UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

ý
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2011
OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _____________TO _____________

COMMISSION FILE NUMBER: 000-19960
 

DATAWATCH CORPORATION
(Exact name of registrant as specified in its charter)

DELAWARE
 
02-0405716
(State or Other Jurisdiction of
Incorporation or Organization)
 
(I.R.S. Employer
Identification No.)

271 MILL ROAD
QUORUM OFFICE PARK
CHELMSFORD, MASSACHUSETTS 01824
(978) 441-2200
 (Address and telephone number of principal executive office)

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
 
Common Stock $0.01 PAR VALUE
NASDAQ
(Title of Class)
(Name of Exchange on which Registered)

 
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:   NONE

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes o    No   ý

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o    No   ý

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   ý      No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes    ý     No    o

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.     ý

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.           
Large accelerated filer   o     Accelerated filer o  
Non-accelerated filer    o (Do not check if a smaller reporting company)  
Smaller reporting company   ý

Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2).Yes o    No   ý

The aggregate market value of voting stock held by non-affiliates of the registrant, based on the closing price of the registrant’s common stock on March 31, 2011, the last business day of the Company’s most recently completed second fiscal quarter, as reported by the NASDAQ Capital Market was $22,233,929.

The number of shares of the registrant’s common stock, $.01 par value, outstanding as of December 8, 2011 was 6,165,062.

Documents Incorporated By Reference

Registrant intends to file a definitive Proxy Statement pursuant to Regulation 14A within 120 days of the end of the fiscal year ended September 30, 2011.  Portions of such Proxy Statement are incorporated by reference in Part III of this report.



 
 
 
 
DATAWATCH CORPORATION
ANNUAL REPORT ON FORM 10-K

TABLE OF CONTENTS

Page
Part I
   
     
Item 1.
Business
3
Item 1A.
Risk Factors
8
Item 1B.
Unresolved Staff Comments
12
Item 2.
Properties
12
Item 3.
Legal Proceedings
13
     
Part II
   
     
Item 5.
Market for Registrant’s Common Equity and Related Shareholder Matters
14
Item 6.
Selected Consolidated Financial Data
14
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
15
Item 7A.
Quantitative and Qualitative Disclosures about Market Risk
25
Item 8.
Financial Statements and Supplementary Data
26
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
48
Item 9A.
Controls and Procedures
48
Item 9B.
Other Information
49
     
Part III
   
     
Item 10.
Directors and Executive Officers of the Registrant
50
Item 11.
Executive Compensation
51
Item 12.
Security Ownership of Certain Beneficial Owners and Management
51
Item 13.
Certain Relationships and Related Transactions
51
Item 14.
Principal Accountant Fees and Services
51
     
Part IV
   
     
Item 15.
Exhibits and Financial Statement Schedules
52
     

 
 
 
 
 
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PART I

Item 1.  BUSINESS

GENERAL

Datawatch Corporation (the “Company” or “Datawatch”), a leading global provider of report analytics products and services, enables organizations to access the valuable information that is trapped in static reports, text files, PDFs, HTML, and other content-rich, but difficult-to-use data sources and formats. Datawatch’s solutions transform this static information into a dynamic report analytics solution that accelerates and improves decision-making throughout these organizations’ operations. Datawatch’s technology allows its more than 40,000 customers worldwide to leverage the investments they have made in reports from ERP, CRM, enterprise content management and other custom applications into high performance analytic information at a fraction of the cost and time of traditional approaches. Founded in 1985, Datawatch is based in Chelmsford, Massachusetts with offices in London, Munich, Sydney and Manila.

The Company is a Delaware corporation with executive offices located at 271 Mill Road, Quorum Office Park, Chelmsford, MA 01824 and the Company’s telephone number is (978) 441-2200.  Periodic reports, proxy statements and other information are available to the public, free of charge, on the Company’s website, www.datawatch.com , as soon as reasonably practicable after they have been filed with the SEC and through the SEC’s website, www.sec.gov . Such reports, proxy statements and other information may be obtained by visiting the Public Reference Room of the SEC at 100 F Street, N.E., Washington, DC 20549 or by calling the SEC at 1-800-SEC-0330.

PRODUCTS

The Monarch Report Analytics Platform

Access to timely and actionable data is critical to the success of any organization. Datawatch solutions empower end users to transform their existing operational reports and other data sources from static information into live analyzable data for more efficient and timely decision-making. The Company’s products require no specialized programming skills and provide true self-service capabilities for end users. Solutions in this category are focused on: report and data access, data mining, transformation and integration, as well as data analysis and presentation. The Monarch Report Analytics platform automates the processes that enable users to easily access, extract and incorporate data from any combination of existing reports already published inside or outside the enterprise, then create, publish and distribute the resulting dynamic, interactive reports throughout the enterprise – without requiring the time, expense or expertise of valuable IT resources. The Monarch Report Analytics platform, which represented approximately 91% of total revenues for fiscal year 2011, includes:

Monarch 11 Datawatch is best known for its market-leading desktop report analytics application called Monarch. More than 425,000 copies of Monarch have been licensed, with localized versions in English, French and German. Monarch transforms static, isolated data from existing reports into a dynamic framework for self-service analysis and visualization. Monarch 11 has a robust modeling engine which makes it easier and faster for organizations to map existing standard ERP reports, text files, HTML files, PDFs and semi-structured content into high performance report analytic solutions.

Monarch Data Pump Monarch Data Pump provides powerful information delivery and data extract, transform and load capabilities in one automated solution, without requiring user programming. Combining Datawatch’s Monarch engine with the Microsoft.NET framework, Monarch Data Pump delivers a highly scalable and easily administered solution to acquire, combine, and segment customized data, and can deliver that data in a wide variety of formats including Excel, on an automatic, scheduled basis. Monarch Data Pump adds high-volume data production, remote web administration, a web service interface and tight integration with Microsoft SharePoint and Microsoft SQL Server Integration Services.

 
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Monarch Enterprise Server   Monarch Enterprise Server is an enterprise solution that provides web-enabled report storage, transformation and distribution, including data analysis, visualization and MS Excel integration, for self-service reporting and analytics. Monarch Enterprise Server allows organizations to quickly and easily deliver actionable operational data, derived from existing reporting systems and other database sources, with no new programming or report writing. Monarch Enterprise Server automatically stores report data in an enterprise report and document archive and provides users a unified point of entry to view, analyze and share information over the Internet. Designed to be scalable through thousands of users, Monarch Enterprise Server offers powerful additional features including dynamic on-line analytical process-type tools, XML forms generation, collaboration and subscription capabilities, live linking of report and database information and dashboarding capabilities.

Monarch RMS Monarch RMS (Report Mining Server) is a web-based report analytics solution that integrates with any existing enterprise content management system such as Monarch Report Manager On Demand, IBM Content Manager OnDemand (CMOD) and Hyland OnBase, ASG Mobius ViewDirect and others. Monarch RMS opens up the corporate data locked in stored, static reports and business documents, enabling dynamic business-driven analysis of information in users’ web browsers or favorite productivity tools with no user programming.

Datawatch Dashboards ™ - Datawatch Dashboards is a fully interactive dashboard solution that gives all levels of users a visual overview of operational performance as well as the ability to monitor specific business processes and events. Utilizing information from existing databases (in real time if so desired) and other sources of data including Excel and reports, Datawatch Dashboards allows users to visualize data in over 60 eye-catching graphical chart types in a web browser. Users from senior level executives to operational staff can easily assess results, identify trends, reveal issues and rapidly initiate appropriate actions with Datawatch Dashboards.

Monarch Report Manager on Demand   Monarch Report Manager On Demand (Monarch RMOD) is a high speed, high volume document archive system, storing text as well   as images, intelligent data streams and unstructured content, complete with file compression and encryption. Monarch RMOD is capable of enabling thousands of end users to access and retrieve stored documents in a matter of seconds via the network or web. Monarch RMOD also offers optional advanced business modules including e-Notify for automatic email notification to end users of newly archived documents, Monarch RMOD Workflow for web-enabled enterprise business process management, Monarch RMS for web-enabled transformation of business documents into customized data for easy analysis and Monarch RMOD Records Management for the ability to organize and process documents and other content within a regulatory compliant plan.
 
The Company also receives royalties for its iMergence iStore product primarily from a provider of services to the financial services industry. iMergence iStore is a report management solution which manages computer-generated reports, mines the data contained in them, and allows users to interactively merge and transform them into new reports.

Business Service Management Solutions

Staying ahead of the competition requires dramatically improving operating efficiency while delivering service efficiency at the lowest cost. Our service management and workflow solutions provide a powerful answer by focusing on: improving user service satisfaction, managing an organization’s infrastructure and using support resources effectively and efficiently. Business Service Management solutions represented approximately 9% of total revenues for fiscal year 2011.

Visual QSM ™ – Visual QSM is a Web-enabled IT service management system that scales from a basic help desk system to a full business management solution that incorporates workflow and network management capabilities and provides web access to multiple databases while enabling customers to interact via a standard browser.  Visual QSM also provides advanced service level management capabilities, integrated change management features, business process automation tools and one of the industry’s easiest to learn and use interfaces.

 
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Visual Help Desk ™ – Visual Help Desk (“Visual HD”) leverages the IBM Lotus Domino platform to provide a 100% web-based help desk and call center solution. Cost effective and easy to deploy, Visual HD is an enterprise-wide support solution that supports an organization’s existing IT infrastructure. Visual HD has the additional ability to utilize XML-based Web Services as well as the ability to integrate directly with IBM enterprise applications.

The Company has determined that it has only one operating segment. See Note 8 to the Company’s Consolidated Financial Statements for information about the Company’s revenue by product line and geographic operations.

MARKETING AND DISTRIBUTION

The Company believes that its hybrid sales and marketing strategy, utilizing both a direct sales force and strategic resellers, is an important part of the Company’s future success. The Company plans on continuing to establish strategic marketing relationships with leading software vendors and systems integrators within targeted industry sectors. This is expected to support the Company in penetrating both new accounts within its existing markets and also entirely new market segments.

Datawatch is engaged in active sales of its products to end-users, including repeat and add-on sales to existing customers and sales to new customers. Datawatch utilizes direct mail, the Internet, telemarketing and direct personal selling to generate its sales.

The Company uses a variety of marketing programs to create demand for its products. These programs include advertising, cooperative advertising with reseller partners, direct mail, exhibitor participation in industry shows, executive participation in press briefings, Internet-based marketing and on-going communication with the trade press.

The Company offers selected distributors the ability to return obsolete versions of its products and slow-moving products for credit. Based on its historical experience relative to products sold to these distributors, the Company believes that its exposure to such returns is minimal. It records a provision for such estimated returns in its financial statements.
 
The Company's software products are sold under warranty against certain defects in material and workmanship for a period of 30 days from the date of purchase. Datawatch also offers a 30 day money-back guarantee on its Monarch product sold directly to end-users. To date, the Company has not experienced any significant product returns under its money-back guarantee.

Two customers, Ingram Micro, Inc. and Lifeboat Distribution, individually accounted for the following percentages of total revenue for the periods indicated:
   
Percentage of total revenue
   
for the fiscal year ended
   
September 30,
   
2011
 
2010
 
2009
             
Ingram Micro, Inc.
 
13%
 
11%
 
17%
             
Lifeboat Distribution
 
15%
 
12%
 
5%
 

No other customer accounted for more than 10% of the Company’s total revenue in fiscal 2011, 2010 or 2009.  The Company intends to consolidate its use of indirect distribution channels under a single distributor, and in connection with such consolidation has taken steps to terminate its arrangement with Ingram Micro, Inc. effective in March 2012.

Datawatch’s revenues from outside of the U.S. are primarily the result of sales through the direct sales force of its wholly-owned subsidiary, Datawatch International Limited and its subsidiaries (“Datawatch International”) and through international resellers. Such international sales represented approximately 23%, 25% and 23% of the Company’s total revenue for fiscal 2011, 2010 and 2009, respectively.

 
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RESEARCH AND DEVELOPMENT

The Company believes that timely development of new products and enhancements to its existing products is essential to maintain strong positions in its markets. Datawatch intends to continue to invest significant amounts in research and product development to ensure that its products meet the current and future demands of its markets as well as to take advantage of evolving technology trends.

Datawatch’s product development efforts are conducted through in-house software development engineers and by external developers. External developers are compensated through royalty payments based on product sales levels achieved or under contracts based on services provided. Datawatch has established long-term relationships with several development engineering firms, providing flexibility, stability and reliability in its development process.

Datawatch’s product managers work closely with developers, whether independent or in-house, to define product specifications.  The initial concept for a product originates from this cooperative effort.  The developer is generally responsible for coding the development project. Datawatch’s product managers maintain close technical control over the products, giving the Company the freedom to designate which modifications and enhancements are most important and when they should be implemented. The product managers and their staff work in parallel with the developers to produce printed documentation, on-line help files, tutorials and installation software. In some cases, Datawatch may choose to subcontract a portion of this work on a project basis to third-party suppliers under contracts. Datawatch personnel also perform extensive quality assurance testing for all products and coordinate external beta test programs.

An existing agreement between Datawatch and Math Strategies grants the Company exclusive worldwide rights to use and distribute through April 30, 2015 certain intellectual property owned by Math Strategies and incorporated by the Company in its Monarch, Monarch Data Pump and certain other products. The Company has also entered into an Option Purchase Agreement with Math Strategies giving the Company the option to purchase these intellectual property rights for a formula price based on a multiple of the aggregate royalties paid to Math Strategies by the Company for the four fiscal quarters preceding the exercise of the option. This option, if exercised, would provide the Company with increased flexibility to utilize the purchased technology in the future.

Other Datawatch products have been developed through in-house software development or by offshore software development companies hired under contract. Datawatch maintains source code and full product control for these products, which include Monarch Enterprise Server, Monarch RMS, Monarch Report Manager On Demand, Visual QSM, and Visual HD products. Monarch Report Manager On Demand, Monarch Enterprise Server, Visual QSM, and Visual HD are trademarks of Datawatch Corporation. Visual Help Desk is a registered trademark of Auxilor, Inc. (“Auxilor”), a wholly-owned subsidiary of Datawatch Corporation.

During fiscal 2004, the Company acquired Mergence Technologies Corporation which had a branch software development and testing office in the Philippines. Mergence, which was renamed Datawatch Technologies Corporation simultaneous with the acquisition, developed the iMergence iStore and Visual Insight products at its facilities in the United States and the Philippines prior to the acquisition. The Company has integrated the Philippines development branch as an alternative development, quality assurance, documentation and customer support facility for its other enterprise products.  iMergence is a registered trademark of Datawatch Corporation.

During fiscal 2006, the Company acquired the Integrated Document Archiving and Retrieval Systems (“IDARS”) business from ClearStory Systems, Inc., including Radiant Business Document Server, which was renamed Monarch Report Manager On Demand.

The Company’s total research and development expense was $2,502,000, $2,658,000 and $2,433,000 for fiscal years 2011, 2010 and 2009, respectively.

 
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BACKLOG

The Company’s software products are generally shipped within three business days of receipt of an order.  Accordingly, the Company does not believe that backlog for its products is a meaningful indicator of future business. The Company does maintain a backlog of services commitments primarily related to its Monarch Enterprise Server, Monarch Report Manager On Demand and Visual QSM business. While this services backlog will provide future revenue to the Company, the Company believes that it is not a meaningful indicator of future business.

COMPETITION

The Company believes that it competes principally on the basis of product features and functionality, reliability, ease of use, supportability, and total costs of ownership (initial investment and on-going operating costs of the solution). The Company has few direct competitors in the report analytics market space, though some of the traditional business intelligence vendors are beginning to explore offerings in this market. Datawatch does compete with a number of companies in the Business Service Management markets including ASG Software Solutions, CA Technologies, BMC Software and others that have substantially greater financial, marketing and technological resources than the Company. Competition in these industries is likely to intensify as current competitors expand their product lines and as new competitors enter the market.

PRODUCT PROTECTION

Datawatch relies on a combination of trade secret, copyright and trademark laws, nondisclosure and other contractual agreements, and technical measures to protect its rights in its products. Despite these precautions, unauthorized parties may attempt to copy aspects of Datawatch’s products or to obtain and use information that Datawatch regards as proprietary.  Datawatch believes that, because of the rapid pace of technological change in the software industry, the legal protections for its products are less significant than the knowledge, ability and experience of its employees and developers, the frequency of product enhancements and the timeliness and quality of its support services.  Datawatch believes that none of its products, trademarks, patents, and other proprietary rights infringes on the proprietary rights of third parties, but there can be no assurance that third parties will not assert infringement claims against it or its developers in the future or that products developed by third parties do not infringe on other parties’ proprietary rights.

PRODUCTION

Production of Datawatch’s products involves the duplication of compact disks and the printing of user manuals, packaging and other related materials. High volume compact disk duplication is performed by non-affiliated subcontractors, while low volume compact disk duplication is performed in-house. Printing work is also performed by non-affiliated subcontractors. To date, Datawatch has not experienced any material difficulties or delays in production of its software and related documentation and believes that, if necessary, alternative production sources could be secured at a commercially reasonable cost.

EMPLOYEES

As of December 8, 2011, Datawatch had 109 full-time and 3 contract, temporary or part-time employees, including 37 engaged in marketing and sales; 28 engaged in product consulting, training and technical support; 26 engaged in product management, development and quality assurance; and 21 providing general, administrative, accounting, IT and software production and warehousing functions.


 
 
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Item 1A.  RISK FACTORS

The Company does not provide forecasts of its future financial performance. However, from time to time, information provided by the Company or statements made by its employees may contain “forward looking” information that involves risks and uncertainties. In particular, statements contained in this Annual Report on Form 10-K that are not historical facts (including, but not limited to statements contained in “Item 7.  Management’s Discussion and Analysis of Financial Condition and Results of Operations” of Part II of this Annual Report on Form 10-K relating to liquidity and capital resources) may constitute forward looking statements and are made under the safe harbor provisions of The Private Securities Litigation Reform Act of 1995. The Company cautions readers not to place undue reliance on any such forward looking statements, which speak only as of the date they are made. The Company disclaims any obligation, except as specifically required by law and the rules of the Securities and Exchange Commission, to publicly update or revise any such statements to reflect any change in the Company’s expectations or in events, conditions or circumstances on which any such statements may be based, or that may affect the likelihood that actual results will differ from those set forth in the forward looking statements. The Company’s actual results of operations and financial condition have varied and may in the future vary significantly from those stated in any forward looking statements. Factors that may cause such differences include, without limitation, the risks, uncertainties and other information discussed below and within this Annual Report on Form 10-K, as well as the accuracy of the Company’s internal estimates of revenue and operating expense levels. The following discussion of the Company’s risk factors should be read in conjunction with the financial statements contained herein and related notes thereto. Such factors, among others, may have a material adverse effect upon the Company’s business, results of operations and financial condition.

A Weak Global Economy and Softening in the Computer Software Market May Result in Decreased Revenues or Lower Revenue Growth Rates
 
The profitability of the Company’s business depends on the overall demand for computer software and services, particularly in the financial services markets and other markets in which it competes. Tighter credit and negative financial news resulting from the recent worldwide recession may continue to have an adverse affect on the market for computer software and result in significant fluctuations in the value of foreign currencies. Because the Company’s sales are primarily to major corporate customers, poor economic conditions may continue to soften the demand for computer software and services which may result in decreased revenues, lower revenue growth rates and reduced profitability. In addition, a weak global economy may result in longer sales cycles, reduced, deferred or cancelled orders, or greater than anticipated uncollectible accounts receivables. In a weakened economy, the Company cannot be assured that it will be able to effectively promote future growth in its software and services revenues or maintain profitability.

The Company’s Dependence on its Principal Products and its Failure to Develop Enhanced or New Products May Have a Material Adverse Effect on the Company’s Business, Financial Condition or Results of Operations
 
In the year ended September 30, 2011, the Monarch Report Analytics platform accounted for approximately 91% of the Company’s total revenue. The Company is primarily dependent on its Monarch Report Analytics platform products. As a result, any factor adversely affecting sales of any of these products could have a material adverse effect on the Company. The Company’s future financial performance will depend in part on the successful introduction of new and enhanced versions of these products and development of new versions of these and other products and subsequent customer acceptance of such new and enhanced products. In addition, competitive pressures or other factors may result in significant price erosion that could have a material adverse effect on the Company’s business, financial condition, results of operations, or cash flows.

Fluctuations in Quarterly Operating Results Could Have a Material Adverse Effect on the Company’s Business, Financial Condition or Results of Operations
 
The Company’s future operating results could vary substantially from quarter-to-quarter because of uncertainties and/or risks associated with such matters as current economic conditions, technological change, competition, delays in the introduction of new products or product enhancements and general market trends. In addition, as the Company focuses on increasing enterprise sales, the timing of significant orders may cause
 
 
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fluctuations in quarterly operating results. Historically, the Company has operated with minimal backlog of orders because its software products are generally shipped as orders are received. As a result, net sales in any quarter are substantially dependent on orders booked and shipped in that quarter. Further, any increases in sales under the Company’s subscription sales model could result in decreased revenues over the short term. Because the Company’s staffing and operating expenses are based on anticipated revenue levels and a high percentage of the Company’s costs are fixed in the short-term, small variations in the timing of revenues can cause significant variations in operating results from quarter-to-quarter. Because of these factors, the Company believes that period-to-period comparisons of its results of operations are not necessarily meaningful and should not be relied upon as indications of future performance. The Company can give no assurance that it will not experience such variations in operating results in the future or that such variations will not have a material adverse effect on its business, financial condition or results of operations.

Dependence on New Product Introductions and New Product Delays or Defects Could Have a Material Adverse Effect on the Company’s Business
 
Growth in the Company’s business depends in substantial part on the continuing introduction of new products. The length of product life cycles depends in part on end-user demand for new or additional functionality in the Company’s products and its ability to update its products to meet such demands. If the Company fails to accurately anticipate the demand for, or encounters any significant delays in developing or introducing, new products or additional functionality in its products, there could be a material adverse effect on the Company’s business. Product life cycles can also be affected by suppliers of operating systems introducing new or changed functionality within their products. The failure of the Company to anticipate the introduction of additional functionality in products developed by such suppliers could have a material adverse effect on the Company’s business. In addition, the Company’s competitors may introduce products with more features and lower prices than the Company’s products. Such increase in competition could adversely affect the life cycles of the Company’s products, which in turn could have a material adverse effect on the Company’s business.

Software products, whether developed internally or licensed from third parties, may contain undetected errors or failures when first introduced or as new versions are released.  There can be no assurance that, despite testing by the Company and by current and potential end-users, errors will not be found in new products after commencement of commercial shipments, resulting in loss of or delay in market acceptance. Any failure by the Company to anticipate or respond adequately to changes in technology and customer preferences, or any significant delays in product development or introduction, could have a material adverse effect on the Company’s business.

The Market Price of the Company’s Stock Has Been and May Continue to Be Volatile
 
As seen recently with the turmoil in the financial markets, and is frequently the case with the stocks of high technology companies, the market price of the Company’s common stock has been, and may continue to be, volatile. Factors such as quarterly fluctuations in results of operations, increased competition, the introduction of new products by the Company or its competitors, expenses or other difficulties associated with assimilating companies acquired by the Company, changes in the mix of sales channels, the timing of significant customer orders, and macroeconomic conditions generally, may have a significant impact on the market price of the stock of the Company. Any shortfall in revenue or earnings from the levels anticipated by securities analysts could have an immediate and significant adverse effect on the market price of the Company’s common stock in any given period. In addition, the stock market has from time to time experienced extreme price and volume fluctuations, which have particularly affected the market price for many high technology companies and which, on occasion, have appeared to be unrelated to the operating performance of such companies. Finally, to maintain its stock listing with NASDAQ, the Company must be in compliance with NASDAQ Marketplace Rules, including but not limited to, minimum bid price requirements. If it is not able to maintain compliance with these rules, and if the Company’s common stock does not qualify for, or is subsequently delisted from, the NASDAQ Capital Market, investors may have difficulty converting their investment into cash efficiently. The price of the Company’s common stock and the ability of holders to sell such stock would be adversely affected.

 
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A Significant Percentage of the Company’s Total Revenue is Subject to Risks Associated with International Sales
 
In the years ended September 30, 2011 and 2010, international sales accounted for approximately 23% and 25%, respectively, of the Company’s total revenue. The Company anticipates that international sales will continue to account for a significant percentage of its total revenue. A significant portion of the Company’s total revenue will therefore be subject to risks associated with international sales, including further deterioration of international economic conditions, unexpected changes in legal and regulatory requirements, changes in tariffs, currency exchange rates and other barriers, political and economic instability, possible effects of war and acts of terrorism, difficulties in accounts receivable collection, difficulties in managing distributors or representatives, difficulties in staffing and managing international operations, difficulties in protecting the Company’s intellectual property overseas, seasonality of sales and potentially adverse foreign tax consequences.

Past and Future Acquisitions may be Difficult to Integrate, Disrupt the Company’s Business, Dilute Stockholder Value or Divert Management Attention
 
Historically, the Company has acquired certain technology or businesses to supplement and expand its product offerings. In the future, the Company could acquire additional products, technologies or businesses, or enter into joint venture arrangements, for the purpose of complementing or expanding its business and to address the need to develop new products. Acquisitions involve numerous risks including difficulties in the assimilation of the operations, technologies and products of the acquired companies, the diversion of management’s attention from other business concerns, risks of entering markets in which the Company has no or limited direct prior experience and where competitors in such markets have stronger market positions, and the potential loss of key employees of the acquired company. Achieving and maintaining the anticipated benefits of an acquisition will depend in part upon whether the integration of the companies’ business is accomplished in an efficient and effective manner, and there can be no assurance that this will occur. The successful combination of companies in the high technology industry may be more difficult to accomplish than in other industries.

There may be Limitations on the Effectiveness of the Company’s Controls
 
The Company’s management, including the Chief Executive Officer and President and the Chief Financial Officer, does not expect that its internal controls will prevent all errors and intentional misrepresentations. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and no assurance can be given that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or intentional conduct may occur and not be detected.

The Company may be Adversely Impacted by Rapid Technological Change
 
The markets in which the Company competes have undergone, and can be expected to continue to undergo, rapid and significant technological change. The ability of the Company to grow will depend on its ability to successfully update and improve its existing products and market and license new products to meet the changing demands of the marketplace and that can compete successfully with the existing and new products of the Company’s competitors.  There can be no assurance that the Company will be able to successfully anticipate and satisfy the changing demands of the personal computer software marketplace, that the Company will be able to continue to enhance its product offerings, or that technological changes in hardware platforms or software operating systems, or the introduction of a new product by a competitor, will not render the Company’s products obsolete.

 
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The Company Faces Significant Competition in the Software Industry
 
The software market is highly competitive and characterized by continual change and improvement in technology. Several of the Company’s existing and potential competitors, including ASG Software Solutions, CA Technologies, BMC Software and others, have substantially greater financial, marketing and technological resources than the Company.  No assurance can be given that the Company will have the resources required to compete successfully in the future.

The Company’s Success is Dependent on Proprietary Software Technology
 
The Company’s success is dependent upon proprietary software technology. The Company does not own patents on any such technology and relies principally on a combination of trade secret, copyright and trademark laws, nondisclosure and other contractual agreements and technical measures to protect its rights to such proprietary technology. Despite such precautions, there can be no assurance that such steps will be adequate to deter misappropriation of such technology.

The Company Relies on Software Licensed from Third Parties
 
A majority of the Company’s products incorporate third-party proprietary technology which is generally licensed to the Company on an exclusive, worldwide basis. Failure by such third-parties to continue to develop technology for the Company and license such technology to the Company could have a material adverse effect on the Company’s business and results of operations.

The Company May Not be Able to Hire and Retain Highly Skilled Employees, Which Could Affect its Ability to Compete Effectively Because its Business is Technology-Based
 
Qualified personnel are in great demand throughout the software industry. The Company’s success depends, in large part, upon its ability to attract, train, motivate and retain highly skilled employees, particularly technical personnel and product development and professional services personnel, sales and marketing personnel and other senior personnel. The Company’s failure to attract and retain the highly trained technical personnel that are integral to the Company’s product development, professional services and direct sales teams may limit the rate at which the Company can generate sales and develop new products or product enhancements. A change in key management could result in transition and attrition in the affected department. This could have a material adverse effect on the Company’s business, operating results and financial condition.

Evolving Regulation of Corporate Governance and Public Disclosure May Result in Additional Expenses and Continuing Uncertainty
 
Changing laws, regulations and standards relating to corporate governance and public disclosure, including the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, the Sarbanes-Oxley Act of 2002 and related SEC regulations as well as the listing standards of the NASDAQ Stock Market, have created and are continuing to create uncertainty for public companies. The Company continually evaluates and monitors developments with respect to new and proposed rules and cannot predict or estimate the amount of the additional costs incurred or the timing of such costs. These new or changed laws, regulations and standards are subject to varying interpretations, in many cases due to their lack of specificity, and as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. The Company is committed to maintaining high standards of corporate governance and public disclosure. As a result, the Company has invested resources to comply with evolving laws, regulations and standards. This investment has and may continue to result in increased general and administrative expenses and a diversion of management time and attention from revenue-generating activities to compliance activities. If the Company’s efforts to comply with new or changed laws, regulations and standards differ from the activities intended by regulatory or governing bodies due to ambiguities related to practice, regulatory authorities may initiate legal proceedings against the Company and it may be harmed.

 
- 11 -

 
The Failure of Indirect Distribution Channels Could Have a Material Adverse Effect on the Company’s Operating Results
 
The Company sells a significant portion of its products through distributors and resellers, none of which are under the direct control of the Company. The loss of major distributors or resellers of the Company’s products, or a significant decline in their sales, could have a material adverse effect on the Company’s operating results.  The Company has taken steps to terminate its arrangement with Ingram Micro, Inc. effective in March 2012.  Ingram accounted for 13%, 11% and 17% of the Company's total revenue for fiscal 2011, 2010 and 2009, respectively. There can be no assurance that the Company will be able to attract or retain qualified distributors or resellers or that any such distributors or resellers will be able to effectively sell the Company’s products, including the volume of products previously sold by Ingram Micro, Inc. The Company seeks to select and retain distributors and resellers on the basis of their business credentials and their ability to add value through expertise in specific vertical markets or application programming expertise. In addition, the Company may rely on resellers to provide post-sales service and support, and any deficiencies in such service and support could adversely affect the Company’s business.

Failure to Maintain an Adequate Sales Returns Reserve Could Have a Material Adverse Effect on the Company’s Financial Position and Results of Operations
 
Revenue from the Company’s sale of all software products (when separately sold) is generally recognized at the time of shipment. The Company estimates and maintains reserves for potential future product returns from distributors based on its experience and history with the Company’s various distributors and resellers as well as by monitoring inventory levels at such companies. While actual returns have historically been within the range estimated by management, future actual results could differ from the reserve for sales returns recorded, and this difference could have a material effect on the Company’s financial position and results of operations.

The Company’s Subscription Sales Model for its Enterprise Products Could Result in Decreased or Delayed Revenues and Cash Flows
 
The Company sells its enterprise products through the sale of perpetual licenses and through a subscription pricing model. The subscription pricing model allows customers to use the Company’s products at a lower initial cost of software acquisition when compared to the more traditional perpetual license sale. Although the subscription sales model is designed to increase the number of enterprise solutions sold and also reduce dependency on short-term sales by building a recurring revenue stream, it introduces increased risks for the Company primarily associated with the timing of revenue recognition and reduced cash flows. The subscription model delays revenue recognition when compared to the typical perpetual license sale and also, as the Company allows termination of certain subscriptions with 90 days notice, could result in decreased revenue for solutions sold under the model if the Company experiences a high percentage of subscription cancellations following the first 12 months of the subscription.  Further, as amounts due from customers are invoiced over the life of the subscription, there are delayed cash flows from subscription sales when compared to perpetual license sales.

Catastrophic Events May Adversely Affect Our Business
 
The Company is a highly automated business and relies on its network infrastructure and enterprise applications, internal technology systems and website for development, marketing, operational, support and sales activities. A disruption or failure of these systems in the event of a major storm, earthquake, fire, telecommunications failure, cyber-attack, terrorist attack or other catastrophic event could cause system interruptions, reputational harm, delays in the Company’s product development and loss of critical data and could affect its ability to sell and deliver products and services and other critical functions of its business.


Item 1B.  UNRESOLVED STAFF COMMENTS

Not applicable.


Item 2.  PROPERTIES

The Company is currently headquartered in 14,683 square feet of leased office space in Chelmsford, Massachusetts pursuant to a sublease agreement executed on June 17, 2011. The sublease expires in June 2016.
 
 
- 12 -

 
The aggregate rent for the remaining term of the sublease is approximately $767,000. In addition to rent, the sublease requires the Company to pay certain taxes, insurance and operating costs related to the leased facility based on the Company’s pro-rata share of such costs.

The Company also maintains sales offices in the U.S, and international sales and administrative offices in the United Kingdom, Germany and Australia. In addition, the Company maintains a software development and testing facility in the Philippines.


Item 3.  LEGAL PROCEEDINGS

The Company is occasionally involved in legal proceedings and other claims arising out of its operations in the normal course of business. The Company is not party to any litigation that management believes will have a material adverse effect on the Company’s consolidated financial condition, results of operations or cash flows.



 
 
 
 
 
 
 
 
 
 
 
 
 
 

 
 
- 13 -

 
PART II

Item 5.   MARKET FOR THE REGISTRANT’S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS

The Registrant’s common stock is listed and traded on the NASDAQ Capital Market (formerly the NASDAQ SmallCap Market) under the symbol DWCH.  The range of high and low closing prices during each fiscal quarter for the last two fiscal years is set forth below:

For the Year Ended
 
Common Stock
 
September 30, 2011
 
High ($)
 
Low ($)
 
           
4th Quarter
 
5.96
 
4.90
 
3rd Quarter
 
5.97
 
4.85
 
2nd Quarter
 
5.59
 
3.08
 
1st Quarter
 
3.59
 
2.71
 

For the Year Ended
 
Common Stock
 
September 30, 2010
 
High ($)
 
Low ($)
 
           
4th Quarter
 
2.90
 
2.25
 
3rd Quarter
 
3.17
 
2.20
 
2nd Quarter
 
2.68
 
2.25
 
1st Quarter
 
2.68
 
2.10
 

There were 81 shareholders of record as of December 8, 2011.  The Company believes that the number of beneficial holders of common stock is approximately 1,400. The last reported sale of the Company’s common stock on December 8, 2011 was at $5.40.

The Company has not paid any cash dividends and it is anticipated that none will be declared in the foreseeable future. The Company intends to retain future earnings, if any, to provide funds for the operation, development and expansion of its business.

The information set forth under the caption “Equity Compensation Plans” appearing in the Company’s definitive Proxy Statement for the Annual Meeting of Shareholders for the fiscal year ended September 30, 2011 is incorporated herein by reference.


Item 6.   SELECTED CONSOLIDATED FINANCIAL DATA

The following table sets forth selected consolidated financial data of the Company for the periods indicated.  The selected consolidated financial data for and as of the end of the years in the five-year period ended September 30, 2011 are derived from the Consolidated Financial Statements of the Company.  The information set forth below should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the Consolidated Financial Statements and notes which appear elsewhere in this Annual Report on Form 10-K.
 
 
 
- 14 -

 
 
Statements of Operations Data:
                             
Years Ended September 30,
 
2011
   
2010
   
2009
   
2008
   
2007
 
   
(In thousands, except per share data)
 
                               
Revenue
  $ 17,885     $ 17,674     $ 19,618     $ 23,030     $ 25,259  
Costs and Expenses
    17,818       17,283       24,912       22,531       23,524  
Income (Loss) from Operations
    67       391       (5,294 )     499       1,735  
Net Income (Loss) (1)
  $ 132     $ 380     $ (4,940 )   $ 717     $ 1,669  
                                         
Earnings (Loss) per Common Share:
                                       
Basic (1)
  $ 0.02     $ 0.06     $ (0.83 )   $ 0.12     $ 0.30  
Diluted (1)
  $ 0.02     $ 0.06     $ (0.83 )   $ 0.12     $ 0.29  
                                         
                                         
                                         
Balance Sheet Data:
                                       
September 30,
    2011       2010       2009       2008       2007  
   
(In thousands)
 
                                         
Total Assets
  $ 13,134     $ 11,487     $ 12,043     $ 18,169     $ 18,337  
Working Capital (Deficiency)
    5,423       4,186       2,627       1,130       (279 )
Long-Term Obligations
    288       302       482       627       448  
Shareholders’ Equity
    6,342       5,679       5,166       10,082       9,020  
____________________________
 
(1)
Net income (loss) and earnings (loss) per common share for 2009 include the impact of the full impairment of goodwill and  an indefinite lived trademark totaling $6,401,000. See Note 1. Nature of Business and Summary of Significant Accounting Policies ,  of Notes to Consolidated Financial Statements in the Company's Form 10-K for the fiscal year ended September 30, 2010.
 


Item 7.   MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis is qualified by reference to, and should be read in conjunction with, the Consolidated Financial Statements of Datawatch and its subsidiaries which appear elsewhere in this Annual Report on Form 10-K.

GENERAL

Introduction

Datawatch is engaged in the design, development, manufacture, marketing, and support of business computer software primarily for the report analytics and business service management markets to allow organizations to access and analyze information in a more meaningful fashion.

During fiscal year 2011, the Company implemented a change in leadership with the goal of creating a higher growth strategy. On February 11, 2011, the Company appointed Michael A. Morrison as President and CEO. The Company has since repositioned its products into the report analytics solutions described below.

