.5 million before underwriting discounts and commissions of $2.625 million
and offering expenses of $1.082 million. All such expenses are direct or
indirect payments to others. None of such expenses were paid directly or
indirectly to any director or officer of Giga or their associates, persons
owning ten percent or more of any class of equity securities of Giga, or an
affiliate of Giga.
As of July 31, 1999, Giga had used a portion of the $33.8 million net
proceeds from the Offering to repay the Bridge Notes aggregating to $10.0
million of principal plus $210,000 of accrued interest thereon. Furthermore,
Giga had added $21.0 million of such net proceeds to the general funds of the
corporation for use as working capital and invested the remaining $2.6 million
of the net proceeds in short-term, investment-grade interest-bearing
obligations. None of the net proceeds of the Offering were paid directly or
indirectly to any director or officer of Giga or their associates, persons
owning ten percent or more of any class of equity securities of Giga or an
affiliate of Giga except to the extent that a portion of the working capital was
used for (i) salaries and expenses of officers and expenses of directors and
(ii) to meet working capital needs of Giga's subsidiaries, both in the normal
course of business.
18
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At Giga's Annual Meeting of Stockholders held on May 10, 1999, two
directors were elected, the Giga 1999 Share Incentive Plan was approved, the
Giga 1999 Employee Stock Purchase Plan was approved and the appointment of
PricewaterhouseCoopers LLP as Giga's independent auditors for the 1999 fiscal
year was ratified. The following is a tabulation of the voting with respect to
the foregoing matters:
<TABLE>
<CAPTION>
(a) Election of Directors:
Nominee For Against Abstain Broker Non-Votes
------- --- ------- ------- ----------------
<S> <C> <C> <C> <C>
A.G.W. Biddle, III 8,193,640 846,753 0 0
Neill H. Brownstein 8,194,474 845,919 0 0
(b) Approval of the Giga Information Group, Inc. 1999 Share Incentive Plan:
For Against Abstain Broker Non-Votes
--- ------- ------- ----------------
6,622,692 93,478 15,767 2,308,456
(c) Approval of the Giga Information Group, Inc. 1999 Employee Stock
Purchase Plan:
For Against Abstain Broker Non-Votes
--- ------- ------- ----------------
6,641,661 74,857 15,419 2,308,456
(d) Ratification of the appointment of PricewaterhouseCoopers LLP as
independent auditors for the 1999 fiscal year:
For Against Abstain Broker Non-Votes
--- ------- ------- ----------------
9,010,624 28,400 1,369 0
</TABLE>
Richard R. Crandall and David L. Gilmour (both of whose term expires
in the year 2000) and Gideon I. Gartner and Bernard Goldstein (both of whose
term expires in the year 2001) are incumbent directors of Giga.
19
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
10.1 Lease dated June 18, 1999 between the Registrant and The
Linden Limited Partnership with respect to its planned
headquarters at 139 Main St., Cambridge, Massachusetts
10.2 Sublease dated June 28, 1999 between the Registrant and InCert
Software Corporation with respect to the premises at One
Kendall Square, Cambridge, Massachusetts
11 Statement of Computation of Per Share Earnings
27 Financial Data Schedule
(B) REPORTS ON FORM 8-K
Giga filed a Current Report on Form 8-K, dated April 30, 1999,
pertaining to a press release announcing Giga's results of operations
for the three months ended March 31, 1999.
Giga filed a Current Report on Form 8-K, dated May 17, 1999, pertaining
to a press release announcing the naming of Robert K. Weiler as Giga's
President and Chief Executive Officer and Giga's Employment Agreement
with Mr. Weiler, dated May 13, 1999.
20
<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.
GIGA INFORMATION GROUP, INC.
August 13, 1999 By: /s/ Daniel M. Clarke
-----------------------------
Daniel M. Clarke
Senior Vice President.
Chief Financial Officer,
Secretary and Treasurer
(Principal Financial and
Accounting Officer)
21
<PAGE>
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENTS
- ------ ------------------------
10.1 Lease dated June 18, 1999 between the Registrant and The Linden Limited
Partnership with respect to its planned headquarters at 139 Main St.,
Cambridge, Massachusetts
10.2 Sublease dated June 28, 1999 between the Registrant and InCert Software
Corporation with respect to the premises at One Kendall Square,
Cambridge, Massachusetts
11 Statement of Computation of Per Share Earnings
27 Financial Data Schedule
22
Exhibit 10.1
------------
THE LINDEN LIMITED PARTNERSHIP LEASE
GIGA INFORMATION GROUP, INC.
CAMBRIDGE, MASSACHUSETTS
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE 1 - Demised Premises - Term of Lease......................................2
ARTICLE 2 - Rent..................................................................3
ARTICLE 3 - Utility Services......................................................5
ARTICLE 4 - Insurance.............................................................6
ARTICLE 5 - Use of Demised Premises...............................................8
ARTICLE 6 - Compliance with Legal Requirements....................................9
ARTICLE 7 - Renovation, Condition, Repairs and Maintenance Demised Premises......10
ARTICLE 8 - Alterations and Additions............................................11
ARTICLE 9 - Discharge of Liens...................................................11
ARTICLE 10 - Subordination........................................................12
ARTICLE 11 - Fire, Casualty and Eminent Domain....................................15
ARTICLE 12 - Indemnification......................................................15
ARTICLE 13 - Mortgages, Assignments and Subleases by Lessee.......................17
ARTICLE 14 - Default..............................................................19
ARTICLE 15 - Surrender............................................................21
ARTICLE 16 - Quiet Enjoyment......................................................22
ARTICLE 17 - Acceptance of Surrender..............................................22
ARTICLE 18 - Notices - Service of Process.........................................22
ARTICLE 19 - Separability of Provisions...........................................23
ARTICLE 20 - Miscellaneous........................................................23
ARTICLE 21 - Option to Extend.....................................................26
ARTICLE 22 - Right of First Offer.................................................28
</TABLE>
<PAGE>
THE LINDEN LIMITED PARTNERSHIP LEASE
GIGA INFORMATION GROUP, INC.
CAMBRIDGE, MASSACHUSETTS
LEASE (hereinafter referred to as "Lease") by and between THE LINDEN
LIMITED PARTNERSHIP, a Massachusetts limited partnership (hereinafter called
"Lessor"), and GIGA INFORMATION GROUP, INC., a Delaware corporation (hereinafter
called "Lessee").
ARTICLE 1
DEMISED PREMISES - TERM OF LEASE
Section 1.01. Upon and subject to the conditions and limitations
hereinafter set forth, Lessor does hereby lease and demise unto Lessee a portion
of the fourth and fifth floors of the building ("Building") located at, known as
and numbered 139 Main Street, Cambridge, Middlesex County, Massachusetts (the
"Premises") containing approximately 15,581 square feet of rentable area, as
shown on the plan attached hereto and labeled Exhibit "A" (hereinafter referred
to as the "Demised Premises") together with the right to use, in common with
others entitled thereto, driveways, walkways, hallways, stairways and passenger
elevators convenient for access to the Demised Premises and lavatories nearest
thereto. Loading docks and areas and freight elevators may be used by Lessee in
common with other lessees entitled to the use thereof subject to the rules and
regulations established from time to time by Lessor.
Section 1.02. The term of this Lease shall commence on the earlier to
occur of August 1, 1999 or that date upon which Lessee takes occupancy of the
space (the "Commencement Date") and the term shall expire five years after the
Commencement Date, unless this Lease is sooner terminated as hereinafter
provided. If Lessee timely delivered its approved plans for the Landlord's Work
(as defined in Section 7.02 below) in the Demised Premises to the Lessor by June
23, 1999, the Commencement Date shall be postponed if the Demised Premises are
not ready for occupancy as of August 1, 1999 for reasons beyond the control of
Lessee. If the Commencement Date is other than the first day of the month, the
balance of the month during which the Commencement Date occurs (the
"Commencement Month") shall be added to the first year of the term. Lessor and
Lessee agree to execute a document identifying the exact Commencement Date which
shall be recordable if required under any Notice of Lease.
Notwithstanding the foregoing, if Lessee shall take possession of the
Demised Premises prior to the Commencement Date, such possession and occupancy
shall be under all of the terms, covenants, conditions and provisions of this
Lease, including rent. However, Lessee shall have prior access to the Demised
Premises for the purpose of installing its communications equipment, to the
extent such access does not interfere with completion of Landlord's Work. Lessee
agrees, upon request of the Lessor, to execute an estoppel letter in the form to
be presented by Lessor, identifying the Commencement Date and the Expiration
Date of this Lease.
2
<PAGE>
THIS LEASE IS MADE UPON THE FOLLOWING COVENANTS, AGREEMENTS, TERMS,
PROVISIONS, CONDITIONS AND LIMITATIONS, ALL OF WHICH LESSEE COVENANTS AND AGREES
TO PERFORM AND COMPLY WITH, EXCEPTING ONLY THE COVENANTS OF THE LESSOR:
ARTICLE 2
RENT
Section 2.01. The Lessee covenants and agrees to pay to Lessor
minimum rent (hereinafter called "Base Rent") for said Premises of Two million
seven hundred twenty six thousand six hundred seventy five and 00/100
($2,726,675.00) dollars for the term hereof which shall accrue at the annual
rate of Five hundred forty five thousand three hundred thirty five and 00/100
($545,335.00) dollars payable in equal monthly installments of Forty five
thousand four hundred forty four and 58/100 ($45,444.58) dollars.
Rent for any partial month shall be prorated and paid on the first of that
month. All monthly payments are due and payable in advance on the first day of
each calendar month, without demand, deduction, counterclaim or setoff. Lessee
agrees to pay to Lessor on the date hereof and Lessor acknowledged that it has
received from Lessee this day rent for the first month of the term of the Lease.
Section 2.02. The Lessee shall pay as additional rent to the Lessor
42.91% of any increase over: (i) the annual fiscal year 1999 real estate taxes
and other municipal or public assessments (excluding assessments for water and
sewer which shall be paid by Lessee pursuant to Section 3.01 hereof) levied
against the land and building of which the Demised Premises are a part, and/or
(ii) the annual calendar year 1999 operating expenses for the land and building
of which the Demised Premises are a part.
The additional rent computed under this Section 2.02 shall be
prorated should this Lease commence or terminate before: (i) the end of any
fiscal tax year for that portion related to taxes; or (ii) the end of any
calendar year for that portion related to operating expenses. The Lessee shall
pay to Lessor such additional rent within fifteen (15) days after written notice
from Lessor to Lessee that it is due. Upon request of Lessor, Lessee shall make
monthly payments of additional rent on the first of each month equal to
one-twelfth (1/12) of the amount of such additional rent last paid by Lessee or
as reasonably projected by Lessor to be due from Lessee, with a final accounting
and payment for each tax and operating period to be made within thirty (30) days
after written notice from Lessor of the exact amount of such additional rent.
