UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
FORM 10-K
(MARK ONE)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE FISCAL YEAR ENDED MARCH 31, 2001
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE TRANSITION PERIOD FROM ______________ TO ______________
(Exact name of registrant as specified in charter)
DELAWARE 04-2837575 (State or other jurisdiction of (IRS Employer Identification No.) incorporation or organization) |
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes /X/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. / /
The aggregate market value of Common Stock held by non-affiliates of the registrant as of June 8, 2001 (based on the last reported sale price on The Nasdaq National Market as of such date) was $158,436,175.70. As of June 20, 2001, there were 29,562,633 shares of the registrant's Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
None.
NETSCOUT SYSTEMS, INC.
FORM 10-K
FOR THE ANNUAL REPORT ENDED MARCH 31, 2001
TABLE OF CONTENTS
INDEX
PART I Item 1. Business.................................................... 3 Item 2. Properties.................................................. 12 Item 3. Legal Proceedings........................................... 13 Item 4. Submission of Matters to a Vote of Security Holders......... 13 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters......................................... 14 Item 6. Selected Financial Data..................................... 15 Item 7. Management's Discussion and Analysis of Results of Operations and Financial Condition.......................... 16 Item 7A. Quantitative and Qualitative Disclosures about Market Risk........................................................ 28 Item 8. Financial Statements and Supplementary Data................. 28 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.................................... 28 PART III Item 10. Directors and Officers...................................... 29 Item 11. Executive Compensation...................................... 32 Item 12. Security Ownership of Certain Beneficial Owners and Management.................................................. 38 Item 13. Certain Relationships and Related Transactions.............. 41 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K......................................................... 41 Index to Consolidated Financial Statements............................... F-1 |
PART I
ITEM 1. BUSINESS
GENERAL
NetScout Systems designs, develops, manufactures, markets and supports a family of integrated products that enable optimization of the performance and cost management of complex, high-speed networks, including their ability to deliver critical business applications and content to end-users efficiently. We manufacture and market these products in an integrated hardware and software solution suite that is used by enterprise and service provider businesses worldwide.
Businesses are increasing their reliance on software applications and computer networks, making them strategic assets for better competitive advantage and essential business operations. To support the growing number of users and their demands for faster and more reliable computer network access, new network technologies and products are continually being introduced. The result is increasingly large, complex and geographically dispersed networks with infrastructures that are extremely difficult to manage. Computer network malfunctions cause performance degradations that result in significant business interruptions, lost revenue and customer dissatisfaction. As a result, businesses are recognizing the critical importance of addressing network performance problems quickly and proactively.
The NGenius-TM- Performance Management System is NetScout's solution suite of integrated hardware and software products. Our NGenius products monitor, collect and publish information on the traffic flows of individual software applications (ERP, CRM, Voice-over-IP, e-commerce, etc.), as well as the performance of the underlying network (routers, switches, and communication links) and its users' behaviors. The NGenius information is generated from multiple sources, but principally from data collected by NetScout's line of network monitoring appliances called probes. The hardware probes attach to the network and collect information from the network's traffic flows in real-time. As they record traffic, the probes generate in-depth information about network and traffic activity that is unique to NetScout probes, as well as industry-standard performance data. By placing probes at strategic locations throughout a network, enterprises and service providers can understand and optimize the network's traffic flows and application performance across the network. In addition to probes, the NGenius system includes intelligent software agents that simulate end-user transactions to measure and report the response times that would be experienced by end users throughout internal networks and across the Internet. Using probe information, active agent data, and data collected from network devices, our analysis and presentation software tools provide current and historical analysis in Web-accessible, easy-to-use graphical formats.
NetScout customers use the information generated by NGenius to reduce the severity and the frequency of network slowdowns and service interruptions, to manage the delivery of services as denoted by service-level agreements, to assess infrastructure capacity against future needs, and to justify needs for additional resources. These capabilities have a high return on investment for customers who need to maintain high levels of service while controlling growth and costs of the infrastructure. The information generated by NGenius products is published in both real-time displays and customizable reports that summarize the status of network activity, service levels, application performance, device capacity, and other critical aspects of network availability, utilization and performance.
During the fiscal year 2001, NetScout completed the introduction of its NGenius Performance Management System to markets worldwide, and migrated all of NetScout's key technologies and product functionalities onto the NGenius platform. On July 7, 2000, NetScout acquired NextPoint Networks, Inc. to accelerate the addition of key reporting and service level management technologies into the NGenius suite. As part of the development effort, NetScout's unique probe information was integrated with the new reporting capabilities brought by NextPoint technology. This integration is a significant milestone in the Company's strategy to drive growth by introducing first-to-market, integrated solutions. NetScout now has the first-to-market network performance management solution that integrates the benefits of scalable,
industry-leading monitoring probes with broad-based reporting and service level management technologies.
On June 12, 2001, NetScout announced a change in the terms of its strategic relationship with Cisco Systems, Inc. where Cisco would discontinue private labeling and reselling NetScout's probes and begin referring sales opportunities for probes directly to NetScout. The change was precipitated by the two companies' need to evolve their sales and support model to better meet changing customer requirements and needs for profitability objectives. The strategic aspect of the relationship involving the early exchange of technology plans and the close collaboration of technology development continues. As one of the key elements in our market strategy, we plan to continue our technology collaboration with Cisco and to support Cisco's continued distribution of our software products. The addition of NetScout's NGenius Real-Time Monitor software to Cisco's CiscoWorks2000 Routed WAN and LAN Management Solutions software bundle is the most recent step in that strategy plan. We also intend to generate programs with Cisco to establish mechanisms for referral of probe business and to successfully transition the responsibility for customer and reseller relationships to NetScout. We see continued opportunity in our relationship with Cisco, and intend to continue increasing the sale, visibility, and accelerated market acceptance of our products via this relationship, worldwide.
Our principal executive offices are located at 4 Technology Park Drive, Westford, MA and our telephone number is 978-614-4000.
INDUSTRY BACKGROUND
Enterprises are increasingly dependent upon their computer data networks to manage and deliver information and business services, both for internal operations and to serve their many constituencies: customers, suppliers, investors and employees. Their dependence is approaching the level of reliance which organizations have long had on the public telephone voice network for internal communications and to reach constituents.
As they did with the voice network in the past, enterprises today are turning to data network service providers to fulfill their need for available, flexible, reliable network service in the face of serious internal skill and resource constraints. Service providers and enterprises have been building networks rapidly to be available to satisfy the anticipated growth in demand for information and services.
The ultimate value of the data network to both enterprises and service providers is determined not just by availability of the network, but by the speed, flexibility, and cost with which it can deliver high quality information, knowledge, productivity, reach and rapid execution to fulfill critical enterprise missions. As enterprise network dependence grows and uses of the network are increasingly business-critical, the need for network reliability, performance and efficiency is growing even faster.
Network management tools to measure, analyze and maintain network performance have necessarily lagged the development of the new technologies which drive today's networks. Beyond that natural lag, however, the recent period of rapid growth of network infrastructures has often caused network management to be a secondary consideration for enterprises and service providers who were striving for rapid network expansion to meet perceived market opportunities or competitive threats. In recent years, this led to an excess capacity, or an over-provisioning approach to managing networks, using high redundancy and capacity to compensate for unmeasured and unmanaged network utilization and performance.
Today, with the slowing of the e-commerce land rush, enterprises, and consequently service providers, are focusing on obtaining productivity and returns from their existing investments in network facilities, not just on building them. In that environment, the appeal of network management solutions is much greater. Solutions which can provide improved network availability, application performance and network
efficiency are increasingly important, even in the face of lower growth in network infrastructure equipment purchases and communications bandwidth.
APPROACHES TO NETWORK PERFORMANCE MANAGEMENT
Network management solution providers have developed several approaches to manage different aspects of the overall network management challenge. These approaches can be broadly categorized as fault management, availability management and performance management.
Fault management is the collection and analysis of data from network devices upon the failure of network elements, principally devices such as routers and switches. This approach uses alarms sent by the devices and analyzes them to help network managers to determine the cause of the failure and to repair it more quickly. It does not provide information about the utilization or performance of the network or allow for proactive management of the network. It only provides value after the network failure or degradation is experienced by the end user. Enterprises and service providers who have built networks without putting in place any network management solutions, typically find that fault management is the initial solution they implement. This is because without good network management available, and the visibility to impending network problems that it provides, their network requires fixing more frequently.
Availability management is the collection and analysis of data on network utilization and the availability of network services. This is done at the network infrastructure level, that is, providing data on what communications links are up or down and how fully utilized they are. It does not provide information on what is causing the links to be down or heavily utilized because it does not provide visibility into the content of flow of traffic over the network. It is often an early step for enterprises and service providers in developing proactive network management.
Performance management is the collection and analysis of data on network performance and activity, such as device throughput, link utilization and traffic flows at the level of applications and users of the network. Performance management solutions provide real-time monitoring of the utilization of network infrastructure resources by individuals and/or groups of applications and users, so that consumption of those resources can be proactively managed. They provide trending of network utilization and error occurrences so that failures can be anticipated and avoided, minimizing the need to fix network failures. Ultimately, performance management solutions enable increases in utilization to take place without having to invest heavily in additional network infrastructure; additional capacity can be added only where most urgently required. To provide full value in managing network behavior, performance management solutions must have mechanisms for generating information directly from the network traffic, rather than relying solely on the limited data supplied by the network devices themselves.
NETSCOUT PRODUCTS AND TECHNOLOGY
NetScout develops, sells and supports network performance management solutions under the NGenius-TM- brand. The NGenius Performance Management System is a robust, broad system implementation of the performance management approach to network management. NGenius consists of integrated hardware and software products that monitor, measure and report on the state of the network's ability to fulfill its performance, cost and service-level objectives. The system is comprised of:
- PRESENTATION AND ANALYSIS SOFTWARE, which displays the network and application performance information in real-time or historical views through easy-to-use, graphical formats;
- REAL-TIME, APPLICATION-AWARE PROBES that generate, collect, aggregate and analyze network and application performance information;
- ACTIVE INTELLIGENT SOFTWARE AGENTS that generate synthetic end-user transactions, measure and report on response times of the applications supporting those transactions; and
- AGGREGATING SERVERS that accelerate the distribution and consumption of the rich performance information by aggregating, sorting, simplifying and storing data collected at remote sites.
PRESENTATION AND ANALYSIS SOFTWARE. The NGenius system includes a suite of presentation and analysis software applications that display all of the real-time and historical information gathered and analyzed by NetScout's probes and active agents, as well as information generated from network devices. All of the presentation and analysis software products are designed for intuitiveness and ease of use, and utilize Web-based distribution. They also are designed with features that simplify and enable logical monitoring and management of large, geographically dispersed networks. NGenius performance management applications include the following:
- NGENIUS-TM- REAL-TIME MONITOR delivers continuous views of network and application behavior and performance information generated by NetScout's probes. It enables proactive control of communications, link utilization, link performance, application loads, end user behavior, device loads and more. NGenius Real-Time Monitor delivers its continuous information securely, anytime, anywhere, via the Web.
- NGENIUS-TM- CAPACITY PLANNER helps IT professionals leverage the value of deployed network resources and improve the effectiveness of future network investments by profiling and predicting application, network, and device utilization and behavior. NGenius Capacity Planner also reports on trends in network consumption by individual software application through utilizing data available from NetScout probes.
- NGENIUS-TM- APPLICATION SERVICE LEVEL MANAGER generates reports on applications service levels from information gathered by NetScout's active agent technology. Network managers use the reports to validate application response time and to manage relationships with IT clients or service providers. The NGenius active agent is a Java application deployed on or near the desktop to gather application response time information from the customer perspective. It generates synthetic transactions to "test" the application environment and report response time. A single active agent can represent multiple applications, providing a cost-effective approach to tracking business transactions.
INFORMATION COLLECTION AND GENERATION. At the heart of NetScout's value to its customers is the unique network and application behavior and performance information generated from data collected by NetScout's real-time probes. NetScout probes attach to the network and collect information from applications traffic as it flows across the network, in real-time. As they record traffic data, the probes generate unique in-depth information about network and traffic behavior that is available only through NetScout probes, as well as industry-standard performance data. By placing probes at strategic locations throughout a network, network professionals can understand and optimize performance of the network and the applications being delivered across the network. They can also be deployed to track and report on network usage by applications, departments, or users, which can then be used to implement usage based billing.
NetScout continually enhances its probe technology to ensure visibility into all types of network traffic and communications technologies. Today, NetScout's probes monitor all business applications, as well as voice, video, and Web applications. NetScout recently introduced support for Voice-over-IP, Voice-over-Frame-Relay and Virtual Private Networks to its monitoring capabilities. NetScout has probes to support the widest range of network topologies, including Gigabit Ethernet, DS3 Asynchronous Transfer Mode, E3 ATM, Ethernet, Fast Ethernet, Fast EtherChannel, Token Ring, Sub-rate T1/E1, T3/E3 Wide Area Network and Frame Relay, Fiber Distributed Data Interface/Copper Distributed Data Interface and OC-3 ATM. Our track record of innovation began with the introduction of Ethernet probes in 1992 and we have continued to innovate probe technology with the addition of more than twenty new probes over the past nine years. In conjunction with probe innovation, we have continually expanded our network traffic monitoring capabilities by also innovating highly valuable, unique applications performance information
through new probe software extensions, including extensions for application response time and web-application content response time. Maintenance customers with probes installed can upgrade them by downloading new versions of the probe software over their network, keeping their monitoring capability current with NetScout's industry leading innovations.
NetScout also offers options for proprietary software enhancements to its probes. Some of those options include: NetFlow Monitor, which integrates traffic information stored in Cisco routers with other traffic information; Resource Monitor, which collects information from network devices, including servers, to offer a more complete, end-to-end view of the network; Application Response Time Management Information Base, which enables monitoring of application response time within the network; and Virtual Local Area Network Monitor, which allows traffic monitoring of specific sets of users within a switched network for either increased troubleshooting or traffic accounting.
STRATEGY
Our objective is to enhance shareholder value through continued growth, profitability and market leadership. We intend to pursue growth through expanding our worldwide presence, expanding our customer base, and increasing our ongoing business and penetration with our established customers. We intend to extend our market leadership by continuing to develop the market's first strategic, integrated, network performance management platform that overlays the network and generates the information needed to proactively avoid network faults and performance degradations. Key elements of our strategy include:
EXTEND TECHNOLOGY LEADERSHIP. We intend to continue to devote significant development resources to expanding and enhancing our first-to-market, integrated platform of performance management solutions that capitalizes on our extensive experience with global companies and their very large computer networks. Key aspects of our technology leadership include the ability to develop new and groundbreaking performance management techniques, the ability to deliver solutions across a multi-vendor environment, and our vision into emerging uses of communications technology and networked environments. As part of our strategy, we will enter into strategic relationships with, and/or acquire other companies to gain complementary technologies. We intend to incorporate new technologies and provide solutions that will enable businesses, service providers and carriers to manage and optimize the performance of their networks, critical software applications and network-based service offerings.
EXPAND REPORTING AND ANALYSIS SOFTWARE SUITE. We plan to develop new analysis, presentation and reporting software to capitalize on growing demands for integrated performance management solutions and opportunities created by changes in networking technologies and trends, such as IP telephony and storage area networks. We also plan to leverage the unique information generated by our probes and integrated reporting and analysis tools, through new NGenius software products.
EXTEND PROBE SUITE. We plan to continue to expand our probe line to extend our monitoring capabilities alongside emerging network environments with higher speeds, new types of traffic, new communications architectures, new communications technologies and new network topologies. To ensure that our customers are able to achieve comprehensive oversight of their networks, we will maintain older topologies while regularly introducing probes for newer ones. Our probe suite covers topologies of both domestic and international markets.
LEVERAGE INSTALLED BASE OPPORTUNITIES. More than 75,000 network segments are monitored by the more than 3,000 customers that have deployed NetScout products worldwide. Ongoing business with those customers represented approximately two-thirds of our business in fiscal year 2001. During fiscal year 2001, the potential for recurring sales with existing customers increased with the introduction of the NGenius system and the new products acquired through the acquisition of NextPoint. We have initiated steps to target existing users of our products with marketing and sales programs designed to promote the more extensive use of our performance management solutions. Customers purchase products through our top reseller partners or direct from us. In both cases, we participate in selling to them using a "high-touch" selling model. In this model, NetScout's worldwide field sales force maintains a very high presence with customers and prospects, consulting direct and alongside reseller partners to satisfy customers' needs.
TARGET MARKET OPPORTUNITIES. We target our products at markets that we believe have the potential for growth. We have identified the following markets as having the potential for increasingly strong demand for our integrated products:
- Global enterprises;
- Global service providers, including carriers, ISPs, ASPs, MSPs, etc.; and
- Professional technology services organizations, such as systems integrators.
CISCO RELATIONSHIP. Since 1994, we have had a strategic relationship with Cisco. Over time, the relationship expanded to include exchange of technology development plans, the private labeling and reselling of NetScout's probes and real-time monitoring software and joint field sales and support activities. Development activities have included the quarterly exchange of technology and product plans between NetScout and Cisco to guide development of network management technologies that align with the future needs of Cisco-powered networks. Standard functionality in NetScout's solutions has grown to include support for Cisco's switch product line, ISL, Netflow and QoS, and the resale of NetScout's software technology in the CiscoWorks2000 Routed WAN and LAN Management Solutions software bundle. On June 12, 2001, NetScout announced a change in the Cisco relationship where Cisco would discontinue private labeling and reselling NetScout's probes and begin referring sales opportunities for probes directly to NetScout. The change was precipitated by the two companies' need to evolve their sales and support model to better meet changing customer requirements and needs for profitability. The strategic aspect of the relationship involving the early exchange of technology plans continues. The two companies' development organizations collaborate closely on product direction. Our strategy is to continue to collaborate with Cisco on technology development and to support Cisco's continued distribution of our software products. The addition of NetScout's NGenius Real-Time Monitor software to Cisco's CiscoWorks2000 Routed WAN and LAN Management Solutions software bundle is the most recent step in that strategy. We also intend to generate programs with Cisco to establish mechanisms for referral of probe business and to successfully transition the responsibility for customer and reseller relationships to NetScout. We see continued opportunity in our relationship with Cisco, and intend to continue increasing the sale, visibility, and accelerated market acceptance of our products via this relationship worldwide.
EXPAND DISTRIBUTION CHANNELS. We plan to continue to increase our direct field sales presence where it is advantageous to do so during calendar year 2001. We also seek to develop additional indirect distribution channels with computer networking equipment and software application vendors, systems integrators, distributors, resellers and service providers. In addition to Cisco, our channel relationships include SBC, Acterna, NEC, MCI Worldcom, Toyo, Siemens and TGS Telonic. These and other important partners facilitate the worldwide distribution and market acceptance of our solutions.
FACILITATE DEVELOPMENT OF COMPLEMENTARY THIRD-PARTY PRODUCTS. Our probes generate rich performance information that can be leveraged by third-party software products. As a means to increase demand for our products, we encourage the development of applications that leverage our solutions. We are partnered with Apogee Networks, for the delivery of usage-based billing solutions. Our NGenius
product platform also facilitates delivery of complementary performance management and reporting applications with its open style architecture and user interface portal.
NetScout intends to leverage the competitive advantage of its application-and-user level network traffic information generating technology in probes, agents and analysis software, to build the broadest, most robust network performance management for the strategic enterprise networks of the future, a solution on which all other network management will be based.
SALES AND MARKETING
NetScout targets corporations and service providers with large, mission-critical networks through a combination of direct and indirect sales channels. Our direct sales teams play an integral and influential role in serving a large portion of our channel partner's accounts, providing the consulting expertise needed to determine technical and practical needs of customers and designing and presenting the solutions that best suit those needs. We prioritize hiring practices and training programs to ensure our sales personnel are both highly talented and well trained. We continue to provide programs for our direct sales force, as well as channel partners, throughout the year, for in-depth product and technical training. We encourage joint initiatives involving our sales teams and the teams of our partners.
NetScout's sales force utilizes a "high-touch" sales model that consists of meetings with end-users to understand and identify their individual business requirements. Our sales teams then translate those requirements into tailored business solutions that would maximize performance of their network. Due to the complexity of the systems and the capital expenditure involved, our sales cycle can extend anywhere from three to twelve months. There is significant, ongoing revenue opportunity with customers throughout the life of their networks and our sales model is designed to capitalize on this opportunity. The Company has invested aggressively in its direct, quota-carrying sales force, growing it by approximately 50% during fiscal 2001.
Over the past several years, the largest portion of our indirect sales has channeled through our strategic partner, Cisco Systems, Inc. Revenue derived through the Cisco channel represented 51%, 50%, and 51% of our total revenue for the fiscal years ended March 31, 1999, 2000 and 2001, respectively. Approximately 12%, 17% and 13% of total revenue has been derived through royalties we receive as compensation for our core monitoring technology being resold as part of CiscoWorks2000 Routed WAN and LAN Management Solutions software bundle for the fiscal years ended March 31, 1999, 2000 and 2001, respectively. The remaining 39%, 33% and 38% of total revenue has been derived through ongoing sales and support of NetScout probes to Cisco customers accomplished through joint selling by Cisco and NetScout sales organizations for the fiscal years ended March 31, 1999, 2000 and 2001, respectively. Through these joint sales and support activities, NetScout has maintained relationships with virtually all top customers. The recent change in the selling model for NetScout probes to Cisco customers influences only sales associated with NetScout probes. Sales of our software on the CiscoWorks2000 software bundle are not affected. We anticipate the recent investments in our sales infrastructure and the high level of involvement our sales organization has held in fulfilling sales and support with Cisco customers to be advantageous in transitioning to direct fulfillment of probe sales. Our strategic relationship with Cisco is governed by a project development and license agreement dated as of January 13, 1994 and private labeling agreement dated as of October 17, 1995, which terms expire October 31, 2002.
Our other indirect channel partners include original equipment manufacturers, distributors, resellers, service providers and system integrators. Total revenue from indirect distribution channels represented 81%, 78% and 72% of total revenue for the fiscal years ended March 31, 1999, 2000 and 2001, respectively.
Our sales force is organized into three main regions, North America, Europe-Middle East-Africa and Asia Pacific. Revenue from sales outside North America represented 12%, 13% and 10% of our total revenue in the fiscal years ended March 31, 1999, 2000 and 2001, respectively. Sales outside North America are primarily to indirect channel partners, which are generally responsible for importing products and
providing consulting and technical support and service to customers within their territory. Our reported international revenue does not include any revenue from sales to customers outside North America made by any of our North American based indirect channel partners. The North America revenue figures include sales made by NetScout to these North American based indirect channel partners. These domestic resellers may sell NetScout product to international locations, however, NetScout still reports these shipments as North America revenue since NetScout ships the product to a domestic location. We expect revenue from sales outside North America to continue to account for a significant portion of our revenue in the future.
As of March 31, 2001, our North American field sales organization consisted of 84 employees. Our international sales organization consisted of 28 employees with offices in the United Kingdom, France, Hong Kong, Netherlands, Germany, Norway and Singapore. In addition, we had 28 employees responsible for providing telesales, training and sales and administrative support.
As of March 31, 2001, our marketing organization consisted of 20 employees. Our marketing organization produces and manages a variety of programs such as advertising, trade shows, public relations, direct mail, seminars, sales promotions, and web marketing to promote the sale and acceptance of our solutions and to build the NetScout brand name in the marketplace. Key elements of our marketing strategy focus on demand generation in new target markets, demand generation within our installed base, and acceleration of strategic selling relationships with local and global resellers and systems integrators.
SUPPORT SERVICES
Customer satisfaction is a key driver of NetScout's success. NetScout offers pre and post-sales support programs to assist in the deployment and use of our solutions. We have support personnel located in the United States and abroad with some support provided by qualified third party support organizations.
NetScout provides 8 a.m. to 8 p.m. Eastern time, toll-free customer support as part of our product sales as well as fee based customer support. Depending on the level of need, a 24x7 technical assistance plan is offered as part of our MasterCare Platinum Plan, or for those requiring less assistance we offer regular support from 8 a.m. to 8 p.m. Under our fee plans, our customers have access to an exclusive customer Web site where information regarding frequently asked questions, technical tips, and the latest patches and downloads are available.
RESEARCH AND DEVELOPMENT
Our success depends on our ability to anticipate and innovate solutions that will meet emerging customer demands. We have extensive experience in market development in conjunction with pioneering next generation network performance management technologies. Our core technology for monitoring and troubleshooting network and applications performance remains positioned at the forefront of a rising market. In fiscal 2001, we began new market development in conjunction with our introduction of the market's first integrated network performance management system. Our NGenius system leverages the two leading principal forms of network performance management: real-time network and applications monitoring and troubleshooting with historical-based capacity planning. Our plans are to leverage the comprehensive benefits of this new platform into emerging, growth-oriented markets.
As of March 31, 2001, our research and development organization consisted of 102 employees. In addition, we contract with third parties to perform specific development projects. Research and development expenditures for the fiscal years ended March 31, 1999, 2000 and 2001 were approximately $7.5 million, $9.5 million and $15.4 million, respectively. To date, all research and development expenses have been expensed as incurred.
We predominantly develop our products internally, with some third party contracting. To promote industry standards and manifest technology leadership, we engage actively in, contribute to, and often
provide a leadership role in Internet Engineering Task Force (IETF) standards-making activities. These activities provide early insight into the direction of the network and application performance management requirements going forward for current and emerging technologies.
We also continue our technology collaboration within the framework of our strategic relationship with Cisco Systems, Inc. As a part of this collaboration, we review and address the network and application performance management needs and plans engendered by Cisco-specific standards-implementations, extensions thereto, technologies, and product and technology initiatives. These collaborations, similar to the IETF activities, also provide NetScout with early insight into Cisco-specific plans and directions, allowing NetScout quick time-to-market of products and technologies.
MANUFACTURING
Our manufacturing operations consist primarily of final product assembly, configuration and testing. We purchase components and subassemblies from suppliers and construct our hardware products in accordance with individual customer requirements. We inspect, test and use process control to ensure the quality and reliability of our products. In February 1998, we obtained ISO 9001 quality systems registration, a certification showing that our procedures and manufacturing facilities comply with standards for quality assurance and manufacturing process control. As of March 31, 2001, our manufacturing organization consisted of 25 employees.
Although we generally use standard parts and components for our products, each of the computer network interface cards used in our probes is currently available only from separate single source suppliers. We have generally been able to obtain adequate supplies of components in a timely manner from current suppliers. We have few supply commitments with our suppliers but believe that, in most cases, alternate suppliers can be identified if current suppliers are unable to fulfill our needs.
CUSTOMERS
We sell our products to businesses and organizations with large and medium-sized, high-speed computer networks. We have sold a majority of our products through indirect distribution channels to more than 3,000 customers worldwide. Our products have been sold to customers operating in a wide variety of industries, such as financial services, transportation, manufacturing, insurance, retail and software development. Due to rapid order fulfillment we do not operate with significant backlog.
We have worked closely and extensively with Cisco in joint sales and support activities involving Cisco customers during the past several years. We have established strong relationships with a great portion of Cisco customers during this time and are now engaged in transferring relationships with those customers fully over to NetScout. Other than Cisco, no other customer represented more than 10% of our revenue for the fiscal year's ended March 31, 1999, 2000 and 2001.
COMPETITION
The market for our products is new and rapidly evolving, and is expected to become increasingly competitive as current competitors expand their product offerings and new companies enter the market. Our principal competitors include a number of companies offering one or more solutions for the network and application performance management market, some of which compete directly with our products. For example, we compete with probe vendors such as Agilent Technologies, providers of network performance management solutions such as Concord Communications and Micromuse, and providers of portable network traffic analyzers, such as Network Associates, Inc. New vendors of network performance monitoring and enhancing equipment are emerging to compete with us, including Packeteer, Inc. In addition, leading network equipment providers could offer their own or competitors' solutions in the future. We believe that the principal competitive factors in the network and applications performance
management solutions market include product performance, functionality and price, name and reputation of vendor, distribution strength, and alliances with industry partners.
Although we believe that we currently compete favorably with respect to these factors, there can be no assurance that we can maintain our competitive position against current and potential competitors, especially those with greater financial, management, marketing, service, support, technical, distribution or other resources.
INTELLECTUAL PROPERTY RIGHTS
Our success and competitiveness are dependent to a significant degree on the protection of our proprietary technology. We rely primarily on a combination of copyrights, trademarks, licenses, trade secret laws and restrictions on disclosure to protect our intellectual property and proprietary rights. We also enter into confidentiality agreements regarding proprietary information.
We pursue registration of some of our trademarks in the U.S. and in other
countries. We have registered the trademark NETSCOUT in the U.S., Canada and the
European Union and the NetScout Logo in the U.S., Canada and Japan. We also own
registrations in the U.S., Australia, Hong Kong, Japan, and Switzerland for
NEXTPOINT, in the U.S. and the European Union for SYNTHETIC TRANSACTIONS, the
U.S., European Union, and Japan for TRAFFIC SIGNATURES, and in the European
Union and Japan for APPSCOUT and BUSINESS-CENTRIC NETWORK MANAGEMENT.
In addition, we have applications for registration pending in the U.S. for the following trademarks: APPSCOUT, ART MIB, NGENIUS (also in Canada and the European Union), NGENIUS EVENT MANAGER, NGENIUS PACKET ANALYZER, NGENIUS PERFORMANCE MONITOR, NGENIUS PROBES, NGENIUS TRAFFIC MONITOR, NGENIUS TREND REPORTER and TRENDSMART.
We also have the following patents pending: EVALUATING COMPUTER RESOURCES AND MANAGING COMPUTER RESOURCES. These U.S. patent applications were assigned to us from NextPoint upon NetScout's acquisition of NextPoint.
Finally, we have resolved disputes involving the NETHOUND and NETSCOPE trademarks in the U.S., and have resolved or are currently addressing trademark disputes involving the LANSCOUT trademark in Canada and the European Union.
EMPLOYEES
As of March 31, 2001, we had 364 employees, 255 of whom were based at our headquarters in Westford, Massachusetts. None of our employees are subject to a collective bargaining agreement. We believe that our relations with our employees are good.
ITEM 2. PROPERTIES
We currently lease approximately 97,500 square feet of space in an office building in Westford, Massachusetts for our headquarters. We plan to move from our existing office building and lease a new 175,000 square foot office building also located in Westford, Massachusetts, commencing in September 2001. The new lease will expire in August 2013 and we have an option to extend the lease for an additional five-year term. We also lease office space in thirteen other cities for our sales and support personnel, including 3,200 square feet of space in the United Kingdom. We believe that these existing facilities are adequate to meet our foreseeable requirements or that suitable additional or substitute space will be available on commercially reasonable terms.
ITEM 3. LEGAL PROCEEDINGS
Prior to the acquisition of NextPoint, a reseller of NextPoint filed an action against NextPoint alleging breach of contract. NextPoint has denied that a breach occurred. An escrow balance was established at the time of the acquisition to account for potential losses related to this suit in order to limit any exposure to NetScout. NetScout plans to vigorously defend this matter. However, since the matter is at a preliminary stage, NetScout is unable to predict the outcome or amount of related expense, or loss, if any.
In addition to the matters noted above, from time to time NetScout is subject to legal proceedings and claims in the ordinary course of business. In the opinion of management, the amount of ultimate expense with respect to any other current legal proceedings and claims will not have a material adverse effect on NetScout's financial position or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the fourth quarter of the fiscal year ended March 31, 2001.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
PRICE RANGE OF COMMON STOCK
The Company completed its initial public offering on August 17, 1999 at a price of $11.00 per share. Since that time, the Company's common stock has traded on the Nasdaq National Market under the symbol NTCT. The following table sets forth, for the periods indicated, the high and low closing sales prices for the common stock. Such information reflects inter-dealer price, without retail mark-up, markdown or commission and may not represent actual transactions.
QUARTER ENDED HIGH LOW ------------- -------- -------- September 30, 1999.......................................... $36.50 $12.63 December 31, 1999........................................... $31.00 $20.31 March 31, 2000.............................................. $32.75 $14.88 June 30, 2000............................................... $17.00 $10.81 September 30, 2000.......................................... $23.75 $12.88 December 31, 2000........................................... $24.38 $10.00 March 31, 2001.............................................. $15.69 $ 4.66 |
As of June 20, 2001 there were approximately 5,110 stockholders of record of the Company's common stock.
DIVIDEND POLICY
In fiscal years 2000 and 2001, we did not declare any cash dividends and do not anticipate in the foreseeable future any dividend declaration. In addition, the terms of our bank loan agreement prohibit the payment of cash dividends on our capital stock. It is our intention to retain all future earnings for reinvestment to fund our expansion and growth. Any future dividend declaration will be at the discretion of our Board of Directors and will depend upon, among other things, our future earnings, general financial conditions, capital requirements, and general business conditions.
USE OF PROCEEDS
On August 17, 1999, we completed our initial public offering of three million shares of common stock at a price of $11.00 per share. The principal underwriters for the transaction were Deutsche Banc Alex. Brown, Bear, Stearns & Co. Inc. and Dain Rauscher Wessels, a division of Dain Rauscher Incorporated. The registration statement relating to this offering was declared effective by the Securities and Exchange Commission (SEC File Number 333-76843) on August 12, 1999. We received net proceeds of $29.6 million after deducting $2.3 million in underwriting discounts and commissions and $1.1 million in other offering expenses.
Upon the exercise of the over allotment option by the underwriters, certain selling security holders sold 450,000 shares of common stock for net proceeds of approximately $4.6 million after deducting underwriting discounts and commissions.
Approximately $23.3 million of the proceeds from our initial public offering were used in the acquisition of NextPoint. The balance of proceeds has been invested primarily in U.S. Treasury obligations and other interest bearing investment grade securities.
RECENT SALES OF UNREGISTERED SECURITIES
On July 7, 2000, NetScout issued 2,099,120 share of its common stock to stockholders of NextPoint as part of the consideration paid by NetScout in connection with the acquisition of NextPoint. In December 2000, NetScout issued 11,319 shares of its common stock to Silicon Valley Bank pursuant to the exercise of warrants originally issued by NextPoint and assumed by NetScout upon its acquisition of NextPoint.
ITEM 6. SELECTED FINANCIAL DATA
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data set forth below should be read in conjunction with our consolidated financial statements and notes thereto and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere in this Annual Report on Form 10-K. The consolidated statement of income data for the years ended March 31, 1999, 2000 and 2001, and the consolidated balance sheet data as of March 31, 2000 and 2001, are derived from audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K. The consolidated statement of income data for the years ended March 31, 1997 and 1998, and the consolidated balance sheet data as of March 31, 1997, 1998 and 1999, have been derived from audited consolidated financial statements of NetScout that do not appear in this Annual Report on Form 10-K. On July 7, 2000, NetScout acquired all of the outstanding common and preferred stock of NextPoint The results of operations of NextPoint subsequent to July 7, 2000 have been included in NetScout's consolidated statement of income and consolidated balance sheet for fiscal year 2001. The historical results are not necessarily indicative of the operating results to be expected in the future.
YEAR ENDED MARCH 31, ---------------------------------------------------- 1997 1998 1999 2000 2001 -------- -------- -------- -------- -------- (IN THOUSANDS, EXCEPT PER SHARE DATA) STATEMENT OF INCOME DATA: Revenue: Product......................................... $25,159 $34,990 $50,374 $57,206 $ 75,673 Service......................................... 3,888 5,143 8,710 12,804 18,506 License and royalty............................. 1,601 2,696 8,467 16,149 13,772 ------- ------- ------- ------- -------- Total revenue................................. 30,648 42,829 67,551 86,159 107,951 ------- ------- ------- ------- -------- Cost of revenue: Product......................................... 9,427 12,638 19,250 21,139 25,737 Service......................................... 528 784 1,235 1,718 3,453 ------- ------- ------- ------- -------- Total cost of revenue......................... 9,955 13,422 20,485 22,857 29,190 ------- ------- ------- ------- -------- Gross margin...................................... 20,693 29,407 47,066 63,302 78,761 ------- ------- ------- ------- -------- Operating expenses: Research and development........................ 3,003 5,129 7,526 9,526 15,424 Sales and marketing............................. 6,778 13,583 20,375 27,945 39,985 General and administrative...................... 1,815 2,950 4,104 4,631 8,382 Amortization of goodwill and other intangible assets........................................ -- -- -- -- 7,892 In-process research and development............. -- -- -- -- 268 ------- ------- ------- ------- -------- Total operating expenses...................... 11,596 21,662 32,005 42,102 71,951 ------- ------- ------- ------- -------- Income from operations............................ 9,097 7,745 15,061 21,200 6,810 Interest income, net.............................. 461 743 926 2,551 3,923 ------- ------- ------- ------- -------- Income before provision for income taxes.......... 9,558 8,488 15,987 23,751 10,733 Provision for income taxes........................ 3,640 3,056 5,715 8,539 7,027 ------- ------- ------- ------- -------- Net income........................................ $ 5,918 $ 5,432 $10,272 $15,212 $ 3,706 ======= ======= ======= ======= ======== Basic net income per share........................ $ 0.31 $ 0.28 $ 0.55 $ 0.70 $ 0.13 Diluted net income per share...................... $ 0.26 $ 0.23 $ 0.43 $ 0.56 $ 0.12 Shares used in computing: Basic net income per share...................... 19,010 19,289 18,586 21,750 28,487 Diluted net income per share.................... 22,919 23,166 23,706 26,946 29,726 |
MARCH 31, ---------------------------------------------------- 1997 1998 1999 2000 2001 -------- -------- -------- -------- -------- (IN THOUSANDS) BALANCE SHEET DATA: Cash, cash equivalents and marketable securities...................................... $12,355 $15,175 $25,477 $70,322 $ 61,382 Working capital................................... 11,140 14,163 24,489 74,866 67,665 Total assets...................................... 21,703 31,220 43,974 96,748 142,080 Class B redeemable convertible common stock....... -- -- 44,161 -- -- Total stockholders' equity (deficit).............. 14,809 20,400 (13,124) 81,122 121,045 |
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
The following information should be read in conjunction with the consolidated historical financial information and the notes thereto included elsewhere in this Annual Report on Form 10-K.
In addition to the other information in this report, the following Management's Discussion and Analysis should be considered carefully in evaluating the Company and our business. This Annual Report on Form 10-K contains forward-looking statements. These statements relate to future events or our future financial performance and are identified by terminology such as "may", "will", "could", "should", "expects," "plans," "intends," "seeks," "anticipates," "believes," "estimates," "potential," or "continue" or the negative of such terms or other comparable terminology. These statements are only predictions. You should not place undue reliance on these forward-looking statements. Actual events or results may differ materially. In evaluating these statements, you should specifically consider various important factors, including the risks outlined under "Certain Factors Which May Affect Future Results" in this section of this report and our other filings with the Securities and Exchange Commission. These factors may cause our actual results to differ materially from any forward-looking statement.
OVERVIEW
NetScout Systems designs, develops, manufactures, markets and supports a family of integrated products that enable optimization of the performance and cost management of complex, high-speed networks, including their ability to deliver critical business applications and content to end-users efficiently. We manufacture and market these products in an integrated hardware and software solution suite that is used by enterprise and service provider businesses worldwide.
NetScout was incorporated in 1984 as a consulting services company. In 1992, the Company began to develop and market its first infrastructure performance management products. Our operations have been financed principally through cash provided by operations and we have been profitable for each of the last eight years. On July 7, 2000, NetScout completed its acquisition of NextPoint Networks, Inc. The transaction was valued at approximately $53.4 million.
Product revenue consists of sales of our hardware products and licensing of our software products. Product revenue is recognized upon shipment, provided that evidence of an arrangement exists, title and risk of loss have passed to the customer, fees are fixed or determinable and collection of the related receivable is probable. Revenue is recorded net of an allowance for estimated product returns which is based upon our return policy and historical experience.
Service revenue consists primarily of customer fees from support agreements, consulting and training. We generally provide three months of software support and 12 months of hardware support as part of product sales. Revenue from software support is deferred and recognized ratably over the three-month support period. Revenue from hardware support is deferred and recognized ratably over the 12-month support period. In addition, customers can elect to purchase extended support agreements, typically for 12-month periods. Revenue from these agreements is deferred and recognized ratably over the support period. Revenue from consulting and training is recognized as the work is performed.
For multi-element arrangements, each element of the arrangement is analyzed and we allocate a portion of the total fee under the arrangement to the undelivered elements, primarily support agreements and training, using vendor specific objective evidence of fair value of the element and the remaining portion of the fee is allocated to the delivered elements (i.e. generally hardware products and licensed software products), regardless of any separate prices stated within the contract for each element, under the residual method. Vendor specific objective evidence of fair value is based on the price the customer is required to pay when the element is sold separately.
License and royalty revenue consists primarily of royalties paid under license agreements by original equipment manufacturers who incorporate components of our data collection technology into their own products or who reproduce and sell our software products. License revenue is recognized when delivery has occurred and when we become contractually entitled to receive license fees, provided that such fees are fixed or determinable and collection is probable. Royalty revenue is recognized based upon product shipment by the license holder.
Revenue from indirect distribution channels, including original equipment manufacturers, distributors, resellers, system integrators and service providers, represented 81%, 78% and 72% of total revenue for the fiscal years ended March 31, 1999, 2000 and 2001. Our revenue from Cisco represented 51%, 50% and 51% of our total revenue in the fiscal years ended March 31, 1999, 2000 and 2001, respectively. No other customer or indirect channel partner accounted for 10% or more of our total revenue during the fiscal years ended March 31, 1999, 2000 or 2001.
Cisco resold our probes to customers under its own private label in the fiscal years ended March 31, 1999, 2000 and 2001. As of July 31, 2001, Cisco will no longer private label NetScout probes. However, Cisco will continue to incorporate components of our software technology into its products. Our strategy is to continue to collaborate with Cisco on development and marketing and to support Cisco's continued distribution of our software products. We also intend to generate programs with Cisco to establish mechanisms for referrals of NetScout probe business and to successfully transition the Cisco customer and reseller probe relationships to NetScout. We see continued opportunity in our relationship with this computer networking industry leader and intend to continue increasing the sale, visibility and accelerated market acceptance of our products via this relationship worldwide.
Revenue from sales outside North America represented 12%, 13% and 10% of our total revenue in the fiscal years ended March 31, 1999, 2000 and 2001, respectively. Sales outside North America are primarily to indirect channel partners, which are generally responsible for importing products and providing consulting and technical support and service to customers within their territory. Our reported international revenue does not include any revenue from sales to customers outside North America made by any of our North American based indirect channel partners. The North America revenue figures include sales made by NetScout to these North American based indirect channel partners. These domestic resellers may sell NetScout product to international locations, however, NetScout still reports these shipments as North America revenue since NetScout ships the product to a domestic location. We expect revenue from sales outside North America to continue to account for a significant portion of our revenue in the future.
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated the percentage of total revenue of certain line items included in our Statements of Income:
NETSCOUT SYSTEMS, INC.
STATEMENTS OF INCOME PERCENTAGES
YEAR ENDED MARCH 31, ------------------------------------ 1999 2000 2001 -------- -------- -------- Revenue: Product.................................................. 74.6% 66.4% 70.1% Service.................................................. 12.9 14.9 17.1 License and royalty...................................... 12.5 18.7 12.8 ----- ----- ----- Total revenue.......................................... 100.0 100.0 100.0 ----- ----- ----- Cost of revenue: Product.................................................. 28.5 24.5 23.8 Service.................................................. 1.8 2.0 3.2 ----- ----- ----- Total cost of revenue.................................. 30.3 26.5 27.0 ----- ----- ----- Gross margin............................................... 69.7 73.5 73.0 ----- ----- ----- Operating expenses: Research and development................................. 11.1 11.1 14.3 Sales and marketing...................................... 30.2 32.4 37.0 General and administrative............................... 6.1 5.4 7.8 Amortization of goodwill and other intangible assets..... -- -- 7.3 In-process research and development...................... -- -- 0.3 ----- ----- ----- Total operating expenses............................... 47.4 48.9 66.7 ----- ----- ----- Income from operations..................................... 22.3 24.6 6.3 Interest income, net....................................... 1.4 3.0 3.6 ----- ----- ----- Income before provision for income taxes................... 23.7 27.6 9.9 Provision for income taxes................................. 8.5 9.9 6.5 ----- ----- ----- Net income................................................. 15.2% 17.7% 3.4% ===== ===== ===== |
YEARS ENDED MARCH 31, 2001 AND 2000
REVENUE
Total revenues were $108.0 million and $86.2 million for the fiscal years ended March 31, 2001 and 2000, respectively, representing an increase of 25% from 2000 to 2001.
PRODUCT. Product revenues were $75.7 million and $57.2 million for the fiscal years ended March 31, 2001 and 2000, respectively, representing an increase of 32% from 2000 to 2001. This increase was primarily due to a 26% increase in average selling price attributable to the sale of our higher end probes.
SERVICE. Service revenues were $18.5 million and $12.8 million for the fiscal years ended March 31, 2001 and 2000, respectively, representing an increase of 45% from 2000 to 2001. This increase was primarily due to an increase in the number of support agreements attributable to new product sales.
LICENSE AND ROYALTY. License and royalty revenues were $13.8 million and $16.2 million for the fiscal years ended March 31, 2001 and 2000, respectively, representing a decrease of 15% from 2000 to 2001. This decrease was due to a transition in a specific product line from one of our partners.
COST OF REVENUE AND GROSS MARGIN
PRODUCT. Cost of product revenue consists primarily of components, personnel costs, media duplication, manuals, packaging materials, licensed technology fees and overhead. Cost of product revenue was $25.7 million and $21.1 million for the fiscal years ended March 31, 2001 and 2000, respectively, representing an increase of 22% from 2000 to 2001. This increase was primarily due to a 12% increase in the average cost per unit attributable to the sale of our higher end probes. Product gross margins were 66% and 63% for the fiscal years ended March 31, 2001 and 2000, respectively. This increase was primarily due to an increase in software sales, which have higher margins.
SERVICE. Cost of service revenue consists primarily of personnel costs, material and consulting costs. Cost of service revenues were $3.5 million and $1.7 million for the fiscal years ended March 31, 2001 and 2000, respectively, representing an increase of 101% from 2000 to 2001. Service gross margins were 81% and 87% for the fiscal years ended March 31, 2001 and 2000, respectively. This increase in cost and decrease in margins was primarily due to an increase in material and consulting costs to support our increased installed customer base.
Gross margins were $78.8 million and $63.3 million for the fiscal years ended March 31, 2001 and 2000, respectively, representing an increase of 24% from 2000 to 2001. Gross margin percentage was 73% for each of the fiscal years ended March 31, 2001 and 2000, respectively. Gross margin is primarily affected by the mix of product, service, license and royalty revenue and by the proportion of sales through direct versus indirect distribution channels. We typically realize higher gross margins on license and royalty revenue relative to product and service revenue and on direct sales relative to indirect distribution channel sales. This increase was primarily due to an increase in the sale of our higher end probes.
OPERATING EXPENSES
RESEARCH AND DEVELOPMENT. Research and development expenses consist primarily of personnel costs, fees for outside consultants and related costs associated with the development of new products and the enhancement of existing products. Research and development expenses were $15.4 million and $9.5 million for the fiscal years ended March 31, 2001 and 2000, respectively, representing an increase of 62% from 2000 to 2001. This increase was primarily due to a 47% increase in personnel costs from 2000 to 2001 and the addition of stock-based compensation charges related to the NextPoint acquisition.
SALES AND MARKETING. Sales and marketing expenses consist primarily of personnel costs and costs associated with marketing programs such as trade shows, seminars, advertising and new product launch activities. Sales and marketing expenses were $40.0 million and $27.9 million for the fiscal years ended March 31, 2001 and 2000, respectively, representing an increase of 43% from 2000 to 2001. This increase was primarily due to a 51% increase in sales and marketing personnel costs from 2000 to 2001, an increase in certain personnel related expenses and to a lesser degree a 21% increase in marketing programs from 2000 to 2001.
GENERAL AND ADMINISTRATIVE. General and administrative expenses consist primarily of personnel costs for executive, financial, information services and human resource employees. General and administrative expenses were $8.4 million and $4.6 million for the fiscal years ended March 31, 2001 and 2000, respectively, representing an increase of 81% from 2000 to 2001. This increase was primarily due to a 51% increase in personnel costs from 2000 to 2001 and to a lesser degree an increase in expenses for ongoing operations from 2000 to 2001.
AMORTIZATION OF GOODWILL AND OTHER INTANGIBLE ASSETS. Amortization of goodwill and other intangible assets was $7.9 million for the fiscal year ended March 31, 2001 due to the acquisition of NextPoint.
IN-PROCESS RESEARCH AND DEVELOPMENT. In-process research and development was $268,000 for the fiscal year ended March 31, 2001 due to the acquisition of NextPoint. A portion of the purchase price was allocated to acquired in-process research and development ("IPR&D") and completed technology. Completed technology and IPR&D were identified and valued through interviews and analysis of data regarding products under development. Developmental projects that had reached technological feasibility were classified as completed technology. Projects that had not reached technological feasibility and had no future alternative uses were classified as IPR&D and charged as an expense on the day of the acquisition. The value of IPR&D was determined considering the project's stage of completion the time and resources needed for completion, the contribution of core technology, and the projected discounted cash flows of completed products. The discount rate was determined considering weighted average cost of capital and the risk surrounding the successful completion of the projects under development.
INTEREST INCOME, NET. Interest income, net of interest expense, was $3.9 million and $2.6 million for the fiscal years ended March 31, 2001 and 2000, respectively, representing an increase of 54% from 2000 to 2001. This increase was primarily due to an increase in our cash balances related to cash generated by operations offset by cash used to acquire NextPoint.
PROVISION FOR INCOME TAXES. The provision for income taxes was $7.0 million and $8.5 million for the fiscal years ended March 31, 2001 and 2000, respectively, representing a decrease of 18% from 2000 to 2001. NetScout's effective tax rate increased to 65% for the fiscal year ended March 31, 2001 from 36% for the fiscal year ended March 31, 2000 as a result of non-deductible amortization of goodwill and stock-based compensation expense related to the acquisition of NextPoint.
NET INCOME. Net income was $3.7 million and $15.2 million for the fiscal years ended March 31, 2001 and 2000, respectively, representing a decrease of 76% from 2000 to 2001. This decrease was primarily the result of amortization of goodwill and other intangible assets and stock-based compensation expense related to the acquisition of NextPoint. Net income excluding non-cash amortization of goodwill and other intangible assets and stock-based compensation expense and using a 34% effective tax rate was $13.7 million and $15.7 million for the fiscal years ended March 31, 2001 and 2000, respectively, representing a 13% decrease from 2000 to 2001. This was primarily due to revenue growth offset by additional operating expenses resulting from the acquisition of NextPoint.
YEARS ENDED MARCH 31, 2000 AND 1999
REVENUE
Total revenues were $86.2 million and $67.6 million for the fiscal years ended March 31, 2000 and 1999, respectively, representing an increase of 28% from 1999 to 2000.
PRODUCT. Product revenues were $57.2 million and $50.4 million for the fiscal years ended March 31, 2000 and 1999, respectively, representing an increase of 14% from 1999 to 2000. This increase was primarily due to a 30% increase in average selling price attributable to larger volumes of higher speed and multi-port probes.
SERVICE. Service revenues were $12.8 million and $8.7 million for the fiscal years ended March 31, 2000 and 1999, respectively, representing an increase of 47% from 1999 to 2000. This increase was primarily due to an increase in the number of support agreements attributable to new product sales and an increase in the sale of support agreements to new and existing customers attributable to increased sales and marketing efforts.
LICENSE AND ROYALTY. License and royalty revenues were $16.2 million and $8.5 million for the fiscal years ended March 31, 2000 and 1999, respectively, representing an increase of 91% from 1999 to 2000. This increase was primarily due to a proportionate growth in unit sales of our software and embedded software products by Cisco.
COST OF REVENUE AND GROSS MARGIN
PRODUCT. Cost of product revenues were $21.1 million and $19.3 million for the fiscal years ended March 31, 2000 and 1999, respectively, representing an increase of 10% from 1999 to 2000. This increase was primarily due to higher sales volumes offset by a 30% decrease in the average cost per unit from 1999 to 2000. Product gross margins were 63% and 62% for the fiscal years ended March 31, 2000 and 1999, respectively.
SERVICE. Cost of service revenues were $1.7 million and $1.2 million for the fiscal years ended March 31, 2000 and 1999, respectively, representing an increase of 39% from 1999 to 2000. This increase was primarily due to a 29% increase in service personnel costs to support the increase in our installed customer base. Service gross margins were 87% and 86% for the fiscal years ended March 31, 2000 and 1999. This increase was primarily due to the timing of personnel replacements and additions as well as economies of scale.
Gross margins were $63.3 million and $47.1 million for the fiscal years ended March 31, 2000 and 1999, respectively, representing an increase of 35% from 1999 to 2000. This increase was primarily due to an increase in license and royalty revenue as a percentage of total revenue.
OPERATING EXPENSES
RESEARCH AND DEVELOPMENT. Research and development expenses were $9.5 million and $7.5 million for the fiscal years ended March 31, 2000 and 1999, respectively, representing an increase of 27% from 1999 to 2000. This increase was primarily due to a 33% increase in personnel costs from 1999 to 2000.
SALES AND MARKETING. Sales and marketing expenses were $27.9 million and $20.4 million for the fiscal years ended March 31, 2000 and 1999, respectively, representing an increase of 37% from 1999 to 2000. This increase was primarily due to a 77% increase in sales and marketing personnel costs from 1999 to 2000.
GENERAL AND ADMINISTRATIVE. General and administrative expenses were $4.6 million and $4.1 million for the fiscal years ended March 31, 2000 and 1999, respectively, representing an increase of 13% from 1999 to 2000. This increase was primarily due to a 22% increase in personnel costs from 1999 to 2000.
INTEREST INCOME, NET. Interest income, net of interest expense, was $2.6 million and $926,000 for the fiscal years ended March 31, 2000 and 1999, respectively, representing an increase of 176% from 1999 to 2000. This increase was primarily due to an increase in our cash balances related to the proceeds from our initial public offering.
PROVISION FOR INCOME TAXES. The provision for income taxes was $8.5 million and $5.7 million for the fiscal years ended March 31, 2000 and 1999, respectively, representing an increase of 49% from 1999 to 2000, primarily due to higher pre-tax income. Our effective tax rate remained constant at 36% for the fiscal years ended March 31, 2000 and 1999.
NET INCOME. Net income was $15.2 million and $10.3 million for the fiscal years ended March 31, 2000 and 1999, respectively, representing a 48% increase from 1999 to 2000. This increase was primarily due to revenue growth offset by increases in operating expenses necessary to manage our expanding business from 1999 to 2000.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 2001, we had $61.4 million in cash and cash equivalents. Prior to our initial public offering, we financed our operations through cash provided by operating activities. On August 17, 1999, we completed our initial public offering of 3,000,000 shares of common stock at a price of $11.00 per share. We received net proceeds of approximately $29.6 million after underwriter discounts and commissions and other offering expenses. We have a line of credit with a bank, which allows us to borrow up to $10.0 million for working capital purposes and to obtain letters of credit. The line of credit expires in March 2002. Amounts available under the line of credit are a function of eligible accounts receivable and bear interest at the bank's prime rate. As of March 31, 2001, we had letters of credit outstanding under the line aggregating $561,000. The bank line of credit is secured by our inventory and accounts receivable.
Cash provided by operating activities was $12.8 million, $15.3 million, and $17.7 million for the fiscal years ended March 31, 1999, 2000 and 2001, respectively. In fiscal 1999, cash provided by operating activities was primarily derived from net income and to a lesser degree an increase in depreciation and amortization. This was partially offset by an increase in accounts receivable. In fiscal year 2000, cash provided by operating activities was primarily derived from net income and to a lesser degree an increase in depreciation and amortization, accrued compensation and other expenses and deferred revenue. This was partially offset by increases in accounts receivable, prepaids and other current assets, and refundable income taxes and a decrease in accounts payable. In fiscal year 2001, cash provided by operating activities was primarily derived by net income and increases in depreciation and amortization, deferred revenue and compensation expense associated with equity awards. This was partially offset by an increase in inventories.
Cash provided by investing activities was $6.3 million for the fiscal year ended March 31, 1999, which was primarily due to the maturity of marketable securities, partially offset by the purchase of fixed assets. Cash used in investing activities was $24.2 million for the fiscal year ended March 31, 2000, which reflects the purchase of marketable securities and, to a lesser degree, the purchase of fixed assets. Cash used in investing activities was $6.3 million for the fiscal year ended March 31, 2001, which reflects cash paid for the acquisition of NextPoint, the purchase of marketable securities and the purchase of fixed assets largely offset by the proceeds from the maturity of marketable securities.
Cash provided by financing activities was $22,000 for the fiscal year ended March 31, 1999, which was due to the proceeds from the issuance of common stock, less the purchase of treasury stock. Cash provided by financing activities was $32.0 million for the fiscal year ended March 31, 2000, which was due to the initial public offering proceeds. Cash provided by financing activities was $1.5 million for the fiscal year ended March 31, 2001, which was due to proceeds from the issuance of common stock partially offset by the repayment of notes payables assumed with the acquisition of NextPoint.
We believe that our current cash balances and the cash flows generated by operations will be sufficient to meet our anticipated cash needs for working capital and capital expenditures for the next 12 months. Thereafter, if cash generated from operations is insufficient to satisfy our liquidity requirements, we may seek to sell additional equity or convertible debt securities. The sale of additional equity or debt securities could result in additional dilution to our stockholders. A portion of our cash may be used to acquire or invest in complementary businesses or products or to obtain the right to use complementary technologies. From time to time, in the ordinary course of business, we evaluate potential acquisitions of such businesses, products or technologies.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities", as amended by SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities--Deferral of Effective Date of FASB Statement No. 133" and SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities--an Amendment of FASB Statement No. 133," which
establishes accounting and reporting standards for derivative instruments and hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. NetScout has not engaged in derivative hedging activities and, accordingly, does not believe that the adoption of SFAS No. 133 will have a material impact on its financial reporting and related disclosures. NetScout will adopt SFAS No. 133, as required by SFAS No. 137, in fiscal year 2002.
CERTAIN FACTORS WHICH MAY AFFECT FUTURE RESULTS
Our operating results and financial condition have varied in the past and may in the future vary significantly depending on a number of factors. Except for the historical information in this report, the matters contained in this report include forward-looking statements that involve risks and uncertainties. The following factors, among others, could cause actual results to differ materially from those contained in forward-looking statements made in this report. Additional risks that are not yet identified or that we currently think are immaterial may also impair our business operations. Such factors, among others, may have a material adverse effect upon our business, results of operations and financial condition.