The Company’s principal product lines are Report Analytics Solutions (including Monarch, Monarch Data Pump, Monarch Enterprise Server, Monarch RMS, Datawatch Dashboards, Monarch Report Manager on Demand and iMergence) and Business Service Management Solutions (including Visual QSM and Visual HD). Included in the above categories are:

·  
Monarch , a desktop reporting and data analysis application that lets users extract and manipulate data from ASCII report files, PDF files or HTML files produced on any mainframe, midrange, client/server or PC system;
 
 
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·  
Monarch Data Pump , a data replication and migration tool that offers a shortcut for populating and refreshing data marts and data warehouses, for migrating legacy data into new applications and for providing automated delivery of reports in a variety of formats, such as Excel, via email;
·  
Monarch Enterprise Server , an enterprise solution that provides web-enabled report storage, transformation and distribution including data analysis, visualization and MS Excel integration for easy to use and cost effective self-serve reporting and analytics;
·  
Monarch RMS , a web-based report analysis solution that integrates with any existing enterprise report management or content management archiving solution;
·  
Datawatch Dashboards , an interactive dashboard solution that provides a visual overview of operational performance as well as the ability to monitor specific business processes and events;
·  
Monarch Report Manager on Demand , a system for high-volume document capture, archiving, and online presentation;
·  
iMergence , an enterprise report mining system;
·  
Visual QSM , a fully internet-enabled IT service management solution that incorporates workflow and network management capabilities and provides web access to multiple databases via a standard browser; and
·  
Visual Help Desk or Visual HD , a web-based help desk and call center solution operating on the IBM Lotus Domino platform.

The Company offers its enterprise products through perpetual licenses and subscription pricing models. Subscriptions automatically renew unless terminated with 90 days notice following the first year of the subscription term. The subscription arrangement includes software, maintenance and unspecified future upgrades including major version upgrades. The subscription renewal rate is the same as the initial subscription rate. During fiscal years 2011 and 2010, subscription revenues were approximately $299,000 and $313,000, respectively.

CRITICAL ACCOUNTING POLICIES

In the preparation of financial statements and other financial data, management applies certain accounting policies to transactions that, depending on judgments made by management, can result in different outcomes. In order for a reader to understand the following information regarding the financial performance and condition of the Company, an understanding of those accounting policies is important. Certain of those policies are comparatively more important to the Company’s financial results and condition than others. The policies that the Company believes are most important for a reader’s understanding of the financial information provided in this report are described below.

Revenue Recognition, Allowance for Bad Debts and Returns Reserve

The Company sells its solutions directly to end-users, through value added resellers and through distributors. Sales to distributors and resellers accounted for approximately 41% and 43%, of total sales for fiscal years 2011 and 2010, respectively. Revenue from the sale of all software products (when separately sold) is generally recognized at the time of shipment, provided there are no uncertainties surrounding product acceptance, the fee is fixed or determinable, collectability is reasonably assured, persuasive evidence of the arrangement exists and there are no significant obligations remaining. Both types of the Company’s software product offerings are “off-the-shelf” as such term is customarily defined. The Company’s software products can be installed and used by customers on their own with little or no configuration required. Multi-user licenses marketed by the Company are sold as a right to use the number of licenses, and license fee revenue is recognized upon delivery of all software required to satisfy the number of licenses sold. Upon delivery, the licensing fee is payable without further delivery obligations to the Company.

Datawatch software products are generally sold in multiple element arrangements which may include software licenses, professional services and post-contract customer support. In such multiple element
 
 
- 16 -

 
arrangements, the Company applies the residual method in determining revenue to be allocated to the software license. In applying the residual method, the Company deducts from the sale proceeds the vendor specific objective evidence (“VSOE”) of fair value of the professional services and post-contract customer support in determining the residual fair value of the software license. The VSOE of fair value of the services and post-contract customer support is based on the amounts charged for these elements when sold separately. Professional services include implementation, integration, training and consulting services with revenue recognized as the services are performed. These services are generally delivered on a time and materials basis, are billed on a current basis as the work is performed, and do not involve modification or customization of the software or any other unusual acceptance clauses or terms. Post-contract customer support is typically provided under a maintenance agreement which provides technical support and rights to unspecified software maintenance updates and bug fixes on a when-and-if available basis. Revenue from post-contract customer support services is deferred and recognized ratably over the period of support (generally one year). Such deferred amounts are recorded as part of deferred revenue in the Company’s Consolidated Balance Sheets included herein.

The Company also licenses its enterprise software using a subscription model. At the time a customer enters into a binding agreement to purchase a subscription, the customer is invoiced for an initial 90 day service period and an account receivable and deferred revenue are recorded. Beginning on the date the software is installed at the customer site and available for use by the customer, and provided that all other criteria for revenue recognition are met, the deferred revenue amount is recognized ratably over the period the service is provided. The customer is then invoiced every 90 days and revenue is recognized ratably over the period of the subscription. The subscription arrangement includes software, maintenance and unspecified future upgrades including major version upgrades. The subscription renewal rate is the same as the initial subscription rate. Subscriptions can be cancelled by the customer at any time by providing 90 days written notice following the first year of the subscription term.

The Company’s software products are sold under warranty against certain defects in material and workmanship for a period of 30 days from the date of purchase. The Company also offers a 30 day money-back guarantee on its Monarch product sold directly to end-users. Additionally, the Company provides its distributors with stock-balancing rights. Revenue from the sale of software products to distributors and resellers is recognized at the time of shipment providing all other criteria for revenue recognition as stated above are met and (i) the distributor or reseller is unconditionally obligated to pay for the products, including no contingency as to product resale, (ii) the distributor or reseller has independent economic substance apart from the Company, (iii) the Company is not obligated for future performance to bring about product resale, and (iv) the amount of future returns can be reasonably estimated. The Company’s experience and history with its distributors and resellers allows for reasonable estimates of future returns. Among other things, estimates of potential future returns are made based on the inventory levels at, and the returns history with, the various distributors and resellers, which the Company monitors frequently. Once the estimates of potential future returns from all sources are made, the Company determines if it has adequate returns reserves to cover anticipated returns and the returns reserve is adjusted as required. Adjustments are recorded as increases or decreases in revenue in the period of adjustment. Actual returns have historically been within the range estimated by the Company. The Company’s returns reserves were $70,000 and $35,000 as of September 30, 2011 and 2010, respectively.

The Company maintains allowances for doubtful accounts for estimated losses resulting from the inability of customers to make required payments. The Company analyzes accounts receivable and the composition of the accounts receivable aging, historical bad debts, customer creditworthiness, current economic trends, foreign currency exchange rate fluctuations and changes in customer payment terms when evaluating the adequacy of the allowance for doubtful accounts. Based upon the analysis and estimates of the collectability of its accounts receivable, the Company records an increase in the allowance for doubtful accounts when the prospect of collecting a specific account receivable becomes doubtful. Actual results could differ from the allowances for doubtful accounts recorded, and this difference may have a material effect on the Company’s financial position and results of operations. The Company’s allowance for doubtful accounts was $78,000 and $129,000 as of September 30, 2011 and 2010, respectively.

 
- 17 -

 
Income Taxes

The Company has deferred tax assets primarily related to net operating loss carryforwards and tax credits that expire at different times through and until 2031. At September 30, 2011, the Company had U.S. federal tax loss carryforwards of approximately $7.1 million, expiring at various dates through 2031, including $182,000 resulting from the Mergence acquisition undertaken during 2004 which are subject to additional annual limitations as a result of the changes in Mergence’s ownership, and had approximately $1.4 million in state tax loss carryforwards, which also expire at various dates through 2031. An alternative minimum tax credit of approximately $164,000 is available to offset future regular federal taxes. Research and development credits of approximately $624,000 expire beginning in 2011. In addition, the Company has the following foreign net operating loss carryforwards: United Kingdom losses of $7.5 million with no expiration date, Australia losses of $3.6 million with no expiration date and Germany losses of $98,000 with no expiration date.

Significant judgment is required in determining the Company’s provision for income taxes, the carrying value of deferred tax assets and liabilities and the valuation allowance recorded against net deferred tax assets.  Factors such as future reversals of deferred tax assets and liabilities, projected future taxable income, changes in enacted tax rates and the period over which the Company’s deferred tax assets will be recoverable are considered in making these determinations. Management does not believe the deferred tax assets are more likely than not to be realized and therefore a full valuation allowance has been provided against the deferred tax assets at September 30, 2011 and 2010. Management evaluates the realizability of the deferred tax assets quarterly and, if current economic conditions change or future results of operations are better than expected, future assessments may result in the Company concluding that it is more likely than not that all or a portion of the deferred tax assets are realizable. If this conclusion were reached, the valuation allowance against deferred tax assets would be reduced resulting in a tax benefit being recorded for financial reporting purposes. Total net deferred tax assets subject to the full valuation allowance were approximately $7.2 million as of September 30, 2011.

 The Company follows the accounting requirements for uncertain tax positions. The comprehensive model addresses the financial statement recognition, measurement, presentation and disclosure of uncertain tax positions taken or expected to be taken in income tax returns. In accordance with these requirements, the Company first determines whether a tax authority would “more likely than not” sustain its tax position if it were to audit the position with full knowledge of all the relevant facts and other information. For those tax positions that meet this threshold, the Company measures the amount of tax benefit based on the largest amount of tax benefit that the Company has a greater than 50% chance of realizing in a final settlement with the relevant authority. Those tax positions failing to qualify for initial recognition are recognized in the first interim period in which they meet the more likely than not standard, or are resolved through negotiation or litigation with the taxing authority, or upon expiration of the statute of limitations. The Company maintains a cumulative risk portfolio relating to all of its uncertainties in income taxes in order to perform this analysis, but the evaluation of the Company’s tax positions requires significant judgment and estimation in part because, in certain cases, tax law is subject to varied interpretation, and whether a tax position will ultimately be sustained may be uncertain. The actual outcome of the Company’s tax positions, if significantly different from its estimates, could materially impact the financial statements.

At October 1, 2009, the Company had a cumulative tax liability of $125,000 related to foreign tax exposure. During each of the fiscal years ended September 30, 2010 and 2011, the Company increased its tax liability by $25,000, resulting in a cumulative tax liability of $175,000 at September 30, 2011. These amounts have been recorded as an increase to other long-term liabilities on the Company’s Consolidated Balance Sheets.

Capitalized Software Development Costs

The Company capitalizes certain software development costs as well as purchased software upon achieving technological feasibility of the related products. Software development costs incurred and software purchased prior to achieving technological feasibility are charged to research and development expense as incurred.  Commencing upon initial product release, capitalized costs are amortized to cost of software licenses using the straight-line method over the estimated life of the product (which approximates the ratio that current gross
 
 
- 18 -

 
revenues for a product bear to the total of current and anticipated future gross revenues for that product), which is generally 18 to 24 months. The net amount of capitalized software development costs and purchased software was approximately $14,000 and $396,000 at September 30, 2011 and 2010, respectively. During fiscal 2011, the Company did not capitalize any software development costs related to new products in development.

Valuation of Intangible Assets and Other Long-Lived Assets

Intangible assets consist of internally developed software, patents and customer lists acquired through business combinations. The values allocated to these intangible assets are amortized using the straight-line method over the estimated useful life of the related asset. The Company reviews intangible assets and other long-lived assets whenever an indication of potential impairment exists, such as a significant reduction in cash flows associated with the assets. Should the fair value of the Company’s long-lived assets decline because of reduced operating performance, market declines, or other indicators of impairment, a charge to operations for impairment may be necessary. No impairment charges were taken for intangible assets during fiscal year 2011.

Accounting for Share-Based Compensation

The Company recognizes share-based compensation expense in accordance with generally accepted accounting principles which require that all share-based awards, including grants of employee stock options, be recognized in the financial statements based on their fair value at date of grant.

The Company recognizes the fair value of share-based awards over the requisite service period of the individual awards, which generally equals the vesting period. For the fiscal year ended September 30, 2011, the Company recorded share-based compensation expense of approximately $264,000. In order to determine the fair value of stock options on the date of grant, the Company applies the Black-Scholes option-pricing model. Inherent in this model are assumptions related to expected stock-price volatility, option life, risk-free interest rate and dividend yield. While the risk-free interest rate and dividend yield are less subjective assumptions, typically based on factual data derived from public sources, the expected stock-price volatility and option life assumptions require a greater level of judgment which makes them critical accounting estimates.

The Company uses an expected stock-price volatility assumption that is based on historical volatilities of the underlying stock which are obtained from public data sources. The Company believes this approach results in a reasonable estimate of volatility. For stock option grants issued during the fiscal year ended September 30, 2011, the Company used an expected stock-price volatility of 67% based upon the historical volatility at the time of issuance.

With regard to the expected option life assumption, the Company considers the exercise behavior of past grants and models the pattern of aggregate exercises. Patterns are determined on specific criteria of the aggregate pool of optionees including the reaction to vesting, realizable value and short-time-to-maturity effect. For stock option grants issued during the year ended September 30, 2011, the Company used an expected option life assumption of 5 years.

With regard to the forfeiture rate assumption, the Company reviews historical voluntary turnover rates. For stock option grants issued during the fiscal year ended September 30, 2011, the Company used an annual estimated forfeiture rate of 10%. Additional expense will be recorded if the actual forfeiture rate is lower than estimated, and a recovery of prior expense will be recorded if the actual forfeiture rate is higher than estimated.

The Company also periodically grants awards of restricted stock units (“RSU”) to each of its non-employee directors and some of its employees on a discretionary basis pursuant to its stock compensation plans. Each RSU entitles the holder to receive, at the end of each vesting period, a specified number of shares of the Company’s common stock. Each RSU vests at the rate of 33.33% on each of the first through third anniversaries of the grant date. Additionally, some of the RSUs are subject to a further vesting condition that the Company’s common stock must trade at a price greater than $10 per share on a national securities exchange for a period of twenty consecutive days prior to the fifth anniversary of the grant date. For such RSUs, the Company applies the Monte Carlo option-pricing model for determining the fair value on the date of grant.

 
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RESULTS OF OPERATIONS

The following table sets forth certain statements of operations data as a percentage of total revenues for the periods indicated. The data has been derived from the Company’s consolidated financial statements. The operating results for any period should not be considered indicative of the results expected for any future period.
 
   
Year Ended September 30,
 
      2011       2010  
REVENUE:
               
Software licenses
    55 %     54 %
Maintenance
    35       36  
Professional Services
    10       10  
Total revenue
    100       100  
                 
COSTS AND EXPENSES:
         
Cost of software licenses
    13       14  
Cost of maintenance and services
    14       16  
Sales and marketing
    35       33  
Engineering and product development
    14       15  
General and administrative
    24       20  
Total costs and expenses
    100       98  
INCOME FROM OPERATIONS
          2  
Other income (expense), net
    1        
INCOME BEFORE INCOME TAXES
    1       2  
(Provision) benefit for income taxes
   
       
NET INCOME
    1       2  
 
 
Fiscal Year Ended September 30, 2011 as Compared to
Fiscal Year Ended September 30, 2010

Total Revenues

The following table presents total revenue, total revenue increase (decrease) and percentage change in total revenue for the years ended September 30, 2011 and 2010:
 
   
Year Ended September 30,
   
Increase
   
Percentage
 
   
2011
   
2010
   
(Decrease)
   
Change
 
   
(In thousands)
       
                         
Software licenses
  $ 9,858     $ 9,563     $ 295       3%  
Maintenance
    6,219       6,322       (103 )     -2%  
Professional Services
    1,808       1,789       19       1%  
                                 
Total revenue
  $ 17,885     $ 17,674     $ 211       1%  
                                 

Revenue for the fiscal year ended September 30, 2011 was $17,885,000, which represents an increase of $211,000 or approximately 1% from revenue of $17,674,000 for the fiscal year ended September 30, 2010. For fiscal 2011, Report Analytics Solutions (including Monarch, Monarch Data Pump, Monarch Enterprise Server, Monarch RMS, Datawatch Dashboards, Monarch Report Manager on Demand and iMergence), and Business Service Management Solutions (including Visual QSM and Visual HD) revenue accounted for 91% and 9% of total revenue, respectively, as compared to 90% and 10%, respectively, for fiscal 2010.

 
- 20 -

 
Software license revenue for the fiscal year ended September 30, 2011 was $9,858,000 or approximately 55% of total revenue, as compared to $9,563,000, or approximately 54% of total revenue for the fiscal year ended September 30, 2010. This represents an increase of $295,000 or approximately 3% from fiscal 2010. The overall increase in software license revenue consists of a $361,000 increase in Report Analytics Solutions (including Monarch, Monarch Data Pump, Monarch Enterprise Server, Monarch RMS, Datawatch Dashboards,  Monarch Report Manager on Demand and iMergence products) which was partially offset by a $66,000 decrease in Business Service Management Solutions (including Visual QSM and Visual HD products). The Company attributes the overall increase in software license revenue to its new product positioning and the investments the Company has made in its sales and marketing organization which has resulted in increased enterprise license sales during the year.

Maintenance revenue for the fiscal year ended September 30, 2011 was $6,219,000 or approximately 35% of total revenue, as compared to $6,322,000 or approximately 36% of total revenue for the fiscal year ended September 30, 2010. This represents a decrease of $103,000 or approximately 2% from fiscal 2010. The decrease in maintenance revenue consists of a $74,000 decrease in Business Service Management Solutions (including Visual QSM and Visual HD products) and a $29,000 decrease in Report Analytics Solutions (including Monarch, Monarch Data Pump, Monarch Enterprise Server, Monarch RMS, Datawatch Dashboards, Monarch Report Manager on Demand and iMergence products). The Company attributes the overall decrease in maintenance revenue to lower renewal rates of enterprise product customers which was partially offset by maintenance on the Monarch product line.

Professional services revenue for the fiscal year ended September 30, 2011 was $1,808,000 or approximately 10% of total revenue, as compared to $1,789,000 or approximately 10% of total revenue for the fiscal year ended September 30, 2010. This represents an increase of $19,000 or approximately 1% from fiscal 2010. The increase in professional services revenue consists of a $197,000 increase in Report Analytics Solutions (including Monarch, Monarch Data Pump, Monarch Enterprise Server, Monarch RMS, Datawatch Dashboards, Monarch Report Manager on Demand and iMergence products) and a $178,000 decrease in Business Service Management Solutions (including Visual QSM and Visual HD products).

Costs and Operating Expenses

The following table presents costs and operating expenses, increase (decrease) in costs and operating expenses and percentage changes in costs and operating expenses for the years ended September 30, 2011 and 2010:
 
   
Year Ended September 30,
   
Increase /
   
Percentage
 
   
2011
   
2010
   
(Decrease)
   
Change
 
   
(in thousands)
       
Cost of software licenses
  $ 2,237     $ 2,382     $ (145 )     -6%  
Cost of maintenance and services
    2,537       2,893       (356 )     -12%  
Sales and marketing
    6,268       5,786       482       8%  
Engineering and product development
    2,502       2,658       (156 )     -6%  
General and administrative
    4,274       3,564       710       20%  
                                 
Total costs and operating expenses
  $ 17,818     $ 17,283     $ 535       3%  
                                 

Cost of software licenses for the fiscal year ended September 30, 2011 was $2,237,000 or approximately 23% of software license revenues, as compared to $2,382,000 or approximately 25% of software license revenues for the fiscal year ended September 30, 2010. The percentage and dollar decrease in cost of software licenses is primarily due to lower software amortization costs associated with new products released during fiscal 2009.

 
- 21 -

 
Cost of maintenance and services for the fiscal year ended September 30, 2011 was $2,537,000 or approximately 32% of maintenance and services revenue, as compared to $2,893,000 or approximately 36% of maintenance and services revenue for the fiscal year ended September 30, 2010. The decrease in cost of maintenance and services is primarily due to lower wages and other employee-related costs due to decreased headcount as well as lower use of external consultants in 2011 as compared to fiscal 2010.

Sales and marketing expenses for the fiscal year ended September 30, 2011 were $6,268,000, or 35% of total revenue as compared to $5,786,000, or approximately 33% of total revenue for fiscal 2010.  The increase in sales and marketing expenses of $482,000, or approximately 8%, is primarily due to increased promotional, lead generation and consulting costs as well as higher wages and employee-related costs attributable to increased headcount as compared to the same period last year.

Engineering and product development expenses were $2,502,000, or 14% of total revenue for the fiscal year ended September 30, 2011 as compared to $2,658,000, or 15% of total revenue in fiscal 2010. The decrease in engineering and product development expenses of $156,000, or approximately 6%, is primarily attributable to lower external consulting costs as well as lower employee related costs as compared to the same period last year.

General and administrative expenses were $4,274,000, or 24% of total revenue for the fiscal year ended September 30, 2011 as compared to $3,564,000, or 20% of total revenue in fiscal 2010. The increase in general and administrative expenses of $710,000, or approximately 20%, is primarily attributable to $641,000 of severance costs incurred in connection with a restructuring by the Company to align the sales and marketing operations with the Company’s new business strategy and higher external consulting costs as compared to the same period last year.

Interest income and other income (expense) include primarily the following two components: interest income and miscellaneous income. Interest income for the fiscal year ended September 30, 2011 was approximately $4,000 as compared to $2,000 for fiscal 2010. The increase in interest income is primarily the result of higher balances in interest-bearing cash and equivalents. Miscellaneous income for the fiscal year ended September 30, 2011 was approximately $7,000 and consisted primarily of old accounts receivable write-offs in the United Kingdom. There was no miscellaneous income in the fiscal year ended September 30, 2010.

Gain on foreign currency transactions for the fiscal year ended September 30, 2011 was $89,000 as compared to $24,000 for the fiscal year ended September 30, 2010. The foreign currency gain for the fiscal year ended September 30, 2011 is partially attributable to the repayment of intercompany loans between the Australian and UK subsidiaries. The foreign currency gains for both fiscal years were also the result of foreign currency rate volatility between the Euro and the British Pound during these periods.

Income tax expense for the years ended September 30, 2011 and 2010 was $35,000 and $37,000, respectively. Income tax expense for both years includes a provision for uncertain tax positions relative to foreign taxes of $25,000. In addition, income tax expense includes minimum state tax liabilities, provision-to-return adjustments and foreign tax liabilities totaling $10,000 and $12,000 for the years ended September 30, 2011 and 2010, respectively.

Net income for the year ended September 30, 2011 was $132,000, or $0.02 per diluted share, as compared to $380,000, or $0.06 per diluted share, for the year ended September 30, 2010. Net income for fiscal 2011 includes $641,000 of severance costs incurred in connection with a restructuring by the Company to align the sales and marketing operations with the Company’s new business strategy. Excluding the effects of the severance charge, non-GAAP net income for the year ended September 30, 2011 would have been $773,000, or $0.12 per diluted share.

 
- 22 -

 
OFF BALANCE SHEET ARRANGEMENTS, CONTRACTUAL OBLIGATIONS AND CONTINGENT LIABILITIES AND COMMITMENTS

The Company leases various facilities and equipment in the U.S. and overseas under noncancelable operating leases that expire through 2016. The lease agreements generally provide for the payment of minimum annual rentals, pro rata share of taxes, and maintenance expenses. Rental expense for all operating leases was approximately $352,000 and $301,000 for fiscal years 2011 and 2010, respectively.

On June 17, 2011, the Company entered into a sublease agreement (the “Sublease”). Under the terms of the Sublease, the Company’s U.S. headquarters, consisting of 14,683 square feet, will remain at its present location at 271 Mill Road, Chelmsford, Massachusetts. The Sublease is for a period of 60 months commencing on July 1, 2011. The aggregate rent for the term of the Sublease is approximately $807,565. In addition to rent, the Sublease requires the Company to pay certain taxes, insurance and operating costs related to the leased building based on the Company’s pro rata share. In accordance with the terms of the Sublease agreement, the Company provided a security deposit of approximately $27,000 to the lessor.

As of September 30, 2011, contractual obligations include minimum rental commitments under non-cancelable operating leases and other liabilities related to uncertain tax positions as follows (in thousands):
 
         
Less than 1
               
More than
 
Contractual Obligations:
 
Total
   
Year
   
1-3 Years
   
3-5 Years
   
5 Years
 
                               
Operating Lease Obligations
  $ 1,050     $ 360     $ 393     $ 297     $  
Other Liabilities
  $ 175     $     $     $     $ 175  
                                         
 
The Company is also obligated to pay royalties ranging from 7% to 50% on revenue generated by the sale of certain licensed software products. Royalty expense included in cost of software licenses was approximately $1,630,000 and $1,436,000, respectively, for the years ended September 30, 2011 and 2010.  Minimum royalty obligations were insignificant for fiscal years 2011 and 2010.
 
The Company’s software products are sold under warranty against certain defects in material and workmanship for a period of 30 days from the date of purchase. If necessary, the Company would provide for the estimated cost of warranties based on specific warranty claims and claim history. However, the Company has never incurred significant expense under its product or service warranties. As a result, the Company believes the estimated fair value of these warranty agreements is minimal. Accordingly, there are no liabilities recorded for warranty claims as of September 30, 2011.

The Company enters into indemnification agreements in the ordinary course of business. Pursuant to these agreements, the Company generally agrees to indemnify, hold harmless, and reimburse the indemnified party for losses suffered or incurred by the indemnified party, generally its customers, in connection with any patent, copyright or other intellectual property infringement claim by any third party with respect to the Company’s products. The term of these indemnification agreements is generally perpetual. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is unlimited. The Company has never incurred costs to defend lawsuits or settle claims related to these indemnification agreements. As a result, the Company believes its exposure related to these agreements is minimal. Accordingly, the Company has no liabilities recorded for these potential obligations as of September 30, 2011.

Certain of the Company’s agreements also provide for the performance of services at customer sites. These agreements may contain indemnification clauses, whereby the Company will indemnify the customer from any and all damages, losses, judgments, costs and expenses for acts of its employees or subcontractors resulting in bodily injury or property damage. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is unlimited; however, the Company has general and umbrella insurance policies that would enable it to recover a portion of any amounts paid. The Company has never incurred costs to defend lawsuits or settle claims related to these indemnification agreements. As a result, the Company believes its exposure related to these agreements is minimal. Accordingly, the Company has no liabilities recorded for these potential obligations as of September 30, 2011.

 
- 23 -

 
As permitted under Delaware law, the Company has agreements with its directors whereby the Company will indemnify them for certain events or occurrences while the director is, or was, serving at the Company’s request in such capacity. The term of the director indemnification period is for the later of ten years after the date that the director ceases to serve in such capacity or the final termination of proceedings against the director as outlined in the indemnification agreement. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is unlimited; however, the Company’s director and officer insurance policy would enable it to recover a portion of any future amounts paid. As a result of its insurance policy coverage, the Company believes its exposure related to these indemnification agreements is minimal. The Company has no liabilities recorded for these potential obligations as of September 30, 2011.

LIQUIDITY AND CAPITAL RESOURCES

Management believes that its current cash balances and cash generated from operations will be sufficient to meet the Company’s cash needs for working capital and anticipated capital expenditures for at least the next twelve months. At September 30, 2011, the Company had $8,384,000 of cash and equivalents, an increase of $1,331,000 from September 30, 2010.

At September 30, 2011, the Company had working capital of approximately $5,423,000 as compared to $4,186,000 as of September 30, 2010. The Company expects cash flows from operations to remain positive as it anticipates profitability in the future. However, if the Company’s cash flow from operations were to decline significantly, it may need to consider further reductions to its operating expenses. The Company does not anticipate additional cash requirements to fund significant growth or the acquisition of complementary technology or businesses. However, if in the future, such expenditures are anticipated or required, the Company may need to seek additional financing by issuing equity or obtaining credit facilities to fund such requirements. There can be no assurance that the Company will be able to issue additional equity or obtain a new credit facility at attractive prices or rates, or at all.

The Company had net income of approximately $132,000 for the year ended September 30, 2011 as compared to net income of approximately $380,000 for the year ended September 30, 2010. During the years ended September 30, 2011 and 2010, approximately $1,147,000 and $1,569,000, respectively, of cash was provided by the Company’s operations. During fiscal year 2011, the main source of cash from operations was net income adjusted for depreciation and amortization as well as increases in deferred revenue and accounts payable, accrued expenses and other liabilities.

Net cash used in investing activities for the year ended September 30, 2011 of $76,000 is primarily related to the purchase of property and equipment and an increase in other assets.

Net cash provided by financing activities for the year ended September 30, 2011 of $388,000 is related to proceeds from the exercise of stock options.

An existing agreement between Datawatch and Math Strategies grants the Company exclusive worldwide rights to use and distribute through April 30, 2015 certain intellectual property owned by Math Strategies and incorporated by the Company in its Monarch, Monarch Data Pump and certain other products. The Company has also entered into an Option Purchase Agreement with Math Strategies giving the Company the option to purchase these intellectual property rights for a formula price based on a multiple of the aggregate royalties paid to Math Strategies by the Company for the four fiscal quarters preceding the exercise of the option. The option, if exercised, would provide the Company with increased flexibility to utilize the purchased technology in the future.

Management believes that the Company’s current operations have not been materially impacted by the effects of inflation.

 
- 24 -

 
RECENT ACCOUNTING PRONOUNCEMENTS

In October 2009, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2009-13, “Multiple-Deliverable Revenue Arrangements, a consensus of the FASB Emerging Issues Task Force” (“ASU 2009-13”). ASU 2009-13 provides principles for allocation of consideration among its multiple-elements, allowing more flexibility in identifying and accounting for separate deliverables under an arrangement. This ASU introduces an estimated selling price method for valuing the elements of a bundled arrangement if vendor-specific objective evidence or third-party evidence of selling price is not available, and significantly expands related disclosure requirements. This standard is effective on a prospective basis for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. Alternatively, adoption may be on a retrospective basis, and early application was permitted. The adoption of this standard did not have a material effect on the Company’s consolidated financial statements.

In May 2011, the FASB issued ASU No. 2011-04,   “Fair Value Measurements (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs”   (“ASU 2011-04”). ASU 2011-04 changes the wording used to describe many of the requirements in U.S. GAAP for measuring fair value and for disclosing information about fair value measurements to ensure consistency between U.S. GAAP and IFRS. This standard also expands the disclosure requirements particularly for level 3 fair value measurements. This new guidance is to be applied prospectively for reporting periods beginning on or after December 15, 2011. The Company does not expect that the adoption of this standard will have a material effect on its consolidated financial statements.

In June 2011, the FASB issued ASU No. 2011-05, “Comprehensive Income (Topic 220): Presentation of Comprehensive Income” (“ASU 2011-05”). ASU 2011-05 eliminates the option to report other comprehensive income and its components in the statement of changes in equity. Under this standard, an entity can elect to present items of net income and other comprehensive income in one continuous statement of comprehensive income or in two separate but consecutive statements. This new guidance is to be applied retrospectively for interim and annual periods beginning after December 15, 2011. The Company is currently evaluating what impact, if any, this standard will have on its consolidated financial statements.


Item 7(A).  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Derivative Financial Instruments, Other Financial Instruments, and Derivative Commodity Instruments
 
At September 30, 2011, the Company did not participate in or hold any derivative financial instruments or commodity instruments. The Company holds no investment securities that possess significant market risk.

Primary Market Risk Exposures
 
The Company’s primary market risk exposure is foreign currency exchange rate risk. International revenues and expenses are generally transacted by the Company’s foreign subsidiaries and are denominated in local currency. Approximately 23% and 25% of the Company’s revenues for 2011 and 2010, respectively, were from foreign subsidiaries. In addition, approximately 19% and 20% of the Company’s operating expenses for fiscal 2011 and 2010, respectively, were from foreign subsidiaries.

The Company is exposed to foreign currency exchange rate risk inherent in conducting business globally in several currencies, of which the most significant to our operations has historically been the British Pound. The Company’s exposure to currency exchange rate fluctuations has been and is expected to continue to be modest due to the fact that the operations of its international subsidiaries are almost exclusively conducted in their respective local currencies, and dollar advances to the Company’s international subsidiaries, if any, are usually considered to be of a long-term investment nature. Accordingly, the majority of currency movements are reflected in the Company’s other comprehensive income (loss). There are, however, certain situations where the Company will invoice customers in currencies other than its own. Such gains or losses from operating activity, whether realized or unrealized, are reflected in foreign currency transaction gains (losses) in the consolidated statements of operations. Foreign currency transaction gains for the fiscal years ended September 30, 2011 and 2010 were $89,000 and $24,000, respectively. Currently, the Company does not engage in foreign currency hedging activities.


 
- 25 -

 
Item 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The following consolidated financial statements and the related notes thereto of Datawatch Corporation and the Report of Independent Registered Public Accounting Firm thereon are filed as part of this Annual Report on Form 10-K.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
27
   
CONSOLIDATED FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 2011 AND 2010 AND FOR EACH OF THE TWO YEARS IN THE PERIOD ENDED SEPTEMBER 30, 2011:
 
   
Consolidated Balance Sheets
28
   
Consolidated Statements of Operations
29
   
Consolidated Statements of Shareholders’ Equity and Comprehensive Income
30
   
Consolidated Statements of Cash Flows
31
   
Notes to Consolidated Financial Statements
32
 
 
 
 
 
 

 
 
- 26 -

 
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


To the Board of Directors and Shareholders of Datawatch Corporation
Chelmsford, Massachusetts

We have audited the accompanying consolidated balance sheets of Datawatch Corporation and subsidiaries (the “Company”) as of September 30, 2011 and 2010, and the related consolidated statements of operations, shareholders’ equity and comprehensive income, and cash flows for the years then ended.  These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.  An audit also 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, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Datawatch Corporation and subsidiaries as of September 30, 2011 and 2010, and the results of their operations and their cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

/s/ Marcum LLP
Marcum LLP

Boston, Massachusetts
December 22, 2011



 
- 27 -

 
DATAWATCH CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)

   
September 30,
 
   
2011
   
2010
 
ASSETS
           
CURRENT ASSETS:
           
Cash and equivalents
  $ 8,384     $ 7,053  
Accounts receivable, less allowance for doubtful accounts and sales returns
    2,966       2,228  
   of $148 in 2011 and $164 in 2010
               
Inventories
    49       39  
Prepaid expenses
    528       283  
Restricted cash
          89  
Total current assets
    11,927       9,692  
                 
Property and equipment:
               
Office furniture and equipment
    1,232       1,187  
Software
    477       475  
Leasehold improvements
    509       509  
      2,218       2,171  
Less accumulated depreciation and amortization
    (1,948 )     (1,831 )
Net property and equipment
    270       340  
                 
Intangible assets, net
    878       1,434  
Other long-term assets
    59       21  
Total assets
  $ 13,134     $ 11,487  
                 
LIABILITIES AND SHAREHOLDERS’ EQUITY
               
CURRENT LIABILITIES:
               
Accounts payable
  $ 879     $ 473  
Accrued expenses
    1,802       1,606  
Deferred revenue
    3,823       3,427  
Total current liabilities
    6,504       5,506  
                 
LONG-TERM LIABILITIES:
               
Deferred revenue - long-term
    113       152  
Other liabilities
    175       150  
Total long-term liabilities
    288       302  
                 
COMMITMENTS AND CONTINGENCIES
               
                 
SHAREHOLDERS’ EQUITY:
               
Common stock, par value $.01; 20,000,000 shares authorized;
    62       60  
   issued, 6,175,978 shares and 5,958,237 shares, respectively;
               
   outstanding, 6,161,732 shares and 5,943,991 shares, respectively
               
Additional paid-in capital
    24,476       23,826  
Accumulated deficit
    (16,858 )     (16,990 )
Accumulated other comprehensive loss
    (1,198 )     (1,077 )
      6,482       5,819  
Less treasury stock, at cost, 14,246 shares
    (140 )     (140 )
Total shareholders’ equity
    6,342       5,679  
                 
 Total liabilities and shareholders' equity
  $ 13,134     $ 11,487  
                 

See notes to consolidated financial statements.

 
- 28 -

 
DATAWATCH CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)

   
Year Ended September 30,
 
   
2011
   
2010
 
REVENUE:
           
Software licenses
  $ 9,858     $ 9,563  
Maintenance
    6,219       6,322  
Professional services
    1,808       1,789  
Total revenue
    17,885       17,674  
                 
COSTS AND EXPENSES:
               
Cost of software licenses
    2,237       2,382  
Cost of maintenance and services
    2,537       2,893  
Sales and marketing
    6,268       5,786  
Engineering and product development
    2,502       2,658  
General and administrative
    4,274       3,564  
Total costs and expenses
    17,818       17,283  
                 
INCOME FROM OPERATIONS
    67       391  
Interest income and other income (expense), net
    11       2  
Foreign currency transaction gains
    89       24  
                 
INCOME FROM OPERATIONS BEFORE INCOME TAXES
    167       417  
Provision for income taxes
    (35 )     (37 )
                 
 NET INCOME
  $ 132     $ 380  
                 
Net income per share - Basic:
  $ 0.02     $ 0.06  
Net income per share - Diluted:
  $ 0.02     $ 0.06  
                 
Weighted-average shares outstanding - basic
    6,039       5,936  
Weighted-average shares outstanding - diluted
    6,235       6,061  
                 

 

See notes to consolidated financial statements.