Lessor shall endeavor to deliver such final accounting to Lessee on or before
May 1st following the calendar year accounted for. In the event taxes on the
Demised Premises, based upon which Lessee shall have paid additional rent, are
subsequently reduced or abated, Lessee shall be entitled to receive a rebate of
42.91% of the amount abated, provided that the amount of the rebate allocable to
Lessee shall in no event exceed the amount of additional rent paid by Lessee for
such fiscal year on account of real estate taxes under this Section 2.02, and
further provided the rebate allocable to Lessee shall be reduced by 42.91% of
3
<PAGE>
the cost of obtaining such reduction or abatement. Operating expenses for the
purpose of this section shall include all costs incurred by Lessor in connection
with the operation of the building of any name, nature or kind, excluding
leasing commissions, tenant improvement costs and other expenses of renting
space in the building, mortgage debt service and income or corporate excise
taxes assessed against the Lessor. Also excluded from operating expenses shall
be the following: (1) Ground Rent; (2) Any capital expenditures incurred by
Lessor by reason of the fact that the Demised Premises or Building as initially
constructed, was not in compliance with then applicable laws, statutes,
ordinances, rules and regulations; (3) Expenses in connection with repairs or
other costs for which Lessor receives full reimbursement from contractors, other
lessees of the Building, insurance proceeds or other third parties; (4) All
items and services for which Lessee is separately charged, reimburses Lessor or
pays third parties; (5) Attorneys' fees incurred by Lessor in connection with
disputes between Lessor and other lessees; and (6) Capital expenditures except
for an annual charge-off for (a) capital items required to be made by local,
state or federal authorities pursuant to law, regulation or ordinance or (b)
expenditures for capital items required to replace or repair worn out or
obsolete items or (c) expenditures for items reasonably expected to effect
savings in operating expenses. Such capital expenditures to be included in
operating expenses as described in (6) above, which are not properly includible
in operating expenses for the calendar year in which they were made shall
nevertheless be included in operating expenses in each calendar year in which
they are made and each year after such capital expenditure is made in the form
of an annual charge-off of such capital expenditure determined by: (i) dividing
the original cost of the capital expenditure by the number of years of useful
life thereof as reasonably determined by Lessor in accordance with generally
accepted accounting principals and practices then in effect, and (ii) adding to
such quotient an interest factor computed on the unamortized balance of such
capital expenditure based upon an interest rate reasonable determined by Lessor,
but in no case less than 12%. If Lessor reasonably concludes on the basis of
professional knowledge and estimates that a particular capital expenditure will
effect savings in Operating expenses and that such annual projected savings will
exceed the annual charge-off of capital expenditure computed as aforesaid, then
and in such events, the annual charge-off shall be determined by dividing the
amount of such capital expenditure by the number of years over which the
projected amount of such savings shall fully amortize the cost of such capital
item or the amount of such capital expenditure; and by adding the interest
factor, as aforesaid.
Lessee shall have the right with reasonable prior notice to Lessor to review
Lessor's books and records in connection with Lessor's operating expense and tax
statement, within ninety days of Lessee's receipt thereof, in Lessor's office
during regular business hours.
Section 2.03. All payments of rent and additional rent shall be made
to the Lessor at c/o The Davis Companies, One Appleton Street, Boston
Massachusetts 02116, or as may be otherwise directed by the Lessor in writing.
Section 2.04. Upon execution of this Lease, Lessee shall deposit with
Lessor the sum of $400,000.00 in cash, or in some combination of cash (but not
less than $100,000.00 in cash) and irrevocable letter of credit in a form and
4
<PAGE>
from a financial institution approved by Lessor as security for the payment of
all rent and the performance and observance of the agreements and conditions in
this Lease contained on the part of Lessee to be performed and observed (the
"Security Deposit"). Any cash portion of the Security Deposit shall be held in
an interest bearing account or a Certificate of Deposit. Upon Lessee's request
accompanied by Lessee's W-9 and provided Lessee is not in default hereunder,
interest shall be credited to Lessee annually. In the event of any default or
defaults in such payments, performance or observance, Lessor may apply said sum
or any part thereof, including any interest then accrued thereon, towards the
curing of any such default or defaults and/or towards compensating Lessor for
any loss or damage arising from any such default or defaults. If Lessor shall
apply said sum or any part thereof, as aforesaid, Lessee shall on demand pay to
Lessor the amount so applied by Lessor, to restore the security deposit to the
original amount. Upon the yielding up of the Demised Premises at the expiration
or earlier termination of this Lease, if Lessee shall not then be in default or
otherwise liable to Lessor, said sum or the then unapplied balance thereof plus
interest earned but not theretofore paid or credited to Lessee on Security
Deposit account shall be returned to Lessee. In the event Lessor's interest in
the Premises shall be transferred or assigned and the assigning Lessor shall
credit or turn over to such assignee the sum of money referred to above or the
unpaid balance thereof, Lessee agrees to look only to the assignee of such
assignor with respect to the sum referred to above, its application and return.
Upon Lessee's written request to Lessor any time after the second anniversary of
the Commencement Date of this Lease, if Lessee's audited financial statements
reflect positive Net Income for the preceding calendar year, Lessor agrees to
reduce the Security Deposit to $200,000.00 if Lessee has not been in default
under the Lease beyond any applicable cure period during the entire period of
Lessee's tenancy. Upon Lessee's written request to Lessor any time after the
third anniversary of the Commencement Date of this Lease, if Lessee's audited
financial statements continue to reflect positive Net Income for the preceding
two calendar year(s), Lessor agrees to reduce the Security Deposit to
$100,000.00 if Lessee has not been in default under the Lease beyond any
applicable cure period during the entire period of Lessee's tenancy.
ARTICLE 3
UTILITY SERVICES
Section 3.01. Lessee agrees to pay, or cause to be paid, as
additional rent, all charges for Lessee's utilities, including, without limiting
the generality of the foregoing, heat, air conditioning, water (if separately
metered to the Demised Premises) and electricity; and Lessee will comply with
all contracts relating to any such services. Lessee's charges for such utility
usage shall be based upon Lessee's actual usage if separately metered, it being
agreed that electricity to power the heat pumps producing heating and air
conditioning to the Demised Premises, and electricity to the Demised Premises
will be paid for by the Lessee and, as applicable, thermostatically controlled
by Lessee. However, if such usage is not separately metered, such usage and
billing shall be based upon a percentage of the total bill for such unmetered
utilities based upon a fraction equal to Lessee's square footage over the total
square footage served by such non-separately metered utilities on a "net
rentable" basis. Such additional rent for non-separately metered utilities may
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be estimated monthly by Lessor, based upon prior usage at the building or as
projected by the appropriate utility company, and shall be paid monthly by
Lessee as billed with a final accounting based upon actual bills every six (6)
months. In the event Lessee is billed directly by the utility company for
separately metered utilities, then Lessee shall pay such bills directly to the
utility company.
Section 3.02. Lessor agrees to furnish reasonable heat and air
conditioning (HVAC) to the Demised Premises, common hallways and lavatories
during normal business hours on regular business days during the heating or air
conditioning season, as applicable, to light common passageways twenty-four (24)
hours a day, to provide hot water to lavatories, and to furnish reasonable
cleaning services, including vacuuming and emptying ashtrays and wastebaskets
throughout the building and clean common areas, common area glass, common
lavatories and glass main entry doorways to the Demised Premises Mondays through
Fridays, in substantially the same fashion as furnished in similar buildings in
the City of Cambridge all subject to interruption due to accident, to the making
of repairs, alterations or improvements, to labor difficulties, to trouble in
obtaining fuel, electricity, service or supplies from the sources from which
they are usually obtained for such building, governmental restraints, or to any
cause beyond the Lessor's control. In no event shall Lessor be liable for any
interruption or delay in any of the above services for any of such causes. For
the purposes of this clause, reasonable heat to common areas shall be defined as
a minimum of 66 degrees Fahrenheit between the hours of 7:00 a.m. to 6:00 p.m.
Monday through Friday and 9:00 a.m. to 1:00 p.m. on Saturday during the months
from November through April. Reasonable cooling of common areas shall be
provided between the hours of 7:00 a.m. and 6:00 p.m. Monday through Friday and
9:00 a.m. to 1:00 p.m. Saturday during the cooling season. Except as noted
below, the building will be open for access to the Demised Premises daily,
Monday through Friday, between the hours of 7:00 a.m. and 6:00 p.m. and Saturday
between the hours of 9:00 a.m. and 1:00 p.m. The Building will be closed from
6:00 p.m. to 7:00 a.m. Monday through Friday, inclusive, Saturday before 9:00
a.m. and from 1:00 p.m. to midnight, all day Sunday and on legal, state and
federal holidays, at which time the building will be locked and secured with
access cards provided to Lessor, Lessee and other tenants. Lessee shall have
access to the Building and Demised Premises every day, 24 hours per day subject
to emergency conditions.
ARTICLE 4
INSURANCE
Section 4.01. The Lessee shall not permit any use of the Demised
Premises which will make voidable any insurance on the property of which the
Demised Premises are a part, or on the contents of said property, or which shall
be contrary to any requirements or recommendations from time to time established
or made by the Lessor's insurer. The Lessee shall, on demand, reimburse the
Lessor, and all other tenants, in full for all extra insurance premiums caused
by the Lessee's use of the Demised Premises. The use of the Demised Premises
strictly for business office purposes as permitted in this Lease will not make
voidable Lessor's insurance or cause an increase in Lessor's insurance premiums.
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Section 4.02. The Lessee shall maintain with respect to the Demised
Premises and the property of which the Demised Premises are a part, Commercial
General Liability insurance in the amount of at least $1,000,000.00 combined
single limit, bodily injury and property damage per occurrence; $2,000,000.00
annual aggregate with a deductible of no more than $500.00, with companies
having Best Insurance Guide Rating of A- or better, qualified to do business in
Massachusetts and in good standing therein, insuring the Lessor and its
mortgagees, any ground lessors, as well as the Lessee, against injury to persons
or damage to property. The Lessee shall also maintain property insurance,
including so-called "Improvements and Betterments" coverage, on the Demised
Premises and the contents thereon, including any improvements made by Lessee.
The Lessee shall deposit with the Lessor certificates of such insurance at or
prior to the commencement of the term, and thereafter, at least thirty (30) days
prior to the expiration of any such policies. All such insurance certificates
shall provide that such policy shall not be canceled or modified, other than
increasing the coverage amount, without at least thirty (30) days prior written
notice to each insured named therein and that Lessor, its mortgagees, any ground
lessors and Managing Agent which shall be identified by Lessor shall each be
named as an additional insured.
Section 4.03. The Lessor shall maintain at least One Million
($1,000,000.00) Dollars of Commercial General Liability insurance (including
so-called umbrella coverage) covering the land and buildings of which the
Demised Premises are a part. Lessor shall maintain property insurance on the
Premises in the amount of its full replacement value as reasonably determined by
Lessor.
Section 4.04. During all construction by Lessee, if any, Lessee shall
maintain adequate builder's risk, liability and workmen's compensation insurance
to Lessor's reasonable satisfaction, and Lessor, its mortgagees, any ground
lessors and Managing Agent shall each be named as an additional insured on such
builder's risk and liability policies.
Section 4.05. To the extent obtainable from each party's insurance
carrier, Lessor and Lessee agree that their insurance policies shall contain
waiver of subrogation provisions. Each of Lessor and Lessee, on behalf of itself
and its insurers, hereby waives all rights of subrogation and recovery against
the other with respect to any damage to property to the extent covered by
insurance maintained by the waiving party.
Section 4.06. Within fifteen (15) days of the date hereof, Lessee
shall provide Lessor with Certificates of all insurance maintained or required
to be maintained by Lessee.
ARTICLE 5
USE OF DEMISED PREMISES
Section 5.01. The Lessee covenants and agrees to use the Demised
Premises only for the purposes of general office use only, and for no other
purpose, which use is permitted under applicable zoning laws.
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Section 5.02. Lessee will not make or permit any occupancy or use of
any part of the Demised Premises for any hazardous, offensive, dangerous,
noxious or unlawful occupation, trade, business or purpose or any occupancy or
use thereof which is contrary to any law, by-law, ordinance, rule, permit or
license, and will not cause, maintain or permit any nuisance in, at or on the
Demised Premises. The Lessee hereby agrees not to maintain or permit noises,
odors, operating methods, or conditions of cleanliness of the Demised Premises
or any appurtenance thereto which are reasonably objectionable to Lessor or
other tenants. No hazardous substances or wastes shall be brought, kept or
maintained on the Demised Premises except in compliance with applicable law. No
hazardous waste shall be discharged on the Premises. Customary office supplies
may be maintained in amounts and in a manner consistent with reasonable
commercial office practices and in compliance with all laws.