A REDUCTION IN ORDERS FROM CUSTOMERS OF CISCO SYSTEMS, INC. COULD MATERIALLY ADVERSELY AFFECT OUR BUSINESS. Our operating results and financial condition for a particular fiscal period could be materially adversely affected if we are unable to sell our products directly or through channel partners to customers of Cisco Systems, Inc. As of July 31, 2001, Cisco will no longer sell our probes to third parties under its private label, although they will continue to incorporate some of our software into their products. In the past, we have derived a significant portion of our revenue from Cisco. By selling our probes under its private label, Cisco accounted for 39%, 33% and 38% of our total revenue for the fiscal years ended March 31, 1999, 2000 and 2001, respectively. If, as a result of our new arrangement with Cisco, we are unable to sell our products directly or through channel partners to customers of Cisco, our business, operating results and financial condition could be materially adversely affected.
A TERMINATION OF OUR STRATEGIC RELATIONSHIP WITH CISCO MAY MATERIALLY ADVERSELY AFFECT OUR BUSINESS. Our strategic relationship with Cisco provides us with early insight into the development of new technologies. Additionally, Cisco incorporates some of our software in their products and provides royalty revenue to NetScout. Royalty revenue from software sales to Cisco accounted for 12%, 17% and 13% of our total revenue for the fiscal years ended March 31, 1999, 2000 and 2001, respectively. Cisco may decide to cease purchasing our software and/or to internally develop products that compete with our solutions or partner with our competitors or bundle or sell competitors' solutions, possibly at lower prices. If our strategic relationship with Cisco were terminated or further adversely affected for any reason, our business, operating results and financial conditions could be materially adversely affected.
OUR QUARTERLY OPERATING RESULTS MAY FLUCTUATE. Our quarterly revenue and operating results are difficult to predict and may fluctuate significantly from quarter to quarter. Most of our expenses, such as employee compensation and rent, are relatively fixed in the short term. Moreover, our expense levels are based, in part, on our expectations regarding future revenue levels. As a result, if revenue for a particular quarter is below our expectations, we may not be able to reduce operating expenses proportionately for that quarter, and therefore this revenue shortfall would have a disproportionately negative effect on our operating results for that quarter.
Our quarterly revenue may fluctuate as a result of a variety of factors, many of which are outside of our control, including the following:
- current technology spending by actual and potential customers;
- the market for network and application infrastructure performance management solutions is in an early stage of development and therefore demand for our solutions may be uneven;
- the timing and receipt of orders from customers, especially in light of our lengthy sales cycle;
- the timing and market acceptance of new products or product enhancements by us or our competitors;
- distribution channels through which our products are sold could change;
- the timing of hiring sales personnel and the speed at which such personnel become productive;
- we may not be able to anticipate or adapt effectively to developing markets and rapidly changing technologies; and
- our prices or the prices of our competitors' products may change.
We operate with minimal backlog because our products typically are shipped shortly after orders are received. As a result, product revenue in any quarter is substantially dependent on orders booked and shipped in that quarter and revenue for any future quarter is not predictable to any degree of certainty. Therefore, any significant deferral of orders for our products would cause a shortfall in revenue for that quarter.
OUR CONTINUED GROWTH DEPENDS ON OUR ABILITY TO EXPAND OUR SALES FORCE. We must increase the size of our sales force in order to increase our direct sales and support our indirect sales channels. Because our products are very technical, sales people require a long period of time to become productive, typically three to twelve months. This lag in productivity, as well as the challenge of attracting qualified candidates, may make it difficult to meet our sales force growth targets. Further, we may not generate sufficient sales to offset the increased expense resulting from growing our sales force. If we are unable to successfully expand our sales capability, our business, operating results and financial condition could be materially adversely affected.
OUR SUCCESS DEPENDS ON OUR ABILITY TO EXPAND AND MANAGE INDIRECT DISTRIBUTION CHANNELS. To increase our sales, we must develop new and further expand and manage existing indirect distribution channels, including original equipment manufacturers, distributors, resellers, systems integrators and service providers. Sales to our indirect distribution channels accounted for 81%, 78% and 72% of our total revenue for the fiscal years ended March 31, 1999, 2000 and 2001, respectively. Sales to Cisco, who will no longer resell our probes as of July 31, 2001, accounted for 51%, 50% and 51% of our total revenue for the fiscal years ended March 31, 1999, 2000 and 2001. Our indirect channel partners have no obligation to purchase any products from us. In addition, they could internally develop products, which compete with our solutions or partner with our competitors or bundle or resell competitors' solutions, possibly at lower prices. Our inability to develop new relationships and to expand and manage our existing relationships with partners, the inability or unwillingness of our partners to effectively market and sell our products or the loss of existing partnerships could have a material adverse effect on our business, operating results and financial condition.
IF WE FAIL TO INTRODUCE NEW PRODUCTS AND ENHANCE OUR EXISTING PRODUCTS TO KEEP UP WITH RAPID TECHNOLOGICAL CHANGE, DEMAND FOR OUR PRODUCTS MAY DECLINE. The market for network and application infrastructure performance management solutions is relatively new and is characterized by rapid changes in technology, evolving industry standards, changes in customer requirements and frequent product introductions and enhancements. Our success is dependent upon our ability to meet our customers' needs, which are driven by changes in computer networking technologies and the emergence of new industry standards. In addition, new technologies may shorten the life cycle for our products or could render our existing or planned products obsolete. If we are unable to develop and introduce new network and application infrastructure performance management products or enhancements to existing products in a timely and successful manner, it could have a material adverse effect on our business, operating results and financial condition.
OUR RELIANCE ON SOLE SOURCE SUPPLIERS COULD ADVERSELY AFFECT OUR BUSINESS. Many components that are necessary for the assembly of our probes are obtained from separate sole source suppliers or a limited group of suppliers. These components include some of our network interface cards, which are produced for us solely by SBS Technologies, Inc., SysKonnect, Inc. and Adaptec, Inc. Our reliance on sole or limited suppliers involves several risks, including a potential inability to obtain an adequate supply of required components and reduced control over pricing, quality and timely delivery of components. We do not generally maintain long-term agreements with any of our suppliers or large volumes of inventory. Our inability to obtain adequate deliveries or the occurrence of any other circumstance that would require us to seek alternative sources of these components would affect our ability to ship our products on a timely basis. This could damage relationships with current and prospective customers, cause shortfalls in expected revenue and could materially adversely affect our business, operating results and financial condition.
WE FACE SIGNIFICANT COMPETITION FROM OTHER TECHNOLOGY COMPANIES. The market for network and application infrastructure performance management solutions is intensely competitive. We believe customers make network management system purchasing decisions based primarily upon the following factors:
- product performance, functionality and price;
- name and reputation of vendor;
- distribution strength; and
- alliances with industry partners.
We compete with probe vendors, such as Agilent Technologies, providers of network performance management solutions, such as Concord Communications, Inc. and Micromuse, Inc. and providers of portable network traffic analyzers, such as Network Associates, Inc. New vendors of network performance monitoring and enhancing equipment are emerging to compete with us, including Packeteer, Inc. In addition, leading network equipment providers could offer their own or competitors' solutions in the future. Many of our current and potential competitors have longer operating histories, greater name recognition and substantially greater financial, management, marketing, service, support, technical, distribution and other resources than we do. Therefore, they may be able to respond more quickly than we can to new or changing opportunities, technologies, standards or customer requirements.
As a result of these and other factors, we may not be able to compete effectively with current or future competitors, which could have a material adverse effect on our business, operating results and financial condition.
THE SUCCESS OF OUR BUSINESS DEPENDS ON THE CONTINUED GROWTH IN THE MARKET FOR AND THE COMMERCIAL ACCEPTANCE OF NETWORK AND APPLICATION INFRASTRUCTURE PERFORMANCE MANAGEMENT SOLUTIONS. We derive all of our revenue from the sale of products and services that are designed to allow our customers to manage the performance of computer networks and software applications. The market for network and application infrastructure performance management solutions is in an early stage of development. Therefore, we cannot accurately assess the size of the market and may be unable to predict the appropriate features and
prices for products to address the market, the optimal distribution strategy and the competitive environment that will develop. In order for us to be successful, our potential customers must recognize the value of more sophisticated network and application infrastructure performance management solutions, decide to invest in the management of their networks and the performance of software applications and, in particular, adopt our management solutions. Any failure of this market to continue to develop would materially adversely affect our business, operating results and financial condition. Businesses may choose to outsource the management of their networks and applications to service providers. Our business may depend on our ability to develop relationships with these service providers and successfully market our products to them.
FAILURE TO PROPERLY MANAGE GROWTH COULD ADVERSELY AFFECT OUR BUSINESS. We have been experiencing a period of rapid growth over the past several years. The growth in size and complexity of our business and our customer base has been and will continue to be a significant challenge to our management and operations. To manage further growth effectively, we must enhance our financial information and accounting systems and controls, integrate new personnel and manage expanded operations. If we are unable to effectively manage our growth, our costs, the quality of our products, the effectiveness of our sales organization, and our ability to retain key personnel, our business, operating results and financial condition could be materially adversely affected.
LOSS OF KEY PERSONNEL COULD ADVERSELY AFFECT OUR BUSINESS. Our future success depends to a significant degree on the skills, experience and efforts of Anil Singhal, our Chief Executive Officer, President and co-founder, and Narendra Popat, our Chairman of the Board and co-founder. We also depend on the ability of our other executive officers and senior managers to work effectively as a team. The loss of one or more of our key personnel could have a material adverse effect on our business, operating results and financial condition.
WE MUST HIRE AND RETAIN SKILLED PERSONNEL IN A TIGHT LABOR MARKET. Qualified personnel are in great demand throughout the computer software, hardware and networking industries. The demand for qualified personnel is particularly acute in the New England area due to the large number of software and high technology companies. Our success depends in large part upon our ability to attract, train, motivate and retain highly skilled employees, particularly sales and marketing personnel, software engineers, and technical support personnel. We have had difficulty hiring and retaining these highly skilled employees in the past. If we are unable to attract and retain the highly skilled technical personnel that are integral to our sales, marketing, product development and customer support teams, the rate at which we can generate sales and develop new products or product enhancements may be limited. This inability could have a material adverse effect on our business, operating results and financial condition.
OUR SUCCESS DEPENDS ON OUR ABILITY TO PROTECT OUR INTELLECTUAL PROPERTY RIGHTS. Our business is heavily dependent on our intellectual property. We rely upon a combination of patent, copyright, trademark and trade secret laws and non-disclosure and other contractual arrangements to protect our proprietary rights. The reverse engineering, unauthorized copying or other misappropriation of our intellectual property could enable third parties to benefit from our technology without compensating us. Legal proceedings to enforce our intellectual property rights could be burdensome and expensive and could involve a high degree of uncertainty. In addition, legal proceedings may divert management's attention from growing our business. There can be no assurance that the steps we have taken to protect our intellectual property rights will be adequate to deter misappropriation of proprietary information, or that we will be able to detect unauthorized use by third parties and take appropriate steps to enforce our intellectual property rights. Further, we also license software from third parties for use as part of our products, and if any of these licenses were to terminate, we may experience delays in product shipment until we develop or license alternative software.
OTHERS MAY CLAIM THAT WE INFRINGE ON THEIR INTELLECTUAL PROPERTY RIGHTS. We may be subject to claims by others that our products infringe on their intellectual property rights. These claims, whether or not valid,
could require us to spend significant sums in litigation, pay damages, delay product shipments, reengineer our products or acquire licenses to such third-party intellectual property. We may not be able to secure any required licenses on commercially reasonable terms or secure them at all. We expect that these claims will become more frequent as more companies enter the market for network and application infrastructure performance management solutions. Any of these claims or resulting events could have a material adverse effect on our business, operating results and financial condition.
IF OUR PRODUCTS CONTAIN ERRORS, THEY MAY BE COSTLY TO CORRECT, REVENUE MAY BE DELAYED, WE COULD BE SUED AND OUR REPUTATION COULD BE HARMED. Despite testing by our customers and us, errors may be found in our products after commencement of commercial shipments. If errors are discovered, we may not be able to successfully correct them in a timely manner or at all. In addition, we may need to make significant expenditures of capital resources in order to eliminate errors and failures. Errors and failures in our products could result in loss of or delay in market acceptance of our products and could damage our reputation. If one or more of our products fail, a customer may assert warranty and other claims for substantial damages against us. The occurrence or discovery of these types of errors or failures could have a material adverse effect on our business, operating results and financial condition.
OUR SUCCESS DEPENDS ON OUR ABILITY TO EXPAND AND MANAGE OUR INTERNATIONAL OPERATIONS. Sales outside North America accounted for a significant percentage of our total revenue for the fiscal years ended March 31, 1999, 2000 and 2001. We currently expect international revenue to continue to account for a significant percentage of total revenue in the future. We believe that we must continue to expand our international sales activities in order to be successful. Our international sales growth will be limited if we are unable to:
- expand international indirect distribution channels;
- hire additional sales personnel;
- adapt products for local markets; and
- manage geographically dispersed operations.
The major countries outside of North America, in which we do, or intend to do business, are the United Kingdom, Germany and Japan. Our international operations, including our operations in the United Kingdom, Germany and Japan, are generally subject to a number of risks, including:
- failure of local laws to provide the same degree of protection against infringement of our intellectual property;
- protectionist laws and business practices that favor local competitors;
- dependence on local indirect channel partners;
- multiple conflicting and changing governmental laws and regulations;
- longer sales cycles;
- greater difficulty in collecting accounts receivable; and
- foreign currency exchange rate fluctuations and political and economic instability.
THE PRICE OF OUR COMMON STOCK MAY DECREASE DUE TO MARKET VOLATILITY. The market price of our common stock has been highly volatile and has fluctuated significantly since the initial public offering of our common stock on August 12, 1999. The market price of our common stock may continue to fluctuate significantly in response to a number of factors, some of which are beyond our control. In addition, the market prices of securities of technology companies have been extremely volatile and have experienced fluctuations that often have been unrelated or disproportionate to the operating performance of these companies. Also, broad market fluctuations could adversely affect the market price of our common stock.
Recently, when the market price of a stock has been volatile, holders of that stock have occasionally instituted securities class action litigation against the company that issues that stock. If any of our stockholders brought such a lawsuit against us, even if the lawsuit is without merit, we could incur substantial costs defending the lawsuit. The lawsuit could also divert the time and attention of our management.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We consider all highly liquid marketable securities purchased with a maturity of three months or less to be cash equivalents and those with maturities greater than three months are considered to be marketable securities. Cash equivalents and marketable securities are stated at amortized cost plus accrued interest, which approximates fair value. Cash equivalents and marketable securities consist primarily of money market instruments and U.S. Treasury bills. We currently do not hedge interest rate exposure, but do not believe that an increase in interest rates would have a material effect on the value of our marketable securities.
The Company's primary market risk exposures are in the areas of interest rate risk and foreign currency exchange rate risk. The Company's exposure to interest rates has been and is expected to continue to be modest due to the fact that the Company currently has no outstanding amounts on its $10 million line of credit. The Company's exposure to currency exchange rate fluctuations has been and is expected to continue to be modest due to the fact that we conduct all company business in U.S. dollars. The impact of currency exchange rate movements on intercompany transactions was immaterial for fiscal year 2001. Currently, the Company does not engage in foreign currency hedging activities.
Ultimately, there will be a single currency within certain countries of the European Union, known as the Euro, and one organization, the European Central Bank, responsible for setting European monetary policy. We have reviewed the impact the Euro will have on our business and whether this will give rise to a need for significant changes in our commercial operations or treasury management functions. Because our transactions are denominated in U.S. dollars, we do not believe that the Euro conversion or any other currency exchange will have any material effect on our business, financial condition or results of operations.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
NetScout's Consolidated Financial Statements and Schedules and the Report of the Independent Accountants appear beginning on page F-1 attached to this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
There have been no changes in or disagreements with accountants on accounting or financial disclosure matters in the past.
PART III
ITEM 10. DIRECTORS AND OFFICERS
The directors and officers of NetScout are as follows:
NAME AGE POSITION ---- -------- ------------------------------------------ Anil K. Singhal........................... 47 President, Chief Executive Officer, Treasurer and Director Narendra Popat............................ 52 Chairman of the Board and Secretary David P. Sommers.......................... 54 Senior Vice President, General Operations and Chief Financial Officer John Downing.............................. 43 Vice President, Sales Operations Lisa Fiorentino........................... 35 Vice President, Finance and Administration Michelle Flaherty......................... 50 Vice President, Human Resources Daniel Gingras............................ 50 Chief Information Officer Bruce Kelley, Jr.......................... 38 Chief Technology Officer Ashwani Singhal........................... 40 Vice President, Engineering and Product Development Tracy Steele.............................. 41 Vice President, Manufacturing and Business Operations Bruce Sweet............................... 40 Vice President, Engineering Services and Customer Satisfaction Michael Szabados.......................... 49 Senior Vice President, Product Operations John R. Egan.............................. 43 Director Joseph G. Hadzima, Jr..................... 49 Director Vincent J. Mullarkey...................... 53 Director Kenneth T. Schiciano...................... 38 Director |
ANIL K. SINGHAL co-founded NetScout in June 1984 and has served as NetScout's President, Chief Executive Officer, Treasurer and Director since January 2001. Prior to this, Mr. Singhal had served as Chairman of the Board, Chief Executive Officer and Treasurer from July 1993 to December 2000. From NetScout's inception until July 1993, Mr. Singhal was President of NetScout. Mr. Singhal has served as a director of NetScout since its inception. Prior to founding NetScout, he was a Senior Architect and Project Manager at Wang Laboratories, a provider of computer systems, from 1979 until June 1984. Mr. Singhal is the brother of Ashwani Singhal, NetScout's Vice President, Engineering and Product Development.
NARENDRA POPAT co-founded NetScout in June 1984 and has served as NetScout's Chairman of the Board and Secretary since January 2001. Prior to that, Mr. Popat had served as President, Chief Operating Officer and Secretary from July 1993 to December 2000. From NetScout's inception until July 1993, Mr. Popat was Chairman of the Board and Treasurer of NetScout. Mr. Popat has served as a director of NetScout since its inception. Prior to founding NetScout, Mr. Popat was a Senior Software Engineer at Wang Laboratories from 1980 until June 1984.
DAVID P. SOMMERS has served as NetScout's Senior Vice President, General Operations and Chief Financial Officer since January 2001. Prior to this, Mr. Sommers served as NetScout's Vice President and Chief Financial Officer from April 2000 to December 2000. From November 1998 until January 2000, Mr. Sommers was Senior Vice President and Chief Financial Officer of FlexiInternational Software, Inc., a publicly-held developer and marketer of financial accounting software. During 1998, Mr. Sommers was a consultant on mergers and acquisitions to the Senior Vice President and Chief Financial Officer of Lotus Development Corporation, an IBM subsidiary, which develops group collaboration software. From January 1996 through August 1997, he was Chief Financial Officer of SystemSoft Corporation, a
publicly-held developer and marketer of system level firmware. He also served as Vice President and Chief Financial Officer of Advanced Media, Inc., a publicly-held developer and marketer of interactive multimedia systems, from September 1993 through December 1996.
JOHN DOWNING has served as NetScout's Vice President, Sales Operations since September 2000, when he joined the company. Prior to joining NetScout, he was Vice President of Sales at Genrad Corporation, a manufacturer of electronic testing equipment and production solutions, from April 1998 until September 2000 and was Vice President of North American Sales from January 1996 until March 1998.
LISA FIORENTINO has served as NetScout's Vice President, Finance and Administration since January 2001. Ms. Fiorentino joined NetScout in August 1995 and served as Vice President, Finance from January 2000 until December 2000, as Director of Finance from May 1997 until January, 2000 and as Controller from August 1995 until April 1997. Prior to joining NetScout, she served as Finance Manager and held various other financial management positions for Orbotech, Inc., a manufacturer of automated optical inspection equipment for the printed circuit board industry, from January 1989 until August 1995.
MICHELLE FLAHERTY has served as NetScout's Vice President, Human Resources since September 2000, when she joined the company. Prior to joining NetScout, she was Vice President of Business Development for Lee Hecht Harrison, Inc. from November 1997 to September 2000. Prior to that, she operated her own business, M & M Solutions, an Executive Search and Recruitment firm from January 1990 to January 2000. Also, she served as President of the Metrowest Chamber of Commerce from June 1979 to December 1990.
DANIEL GINGRAS joined the company in April 2001 as NetScout's Chief Information Officer. Prior to joining NetScout he was Chief Executive Officer of iDolls.com, a venture backed internet retailer from July 1999 to April 2001. Prior to that, he served as Vice President and Chief Information Officer at Polymedica, a national medical products and services company, from March 1998 to March 1999. Prior to that, he served as Vice President and Chief Information Officer at Watts Industries, a manufacturer of water quality, safety and conservation product, from July 1996 to March 1998.
BRUCE KELLEY, JR. co-founded NextPoint Networks, Inc. in November 1996 and served as a Director and as Vice President and Chief Technology Officer. Since the acquisition of NextPoint by NetScout in July 2000, Mr. Kelley had served as Vice President, Engineering, Service Level Management of NetScout from July 2000 to December 2000. In January 2001, Mr. Kelley assumed the position of NetScout's Chief Technology Officer. Prior to founding NextPoint, he held various engineering positions at Digital Equipment Corporation from 1982 to 1996, including Consultant Software Engineer and Network Management Technical Director within Digital's Network Management Engineering Group.
ASHWANI SINGHAL has served as Vice President, Engineering and Product Development since January 2001. Mr. Singhal joined NetScout in 1987 and served as a Senior Software Engineer and Project Manager from 1987 until February 1997, as Director of Engineering from February 1997 until October 1998 and as Vice President, Engineering from October 1998 through December 2000. Prior to joining NetScout, he was a Senior Software Engineer at Symmetrix, an artificial intelligence systems company, from 1982 until 1987. Mr. Singhal is the brother of Anil Singhal, NetScout's President, Chief Executive Officer, Treasurer and Director.
TRACY STEELE has served as Vice President, Manufacturing and Business Operations since January 2001. Mr. Steele joined NetScout in November 1995 and served as Director of Manufacturing from November 1995 until May 1997, and as Vice President, Manufacturing from May 1997 to December 2000. Prior to joining NetScout, he served as Director of Manufacturing for Scope Communications, a developer of hand-held network tools from 1993 to November 1995. He also served in various manufacturing and management positions at NBase-Xyplex, Inc., a computer networking company, from 1985 to February 1993.
BRUCE SWEET co-founded NextPoint Networks, Inc. in December 1996 and served as a Director and as Vice President of Engineering and Product Development. Since the acquisition of NextPoint by NetScout
in July 2000, Mr. Sweet had served as Vice President, Engineering, Capacity Management, from July 2000 to December 2000. In January 2001, Mr. Sweet assumed the position of Vice President, Engineering Services and Customer Satisfaction. Prior to founding NextPoint, he was the Director of Network Management within Digital Equipment Corporation's Network Business Unit from 1995 to 1996. Mr. Sweet held various engineering positions of increasing responsibility within Digital Equipment Corporation beginning in 1983.
MICHAEL SZABADOS has served as NetScout's Senior Vice President, Product Operations since January 2001. Mr. Szabados joined NetScout in August 1997 and served as Vice President, Marketing from August 1997 to December 2000. Prior to joining NetScout, he served as Chief Executive Officer of Jupiter Technology, Inc., a developer of frame relay access drives, from March 1997 to August 1997. He also served as Vice President, Product Management/Marketing at UB Networks, a computer networking company, from July 1994 until March 1997 and served as Director of Marketing at SynOptics Communications, a computer networking company, from 1991 until July 1994.
JOHN R. EGAN has been a director of NetScout since October 2000. Mr. Egan is a founding managing partner of Egan-Managed Capital, a Boston based venture capital fund specializing in New England, information technology, early stage investments, which began in the fall of 1996. Since 1992, he has been a member of the Board of Directors at EMC Corporation, a provider of computer storage systems and software. Mr. Egan is also a member of the Board of Trustees at Children's Hospital Trust, and serves as director for four privately held companies.
JOSEPH G. HADZIMA, JR. has been a director of NetScout since July 1998. Mr. Hadzima has been a Managing Director of Main Street Partners LLC, a venture capital investing and technology commercialization company, since April 1998. Since June 1996, he has also served as Of Counsel at Sullivan & Worcester LLP, a law firm where he was a partner from October 1987 to June 1996. Mr. Hadzima served as Senior Vice President and General Counsel of Quantum Energy Technologies Corporation, an energy and environmental products research and development company, from June 1996 to December 1998. Mr. Hadzima is also a Senior Lecturer at MIT Sloan School of Management.
VINCENT J. MULLARKEY has been a director of NetScout since November 2000. Mr. Mullarkey was the Senior Vice President, Finance and Chief Financial Officer of Digital Equipment Corporation from 1994 until his retirement in September 1998. From 1971 until 1994, Mr. Mullarkey held various positions within Digital Equipment Corporation including Vice President, Corporate Controller.
KENNETH T. SCHICIANO has been a director of NetScout since January 1999. Mr. Schiciano has been a Managing Director of TA Associates, Inc., a venture capital firm, since December 1999. Mr. Schiciano served as a Vice President of TA Associates from August 1989 to December 1994, and as Principal from January 1995 to December 1999. Prior to that, Mr. Schiciano was a member of the technical staff of AT&T Bell Laboratories, a telecommunications company. Mr. Schiciano serves as a Director of Galaxy Telecom L.P., Datek Online Holdings, The Island ECN and several privately held companies.
The Board of Directors is currently fixed at six members. NetScout's amended and restated certificate of incorporation divides the Board of Directors into three classes. The members of each class of directors serve for staggered three-year terms. The Board of Directors is composed of:
- two Class I directors--Messrs. Schiciano and Mullarkey--whose terms expire upon the election and qualification of directors at the annual meeting of stockholders to be held in 2003;
- two Class II directors--Messrs. Singhal and Egan--whose terms expire upon the election and qualification of directors at the annual meeting of stockholders to be held in 2001; and
- two Class III directors--Messrs. Popat and Hadzima--whose terms expire upon the election and qualification of directors at the annual meeting of stockholders to be held in 2002.
Our officers are elected by and serve at the discretion of the Board of Directors. Except as noted above, there are no family relationships among any of our officers and directors. The following persons are considered executive officers and are subject to the reporting requirements of Section 16 of the Securities Exchange Act of 1934: Anil K. Singhal, Narendra Popat, David P. Sommers, John Downing, Lisa Fiorentino, Michelle Flaherty, Bruce Kelley, Jr., Michael Szabados, John R. Egan, Joseph G. Hadzima, Jr., Vincent J. Mullarkey and Kenneth T. Schiciano.
SECTION 16 BENEFICIAL OWNERSHIP REPORTING COMPLIANCE.
Based on a review of the forms and written representations received by NetScout pursuant to Section 16(a) of the Securities Exchange Act of 1934, NetScout believes that, with respect to the fiscal year ended March 31, 2001, the directors and executive officers, other than Messrs. Vincent J. Mullarkey, John R. Egan, Bruce Kelley, Jr. and Michael Szabados compiled with all applicable Section 16 filing requirements on a timely basis. Messrs. Mullarkey and Egan each failed to file an Annual Statement of changes in Beneficial Ownership on Form 5 and subsequently filed a late Form 5. Mr. Kelley failed to file a Statement of Changes in Beneficial Ownership of Securities on Form 4 during March 2001 for seventy-two transactions and subsequently filed a late Form 4. Mr. Szabados failed to file a Statement of Changes in Beneficial Ownership of Securities on Form 4 during December 2000 for three transactions and subsequently filed a late Form 4.
ITEM 11. EXECUTIVE COMPENSATION
The following summary compensation table sets forth the total compensation
paid or accrued for the fiscal years ended March 31, 2001, 2000 and 1999 to
(i) the Chief Executive Officer of NetScout during the fiscal year ended
March 31, 2001; (ii) each of the four other most highly compensated executive
officers of NetScout during the fiscal year ended March 31, 2001; and
(iii) Ashwani Singhal who would have been one of the four most highly
compensated executive officers of NetScout for the fiscal year ended March 31,
2001 but for the fact that he was no longer serving as an executive officer as
of the end of the fiscal year. The Chief Executive Officer and the four other
most highly compensated executive officers of NetScout listed below and Ashwani
Singhal are collectively referred to below as the Named Officers. The dollar
amounts listed in the column entitled "All Other Compensation" are comprised of
contributions to a defined contribution plan with the exception of the amount
set forth opposite David P. Sommers' name, of which $169,083 was reimbursement
for moving expenses and payment of taxes due on the reimbursement amount and of
which $2,583 were contributions to a defined contribution plan.
SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION SECURITIES UNDERLYING ALL OTHER NAME AND PRINCIPAL POSITION FISCAL YEAR SALARY ($) BONUS ($) OPTION (#) COMPENSATION ($) --------------------------- ----------- ---------- --------- ------------ ---------------- Anil K. Singhal.................... 2001 250,000 240,000 -- 2,404 President, Chief Executive 2000 250,000 325,000 37,236 1,442 Officer, Director and Treasurer 1999 250,000 325,000 -- 2,144 Narendra Popat..................... 2001 250,000 240,000 -- 2,404 Chairman of the Board and 2000 250,000 325,000 37,236 1,442 Secretary 1999 250,000 325,000 -- 2,144 David P. Sommers................... 2001 200,000 75,000 250,000 171,621 Senior Vice President, General 2000 -- -- -- -- Operations and Chief Financial 1999 -- -- -- -- Officer Michael Szabados................... 2001 200,000 75,000 75,000 1,154 Senior Vice President, 2000 160,000 92,500 32,188 2,570 Product Operations 1999 137,500 82,500 -- 2,452 John Downing....................... 2001 157,450 -- 125,000 -- Vice President, Sales Operations 2000 -- -- -- -- 1999 -- -- -- -- Ashwani Singhal.................... 2001 199,000 66,375 25,000 2,879 Vice President, Engineering 2000 175,000 60,000 32,188 1,211 and Product Development 1999 160,000 50,000 -- 1,620 |
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information regarding option grants made during the fiscal year ended March 31, 2001 pursuant to NetScout's 1999 Stock Plan to each of the Named Executive Officers. The 5% and 10% appreciation rates are set forth in the Securities and Exchange Commission rules and no representation is made that the common stock will appreciate at these assumed rates or at all. Actual gains, if any, on stock option exercises and common stock holdings are dependent on the timing of such exercises and the future performance of NetScout's common stock. There can be no assurance that the rates of appreciation assumed in this table can be achieved or that the amounts reflected below will be received by the individuals.
STOCK OPTION GRANTS 2001
INDIVIDUAL GRANTS
POTENTIAL REALIZABLE VALUE AT ASSUMED NUMBER OF ANNUAL RATES OF STOCK SECURITIES % OF TOTAL EXERCISE PRICE APPRECIATION FOR UNDERLYING OPTION GRANTED OF BASE OPTION TERM OPTIONS GRANTED TO EMPLOYEES IN PRICE EXPIRATION ----------------------------- NAME (# OF SHARES) 2001 ($/SH) DATE 5% 10% ---- --------------- --------------- -------- ---------- ---------------- ---------- Anil Singhal........... -- --% $ -- -- $ -- $ -- Narendra Popat......... -- --% $ -- -- $ -- $ -- David P. Sommers....... 250,000 9.7% $13.44 4/25/10 $2,113,086 $5,354,975 Michael Szabados....... 75,000 2.9% $13.44 4/25/10 $ 633,926 $1,606,492 John Downing........... 100,000 4.0% $23.13 9/25/10 $1,454,633 $3,686,326 25,000 1.0% $16.75 12/1/10 $ 263,350 $ 667,380 Ashwani Singhal........ 25,000 1.0% $13.44 4/25/10 $ 211,309 $ 535,497 |
YEAR-END OPTION TABLE
The following table sets forth information regarding exercisable and unexercisable stock options held as of March 31, 2001 by each of the Named Executive Officers. The value realized upon exercise of stock options is calculated by determining the difference between the exercise price per share and the fair market value on the date of exercise. The value of unexercised in-the-money options has been calculated by multiplying the number of shares underlying the option by the difference between the exercise price per share payable upon exercise of such options and the fair market value at March 31, 2001 of $5.13 per share.
AGGREGATED FISCAL YEAR-END OPTION VALUES
NUMBER OF SECURITIES UNDERLYING UNEXERCISED VALUE OF UNEXERCISED SHARES OPTIONS AT FISCAL IN-THE-MONEY OPTIONS ON YEAR-END AT FISCAL YEAR-END ($) ACQUIRED VALUE --------------------------- --------------------------- NAME EXERCISE REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE ---- -------- ------------ ----------- ------------- ----------- ------------- Anil K. Singhal.................... -- -- 9,309 27,927 -- -- Narendra Popat..................... -- -- 9,309 27,927 -- -- David P. Sommers................... -- -- 46,875 203,125 -- -- Michael Szabados................... 52,000 $693,297 136,710 115,078 $300,825 $78,750 John Downing....................... -- -- 1,563 123,437 -- -- Ashwani Singhal.................... -- -- 12,735 44,453 -- -- |
COMMITTEES OF THE BOARD OF DIRECTORS
The current members of the Audit Committee are Messrs. Egan, Hadzima and Mullarkey. The Audit Committee is responsible for reviewing the results and scope of audits and other services provided by our independent public accountants and reviewing our system of internal accounting and financial controls. The Audit Committee also reviews such other matters with respect to our accounting, auditing and financial reporting practices and procedures as it may find appropriate or may be brought to its attention.
The current members of the Compensation Committee are Messrs. Egan and Hadzima. The Compensation Committee evaluates the salaries and incentive compensation of management and employees of NetScout and administers our equity incentive plans.
DIRECTOR COMPENSATION
Non-employee directors are compensated $12,500 annually for their services and also receive compensation of $1,500 for each regular Board of Directors meeting attended and $2,000 annually for serving on a committee of the Board of Directors. They are also reimbursed for their reasonable out-of-pocket expenses incurred in attending meetings of the Board of Directors or of any committee thereof. In addition, in fiscal year 2001, non-employee directors were granted options to purchase 30,000 shares of common stock of NetScout.
EMPLOYMENT AGREEMENTS
Anil Singhal and Narendra Popat entered into employment agreements with NetScout on June 1, 1994, which were amended on January 14, 1999. Under the terms of these employment agreements, each of Messrs. Singhal and Popat receive a base salary of at least $250,000 and a year-end, non-discretionary bonus of at least $250,000. For the fiscal year ended March 31, 2001, the year-end bonus for each of Messrs. Singhal and Popat (with their consent) was $240,000. In the event that either Mr. Singhal or Mr. Popat is terminated without cause, or either decides to terminate his own employment for "good reason" each is entitled to receive severance benefits for three years as follows:
- for the first twelve months following termination, the greater of $175,000 or base salary as of the date of termination; and
- for each of the following twelve-month period, an amount equal to 120% of the amount received in the immediately preceding twelve months.
"Good reason" includes a change in executive responsibilities or a reduction in salary or benefits. Severance benefits will be discontinued if the executive secures alternative employment that is comparable as to position and pay. During any period in which Mr. Singhal or Mr. Popat is entitled to receive severance benefits, he shall also continue to receive all other benefits under the employment agreements including life insurance, medical insurance, and reimbursement for company car expenses. Each of Messrs. Singhal and Popat are also entitled to reimbursement of job placement expenses of up to $25,000 plus related travel expenses. If either Mr. Singhal or Mr. Popat is terminated with cause, he will not be entitled to any severance payments or other benefits except as required by law. Each employment agreement provides for a five-year term commencing June 1, 1994 with automatic one-year renewals.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Other than Mr. Popat who served on the Compensation Committee until January 17, 2001, no member of this committee was at any time during the past year an officer or employee of NetScout, was formerly an officer of NetScout or any of its subsidiaries, or had any employment relationship with NetScout. During the last year, none of our executive officers served as:
- a member of the compensation committee (or other committee of the Board of Directors performing equivalent functions or, in the absence of any such committee, the entire Board of Directors of another entity) one of whose executive officers served on the Compensation Committee of NetScout;
- a director of another entity, one of whose executive officers served on the Compensation Committee of NetScout; or
- a member of the compensation committee (or other committee of the Board of Directors performing equivalent functions or, in the absence of any such committee, the entire Board of Directors of another entity) one of whose executive officers served as a director of NetScout.
STOCK PLANS
1990 STOCK OPTION PLAN. The 1990 Stock Option Plan was adopted by the Board of Directors and approved by the stockholders on October 4, 1990. In general, options granted pursuant to the 1990 Stock Option Plan are exercisable within ten years of the original grant date and become exercisable over a period of four years from a specific date; and an additional 25% of unexercisable options shall become exercisable immediately prior to the closing of a merger, acquisition, business combination or similar transaction which results in our existing stockholders owning less than 50% of NetScout's equity securities or assets. Options are not assignable or transferable except by wills or the laws of decent or distribution. We have a right of repurchase for shares issued upon the exercise of options under certain circumstances, including unauthorized transfers of the shares and termination of the optionee's relationship with NetScout in certain situations. As of March 31, 2001, options to purchase an aggregate of 902,938 shares of common stock at a weighted average exercise price of $3.14 per share were outstanding under the 1990 Stock Option Plan. No additional options grants will be made under the 1990 Stock Option Plan.
1999 STOCK OPTION AND INCENTIVE PLAN. Our 1999 Stock Option and Incentive Plan ("1999 Stock Option Plan") was adopted by the Board of Directors in April 1999 and was approved by our stockholders in June 1999. The 1999 Stock Option Plan provides for the grant of stock-based awards to our employees, officers and directors, consultants or advisors. Under the 1999 Stock Option Plan, we may grant options that are intended to qualify as incentive stock options within the meaning of Section 422 of the Internal Revenue Code, options not intended to qualify as incentive stock options, restricted stock and other stock-based awards. Incentive stock options may be granted only to employees of NetScout. A total of 4,500,000 shares of common stock have been reserved for issuance under the 1999 Stock Option Plan. The maximum number of shares with respect to which awards may be granted to any employee under the 1999 Stock Option Plan shall not exceed 1,000,000 shares of common stock during any calendar year.
The 1999 Stock Option Plan is administered by the Compensation Committee. Subject to the provisions of the 1999 Stock Option Plan, the Compensation Committee has the authority to select the persons to whom awards are granted and determine the terms of each award, including the number of shares of common stock subject to the award. Payment of the exercise price of an award may be made in cash or, if approved by the Compensation Committee, shares of common stock, a combination of cash and stock, a promissory note or by any other method approved by the Compensation Committee. Unless otherwise permitted by the Compensation Committee, awards are not assignable or transferable except by will or the laws of descent and distribution, and, during the participant's lifetime, may be exercised only by the participant.
The 1999 Stock Option Plan provides, subject to certain conditions, that upon an acquisition of NetScout, 25% of each unvested portion of any awards will accelerate and become exercisable, with the remaining 75% of each unvested portion to continue vesting throughout the term of the Award.
The Compensation Committee may, in its sole discretion, amend, modify or terminate any award granted or made under the 1999 Stock Option Plan, so long as such amendment, modification or termination would not materially and adversely affect the participant. The Compensation Committee may also provide that any option shall become immediately exercisable, in full or in part, or that any restricted stock granted under the 1999 Stock Option Plan shall be free of some or all restrictions.
As of March 31, 2001, options to purchase an aggregate of 3,192,285 shares of common stock at an average exercise price of $17.19 per share were outstanding under the 1999 Stock Option Plan.
1999 EMPLOYEE STOCK PURCHASE PLAN. The 1999 Employee Stock Purchase Plan was adopted by the Board of Directors in April 1999 and was approved by our stockholders in June 1999. The plan was amended by the Board of Directors on January 17, 2001. The 1999 Purchase Plan provides for the issuance of a maximum of 500,000 shares of common stock.
The 1999 Purchase Plan is administered by the Compensation Committee. All employees of NetScout whose customary employment is for more than 20 hours per week and for more than three months in any calendar year are eligible to participate in the 1999 Purchase Plan. Employees who would own 5% or more of the total combined voting power or value of NetScout's stock immediately after the grant of the option may not participate in the 1999 Purchase Plan. To participate in the 1999 Purchase Plan, an employee must authorize us to deduct an amount not less than one percent nor more than 10 percent of a participant's total cash compensation from his or her pay during six-month payment periods. The first payment period commenced on October 1, 1999 and ended on March 31, 2000. The second and third payment periods consisted of six-month periods commencing on April 1, 2000 and October 1, 2000 and ending on September 30, 2000 and March 31, 2001, respectively. The fourth payment period commenced on April 1, 2001 and will end on October 31, 2001. For the remainder of the duration of the plan, payment periods will consist of six-month periods commencing on May 1 and November 1 and ending on October 31 and April 30 of each calender year, respectively. In no case shall an employee be entitled to purchase more than 500 shares in any one payment period. The exercise price for the option granted in each payment period is 85% of the lesser of the last reported sale price of the common stock on the first or last business day of the payment period, in either event rounded up to the nearest cent. If an employee is not a participant on the last day of the payment period, such employee is not entitled to exercise his or her option, and the amount of his or her accumulated payroll deductions will be refunded. Options granted under the 1999 Purchase Plan may not be transferred or assigned. An employee's rights under the 1999 Purchase Plan terminate upon his or her voluntary withdrawal from the plan at any time or upon termination of employment. As of March 31, 2001, aggregate of 75,948 shares of common stock were issued to date under the 1999 Purchase Plan.
NEXTPOINT NETWORKS, INC. STOCK INCENTIVE PLAN. Upon the consummation of our acquisition of NextPoint Networks, Inc., we assumed NextPoint's 1997 Stock Incentive Plan and 2000 Stock Incentive Plan and all outstanding options which had been issued pursuant to each plan. Options to purchase shares of NextPoint common stock were converted into options to purchase shares of NetScout common stock. In general, options granted pursuant to the 1997 Stock Incentive Plan or the 2000 Stock Incentive Plan are not transferable or assignable except by wills or the laws of descent and distribution. The 1997 Stock Incentive Plan provided that all outstanding options become immediately exercisable upon the consummation of the NextPoint acquisition. However, certain NextPoint option holders executed an agreement providing that only (i) fifty percent (50%) of such option holder's options would become exercisable immediately following the acquisition and (ii) the remainder of the unexercisable options would become exercisable in equal quarterly amounts over the two years following the acquisition. Under the 2000 Stock Incentive Plan, options generally become exercisable over a four year period from a specific date. As of March 31, 2001, options to purchase an aggregate of 114,616 shares of NetScout common stock at a weighted average exercise price of $3.02 were outstanding under the 1997 Stock Incentive Plan and options to purchase an aggregate of 20,015 shares of NetScout common stock at a weighted average exercise price of $10.43 were outstanding under the 2000 Stock Incentive Plan. No additional option grants will be made under the 1997 Stock Incentive Plan or the 2000 Stock Incentive Plan.
401(K) PLAN
We maintain a 401(k) plan qualified under Section 401 of the Internal Revenue Code. All of our employees who are at least 21 years of age are eligible to participate in the 401(k) plan. Under the 401(k) plan, a participant may contribute a maximum of 15% of his or her pre-tax salary, commissions and bonuses through payroll deductions, up to the statutorily prescribed annual limit which was $10,500 in calendar year 2000, to the 401(k) plan. The percentage elected by more highly compensated participants may be required to be lower. At the discretion of the Board of Directors, we may make matching contributions to the 401(k) plan. During the plan year ended December 31, 2000, we matched $.25 for each $1.00 of employee contributions up to 6% of compensation. In addition, at the discretion of the Board of
Directors, we may make profit-sharing contributions to the 401(k) plan for all eligible employees. During the plan year ending December 31, 2000, we made no profit-sharing contributions to the 401(k) plan.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding beneficial ownership of our common stock as of June 8, 2001, and as adjusted to reflect the sale of the shares of common stock offered hereby, by:
- each beneficial owner of more than 5% of our common stock;
- each Named Officer;
- each director; and
- all executive officers, Ashwani Singhal and directors as a group.
Unless otherwise noted, the address of each person listed on the table is c/o NetScout Systems, Inc., 4 Technology Park Drive, Westford, MA 01886, and each person has sole voting and investment power over the shares shown as beneficially owned, except to the extent authority is shared by spouses under applicable law or as unless otherwise noted below.
Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission. Shares of common stock issuable by NetScout to a person or entity named below pursuant to options which may be exercised within 60 days after June 8, 2001 are deemed to be beneficially owned and outstanding for purposes of calculating the number of shares and the percentage beneficially owned by that person or entity. However, these shares are not deemed to be beneficially owned and outstanding for purposes of computing the percentage beneficially owned by any other person or entity.
NUMBER OF SHARES PERCENTAGE NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED BENEFICIALLY OWNED ------------------------ ------------------ ------------------ Anil K. Singhal(1).......................... 2,949,682 10.0% Narendra Popat(2)........................... 1,517,317 5.1 David P. Sommers(3)......................... 78,625 * Michael Szabados(4)......................... 255,188 * John Downing (5)............................ 3,125 * Ashwani Singhal(6).......................... 692,484 2.3 John R. Egan................................ -- -- c/o Egan-Managed Capital, L.P. 30 Federal Street Boston, MA 02110-2508 Joseph G. Hadzima, Jr.(7)................... 264,178 * c/o Main Street Partners 238 Main Street, Suite 400 Cambridge, MA 02142 Kenneth T. Schiciano(8)..................... 16,263 * c/o TA Associates, Inc. 125 High Street Boston, MA 02110 Vincent J. Mullarkey........................ -- -- 2 Wingate Lane Acton, MA 01720 TA Entities(9).............................. 6,499,170 22.0 c/o TA Associates, Inc. 125 High Street Boston, MA 02110 Brown Capital Management.................... 1,481,300 5.0 1201 N. Calvert Street Baltimore, MD 21201 Abha Singhal(10)............................ 1,590,000 5.4 Jyoti Popat(11)............................. 2,226,056 7.5 All executive officers, Ashwani Singhal and directors as a group (12 persons)(12)..... 5,944,951 19.8 |
* Less than 1% of the outstanding common stock.
(1) Includes 13,964 shares issuable upon the exercise of options exercisable within 60 days of June 8, 2001. Includes an aggregate of 15,350 shares held in trust for the benefit of Mr. Singhal's children; Mr. Singhal is one of two trustees of each such trust. Includes 340,000 shares held by a family limited partnership of which Mr. Singhal and Abha Singhal, Mr. Singhal's spouse, are the general partners and trusts for the benefit of their children are the limited partners. Does not include 339,023 shares held in a grantor retained annuity trust for the benefit of Mr. Singhal. Does not include 1,250,000 shares held directly by Mrs. Singhal and 1,000,000 shares held in a grantor retained annuity trust for the benefit of Mrs. Singhal.
(2) Includes 13,964 shares issuable upon the exercise of options exercisable within 60 days of June 8, 2001. Includes 340,000 shares held by a family limited partnership of which Mr. Popat and Jyoti Popat, Mr. Popat's spouse, are the general partners and trusts for the benefit of their children are the limited partners. Does not include 136,056 shares held in trust for the benefit of Mr. Popat's children; Mrs. Popat and Mr. Hadzima are the two trustees of such trust. Does not include 330,842 shares held
in a grantor retained annuity trust for the benefit of Mr. Popat; Mr. Hadzima is the sole trustee of such trust. Does not include 1,750,000 shares held directly by Mrs. Popat and 500,000 shares held in a grantor retained annuity trust for the benefit of Mrs. Popat.
(3) Includes 78,125 shares issuable upon the exercise of options exercisable within 60 days of June 8, 2001.
(4) Includes 241,788 shares issuable upon the exercise of options exercisable within 60 days of June 8, 2001. Includes 1,400 shares owned by Mr. Szabados' daughters.
(5) Consists of shares issuable upon the exercise of options exercisable within 60 days of June 8, 2001.
(6) Includes 19,834 shares issuable upon the exercise of options exercisable within 60 days of June 8, 2001. Does not include 40,300 shares directly held by Mr. Singhal's spouse.
(7) Includes 48,750 shares issuable upon the exercise of options exercisable within 60 days of June 8, 2001. Includes 136,056 shares held in trust for the benefit of Mr. Popat's children; Mrs. Popat and Mr. Hadzima are the two trustees of such trust. Does not include 365,650 shares held in a grantor retained annuity trust for the benefit of Mr. Popat; Mr. Hadzima is the sole trustee of such trust. Mr. Hadzima disclaims beneficial ownership of all shares held in trust for the benefit of either Mr. Popat's children or Mr. Popat. The shares deemed to be beneficially owned by Mr. Hadzima do not include 53,328 shares held in trust for the benefit of Mr. Hadzima's children.
(8) Consists of shares of TA Investors LLC beneficially owned by Mr. Schiciano. Mr. Schiciano is a Managing Director of TA Associates, Inc. Mr. Schiciano disclaims beneficial ownership of the shares held by the TA Entities, except to the extent of his pecuniary interest therein.
(9) Includes 5,298,950 shares held by TA/Advent VIII L.P.; 993,561 shares held by Advent Atlantic and Pacific III L.P.; 100,680 shares held by TA Executives Fund LLC; and 105,979 shares held by TA Investors LLC. TA/Advent VIII L.P., Advent Atlantic and Pacific III L.P., TA Executives Fund LLC and TA Investors LLC are part of an affiliated group of investment partnerships referred to, collectively, as the "TA Entities." The general partner of TA/Advent VIII L.P. is TA Associates VIII LLC. The general partner of Advent Atlantic and Pacific III L.P. is TA Associates AAP III Partners L.P. TA Associates, Inc. is the general partner of TA Associates AAP III Partners L.P. and is the sole manager of TA Associates VIII LLC, TA Executives Fund LLC and TA Investors LLC. In such capacity, TA Associates, Inc., through an executive committee, exercises sole voting and investment power with respect to all shares held of record by the named investment partnerships; individually, no stockholder, director or officer of TA Associates, Inc. is deemed to have or share such voting or investment power.
(10) Includes 340,000 shares held by a family limited partnership of which Mr. and Mrs. Singhal are the general partners and trusts for the benefit of their children are the limited partners. Does not include 1,000,000 shares held in a grantor retained annuity trust for the benefit of Mrs. Singhal. Does not include 2,580,368 shares held directly by Mr. Singhal and 13,964 shares issuable upon the exercise of options exercisable by Mr. Singhal within 60 days of June 8, 2001. Does not include an aggregate of 15,350 shares held in trust for the benefit of Mrs. Singhal's children; Mr. Singhal is one of two trustees of each such trust.
(11) Includes 340,000 shares held by a family limited partnership of which Mr. and Mrs. Popat are the general partners and trusts for the benefit of their children are the limited partners. Includes 136,056 shares held in trust for the benefit of Mrs. Popat's children; Mrs. Popat and Mr. Hadzima are the two trustees of such trust. Does not include 500,000 shares held in a grantor retained annuity trust for the benefit of Mrs. Popat. Does not include 1,163,353 shares held directly by Mr. Popat and 13,964 shares issuable upon the exercise of options exercisable by Mr. Popat within 60 days of June 8, 2001.
(12) Includes an aggregate of 476,413 shares issuable upon exercise of options exercisable within 60 days of June 8, 2001.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On March 15, 2001, NetScout Systems India Pvt. Ltd. and Frontier Software Development (India) Pvt. Ltd. entered into a Leave and License Agreement pursuant to which NetScout Systems India Pvt. Ltd. leases office space owned by Frontier Software Development (India) Pvt. Ltd. The term of the agreement is from March 15, 2001 through March 15, 2006 and NetScout Systems India Pvt. Ltd. will continue to make monthly payments of approximately $1,350 per month to Frontier Software Development (India) Pvt. Ltd. during the term. Anil Singhal, NetScout's President and Chief Executive Officer and a member of NetScout's Board of Directors, and Narendra Popat, NetScout's Chairman of the Board, each own 33 1/3% of Frontier Software Development (India) Pvt. Ltd. NetScout Systems India Pvt. Ltd. was organized under the laws of India to serve as a wholly owned subsidiary of NetScout; and in accordance with the laws of India, its shares were issued to two individuals who are residents of India. Upon approval of the government of India, the shares of NetScout Systems India Pvt. Ltd. will be transferred to NetScout.
NetScout believes that the transaction described above was made on terms no less favorable to it than would have been obtained from unaffiliated third parties. All future transactions, if any, with our executive officers, directors and affiliates will be on terms no less favorable to us than could be obtained from unrelated third parties and will be approved by a majority of the Board of Directors and by a majority of the disinterested members of the Board of Directors.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Consolidated Financial Statements.
For a list of the consolidated financial information included herein, see Index to Consolidated Financial Statements on Page F-1.
2. Financial Statement Schedules.
The following financial statement schedules and Report of Independent Accountants on Financial Statement Schedules are included:
Report of Independent Accountants on Financial Statement Schedules............................. S-1 Valuation and Qualifying Accounts................. S-2 |
3. List of Exhibits.
The following exhibits are filed or incorporated by reference as part of this Report.
3.1, 4.1 Third Amended and Restated Certificate of Incorporation of NetScout (filed as Exhibit 3.3, 4.1 to NetScout's Registration Statement on Form S-1 (No. 333-76843) and incorporated herein by reference). 3.2, 4.2 Form of Amended and Restated By-laws of NetScout (filed as Exhibit 3.2, 4.2 to NetScout's Annual Report on Form 10-K for the fiscal year ended March 31, 2000 and incorporated herein by reference). 4.3 Specimen Certificate for shares of NetScout's Common Stock. 10.1 1990 Stock Option Plan, as amended (filed as Exhibit 10.1 to NetScout's Registration Statement on Form S-1 (No. 333-76843) and incorporated herein by reference). 10.2 1999 Stock Option and Incentive Plan (filed as Exhibit 10.2 to NetScout's Quarterly Report on Form 10-Q for the quarterly period ended December 31, 2000 and incorporated herein by reference). 10.3 1999 Employee Stock Purchase Plan, as amended (filed as Exhibit 10 to NetScout's Quarterly report on Form 10-Q for the quarterly period ended December 31, 2000 and incorporated herein by reference). 10.4 Stock Purchase and Redemption Agreement dated December 31, 1998 by and among NetScout, Greylock Equity Limited Partnership, certain affiliates of TA Associates, Inc. and Egan-Managed Capital, L.P. (filed as Exhibit 10.4 to NetScout's Registration Statement on Form S-1 (No. 333-76843) and incorporated herein by reference). 10.5 Amended and Restated Rights Agreement entered into as of January 15, 1999 by and among NetScout, Greylock Equity Limited Partnership, certain affiliates of TA Associates, Inc. and Egan-Managed Capital, L.P. (filed as Exhibit 10.5 to NetScout's Registration Statement on Form S-1 (No. 333-76843) and incorporated herein by reference). 10.6 Lease dated August 18, 1997 between NetScout and Michelson Farm-Westford Technology Park Limited Partnership (filed as Exhibit 10.6 to NetScout's Registration Statement on Form S-1 (No. 333-76843) and incorporated herein by reference). 10.7 Amended and Restated Loan and Security Agreement dated March 12, 1998 by and between NetScout and Silicon Valley Bank (filed as Exhibit 10.7 to NetScout's Registration Statement on Form S-1 (No. 333-76843) and incorporated herein by reference). 10.8 Loan Modification Agreement entered into March 11, 1999 between NetScout and Silicon Valley Bank (filed as Exhibit 10.8 to NetScout's Registration Statement on Form S-1 (No. 333-76843) and incorporated herein by reference). 10.9 OEM Agreement dated as of February 3, 1998 by and between SDL Communications, Inc. and NetScout (filed as Exhibit 10.9 to NetScout's Registration Statement on Form S-1 (No. 333-76843) and incorporated herein by reference). 10.10 Project Development and License Agreement dated as of July 13, 1994 by and between Cisco Systems, Inc. and NetScout (filed as Exhibit 10.10 to NetScout's Registration Statement on Form S-1 (No. 333-76843) and incorporated herein by reference). 10.11 Amendment No. 1 to the Project Agreement and Design License Agreement dated as of January 4, 1995 by and between Cisco and NetScout (filed as Exhibit 10.11 to NetScout's Registration Statement on Form S-1 (No. 333-76843) and incorporated herein by reference). 10.12 Private Label Agreement effective as of October 17, 1995 by and between Cisco and NetScout (filed as Exhibit 10.12 to NetScout's Registration Statement on Form S-1 (No. 333-76843) and incorporated herein by reference). |
10.13 Amendment to Private Label Agreement and Project Development and License Agreement dated May 15, 1996 by and between Cisco and NetScout (filed as Exhibit 10.13 to NetScout's Registration Statement on Form S-1 (No. 333-76843) and incorporated herein by reference). 10.14 Amendment No. 3 to the Private Label Agreement and Project Development and License Agreement by and between Cisco and NetScout (filed as Exhibit 10.14 to NetScout's Registration Statement on Form S-1 (No. 333-76843) and incorporated herein by reference). 10.15 Amendment No. 4 to Private Label Agreement and Project Development and License Agreement effective as of February 23, 1998 by and between Cisco and NetScout (filed as Exhibit 10.15 to NetScout's Registration Statement on Form S-1 (No. 333-76843) and incorporated herein by reference). 10.16 Amendment No. 5 effective as of December 26, 1999 to Private Label Agreement and Project Development and License Agreement between Cisco and NetScout (filed as Exhibit 10.1 to NetScout's Quarterly Report on Form 10-Q and incorporated herein by reference). 10.17 Agreement Relating to Employment dated June 1, 1994 by and between NetScout and Anil Singhal (filed as Exhibit 10.16 to NetScout's Registration Statement on Form S-1 (No. 333-76843) and incorporated herein by reference). 10.18 Amendment No. 1 to Agreement Relating to Employment dated January 14, 1999 by and between NetScout and Anil Singhal (filed as Exhibit 10.17 to NetScout's Registration Statement on Form S-1 (No. 333-76843) and incorporated herein by reference). 10.19 Agreement Relating to Employment dated June 1, 1994 by and between NetScout and Narendra Popat (filed as Exhibit 10.18 to NetScout's Registration Statement on Form S-1 (No. 333-76843) and incorporated herein by reference). 10.20 Amendment No. 1 to Agreement Relating to Employment dated January 14, 1999 by and between NetScout and Narendra Popat (filed as Exhibit 10.19 to NetScout's Registration Statement on Form S-1 (No. 333-76843) and incorporated herein by reference). 10.21 Loan Modification Agreement entered into March 10, 2000 between NetScout and Silicon Valley Bank (filed as Exhibit 10.25 to NetScout's Annual Report on Form 10-K for the fiscal year ended March 31, 2000 and incorported herein by reference). 10.22 Loan Modification Agreement entered into June 27, 2000 between NetScout and Silicon Valley Bank. 10.23 Loan Modification Agreement entered into March 9, 2001 between NetScout and Silicon Valley Bank. 10.24 Agreement and Plan of Reorganization dated June 13, 2000, by and among NetScout, NetScout Service Level Corporation, NextPoint and certain stockholders of NextPoint (filed as Exhibit 2.1 to NetScout's Current Report on Form 8-K filed on July 20, 2000 and incorporated herein by reference). 10.25 Registration Rights Agreement dated as of July 7, 2000, by and among NetScout, certain NextPoint stockholders, certain NextPoint Warrant Holders and Silicon Valley Bank (filed as Exhibit 10.1 to NetScout's current report on Form 8-K filed on July 20, 2000 and incorporated herein by reference). 10.26 Lease between Arturo J. Gutierrez and John A. Cataldo, Trustees of Nashoba Westford Realty Trust, U/D/T dated April 27, 2000 and recorded with the Middlesex North Registry of Deeds in Book 10813, Page 38 and NetScout for Westford Technology Park West, as amended. 10.27 1997 Stock Incentive Plan of NextPoint Networks, Inc., assumed by NetScout (filed as Exhibit 4.3 to NetScout's Registration Statement on Form S-8 (No. 333-41880) and incorporated herein by reference). 10.28 2000 Stock Incentive Plan of NextPoint, assumed by NetScout (filed as Exhibit 4.4 to NetScout's Registration Statement on Form S-8 (No. 333-41880) and incorporated herein by reference). 21 Subsidiaries of NetScout. 23 Consent of PricewaterhouseCoopers LLP. |
b. Reports on Form 8-K
There were no reports on Form 8-K filed by the Company during the fourth quarter of fiscal year 2001.