 
- 29 -

 
DATAWATCH CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY AND COMPREHENSIVE INCOME

Years Ended September 30, 2011 and 2010
(In thousands, except share amounts)

                           
Accumulated
                         
               
Additional
         
Other
                         
   
Common Stock
   
Paid-In
   
Accumulated
   
Comprehensive
   
Comprehensive
   
Treasury Stock
       
   
Shares
   
Amount
   
Capital
   
Deficit
   
Loss
   
Income
   
Shares
   
Amount
   
Total
 
                                                       
BALANCE,
                                                     
  OCTOBER 1, 2009
    5,940,085       59       23,634       (17,370 )     (1,017 )           (14,246 )     (140 )     5,166  
  Stock options exercised/
                                                                     
vesting of restricted
                                                               
    stock units
    18,152       1                                                     1  
  Share-based compensation
                                                                     
    expense
                    192                                             192  
  Comprehensive income:
                                                                     
    Translation adjustments
                                    (60 )     (60 )                     (60 )
    Net income
                            380               380                       380  
                                                                         
Total comprehensive income
                                    $ 320                          
                                                                         
BALANCE,
                                                                       
  SEPTEMBER 30, 2010
    5,958,237       60       23,826       (16,990 )     (1,077 )             (14,246 )     (140 )     5,679  
  Stock options exercised/
                                                                       
vesting of restricted
                                                                 
    stock units
    217,741       2       386                                               388  
  Share-based compensation
                                                                       
    expense
                    264                                               264  
  Comprehensive income:
                                                                       
    Translation adjustments
                                    (121 )     (121 )                     (121 )
    Net income
                            132               132                       132  
                                                                         
Total comprehensive income
                                    $ 11                          
                                                                         
BALANCE,
                                                                       
  SEPTEMBER 30, 2011
    6,175,978     $ 62     $ 24,476     $ (16,858 )   $ (1,198 )             (14,246 )   $ (140 )   $ 6,342  
                                                                         



See notes to consolidated financial statements.

 
- 30 -

 
DATAWATCH CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)



   
Year Ended September 30,
 
   
2011
   
2010
 
CASH FLOWS FROM OPERATING ACTIVITIES:
           
Net income
  $ 132     $ 380  
Adjustments to reconcile net income to cash provided by operating activities:
         
Depreciation and amortization
    753       1,234  
Provision for doubtful accounts and sales returns
    (17 )     (50 )
Share-based compensation
    264       192  
Changes in current assets and liabilities
               
     Accounts receivable
    (727 )     782  
     Inventories
    (10 )     26  
     Prepaid expenses and other assets
    (247 )     56  
     Accounts payable, accrued expenses and other liabilities
    632       (621 )
     Deferred revenue
    367       (430 )
Cash provided by operating activities
    1,147       1,569  
                 
CASH FLOWS FROM INVESTING ACTIVITIES:
               
Purchases of equipment and fixtures
    (128 )     (110 )
Capitalized software development costs
          (3 )
Decrease in restricted cash
    89       18  
Increase in other assets
    (37 )     (3 )
Cash used in investing activities
    (76 )     (98 )
                 
CASH FLOWS FROM FINANCING ACTIVITIES:
               
Proceeds from exercise of stock options
    388        
Cash provided by financing activities
    388        
                 
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND
               
     EQUIVALENTS
    (128 )     (67 )
                 
INCREASE IN CASH AND EQUIVALENTS
    1,331       1,404  
CASH AND EQUIVALENTS, BEGINNING OF YEAR
    7,053       5,649  
CASH AND EQUIVALENTS, END OF YEAR
  $ 8,384     $ 7,053  
                 
SUPPLEMENTAL CASH FLOW INFORMATION:
               
Income taxes paid
  $ 32     $ 35  
                 


See notes to consolidated financial statements.

 
- 31 -

 
DATAWATCH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1.        NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Business

Datawatch Corporation (the “Company” or “Datawatch”) designs, develops, markets and distributes business computer software products. The Company also provides a wide range of services, including implementation and support of its software products, as well as training on their use and administration. The Company is subject to a number of risks including dependence on key individuals, competition from substitute products and larger companies and the need for successful ongoing development and marketing of products.

Summary of Significant Accounting Policies

Principles of Consolidation
 
These consolidated financial statements include the accounts of Datawatch and its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.

Accounting Estimates
 
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and judgments, which are evaluated on an on-going basis, that affect the amounts and disclosures reported in the Company’s consolidated financial statements and accompanying notes. Management bases its estimates on historical experience and on various other assumptions that it believes are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ from those estimates and judgments. In particular, significant estimates and judgments include those related to revenue recognition, the allowance for doubtful accounts, sales returns reserve, useful lives of property and equipment, and the valuation of net deferred tax assets, intangible assets and share-based awards.

The Company considers events or transactions that occur after the balance sheet date but before the financial statements are issued to provide additional evidence relative to certain estimates or to identify matters that require additional disclosure.
 
Revenue Recognition
 
Revenue allocated to software products, specified upgrades and enhancements is recognized upon delivery of the related product, upgrades or enhancements. Revenue is allocated by vendor specific objective evidence (“VSOE”) of fair value to post-contract customer support (primarily maintenance) and is recognized ratably over the term of the support, and revenue allocated using VSOE to service elements (primarily training and consulting) is recognized as the services are performed. The residual method of revenue recognition is used for multi-element arrangements when the VSOE of the fair value does not exist for one of the delivered elements. Under the residual method, the arrangement fee is recognized as follows: (1) the total fair value of the undelivered elements, as supported by VSOE, is deferred and subsequently recognized as such items are delivered or completed and (2) the difference between the total arrangement fee and the amount allocated to the undelivered elements is recognized as revenue related to the delivered elements.

The Company sells its software products directly to end-users, through value added resellers and through distributors. Sales to distributors and resellers accounted for approximately 41% and 43% of total sales for the years ended September 30, 2011 and 2010, respectively. Revenue from the sale of all software products (when separately sold) is generally recognized at the time of shipment, provided there are no uncertainties surrounding
 
 
- 32 -

 
product acceptance, the fee is fixed or determinable, collectability is reasonably assured, persuasive evidence of the arrangement exists and there are no significant obligations remaining. Both types of the Company’s software product offerings are “off-the-shelf” as such term is customarily defined. The Company’s software products can be installed and used by customers on their own with little or no configuration required. Multi-user licenses marketed by the Company are sold as a right to use the number of licenses, and license fee revenue is recognized upon delivery of all software required to satisfy the number of licenses sold. Upon delivery, the licensing fee is payable without further delivery obligations to the Company.

Datawatch software products are generally sold in multiple element arrangements which may include software licenses, professional services and post-contract customer support. In such multiple element arrangements, the Company applies the residual method in determining revenue to be allocated to the software license. In applying the residual method, the Company deducts from the sale proceeds the VSOE of fair value of the professional services and post-contract customer support in determining the residual fair value of the software license. The VSOE of fair value of the services and post-contract customer support is based on the amounts charged for these elements when sold separately. Professional services include implementation, integration, training and consulting services with revenue recognized as the services are performed. These services are generally delivered on a time and materials basis, are billed on a current basis as the work is performed, and generally do not involve modification or customization of the software or any unusual acceptance clauses or terms. Post-contract customer support is typically provided under a maintenance agreement which provides technical support and rights to unspecified software maintenance updates and bug fixes on a when-and-if available basis. Revenue from post-contract customer support services is deferred and recognized ratably over the period of support (generally one year). Such deferred amounts are recorded as part of deferred revenue in the Company’s consolidated balance sheets.

The Company also licenses its enterprise software using a subscription model. At the time a customer enters into a binding agreement to purchase a subscription, the customer is invoiced for an initial 90 day service period and an account receivable and deferred revenue are recorded. Beginning on the date the software is installed at the customer site and available for use by the customer, and provided that all other criteria for revenue recognition are met, the deferred revenue amount is recognized ratably over the period the service is provided. The customer is then invoiced every 90 days and revenue is recognized ratably over the period of the subscription. The subscription arrangement includes software, maintenance and unspecified future upgrades including major version upgrades. The subscription renewal rate is the same as the initial subscription rate. Subscriptions can be cancelled by the customer at any time by providing 90 days prior written notice following the first year of the subscription term.

The Company’s software products are sold under warranty against certain defects in material and workmanship for a period of 30 days from the date of purchase. The Company also offers a 30 day money-back guarantee on its Monarch product sold directly to end-users. Additionally, the Company provides its distributors with stock-balancing rights. Revenue from the sale of software products to distributors and resellers is recognized at the time of shipment providing all other criteria for revenue recognition as stated above are met and (i) the distributor or reseller is unconditionally obligated to pay for the products, including no contingency as to product resale, (ii) the distributor or reseller has independent economic substance apart from the Company, (iii) the Company is not obligated for future performance to bring about product resale, and (iv) the amount of future returns can be reasonably estimated. The Company’s experience and history with its distributors and resellers allows for reasonable estimates of future returns. Among other things, estimates of potential future returns are made based on the inventory levels at, and the returns history with, the various distributors and resellers, which the Company monitors frequently.

Allowance for Doubtful Accounts
 
The Company maintains allowances for doubtful accounts for estimated losses resulting from the inability of customers to make required payments. The Company analyzes accounts receivable and the composition of the accounts receivable aging, historical bad debts, customer creditworthiness, current economic trends and changes in customer payment terms when evaluating the adequacy of the allowance for doubtful accounts. Actual results could differ from the allowances recorded, and this difference could have a material effect on the Company’s financial position and results of operations.

 
- 33 -

 
For the fiscal years ended September 30, 2011 and 2010, changes to and ending balances of the allowance for doubtful accounts were approximately as follows:
 
   
2011
   
2010
 
   
(in thousands)
 
             
Allowance for doubtful accounts balance - beginning of year
  $ 129     $ 160  
Additions to the allowance for doubtful accounts
    92       99  
Deductions against the allowance for doubtful accounts
    (143 )     (130 )
Allowance for doubtful accounts balance - end of year
  $ 78     $ 129  
                 
 
 
Sales Returns Reserve
 
The Company maintains reserves for potential future product returns from distributors. The Company estimates future product returns based on its experience and history with the Company’s various distributors and resellers as well as by monitoring inventory levels at such companies. Adjustments are recorded as increases or decreases in revenue in the period of adjustment. Actual returns have historically been within the range estimated by management. Actual results could differ from the reserve for sales returns recorded, and this difference could have a material effect on the Company’s financial position and results of operations.

For the fiscal years ended September 30, 2011 and 2010, changes to and ending balances of the sales returns reserve were approximately as follows:
 
   
2011
   
2010
 
   
(in thousands)
 
             
Sales returns reserve balance - beginning of year
  $ 35     $ 55  
Additions to the sales returns reserve
    101       12  
Deductions against the sales returns reserve
    (66 )     (32 )
Sales returns reserve balance - end of year
  $ 70     $ 35  
                 
 
 
Capitalized Software Development Costs
 
The Company capitalizes certain software development costs as well as purchased software upon achieving technological feasibility of the related products. Software development costs incurred and software purchased prior to achieving technological feasibility are charged to research and development expense as incurred. Commencing upon initial product release, capitalized costs are amortized to cost of software licenses using the straight-line method over the estimated life of the product (which approximates the ratio that current gross revenues for a product bear to the total of current and anticipated future gross revenues for that product), which is generally 18 to 24 months.

For the fiscal years ended September 30, 2011 and 2010, amounts related to capitalized and purchased software development costs were approximately as follows:
 
   
2011
   
2010
 
   
(in thousands)
 
             
Capitalized and purchased software balance - beginning of year
  $ 396     $ 1,106  
Capitalized software development costs
          3  
Amortization of capitalized software development costs and
               
     purchased software
    (382 )     (713 )
Capitalized and purchased software balance - end of year
  $ 14     $ 396  
                 

 
 
- 34 -

 
Cash and Equivalents
 
Cash and equivalents include cash on hand, cash deposited with banks and highly liquid securities consisting of money market investments with original maturities of 90 days or less. The Company’s cash equivalents are carried at fair value, which is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Company classifies the inputs used to measure fair value into the following hierarchy:

·  
Level 1 – Observable inputs such as quoted prices in active markets;
·  
Level 2 – Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and
·  
Level 3 – Unobservable inputs for which there is little or no market data, which require the reporting entity to develop its own assumptions.
 
The following table represents information about the Company’s cash equivalents measured at fair value on a recurring basis at September 30, 2011 and 2010 (in thousands):
 
         
Quoted Prices
             
         
in Active
   
Significant
       
         
Markets for
   
Other
   
Significant
 
         
Identical
   
Observable
   
Unobservable
 
         
Assets
   
Inputs
   
Inputs
 
   
Total
   
(Level 1)
   
(Level 2)
   
(Level 3)
 
                         
Balance at September 30, 2011
                       
Money market funds
  $ 2,233     $ 2,233     $     $  
                                 
Balance at September 30, 2010
                               
Money market funds
  $ 2,233     $ 2,233     $     $  
                                 

 
Concentration of Credit Risks and Major Customers
 
The Company sells its products and services to U.S. and non-U.S. distributors and other software resellers, as well as to end users, under customary credit terms. Two customers, Ingram Micro, Inc. and Lifeboat Distribution, individually accounted for the following percentages of total revenue and accounts receivable for the periods indicated:
 
   
Percentage of total revenue
 
Percentage of total
   
for the year ended
  accounts receivable at
   
September 30,
 
September 30,
   
2011
 
2010
 
2011
 
2010
                 
Ingram Micro, Inc.
 
13%
 
11%
 
14%
 
11%
                 
Lifeboat Distribution
 
15%
 
12%
 
18%
 
21%
                 

 
The Company sells to Ingram Micro, Inc. and Lifeboat Distribution under separate distribution agreements, which automatically renew for successive one-year terms unless terminated. Other than these two customers, no other customer constitutes a significant portion (more than 10%) of revenues or accounts receivable. The Company performs ongoing credit evaluations of its customers and generally does not require collateral.

Deferred Revenue
 
Deferred revenue consisted of the following at September 30:
 
 
- 35 -

 
 
   
2011
   
2010
 
   
(in thousands)
 
             
Maintenance
  $ 3,794     $ 3,350  
Other
    142       229  
Total
    3,936       3,579  
                 
Less: Long-term portion of deferred maintenance
    (113 )     (152 )
                 
Current portion of deferred revenue
  $ 3,823     $ 3,427  
                 

Maintenance deferred revenue consists of the unearned portion of post-contract customer support services provided by the Company to customers who purchased maintenance agreements for the Company’s products. Maintenance revenues are recognized on a straight-line basis over the term of the maintenance period, generally 12 months.

Other deferred revenue consists of deferred license, subscription and professional services revenue generated from arrangements that are invoiced in accordance with the terms and conditions of the arrangement but do not meet all the criteria for revenue recognition and are, therefore, deferred until all revenue recognition criteria are met.

Inventories
 
Inventories consist of software components, primarily software manuals, compact disks and retail packaging materials. Inventories are valued at the lower of cost (first-in, first-out method) or market.

Property and Equipment
 
Property and equipment consists of office equipment, furniture and fixtures, software and leasehold improvements, all of which are recorded at cost. Depreciation and amortization are provided using the straight-line method over the estimated useful lives of the related assets or over the terms, if shorter, of the related leases. Useful lives and lease terms range from three to seven years. Depreciation and amortization expense related to property and equipment was $197,000 and $267,000, respectively, for the years ended September 30, 2011 and 2010.

Long-Lived Assets
 
The Company periodically evaluates whether events or circumstances have occurred that indicate that the estimated remaining useful lives of long-lived assets and certain identifiable intangibles may warrant revision or that the carrying value of these assets may be impaired. To determine whether assets have been impaired, the estimated undiscounted future cash flows for the estimated remaining useful life of the respective assets are compared to the carrying value. To the extent that the undiscounted future cash flows are less than the carrying value, the fair value of the asset is determined and an impairment is recognized. If such fair value is less than the current carrying value, the asset is written down to its estimated fair value.

Intangible Assets
 
Intangible assets consist of internally developed software, patents and customer lists acquired through business combinations. The values allocated to the majority of these intangible assets   are amortized using the straight-line method over the estimated useful life of the related asset and are recorded in cost of software licenses. The values allocated to customer relationships are amortized using the straight-line method over the estimated useful life of the related asset and are recorded in sales and marketing expenses. Intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable and an impairment loss is recognized when it is probable that the estimated cash flows are less than the carrying amount of the asset.

The Company has the following intangible assets as of September 30, 2011 and 2010:

 
- 36 -

 
   
Weighted
   
September 30, 2011
   
September 30, 2010
 
   
Average
   
Gross
          Net    
Gross
          Net  
Identified Intangible
 
Useful Life
   
Carrying
   
Accumulated
   
Carrying
   
Carrying
   
Accumulated
   
Carrying
 
Asset
 
in Years
   
Amount
   
Amortization
   
Amount
   
Amount
   
Amortization
   
Amount
 
         
(in thousands)
 
                                           
Capitalized software
    2     $ 2,662     $ 2,648     $ 14     $ 2,662     $ 2,287     $ 375  
Purchased software
    5       700       700             700       679       21  
Patents
    20       160       57       103       160       49       111  
Customer lists
    10       1,790       1,029       761       1,790       863       927  
Non-compete agreements
    4       640       640             640       640        
Trademark
    2       21       21             21       21        
                                                         
Total
          $ 5,973     $ 5,095     $ 878     $ 5,973     $ 4,539     $ 1,434  
                                                         
 
The intangible asset amounts amortized to cost of software licenses totaled $390,000 and $721,000 for fiscal 2011 and 2010, respectively. Intangible asset amounts amortized to sales and marketing expense totaled $166,000 and $245,000, respectively.

As of September 30, 2011, the estimated future amortization expense related to amortizing intangible assets was as follows (in thousands):
 
Fiscal Years Ending September 30,
     
       
2012
  $ 188  
2013
    174  
2014
    174  
2015
    174  
2016
    105  
Thereafter
    63  
         
Total estimated future amortization expense
  $ 878  
         

Restricted Cash
 
At September 30, 2010, restricted cash consisted of an $89,000 security deposit in the form of an irrevocable letter of credit held in escrow for the landlord of the Company’s Chelmsford, MA corporate offices pursuant to the terms of its former sublease agreement with that landlord. The former sublease agreement expired in June 2011 resulting in the reimbursement of the security deposit in fiscal year 2011.

Financial Instruments
 
The Company’s financial instruments consist primarily of cash and equivalents, accounts receivable and accounts payable and their carrying values approximate fair value because of their short-term nature.

Income Taxes
 
Deferred income taxes are provided for the tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes and operating loss carryforwards and credits. Valuation allowances are recorded to reduce the net deferred tax assets to amounts the Company believes are more likely than not to be realized.

The Company follows the accounting guidance for uncertain tax positions. This guidance clarifies the accounting for income taxes by prescribing the minimum threshold a tax position is required to meet before being recognized in the financial statements. It also provides guidance on derecognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition.

 
- 37 -

 
Net Income Per Share
 
Basic net income per common share is computed by dividing net income by the weighted-average number of common shares outstanding during the period. Diluted net income per share reflects the impact, when dilutive, of the exercise of stock options and the vesting of restricted stock units using the treasury stock method.

The following table presents the options that were not included in the computation of diluted net income per share, because the effect was antidilutive for the years ended September 30, 2011 and 2010:

   
2011
   
2010
 
             
Quantity of option shares not included
    105,819       270,916  
Weighted-average exercise price
  $ 5.18     $ 4.46  

Foreign Currency Translations and Transactions
 
Assets and liabilities of foreign subsidiaries are translated into U.S. dollars at rates in effect at each balance sheet date. Revenues, expenses and cash flows are translated into U.S. dollars at average rates prevailing when transactions occur. The related translation adjustments are reported as a separate component of shareholders’ equity under the heading “Accumulated Other Comprehensive Loss.” Gains and losses resulting from transactions that are denominated in currencies other than the applicable unit’s functional currency are included in the operating results of the Company and were $89,000 and $24,000 for the years ended September 30, 2011 and 2010, respectively.

Advertising and Promotional Materials
 
Advertising costs are expensed as incurred and amounted to $138,000 and $151,000 in 2011 and 2010, respectively. Direct mail/direct response costs are expensed over the period in which the associated revenue is recognized, generally three to six months from the date of the mailing. Direct mail expense was $52,000 and $48,000 in 2011 and 2010, respectively. There were no deferred direct mail/direct response costs at September 30, 2011. Deferred direct mail/direct response costs were $4,000 at September 30, 2010. These costs are included under the caption “Prepaid Expenses” in the accompanying consolidated balance sheets.

Share-Based Compensation
 
All share-based awards, including grants of employee stock options, are recognized in the financial statements based on their fair value at date of grant.

The Company recognizes the fair value of share-based awards over the requisite service period of the individual awards, which generally equals the vesting period. All of the Company’s share-based awards are accounted for as equity instruments and there have been no liability awards granted. See additional share-based compensation disclosure in Note 6 to the Company’s consolidated financial statements.

Comprehensive Income
 
The only item other than net income that is included in comprehensive income is foreign currency translation adjustments. Foreign currency translation losses arising during fiscal 2011 and 2010 were $121,000 and $60,000, respectively.

Segment Information
 
The Company has determined that it has only one reportable segment. The Company’s chief operating decision maker, its Chief Executive Officer, does not manage any part of the Company separately, and the allocation of resources and assessment of performance is based solely on the Company’s consolidated operations and operating results. See Note 8 for information about the Company’s revenue by product lines and geographic operations.

 
- 38 -

 
Guarantees and Indemnifications
 
The Company’s software products are sold under warranty against certain defects in material and workmanship for a period of 30 days from the date of purchase. The Company has never incurred significant expense under its product or service warranties and does not expect to do so in the future. As a result, the Company believes its exposure related to these warranty agreements is minimal. Accordingly, there are no liabilities recorded for warranty claims as of September 30, 2011 or 2010.

The Company enters into indemnification agreements in the ordinary course of business. Pursuant to these agreements, the Company agrees to indemnify, hold harmless, and to reimburse the indemnified party for losses suffered or incurred by the indemnified party, generally its customers, in connection with any patent, copyright or other intellectual property infringement claim by any third party with respect to the Company’s products. The term of these indemnification agreements is generally perpetual. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is unlimited. The Company has never incurred costs to defend lawsuits or settle claims related to these indemnification agreements. As a result, the Company believes its exposure related to these agreements is minimal. Accordingly, the Company has no liabilities recorded for these potential obligations as of September 30, 2011 or 2010.

Certain of the Company’s agreements also provide for the performance of services at customer sites. These agreements may contain indemnification clauses, whereby the Company will indemnify the customer from any and all damages, losses, judgments, costs and expenses for acts of its employees or subcontractors resulting in bodily injury or property damage. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is unlimited; however, the Company has general and umbrella insurance policies that would enable it to recover a portion of any amounts paid. The Company has never incurred costs to defend lawsuits or settle claims related to these indemnification agreements. As a result, the Company believes its exposure related to these agreements is minimal. Accordingly, the Company has no liabilities recorded for these potential obligations as of September 30, 2011   or 2010.

As permitted under Delaware law, the Company has agreements with its directors whereby the Company will indemnify them for certain events or occurrences while the director is, or was, serving at the Company’s request in such capacity. The term of the director indemnification period is for the later of ten years after the date that the director ceases to serve in such capacity or the final termination of proceedings against the director as outlined in the indemnification agreement. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is unlimited; however, the Company’s director and officer insurance policy limits the Company’s exposure and would enable it to recover a portion of any future amounts paid. As a result of its insurance policy coverage for directors, the Company believes its exposure related to these indemnification agreements is minimal. The Company has no liabilities recorded for these potential obligations as of September 30, 2011 or 2010.

Recent Accounting Pronouncements
 
In October 2009, the FASB issued Accounting Standards Update No. 2009-13, “Multiple-Deliverable Revenue Arrangements, a consensus of the FASB Emerging Issues Task Force” (“ASU 2009-13”). ASU 2009-13 provides principles for allocation of consideration among its multiple-elements, allowing more flexibility in identifying and accounting for separate deliverables under an arrangement. The ASU introduces an estimated selling price method for valuing the elements of a bundled arrangement if vendor-specific objective evidence or third-party evidence of selling price is not available, and significantly expands related disclosure requirements. This standard is effective on a prospective basis for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. Alternatively, adoption may be on a retrospective basis, and early application was permitted. The adoption of this standard did not have a material effect on the Company’s consolidated financial statements.

In May 2011, the FASB issued ASU No. 2011-04,   “Fair Value Measurements (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs”   (“ASU 2011-04”). ASU 2011-04 changes the wording used to describe many of the requirements in U.S. GAAP for measuring fair value and for disclosing information about fair value measurements to ensure consistency between
 
 
- 39 -

 
U.S. GAAP and IFRS. This standard also expands the disclosure requirements particularly for level 3 fair value measurements. This new guidance is to be applied prospectively for reporting periods beginning on or after December 15, 2011. The Company does not expect that the adoption of this standard will have a material effect on its consolidated financial statements.

In June 2011, the FASB issued ASU No. 2011-05, “Comprehensive Income (Topic 220): Presentation of Comprehensive Income” (“ASU 2011-05”). ASU 2011-05 eliminates the option to report other comprehensive income and its components in the statement of changes in equity. Under this standard, an entity can elect to present items of net income and other comprehensive income in one continuous statement of comprehensive income or in two separate but consecutive statements. This new guidance is to be applied retrospectively for interim and annual periods beginning after December 15, 2011. The Company is currently evaluating what impact, if any, this standard will have on its consolidated financial statements.

2.
INVENTORIES

Inventories consisted of the following at September 30:
 
   
2011
   
2010
 
   
(in thousands)
 
             
Raw materials
  $ 36     $ 22  
Finished goods
    13       17  
                 
Total
  $ 49     $ 39  
                 
 
 
3.
ACCRUED EXPENSES

Accrued expenses consisted of the following at September 30:
 
   
2011
   
2010
 
   
(in thousands)
 
             
Accrued salaries and benefits
  $ 178     $ 171  
Accrued royalties and commissions
    937       897  
Accrued severance
    114        
Accrued professional fees
    244       207  
Other
    329       331  
                 
Total
  $ 1,802     $ 1,606  
                 
 

4. 
COMMITMENTS AND CONTINGENCIES

Leases
 
The Company leases various facilities and equipment in the U.S. and overseas under non-cancelable operating leases which expire through 2016. The lease agreements generally provide for the payment of minimum annual rentals, pro-rata share of taxes, and maintenance expenses. Rental expense for all operating leases was $352,000 and $301,000 for the years ended September 30, 2011 and 2010, respectively. Certain of the Company’s facility leases include options to renew.

As of September 30, 2011, minimum rental commitments under non-cancelable operating leases are as follows (in thousands):

 
- 40 -

 
Years Ending September 30,
     
       
2012
  $ 360  
2013
    215  
2014
    178  
2015
    172  
2016
    125  
         
Total future minimum lease payments
  $ 1,050  
         

Royalties
 
The Company is obligated to pay royalties ranging from 7% to 50% on revenue generated by the sale of certain licensed software products. Royalty expense included in cost of software licenses was approximately $1,630,000 and $1,436,000 for the years ended September 30, 2011 and 2010, respectively. Minimum royalty obligations were insignificant for fiscal years 2011 and 2010.
 
Contingencies
 
From time to time, the Company is subject to claims and may be party to actions that arise in the normal course of business. The Company is not party to any litigation that management believes will have a material adverse effect on the Company’s consolidated financial condition or results of operations.
 

5.
INCOME TAXES

Income from operations before income taxes consists of the following for the years ended September 30:
 
   
2011
   
2010
 
   
(in thousands)
 
             
Domestic
  $ 257     $ 399  
Foreign
    (90 )     18  
                 
Total
  $ 167     $ 417  
                 

 
The provision for income taxes consisted of the following for the years ended September 30:
 
   
2011
   
2010
 
   
(in thousands)
 
Current:
           
     Federal
  $     $  
     State
    11       17  
     Foreign
    25       26  
      36       43  
                 
Deferred:
               
     Federal
    (185 )     390  
     State
    (1 )     (168 )
     Change in valuation allowance
    185       (228 )
      (1 )     (6 )
                 
Total provision
  $ 35     $ 37  
                 

At September 30, 2011, the Company had U.S. federal tax loss carryforwards of approximately $7.1 million, expiring at various dates through 2031, including $182,000 resulting from the Mergence acquisition during 2004 which are subject to additional annual limitations as a result of the changes in Mergence’s ownership, and had approximately $1.4 million in state tax loss carryforwards, which also expire at various dates through 2031. An
 
 
- 41 -

 
alternative minimum tax credit of approximately $164,000 is available to offset future regular federal taxes. Research and development credits of approximately $624,000 expire beginning in 2011. In addition, the Company has the following net operating loss carryforwards: United Kingdom losses of $7.5 million with no expiration date, Australia losses of $3.6 million with no expiration date and Germany losses of $98,000 with no expiration date.

The components of the Company’s net deferred tax assets are as follows at September 30:
 
   
2011
   
2010
 
   
(in thousands)
 
Deferred tax liabilities:
           
     Prepaid expenses
    (91 )     (37 )
     Acquired intangibles
    (40 )     (43 )
      (131 )     (80 )
Deferred tax assets:
               
     Net operating loss carryforwards
    5,146       4,793  
     Research and development credits
    624       571  
     Accounts and notes receivable reserves
    27       48  
     Alternative minimum tax credits
    164       164  
     Depreciation and amortization
    1,241       1,412  
     Deferred rent
          21  
     Other
    165       122  
      7,367       7,131  
                 
Total
    7,236       7,051  
                 
Valuation allowance
    (7,236 )     (7,051 )
                 
Deferred tax liability, net
  $     $  
                 

For financial reporting purposes, the Company had profitable income from domestic operations in 2011 and 2010 but incurred losses from domestic operations in previous years. The Company had domestic taxable losses in both 2011 and 2010 as the Company’s subsidiaries in the United Kingdom are treated as branches on the domestic tax returns and, accordingly, any losses at such subsidiaries are recorded on the domestic income tax returns. Prior to the results of the last two years, the Company had generally experienced significant losses from operations, both domestically and internationally, over several prior years. The Company has also had a history of certain state net operating loss carryforwards expiring. Approximately $3.7 million of state net operating loss carryforwards expired in fiscal 2010. No state net operating loss carryforwards expired in fiscal 2011. Accordingly, management does not believe the deferred tax assets are more likely than not to be realized and a full valuation allowance has been provided.

The following table reconciles the Company’s tax provision based on its effective tax rate to its tax provision based on the federal statutory rate of 34% for the years ended September 30, 2011 and 2010 (in thousands):

   
2011
   
2010
 
             
Provision at federal statutory rate
  $ 57     $ 142  
State, net of federal impact
    7       (99 )
Foreign income taxes
    25       26  
Valuation allowance increase (decrease)
    185       (228 )
Return to provision adjustments
    (181 )     147  
Other
    (58     49  
                 
Provision for income taxes
  $ 35     $ 37  

 
- 42 -

 
Provision for Uncertain Tax Positions
 
The Company applies the accounting requirements for uncertain tax positions which provide a comprehensive model for the financial statement recognition, measurement, presentation and disclosure of uncertain tax positions taken or expected to be taken in income tax returns.

In accordance with these requirements, the Company first determines whether a tax authority would “more likely than not” sustain its tax position if it were to audit the position with full knowledge of all the relevant facts and other information. For those tax positions that meet this threshold, the Company measures the amount of tax benefit based on the largest amount of tax benefit that the Company has a greater than 50% chance of realizing in a final settlement with the relevant authority. Those tax positions failing to qualify for initial recognition are recognized in the first interim period in which they meet the more likely than not standard, or are resolved through negotiation or litigation with the taxing authority, or upon expiration of the statute of limitations.

At October 1, 2009, the Company had a cumulative tax liability of $125,000 related to foreign tax exposure. During each of the fiscal years ended September 30, 2010 and 2011, the Company increased its tax liability by $25,000, resulting in a cumulative tax liability of $175,000 at September 30, 2011. These amounts have been recorded as an increase to other long-term liabilities on the Company’s consolidated balance sheets. The Company does not expect its tax liability to change significantly during the next twelve months. The Company’s policy is to recognize interest and penalties related to uncertain tax positions as a component of income tax expense in its consolidated statements of operations. To date, the Company has not accrued any amounts for interest and penalties associated with this liability as such amounts have been de minimis. Also in fiscal 2010, the Company recorded additional uncertain tax positions of approximately $9,000 which were recorded as a reduction of the Company’s deferred tax asset and a corresponding reduction to its valuation allowance. During fiscal 2011, the Company released a portion of its reserve for uncertain tax positions and recorded a benefit of $2,000 for the year.

As of October 1, 2009, the Company had approximately $793,000 of total gross unrecognized tax benefits (before consideration of any valuation allowance). These unrecognized tax benefits represent differences between tax positions taken by the Company in its various consolidated and separate worldwide tax returns and the benefits recognized and measured for uncertain tax positions. This amount also represents the amount of unrecognized tax benefits that, if recognized, would favorably affect the effective income tax rate in any future periods. The change in the unrecognized tax benefits in fiscal years ended September 30, 2010 and 2011 was as follows (in thousands):

Balance at October 1, 2009
 
$
793
 
Additions for prior year tax positions
 
33
 
Balance at September 30, 2010
 
826
 
Additions for prior year tax positions
 
24
 
Balance at September 30, 2011
 
$
850
 

In the normal course of business, the Company is subject to examination by taxing authorities throughout the world, including such jurisdictions as the United Kingdom, Germany, Australia, and the United States, and as a result, files numerous consolidated and separate income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. The fiscal years ended September 30, 2008 through September 30, 2010 are generally still open to examination in the jurisdictions listed above.
 
 
6.
SHAREHOLDERS’ EQUITY

Stock Option Plans
 
The Company provides its employees, officers, consultants, and directors stock options, restricted stock units and other stock rights to purchase common stock of the Company on a discretionary basis pursuant to four stock compensation plans described more fully below. All option grants are subject to the terms and conditions
 
 
- 43 -

 
determined by the Compensation and Stock Committee of the Board of Directors, and generally vest over a three-year period beginning three months from the date of grant and expire either seven or ten years from the date of grant depending on the plan. Generally, options, restricted shares and other stock rights are granted at exercise prices not less than the fair market value at the date of grant.

On October 4, 1996, the Company established the 1996 International Employee Non-Qualified Stock Option Plan. Pursuant to this plan, non-qualified options were available to be granted to any employee or consultant of any of the Company’s foreign subsidiaries through October 4, 2006. This plan expired on October 4, 2006.

On December 10, 1996, the Company established the Datawatch Corporation 1996 Stock Plan, which provides for the granting of both incentive stock options and non-qualified options, the award of Company common stock, and opportunities to make direct purchases of Company common stock (collectively, “Stock Rights”), as determined by a committee appointed by the Board of Directors. Options pursuant to this plan were available to be granted through December 9, 2006 and shall vest as specified by this committee. This plan expired on December 9, 2006.

On January 20, 2006, the Company established the Datawatch Corporation 2006 Equity Compensation and Incentive Plan (the “2006 Plan”) which provides for the granting of both incentive stock options and non-qualified options, the award of Company common stock and opportunities to make direct purchases of Company common stock (collectively, “Stock Rights”), as determined by a committee appointed by the Board of Directors.  Options pursuant to this plan were available to be granted through April 26, 2011 and shall vest as specified by the committee.

On April 26, 2011, the Company established the Datawatch Corporation 2011 Equity Compensation and Incentive Plan (the “2011 Plan”) which provides for the granting of both incentive stock options and non-qualified options, the award of restricted stock, restricted stock units, and any other equity-based interests (collectively, “Stock Rights”), as determined by a committee appointed by the Board of Directors. Options pursuant to this plan may be granted through April 25, 2021 and shall vest as specified by the committee.

The Company recognizes share-based compensation expense in accordance with generally accepted accounting principles which require that all share-based awards, including grants of employee stock options, be recognized in the financial statements based on their fair value.

The Company recognizes the fair value of share-based awards over the requisite service period of the individual awards, which generally equals the vesting period. All of the Company’s stock compensation awards are accounted for as equity instruments and there have been no liability awards granted.

Share-based compensation expense for the fiscal years ended September 30, 2011 and 2010 was $264,000 and $192,000, respectively, which was included in the following expense categories:
   
Years Ended September 30,
 
   
2011
   
2010
 
   
(in thousands)
 
             
Sales and marketing
  $ 100     $ 43  
Engineering and product development
    8       14  
General and administrative
    156       135  
                 
Total
  $ 264     $ 192  
                 

The Company uses the Black-Scholes option-pricing model to calculate the fair value of options. The key assumptions for this valuation method include the expected life of the option, stock price volatility, risk-free interest rate and dividend yield. The weighted-average fair values of options granted under the stock options plans were $2.37 and $1.43 for the years ended September 30, 2011 and 2010, respectively. The total intrinsic value of options exercised during the year ended September 30, 2011 was approximately $663,000. No options were
 
 
- 44 -

 
exercised during the year ended September 30, 2010. Total cash received from option exercises during the year ended September 30, 2011 was $388,000. The tax benefit realized from stock options exercised during the year ended September 30, 2011 was $296,000. As of September 30, 2011, there was $410,000 of total unrecognized compensation cost related to non-vested stock option arrangements, which is expected to be recognized over a weighted-average period of 2.6 years.

The table below indicates the key assumptions used in the option valuation calculations for options granted for the years ended September 30, 2011 and 2010:
             
  2011     2010
Expected life
5 years
    5 years
Expected volatility
66.26 – 67.32%
    75.33%
Weighted-average volatility
66.56%
    75.33%
Risk-free interest rate
1.49 – 2.38%
    1.28%
Dividend yield
0.0%
    0.0%

The expected option life is based on historical trends and data. With regard to the expected option life assumption, the Company considers the exercise behavior of past grants and models the pattern of aggregate exercises. Patterns are determined on specific criteria of the aggregate pool of optionees including the reaction to vesting, realizable value and short-time-to-maturity effect. The Company uses an expected stock-price volatility assumption that is based on historical volatilities of the underlying stock which are obtained from public data sources. The risk-free interest rate is equal to the historical U.S. Treasury zero-coupon bond rate with a remaining term equal to the expected life of the option. The dividend yield of zero is based on the fact that the Company has never paid cash dividends and has no present intention to pay cash dividends. Based on the Company’s historical voluntary turnover rates, an annualized estimated forfeiture rate of 10% has been used in calculating the estimated cost. Additional expense will be recorded if the actual forfeiture rate is lower than estimated, and a recovery of prior expense will be recorded if the actual forfeiture is higher than estimated.