Section 5.03. Lessor and Lessee shall indemnify, defend with counsel
reasonably acceptable to the other party and hold the other, Lessor's managing
agent and any mortgagee or ground lessor of the Premises and Lessee's and
Lessor's directors, partners, and officers and shareholders, fully harmless from
and against any and all liability, loss, suits, claims, actions, causes of
action, proceedings, demands, costs, penalties, damages, fines and expenses,
including, without limitation, reasonable attorneys fees, consultants' fees,
laboratory fees and clean up costs, and the costs and expenses of investigating
and defending any claims or proceedings, resulting from, or attributable to (i)
the presence of any oils or hazardous substances on the Premises or the Demised
Premises arising from the action or negligence of the party against whom
indemnity is sought, its officers, employees, contractors, agents and invitees,
or arising out of the generation, storage, treatment, handling, transportation,
disposal or release by such party of any oils or hazardous substances at or near
the Premises or the Demised Premises, and (ii) any violation(s) by such party of
any applicable law regarding oils or hazardous substances. This hold harmless
and indemnity shall survive the expiration of the term, but shall not include
consequential damage or damage to or loss of personal property. Notwithstanding
the foregoing, Lessee shall have no liability or obligation arising from the
presence of oils or hazardous substances which pre-date the Commencement Date.
Section 5.04.
(a) No sign, antenna or other structure or thing, shall be erected or
placed on the Demised Premises or any part of the exterior of any building or on
the land comprising the Premises or erected so as to be visible from the
exterior of the building containing the Demised Premises without first securing
the written consent of the Lessor. Lessee shall not post any paper signs in or
around the Demised Premises visible from the exterior of the Building or any
interior common areas. Lessee shall be given one standard sign to Lessor's
specifications at the entry to Demised Premises and on the directory in the
lobby of the Building.
(b) At Lessee's sole cost and expense, subject to Lessor's review and
approval, Lessee shall be granted permission to install a tenant identification
sign on the exterior of the building. Lessee will obtain any zoning permits
required prior to installation and shall install and maintain the sign at its
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own cost. This Lease will in no way be conditioned upon approval of Lessee's
identification signage.
Section 5.05. Lessee will not permit any abandonment of the Demised
Premises or any part thereof except
(a) to the extent caused by condemnation,
(b) to the extent caused by damage to or alterations of the
Demised Premises pending restoration thereof, or
(c) as herein otherwise specifically provided or consented to in
writing by the Lessor, which shall not be unreasonably
withheld.
The cessation of business operations by Lessee at the Demised
Premises shall not per se be considered abandonment if Lessee timely observes
and performs all of its other obligations under this Lease and properly and with
reasonable continuity monitors and maintains the security of and at the Demised
Premises so as to prevent any vandalism thereat or improper use thereof.
Section 5.06. Lessee will not cause or permit any waste, overloading,
stripping, damage, disfigurement or injury of or to the Premises or the Demised
Premises or any part thereof. Lessor reserves the right to reasonably prescribe
the weight and position of all safes, business machines and mechanical
equipment. Such installation shall be placed and maintained by Lessee, at
Lessee's expense, in setting sufficient, in Lessor's reasonable judgement, to
absorb and prevent vibration, noise and annoyance.
Section 5.07. Rules and regulations, provided the same are not
inconsistent with or in limitation of the provisions of this Lease, affecting
the cleanliness, safety, occupation and use of the Demised Premises, which in
the judgment of the Lessor are reasonable shall be observed by the Lessee, its
employees, agents, customers and business invitees.
ARTICLE 6
COMPLIANCE WITH LEGAL REQUIREMENTS
Section 6.01. Throughout the term of this Lease, Lessee, at its sole
cost and expense, will promptly comply with all requirements of law related
specifically to Lessee's specific use and occupation of the Demised Premises or
with respect to any modifications or renovation to the Demised Premises proposed
by Lessee and not to the Premises generally, and will procure and maintain all
permits, licenses and other authorizations required with respect to the Demised
Premises, or any part thereof, for the lawful and proper operation, use and
maintenance of the Demised Premises or any part thereof. Lessee shall in each
and every event and instance, at its sole cost and expense, be responsible for
compliance with all codes and regulations with respect or relating to the
Demised Premises, including, without limitation, those occasioned by work
performed by, for or with consent of Lessor at the Premises. Lessor shall be
responsible for compliance of the Building and Premises with all requirements of
law in all other cases.
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ARTICLE 7
RENOVATION, CONDITION, REPAIRS AND MAINTENANCE DEMISED PREMISES
Section 7.01. Except as set forth herein, Lessor has made no
representations, warranties or undertakings as to the present or future
condition of the Premises or the fitness or availability of the Premises for any
particular use, except as specifically set forth in Exhibit B hereto. Lessor
reserves the right to modify the work contemplated in Exhibit B provided that
such modifications do not unreasonably interfere with Lessee's use of the
Demised Premises.
Section 7.02. Lessor agrees to construct the Demised Premises, in a
good and workmanlike manner, substantially in accordance with the provisions of
Exhibit B attached to and made a part of this Lease ("Landlord's Work"). It is
understood and agreed that any changes in Landlord's Work other than substantial
changes, which may be reasonably necessary or, in the opinion of Lessor,
advisable, may be made by Lessor prior to completion of construction of the
Demised Premises and that such changes shall not require the approval of Lessee.
Substantial changes in Landlord's Work which affect the Demised Premises shall
require the approval of Lessee but Lessee agrees that it will not unreasonably
withhold or delay its approval thereof. No such change or changes in Landlord's
work will in any way affect this Lease or the validity thereof. Lessor and
Lessee agree that the opening of the Demised Premises by Lessee for its business
shall constitute an acknowledgment by Lessee that the Demised Premises are in
the condition they are required to be in by this Lease and that Lessor has
satisfactorily performed the construction required of Lessor and Landlord's Work
has been satisfactorily completed, except as may be noted on a written punchlist
prepared by Lessee and Lessor. Lessee shall perform all work required beyond
Lessor's Work to make the Demised Premises completed for Lessee s use.
Section 7.03. Throughout the term of this Lease, the Lessee agrees to
maintain all portions of the Demised Premises not required to be maintained by
Lessor in the same condition as they are in on the Commencement Date or as they
may be put in during the term of this Lease, reasonable wear and tear, damage by
fire or other insured casualty only excepted, and whenever necessary, to replace
bulbs and ballasts in lighting fixtures and to replace plate glass and other
glass therein. Lessee shall maintain all improvements and alterations made by
it.
Section 7.04. Lessor, or agents or prospective lenders of Lessor, at
reasonable times, shall be permitted to enter upon the Demised Premises to
examine the condition thereof, to make repairs, alterations and additions as
Lessor should elect to do, to show the Demised Premises to others, and at any
time within nine (9) months before the expiration of the term, and for such
purposes, Lessee hereby grants to Lessor and any prospective lessees
accompanying Lessor a right of access to the Demised Premises.
Section 7.05. Lessor shall maintain and repair all common areas and
all structural components of the building and mechanical components of the
building serving more than one tenant, provided the same were not installed by
Lessee, at Lessor's sole cost and expense (subject to reimbursement in
accordance with the provisions of Article 2), provided, however, Lessee shall
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repair any damage caused by it or its licensees, invitees, guests, agents or
employees.
ARTICLE 8
ALTERATIONS AND ADDITIONS
Section 8.01. The Lessee shall not make any alterations or additions,
structural or non-structural, to the Demised Premises without first obtaining
the written consent of Lessor on each occasion which consent shall not be
unreasonably withheld. Notwithstanding the foregoing, Lessee need not obtain
Lessor's prior written consent for non-structural alterations or additions
costing less than $3,500.00. Wherever consent is required, it shall include
approval of plans and contractors. All such allowed alterations, including
reasonable costs of review in seeking Lessor's approval, shall be made at
Lessee's expense, in compliance with all laws, and shall be in quality at least
equal to the present construction. Except as set forth below, any alterations or
additions made by the Lessee which are permanently affixed to the Demised
Premises or affixed in a manner so that they cannot be removed without defacing
or damaging the Demised Premises shall, if Lessor so elects, become property of
the Lessor at the termination of occupancy as provided herein. If Lessor elects
not to retain such alterations or additions, upon termination of this Lease,
they shall be removed by Lessee, at its expense, with minimal disturbance to the
Demised Premises. Alterations or additions not affixed and which may be removed
with minimal disturbance or repairable damage may be removed by Lessee provided
such disturbance or damage is restored and repaired so that the Demised Premises
are left in at least as good a condition as they were in at the commencement of
the term. All other alterations and additions made by Lessee and not to be
retained by Lessor shall be removed by Lessee, at its expense, at the end of the
term and the Demised Premises shall be left in the same condition as at the
commencement of the term, reasonable wear, tear and damage by fire, if insured,
or other insured casualty or taking or condemnation by public authority
excepted.
ARTICLE 9
DISCHARGE OF LIENS
Section 9.01. Lessee will not create or permit to be created or to
remain, and will promptly discharge, at its sole cost and expense any lien,
encumbrance or charge (on account of any mechanic's, laborer's, materialmen's or
vendor's lien, or any mortgage, or otherwise) made or suffered by Lessee which
is or might be or become a lien, encumbrance or charge upon the Demised Premises
or any part thereof upon Lessee's leasehold interest therein, having any
priority or preference over or ranking on a parity with the estate, rights and
interest of Lessor in the Demised Premises or any part thereof, or the rents,
issues, income or profits accruing to Lessor therefrom, and Lessee will not
suffer any other matter or thing within its control whereby the estate, rights
and interest of Lessor in the Demised Premises or any part thereof might be
materially impaired.
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ARTICLE 10
SUBORDINATION
Section 10.01.
(a) If any holder of a mortgage or holder of a ground lease of
property which includes the Demised Premises and executed and
recorded subsequent to the date of this Lease, shall so elect,
the interest of the Lessee hereunder shall be subordinate to
the rights of such holder, provided that such holder shall
agree to recognize in writing the rights of the Lessee
hereunder upon the payment of rent and other charges payable
by the Lessee under this Lease, and the performance by the
Lessee of the Lessee's obligations hereunder (but without any
assumption by such holder of the Lessor's obligations under
this Lease); or
(b) If any holder of a mortgage or holder of a ground lease of
property which includes the Demised Premises shall so elect,
this Lease, and the rights of the Lessee hereunder, shall be
superior in right to the rights of such holder, with the same
force and effect as if this Lease had been executed and
delivered, and recorded, or a statutory notice hereof
recorded, prior to the execution, delivery and recording of
any such mortgage.
The election of any such holder as to Subsection (a) above
shall be exercised by notice to the Lessee, in the same
fashion as notices under this Lease are given by the Lessor to
the Lessee, and, if such notice is given, such subordination
shall be effective with reference to advances then or
thereafter made by such holder under such mortgage or in
connection with such ground lease financing. Any election as
to Subsection (b) above shall become effective upon either
notice from such holder to the Lessee in the same fashion as
notices from the Lessor to the Lessee are to be given
hereunder or by the recording in the appropriate registry or
recorder's office of an instrument, in which such holder
subordinates its rights under such mortgage or ground lease to
this Lease.
In the event any holder shall succeed to the interest of
Lessor, the Lessee shall, and does hereby agree to attorn to
such holder and to recognize such holder as its Lessor and
Lessee shall promptly execute and deliver any instrument that
such holder may reasonably request to evidence such attornment
provided such document contains satisfactory non-disturbance
provisions to allow Lessee to remain in occupancy pursuant to
this Lease as long as Lessee remains current and not in
default of its obligations hereunder. Upon such attornment,
the holder shall not be: (i) liable in any way to the Lessee
for any act or omission, neglect or default on the part of
Lessor under this Lease; (ii) responsible for any monies owing
by or on deposit with Lessor to the credit of Lessee unless
received by the holder; (iii) subject to any counterclaim or
setoff which theretofore accrued to Lessee against Lessor;
(iv) bound by any modification of this Lease subsequent to
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such mortgage or by any previous prepayment of regularly
scheduled monthly installments of fixed rent for more than (1)
month, which was not approved in writing by the holder; (v)
liable to the Lessee beyond the holder's interest in the
Premises and the rents, income, receipts, revenues, issues and
profits issuing from such Property; or (vi) responsible for
the performance of any work to be done by the Lessor under
this Lease to render the Demised Premises ready for occupancy
by the Lessee; or (vii) liable for any portion of a security
deposit not actually received by the holder.