The Company hereby files as part of this Annual Report on Form 10-K the financial statement schedule listed in Item 14(a)(2) above, which is attached hereto.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized, in Westford, Massachusetts on June 29, 2001.
NETSCOUT SYSTEMS, INC. By: /s/ ANIL K. SINGHAL ----------------------------------------- Anil K. Singhal PRESIDENT, CHIEF EXECUTIVE OFFICER, TREASURER AND DIRECTOR |
Pursuant to the requirements of the Securities Act of 1934, this Report has been signed by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE(S) DATE --------- -------- ---- /s/ ANIL K. SINGHAL President, Chief Executive Officer, June 29, 2001 ------------------------------------ Treasurer and Director (Principal Anil K. Singhal Executive Officer) /s/ NARENDRA POPAT Chairman of the Board and Secretary June 29, 2001 ------------------------------------ Narendra Popat /s/ DAVID P. SOMMERS Senior Vice President, General June 29, 2001 ------------------------------------ Operations and Chief Financial David P. Sommers Officer (Principal Financial and Accounting Officer) /s/ JOHN R. EGAN Director June 29, 2001 ------------------------------------ John R. Egan /s/ JOSEPH G. HADZIMA, JR Director June 29, 2001 ------------------------------------ Joseph G. Hadzima, Jr Director June 29, 2001 ------------------------------------ Vincent J. Mullarkey /s/ KENNETH T. SCHICIANO Director June 29, 2001 ------------------------------------ Kenneth T. Schiciano |
NETSCOUT SYSTEMS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE -------- Report of Independent Accountants........................... F-2 Consolidated Balance Sheets as of March 31, 2000 and 2001... F-3 Consolidated Statements of Income for the Three Years Ended March 31, 1999, 2000 and 2001............................. F-4 Consolidated Statements of Redeemable Convertible Common Stock and Stockholders' Equity (Deficit) for the Three Years Ended March 31, 1999, 2000 and 2001................. F-5 Consolidated Statements of Cash Flows for the Three Years Ended March 31, 1999, 2000 and 2001....................... F-6 Notes to Consolidated Financial Statements.................. F-7 |
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of NetScout Systems, Inc.:
In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income, of redeemable convertible common stock and stockholders' equity (deficit) and of cash flows present fairly, in all material respects, the financial position of NetScout Systems, Inc. and its subsidiaries at March 31, 2000 and 2001, and the results of their operations and their cash flows for each of the three years in the period ended March 31, 2001, in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP Boston, Massachusetts June 14, 2001 |
NETSCOUT SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
MARCH 31, ------------------- 2000 2001 -------- -------- ASSETS Current assets: Cash and cash equivalents................................... $ 48,515 $ 61,382 Marketable securities....................................... 21,807 -- Accounts receivable, net of allowance for doubtful accounts and returns of $754 and $408 at March 31, 2000 and 2001, respectively.............................................. 10,390 11,753 Inventories................................................. 3,131 8,653 Refundable income taxes..................................... 1,899 2,412 Deferred income taxes....................................... 1,022 1,374 Prepaids and other current assets........................... 3,728 3,126 -------- -------- Total current assets.................................... 90,492 88,700 Fixed assets, net........................................... 5,657 6,937 Goodwill and other intangible assets, net................... -- 41,549 Deferred income taxes....................................... 599 4,894 -------- -------- Total assets............................................ $ 96,748 $142,080 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable............................................ $ 2,789 $ 4,220 Accrued compensation........................................ 3,673 5,013 Accrued other............................................... 2,448 1,749 Deferred revenue............................................ 6,716 10,053 -------- -------- Total current liabilities............................... 15,626 21,035 -------- -------- Commitments and contingencies (Note 14) Stockholders' equity: Preferred stock, $0.001 par value: 5,000,000 shares authorized; no shares issued or outstanding at March 31, 2000 and 2001.................... -- -- Common stock, $0.001 par value: 150,000,000 shares authorized; 30,697,697 and 33,498,240 shares issued and 26,720,443 and 29,520,986 shares outstanding at March 31, 2000 and 2001, respectively...... 31 33 Additional paid-in capital.................................. 67,366 106,354 Deferred compensation....................................... (636) (3,409) Treasury stock.............................................. (25,306) (25,306) Retained earnings........................................... 39,667 43,373 -------- -------- Total stockholders' equity.............................. 81,122 121,045 -------- -------- Total liabilities and stockholders' equity.............. $ 96,748 $142,080 ======== ======== |
The accompanying notes are an integral part of these consolidated financial statements.
NETSCOUT SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
YEAR ENDED MARCH 31, --------------------------------------- 1999 2000 2001 ----------- ----------- ----------- Revenue: Product............................................. $ 50,374 $ 57,206 $ 75,673 Service............................................. 8,710 12,804 18,506 License and royalty................................. 8,467 16,149 13,772 ----------- ----------- ----------- Total revenue..................................... 67,551 86,159 107,951 ----------- ----------- ----------- Cost of revenue: Product (including stock-based compensation of $0, $2 and $1, respectively).......................... 19,250 21,139 25,737 Service (including stock-based compensation of $6, $39 and $9, respectively)......................... 1,235 1,718 3,453 ----------- ----------- ----------- Total cost of revenue............................. 20,485 22,857 29,190 ----------- ----------- ----------- Gross margin.......................................... 47,066 63,302 78,761 ----------- ----------- ----------- Operating expenses: Research and development (including stock-based compensation of $68, $120 and $1,577, respectively)..................................... 7,526 9,526 15,424 Sales and marketing (including stock-based compensation of $266, $266 and $236, respectively)..................................... 20,375 27,945 39,985 General and administrative (including stock-based compensation of $3, $15 and $11, respectively).... 4,104 4,631 8,382 Amortization of goodwill and other intangible assets............................................ -- -- 7,892 In-process research and development................. -- -- 268 ----------- ----------- ----------- Total operating expenses.......................... 32,005 42,102 71,951 ----------- ----------- ----------- Income from operations................................ 15,061 21,200 6,810 Interest income....................................... 929 2,582 3,951 Interest expense...................................... (3) (31) (28) ----------- ----------- ----------- Income before provision for income taxes.............. 15,987 23,751 10,733 Provision for income taxes............................ 5,715 8,539 7,027 ----------- ----------- ----------- Net income............................................ $ 10,272 $ 15,212 $ 3,706 =========== =========== =========== Basic net income per share............................ $ 0.55 $ 0.70 $ 0.13 Diluted net income per share.......................... $ 0.43 $ 0.56 $ 0.12 Shares used in computing: Basic net income per share.......................... 18,585,676 21,750,205 28,487,317 Diluted net income per share........................ 23,705,999 26,946,046 29,726,284 |
The accompanying notes are an integral part of these consolidated financial statements.
NETSCOUT SYSTEMS, INC.
CONSOLIDATED STATEMENT OF REDEEMABLE CONVERTIBLE COMMON STOCK AND STOCKHOLDERS'
EQUITY (DEFICIT)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
CLASS B REDEEMABLE COMMON STOCK SERIES A ----------------------------------- CONVERTIBLE COMMON CONVERTIBLE STOCK PREFERRED STOCK VOTING NON-VOTING --------------------- ------------------- ---------------------- ---------- SHARES AMOUNT SHARES AMOUNT SHARES PAR VALUE SHARES ---------- -------- -------- -------- ---------- --------- ---------- Balance, March 31, 1998........................ -- $ -- 631,579 $ 5,964 16,000,000 $16 3,608,000 Issuance of Class B redeemable convertible common stock, net of issuance costs of $410......................................... 6,977,254 44,161 Purchase of treasury stock..................... Deferred compensation related to stock options granted...................................... Issuance of common stock pursuant to exercise of options................................... 427,858 Amortization of deferred compensation.......... Net income..................................... ---------- -------- -------- ------- ---------- --- ---------- Balance, March 31, 1999........................ 6,977,254 44,161 631,579 5,964 16,000,000 16 4,035,858 Conversion of issued shares into common stock........................................ (6,977,254) (44,161) (631,579) (5,964) 13,624,678 14 (4,121,108) Issuance of common stock pursuant to exercise of options................................... 1,051,056 1 85,250 Issuance of common stock pursuant to employee stock purchase plan.......................... 21,963 -- Amortization of deferred compensation.......... Reversal of deferred compensation upon termination of employees..................... Issuance of common stock upon NetScout's initial public offering, net of offering costs........................................ Tax benefit of disqualifying dispositions of stock options................................ Net income..................................... ---------- -------- -------- ------- ---------- --- ---------- Balance, March 31, 2000........................ -- -- -- -- 30,697,697 31 -- Issuance of common stock pursuant to exercise of options................................... 636,119 -- Issuance of common stock pursuant to employee stock purchase plan.......................... 53,985 -- Issuance of common stock, options and warrants for the acquisition of NextPoint............. 2,099,120 2 Issuance of common stock pursuant to exercise of warrants.................................. 11,319 -- Amortization of deferred compensation.......... Reversal of deferred compensation upon termination of employees..................... Tax benefit of disqualifying dispositions of stock options................................ Net income..................................... ---------- -------- -------- ------- ---------- --- ---------- Balance, March 31, 2001........................ -- $ -- -- $ -- 33,498,240 $33 -- ========== ======== ======== ======= ========== === ========== ---------------------- TOTAL ADDITIONAL STOCKHOLDERS' --------- PAID IN DEFERRED TREASURY RETAINED EQUITY PAR VALUE CAPITAL COMPENSATION STOCK EARNINGS (DEFICIT) --------- ---------- ------------ -------- -------- ------------- Balance, March 31, 1998........................ $ 4 $ 905 ($ 672) $ -- $14,183 $ 20,400 Issuance of Class B redeemable convertible common stock, net of issuance costs of $410......................................... Purchase of treasury stock..................... (44,394) (44,394) Deferred compensation related to stock options granted...................................... 983 (983) -- Issuance of common stock pursuant to exercise of options................................... -- 255 255 Amortization of deferred compensation.......... 343 343 Net income..................................... 10,272 10,272 --- -------- ------- -------- ------- -------- Balance, March 31, 1999........................ 4 2,143 (1,312) (44,394) 24,455 (13,124) Conversion of issued shares into common stock........................................ (4) 50,115 44,161 Issuance of common stock pursuant to exercise of options................................... -- 2,094 2,095 Issuance of common stock pursuant to employee stock purchase plan.......................... 313 313 Amortization of deferred compensation.......... 442 442 Reversal of deferred compensation upon termination of employees..................... (234) 234 -- Issuance of common stock upon NetScout's initial public offering, net of offering costs........................................ 10,486 19,088 29,574 Tax benefit of disqualifying dispositions of stock options................................ 2,449 2,449 Net income..................................... 15,212 15,212 --- -------- ------- -------- ------- -------- Balance, March 31, 2000........................ -- 67,366 (636) (25,306) 39,667 81,122 Issuance of common stock pursuant to exercise of options................................... 2,313 2,313 Issuance of common stock pursuant to employee stock purchase plan.......................... 397 397 Issuance of common stock, options and warrants for the acquisition of NextPoint............. 34,615 (4,961) 29,656 Issuance of common stock pursuant to exercise of warrants.................................. -- Amortization of deferred compensation.......... 1,834 1,834 Reversal of deferred compensation upon termination of employees..................... (354) 354 -- Tax benefit of disqualifying dispositions of stock options................................ 2,017 2,017 Net income..................................... 3,706 3,706 --- -------- ------- -------- ------- -------- Balance, March 31, 2001........................ $-- $106,354 ($3,409) ($25,306) $43,373 $121,045 === ======== ======= ======== ======= ======== |
The accompanying notes are an integral part of these consolidated financial statements.
NETSCOUT SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
YEAR ENDED MARCH 31, ------------------------------ 1999 2000 2001 -------- -------- -------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS CASH FLOWS FROM OPERATING ACTIVITIES: Net income................................................ $ 10,272 $ 15,212 $ 3,706 Adjustments to reconcile net income to net cash provided by operating activities, net of effects of the acquisition of NextPoint: Depreciation and amortization........................... 2,069 2,936 4,101 Amortization of goodwill and other intangible assets.... -- -- 7,892 In-process research and development..................... -- -- 268 Loss on disposal of fixed assets........................ 70 49 138 Compensation expense associated with equity awards...... 343 442 1,834 Deferred income taxes................................... 70 (104) (21) Changes in assets and liabilities: Accounts receivable................................... (2,255) (3,840) (150) Inventories........................................... (111) 34 (5,522) Refundable income taxes............................... 491 (1,682) 1,504 Prepaids and other current assets..................... (261) (2,907) 719 Accounts payable...................................... 994 (1,156) 1,002 Accrued compensation and other expenses............... 1,611 3,866 (820) Deferred revenue...................................... (488) 2,428 3,043 -------- -------- -------- Net cash provided by operating activities............. 12,805 15,278 17,694 -------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of marketable securities......................... -- (23,807) (18,577) Proceeds from maturity of marketable securities........... 8,834 2,000 40,384 Proceeds from notes receivable--stockholders.............. -- 2,000 -- Purchase of fixed assets.................................. (2,525) (4,415) (4,878) Cash paid for acquisition of NextPoint, net of cash received................................................ -- -- (23,248) -------- -------- -------- Net cash provided by (used in) investing activities... 6,309 (24,222) (6,319) -------- -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of common stock.................... 255 31,982 2,710 Proceeds from the issuance of Class B redeemable convertible common stock, net of issuance costs......... 44,161 -- -- Purchase of treasury stock................................ (44,394) -- -- Repayment of notes payable................................ -- -- (1,218) -------- -------- -------- Net cash provided by financing activities............. 22 31,982 1,492 -------- -------- -------- Net increase in cash and cash equivalents................. 19,136 23,038 12,867 Cash and cash equivalents, beginning of year.............. 6,341 25,477 48,515 -------- -------- -------- Cash and cash equivalents, end of year.................... $ 25,477 $ 48,515 $ 61,382 ======== ======== ======== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid for interest.................................... $ 3 $ 5 $ 24 Cash paid for income taxes................................ 5,158 8,376 5,737 NON-CASH FINANCING ACTIVITIES: Tax benefits of disqualifying dispositions of stock options................................................. $ -- $ 2,449 $ 2,017 |
The accompanying notes are an integral part of these consolidated financial statements.
NETSCOUT SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
1. NATURE OF BUSINESS
NetScout Systems, Inc. ("NetScout") designs, develops, manufactures, markets and supports a family of integrated products that enable optimization of the performance and cost management of complex, high-speed networks, including their ability to deliver critical business applications and content to end-users efficiently. NetScout manufactures and markets these products in an integrated hardware and software solution suite that is used by enterprise and service provider businesses worldwide. NetScout manages its business as a single segment.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of NetScout and its wholly owned subsidiaries. All significant inter-company transactions and balances have been eliminated.
CASH, CASH EQUIVALENTS AND MARKETABLE SECURITIES
NetScout considers all highly liquid investments purchased with a maturity of three months or less to be cash equivalents and those with maturities greater than three months are considered to be marketable securities. Cash equivalents and marketable securities are stated at amortized cost plus accrued interest, which approximates fair value. Cash equivalents and marketable securities consist primarily of money market instruments and U.S. Treasury bills.
NetScout accounts for its investments in accordance with Statement of Financial Accounting Standards ("SFAS") No. 115, "Accounting for Certain Investments in Debt and Equity Securities." Under the provision of SFAS No. 115, NetScout has classified its investments as "available-for-sale" and any associated unrealized gains or losses, if material, are recorded as a separate component of stockholders' equity until realized. At March 31, 2000 and 2001, any unrealized gains or losses were not significant.
At March 31, 2001 and periodically throughout the year, NetScout has maintained cash balances in various operating accounts in excess of federally insured limits. NetScout limits the amount of credit exposure with any one financial institution by evaluating the creditworthiness of the financial institutions with which it invests.
INVENTORIES AND CONCENTRATIONS OF SUPPLIERS
Inventories are stated at the lower of cost or market with cost being determined by actual cost using the first-in, first-out ("FIFO") method.
NetScout purchases the majority of its product components from a limited number of vendors. Although the supply sources are concentrated, management believes that the nature of its business requires sourcing and marketing products from the limited number of vendors who have expertise in manufacturing the components for NetScout's products. A change in or loss of one or more of these vendors could cause a delay in filling customer orders and a possible loss of sales, which could adversely affect results of operations.
NETSCOUT SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) FIXED ASSETS
Fixed assets are stated at cost and depreciated using the straight-line method over the estimated useful lives of the assets.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company evaluates its long-lived assets, including goodwill, for impairment whenever events or other factors may indicate that the carrying amount may not be recoverable. Recoverability is measured by the carrying costs of the asset against any undiscounted future net cash flow projections expected to be generated by the asset. If the asset is considered to be impaired, the impairment to be expensed is the excess carrying value over the fair market value of the asset. At March 31, 2000 and 2001, long-lived assets, including goodwill, were not impaired.
REVENUE RECOGNITION
Product revenue consists of sales of hardware products and licensing software products. Product revenue is recognized upon shipment, provided that evidence of an arrangement exists, title and risk of loss have passed to the customer, fees are fixed or determinable and collection of the related receivable is probable. Revenue is recorded net of an allowance for estimated product returns, which is based upon our return policy and historical experience.
Service revenue consists primarily of customer fees from support agreements, consulting and training. NetScout generally provides three months of software support and 12 months of hardware support as part of product sales. Revenue from software support is deferred and recognized ratably over the three-month support period. Revenue from hardware support is deferred and recognized ratably over the 12-month support period. In addition, customers can elect to purchase extended support agreements, typically for 12-month periods. Revenue from these agreements is deferred and recognized ratably over the support period. Revenue from consulting and training is recognized as the work is performed.
For multi-element arrangements, each element of the arrangement is analyzed and the Company allocates a portion of the total fee under the arrangement to the undelivered elements, primarily support agreements and training, using vendor specific objective evidence of fair value of the element and the remaining portion of the fee is allocated to the delivered elements (i.e. generally hardware products and licensing software products), regardless of any separate prices stated within the contract for each element, under the residual method. Vendor specific objective evidence of fair value is based on the price the customer is required to pay when the element is sold separately.
License and royalty revenue consists primarily of royalties paid under license agreements by original equipment manufacturers which incorporate components of NetScout's data collection technology in their own products or who reproduce and sell NetScout's software products. License revenue is recognized when delivery has occurred and when NetScout becomes contractually entitled to receive license fees, provided that such fees are fixed or determinable and collection is probable. Royalty revenue is recognized based upon product shipment by the license holder.
NETSCOUT SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) CONCENTRATION OF CREDIT RISK AND SIGNIFICANT CUSTOMERS
Management believes its credit policies are prudent and reflect normal industry terms and business risk. In addition, NetScout maintains reserves for potential credit losses, and such losses historically have been minimal and within management's expectations. At March 31, 2000 and 2001, one customer accounted for approximately 14% and 15%, respectively, of NetScout's accounts receivable. NetScout does not anticipate non-performance by its customers and, accordingly, does not require collateral.
One customer accounted for approximately 51%, 50% and 51% of NetScout's total revenue during the fiscal years ended March 31, 1999, 2000 and 2001, respectively.
RESEARCH AND DEVELOPMENT AND COMPUTER SOFTWARE DEVELOPMENT COSTS
Costs incurred in the research and development of NetScout's products are expensed as incurred, except for certain software development costs. Costs associated with the development of computer software are expensed prior to establishment of technological feasibility (as defined by SFAS No. 86, "Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise Marketed") and capitalized thereafter when material to NetScout's financial position or results of operations. No software development costs were capitalized during the fiscal years ended March 31, 1999, 2000 and 2001, since costs incurred subsequent to establishment of technological feasibility were not significant.
ACCOUNTING FOR STOCK-BASED COMPENSATION
NetScout accounts for stock-based awards to employees using the intrinsic value method as prescribed by Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations. NetScout has adopted the provisions of SFAS No. 123, "Accounting for Stock- Based Compensation," through disclosure only (Note 11). All stock-based awards to non-employees are accounted for at their fair value in accordance with SFAS No. 123 and Emerging Issues Task Force Issue No. 96-18, "Accounting for Equity Instruments that are Issued to Other than Employees for Acquiring, or in Conjunction with Selling, Goods or Services."
ADVERTISING EXPENSE
NetScout recognizes advertising expense as incurred. Advertising expense was approximately $627, $973 and $1,153 for the years ended March 31, 1999, 2000 and 2001, respectively.
NET INCOME PER SHARE
Basic net income per share is computed by dividing income available to common stockholders by the weighted average number of shares of common stock outstanding during the period, excluding shares of common stock subject to repurchase. Diluted net income per share is computed by dividing income available to common stockholders by the sum of the weighted average number of shares of common stock outstanding during the period and the weighted average number of potential common stock from the assumed exercise of stock options and reserved shares of common stock subject to repurchase using the "treasury stock" method and the assumed conversion of the Series A preferred stock and the Class B convertible common stock.
NETSCOUT SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates in these financial statements include allowances for doubtful accounts, prepaid royalties on software licenses resold by NetScout, and undiscounted net cash flow analysis used in determining whether goodwill and other intangible assets are impaired. These items are constantly monitored and analyzed by management for changes in facts and circumstances and material changes in these estimates could occur in the future.
RECLASSIFICATIONS
Certain prior years' financial statement items have been reclassified to conform to the current year's presentation.
FINANCIAL INSTRUMENTS
The carrying value of NetScout's financial instruments, which include cash and cash equivalents, marketable securities, accounts receivable, accounts payable and accrued expenses approximate their fair values.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities", as amended by SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities-Deferral of Effective Date of FASB Statement No. 133," and SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities- an Amendment of FASB Statement No. 133," which establishes accounting and reporting standards for derivative instruments and hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. NetScout has not engaged in derivative hedging activities and, accordingly, does not believe that the adoption of SFAS No. 133 will have a significant impact on its financial reporting and related disclosures. NetScout will adopt SFAS No. 133, as required by SFAS No. 137, in fiscal year 2002.
NETSCOUT SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
3. INVENTORIES
Inventories consist of the following:
MARCH 31, ------------------- 2000 2001 -------- -------- Raw materials............................................... $2,371 $5,608 Work-in-process............................................. 476 10 Finished goods.............................................. 284 3,035 ------ ------ $3,131 $8,653 ====== ====== |
4. GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill and other intangible assets consist of the following:
MARCH 31, ESTIMATED 2001 LIVES --------- --------- Goodwill................................................. $45,475 5 Completed technology..................................... 2,166 3 Customer base............................................ 1,100 3 Assembled workforce...................................... 700 2 ------- 49,441 Less--accumulated amortization........................... 7,892 ------- $41,549 ======= |
Goodwill and other intangible assets will be amortized as follows:
2002........................................................ $10,536 2003........................................................ 10,273 2004........................................................ 9,369 2005........................................................ 9,097 2006........................................................ 2,274 ------- Total....................................................... $41,549 ======= |
Goodwill and other intangible assets are amortized on a straight-line basis over a period of two to five years. Due to the recent decline in NetScout's common stock value, lower than expected fourth quarter results and a general decline in the market, NetScout undertook an evaluation of its goodwill and other intangible assets and determined that the carrying amounts were recoverable. Estimates and assumptions used to determine recoverability could change in the future which could trigger a material impairment write-down.
5. ACQUISITION
In July 2000, NetScout acquired all of the outstanding common and preferred stock of NextPoint Networks, Inc. ("NextPoint") in exchange for 1,831,518 shares of NetScout common stock and $19,600 in
NETSCOUT SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
5. ACQUISITION (CONTINUED) cash. NetScout also issued options and warrants exercisable for 298,647 shares of NetScout common stock in exchange for all outstanding options and warrants exercisable for NextPoint common stock. In December 2000, the warrants were exercised in full. The value of the acquisition was $53,418 based on the fair value of the consideration paid plus direct acquisition costs. The acquisition was accounted for using the purchase method. In addition, 267,602 shares of NetScout common stock have been reserved and are being released during a two-year period subsequent to the acquisition to two founding shareholders of NextPoint as they continue employment by NetScout. NetScout recorded $3,981 as deferred compensation related to the reserved shares, which will be amortized to stock-based compensation expense over the two-year period of employment. Accordingly, the results of operations of NextPoint subsequent to July 7, 2000 have been included in NetScout's statements of operations for the fiscal year ended March 31, 2001. The purchase price allocation was as follows:
Tangible net assets......................................... $ 3,709 Intangible assets acquired: Goodwill.................................................. 45,475 Completed technology...................................... 2,166 Customer base............................................. 1,100 Assembled workforce....................................... 700 In-process research and development....................... 268 ------- Total purchase price allocation............................. $53,418 ======= |
Tangible net assets acquired include cash, accounts receivable, fixed assets, prepaid expenses and other assets, accounts payable, accrued expenses, deferred revenue and notes payable, in addition to net deferred tax assets related to net operating losses carried forward from NextPoint, partially offset by deferred tax liabilities created with the acquisition of intangible assets other than goodwill and deferred compensation related to unvested options exchanged as part of the acquisition.
A portion of the purchase price was allocated to acquired in-process research and development ("IPR&D") and completed technology. Completed technology and IPR&D were identified and valued through interviews and analysis of data regarding products under development. Developmental projects that had reached technological feasibility were classified as completed technology. Projects that had not reached technological feasibility and had no future alternative uses were classified as IPR&D and charged to expense on the day of the acquisition. The value of IPR&D was determined considering the project's stage of completion, the time and resources needed for completion, the contribution of core technology, and the projected discounted cash flows of completed products. The discount rate was determined considering weighted average cost of capital and the risk surrounding the successful completion of the projects under development.
NETSCOUT SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
5. ACQUISITION (CONTINUED) The summary table below, prepared on an unaudited pro forma basis, combines NetScout's results of operations with NextPoint's results of operations as if NextPoint had been acquired as of April 1, 1999 and April 1, 2000 for the twelve months ended March 31, 2000 and 2001, respectively:
YEAR ENDED MARCH 31, ----------------------- 2000 2001 -------- -------- Revenue............................................. $88,562 $108,975 Net loss............................................ $(2,419) $ (2,753) Basic net loss per share............................ $ (0.10) $ (0.09) Diluted net loss per share.......................... $ (0.10) $ (0.09) |
The pro forma results are not necessarily indicative of what would have occurred if the acquisition had been in effect for the periods presented. In addition, they are not intended to be a projection of future results and do not reflect any synergies that might be achieved from combined operations.
NetScout's effective tax rate before non-deductible costs related to the acquisition of NextPoint and stock-based compensation expense was 36% and 34% for the twelve months ended March 31, 2000 and 2001, respectively.
Prior to the acquisition of NextPoint, a reseller of NextPoint filed an action against NextPoint alleging breach of contract. NextPoint has denied that a breach occurred. An escrow balance was established at the time of the acquisition to account for potential losses related to this suit in order to limit any exposure to NetScout. NetScout plans to vigorously defend this matter. However, since the matter is at a preliminary stage, NetScout is unable to predict the outcome or amount of related expense, or loss, if any.
6. FIXED ASSETS
Fixed assets consist of the following:
ESTIMATED MARCH 31, USEFUL LIFE ------------------- IN YEARS 2000 2001 ----------- -------- -------- Furniture and fixtures.......................... 3-7 $ 968 $ 966 Computer equipment and purchased software....... 3 7,068 11,776 Demonstration units............................. 2 1,891 1,775 Leasehold improvements.......................... 5 2,676 3,024 ------- ------- 12,603 17,541 Less--accumulated depreciation and amortization.................................. 6,946 10,604 ------- ------- $ 5,657 $ 6,937 ======= ======= |
Depreciation and amortization expense on fixed assets for the years ended March 31, 1999, 2000 and 2001 was $2,069, $2,936 and $4,101, respectively.
NETSCOUT SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
7. NOTES RECEIVABLE STOCKHOLDERS
In June 1996, the Board of Directors approved $1,100 and $900 loans to two voting stockholders ($2,000 in the aggregate). The loans were collateralized by 1,032,264 shares of voting common stock of NetScout. The loans had a five-year term with an interest rate of 6.48%, compounded semi-annually and payable annually. The loans were paid in full on August 16, 1999.
8. LINE OF CREDIT
At March 31, 2001, NetScout had a revolving line of credit with a bank under which it can borrow up to $10,000 based upon a percentage of eligible accounts receivable. This line of credit expires on March 10, 2002. Borrowings under the line are payable on demand and bear interest at the bank's prime rate. Under the terms of the agreement, NetScout is required to comply with certain restrictive covenants, which require that NetScout maintain minimum amounts of profitability and liquidity. NetScout's accounts receivable and inventory secure the line of credit. NetScout was in compliance with all restrictive covenants at March 31, 2001. No borrowings were outstanding under the line of credit at March 31, 2001 (Note 14).
9. NET INCOME PER SHARE
Below is a summary of the shares used in computing basic and diluted net income per share for the years indicated:
YEAR ENDED MARCH 31, ------------------------------------ 1999 2000 2001 ---------- ---------- ---------- Weighted average number of shares outstanding............................ 18,585,676 21,750,205 28,487,317 Shares attributable to Class B convertible common stock............... 1,451,269 2,540,631 -- Shares attributable to Series A preferred Stock.................................. 2,263,579 459,955 -- Shares attributable to unvested non-voting common stock................ 22,769 -- -- Reserved common stock (Note 5)........... -- -- 154,202 Stock options............................ 1,382,706 2,195,255 1,084,765 ---------- ---------- ---------- Shares used in computing diluted net income per share....................... 23,705,999 26,946,046 29,726,284 ========== ========== ========== |
The following table sets forth common stock excluded from the calculation of diluted net income per share since the inclusion would be antidilutive:
YEAR ENDED MARCH 31, ------------------------------- 1999 2000 2001 -------- -------- --------- Stock options.................................. 110,977 128,634 1,925,238 |
NETSCOUT SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
10. CAPITAL STOCK
AUTHORIZED SHARES
In April 1999, NetScout increased the authorized shares of preferred and common stock, $0.001 par value per share, to 5,000,000 and 150,000,000 shares, respectively.
PUBLIC OFFERING
On August 17, 1999, NetScout completed an initial public offering of three million shares of common stock at $11.00 per share. NetScout received net proceeds of approximately $29,600 after deducting $2,300 in underwriting discounts and commissions and $1,100 in other offering expenses.
TREASURY STOCK
At March 31, 2000 and 2001, 3,977,254 shares of common stock were held in treasury.
11. STOCK PLANS
1990 STOCK OPTION PLAN
In October 1990, NetScout adopted the 1990 Stock Option Plan (the "1990 Stock Option Plan"). The 1990 Stock Option Plan provides for the granting of incentive and non-qualified stock options to employees, directors and consultants of NetScout. The 1990 Stock Option Plan, as amended, allows for the issuance of options to purchase up to 4,514,666 shares of non-voting common stock. The Board of Directors determines the term of each option, option price, number of shares for which each option is granted and the rate at which each option is exercisable, generally over four years. The exercise price of incentive stock options shall not be less than 100% of the fair market value of the common stock at the date of grant (110% for incentive stock options granted to holders of more than 10% of the voting stock of NetScout). The term of options granted cannot exceed ten years (five years for incentive stock options granted to holders of more than 10% of the voting stock of NetScout). No additional option grants will be made under the 1990 stock option plan.
1999 STOCK OPTION AND INCENTIVE PLAN
In April 1999, NetScout adopted the 1999 Stock Option and Incentive Plan (the "1999 Stock Option Plan"). The 1999 Stock Option Plan provides for the grant of stock-based awards to employees, officers and directors, consultants or advisors. Under the 1999 Stock Option Plan, NetScout may grant options that are intended to qualify as incentive stock options, options not intended to qualify as incentive stock options, restricted stock and other stock-based awards. Incentive stock options may be granted only to employees of NetScout. The 1999 Stock Option Plan is administered by the Compensation Committee. Subject to the provisions of the 1999 Stock Option Plan, the compensation committee has the authority to select the persons to whom awards are granted and determine the terms of each award, including the number of shares of common stock subject to the award. Options generally vest over four years. The exercise price of incentive stock options shall not be less than 100% of the fair market value of the common stock at the date of grant (110% for incentive stock options granted to holders of more than 10% of the voting stock of NetScout). The term of options granted cannot exceed ten years (five years for incentive stock options granted to holders of more than 10% of the voting stock of NetScout). A total of 4,500,000 shares of common stock have been reserved for issuance under the 1999 Stock Option Plan.
NETSCOUT SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
11. STOCK PLANS (CONTINUED) Transactions under the 1990 and 1999 Stock Option Plan during the years ended March 31, 1999, 2000 and 2001 are summarized as follows:
WEIGHTED AVERAGE NUMBER OF EXERCISE SHARES PRICE ---------- -------- Outstanding--March 31, 1998................................. 2,944,600 $1.67 Granted (weighted average fair value of $0.99 and $4.53 per share for options with exercise prices equal to and less than the market price, respectively, at the date of grant).................................................. 1,054,000 5.00 Exercised................................................. (427,858) 0.58 Canceled.................................................. (484,516) 2.34 ---------- Outstanding--March 31, 1999................................. 3,086,226 2.85 Granted (weighted average fair value of $13.22 per share).................................................. 1,430,789 20.95 Exercised................................................. (1,136,306) 1.84 Canceled.................................................. (418,825) 7.56 ---------- Outstanding--March 31, 2000................................. 2,961,884 11.31 Granted (weighted average fair value of $11.15 per share).................................................. 2,588,033 15.55 Assumed in NextPoint acquisition (weighted average fair value of $12.23 per share).............................. 273,906 3.97 Exercised................................................. (636,119) 3.65 Canceled.................................................. (957,850) 14.87 ---------- Outstanding--March 31, 2001................................. 4,229,854 13.78 ========== |
NetScout has assumed the stock option plans of NextPoint in connection with the acquisition. For the fiscal year ended March 31, 2001, a total of 273,906 shares of NetScout common stock have been reserved for issuance under the assumed plans and the related options are included in the preceding table. No additional option grants will be made under the assumed NextPoint stock option plans.
NETSCOUT SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
11. STOCK PLANS (CONTINUED) The following tables summarize information about employee options outstanding and exercisable at March 31, 2001:
WEIGHTED AVERAGE WEIGHTED WEIGHTED REMAINING AVERAGE AVERAGE NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE RANGE OF EXERCISE PRICES OUTSTANDING LIFE PRICE EXERCISABLE PRICE ------------------------ ----------- ----------- -------- ----------- -------- (YEARS) $0.003 to 1.50...... 253,665 5.0 $1.02 252,076 $ 1.02 1.75 to 2.50........ 310,392 6.6 2.45 256,811 2.46 3.16 to 5.00........ 311,355 7.5 4.00 199,724 4.01 6.00 to 8.83........ 234,766 8.6 6.77 76,238 6.44 10.06 to 13.50...... 942,408 9.2 12.37 85,644 12.20 13.88 to 15.13...... 596,775 9.2 14.81 97,693 14.75 16.75 to 17.00...... 501,050 9.3 16.98 4,689 16.85 18.50 to 21.25...... 544,901 9.1 19.76 105,699 19.01 23.13 to 28.94...... 534,542 9.0 27.42 103,108 28.94 --------- --------- 4,229,854 8.6 13.78 1,181,682 8.24 ========= ========= |
As of March 31, 1999, 1,182,628 options were exercisable under the 1990 Stock Option Plan. As of March 31, 2000, 954,892 options were exercisable under the 1990 and 1999 Stock Option Plans. As of March 31, 2001, there were 1,263,498 shares of common stock available for grant under the 1999 Stock Option Plan.
FAIR VALUE DISCLOSURES
As discussed in Note 2, NetScout has adopted SFAS No. 123 through disclosure only. Had compensation cost for NetScout's option plans been determined based on the fair value at the grant dates, as prescribed in SFAS No. 123, NetScout's net income (loss) and basic and diluted net income (loss) per share on a pro forma basis would have been as follows:
YEAR ENDED MARCH 31, ------------------------------ 1999 2000 2001 -------- -------- -------- Net income (loss): As reported.................................... $10,272 $15,212 $ 3,706 Pro forma...................................... $ 9,915 $13,278 ($4,804) Basic net income (loss) per share: As reported.................................... $ 0.55 $ 0.70 $ 0.13 Pro forma...................................... $ 0.53 $ 0.61 ($ 0.17) Diluted net income (loss) per share: As reported.................................... $ 0.43 $ 0.56 $ 0.12 Pro forma...................................... $ 0.42 $ 0.49 ($ 0.17) |
NETSCOUT SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
11. STOCK PLANS (CONTINUED) The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions:
1990 AND 1999 STOCK OPTION PLANS YEAR ENDED MARCH 31, --------------------------------------------------- ----------------------------------- 1999 2000 2001 -------- --------- ------------ Expected option term for options granted prior to NetScout's initial public offering................................... 5 years 5 years -- Expected option term for options granted subsequent to NetScout's initial public offering........................ -- 4 years 4 years Expected option term for options assumed in the acquisition of NextPoint.............................................. -- -- 1 to 4 years Weighted average risk-free interest rate.................... 5.2% 6.2% 6.0% Expected volatility for options granted prior to NetScout's initial public offering................................... -- -- -- Expected volatility for options granted subsequent to NetScout's initial public offering........................ -- 100.0% 100.0% Dividend yield.............................................. -- -- -- |
1999 STOCK PURCHASE PLAN YEAR ENDED MARCH 31, ------------------------ ----------------------------------- 1999 2000 2001 -------- --------- ------------ Expected option term for options granted subsequent to NetScout's initial public offering........................ -- 0.5 years 0.5 years Weighted average risk-free interest rate.................... -- 5.1% 5.9% Expected volatility for options granted subsequent to NetScout's initial public offering........................ -- 100.0% 100.0% Dividend yield.............................................. -- -- -- |
Because additional grants are expected to be made each year and options vest over several years, the above pro forma disclosures are not representative of pro forma effects of reported net income for future years.
In September 1997, NetScout granted 518,000 options to purchase non-voting common stock at $2.50 per share to employees. At the grant date, NetScout estimated the fair value of the common stock to be $3.50 per share. In accordance with APB Opinion No. 25, NetScout recorded $518 of deferred compensation, which will be charged to NetScout's results of operations over the vesting period of the options, generally four years. For the year ended March 31, 2001, $36 of deferred compensation was reversed due to termination of employees and for the years ended March 31, 1999, 2000 and 2001, NetScout recorded $243, $130 and $117 of compensation expense related to these options, respectively.
In February 1999, NetScout granted 305,500 options to purchase non-voting common stock at $6.50 per share to employees. At the grant date, NetScout estimated the fair value of the common stock to be $9.68 per share. In accordance with APB Opinion No. 25, NetScout recorded $968 of deferred compensation, which is being charged to NetScout's results of operations over the vesting period of the options, generally four years. For the years ended March 31, 2000 and 2001, $234 and $134 of deferred
NETSCOUT SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
11. STOCK PLANS (CONTINUED) compensation was reversed due to termination of employees and NetScout recorded $40, $242 and $122 of compensation expense related to these options, respectively.
As part of the NextPoint acquisition in July 2000, NetScout recorded $980 of deferred compensation, which is being charged to NetScout's results of operations over the remainder of the vesting periods, generally from one to four years. For the year ended March 31, 2001, $184 of deferred compensation was reversed due to termination of employees and NetScout recorded $201 of compensation expense related to these options.
Also as part of the NextPoint acquisition, 267,602 shares of NetScout common stock were reserved and are being released during a two-year period subsequent to the acquisition to two founding shareholders of NextPoint as they continue employment at NetScout. NetScout recorded $4.0 million as deferred compensation related to the reserved shares, which will be amortized to stock-based compensation expense over the two year period of employment. For the year ended March 31, 2001, NetScout record $1.4 million as compensation expense related to these reserved shares.
EMPLOYEE STOCK PURCHASE PLAN
In April 1999, NetScout adopted the 1999 Employee Stock Purchase Plan (the "1999 Purchase Plan"). The 1999 Purchase Plan is administered by the Compensation Committee. All employees of NetScout whose customary employment is for more than 20 hours per week and for more than three months in any calendar year are eligible to participate in the 1999 Purchase Plan. Employees who would own 5% or more of the total combined voting power or value of NetScout's stock immediately after the grant of the option may not participate in the 1999 Purchase Plan. The 1999 Purchase Plan provides for the issuance of a maximum of 500,000 shares of common stock.
12. RETIREMENT PLAN
In 1996, NetScout established a 401(k) plan, which is intended to qualify under Section 401(k) of the Internal Revenue Code of 1986, pursuant to which NetScout matches 25% of the employee's contribution up to 6% of the employee's salary. In January 2001, the plan was amended to increase the NetScout match to 50% of the employee's contribution up to 6% of the employee's salary. NetScout contributions vest at a rate of 20% per year of service. NetScout made matching contributions of $153, $187 and $312 to the plan for the years ended March 31, 1999, 2000 and 2001, respectively.
NETSCOUT SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
13. INCOME TAXES
The components of the provision for income taxes are as follows:
YEAR ENDED MARCH 31, ------------------------------ 1999 2000 2001 -------- -------- -------- Current provision: Federal........................................... $4,938 $7,636 $5,288 State............................................. 674 955 979 Foreign........................................... 33 53 122 ------ ------ ------ 5,645 8,644 6,389 ------ ------ ------ Deferred tax (benefit) provision: Federal........................................... (20) (120) 818 State............................................. 90 15 (180) ------ ------ ------ 70 (105) 638 ------ ------ ------ $5,715 $8,539 $7,027 ====== ====== ====== |
The components of net deferred tax assets are as follows:
YEAR ENDED MARCH 31, --------------------- 2000 2001 --------- --------- Deferred tax assets and liabilities: Reserves.............................................. $ 428 $ 182 Accrued expenses...................................... 557 878 Fixed assets.......................................... 585 863 Deferred revenue...................................... 41 257 Intangible assets..................................... -- (1,115) Net operating loss carryfowards....................... -- 4,628 Research and development tax credit carryfowards...... -- 261 Other................................................. 10 314 ------ ------ $1,621 $6,268 ====== ====== |
NETSCOUT SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
13. INCOME TAXES (CONTINUED) The income tax provision computed using the federal statutory income tax rate differs from NetScout's effective tax rate primarily due to the following:
YEAR ENDED MARCH 31, ------------------------------ 1999 2000 2001 -------- -------- -------- Statutory U.S. federal tax rate...................... 35.0% 35.0% 35.0% State taxes, net of federal tax benefit.............. 3.1 3.1 5.9 Foreign sales corporation exempt income.............. (2.1) (1.2) (0.2) Goodwill amortization................................ -- -- 22.3 Stock-based compensation............................. -- -- 5.5 Research and development tax credits................. (1.5) (1.7) (3.2) Other................................................ 1.3 1.0 0.2 ---- ---- ---- 35.8% 36.2% 65.5% ==== ==== ==== |
14. COMMITMENTS AND CONTINGENCIES
LEASES
NetScout leases office space under operating leases. Total rent expense under the leases was $1,531, $1,712 and $2,446 for the years ended March 31, 1999, 2000 and 2001, respectively.
NetScout has committed to lease new office space for its headquarters in Westford, MA, in September 2001. Under the agreement, the current lease will terminate upon the completed move to the new facility. Future non-cancelable minimum lease commitments are as follows:
YEAR ENDING MARCH 31, 2002........................................................ $ 2,550 2003........................................................ 3,082 2004........................................................ 3,013 2005........................................................ 2,905 2006........................................................ 2,897 Remaining years............................................. 24,457 ------- Total minimum lease payments................................ $38,904 ======= |
Under the terms of its current principal office lease, NetScout is required to maintain a letter of credit totaling $561 under its $10,000 revolving line of credit (Note 8).
CONTINGENCIES
Prior to the acquisition of NextPoint, a reseller of NextPoint filed an action against NextPoint alleging breach of contract. NextPoint has denied that a breach occurred. An escrow balance was established at the time of the acquisition to account for potential losses related to this suit in order to limit any exposure to NetScout. NetScout plans to vigorously defend this matter. However, since the matter is at a preliminary stage, NetScout is unable to predict the outcome or amount of related expense, or loss, if any.
NETSCOUT SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
14. COMMITMENTS AND CONTINGENCIES (CONTINUED) In addition to the matter noted above, from time to time NetScout is subject to legal proceedings and claims in the ordinary course of business. In the opinion of management, the amount of ultimate expense with respect to any other current legal proceedings and claims will not have a material adverse effect on NetScout's financial position or results of operations.
EMPLOYMENT AGREEMENT
In January 1999, NetScout amended an employment agreement with two employee stockholders, which provides that each employee stockholder will receive a base salary of at least $250 and a year-end, non-discretionary bonus of at least $250. The employment agreement is terminable at will, but provides that if either employee's employment is terminated by NetScout without cause, or either decides to terminate his own employment for "good reason", as defined, each is entitled to receive severance benefits for three years as follows: (i) for the first twelve months following termination, the greater of $175 or base salary as of the date of termination; and (ii) for each subsequent twelve-month period, an amount equal to 120% of the amount received in the immediately preceding twelve months. Each employment agreement provides for a five-year term commencing June 1, 1994 with automatic one-year renewals.
15. GEOGRAPHIC INFORMATION
Revenue was distributed geographically as follows:
YEAR ENDED MARCH 31, ------------------------------ 1999 2000 2001 -------- -------- -------- North America................................... $59,619 $74,721 $ 96,980 Europe--Middle East--Africa..................... 4,795 5,782 5,621 Asia--Pacific................................... 3,137 5,656 5,350 ------- ------- -------- $67,551 $86,159 $107,951 ======= ======= ======== |
The North America revenue includes sales made by NetScout to domestic resellers. These domestic resellers may sell NetScout products to international locations. NetScout still reports these shipments as North America revenue since NetScout ships the products to a domestic location. Substantially all of NetScout's identifiable assets are located in the United States.
16. RESULTS OF OPERATIONS--UNAUDITED
The following table sets forth certain unaudited quarterly results of operations of NetScout for the fiscal years ended 2000 and 2001. In the opinion of management, this information has been prepared on the same basis as the audited consolidated financial statements and all necessary adjustments, consisting only of normal recurring adjustments, have been included in the amounts stated below to present fairly the quarterly information when read in conjunction with the audited consolidated financial statements and
NETSCOUT SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
16. RESULTS OF OPERATIONS--UNAUDITED (CONTINUED) notes thereto included elsewhere in this Annual Report on Form 10-K. The quarterly operating results are not necessarily indicative of future results of operations.
THREE MONTHS ENDED ----------------------------------------------------------------------------------------- JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, 1999 1999 1999 2000 2000 2000 2000 2001 -------- --------- -------- --------- -------- --------- -------- --------- Revenue............................... $19,071 $20,304 $22,842 $23,942 $25,169 $28,819 $32,473 $21,490 Gross margin.......................... 13,844 14,810 17,031 17,617 18,480 20,700 23,862 15,719 ------- ------- ------- ------- ------- ------- ------- ------- Net income (loss)..................... $ 3,134 $ 3,194 $ 4,371 $ 4,513 $ 4,304 ($ 761) $ 2,670 ($2,507) ======= ======= ======= ======= ======= ======= ======= ======= Basic net income (loss) per share..... $ 0.22 $ 0.16 $ 0.17 $ 0.17 $ 0.16 ($ 0.03) $ 0.09 ($ 0.09) Diluted net income (loss) per share... $ 0.13 $ 0.12 $ 0.16 $ 0.16 $ 0.15 ($ 0.03) $ 0.09 ($ 0.09) |
REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULES
To the Board of Directors of
NetScout Systems, Inc.:
Our audits of the consolidated financial statements referred to in our report dated June 14, 2001 appearing in Item 14 (a) (1) in this Annual Report on Form 10-K also included an audit of the financial statement schedules listed in Item 14 (a) (2) of this Annual Report on Form 10-K. In our opinion, the financial statement schedules present fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements.
/s/ PricewaterhouseCoopers LLP Boston, Massachusetts June 14, 2001 |
NETSCOUT SYSTEMS, INC.
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
BALANCE AT BEGINNING OF CHARGED TO BALANCE AT DESCRIPTION YEAR OPERATIONS DEDUCTIONS END OF YEAR ----------- ------------ ---------- ---------- ----------- Year ended March 31, 1999 Reserves and allowances deducted from asset accounts: Reserves for returns........................... $713,000 (184,000) (83,000) $446,000 Allowance for doubtful accounts................ $350,000 244,000 (4,000) $590,000 Year ended March 31, 2000 Reserves and allowances deducted from asset accounts: Reserves for returns........................... $446,000 (56,000) (61,000) $329,000 Allowance for doubtful accounts................ $590,000 (94,000) (71,000) $425,000 Year ended March 31, 2001 Reserves and allowances deducted from asset accounts: Reserves for returns........................... $329,000 (202,000) (67,000) $ 60,000 Allowance for doubtful accounts................ $425,000 220,000* (297,000) $348,000 |
* Including $103,000, due to the purchase of NextPoint Networks, Inc. in July 2000.
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION ----------- ------------------------------------------------------------ 3.1, 4.1 Third Amended and Restated Certificate of Incorporation of NetScout (filed as Exhibit 3.3, 4.1 to NetScout's Registration Statement on Form S-1 (No. 333-76843) and incorporated herein by reference). 3.2, 4.2 Form of Amended and Restated By-laws of NetScout (filed as Exhibit 3.2, 4.2 to NetScout's Annual Report on Form 10-K for the fiscal year ended March 31, 2000 and incorporated herein by reference). 4.3 Specimen Certificate for shares of NetScout's Common Stock. 10.1 1990 Stock Option Plan, as amended (filed as Exhibit 10.1 to NetScout's Registration Statement on Form S-1 (No. 333-76843) and incorporated herein by reference). 10.2 1999 Stock Option and Incentive Plan (filed as Exhibit 10.2 to NetScout's Quarterly Report on Form 10-Q for the quarterly period ended December 31, 2000 and incorporated herein by reference). 10.3 1999 Employee Stock Purchase Plan, as amended (filed as Exhibit 10 to NetScout's Quarterly report on Form 10-Q for the quarterly period ended December 31, 2000 and incorporated herein by reference). 10.4 Stock Purchase and Redemption Agreement dated December 31, 1998 by and among NetScout, Greylock Equity Limited Partnership, certain affiliates of TA Associates, Inc. and Egan-Managed Capital, L.P. (filed as Exhibit 10.4 to NetScout's Registration Statement on Form S-1 (No. 333-76843) and incorporated herein by reference). 10.5 Amended and Restated Rights Agreement entered into as of January 15, 1999 by and among NetScout, Greylock Equity Limited Partnership, certain affiliates of TA Associates, Inc. and Egan-Managed Capital, L.P. (filed as Exhibit 10.5 to NetScout's Registration Statement on Form S-1 (No. 333-76843) and incorporated herein by reference). 10.6 Lease dated August 18, 1997 between NetScout and Michelson Farm-Westford Technology Park Limited Partnership (filed as Exhibit 10.6 to NetScout's Registration Statement on Form S-1 (No. 333-76843) and incorporated herein by reference). 10.7 Amended and Restated Loan and Security Agreement dated March 12, 1998 by and between NetScout and Silicon Valley Bank (filed as Exhibit 10.7 to NetScout's Registration Statement on Form S-1 (No. 333-76843) and incorporated herein by reference). 10.8 Loan Modification Agreement entered into March 11, 1999 between NetScout and Silicon Valley Bank (filed as Exhibit 10.8 to NetScout's Registration Statement on Form S-1 (No. 333-76843) and incorporated herein by reference). 10.9 OEM Agreement dated as of February 3, 1998 by and between SDL Communications, Inc. and NetScout (filed as Exhibit 10.9 to NetScout's Registration Statement on Form S-1 (No. 333-76843) and incorporated herein by reference). 10.10 Project Development and License Agreement dated as of July 13, 1994 by and between Cisco Systems, Inc. and NetScout (filed as Exhibit 10.10 to NetScout's Registration Statement on Form S-1 (No. 333-76843) and incorporated herein by reference). 10.11 Amendment No. 1 to the Project Agreement and Design License Agreement dated as of January 4, 1995 by and between Cisco and NetScout (filed as Exhibit 10.11 to NetScout's Registration Statement on Form S-1 (No. 333-76843) and incorporated herein by reference). 10.12 Private Label Agreement effective as of October 17, 1995 by and between Cisco and NetScout (filed as Exhibit 10.12 to NetScout's Registration Statement on Form S-1 (No. 333-76843) and incorporated herein by reference). |
EXHIBIT NO. DESCRIPTION ----------- ------------------------------------------------------------ 10.13 Amendment to Private Label Agreement and Project Development and License Agreement dated May 15, 1996 by and between Cisco and NetScout (filed as Exhibit 10.13 to NetScout's Registration Statement on Form S-1 (No. 333-76843) and incorporated herein by reference). 10.14 Amendment No. 3 to the Private Label Agreement and Project Development and License Agreement by and between Cisco and NetScout (filed as Exhibit 10.14 to NetScout's Registration Statement on Form S-1 (No. 333-76843) and incorporated herein by reference). 10.15 Amendment No. 4 to Private Label Agreement and Project Development and License Agreement effective as of February 23, 1998 by and between Cisco and NetScout (filed as Exhibit 10.15 to NetScout's Registration Statement on Form S-1 (No. 333-76843) and incorporated herein by reference). 10.16 Amendment No. 5 effective as of December 26, 1999 to Private Label Agreement and Project Development and License Agreement between Cisco and NetScout (filed as Exhibit 10.1 to NetScout's Quarterly Report on Form 10-Q and incorporated herein by reference). 10.17 Agreement Relating to Employment dated June 1, 1994 by and between NetScout and Anil Singhal (filed as Exhibit 10.16 to NetScout's Registration Statement on Form S-1 (No. 333-76843) and incorporated herein by reference). 10.18 Amendment No. 1 to Agreement Relating to Employment dated January 14, 1999 by and between NetScout and Anil Singhal (filed as Exhibit 10.17 to NetScout's Registration Statement on Form S-1 (No. 333-76843) and incorporated herein by reference). 10.19 Agreement Relating to Employment dated June 1, 1994 by and between NetScout and Narendra Popat (filed as Exhibit 10.18 to NetScout's Registration Statement on Form S-1 (No. 333-76843) and incorporated herein by reference). 10.20 Amendment No. 1 to Agreement Relating to Employment dated January 14, 1999 by and between NetScout and Narendra Popat (filed as Exhibit 10.19 to NetScout's Registration Statement on Form S-1 (No. 333-76843) and incorporated herein by reference). 10.21 Loan Modification Agreement entered into March 10, 2000 between NetScout and Silicon Valley Bank (filed as Exhibit 10.25 to NetScout's Annual Report on Form 10-K for the fiscal year ended March 31, 2000 and incorported herein by reference). 10.22 Loan Modification Agreement entered into June 27, 2000 between NetScout and Silicon Valley Bank. 10.23 Loan Modification Agreement entered into March 9, 2001 between NetScout and Silicon Valley Bank. 10.24 Agreement and Plan of Reorganization dated June 13, 2000, by and among NetScout, NetScout Service Level Corporation, NextPoint and certain stockholders of NextPoint (filed as Exhibit 2.1 to NetScout's Current Report on Form 8-K filed on July 20, 2000 and incorporated herein by reference). 10.25 Registration Rights Agreement dated as of July 7, 2000, by and among NetScout, certain NextPoint stockholders, certain NextPoint Warrant Holders and Silicon Valley Bank (filed as Exhibit 10.1 to NetScout's current report on Form 8-K filed on July 20, 2000 and incorporated herein by reference). 10.26 Lease between Arturo J. Gutierrez and John A. Cataldo, Trustees of Nashoba Westford Realty Trust, U/D/T dated April 27, 2000 and recorded with the Middlesex North Registry of Deeds in Book 10813, Page 38 and NetScout for Westford Technology Park West, as amended. 10.27 1997 Stock Incentive Plan of NextPoint Networks, Inc., assumed by NetScout (filed as Exhibit 4.3 to NetScout's Registration Statement on Form S-8 (No. 333-41880) and incorporated herein by reference). 10.28 2000 Stock Incentive Plan of NextPoint, assumed by NetScout (filed as Exhibit 4.4 to NetScout's Registration Statement on Form S-8 (No. 333-41880) and incorporated herein by reference). |
EXHIBIT NO. DESCRIPTION ----------- ------------------------------------------------------------ 21 Subsidiaries of NetScout. 23 Consent of PricewaterhouseCoopers LLP. |
EXHIBIT 4.3
[Front]
Incorporated under the laws of the State of Delaware
NETSCOUT NUMBER SHARES NET Common Stock See Reverse for Certain Definitions |
NetScout Systems, Inc.
FULLY PAID AND NONASSESSABLE SHARES OF THE
PAR VALUE OF $.001 EACH OF THE COMMON STOCK OF
NetScout Systems, Inc. transferable upon the books of the Corporation in person or by attorney upon surrender of this certificate duly endorsed or assigned. This certificate and the shares represented hereby are subject to the laws of the State of Delaware and to the Certificate of Incorporation and By-Laws of the Corporation as from time to time amended.
This certificate is not valid unless countersigned by the Transfer Agent and registered by the Registrar.
IN WITNESS WHEREOF, NetScout Systems, Inc. has caused its facsimile corporate seal and the facsimile signatures of its duly authorized officers to be hereunto affixed.
Dated:
Anil Singhal Anil Singhal Treasurer President
Countersigned and Registered: Mellon Investor Services, LLC Transfer Agent and Registrar
By Authorized Signatory
[Reverse Side]
THE CORPORATION IS AUTHORIZED TO ISSUE MORE THAN ONE CLASS OR SERIES OF STOCK. A COPY OF THE PREFERENCES, POWERS, QUALIFICATIONS AND RIGHTS OF EACH CLASS AND SERIES WILL BE FURNISHED BY THE CORPORATION UPON WRITTEN REQUEST AND WITHOUT CHARGE.
The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they were written out in full according to applicable laws or regulations:
TEN COM - as tenants in common UNIF GIFT MIN ACT-____Custodian_____ TEN ENT - as tenants by the entireties (Cust) (Minor) JT TEN - as joint tenants with right under Uniform Gift to Minors of survivorship and not as Act__________ tenants in common (State) |
Additional abbreviations may also be used though not in the above list.
[PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS OF ASSIGNEE]
Shares of the capital stock represented by the within Certificate, and does hereby irrevocably constitute and appoint ______________________________________ Attorney to transfer the said stock on the books of the within-named Corporation with full power of substitution in the premises. Dated,_______________
SIGNATURE(S) GUARANTEED:
medallion program), pursuant to SEC Rule 17Ad-15.
EXHIBIT 10.22
LOAN MODIFICATION AGREEMENT
This LOAN MODIFICATION AGREEMENT is entered into as of June 27, 2000, by and between SILICON VALLEY BANK, a California-chartered bank with its principal place of business at 3003 Tasman Drive, Santa Clara, CA 95054 and with a loan production office located at Wellesley Office Park, 40 William Street, Suite 350, Wellesley, MA 02481, doing business under the name "Silicon Valley East" ("Bank"), and NETSCOUT SYSTEMS, INC., a Delaware corporation with its principal place of business at 4 Technology Park Drive, Westford, MA 01886 ("Borrower").
RECITALS
Borrower has borrowed money from Bank pursuant to certain Existing Loan Documents, as defined below. In consideration of certain financial accommodations from Bank, and Borrower's continuing obligations under the Existing Loan Documents, Borrower and Bank agree as follows:
1. DESCRIPTION OF EXISTING INDEBTEDNESS. Among other indebtedness which may be owing by Borrower to Bank, Borrower is indebted to Bank pursuant to, among other documents, an Amended and Restated Loan and Security Agreement dated as of March 12, 1998, between Borrower and Bank, as amended by Loan Modification Agreements dated as of March 11, 1999 and March 10, 2000, providing for a revolving credit facility up to a maximum principal amount of FIVE MILLION AND NO/100THS DOLLARS ($5,000,000), as such Loan and Security Agreement may be further amended from time to time (the "Loan Agreement").
Hereinafter, all Indebtedness owing by Borrower to Bank shall be referred to as the "Indebtedness."
2. DESCRIPTION OF COLLATERAL. Repayment of the Indebtedness is secured pursuant to the Loan Agreement. Hereinafter, the Loan Agreement, together with all other documents securing payment of the Indebtedness, shall be referred to as the "Existing Loan Documents."
3. DESCRIPTION OF CHANGES IN TERMS.
3.1 MODIFICATIONS TO REVOLVING ADVANCE PROVISIONS. Section 2.1.1(a) of the Loan Agreement is hereby replaced in its entirety with the following:
(a) Bank will make Advances not exceeding (i) the lesser of (A) the Committed Revolving Line minus the Cash Management Services Sublimit or (B) the Borrowing Base, whichever is less, minus (ii) the amount of all outstanding Letters of Credit (including drawn but unreimbursed Letters of Credit), minus (iii) immediately upon the closing of the acquisition by Borrower of NextPoint Networks, Inc., all outstanding principal and interest under that certain equipment line of credit originally extended by Bank to NextPoint Networks, Inc. Amounts borrowed under this Section may be repaid and reborrowed during the term of this Agreement.
4. CONSENT TO ACQUISITION. Bank hereby consents to Borrower's acquisition of NextPoint Networks, Inc., and waives Borrower's compliance with Sections 7.2, 7.3 and 7.6 of the Loan Agreement for the sole purpose of closing that acquisition, provided that no Event of Default would exist after giving effect to that acquisition.
5. FEES. Borrower shall pay to Bank any out-of-pocket expenses incurred by the Bank through the date hereof, including reasonable attorneys' fees and expenses, and after the date hereof, all Bank Expenses, including reasonable attorneys' fees and expenses, as and when they become due.
6. CONDITIONS TO FURTHER ADVANCES. The obligation of Bank to make further advances to Borrower under this line is subject to the condition precedent that Bank shall have received, in form and substance satisfactory to Bank, the following:
(i) this Loan Modification Agreement duly executed by Borrower;
(ii) payment of the fees and Bank Expenses then due specified in
Section 6 hereof;
(iii) such other documents, and competition of such other matters, as Bank may reasonably deem necessary or appropriate.
7. CONSISTENT CHANGES. The Existing Loan Documents are hereby amended wherever necessary to retain the changes described in this Loan Modification Agreement.
8. NO DEFENSES OF BORROWER. Borrower agrees that as of this date, it has no defenses against any of the obligations to pay any amounts under the indebtedness.
9. CONTINUING VALIDITY. Borrower understands and agrees that (i) in
modifying the Existing Loan Documents, Bank is relying upon Borrower's
representations, warranties and agreements, as set forth in the Existing Loan
Documents, (ii) except as expressly modified pursuant to this Loan Modification
Agreement (including the effects of Section 7 hereof), the Existing Loan
Documents remain unchanged and in full force and effect, (iii) Bank's agreement
to modify the Existing Loan Documents pursuant to this Loan Modification
Agreement shall in no way obligate Bank to make any future modifications to the
Existing Loan Documents, (iv) it is the intention of Bank and Borrower to retain
as liable parties all makers and endorsers of the Existing Loan Documents,
unless a party is expressly released by Bank in writing, (v) no maker, endorser
or guarantor will be released by virtue of this Loan Modification Agreement, and
(vi) the terms of this Section 9 apply not only to this Loan Modification
Agreement but also to all subsequent loan modification agreements, if any.
10. EFFECTIVENESS. This Agreement shall become effective only when it shall have been executed by Borrower and Bank (provided, however, in no event shall this Agreement become effective until signed by an officer of Bank in California).
IN WITNESS WHEREOF, the parties hereto have caused this Loan Modification Agreement to be executed as a sealed investment as of the date first set forth above.
"Borrower": NETSCOUT SYSTEMS, INC. "Bank": SILICON VALLEY BANK, doing business as SILICON VALLEY EAST By: /s/ LISA FIORENTINO By: /s/ DALE EDMUNDS ------------------------------- ----------------------------------- Lisa Fiorentino, VP of Finance Dale C. Edmunds |
SILICON VALLEY BANK
By: /s/ MAGGIE GARCIA ----------------------------------- Title: DOCUMENTATION OFFICER --------------------------------- (Signed in Santa Clara County, California) |
EXHIBIT 10.23
LOAN MODIFICATION AGREEMENT
This LOAN MODIFICATION AGREEMENT is entered into as of March 9, 2001, by and between SILICON VALLEY BANK, a California-chartered bank with its principal place of business at 3003 Tasman Drive, Santa Clara, CA 95054 and with a loan production office located at One Newton Executive Park, Suite 200, 2221 Washington Street, Newton, MA 02462, doing business under the name "Silicon Valley East" ("Bank"), and NETSCOUT SYSTEMS, INC., a Delaware corporation with its principal place of business at 4 Technology Park Drive, Westford, MA 01886 ("Borrower").
RECITALS
Borrower has borrowed money from Bank pursuant to certain Existing Loan Documents, as defined below. In consideration of certain financial accommodations from Bank, and Borrower's continuing obligations under the Existing Loan Documents, Borrower and Bank agree as follows:
AGREEMENT
1. DESCRIPTION OF EXISTING INDEBTEDNESS. Among other indebtedness which may be owing by Borrower to Bank, Borrower is indebted to Bank pursuant to, among other documents, an Amended and Restated Loan and Security Agreement dated as of March 12, 1998, between Borrower and Bank, as amended by Loan Modification Agreements dated as of March 11, 1999, March 10, 2000 and June 27, 2000, providing for a revolving credit facility up to a maximum principal amount of FIVE MILLION AND NO/100THS DOLLARS ($5,000,000), as such Loan and Security Agreement may be further amended from time to time (the "Loan Agreement").
Hereinafter, all indebtedness owing by Borrower to Bank shall be referred to as the "Indebtedness."
2. DESCRIPTION OF COLLATERAL. Repayment of the Indebtedness is secured pursuant to the Loan Agreement. Hereinafter, the Loan Agreement, together with all other documents securing payment of the Indebtedness, shall be referred to as the "Existing Loan Documents."
3. DESCRIPTION OF CHANGES IN TERMS.
3.1 MODIFICATIONS TO DEFINITIONS. Section 13.1 of the Loan Agreement is hereby amended by substituting the following definitions for those set forth therein for the same terms:
"COMMITTED REVOLVING LINE" means an Advance up to $10,000,000.
"REVOLVING MATURITY DATE" means March 9, 2002.
3.2 MODIFICATIONS TO PROFITABILITY COVENANT. Section 6.7(ii) of the Loan Agreement is hereby replaced in its entirety with the following:
(ii) PROFITABILITY. Borrower shall not suffer a net loss greater than (i) $3,000,000 in the fiscal quarter ending March 31, 2001 and (ii) $2,500,000 in each of the fiscal quarters ending June 30, 2001, September 30, 2001 and December 31, 2001.
4. WAIVER OF PRIOR DEFAULT. Bank hereby waives Borrower's violation of the Profitability Covenant set forth in section 6.7(ii) of the Loan Agreement, prior to the effectiveness of this Loan Modification Agreement, for the period ending December 31, 2000.
5. FEES. Borrower shall pay to Bank a loan renewal fee of TWENTY-FIVE THOUSAND DOLLARS ($25,000) as well as any out-of-pocket expenses incurred by the Bank through the date hereof, including reasonable attorneys' fees and expenses, and after the date hereof, all Bank Expenses, including reasonable attorneys' fees and expenses, as and when they become due.
6. CONDITIONS TO FURTHER ADVANCES. The obligation of Bank to make further advances to Borrower under this line is subject to the condition precedent that Bank shall have received, in form and substance satisfactory to Bank, the following:
(i) this Loan Modification Agreement duly executed by Borrower;
(ii) payment of the fees and Bank Expenses then due specified in
Section 5 hereof;
(iii) such other documents, and completion of such other matters, as Bank may reasonably deem necessary or appropriate.
7. CONSISTENT CHANGES. The Existing Loan Documents are hereby amended wherever necessary to reflect the changes described in this Loan Modification Agreement.
8. NO DEFENSES OF BORROWER. Borrower agrees that as of this date, it has no defenses against any of the obligations to pay any amounts under the Indebtedness.
9. CONTINUING VALIDITY. Borrower understands and agrees that (i) in
modifying the Existing Loan Documents, Bank is relying upon Borrower's
representations, warranties and agreements, as set forth in the Existing Loan
Documents, (ii) except as expressly modified pursuant to this Loan Modification
Agreement (including the effects of Section 7 hereof), the Existing Loan
Documents remain unchanged and in full force and effect, (iii) Bank's agreement
to modify the Existing Loan Documents pursuant to this Loan Modification
Agreement shall in no way obligate Bank to make any future modifications to the
Existing Loan Documents, (iv) it is the intention of Bank and Borrower to retain
as liable parties all makers and endorsers of the Existing Loan Documents,
unless a party is expressly released by Bank in writing, (v) no maker, endorser
or guarantor will be released by virtue of this Loan Modification Agreement, and
(vi) the terms of this Section 9 apply not only to this Loan Modification
Agreement but also to all subsequent loan modification agreements, if any.
10. EFFECTIVENESS. This Agreement shall become effective only when it shall have been executed by Borrower and Bank (provided, however, in no event shall this Agreement become effective until signed by an officer of Bank in California).
IN WITNESS WHEREOF, the parties hereto have caused this Loan Modification Agreement to be executed as a sealed instrument as of the date first set forth above.
"Borrower": NETSCOUT SYSTEMS, INC. "Bank": SILICON VALLEY BANK, doing business as SILICON VALLEY EAST By: /s/ Lisa Fiorentino By: /s/ [illegible signature] --------------------------------- ------------------------------------ Lisa Fiorentino, VP - Finance SILICON VALLEY BANK By: /s/ Maggie Garcia ------------------------------------ Title: Loan Admin--Team Leader --------------------------------- (Signed in Santa Clara County, California) |
EXHIBIT D FOLLOWS
EXHIBIT D
COMPLIANCE CERTIFICATE
Borrower: NetScout Systems, Inc. Bank: Silicon Valley Bank 4 Technology Park Drive 3003 Tasman Drive Westford, MA 01886 Santa Clara, CA 95054 |
The undersigned authorized officer of NETSCOUT SYSTEMS, INC. hereby certifies that in accordance with the terms and conditions of the Loan and Security Agreement dated as of March 12, 1998 between Borrower and Bank, as may be amended from time to time (the "Agreement"), (i) Borrower is in complete compliance for the period ending ___________ of all required conditions and terms except as noted below and (ii) all representations and warranties of Borrower stated in the Agreement are true, accurate and complete in all material respects as of the date hereof. Attached herewith are the required documents supporting the above certification. The Officer further certifies that these are prepared in accordance with Generally Accepted Accounting Principals (GAAP) and are consistent from one period to the next except as explained in an accompanying letter or footnotes. The Officer further expressly acknowledges Borrower may not request any borrowings at any time or date of determination that Borrower is not in compliance with any of the terms of the Agreement, and that such compliance is determined not just at the date this certificate is delivered.
Please indicate compliance status by circling Yes/No under "Complies" column:
REPORTING COVENANT REQUIRED COMPLIES ------------------ -------- -------- Interim financial statements and CC Quarterly within 45 days Yes No Annual (CPA Audited) and CC FYE within 120 days Yes No Borrowing Base Certificate and A/R Agings Monthly within 30 days, if borrowing, Yes No otherwise quarterly within 45 days Collateral Audit Annually if direct borrowing exceeds Yes No $500,000 |
FINANCIAL COVENANTS REQUIRED ACTUAL COMPLIES ------------------- -------- ------ -------- MAINTAIN ON A QUARTERLY BASIS: Minimum Quick Ratio 1.5:1.0 __________:1.0 Yes No Maximum Net Loss - FQE 3/31/01 ($3,000,000) $_____________ Yes No Maximum Net Loss - FQE 6/30/01, 9/30/01 and 12/31/01 ($2,500,000) $_____________ Yes No |
Comments Regarding Exceptions:
Sincerely,
----------------------------------- --------------------------------------- Signature BANK USE ONLY Received by: -------------------------- ----------------------------------- Date: TITLE --------------------------------- Reviewed by: -------------------------- ----------------------------------- Compliance Status: Yes No DATE --- --- --------------------------------------- |
LEASE BETWEEN
ARTURO J. GUTIERREZ AND JOHN A. CATALDO,
TRUSTEES OF NASHOBA WESTFORD REALTY TRUST,
U/D/T DATED APRIL 27, 2000 AND RECORDED
WITH THE MIDDLESEX NORTH REGISTRY OF DEEDS
IN BOOK 10813, PAGE 38
AND
NETSCOUT SYSTEMS, INC.
FOR
WESTFORD TECHNOLOGY PARK WEST
INDEX
PAGE NO. ARTICLE I - TERMS DEFINED.........................................................................................1 1.1 Subjects Referred To.................................................................................1 1.2 Exhibits.............................................................................................3 ARTICLE II - DESCRIPTION OF PREMISES..............................................................................4 2.1 Demise of Premises...................................................................................4 ARTICLE III - TERM................................................................................................5 3.1 Original Term........................................................................................5 3.2 Extended Terms.......................................................................................5 ARTICLE IV - RENT.................................................................................................5 4.1 Fixed Rent...........................................................................................5 4.2 Payments.............................................................................................6 4.3 Market Rent..........................................................................................6 ARTICLE V - OPERATING AND MAINTENANCE COSTS AND REAL ESTATE TAXES.................................................7 5.1 Common Area Maintenance..............................................................................7 5.2 Tax Expense.........................................................................................12 5.3 Tax Abatement.......................................................................................13 ARTICLE VI - LANDLORD'S COVENANTS................................................................................14 6.1 Landlord's Covenants During the Term................................................................14 6.2 Interruptions.......................................................................................15 ARTICLE VII - LANDLORD'S WARRANTIES..............................................................................15 ARTICLE VIII - USE OF PREMISES...................................................................................16 ARTICLE IX - PREPARATION OF THE PREMISES.........................................................................16 9.1 Initial Construction................................................................................16 9.1.1 Tenant's Work.......................................................................................20 9.1.2 Tenant's Construction Work..........................................................................22 9.2 Preparation of Premises for Occupancy...............................................................22 9.2.1 Partial Occupancy and Rent Commencement.............................................................25 9.3 General Provisions Applicable to Construction.......................................................26 9.4 Representatives.....................................................................................26 9.5 Force Majeure.......................................................................................27 9.6 Arbitration by Architects...........................................................................27 9.7 Warranty of Landlord's Work and Tenant's Work.......................................................27 |
ARTICLE X - COMPLIANCE WITH LAW..................................................................................28 10.1 Tenant Compliance...................................................................................28 10.2 Notice..............................................................................................28 ARTICLE XI - ALTERATIONS, ADDITIONS AND IMPROVEMENTS.............................................................28 11.1 Alterations.........................................................................................28 11.2 Landlord Performance of Alterations.................................................................29 11.3 Tenant Performance of Alterations...................................................................29 11.4 Removal of Alterations..............................................................................29 11.5 General Provisions..................................................................................29 ARTICLE XII - TENANT'S COVENANTS.................................................................................30 12.1 Maintenance and Repair..............................................................................30 12.2 Signs...............................................................................................31 12.3 Entry and Inspection................................................................................32 12.4 Miscellaneous.......................................................................................32 12.5 Safety Appliances...................................................................................33 12.6 Loading.............................................................................................33 12.7 Labor or Materialmen's Liens........................................................................33 12.8 Rules and Regulations...............................................................................33 12.9 Tenant's Covenants..................................................................................34 ARTICLE XIII - CASUALTY AND CONDEMNATION.........................................................................34 13.1 Casualty............................................................................................34 13.2 Additional Casualty Provisions......................................................................35 13.3 Condemnation/Eminent Domain.........................................................................35 13.4 Reservation of Award................................................................................36 ARTICLE XIV - RIGHTS OF MORTGAGEES...............................................................................36 14.1 Priority of Lease...................................................................................36 14.2 Limitation on Mortgagee's Liability.................................................................37 14.3 No Prepayment or Modification, etc..................................................................37 14.4 No Release of Termination...........................................................................37 14.5 Mortgagee's Election................................................................................37 14.6 Continuing Offer....................................................................................38 14.7 Submittal Of Financial Statement....................................................................38 ARTICLE XV - INSURANCE...........................................................................................38 15.1 Insurance...........................................................................................38 15.2 Tenant Liability Insurance/Workmen's Compensation...................................................39 15.3 Waiver of Subrogation...............................................................................39 ARTICLE XVI - INDEMNIFICATION....................................................................................40 16.1 Tenant's and Landlord's Indemnity...................................................................40 16.2 Hazardous Materials.................................................................................41 16.3 Landlord's Indemnification for Hazardous Materials..................................................42 ii |
ARTICLE XVII - ASSIGNMENT AND SUBLETTING.........................................................................42 17.1 Tenant Sublet.......................................................................................42 17.2 Intentionally Deleted...............................................................................43 17.3 Landlord's Response.................................................................................43 17.4 Subsidiary Assignment...............................................................................43 17.5 Sublease and Assignment Rent Differential...........................................................43 ARTICLE XVIII - TENANT'S PROPERTY................................................................................44 18.1 Tenant's Personal Property..........................................................................44 18.2 Removal.............................................................................................45 18.3 No Lien.............................................................................................45 ARTICLE XIX - TENANT'S DEFAULT...................................................................................45 19.1 Events of Default...................................................................................45 19.2 Repossession........................................................................................47 ARTICLE XX - NOTICES.............................................................................................47 ARTICLE XXI - QUIET ENJOYMENT....................................................................................47 ARTICLE XXII - HOLDING OVER......................................................................................47 ARTICLE XXIII - MEMORANDUM OF LEASE..............................................................................48 ARTICLE XXIV - SURRENDER OF PREMISES.............................................................................48 ARTICLE XXV - ESTOPPEL CERTIFICATES..............................................................................48 ARTICLE XXVI - ADDITIONAL PROVISIONS.............................................................................49 26.1 Broker..............................................................................................49 26.2 Bind and Inure......................................................................................49 26.3 Provisions Separable................................................................................49 26.4 Entire Agreement....................................................................................50 26.5 Governing Law.......................................................................................50 26.6 No Waiver...........................................................................................50 26.7 Rights Separate.....................................................................................50 26.8 Singular and Plural.................................................................................50 26.9 Headings............................................................................................50 26.10 Parking.............................................................................................50 26.11 Non-Recourse........................................................................................51 26.12 No Surrender........................................................................................51 26.13 No Accord and Satisfaction..........................................................................51 26.14 Access..............................................................................................52 26.15 Security Deposit....................................................................................52 26.16 Rooftop Communication Equipment.....................................................................53 26.17 Early Termination Option............................................................................53 26.18 Landlord's and Tenant's Right to Cure...............................................................54 26.19 Ground Lease Provisions.............................................................................54 Signature Page...................................................................................................56 |
ARTICLE I
TERMS DEFINED
1.1 SUBJECTS REFERRED TO:
Each reference in this Lease to any of the following terms shall mean:
Landlord: Arturo J. Gutierrez and John A. Cataldo, Trustees of Nashoba Westford Realty Trust, u/d/t dated April 27, 2000 and recorded with the Middlesex North Registry of Deeds in Book 10813, Page 38 Managing Agent: The Gutierrez Company Landlord's and Managing Agent's Address: c/o The Gutierrez Company One Wall Street Burlington, Massachusetts 01803 Landlord's Representative: John A. Cataldo Landlord's Construction Representatives: Arthur J. Gutierrez, John A. Cataldo or P. Agustin Rios Tenant: NetScout Systems, Inc. Tenant's Address: Prior to Term Commencement Date: (for Notice and Billing) 4 Technology Park Drive Westford, Massachusetts 01886 After Term Commencement Date: At the Premises Tenant's Representative: David Sommers Tenant's Construction Representative(s): David Sommers |
Building: Three (3) story building containing approximately 175,000 rentable square feet (as measured per 1980 AIA Document D 101) to be constructed on the lot containing approximately twelve (12) acres (the "Lot") described on Exhibit A attached hereto in accordance with the final Landlord's Plans and Tenant's Plans (as defined in Article IX hereof) and any replacements thereof and any alterations and additions thereto, including the Tenant's Work (as hereinafter defined), as the same may be expanded pursuant to Exhibit J hereto. The legal description of the Lot is attached hereto as Exhibit A-1. Scheduled Tenant's Design Completion Date: January 15, 2001 Scheduled Term Commencement Date: August 31, 2001 Outside Delivery Date: Per Section 9.2 Term: Twelve (12) years, subject to extension in accordance with Section 3.2 Term Expiration Date: Twelve (12) years following the Term Commencement Date determined in accordance with Section 9.2, subject to extension in accordance with Section 3.2. Fixed Rent: Years 1-5: $2,878,749.96/Year; $239,895.83/Month; ($16.45/RSF) Years 6-12: $3,222,500.00/Year; $276,875.00/Month; ($18.99/RSF) [To be adjusted by Section 9.1.1, if applicable] 2 |
Permitted Uses: General office, research and development, light assembly (including design, assembly, reassembly and testing of electronic products and components) and ancillary warehousing, as long as such uses are permitted uses with respect to local zoning bylaws and ordinances. Premises: The Building. Broker: Insignia/ESG, Inc. Special Provisions: Option to Extend .................................Section 3.2 Allowances.............................Section 9.1, Exhibit H Parking.........................................Section 26.10 Security Deposit................................Section 26.15 Expansion Option....................................Exhibit J |
1.2. EXHIBITS The Exhibits listed below in this Section are incorporated in this Lease by reference and are to be construed as part of this Lease:
EXHIBIT A Plan Showing Premises, Plan Showing the Lot and the Park, Plan Showing Common Areas of the Park EXHIBIT A-1 Legal Description of the Lot EXHIBIT B-1 Preliminary Base Building Plans EXHIBIT B-2 Base Building Outline Specifications EXHIBIT C-1 Form of Certificate of Substantial Completion EXHIBIT C-2 Form of Certificate of Final Completion EXHIBIT D Rules and Regulations EXHIBIT E Office Park Covenants EXHIBIT F Copy of Deed of Lot EXHIBIT G-1 Subordination, Non-Disturbance and Attornment Agreement EXHIBIT G-2 Recognition Agreement EXHIBIT H Allowances EXHIBIT I Estoppel Certificate EXHIBIT J Expansion Option EXHIBIT K Form of Work Change Order EXHIBIT L Definition of Cost of the Work and General Conditions EXHIBIT M Schedule EXHIBIT N Form of Notice of Lease EXHIBIT O Sign Specifications EXHIBIT P Proposed Expanded Building Footprint and Site Plan |
ARTICLE II
DESCRIPTION OF PREMISES
2.1 DEMISE OF PREMISES: In consideration of the rents and covenants herein stipulated to be paid and performed and upon the terms and conditions hereinafter specified and subject to and with the benefit of the provisions of that certain ground lease dated May 11, 2000 and executed by and between Albert L. Nardone and Anthony B. Nardone, Trustees of Two Littleton Road Realty Trust, u/d/t dated January 30, 1997 and recorded with the Middlesex North Registry of Deeds in Book 8425, Page 143 and as Trustees of One Littleton Road Realty Trust, u/d/t dated December 30, 1991 and recorded with said deeds in Book 5768, Page 183, as "Landlord" and Landlord, as "Tenant", notice of which was recorded in said Deeds in Book 10832, Page 7 relating to the Lot (the "Ground Lease"), Landlord hereby demises and lets to Tenant, and Tenant hereby leases from Landlord, for the respective terms hereinafter described, the Premises as described in Article I hereof. Tenant shall have the right to expand the Premises, as set forth on Exhibit J attached hereto.
Tenant shall have, as appurtenant to the Premises, the exclusive right to use the areas shown on the Plans attached hereto as Exhibit A as "Building Parking Area", including all loading docks and loading areas, service areas and the like located on the Lot, all subject to and as further provided in Section 26.10 and elsewhere in this Lease.
Tenant shall have, as appurtenant to the Premises, the right to use in common with others entitled thereto, subject to reasonable rules and regulations of general applicability to tenants and owners of other lots in the Westford Technology Park West (the "Office Park" or the "Park") from time to time made by Landlord according to Section 12.8 of this Lease of which Tenant is given notice: (a) all common areas now or hereafter located at the Park, including without limitation, the Common Areas (the "Common Areas") shown on the Plan of Common Areas of the Park attached as part of Exhibit A, as such Common Areas may be amended or modified by Landlord from time to time during the Term hereof, (b) a right of access to the Premises and parking areas serving the Premises, at all times, use of all access, service areas, utility lines including those for electricity, gas, water and sewage disposal, (c) use of all facilities for drainage of surface water runoff, including storm drainage systems and detention areas, (d) use of all means of access to and from the Building to the Common Areas, including without limitation, all grades, driveways, sidewalks and footways, lighting systems and traffic flow patterns and, if any, all parking areas designated as common or visitors parking areas for use of the entire Office Park, and (e) all rights appurtenant to the Lot and the Building created in the deed attached hereto as Exhibit F.
Landlord reserves the right from time to time without unreasonable interference with Tenant's use, but subject to Tenant's prior written consent (which shall not be unreasonably withheld, conditioned or delayed) to alter or relocate any other common facility, including without limitation, lot lines and parking areas, provided that substitutions are substantially
equivalent or better and provided that Landlord does not materially and adversely affect any of Tenant's rights hereunder.
ARTICLE III
TERM
3.1 ORIGINAL TERM - To have and to hold for a period (the "Term")
commencing on the Term Commencement Date determined in accordance with Section
9.2 (which said date is hereafter referred to at times as the "Commencement
Date") and continuing until the Term Expiration Date, unless sooner terminated
as provided in Section 9.2, Article XIII, Article X1X or Section 26.17, or
unless extended as provided in Section 3.2 or pursuant to Exhibit J.
Landlord shall deliver possession of the Premises on the Commencement Date in broom clean condition, free of all tenants and occupants and in accordance with the terms and provisions of Article IX and Article VII (c) of this Lease.
3.2 EXTENDED TERMS - The Tenant has the option to extend this Lease for
two (2) successive terms of five (5) years each ("Extended Terms" and
separately, the "First Extended Term" and the "Second Extended Term") provided
that there does not exist any Event of Default (as defined in Article XIX
hereof) at such time and provided the Tenant shall give to the Landlord written
notice of the exercise of the first option at least twelve (12) months but not
more than eighteen (18) months prior to the end of the initial Term hereunder,
and as to the second option at least twelve (12) months but no more than
eighteen (18) months prior to the end of the First Extended Term. The Extended
Terms shall be upon the same terms, covenants and conditions hereof, except that
(i) there shall be no additional option to extend after the termination of the
Second Extended Term or the failure to exercise the first option, whichever
shall first occur, (ii) the Fixed Rent for the First Extended Term shall be the
then Market Rent (as hereinafter defined in Section 4.3), and (iii) the Fixed
Rent for the Second Extended Term shall be the then Market Rent (as hereinafter
defined in Section 4.3). Landlord shall, within fifteen (15) days of receipt of
notice of Tenant's election to extend the Term of this Lease, or the First
Extended Term, as the case may be, provide Tenant with notice of the Market Rent
whereupon Landlord and Tenant shall establish the Market Rent for the Extended
Terms in accordance with the provisions of Section 4.3 of this Lease.
ARTICLE IV
RENT
4.1 FIXED RENT - The Fixed Rent for the Premises during the Term shall be as set forth in Article I of this Lease and shall be payable on the first day of each calendar month during the Term hereof in equal monthly installments also as set forth in said Article, except that the rent (including both said Fixed Rent and additional rent pursuant to Section 5.1 hereof) for any portion of a calendar month during the Term hereof shall be apportioned for such portions on a per diem basis based on the number of days in such partial month. The term "Annual Rent" for any period of twelve calendar months shall mean Fixed Rent plus any additional rent payable under the Lease with respect to such period. All rent payable by Tenant pursuant to this Lease shall be paid without setoff, adjustment, deduction or abatement. Landlord hereby acknowledges
and agrees that all deposits paid by Tenant to Landlord under that certain Exclusive Option to Negotiate letter dated June 28, 2000 shall be applied to Tenant's first and subsequent (if applicable) rental payments due hereunder.
4.2 PAYMENTS - All such monthly payments of Annual Rent shall be made to Managing Agent as set forth in Article I hereof, or to such other person as Landlord may from time to time designate by written notice to Tenant. If any installment of Annual Rent is paid more than five (5) business days after written notice from Landlord that such rent has not been paid, it shall bear interest at a rate equal to the prime commercial rate from time to time established by Fleet Bank, or its successor, plus four percent (4%) per annum (or, if lower, the maximum rate permitted by law) from the date such installment was due, which interest shall be immediately due and payable as further additional rent.
4.3 MARKET RENT - The market rent for the Premises shall be the then fair market rent for similar space in similar Class A office buildings in the Route 495 corridor market (including any concessions like rent abatement or refurbishing allowances being offered to tenants), which such rent (the "Market Rent") shall be determined as follows:
A. The Market Rent shall be proposed by Landlord within fifteen
(15) days of receipt of Tenant's notice that it intends to exercise its option
to extend the Term pursuant to Section 3.2 hereof (the "Landlord's Proposed
Market Rent"). The Landlord's Proposed Market Rent shall be the Market Rent
unless Tenant notifies Landlord, within fifteen (15) days of Tenant's receipt of
Landlord's Proposed Market Rent, that Landlord's Proposed Market Rent is not
satisfactory to Tenant and that Tenant desires (i) to withdraw its election to
renew, whereupon the provisions of Section 3.2 shall, as to the applicable
Extended Term, be null and void or (ii) to have appraisers determine the Market
Rent ("Tenant's Appraisal Notice"), which notice shall specify the name and
address of the appraiser designated by Tenant. Landlord shall within five (5)
days after receipt of Tenant's Appraisal Notice, notify Tenant of the name and
address of the appraiser designated by Landlord. Such two appraisers shall,
within twenty (20) days after the Landlord's designation of an appraiser, make
their determinations of the Market Rent in writing and give notice thereof to
each other and to Landlord and Tenant. Such two (2) appraisers shall have twenty
(20) days after the receipt of notice of each other's determination to confer
with each other and to attempt to reach agreement as to the determination of the
Market Rent. If such appraisers shall concur in such determination, they shall
give notice thereof to Landlord and Tenant and such concurrence shall be final
and binding upon Landlord and Tenant. If such appraisers shall fail to concur as
to such determination within said twenty (20) day period, they shall give notice
thereof to Landlord and Tenant and shall immediately designate a third
appraiser. If the two appraisers shall fail to agree upon the designation of
such third appraiser within five (5) days after said twenty (20) day period,
then they or either of them shall give notice of such failure to agree to
Landlord and Tenant and if Landlord and Tenant fail to agree upon the selection
of such third appraiser within five (5) days after the appraiser(s) appointed by
the parties give notice as aforesaid, then either party on behalf of both may
apply to the American Arbitration Association or any successor thereto, or on
his or her failure, refusal or inability to act, to a court of competent
jurisdiction, for the designation of such third appraiser.
1. All appraisers shall be real estate appraisers or consultants who shall have had at least seven (7) years continuous experience in the business of appraising or leasing real estate in the suburban Boston area.
2. The third appraiser shall conduct such hearings and investigations as he or she may deem appropriate and shall, within ten (10) days after the date of his or her designation, make an independent determination of the Market Rent.
3. If none of the determinations of the appraisers varies from the
mean of the determinations of the other appraisers by more than ten
(10%) percent, the mean of the determinations of the three (3)
appraisers shall be the Market Rent for the Premises. If, on the
other hand, the determination of any single appraiser varies from
the mean of the determinations of the other two (2) appraisers by
more than ten (10%) percent, the mean of the determination of the
two (2) appraisers whose determinations are closest shall be the
Market Rent.
4. The determination of the appraisers, as provided above, shall be conclusive upon the parties and shall have the same force and effect as a judgment made in a court of competent jurisdiction.
5. Each party shall pay fees, costs and expenses of the appraiser selected by it and its own counsel fees and one-half (1/2) of all other expenses and fees of any such appraisal.
Notwithstanding the foregoing or any other language in this Lease to the contrary, the Fixed Rent for the First Extended Term shall not be less than the Fixed Rent in effect as of the last day of the original Term and the Fixed Rent for the Second Extended Term shall not be less than the Fixed Rent for the First Extended Term.
ARTICLE V
OPERATING AND MAINTENANCE COSTS AND REAL ESTATE TAXES
5.1 COMMON AREA MAINTENANCE - Tenant shall pay to Landlord as additional rent an additional payment on the first day of each month occurring during the Term hereof one-twelfth (1/12) of the amount of "Common Area Maintenance Costs" (as hereinafter defined) for each twelve (12) month period beginning on each December 1st occurring within the Term, as reasonably estimated by Landlord from time to time according to this Section 5.1 (Common Area Maintenance Costs are currently estimated at $236,250.00 ($1.35/sf) for the year ending December 31, 1999). The "Common Area Maintenance Costs" include the expenses in the following categories and shall be prorated in accordance with the prorations set forth within each category:
1. BUILDING AND LOT RELATED EXPENSES, which shall be allocated one
hundred percent (100%) to Tenant, shall include maintenance of
watertight integrity of the roof, exterior walls, windows and
skylights of the Building (Landlord and Tenant hereby agreeing that
in the event that any item for maintenance of the watertight
integrity not covered by warranty exceeds $5,000, then Tenant shall
have the right to require Landlord to obtain three (3) competitive
bids from a list of subcontractors mutually agreed upon by
Landlord, Tenant and Landlord's manufacturer of the item so being
maintained); monthly payment of the annual amortized amount of
Landlord's cost of Capital Replacements, as defined in Section 6.1,
for any capital items purchased by Landlord in accordance with
Section 6.1; maintenance and repair of sewer (i.e. on site sewer
system), utility, fire main and fire hydrant facilities, and
drainage facilities exclusively serving the Building; maintenance
of the Building entrance sign; maintenance, repair and striping,
snow removal and sanding of the parking and loading area(s) and
driveways, walkways and Building entrances on the Lot;
fertilization, mowing, and watering of lawns on the Lot and
landscaping and care of shrubbery and general grounds upkeep of the
Lot; changing of street-lamp lights, walk-way lights, and parking
lights on the Lot, and keeping same in proper working condition;
and any other services, repairs, or maintenance performed solely
for the benefit of the Building; Building management supervision
fees equal to no more than two and one-half percent (2.5%) of gross
collected rent; and insurance premiums procured by Landlord on
Tenant's behalf as specified in Article XV;
2. TRAFFIC RELATED EXPENSES, which shall be allocated on the basis of the ratio of the number of parking spaces exclusively for Tenant's use under this Lease to the aggregate total number of parking spaces within the Office Park, shall include snow removal and sanding of common drives and parking lots, maintenance and repair of the Office Park entrance signs, maintenance and repair of Office Park lighting, traffic signals, and traffic control personnel required for the Office Park, maintenance and repair of Office Park walks, and Office Park non-exclusive parking and any other traffic or common Office Park roadway or walk-way related expenses;
3. LANDSCAPING/DRAINAGE/OTHER GENERAL OFFICE PARK RELATED EXPENSES, which shall be allocated on the basis of the ratio of the square footage of the Building to the aggregate square footage of all completed buildings including the Building in the Office Park, as such buildings are completed from time to time, shall consist of the maintenance and repair of sewer, utilities, and drainage facilities, maintenance and repair of detention and fire main and fire hydrant facilities which service the Office Park generally and are not exclusive to any single building within the Office Park; fertilization, mowing, and watering of lawns and landscaping and care of shrubbery and general grounds upkeep of access drives, entrance areas and other such portions of the Office Park the landscaping of which
actually and substantially benefit the Premises; and liability insurance costs for the Common Areas of the Office Park;
4. SEWER TREATMENT PLANT EXPENSES, including real estate taxes associated with sewer treatment plant land and buildings, shall consist of the expenses of operating, maintaining and repairing the sewage treatment plant, including without limitation, the annual amortized portion for Capital Replacements or improvements to the plant, which expenses shall be allocated on the basis of the ratio of the square footage of the Building to the aggregate square footage of all completed buildings including the Building on all lots in the Park, as such buildings are completed and connected for service from time to time to the sewer treatment plant.
Notwithstanding any contrary provision of this Lease, if Landlord incurs any Common Area Maintenance Cost that is properly classifiable as a capital expenditure according to generally accepted accounting principles and good building management practices and the regulations and directives of the Internal Revenue Service, except for Building structural repairs and replacements which could be classified as capital expenditures, then such Common Area Maintenance Cost shall be amortized at a commercially reasonable discount rate over its useful life according to such principles, practices, regulations and directives, and only the annual amortized portion shall be included in Common Area Maintenance Costs for any twelve (12) month period within the Term.
Notwithstanding anything to the contrary in this Lease contained, Tenant shall not be required to pay any Common Area Maintenance Costs attributable to:
1. Structural repairs and replacements (including any structural capital expenditures as aforesaid) which are the responsibility of Landlord as set forth in the first full paragraph of Section 6.1; repairs and replacements, structural or otherwise, covered by warranties or insurance; and repairs or other work occasioned by fire or other casualty or by the exercise of eminent domain;
2. Leasing commissions, attorneys' fees, costs and disbursements and other expenses incurred in connection with negotiations or disputes with other tenants, occupants or prospective tenants or occupants of the Office Park;
3. Interest, principal, ground rent, or other payments under any mortgage, ground lease or other financing of the Lot or the Office Park;
4. Any advertising or promotional expenditures;
5. Services or work provided for other tenants and occupants of the Office Park and not substantially benefiting Tenant on a commensurate basis and any expense for which Landlord is entitled to be reimbursed directly by any such other tenant or tenants;
6. Overhead or profit increment paid to subsidiaries or affiliates of Landlord for services on or to the Premises to the extent that the costs of such services exceed competitive costs of such services were they not so rendered by a subsidiary or affiliate.
7. Expenses related to salaries, wages, benefits and other expenses of executives, principals, administration staff and other employees of Landlord or Landlord's Management Agent not involved directly in the operations of the Building or Office Park;
8. Expenses related to leasehold improvements made in connection with the preparation of any portion of the Building or Office Park or occupancy by a new or existing tenant which is not generally beneficial to all tenants of the Building;
9. Expenses related to efforts to procure new tenants for other buildings or premises located in the Office Park, including advertising expenses, leasing commissions and attorneys fees;
10. Expenses related to Landlord's general overhead not directly related to the management or operations of the Building or Office Park;
11. Expenses related to depreciation of the Building and buildings in the Office Park;
12. Expenses related to Landlord or Landlord's Managing Agents breach or violation of a law, lease or other obligations, including fines, penalties and attorney's fees;
13. Expenses related to compensation paid to employees or other persons in connection with commercial concessions operated by Landlord or Landlord's Managing Agent;
14. Expenses related to fees for licenses, permits or inspections resulting from the act or negligence of Landlord, Landlord's Management Agent or any other tenant of the Office Park;
15. Expenses related to any items with respect to which Landlord receives reimbursement from insurance proceeds or from a third party;
16. Costs and expenses of construction related to an expansion of the rentable area of the Building or Office Park or the parking areas serving the Building or Office Park and any landscaping in connection therewith;
17. Expenses related to or costs or charges properly chargeable or attributable to a particular occupant, tenant or tenants of the Office Park;
18. Expenses related to any utility or other service used or consumed by other tenants or occupants of the Office Park;
19. Expenses related to environmental testing, remediation and compliance, Landlord and Tenant hereby agreeing that this exclusion is not intended to limit the provisions of Section 16.2 of this Lease;
20. Expenses related to compliance by Landlord with laws existing as of the date of this Lease, including without limitation the American with Disabilities Act and the regulations of the standards thereunder, except to the extent that any such non- compliance was created by Tenant's use of the Premises;
21. Building management supervision fees exceeding two and one-half percent (2.5%) of the gross collected rent; and
22. Real estate taxes on other lots and buildings in the Office Park.
Tenant shall be solely responsible for paying all utilities including, but not limited to electricity, water, gas and sewer, consumed in the Building or on the Lot, and the electrical, water and gas bills shall be placed in the Tenant's name and billed directly by the utility to Tenant. If Tenant fails to pay any such bills and such failure continues after written notice to Tenant and the expiration of the applicable grace period, Landlord shall have the right to pay such bills, and to recover such payment from Tenant with any interest and/or penalties chargeable thereon as additional rent. Written notice to Tenant and the expiration of the applicable grace period as aforesaid will not be applicable in the case of emergency with respect to potential damage to persons or property.
Tenant recognizes that Landlord may retain the services of such independent contractors or affiliates as may be necessary for Landlord to fulfill its obligations hereunder. Landlord shall provide to Tenant within one hundred twenty (120) days of the end of each calendar year an annual accounting, in writing, of actual Common Area Maintenance Costs for such calendar year, and Landlord shall maintain complete books and records relating to Common Area Maintenance Costs sufficient to verify these charges and Tenant, its accountants and agents shall have access to such books and records at reasonable times with prior written notice. If the total of Tenant's estimated payments on account of Common Area Maintenance Costs for such calendar year exceeds the actual Common Area Maintenance Costs for such year, Landlord shall repay to Tenant such excess within thirty (30) days after the delivery to Tenant of such annual accounting. If the total of Tenant's estimated payments on account of Common Area Maintenance Costs for such calendar year falls short of the actual Common Area Maintenance Costs for such year, Tenant shall pay to Landlord such shortage within thirty (30) days after Tenant's receipt of such accounting.
Based on reasonable estimates of increases in costs covered by this Section, Landlord reserves the right to adjust the amount of Tenant's estimated payments on account of Common Area Maintenance Costs annually at the time of such accounting effective on the first day of each calendar year during the Term hereof upon thirty (30) days' prior written notice to Tenant and upon providing Tenant with documentation supporting such estimates. Any such change shall be effective retroactively to the first day of the calendar year during which the adjustment is made. Notwithstanding anything contained herein, Landlord reserves the right to separately invoice Tenant for Tenant's proportionate share of any actual Common Area Maintenance Costs which exceeds the amount for such item in Landlord's then current estimate of Common Area Maintenance Costs by greater than five percent (5%). Any such change shall be effective retroactively to the first day of the calendar year during which the adjustment is made. Except for the management fee set forth herein, none of such Common Area Maintenance Costs shall exceed amounts which are charged for such expenses in the Westford, Massachusetts area for property of the same general type and size as in the Office Park. Except for the management fee set forth herein, Landlord agrees that all services to be provided as part of Common Area Maintenance Costs shall be obtained by Landlord at commercially reasonable, competitive market rates consistent with the operation of comparable Class A office buildings in the Route 495 corridor market.
5.2 TAX EXPENSE - Tenant shall pay directly to the relevant taxing authority (or to Landlord if required by Landlord's mortgagee), real estate taxes assessed with respect to any period included in the Term hereof (on a pro rata basis at the beginning or end of the Term) attributable to the Lot and the Building and improvements and any assessment, levy, penalty (arising directly from Tenant's acts), imposition or tax (including any tax which may replace or be assessed in lieu of any of the foregoing), and any interest due thereon, assessed with respect to any period included in the Term by any authority and agency having the direct power to tax against the Lot and the Building (the "Tax Expense"); provided, however, (i) if the amount of any real estate taxes or any such assessment, levy, penalty (arising directly from Tenant's acts), imposition or tax may lawfully be paid in installments, Tenant may pay such amount over the maximum period permitted by law, and only the portion of such amount required to be paid with respect to any period in the Term shall be included in the Tax Expense for such period, (ii) if the Term includes a partial fiscal tax year at its beginning or end, the real estate taxes or any such assessment, levy, penalty (arising directly from Tenant's acts), imposition or tax for such tax years shall be prorated according to the fraction of the total number of days in such tax year that are within the Term, and only such prorated portion shall be included in the Tax Expense, and (iii) Tenant shall have no obligation to pay any assessment, levy, penalty, imposition or tax arising out of a breach or violation by Landlord or any previous owner or occupancy of the Lot or the Building of any law or obligation. The term "real estate taxes" means the real estate taxes, betterment assessments, water and sewer use rents, rates or charges, and such other governmental charges and impositions which are or may be charged, levied, assessed, imposed or become due and payable with respect to the Lot, Building, and other improvements comprising the Premises. All such payments shall be made no later than ten (10) days prior to the date when interest or penalty would accrue for non-payment or ten (10) days after Landlord provides Tenant with the real estate tax bill, whichever is later. Tenant shall furnish to Landlord copies of such bills and receipts evidencing payment for Landlord's records. Real estate taxes are currently estimated at $166,250.00 for fiscal year 2000 ($.95/sf).
Tenant shall also pay all personal property taxes for Tenant's personal property on the Premises or used in connection therewith. To the extent permitted by law, Tenant shall pay, when due, taxes levied or assessed against Landlord by reason of this Lease on the rental or any other payment required to be made hereunder whether said taxes are assessed solely on the rental payment hereunder or jointly with other rentals collected pursuant to any law or ordinance now existing or hereafter enacted (other than taxes levied on the net income of Landlord derived therefrom as part of a state or federal income tax law applicable to Landlord's income, and any income, franchise, gross receipts, corporation, capital levy, excess profits, revenue, rent, inheritance, devolution, gift, estate, payroll or stamp tax by whatsoever authority imposed or howsoever designated ox .any tax upon the sale, transfer and/or assignment of Landlord's title or estate which at any time may be assessed against or become a lien upon all or any part of the Premises or this leasehold). Notwithstanding the foregoing, Tenant shall have no responsibility for late payment penalty or interest if Tenant's payment was timely as above provided.
5.3 TAX ABATEMENT - Tenant shall have the right to contest in good faith by appropriate proceedings diligently pursued the imposition or amount of any real estate taxes assessed against the Lot or the Building or such personal property taxes payable by it hereunder, including the right on behalf of, and in the name of the Landlord, to seek abatements thereto. The Landlord shall reasonably cooperate with Tenant, at Tenant's sole expense, in any such contest or abatement proceedings. In the event that Tenant determines not to contest such taxes and Landlord desires to file such contest, Landlord shall give written notice of that fact to Tenant and shall have the sole right as to such tax bill to contest in good faith by appropriate proceedings diligently pursued the imposition or amount of any real estate taxes assessed against the Lot or the Building or such other taxes payable by Tenant hereunder, including the right to seek abatements thereto. In such event, the Tenant shall reasonably cooperate with Landlord, at Landlord's sole expense, in any such contest or abatement proceedings. Any tax abatement or rebate received shall be allocated to the parties in the same proportion as payment.
If Landlord shall receive on behalf of the Lot or the Building a rebate or abatement on any tax paid by Tenant, then after deducting therefrom any costs reasonably incurred by Landlord in obtaining such rebate or abatement, all of such net rebate or abatement relating to the Lot or the Building or to personal property taxes assessed against the Tenant's personal property shall be returned to Tenant to the extent that such rebate or abatement relates to payment made by the Tenant and not reimbursed by Landlord. If Tenant shall receive on behalf of the Lot or the Building a rebate or abatement on any tax paid by Tenant, then after deducting therefrom any costs reasonably incurred by Tenant in obtaining such rebate or abatement, all of such net rebate or abatement related to the Lot, the Building or to personal property taxes assessed against the Tenant's property shall be retained by Tenant, as its sole property, to the extent such rebate or abatement relates to a payment made by Tenant and not reimbursed by Landlord. The remaining portion of such net rebate or abatement shall promptly be returned to Landlord.
ARTICLE VI
LANDLORD'S COVENANTS
6.1 LANDLORD'S COVENANTS DURING THE TERM - Landlord shall be
responsible during the Term, at Landlord's expense and not as a cost allocable
to Tenant under Section 5. 1, to perform necessary repairs and replacements to
maintain the structural integrity of the Building, including but not limited to
the roof, exterior walls, windows and skylights, but excluding the cost of the
watertight integrity thereof not covered by warranties (except that such repairs
or replacements shall not be required in the case of settling or sagging of the
within standard engineering tolerance provided that the settling and sagging
does not affect the surface or structural integrity of the Building or render
the Building unsafe or unfit for normal use). In addition, Landlord agrees to
extend, at its sole cost and expense, the warranty on the roof of the Building
for ten (10) additional years, such that the roof shall be warranted for twenty
(20) years, and to extend the warranty on the windows to ten (10) years (in the
aggregate). Such warranty, however, shall be held in Landlord's name and shall
not be assigned to Tenant.
Landlord shall also be responsible for (i) all exterior maintenance,
repairs and replacements necessary to keep in good condition and working order
the trees, shrubs, plants, landscaping, parking areas, driveways and walkways on
the Lot, including, but not limited to, all lighting and other fixtures and
equipment serving such parking areas, driveways and walkways, and the onsite
septic system, (ii) providing the services and performing the maintenance work
set forth in Section 5.1 and Article XIII hereof, (iii) compliance with all laws
applicable to the Premises, the Lot or Office Park, (iv) all Capital
Replacements (as hereinafter defined) to the heating, ventilating, air
conditioning, plumbing, electrical, emergency, elevator and other mechanical
equipment and systems of the Premises (collectively, the "Premises Systems"), so
long as such replacement was not required due to negligence or excessive use of
such capital items by Tenant and (v) performing necessary repairs and
replacements to maintain the watertight integrity of the Building, including but
not limited to the roof, exterior walls, windows and skylights. "Capital
Replacement" shall mean any replacement, the cost of which is classifiable as a
capital expenditure as described in Section 5.1. Landlord will be commercially
reasonable and shall use good building management standards in making Capital
Replacement decisions. Landlord shall make all of such repairs and replacements
necessary to maintain the foregoing in good condition and working order and in
compliance with all laws, and all costs and expenses therefor (i.e. under this
Section 6.1) shall be chargeable to Tenant pursuant to the provisions of Article
V, except as otherwise expressly provided in Section 5.1 or this Section 6.1.
All other repairs and maintenance, except as specifically otherwise provided
herein, shall be the responsibility of the Tenant.
In the event that Tenant gives notice to Landlord of a condition which Tenant believes requires Landlord's repairs or a condition which, if left uncorrected, will necessitate Landlord's repair, then, in accordance with the terms of this Section 6.1, Landlord shall respond promptly to investigate such condition, and, if such repairs are Landlord's obligation hereunder, Landlord shall commence promptly to repair same and to diligently complete said repair. Tenant agrees during the Term to provide Landlord notice as soon as reasonably possible of any condition known to Tenant which might require, or if left uncorrected will necessitate Landlord's repair pursuant to this Section 6.1. Tenant shall have the right to require, at reasonable times and with
reasonable notice, a representative of Landlord to inspect the Premises for repairs which may be the responsibility of Landlord.
6.2 INTERRUPTIONS - Landlord shall not be liable to Tenant for any compensation or reduction of rent by reason of inconvenience or annoyance or for loss of business arising from power losses or shortages to the Building or from the necessity of Landlord's entering the Premises, subject to Section 12.3, for any of the proposes in this Lease authorized, or for repairing the Premises or any portion of the Building or improvements on the Lot or within the Office Park, provided, however, (i) Landlord shall use reasonable efforts to remedy such losses or shortages as quickly as possible and (ii) Landlord, in making any such entry, repairs or improvements shall not materially interfere with Tenant's use and occupancy of the Premises. In case Landlord is prevented or delayed from making any repairs, alterations or improvements, or furnishing any service or performing any other covenant or duty to be performed on Landlord's part, by reason of any cause beyond Landlord's reasonable control, Landlord shall not be liable to Tenant therefor, nor, except as expressly otherwise provided in Article XIII hereof, shall Tenant be entitled to any abatement or reduction of rent by reason thereof, nor shall the same give rise to a claim in Tenant's favor that such failure constitutes actual or constructive, total or partial, eviction from the Premises. Landlord agrees to provide Tenant with reasonable advance notice prior to entering the Premises, except in the case of emergency.
Landlord reserves the right to stop any service or utility system when necessary by reason of accident or emergency or until necessary repairs have been completed, provided that (i) the Landlord shall complete repairs as soon as reasonably possible and (ii) Landlord makes reasonable efforts to end the stoppage. Except in case of emergency repairs, Landlord will give Tenant reasonable advance notice of any contemplated stoppage and will use reasonable efforts to avoid interference with Tenant's use and occupancy of the Premises.
ARTICLE VII
LANDLORD'S WARRANTIES
Landlord warrants and represents and covenants and agrees as follows:
(a) Landlord is the Tenant under the Ground Lease (as defined in
Section 2.1 hereof).
(b) Landlord has the power and authority to enter into this Lease and perform the obligations of Landlord hereunder. This Lease and all other documents executed and delivered by Landlord constitute legal, valid, binding and enforceable obligations of Landlord, and there are no claims or defenses, personal or otherwise, or offsets whatsoever to the enforceability or validity of the Lease.
(c) Landlord agrees that all HVAC, mechanical and electrical equipment in the Building shall, on the Term Commencement Date, be in good operating condition.
ARTICLE VIII
USE OF PREMISES
Tenant may use the Premises only for the Permitted Uses specified in
Section 1.1 of this Lease.
ARTICLE IX
PREPARATION OF THE PREMISES
9.1 INITIAL CONSTRUCTION
A complete set of final base building and Lot improvements plans and
construction drawings and specifications, such drawings and specifications to
include a detail schedule of core base Building finish items such as, but not
limited to, carpets, doors, hardware, ceiling grids/tiles, lavatory fixtures,
light fixtures, window blinds, lobby finishes and paint/wall coverings and
based on the preliminary base building plans, including, without limitation,
floor plans, elevations and site plan(s) (collectively, the "PBBP") and Base
Building Outline Specifications attached hereto as Exhibits B-1 and B-2,
respectively (collectively, the "Landlord's Plans") shall be prepared by
Landlord, at its sole cost and expense (all of such work shown on the
Landlord's Plans being collectively referred to as the "Landlord's Work"). In
the event of differences between the PBBP or the Landlord's Plans and the
Base Building Outline Specifications, the Base Building Outline
Specifications shall govern and control until the Landlord's Plans are
prepared. Landlord and Tenant agree to work together with Landlord's
architect, Symmes, Maini and McKee Associates, Inc. in order to achieve a
design that meets the standard set forth below. Furthermore, Landlord agrees
to use good faith and diligent efforts to deliver the Landlord's Plans to
Tenant on or before September 21, 2000, with the exception of electrical,
plumbing, and HVAC plans which shall be developed after said September 21,
2000 and shall, if coordinated with Tenant's MEP engineer, shall be delivered
to Tenant in accordance with Tenant's design development schedule, otherwise
such electrical, plumbing and HVAC plans shall be delivered by October 15,
2000 if Landlord elects not to use Tenant's MEP engineer. Upon receipt,
Tenant shall have ten (10) business days to comment upon the Landlord's
Plans. Landlord and Tenant shall use reasonable efforts to reach agreement on
the Landlord's Plans as soon thereafter possible. Tenant's approval of
Landlord's Plans shall not be unreasonably withheld, conditioned or delayed.
In reaching agreement, Landlord and Tenant shall each approve portions of the
Landlord's Plans that are in acceptable form and shall note their respective
objections to the portions that are unacceptable to each of them so as to
enable Landlord to continue construction and order materials in a timely
manner. Provided that the PBBP are finalized and attached to this Lease upon
execution of this Lease by Tenant, in the event that Landlord's Plans conform
with the PBBP, but Tenant does not approve the Landlord's Plans within ten
(10) business days of receipt thereof from Landlord, then the Scheduled Term
Commencement Date shall be extended for a number of days equal to the number
of Tenant Plan Delay Days, as such term is hereinafter defined. The number of
Tenant Plan Delay Days are defined as and shall be calculated by determining
the actual number of days as certified by Landlord and its architect that the
Term Commencement Date was delayed by such Tenant's failure to approve the
Landlord's Plans within the required ten (10) business days. Landlord agrees
to provide Tenant with written notice of such determination, such notice to
include reasonable detail describing the cause of the delay
and the number of Tenant Plan Delay Days as certified by Landlord and its
architect. If Tenant and Tenant's Architect (as hereinafter defined) disagree
with the existence or calculation of Tenant Plan Delay Days as determined by
Landlord and its architect, then Tenant shall, within ten (10) business days of
receipt of Landlord's notice, notify Landlord of its disagreement, whereupon the
dispute shall be determined pursuant to the arbitration procedures described in
Section 9.6 hereof.
Landlord and Tenant hereby acknowledge and agree that, except as otherwise set forth herein, following approval by Landlord and Tenant (which shall be in writing as hereinafter provided), no amendments, modifications or changes shall be made to the Landlord's Plans, the PBBP and/or the Base Building Outline Specifications (during or after the permitting process) without Tenant's prior written approval in each instance, which such approval shall not be unreasonably withheld or delayed; provided, however, no such prior approval of Tenant shall be required if the proposed amendments, modifications or changes are, in Landlord's reasonable opinion (i) non-material in nature, (ii) replaced by substantially equivalent or better items and at all times equal to or better than that of the building located at 4 Technology Park Drive, Westford, Massachusetts, and (iii) do not adversely affect the Premises. Without limiting the foregoing, Landlord shall provide Tenant with prior written notice of all proposed amendments, modifications or changes to the Landlord's Plans.