At September 30, 2011, 782,658 shares were authorized and 474,658 shares were available for future issuance under the 2011 Plan.

The following table is a summary of combined activity for all of the Company’s stock option plans:

         
Weighted-
   
Weighted - Average
       
   
Number of
   
Average
   
Remaining
   
Aggregate
 
   
Options
   
Exercise
   
Contractual
   
Intrinsic
 
   
Outstanding
   
Price
   
Term
   
Value $(000)
 
                         
Outstanding, October 1, 2009
    548,800       3.05        
Granted
    30,500       2.35        
Canceled
    (34,290 )     5.08        
Exercised
                 
Outstanding, September 30, 2010
    545,010       2.89        
Granted
    241,500       3.80        
Canceled
    (129,600 )     3.95        
Exercised
    (197,248 )     1.97        
Outstanding, September 30, 2011
    459,662     $ 3.46       4.55     $ 872  
                                 
Vested or expected to vest, September 30, 2011
    439,850     $ 3.44       4.47     $ 842  
Exercisable, September 30, 2011
    261,546     $ 3.16       3.40     $ 573  
Exercisable, September 30, 2010
    499,119     $ 2.90                  

The following table presents weighted-average price and life information regarding options outstanding and exercisable at September 30, 2011:

 
- 45 -

 
 
Outstanding
 
Exercisable
 
     
Weighted-Average
 
Weighted-
     
Weighted-
 
     
Remaining
 
Average
     
Average
 
Exercise
Number of
 
Contractual
 
Exercise
     
Exercise
 
Prices
 
Shares
 
Life (Years)
 
Price
 
Shares
 
Price
 
                     
$ 0.74 – $2.98  
136,163
 
2.61
 
$
1.89
 
120,343
 
$
1.81
 
$ 3.22 – $4.55  
212,999
 
5.61
 
3.63
 
87,996
 
3.88
 
$ 4.88 – $5.62  
110,500
 
4.92
 
5.06
 
53,207
 
5.02
 
                         
     
459,662
 
4.55
 
$
3.46
 
261,546
 
$
3.16
 

Restricted Stock Units
 
The Company periodically grants awards of restricted stock units (“RSU”) to each of its non-employee directors and some of its management team and employees on a discretionary basis pursuant to its stock compensation plans. Each RSU entitles the holder to receive, at the end of each vesting period, a specified number of shares of the Company’s common stock. The total number of RSUs unvested at September 30, 2011 was 294,344. Each RSU vests at the rate of 33.33% on each of the first through third anniversaries of the grant date with final vesting scheduled to occur in September 2014. Included in the total number of RSUs unvested at September 30, 2011 are 255,500 RSUs which are subject to a further vesting condition that the Company’s common stock must trade at a price greater than $10 per share on a national securities exchange for a period of twenty consecutive days prior to the fifth anniversary of the grant date. For such RSUs, the Company performed fair value analysis using the Monte Carlo option-pricing model. The fair value related to the RSUs was calculated based primarily on the average stock price of the Company’s common stock on the date of the grant and is being amortized evenly on a pro-rata basis over the vesting period to sales and marketing, engineering and product development and general and administrative expense. The fair values of the RSUs granted in fiscal years 2011 and 2010 was approximately $1.2 million (or $4.18 weighted average fair value per share) and $65,000 (or $2.40 weighted average fair value per share). The Company recorded compensation expense related to the RSUs of $147,000 and $51,000 during the years ended September 30, 2011 and 2010, respectively, which is included in the total stock-based compensation expense disclosed above. As of September 30, 2011, there was approximately $1.3 million of total unrecognized compensation cost related to RSUs, which is expected to be recognized over a weighted average period of 2.7 years.

The following table presents RSU information for the fiscal year ended September 30, 2011:

   
Number of
   
   
RSUs
   
   
Outstanding
   
         
Outstanding, October 1, 2009
  39,494    
Granted
  27,000    
Canceled
  (2,501 )  
Vested
  (18,152 )  
Outstanding, September 30, 2010
  45,841    
Granted
  282,500  
Canceled
    (13,504 )
Vested
    (20,493 )
Outstanding, September 30, 2011
    294,344  
 
 
7.
RETIREMENT SAVINGS PLAN

The Company has a 401(k) retirement savings plan covering substantially all of the Company’s full-time domestic employees. Under the provisions of the plan, employees may contribute a portion of their compensation within certain limitations. The Company, at the discretion of the Board of Directors, may make contributions on behalf of its employees under this plan. Such contributions, if any, become fully vested after five years of continuous service. The Company did not make any contributions to the 401(k) retirement savings plan in fiscal 2011 or 2010.

 
- 46 -

 
8. 
SEGMENT INFORMATION

The Company has determined that it has only one reportable segment. The following table presents information about the Company’s revenues by product line for the years ended September 30:

   
2011
 
2010
         
Report Analytics Solutions (including Monarch, Monarch Data Pump, Monarch Enterprise Server, Monarch RMS, Datawatch Dashboards, Monarch Report Manager on Demand and iMergence)
91%
 
90%
       
Business Service Management Solutions (including Visual QSM and Visual HD)
9%
 
10%
         
Total
 
100%
 
100%
         

 
The Company conducts operations in the U.S. and internationally (principally in the United Kingdom).  The following table presents information about the Company’s geographic operations:

         
International
             
         
(Principally
   
Intercompany
       
   
Domestic
   
U.K.)
   
Eliminations
   
Total
 
   
(In thousands)
 
Year Ended September 30, 2011
                       
Total revenue
  $ 14,671     $ 4,042     $ (828 )   $ 17,885  
Operating income (loss)
    257       (190 )           67  
Long-lived assets
    1,139       68             1,207  
                                 
Year Ended September 30, 2010
                               
Total revenue
  $ 14,229     $ 4,326     $ (881 )   $ 17,674  
Operating income (loss)
    404       (13 )           391  
Long-lived assets
    1,741       54             1,795  
                                 

9. 
QUARTERLY RESULTS (UNAUDITED)

Supplementary Information:
 
 
 
 
- 47 -

 
   
First
   
Second
   
Third
   
Fourth
 
   
(in thousands, except per share amounts)
 
Year Ended September 30, 2011:
                       
   Software license revenue
  $ 2,110     $ 2,552     $ 2,400     $ 2,796  
   Maintenance revenue
    1,538       1,505       1,527       1,649  
   Professional services revenue
    532       397       486       393  
   Cost of software licenses
    545       587       530       575  
   Cost of maintenance and services
    680       606       655       596  
   Expenses
    2,738       3,765       3,034       3,507  
   Income (loss) from operations
    217       (504 )     194       160  
   Net income (loss)
    229       (511 )     213       201  
                                 
   Net income (loss) per share - basic
  $ 0.04     $ (0.09 )   $ 0.04     $ 0.03  
   Net income (loss) per share - diluted
  $ 0.04     $ (0.09 )   $ 0.03     $ 0.03  
                                 
Year Ended September 30, 2010:
                               
   Software license revenue
  $ 2,166     $ 2,593     $ 2,458     $ 2,346  
   Maintenance revenue
    1,612       1,548       1,614       1,548  
   Professional services revenue
    456       430       521       382  
   Cost of software licenses
    573       648       597       564  
   Cost of maintenance and services
    759       747       731       656  
   Expenses
    3,091       3,268       2,978       2,671  
   Income (loss) from operations
    (189 )     (92 )     287       385  
   Net income (loss)
    (199 )     (97 )     222       454  
                                 
   Net income (loss) per share - basic
  $ (0.03 )   $ (0.02 )   $ 0.04     $ 0.08  
   Net income (loss) per share - diluted
  $ (0.03 )   $ (0.02 )   $ 0.04     $ 0.07  
                                 

 
Item 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

Not Applicable.


Item 9A. CONTROLS AND PROCEDURES

 
(a)
Evaluation of Disclosure Controls and Procedures

The principal executive officer and principal financial officer, with the participation of the Company’s management, evaluated the effectiveness of the Company’s disclosure controls and procedures as of the end of the period covered by this Annual Report on Form 10-K.  The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any system of controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives. Based upon that evaluation, the Company’s principal executive officer and principal financial officer concluded that the Company’s disclosure controls and procedures are effective in enabling the Company to record, process, summarize and report information required to be included in the Company’s periodic SEC filings within the required time period.

 
- 48 -

 
 
(b)
Changes in Internal Controls

No changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the quarter ended September 30, 2011 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
 
 
(c)
Management’s Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act. Internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles (“GAAP”). Internal control over financial reporting includes those policies and procedures that:

1)  
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company;

2)  
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the Company; and

3)  
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, a system of internal control over financial reporting can provide only reasonable assurance and may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Our management assessed the effectiveness of our internal control over financial reporting as of September 30, 2011. In making its assessment, management used the criteria set forth in “ Internal Control–Integrated Framework” issued by the Committee of Sponsoring Organizations (“COSO”) of the Treadway Commission. Based on this assessment, our management concluded that our internal control over financial reporting is effective as of September 30, 2011.

This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this annual report.


Item 9B. OTHER INFORMATION

None.

 
- 49 -

 
PART III


Item 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Executive Officers of the Registrant
 
The names, ages and titles of the executive officers of the Company as of December 10, 2011 are as follows:

Michael A. Morrison
 
48
 
President, Chief Executive Officer and Director
Murray P. Fish
 
60
 
Chief Financial Officer, Vice President of Finance, Treasurer and Secretary
Harvey C. Gross
 
62
 
Chief Technology Officer and Vice President, Product Management & Development
Daniel F. Incropera
 
47
 
Corporate Controller & Vice President

Officers are elected by, and serve at the discretion of, the Board of Directors.

MICHAEL A. MORRISON, President, Chief Executive Officer and Director. Mr. Morrison was appointed President and Chief Executive Officer of the Company on February 11, 2011. From October 2007 until joining Datawatch, Mr. Morrison was Vice President, Financial Performance Management, at IBM since January 2008. In this role, Mr. Morrison directed all development, product management, product marketing and strategic business development activities for the IBM Cognos FPM business unit. From January 2007 to October 2007, Mr. Morrison was Chief Operating Officer at Applix, Inc., having been vice president of worldwide field and marketing operations from 2004 until his appointment as COO. At Applix, Mr. Morrison conceptualized, built and led the company’s strategic go-to-market sales model and growth strategies, and also represented the company to Wall Street and industry analysts. Before joining Applix in 2004, Mr. Morrison held various positions at Cognos, including vice president of enterprise planning operations, vice president of finance and administration, and corporate counsel.

MURRAY P. FISH, Chief Financial Officer, Vice President of Finance, Treasurer and Secretary.   Mr. Fish was appointed Chief Financial Officer, Vice President of Finance, Treasurer and Assistant Secretary on March 26, 2007. Mr. Fish was appointed Secretary on March 19, 2010. Prior to joining Datawatch, Mr. Fish served as Chief Financial Officer of Cymfony, Inc., a marketing business intelligence company owned by TNS-MI.  From 2003 until 2005, Mr. Fish was the principal consultant at M.P. Fish Associates, where he provided financial consulting services to large public and private organizations. From 1998 until 2003, Mr. Fish was the Chief Financial Officer and a Director at Network-1 Security Solutions, Inc., a NASDAQ listed software development and services company.

HARVEY C. GROSS, Chief Technology Officer and Vice President, Product Management & Development. Mr. Gross was appointed Vice President, Product Management and Development on October 1, 2008 and Chief Technology Officer on April 26, 2011. Mr. Gross joined the Company in February 2007. Prior to joining Datawatch, Mr. Gross was the principal consultant at HG & Associates, a content management consulting company serving a variety of companies in business, technology and the federal government, and was a principal consultant at eVisory, a leading industry consulting group. From 1996 to 2005, Mr. Gross was Chief Technology Officer at Lason, Inc., an international business process outsourcing firm.

DANIEL F. INCROPERA, Corporate Controller & Vice President.   Mr. Incropera was appointed Corporate Controller & Vice President on September 7, 2007.  Mr. Incropera has served as the Company’s Controller since October 2006. From 2003 until joining the Company, Mr. Incropera served as Controller of Pennichuck Corporation, a publicly traded company that operates several water utility and real estate investment subsidiaries.  Prior to that, Mr. Incropera was the Assistant Controller at Concord Communications, Inc., a NASDAQ listed software company which provided network service management solutions.  

Information with respect to Directors may be found under the caption “Election of Directors” appearing in the Company’s definitive Proxy Statement for the Annual Meeting of Shareholders for the fiscal year ended September 30, 2011. Such information is incorporated herein by reference.
 
 
- 50 -

 
Item 11.  EXECUTIVE COMPENSATION

The information set forth under the captions “Compensation of Directors” and ”Executive Compensation” appearing in the Company’s definitive Proxy Statement for the Annual Meeting of Shareholders for the fiscal year ended September 30, 2011 is incorporated herein by reference.


Item 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information set forth under the caption “Principal Holders of Voting Securities” and “Equity Compensation Plan Information” appearing in the Company’s definitive Proxy Statement for the Annual Meeting of Shareholders for the fiscal year ended September 30, 2011 is incorporated herein by reference.


Item 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information set forth under the caption “Certain Relationships and Related Person Transactions” appearing in the Company’s definitive Proxy Statement for the Annual Meeting of Shareholders for the fiscal year ended September 30, 2011 is incorporated herein by reference.


Item 14.  PRINCIPAL ACCOUNTING FEES AND SERVICES

The information set forth under the caption “Independent Registered Public Accounting Firms and Fees” appearing in the Company’s definitive Proxy Statement for the Annual Meeting of Shareholders for the fiscal year ended September 30, 2011 is incorporated herein by reference.
 
 
 
 
 
 
 
 
 

 
 
- 51 -

 
PART IV

Item 15.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

The following documents are filed as part of this report:

 
(a)
1.  Consolidated Financial Statements

Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of September 30, 2011 and 2010
Consolidated Statements of Operations for the Years Ended September 30, 2011 and 2010
Consolidated Statements of Shareholders’ Equity and Comprehensive Income (Loss) for the Years Ended September 30, 2011 and 2010
Consolidated Statements of Cash Flows for the Years Ended September 30, 2011 and 2010
Notes to Consolidated Financial Statements

2.  Financial Statement Schedules

All schedules are omitted as the required information is not applicable or is included in the financial statements or related notes.

3.  List of Exhibits

Ex. No.                                                               Description

(1)
 
3.1
 
Restated Certificate of Incorporation of the Registrant (Exhibit 3.2)
(5)
 
3.2
 
Certificate of Amendment of Restated Certificate of Incorporation of the Registrant (Exhibit 3.2)
(1)
 
3.3
 
By-Laws, as amended, of the Registrant (Exhibit 3.3)
(1)
 
4.1
 
Specimen certificate representing the Common Stock (Exhibit 4.4)
(10)
 
10.1*
 
Form of Incentive Stock Option Agreement of the Registrant (Exhibit 10.2)
(10)
 
10.2*
 
Form of Nonqualified Stock Option Agreement of the Registrant (Exhibit 10.3)
(1)
 
10.3
 
Software Development and Marketing Agreement by and between Personics Corporation and Raymond Huger, dated January 19, 1989 (Exhibit 10.12)
(8)
 
10.4
 
Option Purchase Agreement by and among Datawatch Corporation, Personics Corporation and Raymond J. Huger dated April 29, 2005. (Exhibit 10.1)
(7)
 
10.5
 
Distribution Agreement, dated December 10, 1992, by and between Datawatch Corporation and Ingram Micro, Inc. (Exhibit 10.2)
(2)
 
10.6*
 
1996 Non-Employee Director Stock Option Plan, as amended on December 10, 1996 (Exhibit 10.30)
(2)
 
10.7*
 
1996 International Employee Non-Qualified Stock Option Plan (Exhibit 10.31)
(7)
 
10.8*
 
1996 Stock Plan as amended as of March 7, 2003 (Exhibit 10.1)
(3)
 
10.9
 
Indemnification Agreement between Datawatch Corporation and James Wood, dated January 12, 2001 (Exhibit 10.1)
(3)
 
10.10
 
Indemnification Agreement between Datawatch Corporation and Richard de J. Osborne, dated January 12, 2001 (Exhibit 10.2)
(4)
 
10.11
 
Form of Indemnification Agreement between Datawatch Corporation and each of its Non-Employee Directors (Exhibit 10.1)
(4)
 
10.12*
 
Advisory Agreement, dated April 5, 2001, by and between Datawatch Corporation and Richard de J. Osborne (Exhibit 10.2)
(9)
 
10.13
 
Stock Purchase Agreement among Datawatch Corporation, Mergence Technologies Corporation and the Management Sellers, dated as of August 11, 2005 (Exhibit 2.1)
(9)
 
10.14
 
Form of Stock Purchase Agreement among Datawatch Corporation, Mergence Technologies Corporation and the Non-Management Sellers, dated as of August 11, 2005 (Exhibit 2.2)
(11)
 
10.15*
 
Form of Lock-up Agreement between Datawatch Corporation and each Executive Officer of Datawatch Corporation, dated September 26, 2005 (Exhibit 99.1)
(12)
 
10.16
 
February 2006 Amendment to Software Development and Marketing Agreement, dated February 21, 2006 by and among the Company, Personics Corporation, Raymond J. Huger and Math Strategies (Exhibit 10.1)
 
 
- 52 -

 
(12)
 
10.17
 
Amendment to Option Purchase Agreement, dated February 21, 2006 by and among the Company, Personics Corporation, Raymond J. Huger and Math Strategies (Exhibit 10.2)
(13)
 
10.18*
 
2006 Equity Compensation and Incentive Plan
(14)
 
10.19*
 
Form of Non-Qualified Stock Option Agreement for Directors under the 2006 Equity Compensation and Incentive Plan (Exhibit 10.26)
(14)
 
10.20*
 
Form of Non-Qualified Stock Option Agreement for Officers under the 2006 Equity Compensation and Incentive Plan (Exhibit 10.27)
(14)
 
10.21*
 
Form of Incentive Stock Option Agreement for Officers under the 2006 Equity Compensation and Incentive Plan (Exhibit 10.28)
(15)
 
10.22
 
Asset Purchase Agreement dated as of March 10, 2006 between Datawatch Corporation and ClearStory Systems, Inc. (Exhibit 10.1)
(16)
 
10.23*
 
Executive Agreement, dated March 26, 2007, between Datawatch Corporation and Murray Fish (Exhibit 10.1)
(17)
 
10.24*
 
Form of Restricted Stock Unit Agreement for Directors under the 2006 Equity Compensation and Incentive Plan (Exhibit 10.1)
(18)
 
10.25*
 
Executive Agreement dated January 24, 2007 by and between Kenneth P. Bero and Datawatch Corporation, as amended February 11, 2011 (Exhibit 10.1)
(19)
 
10.26*
 
Executive Agreement dated March 4, 2011 by and between Michael A. Morrison and Datawatch Corporation (Exhibit 10.1)
(20)
 
10.27*
 
Executive Agreement dated July 25, 2011 by and between Harvey C. Gross and Datawatch Corporation (Exhibit 10.1)
(21)
 
10.28*
 
2011 Equity Compensation and Incentive Plan
   
10.29*
 
Form of Restricted Stock Unit Agreement for Directors and Executives under the 2011 Equity Compensation and Incentive Plan (filed herewith)
   
10.30*
 
Form of Restricted Stock Unit Agreement for Employees under the 2011 Equity Compensation and Incentive Plan (filed herewith)
   
10.31*
 
Form of Non-Qualified Stock Option Agreement under the 2011 Equity Compensation and Incentive Plan (filed herewith)
   
10.32*
 
Form of Incentive Stock Option Agreement under the 2011 Equity Compensation and Incentive Plan (filed herewith)
   
10.33
 
Sublease, dated June 17, 2011, between Zoll Medical Corporation and Datawatch Corporation (filed herewith)
   
10.34*
 
Executive Agreement dated February 1, 2007 by and between Daniel Incropera and Datawatch Corporation (filed herewith)
   
21.1
 
Subsidiaries of the Registrant (filed herewith)
   
23.1
 
Consent of Marcum LLP (filed herewith)
   
31.1
 
Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (filed herewith)
   
31.2
 
Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (filed herewith)
   
32.1
 
Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (furnished herewith)
   
32.2
 
Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (furnished herewith)

*
 
Indicates a management contract or compensatory plan or contract.

   
Note:  The number given in parenthesis next to each item listed above indicates the corresponding exhibit in each filing listed below.
(1)
 
Previously filed as an exhibit to Registration Statement 33-46290 on Form S-1 and incorporated herein by reference.
(2)
 
Previously filed as an exhibit to Registrant’s Annual Report on Form 10-K for the fiscal year ended September 30, 1996 and incorporated herein by reference.
(3)
 
Previously filed as an exhibit to Registrant’s Current Report on Form 8-K dated February 2, 2001 and incorporated herein by reference.
(4)
 
Previously filed as an exhibit to Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2001 and incorporated herein by reference.
(5)
 
Previously filed as an exhibit to Registrant’s Annual Report on Form 10-K for the fiscal year ended September 30, 2001 and incorporated herein by reference.
 
 
- 53 -

 
(6)
 
Previously filed as an exhibit to Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2002 and incorporated herein by reference.
(7)
 
Previously filed as an exhibit to Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2003 and incorporated herein by reference.
(8)
 
Previously filed as an exhibit to Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2004 and incorporated herein by reference.
(9)
 
Previously filed as an exhibit to Registrant’s Current Report on Form 8-K dated August 20, 2004 and incorporated herein by reference.
(10)
 
Previously filed as an exhibit to Registrant’s Current Report on Form 8-K dated November 2, 2004 and incorporated herein by reference.
(11)
 
Previously filed as an exhibit to Registrant’s Current Report on Form 8-K dated September 26, 2005 and incorporated herein by reference.
(12)
 
Previously filed as an exhibit to Registrant’s Current Report on Form 8-K dated February 21, 2006 and incorporated herein by reference.
(13)
 
Previously filed as Appendix A to Registrant’s Definitive Proxy Statement dated January 30, 2006 and incorporated herein by reference.
(14)
 
Previously filed as an exhibit to Registrant’s Annual Report on Form 10-K for the fiscal year ended September 30, 2006 and incorporated herein by reference.
(15)
 
Previously filed as an exhibit to Registrant’s Current Report on Form 8-K dated March 10, 2006 and incorporated herein by reference.
(16)
 
Previously filed as an exhibit to Registrant’s Current Report on Form 8-K dated March 26, 2007 and incorporated herein by reference.
(17)
 
Previously filed as an exhibit to Registrant’s Current Report on Form 8-K dated August 2, 2007 and incorporated herein by reference.
(18)
 
Previously filed as an exhibit to Registrant’s Current Report on Form 8-K dated February 14, 2011 and incorporated herein by reference.
(19)
 
Previously filed as an exhibit to Registrant’s Current Report on Form 8-K dated March 10, 2011 and incorporated herein by reference.
(20)
 
Previously filed as an exhibit to Registrant’s Current Report on Form 8-K dated July 26, 2011 and incorporated herein by reference.
(21)
 
Previously filed as Appendix A to Registrant’s Definitive Revised Proxy Statement on Schedule 14A dated March 17, 2011 and incorporated herein by reference.


    (b)  Exhibits

The Company hereby files as exhibits to this Annual Report on Form 10-K those exhibits listed in Item 15(a)3 above.


    (c)  Financial Statement Schedules

Not applicable.

 
- 54 -

 
SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
   
Datawatch Corporation
     
       
Date:
December 22, 2011
By:
/s/ Michael A. Morrison
 
     
Michael A. Morrison
     
President, Chief Executive Officer
and Director


Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
 
SIGNATURE
 
TITLE
 
DATE
         
         
/s/ Michael A. Morrison
 
President, Chief Executive Officer and Director
 
December 22, 2011
Michael A. Morrison
 
(Principal Executive Officer)
   
         
         
/s/ Murray P. Fish
 
Chief Financial Officer, Treasurer, Vice President of
 
December 22, 2011
Murray P. Fish
 
Finance and Secretary
   
   
(Principal Financial and Accounting Officer)
   
         
         
/s/ Richard de J. Osborne
 
Chairman of the Board
 
December 22, 2011
Richard de J. Osborne
       
         
         
/s/ James Wood
 
Director
 
December 22, 2011
James Wood
       
         
         
/s/ Thomas H. Kelly
 
Director
 
December 22, 2011
Thomas H. Kelly
       
         
         
/s/ Terry W. Potter
 
Director
 
December 22, 2011
Terry W. Potter
       
         
         
/s/ William B. Simmons, Jr.
 
Director
 
December 22, 2011
William B. Simmons, Jr.
       
         
         
/s/ David C. Mahoney
 
Director
 
December 22, 2011
David C. Mahoney
       

 
 
- 55 -

EXHIBIT 10.29
 
DATAWATCH CORPORATION
 
Restricted Stock Unit Agreement for Directors and Executives

Datawatch Corporation, a Delaware corporation (the “Company”), hereby grants as of the award date below (“Award Date”) to the director or executive named below (the “Participant”), and the Participant hereby accepts, an award (“Award”) of Restricted Stock Units (“RSU”) that will vest as described in the Vesting Schedule below, such Award to be subject to the terms and conditions specified in the attached Exhibit A .

Participant Name:        ___________________________________
 
Award Date:                ___________________________________
 
Number of RSUs:        ___________________________________

Vesting Schedule:      

Vesting Date                                                                    Number of RSUs





[FORM NOTE:  Add the following for those executives receiving grants with an additional market price trigger:]   [In addition to the foregoing vesting period, as a further condition to the vesting of any RSU hereunder, the price at which the Common Stock of the Company trades on a national stock exchange must exceed $10.00 per share for a period of twenty consecutive trading days on or prior [Award Date] , 2016.]

By signing this Agreement, the Participant acknowledges receipt of a copy of this Agreement and a copy of the 2011 Equity Compensation and Incentive Plan and the Prospectus related thereto.

This Agreement will be effective only upon execution by the Participant and delivery of such signed Agreement to the Company.

IN WITNESS WHEREOF, the Company and the Participant have caused this instrument to be executed as of the Award Date set forth above.

   
 
___________________________
DATAWATCH CORPORATION
(Participant Signature)
 
   
   
 
___________________________
 
(Street Address)
By:__________________________________
 
Name:
___________________________
(City/State/Zip Code)
Title:

 
 

 
Exhibit A

Restricted Stock Unit Agreement for Directors and Executives
Terms and Conditions

1.   Award .  The Participant is hereby granted an Award of RSUs, effective as of   the date set forth on the cover page attached hereto (the “Award Date”), subject to the terms and conditions set forth herein (collectively with the cover page, the “Agreement”), and subject to and governed by the Company’s 2011 Equity Compensation and Incentive Plan (the “Plan”).  Capitalized terms not otherwise defined herein shall have the meanings ascribed to them in the Plan. Each RSU represents the right to receive one share of the Company’s Common Stock upon the satisfaction of terms and conditions set forth in this Agreement and the Plan.
 
2.   Vesting .  Except as set forth in Section 6 herein, the RSUs will remain restricted and may not be sold, assigned, exchanged, pledged or otherwise transferred by the Participant until the RSUs have become vested pursuant to the terms of this Agreement.  If the Participant has continued to serve the Company in the capacity of a director, or has continued to be an employee of the Company, then the RSUs will vest as provided on the cover page hereto.   Each date on which a portion of the Award vests   shall be referred to herein as a “Vesting Date.”   Notwithstanding the foregoing, in accordance with and subject to the provisions of the Plan, the Committee may, in its discretion, accelerate the date that any installment of this RSU becomes vested.
 
3.   Acceleration of Vesting Upon Change of Control .  Notwithstanding Section 2 hereof, in the event of a Change in Control (as defined below) of the Company while this RSU is in effect, this RSU shall, immediately prior to the consummation of such Change in Control, become fully vested and all shares subject to this RSU shall be delivered to the Participant.  For purposes of this Agreement, a “Change in Control” means the occurrence of any of the following events:
 
(a)   The Company is merged or consolidated or reorganized into or with another corporation or other legal person, and as a result of such merger, consolidation or reorganization less than a majority of the combined voting power of the then-outstanding securities of such surviving, resulting or reorganized corporation or person immediately after such transaction is held in the aggregate by the holders of the then-outstanding securities entitled to vote generally in the election of directors of the Company ("Voting Stock") immediately prior to such transaction;
 
(b)   The Company sells or otherwise transfers all or substantially all of its assets to any other corporation or other legal person, and as a result of such sale or transfer less than a majority of the combined voting power of the then-outstanding securities of such corporation or person immediately after such sale or transfer is held in the aggregate by the holders of Voting Stock of the Company immediately prior to such sale or transfer;
 
(c)   There is a report filed on Schedule 13D or Schedule 14D-1 (or any successor schedule, form or report), each as promulgated pursuant to the Securities Exchange Act of 1934, as amended (the “Exchange Act”), disclosing that any "person" (as such term is used in Section 13(d)(3) or Section 14(d)(2) of the Exchange Act) has become the "beneficial owner" (as such term is used in Rule 13d-3 under the Exchange Act) of securities representing 50% or more of the Voting Stock of the Company;
 
(d)   The Company files a report or proxy statement with the Securities and Exchange Commission pursuant to the Exchange Act disclosing in response to Form 8-K or Schedule 14A (or any successor schedule, form or report or item therein) that a change in control of the Company has occurred; or
 
(e)   If during any period of two consecutive years, individuals who at the beginning of any such period constitute the Board cease for any reason to constitute at least a majority thereof, unless the election, or the nomination for election by the Company’s stockholders, of each director of the Company first elected during such period was approved by a vote of at least a majority of the directors then still in office who were directors of the Company at the beginning of any such period;
 
 
 

 
provided , however , that a “Change in Control” shall not be deemed to have occurred for purposes of this Agreement solely because (x) the Company, (y) an entity in which the Company directly or indirectly beneficially owns 50% or more of the voting securities, or (z) any Company-sponsored employee stock ownership plan or any other employee benefit plan of the Company, either files or becomes obligated to file a report or a proxy statement under or in response to Schedule 13D, Schedule 14D-1, Form 8-K or Schedule 14A (or any successor schedule, form or report) under the Exchange Act, disclosing beneficial ownership by it of shares of Voting Stock or because the Company reports that a change in control of the Company has occurred by reason of such beneficial ownership.
 
4.   Distribution of the Award; Dividend Equivalents.   As soon as reasonably practicable following each Vesting Date (but in no event later than 60 days following the Vesting Date), the Company will release the portion of the Award that has become vested as of such Vesting Date in the form of shares of the Company’s Common Stock.  The Company shall provide the Participant with at least seven (7) days written notice prior to the Vesting Date; such notice to specify the amount that the Participant is required to pay to satisfy any applicable withholding Taxes (as hereinafter below). The Participant may deposit with the Company an amount of cash equal to the amount determined by the Company, to be required with respect to any withholding taxes, FICA contributions, or the like under any national, federal, state, local or other statute, ordinance, rule, or regulation in connection with the award or settlement of the restricted stock units (the “Taxes”).  Alternatively, if the Company does not receive such amount from the Participant at least two (2) days prior to the Vesting Date, the Company will withhold a number of shares (rounded up to the nearest whole share) of the Company’s Common Stock with a market value determined as of the close of business on the Vesting Date) equal to the amount of such Taxes associated with the vesting or settlement of the Award.
 
The Participant shall have the right to receive dividend equivalent payments with respect to the Common Stock subject to the Award as provided in this paragraph.  Upon each Vesting Date, Participant shall be entitled to receive a dividend equivalent payment in respect of the shares of Common Stock covered by the Award that are not vested on the record date for each dividend payment, if any, made by the Company on its Common Stock for which the record date occurred (i) on or after the Award Date or the immediately preceding Vesting Date, as the case may be, and (ii) prior to the applicable Vesting Date, in an amount in cash equal to the amount of any dividend which otherwise would have been paid to the Participant if such unvested shares had been issued for the benefit of the Participant on the record dates for such dividend payments, subject to any applicable withholding for Taxes.  Such dividend equivalent payments may be settled by the Company subject to such other conditions or terms that the Committee may establish. Except for dividend equivalent payments, the Participant shall have no rights as a stockholder, including voting rights, with respect to the RSUs.

5.   Termination of Relationship with the Company .  If the Participant ceases to be a director of the Company, or the Participant ceases to be an employee of the Company, as the case may be, for any reason, any portion of the Award that has not become vested on or prior to the date of such cessation shall immediately be forfeited.
 
6.   Award Not Transferable .  The Award will not be assignable or transferable by the Participant, except by operation of law, or by will or the laws of descent and distribution.
 
7.   Transferability of Award Shares .  Until registered under the Securities Act of 1933, as amended, or any successor statute (the “Securities Act”), the shares of Common Stock represented by the RSUs will be of an illiquid nature and will be deemed to be “restricted securities” for purposes of the Securities Act.  Accordingly, such shares must be sold in compliance with the registration requirements of the Securities Act or an exemption therefrom.  The Company reserves the right to place restrictions required by law on any shares of the Company’s Common Stock received by the Participant pursuant to the Award.
 
8.   Conformity with the Plan.   The Award is intended to conform in all respects with, and is subject to applicable provisions of, the Plan. To the extent that any provision of this Agreement conflicts with the express terms of the Plan, it is hereby acknowledged and agreed that the terms of the Plan shall control and, if necessary, the applicable provisions of this Agreement shall be deemed to be amended so as to carry out the purpose and intent of the Plan. By the Participant’s acceptance of this Agreement, the Participant agrees to be bound by all of the terms of this Agreement and the Plan.  Notwithstanding any other provision of this Section 8, in the event that the provisions of this Agreement are subject to Section 409A of the Internal Revenue Code of 1986, as amended, and the Treasury Regulations promulgated thereunder (“Section 409A”), the provisions of this Agreement shall comply with, and shall be interpreted in a manner consistent with, Section 409A.
 
 
 

 
9.   No Rights to Continued Board Service or Employment.   Nothing in this Agreement confers any right on the Participant to continue as a director of the Company, or confers any right on the Participant to continue employment at the Company or affects in any way the right of any of the Company to terminate any such relationship of the Participant to the Company.  Participation in the Plan shall not form an employment contract or relationship with the Company or any Subsidiary, create a right to further employment with the Company or any Subsidiary, or interfere with the ability of the Company or any Subsidiary to terminate the Participant’s employment relationship at any time with or without cause.
 
10.   Miscellaneous .
 
(a)             Notices.   All notices hereunder shall be in writing and shall be deemed given when sent by certified or registered mail, postage prepaid, return receipt requested, if to the Participant, to the address set forth above or at the address shown on the records of the Company, and if to the Company, to the Company’s principal executive offices, attention of the Chief Financial Officer.

(b)             Entire Agreement; Modification.   This Agreement, together with the Plan, constitutes the entire agreement between the parties relative to the subject matter hereof, and supersedes all proposals, written or oral, and all other communications between the parties relating to the subject matter of this Agreement.  The Company may amend, suspend or terminate the Plan, this Agreement and the Award granted hereunder at any time; provided, however, that no such amendment, suspension or termination may materially impair any Award without the Participant’s written consent.

(c)             Fractional Shares.   If the shares under this Award become issuable for a fraction of a share because of the adjustment provisions contained in the Plan, such fraction shall be rounded down to the nearest whole share.

(d)             Severability.   The invalidity, illegality or unenforceability of any provision of this Agreement shall in no way affect the validity, legality or enforceability of any other provision.

(e)    Successors and Assigns.   Except as provided herein, this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, subject to the limitations set forth in Section 6 hereof.

(f)             Governing Law.   This Agreement shall be governed by and interpreted in accordance with the laws of the Commonwealth of Massachusetts , without giving effect to the principles of the conflicts of laws thereof.

(g)             Data Protection Waiver.   The Participant understands and consents to the Company or its agents or independent contractors appointed to administer the Plan obtaining certain of the Participant’s personal employment information required for the effective administration of the Plan and that such information may be transmitted outside of the country of the Participant’s employment and/or residence.  Information relating to the Participants participation under the Plan may constitute personal data that is subject to the Company’s policies on protection and use of personal data.

(h)             Clawback.   This Award and any resulting payment or delivery of shares of the Company’s Common Stock is subject to set-off, recoupment, or other recovery or “claw back” as required by applicable law or by a Company policy on the claw back of compensation, as amended from time to time.

[FORM NOTE:  ADD THE FOLLOWING AND CONSULT LOCAL COUNSEL FOR ADDITIONAL/REVISED PROVISIONS IN THE CASE OF GRANTS OUTSIDE THE U.S., AS WELL AS FOR ADVICE ON COMPLIANCE WITH LOCAL SECURITIES REGISTRATION REQUIREMENTS AND AGREEMENT TRANSLATION REQUIREMENTS.]

[11.           Additional Conditions.