(c) The covenant and agreement contained in this Lease with
respect to the rights, powers and benefits of any such holder
constitute a continuing offer to any person, corporation or
other entity, which by accepting or requiring an assignment of
this Lease or by entry of foreclosure assumes the obligations
herein set forth with respect to such holder; every such
holder is hereby constituted a party to this Lease and an
obligee hereunder to the same extent as though its name was
written hereon as such; and such holder shall at its written
election be entitled to enforce such provisions in its own
name.
(d) No assignment of this Lease and no agreement to make or accept
any surrender, termination or cancellation of this Lease and
no agreement to modify so as to reduce the rent, change the
term, or otherwise materially change the rights of the Lessor
under this Lease, or to relieve the Lessee of any obligations
or liability under this Lease, shall be valid unless consented
to in writing by any and all Lessor's mortgagees or ground
lessors of record, if any.
(e) The Lessee agrees on request of the Lessor to execute and
deliver from time to time any agreement, in recordable form,
which may reasonably be deemed necessary to implement the
provisions of this Section 10.01.
Section 10.02. Lessee agrees to furnish to Lessor, within ten (10)
days after request therefor from time to time, a written statement in the form
provided by Lessor setting forth the following information:
(i) The then remaining term of this Lease;
(ii) The applicable rent then being paid, including all additional
rent based upon the additional rent most recently established;
(iii) That the Lease is current and not in default or specifying any
default;
(iv) That the Lessee has no current claims for offsets against the
Lessor, or specifically listing any such claims;
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(v) The date through which rent has then been paid;
(vi) Such other information relevant to the Lease as Lessor may
reasonably request; and
(vii) A statement that any prospective mortgage lender and/or
purchaser may rely on all such information.
Section 10.03. After receiving notice from any person, firm or other
entity that it holds a mortgage which includes the Demised Premises as part of
the mortgaged premises, or that it is the ground lessor under a lease with the
Lessor, as ground lessee, which includes the Demised Premises as a part of the
mortgaged premises, no notice from the Lessee to the Lessor shall be effective
unless and until a copy of the same is given in the same manner as required for
notice in this Lease to such holder or ground lessor, and the curing of any of
the Lessor's defaults by such holder or ground lessor shall be treated as
performance by the Lessor. Accordingly, no act or failure to act on the part of
the Lessor which would entitle the Lessee under the terms of this Lease, or by
law, to be relieved of the Lessee's obligations hereunder, to exercise any right
of self-help or to terminate this Lease, shall result in a release or
termination of such obligations or a termination of this Lease unless (i) the
Lessee shall have first given written notice of the Lessor's act or failure to
act on the part of the Lessor which could or would give basis for the Lessee's
rights; and (ii) such holder or ground lessor, after receipt of such notice, has
failed or refused to correct or cure the condition complained of within the cure
period allowed the Lessor or within such reasonable time that provides Mortgagee
time to take possession and to cure the default.
Section 10.04. With reference to any assignment by the Lessor of the
Lessor's interest in this Lease, or the rents payable hereunder, conditional in
nature or otherwise, which assignment is made to the holder of a mortgage or a
ground lessor on property which includes the Demised Premises, the Lessee
agrees:
(a) That the execution thereof by the Lessor, and the acceptance
thereof by the holder of such mortgage or ground lessor, shall
never be treated as an assumption by such holder or ground
lessor of any of the obligations of the Lessor hereunder,
unless such holder or ground lessor shall, by notice sent to
the Lessee, specifically make such election; and
(b) That, except as aforesaid, such holder or ground lessor shall
be treated as having assumed the Lessor's obligations
hereunder only upon foreclosure of such holder's mortgage and
the taking of possession of the Premises, or, in the case of a
ground lessor, the assumption of the Lessor's position
hereunder by such ground lessor.
Section 10.05. Lessor shall use reasonable efforts to obtain a
non-disturbance agreement from existing lender but Lessor's failure to obtain
the same shall not in any way change the Lessee's obligations under this Lease.
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ARTICLE 11
FIRE, CASUALTY AND EMINENT DOMAIN
Section 11.01. Should a substantial portion of the Demised Premises
or the property of which they are a part be damaged by fire or other casualty,
or be taken by eminent domain, the Lessor, at its sole option, may elect to
terminate this Lease. When fire or other unavoidable casualty or taking renders
the Demised Premises substantially unsuitable for its intended use, a just and
proportionate abatement of rent shall be made, and the Lessee may elect to
terminate this Lease if:
(a) The Lessor fails to give written notice within sixty (60) days
after such casualty of its intention to restore the Demised
Premises or provide alternate access, if access has been taken
or destroyed; or
(b) If Lessor gives notice of its intention to restore and the
Lessor fails to restore the Demised Premises to a condition
substantially suitable for their intended use or fails to
provide alternate access within one hundred twenty (120) days
of such fire or other unavoidable casualty, or taking.
The Lessor reserves, and the Lessee grants to the Lessor, all rights
which the Lessee may have for damages or injury to the Demised Premises for any
taking by eminent domain, except for damages specifically awarded on account of
the Lessee's fixtures, property or equipment, which may be removed at the end of
the term. For purposes of this Section, a taking or damage shall be substantial
if it shall affect more than twenty-five (25%) percent of the Demised Premises
or the property of which they are a part. Notwithstanding the foregoing, Lessee
shall be free to pursue damages for relocation and other expenses provided it
does not reduce any of the awards to Lessor.
ARTICLE 12
INDEMNIFICATION
Section 12.01. Except as set forth in Section 12.02, Lessee shall
protect, indemnify and save harmless Lessor, its managing agent and any
mortgagee or ground lessor from and against all liabilities, obligations,
damages, penalties, claims, causes of action, costs, charges and expenses,
including all reasonable attorneys' fees and expenses of employees, which may be
imposed upon or incurred by or asserted against them by reason of any of the
following occurring during the term of this Lease:
(a) any work or thing done in or on the Demised Premises;
(b) any use, non-use, possession, occupation, condition,
operation, or maintenance of the Demised Premises or any part
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thereof, including, without limiting the generality of the
foregoing, the use or escape of water or the bursting of
pipes, or any nuisance made or suffered on the Demised
Premises;
(c) any act or omission (with respect to the Demised Premises, or
the use or management thereof, or this Lease) on the part of
Lessee or any of its agents, contractors, customers, servants,
employees, licensees, invitees, mortgagees, assignees, sub-
tenants or occupants holding by, through or under Lessee;
(d) any accident, injury or damage to any person or property
occurring in or on the Demised Premises.
Section 12.02. Subject in any and all events to the limitations of
Section 20.16, Lessor shall protect, indemnify and save harmless Lessee from and
against all liabilities, obligations, damages, penalties, claims, causes of
action, costs, charges and expenses, including all reasonable attorneys' fees
and expenses of employees, which may be imposed upon or incurred by or asserted
against Lessee during the term of this Lease as a result of:
(a) any negligent act or omission or willful misconduct on the
part of Lessor or any of its agents, contractors, customers,
servants, or employees; or
(b) any accident, injury or damage to any person or property
occurring in or on common areas at the Premises open to all
tenants, unless caused by an act or omission described in
Section 12.01 (c) above.
Section 12.03. In case any action or proceeding is brought against
either party by reason of any such occurrence, the party required to provide
indemnification, upon written notice from the party entitled to indemnification,
will, at the sole cost and expense of the party required to provide
indemnification, resist and defend such action or proceeding or cause the same
to be resisted and defended, by counsel designated by the party required to
provide indemnification and approved in writing by the party to be defended,
which approval shall not be unreasonably withheld.
ARTICLE 13
MORTGAGES, ASSIGNMENTS AND SUBLEASES BY LESSEE
Section 13.01. Lessee's interest in this Lease may not be mortgaged,
encumbered, assigned or otherwise transferred, or made the subject of any
license or other privilege, by Lessee or by operation of law or otherwise, and
the Demised Premises may not be sublet, as a whole or in part, without in each
case the prior written consent of Lessor, which shall not be unreasonably
withheld or delayed, and the execution and delivery to Lessor by the assignee or
transferee of a good and sufficient instrument whereby such assignee or
transferee assumes all obligations of Lessee under this Lease. In connection
with any request by Lessee for such consent to assignment or sublet, Lessee
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shall provide Lessor with all relevant information requested by Lessor
concerning the proposed assignee's or subtenant's financial responsibility,
credit worthiness and business experience to enable Lessor to make an informed
decision. Lessee shall reimburse Lessor promptly for all reasonable
out-of-pocket expenses incurred by Lessor including reasonable attorneys' fees
in connection with the review of Lessee's request for approval of any assignment
or sublease. Upon receipt from Lessee of such request and information, Lessor
shall have the right, but not the obligation, to be exercised in writing within
ten (10) calendar days after its receipt from Lessee of such request and
information, (i) if the request is to assign the Lease through the end of the
then current term, to terminate this Lease, or (ii) if the request is to sublet
a portion of the Demised Premises through the end of the then current term, to
release Lessee from its obligations under this Lease with respect to the portion
of the Demised Premises subject to the proposed sublet for the term of the
proposed sublease or (iii) if the request is to sublet all of the Demised
Premises through the end of the then current term, to terminate this Lease for
the term of the proposed sublease; in each case as of the date set forth in
Lessor's notice of exercise of such option, which date shall not be less than
thirty (30) days nor more than ninety (90) days following the giving of such
notice. In the event of an assignment or a sublet of the Demised Premises where
Lessor exercised its option to terminate this Lease, Lessee shall surrender
possession of the entire Demised Premises on a date to be mutually agreed upon,
but not later than the termination date, in accordance with the provisions of
this Lease relating to surrender of the Demised Premises at the expiration of
the term, and thereafter neither Lessor nor Lessee shall have any further
liability with respect thereto. In the event of a sublet of the Demised Premises
where Lessor does not terminate this Lease but releases Lessee from its
obligations under this Lease with respect to the portion of the Demised Premises
subject to the sublet, Lessee shall surrender the portion of the Demised
Premises subject to the sublease on the date set forth in such notice in
accordance with the provisions of this Lease relating to surrender of the
Demised Premises at the expiration of the term, and, at Lessee's option, at the
end of the term of the sublet the space subject to the sublet shall be included
in the Demised Premises and thereafter Lessee shall be responsible for all
obligations of Lessee hereunder with respect to such space as a primary
obligator, or Lessee shall be released of its obligations with respect to such
space and thereafter shall have no right to occupy that space. If this Lease
shall be canceled as to a portion of the Demised Premises only, annual Base Rent
and Lessee' pro-rata share of Operating Expenses and Real Estate Taxes shall be
readjusted proportionately according to the ratio that the number of square feet
and the portion of the space surrendered compares to the floor area of Lessee's
Demised Premises during the term of the proposed sublet. Lessee shall not offer
to make, or enter into negotiations with respect to an assignment, sublease or
transfer to: (i) any entity owned by, or under the common control of, whether
directly or indirectly, a tenant in the Premises; or (ii) any party with whom
Lessor is then negotiating with respect to other space in the Premises; or (iii)
any party which would be of such type, character, or condition as to be
inappropriate as a tenant for the building. It shall not be unreasonable for
Lessor to disapprove any proposed assignment, sublet or transfer to any of the
foregoing entities. Any purported assignment, sublet or transfer under this
Article 13 without Lessor's prior written consent shall be void and of no
effect. From and after any such assignment or transfer, the obligations of each
such assignee and transferee and of the original Lessee named as such in this
Lease to fulfill all of the obligations of Lessee under this Lease shall be
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joint and several. No acceptance of rent by Lessor from or recognition in any
way of the occupancy of the Demised Premises by a sublessee or assignee shall be
deemed a consent to such sublease or assignment. In the event Lessee assigns or
sublets the Demised Premises or any part thereof, Lessee shall, after deducting
all reasonable out-of-pocket costs and expenses incurred by Lessee to third
parties in connection therewith, share equally with Lessor in any rents received
by Lessee in excess of the rents and other expenses due to Lessor.