A complete set of construction plans and specifications for Tenant's
Work (as hereinafter defined) shall be prepared by Tenant's Architect, as
hereinafter defined (collectively, the "Tenant's Plans"). The Tenant's Plans
shall be furnished to Landlord as herein provided. Landlord and Tenant hereby
acknowledge and agree that Tenant shall notify Landlord within two (2) weeks
following the date of this Lease of its selection of an architect to be Tenant's
Architect for preparation of Tenant's Plans, and the costs of services of such
Tenant's Architect shall be borne solely by Tenant. Tenant's Architect (and
Tenant's Representatives) shall be actively involved in the design decisions and
shall be allowed reasonable access to the Lot and the Premises during
construction to monitor Landlord's compliance with the terms and provisions of
this Lease. Landlord and Tenant hereby further agree that Tenant shall be solely
responsible for coordinating with Tenant's Architect for the timely preparation
of Tenant's Plans in accordance with the terms and provisions of this Section
9.1. Attached as Exhibit M is a schedule (the "Schedule") setting forth the
respective dates by which Landlord and Tenant anticipate that (i) Landlord's
Plans shall have been delivered to and approved by Tenant, (ii) Tenant's Plans
shall have been delivered to and approved by Landlord, and (iii) certain
portions of Landlord's Work and Tenant's Work shall be substantially completed.
The parties agree to cooperate with each other and to exercise reasonable
efforts to complete the tasks described in the Schedule by the respective dates
set forth therein, Landlord and Tenant hereby further agreeing that, unless
otherwise expressly set forth herein, failure to meet any of such dates on the
Schedule shall not constitute a default or a delay of any type hereunder.
Tenant shall deliver the Tenant's Plans to the Landlord by not later than the Scheduled Tenant's Design Completion Date, provided, however, that Tenant furnishes to Landlord by not later than October 1, 2000 (i) any such information to be contained in the Tenant's Plans that affects Landlord's Work, and (ii) a list of "long lead items", including specifications thereto, for those certain portions of Tenant's Work as determined by Landlord and Tenant prior to such
time. Notwithstanding the preceding sentence, Landlord and Tenant hereby
acknowledge and agree that the Scheduled Tenant's Design Completion Date and
said date of October 1, 2000 shall be extended for a number of days equal to the
number of actual days Landlord delayed delivering the Landlord's Plans and, so
long as such delay was not due to a Tenant's Delay as hereinafter defined, such
electrical, HVAC and plumbing plans described in the first paragraph of this
Section 9.1.1, to Tenant beyond the time periods hereinabove provided. Tenant
shall permit Landlord to review and provide input during the preparation of
Tenant's Plans. Upon receipt, Landlord shall have ten (10) business days to
comment upon the Tenant's Plans. Landlord's notice to Tenant shall include
reasonable detail describing the reason for such comment and/or the extent of
the incompatibility with reasonable specificity. Landlord and Tenant shall use
reasonable efforts to reach agreement on the Tenant's Plans within ten (10) days
of Tenant's receipt of Landlord's comments thereto. In reaching such agreement,
Landlord and Tenant shall each approve portions of Tenant's Plans that are
acceptable and shall note their respective objections to the portions that are
unacceptable to each of them so as to enable Landlord to continue construction
and order materials in a timely manner. If Tenant fails to deliver Tenant's
Plans (or any modifications thereto) by the date set forth above, Landlord may
require by prompt written notice to Tenant a reasonable adjustment in the
Scheduled Term Commencement Date for each day of actual delay. Any such
extension in time, whether mutually agreed to by Landlord and Tenant or
determined by their respective architects in the event of dispute pursuant to
Section 9.6, shall result in Tenant's Plan Delay Days as hereinbefore
determined. In addition, Landlord will not approve Tenant's Plans which involve
any construction, alterations or additions requiring unusual expense to readapt
the Premises to normal office use on the Term Expiration Date, unless Tenant
first gives assurances reasonably acceptable to Landlord that such readaptation
shall be made prior to such termination without expense to Landlord. All
revisions and modifications to the Tenant's Plans shall be made promptly by
Tenant and revised sets of Tenant's Plans shall be forthwith furnished to
Landlord upon Tenant's receipt thereof, Landlord hereby agreeing to inform
Tenant during the plan approval process and, in any event, prior to the
installation thereof, of any such items that may require unusual expense to
readapt the Premises as aforesaid. All revisions and modifications to the
Tenant's Plans shall be made promptly by Tenant and revised sets of Tenant's
Plans shall be forthwith furnished to Landlord upon Tenant's receipt thereof.
Landlord and Tenant hereby further agree to acknowledge in writing when final
approval by Landlord and Tenant of Tenant's Plans (and Landlord's Plans) has
occurred. Landlord's approval of Tenant's Plans shall not be unreasonably
withheld, conditioned or delayed.
Landlord shall have twenty (20) days after final approval of Tenant's Plans and Landlord's receipt of final and complete sets of approved Tenant's Plans, which such final approval has been acknowledged in writing by Landlord and Tenant as aforesaid, to price the cost of Tenant's Work (as hereinafter defined) in accordance with the second to last paragraph of Section 9.1.1.
Landlord and Tenant shall cooperate during the above time periods so that each party makes the other aware of their progress with respect to the foregoing plans, selections and pricing, as well as timing, availability or cost constraints of Tenant's selections or specifications and proposed alternates.
Landlord shall cause, at its sole cost and expense, except as expressly
set forth in this Lease, the Premises and all improvements on the Lot to be
completed in accordance with Landlord's Plans and Tenant's Plans, all of such
work to be performed by Landlord's general contractor, Gutierrez Construction
Co., Inc. After final approval of Landlord's Plans and Tenant's Plans (i.e. one
hundred percent (100%) completed) by Landlord and Tenant, the Tenant may request
changes to Landlord's Work or Tenant's Work (as applicable) by altering, adding
to, or deducting from Landlord's Work or Tenant's Work (as applicable) as set
forth in the agreed form of Landlord's Plans or Tenant's Plans, as applicable
(each such requested change is referred to herein as a "Change Order"). Landlord
shall perform Change Orders subject to the provisions hereinafter provided. A
Change Order requested by Tenant in Landlord's Work (or in Tenant's Work as such
term is defined in Section 9.1.1 hereof) which affects Landlord's Work may also
necessitate an adjustment in the Scheduled Term Commencement Date (as defined in
Section 9.2 hereof) and may result in Tenant Alteration Delay Days (as
hereinafter defined), in accordance with and subject to the terms and conditions
set forth below. Landlord shall notify Tenant in writing if such requested
Change Order shall result in Tenant Alteration Delay Days, and therefore an
adjustment in the Scheduled Term Commencement Date. In addition, Landlord agrees
to provide Tenant, upon Tenant's request, with sufficient itemization and
back-up documentation to facilitate analysis and to confirm the cost of any such
changes in the Landlord's Work or the Tenant's Work initiated by Tenant. Tenant
shall pay to Landlord an amount equal to the actual cost (as defined in Section
9.1.1 hereof) of any such changes initiated by Tenant, less any appropriate
credits for any Landlord's Work deleted, (hereinafter, the "Net Additional Cost
of Landlord's Work"). The Net Additional Cost of Landlord's Work shall be due
and payable to Landlord in the manner provided for in Section 9.1.1 hereof.
In the event that Tenant requests a Change Order which would, due to materials or equipment having long delivery times or due to resulting sequencing delays, and notwithstanding Landlord's diligent efforts, result in a delay in the Term Commencement Date, then Tenant shall be deemed to have agreed that it will pay Fixed Rent (as provided in Section 4.1) and additional rent hereunder for a number of days equal to the actual number of days (the "Tenant Alteration Delay Days") as certified by Landlord and its architect, by which the Term Commencement Date would be delayed by such alterations or additions, giving due consideration to Landlord's obligation to use diligent efforts to accelerate construction to make up for lost time due to delays. Landlord agrees to promptly, prior to Tenant's approval of any Change Order, provide Tenant with written notice of such determination, such notice to include reasonable detail describing the cause of the delay and the number of Tenant Alteration Delay Days as certified by Landlord and its architect. Should Tenant and Tenant's Architect disagree with the calculation of Tenant Alteration Delay Days as hereinabove determined, then such disagreement shall be resolved pursuant to the provisions of Section 9.6 hereof.
All Tenant improvements, changes and additions shall be part of the Premises (and shall remain therein at the end of the Term), except for Tenant's business fixtures, equipment and personal property (which such personal property shall include, without limitation, demountable partitions, equipment and telephone or computer systems except for telephone and computer systems wiring), all of which fixtures, equipment and personal property shall remain the property of the Tenant and shall be removed at the expiration of the Term; and such other items shall be removed or left as the Landlord and Tenant agree in writing at the time of Landlord's approval of
the plans and specifications therefor. Tenant agrees to repair, at its sole cost and expense, any damage to the Premises caused by any such removal by Tenant in accordance with this paragraph.
9.1.1 TENANT'S WORK.
So long as Landlord has approved Tenant's Plans in writing, as hereinabove referenced, and so long as Landlord receives the complete Tenant's Plans (i.e. one hundred percent (100%) completed) by the Scheduled Tenant's Design Completion Date (which such date may be extended as aforesaid), Landlord and Tenant agree that Landlord's general contractor will construct the tenant improvements set forth on the Tenant's Plans (hereinafter "Tenant's Work") with respect to the Premises under a "Guaranteed Maximum Price" contract ("GMP"), which shall include an amount for Landlord's contractors fee of six percent (6%) of cost plus seven percent (7%) of cost for General Conditions (defined in Exhibit L), whereupon all savings shall be divided equally between Landlord and Tenant. Tenant shall have access to Landlord's books and records and may review all bids and contracts to ensure appropriate savings are achieved. In order to provide for payment by Tenant of the cost of Tenant's Work, the Net Additional Cost of Landlord's Work, and any additional costs due to Change Orders provided for hereunder, less said allowance(s), Tenant expressly covenants with Landlord that Tenant agrees to pay Landlord, or its contractor, as the case may be, within ten (10) business days of receipt of each of Landlord's monthly requisitions therefor (not to be submitted more than once per calendar month), the amount of such requisition for the Tenant's Work, the Net Additional Cost of Landlord's Work and/or any Change Order, less such allowance(s) as aforesaid, performed in the Premises for preceding month based on a percentage of completion basis; provided, however that Tenant shall retain ten percent (10%) of such monthly amounts due from Tenant to Landlord hereunder until Substantial Completion of the Premises has been achieved as hereinafter provided in Section 9.2 and Landlord has provided to Tenant reasonably satisfactory evidence that all liens have been released or lien waivers have been provided. Notwithstanding any provisions of this Lease to the contrary, it is expressly agreed that all costs of Tenant's Work shall be paid for out of the allowance(s) first and that Tenant shall not be required to make any contribution to such costs and/or any Net Additional Cost of Landlord's Work and/or any cost of Change Orders until the full amount of the allowance(s) is expended.
Notwithstanding the foregoing, it is hereby acknowledged and agreed that Landlord shall use good faith efforts to obtain third party permanent non-recourse financing for the financing of an additional allowance equal to Ten Dollars ($10.00) per rentable square foot, or $1,750,000, to be applied towards Tenant's Work, which shall be subject to the financeability of Tenant. If such financing is obtained, Landlord agrees to notify Tenant and to amortize such applicable amount into the Fixed Rent due hereunder over the initial Term hereunder, at a rate equal to nine and one-half percent (9.5%) per annum. Landlord and Tenant hereby further agree to amend the Fixed Rent set forth in Article I of this Lease so as to reflect any amount so provided to Tenant as an additional allowance by Landlord hereunder.
At Tenant's request, each requisition shall include copies of all subcontractor's and supplier's applications for payment and satisfactory evidence of payment of all previous invoices submitted by subcontractors and suppliers. In addition, Landlord's architect, Tenant's Architect
and Tenant's Project Manager shall certify that the subject work specified in each of such monthly requisitions has been substantially completed, and a copy of such certification shall accompany each requisition furnished to Tenant hereunder. Tenant's Architect and Tenant's Project Manager shall have the right to inspect such work prior to certification. In no event shall any of such costs due and payable hereunder remain unpaid by Tenant as of the Term Commencement Date, except for any holdback amount as set forth in Section 9.2 hereof.
For purposes hereof, Landlord and Tenant further agree that the certification of cost by Landlord's contractor, Gutierrez Construction Co., Inc., shall be based on the definition of cost of the work as more particularly set forth in Exhibit L hereto. Any changes to the Tenant's Plans after the approval of the Tenant's Plans (and any changes to Landlord's Plans after the approval thereof as set forth in Section 9.1 above) or increase in such cost shall be in accordance with the form of Work Change Order attached hereto as Exhibit K.
Promptly after approval of Tenant's Plans, Landlord shall bid out the major contracts in the pricing of the cost of Tenant's Work (specifically excluding Landlord's Work hereunder), Landlord agrees to use good faith, diligent efforts to obtain three (3) qualified bids from subcontractors selected from a master list of subcontractors mutually prepared and agreed upon by Landlord and Tenant prior to the soliciting of bids for any item of Tenant's Work exceeding twenty-five thousand dollars ($25,000.00). The subcontractor selected for the performance of the work shall be the subcontractor with the lowest bid price; provided, however, that if Landlord, in its reasonable judgment, determines that due to changed conditions (such as increased work commitments on the part of the respective subcontractor, or other pertinent factors) the selection of such low bidder could result in Subcontractor Delay Days (as hereinafter defined), then Landlord shall provide written notice (a "Landlord's Subcontractor Notice") thereof to Tenant, which notice shall identify the low bidder and next lowest bidder and indicate the number of Subcontractor Delay Day(s) that would result from selection of the low bidder (giving due consideration of Landlord's obligations to use diligent efforts to accelerate construction to make up for lost time to delays). Tenant shall have four (4) business days upon receipt of such Landlord's Subcontractor Notice to notify Landlord that either (i) Landlord should proceed with the original low bidder (in which event the Scheduled Term Commencement Date shall be extended for the number of days (the "Subcontractor Delay Day(s)") equal to the number of Subcontractor Delay Days indicated in Landlord's Subcontractor Notice), or (ii) Landlord's selection of the next lowest bidder is acceptable to Tenant (in which event the Scheduled Term Commencement Date shall not be extended). Failure by Tenant to respond within said four (4) business day period shall be deemed to constitute acceptance by Tenant of Landlord's selection of the next lowest bidder. Landlord agrees to use reasonable efforts to notify Tenant simultaneously or forthwith upon Tenant's notification to Landlord as to its election set forth in (i) and (ii) above, if Landlord has knowledge or a reasonable basis to believe that a Subcontractor Delay Day(s) will likely result due to Landlord's notification requirements hereunder, regardless of whether or not Tenant elects to proceed with the original lowest bidder or not. In addition, in the event that Landlord and Tenant are unable to agree on the cost of any portion of said work, any disagreement shall be resolved pursuant to the provisions of Section 9.6 hereof. Landlord shall obtain all permits, approvals and certificate of occupancy for Tenant's Work, the cost of which shall be included in said GMP. After receipt of Landlord's bids for such twenty-five thousand dollars ($25,000.00) plus work, Landlord shall submit its GMP to Tenant.
Tenant may, within five (5) days after receipt thereof, propose revisions to Tenant's Plans in order to reduce the GMP. Landlord agrees to work in good faith with Tenant to reduce the GMP based on revised Tenant's Plans. Any such revisions by Tenant to the Tenant's Plans hereunder may result in Tenant's Alteration Delay Days, Landlord hereby agreeing to give Tenant prompt notice upon receipt of a requested revision to Tenant's Plans setting forth the number of Tenant Alteration Delay Days in the manner set forth in Section 9.1 above.
Upon commencement of the Tenant's Work, Landlord and Tenant hereby further agree, each acting reasonably and in good faith, to attend and participate in weekly construction meetings with Landlord's general contractor's construction manager(s) during such construction process.
9.1.2 TENANT'S CONSTRUCTION WORK.
Tenant agrees that any construction included in Tenant's Plans which Tenant specifies to be done by itself or its contractors (hereinafter referred to as "Tenant's Construction Work"), which shall include, for example, Tenant's installation of furniture, furnishings, telephones, movable equipment, security and later changes or additions, shall be completed by and coordinated with any work being performed by Landlord in such manner as to maintain harmonious labor relations and not materially damage the Premises or Lot or materially interfere with the operation of the Building or with any of Landlord's construction work hereunder, including but not limited to the construction of the Landlord's Work and Tenant's Work. Tenant (including its contractors, agents or employees) shall have access to the Premises and may perform Tenant's Construction Work prior to the Scheduled Term Commencement Date and prior to the commencement of the Term so as to prepare the Premises for occupancy by Tenant, provided that (i) Tenant's contractors, agents or employees work in a harmonious labor relationship with Landlord's general contractor, (ii) reasonable prior written notice is given to Landlord's general contractor specifying the work to be done, and (iii) no work, as reasonably determined by Landlord, shall be done or fixtures or equipment installed by Tenant in such manner as to materially interfere with the completion of Landlord's Work and the Tenant's Work being done by or for Landlord on the Premises. During the period of preoccupancy of the Premises by Tenant in connection with Tenant's Construction Work prior to the commencement of the Term, no Fixed Rent or additional rent or other charges shall accrue or be payable, but otherwise such preoccupancy shall be subject to all the terms, covenants and conditions contained in this Lease.
9.2 PREPARATION OF PREMISES FOR OCCUPANCY.
Landlord shall perform the Landlord's Work and Tenant's Work, and, therefore, Landlord agrees to use diligent efforts to have the Premises ready for occupancy on the Scheduled Term Commencement Date.
Landlord and Tenant agree that time is of the essence, and Landlord agrees to use diligent efforts to accelerate construction to make up for time lost due to any delay. Unless sooner terminated by Tenant pursuant to the provisions of Section 9.2, the Term of this Lease shall commence on the date the entire Premises are deemed "ready for occupancy" as set forth below,
expressly excluding partial occupancy pursuant to Section 9.2.1 hereof (the "Term Commencement Date").
The Premises shall be deemed "ready for occupancy" on the earlier of:
(a) the date on which Tenant occupies all or any portion of the Premises for the Permitted Uses (occupancy under Section 9.1.2 shall not be deemed occupancy for purposes of this Section); or
(b) (1) the date on which the construction of all of the Landlord's
Work and the Tenant's Work is Substantially Completed, as defined below, and (2)
Landlord has delivered to Tenant a permanent certificate of occupancy from the
Town of Westford or a temporary certificate of occupancy from the Town of
Westford which allows Tenant to use and occupy the Premises, including in all
cases use of the elevator(s), and which temporary certificate of occupancy is
not conditional on the performance of any work other than the Punch List Work as
defined below, except that such permit shall not be required as a condition of
Substantial Completion if Landlord is unable to secure the same due solely to
Tenant's failure to complete Tenant's Construction Work as specified in Section
9.1.2 above (which such date, subject to additional terms and provisions of this
Section 9.2, shall hereinafter be referred to as the date of "Substantial
Completion" or which such work shall hereinafter be referred to as
"Substantially Completed"). In any event, notwithstanding the achievement of
Substantial Completion, all Punch List Work shall be completed by no later than
thirty (30) days after the date of Substantial Completion, except as hereinafter
provided.
An AIA Certificate of Substantial Completion by the Landlord's
architect, Tenant's Architect and satisfactorily reviewed by Tenant's Project
Manager (which such Certificate shall be in the form attached hereto as Exhibit
C-1) shall evidence the Landlord's determination that it has performed all such
obligations, except for completing the landscaping work and completing the final
paving course, and minor items stated in such Certificate to be incomplete or
not in conformity with such requirements, or will not unreasonably interfere
with Tenant's use or occupancy of the Premises and all of which work shall be
identified and specified in the Certificate of Substantial Completion
(collectively such landscaping work, finish paving course work and minor items
are referred to herein as the "Punch List Work") shall be promptly completed on
or prior to the date of Substantial Completion. Tenant shall have the right
within fifteen (15) days after Tenant's receipt of said Certificate of
Substantial Completion to notify Landlord of its disagreement with said
Certificate and to identify additional items of Punch List Work, all of which
shall be completed by Landlord within thirty (30) days after notice thereof from
Tenant. Landlord and Tenant hereby further agree that on the date of Substantial
Completion and following preparation of the list describing the Punch List Work,
the ten percent (10%) retainage previously applied and withheld by Tenant as
aforesaid shall be forwarded to Landlord, subject to the terms and provisions of
Section 9.1.1, less two hundred percent (200%) of the cost of completion of the
Punch List Work (which shall be retained by Tenant pursuant to the terms of this
Section 9.2), unless previously withheld by Tenant from the last Landlord's
requisition.
If weather materially and adversely interferes with Landlord's ability to finish the final course of paving and outside work or such other Punch List Work, which such work does not unreasonably interfere with Tenant's occupancy, and the operation of Tenant's business therein, said work can be completed by Landlord reasonably thereafter, so long as such delay does not and will not interfere with or prevent Landlord from obtaining a certificate of occupancy upon completion of all other work herein described.
After Landlord has completed all Landlord's Work and Tenant's Work, including all Punch List Work, Landlord's architect shall forward to Tenant its Certificate of Final Completion, such Certificate to be in the form attached hereto as Exhibit C-2 and to be satisfactorily reviewed by Tenant's Architect and Tenant's Project Manager, whereupon all amounts so withheld by Tenant hereunder as security for completion of the Punch List Work shall be promptly forwarded to Landlord. In addition, within sixty (60) days after completion of all such work, including all Tenant's Construction Work by Tenant, Landlord shall forward to Tenant a final, unconditional certificate of occupancy from the Town of Westford, exclusive of any days due to Tenant's Delay. In the event that Landlord fails to deliver the final, unconditional certificate of occupancy within said sixty (60) day time period and the Town of Westford has issued a cease and desist order (due solely to Landlord's responsibilities hereunder), then Tenant shall have, in addition to such cure rights described in Section 26.18(b) of this Lease, the right to abate one hundred percent (100%) of the Fixed Rent and additional rent due hereunder until such time as such certificate has been obtained, so long as Landlord has been provided with at least three (3) days prior written notice after issuance of such cease and desist order and Landlord has not provided such certificate to Tenant within said three (3) day period.
The phrase "Tenant's Delay" shall mean the aggregate number of days (excluding any days of delay caused by or resulting from Force Majeure) equal to the actual number of days that, notwithstanding its diligent and good faith efforts to complete construction by the Scheduled Term Commencement Date, the Landlord is delayed in completing its construction by the Scheduled Term Commencement Date due to (i) the failure of the Tenant to deliver the Tenant's Plans (or modifications thereto) to Landlord on the dates established pursuant to Section 9.1 hereof, or (ii) a delay caused by Tenant performing the Tenant's Construction Work pursuant to Section 9.1.2 hereof, or (iii) the number of Subcontractor Delay Days pursuant to Section 9.1.1 hereof, or (iv) a delay or stoppage requested in writing by Tenant, or (v) the number of Tenant Alteration Delay Days resulting from Change Orders requested by Tenant pursuant to Section 9.1 hereof, or (vi) the number of Tenant Plan Delay Day(s) pursuant to Section 9.1 hereof, then the Term Commencement Date shall be deemed to have occurred on the date, as certified in good faith by Landlord and its architect, that Substantial Completion would have occurred had there not occurred such Tenant's Delay, calculated by determining the number of days of Tenant's Delay as aforesaid, giving consideration to Landlord's obligation under the second paragraph of this Section 9.2 to accelerate to make up for time lost due to any delays. Landlord agrees to promptly provide Tenant with written notice of such Tenant's Delay promptly after the occurrence of such Tenant's Delay, such notice to include reasonable detail describing the cause of the delay as certified by Landlord's architect.
Notwithstanding the foregoing provisions, if the Premises are not deemed ready for occupancy on or before the Outside Delivery Date (as defined below) for whatever reason,
Tenant may elect (i) to cancel this Lease at any time thereafter while the Premises are not deemed ready for occupancy by giving notice to Landlord of such cancellation which shall be effective ten (10) days after such notice, unless within such ten (10) day period Landlord delivers the Premises ready for occupancy as defined herein, in which event such notice of cancellation shall be rendered null and void and of no further force or effect, or (ii) to enforce Landlord's covenants to construct the Premises in accordance with the terms of this Lease. In the event Tenant elects to enforce Landlord's agreement to construct the Premises in accordance with this Lease, Tenant shall also have the right to terminate this Lease if Landlord fails to complete the Premises within the period of time set by any court of competent jurisdiction for such work to be completed, or within such additional period of time from the date of Landlord's default as may be mutually agreed to by Landlord and Tenant. Further, notwithstanding any provisions of this Lease to the contrary, in the event that the Premises are not deemed ready for occupancy on or prior to such date which is sixty (60) days following the Scheduled Term Commencement Date (as such date may be extended for reasons due to Force Majeure and/or to Tenant's Delay), then the Tenant may elect to receive from Landlord as liquidated damages an abatement of Fixed Rent (following commencement of rental obligations pursuant to Section 4.1 hereof) equal to one hundred percent (100%) of the daily Fixed Rent and additional rent for each day the Tenant's Work and Landlord's Work is not Substantially Completed sixty (60) days beyond the Scheduled Term Commencement Date (as extended as aforesaid). In addition, in the event that the Premises are not deemed ready for occupancy by the Scheduled Term Commencement Date (as such date may be extended as aforesaid), Landlord agrees to use best efforts to provide Tenant with "swing space" until the Premises are Substantially Completed, such space to be leased to Tenant on such terms to be mutually agreed upon by the parties. The foregoing remedies shall be Tenant's sole and exclusive remedies for not having the Premises completed on or before the Outside Delivery Date.
For purposes hereof, the Outside Delivery Date shall be deemed to refer
to that certain date which is ninety (90) days following the Scheduled Term
Commencement Date, as such date may be extended for a period equal to that of
(i) any delays due to Force Majeure as defined in Section 9.5 hereof, (ii) the
number of delay days caused by a Tenant's Delay as hereinbefore determined.
9.2.1 PARTIAL OCCUPANCY AND RENT COMMENCEMENT.
If the entire Premises are not ready for occupancy on the Scheduled Term Commencement Date, the Tenant may elect, but shall have no obligation to, occupy any portion or portions of the Premises which are ready for occupancy when, in Landlord's opinion, it can be done without material interference with remaining work. In such event, Tenant agrees not to materially interfere with Landlord's construction of the Premises. In the event Tenant elects to take occupancy of a portion of the Premises, that portion shall be deemed ready for occupancy as to said portion on the date of occupancy of such portion and Tenant's obligation to pay Fixed Rent and additional rent shall commence on said date pro rata based on the square footage occupied compared to the total square footage in the Premises. The foregoing provisions of this Section 9.2.1 shall not apply to the rights of Tenant set forth in Section 9.1.2 hereof.
9.3 GENERAL PROVISIONS APPLICABLE TO CONSTRUCTION
All construction work required or permitted by this Lease, whether by Landlord or by Tenant (or their respective subcontractors), shall be done in a good and workmanlike manner and in compliance with all applicable laws and all lawful ordinances, regulations and orders of governmental authority and insurers of the Building. Either party may inspect the work of the other at reasonable times and shall promptly give notice of observed defects. Notice of said defects shall be in writing and shall be rectified by Landlord or Tenant, as the case may be, within thirty (30) days of the original date of notice. Failure to provide notice hereunder shall not be the basis for any liability or for injury or damage caused by such defect of or waiver of right to cause any defect to be corrected.
9.4 REPRESENTATIVES
Landlord hereby acknowledges and agrees that only the following persons, David Sommers, or any successors to either of them holding the same title or any other person delegated the authority from either of them in writing (hereinafter "Tenant's Construction Representatives") have the authority to act on Tenant's behalf and represent Tenant's interest with respect to all matters requiring Tenant's action in this Article. No consent, authorization or other action by Tenant with respect to matters set forth in this Article shall bind Tenant unless in writing and signed by one of the aforementioned persons. Landlord hereby expressly recognizes and agrees that no other person claiming to act on behalf of Tenant is authorized to do so. If Landlord complies with any request or direction presented to it by anyone claiming to act on behalf of Tenant who does not have the title and position mentioned above, such compliance shall be at Landlord's sole risk and responsibility and shall not in any way alter or diminish the obligations and requirements created and imposed by this Article, and Tenant shall have the right to enforce compliance with this Article without suffering any waiver or abrogation of any of its rights hereunder. All actions requiring Tenant's Architect's review and/or certification shall be subject to Tenant's Project Manager's satisfactory review and reasonable approval. For purposes of this Article IX, the term "Tenant's Project Manager" shall refer to Albert M. Livermore.
Tenant hereby acknowledges and agrees that only the following persons, Arturo J. Gutierrez, John A. Cataldo, Dennis G. Bailey or P. Agustin Rios or any successors to either of them holding the same title or any other person delegated the authority from either of them in writing (hereinafter "Landlord's Construction Representatives") have the authority to act on Landlord's behalf and represent Landlord's interests with respect to all matters requiring Landlord's action in this Article. No consent, authorization or other action by Landlord with respect to matters set forth in this Article shall bind Landlord unless in writing and signed by one of the aforementioned persons. Tenant hereby expressly recognizes and agrees that no other person claiming to act on behalf of Landlord is authorized to do so. If Tenant complies with any request or direction presented to it by anyone claiming to act on behalf of Landlord who does not have the title and position mentioned above, such compliance shall be at Tenant's sole risk and responsibility and shall not in any way alter or diminish the obligations and requirements created and imposed by this Article, and Landlord shall have the right to enforce compliance with this Article without suffering any waiver or abrogation of any of its rights hereunder.
9.5 FORCE MAJEURE.
As used in this Article and elsewhere in the Lease, "Force Majeure"
shall mean a time extension equal to that of any delays when the party required
to perform the respective obligation is prevented from doing so, despite the
exercise of reasonable diligence, and such delay is caused by: (i) Acts of God,
(ii) changes in government regulations, (iii) casualty, (iv) strike or other
such labor difficulties, (v) unusual weather conditions, (vi) unusual scarcity
of or inability to obtain supplies, parts or employees to furnish such services,
or (vii) other acts reasonably beyond Landlord's control despite diligent
efforts to cure the same, but in no event shall the term include economic or
financing difficulties. Landlord shall provide Tenant with written notice of the
occurrence of a Force Majeure event promptly after the occurrence thereof, and
shall comply with its respective obligations) as soon as the cause for the delay
has (have) been eliminated.
9.6 ARBITRATION BY ARCHITECTS.
Whenever there is a disagreement between the parties with respect to construction by Landlord of Landlord's Work or Tenant's Work, such disagreement shall be definitively determined by the following procedure: Each of Landlord and Tenant shall appoint one (1) independent architect (which such architect may be Landlord's Architect and Tenant's Architect referenced in Section 9.1 above), such two (2) architects will then (within five (5) days of their appointment) appoint a third independent architect licensed in the Commonwealth of Massachusetts with not less than ten (10) years experience. Each architect shall establish within ten (10) days of their appointment the matter in dispute. In case of any dispute with respect to dollar amounts or lengths of time or dates such as the date of Substantial Completion, the dollar amount or length of time or date shall be the average of the two closest determinations by the three (3) architects, with the determination of the architect which was not closest to another architect's determination excluded from such calculation. In case of any dispute not involving dollar amounts or lengths of time or dates (i.e. the approval of plans) the determination by at least two (2) of the three (3) architects shall be required in order to resolve the matter in dispute. Landlord and Tenant shall each bear the cost of the architect selected by them respectively and shall share equally the cost of the third architect. During such arbitration period, the parties agree to cooperate with one another so as to proceed with construction and with their respective obligations hereunder in a timely manner. Each determination under this Section 9.6 shall be binding upon Landlord and Tenant.
9.7 WARRANTY OF LANDLORD'S WORK AND TENANT'S WORK.
Landlord hereby warrants and guarantees, at no extra cost to Tenant, that the Landlord's Work and the Tenant's Work shall be free from defects in workmanship and materials for a period of one (1) year after the Term Commencement Date. Upon the expiration of said one (1) year period and except as provided in Section 6.1 to the contrary and/or except as relating to a Landlord repair, replacement and maintenance obligation set forth in said Section 6.1, including without limitation roof, glass and exterior wall warranties, Landlord shall assign to Tenant any and all warranties and guarantees with respect to Landlord's Work and Tenant's Work and, to the extent that any such warranties and guarantees are not assignable, Landlord agrees to enforce the same for the benefit of Tenant, at Tenant's sole cost and expense. Tenant shall not be
responsible to pay for any such warranties of less than one (1) year duration or enforcement by Landlord against its own employees or against Gutierrez Construction Co., Inc. or against any of its other affiliates (including their respective employees). Landlord agrees to repair, at its sole cost and expense any defects in Landlord's Work or Tenant's Work promptly after receipt of notice therefrom from Tenant, provided that such notice from Tenant is received by Landlord within said one (1) year period. In connection therewith, Tenant shall notify Landlord promptly after it becomes aware of any such defects. Any repairs or replacements or alterations to Landlord's Work or Tenant's Work after said initial one (1) year period shall be chargeable to Tenant in accordance with and subject to the provisions of Section 5.1 hereof.
ARTICLE X
COMPLIANCE WITH LAW
10.1 TENANT COMPLIANCE - Tenant shall comply, at Tenant's sole expense, with all applicable laws, ordinances, regulations and orders of any governmental authority (collectively "the Laws") if such compliance is necessitated by reason of Tenant's actual use of the Premises, which use shall in any event be in conformity with the Permitted Uses as specified in Section 1.1 of this Lease. Except for Tenant's obligations under the preceding sentence, Landlord shall comply with all Laws applicable to the Building, the Lot or the Office Park.
10.2 NOTICE - Tenant shall have the right upon giving notice to Landlord to contest any obligation imposed upon Tenant pursuant to the provisions of this Article and provided the enforcement of such requirement or law is stayed during such contest and such contest will not subject the Landlord to criminal penalty or jeopardize the title to the Premises or otherwise affect the Premises in any material adverse way. Landlord and Tenant shall each cooperate with the other in any such contest and shall execute any documents reasonably required in the furtherance of such purpose.
ARTICLE XI
ALTERATIONS, ADDITIONS AND IMPROVEMENTS
11.1 ALTERATIONS - Tenant may, from time to time, at its own cost and expense and without the consent of Landlord, make non-structural non-roof alterations, additions or improvements to the interior of the Premises (collectively herein called "Alterations") whose cost in any one instance is Fifty Thousand and 00/100 Dollars ($50,000.00) or less, provided Tenant first notifies Landlord in writing of any such Alterations. If Tenant desires to make any nonstructural non-roof Alterations costing in excess of Fifty Thousand and 00/100 Dollars ($50,000.00) in any one instance or any other alteration, Tenant must first obtain the consent of Landlord thereto, which consent shall not be unreasonably withheld, conditioned or delayed. In the instances where Landlord consent is required above, if Landlord reasonably concludes that the Alterations involve any construction, alterations or additions requiring unusual expense to readapt the Premises so that the Premises can be used for the Permitted Uses as defined in this Lease on the Term Expiration Date, then Landlord shall require by written notice to Tenant at the time of approval that such readaptation will be made prior to such Term Expiration Date without expense to Landlord.
If Tenant desires to make any structural or roof alterations to the Premises, Tenant must first obtain the consent of Landlord thereto. If Landlord consents to alterations affecting such structural components or the roof, Landlord shall be relieved of further maintenance and repair responsibility for the structural components affected by such alterations, and Tenant shall assume such responsibility, with respect to that portion of the structural components (in its entirety), if any, to which the consent relates, except that Landlord agrees upon request of Tenant to have such alterations be performed by Landlord or a contractor hired by Landlord, at Tenant's expense, in which event Landlord shall not be relieved of any responsibility it may have to the component to be altered.
If Tenant desires to make any alterations to the precast panels, or to the exterior of the Building or Lot, Tenant must first obtain the prior written consent of Landlord thereto, which may be withheld in Landlord's sole discretion.
Any and all such Alterations may be done by any general contractor chosen by Tenant provided any such general contractor is reputable, bondable by reputable bonding companies, carries the kind of insurance and in the amounts set forth in Section 11.5 below. Notwithstanding the foregoing, no such bonding is required for non-structural, non-roof Alterations.
11.2 LANDLORD PERFORMANCE OF ALTERATIONS - If Tenant, in its sole discretion, wishes Landlord to perform the work of making Alterations for Tenant, other than the Tenant's Work to be completed under Article IX, such work shall be performed at actual cost, plus a fee of fifteen (15%) percent.
11.3 TENANT PERFORMANCE OF ALTERATIONS - Tenant in making any Alterations shall cause all work to be done in a good and workmanlike manner using materials equal to or better than those used in the construction of the Tenant's Work and shall comply with or cause compliance with all laws and with any direction given by any public officer pursuant to law. Tenant shall obtain or cause to be obtained and maintain in effect, as necessary, all building permits, licenses, temporary and permanent certificates of occupancy and other governmental approvals which may be required in connection with the making of the Alterations. Landlord shall cooperate with Tenant in the obtaining thereof and shall execute any documents reasonably required in furtherance of such purpose, provided any such cooperation shall be without expense and/or liability to Landlord.
11.4 REMOVAL OF ALTERATIONS - At any time during the Term of this Lease, or on the Term Expiration Date, Tenant may remove any Alterations made, unless Landlord has indicated in writing at the time of approval of such Alterations that such Alterations are required to remain on the Premises. In the event of a removal of any Alterations by Tenant, Tenant shall, at its sole cost, repair any damage to the Premises caused by such removal.
11.5 GENERAL PROVISIONS - At least annually if such Alterations have occurred during the past calendar year, Tenant shall furnish to Landlord as-built sepias and, if applicable, operating manuals, of the work done by Tenant during such past year and copies of all permits issued in connection therewith for all of Tenant's Alterations, whose cost in any one instance is in excess of Fifty Thousand and 00/100 Dollars ($50,000.00). All of such construction drawings
must be prepared at Tenant's expense by an architect or engineer approved by the Landlord and Landlord's engineer, which approval shall not be unreasonably withheld or delayed. Landlord and Tenant shall initial the construction drawings after the same have been submitted by Tenant to Landlord and approved by Landlord. All of Tenant's Alterations which cost in any instance is in excess of Fifty Thousand and 00/100 Dollars ($50,000.00), shall be constructed by a reputable general contractor, and Landlord may require that the electrical, heating ventilation and air conditioning, and sprinkler subcontractors be approved by Landlord, such approval not to be unreasonably withheld or delayed.
Tenant shall have its contractor procure and maintain in effect during the term of such Alterations, the following insurance coverages with an insurance company or companies authorized to do business in the Commonwealth of Massachusetts.
(a) Worker's Compensation and Occupational Disease Insurance in accordance with the laws of the Commonwealth of Massachusetts, along with a "All States" and "Voluntary Compensation" coverage endorsement.
(b) Employer's Liability insurance with a limit of $100,000.00 per person per accident, $100,000.00 per person by disease, and $500,000.00 per policy by disease.
(c) Comprehensive General Liability including Personal Injury and Property Damage in the amount of a combined single limit of $2,000,000.00 each occurrence. Coverage must include the following:
(1) premises - operations;
(2) elevators and hoists;
(3) independent contractor;
(4) contractual liability assumed under this contract.
(d) Comprehensive Auto Liability including Personal Injury and Property Damage in the amount of a combined single limit of $500,000.00 each occurrence. Coverage must include the following:
(1) owned vehicles;
(2) leased vehicles;
(3) hired vehicles;
(4) non-owned vehicles.
(e) Owner and Contractor Protective Liability including Personal Injury and Property Damage in the amount of a combined single limit of $1,000,000.00 each occurrence.
ARTICLE XII
TENANT'S COVENANTS
12.1 MAINTENANCE AND REPAIR - Except as provided in Section 6.1 with respect to maintenance, repair and other such obligations of Landlord and Article XIII with respect to
repair and restoration of damage or destruction arising out of a fire or other
casualty or the exercise of eminent domain, and except as to reasonable wear and
tear, Tenant shall: keep the Premises and all fixtures thereon and therein in
good repair, operating condition and working order; make and perform or cause to
be made or performed all interior maintenance, repairs, and replacements
necessary to keep the Premises in such condition, including, without limitation,
by their inclusion, interior repainting, and replacement of glass damaged or
broken and of floor and wall coverings worn or damaged; keep all roof drains
clear of blockage by snow and other obstructions or debris; except for Capital
Replacements (except as otherwise set forth in Section 6.1), keep all plumbing,
lighting, elevator, heating, ventilating, air conditioning and other utility and
mechanical systems in the Premises properly maintained and operating in good
operating condition; and except for Capital Replacements (except as otherwise
set forth in Section 6.1), properly maintain the plumbing, lighting, elevator,
heating, ventilating, air conditioning and other utility and mechanical systems
in accordance with any manufacturers warranty and product standards with fully
licensed contractors and under contracts, each reasonably acceptable to
Landlord, qualified to perform the service. Landlord and its agents reserve the
right to inspect the systems to insure proper maintenance in accordance with
Section 12.3 of this Lease. If Landlord, in Landlord's reasonable judgment,
determines such systems have not been properly and adequately maintained, as
herein required, then Landlord, after written notice to Tenant and the
expiration of the applicable grace period, shall have the right to remedy such
maintenance deficiency and apportion all reasonable costs of such inspections
and maintenance to Tenant's Common Area Maintenance Costs specified in Article
V, Landlord and Tenant hereby agreeing that written notice or grace period not
to be applicable in case of emergency with respect to persons or property.
Tenant further covenants to (i) neither commit nor suffer waste and
(ii) at the expiration or termination of this Lease peaceably to yield up the
Premises in such order, repair and condition as Tenant is required to maintain
hereunder, first removing all goods and effects of Tenant which Tenant is
required to remove or which Tenant is permitted to remove and desires to remove
and (iii) to repair all damage caused by such removal leaving the Premises clean
and neat and in a condition as required under the terms of this Lease. Any
property not so removed by Tenant shall be deemed abandoned and may be removed
by Landlord, at Tenant's cost.
12.2 SIGNS - Tenant shall not, without the prior written consent of Landlord, which consent shall not be unreasonably withheld, conditioned or delayed (but may be withheld in Landlord's sole discretion if Tenant (or any permitted assignee or subtenant) is not leasing or subleasing and occupying at least seventy-five percent (75%) of the Building), (a) paint, place or replace any signs on the Lot or the Premises or anywhere on the exterior of the Building (notwithstanding the provisions of Section 11.1 to the contrary), or (b) place any curtains, blinds (other than standard vertical blinds), shades, awnings, or flagpoles, or the like, in the Premises or anywhere on or in the Building visible from outside the Building. Tenant shall pay the expenses involved in the erection of any sign and of obtaining permits therefor. Except as otherwise provided below with respect to initial Building signage, Tenant warrants that it shall obtain (and furnish copies thereof to Landlord) all necessary permits and approvals in compliance with local codes and ordinances prior to erecting any such sign(s) and, at Landlord's request, Tenant shall remove said sign(s) upon the termination of this Lease.
In connection with Tenant's initial Building signage, Landlord shall use reasonable efforts to obtain, on Tenant's behalf, all necessary permits and approvals required pursuant to local codes and ordinances for the building and site signage (i.e., up to two (2) wall signs on the Building and up to two (2) monument signs providing for Tenant's identity at the entrances of the Office Park, the location of which shall be mutually agreed upon by Landlord and Tenant) set forth and described in Exhibit O hereto. Tenant's signage on the Building shall be exclusive until such time as Tenant (or any permitted assignee or subtenant) fails to lease, sublease and/or occupy at least seventy-five percent (75%) of the Building. Tenant shall reimburse Landlord for the actual third-party reasonable costs and expenses incurred by Landlord in connection with obtaining said permits and approvals, including reasonable attorneys' fees and disbursements. Tenant agrees to cooperate with Landlord during the permitting process by (i) promptly executing the necessary documentation reasonably requested by Landlord, and (ii) by furnishing the same to Landlord promptly upon Landlord's request, but in no event later than seven (7) days following Landlord's request. Further, the construction and erection of the Building signage shall be Tenant's sole responsibility and at Tenant's sole cost and expense. In the event that Tenant elects to expand the Premises, as set forth in Exhibit J attached hereto, Tenant shall also have the right to up to two (2) additional monument signs and up to two (2) additional wall signs on the Expansion Space and/or Modified Expansion Space, as applicable, subject to the aforesaid provisions. It is hereby acknowledged and agreed to by Landlord and Tenant that the cost of the base for such monument signs shall be borne by Landlord as provided in Exhibit B-2, Section 2B.
12.3 ENTRY AND INSPECTION - Tenant shall permit Landlord and Landlord's agents and invitees at reasonable times and upon reasonable advance notice except in emergency in which case notice may be given by telephone or in person, during Tenant's regular business hours: to examine the Premises; and, if Landlord shall so elect, to exercise its rights and perform its obligations under this Lease; to show the Premises to prospective purchasers, prospective or actual mortgagees, and prospective or actual institutional investors; and, at any time within twelve (12) months preceding the expiration of the Term, to show the Premises to prospective tenants, and to affix to any suitable part of the exterior of the Building and/or the Premises, but not so as to interfere unreasonably with any of the signs or the windows of the Tenant, a notice to letting or selling the Premises, and to keep the same so affixed without hindrance; provided, however, Landlord shall not unreasonably interfere with Tenant's use or occupancy of the Premises.
12.4 MISCELLANEOUS - Tenant agrees during the Term and so long as Tenant's occupancy continues:
(a) Not to permit its employees and officers to use any parking spaces other than those described in Exhibit A and in Section 2.1 of this Lease, and to make every reasonable effort to keep its invitees from using any spaces other than those on the Lot; any governmental charges or surcharges or other monetary obligations imposed by a governmental agency relative to parking rights with respect to the Premises shall be considered as a Tax Expense and shall be payable by Tenant in the manner and to the extent provided under the provisions of Article V, subject to the Tenant's right to contest the same at Tenant's expense in good faith and by appropriate proceedings.
(b) Not to injure or deface the Premises, or Lot; and not to permit in the Premises any public auction, nuisance or the emission from the Premises of any objectionable noise or odor, nor any use thereof which is contrary to law or ordinances (subject to the provisions of Article X hereof) or liable to invalidate or materially increase the premiums for any insurance on the Building or its contents, Landlord hereby agreeing that, as of the Term Commencement Date the Permitted Uses will not, and thereafter during the Term, to the best of Landlords knowledge, the Permitted Uses specified hereunder shall not, cause an increase in premiums paid on such insurance carried by Landlord hereunder.
(c) In case Landlord shall, without any fault on its part, be made party to any litigation commenced by or against Tenant or by any party claiming under Tenant, to pay, as additional rent, all actual third party reasonable costs including, without implied limitation, reasonable counsel fees incurred by or imposed upon Landlord in connection with such litigation, and, as additional rent, also to pay all such reasonable costs and fees incurred by Landlord in connection with the successful enforcement by Landlord of any obligations of Tenant under this Lease.
12.5 SAFETY APPLIANCES - Tenant agrees to keep the interior of the Building equipped with all safety appliances, required by law or ordinance or any other regulation of any public authority and to procure all licenses and permits so required because of the Permitted Uses.
12.6 LOADING - Tenant covenants and agrees not to place a load upon the Premises exceeding 100 pound load per square foot of floor area above the first floor of which the Premises are constructed, and 200 pounds live load per square foot of floor area for at grade slab. In addition, Tenant agrees not to move any safe, vault or other heavy equipment in, about or out of the Premises except in such a manner which complies with the foregoing load limits. Tenant's business machines and mechanical equipment which cause vibration or noise that may be transmitted to the Building structure shall be placed and maintained by Tenant in settings of cork, rubber, spring, or other types of vibration eliminators sufficient to eliminate such vibration or noise.
12.7 LABOR OR MATERIALMEN'S LIENS - Tenant covenants and agrees not to cause or permit any liens for labor or materials performed or furnished at the request of Tenant or its agents, employees or contractors to attach to the Premises, or in the event of any such lien so attached to the Premises, Tenant, within fifteen (15) days after receiving notice of such lien, shall discharge or bond over any such liens which may so attach. Tenant may contest any such lien in good faith at Tenant's sole expense and by appropriate proceedings so long as the Landlord's interest in the Premises is not jeopardized.
12.8 RULES AND REGULATIONS - Tenant agrees to comply with the Rules and regulations set forth in Exhibit D hereof and all other reasonable Rules and Regulations of general applicability to tenants and owners of other lots in the Office Park, hereafter made by Landlord, of which Tenant has been given advance written notice, for the care and use of the Premises, the Building, the Common Areas and the Office Park and approaches as further described in the Office Park Covenants attached hereto as Exhibit E. Such Rules and Regulations shall not
unreasonably interfere with Tenant's use or occupancy of the Premises, and to the extent any such Rules and Regulations conflict with this Lease, this Lease shall control. Landlord shall enforce all such Rules and Regulations uniformly against all tenants.
12.9 TENANT'S COVENANTS
(a) Tenant has the power and authority to enter into this Lease and perform the obligations of Tenant hereunder. This Lease and all other documents executed and delivered by Tenant constitute legal, valid, binding and enforceable obligations of Tenant.
(b) Tenant covenants to pay when due all Fixed Rent and additional rent due under this Lease and to pay directly to the utility provider (if not payable to Landlord), all charges by public utility for telephone and other utility services rendered to the Premises.
(c) This Lease document is a confidential document by and between Landlord and Tenant and Tenant agrees that this Lease shall not be copied and distributed or circulated to any person(s) other than to such parties, and their respective mortgagees, successors or assigns, their legal counsel or their accountants or to any prospective sublessees and assignees or affiliates of Tenant, or to any prospective acquirers, investors, or lenders of Tenant, or to regulatory authorities, or to the directors, shareholders or officers of Tenant, consultants and contractors of Tenant (to the extent required for them to adequately perform their duties) or as required by law, without the prior written consent of Landlord. Nothing contained in this Section shall prohibit the disclosure by Tenant of the essential terms of this Lease.
ARTICLE XIII
CASUALTY AND CONDEMNATION
13.1 CASUALTY - In case during the Term all or any substantial part (i.e. requiring greater than twelve (12) months to rebuild, as reasonably determined by Landlord's architect) of the Premises is damaged by fire or any other casualty ("Substantial Casualty"), then this Lease shall, except as hereinafter provided, terminate at Landlord or Tenant's election, which may be made by written notice given to the other party within thirty (30) days after the casualty, which notice of termination shall specify the effective date of termination which shall not be more than sixty (60) days after the date of receipt of notice of such termination. In the event of any such Substantial Casualty, the Fixed Rent and additional rent shall be abated entirely as of the date of such casualty. In the event of any fire or casualty to the Premises, unless the Lease is so terminated, Landlord shall with reasonable diligence, repair, replace and restore the Premises into substantially the same condition as it was prior to the casualty for use and occupation to the extent of the proceeds of insurance, less adjuster's fees, and other reasonable expenses of collection plus insurance deductibles to be paid by Tenant as hereunder provided. However, if such damage is not repaired and the Premises restored to substantially the same condition as it was prior to such damage within a period of twelve (12) full calendar months from the date of such damage, Tenant within thirty (30) days from the expiration of such period or from the expiration of any extension thereof pursuant to the terms hereof may terminate this Lease by notice to Landlord, specifying a date not more than sixty (60) days after the giving of such notice on which the term of this Lease shall terminate. The period within which the required repairs
may be accomplished shall also be extended by the number of days lost as a result of unavoidable delays, which term shall be defined to include all delays referred to as Force Majeure in Section 9.5 up to a maximum period of sixty (60) days, and by the number of days lost as a result of Tenant's Delay (as defined in Section 9.2 hereof). Tenant shall, in any fire or other casualty which creates a Landlord repair obligation in accordance with the terms of this Article, upon receipt of written notice and supporting back up documentation, pay to Landlord prior to Landlord commencing construction of such repair, the then applicable insurance deductible. In addition, Tenant shall pay Fixed Rent as required by this Lease for any portion of the Term not covered by rent insurance as required to be obtained by Landlord in Section 15.1.
If the Premises shall be damaged by fire or other casualty, the Fixed Rent and other charges payable by Tenant under this Lease shall abate or be reduced proportionately for the period in which, by reason of such damage, there is substantial interference with Tenant's use and/or occupancy of the Premises. Such abatement or reduction shall end, if and when, Landlord shall have restored the Premises to substantially the same condition in which the Premises were prior to such damage.
13.2 ADDITIONAL CASUALTY PROVISIONS
(a) Landlord shall not be required to repair or replace any of Tenant's business machinery, equipment, cabinet work, furniture, personal property and no damages, compensation or claim shall be payable by Landlord for inconvenience, loss of business or annoyance arising from any repair or restoration of any portion of the Premises, necessitated by a fire or other casualty; provided, however, Landlord shall use reasonable efforts not to interfere with Tenant's use and occupancy of the Premises.
(b) In the event of any termination of this Lease pursuant to this Article XIII, the Term of this Lease shall expire as of the effective termination date as fully and completely as if such date were the date herein originally scheduled as the Term Expiration Date. Tenant shall have access to the Premises at Tenant's sole risk for a period of thirty (30) days after the date of termination in order to remove Tenant's personal property except as prohibited by any applicable governmental agency or official.
13.3 CONDEMNATION/EMINENT DOMAIN - In the event that the whole or substantially all of the Building shall be permanently taken or appropriated by eminent domain or shall be condemned for any public or quasi-public use, then (and in any such event) this Lease and the Term hereof shall automatically be terminated as of the effective date of such taking, appropriation or condemnation.
In the event that more than a material part (i.e. greater than thirty percent (30%)) of the floor area of the Premises, or any material part of the means of access ( "material" in the case of access shall mean so as to substantially interfere with the use of the Premises), or any material parking ("material" in the case of parking shall mean the reduction of parking spaces to less than three and three tenths(3.3) parking spaces per one thousand (1,000) square feet of Premises), shall be so taken, appropriated or condemned for a period in excess of one (1) year, then (and in any such event) this Lease and the Term hereof may be terminated at the election of Tenant by a
notice in writing to Landlord of its election so to terminate within sixty (60) days following the effective date of such taking, appropriation or condemnation. With respect to reductions in parking, Landlord may suspend the effectiveness of such notice by giving its own notice to Tenant within five (5) days of receipt of Tenant's notice that Landlord shall either (i) remove the impairment to Tenant's use of the Premises by repairing the Premises as soon as practicable, or (ii) provide substitute parking spaces equal to the number taken within reasonable proximity to the Premises within a reasonable time period, it being agreed that reasonable time includes weather - related delays associated with winter and spring site work and paving.
In the event of any such termination, this Lease and Term hereof shall expire as of the date specified in such notice of termination from Tenant, which date shall not be more than sixty (60) days after the date of such notice, as fully and completely as if such date were the date herein originally scheduled as the Term Expiration Date. If this Lease is not terminated as above set forth, Landlord shall, with reasonable diligence and up to the amount of the award, restore the remainder of the Premises, and the remainder of the means of access, as nearly as practicably may be to the same condition as obtained prior to such taking, appropriation or condemnation in which event (i) a just proportion of the Fixed Rent and additional rent, according to the nature and extent of the taking, appropriation or condemnation and the resulting permanent injury to the Premises and the means of access thereto and parking shall be permanently abated, and (ii) a just proportion of the remainder of the Fixed Rent and additional rent, according to the nature and extent of the taking, appropriation or condemnation and the resultant injury sustained by the Premises and the means of access thereto and parking shall be abated until what remains of the Premises and the means of access thereto and parking, shall have been restored as fully as may be for permanent use and occupation by Tenant hereunder.
13.4 RESERVATION OF AWARD - Landlord reserves to itself any and all rights to receive awards made for damages to the Premises, Building or Lot and the leasehold hereby created, or any one or more of them, accruing by reason of exercise of eminent domain and Tenant hereby releases and assigns to Landlord all Tenant's rights to such awards, and covenants to deliver such further assignments and assurances thereof as Landlord may from time to time request. It is understood and agreed, however, that Landlord does not reserve to itself, and Tenant does not assign to Landlord, any damages payable for (i) Tenant's Property as defined in Section 18.1 of this Lease, or (ii) relocation expenses recoverable by Tenant from such authority in a separate action.
ARTICLE XIV
RIGHTS OF MORTGAGEES
14.1 PRIORITY OF LEASE - Landlord shall use good faith, diligent efforts to provide to Tenant a Subordination Non- Disturbance and Attornment Agreement (in the form attached as Exhibit G-1) from any present holder (a "Mortgagee") of any mortgage (a "Mortgage") and/or a Recognition Agreement (in the form attached as Exhibit G-2) from any ground lessor now affecting the Premises. Landlord shall use good faith, diligent efforts to obtain from any future Mortgagee and any future lessor under any ground lease or superior lease affecting the Premises, a Subordination, Non-Disturbance and Attornment Agreement or Recognition Agreement, as applicable (substantially in the form attached as Exhibit G-1 and Exhibit G-2, respectively, or in
such other form as may be reasonably acceptable to Tenant, Landlord and such Mortgagee or ground lessor, as applicable). Provided that Landlord has delivered to Tenant such a Subordination, Non-Disturbance and Attornment Agreement from each such present or future Mortgagee this Lease shall be subject and subordinate to the lien of any Mortgage of the Landlord's leasehold interest in the Lot and the Premises.
14.2 LIMITATION ON MORTGAGEE'S LIABILITY - Upon entry and taking possession of the Premises for any purpose, the holder of a Mortgage and/or ground lessor, as applicable, shall have all rights of Landlord and, during the period of such possession or ownership, the duty to perform all Landlord's obligations hereunder. Except during such period of possession, no such holder shall be liable, either as mortgagee or as holder of a collateral assignment of this Lease, to perform, or be liable in damages for failure to perform, any of the obligations of Landlord, unless and until such holder shall enter and take possession of the mortgaged premises for the purpose of foreclosing a Mortgage. Upon entry for the purpose of foreclosing a Mortgage, such holder shall be liable to perform all of the obligations of Landlord accruing after said entry, provided that a discontinuance of any foreclosure proceeding shall terminate the liability of the holder as Landlord.
14.3 NO PREPAYMENT OR MODIFICATION, ETC. - No Fixed Rent, additional rent, or any other charge shall be paid more than thirty (30) days prior to the due dates thereof, and payments made in violation of this provision shall (except to the extent that such payments are actually received by a Mortgagee in possession or in the process of foreclosing its mortgage) be a nullity as against such Mortgagee, and, Tenant shall be liable to such Mortgagee for the amount of such advance payments made from and after a default under the applicable Mortgage. No agreement to modify this Lease so as to reduce the rent, reduce the area of the Premises, shortens the Term, or otherwise materially impairs the rights of Mortgagee shall be binding unless consented to in writing by Landlord's Mortgagee(s) of record, if any.