 
 

 
(a)            In accepting the Award, the Participant acknowledges that: (i) the grant of RSUs is voluntary and occasional and does not create any contractual or other right to receive future Awards, or benefits in lieu of Awards, even if RSUs have been granted repeatedly in the past; (ii) all decisions with respect to future grants of RSUs, if any, will be at the sole discretion of the Company; (iii) the Participant is voluntarily participating in the Plan; (iv) the RSUs and the underlying shares of Common Stock are an extraordinary item that does not constitute compensation of any kind for services of any kind rendered to the Company or any Subsidiary, and which is outside the scope of the Participant’s employment contract, if any; (v) the RSUs and the underlying shares of Common Stock are not intended to replace any pension rights or compensation; (vi) the RSUs are not part of normal or expected compensation or salary for any purposes, including, but not limited to, calculating any severance, resignation, termination, redundancy, unfair dismissal, end-of-service payments, bonuses, long-service awards, pension or retirement benefits or similar payments and in no event should be considered as compensation for, or relating in any way to, past services for the Company or any Subsidiary; (vii) in consideration of the Award, no claim or entitlement to compensation or damages shall arise from termination, forfeiture or cancelation of the RSUs, or diminution in value of the shares of Common Stock acquired under the Plan, resulting from termination of the Participant’s employment by the Company or a Subsidiary (for any reason whatsoever and whether or not in breach of local labor laws), and the Participant irrevocably releases the Company and its Subsidiaries from any such claim that may arise; if, notwithstanding the foregoing, any such claim is found by a court of competent jurisdiction to have arisen, the Participant shall be deemed irrevocably to have waived his or her entitlement to pursue such claim; (viii) in the event of termination of the Participant’s employment (whether or not in breach of local labor laws), the Participant’s right to receive the RSUs and any resulting shares under the Plan, if any, will terminate effective as of the date that the Participant is no longer actively employed and will not be extended by any notice period mandated under local law ( e.g. , active employment would not include a period of “garden leave” or similar period pursuant to local law); furthermore, in the event of termination of employment (whether or not in breach of local labor laws) the Board shall have the exclusive discretion to determine when the Participant is no longer actively employed for purposes of the Award; and (ix) the rights and benefits under the Plan, if any, will not automatically transfer to another company in the case of a merger, takeover or transfer of liability.

(b)            Neither the Company nor any Subsidiary is providing any tax, legal or financial advice, nor is the Company making any recommendations regarding participation in the Plan, or the Participant’s acquisition or sale of the underlying shares of Common Stock.  The Participant is advised to consult with his or her own personal tax, legal and financial advisors regarding participation in the Plan before taking any action related to the Plan.


[Remainder of Page Intentionally Left Blank]
 

 
EXHIBIT 10.30
 
DATAWATCH CORPORATION
 
Restricted Stock Unit Agreement for   Employees
 
Datawatch Corporation, a Delaware corporation (the “Company”), hereby grants as of the award date below (“Award Date”) to the  employee  named below (the “Participant”), and the Participant hereby accepts, an award (“Award”) of Restricted Stock Units (“RSU”) that will vest as described in the Vesting Schedule below, such Award to be subject to the terms and conditions specified in the attached Exhibit A .

Participant Name:       ___________________________

Award Date:                ___________________________

Number of RSUs:        ___________________________

Vesting Schedule:

Vesting Date                                                                    Number of RSUs





[FORM NOTE:  Add the following for those employees receiving grants with an additional market price trigger:]   [In addition to the foregoing vesting period, as a further condition to the vesting of any RSU hereunder, the price at which the Common Stock of the Company trades on a national stock exchange must exceed $10.00 per share for a period of twenty consecutive trading days on or prior [Award Date] , 2016.]

By signing this Agreement, the Participant acknowledges receipt of a copy of this Agreement and a copy of the 2011 Equity Compensation and Incentive Plan and the Prospectus related thereto.

This Agreement will be effective only upon execution by the Participant and delivery of such signed Agreement to the Company.

IN WITNESS WHEREOF, the Company and the Participant have caused this instrument to be executed as of the Award Date set forth above.

   
 
___________________________
DATAWATCH CORPORATION
(Participant Signature)
 
   
   
 
___________________________
 
(Street Address)
By:__________________________________
 
Name: Michael A. Morrison
___________________________
(City/State/Zip Code)
Title:    President and CEO

 
 

 
Exhibit A

Restricted Stock Unit Agreement for Employees
Terms and Conditions

1.   Award .  The Participant is hereby granted an Award of RSUs, effective as of   the date set forth on the cover page attached hereto (the “Award Date”), subject to the terms and conditions set forth herein (collectively with the cover page, the “Agreement”), and subject to and governed by the Company’s 2011 Equity Compensation and Incentive Plan (the “Plan”).  Capitalized terms not otherwise defined herein shall have the meanings ascribed to them in the Plan. Each RSU represents the right to receive one share of the Company’s Common Stock upon the satisfaction of terms and conditions set forth in this Agreement and the Plan.
 
2.   Vesting .  Except as set forth in Section 6 herein, the RSUs will remain restricted and may not be sold, assigned, exchanged, pledged or otherwise transferred by the Participant until the RSUs have become vested pursuant to the terms of this Agreement.  If the Participant has continued to be an employee of the Company, then the RSUs will vest as provided on the cover page hereto.   Each date on which a portion of the Award vests   shall be referred to herein as a “Vesting Date.”   Notwithstanding the foregoing, in accordance with and subject to the provisions of the Plan, the Committee may, in its discretion, accelerate the date that any installment of this RSU becomes vested.
 
3.   Distribution of the Award; Dividend Equivalents.   As soon as reasonably practicable following each Vesting Date (but in no event later than 60 days following the Vesting Date), the Company will release the portion of the Award that has become vested as of such Vesting Date in the form of shares of the Company’s Common Stock.  The Company shall provide the Participant with at least seven (7) days written notice prior to the Vesting Date; such notice to specify the amount that the Participant is required to pay to satisfy any applicable withholding Taxes (as hereinafter below). The Participant may deposit with the Company an amount of cash equal to the amount determined by the Company, to be required with respect to any withholding taxes, FICA contributions, or the like under any national, federal, state, local or other statute, ordinance, rule, or regulation in connection with the award or settlement of the restricted stock units (the “Taxes”).  Alternatively, if the Company does not receive such amount from the Participant at least two (2) days prior to the Vesting Date, the Company will withhold a number of shares (rounded up to the nearest whole share) of the Company’s Common Stock with a market value determined as of the close of business on the Vesting Date) equal to the amount of such Taxes associated with the vesting or settlement of the Award.
 
The Participant shall have the right to receive dividend equivalent payments with respect to the Common Stock subject to the Award as provided in this paragraph.  Upon each Vesting Date, Participant shall be entitled to receive a dividend equivalent payment in respect of the shares of Common Stock covered by the Award that are not vested on the record date for each dividend payment, if any, made by the Company on its Common Stock for which the record date occurred (i) on or after the Award Date or the immediately preceding Vesting Date, as the case may be, and (ii) prior to the applicable Vesting Date, in an amount in cash equal to the amount of any dividend which otherwise would have been paid to the Participant if such unvested shares had been issued for the benefit of the Participant on the record dates for such dividend payments, subject to any applicable withholding for Taxes.  Such dividend equivalent payments may be settled by the Company subject to such other conditions or terms that the Committee may establish. Except for dividend equivalent payments, the Participant shall have no rights as a stockholder, including voting rights, with respect to the RSUs.

4.   Termination of Relationship with the Company .  If the Participant ceases to be an employee of the Company for any reason, any portion of the Award that has not become vested on or prior to the date of such cessation shall immediately be forfeited.
 
5.   Award Not Transferable .  The Award will not be assignable or transferable by the Participant, except by operation of law, or by will or the laws of descent and distribution.
 
6.   Transferability of Award Shares .  Until registered under the Securities Act of 1933, as amended, or any successor statute (the “Securities Act”), the shares of Common Stock represented by the RSUs will be of an illiquid nature and will be deemed to be “restricted securities” for purposes of the Securities Act.  Accordingly, such shares must be sold in compliance with the registration requirements of the Securities Act or an exemption therefrom.  The Company reserves the right to place restrictions required by law on any shares of the Company’s Common Stock received by the Participant pursuant to the Award.
 
 
 

 
7.   Conformity with the Plan.   The Award is intended to conform in all respects with, and is subject to applicable provisions of, the Plan. To the extent that any provision of this Agreement conflicts with the express terms of the Plan, it is hereby acknowledged and agreed that the terms of the Plan shall control and, if necessary, the applicable provisions of this Agreement shall be deemed to be amended so as to carry out the purpose and intent of the Plan. By the Participant’s acceptance of this Agreement, the Participant agrees to be bound by all of the terms of this Agreement and the Plan.  Notwithstanding any other provision of this Section 8, in the event that the provisions of this Agreement are subject to Section 409A of the Internal Revenue Code of 1986, as amended, and the Treasury Regulations promulgated thereunder (“Section 409A”), the provisions of this Agreement shall comply with, and shall be interpreted in a manner consistent with, Section 409A.
 
8.   No Rights to Employment.   Nothing in this Agreement confers any right on the Participant to continue employment at the Company or affects in any way the right of any of the Company to terminate the employment of the Participant with the Company.  Participation in the Plan shall not form an employment contract or relationship with the Company or any Subsidiary, create a right to further employment with the Company or any Subsidiary, or interfere with the ability of the Company or any Subsidiary to terminate the Participant’s employment relationship at any time with or without cause.
 
9.   Miscellaneous .
 
(a)             Notices.   All notices hereunder shall be in writing and shall be deemed given when sent by certified or registered mail, postage prepaid, return receipt requested, if to the Participant, to the address set forth above or at the address shown on the records of the Company, and if to the Company, to the Company’s principal executive offices, attention of the Chief Financial Officer.

(b)             Entire Agreement; Modification.   This Agreement, together with the Plan, constitutes the entire agreement between the parties relative to the subject matter hereof, and supersedes all proposals, written or oral, and all other communications between the parties relating to the subject matter of this Agreement.  The Company may amend, suspend or terminate the Plan, this Agreement and the Award granted hereunder at any time; provided, however, that no such amendment, suspension or termination may materially impair any Award without the Participant’s written consent.

(c)             Fractional Shares.   If the shares under this Award become issuable for a fraction of a share because of the adjustment provisions contained in the Plan, such fraction shall be rounded down to the nearest whole share.

(d)             Severability.   The invalidity, illegality or unenforceability of any provision of this Agreement shall in no way affect the validity, legality or enforceability of any other provision.

(e)    Successors and Assigns.   Except as provided herein, this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, subject to the limitations set forth in Section 6 hereof.

(f)             Governing Law.   This Agreement shall be governed by and interpreted in accordance with the laws of the Commonwealth of Massachusetts , without giving effect to the principles of the conflicts of laws thereof.

(g)             Data Protection Waiver.   The Participant understands and consents to the Company or its agents or independent contractors appointed to administer the Plan obtaining certain of the Participant’s personal employment information required for the effective administration of the Plan and that such information may be transmitted outside of the country of the Participant’s employment and/or residence.  Information relating to the Participants participation under the Plan may constitute personal data that is subject to the Company’s policies on protection and use of personal data.

(h)             Clawback.   This Award and any resulting payment or delivery of shares of the Company’s Common Stock is subject to set-off, recoupment, or other recovery or “claw back” as required by applicable law or by a Company policy on the claw back of compensation, as amended from time to time.

 
 

 
[FORM NOTE:  ADD THE FOLLOWING AND CONSULT LOCAL COUNSEL FOR ADDITIONAL/REVISED PROVISIONS IN THE CASE OF GRANTS OUTSIDE THE U.S., AS WELL AS FOR ADVICE ON COMPLIANCE WITH LOCAL SECURITIES REGISTRATION REQUIREMENTS AND AGREEMENT TRANSLATION REQUIREMENTS.]

[11.         Additional Conditions.

(a)            In accepting the Award, the Participant acknowledges that: (i) the grant of RSUs is voluntary and occasional and does not create any contractual or other right to receive future Awards, or benefits in lieu of Awards, even if RSUs have been granted repeatedly in the past; (ii) all decisions with respect to future grants of RSUs, if any, will be at the sole discretion of the Company; (iii) the Participant is voluntarily participating in the Plan; (iv) the RSUs and the underlying shares of Common Stock are an extraordinary item that does not constitute compensation of any kind for services of any kind rendered to the Company or any Subsidiary, and which is outside the scope of the Participant’s employment contract, if any; (v) the RSUs and the underlying shares of Common Stock are not intended to replace any pension rights or compensation; (vi) the RSUs are not part of normal or expected compensation or salary for any purposes, including, but not limited to, calculating any severance, resignation, termination, redundancy, unfair dismissal, end-of-service payments, bonuses, long-service awards, pension or retirement benefits or similar payments and in no event should be considered as compensation for, or relating in any way to, past services for the Company or any Subsidiary; (vii) in consideration of the Award, no claim or entitlement to compensation or damages shall arise from termination, forfeiture or cancelation of the RSUs, or diminution in value of the shares of Common Stock acquired under the Plan, resulting from termination of the Participant’s employment by the Company or a Subsidiary (for any reason whatsoever and whether or not in breach of local labor laws), and the Participant irrevocably releases the Company and its Subsidiaries from any such claim that may arise; if, notwithstanding the foregoing, any such claim is found by a court of competent jurisdiction to have arisen, the Participant shall be deemed irrevocably to have waived his or her entitlement to pursue such claim; (viii) in the event of termination of the Participant’s employment (whether or not in breach of local labor laws), the Participant’s right to receive the RSUs and any resulting shares under the Plan, if any, will terminate effective as of the date that the Participant is no longer actively employed and will not be extended by any notice period mandated under local law ( e.g. , active employment would not include a period of “garden leave” or similar period pursuant to local law); furthermore, in the event of termination of employment (whether or not in breach of local labor laws) the Board shall have the exclusive discretion to determine when the Participant is no longer actively employed for purposes of the Award; and (ix) the rights and benefits under the Plan, if any, will not automatically transfer to another company in the case of a merger, takeover or transfer of liability.

(b)            Neither the Company nor any Subsidiary is providing any tax, legal or financial advice, nor is the Company making any recommendations regarding participation in the Plan, or the Participant’s acquisition or sale of the underlying shares of Common Stock.  The Participant is advised to consult with his or her own personal tax, legal and financial advisors regarding participation in the Plan before taking any action related to the Plan.


[Remainder of Page Intentionally Left Blank]
 

 
EXHIBIT 10.31
 
DATAWATCH CORPORATION

Non-Qualified Stock Option Agreement


Datawatch Corporation, a Delaware corporation (the “Company”), hereby grants as of _________ __, ____ to [__________]   (the “Optionee”), an option (the “Award”) to purchase a maximum of [_____] shares (the “Option Shares”) of its Common Stock, $.01 par value (“Common Stock”), at the price of [ $____ ] per share, on the following terms and conditions:

1.             Grant Under 2011 Equity Compensation and Incentive Plan .   This option is granted pursuant to and is governed by the Company’s 2011 Equity Compensation and Incentive Plan (the “Plan”) and, unless the context otherwise requires, terms used herein shall have the same meaning as in the Plan.  Determinations made in connection with this option pursuant to the Plan shall be governed by the Plan as it exists on this date.

2.             Grant as Non-Qualified Stock Option; Other Options . This option shall be treated as a Non-Qualified Stock Option (rather than an incentive stock option under Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”)).  This option is in addition to any other options heretofore or hereafter granted to the Optionee by the Company or any Related Corporation (as defined in the Plan), but a duplicate original of this instrument shall not effect the grant of another option.

3.             Extent of Option if Business Relationship Continues . If the Optionee has continued to serve the Company or any Related Corporation in the capacity of an employee, officer, director or consultant (such service is described herein as maintaining or being involved in a “Business Relationship” with the Company) on the following dates, the Optionee may exercise this option for the number of shares of Common Stock set opposite the applicable date:

Prior to _______ __, ____
 
 
-0- shares
On _______ __, ____ and at the end of each three-month period thereafter
-
An additional [____]   shares (or such number of shares at the end of the last three month period so that the total does not exceed [_____]   shares).
     

In accordance with the foregoing schedule, a total of [_____] shares shall be vested and exercisable on the third anniversary of _________   __ , ____.  Notwithstanding the foregoing, in accordance with and subject to the provisions of the Plan, the Committee may, in its discretion, accelerate the date that any installment of this Option becomes exercisable.  The foregoing rights are cumulative and, while the Optionee continues to maintain a Business Relationship with the Company, may be exercised on or before the date which is seven years from the date this option is granted.  All the foregoing rights are subject to Sections 4 and 5, as appropriate, if the Optionee ceases to maintain a Business Relationship with the Company.

 
 

 
4.             Termination of Business Relationship .   If the Optionee ceases to maintain a Business Relationship with the Company, other than by reason of death or disability as defined in Section 5, no further installments of this option shall become exercisable, and this option shall terminate after the passage of ninety (90) days from the date the Business Relationship ceases (the “Additional Exercise Period”), but in no event later than the scheduled expiration date; provided, however, that, immediately upon the Optionee’s completion of his or her first full year of continuous employment with the Company the Additional Exercise Period shall increase to twelve months.  In such a case, the Optionee’s only rights hereunder shall be those which are properly exercised before the termination of this option.

5.             Death; Disability .   If the Optionee dies while involved in a Business Relationship with the Company, this option may be exercised, to the extent of the number of shares with respect to which the Optionee could have exercised it on the date of his or her death, by his or her estate, personal representative or beneficiary to whom this option has been assigned pursuant to Section 9, at any time within 180 days after the date of death, but not later than the scheduled expiration date.  If the Optionee’s Business Relationship with the Company is terminated by reason of his or her disability (as defined in the Plan), this option may be exercised, to the extent of the number of shares with respect to which the Optionee could have exercised it on the date the Business Relationship was terminated, at any time within 180 days after the date of such termination, but not later than the scheduled expiration date, provided that such period for exercise shall not expire before the date on which the shares underlying the option are registered under an effective registration statement on Form S-8 under the Securities Act of 1933, as amended, unless the scheduled expiration date occurs before such registration is effective.  At the expiration of such 180-day period or the scheduled expiration date, whichever is the earlier, this option shall terminate and the only the rights hereunder shall be those as to which the option was properly exercised before such termination.

6.             Partial Exercise .   This option may be exercised in part at any time and from time to time within the above limits, except that this option may not be exercised for a fraction of a share unless such exercise is with respect to the final installment of stock subject to this option and cash in lieu of a fractional share must be paid, in accordance with Paragraph 13(G) of the Plan, to permit the Optionee to exercise completely such final installment.  Any fractional share with respect to which an installment of this option cannot be exercised because of the limitation contained in the preceding sentence shall remain subject to this option and shall be available for later purchase by the Optionee in accordance with the terms hereof.

7.             Payment of Price .  (a)  The option price shall be paid in the following manner:

 
(i)
in United States dollars in cash or by check;

 
(ii)
subject to Section 7(b) below, by delivery of shares of the Company’s Common Stock having a Fair Market Value (as determined by the Committee) as of the date of the exercise equal to the cash exercise price of this option;

 
 

 
 
(iii)
by delivery (including by attestation) of an assignment satisfactory in form   and substance to the Company of a sufficient amount of the proceeds from the sale of the Option Shares and an instruction to the broker or selling agent to pay that amount to the Company; or

 
(iv)
by any combination of the foregoing.

(b)             Limitations on Payment by Delivery of Common Stock .   If the Optionee delivers Common Stock held by the Optionee (“Old Stock”) to the Company in full or partial payment of the option price, and the Old Stock so delivered is subject to restrictions or limitations imposed by agreement between the Optionee and the Company, an equivalent number of Option Shares shall be subject to all restrictions and limitations applicable to the Old Stock to the extent that the Optionee paid for the Option Shares by delivery of Old Stock, in addition to any restrictions or limitations imposed by this Agreement.  Notwithstanding the foregoing, the Optionee may not pay any part of the exercise price hereof by transferring Common Stock to the Company unless such Common Stock has been owned by the Optionee free of any substantial risk of forfeiture for at least six months.

8.             Method of Exercising Option .   Subject to the terms and conditions of this Agreement, this option may be exercised by written notice to the Company at its principal executive office,  or to such transfer agent as the Company shall designate.  Such notice shall state the election to exercise this option and the number of Option Shares for which it is being exercised and shall be signed by the person or persons so exercising this option.  Such notice shall be accompanied by payment of the full purchase price of such shares, and the Company shall deliver a certificate or certificates representing such shares as soon as practicable after the notice shall be received.  Such certificate or certificates shall be registered in the name of the person or persons so exercising this option (or, if this option shall be exercised by the Optionee and if the Optionee shall so request in the notice exercising this option, shall be registered in the name of the Optionee and another person jointly, with right of survivorship). In the event this option shall be exercised, pursuant to Section 5 hereof, by any person or persons other than the Optionee, such notice shall be accompanied by appropriate proof of the right of such person or persons to exercise this option.

9.             Option Not Transferable .   This option is not transferable or assignable except by will or by the laws of descent and distribution.  During the Optionee’s lifetime only the Optionee can exercise this option.

10.             No Obligation to Exercise Option .   The grant and acceptance of this option imposes no obligation on the Optionee to exercise it.

 
 
 

 
11.             No Obligation to Continue Business Relationship .   Neither the Plan, this Agreement, nor the grant of this option imposes any obligation on the Company or any Related Corporation to continue to maintain a Business Relationship with the Optionee.

12.             No Rights as Stockholder until Exercise .   The Optionee shall have no rights as a stockholder with respect to the Option Shares until such time as the Optionee has exercised this option by delivering a notice of exercise and has paid in full the purchase price for the shares so exercised in accordance with Section 8.  Except as is expressly provided in the Plan with respect to certain changes in the capitalization of the Company, no adjustment shall be made for dividends or similar rights for which the record date is prior to such date of exercise.

13.             Capital Changes and Business Successions .   The Plan contains provisions covering the treatment of options in a number of contingencies such as stock splits and mergers.  Provisions in the Plan for adjustment with respect to stock subject to options and the related provisions with respect to successors to the business of the Company are hereby made applicable hereunder and are incorporated herein by reference.

14.             Withholding Taxes .   If the Company or any Related Corporation in its discretion determines that it is obligated to withhold any tax in connection with the exercise of this option, or in connection with the transfer of, or the lapse of restrictions on, any Common Stock or other property acquired pursuant to this option, the Optionee hereby agrees that the Company or any Related Corporation may withhold from the Optionee’s wages or other remuneration the appropriate amount of tax.  At the discretion of the Company or Related Corporation, the amount required to be withheld may be withheld in cash from such wages or other remuneration or in kind from the Common Stock or other property otherwise deliverable to the Optionee on exercise of this option.  The Optionee further agrees that, if the Company or any Related Corporation does not withhold an amount from the Optionee’s wages or other remuneration sufficient to satisfy the withholding obligation of the Company or Related Corporation, the Optionee will make reimbursement on demand, in cash, for the amount underwithheld.

15.             Provision   of   Documentation   to   Optionee .   By signing this Agreement the Optionee acknowledges receipt of a copy of this Agreement and a copy of the Plan.

16.             Conformity with the Plan . The Award is intended to conform in all respects with, and is subject to applicable provisions of, the Plan. To the extent that any provision of this Agreement conflicts with the express terms of the Plan, it is hereby acknowledged and agreed that the terms of the Plan shall control and, if necessary, the applicable provisions of this Agreement shall be deemed to be amended so as to carry out the purpose and intent of the Plan. By the Optionee’s acceptance of this Agreement, the Optionee agrees to be bound by all of the terms of this Agreement and the Plan.  Notwithstanding any other provision of this Section 16, in the event that the provisions of this Agreement are subject to Section 409A of the Internal Revenue Code of 1986, as amended, and the Treasury Regulations promulgated thereunder (“Section 409A”), the provisions of this Agreement shall comply with, and shall be interpreted in a manner consistent with, Section 409A.
 
 
 

 
[FORM NOTE: INCLUDE SECTION 17 BELOW FOR DIRECTOR GRANTS. OTHERWISE, CONSULT WITH M. FISH AND CHOATE BEFORE INCLUDING.]

17.             Acceleration of Vesting upon Change in Control.   Notwithstanding Section 3 hereof, in the event of a Change in Control of the Company while this option is in effect, this option shall, immediately prior to the consummation of such Change in Control, become fully vested and all unexercised options shall be exercisable by the Optionee; provided, however, that the Board, in its sole discretion, may require that the Optionee’s rights under this section shall be conditioned on approval by the stockholders of the Company in accordance with Section 280G(b)5(B) of the Code and regulations thereunder.  For purposes of this Agreement, a “Change in Control” means the occurrence of any of the following events:

(a)  
The Company is merged or consolidated or reorganized into or with another corporation or other legal person, and as a result of a merger, tender offer, consolidation, reorganization or transaction, less than a majority of the combined voting power of the then-outstanding securities of such surviving, resulting or reorganized corporation or person immediately after such transaction is held in the aggregate by the holders of the then-outstanding securities entitled to vote generally in the election of directors of the Company (“Voting Stock”) immediately prior to such transaction;

(b)  
The Company sells or otherwise transfers all or substantially all of its assets to any other corporation or other legal person, and as a result of such sales or transfer less than a majority of the combined voting power of the then-outstanding securities of such corporation or person immediately after such sale or transfer is held in the aggregate by the holder of Voting Stock of the Company immediately prior to such sale or transfer;

(c)  
There is a report filed on Schedule 13D or Schedule 14D-1 (or any successor schedule, form or report), each as promulgated pursuant to the Securities Exchange Act of 1934, as amended (the “Exchange Act”), disclosing that any “person” (as such term is used in Section 13(d)(3) or Section 14(d)(2) of the Exchange Act) has become the “beneficial owner” (as such term is used in Rule 13d-3 under the Exchange Act) of securities representing 35% or more of the Voting Stock of the Company;

(d)  
The Company files a report or proxy statement with the Securities and Exchange Commission pursuant to the Exchange Act disclosing in response to Form 8-K or Schedule 14A (or any successor schedule, form or report or item therein) that a change in control of the Company has occurred; or

(e)  
If during any period of two consecutive years, individuals who at the beginning of any such period constitute the Board cease for any reason to constitute at least a majority thereof, unless the election, or the nomination for election by the Company’s stockholders, of each director of the Company first elected during such period was approved by a vote of at least a majority of the directors then still in office who were directors of the Company at the beginning of any such period;

 
 

 
Provided, however, that a “Change in Control” shall not be deemed to have occurred for purposes of this Agreement solely because (x) the Company, (y) an entity in which the Company directly or indirectly beneficially owns 50% or more of the voting securities, or (z) any Company-sponsored employee stock ownership plan or any other employee benefit plan of the Company, either files or becomes obligated to file a report or a proxy statement under or in response to Schedule 13D, Schedule 14D-1, Form 8-K or Schedule 14A (or any successor schedule, form or report) under the Exchange Act, disclosing beneficial ownership by it of shares of Voting Stock or because the Company reports that a change in control of the Company has occurred by reason of such beneficial ownership.


18.            Miscellaneous .

(a)             Notices .   All notices hereunder shall be in writing and shall be deemed given when sent by certified or registered mail, postage prepaid, return receipt requested, to the address set forth below.  The addresses for such notices may be changed from time to time by written notice given in the manner provided for herein.

(b)             Entire Agreement; Modification .   This Agreement constitutes the entire agreement between the parties relative to the subject matter hereof, and supersedes all proposals, written or oral, and all other communications between the parties relating to the subject matter of this Agreement.  This Agreement may be modified, amended or rescinded only by a written agreement executed by both parties.

(c)             Severability .   The invalidity, illegality or unenforceability of any provision of this Agreement shall in no way affect the validity, legality or enforceability of any other provision.

(d)             Successors and Assigns .   This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, subject to the limitations set forth in Section 9 hereof.

(e)             Governing Law .   This Agreement shall be governed by and interpreted in accordance with the laws of the Commonwealth of Massachusetts , without giving effect to the principles of the conflicts of laws thereof.

(f)             Data Protection Waiver . The Optionee understands and consents to the Company or its agents or independent contractors appointed to administer the Plan obtaining certain of the Optionee’s personal employment information required for the effective administration of the Plan and that such information may be transmitted outside of the country of the Optionee’s employment and/or residence.  Information relating to the Optionee’s participation under the Plan may constitute personal data that is subject to the Company’s policies on protection and use of personal data.

 
 

 
(g)             Clawback . This Award and any resulting payment or delivery of shares of the Company’s Common Stock is subject to set-off, recoupment, or other recovery or “claw back” as required by applicable law or by a Company policy on the claw back of compensation, as amended from time to time.

[FORM NOTE: ADD THE FOLLOWING AND CONSULT LOCAL COUNSEL FOR ADDITIONAL/REVISED PROVISIONS IN THE CASE OF GRANTS OUTSIDE THE U.S., AS WELL AS FOR ADVICE ON COMPLIANCE WITH LOCAL SECURITIES REGISTRATION REQUIREMENTS AND AGREEMENT TRANSLATION REQUIREMENTS.]

19.            Additional Conditions .

(a)            In accepting the Award, the Optionee acknowledges that: (i) the grant of Option Shares is voluntary and occasional and does not create any contractual or other right to receive future Awards, or benefits in lieu of Awards, even if Option Shares have been granted repeatedly in the past; (ii) all decisions with respect to future grants of Option Shares, if any, will be at the sole discretion of the Company; (iii) the Optionee is voluntarily participating in the Plan; (iv) the Option Shares and the underlying shares of Common Stock are an extraordinary item that does not constitute compensation of any kind for services of any kind rendered to the Company or any Subsidiary, and which is outside the scope of the Optionee’s employment contract, if any; (v) the Option Shares and the underlying shares of Common Stock are not intended to replace any pension rights or compensation; (vi) the Option Shares are not part of normal or expected compensation or salary for any purposes, including, but not limited to, calculating any severance, resignation, termination, redundancy, unfair dismissal, end-of-service payments, bonuses, long-service awards, pension or retirement benefits or similar payments and in no event should be considered as compensation for, or relating in any way to, past services for the Company or any Subsidiary; (vii) in consideration of the Award, no claim or entitlement to compensation or damages shall arise from termination, forfeiture or cancelation of the Option Shares, or diminution in value of the shares of Common Stock acquired under the Plan, resulting from termination of the Optionee’s employment by the Company or a Subsidiary (for any reason whatsoever and whether or not in breach of local labor laws), and the Optionee irrevocably releases the Company and its Subsidiaries from any such claim that may arise; if, notwithstanding the foregoing, any such claim is found by a court of competent jurisdiction to have arisen, the Optionee shall be deemed irrevocably to have waived his or her entitlement to pursue such claim; (viii) in the event of termination of the Optionee’s employment (whether or not in breach of local labor laws), the Optionee’s right to receive the Option Shares and any resulting shares under the Plan, if any, will terminate effective as of the date that the Optionee is no longer actively employed and will not be extended by any notice period mandated under local law ( e.g. , active employment would not include a period of “garden leave” or
 
 
 

 
similar period pursuant to local law); furthermore, in the event of termination of employment (whether or not in breach of local labor laws) the Board shall have the exclusive discretion to determine when the Optionee is no longer actively employed for purposes of the Award; and (ix) the rights and benefits under the Plan, if any, will not automatically transfer to another company in the case of a merger, takeover or transfer of liability.

(b)            Neither the Company nor any Subsidiary is providing any tax, legal or financial advice, nor is the Company making any recommendations regarding participation in the Plan, or the Optionee’s acquisition or sale of the underlying shares of Common Stock.  The Optionee is advised to consult with his or her own personal tax, legal and financial advisors regarding participation in the Plan before taking any action related to the Plan.
 
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IN WITNESS WHEREOF, the Company and the Optionee have caused this instrument to be executed as of the date first above written.

COMPANY:

DATAWATCH CORPORATION
Quorum Office Park
271 Mill Road
Chelmsford, MA 01824


By:   ____________________________
 Murray P. Fish
 CFO



OPTIONEE:


________________________________


________________________________
Street Address

________________________________
City           State                Zip Code
EXHIBIT 10.32
 
DATAWATCH CORPORATION

Incentive Stock Option Agreement

Datawatch Corporation, a Delaware corporation (the “Company”), hereby grants as of _________   __ , ____ to   [____________]   (the “Employee”), an option (the “Award”) to purchase a maximum of [____] shares (the “Option Shares”) of its Common Stock, $.01 par value (“Common Stock”), at the price of  [ $ _____]   per share, on the following terms and conditions:

1.             Grant Under 2011 Equity Compensation and Incentive Plan .   This option is granted pursuant to and is governed by the Company’s 2011 Equity Compensation and Incentive Plan (the “Plan”) and, unless the context otherwise requires, terms used herein shall have the same meaning as in the Plan.  Determinations made in connection with this option pursuant to the Plan shall be governed by the Plan as it exists on this date.

2.             Grant as Incentive Stock Option; Other Options . This option is intended to qualify as an incentive stock option under Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”).  This option is in addition to any other options heretofore or hereafter granted to the Employee by the Company or any Related Corporation (as defined in the Plan), but a duplicate original of this instrument shall not effect the grant of another option.

3.             Vesting of Option if Employment Continues . If the Employee has continued to be employed by the Company or any Related Corporation on the following dates, the Employee may exercise this option for the number of shares of Common Stock set opposite the applicable date:

Prior to _________   __ , ____
 
 
-0- shares
On _________   __ , ____ and at the end of each three-month period thereafter
-
An additional [___]   shares (or such number of shares at the end of the last three month period so that the total does not exceed [____]   shares).

Notwithstanding the foregoing, in accordance with and subject to the provisions of the Plan, the Committee may, in its discretion, accelerate the date that any installment of this Option becomes exercisable.  The foregoing rights are cumulative and (subject to Sections 4 or 5 hereof if the Employee ceases to be employed by the Company and all Related Corporations) may be exercised on or before the date which is seven years from the date this option is granted.

 
 

 
4.            Termination of Employment .

(a)             Termination Other Than for Cause . If the Employee ceases to be employed by the Company and all Related Corporations, other than by reason of death or disability as defined in Section 5 or termination for Cause as defined in Section 4(c), no further installments of this option shall become exercisable, and this option shall terminate (and may no longer be exercised) after the passage of three months from the Employee’s last day of employment, but in no event later than the scheduled expiration date.  In such a case, the Employee’s only rights hereunder shall be those which are properly exercised before the termination of this option.

(b)             Termination for Cause .   If the employment of the Employee is terminated for Cause (as defined in Section 4(c)), this option shall terminate upon the Employee’s receipt of written notice of such termination and shall thereafter not be exercisable to any extent whatsoever.

(c)             Definition of Cause .   “Cause” shall mean conduct involving one or more of the following:  (i) the substantial and continuing failure of the Employee, after notice thereof, to render services to the Company or Related Corporation in accordance with the terms or requirements of his or her employment; (ii) disloyalty, gross negligence, willful misconduct, dishonesty or breach of fiduciary duty to the Company or Related Corporation; (iii) the commission of an act of embezzlement or fraud; (iv) deliberate disregard of the rules or policies of the Company or Related Corporation which results in direct or indirect loss, damage or injury to the Company or Related Corporation; (v) the unauthorized disclosure of any trade secret or confidential information of the Company or Related Corporation; or (vi) the commission of an act which constitutes unfair competition with the Company or Related Corporation or which induces any customer or supplier to breach a contract with the Company or Related Corporation.

5.            Death; Disability .

(a)             Death .   If the Employee dies while in the employ of the Company or any Related Corporation, this option may be exercised, to the extent otherwise exercisable on the date of his or her death, by the Employee’s estate, personal representative or beneficiary to whom this option has been assigned pursuant to Section 9, at any time within 180 days after the date of death, but not later than the scheduled expiration date, provided that such period for exercise shall not expire before the date on which the shares underlying the option are registered under an effective registration statement on Form S-8 under the Securities Act of 1933, as amended, unless the scheduled expiration date occurs before such registration is effective.

(b)             Disability .   If the Employee ceases to be employed by the Company and all Related Corporations by reason of his or her disability (as defined in the Plan), this option may be exercised, to the extent otherwise exercisable on the date of the termination of his or her employment, at any time within 180 days after such termination, but not later than the scheduled expiration date, provided that such period for exercise shall not expire before the date on which the shares underlying the option are registered under an effective registration statement on Form S-8 under the Securities Act of 1933, as amended, unless the scheduled expiration date occurs before such registration is effective.



 
 

 
(c)             Effect of Termination .   At the expiration of the period for exercise provided in paragraphs (a) or (b) of this Section 5, this option shall terminate (and shall no longer be exercisable) and the only rights hereunder shall be those as to which the option was properly exercised before such termination.

6.             Partial Exercise .   This option may be exercised in part at any time and from time to time within the above limits, except that this option may not be exercised for a fraction of a share unless such exercise is with respect to the final installment of stock subject to this option and cash in lieu of a fractional share must be paid, in accordance with Paragraph 13(G) of the Plan, to permit the Employee to exercise completely such final installment.  Any fractional share with respect to which an installment of this option cannot be exercised because of the limitation contained in the preceding sentence shall remain subject to this option and shall be available for later purchase by the Employee in accordance with the terms hereof.

7.             Payment of Price .  (a)  The option price shall be paid in the following manner:

 
(i)
in United States dollars in cash or by check;

 
(ii)
subject to Section 7(b) below, by delivery of shares of the Company’s Common Stock having a Fair Market Value (as determined by the Committee) as of the date of the exercise equal to the cash exercise price of this option;

 
(iii)
by delivery (including by attestation) of an assignment satisfactory in form   and substance to the Company of a sufficient amount of the proceeds from the sale of the Option Shares and an instruction to the broker or selling agent to pay that amount to the Company; or

 
(iv)
by any combination of the foregoing.

(b)             Limitations on Payment by Delivery of Common Stock .   If the Employee delivers Common Stock held by the Employee (“Old Stock”) to the Company in full or partial payment of the option price, and the Old Stock so delivered is subject to restrictions or limitations imposed by agreement between the Employee and the Company, an equivalent number of Option Shares shall be subject to all restrictions and limitations applicable to the Old Stock to the extent that the Employee paid for the Option Shares by delivery of Old Stock, in addition to any restrictions or limitations imposed by this Agreement.  Notwithstanding the foregoing, the Employee may not pay any part of the exercise price hereof by transferring Common Stock to the Company unless such Common Stock has been owned by the Employee free of any substantial risk of forfeiture for at least six months.