Section 13.02. Except as set forth herein or as agreed by Lessor, no
assignment or transfer of any interest in this Lease, no sublease of the Demised
Premises or any part thereof, and no execution and delivery of any instrument of
assumption pursuant to Section 13.01 hereof shall in any way affect or reduce
any of the obligations of Lessee under this Lease, but this Lease and all of the
obligations of Lessee under this Lease shall continue in full force and effect
as the obligations of a principal (and not as the obligations of a guarantor or
surety). Each violation of any of the covenants, agreements, terms or conditions
of this Lease, whether by act or omission, by any of Lessee's permitted
encumbrances, assignees, employees, transferees, licensees, grantees of a
privilege, sub-tenants or occupancy, shall constitute a violation thereof by
Lessee if not cured within applicable grace periods.
Notwithstanding the above, provided Lessee is not in default of this
Lease, Lessee shall have the right to assign this Lease without Lessor's
consent: to any subsidiary, parent, or affiliate controlled by, controlling, or
under common control with Lessee provided, however, that in any such event: (i)
use of the Demised Premises shall be that permitted under the Lease only; (ii)
the creditworthiness of the proposed assignee shall be acceptable to the Lessor
in its reasonable judgement and Lessor has been provided with audited financial
statements or equivalent evidence of the same; and (iii) Lessee's liability
hereunder shall continue and be joint and several with the assignee.
ARTICLE 14
DEFAULT
Section 14.01. In the event that:
(a) the Lessee shall default in the due and punctual payment of
any installment of rent, or any part thereof, when and as the
same shall become due and payable and such default shall
continue for more than five (5) days after such payment is
due.
(b) the Lessee shall default in the payment of any additional rent
payable under this Lease or any part thereof, when and as the
same shall become due and payable, and, except for the payment
of additional rent for increased real estate taxes which shall
be due and payable without grace period at least ten (10) days
prior to the date specified in a notice from Lessor to Lessee,
such default shall continue for a period of ten (10) days; or
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(c) the Lessee shall default in the observance or performance of
any of the Lessee's covenants, agreements or obligations
hereunder, other than those referred to in the foregoing
clauses (a) and (b), and such default shall not be corrected
within twenty-one (21) days after written notice of said
default, or if such default cannot be cured within 21 days
Lessee shall have such additional time to cure such default as
is necessary so long as Lessee has commenced curing same
within the 21 day period and shall diligently and continually
prosecute same to completion and provided such default will
not create a default in Lessor's mortgage. No extended cure
period shall be permitted where such default strictly relates
to payment of rent or additional rent; or
(d) the Lessee shall file a voluntary petition in bankruptcy or
shall be adjudicated a bankrupt or insolvent, shall file any
petition or answer seeking any reorganization, arrangement,
composition, dissolution or similar relief under any present
or future federal, state or other statute, law or regulation
relating to bankruptcy, insolvency or other relief for
debtors, or shall seek, or consent, or acquiesce in the
appointment of any trustee, receiver or liquidator of Lessee
or of all or any substantial part of its properties, or of the
Demised Premises, or shall make any general assignment for the
benefit of creditors; or
(e) any court enters an order, judgment or decree approving a
petition filed against Lessee seeking any reorganization,
arrangement, composition, dissolution or similar relief under
any present or future federal, state or other statute, law or
regulation relating to bankruptcy, insolvency or other relief
for debtors, and such order, judgment or decree shall remain
unvacated or unstayed for an aggregate of sixty (60) days; or
(f) the Demised Premises shall be abandoned (unless approved by
the Lessor);
then Lessor shall have the right thereafter to re-enter and take complete
possession of the Demised Premises, to declare this Lease terminated and to
remove the Lessee's effects without prejudice to any remedies which might be
otherwise used for arrears of rent or other default. The Lessee shall indemnify
the Lessor against all loss of rent and other payments which the Lessor may
incur by reason of such termination during the residue of the term. Lessor
agrees to use reasonable efforts to mitigate its damages.
Section 14.02. If the Lessee shall default in the observance or
performance of any condition or covenants on Lessee's part to be observed or
performed under or by virtue of any of the provisions and any Article of this
Lease, the Lessor, after any applicable notice to Lessee and opportunity to cure
provided elsewhere in this Lease, without being under any obligations to do so
and without thereby waiving such default, may remedy such default for the
account and at the expense of the Lessee. If the Lessor makes any expenditures
or incurs any obligations for the payment of money in connection therewith,
including but not limited to reasonable attorneys' fees in instituting,
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prosecuting or defending any action or proceeding, such sums paid or obligations
incurred, with interest at the rate of eighteen (18%) percent per annum and
costs, shall be paid upon demand to the Lessor by the Lessee as additional rent.
Section 14.03. No failure by Lessor to insist upon strict performance
of any covenant, agreement, term or condition of this Lease, or to exercise any
right or remedy consequent upon breach thereof, and no acceptance of full or
partial rent during the continuance of any breach, shall constitute a waiver of
any such or of any covenant, agreement, term or condition. No covenant,
agreement, term or condition of this Lease to be performed or complied with by
Lessee, and no breach thereof, shall be waived, altered or modified except by
written instrument executed by Lessor. No waiver of any breach shall affect or
alter this Lease, but each and every covenant, agreement, term and condition of
this Lease shall continue in full force and effect with respect to any other
then existing or subsequent breach thereof.
Section 14.04. In the event (i) more than one payment in a calendar
year of rent (or additional rent) is not paid within five (5) business days of
the due date, or (ii) a check received by Lessor from Lessee shall be
dishonored, then because actual damages for a late payment or for a dishonored
check are extremely difficult to fix or ascertain, but recognizing that damage
and injury result therefrom, Lessee agrees to pay as an administrative fee and
not as a penalty: (I) the greater of (a) 5% of the amount due in (i) above or
(b) $150.00 as liquidated damages for each late payment and (II) the greater of
2.5% of the amount due in (ii) or $45.00 as liquidated damages for each time a
check is dishonored. (The grace period herein provided is strictly related to
the fee for a late payment and shall in no way modify or stay Lessee's
obligation to pay rent when it is due, nor shall the same preclude Lessor from
pursuing its remedies under this Section 14, or as otherwise allowed by law.) In
the event that two (2) or more Lessee's checks are dishonored, Lessor shall have
the right, in addition to all other rights under this lease, to demand all
future payments by certified check or money order. Furthermore, if any payment
of rent (annual or additional) or any other payment payable hereunder by Lessee
to Lessor shall not be paid within the applicable grace period, the same shall
bear interest, from the date when the same was due until the date paid, at the
rate of eighteen percent (18%) per annum. Such interest shall constitute
additional rent payable hereunder.
Section 14.05. Each right and remedy of Lessor provided for in this
Lease shall be cumulative and concurrent and shall be in addition to every other
right or remedy provided for in this Lease now or hereafter existing at law or
in equity or by statute or otherwise, and the exercise or beginning of the
exercise by Lessor of any one or more of the rights or remedies provided for in
this Lease now or hereafter existing at law or in equity or by statute or
otherwise shall not preclude the simultaneous exercise by Lessor of any or all
other rights or remedies provided for in this Lease or now or hereafter existing
at law or in equity or by statute or otherwise.
Section 14.06. Whenever, under any provision of this Lease, Lessee
shall be entitled to receive any payment from Lessor or to exercise any
privilege or right under this Lease, Lessor shall not be obligated to make any
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such payment and Lessee shall not be entitled to exercise any such privilege or
right so long as Lessee shall be in default under any of the provisions of this
Lease, and until after such default shall have been cured, if cured prior to the
expiration or termination of this Lease pursuant to the provisions of Section
14.01 hereof, Lessee shall not be entitled to offset against rent or any other
charges payable under this Lease any payments due from Lessor to Lessee or any
Mortgagee.
ARTICLE 15
SURRENDER
Section 15.01. Lessee shall, upon any expiration or earlier
termination of this Lease, remove all of Lessee's goods and effects from the
Demised Premises. Lessee shall peaceably vacate and surrender to the Lessor the
Demised Premises and deliver all keys, locks thereto, and other fixtures
connected thereto, unless Lessor requests removal of the same, and all
alterations and additions made to or upon the Demised Premises, in the same
condition as they were at the commencement of the term, or as they were put in
during the term hereof, reasonable wear and tear and damage by insured fire or
other unavoidable casualty or taking or condemnation by public authority or as a
result of Lessor's negligence only excepted. In the event of the Lessee's
failure to remove any of Lessee's property from the Demised Premises, Lessor is
hereby authorized, without liability to Lessee for loss or damage there at, and
at the sole risk of Lessee, to remove and store any of the property at Lessee's
expense, or to retain same under Lessor's control or to sell at public or
private sale, after thirty (30) days notice to Lessee at its address last known
to Lessor, any or all of the property not so removed and to apply the net
proceeds of such sale to the payment of any sum due hereunder, or to destroy
such property. If Lessee holds over at the Demised Premises, Lessee shall be a
tenant at sufferance and shall be liable for payment for use and occupancy
thereat at the rate of one and one-half (1.5) times the Base Rent most recently
payable, plus all additional rent, and shall be and remain liable to Lessor for
all damage, loss and cost incurred by Lessor, including reasonable attorneys'
fees, as a result of such holding over by Lessee.
ARTICLE 16
QUIET ENJOYMENT
Section 16.01. Lessee, subject to any ground leases, deeds of trust
and mortgages to which this Lease is subordinate upon paying the rent and other
charges herein provided for and performing and complying with all covenants,
agreements, terms and conditions of this Lease on its part to be performed or
complied with, shall not be prevented by the Lessor from lawfully and quietly
holding, occupying and enjoying the Demised Premises during the term of this
Lease, except as specifically provided for by the terms hereof.
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ARTICLE 17
ACCEPTANCE OF SURRENDER
Section 17.01. No surrender to Lessor of this Lease or of the Demised
Premises or any part thereof or of any interest therein by Lessee shall be valid
or effective unless required by the provisions of this Lease or unless agreed to
and accepted in writing by Lessor. No act on the part of any representative or
agent of Lessor, and no act on the part of Lessor other than such a written
agreement and acceptance by Lessor, shall constitute or be deemed an acceptance
of any such surrender.
ARTICLE 18
NOTICES - SERVICE OF PROCESS
Section 18.01. All notices, demands, requests and other instruments
which may or are required to be given by either party to the other under this
Lease shall be in writing. All notices, demands, requests and other instruments
from Lessor to Lessee shall be deemed to have been properly given if sent by
United States certified mail, return receipt requested, postage prepaid, or if
sent by prepaid Federal Express or other similar overnight delivery service
which provides a receipt, addressed to Lessee at the Demised Premises, or at
such other address or addresses as the Lessee from time to time may have
designated by written notice to Lessor, or if left on the Demised Premises. All
notices, demands, requests and other instruments from Lessee to Lessor shall be
deemed to have been properly given if sent by United States certified mail,
return receipt requested, postage prepaid or if sent by prepaid Federal Express
or other similar overnight delivery service which provides a receipt, addressed
to Lessor at One Appleton Street, Boston, MA 02116, or at such other address as
Lessor from time to time may have designated by written notice to Lessee. Any
notice shall be deemed to be effective upon receipt by, or attempted delivery
to, the intended recipient.
ARTICLE 19
SEPARABILITY OF PROVISIONS
Section 19.01. If any term or provision of this Lease or the
application thereof to any person or circumstance shall, to any extent, be
invalid or contrary to applicable law or unenforceable, the remainder of this
Lease, and the application of such term or provision to persons or circumstances
other than those as to which it is held invalid or contrary to applicable law or
unenforceable, as the case may be, shall not be affected thereby, and each term
and provision of this Lease shall be legally valid and enforced to the fullest
extent permitted by law.
ARTICLE 20
MISCELLANEOUS
Section 20.01. This Lease may not be modified or amended except by
written agreement duly executed by the parties hereto.
Section 20.02. This Lease shall be governed by and construed and
enforced in accordance with the laws of the Commonwealth of Massachusetts.
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Section 20.03. This Lease may be executed in several counterparts,
each of which shall be an original but all of which shall constitute but one and
the same instrument.