14.4 NO RELEASE OF TERMINATION - No act or failure to act on the part
of Landlord which would entitle Tenant under the terms of this Lease, or by law,
to be relieved of Tenant's obligations hereunder or to terminate this Lease,
shall result in a release or termination of such obligations or a termination of
this Lease unless (i) Tenant shall have first given written notice of Landlord's
act or failure to act to Landlord's Mortgagees of record, if any, of which
Landlord has given written notice to Tenant of their name and address,
specifying the act or failure to act on the part of Landlord which could or
would give a basis to Tenant's rights and (ii) such Mortgagee(s), after receipt
of such notice, have failed or refused to correct or cure the condition
complained of within a reasonable time thereafter, but nothing contained in this
Section 14.4 shall be deemed to impose any obligation on any such Mortgagee to
correct or cure any such condition. "Reasonable time" as used above means and
includes a reasonable time to obtain possession of the mortgaged premises, if
the Mortgagee elects to do so, and a reasonable time to correct or cure the
condition if such condition is determined to exist, however, in no event shall
such time extend beyond sixty (60) days from the date Tenant provides notice to
Landlord's Mortgagee(s) as aforesaid.
14.5 MORTGAGEE'S ELECTION - Notwithstanding any other provision to the contrary contained in this Lease, if prior to the Substantial Completion of Landlord's obligations under
Article IX, any holder of a first mortgage on the mortgaged premises enters and takes possession thereof for the purpose of foreclosing the mortgage, such holder may elect, by written notice given to Tenant and Landlord at any time within thirty (30) days after such entry and taking of possession, not to perform Landlord's obligations under Article IX, and in such event such holder and all persons claiming under it shall be relieved of all obligations to perform, and all liability for failure to perform, said Landlord's obligations under Article IX, and Tenant may terminate this Lease and all its obligations hereunder by written notice to Landlord and such holder given within thirty (30) days after the day on which such holder shall have given its notice as aforesaid.
14.6 CONTINUING OFFER - The covenants and agreements contained in this Lease with respect to the rights, powers and benefits of a Mortgagee (particularly, without limitation thereby, the covenants and agreements contained in this Article XIV) constitute a continuing offer to any person, corporation or other entity, which by accepting or requiring an assignment of this Lease or by entry or foreclosure assumes the obligations herein set forth with respect to such Mortgagee, and such Mortgagee shall be entitled to enforce such provisions in its own name.
14.7 SUBMITTAL OF FINANCIAL STATEMENT - At any time, but not more than annually during the Term of this Lease, within fifteen (15) days after request therefor by Landlord (i.e. if requested by Landlord's Mortgagee(s)), Tenant shall supply to Landlord and/or any Mortgagee of Landlord a current financial statement, which such financial statement may be given by Tenant to Landlord in the form of Tenant's current annual report, or such other then publicly available financial information as may be reasonably required by any such party.
ARTICLE XV
INSURANCE
15.1 INSURANCE - Landlord shall procure and continue in force during the construction of the Landlord's Work and Tenant's Work, Builders Risk insurance (in commercially reasonable amounts given the size and scope of Landlord's Work and Tenant's Work hereunder) whereby Tenant shall be named additional insured. In addition, Landlord shall procure and continue in force during the Term and the Extended Term(s) hereof, at Tenant's expense payable in the manner set forth in Article V, fire and extended coverage insurance, including vandalism, sprinkler leakage, and malicious mischief, upon the Building on a full replacement basis, agreed value endorsement with agreed values for the Building. The beginning coverage shall be in the amount as is required by Landlord and its mortgagee up to the full replacement cost of the Building and the improvements, on the Lot. The policies evidencing such insurance shall provide that loss, if any, payable thereunder shall be payable to the Landlord and/or the Tenant and/or any mortgagee of the Premises as their respective interests may appear. A certificate of insurance evidencing the foregoing shall be delivered to the Tenant prior to the execution of this Lease, and certificates evidencing the renewal of such insurance shall be delivered to Tenant, upon Tenant's request, at least thirty (30) days before the expiration of any such policies and providing that the insurance shall not be canceled within thirty (30) days prior written notice to Tenant. All such policies shall be placed with responsible companies authorized to do business in, the State wherein the Premises are located. The coverages required by this Article may be provided by a single "package" policy. Any such policies shall carry a deductible of five
thousand dollars ($5,000) or such other amount mutually agreed upon by Landlord and Tenant, and any such single "package" policy should include an endorsement that the aggregate limit of such policy shall not be reduced below the minimum limit required under this Lease due to claims relating to other properties covered by such policy.
Tenant shall be responsible for notifying Landlord of additions, alterations and improvements completed to the interior of the Premises for which Tenant intends to insure under this Section 15.1. Notification shall include the cost and description of such work and the date on which coverage should commence.
Landlord shall also procure and continue in force during the Term and Extended Term hereof, at Tenant's expense payable in the manner set forth in Article V (i) rental interruption insurance for twelve (12) months; and (ii) commercial general liability insurance, or the equivalent then customary form providing for comparable coverages, written out on an occurrence basis containing provisions adequate to protect the Landlord from and against claims for bodily injury, including death and personal injury and claims for property damage occurring within the Office Park and/or the Premises, such insurance having body injury and property damage combined limits of not less than five million dollars ($5,000,000) per occurrence.
15.2 TENANT LIABILITY INSURANCE/WORKMEN'S COMPENSATION - The Tenant
shall maintain Commercial General Liability Insurance at Tenant's expense,
including a standard contractual liability endorsement, with respect to the
Premises throughout the Term with combined single limit coverage of Two Million
Dollars ($2,000,000). The Tenant shall deliver to the Landlord within thirty
(30) days of Landlord's written request a certificate evidencing the aforesaid
coverage issued by insurance companies authorized to do business in
Massachusetts and providing that the insurance indicated therein shall not be
canceled without at least thirty (30) days prior written notice to Landlord. The
Landlord (and/or its Mortgagee(s)) be named as an additional named insured on
such policy. Tenant shall also keep, at Tenant's expense, all Tenant's employees
working in the Premises covered by workmen's compensation insurance in statutory
amounts and Tenant agrees to furnish Landlord with certificates thereof, upon
Landlord's reasonable request.
15.3 WAIVER OF SUBROGATION - The Landlord and Tenant hereby waive all causes and rights of recovery against each other, their agents, officers and employees for any loss occurring to the real or personal property of Landlord or Tenant, regardless of cause or origin. Landlord and Tenant agree that any policies presently existing or obtained on or after the date hereof (including renewals of present policies) shall include a clause or endorsement (a "Waiver of Subrogation") to the effect that any such release shall not adversely affect or impair said policies or prejudice the right of the insured to recover thereunder and that the insurer expressly waives its rights of subrogation against Landlord or Tenant as the case may be, with respect to any claims under any such policies. The parties further agree that if said Waiver of Subrogation shall become unobtainable or unenforceable or shall void the respective policies, then the respective insurance policies shall not be invalidated, and said waiver shall become null and void and of no further force and effect.
ARTICLE XVI
INDEMNIFICATION
16.1 TENANT'S AND LANDLORD'S INDEMNITY
(a) TENANT'S INDEMNITY - The Tenant shall, upon timely receipt of written notice, indemnify, defend and hold the Landlord harmless from and against any and all suits, claims, and demands (i) arising out of injury or damage occurring at the Premises or Lot or Office Park because of the negligence or willful acts of Tenant, its agents, servants, contractors and/or employees including any construction activity undertaken by Tenant pursuant to the terms of this Lease and/or (ii) resulting from the failure of Tenant to perform and discharge its covenants and obligations under this Lease. In no event is Tenant obligated to indemnify, defend or save harmless Landlord from any loss, injury, or damage, or part thereof, not attributable to Tenant's negligence or willful act or those of its agents, servants, or employees.
In the event the Landlord is notified of a claim, action or proceeding, or becomes aware of an occurrence, which may result in indemnification by Tenant as provided above, the Landlord shall give prompt written notice to Tenant and provide complete particulars known by the Landlord. The Landlord shall immediately forward to the Tenant every demand, notice, summons or other process received by Landlord or its representatives.
Tenant has the exclusive right and obligation to defend any claim, action, or proceeding wherein Landlord is entitled to indemnification under the provisions of this Article, and Tenant may settle any such claim, action, or proceeding without Landlord's consent or approval.
The Landlord will fully cooperate with the Tenant in the defense or settlement of any claim, action, or proceeding.
The covenants and indemnifications set forth in this Section shall survive the expiration or earlier termination of this Lease.
(b) LANDLORD'S INDEMNITY - The Landlord shall, upon timely receipt of written notice, indemnify, defend and hold the Tenant harmless from and against any and all suits, claims, and demands (i) arising out of injury or damage occurring at the Premises or Lot or Office Park because of the negligence or willful acts of Landlord, its agents, servants, contractors and/or employees including any construction activity undertaken by Landlord pursuant to the terms of this Lease and/or (ii) resulting from the failure of Landlord to perform and discharge its covenants and obligations under this Lease. In no event is Landlord obligated to indemnify, defend or save harmless Tenant from any loss, injury, or damage, or part thereof, not attributable to Landlord's negligence or willful act or those of its agents, servants, or employees.
In the event the Tenant is notified of a claim, action or proceeding, or becomes aware of an occurrence, which may result in indemnification by Landlord as provided above, the Tenant shall give prompt written notice to Landlord and provide complete particulars known by the Tenant. The Tenant shall immediately forward to tire Landlord every demand, notice, summons or other process received by Tenant or its representatives.
Landlord has the exclusive right and obligation to defend any claim, action, or proceeding wherein Tenant is entitled to indemnification under the provisions of this Article, and Landlord may settle any such claim, action, or proceeding without Tenant's consent or approval.
The Tenant will fully cooperate with the Landlord in the defense or settlement of any claim, action, or proceeding.
The covenants and indemnifications set forth in this Section shall survive the expiration or earlier termination of this Lease.
16.2 HAZARDOUS MATERIALS - Tenant shall not (either with or without
negligence) cause or permit its employees, agents, contractors or invitees to
cause the escape, disposal or release of any "Hazardous Substances and
Materials" (as defined below) onto or in the vicinity of the Premises other than
the ordinary disposal or release of customary office and cleaning supplies.
Tenant shall not allow the storage or use of such substances or materials in any
manner not sanctioned by law, nor allow to be brought into the Premises any such
materials or substances (except to use in the ordinary course of Tenant's
business). Upon Landlord's request, Tenant shall furnish to Landlord an
inventory of the identity of such substances or materials used in the ordinary
course of Tenant's business. Without limitation, for purposes of this Lease,
"Hazardous Substances and Materials" shall include biohazardous materials and
those materials or substances regulated by the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended, 42 U.S.C. Section
9601 et seq., the Resource Conservation and Recovery Act, as amended, 42 U.S.C.
Section 6901 et seq., the Massachusetts Hazardous Waste Management Act, as
amended, M.G.L. c.21C, the Massachusetts Oil and Hazardous Material Release
Prevention and Response Act, as amended, M.G.L. c.21E, any applicable local
ordinance or bylaw, and the regulations adopted under these acts (collectively,
the "Hazardous Waste Laws"). If any lender or governmental agency shall ever
require testing to ascertain whether or not there has been any release of
hazardous substances or materials, then the reasonable costs thereof shall be
reimbursed by Tenant to Landlord upon demand as additional charges if such
requirement applies to the Premises and if on such reasonable basis it is
determined Tenant caused the release. If Tenant receives from any federal, state
or local governmental agency any notice of violation or alleged violation of any
Hazardous Waste Law, or if Tenant is obligated to give any notice under any
Hazardous Waste Law, Tenant agrees to forward to Landlord a copy of any such
notice within three (3) days of Tenant's receipt or transmittal thereof. In
addition, Tenant shall execute affidavits, representations and the like from
time to time at Landlord's reasonable request concerning Tenant's best knowledge
of belief regarding the presence of hazardous substances or materials on the
Premises. In all events, Tenant shall indemnify Landlord in the manner provided
in Section 16.1 of this Lease from any release of hazardous substances or
materials on the Premises occurring while Tenant is in possession, or elsewhere
if caused by Tenant, its agents, employees or contractors. Landlord retains the
right to inspect the Premises at all reasonable times, upon reasonable notice to
Tenant, to ensure compliance with this Section. The within covenants shall
survive the expiration or earlier termination of the Lease Term.
16.3 LANDLORD'S INDEMNIFICATION FOR HAZARDOUS MATERIALS. Landlord represents and warrants to Tenant that (i) Landlord has delivered to Tenant copies of all reports, assessments, tests, notices and other documentation in Landlord's possession relating to the presence, use, storage, release or disposal of any biologically or chemically active or other hazardous substances or materials on, in, under, onto, from or in the vicinity of the Premises and the Lot, and (ii) to the best of Landlord's knowledge, no such substances or materials have been used, stored, released or disposed of on, in, under, onto, from or in the vicinity of the Premises and the Lot, except for the use, storage, release or disposal of customary office and cleaning supplies in customary quantities and in accordance with all applicable laws. If Landlord receives from any federal, state or local governmental agency any notice of violation or alleged violation of any Hazardous Waste Law, or if Landlord is obligated to give any notice under any Hazardous Waste Law in connection with the Office Park, Landlord agrees to forward to Tenant a copy of any such notice within three (3) days of Landlord's receipt or transmittal thereof.
Landlord shall indemnify, defend and hold harmless Tenant from all suits, claims, demands, liabilities, damages, costs and expenses arising out of the use, storage, release or disposal of any such substances or material on, in, under, onto, from or in the vicinity of the Premises and the Lot because of the negligence or willful acts of Landlord, its agents, servants, or employees including any construction activity undertaken by Landlord pursuant to the terms of this Lease. In no event is Landlord obligated to defend or hold harmless Tenant from any loss, injury, or damage, or part thereof, not attributable to Landlord's negligence or willful act or those of its agents, servants, employees or contractors.
In the event the Tenant is notified of a claim, action or proceeding, or becomes aware of an occurrence, which may result in indemnification by Landlord as provided above, the Tenant shall give prompt written notice to Landlord and provide complete particulars known by the Tenant. The Tenant shall immediately forward to the Landlord every demand, notice, summons or other process received by Tenant or its representatives.
Landlord has the exclusive right and obligation to defend any claim, action, or proceeding wherein Tenant is entitled to indemnification under the provisions of this Article, and Landlord may settle any such claim, action, or proceeding without Tenant's consent or approval.
The Tenant will fully cooperate with the Landlord in the defense or settlement of any claim, action or proceeding.
ARTICLE XVII
ASSIGNMENT AND SUBLETTING
17.1 TENANT SUBLET - Landlord hereby grants to Tenant the right to assign this Lease or to sublet all or any portion of the Premises throughout the Term, provided Tenant first obtains Landlord's consent to such assignment or subletting in writing. Landlord's consent shall not be unreasonably withheld, delayed or conditioned. Landlord's consent to an assignment or subletting shah be accompanied by a statement addressed to Tenant and the assignee or subtenant, upon which statement Tenant and the assignee or subtenant may conclusively rely, stating that Tenant is not in default under the Lease (or setting forth what respects Tenant is in
default), that this Lease has not been amended or modified (or setting forth such amendments or modifications), the expiration date of this Lease, and the date to which rent has been paid to Landlord hereunder. It shall not be unreasonable for Landlord to withhold its consent or disapprove a sublease or assignment if the proposed sublessee or assignee conflicts with any exclusionary provision (s) of other leases in the Office Park. As additional rent, Tenant shall reimburse Landlord promptly for reasonable legal and other expenses incurred by Landlord in connection with any request by Tenant for consent to assignment or subletting. No assignment or subletting shall affect the continuing primary liability of Tenant (which, following assignment, shall be joint and several with the assignee).
17.2 Intentionally Deleted.
17.3 LANDLORD'S RESPONSE - In the event Landlord does not respond to the written request for such consent within thirty (30) days of the date of such request from Tenant, Landlord's consent shall be deemed given.
17.4 SUBSIDIARY ASSIGNMENT - Notwithstanding anything to the contrary herein contained, Tenant may assign or sublet all or any portion(s) of the Premises at any time to a subsidiary of Tenant, to the entity with which or into which Tenant may merge, to any entity with which Tenant is affiliated, or to a successor to all or substantially all the assets of Tenant or a division of Tenant without the need for Landlord's consent to such assignment or subletting, so long as Tenant remains primarily liable (with respect to such an assignment or sublet to a division of Tenant) and so long as such assignee agrees directly with Landlord by written instrument reasonably satisfactory to Landlord and to such assignee to be bound by all of the obligations of Tenant. In the event of any such assignment or subletting for which no consent by Landlord is required, Tenant shall not be obligated to share Rent Differential as set forth in Section 17.5.
17.5 SUBLEASE AND ASSIGNMENT RENT DIFFERENTIAL - If this Lease shall be assigned, or if the Premises or any part hereof shall be sublet or occupied by any person other than Tenant, Landlord may, at any time and from time to time, collect rent from the assignee, subtenant or occupant and apply the net amount collected to the annual Fixed Rent, additional rent and all other charges herein reserved, but no such assignment, subletting, occupancy or collection shall be deemed a waiver of the provisions of this Section 17.5, or acceptance of the assignee, subtenant or occupant as tenant, or a release of Tenant from the further performance of the terms, covenants and conditions of this Lease on the part of Tenant to be performed. Further, no liability hereunder of Tenant shall be discharged, reduced, released or impaired in any respect by any waiver, indulgence or extension of time which Landlord may grant to the then owner of Tenant's interest in this Lease, whether or not notice thereof has been given or consent from Tenant has been obtained.
Landlord shall have the option to require that any portion of rental received by Tenant from subtenant or assignee to which Landlord is entitled pursuant to this Section 17.5 be remitted directly to Landlord, provided that such amounts are credited pro rata against Tenant's rental obligations.
If Landlord consents to a sublease or assignment, and said sublease or assignment is for a greater rent than the Fixed Rent or additional rent due from Tenant to Landlord under this Lease, Tenant shall pay to Landlord (or to any mortgagee in possession or successor to Landlord through a Foreclosure) on a monthly basis during the term of any approved sublease or assignment as additional rent hereunder, in addition to the Fixed Rent and other payments due under this Lease, an amount equal to fifty percent (50 %) of the difference between all fixed rent and additional rent from the time actually received by Tenant under the sublease or assignment and the Fixed Rent and additional rent and other payments due under this Lease, after Tenant has recouped its out-of-pocket expenses with respect to such sublease or assignment including without limitation, reasonable real estate brokerage commissions, reasonable legal fees and the reasonable costs of refurbishment of the Premises for such sublease or assignment (the "Rent Differential"). In case any Fixed Rent or additional rent is prepaid to Tenant under the sublease or assignment, only so much as exceeds the net present value of Tenant's obligations to pay Fixed Rent and additional rent (reasonably estimated) for the balance of the Term for the portion of the Premises subject to such sublease or assignment shall be taken into account in computing the Rent Differential or the amounts due any foreclosing mortgagee or other successor landlord under the next succeeding sentence. In the event that a tax exempt entity becomes a mortgagee in possession or a landlord under this Lease through foreclosure or deed in lieu of foreclosure by reason of a default under the applicable mortgage or through a participating mortgage transaction or otherwise, in calculating the amount due in the immediately preceding sentence, there shall be no credit given to Tenant for its out-of pocket expenses involved in such assignment or subletting. In the event the sublease is for less than the full Premises hereunder, the above rent adjustment shall be pro rated on a square foot basis.
Anything contained in the foregoing provisions of this Section to the contrary notwithstanding, neither Tenant nor any other person having interest in the possession, use, occupancy, or utilization of the Premises shall enter into any lease, sublease, license, concession, or other agreement for use, occupancy, or utilization of space in the Premises which provides for rental or other payment for such use, occupancy, or utilization based, in whole or in part, on the net income or profits derived by any person from the Premises leased, used, occupied, or utilized (other than an amount based on a fixed percentage or percentages of receipts or sales), and any such purported lease, sublease, license, concession, or other agreement shall be absolutely void and ineffective as a conveyance of any right or interest in the possession, use, occupancy, or utilization of any part in the Premises.
ARTICLE XVIII
TENANT'S PROPERTY
18.1 TENANT'S PERSONAL PROPERTY - Tenant's trade fixtures, equipment and personal property (collectively called "Tenant's Property") however installed or located on the Premises shall be and remain the property of the Tenant and may be removed. Tenant shall repair any damage caused by such removal or installation. Tenant's Property shall be at the sole risk and hazard of Tenant, and if the whole or any part thereof shall be destroyed or damaged by fire, water or otherwise, or by the leakage or bursting of water pipes, steam pipes or other pipes, by theft or from any other cause, unless caused by the negligence or intentional misconduct of
Landlord, its employees, agents or contractors, no part of said loss or damage is to be charged to or be borne by Landlord.
18.2 REMOVAL - Upon the expiration or termination of this Lease, the Tenant will remove Tenant's Property from the Premises; if within ten (10) days after such expiration or termination, Tenant shall not have removed same, it shall be deemed abandoned by Tenant. Tenant shall pay to Landlord upon demand the costs and expenses thereafter incurred by Landlord in removing and storing Tenant's Property and repairing any damage caused to the Premises or to the Building caused by the removal of same.
18.3 NO LIEN - In no event (including a default under this Lease) shall Landlord have any lien or other security interest in any of Tenant's Property located in the Premises or elsewhere and Landlord hereby expressly waives and releases any such lien or other security interest however created or arising.
ARTICLE XIX
TENANT'S DEFAULT
19.1 EVENTS OF DEFAULT.
(a) If the Tenant shall default in the payment of rent or other
payments required by this Lease and shall fail to cure said default within seven
(7) business days after receipt of written notice of said default from the
Landlord; or
(b) If the Tenant shall default in the performance or observance of any other agreement or condition on its part to be performed or observed, and if the Tenant shall fail to cure said default within thirty (30) days after receipt of written notice of said default from the Landlord (or if said default shall require longer than thirty (30) days to cure and the Tenant fails to commence curing said default within thirty (30) days after receipt of written notice thereof and to prosecute the curing of the same to completion with due diligence); or
(c) If the Tenant shall file a voluntary petition in bankruptcy or shall be adjudicated a bankrupt or insolvent, or shall file any petition or answer seeking any arrangement, composition, liquidation or dissolution 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 to or acquiesce in the appointment of any trustee, receiver or liquidator of the Tenant or of all or any substantial part of its properties, or of the Premises, or shall make any general assignment for the benefit of creditors, or shall admit in writing its inability to pay its debts generally as they become due; or
(d) If a court shall enter an order, judgment or decree approving a petition filed against the Tenant seeking any arrangement, composition, liquidation, dissolution or similar relief under the 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 un-vacated or un-stayed for an aggregate of sixty (60) days (whether or not consecutive) (any of the events or conditions described in (a), (b), (c) or (d) above being called an "Event of
Default" in this Lease), then, if any Event of Default has occurred, the Landlord at any time thereafter may give written notice to the Tenant specifying the occurrence giving rise to such Event of Default and stating that this Lease and the Term hereby demised shall expire and terminate on the date specified in such notice which shall be at least ten (10) days after the giving of such notice, and upon the date specified in such notice, this Lease and the Term, estate and interest hereby demised shall expire and terminate by limitation and all rights of the Tenant under this Lease shall cease.
In the event that this Lease is terminated under any of the provisions contained in this Section 19.1, Tenant covenants to pay forthwith to Landlord, as compensation, a single lump-sum payment equal to the excess of the net present value of the total rent reserved for the residue of the Term (exclusive of any unexercised Extended Term(s) remaining at the time of termination) over the fair market rental value of the Premises (including additional rent) for said residue of the Term estimated as of the date of termination. If Landlord does not receive a single lump-sum payment from Tenant as aforesaid, Tenant covenants and agrees to pay punctually to Landlord all the sums and perform all the obligations which Tenant covenants in this Lease to pay and to perform in the same manner and to the same extent and at the same time as if this Lease had not been terminated. In calculating the amounts to be paid by Tenant under the foregoing covenants, Tenant shall be credited with any amount paid to Landlord as compensation as provided in the first sentence of this Section 19.1 and also with the net proceeds of any rents obtained by Landlord by reletting the Premises, after deducting all Landlord's expenses in connection with such reletting, including, without implied limitation, all repossession costs, brokerage commissions, reasonable fees for legal services and reasonable expense of preparing the Premises for such reletting, it being agreed by Tenant that Landlord may (i) relet the Premises or any part or parts thereof for a term or terms which may, at Landlord's option, be equal to or less than or exceed the period which would otherwise have constituted the balance of the Term and may grant such concessions and free rent as Landlord in its sole judgment considers advisable or necessary to relet the same, and (ii) make such alterations, repairs and decorations in the Premises as Landlord in its reasonable judgment considers advisable or necessary to relet the same, and no action of Landlord in accordance with the foregoing on failure to relet or to collect rent under reletting shall operate or be construed to Tenant's liability as aforesaid.
So long as at least twelve (12) months of the Term remain unexpired at
the time of such termination, in lieu of any other damages of indemnity and in
lieu of full recovery by Landlord of all sums payable under all the foregoing
provisions of this Section 19.1, Landlord may, by written notice to Tenant, at
any time after this Lease is terminated under any of the provisions contained in
Section 19.1, or is otherwise terminated for breach of any obligation of Tenant
and before such full recovery, elect to recover, and Tenant shall thereupon pay,
as liquidated damages, an amount equal to the aggregate of the Fixed Rent and
additional rent accrued under Article IV in the twelve (12) months ended next
prior to such termination plus the amount of Fixed Rent and additional rent of
any kind accrued and unpaid at the time of termination and less the amount of
any recovery by Landlord under the foregoing provisions of this Section 19.1 up
to the time of payment of such liquidated damages.
Nothing contained in this Lease shall, however, limit or prejudice the right of Landlord to prove and obtain in proceedings for bankruptcy or insolvency by reason of the termination of this Lease, an amount equal to the maximum allowed by any statute or rule of law in effect at the time when, and governing the proceedings in which, the damages are to be proved, whether or not the amount be greater, equal to, or less than the amount of the loss or damages referred to above.
19.2 REPOSSESSION - At any time after any such expiration or termination of this Lease, the Landlord, without further notice, may enter upon and reenter the Premises to repossess itself of the Premises, by summary proceedings, ejectment or otherwise, and may remove the Tenant and all other persons and any and all property from the Premises (including without limitation Tenant's Property) as hereinabove provided.
ARTICLE XX
NOTICES
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 given in writing. All notices, demands, requests and other instruments from the Landlord to the Tenant shall be deemed to have been given when mailed by United States Registered or Certified Mail, postage prepaid, return receipt requested, addressed to the Tenant at Tenant's Address with a copy to Testa, Hurwitz & Thibeault, LLP, 125 High Street, Boston, Massachusetts 02110 Attention: Real Estate Department; and all notices, demands, requests and other instruments from Tenant to the Landlord shall be deemed to have been given when mailed by United States Registered or Certified Mail, postage prepaid, return receipt requested, addressed to the Landlord at Landlord's Address with a copy to Hinckley, Allen & Snyder LLP, 28 State Street, Boston, Massachusetts 02109-1775 Attn: Gloria M. Gutierrez, Esq.; except that where any period of time commences under this Lease with notice, such notice shall be deemed given, and such period shall be deemed to commence, when postal records indicate delivery was first attempted or rendered for delivery if refused.
ARTICLE XXI
QUIET ENJOYMENT
Landlord covenants and agrees with Tenant that upon Tenant paying the fixed rent and additional rent and observing the terms, covenants and conditions on Tenant's part to be observed and performed, Tenant may peaceably and quietly enjoy the Premises demised hereby.
ARTICLE XXII
HOLDING OVER
In the event that Tenant occupies any portion of the Premises beyond the Team Expiration Date, such holding over shall constitute an agreement by Tenant to pay one hundred fifty percent (150%) of the Fixed Rent and additional rent then applicable for each month or portion thereof in which Tenant shall retain possession of the Premises or any part there after termination of this Lease, whether by lapse of time or otherwise due hereunder. In addition,
Tenant agrees to pay all damages (including consequential damages) sustained by Landlord on account of such holdover. The provisions of this subsection shall not operate as a waiver by Landlord of any right of re-entry provided in this Lease.
ARTICLE XXIII
MEMORANDUM OF LEASE
At the time of the execution of this Lease, Landlord and the Tenant shall execute an instrument recordable in form containing those provisions including but not limited to the Term, the commencement and expiration date, and such other information as necessary or appropriate to protect the interests of Tenant hereunder and to satisfy the notice of lease statute of Massachusetts. Such instrument shall be substantially in the form attached hereto as Exhibit N. The Landlord or Tenant may record the same following the execution of this Lease.
ARTICLE XXIV
SURRENDER OF PREMISES
Upon the expiration of the Term or early termination thereof, Tenant shall promptly peaceably yield up and surrender the Premises in a good and clean condition, and in the same condition as Tenant is required to maintain the Premises hereunder during the Term, reasonable wear and tear and damage by fire, casualty or eminent domain excepted.
ARTICLE XXV
ESTOPPEL CERTIFICATES
Upon the written request of either party, at any time and from time to time, Landlord and Tenant agree to execute and deliver to the other within fifteen (15) business days after receipt of such request, a written instrument (substantially in the form attached hereto as Exhibit I), duly executed:
(1) Certifying that, if true, this Lease has not been modified and is in full force and effect or, if there has been a modification of this Lease, that this Lease is in full force and effect as modified, stating such modifications;
(2) Specifying the date to which the rent has been paid;
(3) Stating whether or not to the best knowledge, information and belief of the party executing such instrument, the other party hereto is in default and, if such party is in default, stating the nature of such default;
(4) Stating the commencement date of the Term; and
(5) Stating which options to extend the Term have been exercised, if any.
Any such statement delivered pursuant to this Article may be relied upon by any prospective purchaser or mortgagee of the Premises or any prospective assignee of any such mortgagee.
ARTICLE XXVI
ADDITIONAL PROVISIONS
26.1 BROKER - Landlord and Tenant warrant to each other that no broker other than those specified in Section 1.1 of the Lease have been retained by the warranting party in connection with the negotiation and consummation of this Lease. Each party agrees to defend, indemnify and save the other harmless from and against any and all claims for a commission arising out of a breach of the warranty made by such party in the first sentence of this Section 26.1. Landlord agrees to pay the commission due to said broker specified in Section 1.1 hereof. This Section 26.1 shall survive the expiration or earlier termination of this Lease.
26.2 BIND AND INURE - The obligations of this Lease shall run with the land, and this Lease shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, except that only the Landlord named herein shall be liable for obligations accruing before the beginning of the Term and thereafter each successive owner of Landlord's interest in the Lot and the Premises shall be liable only during its ownership period as hereafter provided. Each successive owner of the Landlord's interest in the Lot and Premises shall give Tenant written notice of its assumption of the obligations of Landlord under this Lease and upon such written notice to Tenant shall be liable only for obligations accruing during the period of its ownership, said liability terminating as to future liability upon termination of such ownership and passing to the successor in ownership and the giving of such notices to Tenant. Except as expressly provided below with request to an "Affiliate" of Landlord, Landlord shall not transfer its interest in the Premises or the Lot under this Lease prior to the full completion of the Landlord's Work and Tenant's Work (including, but not limited to the completion of all punch-list items and the issuance of the permanent Certificate of Occupancy by the Town of Westford) without the prior consent of Tenant, which may be withheld in Tenant's sole discretion. Notwithstanding the foregoing, Landlord shall have the right to transfer its interest in the Premises or the Lot, without Tenant's prior written consent and prior to such time, to a limited partnership controlled by The Gutierrez Company and having The Gutierrez Company as its sole general partner so long as Landlord provides Tenant with a written assignment and assumption agreement evidencing such assignees agreement to assume all of Landlord's obligations under this Lease.
26.3 PROVISIONS SEPARABLE - It is agreed that if any provisions of this Lease shall be determined to be void by any court of competent jurisdiction in Massachusetts, then such determination shall not affect any other provision of this Lease, all of which other provisions shall remain in full force and effect; and it is the intention of the parties hereto that if any provision of this Lease is capable of two constructions, one of which would render the provision void, and the other of which would render the provision valid, then the provision shall have the meaning which renders it valid.
26.4 ENTIRE AGREEMENT - This instrument contains the entire and only agreement between the parties as to the Premises, and no oral statements or representations or prior written matter not contained in this instrument shall have any force or effect. This Lease shall not be modified in any way except by a writing subscribed by both parties.
26.5 GOVERNING LAW - This Lease shall be governed by and construed and enforced in accordance with the laws and courts of the Commonwealth of Massachusetts.
26.6 NO WAIVER - Failure of either party to complain of any actor omission on the part of the other party, no matter how long the same may continue, shall not be deemed to be a waiver of any rights hereunder. No waiver by either party at any time, express or implied, or any breach of any provisions of this Lease shall be deemed a waiver of a breach of any other provision of this Lease or a consent to any subsequent breach of the same or any other provision. The receipt by Landlord of Fixed Rent or additional rent with knowledge of the breach of any covenant of this Lease shall not be deemed a waiver of such breach by Landlord, unless such waiver shall be signed by Landlord. If any action of any party shall require the consent or approval of the other party, the consent to or approval of such action on any one occasion shall not be deemed a consent to or approval of said action on any subsequent occasion or a consent to or approval of any other action on the same or any subsequent occasion, and such consent or approval shall not be unreasonably withheld or delayed.
26.7 RIGHTS SEPARATE - Any and all rights and remedies which either party may have under this Lease or by operation of law, either at law or in equity, upon any breach, shall be distinct, separate and cumulative and shall not be deemed inconsistent with each other; no one of them whether exercised by the other party or not, shall be deemed to be exclusive of any other, and any two or more of all of such rights and remedies may be exercised at the same time.
26.8 SINGULAR AND PLURAL - Words and phrases used in the singular shall be deemed to include the plural and vice versa, and nouns and pronouns used in any particular gender shall be deemed to include any other gender.
26.9 HEADINGS - The various terms which are defined in Articles of this Lease or are defined in Exhibits annexed hereto shall have the meanings specified in such Articles and such Exhibits for the purposes of this Lease and all agreements supplemental thereto, unless the context clearly indicates the contrary.
26.10 PARKING - Tenant's occupancy of the Premises shall include the exclusive use of six hundred eighty-five (685) parking spaces on the Lot. Tenant's parking spaces shall be known and referred to in this Lease as the "Building Parking Area" (excluding any Expansion Space as may be hereinafter included pursuant to Exhibit J), and shall be shown as such on the Landlord's Plans. As set forth in Section 2.1 hereof, the Building Parking Area may be expanded pursuant to Exhibit J hereto). In the event that the Expansion Space is constructed by Landlord pursuant to the provisions of Exhibit J, then, subject to the provisions of Exhibit J, the Building Parking Area shall (i) be relocated to an area designated by Landlord within the parking area (or expanded in such area(s)) as shown on Exhibit P attached hereto and designated as such on said Exhibit P,
Tenant hereby agreeing that such relocation area designated by Landlord on said Exhibit P is acceptable to Tenant, and (ii) be increased by two hundred forty-nine (249) parking spaces.
26.11 NON-RECOURSE - Tenant agrees to look solely to Landlord's then equity interest in the Premises and the lot and the proceeds thereof at the time owned or the proceeds of any insurance carried by Landlord pursuant to this Lease for recovery of any judgment from Landlord; it being agreed that neither Landlord (original or successor), nor any partner (general or limited), associate, participant, principal (disclosed or undisclosed), agent, employee, trustee or other fiduciary, beneficiary, officer, or other person or entity in or of any partnership, association, joint venture, corporation or other entity, trust, or estate from time to time owning Landlord's interest in this Lease, shall ever be personally liable for any such judgment or for the payment of any monetary obligation to Tenant with respect to matters arising out of this Lease (it being agreed by Tenant that such exoneration from personal liability is and shall be absolute and complete with no exception whatsoever). With respect to any services to be furnished or obligations to be performed by Landlord to Tenant, except with respect to the negligence of Landlord, its employees, agents or contractors, Landlord shall never be liable for failure to furnish or perform the same when prevented from doing so by strike or lockout (not limited to the Premises or the Office Park), breakdown, accident, order or regulation of or by any governmental authority, or failure of supply, or inability by the exercise of good faith, diligent efforts to obtain supplies, parts or employees necessary to furnish such services, or because of war or other emergency, or for any act of God or other Force Majeure, as defined in Section 9.5 above, causes beyond Landlord's reasonable control, or for any cause due to any Tenant's Delay (as defined in Article IX hereof) or negligence or willful misconduct of Tenant, Tenant's invitees, customers, servants, agents, employees, licensees or any person claiming by, through or under Tenant.
With respect to any obligations to be performed by Tenant to Landlord, other than the payment of rent and other sums due under this Lease, except with respect to the negligence Tenant, its employees, agents or contractors, Tenant shall never be liable for failure to furnish or perform the same when prevented from doing so by strike or lockout (not limited to the Premises or the Office Park), breakdown, accident, order or regulation of or by any governmental authority, or failure of supply, or inability by the exercise of good faith, diligent efforts to obtain supplies, parts or employees necessary to furnish such services, or because of war or other emergency, or for any act of God or other Force Majeure, as defined in Section 9.5 above, causes beyond Tenant's reasonable control, or for any cause due to any act or negligence or willful misconduct of Landlord, Landlord's invitees, customers, servants, agents, employees, licensees or any person claiming by, through or under Landlord.
26.12 NO SURRENDER - The delivery of keys to any employees of Landlord or to Landlord's agent or any employee thereof shall not operate as a termination of this Lease or a surrender of the Premises.
26.13 NO ACCORD AND SATISFACTION - No acceptance by Landlord of a lesser sum than the Fixed Rent and additional rent then due shall be deemed to be other than on account of the earliest installment of such rent due, nor shall any endorsement or statement on any check or any letter accompanying any check or payment as rent be deemed as accord and satisfaction, and
Landlord may accept such check or payment without prejudice to Landlord's right to recover the balance of such installment or pursue any other remedy in this Lease provided.
26.14 ACCESS - Subject to the terms and provisions of this Lease, Tenant shall have twenty-four (24) hours, seven (7) days per week access to the Premises.
26.15 SECURITY DEPOSIT
A. A "Security Deposit" in the initial amount equal to $3,158,750.00
shall be delivered to Landlord upon the Term Commencement Date. Such Security
Deposit shall be held by Landlord without liability for interest and as security
for the performance of Tenant's obligations under this Lease. The Security
Deposit shall be in the form of a letter of credit, which letter of credit shall
(a) be in form and substance reasonably acceptable to Landlord, (b) name
Landlord as its beneficiary, (c) expire no earlier than sixty (60) days after
the Term Expiration Date, except as noted below, and (d) be drawn on an
FDIC-insured financial institution satisfactory to Landlord. Landlord
acknowledges that, as of the date hereof, Fleet National Bank and Citizens Bank
are acceptable financial institutions for the issuance of the letter of credit.
If the initial term of the letter of credit will expire prior to sixty (60) days
after the Term Expiration Date, Tenant shall from time to time, as necessary,
renew or replace the original and any subsequent letter of credit not less than
sixty (60) days prior to the stated expiration date so that it will remain in
full force and effect until sixty (60) days after the Term Expiration Date of
the Lease. If Tenant fails to furnish such renewal or replacement at least sixty
(60) days prior to the stated expiration date of the letter of credit then held
by Landlord, Landlord may draw upon such letter of credit and hold the proceeds
thereof (and such proceeds need not be segregated) as a Security Deposit
pursuant to the terms of this Section 26.15. Following any such draw upon the
letter of credit, however, Tenant shall have the right to substitute a letter of
credit meeting the requirements set forth herein for the cash Security Deposit
then held by Landlord and thereafter Landlord shall promptly return any cash
held from any cash draw to Tenant. Any renewal or replacement for the original
or any subsequent letter of credit shall meet the requirements for the original
letter of credit as set forth above, except that such replacement or renewal
shall be issued by a national bank reasonably satisfactory to Landlord at the
time of the issuance thereof.
B. Landlord may, from time to time, without prejudice to any other remedy, use all or a portion of the Security Deposit to cure any default by Tenant that remains uncured after the expiration of any applicable notice and grace periods. Following any such application of the Security Deposit, Tenant shall, within thirty (30) days of demand, at Tenant's option, either (i) restore the letter of credit to its full amount (as the same may have previously been reduced in accordance with the terms hereof), or (ii) provide Landlord with an additional cash security deposit in an amount equal to the amount of Security Deposit applied by Landlord. If Tenant is not in default at the termination of this Lease, after Tenant surrenders the Premises to Landlord in accordance with this Lease and all amounts due Landlord from Tenant are finally determined and paid by Tenant or through application of the Security Deposit, the balance of the Security Deposit shall be returned to Tenant. If Landlord transfers its interest in the Premises during the Term, Landlord shall assign the Security Deposit to the transferee and, provided the transferee accepts such assignment and assumes Landlord's obligations with respect to the return of the Security Deposit, in writing, Landlord shall thereafter have no further liability for the return of
such Security Deposit. Upon request by Tenant, Landlord shall provide Tenant with a copy of the assignment and assumption or other written documentation that was entered into to effectuate the transfer of the Security Deposit. Landlord shall not be required to segregate the Security Deposit from its other accounts. Landlord may only draw on the letter of credit to cure a default by Tenant that remains uncured after the expiration of any applicable notice and cure period.
C. In the event the Lease is assigned by Tenant (subject to the terms of this Lease), the letter of credit to be furnished hereunder as a Security Deposit may be procured by either Tenant or Tenant's assignee, provided that such letter of credit shall remain subject to all of the terms and conditions of this Section 26.15. Landlord shall deliver the original prior letter of credit to the prior tenant simultaneously upon the delivery of the replacement letter of credit.
D. Notwithstanding the foregoing, Landlord agrees that the Security Deposit shall be returned to Tenant upon expiration of the fifth (5th) year of the Term if Tenant has not been in default beyond any applicable notice and cure periods under this Lease more than twice in any calendar year and is not in default beyond any applicable notice and cure periods under this Lease at the end of the fifth (5th) year of the Term.
26.16 ROOFTOP COMMUNICATION EQUIPMENT - Subject to the provisions hereinafter provided and so long as Tenant (or any permitted assignee or subtenant) is leasing, subleasing and occupying at least seventy-five percent (75%) of the Premises, Tenant shall have the exclusive right from time to time during the Term hereof to install rooftop communication equipment (i.e. satellite or antenna devices) on the roof of the Building. Subject to applicable law, matters of title, and the consent of Landlord (which consent shall not be unreasonably withheld, conditioned or delayed), Tenant, at its sole cost and expense, has the right to install such equipment on the roof of the Building. The size and location of the installation shall be at a site acceptable to Landlord, and the approval of any such size and location shall not be unreasonably withheld, conditioned or delayed by Landlord. Tenant shall install the equipment in accordance with sound construction practices, and in accordance with all applicable laws, rules, codes and ordinances, and in a good and workmanlike manner. Tenant shall use such roofing contractor required to comply with the existing roof warranties, as designated by Landlord. Tenant shall indemnify, defend and hold Landlord harmless from and against any and all liability or loss arising from or out of the installation or removal of such rooftop communication equipment. Upon expiration of the Term, Tenant shall be responsible for the removal of the same and for repairing any damage caused therefrom.
26.17 EARLY TERMINATION RIGHT - In the event that Landlord has not secured all applicable permits and approvals (with all appeal periods having expired and no appeals having been filed) to commence construction of the Landlord's Work by November 30, 2000, then Tenant shall have the right to terminate this Lease by giving written notice thereof on or after December 1, 2000 to Landlord (unless within thirty (30) days after such notice, Landlord procures such permits and approvals and furnishes Tenant with copies thereof, in which event such notice of termination shall be rendered null and void and of no further force or effect),unless the delay was caused directly by Tenant. Said termination right shall be Tenant's sole and exclusive remedy at law or in equity for Landlord's failure to secure the applicable permits and approvals on or before November 30, 2000.
26.18 LANDLORD'S AND TENANT'S RIGHT TO CURE
(a) LANDLORD'S RIGHT TO CURE - If Tenant shall at any time
fail to perform its obligation in accordance with the provisions of this Lease
and Tenant does not commence the cure of such failure within thirty (30) days of
notice thereof (except in the event of emergencies), and thereafter diligently
prosecute such cure to completion, then Landlord shall have the right, but shall
not be obligated, to enter upon the Premises and to perform such obligation,
notwithstanding the fact that no specific provision for such substituted
performance by Landlord is made in this Lease with respect to such default. In
performing such obligation, Landlord may make any reasonable payment of money or
perform any other reasonable act. All reasonable sums so paid by Landlord
(together with interest at the rate set forth in Section 4.2 hereof), and all
necessary incidental reasonable third party costs and expenses in connection
with the performance of any such acts by Landlord, shall be deemed to be
additional rent under this Lease and shall be payable to Landlord within ten
(10) days after receipt by Tenant of a detailed invoice setting forth such costs
and expenses. Landlord may exercise the foregoing rights without waiving any
other of its rights or releasing Tenant from any of its obligations under this
Lease.
(b) If Landlord fails to perform any obligation under this
Lease (except with respect to the common areas and facilities of the Office Park
in the event that Tenant is not the sole Tenant in the Office Park) which
obligation is material to Tenant's use and enjoyment of the Premises and such
failure continues for more than thirty (30) days after written notice from
Tenant (provided that, if correction of such failure reasonably requires a
period longer than thirty (30) days, and if Landlord commences such correction
within thirty (30) days and prosecutes such correction to completion with
diligence and continuity, Landlord shall be allowed such longer period as may be
reasonably necessary to complete such correction), Tenant may, upon ten (10)
business days' notice to Landlord of its intention so to do and Landlord's
failure to commence such cure within said ten (10) day period, but Tenant shall
not be obligated to, cure any such failure, and all reasonable costs and
expenses incurred by Tenant in curing such failure (including without limitation
reasonable attorney's fees and interest on such costs and expenses at an annual
rate equal to the so-called prime rate of interest published from time to time
by THE WALL STREET JOURNAL (or substitute publication reasonably selected by
Landlord if THE WALL STREET JOURNAL ceases to publish such information) plus
three percentage points) shall be reimbursed by Landlord to Tenant within ten
(10) days after Landlord receives a written detailed bill from the Tenant. If
Landlord fails to reimburse Tenant for any such costs and expenses within thirty
(30) days after Landlord receives said detailed written bill therefor, Tenant
shall have the right to apply such unreimbursed amounts against fifteen percent
(15%) of the monthly Fixed Rent due hereunder until such amounts due to Tenant
hereunder have been reimbursed in full by Landlord.
26.19 GROUND LEASE PROVISIONS
(a) If the Ground Lease terminates or Tenant incurs any liabilities, costs or expenses as a result of a default or breach of Landlord under the Ground Lease (not due because of the negligence or willful acts of Tenant, its agents, servants or employees), then (i) Landlord shall indemnify and hold harmless Tenant from and against all damages, costs, and expenses
suffered by Tenant and arising out of such termination, default or breach, in the manner provided in Section 16.1(b) hereof and in addition, (ii) Tenant shall have such self-help rights set forth in Section 26.18(b). Landlord covenants not to commit or suffer any act or omission that will breach or cause a default under the Ground Lease.
(b) Landlord shall use diligent and good faith efforts to cause the ground lessor under the Ground Lease to fulfill its obligations under the Ground Lease. Tenant shall be entitled to participate with Landlord in the enforcement of the Landlord's rights under the Ground Lease.
(c) Landlord hereby agrees to waive its right to terminate the Ground Lease pursuant to Article II, Section 1(b) of the Ground Lease or otherwise terminate the Ground Lease prior to the Term Expiration Date of this Lease.
(d) Landlord hereby agrees not to make any amendments or modifications to the terms and provisions of the Ground Lease which would materially affect Tenant's rights, obligations and interests under this Lease without Tenant's prior written consent, such consent not to be unreasonably withheld, conditional or delayed.
IN WITNESS WHEREOF, the parties hereto have duly executed this Lease as of this 17th day of August , 2000.
LANDLORD: Nashoba Westford Realty Trust
By: /s/ Arturo J. Gutierrez --------------------------------------------------- Arturo J. Gutierrez, as Trustee but not individually By: /s/ John A. Cataldo --------------------------------------------------- John A. Cataldo, as Trustee but not individually |
TENANT: NetScout Systems, Inc.
By: /s/ David P. Sommers --------------------------------------------------- Its: Chief Financial Officer -------------------------------------------------- |
EXHIBIT "A"
PLANS SHOWING PREMISES, THE LOT AND PARK
AND COMMON AREAS OF THE PARK
(INCLUDING THE BUILDING PARKING AREA)
Plans entitled A1.1, A1.2 and A1.3 prepared by Symmes, Maini & McKee Associates, Inc., Sheet C3 - "Layout and Materials Plan" prepared by Symmes, Maini & McKee Associates dated 8-10-00.
[PLANS OF PREMISES]
EXHIBIT "A-1"
LEGAL DESCRIPTION OF THE LOT
A certain parcel of land located on Littleton Road, Westford, Middlesex County, Massachusetts consisting of approximately twelve (12) areas shown as "Lot" on Exhibit A. Landlord and Tenant hereby acknowledge and agree that this Exhibit A-1 shall be replaced by an amendment to this Lease upon creation of the Lot and the recording of the necessary subdivision plan(s) (i.e. ANR plan). Landlord hereby covenants and agrees to obtain ANR approval and subdivide the Lot as soon as possible, and upon doing so and recording the Plan, a copy shall be appended to this Lease.
EXHIBIT "B-1"
PRELIMINARY BASE BUILDING PLANS
o Plans entitled A1.1, A1.2 and A1.3 prepared by Symmes, Maini & McKee Associates, Inc. (Please see plans attached to Exhibit "A".)
o Exterior Elevations Plan A2.1 prepared by Symmes, Maini & McKee Associates, Inc.
o Sheet C3 "Layout & Materials Plan" prepared by Symmes, Maini & McKee Associates, Inc. (Please see plan attached to Exhibit "A".)
[BUILDING PLANS]
EXHIBIT B-2
GUTIERREZ CONSTRUCTION CO., INC.