8.             Method of Exercising Option .   Subject to the terms and conditions of this Agreement, this option may be exercised by written notice to the Company at its principal executive office,  or to such transfer agent as the Company shall designate.  Such notice shall state the election to exercise this option and the number of Option Shares for which it is being exercised and shall be signed by the person or persons so exercising this option.  Such notice shall be accompanied by payment of the full purchase price of such shares, and the Company shall deliver a certificate or certificates representing such shares as soon as practicable after the notice shall be received.  Such certificate or certificates shall be registered in the name of the person or persons so exercising this option (or, if this option shall be exercised by the Employee and if the Employee shall so request in the notice exercising this option, shall be registered in the name of the Employee and another person jointly, with right of survivorship). In the event this option shall be exercised, pursuant to Section 5 hereof, by any person or persons other than the Employee, such notice shall be accompanied by appropriate proof of the right of such person or persons to exercise this option.

 
 

 
9.             Option Not Transferable .   This option is not transferable or assignable except by will or by the laws of descent and distribution.  During the Employee’s lifetime only the Employee can exercise this option.

10.             No Obligation to Exercise Option .   The grant and acceptance of this option imposes no obligation on the Employee to exercise it.

11.             No Obligation to Continue Employment .   Neither the Plan, this Agreement, nor the grant of this option imposes any obligation on the Company or any Related Corporation to continue the Employee in employment.

12.             No Rights as Stockholder until Exercise .   The Employee shall have no rights as a stockholder with respect to the Option Shares until such time as the Employee has exercised this option by delivering a notice of exercise and has paid in full the purchase price for the shares so exercised in accordance with Section 8.  Except as is expressly provided in the Plan with respect to certain changes in the capitalization of the Company, no adjustment shall be made for dividends or similar rights for which the record date is prior to such date of exercise.

13.             Capital Changes and Business Successions .   The Plan contains provisions covering the treatment of options in a number of contingencies such as stock splits and mergers.  Provisions in the Plan for adjustment with respect to stock subject to options and the related provisions with respect to successors to the business of the Company are hereby made applicable hereunder and are incorporated herein by reference.

14.             Early Disposition .   The Employee agrees to notify the Company in writing immediately after the Employee transfers any Option Shares, if such transfer occurs on or before the later of (a) the date two years after the date of this Agreement or (b) the date one year after the date the Employee acquired such Option Shares.  The Employee also agrees to provide the Company with any information concerning any such transfer required by the Company for tax purposes.

15.             Withholding Taxes .   If the Company or any Related Corporation in its discretion determines that it is obligated to withhold any tax in connection with the exercise of this option, or in connection with the transfer of, or the lapse of restrictions on, any Common Stock or other property acquired pursuant to this option, the Employee hereby agrees that the Company or any Related Corporation may withhold from the Employee’s wages or other remuneration the appropriate amount of tax.  At the discretion of the Company or Related Corporation, the amount required to be withheld may be withheld in cash from such wages or other remuneration or in kind from the Common Stock or other property otherwise deliverable to the Employee on exercise of this option.  The Employee further agrees that, if the Company or any Related Corporation does not withhold an amount from the Employee’s wages or other remuneration sufficient to satisfy the withholding obligation of the Company or Related Corporation, the Employee will make reimbursement on demand, in cash, for the amount underwithheld.

 
 

 
16.             Provision   of   Documentation   to   Employee .   By signing this Agreement the Employee acknowledges receipt of a copy of this Agreement and a copy of the Plan.

17.             Conformity with the Plan . The Award is intended to conform in all respects with, and is subject to applicable provisions of, the Plan. To the extent that any provision of this Agreement conflicts with the express terms of the Plan, it is hereby acknowledged and agreed that the terms of the Plan shall control and, if necessary, the applicable provisions of this Agreement shall be deemed to be amended so as to carry out the purpose and intent of the Plan. By the Employee’s acceptance of this Agreement, the Employee agrees to be bound by all of the terms of this Agreement and the Plan.  Notwithstanding any other provision of this Section 16, in the event that the provisions of this Agreement are subject to Section 409A of the Internal Revenue Code of 1986, as amended, and the Treasury Regulations promulgated thereunder (“Section 409A”), the provisions of this Agreement shall comply with, and shall be interpreted in a manner consistent with, Section 409A.
 
18.            Miscellaneous .

(a)             Notices .   All notices hereunder shall be in writing and shall be deemed given when sent by certified or registered mail, postage prepaid, return receipt requested, to the address set forth below.  The addresses for such notices may be changed from time to time by written notice given in the manner provided for herein.

(b)             Entire Agreement; Modification .   This Agreement constitutes the entire agreement between the parties relative to the subject matter hereof, and supersedes all proposals, written or oral, and all other communications between the parties relating to the subject matter of this Agreement.  This Agreement may be modified, amended or rescinded only by a written agreement executed by both parties.

(c)             Severability .   The invalidity, illegality or unenforceability of any provision of this Agreement shall in no way affect the validity, legality or enforceability of any other provision.

(d)             Successors and Assigns .   This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, subject to the limitations set forth in Section 9 hereof.

(e)             Governing Law .   This Agreement shall be governed by and interpreted in accordance with the laws of the Commonwealth of Massachusetts , without giving effect to the principles of the conflicts of laws thereof.

(f)             Data Protection Waiver . The Employee understands and consents to the Company or its agents or independent contractors appointed to administer the Plan obtaining certain of the Employee’s personal employment information required for the effective administration of the Plan and that such information may be transmitted outside of the country of the Employee’s employment and/or residence.  Information relating to the Employee’s participation under the Plan may constitute personal data that is subject to the Company’s policies on protection and use of personal data.

 
 

 
(g)             Clawback . This Award and any resulting payment or delivery of shares of the Company’s Common Stock is subject to set-off, recoupment, or other recovery or “claw back” as required by applicable law or by a Company policy on the claw back of compensation, as amended from time to time.

[FORM NOTE: ADD THE FOLLOWING AND CONSULT LOCAL COUNSEL FOR ADDITIONAL/REVISED PROVISIONS IN THE CASE OF GRANTS OUTSIDE THE U.S., AS WELL AS FOR ADVICE ON COMPLIANCE WITH LOCAL SECURITIES REGISTRATION REQUIREMENTS AND AGREEMENT TRANSLATION REQUIREMENTS.]

19.           Additional Conditions .

(a)            In accepting the Award, the Employee acknowledges that: (i) the grant of Option Shares is voluntary and occasional and does not create any contractual or other right to receive future Awards, or benefits in lieu of Awards, even if Option Shares have been granted repeatedly in the past; (ii) all decisions with respect to future grants of Option Shares, if any, will be at the sole discretion of the Company; (iii) the Employee is voluntarily participating in the Plan; (iv) the Option Shares and the underlying shares of Common Stock are an extraordinary item that does not constitute compensation of any kind for services of any kind rendered to the Company or any Subsidiary, and which is outside the scope of the Employee’s employment contract, if any; (v) the Option Shares and the underlying shares of Common Stock are not intended to replace any pension rights or compensation; (vi) the Option Shares are not part of normal or expected compensation or salary for any purposes, including, but not limited to, calculating any severance, resignation, termination, redundancy, unfair dismissal, end-of-service payments, bonuses, long-service awards, pension or retirement benefits or similar payments and in no event should be considered as compensation for, or relating in any way to, past services for the Company or any Subsidiary; (vii) in consideration of the Award, no claim or entitlement to compensation or damages shall arise from termination, forfeiture or cancelation of the Option Shares, or diminution in value of the shares of Common Stock acquired under the Plan, resulting from termination of the Employee’s employment by the Company or a Subsidiary (for any reason whatsoever and whether or not in breach of local labor laws), and the Employee irrevocably releases the Company and its Subsidiaries from any such claim that may arise; if, notwithstanding the foregoing, any such claim is found by a court of competent jurisdiction to have arisen, the Employee shall be deemed irrevocably to have waived his or her entitlement to pursue such claim; (viii) in the event of termination of the Employee’s employment (whether or not in breach of local labor laws), the Employee’s right to receive the Option Shares and any resulting shares under the Plan, if any, will terminate effective as of the date that the Employee is no longer actively employed and will not be extended by any notice period mandated under local law ( e.g. , active employment would not include a period of “garden leave” or similar period pursuant to local law); furthermore, in the event of termination of employment (whether or not in breach of local labor laws) the Board shall have the exclusive discretion to determine when the Employee is no longer actively employed for purposes of the Award; and (ix) the rights and benefits under the Plan, if any, will not automatically transfer to another company in the case of a merger, takeover or transfer of liability.

(b)            Neither the Company nor any Subsidiary is providing any tax, legal or financial advice, nor is the Company making any recommendations regarding participation in the Plan, or the Employee’s acquisition or sale of the underlying shares of Common Stock.  The Employee is advised to consult with his or her own personal tax, legal and financial advisors regarding participation in the Plan before taking any action related to the Plan.
 
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IN WITNESS WHEREOF, the Company and the Employee have caused this instrument to be executed as of the date first above written.

DATAWATCH CORPORATION
Quorum Office Park
271 Mill Road
Chelmsford, MA 01824

By:  ___________________________
Murray P. Fish
CFO

By:  Employee

___________________________


___________________________
Street Address
___________________________
City           State            Zip Code
EXHIBIT 10.33
 
SUBLEASE
 
THIS SUBLEASE (the “ Sublease ”) between Zoll Medical Corporation, a Delaware corporation (“ Zoll ”), and Datawatch Corporation, a Delaware corporation (“ Subtenant ”), is dated June 17, 2011.
 
Background
 
A.           Zoll, as tenant, and Boston Properties Limited Partnership (“ Landlord ”), as landlord, executed a Lease (the “ Prime Lease ”) on December 29, 2010 under which Landlord leases to Zoll a portion of the building commonly known as Building One, Quorum Office Park, 271 Mill Road, Chelmsford, Massachusetts (the “ Building ”) consisting of approximately 75,274 square feet of rentable area (the “ Prime Lease Space ”), for a term ending on June 30, 2021, unless sooner terminated.  A copy of the Prime Lease (with certain financial information redacted) is attached to this Sublease as Exhibit A and, except as set forth in this Sublease, the terms of the Prime Lease are incorporated into this Sublease.
 
C.           Subtenant desires to sublease from Zoll, and Zoll desires to sublease to Subtenant, approximately 14,683 rentable square feet of the Prime Lease Space on the second floor of the Building, as depicted on Exhibit B (the “ Premises ”), all upon the terms and subject to the conditions and provisions of this Sublease.
 
Agreements
 
In consideration of the mutual covenants and promises contained in this Sublease and other good and valuable consideration, the receipt and sufficiency of which the parties acknowledge, Zoll and Subtenant agree as follows:
 
1.   Sublease .  Subject to Section 5, Zoll subleases to Subtenant, and Subtenant subleases from Zoll, the Premises upon the terms and conditions set forth in this Sublease.  In addition, subject to the terms of the Prime Lease and this Sublease, to the extent that the Prime Lease grants the right to Zoll, Subtenant shall have the non-exclusive right to use in common with use by other tenants and occupants of Quorum Office Park (a) the common driveways and walkways necessary for access to the Building, (b) the entrances, lobbies, stairs, passenger elevators, and corridors necessary to access the Premises, (c) the loading docks and freight elevators in the Building, (d) the common toilets on the second floor of the Building, (e) the heating, air conditioning, plumbing, electrical, emergency life safety, and other mechanical systems and equipment serving the Premises, (f) the Cafeteria as defined in Section 2.2.1 of the Prime Lease (provided that Subtenant shall not be entitled to exercise the rights reserved to Zoll in the sixth sentence of Section 2.2.1 A, (g) the Fitness Center as defined in Section 2.2.2 of the Prime Lease, and (h) any other common areas and facilities as Zoll may designate in writing to Subtenant from time to time.
 
2.   Use .  Subtenant may use the Premises for those purposes permitted under the Prime Lease and for no other purpose.
 
 
 

 
3.   Term .  The term of this Sublease (the “ Term ”) will commence on July 1, 2011 (the “ Commencement Date ”) and, unless sooner terminated pursuant to the provisions of this Sublease, will expire on the earlier of June 30, 2016 or the prior termination of the Prime Lease.
 
4.   INTENTIONALLY OMITTED
 
5.   Notice to Landlord .  In connection with this Sublease,  Zoll agrees to give Tenant’s Proposed Transfer Notice (as defined in Section 5.6.4 of the Prime Lease) to Landlord within 3 business days after receipt of a fully-executed copy of this Sublease, and otherwise comply with the requirements of the Prime Lease regarding this Sublease. In connection with Zoll’s giving of the Tenant’s Proposed Transfer Notice and its compliance with Sections 5.6.4, 5.6.5 and 5.6.6 of the Prime Lease, Subtenant will promptly deliver to Zoll after request therefor any information reasonably requested by Zoll or Landlord with respect to the nature and operation of Subtenant’s business or the financial condition of Subtenant, provided that Zoll agrees to treat such information as confidential and to use reasonable efforts to ensure that Landlord does the same.  Subtenant agrees to enter into the separate written agreement with Landlord that is required by Section 5.6.6 of the Prime Lease and to otherwise comply with the terms thereof.
 
6.   Proportionate Share .  For purposes of this Sublease, Subtenant’s “ Proportionate Share ” is the percentage determined from time to time by dividing the rentable square feet of the Premises by the rentable square feet of the Building leased to Zoll from time to time.  As of the date of this Sublease, Subtenant’s Proportionate Share is agreed to be 19.51%
 
7.   Rent .  Beginning on the Commencement Date, and continuing  thereafter, Subtenant will pay to Zoll at Zoll’s address for notices set forth herein, or at such other address that Zoll designates in a notice to Subtenant, the following amounts at the following times, without notice, demand, set-off, or deduction, all of which (together with all other amounts that Subtenant owes to Zoll) is “Rent” under this Sublease:
 
Base Rent .   Beginning on the Commencement Date and throughout the Term, Subtenant will pay rent (“Base Rent”) to Zoll monthly in advance, no later than 5 days before the first day of each calendar month, in the amount of thirteen thousand four hundred and fifty nine dollars and forty two cents ($13,459.42), which amount is based on an annual rate of one hundred sixty one thousand five hundred thirteen dollars and no cents ($161,513.00), or $11.00 per square foot.  If the Commencement Date is a day other than the first day of a month, or if the Term ends on a day other than the last day of a month, Base Rent and Additional Rent will be prorated accordingly.
 
Additional Rent .
 
(i)   Beginning on the Commencement Date and throughout the Term Subtenant will pay Subtenant’s Proportionate Share of Landlord’s Operating Expenses Applicable to the Premises (as defined in the Prime Lease) and Subtenant’s Proportionate Share of Landlord’s Tax Expenses Allocable to the Premises (as defined in the Prime Lease) due from Zoll to Landlord under the Prime Lease.  Subtenant will pay the amounts, or estimated amounts as
 
 
2

 
determined by Landlord in accordance with Section 2.6 and Section 2.7 of the Prime Lease to Zoll at the time it pays Base Rent to Zoll.  If Zoll undertakes direct responsibility for making a payment or providing a service that would otherwise be included in Landlord’s Operating Expenses Applicable to the Premises or Landlord’s Tax Expenses Applicable to the Premises, then those amounts shall be included in Landlord’s Operating Expenses and Landlord’s Tax Expenses for purposes of this Section 7.B., but in no event will Subtenant be responsible for making duplicate payments for the same service.
 
(ii)   Subtenant will obtain directly from the service provider all required utilities and services not provided by Landlord under the Prime Lease and, beginning on the Commencement Date, will pay the cost of those services directly to the service providers.  Subtenant shall install (or cause to be installed), at its cost, separate meters (or sub-meters if the applicable utility company does not permit separate meters) for those utilities.
 
(iii)   Subtenant will pay to Zoll all other amounts payable by Zoll under the Prime Lease that are attributable to the Premises (as distinguished from the entire Prime Lease Space) or attributable to Subtenant, its agents, employees, customers, or invitees.  By way of example and not by way of limitation, charges by Landlord for furnishing air conditioning or heating to the Premises at times in addition to those certain times specified in the Prime Lease, costs incurred by Landlord in repairing damage to the Building caused by Subtenant, increased insurance premiums due as a result of Subtenant’s use of the Premises, Zoll’s reasonable out of pocket legal and other expenses incurred in connection with giving Tenant’s Proposed Transfer Notice and otherwise complying with the terms of Sections 5.6.4, 5.6.5 and 5.6.6 of the Prime Lease (such legal expenses not to exceed $5,000), and amounts expended or incurred by Landlord on account of any default by Subtenant which gives rise to a default under the Prime Lease would be amounts payable by Subtenant pursuant to this Section 7.B(iii).
 
Each amount due under this Section 7.B, and each other amount payable by Subtenant under this Sublease, unless a date for payment is provided for elsewhere in this Sublease, is due and payable on the earlier of the 10 th day after the date on which Landlord or’ Zoll notifies Subtenant of the amount due and the date on which an amount is due under the Prime Lease.  Subtenant will pay Landlord on the due dates for services requested by Subtenant that are billed by Landlord directly to Subtenant rather than Zoll.
 
8.   Late Charges .  Unpaid Rent will bear interest from the date due until paid at an annual rate of the lesser of 12% or the maximum rate permissible by law,
 
9.   Condition of Premises; Subtenant’s Work; Surrender .
 
(a)   Zoll has made no promise to alter, remodel, or improve the Premises and no representation respecting the condition of the Premises to Subtenant.  Subtenant has examined the Premises, is fully familiar with its physical condition, and accepts the Premises in its then present condition “ AS IS ” and “ WHERE IS ” as of the date of this Sublease with no express or implied warranties.
 
 
3

 
(b)   Upon the expiration of the Term, or upon any earlier termination of the Term or of Subtenant’s right to possession, Subtenant will remove all trade fixtures and personal property and surrender the Premises broom-clean and in at least as good condition as at the date Subtenant took possession, normal wear and tear and damage due to casualty or eminent domain excluded.  Subtenant will remove all alterations, additions, and improvements that Subtenant installs or constructs and that Landlord could require Zoll to remove at the end of the term of the Prime Lease , unless Zoll has expressly agreed in writing that the same may be left in place at the expiration or sooner termination of the Term.  Subtenant will repair all damage caused by its removal of its trade fixtures, personal property, alterations, additions, and improvements.  The terms of this Section 9(b) will survive the expiration or earlier termination of this Sublease.
 
10.   The Prime Lease .
 
(a)   This Sublease and all rights of Subtenant under this Sublease and with respect to the Premises are subject to the terms, conditions, and provisions of the Prime Lease, except for the provisions of the Prime Lease deemed not applicable to this Sublease under this Section 10(a).  Subtenant assumes and agrees to perform faithfully and be bound by, with respect to the Premises, all of Zoll’s obligations, covenants, agreements, and liabilities under the Prime Lease and all terms, conditions, provisions, and restrictions contained in the Prime Lease except:
 
(i)   that the following provisions of the Prime Lease do not apply to this Sublease: Sections 2.1, 2.2, 2.4, 2.5, the last paragraph of 2.6, 2.7.1, 2.7.2, 2.8(A), 3.0, 3.1, 3.2, 8.18, 8.20, 8.21, 8.22, 8.23, 8.24, or any provisions allowing or purporting to allow any rights or options of lease, expansion, reduction, cancellation, or extension, or any rent concessions, abatements, or construction allowances, or any rights, obligations, or covenants capable of being exercised or performed, as applicable, solely by Zoll;
 
(ii)   that Zoll shall have no obligation to Subtenant to construct or install tenant improvements; and
 
(iii)   Subtenant has a period of time equal to the greater of (A) one-half the period of time that the tenant under the Prime Lease has, or (B) five (5) business days to respond to or otherwise cure any notices given by Landlord under the Prime Lease, except in the case of an emergency, in which case Subtenant shall have the same amount of time to respond or cure as Zoll has under the Prime Lease.
 
(b)   Without limitation of the foregoing:
 
(i)   Subtenant shall not make any changes, alterations, or additions in or to the Premises without the prior written consent of Zoll and Landlord.  Zoll agrees to not unreasonably withhold, condition, or delay it consent, but may condition its consent on the consent of Landlord and may, to the extent that Landlord agrees to deal directly with Subtenant, require that Subtenant contact
 
 
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Landlord directly for its consent and take all other steps needed to assure that Zoll will have no additional obligations to Landlord under the Prime Lease.  If Zoll does not require that Subtenant contact Landlord directly for consent, or Landlord refuses to deal directly with Subtenant, then Zoll will request Landlord’s consent on behalf of Subtenant within a reasonable period of time (but no longer than ten (10) business days) after Zoll receives a written request from Subtenant.  Notwithstanding anything in this Section 10 to the contrary, Zoll’s and Landlord’s consent shall not be required for alterations which (a) are minor, cosmetic and non-structural in nature and do not exceed a cost of  $20,000, and (b) would not require Landlord’s consent if performed by Zoll under the terms of the Prime Lease.
 
(ii)   If Subtenant desires to take any action, and the Prime Lease requires Zoll to obtain the consent of Landlord before undertaking that type of action, Subtenant will not undertake the action without the prior written consent of Zoll and Landlord.  Zoll agrees to not unreasonably withhold, condition, or delay its consent, but may condition its consent on the consent of Landlord and may, to the extent that Landlord agrees to deal directly with Subtenant, require that Subtenant contact Landlord directly for its consent and take all other steps needed to assure that Zoll will have no additional obligations to Landlord under the Prime Lease, If Zoll does not require that Subtenant contact Landlord directly for consent, or Landlord refuses to deal directly with Subtenant, then Zoll will request Landlord’s consent on behalf of Subtenant within a reasonable period of time (but no longer than ten (10) business days) after Zoll receives a written request from Subtenant.  Within 30 days of notice from Zoll, Subtenant will reimburse Zoll for all reasonable out of pocket costs, expenses, and reasonable attorneys’ fees that Zoll incurs in attempting to obtain a consent from Landlord.
 
(iii)   Zoll has, with respect to Subtenant, all rights, privileges, options, reservations, and remedies granted or allowed to, or held by, Landlord under the Prime Lease, including without limitation, all rights given to Landlord and its agents and representatives by the Prime Lease to enter the Prime Lease Space.
 
(iv)   Subtenant will maintain insurance of the kinds required to be maintained by Zoll under the Prime Lease, and in the following amounts:
 
Commercial  General Liability – Not less than $2,000,000 in the aggregate;
 
Commercial Umbrella – Not less than $5,000,000;
 
Comprehensive Automobile Insurance – Not less than $1,000,000;
 
Worker’s Compensation Insurance – Not less than $1,000,000.
 
All policies of liability insurance maintained by Subtenant shall name as additional insureds Landlord and Zoll and their respective officers, directors, shareholders, members, managers, or partners, as the case may be, and the respective agents and employees of each of them.  In addition, Subtenant will furnish Landlord and Zoll with evidence of the insurance coverage in amounts that Landlord or Zoll may reasonably require.
 
 
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(v)   Neither Subtenant nor Zoll will do anything or suffer or permit anything to be done that could result in a default under the Prime Lease or permit Landlord to cancel the Prime Lease,
 
(c)   Despite anything contained in this Sublease or in the Prime Lease to the contrary, Zoll and Subtenant agree that:
 
(i)   Rent will not abate due to any damage to or destruction of the Premises unless, and then only to the extent that, rent and other payments actually abate under the Prime Lease with respect to the Premises.
 
(ii)   Subtenant is not entitled to any portion of the proceeds of any award for a condemnation or other taking, or a conveyance in lieu of a condemnation or taking, of all or any portion of the Building, the Prime Lease Space, or the Premises, but Subtenant may pursue a separate action against the applicable governmental authority for an award with respect to the Sublease and Subtenant’s costs and expenses of relocation as a result of the condemnation or other taking.  Rent will not abate due to any condemnation or other taking unless, and then only to the extent that, rent and other payments actually abate under the Prime Lease with respect to the Premises.
 
(iii)   Subtenant is not entitled to exercise or have Zoll exercise any option under the Prime Lease, including, without limitation, any option to terminate or extend the term of the Prime Lease or lease additional space.
 
(iv)   If the terms of the Prime Lease conflict with the terms of this Sublease, the terms of this Sublease control as between Zoll and Subtenant.
 
(d)   Zoll does not assume the obligations or liabilities of Landlord under the Prime Lease and is not making the representations or warranties, if any, made by Landlord in the Prime Lease, With respect to work, services, repairs, and restoration or the performance of other obligations required of Landlord under the Prime Lease, Zoll agrees, upon written request from Subtenant, to use reasonable efforts (which efforts shall include, to the extent necessary, sending notice and demand letters and default notices to Landlord on Subtenant’s behalf within a reasonable period of time [but no longer than ten (10) business days] after receipt of a written request from Subtenant) to obtain the same from Landlord, and, if Landlord’s failure to perform continues, Zoll agrees, at Subtenant’s option, to either (a) at Subtenant’s sole cost and expense, exercise Zoll’ self-help rights set forth in Section 8.17(B) of the Prime Lease to perform the repairs that Landlord failed to perform or (b) enforce Landlord’s obligations and liabilities under the Prime Lease in a manner reasonably directed by Subtenant, including litigation if necessary.  All out of pocket costs and expenses, including, without limitation, attorneys’ fees, incurred by Zoll in exercising its self-help rights and attempting to enforce Landlord’s obligations and liabilities under the Prime Lease on behalf of Subtenant as aforesaid shall be reimbursed by
 
 
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Subtenant within ten (10) business days of receipt of notice from Zoll, and shall be deemed Rent due and payable under this Sublease.  Zoll shall not be liable in damages, nor shall Rent abate (unless, and then only to the extent that, rent and other payments actually abate under the Prime Lease with respect to the Premises), for or on account of any failure by Landlord to perform the obligations and duties imposed on it under the Prime Lease.  If Zoll is reimbursed by Landlord for any costs incurred by Zoll in exercising a self-help remedy on Subtenant’s behalf, or if any attorneys’ fees are awarded to Zoll in any litigation pursued on Subtenant’s behalf, then the amount reimbursed to Zoll shall be passed through to Subtenant to the extent those amounts are actually received by Zoll.
 
(e)   In addition to and not in limitation of any provisions of the Prime Lease, including any and all Rules and Regulations promulgated by the Landlord pursuant to Section 5.4 of the Prime Lease, Subtenant shall abide by all reasonable rules and regulations promulgated by Zoll from time to time of which Subtenant has been given notice, including all rules and regulations prohibiting the smoking of tobacco products in and around the Premises, the Building or elsewhere in the Quorum Office Park.
 
(f)   Nothing contained in this Sublease shall be construed to create privity of estate or contract between Subtenant and Landlord except the agreements of Subtenant in Sections 16 and 17 in favor of Landlord, and then only to the extent set forth in those sections.
 
(g)   Zoll represents and warrants to Subtenant that (i) Zoll has delivered to Subtenant a full, true and complete copy of the Prime Lease (with certain financial information redacted), which is attached hereto as Exhibit A, (ii) the Prime Lease is, as of the date hereof, in full force and effect, (iii) as of the date hereof, to the best of Zoll’s knowledge, no event of default has occurred under the Prime Lease and no event has occurred and is continuing which would constitute an event of default but for the requirement of the giving of notice and/or the expiration of the period of time to cure, and (iv) subject to the terms and conditions set forth in the Prime Lease, Zoll has the right to enter into this Sublease.
 
11.   Subtenant Signage .  Subject to obtaining Landlord’s consent as required under the Prime Lease, Subtenant shall have the right to place identification signage at the entrance to the Premises and to be identified in the directory of the Building.  All of Subtenant’s signage will be subject to Landlord’s consent and will be maintained by Subtenant at its cost in accordance with all laws and legal requirements.  Subtenant will pay all costs relating to its signage, including, without limitation, costs to install maintain, and remove its signage on the expiration or earlier termination of this Sublease.  At the end of the Term, Subtenant will remove all signs and repair all damage to the Premises or the Building caused by the signs or the removal of the signs.
 
12.   Parking Spaces .  Subject to Zoll’s right to use certain parking spaces pursuant to Section 2.2.1 of the Prime Lease, Subtenant shall have the right to use its Proportionate Share of the parking spaces that Landlord provides to Zoll, which is currently 4 spaces per 1,000 rentable square feet of the Premises (resulting in a total of 59 parking spaces for use by Subtenant).
 
 
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13.   Default.
 
(a)   Upon the happening of any of the following, Subtenant will be in default under this Sublease and Zoll may exercise, without limitation of any other rights and remedies available to it under this Sublease or at law or in equity, and any and all rights and remedies of Landlord set forth in the Prime Lease in the event of a default by Zoll under the Prime Lease:
 
(i)   Subtenant fails to pay any Rent when due, and the failure continues for 5 days after receipt of notice from Zoll to Subtenant, except that if Subtenant fails to pay rent when due twice during any consecutive 12 month period, then the next time or times that Subtenant fails to pay Rent when due during that 12 month period, Subtenant shall be in default whether or not Zoll notifies Subtenant of the failure;
 
(ii)   Subtenant fails to perform or observe any other covenant or agreement set forth in this Sublease for 30 days after notice from Zoll describing such failure in reasonable detail, unless compliance is not possible within 30 days despite the use of diligent efforts and Subtenant begins to cure such failure within 20 days and diligently pursues such cure to completion; or
 
(iii)   any other event occurs that involves Subtenant or the Premises and that would constitute a default under the Prime Lease if it involved Zoll or the Prime Lease Space, except for a default under Section 7.l(A)(i) of the Prime Lease for Zoll’ failure to pay rent under the Prime Lease when due;
 
(b)   If Subtenant fails or refuses to timely make any payment or perform any covenant or agreement under this Sublease, Zoll may make the payment or perform the covenant or agreement (but shall not have any obligation to Subtenant to do so).  In such event, amounts so paid and amounts expended in undertaking such performance, together with all costs and expenses, including reasonable attorneys’ fees incurred by Zoll in connection therewith, shall be Rent.
 
(c)   Zoll shall in no event be in default in the performance of any of Zoll’s obligations under this Sublease unless and until Zoll shall have failed to perform those obligations within 30 days (or such longer period as is reasonably needed to cure the default if Zoll has commenced to cure the default and is diligently pursuing the cure to completion) after notice from Subtenant to Zoll properly specifying the default.
 
14.   Non-Waiver .  Failure of Zoll or Subtenant to declare any default or delay in taking any action in connection with a default shall not waive the default.  No receipt of moneys by Zoll from Subtenant after the termination in any way of the Term or of Subtenant’s right of possession or after the giving of any notice shall reinstate, continue, or extend the Term or affect any notice given to Subtenant or any suit commenced or judgment entered before receipt of those moneys.
 
15.   Cumulative Rights and Remedies .  All rights and remedies of Zoll and Subtenant under this Sublease are cumulative and none shall exclude any other rights or remedies allowed by law.
 
 
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16.   Waiver of Claims; Indemnity .
 
(a)   Subtenant releases and waives all claims against Landlord and Zoll and each of their respective officers, directors, shareholders, partners, agents, members, managers, and employees and their respective successors and assigns for injury or damage to person, property, or business sustained in or about the Premises by Subtenant other than by reason of Zoll’ or Landlord’s negligence or willful misconduct and except in any case which would render this release and waiver void under law.
 
(b)   Subtenant agrees to indemnify and defend Landlord and Zoll and each of their respective officers, directors, shareholders, partners, agents, members, managers, and employees and their respective successor and assigns, from and against any and all losses, claims, demands, costs, and expenses of every kind and nature, including attorneys’ fees and litigation expenses, to the extent arising from Subtenant’s occupancy of the Premises, Subtenant’s construction of any leasehold improvements in the Premises or from any breach or default on the part of Subtenant in the performance of any agreement or covenant of Subtenant to be performed or performed under this Sublease or pursuant to the terms of this Sublease, or from any act or omission of Subtenant or its agents, officers, employees, guests, servants, invitees, or customers in or about the Premises or the Building.  At Zoll’s request, Subtenant will defend such proceeding at its sole cost and expense by legal counsel reasonably satisfactory to Zoll and Landlord.
 
17.   Waiver of Subrogation .  Despite anything in this Sublease to the contrary, Zoll and Subtenant each waive all rights of recovery, claims, actions, or causes of action against the other and the officers, directors, shareholders, partners, agents, and employees of each of them, and Subtenant waives any and all rights of recovery, claims, actions, or causes of action against Landlord and its agents, officers, directors, partners, members, managers, and employees and their respective successors and assigns, for any loss or damage that may occur to the Premises, any improvements to the Premises, or any personal property of any person in the Premises by reason of fire, the elements, or any other cause insured against under valid and collectible fire and extended coverage insurance policies, regardless of cause or origin, including negligence, except in any case which would render this waiver void under law, to the extent that such loss or damage is actually recovered under said insurance policies.
 
18.   Brokerage Commission .  Each party represents and warrants to the other that, other than FHO Partners (whose commission will be payable by Zoll pursuant to separate agreements), it has had no dealings with any real estate broker or agent in connection with this Sublease, and that it knows of no other real estate broker or agent who is or might be entitled to a commission in connection with this Sublease.  This Section 18 is not intended to create any third party beneficiary rights.  Each party agrees to protect, defend, indemnify, and hold the other and its officers, directors, partners, members, managers, agents, and employees and their respective successors and assigns harmless from and against any and all claims inconsistent with the foregoing representations and warranties for any brokerage, finders or similar fee or commission in connection with this Sublease, if such claims are based on or relate to any act of the indemnifying party which is contrary to the foregoing representations and warranties.
 
 
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19.   Successors and Assigns .  This Sublease shall be binding upon and inure to the benefit of the successors and assigns of Zoll, and shall be binding upon and inure to the benefit of the successors of Subtenant and, to the extent any such assignment may be approved (unless no such approval is required under this Sublease), Subtenant’s assigns.  In addition, Subtenant acknowledges and agrees that Zoll has the absolute and unqualified right to assign this Sublease subject to the consent of Landlord, provided that the assignee assumes in writing all obligations of Zoll under this Sublease.
 
20.   Assignment and Subletting .
 
(a)   Subtenant shall not (directly or indirectly by operation of law or otherwise) assign this Sublease nor sublet or otherwise transfer its interest in all or any part of the Premises without the prior written consent of Landlord and Zoll.  Zoll agrees to not unreasonably withhold, condition, or delay its consent, but may condition its consent on the consent of Landlord and may require that Subtenant contact Landlord directly for its consent and take all other steps needed to assure that Zoll will have no additional obligations to Landlord under the Prime Lease.  If Subtenant wishes to assign or transfer this Sublease or sublet all or any part of the Premises, it shall give notice in writing of such intention to Landlord and Zoll, furnishing Landlord and Zoll with a copy of the proposed assignment, transfer, or sublease document and full information as to the identity and financial status of the proposed assignee or subtenant.  Zoll will then, within 15 days of receipt of such notice, approve or reject such assignment or subletting by notice to Subtenant.  If no such response is given within the required 15 day period, then Zoll shall be deemed to have elected to approve the assignment or subletting.
 
(b)   Despite the foregoing, subject to the terms of the Prime Lease, Subtenant may, without Zoll’s consent, assign this Sublease or sublet all or a portion of the Premises to its parent entity, any wholly-owned subsidiary of Subtenant, or any affiliate wholly-owned by Subtenant’s parent entity (each an “ Affiliate Assignee ”) provided that: (i) Subtenant shall have given Zoll at least 30 days prior notice of the assignment or sublease; (ii) Subtenant shall not be in default under any of the provisions of this Sublease at the time of the assignment or sublease; and (iii) the Affiliate Assignee delivers to Landlord and Zoll the assignment, sublease, or other written instrument in which Affiliate Assignee agrees to assume and be bound by all the conditions, obligations, and agreements of Subtenant contained in this Sublease.
 
(c)   Despite any assignment, sublease, or other transfer, Subtenant shall remain liable under this Sublease and shall not be released without the express written agreement of Landlord and Zoll.  The consent by Landlord and Zoll to any assignment or subletting shall not constitute a waiver of the necessity for consent to any subsequent assignment or subletting.  Within 10 days after Subtenant receives payment under an assignment, sublease, or other transfer of the Premises or this Sublease, Subtenant will pay Zoll 50% of all rent and consideration that Subtenant receives from that transfer that exceeds Rent (or if only a portion of the Premises is being sub-sublet, 50% of all rent and consideration that Subtenant receives over the portion of the Rent then payable to Zoll allocated on a square footage basis to the sub-sublet space), less the actual and reasonable out-of-pocket costs and expenses incurred by Subtenant in connection with the assignment or subletting of the Premises, including, but not limited to, attorneys fees, marketing expenses, rent concessions, brokerage commissions, any alteration costs and allowances.
 
 
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21.   Entire Agreement .  This Sublease contains all the terms, covenants, conditions, and agreements between Zoll and Subtenant relating in any manner to the rental, use, and occupancy of the Premises. No prior agreement or understanding pertaining to the same shall be valid or of any force or effect.  The terms, covenants, and conditions of this Sublease cannot be altered, changed, modified, or added to except by a written instrument signed by Zoll and Subtenant and consented to by Landlord in writing.
 
22.   Notices .
 
(a)   If any notice from Landlord or otherwise relating to the Prime Lease is delivered to the Premises or is otherwise received by Subtenant, Subtenant shall, as soon thereafter as possible but in any event within 2 business days, deliver that notice to Zoll if that notice is written or advise Zoll of the notice by telephone if the notice is oral.
 