Section 20.04. The covenants and agreements herein contained shall,
subject to the provisions of this Lease, bind and inure to the benefit of
Lessor, his successors and assigns, and Lessee, and Lessee's permitted
successors and assigns, and no extension, modification or change in the terms of
this Lease effected with any successor, assignee or transferee shall cancel or
affect the obligations of the original Lessee hereunder unless agreed to in
writing by Lessor. The term "Lessor" as used herein and throughout the Lease
shall mean only the owner or owners at the time in question of Lessor's interest
in this Lease. Upon any transfer of such interest, from and after the date of
such transfer, Lessor herein named (and in case of any subsequent transfers the
then transferor), shall be relieved of all liability for the performance or
observance of any agreements, conditions or obligations on the part of the
Lessor contained in this Lease except for defaults by Lessor prior to such
transfer or monies owed by Lessor to Lessee and which were not assigned to and
repayment thereof assumed by such transferee, provided that if any monies are in
the hands of Lessor or the then transferor at the time of such transfer, and in
which Lessee has an interest, shall be delivered to the transferee, then Lessee
shall look only to such transferee for the return thereof.
Section 20.05. This instrument contains the entire and only agreement
between the parties, and no oral statements or representations or prior written
matter not contained in this instrument shall have any force or effect.
Section 20.06. In the event this Lease or a copy thereof shall be
recorded by Lessee, then such recording shall constitute a default by Lessee
under Article 14 hereof entitling Lessor to immediately terminate this Lease.
Within a reasonable time after the Commencement Date upon request by Lessee,
Lessor and Lessee shall execute a document in recordable form containing only
such information as is necessary to constitute a Notice of Lease, including the
first sentence of Section 10.01 hereof. All costs of preparation and recording
such notice shall be borne by Lessee.
Section 20.07. The submission of this Lease for review or comment
shall not constitute an agreement between Lessor and Lessee until both have
signed and delivered copies thereof.
Section 20.08. Whenever Lessee is required to obtain Lessor's
approval hereunder, Lessee agrees to reimburse Lessor all reasonable
out-of-pocket expenses incurred by Lessor, including reasonable attorney fees in
order to review documentation or otherwise determine whether to give its
consent.
Section 20.09. Lessee shall furnish to Lessor on the execution of
this Lease and within one hundred twenty (120) days after each calendar year of
each year during the Term an accurate, up-to-date, audited if available,
financial statement of Lessee showing Lessee's financial condition for the
twelve (12) month period ending the immediately preceding December 31 provided
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that Lessor agrees to maintain the confidentiality of such information and shall
not disclose it to any third party without Lessee's prior written consent which
shall not be unreasonably withheld or delayed. The foregoing shall not apply to
any information which is publicly available or subject to SEC or other
disclosure requirements.
Section 20.10. Lessee will be entitled to the use of seven (7)
designated parking spaces at the Premises for the parking of passenger motor
vehicles during the term of this Lease. Lessee shall pay to Lessor as additional
rent for the right to use such seven (7) spaces an amount equal to $1,050.00 per
month, which payment shall be made monthly together with Base Rent. Upon thirty
days prior written notice to Lessee, Lessor shall be entitled to increase the
monthly parking charge, which is currently based on a charge of $150.00 per
space per month, to reflect the then fair market rate for comparable parking
spaces in Cambridge. Lessee agrees to use these spaces only for its officers,
employees, guests, invitees and clients, in connection with the operation of its
business, in accordance with reasonable rules and regulations adopted from time
to time by Lessor.
Section 20.11. Lessor shall provide Lessee with a dead storage area
of approximately 776 rentable square feet on the sixth floor of the building.
Said area shall be used by Lessee solely for dead storage purposes as an
ancillary use in connection with Lessee's use of the Demised Premises. Lessee
shall pay the Lessor as additional rent for the right to use such storage space
at the rate of $905.33 per month, payable on the first day of each month in
advance, except that the first months' rent shall be paid upon the execution of
this Lease. The rent for any partial month shall be pro rated on a per diem
basis. There shall be no additional charges for operating expenses, real estate
taxes or electricity use. Lessee agrees that it is accepting said area in "as
is" condition and that at no time will Lessor be obligated to perform any work
in connection with said area.
Section 20.12. Lessor may relocate Lessee to substantially comparable
space in the building of which the Demised Premises are a part (including finish
work comparable to that in the Demised Premises), provided Lessor pays for all
of Lessee's out-of-pocket moving costs incurred in connection with such
relocation to compensate the Lessee for relocating.
Section 20.13. Lessor and Lessee each represent and warrant that they
have not directly or indirectly dealt with any broker with respect to the
leasing of the Demised Premises other than CB/Richard Ellis Whittier Partners
and Insignia/ESG, Inc. Each party agrees to exonerate and save harmless and
indemnify the other against any claims for a commission by any broker, person or
firm other than CB/Richard Ellis Whittier Partners and Insignia/ESG, Inc. with
whom such party has dealt in connection with the execution and delivery of this
Lease or out of negotiations between Lessor and Lessee with respect to the
leasing of the space in the Premises.
Section 20.14. The obligations of the Lessee hereunder shall be joint
and several obligations of Lessee and any guarantors or successors. The Lessor
may proceed against any or all of Lessee, any guarantors and any and all of
their heirs, legal representatives, successors and assigns in the event of a
default hereunder.
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Section 20.15. Lessee shall conform to all building exterior and
interior signage in accordance with Lessor's standard signage specifications.
All signage must receive Lessor approval prior to installation.
Section 20.16. Limitation of Liability. None of the provisions of
this Lease shall cause Lessor to be liable to Lessee, or anyone claiming through
or on behalf of Lessee, for any special, indirect or consequential damages,
including, without limitation, lost profits or revenues. In no event shall any
individual partner, officer, shareholder, trustee, beneficiary, director,
manager, member or similar party, including, without limitation, Lessor's
managing agent, be liable to Lessee, or anyone claiming by through or under
Lessee for the performance of or by Lessor or Lessee under this Lease or any
amendment, modification or agreement with respect to this Lease. Lessee agrees
to look solely to Lessor's interest in the Premises in connection with the
enforcement of Lessor's obligations in this Lease or for recovery of any
judgment from Lessor, it being agreed that Lessor shall never be personally
liable for any judgment, or incidental or consequential damages sustained by
Lessee from whatever cause.
Section 20.17. Emergency Action. In the event of an emergency, as
reasonably determined by Lessor or Lessee, as applicable, in order and to the
extent necessary to protect life or property, the party making that
determination, where it is not practical to notify the other party, may take
action and incur out-of-pocket cost to third parties for matters otherwise the
obligation of the other party hereunder and, to the extent the party taking
action incurs expense in so acting, which expense, but for such emergency would
have been the expense of the other, then the party on behalf of whom such action
was taken and expense incurred will, within fourteen (14) days after receipt of
documentation of such expenses, reimburse the party which incurred such expense.
Section 20.18. In the event Lessor shall be delayed or hindered in or
prevented from the performance of any act required under this Lease to be
performed by Lessor by reason of strikes, lockouts, labor troubles, inability to
procure materials, failure of power, restricted governmental law or regulations,
riots, insurrection, war or other reason of a like nature not within the
reasonable control of the Lessor, then performance of such act shall be excused
for the period of the delay, and the period for the performance of any such act
shall be extended for a period equivalent to the period of such delay.
ARTICLE 21
OPTION TO EXTEND
Section 21.01. Provided the obligations of Lessee under this Lease
shall then be current and not in default beyond all applicable notice and grace
periods, Lessee shall have the right, at its election, to extend the original
term of this Lease for one (1) additional period of five (5) years (the "Option
Term"), commencing upon the expiration of the original term, provided that
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Lessee shall give Lessor written notice in the manner provided in Section 18.01
of the exercise of its election to so extend at least twelve (12) months prior
to the expiration of the original term. The expression "the original term" means
the period of years referred to in Section 1.02. Prior to the exercise by Lessee
of said election to extend the original term, the expression "the term of this
Lease" or any equivalent expression shall mean the original term; after the
exercise by Lessee of the aforesaid election, the expression "the term of this
Lease" or any equivalent expression shall mean the original term as extended.
Except as expressly otherwise provided in this Lease, all the agreements and
conditions contained in this Lease shall apply to the additional period to which
the original term shall be extended as aforesaid. If Lessee shall give written
notice as provided in Section 18.01 of the exercise of the election in the
manner and within the time provided aforesaid, the term shall be extended upon
the giving of the notice without the requirement of any action on the part of
the Lessor or written confirmation of receipt by Lessor.
Section 21.02. The annual Base Rent payable for each year during the
Option Term shall be 95% of Market Rent as determined in the manner set forth in
Section 21.03 below.
Section 21.03. If Lessee gives Lessor timely notice of its intention
to extend the then current term of this Lease, then within sixty (60) days
thereafter, Lessor shall give Lessee written notice of the then applicable
market rent for Lessee's space, based on similar space on that floor in the
Premises or if no such space is available, rent for similar space in similar
buildings in the same geographic area (the "Market Rent"). Rent for each year of
the Option Term shall be established as 95% of the Market Rent, but in no event
shall 95% of Market Rent be lower than the yearly rent most recently paid
hereunder. Rent shall never be decreased below that paid in the prior lease
year.
Section 21.04. In the event that Lessee disputes the Market Rent set
by Lessor, Lessee may, within fifteen (15) days of its receipt of notice from
Lessor establishing such Market Rent, give notice to Lessor of such dispute and
thereupon the matter shall be submitted to arbitration in accordance with the
terms set forth in Section 21.05 below.
Notwithstanding the submission of the issue of "Market Rent" to
arbitration, rent for the next ensuing year of the term of this Lease shall be
paid at the Lessor's 95% of "Market Rent" until the arbitration is completed.
If, upon completion of the arbitration, it is determined that Market Rent is
less or more than that set by Lessor, then an adjustment based upon such lower
or greater rent shall be made based on the number of months therefore paid by
Lessee but in no event shall rent be lower than that paid for the prior lease
year. In no event shall the extension of the term of this Lease be affected by
the determination of the rent, such exercise of extension being fixed at the
time at which notice is given.
Section 21.05. In the event Lessor and Lessee shall be unable to
agree on the then Market Rent for the purposes of determining the minimum annual
rent during the term of this Lease after the original term, then Market Rent
shall be established in the following manner of arbitration:
26
<PAGE>
(a) Each of Lessee and Lessor shall choose an arbitrator
knowledgeable in the field of establishing fair rental values
in this area;
(b) The arbitrators selected in accordance with "(a)" above shall
select a third arbitrator knowledgeable in the field;
(c) The selections shall be completed no later than sixty (60)
days prior to the commencement of the next lease year;
(d) Within sixty (60) days after their appointment, the
arbitrators shall determine the fair market rent for the
Demised Premises for the next lease year, and shall notify
Lessee of such determination within seven (7) days, which
determination shall be final and binding upon Lessee and
Lessor. If the arbitrators are unable to agree upon the fair
market rent, the fair market rent will be deemed to be the
average of the fair market rents proposed by the arbitrators,
except that (i) if the lowest proposed fair market rent is
less than 90% of the second to lowest proposed fair market
rent, the lowest proposed fair market rent will automatically
be deemed to be 90% of the second to lowest proposed fair
market rent and (ii) if the highest proposed fair market rent
is greater than 110% of the second to highest proposed fair
market rent, the highest proposed fair market rent will
automatically be deemed to be 110% of the second to highest
proposed fair market rent.
(e) The foregoing arbitration shall be conducted in accordance
with the rules of the American Arbitration Association or its
successors;
(f) Lessor and Lessee shall each pay one-half (1/2) of the cost of
the arbitration proceedings.
For the purpose of determining Market Rent the parties shall use as a
guideline the average rental rates for comparable office space in the Building
over the past year or if no comparable office lease transactions have taken
place during the past year, then the guideline shall be the then market rent for
similar available space in similar buildings in the same geographic area.