OUTLINE SPECIFICATIONS
FOR
WESTFORD TECHNOLOGY PARK - WEST
BUILDING ONE
WESTFORD, MASSACHUSETTS
JUNE 7, 2000
REVISED JULY 28, 2000
REVISED AUGUST 4, 2000
REVISED AUGUST 9, 2000
INDEX
PAGE NO. DIVISION 1 - GENERAL REQUIREMENTS 3 --------------------------------- SECTION 1A - SCOPE OF THE WORK SECTION 1B - ASSUMPTIONS SECTION 1C - AREA SUMMARY DIVISION 2 - SITE WORK 4 ---------------------- SECTION 2A - SITE PREPARATION AND EARTHWORK SECTION 2B - SITE IMPROVEMENTS SECTION 2C - LAWNS AND PLANTINGS SECTION 2D - SITE DRAINAGE SECTION 2E - SITE UTILITIES SECTION 2F - IRRIGATION DIVISION 3 - CONCRETE 6 --------------------- SECTION 3A - CONCRETE SECTION 3B - PRECAST CONCRETE DIVISION 5 - METALS 7 7 --------------------- SECTION 5A - STRUCTURAL STEEL SECTION 5B - MISCELLANEOUS AND ORNAMENTAL IRON DIVISION 6 - CARPENTRY 8 ---------------------- SECTION 6A - ROUGH CARPENTRY SECTION 6B - MILLWORK DIVISION 7 - MOISTURE PROTECTION 9 -------------------------------- SECTION 7A - ROOFING AND FLASHING SECTION 7B - WATERPROOFING, DAMPPROOFING AND CAULKING DIVISION 8 - DOORS, WINDOWS AND GLASS 10 ------------------------------------- SECTION 8A - WOOD DOORS SECTION 8B - METAL DOOR FRAMES SECTION 8C - FINISH HARDWARE SECTION 8D - ALUMINUM ENTRANCE SECTION 8E - GLASS AND GLAZING OUTLINE SPECIFICATIONS - INDEX DIVISION 9 - FINISHES 12 --------------------- SECTION 9A - RESILIENT BASE SECTION 9B - ACOUSTICAL 1 |
SECTION 9C - PAINTING AND VINYL WALLCOVERING SECTION 9D - GYPSUM DRYWALL SECTION 9E - EXTERIOR SOFFITS SECTION 9F - INSULATION SECTION 9G - SPECIAL LOBBY FINISHES SECTION 9H - CARPETING SECTION 9I - CERAMIC TILE DIVISION 10- SPECIALTIES 14 ------------------------ SECTION L0A- TOILET PARTITIONS SECTION L0B- TOILET ACCESSORIES SECTION L0C- DOCK EQUIPMENT DIVISION 12 - FURNISHINGS 15 ------------------------- SECTION 12A - BLINDS DIVISION 14 - CONVEYING SYSTEM 16 ------------------------------ SECTION 14A - ELEVATOR DIVISION 15 - MECHANICAL 17 ------------------------ SECTION 15A - PLUMBING SECTION 15B - HEATING, VENTILATING AND AIR CONDITIONING SECTION 15C - SPRINKLERS DIVISION 16 - ELECTRICAL 20 ------------------------ SECTION 16A - ELECTRICAL WORK DIVISION 17 - EXCLUSIONS 23 ------------------------ |
DIVISION 1
GENERAL REQUIREMENTS
SECTION 1A - SCOPE OF THE WORK
1A-01 GUTIERREZ CONSTRUCTION CO., INC. WILL PROVIDE, AT ITS SOLE COST AND EXPENSE, ALL LABOR, MATERIAL AND EQUIPMENT NECESSARY TO COMPLETE THE CONSTRUCTION OF THE SUBJECT BUILDING IN ACCORDANCE WITH THESE OUTLINE SPECIFICATIONS DATED JUNE 7, 2000, REVISED JULY 28, 2000, AUGUST 4, 2000 AND AUGUST 9, 2000, THE PRELIMINARY DRAWINGS AS PREPARED BY SYMMES, MAINI & MCKEE ASSOCIATES, INC. DATED AND THE SITE PLAN OF LAND DATED , AS PREPARED BY ------------ ----------- SYMMES, MAINI & MCKEE ASSOCIATES, INC. SECTION 1B - ASSUMPTIONS 1B-01 ALL REQUIRED UTILITIES OF ADEQUATE SIZE AND CAPACITY WILL BE AVAILABLE AT THE PROPERTY LINE OR THE TOWN ROAD IMMEDIATELY ADJACENT TO THE PROPERTY LINE. 1B-02 THIS PROPOSAL IS BASED ON CLASS II-C CONSTRUCTION AS SPECIFIED IN THE MASSACHUSETTS STATE BUILDING CODE, SIXTH EDITION, AND WILL COMPLY WITH FEDERAL, STATE AND LOCAL APPLICABLE CODES AND IN ACCORDANCE WITH ALL ADA REQUIREMENTS. SECTION 1C - AREA SUMMARY 1C-01 THE BUILDING IS A THREE (3) STORY "OPEN SHELL" OFFICE BUILDING TOTALING APPROXIMATELY 175,000 SQUARE FEET. 1C-02 SIX HUNDRED EIGHTY FIVE (685) PARKING SPACES WILL BE PROVIDED. |
DIVISION 2
SITE WORK
SECTION 2A - SITE PREPARATION AND EARTH WORK
2A-01 THE BUILDING SITE, INCLUDING LANDSCAPED AREAS, SHALL BE GRADED TO +/-0.1' ELEVATIONS WITH POSITIVE DRAINAGE, FREE OF POCKETS, USING EXISTING GRANULAR MATERIALS. ALL GRADING IS TO BE DONE IN ACCORDANCE WITH THE SITE PLAN DEVELOPED FROM THE PRELIMINARY DRAWINGS ADJUSTED SO AS TO PRODUCE A BALANCED SITE. 2A-02 THE BUILDING PAD SHALL BE GRADED AND COMPACTED WITH SIX INCHES (6")( OR AS RECOMMENDED BY THE GEOTECHNICAL ENGINEER) OF SUITABLE GRANULAR MATERIAL TO AN ELEVATION OF MINUS FIVE INCHES (-5") FROM FINISHED FLOOR ELEVATION. COMPACTION SHALL BE 95% PROCTOR METHOD, ASTM D 1557. 2A-03 ALL PAVED AREAS SHALL RECEIVE A MINIMUM OF EIGHT INCHES (8") (OR AS RECOMMENDED BY THE GEOTECHNICAL ENGINEER) OF SUITABLE GRANULAR MATERIAL COMPACTED TO 92% OF ITS MAXIMUM DENSITY. SECTION 2B - SITE IMPROVEMENTS 2B-01 PARKING AREAS SHALL BE PAVED WITH TWO AND ONE HALF INCHES (2 1/2") OF BITUMINOUS CONCRETE TO CONSIST OF ONE AND ONE-HALF (1 1/2") BINDER COURSE AND ONE INCH (1") FINISH. 2B-02 ROADS SHALL BE PAVED AS SPECIFIED FOR PARKING AREAS. 2B-03 SIDEWALKS SHALL BE PAVED WITH FOUR INCHES (4") OF CONCRETE NEXT TO THE BUILDING AND TWO INCHES (2") OF BITUMINOUS CONCRETE PAVEMENT AT PARKING LOTS AS SHOWN ON THE SITE PLANS. 2B-04 ALL NECESSARY CURBING SHALL BE GRANITE OR BITUMINOUS BERET AS SHOWN ON THE DRAWINGS. SECTION 2C - LAWNS AND PLANTINGS 2C-01 LAWNS AND PLANTINGS WILL BE PROVIDED TO MEET THE PLANNING BOARD'S REQUIREMENTS. SECTION 2D - SITE DRAINAGE 2D-01 PARKING AREAS, ROADWAYS AND TRUCKING AREAS SHALL BE SURFACE DRAINED AND UNDERGROUND DRAINAGE SHALL BE INSTALLED AS REQUIRED. |
DIVISION 2 - SITE WORK (CONTINUED)
SECTION 2E - SITE UTILITIES
2E-01 DOMESTIC WATER SERVICE AND FIRE SPRINKLER SHALL BE FROM A WATER MAIN AT THE PROPERTY LINE OR AT THE TOWN ROAD ABUTTING THE SITE. THE WATER METER AND PIPING SHALL BE SIZED TO SUIT THE BUILDING REQUIREMENTS. FIRE SPRINKLER SERVICE WILL BE SIZED PER NFPA 13 FOR LIGHT HAZARD. 2E-02 SANITARY SEWER SHALL BE CONNECTED TO THE PROPOSED PARK SEWER TREATMENT SYSTEM. 2E-03 ELECTRICAL SERVICE SHALL BE PROVIDED BY THE ELECTRIC UTILITY COMPANY'S PAD-MOUNTED TRANSFORMER AT NO COST TO GUTIERREZ CONSTRUCTION CO., INC. 2E-04 PROVIDE SIX (6) 4" PVC CONDUIT FOR TELECOMMUNICATIONS FROM ROUTE 110 TO A MANHOLE IN THE SUBDIVISION ROAD IN FRONT OF THE FUTURE BUILDING. PROVIDE SIX (6) 4" PVC CONDUIT FROM THIS MANHOLE TO BEYOND THE ROADWAY FOR THE FUTURE BUILDING AND PROVIDE EIGHT (8) 4" PVC CONDUIT FROM THIS MANHOLE TO THE TELECOMMUNICATIONS ROOM IN BUILDING ONE. SECTION 2F - IRRIGATION 2F-01 THE UNDERGROUND AUTOMATIC LAWN IRRIGATION SYSTEM WILL BE PROVIDED FOR LAWN AREAS AROUND THE BUILDING. |
DIVISION 3
CONCRETE
SECTION 3A - CONCRETE
3A-01 PROVIDE ALL PLAIN AND REINFORCED CONCRETE WORK, INCLUDING ALL NECESSARY FORM WORK, SLEEVES, INSERTS, ETC. CONCRETE MATERIAL SHALL BE 3,000 P.S.I. 3A-02 FLOOR SLAB-ON-GRADE SHALL BE FIVE INCH (5") THICK CONCRETE REINFORCED WITH WELDED WIRE FABRIC FOR A LIVE LOAD RATING OF 200 P.S.F. SECOND AND THIRD FLOOR SLABS SHALL BE DESIGNED FOR A LOAD OF 100 P.S.F. WITH LIVE LOAD REDUCTION ALLOWED BY THE MASSACHUSETTS STATE CODE. 3A-03 FOUNDATIONS SHALL BE CONTINUOUS REINFORCED CONCRETE FOOTINGS AND WALLS AND INDIVIDUAL SPREAD REINFORCED CONCRETE FOOTINGS UNDER COLUMNS. ALL FOUNDATIONS SHALL BEAR ON ENGINEERED FILL, NATURAL SOIL OR LEDGE. 3A-04 FLOORS SHALL MEET THE FOLLOWING LEVEL AND FLATNESS CRITERIA. SLAB ON GRADE SHALL BE WITHIN FF (FLATNESS) 25 AND F1 (LEVEL) 20. SUSPENDED SLABS SHALL BE WITHIN FF (FLATNESS) = 20. SECTION 3B - PRECAST CONCRETE 3B-01 PRECAST CONCRETE EXTERIOR SPANDREL PANELS SHALL BE DESIGNED TO MEET WIND LOADING AS REQUIRED BY THE GOVERNING CODE(S) AND SHALL HAVE AN EXPOSED AGGREGATE FINISH AS APPROVED BY THE ARCHITECT AND OWNER. |
DIVISION 5
METALS
SECTION 5A - STRUCTURAL STEEL
5A-01 ALL STRUCTURAL STEEL WORK SHALL CONFORM TO THE "SPECIFICATIONS FOR DESIGN, FABRICATION AND ERECTION OF STRUCTURAL STEEL FOR BUILDINGS" OF THE AMERICAN INSTITUTE OF STEEL CONSTRUCTION AND THE REQUIREMENTS OF THE LOCAL BUILDING CODE. ALL STEEL SHALL BE ASTM-A-36. 5A-02 THE STRUCTURE SHALL BE STEEL COLUMNS, BEAMS OR TRUSSES, AND BAR JOISTS. THE BUILDING SHALL BE DESIGNED IN ACCORDANCE WITH THE BUILDING CODE REQUIREMENTS. 5A-03 THE ROOF CONSTRUCTION SHALL BE 22 GAUGE, PRIME-PAINTED METAL ROOF DECKING. ROOF SHALL BE DESIGNED TO SUPPORT A LIVE LOAD OF 35 P.S.F. PLUS THE LOADING REQUIRED FOR A RUBBER OR BALLASTED EPDM ROOFING SYSTEM. 5A-04 SECOND AND THIRD FLOOR FRAMING SYSTEMS SHALL BE DESIGNED TO SUPPORT A TOTAL (LIVE) LOAD OF 100 P.S.F. WITH LIVE LOAD REDUCTION ALLOWED BY THE MASSACHUSETTS STATE CODE. FLOOR DECKING SHALL BE 28 GAUGE FAB-FORM METAL DECK OR EQUAL. 5A-05 PROVIDE THIRTEEN FEET (13'-0") FROM FIRST FLOOR SLAB TO SECOND FLOOR SLAB. PROVIDE THIRTEEN FEET (13'-0") FROM SECOND FLOOR SLAB TO THE THIRD FLOOR SLAB. PROVIDE THIRTEEN FEET SIX INCHES (13'-6") FROM THIRD FLOOR SLAB TO THE TOP OF THE ROOF STEEL. 5A-06 PROVIDE WIND FRAMING AND ATTACHMENT FOR PRECAST CONCRETE. 5A-07 PROVIDE FRAMING AND SUPPORTS FOR ROOF TOP EQUIPMENT AS MAY BE REQUIRED. SECTION 5B - MISCELLANEOUS AND ORNAMENTAL IRON 5B-01 PROVIDE MANHOLE AND CATCH BASIN FRAMES AND COVERS WHERE REQUIRED. 5B-02 STAIRS SHALL BE METAL PAN, CONCRETE FILLED TYPE. STAIRS SHALL BE PROVIDED WITH INTEGRAL NOSINGS. HANDRAILS SHALL BE TUBULAR STEEL, EXCEPT AS OTHERWISE INDICATED ON THE DRAWINGS. THE STAIR TREADS WILL BE 4'-9" TO 5'-0" IN WIDTH. ONE STAIR WILL SERVICE THE ROOF. 5B-03 ALL NECESSARY CHANNEL IRON SUPPORTS AND HANGING RODS FOR TOILET PARTITIONS AND GLASS ENTRANCES SHALL BE PROVIDED. 5B-04 PROVIDE ELEVATOR SILL ANGLES. 5B-05 PROVIDE ONE ORNAMENTAL STAIR FROM THE FIRST TO THE SECOND FLOOR AT THE ATRIUM. |
DIVISION 6
CARPENTRY
SECTION 6A - ROUGH CARPENTRY
6A-01 PROVIDE ALL WOOD BLOCKING AND ROUGH CARPENTRY REQUIRED. 6A-02 INSTALL WOOD DOORS, METAL DOOR FRAMES AND FINISH HARDWARE. 6A-03 INSTALL TOILET PARTITIONS. SECTION 6B - MILLWORK 6B-01 ALL MEN'S AND WOMEN'S TOILET ROOMS SHALL HAVE CORIAN LAVATORY COUNTER TOPS WITH INTEGRAL BOWLS, BACKSPLASH, ENDSPLASH AND APRON. 6B-03 PROVIDE A FOUR INCH (4") OAK BASE AT THE WALLS OF THE LOBBIES AND TOILET ROOM VESTIBULE AREAS, OR ALTERNATE TYPE BASE AS SELECTED. 6B-04 PROVIDE A PLASTIC LAMINATE SILL AT ALL PERIMETER WALL OFFICE WINDOWS. 6B-05 PROVIDE A PLASTIC LAMINATE BACKSPLASH AT THE MOP SINK IN THE JANITOR'S CLOSET. |
DIVISION 7
MOISTURE PROTECTION
SECTION 7A - ROOFING AND FLASHING
7A-01 THE ROOF SHALL BE INSULATED TO YIELD A "U" FACTOR OF .06. ROOF LOADING IS TO BE IN ACCORDANCE WITH THE BUILDING CODE REQUIREMENTS. THE ROOFING SHALL BE A BALLASTED EDPM ROOFING SYSTEM AS MANUFACTURED BY CARLYSLE, FIRESTONE, GENERAL TILE OR APPROVED EQUAL. A TWENTY (20) YEAR LABOR AND MATERIAL MANUFACTURER'S STANDARD GUARANTEE IS INCLUDED. 7A-02 FLASHING AT THE PRECAST CONCRETE PARAPETS AND HVAC EQUIPMENT SHALL BE PROVIDED. 7A-03 VENT PIPE FLASHING SHALL BE PROVIDED AS REQUIRED BY THE APPLICABLE CODE. SECTION 7B - WATERPROOFING, DAMPPROOFING AND CAULKING 7B-01 INTERIOR CAULKING SHALL BE THE TYPE APPROPRIATE FOR THE APPLICATION. 7B-02 CAULK PERIMETER OF ALL EXTERIOR DOORS AND WINDOWS WITH MONOLASTIC, MERIC THIOKOL CAULKING OR APPROVED EQUAL. 7B-03 ALL PRECAST CONCRETE JOINTS SHALL BE CAULKED WITH MONOLASTOMERIC THIOKOL CAULKING OR APPROVED EQUAL. 7B-04 WATERPROOF AND/OR DAMPPROOF THE ELEVATOR PIT AS REQUIRED. |
DIVISION 8
DOORS, WINDOWS AND GLASS
SECTION 8A - WOOD DOORS
8A-01 INTERIOR BASE BUILDING WOOD DOORS SHALL BE 3'0" X 8'-0" BY 1 3/4" SOLID CORE, PLAIN SLICED, RED OAK AND/OR 3'0" X 7'0" BY 1 3/4" SOLID CORE, STAIN GRADE OAK. PROVIDE FIRE RATED DOORS AS REQUIRED BY CODE. ALL OAK DOORS ARE TO HAVE MATCHING EDGES. WOOD DOORS WILL BE PRE-MACHINED AND PRE-FINISHED IF TIME ALLOWS, OTHERWISE THEY WILL BE MACHINED AND FINISHED ON THE JOBSITE. SECTION 8B - METAL DOORS AND FRAMES 8B-01 ALL INTERIOR BASE BUILDING DOOR FRAMES SHALL BE WELDED TYPE IF TIME ALLOWS, OTHERWISE THEY WILL BE THREE PIECE, KNOCK DOWN TYPE, PRESSED METAL, SINGLE AND/OR DOUBLE RABBET DOOR FRAMES WITH PROPER ANCHORS FOR PARTITIONS. PROVIDE FIRE RATED FRAMES AS REQUIRED BY CODE. 8B-02 A 3' X 7' HOLLOW METAL DOOR AND FRAME WILL BE PROVIDED AT THE EXTERIOR WALL FOR THE COMPACTOR. SECTION 8C - FINISH HARDWARE 8C-01 FINISH HARDWARE SHALL BE HEAVY DUTY GRADE RUSSWIN, SCHLAGE, OR APPROVED EQUAL. 8C-02 KEY SCHEDULE SHALL BE PER THE OWNER'S REQUIREMENTS. 8C-03 LOCKSET TO HAVE REMOVABLE CORES. SECTION 8D - ALUMINUM ENTRANCE 8D-01 ALUMINUM DOOR FRAME ASSEMBLIES, INCLUDING WINDOW TRIM, SHALL BE ANODIZED ALUMINUM AS INDICATED ON THE DRAWINGS. 8D-02 ALUMINUM ENTRANCES SHALL BE COMPLETE WITH ALL HARDWARE (PIVOT HINGES, PUSH/PULLS, CLOSERS, ETC.) EXCEPT CYLINDER, WHICH IS TO BE FURNISHED UNDER SECTION 8C, FINISH HARDWARE. SECTION 8E - GLASS AND GLAZING 8E-01 GLASS FOR ENTRANCES SHALL BE 1/4" CLEAR TEMPERED. ENTRANCE DOORS SHALL BE 3'0" X 7'0" WITH GLASS TRANSOM. 8E-02 MIRRORS SHALL BE PROVIDED OVER EACH LAVATORY AT THE MEN'S AND WOMEN'S TOILET ROOMS. IN ADDITION, WOMEN'S TOILET ROOMS SHALL BE PROVIDED WITH A FULL HEIGHT MIRROR LOCATED ON THE WALL OPPOSITE THE LAVATORIES. 10 |
8E-03 THE EXTERIOR GLASS SHALL BE 1" INSULATING, TINTED AS MANUFACTURED BY LOF, PPG OR APPROVED EQUAL. GLASS AREA SHALL BE KEPT UNDER 50% OF THE EXTERIOR WALL AREA. INCLUDES MANUFACTURER'S STANDARD TEN (10) YEAR WARRANTY FOR THE INSULATED GLASS UNITS. 8E-04 THE ALUMINUM FRAMING FOR GLASS SHALL BE ANODIZED ALUMINUM WITH A THERMAL BREAK AS MANUFACTURED BY ALUMILINE, KAWNEER OR APPROVED EQUAL. ALL WINDOWS ARE TO BE THE FIXED TYPE. SECTION 8F - OVERHEAD DOORS 8F-01 PROVIDE FOUR (4) ELECTRICALLY OPERATED, 8' X 8', INSULATED OVERHEAD DOOR WITH WEATHER SEAL FOR THE TRUCK DOCK. |
DIVISION 9
FINISHES
SECTION 9A - RESILIENT BASE FOR THE BASE BUILDING 8A-01 RESILIENT BASE SHALL BE 4" HIGH, VINYL COVE OR STRAIGHT AS APPLICABLE. SECTION 9B - ACOUSTICAL WORK FOR THE BASE BUILDING 9B-01 ALL BASE BUILDING TOILET ROOMS, STAIRWAYS AND MAIN LOBBY SHALL HAVE LAY-IN, REVEAL EDGE UNITS OF 3/4" X 24" X 24", MINERAL ACOUSTIC TILE (GLACIER U.S.G. #707). SUSPENSION SYSTEM SHALL BE EXPOSED GRID 15/16" "T" SUSPENSION SYSTEM. CEILING HEIGHT SHALL BE 8'-6", EXCEPT TOILET ROOMS SHALL BE 7'6". TILE AND SUSPENSION SYSTEM SHALL BE WHITE. SECTION 9C - PAINTING FOR THE BASE BUILDING 9C-01 ALL EXPOSED FERROUS METALS SHALL RECEIVE A PRIMER COAT AND ONE COAT OF ENAMEL. 9C-02 INTERIOR PAINTED WALLS ARE TO RECEIVE TWO COATS OF LATEX PAINT. THE LOBBY, STAIRS AND TOILET ROOMS WILL BE PAINTED WITH POLYMIX. 9C-03 INTERIOR, BASE BUILDING DOORS SHALL RECEIVE TWO COATS OF SEMI-GLOSS ENAMEL PAINT, OR ONE COAT OF SEALER AND TWO COATS OF POLYURETHANE IF THEY ARE NOT PRE-FINISHED. 9C-04 TOILET ROOM WALLS THAT ARE NOT TO RECEIVE CERAMIC TILE SHALL BE PAINTED WITH POLYMIX. SECTION 9D - GYPSUM DRYWALL FOR THE BASE BUILDING 9D-01 INTERIOR, CEILING HIGH PARTITIONS SHALL BE 25 GA., 2 1/2" GALVANIZED METAL STUDS, 24" O.C. WITH 5/8" GYPSUM WALLBOARD ON EACH SIDE, TAPED, SANDED AND READY FOR PAINT. ALL FULL-HEIGHT PARTITIONS SHALL BE 25 GA., 3 5/8" GALVANIZED METAL STUDS, 24" O.C. WITH 5/8" GYPSUM WALLBOARD ON EACH SIDE, TAPED, SANDED AND READY FOR PAINT. INSULATION IN PARTITIONS SHALL BE AS INDICATED ON THE DRAWINGS. PROVIDE FIRE RATING AS REQUIRED BY CODE. ALL REQUIRED FIRE RATED WALLS SHALL BE CONSTRUCTED WITH APPROVED FIRE RATED DRYWALL ASSEMBLY SYSTEMS. 9D-02 THE INTERIOR OF THE EXTERIOR WALLS SHALL BE FURRED WITH METAL STUDS, INSULATED AND COVERED WITH DRYWALL TAPED AND SANDED READY FOR PAINT IN ALL FINISHED AREAS. THE INTERIOR FACE OF ALL PRECAST CONCRETE WILL BE INSULATED WITH A MINIMUM OF 3 1/2" OF FIBERGLASS INSULATION. 9D-03 INCLUDES THE FIRE WALL REQUIRED IN THE STATE CODE FOR CLASS 2C CONSTRUCTION. |
DIVISION 9 - FINISHES (CONTINUED)
SECTION 9D - GYPSUM DRYWALL FOR THE BASE BUILDING (CONTINUED)
9D-04 ALL STEEL COLUMNS WILL BE "H" COLUMNS COVERED WITH DRYWALL, TAPED, SANDED AND PREPARED FOR FINISH. SECTION 9E - EXTERIOR SOFFITS 9E-01 ALL EXPOSED EXTERIOR SOFFITS SHALL BE SYNTHETIC PLASTER. SECTION 9F - INSULATION 9F-01 FIBERGLASS BLANKET TYPE INSULATION SHALL BE PROVIDED BEHIND ALL EXTERIOR WALLS, EXCEPT BEHIND THE SPANDREL PANELS WHERE RIGID INSULATION MAY BE USED. 9F-02 RIGID INSULATION SHALL BE PROVIDED AT THE PERIMETER FOUNDATION WALLS. SECTION 9G - SPECIAL LOBBY FINISHES 9G-01 AN ALLOWANCE OF $50,000.00 IS INCLUDED FOR LOBBY FLOOR, WALL AND CEILING FINISHES. THE ALLOWANCE WILL PROVIDE FINISHES EQUAL TO THE LOBBY FINISHES AT WESTFORD TECHNOLOGY PARK, BUILDINGS FOUR AND FIVE, NETSCOUT AND GENRAD RESPECTIVELY. SECTION 9H - CARPETING 9H-01 AN ALLOWANCE OF TWENTY-FOUR DOLLARS ($24.00) PER SQUARE YARD HAS BEEN INCLUDED FOR ALL CARPET AT THE STAIRWAYS AND TOILET ROOM VESTIBULES. SECTION 9I - CERAMIC TILE 9I-0L TOILET ROOMS AND SHOWERS SHALL HAVE 1" X 1", UNGLAZED, CERAMIC FLOOR TILE AND 4 1/4" X 4 1/4" GLAZED, CERAMIC TILE, FULL HEIGHT, AT WET WALLS. |
DIVISION 10
SPECIALTIES
SECTION 10A - TOILET PARTITIONS
10A-01 PARTITIONS SHALL BE CEILING HUNG WITH A BAKED ENAMEL FINISH. PROVIDE TOILET PARTITIONS AS INDICATED ON THE DRAWINGS. SECTION 10B - TOILET ACCESSORIES 10B-01 PROVIDE CHROME-PLATED OR STAINLESS STEEL ACCESSORIES AS INDICATED ON THE DRAWINGS. ACCESSORIES SHALL INCLUDE DOUBLE ROLL TOILET PAPER HOLDERS, RECESSED PAPER TOWEL DISPENSER/DISPOSALS, LIQUID SOAP DISPENSERS, SANITARY NAPKIN VENDORS AND DISPOSALS. ALSO PROVIDE MOP HOOKS AT JANITOR'S CLOSET. SECTION 10C - DOCK EQUIPMENT 10C-01 PROVIDE FOUR (4) MECHANICAL EDGE OF DOCK LEVELER. LEVELER SHALL BE KELLEY E-Z RAMP SERIES STD-66, OR APPROVED EQUAL. DOCK BUMPERS INTEGRAL WITH THE DOCK LEVELER SHALL BE PROVIDED. ALSO PROVIDE DOCK SEAL, LIGHT AND BOLLARDS. |
DIVISION 12
FURNISHINGS
SECTION 10A - BLINDS
12A-01 VERTICAL BLINDS SHALL BE LOUVERDRAPE, MODEL EL (ELITE) OR APPROVED EQUAL, BOTH TRAVERSING AND ROTATING TYPES. 12A-02 BLINDS SHALL HAVE TOP TRACK ONLY WITH MANUFACTURER'S STANDARD BAKED ENAMEL FINISH. 12A-03 VERTICAL BLIND BLADES ARE TO BE PVC SOLID CORE, 3 1/2" WIDE,.03" THICKNESS. COLOR SHALL BE MANUFACTURER'S STANDARD COLOR AS SELECTED BY THE OWNER AND ARCHITECT. 12A-04 BLINDS SHALL BE INSTALLED AT ALL EXTERIOR WALL WINDOWS. |
DIVISION 14
CONVEYING SYSTEM
SECTION 14A - ELEVATOR
14A-01 TWO (2) STANDARD PACKAGE, HYDRAULIC PASSENGER ELEVATORS SHALL BE PROVIDED AT THE MAIN ENTRANCE LOBBY. CAPACITY SHALL BE 4,000 POUNDS; SPEED SHALL BE 125 FEET PER MINUTE. CAB FINISH SHALL BE STAINLESS STEEL ON FRONT PANELS AND DOORS, PLASTIC LAMINATE WALLS, AND BAKED ENAMEL FRAME AND ENTRANCE DOORS ON HALL SIDE. INCLUDE PROTECTIVE PADS AND HOOKS, HANDRAIL AT REAR, TELEPHONE BOX AND CABLE, REMOVABLE CEILING, CERTIFICATE FRAME, EMERGENCY CAR LIGHTING, EXHAUST FAN, HANDICAPPED CODE AND ADA REQUIREMENTS AND 3'-6" CENTER OPENING DOORS. ONE (1) STANDARD PACKAGE, HYDRAULIC PASSENGER/MATERIAL ELEVATOR WILL BE PROVIDED AT THE TRUCK DOCKS. CAPACITY SHALL BE 5,000 POUNDS; SPEED SHALL BE 125 FEET PER MINUTE. CAB AND ENTRANCES SHALL BE THE SAME AS THE ELEVATORS IN THE LOBBY. DOORS SHALL BE 4'-0" X 7'-0" SIDE OPENING TYPE. ELEVATORS WILL BE EQUIPPED WITH A BATTERY OPERATED EMERGENCY LOWERING DEVICE TO LOWER THE ELEVATOR TO THE FIRST FLOOR UPON FAILURE OF THE MAIN POWER SUPPLY. |
DIVISION 15
MECHANICAL
DIVISION 15A - PLUMBING
15A-O1 CODES, ORDINANCES AND PERMITS 1. ALL MATERIAL AND WORKMANSHIP SHALL BE IN STRICT ACCORDANCE WITH THE FOLLOWING CODES: A. MASSACHUSETTS STATE PLUMBING CODE B. MASSACHUSETTS STATE BUILDING CODE C. NATIONAL FIRE CODES D. REQUIREMENTS OF THE TOWN OF WESTFORD, MASSACHUSETTS E. DEPARTMENT OF PUBLIC HEALTH 15A-02 SANITARY WASTE AND VENT SYSTEM 1. INTERIOR WASTE AND VENT PIPING SHALL CONVEY WASTES TO THE UNDERGROUND SANITARY WASTE SYSTEM AND SHALL BE VENTED THROUGH THE ROOF AS REQUIRED BY CODE. 2. EXTERIOR SANITARY WASTE SHALL BE CONNECTED TO THE PROPOSED PARK SEWER TREATMENT SYSTEM. 15A-03 ROOF DRAINAGE SYSTEM 1. INTERIOR ROOF DRAINS SHALL BE ADEQUATELY SIZED AND INSTALLED TO DRAIN ALL ROOF SURFACES AND SHALL BE CONNECTED TO THE STORM DRAIN OUTSIDE THE BUILDING LINE. 15A-04 COLD AND HOT WATER SYSTEMS 1. COLD AND HOT WATER SYSTEMS SHALL BE INSTALLED TO SERVICE ALL FIXTURES AND EQUIPMENT INDICATED ON THE DRAWINGS REQUIRING COLD AND HOT WATER. 2. COLD AND HOT WATER SHALL BE SIZED IN ACCORDANCE WITH THE LATEST REQUIREMENTS OF THE APPLICABLE PLUMBING CODE. 3. A GREY WATER SYSTEM WILL BE UTILIZED TO PROVIDE WATER TO WATER CLOSETS AND URINALS. 15A-05 PIPING AND FITTINGS 1. PIPING AND FITTINGS SHALL BE CAST IRON FOR SANITARY AND STORM, AND COPPER FOR WATER - ALL CONFORMING TO THE LATEST ASTM AND/OR F.S. STANDARDS. 15A-06 PIPING AND DRAINAGE ACCESSORIES 1. ROOF DRAINS, WALL/GROUND HYDRANTS, CLEANOUTS, AND FIXTURE CARRIERS SHALL BE AS MANUFACTURED BY J.R. SMITH, JOSAM, ZURN OR APPROVED EQUAL. PRESSURE-REDUCING VALVES AND BACK FLOW PREVENTORS SHALL BE AS MANUFACTURED BY WATTS OR APPROVED EQUAL. |
DIVISION 15 - MECHANICAL (CONTINUED)
SECTION 15A - PLUMBING (CONTINUED)
15A-07 INSULATION 1. ALL ABOVE-GROUND COLD WATER PIPING, VALVES AND FITTINGS SHALL BE INSULATED, INCLUDING THE AIR CHAMBER. HORIZONTAL RAIN LEADERS AND ALL ROOF DRAINS SHALL BE INSULATED. 15A-08 WATER METER 1. WATER METER AND PIPING SHALL BE FURNISHED AND INSTALLED IN ACCORDANCE WITH THE TOWN OF WESTFORD, MASSACHUSETTS' REQUIREMENTS. 15A-09 PLUMBING FIXTURES 1. WATER CLOSETS SHALL BE WALL-HUNG, ELONGATED, FLUSH VALUED CLOSETS WITH 1 1/2" TOP SPUDS AND EXPOSED VALVES AS MANUFACTURED BY KOHLER COMPANY OR APPROVED EQUAL, WITH WHITE, OPEN FRONT SEATS, NO COVER. 2. URINALS SHALL BE WALL-HUNG, WHITE WITH 1 1/2" TOP SPUDS, EXPOSED VALVES AS MANUFACTURED BY KOHLER COMPANY OR APPROVED EQUAL. 3. LAVATORIES SHALL BE INTEGRAL WITH THE VANITIES. 4. DRINKING FOUNTAINS (TWO ON EACH FLOOR) SHALL BE ELECTRIC, SEMI-RECESSED, WALL-MOUNTED TYPE AS MANUFACTURED BY HALSEY TAYLOR OR APPROVED EQUAL. 5. ELECTRIC HOT WATER HEATER(S), SIZED TO SUIT THE BUILDING REQUIREMENTS, SHALL BE PROVIDED. 6. HANDICAP TYPE FIXTURES WILL BE PROVIDED IN THE TOILET ROOMS AS REQUIRED BY APPLICABLE CODES. SECTION 15B - HEATING, VENTILATING AND AIR CONDITIONING 15B-01 PROVIDE 550 TONS OF ROOFTOP, VARIABLE VOLUME HEATING, VENTILATING AND AIR CONDITIONING SYSTEM TO PROVIDE COMFORT HEATING AND COOLING ON A YEAR-ROUND BASIS WITH CONTROLLED NIGHT SET BACK AND ECONOMIZING FEATURES, AND SHALL MEET ALL APPLICABLE CODE REQUIREMENTS. EQUIPMENT SHALL BE AS MANUFACTURED BY TRANE OR APPROVED EQUAL AS SELECTED BY GUTIERREZ CONSTRUCTION CO., INC. INCLUDES NATURAL GAS MORNING WARM-UP. A LOW VOLTAGE, AUTOMATIC TEMPERATURE CONTROL SYSTEM WILL ALSO BE PROVIDED. ABOVE THE CEILINGS WILL BE USED AS A RETURN AIR PLENUM. SUPPLY DUCTWORK WILL NOT BE INSULATED. INCLUDES HVAC DISTRIBUTION FOR THE BASE BUILDING AREAS. DOES NOT INCLUDE HVAC DISTRIBUTION, VAV BOXES OR CONTROLS AT THE TENANT AREAS. STUB OUTS ADEQUATELY SIZED FOR THE TENANT DISTRIBUTION FOR SUPPLY AND RETURN AIR WILL BE PROVIDED AT THE DUCT SHAFTS ON EACH FLOOR. INCLUDES SMOKE AND FIRE DAMPERS AT DUCT SHAFT AND ROOFTOP UNITS AS REQUIRED BY THE APPLICABLE CODE. |
DIVISION 15 - MECHANICAL (CONTINUED)
SECTION 15B - HEATING VENTILATING AND AIR CONDITIONING (CONTINUED)
15B-02 DUCT WORK ALL DUCT WORK FOR THE BASE BUILDING AREAS AND DUCT SHAFT(S) SHALL BE GALVANIZED STEEL TO MEET THE ASHRAE STANDARDS. FLEXIBLE DUCT RUN-OUTS SHALL NOT EXCEED SIX FEET (6'). 15B-03 GRILLES AND DIFFUSERS AS REQUIRED FOR THE BASE BUILDING. 15B-04 TOILET ROOM EXHAUST A TOILET ROOM EXHAUST SYSTEM SHALL BE INSTALLED IN ACCORDANCE WITH THE CODE REQUIREMENTS. SECTION 15C - SPRINKLERS 15C-01 AN AUTOMATIC WET PIPE, LIGHT HAZARD SPRINKLER SYSTEM SHALL BE PROVIDED FOR THE BASE BUILDING. THE SYSTEM SHALL BE DESIGNED TO MEET NFPA #13 AND ISO REQUIREMENTS. HEADS AT ACOUSTICAL CEILINGS SHALL BE CHROME PLATED, SEMI-RECESSED, PENDENT TYPE. HEADS IN OPEN AREAS SHALL BE THE BRASS UPRIGHT TYPE. TESTING SHALL BE IN ACCORDANCE WITH NFPA PAMPHLET NO. 13. FURNISH AND INSTALL TAMPER AND FLOW SWITCHES ON EACH FLOOR AS REQUIRED BY NFPA PAMPHLET NO. 13 AND OTHER APPLICABLE CODES AND AUTHORITIES HAVING JURISDICTION. WIRING SHALL BE BY THE ELECTRICAL SUBCONTRACTOR. SPRINKLER DISTRIBUTION FOR THE TENANT AREAS IS NOT INCLUDED. STUB OUTS ADEQUATELY SIZED FOR THE TENANT AREA SPRINKLER SYSTEM WILL BE PROVIDED ON EACH FLOOR. INCLUDES FLOW SWITCHES AND TAMPER SWITCHES ON EACH FLOOR. |
"EXHIBIT C-1"
CERTIFICATE OF OWNER / / SUBSTANTIAL ARCHITECT / / COMPLETION CONTRACTOR / / FIELD / / AIA DOCUMENT G704 OTHER / / ------------------------------------------------------------------------------ PROJECT: ARCHITECT: (name, address) ARCHITECT'S PROJECT NUMBER: TO (Owner) CONTRACTOR: CONTRACT FOR: CONTRACT DATE: |
DATE OF ISSUANCE:
PROJECT OR DESIGNATED AREA SHALL INCLUDE:
DEFINITION OF DATE OF SUBSTANTIAL COMPLETION
A list of items to be completed or corrected, prepared by the Contractor and verified and amended by the Architect, is appended hereto. The failure to include any items on such list does not alter the responsibility of the Contractor to complete all Work in accordance with the Contract Documents.
------------------------------------------- ----------------------------- -------------- ARCHITECT BY DATE |
The Contractor will complete or correct the Work on the list of items appended hereto within from the above Date of Substantial Completion.
------------------------------------------- ----------------------------- -------------- CONTRACTOR BY DATE |
The Owner accepts the Work or designated portion thereof as substantially complete and will assume full possession thereof at (time) on (date)
------------------------------------------- ----------------------------- -------------- OWNER BY DATE |
EXHIBIT "C-2"
CERTIFICATE OF FINAL COMPLETION
Project: NetScout Systems, Inc. Lease Date: ___________, 2000 Location: _______________________ Date: Westford, Massachusetts Owner: Arturo J. Gutierrez and John A. Cataldo, Trade: Trustees of Nashoba Westford Realty Trust under Declaration of Trust dated April 27, 2000, recorded with the Middlesex North District Registry of Deeds in Book 10813, Page 038 |
( ) All work has been completed in accordance with Article IX of the Lease.
( ) All work has been completed in accordance with Article IX of the Lease, except for that listed in attached schedule for which a credit has been taken.
Final Inspection was made __________________ in the presence of:
Remarks:
Landlord must have completed or corrected all punch list items or accepted credit for unsatisfactory or incomplete work and submitted all Close-out Documents as listed on Close-out Documents - Record & Transmittal Form.
This is to certify that NetScout Systems, Inc. will not be held responsible for any bills, liens, claims or demands in connection with the above noted project. All workmanship and materials are hereby guaranteed in accordance with stipulations in the Contract Documents and Lease on Certificate of Substantial Completion.
By:_________________________________ By:_________________________________ Title:_______________________________ Title:_______________________________ Date:_______________________________ Date:_______________________________ |
NOTE: See also definition of Substantial Completion in Article IX of the Lease.
EXHIBIT "D"
RULES AND REGULATIONS
1. No curtains, blinds, shades, screens, or signs other than those furnished by Landlord shall be attached to, hung in, or used in connection with any window or door of the Premises without the prior written consent of the Landlord, which shall not be unreasonably withheld, conditioned or delayed. All interior Tenant signage is at Tenant's expense and must be installed or affixed by a contractor first approved by Landlord acting reasonably and without delay. The style, size and color of any interior signage visible from the exterior of the Premises must also be reasonably acceptable to Landlord.
2. As well as any security (door access) system provided and installed by Tenant, as reasonably approved by Landlord, Tenant shall be allowed to place additional locks or bolts upon doors and windows within the Premises. Tenant recognizes that these additional locks and bolts could prove to be a hindrance to Landlord providing building services such as cleaning and maintenance. Tenant must, upon the termination of its tenancy, remove all additional locks and bolts and restore all original door hardware and provide Landlord all Building keys either furnished to or otherwise procured by Tenant; and in the event of the loss of any keys so furnished, Tenant shall pay to Landlord the reasonable cost thereof.
3. Canvassing, soliciting and peddling in the Building are prohibited, and Tenant shall cooperate to prevent the same.
4. Tenant shall comply with all reasonable security measures from time to time established by Landlord and of which Tenant receives written notice, for the Lot or Office Park, so long as (i) the same do not breach or violate Tenant's rights under this Lease or the requirements of any governmental security restrictions to which Tenant is subject, and (ii) such reasonable security measures do not deprive Tenant of reasonable access to the Premises at all times or otherwise unreasonably interfere with Tenant's use or occupancy of the Premises for the Office Park.
5. Should Tenant's organization have a non-smoking policy presently in effect for their visitors and/or employees or institute such a policy during the Term of this Lease, Tenant shall set aside a smoking area within the Premises, properly ventilated and/or with smoke filtration units, so as not to interfere with any fire protection devices, such as smoke detectors, or the quality of air recirculated in the Building's HVAC system.
6. Tenant shall comply with the Park Covenants attached hereto as Exhibit "E".
EXHIBIT "E"
PARK COVENANTS
Landlord agrees with Tenant to enforce, or cause to be enforced, these Park Covenants with all due diligence to preserve the quality and appearance of the Park.
The Lot is approximately twelve (12) acres and is located in an approximately twenty-two (22) acre office/research and development park shown on the Plan of the Park attached hereto as part of Exhibit A and more particularly described therein and elsewhere in this Lease, as the same, including without limitation the Common Areas of the Park, may be amended by Landlord from time to time in accordance with and subject to the provisions of Section 2.1 of this Lease.
All lots of land comprising the Park (which lots, including without limitations the Lot, are individually called the "Parcel" and collectively the "Parcels") are subject to the following restrictions which shall bind Nashoba Westford Realty Trust (collectively "Grantor") as ground lessee of the Park and its successors in title.
A. All parcels shall have facilities for parking, loading and unloading sufficient to serve any uses of the Parcels without using adjacent streets for such purpose. On-street parking shall be prohibited. All parking, trucking and vehicular maneuvering areas for a Parcel shall be contained within such Parcel.
B. No exterior loading platforms shall be visible from any primary way or proposed primary way serving the Park. Screening and planting may be used for this purpose.
C. No open or outside storage shall be done on any Parcel, other than normal and customary trash compactors and containers on locations to be reasonably approved by Landlord in advance.
D. Signs shall conform to the sign ordinances of the Town of Westford. Any variance from such ordinance granted by the Town of Westford must also be approved by Grantor in the manner provided below in Section I.
E. No condition or use of any Parcel will be permitted which is objectionable by reason of noise, odor, vibration, smoke, radiation, the hazardous nature of the use, or the violation of environmental laws or regulations adopted by the Town of Westford, the Commonwealth of Massachusetts, the Federal Government or any Court.
F. All utilities serving a Parcel shall be placed underground, unless prohibited by the utility company. Any exterior lighting on a Parcel shall either be indirect or of such controlled focus and intensity as not to disturb street traffic or the occupancy of any adjacent Parcel.
G. The exterior appearance of any buildings in the Park, including landscaping thereon, shall be kept neat and orderly and free from litter.
H. No building, exterior sign, fence, wall, exterior lighting or other structure shall be erected or allowed to maintain on any portion of the Park or exterior structural alteration or addition made, except pursuant to plans approved in writing by Grantor as to landscaping, parking and architectural conformity with existing buildings in the Park.
I. The Grantor may from time to time by written instrument in recordable form grant variance from any one or more of these restrictions (except restriction H for which variances may not be granted) where the Grantor reasonably determines that the variance can be granted without substantial detriment to the intent and purpose of the restrictions and without substantial detriment to the Land, and portions of the Park theretofore built upon.
J. Written approval by the Grantor as to any buildings, signs, structures, alterations, additions and landscaping approved by Grantor in good faith shall be conclusive evidence of compliance with these restrictions. The Grantor agrees to furnish to any grantee such written instruments in recordable form as may reasonably be requested by the grantee as evidence of such compliance.
K. The term "Grantor", as herein used, shall mean Arturo J. Gutierrez and John A. Cataldo, Trustees Nashoba Westford Realty Trust, u/d/t dated April 27, 2000 and recorded with the Middlesex North District Registry of Deeds in Book 10813, Page 038, and any of its successors in title to whom the Grantor has expressly granted of record the rights to enforce these restrictions.
EXHIBIT F
ALBERT L. NARDONE and ANTHONY B. NARDONE
of Middlesex County, Massachusetts
in consideration of One Dollar ($1.00) and 00/100
grant to ALBERT L. NARDONE, TRUSTEE and ANTHONY B. NARDONE, TRUSTEE OF ONE
LITTLETON ROAD REALTY TRUST recorded herewith.
of Powers Road, Westford, MA 01886
WITH QUITCLAIM COVENANTS
The land with the buildings thereon located on the southerly side of Littleton Road, Westford, Middlesex County, Massachusetts, being shown as Lot 1 on a plan entitled "Plan of Land in Westford, MA prepared "One Littleton Trust: dated December 15, 19991 and prepared by L.J. Ducharme Assoc., Inc. 1092 Main Street, Bolton, MA 01740 Scale 1" = 20' to which plan reference is made for a more particular description.
According to said plan Lot 1 contains 40,760 +/- square feet.
Said plan to be recorded herewith at North Middlesex Registry of Deeds in Plan Book 177 Plan 114.
Being a portion of the premises conveyed to the grantors by deed of Rose F. McDonald dated November 25, 1952 and recorded at North Middlesex District Registry of Deeds in Book 1211 Page 147.
Executed as a sealed instrument this 30th day of December 1991
-------------------------------------- -------------------------------- Albert L. Nardone -------------------------------------- --------------------------------------------- -------------------------------------- -------------------------------- Anthony B. Nardone |
THE COMMONWEALTH OF MASSACHUSETTS
Middlesex ss. December 30, 1991
Then personally appeared the above named
Albert L. Nardone and Anthony B. Nardone
and acknowledged the foregoing instrument to be their free act and deed
My commission expires 11/27/1998
WE, ANTHONY B. NARDONE and ALBERT L. NARDONE, both of 37 Power Road, Westford, Middlesex County, Massachusetts
in consideration of ONE AND NO/100 ($1.00) DOLLAR
grant to ANTHONY B. NARDONE and ALBERT L. NARDONE, Trustees of TWO LITTLETON ROAD REALTY TRUST, under Declaration of Trust dated 1/30/97 and recorded herewith at Middlesex North District Registry of Deeds
of Westford, Middlesex County, Massachusetts
WITH QUITCLAIM COVENANTS
Three separate parcels of land located on the Southerly side of Littleton Road and the Westerly side of Concord Road in Westford, Middlesex County, Massachusetts and being shown as Lot 5, Lot 6 and Lot 7 on a Plan entitled "Anthony G. and Albert L. Nardone, Westford, MA, Plan of Land Proposed A.N.R. Lots" dated July 9, 1996, prepared by Rizzo Associates, Inc. to which plan reference is made for a more particular description. Said plan is recorded at Middlesex North District Registry of Deeds in Plan Book 192, Plan 64.
According to said plan:
Lot 5 contains 443,772 square feet, more or less; Lot 6 contains 197,212 square feet, more or less; Lot 7 contains 268,936 square feet, more or less
For title reference, see Middlesex North District Registry of Deeds, Book (see 1211/147)
Witness our hands and seals this 30th day of January, 1997.
COMMONWEALTH OF MASSACHUSETTS
Middlesex, ss. January 30th, 1997
Then personally appeared the above named ANTHONY B. NARDONE and ALBERT L. NARDONE and acknowledged the foregoing instrument to be their free act and deed, before me,
EXHIBIT "G-1"
LESSEE'S LEASE STATEMENT
AND
SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT AGREEMENT
THIS AGREEMENT is made and entered into as this ___ day of ________, 2000, by and among _____________________, a _______________________ (hereinafter called the ("Lender"), __________________________ (hereinafter called the "Tenant") and ________________________________ (hereinafter called the "Landlord").
WITNESSETH
WHEREAS, Landlord is the ground lessee under that certain ground lease dated May 11, 2000 and executed by and between Albert L. Nardone and Anthony B. Nardone, Trustees of Two Littleton Road Realty Trust, u/d/t dated January 30, 1997 and recorded with the Middlesex North Registry of Deeds in Book 8425, Page 143 and as Trustees of One Littleton Road Realty Trust, u/d/t dated December 30, 1991 and recorded with said deeds in Book 5768, Page 183, as "Landlord" and Landlord, as "Tenant", notice of which was recorded in said Deeds in Book 10832, Page 7 (the "Ground Lease"), in connection with certain real property commonly known as ______________________, and located in Westford, Middlesex County, Massachusetts, and more particularly described in Exhibit "A" attached hereto and made a part hereof (said property being hereinafter called the "Property"); and
WHEREAS, Landlord and Tenant made and entered into that certain Lease, dated as of the ___ day of ____________ 2000, with respect to certain premises located on the Property constituting the Premises therein described, as the same may be expanded pursuant to Exhibit "J" of the Lease (said Lease being hereinafter called the "Lease" and said premises being hereinafter called the "Leased Premises"), notice of which was recorded in the Middlesex North Registry of Deeds on __________________, 2000 as Instrument No. _____; and
WHEREAS, Landlord has entered into and delivered that certain Mortgage and Security Agreement in favor of Lender recorded in the Middlesex North Registry of Deeds on ______________, 2000 as Instrument No. _______ prior to the recording of this Agreement (said Mortgage and Security Agreement being hereinafter called the "Mortgage"), conveying the Property to secure the payment of the indebtedness described in the Mortgage; and
WHEREAS, on or about the date hereof, Landlord has entered into and delivered that certain Assignment of Leases and Rents in favor of Lender recorded in the Middlesex North Registry of Deeds on ______________, ______ as Instrument No. _________ prior to the recording of this Agreement (said Assignment of Leases and Rents being hereinafter called the "Assignment of Leases"), assigning all of Landlord's right, title and interest as lessor under the Lease to further secure the indebtedness described in the Mortgage; and
WHEREAS, the Mortgage and the Assignment of Leases secure the repayment of a loan from Lender to Landlord in the principal amount of $___________ (the "Loan") as evidenced by that certain Promissory Note of Landlord to Lender dated ____________, 2000 (the "Note"); and
WHEREAS, the proceeds of the Note are being advanced pursuant to the terms of that certain Construction Loan Agreement between Landlord and Lender dated __________, 2000 (the Construction Loan Agreement"): the Note, Mortgage, Assignment of Leases, Construction Loan Agreement and all other documents extended in connection with Mortgage, the Loan are sometimes hereinafter collectively referred to as the "Loan Documents"; and
WHEREAS, the Lender represents that it is the sole holder of the Mortgage and the Promissory Note and other loan documents secured thereby; and
WHEREAS, the parties hereto desire to enter into this Non-Disturbance, Attornment and Subordination Agreement;
NOW, THEREFORE, for and in consideration of the mutual covenants hereinafter set forth and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Lender, Tenant and Landlord hereby covenant and agree as follows:
1. ESTOPPEL - Tenant hereby certifies to Lender that, as of the date of this Agreement: (i) the Lease, as described above, is the true, correct and complete Lease and has not been modified or amended and constitutes the entire agreement between Landlord and Tenant, (ii) to the best of Tenant's knowledge, without inquiry, there are no defaults of Landlord under the Lease and there are no existing circumstances which with the passage of time, or giving of notice, or both, would give rise to a default under the Lease and/or allow Tenant to terminate the Lease, (iii) Tenant is satisfied with all of the work done by and required of Landlord to date, such work has been done in accordance with plans and specifications approved by Tenant, and as of the date hereof Tenant is not aware of any defect in the work or has not rejected any of the work done by Landlord on the Leased Premises [only includable if Tenant agrees with, after work is completed], (iv) that no rent under the Lease has been paid more than thirty (30) days in advance of its due date; (v) that the Tenant, as of this date, has no charge, lien or claim of offset under the Lease or otherwise, against rents or other charges due to become due thereunder; and (vi) the Tenant's interest in the Lease has not been assigned nor has any portion of the Leased Premises been sublet. If this Agreement is being delivered prior to completion of all of Landlord's Work (as such term is defined in the Lease) on the Leased Premises, Tenant agrees that, promptly after request of the Lender therefor, it will provide an estoppel certificate to Lender following completion of such work indicating whether Tenant has accepted the work and begun payment of rent.
2. NON-DISTURBANCE - Lender agrees that if Lender comes into possession of or acquires title to all or any part of the Leased Premises or the Lot (as defined in the Lease) as a result of foreclosure or other enforcement of the Mortgage or the Assignment of Leases, or both, then so long as no default under the Lease by Tenant exists and continues beyond the expiration of all applicable cure periods (after notice, if any, required by the Lease) as would entitle the lessor under the Lease to terminate the Lease or would cause, without any further action on the
part of such lessor, the termination of the Lease or would entitle the lessor under the Lease to exercise any other remedy available to it on account of Tenant defaults under the Lease, the Lease shall not be terminated, nor shall Tenant's use, possession or enjoyment of the Leased Premises and appurtenant rights and interests or rights under the Lease be interfered with. Following a foreclosure or other action or proceeding in the nature of foreclosure instituted under or in connection with the Mortgage or the Assignment of Leases, or the acquisition of title to the Leased Premises, the person or entity acquiring the interest of the lessor under the Lease as a result of any such action or proceeding or deed in lieu of any such action or proceeding (hereinafter called the "Purchaser") or Lender if Lender takes possession of the Property shall have all rights and obligations of Landlord under the Lease, except as expressly otherwise set forth herein, provided, however, that neither the Purchaser nor the Lender shall be (a) liable for any act or omission of any prior lessor under the Lease provided that nothing herein shall relieve such Purchaser or Lender from curing any continuing defaults of lessor after receipt of requisite notices from Tenant, all in accordance with the Lease; or (b) liable for the return of any security deposit which lessee under the Lease has paid under the Lease unless such security deposit is received by Lender; or (c) subject to any offsets or defenses which the lessee under the Lease might have against any prior lessor under the Lease unless Lender has received prior written notice of the offset or defense and opportunity to cure the same in accordance with Section 7 below; or (d) bound by any base rent, or any other payments which the lessee under the Lease might have paid for more than the current month to any prior lessor under the Lease; or (e) bound by any amendment or modification of the Lease which reduces the rent, reduces the area of the Leased Premises, shortens the term or materially impairs the rights of Mortgagee thereunder without obtaining Lender's prior written consent or (f) personally liable for any default under the Lease or any covenant or obligation on its part to be performed thereunder as lessor, it being acknowledged that Tenant's sole remedy in the event of such default shall be to proceed against Purchaser's or Lender's interest in the Property and the rents, or other proceeds arising therefrom, including but not limited to insurance proceeds for policies required to be carried by Landlord under the Lease.
In the event that Lender or Purchaser acquires title to or possession
of all or any part of the Leased Premises, whether pursuant to a foreclosure
proceeding or otherwise, then within thirty (30) days thereafter, the Lender or
Purchaser may elect to deliver a written notice to the Tenant stating that
either (i) the Lender intends to perform the construction obligations of the
Landlord set forth in Article III of the Lease (the "Construction Obligations"),
or (ii) the Lender or Purchaser does not intend to perform the Construction
Obligations. A notice delivered by the Lender or Purchaser pursuant to clause
(i) is referred to herein as an "Opt-In Construction Notice" and a notice
delivered by the Lender pursuant to clause (ii) is referred to herein as an
"Opt-Out Construction Notice".
In the event that the Lender or Purchaser does not deliver either an Opt-Out construction Notice or an Opt-In Construction Notice to the Tenant within said thirty (30) days after acquisition of title or possession, then Tenant may elect to deliver a written request (a "Construction Confirmation Request") to the Lender or Purchaser, requesting that Lender or Purchaser deliver either an Opt-Out Construction Notice or an Opt-In Construction Notice.
If either (a) Lender or Purchaser delivers an Opt-Out Construction Notice to Tenant as aforesaid, or (b) Lender or Purchaser does not deliver an Opt-In Construction Notice to Tenant by not later than thirty (30) days after receipt of Tenant's Construction Confirmation Request, then Lender or Purchaser shall not be obligated to perform the Construction Obligations in accordance with the terms and provisions the Lease. If Lender or Purchaser delivers an Opt-In Construction Notice as aforesaid, then Lender or Purchaser shall be obligated to perform the Construction Obligations in accordance with the terms and provisions of the Lease. If Lender or Purchaser timely delivers an Opt-Out Construction Notice to Tenant by not later than thirty (30) days after receipt of Tenant's Construction Confirmation Request as aforesaid, or Lender or Purchaser does not deliver an Opt-In Construction Notice to Tenant by not later than thirty (30) days of its receipt of Tenant's Construction Confirmation Request, then (a) Lender or Purchaser shall have no obligation to perform the Construction Obligations, and (b) Tenant may elect to terminate the Lease by providing written notice of such election to Lender or Purchaser. If Tenant elects to terminate the Lease, the Lease shall be terminated effective as of the date specified in Tenant's notice. Thereafter the Lease shall be null and void and of no further force or effect, and neither the Tenant nor the Lender or Purchaser shall have any further liabilities or obligations thereunder.
If (a) Lender sells, conveys, assigns, pledges or transfers its
interest in the Loan, or (b) Lender sells the Leased Premises, or any part
thereof, at a foreclosure sale, or (c) if Lender acquires title to the Leased
Premises and subsequently conveys the Leased Premises, then, in any such event,
concurrently with such transaction, Lender shall transfer, assign and convey all
right, title and interest of the Lender in and to the Security Deposit then held
by it, if applicable, to such purchaser, assignee, or transferee.
Notwithstanding anything to the contrary contained in this Section, if Lender so
transfers, assigns or conveys all right, title and interest of the Lender in and
to the Security Deposit, if applicable, as aforesaid, then Lender shall have no
liability for the return of the Security Deposit.
3. ATTORNMENT - Unless the Lease is terminated in accordance with Paragraph 2 or in accordance with the terms of the Lease, if the interests of the lessor under the Lease shall be transferred by reason of the exercise of the power of sale contained in the Mortgage (if applicable), or by any foreclosure or other proceeding for enforcement of the Mortgage, or by deed in lieu of foreclosure or such other proceeding, or if Lender takes possession of the Property pursuant to any provisions of the Mortgage, Tenant shall be bound to the Purchaser or Lender, as the case may be, under all of the terms, covenants and conditions of the Lease for the balance of the term thereof and any extensions or renewals thereof which may be effected in accordance with any option therefor in the Leases with the same force and effect as if the Purchaser or Lender were the lessor under the Lease, and Tenant, as lessee under the Lease, does hereby agree to attorn to the Purchaser and Lender if it takes possession of the Property, as its lessor under the Lease. Such attornment shall be effective and self-operative without the execution of any further instruments upon succession by Purchaser to the interest of the lessor under the Lease or the taking of possession of the Property by Lender. Nevertheless, Tenant shall, from time to time, execute and deliver such instruments evidencing such attornment as Purchaser or Lender may reasonably require. The respective rights and obligations of Purchaser, Lender and of the lessee under the Lease upon such attornment, to the extent of the then remaining balance of the term of the Lease and any such extensions and renewals, shall be and
are the same as now set forth in the Lease, except as otherwise expressly provided in Paragraph 2 above.
4. SUBORDINATION - Subject to the provisions of this Agreement, Tenant hereby subordinates all of its rights, title and interest as lessee under the Lease to the right, title and interest of Lender under the Mortgage, and Tenant further agrees that the Lease now is and shall at all times continue to be subject and subordinate in each and every respect to the Mortgage and to any and all increases, renewals, modifications, extensions, substitutions, replacements and/or consolidations of the Mortgage and to all sums secured thereby with the same force and effect as if the Mortgage had been executed, delivered and recorded prior to the execution and delivery of the Lease.
5. OTHER CONDITIONS - Notwithstanding anything to the contrary
contained in this Agreement or in the Lease, Lender, Tenant and Landlord agree:
(a) that to the extent required by the Lease, and provided that (i) Tenant has
not defaulted in the payment of rent or other charges under the Lease, (ii)
Landlord has not defaulted in the payment of debt service or other payments
under the loan documents and (iii) neither Landlord or Tenant has filed a
voluntary petition in bankruptcy under Title 11 of the United States Code or had
an order for relief issued against it and not dismissed within sixty (60) days
of issuance or has filed any petition or answer seeking or acquiescing in any
reorganization, arrangement, composition, readjustment, liquidation, dissolution
or similar relief for itself under any present or future federal, state or other
law or regulation relating to bankruptcy, insolvency or other relief of debtors
or consented or acquiesced in the appointment of any custodian, trustee,
receiver, conservator or liquidator for it or all or any substantial part of its
property or made an assignment for the benefit of creditors, then in the event
of an insured casualty to the Leased Premises, and if Landlord satisfies the
conditions provided for hereafter, Lender shall hold the balance of any casualty
proceeds after proof and adjustment and shall use such funds for the following
purposes: (x) to reimburse Landlord, in accordance with the terms and conditions
set forth below, for the costs of reconstruction or repair of the Leased
Premises, and (y) upon completion of such reconstruction or repair, to apply any
excess to the payment of the Secured Obligations. Such funds shall be made
available as provided above upon the Landlord's prior satisfaction of such
conditions as the Lender may reasonably establish with respect thereto (each of
which must be complied with in a manner reasonably satisfactory to the Lender,
with all documents, instruments, agreements, or evidence to be in form and
substance satisfactory to the Lender), including without limitation, the
following (hereinafter referred to as the "Funding Requirements"):
(i) delivery of estoppel certificate(s) or other satisfactory evidence that the Lease remains in full force and effect and will remain in full force and effect after such repair and restoration, without any right of termination or cancellation during the projected course of said repair or restoration;
(ii) delivery of plans and specifications, construction budget, construction contract, and construction schedule for such repair and restoration, satisfactory to Lender;
(iii) delivery of evidence of compliance with all applicable state, federal, and local laws, ordinances and regulations relating to such repair and restoration, and the issuance of all required permits, licenses and approvals relative thereto;
(iv) delivery of evidence of the availability of any funds necessary to complete such repairs and restoration in excess of such proceeds, which funds, at the request of the Lender, shall be deposited with the Lender to be disbursed with such proceeds;
(v) builder's all risk insurance;
(vi) rent loss insurance sufficient to pay all operating costs and debt service confirmed by the insurer to be available for the period of repair and restoration;
(vi) evidence that the insurer under such policies of fire or other casualty insurance does not assert any defense to payment under such policies against Lender, Landlord or any tenant of the Leased Premises;
(vii) execution of any documentation deemed reasonably necessary by the Lender to provide for the disbursement of such funds in a manner typical to a construction loan;
(viii) delivery of evidence that the repair or restoration can be completed prior to the then applicable maturity date of the note;
(ix) Landlord delivers to Lender a written undertaking to expeditiously commence and to satisfactorily complete with due diligence the necessary restoration; and
(x) compliance of such other reasonable non-financial terms and conditions customary for construction loans of the size and scope involved with such repairs and restoration.
6. ASSIGNMENT OF LEASES - Tenant hereby acknowledges that all of Landlord's right, title and interest as lessor under the Lease is being duly assigned to Lender pursuant to the terms of the Assignment of Leases, and that pursuant to the terms thereof all rental payments under the Lease shall continue to be paid to Landlord in accordance with the terms of the Lease unless and until Tenant is otherwise notified in writing by Lender. Upon receipt of any such written notice from Lender, Tenant covenants and agrees to make payment of all rental payments then due or to become due under the Lease directly to Lender or to Lender's agent designated in such notice and to continue to do so until otherwise notified in writing by Lender. Landlord hereby irrevocably directs and authorizes Tenant to make rental payments directly to Lender following receipt of such notice and covenants and agrees that Tenant shall have the right to rely on such notice without any obligation to inquire as to whether any default exists under the Mortgage or the Assignment of Leases or the indebtedness secured thereby, and notwithstanding any notice of claim of Landlord to the contrary, that Landlord shall have no right or claim against Tenant for
or by reason of any rental payments made by Tenant to Lender following receipt of such notice. Except as otherwise specifically set forth in the Lease, Tenant further acknowledges and agrees: (a) without the consent of Lender, no rent may be collected or accepted by Landlord more than one month in advance; and (b) that the interest of Landlord as lessor under the Lease has been assigned to Lender under the Assignment of Leases, and Lender assumes no duty, liability or obligation under the Lease, except only under the circumstances, terms and conditions specifically set forth in this Agreement.
7. NOTICE OF DEFAULT BY LESSOR - Tenant, as lessee under the Lease,
hereby covenants and agrees to give Lender written notice properly specifying
wherein the lessor under the Lease has failed to perform any of the covenants or
obligations of the lessor under the Lease simultaneously with the giving of any
notice of such default to the lessor under the provisions of the Lease. Tenant
agrees that Lender shall have the right, but not the obligation, within thirty
(30) days after receipt by Lender of such notice (or, with respect to
non-monetary defaults only, within such additional time as is reasonably
required to correct any such default) to correct or remedy, or cause to be
corrected or remedied, each such default before the lessee under the Lease may
take any action under the Lease by reason of such default; provided however, in
no event shall such time extend for more than thirty (30) days after Tenant
provides such notice to Lender, except if Lender has commenced to cure any such
non-monetary default under the Lease (which shall in no event include
foreclosure or exercise of other remedies available under the Mortgage) within
thirty (30) days after such written notice to Lender and is diligently
proceeding to cure such default and such non-monetary default cannot be cured
within thirty (30) days despite such diligent efforts to cure on the part of
Lender, in which event such time period may be extended for an additional period
of not more than sixty (60) days. Such notices shall be delivered in duplicate
in writing by registered or certified mail, return receipt requested, or by
depositing the same with an overnight commercial courier (such as Federal
Express) or by hand delivery, to Lender to:
With a copy to
or to such other address as the Lender shall have designated to Tenant by giving written notice to Tenant, to Tenant, prior to the Term Commencement Date at:
Netscout Systems, Inc.
after the Term Commencement Date at:
Netscout Systems, Inc. -------------------------------------------- Westford, MA 01886 Attention: ---------------------------------- With a copy to: Testa, Hurwitz & Thibeault, LLP 125 High Street Boston, MA 02110 Attention: Real Estate Department |
or to such other address as may be designated by written notice from Tenant to Lender.