(b)   All notices and demands required, desired, or permitted to be given by either party to the other with respect to this Sublease or the Premises, including without limitation notices of default given by either party, shall be in writing and shall not be effective for any purpose unless it is served either by personal delivery with a receipt requested, by nationally recognized overnight courier service such as Federal Express or by United States certified or registered mail, return receipt requested, postage prepaid, addressed as follows:
 
 
if to Zoll:
Zoll Medical Corporation
269 Mill Road
Chelmsford, MA 01824
Attn:           General Counsel
 
with a copy to:
Goodwin Procter LLP
Exchange Place
53 State Street
Boston, MA 02109-2881
Attn:           Alexander Randall, Esq.
 
if to Subtenant:                     Datawatch Corporation
271 Mill Road
Chelmsford, MA  01824
Attn:          Vice President and Chief Financial Officer
 
with a copy to:
Choate Hall & Stewart LLP
Two International Place
Boston, MA 02110
Attn:        William B. Asher, Jr., Esq., and
Kathryn G. McArdle, Esq.
 
 
Notices and demands shall be deemed to have been received when delivered, if delivered in hand, or one (1) business day following mailing, if sent by overnight courier, or three (3) business days after mailing, if sent via certified mail, return receipt requested by the United States Postal Service, otherwise upon actual receipt.  Either party may change its address for receipt of notices by giving notice to the other party.
 
 
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23.   Security Deposit .
 
(a)   Upon full execution and delivery of this Sublease, Subtenant shall deliver to Zoll a security deposit in the amount of $26,918.84 (the “Security Deposit”) to be held by Zoll during the term of this Sublease as security for the full, faithful, and punctual performance by Subtenant of all the covenants of this Sublease on Subtenant’s part to be performed, it being understood that the Security Deposit is not to be considered prepaid rent.  Zoll may use all or any portion of the Security Deposit to satisfy past due Rent or to cure any default by Subtenant under this Sublease (subject to any applicable notice or cure periods set forth in this Sublease).  If Zoll uses any portion of the Security Deposit in accordance with this Section 23, Subtenant shall, within 10 business days after written demand therefor, restore the Security Deposit to its original amount.  The Security Deposit, or any balance thereof, shall be promptly refunded to Subtenant without interest, subject to Subtenant’s satisfactory compliance with its covenants hereunder, following the termination of this Lease.
 
(b)   Zoll’s use of the Security Deposit shall not be construed to limit the amount of damages recoverable by Zoll or prevent Zoll from exercising any other right or remedy available to Zoll under this Sublease, at law, or in equity and shall not be construed as liquidated damages.
 
24.   Holding Over .  If Subtenant fails to vacate the Premises at the end of the Term, then Subtenant shall be a tenant at sufferance and, in addition to all other damages and remedies to which Zoll may be entitled for Subtenant’s holding over, (a) Subtenant shall pay, in addition to the other Rent, (i) Base Rent equal to 200% of the Base Rent payable during the last month of the Term, and (b) Subtenant shall otherwise continue to be subject to all of Subtenant’s obligations under this Sublease.  In addition, Subtenant shall pay Zoll all direct damages and, if Subtenant fails to vacate the Premises within 60 days after the expiration of the Term, consequential damages, sustained by reason of Subtenant’s retention of possession.  The provisions of this Section 24 do not limit the Zoll’s rights of reentry or any other right under this Sublease.
 
25.   Intentionally Omitted .
 
26.   Intentionally Omitted .
 
27.   Quiet Enjoyment .  If Subtenant pays Rent and the other amounts due under this Sublease, and observes and performs all the covenants, terms and conditions of this Sublease (subject to any applicable notice and cure periods), Subtenant shall peaceably and quietly hold and enjoy the Premises for the Term without interruption by Zoll or any person or persons claiming by, through or under Zoll, subject, nevertheless, to the terms and conditions of this Sublease.
 
28.   Counterparts; Facsimile Signatures .  This Sublease may be executed in one or more counterparts, each of which taken together shall constitute one original document.  A counterpart of this Sublease transmitted by facsimile will, if it is executed, be deemed in all respects to be an original document, and any signature thereon shall be deemed an original signature and shall have the same binding legal effect as an original executed counterpart of this Sublease.
 
 
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29.   Authority .  Zoll and Subtenant each represents to the other that it, and the person signing this Sublease on its behalf, has the power and authority to bind it to this Sublease.
 
30.   Governing Law .  This Sublease shall be deemed to be a contract made under the laws of the Commonwealth of Massachusetts and for all purposes shall be governed by and interpreted in accordance with the laws of the Commonwealth of Massachusetts, regardless of its conflicts of laws principles.
 
31.   Recordation .  Subtenant shall not record (or cause to be recorded) this Sublease or a memorandum or other notice of this Sublease in any public office without the express written consent of Zoll and Landlord.  A breach by Subtenant of this covenant shall constitute a material default by Subtenant under this Sublease.
 
32.   Effectiveness .  No lease, sublease, or obligation on Zoll will arise until both Zoll and Subtenant have signed and delivered this instrument, and Zoll has obtained Landlord’s Consent.
 
 
 
[The signature page follows]
 
 
 
 
 
 
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Signed:
   
     
SUBTENANT:
 
ZOLL:
     
Datawatch Corporation ,
a Delaware corporation
 
Zoll Medical Corporation,
a Delaware corporation
     
By:
/s/ Murray P. Fish
 
By:
/s/ Jonathan Rennelt
Name:
Murray P. Fish
 
Name:
Jonathan Rennelt
Title:
CFO
 
Title:
President
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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EXHIBIT A
 
PRIME LEASE
 
[See attached]
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
A-1
 
 

 
REDACTED
 
QUORUM OFFICE PARK
MILL ROAD. CHELMSFORD. MASSACHUSETTS
 
LEASE DATED DECEMBER 29, 2010
 
THIS INSTRUMENT IS AN INDENTURE OF LEASE in which the Landlord and the Tenant are the parties hereinafter named, and which relates to space in a certain office park known as Quorum Office Park, and in certain buildings, including building connector, known as, and with an address at, 269 and 271 Mill Road, Chelmsford, Massachusetts.
 
The parties to this Indenture of Lease hereby agree with each other as follows:
 
ARTICLE I
 
REFERENCE DATA
 
1.1           Subjects Referred To:
 
Each reference in this Lease to any of the following subjects shall be construed to incorporate the data stated for that subject in this Article:
 
 
LANDLORD:
BOSTON PROPERTIES LIMITED PARTNERSHIP
     
 
LANDLORD'S ORIGINAL ADDRESS:
c/o Boston Properties, Inc.
800 Boylston Street
Boston, Massachusetts 02199-8001
(with copies, if any required under Section 8.12 below)
     
 
LANDLORD'S CONSTRUCTION REPRESENTATIVE:
Mike Bowers
     
 
TENANT'S CONSTRUCTION REPRESENTATIVE:
Mike Cole
     
 
TENANT:
ZOLL MEDICAL CORPORATION
     
 
TENANT'S ORIGINAL ADDRESS:
269 Mill Road
Chelmsford, Massachusetts 01824
(with copies, if any required under Section 8.12 below)
 
 
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  COMMENCEMENT DATE: July 1, 2011
     
 
RENT COMMENCEMENT DATE:
January 1, 2013
     
 
ORIGINAL TERM:
July 1, 2011 through June 30, 2021, unless extended or sooner terminated as provided in this Lease.
     
 
EXTENSION OPTIONS:
 
     
 
TERM (OR LEASE TERM):
All references in this Lease to the Term or Lease Term shall mean the Original Term and if, but only if, extended pursuant to Section 2.4.0, the Original Term as extended by the applicable extension option periods unless otherwise specifically provided in this Lease.
     
 
THE SITE:
That certain parcel of land known as the Quorum Office Park in Chelmsford and Billerica, Massachusetts, being more particularly described in Exhibit A attached hereto.
     
 
BUILDING ONE:
The building known as and numbered 271 Mill Road, Chelmsford, Massachusetts, located on the Site and containing the Total Area set forth below.
     
 
BUILDING TWO:
(a) The building known as and numbered 269 Mill Road, Chelmsford, Massachusetts, located on the Site (the "269 Mill Road Building") and containing the Total Area set forth below, together with (b) the building connector (the "Connector"), which connects the 269 Mill Road Building to Building One, and containing the Total Area set forth below.
 
 
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  THE BUILDINGS: Building One and Building Two.
     
 
THE PROPERTY:
Building One and Building Two together with all parking areas. The Site and all improvements (including. without limitation. landscaping, drives, roads) from time to time thereon and thereto.
     
 
THE PREMISES:
(a) All of Building Two (which includes the Connector) (the "Building Two Premises"); and (b) a portion of Building One (the "Building One Premises") consisting of space on the first and second floors of Building One in accordance with the floor plan attached hereto as Exhibit B; subject to the provisions of Section 2.1 hereof. Collectively, the Building Two Premises and the Building One Premises are hereinafter referred to as the "Premises".
     
 
TOTAL NUMBER OF TENANT'S PARKING SPACES:
To be provided at the rate of four (4) spaces per 1,000 square feet of (a) the "Total Area of the 269 Mill Road Building" (as defined below) (which expressly excludes the Connector and is agreed to be 137,854 rentable square feet) plus (b) the "Floor Area of the Building One Premises" (as defined below) (agreed to be 75,274 rentable square feet). The Total Number of Tenant's Parking Spaces shall be adjusted up or down (based on the parking ratio specified above multiplied by the rentable area of the Premises from time to time) in the event that the Floor Area of the Premises is modified pursuant to the terms hereof. For purposes of clarification, in no event shall Tenant be entitled to parking spaces attributable to the area of the Connector. As of the Commencement Date, the Total Number of Tenant's Parking Spaces shall be eight hundred and fifty three (853).
     
  ANNUAL FIXED RENT: (a) During the Original Term of this Lease beginning on the Commencement Date and
 
 
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continuing through the last day of the Original Term. at the net annual rate equal to the product of (i) the "Floor Area of the Premises" (hereinafter defined) and (ii)          and
     
   
(b) During the extension option periods (if exercised). as determined pursuant to Section 2.4.0.
     
 
ADDITIONAL RENT:
All sums, amounts, charges and additional rent payable by Tenant under this Lease except Annual Fixed Rent.
     
  OPERATING EXPENSES: As provided in Section 2.6 hereof.
     
  REAL ESTATE TAXES: As provided in Section 2.7 hereof.
     
  TENANT ELECTRICITY: 
As provided in Section 2.8 hereof.
     
  FLOOR AREA OF  220,738 square feet'.
 
THE PREMISES:
 
     
 
TOTAL AREA OF BUILDING ONE:
122,063 rentable square feet.
     
 
FLOOR AREA OF THE BUILDING ONE PREMISES:
75,274 rentable square feet.
     
 
TOTAL AREA OF 269 MILL ROAD BUILDING:
137,854 rentable square feet.
     
 
TOTAL AREA OF THE CONNECTOR:
7,610 usable square feet.
     
 
TOTAL AREA OF BUILDING TWO (WHICH INCLUDES THE CONNECTOR):
  145,464 square feet.
     
  FLOOR AREA OF 
145,464 square feet.
 
_____________
 
1  Notwithstanding anything to the contrary herein. the parties agree that the square footage areas specified in this Section 1.1 have been calculated in both rentable areas and usable areas, have been agreed to in advance and are not subject to re-measurement unless in connection with an actual. physical change in the size or the Premises and/or the Buildings. where expressly contemplated herein or as may be expressly permitted hereby. Wherever in this lease the "area" of a certain space is referenced. or a definition is used, it shall refer to the numeral specified abase in the definition of the relevant term, without regard to the measurement methodology (i.e.. usable square feet and square feet (without specification) shall be treated the same as rentable square feet and vice versa).
 
 
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THE BUILDING TWO PREMISES (WHICH INCLUDES THE CONNECTOR):
 
     
 
TOTAL AREA OF THE OF THE BUILDINGS:
267,527 square feet.
     
 
PERMITTED USES:
Business or professional office purposes, light manufacturing (including fabrication, assembly, processing, finishing work or packaging), distribution and uses ancillary or accessory to the foregoing, all to the extent permitted either as of right or by special permit or variance existing on the date hereof, from time to time, under the Town of Chelmsford Zoning By-Law and, if applicable, taking into account grandfathering rights provided therein or in Massachusetts General Laws, Chapter 40A. Subject to receipt of Landlord's approval, which approval may not be unreasonably withheld, Tenant may, at its sole cost and expense, seek a special permit or variance for permitted use under the Town of Chelmsford Zoning By-Law, to the extent such use is one of the enumerated "uses" set forth above (which includes the "ancillary or accessory" uses expressly permitted above).
     
 
RECOGNIZED BROKER:
FHO Partners, LLC
One International Place
Boston, Massachusetts 02110
     
 
THE ZOLL/TELLABS SUBLEASE:
That certain sublease dated April 17, 2003 between Tellabs Operations, Inc., as sublandlord ("Tellabs"), and Tenant, as subtenant, as amended by First Amendment to Sublease dated February 29, 2008, pursuant to which Tenant subleased a portion of the Premises (the "Subleased   Premises") and the term of which expires on June 29, 2011 (the °Sublease Expiration   Date").
     
 
 
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  THE ZOLL/SIEMENS SUB-SUBLEASE:
That certain sub-sublease dated January 29, 2009 between Nokia Siemens Networks US LLC, as sub-sublandlord ("Siemens"). and Tenant, as sub-subtenant, pursuant to wh ich Tenant sub-subleased a portion of the Premises (the "Sub-Subleased Premises") and the term of which expires on June 29, 2011 (the "Sub-Sublease Expiration Date").
     
     
     
 
1.2           Exhibits. There are incorporated as part of this Lease:
 
EXHIBIT A       Legal Description of Site
 
EXHIBIT B       Building One Premises Floor Plan
 
EXHIBIT C       Broker Determination
 
EXHIBIT C-1          First Offer Space Broker Determination
 
EXHIBIT D            Building Two (269 Mill Road and Connector) Landlord's Services
 
EXHIBIT D-1         Building One (271 Mill Road) Landlord's Services
 
EXHIBIT E             Form of Certificate of Insurance
 
EXHIBIT F             Tellabs Equipment
 
 
1.3          Table of Articles and Sections
 
ARTICLE 1-REFERENCE DATA
 
1.1      Subjects Referred to
 
1.2      Exhibits
 
1.3      Table of Articles and Sections
 
ARTICLE II-THE BUILDINGS, PREMISES, TERM AND RENT
 
2.1      Demise of the Premises
 
2.2      Rights To Use Common Facilities
 
 
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           2.2.1  Cafeteria
 
           2.2.2   Fitness Center
 
           2.2.3  Tenant's Parking
 
         2.3      Landlord's Reservations
 
      2.4      Original Term
 
          2.4.0   Extension Options
 
          2.5      Annual Fixed Rent
 
          2.6      Operating Expenses
 
          2.7      Real Estate Taxes
 
          2.8      Tenant Electricity
 
ARTICLE III-CONDITION OF PREMISES; ALTERATIONS
 
      3.0     Condition of the Premises
 
          3.1     Alterations and Additions
 
          3.2     General Provisions Applicable to Construction
 
ARTICLE IV-LANDLORD'S COVENANTS; INTERRUPTIONS AND DELAYS
 
4.1      Landlord's Covenants
 
4.1.1  Services Furnished by Landlord
 
4.1.2  Additional Services Available to Tenant
 
4.1.3  Building Structural Elements
 
4.1.4  Building Facilities and Roof Obligations
 
4.1.5  Driveways, Roadways and Landscaping
 
4.2      Interruptions and Delays in Services and Repairs, etc.
 
 
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ARTICLE V- TENANT'S COVENANTS
 
5.1      Pa y ments
 
5.2      Repair and Yield
 
5.3       Use
 
5.4      Obstructions; Items Visible From Exterior; Rules and Regulations
 
5.5      Safety Appliances; Licenses
 
5.6      Assignment; Sublease
 
5.6.1 Exceptions for Mergers and Affiliate Transactions 5.6.2 Landlord's Termination Right
 
5.6.3 Landlord's Consent
 
5.6.4 Tenant's Notice
 
5.6.5 Assignment/Sublease Profits
 
5.6.6 Additional Conditions
 
5.7      Tenant's Indemnity; Insurance
 
5.8      Personal Property at Tenant's Risk
 
5.9      Landlord's Right of Entry
 
5.10    Floor Load; Prevention of Vibration and Noise 5.1 1 Personal Property Taxes
 
5.12    Compliance with Laws
 
5.13    Payment of Litigation Expenses
 
5.14    Patriot Act
 
ARTICLE VI-CASUALTY AND TAKING
 
6.1      Fire and Casualty-Termination or Restoration; Rent Adjustment
 
 
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6.2      Uninsured Casualty
 
6.3      Eminent Domain-Termination or Restoration
 
6.4      Eminent Domain Damages Reserved
 
ARTICLE VII-DEFAULT
 
7.1       Tenant's Default
 
7.2       Landlord's Default
 
ARTICLE VIII-MISCELLANEOUS PROVISIONS
 
8.1      Extra Hazardous Use
 
8.2       Waiver
 
8.3      Cumulative Remedies
 
8.4       Quiet Enjoyment
 
8.5      Notice To Mortgagee and Ground Lessor
 
8.6       Assignment of Rents
 
8.7       Surrender
 
8.8       Brokerage
 
8.9      Invalidity of Particular Provisions
 
8.10     Provisions Binding, Etc.
 
8.11     Recording; Confidentiality
 
8.12     Notices
 
8.13    When Lease Becomes Binding
 
8.14   Article Titles and Section Headings
 
8.15   Rights of Mortgagee
 
 
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8.16      Status Reports and Financial Statements
 
8.17      Landlord's and Tenant's Sell-Help
 
8.18      Holding Over
 
8.19       Omitted
 
8.20       Tenant's Right of First Offer to Purchase the Entire Property
 
8.21      Tenant's Right of First Offer to Lease Third Floor Space in Building One
 
8.22       Signage
 
8.23       Tenant Equipment
 
8.24       Emergency Generator
 
8.25       Late Payment
 
8.26       Arbitration
 
8.27       Consents
 
8.28       Governing Law
 
 
 
 
 
 
 
 
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ARTICLE II
 
BUILDING, PREMISES, TERM AND RENT
 
2.1           DEMISE OF THE PREMISES. Landlord hereby demises and leases to Tenant, and Tenant hereby hires and accepts from Landlord, the Premises, excluding (i) exterior walls. and (ii) with respect to Building One, common stairways and stairwells, elevators and elevator shafts and vestibules, mechanical rooms. electric, telephone and janitors closets, and pipes, ducts, shafts, conduits, wires and appurtenant fixtures serving exclusively or in common other parts of Building One or the Site, and if the Premises in Building One includes less than the entire rentable area of any floor, excluding the common corridors, elevator lobbies and toilets located on such floor. Notwithstanding anything to the contrary herein contained, if Landlord shall exercise any right provided under Section 5.6.2 below to terminate this Lease with respect to any portion of the Premises in Building Two, the term "Premises" shall thereafter exclude not only the recaptured portion of such space but also the common stairways and stairwells, elevators and elevator walls, mechanical rooms, electric, telephone and janitors closets, and pipes, ducts, shafts, conduits, wires and appurtenant fixtures serving exclusively or in common other parts of the Buildings or the Site, and if the Premises includes less than the entire rentable area of any floor, excluding the common corridors, elevator lobbies and toilets located on such floor. It is understood and agreed that if the Tenant shall cease to directly lease the 269 Mill Road Building in its entirety, the term "Premises" shall be deemed to be the Building One Premises plus the Connector plus the rentable floor area of that portion of the 269 Mill Road Building which Tenant continues to directly lease, and Tenant's obligations on account of Annual Fixed Rent and other payments under this Lease that are based upon the Floor Area of the Premises shall be reduced accordingly.
 
The term "Site" means all, and also any part of, the land described in Exhibit A, plus any additions or reductions thereto resulting solely from the change of any abutting street line and all parking areas and structures.
 
2.2            RIGHTS TO USE COMMON FACILITIES. Tenant shall have, as appurtenant to the Premises, the non-exclusive right to use in common with use by other tenants from time to time of the Property, subject to reasonable rules of general applicability to tenants of the Property from time to time made by Landlord of which Tenant is given notice (a) the pipes, ducts, conduits, wires, plenum spaces and appurtenant meters and equipment, mechanical rooms, janitorial, electrical and telecom closets, loading docks and bays, serving the Buildings, if any, which shall exist from time to time, (b) common walkways, driveways and roadways located on the Site, (c) if Tenant shall cease to directly lease the entire Building Two or Building One, any common lobbies, corridors, stairways, elevators and loading platform of Building Two or Building One, respectively, and (d) if the Premises includes less than the entire rentable floor area of any floor, the common toilets, corridors and elevator lobby of such floor.
 
 
 
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2.2.1       CAFETERIA.
 
A.   Landlord and Tenant acknowledge that there is currently a cafeteria in Building One (the "Cafeteria"). Landlord hereby agrees that so long as at least 120.000 rentable square feet of the Property is leased and occupied. Landlord shall cause the Cafeteria to be maintained and operated for the benefit of tenants of the Property. The cafeteria vendor and any changes or additions to the quality or type of food and service to be provided in the Property shall be at the reasonable discretion of Landlord. The Cafeteria may be operated. at Landlord's election with a vendor /service provider or agent. The Cafeteria shall provide breakfast and lunch, hours of operation to be reasonably determined by Landlord from time to time. Notwithstanding the foregoing, Landlord acknowledges that Tenant will bear the largest portion of the Landlord's Operating Expenses and, accordingly, so long as the original Tenant shall directly lease and occupy at least fifty percent (50%) of the Total Area of the Buildings, Landlord agrees to consult with Tenant in the event that Landlord intends to make any substantial change in the Cafeteria or its operation from that existing on the date of this Lease, which may include, without limitation, the size and layout, the identity of the operator, the type and quality of food served, and the hours of operation. Although the parties agree to act in good faith in order to agree upon any of the proposed changes aforesaid which are reasonably satisfactory to both Landlord and Tenant, it is understood and agreed that the reasonable determination of Landlord with respect to all aspects of the Cafeteria and its operation shall govern in the event of any dispute between the parties.
 
B.   Subject to reasonable rules and regulations promulgated by Landlord or the operator of the Cafeteria in accordance with Section 5.4 below, Tenant shall have access to the Cafeteria during all Cafeteria operating hours as may be reasonably determined by Landlord from time to time. In addition, Tenant shall have the non-exclusive right, in common with other tenants at the Property, and subject to Landlord's right to schedule such use to accommodate the needs of Tenant and the other occupants of the Property, to reserve the Cafeteria on an as-needed basis for private meetings, functions, etc., after normal business hours upon Landlord's reasonable approval and at a fee reasonably determined by Landlord from time to time, which fee shall reflect any costs incurred in connection with providing such after-hours access.
 
C.   The cost to Landlord to operate the Cafeteria shall be included in Landlord's Operating Expenses.
 
2.2.2       FITNESS CENTER.
 
Landlord and Tenant acknowledge that there is currently a Fitness Center in Building One (the "Fitness Center"). Landlord hereby agrees that so long as at least 120,000 rentable square feet of the Property is leased and occupied, Landlord shall continue to cause the Fitness Center to be maintained and operated for the benefit of tenants of the Property with facilities and equipment of at least the same type and quality as what is currently in place. The parties acknowledge and agree that the costs of the maintenance, repairs and replacements (subject to amortization of any capital expenditures) of the
 
 
 
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fitness center are components of Landlord's Operating Expenses. Landlord rescues the right to impose reasonable rules and regulations relating, to the use of the Fitness Center subject to and in accordance with Section 5.4 below, including, without limitation, requiring each user of the Fitness Center to sign a waiver of liability in favor of Landlord in such form as may be required by Landlord, in its sole discretion. Landlord intends that the Fitness Center will not be manned by Landlord.
 
2.2.3        TENANT'S PARKING. In addition. Landlord shall maintain, and Tenant (including employees and business invitees) shall have the right to use. at no additional charge, the Total Number of Tenant's Parking Spaces (referred to in Section I.1 ), solely for the day to day parking of passenger vehicles, in common with use by other tenants from time to time of the Property, in the surface parking areas on the Site, it being understood and agreed that Landlord shall not be obligated to furnish stalls or spaces in the parking area specifically designated for Tenant's use, provided, however, if any other tenant of the Property is offered reserved parking spaces on the Site, then Tenant shall be entitled to receive a corresponding proportionate number of reserved spaces (based on the rentable area of the Premises compared to the rentable area of the premises leased to such other tenant(s), and which reserved spaces made available to Tenant shall be in lieu of the same number of unreserved spaces then being made available to Tenant) and Tenant shall be given first choice of the location of the reserved spaces being made available by Landlord which selection by Tenant shall be exercised by Tenant in its reasonable discretion. Subject to events beyond Landlord's control, the parking spaces shall be available to Tenant for parking use (as expressly permitted above), 24 hours per day, 365 days per year, but in no event shall such 24/7/365 access be deemed to expand the scope of the use permitted above to include any other use, including, without limitation, the storage of vehicles or other property, which use is prohibited, except that Tenant may park distribution trucks in the parking areas to which Tenant has access hereunder overnight to the extent necessary in connection with the distribution aspect of Tenant's business operation. During the Term, Landlord covenants that Landlord shall not reduce the total number of parking spaces available for Tenant's use on the Site by more than five percent (5%), provided that Tenant shall at all times have the right to use, otherwise in accordance with the terms and conditions of this Lease, four (4) spaces per 1,000 square feet of rentable area of the Premises leased by Tenant from time to time (excluding the Total Area of the Connector). The parties agree that there are one thousand and sixty five (1,065) parking spaces currently located on the Site.
 
Tenant covenants and agrees that it and all persons claiming by, through and under it, shall at all times abide by all reasonable rules and regulations of general applicability promulgated by Landlord and/or the fee owners from time to time of the Site (or portions thereof) with respect to the use of the parking areas on the Site. The parking privileges granted herein are non-transferable except to a permitted assignee or subtenant as provided in Section 5.6 through Section 5.6.6. Further, except as expressly provided in this Lease to the contrary and except to the extent that such loss in fact results from the gross negligence or willful misconduct of the Landlord Parties (as hereafter defined), Landlord and such owners from time to time of the Site (or portions thereof) assume no responsibility whatsoever for loss or damage due to fire, theft or otherwise to any
 
 
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automobile(s) parked on the Site or to an) personal property therein. however caused. and Tenant covenants and agrees. upon request from Landlord from time to time, to notify its officers. employees. agents and invitees of such limitation of liability. Tenant acknowledges and agrees that a license only is hereby granted. and no bailment is intended or shall be created.
 
2.3           LANDLORD'S RESERVATIONS. Landlord reserves the right from time to time, without unreasonable interference with Tenant's use: (a) to install, use, maintain, repair, replace and relocate for service to the Premises and other parts of the Buildings, or either. pipes, ducts, conduits, wires and appurtenant fixtures, wherever located in the Premises or Buildings, and (b) to alter or relocate any other common facility, provided that substitutions are substantially equivalent or better. Installations, replacements and relocations referred to in clause (a) above shall be located so far as practicable in the central core area of the Buildings, above ceiling surfaces, below floor surfaces or within perimeter walls of the Premises. Landlord hereby agrees to use commercially reasonable efforts to minimize interference with Tenant's use, occupancy, fixtures, furnishings and equipment, of the Premises in connection with Landlord's exercise of the rights provided under this Section 2.3 and to schedule such work during non-business hours to the extent reasonably practicable. Except in the case of emergencies or for normal cleaning and maintenance operations, Landlord agrees to give Tenant reasonable advance notice of any of the foregoing activities which require work in the Premises.
 
2.4           ORIGINAL TERM. The Term of this Lease shall be the period specified in Section 1.1 hereof as the "Lease Term," unless sooner terminated or extended as herein provided. The Commencement Date of the Lease Term hereof shall be the fixed Commencement Date set forth in Section 1.1 above. Landlord acknowledges that Tenant is currently occupying a portion of the Premises pursuant to the Zoll/Tellabs Sublease and that the Sublease Expiration Date is one day before the Lease Term commences. Subject to Tenant obtaining all necessary approvals required under (i) the Zoll/Tellabs Sublease in order to extend the Sublease term and/or to holdover under the Sublease until the Lease Commencement Date and (ii) the Zoll/Siemens Sub-Sublease in order to extend the Sub- Sublease term and/or to holdover under the Sub-Sublease until the Lease Commencement Date (including, without limitation, the consent of Tellabs and Siemens), Landlord hereby consents to such extension/holdover solely in order to allow Tenant to remain in occupancy of the Subleased Premises and Sub-Subleased Premises until the Lease Commencement Date. Landlord's consent shall not modify or waive any other term or condition of its direct lease with Tellabs (to which the Zoll/Tellabs Sublease and the Zoll/Siemens Sub-Sublease are subordinate) or the terms and conditions of the Landlord's written consent to the Zoll/Tellabs Sublease and the Zoll/Siemens Sub- Sublease.
 
2.4.0
 
 
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2.5           ANNUAL FIXED RENT. Tenant agrees to pay to Landlord, on the Rent Commencement Date (defined in Section 1.1 hereof) and thereafter monthly, in advance, on the first day of each and every calendar month during the Original Term, a sum equal to one twelfth ( i /12 th ) of the Annual Fixed Rent (sometimes hereinafter referred to as
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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"fixed rent ) and on the Commencement Date and thereafter monthly, in advance, on the first day of each and every calendar month during the Original Lease Term, an amount estimated by Landlord from time to time to cover Tenant's monthly payments for electricity under Section 2.8 and on the first day of each and every calendar month during the extension option period (if exercised), a sum equal to one twelfth ( 1/12th) of the annual fixed rent as determined for the extension option plus the then applicable monthly electricity charges (subject to escalation for electricity as provided in Section 2.8 hereof). Until notice of some other designation is given, fixed rent and all other charges for which provision is herein made shall be paid by remittance to or for the order of Boston Properties Limited Partnership.
 
All remittances received by Boston Props Limited Partnership, as Agents as aforesaid, or by any subsequently designated recipient, shall be treated as payment to Landlord.
 
Annual Fixed Rent for any partial month shall be paid by Tenant to Landlord at such rate on a pro rata basis.
 
Additional Rent payable by Tenant on a monthly basis, as hereinafter provided, likewise shall be prorated, and the first payment on account thereof shall be determined in similar fashion but shall commence on the Commencement Date; and other provisions of this Lease calling for monthly payments shall be read as incorporating this undertaking by Tenant.
 
Notwithstanding that the payment of Annual Fixed Rent payable by Tenant to Landlord shall not commence until the Rent Commencement Date, Tenant shall be subject to, and shall comply with, all other provisions of this Lease as and at the times provided in this Lease.
 
The Annual Fixed Rent and all other charges for which provision is herein made shall be paid by Tenant to Landlord, without offset, deduction or abatement except as otherwise specifically set forth in this Lease.
 
2.6           OPERATING EXPENSES. "Landlord's Operating Expenses" means the cost of operation of the Buildings and the Site incurred by Landlord, including those incurred in discharging Landlord's obligations under Sections 4.1.4 and 4.1.5. For each calendar year within the Lease Term, Landlord shall, as soon as practicable, provide Tenant with a good faith written estimate of the Landlord's Operating Expenses for such year but such estimate shall not be binding upon Landlord. Landlord's Operating Expenses include, without limitation:
 
 
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(a)  
Compensation, wages and all fringe benefits, worker's compensation insurance premiums and payroll taxes paid to, for or with respect to all persons for their services in the operating, maintaining or cleaning of the Buildings or the Site (equitably adjusted if such persons are also employed on other properties of Landlord or its affiliates);
 
(b)  
Payments under service contracts with independent contractors for operating, maintaining or cleaning of the Buildings or the Site;
 
(c)  
Steam, water, sewer, gas, oil, electricity and telephone charges (excluding such utility charges separately chargeable to Tenant or other tenants for additional or separate services);
 
(d)  
Cost of maintenance, cleaning and repairs (other than repairs not properly chargeable against income or reimbursed from contractors under guarantees);
 
(e)  
Cost of snow and ice removal, sanding and the like and care and replacement of landscaping;
 
(f)  
Cost of building and cleaning supplies and equipment;
 
(g)  
Premiums for insurance carried by Landlord with respect to the Property (including, without limitation, liability insurance, insurance against loss in case of fire and/or casualty and of monthly installments of Annual Fixed Rent and any Additional Rent for periods not to exceed twelve (12) months which may be due under this Lease and other leases of space in the Buildings, and if there be any first mortgage on the Property, including such insurance relating to the Property and its ownership and operation as may be required by the holder of such first mortgage);
 
(h)  
For each year during the Lease Term, an annual management fee of two and one half percent (2.5%) of the "Gross Rent for the Buildings" (as hereinafter defined), provided, however, in the event that Landlord hires a third party manager to manage the Building(s), the annual management fee shall be a reasonable, market based property management fee for third party managed property of similar type, use and quality. For purposes hereof, "Gross Rent for the Buildings" shall mean the sum of (i) the applicable Annual Fixed Rent set forth in all leases of the Buildings plus (ii) the "Operating Expenses Allocable to the Premises" as provided below in this Section 2.6 plus all other Operating Expenses payable under other leases of the Buildings, excluding therefrom the aforesaid management fee and any amounts paid directly to the provider by Tenant or any other tenant for utilities and janitorial services, plus (iii) "Landlord's Tax Expenses Allocable to the Premises" (as set forth and calculated in
 
 
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Accordance with Section 2.7 hereof) plus all other Tax Expenses payable under other leases of the Buildings.
 
(i)   
Depreciation for capital expenditures made by Landlord (x) to reduce operating expenses if Landlord reasonably shall have determined that the annual reduction in operating expenses shall exceed depreciation therefor or, and such reduction does, in fact, occur (y) to comply with applicable laws, rules, regulations, requirements, statutes, ordinances, by-laws and court decisions of all public authorities which are hereafter first in force or first become applicable to the Building(s) or the Site on or after the Commencement Date (herein collectively called "Legal Requirements"),(the capital expenditures described in subsections (x) and (y) being hereinafter referred to as "Permitted Capital Expenditures"); plus in the case of both (x) and (y) an interest factor, reasonably determined by Landlord, as being the interest rate then charged for long term mortgages by institutional lenders on like properties within the locality in which the Building is located; depreciation in the case of both (x) and (y) shall be determined by dividing the original cost of such capital expenditure by the number of years of useful life of the capital item acquired and the useful life shall be reasonably determined by Landlord in accordance with generally accepted accounting principles and practices in effect at the time of acquisition of the capital item; and
 
(j)  
Costs of operating and maintaining amenities for tenants including a food service and fitness center operation; and
 
(k)  
All other reasonable and necessary expenses paid in connection with the operating, cleaning and maintenance of the Buildings, the Site and the common areas and facilities and properly chargeable against income.
 
Notwithstanding the foregoing, the following shall be expressly excluded from Landlord's Operating Expenses:
 
(i)  
Interest on indebtedness, debt amortization, ground rent and other costs related to any sale, transfer, financing, mortgage, ground lease or overlease of the Property or any portion thereof or sale or transfer of the Landlord entity; provided, however, that the foregoing shall not exclude the inclusion of the amortization and interest permitted to be included in Landlord's Operating Expenses under Section 2.6 (i) above nor shall it exclude the inclusion of any costs which Landlord is required to incur as a result of its obligations under this Lease;
 
(ii)  
Leasing fees or commissions, marketing, advertising and promotional expenses, legal fees or expenses in connection with lease negotiations, the cost of tenant improvements, build-out allowances, moving expenses,
 
 
 
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    assumption of rent under existing leases and other concessions incurred in connection with leasing space in the Property;
 
(iii)  
The cost of repairs or replacements incurred by reason of tire or other casualty or condemnation other than costs not in excess of the deductible on any insurance maintained by Landlord (provided that the amount of any deductible shall not violate the terms of the Lease) which provides a recovery for such repair or replacement;
 
(iv)  
Any charge for Landlord's income taxes or a corporate excise tax, excess profit taxes or franchise taxes, except to the extent any of the foregoing are explicitly deemed "real estate taxes" under Section 2.7 hereof;
 
(v)  
The cost of any item or service to the extent reimbursable to Landlord by insurance required to be maintained under this Lease, by any tenant, or by any third party;
 
(vi)  
Costs incurred in performing work or furnishing services for any tenant (other than Tenant), whether at such tenant's or at Landlord's expense, to the extent that such work or service is in excess of any work or service that Landlord is obligated to furnish to Tenant at Landlord's expense (e.g., if Landlord agrees to provide extra cleaning to another tenant, the cost thereof would be excluded since Landlord is not obligated to furnish extra cleaning to Tenant);
 
(vii)  
Wages, salaries or other compensation (including fringe benefits) paid to the following positions: Director - Engineering, Regional Engineer, Chief Engineer, Chief Roving Engineer, Lease Administrator, Accounting, Assistant Director, Safety and Security, and Roving Engineer II and any position above the level of property manager. If a property manager or any personnel are shared with other buildings or have other duties not related to the Property, only the allocable portion of such person's or persons' salary shall be included in Landlord's Operating Expenses;
 
(viii)  
The cost of any service or materials provided by any party related to Landlord, to the extent such costs exceed the reasonable cost for such service or materials absent such relationship in buildings similar to the Buildings in the vicinity of the Site; provided, however, that the provisions of this clause (viii) shall not apply to the management fee payable to Landlord or its managing agent (which such payments shall be governed by Section 2.6 (h) above);
 
(ix)  
Any advertising, promotional or marketing expenses for the Property;
 
(x)  
The cost of acquiring, installing, moving or restoring objects of art;
 
 
 
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(xi)  
The cost of installing. operating and maintaining any specialty such as (but not limited to) an observatory, broadcasting facilities, theater, rehearsal hall. art gallery or garage:
 
(xii)  
The cost of repairs, maintenance and cleaning necessitated by Landlord's negligence or willful misconduct:
 
(xiii)  
Capital expenditures (which term shall include costs for capital expenses. capital repairs and capital improvements) and depreciation, except to the extent set forth in Section 2.6 (i) above;
 
(xiv)  
Legal, auditing, consulting and professional fees and other costs (except to the extent incurred in connection with the normal and routine maintenance and operation of the Property), including, without limitation, those: ( I) paid or incurred in connection with financings, refinancings or sales of Landlord's interest in the Site or of the Landlord entity), and (2) relating to specific disputes with tenants, and (3) paid or incurred in connection with any reporting requirements of the Landlord under applicable securities laws;
 
(xv)  
Payments for rented equipment, the cost of which equipment would constitute a capital expenditure if the equipment were purchased;
 
(xvi)  
Penalties and interest for late payment of any obligations of Landlord, including, without limitation, taxes, insurance, equipment leases and other past due amounts;
 
(xvii)  
Unfunded contributions to operating expense reserves, or reserves for bad debts or for future improvements, repairs or additions;
 
(xviii)  
Contributions to charitable organizations, political organizations or trade associations such as BOMA or NAIOP, and any entertaining, dining or travel expenses of Landlord's employees for any purpose;
 
(xix)  
The cost of testing, remediation or removal of "Hazardous Materials" (as defined in Section 5.3) in the Buildings or on the Site required by "Hazardous Materials Laws" (as defined in Section 5.3) including costs to defend against claims in regard to the existence or release of Hazardous Materials at the Buildings or the Site, unless caused by Tenant or its contractors, subcontractors, agents, employees or invitees;
 
(xx)  
Amounts payable by Landlord for withdrawal liability to a multi-employer pension plan (under Title IV of the Employment Retirement Income Security Act of 1974, as amended) due to complete or partial withdrawal that occurs during the term of this Lease due to events within the control of Landlord (e.g., the sale of Landlord's interest in the Building(s));
 
 
 
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(xxi)  
The cost of any services or systems for that portion of the Property occupied by the Landlord or affiliates of Landlord (exclusive of space occupied by Landlord or affiliates of Landlord in connection with the operation of the Buildings) and which are not provided generally to other tenants in the Property;
 
(xxii)  
Costs in connection with acquiring additional land or development rights or of constructing any additional buildings on the Site;
 
(xxiii)  
Without limitation of any other exclusions from Landlord's Operating Expenses, costs and expenses incurred by Landlord in curing, repairing or replacing any structural portion of the Building(s) (including the roof) to the extent such cure, repair or replacement was made necessary as a result of defects in the original design, workmanship or materials of the Building(s).
 