ARTICLE 22
RIGHT OF FIRST OFFER
Section 22.01. During the term hereof, provided the Lessee is not in
default hereunder, the Lessor shall make available to the Lessee and the Lessee
shall have the first opportunity to lease additional space in the Premises
(hereinafter, the "Expansion Space") when and if it becomes available for lease
directly from the Lessor, subject to then existing tenants' rights at the same
terms and conditions the space is to be offered for lease to prospective tenants
in the market as described in Lessor's Additional Expansion Space Notice to
Lessee, subject to a four business day response time, after Lessee's receipt of
27
<PAGE>
Lessor's Expansion Space Notice. If Lessee fails or neglects to give such timely
written notice ("Lessee's Expansion Notice") or notifies Lessor that it does not
wish to lease the Expansion Space (as offered in the Lessor's Expansion Space
Notice), then Lessee's right to lease the Expansion Space under Article 22 shall
be null and void and without recourse to the Lessor and Lessor may offer the
space for lease to any prospective tenant. The immediately preceding sentence
shall not affect Lessee's Option rights set forth in Article 21. Upon Lessor's
receipt of the Lessee's Expansion Notice, Lessor will prepare and deliver to
Lessee an amendment of this Lease identifying the space to be occupied by Lessee
and the other terms applicable to such occupancy. All the agreements and
conditions in this Lease contained herein shall apply to the Expansion Space as
applicable to the Expansion Space excluding Landlord's Work. The Base Rent and
Additional Rent then and thereafter payable by Lessee shall be increased to
reflect the additional Base Rent and Additional Rent due from Lessee to Lessor
for the Expansion Space leased by Lessee as if it had always been included in
this Lease. Within fourteen (14) days after submission of an appropriate
amendment to this Lease by Lessor to Lessee incorporating the Expansion Space
into this Lease for the balance of the term hereof and any extension thereof,
Lessee and Lessor shall execute said amendment.
It is intended that this instrument will take effect as a sealed
instrument.
IN WITNESS WHEREOF, the Lessor and Lessee have signed the same as of
this 22nd day of June, 1999.
LESSOR: THE LINDEN LIMITED PARTNERSHIP
By: Beechwood Corporation, its General Partner
By: /s/ Jonathan G. Davis
---------------------------------------------------
Jonathan G. Davis, its President
LESSEE: GIGA INFORMATION GROUP, INC.
By: /s/ Daniel M. Clarke
---------------------------------------------------
Its: Senior Vice President
<PAGE>
EXHIBIT "A"
DEMISED PREMISES
page 1 of 2
[OBJECT "FLOOR PLAN" OMITTED - UNABLE TO CONVERT TO EDGAR]
<PAGE>
EXHIBIT "A"
DEMISED PREMISES
[OBJECT "FLOOR PLAN" OMITTED - UNABLE TO CONVERT TO EDGAR]
<PAGE>
EXHIBIT "B"
LANDLORD'S WORK
The space shall be delivered to Lessee in its "as is" condition. Lessor will
contribute up to $116,857.50 towards tenant improvement costs. At Lessee's
option, Lessor will construct the Demised Premises at Lessee's cost above the
aforesaid Lessor contribution, subject to mutually agreeable plans to be
prepared and approved by Lessee by June 23, 1999.
<PAGE>
CLERK'S CERTIFICATE
I, Victoria M. Lynch, Assistant Secretary of GIGA INFORMATION GROUP, INC.,
hereby certify that by unanimous consent of the Directors of said corporation,
approval was given for the corporation, as Lessee, to enter into a Lease with
THE LINDEN LIMITED PARTNERSHIP, as Landlord, for a total of 15,581 square feet
of rentable space in the building located at, known as and numbered 139 Main
Street, Cambridge, Massachusetts, a copy of which is attached hereto and made a
part hereof.
I further certify that Daniel M. Clarke, Senior Vice President of the
corporation has authority to execute and deliver to the Landlord said Lease on
behalf of the corporation upon the above terms.
Witness my hand and seal of the corporation, this 21st day of June, 1999.
/s/ Victoria M. Lynch
- ----------------------------
Exhibit 10.2
------------
SUBLEASE
Agreement made this 28th day of June, 1999, between GIGA INFORMATION
GROUP, INC. (hereinafter "Sublessor") and INCERT SOFTWARE CORPORATION
(hereinafter "Sublessee").
WITNESSETH
WHEREAS, on or about October 31, 1995, Cambridge 1400 Limited
Partnership (the "Original Landlord") leased certain premises consisting of
7,868, square feet of space, more or less on the first floor of Building No.
1400, One Kendall Square (hereinafter the "Premises") in Cambridge,
Massachusetts, to Sublessor, pursuant to a written lease, a copy of which is
attached hereto as Exhibit A, (hereinafter the "Master Lease");
WHEREAS, on or about Cambridge 1400 Limited Partnership, the Original
Landlord conveyed the land and building of which the Premises are a part to One
Kendall, LLC ("Landlord");
WHEREAS, Sublessee desires to sublease the Premises from Sublessor
and Sublessor desires to sublet the Premises to Sublessee;
NOW THEREFORE, for valuable consideration each to the other paid, the
receipt and sufficiency of which are hereby acknowledged, Sublessor and
Sublessee hereby agree as follows:
<PAGE>
1. The Premises and Term.
A. Sublessor hereby leases to Sublessee and Sublessee hereby
sublets from Sublessor the Premises for a term of fourteen
(14) months (hereinafter the "Term") commencing on September
1, 1999, and ending October 31, 2000, unless sooner terminated
as herein provided. Notwithstanding the provisions of Section
24 of the Master Lease, Sublessee shall have no right to
extend the Term of this Sublease.
B. Sublessee shall have as appurtenant to the Premises the right
to use, in common with Sublessor and others entitled thereto,
the driveways, roadways, hallways, elevators and stairways
necessary for access to the Premises.
2. Basic Rent. During the Term, Sublessee shall pay to Sublessor, as
Base Rent for the Premises. One Hundred Eighty-eight Thousand One
Hundred Seventy-six and 22/100 ($188,176.22) Dollars, in equal
monthly installments of Thirteen Thousand Four Hundred Forty-one and
17/100 ($13,441.17) Dollars, payable in advance on the first day of
each and every month. All payments shall be due without billing or
demand and without deduction, set-off or counterclaim. If the Term
commences or ends other than on the first day of a month, then the
rent for such month shall be prorated for such fractional period.
3. Additional Rent. In addition to the Base Rent to be paid by
Sublessee, Sublessee shall pay to Sublessor, during the Term of this
Sublease, as additional rent (hereinafter "Additional Rent") all
costs, charges and expenses imposed on Sublessor in the Master Lease,
including, but not limited to, all charges as provided for in Section
5 of the Master Lease, which Sublessor, as Lessee under the Master
Lease, is obligated to pay pursuant to the terms of the Master Lease,
other than Base Rent as provided for in Section 4 of the Master
Lease. Sublessor shall provide Sublessee with all calculations of,
2
<PAGE>
and demands for, any such costs, charges, expenses and Additional
Rent provided to Sublessor by Landlord.
4. Additional Covenants of Sublessee and Sublessor.
A. Except as otherwise expressly provided herein, all of the
terms, covenants and conditions of the Master Lease are
incorporated herein by reference and made a part hereof with
the same force and effect as if set forth in their entirety,
provided that the terms and conditions hereof shall be
controlling whenever the terms and conditions of the Master
Lease are contradictory to or inconsistent with the terms and
conditions hereof, and provided further that those
incorporated provisions of the Master Lease which are
protective and for the benefit of Landlord shall in this
Sublease be deemed to be protective and for the benefit of
both Landlord and Sublessor, that references therein to
"Lessor" and "Lessee" shall be deemed to refer to "Sublessor"
and "Sublessee", respectively, that references therein to
"this lease" shall be deemed to refer to "this Sublease" and
that references therein to the "Leased Premises" or "Premises"
shall be deemed to refer to the "Premises" described herein.
Sublessee covenants and agrees to be bound by the same terms
and conditions as Sublessor as tenant under the Master Lease
is now bound or may hereafter be bound under the Master Lease,
and by all amendments and modifications thereof, and to
observe, keep and perform all of the terms, covenants,
agreements and conditions contained in the Master Lease to be
performed on the part of Sublessor as a tenant thereunder,
excepting the obligation to pay rent to Landlord in such a
manner as will not cause a breach of the Master Lease and
neither to do nor cause to be done, nor suffer, nor permit any
3
<PAGE>
act or thing to be done which would or might cause the Master
Lease or the rights of Sublessor as tenant thereunder to be
canceled, terminated, forfeited or surrendered, or which would
or might make Sublessor liable for any damages, claims or
penalties. The foregoing agreement of Sublessee to observe and
be bound by the covenants and agreements of Lessee under the
Master Lease shall accrue to the benefit of Sublessor as if
Sublessor were Lessor under the Master Lease.
B. To the maximum extent that this agreement may be made
effective according to law, Sublessee agrees that it will
protect and indemnify Sublessor and save Sublessor harmless
from and against all liabilities, obligations, claims,
damages, penalties, causes of action, costs and expenses
(including, without limitation, reasonable attorneys' fees and
expenses) imposed upon or incurred by or asserted against
Sublessor by reason of (i) any, accident, injury to or death
of persons or damage to or loss of property, by theft or
otherwise, occurring on or about the Premises or any part
thereof, unless arising out of the negligence of Sublessor or
Sublessor's agents or employees, and (ii) any failure on the
part of Sublessee to perform, fulfill or observe any of
Sublessee's representations, warranties or agreements set
forth in this Sublease. In case any action, suit or proceeding
is brought against Sublessor by reason of any such occurrence,
Sublessee, upon Sublessor's request, shall at Sublessee's
expense, cause such action, suit or proceeding to be resisted
and defended by counsel designated by Sublessor.
4
<PAGE>
C. This Sublease and all of the terms, covenants,
representations, warranties, agreements and conditions hereof
are in all respects subject and subordinate to the Master
Lease.
D. Notwithstanding anything contained in this Sublease to the
contrary, Sublessor shall not have any obligation to
construct, maintain, alter or repair the Premises, the land on
which they are located and the building of which they are a
part, or any parking area or other facility or improvement
thereon or appurtenant thereto or to provide Sublessee with
any service of any kind or description whatsoever, nor shall
Sublessor be responsible for the performance of Landlord's
obligations under the Master Lease including, without
limitation, Landlord's obligations described in Sections 3,
20, 24 and 26 of the Master Lease, which Sections are not
included herein by reference, or be liable in damages or
otherwise for any negligence of Landlord or for any damage or
injury suffered by Sublessee as a result of any act or failure
to act by Landlord or any default by Landlord in fulfilling
its obligations under the Master Lease. If Landlord shall
default in any of its obligations to Sublessor, Sublessor
shall cooperate with Sublessee, upon request by Sublessee, at
no out-of-pocket cost or expense to Sublessor, in enforcing
Sublessor's rights against Landlord under the Master Lease.
E. Sublessor shall not incur any liability whatsoever to
Sublessee for any injury, inconvenience, incidental or
consequential damages incurred or suffered by Sublessee as a
result of the exercise by Landlord of any of the rights
reserved to Landlord under the Master Lease, nor shall such
exercise constitute a constructive eviction or a default by
Sublessor hereunder.
5
<PAGE>
F. The Premises are being leased in an "as is" condition"
provided, however, that Sublessor shall deliver the Premises
to Sublessee in a broom-clean condition.
G. Subject to the terms of the Sublease, Sublessee shall use the
Premises only for general office use as provided in Section 7
of the Master Lease.
5. Defaults by Sublessee.
A. In the event that Sublessee shall default in the payment of
Base Rent or Additional Rent hereunder, or default in the
performance or observance of any of the terms, conditions and
covenants of this Sublease, Sublessor, in addition to and not
in limitation of any rights otherwise available to it, shall
have the same rights and remedies with respect to such default
as are provided to Lessor under the Master Lease with respect
to defaults by Lessee thereunder, with the same force and
effect as though all such provisions relating to any such
default or defaults were herein set forth in full, and
Sublessee shall have all of the obligations of Lessee under
the Master Lease with respect to such default.