8. NO FURTHER SUBORDINATION - Except as expressly provided to the contrary in Paragraph 4 hereof, Landlord and Tenant covenant and agree with Lender that there shall be no further subordination of the interest of lessee under the Lease to any lender or to any other party without first obtaining the prior written consent of Lender. Any attempt to effect a further subordination of lessee's interest under the Lease without first obtaining the first written consent of Lender shall be null and void.
9. CONSENT - Lender hereby consents to the Lease.
10. TRADE FIXTURES OR EQUIPMENT - The lien of the Mortgage does not encumber any trade fixtures or equipment used by Tenant in its business on the Property.
11. AS TO LANDLORD AND TENANT - As between Landlord and Tenant; Landlord and Tenant covenant and agree that nothing herein contained nor anything done pursuant to the provisions hereof shall be deemed or construed to modify the Lease.
12. AS TO LANDLORD AND LENDER - As between Landlord and Lender, Landlord and Lender covenant and agree that nothing herein contained nor anything done pursuant to the provisions thereof shall be deemed or construed to modify the Mortgage or the Assignment of Leases.
13. TITLE OF PARAGRAPHS - The titles of the paragraphs of this agreement are for convenience and reference only, and the words contained therein shall in no way be held to explain, modify, amplify or aid in the interpretation, construction or meaning of the provisions of this agreement.
14. GOVERNING LAW - This agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Massachusetts.
15. PROVISIONS BINDING - The terms and provisions hereof shall be binding upon and shall inure to the benefit of the heirs, executors, administrators, successors and permitted assigns, respectively, of Lender, Tenant and Landlord. The reference contained to successors and assigns of Tenant is not intended to constitute and does not constitute a consent by Landlord to an assignment by Tenant where such consent is required under the Lease, but has reference only to those instances in which the lessor under the Lease shall have given written consent to a particular assignment by Tenant thereunder where such consent is required under the Lease. In the event of a conflict between the provisions of this Agreement and the provisions of the Lease, the provisions of this Agreement shall prevail as between Lender and Tenant.
In the event of any transfer of the Mortgage or the note secured thereby, the Lender shall transfer and deliver to the transferee any security deposit under the Lease held by Lender or its agent, and provided the transferee assumes the obligations of Lender hereunder or otherwise recognizes the provisions hereof by written instrument, Lender shall thereupon become freed and relieved of all covenants and obligations of the Lender hereunder, except with respect to any breaches of this Agreement as shall have theretofore occurred.
16. COUNTERPARTS - This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.
17. MODIFICATION - This Agreement may not be modified orally or in any manner other than by an agreement in writing signed by the parties hereto or their respective successors in interest.
18. INFORMATION - So long as the Loan is outstanding, and upon prior written request, Tenant covenants to provide Lender with all information, including, but not limited to evidence of payment of taxes and insurance (if Tenant is obligated for such payments under the Lease) to which Landlord may be entitled under the Lease.
19. INSPECTIONS - So long as the Loan is outstanding, the Lender or its designee may enter upon the Property at all reasonable times and upon reasonable advance notice to inspect the Property.
20. ENFORCEABILITY - Tenant hereby represents and warrants to Landlord and Lender that the Lease and this Agreement have been duly authorized, executed and delivered by Tenant and constitute legal, valid and binding instruments, enforceable against Tenant in accordance with their respective terms, except as such terms may be limited by bankruptcy, insolvency or
similar laws affecting creditors' rights generally. Landlord hereby represents and warrants to Lender and Tenant that the Lease and this Agreement have been duly authorized, executed and delivered by Landlord and constitute legal, valid and binding instruments, enforceable against Landlord in accordance with their respective terms, except as such terms may be limited by bankruptcy, insolvency or similar laws affecting creditors' rights generally. Lender hereby represents and warrants to Landlord and Tenant that this Agreement has been duly authorized, executed and delivered by Lender and constitutes a legal, valid and binding instrument, enforceable against Lender in accordance with its respective terms, except as such terms may be limited by bankruptcy, insolvency or similar laws affecting creditors' rights generally.
IN WITNESS WHEREOF, the parties have executed this Agreement as an instrument under seal and hereunto set their respective hands and seals as of the day, month and year first above written.
LENDER:
TENANT:
Netscout Systems, Inc.
LANDLORD: Nashoba Westford Realty Trust
COMMONWEALTH OF MASSACHUSETTS
Then personally appeared before me _________________, the ___________________ of _______________________, to me personally known, who I am satisfied signed the foregoing instrument, and who did acknowledge under oath that he/she signed and delivered the same in his/her capacity as ______________ and that the foregoing instrument is his/her free act and deed and the free act and deed of such _______________________.
COMMONWEALTH OF MASSACHUSETTS
Then personally appeared before me _________________, the ___________________ of Netscout Systems, Inc., to me personally known, who I am satisfied signed the foregoing instrument, and who did acknowledge under oath that he/she signed and delivered the same in his/her capacity as ______________ and that the foregoing instrument is his/her free act and deed and the free act and deed of such corporation.
COMMONWEALTH OF MASSACHUSETTS
Then personally appeared before me Arturo J. Gutierrez, Trustee as aforesaid, to me personally known, who I am satisfied signed the foregoing instrument, and who did acknowledge under oath that he signed and delivered the same in his capacity as Trustee aforesaid and that the foregoing instrument is his free act and deed as Trustee aforesaid.
COMMONWEALTH OF MASSACHUSETTS
Then personally appeared before me John A. Cataldo, Trustee as aforesaid, to me personally known, who I am satisfied signed the foregoing instrument, and who did acknowledge under oath that he signed and delivered the same in his capacity as Trustee aforesaid and that the foregoing instrument is his free act and deed as Trustee aforesaid.
EXHIBIT "G-2"
RECOGNITION AGREEMENT
THIS AGREEMENT made as of the ____ day of August, 2000 by ALBERT L. NARDONE AND ANTHONY B. NARDONE, Trustees of Two Littleton Road Realty Trust, u/d/t dated January 30, 1997 and recorded with the Middlesex North Registry of Deeds in Book 8425, Page 143 and as Trustees of One Littleton Road Realty Trust, u/d/t dated December 30, 1991 and recorded with said Deeds in Book 5768, Page 183 with an address care of Nardone Industrial Estates, 37 Power Road, Westford, Massachusetts 01886 ("Fee Owner"), and ARTURO J. GUTIERREZ AND JOHN A. CATALDO, Trustees of Nashoba Westford Realty Trust, u/d/t dated April 27, 2000 and recorded with the Middlesex North Registry of Deeds on May 10, 2000 as Instrument No. 23639 having a mailing address at Burlington Office Park, One Wall Street, Burlington, Massachusetts 01803 ("Developer"); and NETSCOUT SYSTEMS, INC. with an address of 4 Technology park Drive, Westford, Massachusetts 01886 ("Tenant").
WHEREAS, Fee Owner is the fee owner of a parcel of land and the improvements thereon (said parcel of land being hereinafter called the "Ground Leased Premises") located in Westford, Massachusetts and being more particularly described on Exhibit A annexed hereto and made a part hereof;
WHEREAS, by a certain ground lease ("Ground Lease") dated May 11, 2000, notice of which is recorded with the Middlesex North District, Massachusetts Registry of Deeds in Book ____, Page ____, Fee Owner leased the Ground Leased Premises to Developer;
WHEREAS, by a certain lease ("Lease") between Developer and Tenant dated [__________], 2000, Developer leased to Tenant certain premises constituting a portion of the Ground Leased Premises as described in the Lease, (said premises and the improvements to be built thereon being hereinafter called the "Demised Premises");
NOW THEREFORE, in consideration of the benefits inuring to Developer as a result of the Lease, and the mutual covenants herein contained, and other good and valuable consideration the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows:
1. Fee Owner warrants and represents to Tenant as follows:
(a) that it is the fee owner of the Ground Leased Premises;
(b) that the Ground Lease is unmodified and is in full force and effect;
(c) that the term of the Ground Lease expires on May 11, 2099 and there are no renewal periods; and
(d) that Fee Owner and Developer are not in default under the Ground Lease nor has any event occurred which would after notice to Fee Owner and Developer and the passage of time become a default of Developer under the Ground Lease.
2. Developer warrants and represents to Tenant as follows:
(a) that it is lessee under the Ground Lease;
(b) that the Ground Lease is unmodified and is in full force and effect; and
(c) that Fee Owner and Developer are not in default under the Ground Lease nor has any event occurred which would after notice to Fee Owner and Developer and the passage of time become a default of Developer under the Ground Lease.
3. Fee Owner hereby acknowledges receipt of a copy of, and consents to the Lease and all the terms, covenants and provisions thereof, and agrees that the exercise by Tenant of any of the rights, remedies and options contained therein shall not constitute a default under the Ground Lease; and further agrees that in the event of a conflict between the terms and conditions of the Ground Lease and the Lease, the terms and conditions of the Lease shall prevail, provided Tenant has complied with the provisions hereof.
4. Fee Owner agrees that whenever it has an obligation with respect to the Demised Premises, or its consent or approval is required for any action under the Ground Lease or any instrument modifying or amending the same or entered into in substitution, amendment or replacement thereof, then, to the extent such obligations, consent or approval relates solely to the Demised Premises or Tenant's use and occupation thereof pursuant to the terms of the Lease, it will perform such obligation and/or shall provide its consent or approval.
5. So long as Tenant is not then in default under the Lease beyond any applicable notice and cure period, Fee Owner shall not, in the exercise of any of the rights arising or which may arise out of the Ground Lease, or of any instrument modifying or amending the same or entered into in substitution, amendment or replacement thereof, disturb or deprive Tenant in, or of its possession or its rights to possession of the Ground Leased Premises or any right or privilege granted to or inuring to the benefit of Tenant under the Lease, Tenant agreeing in such event to comply with the requirements of Section 7(b) hereof.
6. In the event of the termination or rejection of the Ground Lease by reentry, notice, conditional limitation, surrender, summary proceeding or other action or proceeding, or otherwise, or, if the Ground Lease shall terminate or expire for any reason before any of the dates provided in the Lease for termination of the initial or renewal terms of the Lease and if immediately prior to such surrender, termination, rejection or expiration the Lease shall be in full force and effect, Tenant shall not be made a party in any removal or eviction action or proceeding nor shall Tenant be evicted or removed of its possession or its right of possession of the Premises be disturbed or in any way interfered with, and at the election of Tenant, the Lease shall continue in full force and effect as a direct lease or sublease between Tenant and the Fee Owner, Tenant agreeing in such event to comply with the requirements of Section 7(b) hereof. If the Ground Lease is rejected by Fee Owner in a bankruptcy proceeding, Tenant shall enjoy the same rights to possession as a non-debtor tenant or lessee under Section 165 of the US Bankruptcy Code.
7. (a) Except as otherwise provided in paragraph 7(b) below, or in any instance where the Ground Lease is terminated as a result of a foreclosure of any mortgage or other lien, if the Ground Lease terminates (i) by operation of law, (ii) by mutual agreement between the parties, or (iii) for any other reasons whatsoever, then in any such event Tenant may elect to continue the Lease in full force and effect notwithstanding such termination of the Ground Lease, as provided in this paragraph 7.
(b) On such election by Tenant, the Lease shall continue as a direct lease between Fee Owner and Tenant for the remainder of the term of the Lease without the necessity of executing a new lease, on the same terms and conditions as are in effect under the Lease immediately preceding the termination of the Ground Lease, Tenant agreeing to cure any monetary defaults of Developer not previously cured.
8. In the event that Fee Owner acquires title to Developer's interest,
as Landlord under the Lease and/or possession of all or any part of the Demised
Premises whether pursuant to a foreclosure proceeding, termination of the Ground
Lease or otherwise, the Lease shall continue in full force and effect as a
direct lease between Tenant and Fee Owner provided that Tenant has complied with
the provisions of Section 7(b) above except that (a) Fee Owner shall have no
obligation to perform the construction obligations of Landlord set forth in
Article IX of the Lease, and (b) Tenant may elect either (i) to complete
construction in accordance with its self-help rights set forth in the Lease, or
(ii) to terminate the Lease in either case by providing written notice of such
election to Fee Owner. If Tenant elects to terminate the Lease, the Lease shall
be terminated effective as of the date specified in Tenant's notice. Thereafter
the Lease shall be null and void and of no further force or effect, and neither
the Tenant nor the Fee Owner shall have any further liabilities or obligations
thereunder.
9. Any notices, consents, approvals, submissions, demands or other communications (hereinafter collectively referred to as ("Notice") given under this Agreement shall be in writing. Unless otherwise required by law or governmental regulation, notices shall be deemed given if sent by registered or certified mail, return receipt requested, postage prepaid or nationally recognized overnight delivery service, charges prepaid, (a) to Fee Owner or Developer at the address of Fee Owner or Developer as hereinabove set forth, (b) to Tenant, at the address of the Tenant as listed hereinabove, or such other address as Tenant may designate by notice to the other parties hereto. All notices shall become effective only on the receipt or rejection of the same by the proper parties.
10. No modification, amendment, waiver or release of any provision of this Agreement or of any right, obligation, claim or cause of action arising hereunder shall be valid or binding for any purpose whatsoever unless in writing and duly executed by the party against whom the same is sought to be asserted.
11. Fee Owner agrees that in the event of a default by the Developer
under the Ground Lease, Fee Owner shall not exercise any of its remedies under
the Ground Lease, unless: (i) Fee Owner shall have provided Tenant with a thirty
(30) day period in which to cure such default, provided, however that if any
such default shall require more than thirty (30) days to
cure and the Tenant commences to cure such default promptly upon receipt of notice from Fee Owner and diligently prosecutes such cure to completion, then Tenant shall have a reasonable period of time beyond such thirty (30) day period to cure any such default; and (ii) Tenant shall have failed to cure such default within such thirty (30) day period, or reasonable period of time beyond such thirty (30) day period.
Fee Owner acknowledges that Tenant has certain expansion rights under the Lease with respect to a portion of the Ground Leased Premises. Fee Owner agrees to execute a Recognition Agreement concerning Tenant's leasehold interest in the Expansion Space (as defined in the Lease), which Recognition Agreement shall contain the same terms and conditions set forth herein.
12. This Agreement shall be binding on and shall inure to the benefit of the parties hereto and their respective heirs, legal representatives, successors, assigns and sublessees. In the event of a transfer by Fee Owner of its interest in the Ground Leased Premises, the terms, conditions and obligations set forth in this Agreement shall remain binding on the Fee Owner until Tenant has received a written agreement from any successor or assignee of the Fee Owner, pursuant to which any such successor or assignee expressly assumes the obligations of Fee Owner under this Agreement and the Ground Lease.
IN WITNESS WHEREOF, executed under seal the date first above written.
ALBERT L. NARDONE AND ANTHONY B.
NARDONE, Trustees of Two
Littleton Road Realty
Trust, u/d/t dated January
30, 1997 and recorded with
the Middlesex North
Registry of Deeds in Book
8425, Page 143 and as
Trustees of One Littleton
Road Realty Trust, u/d/t
dated December 30, 1991 and
recorded with said Deeds in
Book 5768, Page 183
ARTURO J. GUTIERREZ AND JOHN A. CATALDO, Trustees of Nashoba Westford Realty Trust, u/d/t dated April 27, 2000 and recorded with the Middlesex North Registry of Deeds on May 10, 2000 as Instrument No. 23639
NETSCOUT SYSTEMS, INC.
COMMONWEALTH OF MASSACHUSETTS
Then personally appeared before me the above named Albert L. Nardone, Trustee of Two Littleton Road Realty Trust, and acknowledged the foregoing to be his free act and deed.
COMMONWEALTH OF MASSACHUSETTS
Then personally appeared before me the above named Anthony B. Nardone, Trustee of Two Littleton Road Realty Trust, and acknowledged the foregoing to be his free act and deed.
COMMONWEALTH OF MASSACHUSETTS
Then personally appeared before me the above named Arturo J. Gutierrez, Trustee of Nashoba Westford Realty Trust, and acknowledged the foregoing to be his free act and deed.
COMMONWEALTH OF MASSACHUSETTS
Then personally appeared before me the above named John A. Cataldo, Trustee of Nashoba Westford Realty Trust, and acknowledged the foregoing to be his free act and deed.
COMMONWEALTH OF MASSACHUSETTS
Then personally appeared before me the above named ____________________, _________________ of Netscout Systems, Inc., and acknowledged the foregoing to be his/her free act and deed.
EXHIBIT "H"
ALLOWANCES
a) $25.00 per rentable square foot for the cost of Tenant's Work construction, architectural, engineering, wiring and furniture installation, Landlord and Tenant hereby agreeing that such allowance shall be reduced by $16,600.00 for Tenant's contribution for upgrade in HVAC tonnage.
EXHIBIT "I"
ESTOPPEL CERTIFICATE
THIS CERTIFICATE is made to __________________ (the "Bank") with respect to a lease dated _________________ execute by and between Arturo J. Gutierrez and John A Cataldo, Trustees of Nashoba Westford Realty Trust, u/d/t dated April 27, 2000 and recorded with the Middlesex North Registry of Deeds in Book 10813, Page 38 (the "Landlord") and the undersigned (as "Tenant"), covering a building (a portion of a building) located at ___________ Westford, Massachusetts (the "Lease"), as amended by (list all amendments):
The undersigned has been advised that the Bank is about to enter into a transaction whereby the Bank is making a loan secured by the aforesaid real estate and the Lease to the undersigned, and under which the Bank may acquire an ownership interest in such real estate. In connection with this transaction, the entire interest of the Landlord under the Lease to the undersigned will be assigned to the Bank. The undersigned acknowledges that the Bank is and will be relying upon the truth, accuracy and completeness of this letter in proceeding with the transaction described above.
The undersigned, for the benefit of the bank, their successors and assigns, hereby certifies, represents, warrants, agrees and acknowledges that:
1. The Lease is in full force and effect in accordance with its terms without modification or amendment except as noted above and the undersigned is the holder of the Tenant's interest under the Lease.
2. The undersigned is in possession of all of the Premises described in the Lease under and pursuant to the Lease and is doing business thereon; and the premises are completed as required by the Lease.
3. The undersigned has no claims or offsets with respect to any of its obligations as Tenant under the Lease, and neither the undersigned nor the Landlord is claimed to be in default under the Lease.
4. The undersigned has not paid any rental or installments thereof more than one month in advance of the due date as set forth in the Lease.
5. The undersigned has no notice of prior assignment, hypothecation or pledge of rents of the Lease or the Landlord's interest thereunder or of the Tenant's interest thereunder.
6. The term of the Lease has commenced and is presently scheduled to expire on _____________, ____. If there are any rights of extension or renewal under the terms of the Lease, the same have not, as of the date of this letter, been exercised.
7. Each of the statements set forth in Paragraphs 1 through 7 are true, accurate and complete except as follows (state specifically any exception):
DATED
ATTEST:
NETSCOUT SYSTEMS, INC.
EXHIBIT "J"
EXPANSION OPTION
Landlord agrees it shall hold available, subject to the conditions of this Exhibit J, for Tenant the land described in Exhibit P of this Lease (the "Expansion Land") required to support one non-contiguous expansion of the Building by Landlord for Tenant for a total of up to seventy-five thousand (75,000) rentable square feet of additional space as described in paragraph one of Article II of this Exhibit J (the "Expansion Space"). Landlord acknowledges and agrees not to construct or permit the construction of any buildings in, on or under the Expansion Land, and not to use the Expansion Land for purposes other than for providing the required parking to Tenant pursuant to the provisions of Section 26.10 of the Lease, subject to the conditions of this Exhibit J. The size and footprint of the Expansion Space shall be determined by Landlord and Tenant provided, however, that such expansion shall be a three (3) story building consisting of seventy-five thousand (75,000) square feet, and shall provide Tenant with an additional two hundred forty-nine (249) parking spaces, and that the footprint and parking of such expansion shall be within the general building footprint and parking areas shown on the proposed expanded building footprint and site plan, attached as Exhibit P to this Lease (the "Expanded Building Site Plan"), or such other area as is reasonably agreed upon by Landlord and Tenant. So long as there does not then exist any uncured, continuing Event of Default and this Lease is then in existence and in full force and effect, so long as Tenant is then leasing and occupying at least one hundred percent (100%) of the Building, and so long as such expansion option has not been terminated in accordance with paragraph I. of this Exhibit J, Landlord shall be required to hold the Expansion Land available as aforesaid, or to cause an affiliate of Landlord to hold the Expansion Land available as aforesaid, necessary for said Expansion Space, until Tenant has notified or fails to notify Landlord of its election to expand by the earlier to occur of (but not sooner than March 1, 2001): (i) such date which is two (2) business days after Tenant's receipt of satisfactory documentation establishing that Landlord has obtained such necessary permits and approvals for the construction of the Expansion Space (and that all applicable appeal periods have expired with no appeals having been filed) as contemplated hereunder, or (ii) such date which is fifteen (15) business days after Tenant's receipt of satisfactory documentation establishing that Landlord has obtained such necessary permits and approvals for a non-contiguous expansion of the Building containing less than or more than seventy-five thousand (75,000) square feet (and that all applicable appeal periods have expired with no appeals having been filed) (the "Modified Expansion Space") on the Expansion Land, provided that Tenant was given a reasonable sufficient period of time to review the Modified Expansion Space plans and was permitted to comment on them and to work with Landlord to develop a satisfactory Modified Expansion Space layout prior to and during the applicable permitting process. If Tenant fails to exercise its option as to the Expansion Space or Modified Expansion Space as hereinabove provided or exercises its option in a timely manner, but thereafter fails to deliver the Lease for the Expansion Space (or Modified Expansion Space, as the case may be) as required pursuant to this Exhibit J, then subject to the terms and provisions contained in this Exhibit J, Tenant's option as to the Expansion Space and the rights and obligations of both Landlord and Tenant under this paragraph I. shall terminate and be of no further force or effect. For purposes hereof, in the event that Landlord obtains all necessary permits and approvals for the construction of the Modified
Expansion Space as aforesaid, then all applicable references to "Expansion Space" set forth in this Exhibit J shall be deemed to refer to the "Modified Expansion Space", as applicable.
Landlord shall exercise good faith efforts to obtain, simultaneously with the approvals and permits necessary for construction of the original Building, any and all approvals and permits, including but not limited to all zoning, subdivision, wetlands and environmental permits and approvals, necessary for the construction of the Expansion Space generally similar to the footprint and site plan shown on the Expanded Building Site Plan. In the event that any of the applicable authorities require modifications to the Expanded Building Site Plan, then Landlord and Tenant hereby further agree that they will work and cooperate with each other to reach a mutual agreement on any such modifications, provided, however, that in no event shall such modifications result in the Expansion Space containing less than seventy-five thousand (75,000) rentable square feet.
I. EXPANSION SPACE
(i) In the event that Tenant desires to exercise its option to lease and occupy the Expansion Space, and there does not then exist any uncured, continuing Event of Default hereunder, and Tenant is leasing and occupying at least one hundred percent (100%) of the Building, written notice of Tenant's intention to lease and occupy such Expansion Space (the "Expansion Notice") must be given to Landlord as aforesaid (the "Expansion Exercise Date"). If Tenant elects to expand by leasing and occupying the Expansion Space (the "Lease for the Expansion Space") as herein provided, the annual Fixed Rent for the Expansion Space shall be an amount equal to such rents set forth in Article I hereof.
The Lease for the Expansion Space shall be in the same form as this
Lease, and, except as herein set forth, on the same terms and conditions as are
set forth in this Lease (including without limitation the allowances set forth
on Exhibit H attached hereto and the provisions of Section 9.1.1 relating to an
additional allowance) and shall be for a Term of twelve (12) years. The Lease
for the Expansion Space shall provide for an Expansion Scheduled Term
Commencement Date (Landlord and Tenant hereby agreeing that such date occur no
later than twelve (12) months following the Expansion Notice by Tenant) and an
Expansion Term Commencement Date, the former to be mutually agreed upon by
Landlord and Tenant in good faith, but in no event less than thirty-six (36)
weeks or more than forty-four (44) weeks after obtaining all required permits
and approvals for construction of the Expansion Space, considering such factors
as weather and material availability (it being agreed by Landlord and Tenant
that such Expansion Notice by Tenant occurring between October 1, and March 1
shall add two (2) additional months to the Expansion Scheduled Term Commencement
Date for such space beyond that which would otherwise be expected). The Lease
for the Expansion Space shall also provide (i) for an Expansion Outside Delivery
Date of ninety (90) days after the Expansion Scheduled Term Commencement Date,
(ii) Tenant the right to cancel the Lease for the Expansion Space in the event
that the Expansion Space is not delivered on or before the Expansion Outside
Delivery Date, as extended for delays due to Force Majeure or Tenant's Delay as
therein described, and (iii) that the Tenant's Plans for the Expansion Space
prepared by and being delivered by Tenant to Landlord are attached as an Exhibit
to the Lease for the Expansion Space. The proposed form of Lease for the
Expansion Space shall be delivered by
Landlord to Tenant promptly after such Expansion Notice to Tenant, and a mutually agreed upon form shall be executed by Landlord and Tenant within forty-five (45) days from the date of Tenant's receipt of a proposed form of Lease for the Expansion Space from Landlord in the form as herein required, unless such date is extended by mutual agreement of both parties hereto. Tenant and Landlord shall use reasonable efforts, each acting in good faith, to execute the Lease for the Expansion Space within said forty-five (45) days from the date of Tenant's receipt of a proposed form from Landlord. Notwithstanding the foregoing, Landlord and Tenant agree that any such Lease for the Expansion Space shall be in the form of a separate lease agreement and in the same form as this Lease as aforesaid.
II. ADDITIONAL EXPANSION PROVISIONS
The building quality, plans and specifications for the Expansion Space shall be in accordance with the Expanded Building Site Plan and specifications substantially comparable to the Building initially leased herein, except as hereinafter provided, which such plans and specifications shall be set forth in the Lease for the Expansion Space. Without limiting the foregoing, the building quality, fit and finish of the Expansion Space shall be substantially comparable to the Premises based on Landlord's Plans and Tenant's Plans and specifications for the Landlord's Work and Tenant's Work. All final plans shall be subject to Tenant's review and approval prior to permitting and commencement of construction. Any material changes to the plans after initial approval by Tenant and/or during the permitting process shall be subject to Tenant's prior written consent (not to be unreasonably withheld or delayed), all as more particularly to be provided in Article IX of the Lease for the Expansion Space. In addition, the Expansion Space shall be landscaped to the mutual satisfaction of Landlord and Tenant, each acting reasonably.
Landlord's obligation to construct the Expansion Space is contingent upon Landlord's ability, using a good faith diligent effort, (i) to finance a commercially reasonable portion of the project cost of such Expansion Space, or such portion thereof as the Landlord elects to finance, at the annual Fixed Rent as determined in paragraph I. above, and (ii) to obtain applicable permits and approvals required under building, zoning and environmental laws, codes, rules and regulations and other laws then affecting the use and development of such land in order to construct the Expansion Space in accordance with all of the terms of this Lease. The costs of such Expansion Space shall be allocated pursuant to Article IX of this Lease.
Further notwithstanding any language to the contrary contained in this Exhibit J, in the event that Tenant's option as to the Expansion Space expires or has otherwise been terminated pursuant to the above provisions of this Exhibit J, then Landlord shall have, at any time thereafter during the Term of this Lease, the right to construct the Expansion Space (or a portion thereof), and lease such space to any third party upon such terms and conditions as are negotiated by Landlord in its sole and absolute discretion and Tenant shall have no further rights thereto. Landlord and Tenant hereby further acknowledge and agree that in such event, the Expansion Space may be enlarged or reduced by Landlord, in accordance with applicable laws, codes, rules and regulations. Such Expansion Space, whether for the original contemplated square footage or greater or less than the amount as aforesaid, shall be subject to the terms and conditions set forth in the first complete paragraph of paragraph II. above (i.e. conditions as to building quality, fit
and finish). In connection therewith, and in connection with any Expansion Space constructed pursuant to this Exhibit J, whether for Tenant or not, Landlord shall, if necessary, (i) relocate the Building Parking Area to an area as close to the Building as reasonably possible, specifically as designated by Landlord, so long as such area is within the relocation parking area shown on Exhibit P hereto, Tenant hereby agreeing that such relocation parking area described by Landlord on Exhibit P is acceptable to Tenant and (ii) have the right to temporarily access such portion of the Lot shown as cross-hatched on Exhibit A, Landlord hereby agreeing to minimize any interruptions to Tenant in connection therewith. Subject to the foregoing provisions, Landlord and Tenant hereby further agree that they shall enter into a mutually satisfactory agreement amending, modifying or supplementing this Lease, if necessary, in order to reflect the occupancy of the Expansion Space by any such additional tenant(s) other than Tenant if the Expansion Space is constructed as so permitted by Landlord hereunder.
EXHIBIT "K"
FORM OF WORK CHANGE ORDER
TO BE SUPPLIED
EXHIBIT "K"
LANDLORD, TENANT, CONTRACTOR
CHANGE PROPOSAL FORM
Project: _______________________________ _______________________________ R________ NR_______ Proposal No. ____________ Date _____________ From: (Landlord) _______________________________ BB______ TW_______ To: (Contractor) _______________________________ CC: (Tenant) _______________________________ |
---------------------------------------------------------------------------------------------- Step 1: Contractor: Provide an estimate for the described work. Architect: Develop proper plans and specifications to clarify described work. DESCRIPTION: (List Drawings) Landlord:_______________________ Reason:__________________________ ---------------------------------------------------------------------------------------------- Step 2: Contractor: Proceed with work as definitive plans become available. Landlord:_______________________ Date:____________________________ ---------------------------------------------------------------------------------------------- Step 3: Cost of Work a. Cost of the work $__________ (See attached breakdown) b. Add construction fee $__________ Total Cost of Work $__________ Submitted by:_______________________ ______________________ Dennis G. Bailey, Vice President & Construction Manager Date ---------------------------------------------------------------------------------------------- Step 4: The submitted Cost of Work has been reviewed and is (not) approved. _________________________ _____________________ Architect Date Design Fees $__________ TOTAL COST OF PROPOSAL $__________ ---------------------------------------------------------------------------------------------- Step 5: FINAL ACTION a. The Tenant _____________________ hereby agrees to reimburse the Name of Firm Landlord the Total Cost of Proposal shown in Step 4 above. |
___________________________ _______________ Authorized Tenant's Representative Date b. This bulletin is approved (rescinded) and the work above is (not) to be performed. Cost of this work shall be included in Change Order No. _____. ___________________________ _______________ Landlord Date |
EXHIBIT "L"
DEFINITION OF COST OF THE WORK AND GENERAL CONDITIONS
REIMBURSABLE COSTS:
The following 8 numbered items shall be used to determine and calculate the Cost of the Work:
1. The term Cost of the Work shall mean costs necessarily incurred and paid by the Contractor in the proper performance of the work. Such costs shall be at rates not higher than the standard paid in the greater Boston area and shall include the items set forth below.
2. Costs of all materials, supplies and equipment incorporated in the work, including costs of transportation thereof.
3. Payments made by the Contractor to subcontractors for work performed pursuant to subcontracts.
4. Sales, use, or similar taxes related to the work and for which the Contractor is liable, which are imposed by any governmental authority.
5. Permit fees, royalties, damage or infringement of patents and costs of defending suits therefor, and deposits lost for causes other than due to the Contractor's negligence.
6. Cost of all removal of debris and labor for periodic and final clean up.
7. Other costs incurred in the performance of the work if and to the extent approved in advance in writing by the Tenant.
8. The cost of temporary power and heat.
The following 6 numbered items shall be used to determine the General Conditions:
1. Wages paid for labor in the direct employ of Gutierrez Construction Co., Inc. ("Contractor") in the performance of the work under applicable collective bargaining agreements, or under a salary or wage schedule agreed upon by the Landlord, and Contractor, and including such welfare or other benefits, if any, as may be payable with respect thereto.
2. Salaries of Contractor's personnel when stationed at the field office, in whatever capacity employed, and a proportionate share of the project manager and construction managers' salaries, whether at the job site or in the main office. Personnel engaged at shops or on the road in expediting the production or transportation of materials or equipment shall be considered as stationed a the field office and their salaries paid for that portions of their time spent on the work.
3. Cost of contributions, assessments or taxes incurred during the performance of the work for such items as unemployment compensation and social security, insofar as such cost is based on wages, salaries or other remuneration paid to employees of the Contractor and included in the Cost of the Work under subparagraphs 1 and 2.
4. The portion of reasonable travel and subsistence expenses of the Contractor or of his officers or employees incurred while traveling in discharge of duties connected with the work.
5. Cost, including transportation and maintenance, of all materials, supplies, equipment, temporary facilities and hand tools not owned by the workers, which are consumed in the performance of the work, and cost less salvage value on such items used by not consumed which remain the property of the Contractor.
6. Rental charges of all necessary machinery and equipment, exclusive of hand tools, used at the site in performance of the work, whether rented from the Contractor or others including installation, minor repairs and replacements, dismantling, removal, transportation and delivery costs thereof, at rental charges consistent with those prevailing in the greater Boston area.
7. Losses and expenses, not compensated by insurance or otherwise, sustained by the Contractor in connection with the work, provided they have resulted from causes other than the fault or neglect of the Contractor. Such losses shall include settlements made with the written consent and reasonable approval by Landlord and Tenant. If, however, such loss requires reconstruction and the Contractor is placed in charge thereof, he shall be paid for his services a fee of ten percent (10%) of the cost of such work.
8. Minor expenses such as telegrams, long distance telephone calls, telephone service at the site, expressage, drawing reproduction, mail service, special deliveries, and similar petty cash items incurred in connection with the Tenant's Work.
EXHIBIT "M"
WESTFORD TECHNOLOGY PARK - WEST BUILDING ONE - THREE STORY -175,000 SQUARE FEET BASE BUILDING AND NETSCOUT TENANT IMPROVEMENTS AUGUST 2, 2000
PRELIMINARY CONSTRUCTION SCHEDULE
1) Site Plan Submittal Set to Planning Board 8/10/00 2) Base Building Architectural Floor Plans and Elevations 8/04/00 3) Sewer Treatment Plant Submittal to D.E.P. 8/02/00 4) Site Plan Submittal to Conservation Commission 8/18/00 5) Re-submit to D.E.P. 9/05/00 6) Order Base Building Structural Steel, Precast Concrete Walt Panels, windows and Curtain Wall, Elevators and Rooftop HVAC Equipment 8/15/00 7) Site Plans for Construction 9/15/00 8) Base Building Foundations and Structural Drawings for Construction Released 8/10/00 Complete 9/14/00 9) Base Building Architectural Drawings for Construction Release Released 8/10/00 Complete 9/21/00 10) Award Site Work 9/29/00 11) Schematic layout of Tenant's work provided to Landlord 10/01/00 12) Release Base Building Items in Item #3 above for Fabrication 9/21/00 13) Start Site Work 10/02/00 |
Preliminary Construction Schedule (Continued)
August 2, 2000
14) Tenant to Provide Drawings and Specifications on Long Lead Tenant Improvement Items and Tenant Improvement that affects Base Building Structure 10/01/00 15) Landlord's budget price of 10/01/00 Schematics provided to Tenant 10/15/00 16) Start Building Foundations 10/23/00 17) Start Structural Steel Erection 12/04/00 18) Tenant to provide Landlord Tenant Drawings 60 to 70 percent complete 12/01/00 19) Tenant Improvement Construction Drawings Complete 1/15/01 20) Landlord to provide Tenant budget pricing on schematic plans provided on 12/01/00 12/15/00 21) Erect Precast Concrete 1/29/01 22) Install Windows and Curtain Wall 2/12/01 23) Install Roof 3/26/01 24) Set Rooftop HVAC Equipment 4/05/01 25) Start Building Interior Base Building and Tenant Improvement MEP Rough-In, Drywall Framing etc. 4/16/01 26) Complete Building Interior Base Building and Tenant Improvement - 20 weeks 8/31/01 |
EXHIBIT "N"
NOTICE OF LEASE
In accordance with the provisions of Massachusetts General Laws (Ter. Ed.) Chapter 183, Section 4, as amended, notice is hereby given of a certain lease (hereinafter referred to as the "Lease") dated as of ____________________, 2000 by and between Arturo J. Gutierrez and John A. Cataldo, Trustees of Nashoba Westford Realty Trust, under Declaration of Trust dated April 27, 2000, recorded with the Middlesex North District Registry of Deeds in Book 10813, Page 038 (hereinafter referred to as "Landlord") and NetScout Systems, Inc. (hereinafter referred to as "Tenant").
W I T N E S S E T H:
1. The address of the Landlord is c/o The Gutierrez Company, One Wall Street, Burlington, Massachusetts 01803.
2. The address of the Tenant is 4 Technology Park Drive, Westford, Massachusetts 01886.
3. The Lease was executed on ______________, 2000.
4. The Term of the Lease is a period of twelve (12) years beginning on the Term Commencement Date determined in accordance with Section 3.2 of the Lease, currently scheduled for August 31, 2001. Such Term may be extended pursuant to Exhibit J discussed in Paragraph 6 below.
5. Subject to the provisions of the Lease, the Tenant has the option to extend
the Term of the Lease for two (2) successive five (5) year terms pursuant to
Section 3.2 of the Lease.
6. The Tenant has an Expansion Option to lease up to seventy-five thousand
(75,000) rentable square feet of additional space in an additional three (3)
story building to be constructed by Landlord upon Tenant's election of such
expansion option, pursuant to Exhibit J of the Lease, on a portion of the
property described on Exhibit A attached hereto.
7. The Lot and the Park, as such terms are defined in the Lease, are subject to the covenants and agreements contained in Exhibit E of the Lease.
8. The Premises under the Lease is a three (3) story building containing approximately one hundred and seventy-five thousand (175,000) rentable square feet located at ____________________, Westford, Massachusetts 01886, which is leased to Tenant together with the benefit of and subject to all appurtenant rights and easements set forth in Sections 2.1 and 26.10 of the Lease.
9. Landlord's interest under the Lease is subject to the provisions of that certain ground lease dated ___________ and executed by and between _________________, as ground lessor, and Landlord, as ground lessee, notice of which is recorded with said Deed in
Book ______, Page _____. The Lot as defined in the Lease is a portion of the property described on Exhibit A attached hereto.
This Notice of Lease has been executed merely to give notice of the Lease, and all of the terms, conditions and covenants of which are incorporated herein by reference. The parties hereto do not intend this Notice of Lease to modify or amend the terms, conditions and covenants of the Lease which are incorporated herein by reference.
IN WITNESS WHEREOF, the parties hereto have duly executed this Notice of Lease this ____ day of ________________, 2000.
LANDLORD:
NASHOBA WESTFORD REALTY TRUST
TENANT:
NETSCOUT SYSTEMS, INC.
COMMONWEALTH OF MASSACHUSETTS
MIDDLESEX, SS. _______________, 2000
Then personally appeared before me Arturo J. Gutierrez, as trustee of Nashoba Westford Realty Trust and acknowledged the foregoing instrument to be his free act and deed as trustee aforesaid.
COMMONWEALTH OF MASSACHUSETTS
MIDDLESEX, SS. _______________, 2000
Then personally appeared before me John A. Cataldo, as trustee of Nashoba Westford Realty Trust and acknowledged the foregoing instrument to be his free act and deed as trustee aforesaid.
COMMONWEALTH OF MASSACHUSETTS
__________________, SS. _______________, 2000
Then personally appeared before me _____________________, as __________________ of NetScout Systems, Inc., and acknowledged the foregoing instrument to be his/her free act and deed as _____________ aforesaid.
EXHIBIT "A" TO EXHIBIT "N"
LOTS 1, 5, 6 AND 7, LITTLETON ROAD, WESTFORD, MASSACHUSETTS
PARCEL I - LOTS 5, 6 AND 7, LITTLETON ROAD
Three separate parcels of land located on the southerly side the Littleton Road and the Westerly side of Concord Road in Westford, Middlesex County, Massachusetts and being shown as Lot 5, Lot 6 and Lot 7 on a Plan entitled "Anthony G. and Albert L. Nardone, Westford, MA, Plan of Land Proposed A.N.R. Lots" dated July 9, 1996, prepared by Rizzo Associates, Inc. to which plan reference is made for a more particular description. Said plan is recorded at Middlesex North District Registry of Deeds in Plan Book 192, Plan 64.
According to said plan:
Lot 5 contains 443,722 square feet, more or less; Lot 6 contains 197,212 square feet, more or less; Lot 7 contains 268,936 square feet, more or less;
PARCEL II - LOT 1, LITTLETON ROAD
The land with the buildings thereon located on the southerly side of Littleton Road, Westford, Middlesex Country, Massachusetts, being shown as Lot 1 on a plan entitled "Plan of Land in Westford, MA, prepared for One Littleton Trust: dated October 15, 1991 and prepared by L.J. Ducharme Assoc., Inc., 1092 Main Street, Bolton, MA 01740." Scale 1 = 20' to which plan reference is made for a more particular description.
According to said plan Lot 1 contains 40,760 +/- square feet.
Said plan is recorded at North Middlesex Registry of Deeds in Plan Book 177, Plan 114.
EXHIBIT "O"
TENANT SIGN SPECIFICATIONS
TO BE SUPPLIED BY TENANT AND
APPROVED BY LANDLORD SUBJECT TO SECTION 12.2
EXHIBIT "P"
PROPOSED EXPANDED BUILDING FOOTPRINT
AND SITE PLAN
See Exhibit "A"
NOTICE OF LEASE
In accordance with the provisions of Massachusetts General Laws (Ter. Ed.) Chapter 183, Section 4, as amended, notice is hereby given of a certain lease (hereinafter referred to as the "Lease") dated as of August 17, 2000 by and between Arturo J. Gutierrez and John A. Cataldo, Trustees of Nashoba Westford Realty Trust, under Declaration of Trust dated April 27, 2000, recorded with the Middlesex North District Registry of Deeds in Book 10813, Page 038 (hereinafter referred to as "Landlord") and NetScout Systems, Inc. (hereinafter referred to as "Tenant").
W I T N E S S E T H:
1. The address of the Landlord is c/o The Gutierrez Company, One Wall Street, Burlington, Massachusetts 01803.
2. The address of the Tenant is 4 Technology Park Drive, Westford, Massachusetts 01886.
3. The Lease was executed on August 17, 2000.
4. The Term of the Lease is a period of twelve (12) years beginning on the Term Commencement Date determined in accordance with Section 3.2 of the Lease, currently scheduled for August 31, 2001. Such Term may be extended pursuant to Exhibit J discussed in Paragraph 6 below.
5. Subject to the provisions of the Lease, the Tenant has the option to extend
the Term of the Lease for two (2) successive five (5) year terms pursuant to
Section 3.2 of the Lease.
6. The Tenant has an Expansion Option to lease up to seventy-five thousand
(75,000) rentable square feet of additional space in an additional three (3)
story building to be constructed by Landlord upon Tenant's election of such
expansion option, pursuant to Exhibit J of the Lease, on a portion of the
property described on Exhibit A attached hereto.
7. The Lot and the Park, as such terms are defined in the Lease, are subject to the covenants and agreements contained in Exhibit E of the Lease.
8. The Premises under the Lease is a three (3) story building containing approximately one hundred and seventy-five thousand (175,000) rentable square feet located at 310 Littleton Road, Westford, Massachusetts 01886, which is leased to Tenant together with the benefit of and subject to all appurtenant rights and easements set forth in Sections 2.1 and 26.10 of the Lease.
9. Landlord's interest under the Lease is subject to the provisions of that certain ground lease dated May 11, 2000 and executed by and between Albert L. Nardone and Anthony B. Nardone, Trustees of Two Littleton Road Realty Trust, u/d/t dated January 30, 1997 and recorded with said Deeds in Book 8425, Page 143 and as Trustees
of One Littleton Road Realty Trust, u/d/t dated December 30, 1991 and recorded with said Deeds in Book 5768, Page 183, as ground lessor, and Landlord, as ground lessee, notice of which is recorded with said Deeds in Book 10832, Page 007. The Lot as defined in the Lease is a portion of the property described on Exhibit A attached hereto.
This Notice of Lease has been executed merely to give notice of the Lease, and all of the terms, conditions and covenants of which are incorporated herein by reference. The parties hereto do not intend this Notice of Lease to modify or amend the terms, conditions and covenants of the Lease which are incorporated herein by reference.
IN WITNESS WHEREOF, the parties hereto have duly executed this Notice of Lease this 17th day of August, 2000.
LANDLORD:
NASHOBA WESTFORD REALTY TRUST
TENANT:
NETSCOUT SYSTEMS, INC.
COMMONWEALTH OF MASSACHUSETTS
MIDDLESEX, SS. _______________, 2000
Then personally appeared before me Arturo J. Gutierrez, as trustee of Nashoba Westford Realty Trust and acknowledged the foregoing instrument to be his free act and deed as trustee aforesaid.
COMMONWEALTH OF MASSACHUSETTS
MIDDLESEX, SS. _______________, 2000
Then personally appeared before me John A. Cataldo, as trustee of Nashoba Westford Realty Trust and acknowledged the foregoing instrument to be his free act and deed as trustee aforesaid.
COMMONWEALTH OF MASSACHUSETTS
__________________, SS. _______________, 2000
Then personally appeared before me _____________________, as __________________ of NetScout Systems, Inc., and acknowledged the foregoing instrument to be his/her free act and deed as _____________ aforesaid.
EXHIBIT "A"
LOTS 1, 5, 6 AND 7, LITTLETON ROAD, WESTFORD, MASSACHUSETTS
PARCEL I - LOTS 5, 6 AND 7, LITTLETON ROAD
Three separate parcels of land located on the southerly side the Littleton Road and the Westerly side of Concord Road in Westford, Middlesex County, Massachusetts and being shown as Lot 5, Lot 6 and Lot 7 on a Plan entitled "Anthony G. and Albert L. Nardone, Westford, MA, Plan of Land Proposed A.N.R. Lots" dated July 9, 1996, prepared by Rizzo Associates, Inc. to which plan reference is made for a more particular description. Said plan is recorded at Middlesex North District Registry of Deeds in Plan Book 192, Plan 64.
According to said plan:
Lot 5 contains 443,722 square feet, more or less; Lot 6 contains 197,212 square feet, more or less; Lot 7 contains 268,936 square feet, more or less;
PARCEL II - LOT 1, LITTLETON ROAD
The land with the buildings thereon located on the southerly side of Littleton Road, Westford, Middlesex Country, Massachusetts, being shown as Lot 1 on a plan entitled "Plan of Land in Westford, MA, prepared for One Littleton Trust: dated October 15, 1991 and prepared by L.J. Ducharme Assoc., Inc., 1092 Main Street, Bolton, MA 01740." Scale 1 = 20' to which plan reference is made for a more particular description.
According to said plan Lot 1 contains 40,760 +/- square feet.
Said plan is recorded at North Middlesex Registry of Deeds in Plan Book 177, Plan 114.
FIRST AMENDMENT TO LEASE
THIS FIRST AMENDMENT TO LEASE dated as of May 12, 2000 between MICHELSON FARM - WESTFORD TECHNOLOGY PARK IV LIMITED PARTNERSHIP, having a mailing address c/o The Gutierrez Company, Burlington Office Park, One Wall Street, Burlington, Massachusetts 01803, as landlord (the "Landlord"), and NETSCOUT SYSTEMS, INC., having a mailing address at 4 Technology Park Drive, Westford, Massachusetts 01886, as tenant (the "Tenant").
WITNESSETH
WHEREAS, Landlord and Tenant have entered into that certain Lease dated as of April 18, 1997 (hereinafter, the "Lease") with respect to Building Four (as more particularly defined in the Lease as the "Premises"), located in the Michelson Farm - Westford Technology Park, Westford, Massachusetts (as in the Lease more particularly described, the "Office Park");
WHEREAS, the lot lines to the "Lot", as defined in the Lease, have been modified by Landlord;
WHEREAS, Landlord has completed an expansion to the adjacent Building known as Building 6 and in connection therewith, the parking areas located upon the Lot and serving the Premises have been modified;
WHEREAS, Landlord and Tenant have agreed to amend this Lease to set forth the foregoing modifications.
NOW, THEREFORE, Landlord and Tenant, in consideration of the Premises, the covenants expressed herein and in the Lease, and other good and valuable consideration, the receipt and the sufficiency of which are hereby acknowledged, hereby agree that the Lease shall be amended as follows:
1. Article I, Section 1.1 of the Lease is hereby amended as follows:
By deleting the definition of "Building" in Section 1.1 in its entirety and by replacing the same with the following:
"Building: The Building commonly known as Building Four in The Michelson Farm - Westford Technology Park, containing approximately 97,500 rentable square feet on the lot (the "Lot") shown as Lot 4D on a Plan entitled "Revised Subdivision Plan of Land" dated May 1, 2000 and recorded with the Middlesex County North District Registry of Deeds at Plan Book 203, Plan 97, a copy of which Plan is attached hereto as Exhibit "A-1".
2. Article I, Section 1.2 of the Lease is hereby amended as follows:
By adding after the last line thereof the following:
"Exhibit A-1 Plan Showing Lot and Parking"
3. Article II, Section 2.1 of the Lease is hereby amended by adding in subparagraph (i) of the third paragraph thereof, the following "expressly excluding, however, seventy-seven (77) parking spaces shown on Exhibit A-1 which are exclusively for the benefit of Building 6 (Lot 6C)" at the end of said subparagraph (i).
4. Article XXVI, Section 26.10 of the Lease is hereby amended by adding at the end thereof, the following "Such parking spaces are shown on Exhibit A-1 attached hereto but expressly exclude said seventy-seven (77) spaces shown on Exhibit A-1 which, as aforesaid, exclusively serve Building 6 (Lot 6C)."
5. Landlord and Tenant (each, a "representing party") each represents and warrants to the other that no conversations or negotiations were had by the representing party with any broker, finder or similar person concerning the consummation of this First Amendment to Lease. Landlord and Tenant (each, an "indemnifying party") each hereby indemnifies and holds the other harmless from and against all loss, cost, liability, claim, damage, and expense (including, without limitation, court costs and reasonable attorney's fees) incurred in connection with or arising out of any claims for brokerage commissions, finder's fees, or other compensation resulting from or arising out of any conversations, negotiations or actions had by the indemnifying party or anyone acting on behalf of such indemnifying party with any broker, finder or similar person in connection with this First Amendment to Lease. The terms of this paragraph shall survive expiration or earlier termination of the Lease.
6. Except as modified hereinabove set forth, the Lease (as amended by this First Amendment) is hereby ratified and confirmed.
7. This First Amendment to Lease may be signed in any number of counterparts and each thereof shall be deemed to be an original and all such counterparts but one and the same agreement. Landlord's obligations to perform hereunder is subject to the condition precedent that this First Amendment to Lease be approved by Dynex Commercial, Inc.
IN WITNESS WHEREOF, the parties have set their hands and seals the day and year first above written.
LANDLORD: MICHELSON FARM - WESTFORD TECHNOLOGY PARK IV LIMITED PARTNERSHIP By: THE GUTIERREZ COMPANY, SOLE GENERAL PARTNER ------------------------- Witness BY: ---------------------------------------- Arturo J. Gutierrez, as President TENANT: NETSCOUT SYSTEMS, INC. ------------------------- BY: Witness ---------------------------------------- ITS: --------------------------------------- |
CONSENT OF MORTGAGEE
The undersigned Mortgagee hereby consents and approves the foregoing provisions set forth in this First Amendment to Lease dated as of May _____, 2000 by and between Michelson Farm - Westford Technology Park IV Limited Partnership ("Landlord") and Netscout Systems, Inc. ("Tenant").
MORTGAGEE: DYNEX COMMERICAL, INC. ------------------------- BY: Witness ------------------------------------------------ |
SMMA
---N-1 -
[DIAGRAMS of SECOND LEVEL PARKING DECK LAYOUT]
SECOND AMENDMENT TO LEASE AND TERMINATION AGREEMENT
This Second Amendment to Lease and Termination Agreement (this "Agreement") is made and entered into as of the 17th day of August, 2000 by and between Michelson Farm-Westford Technology Park IV Limited Partnership, a Massachusetts limited partnership (hereinafter referred to as "Landlord") having an address c/o The Gutierrez Company, One Wall Street, Burlington, Massachusetts 01803, and NetScout Systems, Inc., having an address at 4 Technology Park Drive, Westford, Massachusetts 01886 (hereinafter referred to as "Tenant").
WITNESSETH
WHEREAS, Landlord and Tenant have entered into that certain lease dated August 18, 1997, as amended by First Amendment to Lease dated as of May 12, 2000 (hereinafter collectively referred to as the "Lease") with respect to a certain parcel of land, with the building thereon, known as Building Four, Michelson Farm - Westford Technology Park, located in Westford, Massachusetts and commonly referred to as 4 Technology Park Drive, together with all rights, privileges and easements in any way pertaining thereto and as set forth in the Lease (in the Lease more particularly described as the "Premises", hereinafter referred to as the "Demised Premises"); and
WHEREAS, Landlord's general partner, The Gutierrez Company, and Tenant have entered into a Proposal dated June 28, 2000 in connection with a building to be constructed at Westford Technology Park West, Route 110/Route 225, Westford, Massachusetts and as a result thereof, Landlord has agreed to amend the Lease to provide for an earlier term expiration date consistent with the commencement of the term of the lease for the new building described in general in said Proposal (the "Termination Date"); and
WHEREAS, Landlord has agreed to recover possession of the Demised Premises and to terminate the Lease on the Termination Date, and Tenant has agreed to surrender the Demised Premises to Landlord on the Termination Date.
NOW, THEREFORE, in consideration of the sum of Ten and NO/100 Dollars ($10.00) and of the mutual covenants and agreements herein contained, and for other good and valuable consideration paid, the receipt and sufficiency of which are hereby acknowledged, Landlord and Tenant do hereby acknowledge and agree as follows:
1. The Lease is hereby amended by replacing the "Term Expiration Date" as set forth in Section 1.1 of the Lease of "November 30, 2002" with the following date, "The Term Commencement Date under that certain lease dated August 17, 2000 and executed by and between Nashoba Westford Realty Trust, as Landlord, and NetScout Systems, Inc., as Tenant, in connection with the property located at Westford Technology Park West". All other terms and conditions of the Lease are hereby ratified and confirmed, except as otherwise set forth in this Agreement.
2. Effective on the Termination Date, the Lease will be terminated and will be of no further force and effect, except as set forth herein and Tenant shall surrender the Demised Premises in accordance with Section 4 below.
3. As of the Termination Date, Landlord and Tenant forever release each other, together with their respective successors and assigns, of and from any and all claims, demands, actions, causes of action, suits, liabilities, losses, damages, charges, debts, dues, covenants or agreements of any nature or description other than (i) the payment and performance of Tenant's obligations set forth herein, and (ii) those obligations, covenants or agreements in the Lease which by the express terms of the Lease shall survive the expiration or termination of the Lease. The aforementioned releases are conditioned upon Landlord's and Tenant's compliance with the provisions of this Agreement.
4. On or before the Termination Date, notwithstanding any provisions in the Lease to the contrary, Tenant shall quit and surrender possession and yield up the Demised Premises to Landlord in accordance with the provisions of the Lease. If Tenant fails to surrender the Demised Premises as aforesaid, Landlord shall have all rights and remedies afforded Landlord under the Lease, at law and in equity, as if the Termination Date were the expiration date of the Term of the Lease. Notwithstanding any language set forth herein or in the Lease to the contrary, Landlord hereby agrees that Tenant shall be provided a seven (7) day grace period in the event of a holdover by Tenant pursuant to Article XXII of the Lease before any holdover damages shall be charged to Tenant, Tenant hereby agreeing to pay only the holdover rent during said seven (7) day period as set forth in said Article XXII.
5. The conditions, covenants and agreement herein contained shall be binding upon the parties hereto and their respective successors and assigns.
6. Landlord and Tenant hereby represent and warrant to each other that the individuals executing this Agreement on behalf of Landlord and Tenant, respectively, are empowered and duly authorized to so execute this Agreement on behalf of the parties they represent.
7. This Agreement sets forth the entire agreement between the parties with respect to the subject matter hereto and all prior negotiations or agreements, whether oral or written, are superseded and merged herein. This Agreement may not be altered or amended except by a writing duly authorized and executed by the parties against whom enforcement is sought.
8. This Agreement may be signed in two or more counterparts, each of which shall be deemed an original but all of which shall together constitute one and the same instrument.
IN WITNESS WHEREOF, Landlord and Tenant have caused this Agreement to be duly executed under seal, by persons hereunto duly authorized, as of the day and year first above set forth.
LANDLORD:
Michelson Farm - WestfordTechnology Park IV Limited Partnership By: The Gutierrez Company, its General Partner ------------------------ ----------------------------- Witness By: Arturo J. Gutierrez, as President TENANT: NetScout Systems, Inc. ------------------------ By: Witness ------------------------------------------------ Its: ----------------------------------------------- |
CONSENT OF MORTGAGEE
The undersigned Mortgagee hereby consents and approves the foregoing provisions of this Second Amendment to Lease and Termination Agreement.
MORTGAGEE:
Dynex Commerical, Inc. ---------------------- By: Witness ------------------------------------------------ |
EXHIBIT 21
SUBSIDIARIES OF NETSCOUT
NAME JURISDICTION OF INCORPORATION ---- ----------------------------- NetScout Systems Security Corporation Massachusetts NetScout Systems Canada Inc. Ontario, Canada NetScout Systems Foreign Sales Corporation Barbados NetScout Systems (UK) Limited England and Wales NetScout Service Level Corporation Delaware NetScout Systems France, SARL France NetScout Systems (HK) Limited Hong Kong NetScout Systems Mexico, S.A. de C.V. Mexico NetScout Systems Singapore Pte Ltd. Singapore NetScout Systems Norway AS Norway NextPoint Networks Securities Corporation* Massachusetts NetScout Systems India Pvt. Ltd** India |
* Subsidiary of NetScout Service Level Corporation
** The shares of NetScout Systems India Pvt. Ltd. were issued to two individuals who are residents of India in accordance with the laws of India. Upon approval of the government of India, these shares will be transferred
to NetScout Systems, Inc.
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (No.'s 333-88131, 333-90971, 333-95647 and 333-41880) and on Form S-3 (No. 333-53110) of NetScout Systems, Inc. of our reports dated June 14, 2001, relating to the consolidated financial statements and financial statement schedules, which appear in this Annual Report on Form 10-K.
/s/ PricewaterhouseCoopers LLP Boston, Massachusetts June 29, 2001 |