B. Sublessor may cure such default for the account of Sublessee,
and any amount paid or incurred by Sublessor in so doing shall
be deemed paid or incurred for the account of Sublessee and
Sublessee agrees to reimburse Sublessor therefor and save
Sublessor harmless therefrom; provided, that Sublessor may
cure any such default as aforesaid prior to the expiration of
any waiting period if reasonably necessary to protect
Sublessor's interests under the Master Lease or to prevent
injury or damage to persons or property. If Sublessee shall
fail to reimburse Sublessor upon demand for any amount paid
for the account of Sublessee hereunder, said amount shall be
6
<PAGE>
added to and become due as a part of the next payment of Base
Rent due hereunder.
C. Notwithstanding anything to the contrary herein contained, for
the purpose of determining the occurrence of events of default
hereunder, the periods of thirty (30) days and ninety (90)
days set forth in Section 18 of the Master Lease shall be
twenty-five (25) days and sixty (60) days, respectively.
6. Termination of Sublease. This Sublease shall terminate upon any
termination of the Master Lease for any reason whatsoever which
deprives Tenant under the Master Lease of possession of the Premises,
without any liability therefor upon the part of Sublessor to
Sublessee and with the same force and effect as if the date of such
termination had expressly been provided in this Sublease as the date
of termination hereof.
7. Assignment. Sublessee shall not assign this Sublease, nor sublet or
permit the Premises or any portion thereof to be used by others.
8. Warranties and Representations. Sublessee hereby represents and
warrants that in entering into this Sublease, Sublessee has not
relied upon or been induced by any statements or representations of
any person with respect to the physical condition of the Premises or
with respect to any other matter affecting the Premises or this
Sublease, but has relied solely upon such investigations,
examinations and inspections as Sublessee has chosen to make or have
made. Sublessee acknowledges that Sublessee has been afforded the
opportunity for full and complete investigation, examination and
inspection.
7
<PAGE>
9. Separate and Independent Activities of Sublessee and Sublessor.
Sublessee and Sublessor and their respective employees and invitees
shall in all respects operate separately and independently of each
other, and nothing contained herein shall be deemed in any way to
constitute Sublessee and Sublessor as partners or joint or
co-venturers.
10. Covenant of Quiet Enjoyment. Sublessee, upon paying the Basic Rent,
and all Additional Rent and other charges herein provided for, and
observing and keeping all covenants, agreements, and conditions of
this Sublease on its part to be kept, shall quietly have and enjoy
the Premises during the term of this Sublease without hindrance by
anyone claiming by, through or under Sublessor as such, subject,
however, to the terms of this Sublease. Sublessor specifically
disclaims any additional covenant of quiet enjoyment, either express
or implied.
11. Security Deposit Concurrently with the execution and delivery of this
Sublease, Sublessee shall deposit Twenty Six Thousand, Eight Hundred
Eighty Two Dollars and 33/100 ($26,882.33) Dollars as a security
deposit (the "Security Deposit") and Sublessor shall hold the same
throughout the Term of this Sublease as security for the performance
by Sublessee of all obligations on the part of Sublessee to be
performed hereunder. Sublessor shall have the right from time to time
without prejudice to any other remedy Sublessor may have on account
thereof, to apply such deposit, or any part thereof, to Sublessor's
damages arising from, or to cure, any default by Sublessee. If
Sublessor shall so apply any or all of such Security Deposit,
Sublessee shall immediately deposit with Sublessor the amount so
applied to be held as security hereunder. There then existing no
default by Sublessee, Sublessor shall return the deposit, or so much
thereof as shall theretofore not been applied in accordance with the
8
<PAGE>
terms of this Section, to Sublessee on the expiration or earlier
termination of the Term of this Sublease and surrender of possession
of the Premises by Sublessee to Sublessor in accordance with the
terms hereof. Sublessor shall have no obligation to pay interest on
the same and shall have the right to commingle the Security Deposit
with Sublessor's other funds.
12. Miscellaneous.
A. Effect. This Sublease shall be binding upon the parties hereto, their
executors, administrators, heirs, successors and assigns.
B. Applicable Law. This Sublease shall be deemed made and shall be
governed by and construed in accordance with the laws of The
Commonwealth of Massachusetts.
C. Modification. Neither this Sublease nor any provision thereof may be
waived, modified, amended, discharged or terminated, except by an
instrument in writing signed by the party against which the enforcement
of such waiver, modification, amendment, discharge or termination is
sought, and then only to the extent set forth in such instrument.
D. Landlord'sApproval. The obligations of the parties hereunder are
subject to the written approval of Landlord under the Master Lease. If,
for any reason whatsoever, Landlord under the Master Lease refuses to
consent to this Sublease within thirty (30) days after the date of
execution hereof, this Sublease shall be void and of no force and
effect and neither party shall have recourse against the other
hereunder.
9
<PAGE>
E. Severability. If any term or provision of this Sublease or the
application thereof to any person or circumstance shall to any extent
be held invalid or unenforceable, the remainder of this Sublease or the
application of such term or provision to other persons or circumstances
shall not be affected thereby, and each term and provision of this
Sublease shall be valid and enforceable to the fullest extent permitted
by law.
F. Sublessor's Consent. Sublessor's refusal to consent to or to approve
any matter or thing, whenever, Sublessor's consent or approval is
required under this Sublease or the Master Lease, shall be deemed
reasonable if Landlord under the Master Lease has refused to give such
consent or approval.
G. No Broker. Sublessee and Sublessor each hereby represents and warrants
to the other that it has not dealt with any broker in connection with
the transactions contemplated in this Sublease other than Hunneman Real
Estate Corporation and Insignia/ESG (the "Brokers"). Sublessee and
Sublessor each agrees to indemnify and hold Sublessor harmless the
other from and against all claims, demands and damages suffered as a
result of claims made with respect to this Sublease by any real estate
broker other than the Brokers.
13. Additional Provisions.
A. Sublessor warrants and represents to Sublessee that it has no knowledge
of any default by itself or by Landlord under the Master Lease; that
the Master Lease is in full force and effect; and that Sublessor has a
good right to sublease its interest under the Master Lease provided
Sublessor obtains the consent of Landlord under Article 12 of the
Master Lease.
10
<PAGE>
B. Sublessor agrees (i) to pay and perform all of its obligations under
the Master Lease except to the extent such obligations are assumed by
Sublessee hereunder, (ii) not to voluntarily surrender possession of
the Premises or agree to an early termination of the Master Lease, and
(iii) without the prior written consent of Sublessee, not to enter into
any amendment or modification of the Master Lease that adversely
affects the rights or obligations of Sublessee under this Sublease.
C. Subject to the consent of Landlord to the extent required under Article
12 of the Master Lease, Sublessee shall have the right to assign this
Sublease without the consent or Sublessor to any entity acquiring,
acquired by, controlling, controlled by or under common control with
Sublessee ; provided, however, that any such entity has a net worth
equal to or greater than Sublessee on either (i) the date hereof, or
(ii) the date Sublessee's interest transferred, whichever is greater.
D. To the maximum extent that this agreement may be made effective
according to law, Sublessor agrees that it will protect and indemnify
Sublessee and save Sublessee harmless from and against all liabilities,
obligations, claims, damages, penalties, causes of action, costs and
expenses (including, without limitation, reasonable attorneys; fees and
expenses) imposed upon or incurred by or asserted against Sublessee to
the extent arising from (i) the negligence or willful misconduct of
Sublessor or Sublessor's agents or employees, and (ii) any failure on
the part of Sublessor to perform, fulfill or observe any of Sublessor's
representations, warranties or agreements set forth in this Sublease.
E. Sublessee shall not be responsible for compliance with any laws,
regulations, or the like requiring (i) structural repairs or
modifications or (ii) repairs or modifications to the utility or
11
<PAGE>
building service equipment or (iii) installation of new building
service equipment, such as fire detection or suppression equipment,
unless such repairs, modifications, or installations shall (a) be due
to Sublessee's particular manner of use of the Premises (as opposed to
office use generally), or (b) be due to the negligence or willful
misconduct of Sublessee or any agent, employee, or contractor of
Sublessee.
F. In the event of any overpayment by Sublessee of any additional rent or
estimated additional rent (including any abatement in taxes applicable
to the term hereof) under Article 5 of the Master Lease, any
reimbursements of such overpayment shall be collected by Sublessor and
passed through by Sublessor to Sublessee.
G. Sublessor shall at no out of pocket cost to Sublessor, cooperate with
Sublessee in making application to Landlord to reduce the number of
parking spaces from time to time for which Sublessee shall have the
right to use and for which Sublessee shall be obligated to pay under
Article 4 of the Lease, provided that the Landlord's refusal to reduce
the number of parking spaces shall not be a default by Sublessor
hereunder.
H. Sublessor shall at no out of pocket expense to Sublessor, cooperate
with Sublessee in making application to Landlord for such signage as to
which Sublessee is entitled under the Master Lease as incorporated
herein, and Sublessor agrees to remove its signage to make room for
Sublessee's signage.
I. In the event Sublessor is able to deliver the Premises to Sublessee for
occupancy on a date earlier than September 1, 1999, then the term of
this Sublease shall commence at such earlier date as to which Sublessor
and Sublessee shall mutually agree, without changing the expiration
12
<PAGE>
date of the term as set forth herein, and in such event the parties
shall execute a mutually acceptable rent commencement memorandum
setting forth such earlier commencement date.
J. Sublessor shall deliver the Premises to Sublessee in neat and clean
condition, vacuumed, and without broken glass, fixtures or walls.
IN WITNESS WHEREOF, the parties hereto have hereunto set their hands
and seals on the day and year first above written.
SUBLESSOR:
GIGA INFORMATION GROUP, INC.
By: /s/ Daniel M. Clarke
------------------------------------
SUBLESSEE:
INCERT SOFTWARE CORPORATION
By: /s/ Alain J. Hanover
------------------------------------
PRESIDENT
EXHIBIT 11
Statement of Computation of Per Share Earnings
<TABLE>
<CAPTION>
NET LOSS PER SHARE
Net loss per share is calculated as follows:
(Unaudited, in thousands)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1999 1998 1999 1998
-------------- ---------------- -------------- ---------------
<S> <C> <C> <C> <C>
Net loss $ (6,121) $ (5,616) $(9,723) $(9,452)
============== ================ ============== ===============
BASIC:
Weighted average common shares outstanding 9,988 2,162 9,972 2,139
============== ================ ============== ===============
Net loss per common share $ (0.61) $ (2.60) $ (0.98) $ (4.42)
============== ================ ============== ===============
DILUTED:
Weighted average common shares outstanding 9,988 2,162 9,972 2,139
Effect of dilutive securities:
Convertible notes - - - -
Stock options - - - -
Warrants - - - -
-------------- ---------------- -------------- ---------------
Weighted average common and common
equivalent shares outstanding 9,988 2,162 9,972 2,139
============== ================ ============== ===============
Net loss per common and common
equivalent share $ (0.61) $ (2.60) $ (0.98) $ (4.42)
============== ================ ============== ===============
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF GIGA INFORMATION GROUP, INC. FOR THE
QUARTER ENDED JUNE 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1999
<PERIOD-END> JUN-30-1998 JUN-30-1999
<CASH> 6,713 11,071
<SECURITIES> 0 2,766
<RECEIVABLES> 7,091 10,780
<ALLOWANCES> 404 436
<INVENTORY> 0 0
<CURRENT-ASSETS> 19,984 33,613
<PP&E> 5,125 7,218
<DEPRECIATION> 3,023 2,494
<TOTAL-ASSETS> 22,255 38,527
<CURRENT-LIABILITIES> 36,767 37,754
<BONDS> 0 0
0 0
12 0
<COMMON> 3 10
<OTHER-SE> (15,217) 763
<TOTAL-LIABILITY-AND-EQUITY> 22,255 38,527
<SALES> 9,112 12,890
<TOTAL-REVENUES> 9,112 12,890
<CGS> 5,231 7,472
<TOTAL-COSTS> 14,225 19,006
<OTHER-EXPENSES> 65 172
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 572 (177)
<INCOME-PRETAX> (5,620) (6,111)
<INCOME-TAX> (4) 10
<INCOME-CONTINUING> (5,616) (6,121)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (5,616) (6,121)
<EPS-BASIC> (2.60) (0.61)
<EPS-DILUTED> (2.60) (0.61)
</TABLE>