"Operating Expenses Allocable to the Premises" shall mean (a) one hundred percent (100%) of Landlord's Operating Expenses for and pertaining to Building Two plus (b) the same proportion of Landlord's Operating Expenses for and pertaining to Building One as the Floor Area of the Building One Premises bears to the Total Floor Area of Building One plus (c) the same proportion of Landlord's Operating Expenses for and pertaining to the Site as the Floor Area of the Premises bears to the Total Area of the Buildings.
 
For each calendar year falling within the Term, Tenant shall pay to Landlord, as Additional Rent, the Operating Expenses Allocable to the Premises for such corresponding full calendar year, and for each fraction of a calendar year falling within the Term at the beginning or end thereof, Tenant shall pay to Landlord, as Additional Rent, the product of (i) such applicable fraction of a calendar year and (ii) the Operating Expenses Allocable to the Premises for the calendar year in which said fraction occurs.
 
Notwithstanding the foregoing, in determining the amount of Landlord's Operating Expenses for any calendar year or portion thereof falling within the Lease Term, if less than ninety-five percent (95%) of the Total Area of Building Two and/or the Total Area of Building One shall have been occupied by tenants at any time during the period in question, then, at Landlord's election, those components of Landlord's Operating Expenses that vary based on occupancy for such period shall be adjusted to equal the amount such components of Landlord's Operating Expenses would have been for such period had occupancy been ninety-five percent (95%) throughout such period. Notwithstanding anything contained herein to the contrary, Landlord hereby agrees that over the course of the Lease Term it will not collect more than one hundred percent (100%) of Landlord's Operating Expenses allocable to such time period. To the extent that Landlord provides or procures services for the Building(s) together with other buildings owned by Landlord or its affiliates, the costs of which are otherwise includable hereunder, the cost of such services shall be equitably adjusted. Landlord's accounting hereunder shall be in accordance with GAAP.
 
 
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Landlord acknowledges that Tenant v ill bear the largest portion or the Landlord's Operating Expenses. According!). so long as the original Tenant shall directly lease and occupy at least fifty percent (50%) of the Total Area of the Buildings, Landlord agrees to consult with Tenant during the preparation or Landlord's annual budget with respect to Landlord's Operating Expenses with respect to the Buildings during which consultations Tenant intends to express its known desire to minimize Landlord's Operating Expenses to the largest extent possible, consistent with the delivery of high quality services and the maintenance of a high quality project . In connection with the foregoing. Landlord and Tenant shall discuss at a mutually acceptable time and location to be determined by the parties on an annual basis (with such follow-up meetings as are reasonably necessary, but in no event shall Landlord be required to attend more than ten ( 10) meetings for this purpose in any year) in order to review the documentation relating to the budget. Although the parties agree to act in good faith in order to develop a budget reasonably satisfactory to both Landlord and Tenant, it is understood and agreed that the reasonable determination of Landlord with respect to any item included within Landlord's Operating Expenses from year to year shall govern in the event of any dispute between the parties (provided, however, that the provisions of this paragraph are not intended to modify or limit the definition of Landlord's Operating Expenses and the exclusions thereto set forth above or Tenant's rights to audit Landlord's Operating Expenses as set forth in the last paragraph of this Section 2.6).
 
Not later than ninety (90) days after the end of the first calendar year or fraction thereof ending December 3 I and of each succeeding calendar year during the Term or fraction thereof at the end of the Term, Landlord shall render Tenant a statement in reasonable detail and according to usual accounting practices certified by a representative of Landlord, showing for the preceding calendar year or fraction thereof, as the case may be, Landlord's Operating Expenses and Operating Expenses Allocable to the Premises. Said statement to be rendered to Tenant shall also show for the preceding year or fraction thereof as the case may be the amounts of operating expenses already paid by Tenant as additional rent, and the amount of operating expenses remaining due from, or overpaid by, Tenant for the year or other period covered by the statement. Within thirty (30) days after the date of delivery of such statement, Tenant shall pay to Landlord the balance of the amounts, if any, required to be paid pursuant to the above provisions of this Section 2.6 with respect to the preceding year or fraction thereof, or Landlord shall promptly pay any amounts due from it to Tenant pursuant to the above provisions of this Section 2.6.
 
In addition, Tenant shall make payments monthly on account of Operating Expenses Allocable to the Premises anticipated for the then current year at the time and in the fashion herein provided for the payment of fixed rent. The amount to be paid to Landlord shall be one-twelfth of an amount reasonably estimated annually by Landlord to be sufficient to cover, in the aggregate, a sum equal to Operating Expenses Allocable to the Premises for each calendar year during the Term.
 
 
 
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2.7
REAL ESTATE TAXES. In the event that Tenant has not elected (or having once elected, has subsequently ceased) to pay real estate taxes directly to the appropriate taxing authorities pursuant to Section 2.7.1 below, for each full Tax Year falling within the Term, Tenant shall pay to Landlord, as Additional Rent, Landlord's Tax Expenses Allocable to the Premises as hereinafter defined for the applicable full Tax Year. In addition, for each fraction of a Tax Year falling within the Term either at the beginning or end thereof, Tenant shall pay to Landlord, as Additional Rent, the product of such fraction of a Tax Year and the Landlord's Tax Expenses Allocable to the Premises for the
 
 
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full Tax Year in which such fraction of a Tax Year occurs (it being understood and agreed that Tenant shall not be responsible under this Lease for payment of real estate taxes associated with any portions of a Tax Year prior to the Commencement Date). Such payments shall be made at the times and in the manner hereinafter provided in this Section 2.7. On or before the thirtieth (30th) day following receipt by Tenant of the certified statement referred to below in this Section 2.7, Tenant shall pay to Landlord, as Additional Rent, the amount of the applicable Landlord's Tax Expenses Allocable to the Premises. Landlord shall promptly pay to Tenant any overpayment made by Tenant. In addition, payments by Tenant on account of Landlord's Tax Expenses Allocable to the Premises anticipated for the then current year shall be made monthly at the time and in the fashion herein provided for the payment of fixed rent. The amount so to be paid to Landlord shall be based on the final tax bill for the immediately preceding Tax Year (with an adjustment to be made when Landlord receives the actual tax bill for the Tax Year at issue). Not later than ninety (90) days after Landlord's Tax Expenses Allocable to the Premises are determined for the first such Tax Year or fraction thereof and for each succeeding Tax Year or fraction thereof during the Term, Landlord shall render Tenant a statement in reasonable detail certified by a representative of Landlord showing for the preceding year or fraction thereof, as the case may be, real estate taxes on the Buildings and Site, Landlord's Tax Expenses, Landlord's Tax Expenses Allocable to the Premises and abatements and refunds of any taxes and assessments. Expenditures for legal fees and for other expenses incurred in obtaining any tax refund or abatement (regardless of whether such refund or abatement are shown on the tax bill received from the relevant taxing authority) may be charged against the tax refund or abatement before the adjustments are made for the Tax Year. Notwithstanding anything contained herein or in Section 2.7.1 below to the contrary, it is understood and agreed that to the extent any portion of a Tax Year does not fall wholly within the Lease Term, appropriate adjustments shall be made in the calculation of Landlord's Tax Expenses Allocable to the Premises to reflect any overpayments or underpayments made by Tenant on account of increases in the tax bill during a given Tax Year based on the actual number of days in such Tax Year within the Lease Term.
 
To the extent that real estate taxes shall be payable to the taxing authority in installments with respect to periods less than a Tax Year, the foregoing statement shall be rendered and payments made on account of such installments.
 
Terms used herein are defined as follows:
 
(i)  
"Tax Year" means the twelve-month period beginning July I each year during the Term or if the appropriate governmental tax fiscal period shall begin on any date other than July 1, such other date.
 
(ii)  
"Landlord's Tax Expenses Allocable to the Premises" shall mean (a) the same proportion of Landlord's Tax Expenses for and pertaining to Building Two as the Floor Area of the Building Two Premises bears to the Total Area of Building Two plus (b) the same proportion of Landlord's
 
 
 
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Tax Expenses for and pertaining to Building One as the Floor Area of the Building One Premises bears to the Total Floor Area of Building One.
 
(iii)  
"Landlord's Tax Expenses" with respect to any Tax Year means the aggregate real estate taxes on the Buildings and Site with respect to that Tax Year, reduced by any abatement receipts with respect to that Tax Year. Landlord shall refund Tenant's pro-rata share of any abatement received by Landlord with respect to any payments made by Tenant on account of real estate taxes for the Tax Year for which the abatement is received. Where Tenant is paying real estate taxes directly under Section 2.7.1 below and Tenant receives the benefit of an abatement, if applicable, Tenant shall refund Landlord's pro-rata share of any such abatement with respect to any payments made by Landlord on account of real estate taxes for the Tax Year for which the benefit of abatement is received.
 
(iv)  
"Real estate taxes" means all taxes and special assessments of every kind and nature assessed by any governmental authority on the Buildings or Site which the Landlord shall become obligated to pay because of or in connection with the ownership, leasing and operation of the Site, the Buildings and the Property and reasonable expenses of any proceedings for abatement of taxes. The amount of special taxes or special assessments to be included shall be limited to the amount of the installment (plus any interest, other than penalty interest, payable thereon) of such special tax or special assessment required to be paid during the year in respect of which such taxes are being determined. Special assessments and special taxes shall be paid over the longest period of time permitted by the relevant taxing authority. There shall be excluded from such taxes all income, estate, succession, inheritance and transfer taxes; provided, however, that if at any time during the Term the present system of ad valorem taxation of real property shall be changed so that in lieu of or in addition to the whole or any part of the ad valorem tax on real property there shall be assessed on Landlord a capital levy or other tax on the gross rents received with respect to the Site or Buildings or Property, or a federal, state, county, municipal, or other local income, franchise, excise or similar tax, assessment, levy or charge (distinct from any now in effect in the jurisdiction in which the Property is located) measured by or based, in whole or in part, upon any such gross rents, then any and all of such taxes, assessments, levies or charges, to the extent so measured or based, shall be deemed to be included within the term "real estate taxes" but only to the extent that the same would be payable if the Site and Buildings were the only property of Landlord.
 
2.7.1
 
 
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2.8           ELECTRICITY.
 
                (A)     BUILDING TWO PREMISES.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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(B)              BUILDING ONE PREMISES. Tenant shall pa) to Landlord. as Additional Rent. Tenant's Building One Proportionate Share (hereinafter defined) of the cost incurred by the Landlord in furnishing electricity (including, without limitation, in connection with HVAC distribution components directly serving the Building One Premises) to Building One. including common areas and facilities and space occupied by tenants (but expressly excluding electricity charges separately chargeable to tenants for additional or special services), and Tenant shall pay on account thereof, at the time that monthly installments of Annual Fixed Rent are due and payable, as Additional Rent, an amount equal to 1/12 th   (prorated for any partial month) of the amount estimated by Landlord from time to time as the Tenant's Building One Proportionate Share of the annual cost thereof. If with respect to any calendar year falling within the Term or fraction of a calendar year falling within the Term at the beginning or end thereof, the Tenant's Building One Proportionate Share of the cost of furnishing electricity to Building One exceeds the amounts payable on account thereof, then Tenant shall pay to Landlord, as Additional Rent, on or before the thirtieth (30 th ) day following receipt by Tenant of the statement referred to below in this Section, Tenant's Building One Proportionate Share of the amount of such excess. For and with respect to the separately metered electricity for the Building One Premises, "Tenant's Building One Premises Proportionate Share" shall be one hundred percent (100%). For and with respect to the separately metered electricity for the Building One common areas and facilities. "Tenant's Building One Common Area Proportionate Share" shall be a fraction, the numerator of which is the Floor Area of the Building One Premises and the denominator of which is the total floor area of Building One from time to time under lease to tenants, provided, however, that if at any time during the Lease Term more than 10,000 rentable square feet of the Total Area of Building One are not under lease to tenants, then for the purposes of determining Tenant's Building One Common Area Proportionate Share, the denominator shall be deemed to be the Total Area of Building One minus 10,000 rentable square feet irrespective of the total floor area of Building One then under lease to tenants. Collectively, Tenant's Building One Premises Proportionate Share and Tenant's Building One Common Area Proportionate Share are referred to as "Tenant's Building One Proportionate Share".
 
(C)              SITE. Tenant shall pay to Landlord, as Additional Rent, "Tenant's Site Proportionate Share" (hereinafter defined) of the cost incurred by the Landlord in furnishing electricity to the Site, and Tenant shall pay on account thereof, at the time that monthly installments of Annual Fixed Rent are due and payable, as Additional Rent, an amount equal to 1112 th (prorated for any partial month) of the amount estimated by Landlord from time to time as the Tenant's Site Proportionate Share of the annual cost thereof. If with respect to any calendar year falling within the Term or fraction of a calendar year falling within the Term at the beginning or end thereof, the Tenant's Site Proportionate Share of the cost of furnishing electricity to the Site exceeds the amounts payable on account thereof, then Tenant shall pay to Landlord, as Additional Rent, on or before the thirtieth (30 th ) day following receipt by Tenant of the statement referred to
 
 
 
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below in this Section. Tenant's Site Proportionate Share of the amount of such excess. - Tenant's Site Proportionate Share - shall be for and with respect to the Site. a fraction. the numerator of which is the Floor Area of the Premises and the denominator of which is the total floor area of the Buildings from time to time under lease to tenants. provided. however. that if' at any time during the Lease Term more than 10,000 rentable square feet of the Total Area of the Buildings are not under lease to tenants. then for the purposes of determining Tenant's Site Proportionate Share, the denominator shall be deemed to be the Total Area of the Buildings minus 10,000 rentable square feet irrespective of the total floor area of the Buildings then under lease to tenants.
 
Not later than one hundred twenty (120) days after the end of the first calendar year or fraction thereof ending December 31 and of each succeeding calendar year during the Term or traction thereof at the end of the Term, Landlord shall render Tenant a reasonably detailed accounting certified by a representative of Landlord showing for the preceding calendar year, or fraction thereof, as the case may be, the costs of furnishing electricity (including, without limitation, in connection with HVAC distribution components directly serving the Building One Premises) to the Building One Premises and the Site. Said statement to be rendered to Tenant also shall show for the preceding year or fraction thereof, as the case may be, the amount already paid by Tenant on account of such electricity, and the amount remaining due from, or overpaid by, Tenant for the year or other period covered by the statement.
 
ARTICLE III
 
CONSTRUCTION
 
 
 
 
 
 
 
 
 
 
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31

 
 
 
 
 
 
 
 
 
32

 
 
 
 
 
 
 
 
 
 
 
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ARTICLE IV
 
LANDLORD'S COVENANTS; INTERRUPTIONS AND DELAYS  
 
4.1         Landlord covenants:
 
4.1.1
SERVICES FURNISHED BY LANDLORD. To furnish services, utilities, facilities and supplies set forth in Exhibit D and Exhibit D-I equal in type and quality to those customarily provided by landlords in high quality buildings in the Route 3/1-495 North market subject to reimbursement in accordance with Section 2.6. Landlord shall have no obligation whatsoever to provide, contract for, pay for or otherwise arrange for the "Specified Services" to Building Two (as defined in Section 5.3 (B) below). The Specified Services shall be performed by Tenant at its sole cost, expense and risk.
 
4.1.2
ADDITIONAL SERVICES AVAILABLE TO TENANT. To furnish, at Tenant's expense, reasonable additional Building(s) operation services to Building One which are usual and customary in similar multi-tenant office buildings of comparable quality in the Boston Northwest Suburban Market upon reasonable advance request of Tenant at reasonable and equitable rates from time to time established by Landlord.
 
 
 
 
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4.1.3
BUILDING STRUCTURAL REPAIRS. Subject to the provisions of Article VI hereof respecting damage caused by tire or other casualty and by eminent domain. Landlord shall, throughout the Lease Term. at Landlord's sole cost and expense. keep and maintain in good order, condition and repair the following portions of the Buildings: the exterior and load bearing walls. exterior windows. the foundation, the structural columns and floor slabs. beams. shafts. conduits and all other structural elements of the Buildings; provided, however. that Tenant shall pay to Landlord, as Additional Rent, the cost of any and all such repairs which may be required as a result of repairs, alterations, or installations made by Tenant or any subtenant, assignee, licensee or concessionaire of Tenant or any agent, servant, employee or contractor of any of them or to the extent of any loss, destruction or damage was caused by the willful misconduct, negligence or breach of this Lease by Tenant, any assignee or subtenant or any agent, servant, employee, customer, visitor or contractor of any of them. Notwithstanding anything to the contrary set forth in this Section 4.1.3 or in Section 4.1.4 or in Section 4.1.5 hereof, Tenant shall be solely responsible, at its cost and expense (except to the extent Tenant shall use Landlord's contractor to perform such work and such work shall be covered by Landlord's roof warranty), to make any and all repairs and replacements to the roof resulting from penetrations to or through the roof made by or for Tenant, any assignee or subtenant.
 
4.1.4
  BUILDING FACILITIES AND ROOF OBLIGATIONS. (A) Except as otherwise provided in this Lease and subject to provisions for reimbursement by Tenant as contained in Section 2.6, Landlord agrees to keep and maintain in good order, condition and repair and in compliance with applicable Legal Requirements and applicable requirements of insurers the "Building Facilities" (hereinafter defined), the base building heating, ventilating, air conditioning, plumbing, elevator, sprinkler, electrical, and other base Building(s) systems equipment servicing the Premises, and the roof of each of the Buildings, except that Landlord shall in no event be responsible to Tenant for (a) the condition, repair or maintenance of any supplemental heating, ventilating or air conditioning equipment or other supplemental utilities systems or services installed by or on behalf of or through Tenant at any time before and/or during the Term (collectively, "Tenant's Supplemental Systems"), (b) the condition of glass in and about the Premises (other than for glass in exterior walls for which Landlord shall be responsible unless the damage thereto is attributable to Tenant's negligence or misuse, in which event the responsibility therefore shall be Tenant's), or (c) for any condition in the Site or the Building(s) caused by the willful misconduct, negligence or breach of this Lease by Tenant or any agent, employee, contractor, assignee, subtenant or invitee of Tenant. Without limitation, Landlord shall not be responsible to make any improvements or repairs to the Building(s) or the Site other than as expressly provided in Section 4.1 .3 or in this Section 4.1.4, unless expressly otherwise provided in this Lease. For purposes hereof, the "Building Facilities" shall mean common areas and facilities described in Section 2.2 including, without limitation, the first floor lobby areas of the Buildings, the loading docks of the Buildings and the restrooms of the Buildings, excluding, however, in each case, the "Tenant's Property" (as defined in Section 5.8 below), Tenant's Supplemental Systems, "Tenant's Equipment" (as defined in Section 8.23 below) and other personal property, furniture, fixtures, equipment, modular furniture and partitions
 
 
 
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not owned by Landlord. Landlord shall have no obligation to maintain Tenant's Property. Tenant's Supplemental S y stems or Tenant's Equipment.
 
(B) Notwithstanding Landlord's obligation to perform certain repairs. services and maintenance as set forth in Section 4.I.4(A) and in Section 4.1.5, Tenant shall be obligated to make the payments required by Section 4.1.1, Section 2.6 and Section 2.8, subject to the terms thereof, which may include payments for repairs. services and maintenance provided or performed by Landlord pursuant to Section 4.1.4(A) and Section 4.1.5.
 
4.1.5
DRIVEWAYS, ROADWAYS AND LANDSCAPING. Except as otherwise provided in this Lease and subject to provisions for reimbursement by Tenant as contained in Section 2.6 hereof, Landlord agrees to maintain the drives, parking lots, access ways, sidewalks, pedestrian walks, the lighting, the open space, and other hard and soft landscaped area within or on the Site and other similar improvements and Landlord shall perform snow and ice removal from the walkways and drives located, within the Site, but shall not be obligated to remove snow and ice down to bare pavement but shall in conjunction with such snow and ice removal apply sand or other material to the affected area as is commercially reasonable and consistent with Legal Requirements and Insurance Requirements.
 
4.2 
INTERRUPTIONS AND DELAYS IN SERVICES AND REPAIRS. 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 the necessity of Landlord or its agents entering the Premises for any of the purposes in this Lease authorized, or for repairing the Premises or any portion of the Building(s) however the necessity may occur, so long as such entry or repair is performed in accordance with the terms and provisions of this Lease. In case Landlord is prevented or delayed from making any repairs, alterations or improvements, or furnishing any services or performing any other covenant or duty to be performed on Landlord's part, by reason of any cause beyond Landlord's reasonable control, then, for so long as such cause beyond Landlord's reasonable control shall continue (and for a reasonable period thereafter to enable Landlord to undertake any appropriate actions and address the same) Landlord shall not be liable to Tenant therefore, nor, except as expressly otherwise provided in this Section 4.2 or in Article VI below, 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. Subject to events beyond Landlord's reasonable control and subject to Landlord's right to dispute whether any of the following actions is necessary or required under the terms of the Lease, upon receipt of actual notice of the need therefore, Landlord shall promptly commence and diligently pursue any repairs, alterations or improvements, or furnishing any services or performing any other covenant or duty to be performed on Landlord's part hereunder. In the event that the base building electrical, heating, ventilation, air conditioning or all elevator service within the Premises shall be shut down such that Tenant shall be prevented from conducting its business operations therein, but only as a result of causes which are covered by Landlord's loss of rentals insurance, then Tenant shall be entitled to an
 
 
 
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abatement of Annual Fixed Rent equal to the "Insurance Amount" (hereinafter defined). The "Insurance Amount" shall be an amount equal to the payment actually received by Landlord (or which Would have been received by Landlord but for Landlord's failure to timely make a claim therefore) (but only such portions allocable to and on account of the Premises) from the insurance carrier providing such loss of rents insurance less the amount of any deductible contained in such loss of rents insurance coverage.
 
Landlord reserves the right to stop any service or utility system, when reasonably necessary by reason of accident or emergency, or until necessary repairs have been completed: provided. however, that in each instance of stoppage, Landlord shall exercise reasonable diligence to eliminate the cause thereof. Except in case of emergency repairs, Landlord will give Tenant reasonable advance notice of any contemplated stoppage and will use commercially reasonable best efforts to avoid unnecessary inconvenience to Tenant by reason thereof.
 
ARTICLE V
 
TENANT'S COVENANTS
 
Tenant covenants during the term and such further time as Tenant occupies any part of the Premises:
 
5.1           TENANT'S PAYMENTS. To pay when due all fixed rent and Additional Rent and all charges for utility services rendered to the Building (except as otherwise provided in Exhibit D and Exhibit D-I) and, further, as Additional Rent, all charges for additional services rendered pursuant to Section 4.1.2.
 
5.2           REPAIR AND YIELD. Except as otherwise provided in Article VI and Section 4.1.3, to keep the Premises in good order, repair and condition, damage by fire and other casualty and reasonable wear and tear only excepted, and all glass in windows (except glass in exterior walls unless the damage thereto is attributable to Tenant's negligence or misuse) and doors of the Premises whole and in good condition with glass of the same type and quality as that injured or broken, damage by fire or taking under the power of eminent domain only excepted, and at the expiration or termination of this Lease peaceably to yield up the Premises, all construction, work, improvements, and all alterations and additions thereto (subject to the provisions of Section 3.1 above) in good order, repair and condition, damage by fire and other casualty and reasonable wear and tear only excepted, first removing all personal property, goods and effects and, to the extent specified by Landlord by notice to Tenant given at least fifteen (15) business days before such expiration or termination, the wiring installed by or on behalf of Tenant after the date hereof for computer, telephone and other communication systems and equipment, and all alterations and additions made by Tenant and all partitions, and repairing any damage caused by such removal and restoring the Premises and leaving them clean and neat, provided, however, in no event shall Tenant be required to remove any alterations or improvements existing as of the date of this Lease, including, without limitation the
 
 
 
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Connector. Tenant shall not permit or commit any waste. and Tenant shall be responsible for the cost of repairs which may be made necessary by reason of damage to common areas in the Building(s) or to the Site caused by Tenant. Tenant's independent contractors. Tenant's employees or Tenant's invitees.
 
5.3          USE. (A) To use and occupy the Premises for the Permitted Uses only. and not to injure or deface the Premises, Buildings, the Site or any other part of the Property nor to permit in the Premises or on the Site any auction sale. vending machine (provided that Tenant shall be entitled to install snack and beverage vending machines, which machines shall be removed by Tenant upon the expiration or earlier termination of the Lease Term), or inflammable fluids or chemicals (other than materials in such reasonable and customary quantities as would ordinarily be used by a tenant in the use of premises of this sort for the Permitted Uses) or nuisance, or the emission from the Premises of any objectionable noise or odor, nor to use or devote the Premises or any part thereof for any purpose other than the Permitted Uses, nor for any use thereof which is inconsistent with maintaining the Building(s) as high quality buildings used for the Permitted Uses in the quality of its maintenance, use and occupancy, or which is improper, offensive, contrary to law or ordinance or liable to render necessary any alteration or addition to the Building(s). Further, (i) Tenant shall not, nor shall Tenant permit its employees, invitees, agents, independent contractors, contractors, assignees or subtenants to, keep, maintain, store or dispose of (into the sewage or waste disposal system or otherwise) or engage in any activity which might produce or generate any substance which is or may hereafter be classified as a hazardous material, waste or substance (collectively "Hazardous Materials"), under federal, state or local laws, rules and regulations, including, without limitation, 42 U.S.C. Section 6901 et seq., 42 U.S.C. Section 9601 et seq., 42 U.S.C. Section 2601 et seq., 49 U.S.C. Section 1802 et seq. and Massachusetts General Laws, Chapter 21 E and the rules and regulations promulgated under any of the foregoing, as such laws, rules and regulations may be amended from time to time (collectively "Hazardous Materials Laws"), (ii) Tenant shall immediately notify Landlord of any incident in, on or about the Premises, the Building(s) or the Site that would require the tiling of a notice under any Hazardous Materials Laws, (iii) Tenant shall comply and shall cause its employees, invitees, agents, independent contractors, contractors, assignees and subtenants to comply with each of the foregoing and (iv) subject to the provisions of Section 5.9 below, Landlord shall have the right to make such inspections (including testing) as Landlord shall elect from time to time to reasonably determine that Tenant is complying with the foregoing. Landlord represents to Tenant that, to the best of Landlord's actual knowledge as of the date of this Lease, there are no Hazardous Materials in the Buildings or on the Site which are required to be removed or otherwise abated in accordance with applicable Hazardous Materials Laws.
 
(B) TENANT SERVICES. Throughout the Lease Term, Tenant shall perform or cause to be performed by contractors first reasonably approved by Landlord the "Specified Services" (as defined below) (hereinafter called "Tenant's Performance of the Specified Services"). Tenant's Performance of the Specified Services shall be done in a manner consistent with the requirements of Exhibit D-1 hereof and otherwise consistent with the
 
 
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operation of the Buildings and Site, as applicable, in a similar manner as operated b) Landlord and in conformity with applicable Legal Requirements and Insurance Requirements. Tenant's indemnity as set forth in Section 5.7.1 shall include an) and all loss, cost, expense and damage (including, without limitation, any damage to the Buildings. the Site or the Property) arising or claimed to have arisen from Tenant or any other person. firm or entity providing or failing to provide the Specified Services. The "Specified Services" shall consist of, and be limited to, all of the cleaning services, trash removal and janitorial work (including replacement of all bulbs and ballasts) for Building Two, and the performance of and providing for all security to Building Two (except as otherwise expressly provided under Section 4.1.1 above).
 
5.4           OBSTRUCTIONS, RULES AND REGULATIONS. Not to unreasonably obstruct in any manner any portion of the Building(s) not hereby leased or any portion thereof or of the Site used by Tenant in common with others; not without prior consent of Landlord (not to be unreasonably withheld or delayed) to permit the painting or placing of any signs, curtains, blinds, shades, awnings, aerials or the like, visible from outside the Premises; and to comply with all reasonable Rules and Regulations now or hereafter made by Landlord, of which Tenant has been given notice, for the care and use of the Building(s) and Site and their facilities and approaches, which such Rules and Regulations shall be enforced by Landlord against all tenants of the Property in a uniform and non­discriminatory manner; provided, however, that Landlord shall not be liable to Tenant for the failure of other occupants of the Buildings to conform to such Rules and Regulations. Notwithstanding the foregoing, Landlord hereby consents to the installation of curtains, blinds and shades as aforesaid, subject to Landlord's review and approval as to color, style and method of installation, not to be unreasonably withheld.
 
5.5           SAFETY APPLIANCES; LICENSES. To keep the Premises equipped with all safety appliances required by any public authority because of any use made by Tenant other than normal office use, and to procure all licenses and permits so required because of such use and, if requested by Landlord, to do any work so required because of such use, it being understood that the foregoing provisions shall not be construed to broaden in any way Tenant's Permitted Uses.
 
5.6           ASSIGNMENT AND SUBLETTING PROHIBITION. Except as otherwise expressly provided herein, Tenant covenants and agrees that it shall not assign, mortgage, pledge, hypothecate or otherwise transfer this Lease and/or Tenant's interest in this Lease or sublet (which term, without limitation, shall include granting of concessions, licenses or the like) the whole or any part of the Premises. Any assignment, mortgage, pledge, hypothecation, transfer or subletting not expressly permitted in or consented to by Landlord under Sections 5.6.1-5.6.6 shall be void, ab initio; shall be of no force and effect; and shall confer no rights on or in favor of third parties. In addition, Landlord shall be entitled to seek specific performance of or other equitable relief with respect to the provisions hereof.
 
5.6.1        EXCEPTIONS FOR MERGERS AND AFFILIATE TRANSACTIONS AND   EXISTING SUBTENANTS. Notwithstanding the provisions of Section 5.6 above and
 
 
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the provisions of Section 5.6.2. 5.6.3 and (with respect to subsection (.A) below) 5.6.5 below, Tenant shall have the right (A) to assign this Lease or to sublet the Premises (in whole or in part) without Landlord's consent to any entity controlling, controlled by, or under common control with Tenant or to any entity into which Tenant may be converted or consolidated or with which it may merge. provided that (i) the entity to which this Lease is so assigned or which so sublets the Premises has a net worth (using generally accepted accounting principles consistently applied and using the most recent financial statements and measured immediately following such merger. conversion or consolidation) (a) which is the same or better than Tenant immediately prior to such merger, conversion or consolidation or, if not, then (b) which in Landlords reasonable judgment is sufficient to perform the obligations of the Tenant under this Lease (taking into account the continued liability of Tenant) and (ii) that any such assignment or sublet is being made for a legitimate business purpose and is not being made to circumvent the restrictions on transfer in Section 5.6 above; and (B) to sublease without Landlord's consent a portion of the Building One Premises (not to exceed thirty percent (30%) of the Floor Area of the Building One Premises to the following two existing subtenants (or any affiliate thereof): (i) Datawatch Corporation and (ii) Nokia Siemens Networks US LLC. Any such assignment or subletting under subsection (A) above shall be subject to the provisions of Sections 5.6.4 and 5.6.6 below, and any such subletting under subsection (B) above shall be subject to the provisions of Sections 5.6.4, 5.6.5 and 5.6.6 below . For purposes of this Section 5.6.1, the terms "control", "controlled", or "controlling" shall mean the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of such controlled person or entity; the ownership, directly or indirectly, of more than fifty percent (50%) of the voting securities of, or possession of the right to vote, in the ordinary direction of its affairs, more than fifty percent (50%) of the voting interest in, any person or entity shall be presumed to constitute such control.
 
5.6.2        ASSIGNMENT AND SUBLETTING -- LANDLORD'S TERMINATION RIGHT. Notwithstanding the provisions of Section 5.6 above, in the event that from time to time Tenant desires to assign this Lease or to sublet the Premises in whole or in part, Tenant shall notify Landlord thereof in writing and Landlord shall have the right at its sole option, to be exercised within the time period set forth in Section 5.6.4 to:
 
(i)        In the case of a proposed assignment of the Lease for all or substantially all of the remainder of the Lease Term (as it may have been extended), Landlord may, at its sole option, elect by written notice to Tenant to terminate this Lease as of the effective date of the proposed assignment as set forth in Tenant's Proposed Transfer Notice (as defined in Section 5.6.4 below); provided, however, that upon the termination date, all obligations relating to the period after such termination date (but not those relating to the period before such termination date) shall cease and promptly upon being billed therefore by Landlord, Tenant shall make final payment of all rent and Additional Rent due from Tenant through the termination date.
 
(ii)       In the case of a proposed subleasing which is of an area equivalent to or greater than the rentable floor area of one (I) full floor of the 269 Mill Road
 
 
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            Building or Building One for a sublease term equal to all or substantially all of the remainder of the Lease Term (as it may have been extended). Landlord may. at its sole option. elect by written notice to Tenant to terminate this Lease as to such portion of the Premises then proposed to be sublet (herein called the "Terminated Portion of the Premises") as of the effective date of the proposed subleasing set forth in Tenant's Proposed Transfer Notice: provided, however, that upon the termination date, all of Landlord's and Tenant's obligations as to the Terminated Portion of the Premises relating to the period after such termination date (but not those relating to the period before such termination date) shall cease and promptly upon being billed therefore by Landlord, Tenant shall make final payment of all rent and Additional Rent due from Tenant respecting the Terminated Portion of the Premises through the termination date and provided, further, that this Lease shall remain in full force and effect as to the remainder of the Premises, except that from and after the termination date the Floor Area of the Premises shall be reduced to the floor area of the remainder of the Premises and the definition of Floor Area of the Premises shall be so amended and after such termination all references in this Lease to the "Premises" or the "Floor Area of the Premises" shall be deemed to be references to the remainder of the Premises, and provided further that Landlord shall have the right to make such alterations and improvements as may be required to separately demise the Terminated Portion of the Premises. In addition, from and after the effective date of any such termination, Annual Fixed Rent shall be at the rate set forth in Section 1.1 but shall be calculated using the floor area of the remainder of the Premises and Tenant's payments for operating costs, real estate taxes and electricity shall be calculated on the same basis set forth in this Lease using the floor area of the remainder of the Premises. It is understood and agreed that Landlord shall have no recapture rights with respect to subleases (x) for an area equivalent to less than the entire rentable floor area of one (I) full floor of 269 Mill Road Building or Building One (regardless of the length of the sublease term) or (y) with sublease terms that are less than all or substantially all of the remainder of the Lease Term (as it may have been extended).
 
(iii)       In the event that Landlord shall not exercise its termination rights as aforesaid, or shall fail to give any or timely notice, the provisions of Sections 5.6.3-5.6.6 shall be applicable. This Section 5.6.2 shall not be applicable to an assignment or sublease pursuant to Section 5.6. I.
 
5.6.3        ASSIGNMENT AND SUBLETTING -- LANDLORD'S CONSENT. Notwithstanding the provisions of Section 5.6 above, but subject to the provisions of this Section 5.6.3 and the provisions of Sections 5.6.4, 5.6.5 and 5.6.6 below, (a) in the event that Landlord shall not have exercised the termination right as set forth in Section 5.6.2 or shall have failed to give any or timely notice under Section 5.6.2, then for a period of one hundred
 
 
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eighty (180) days (i) after the receipt of Landlord's notice stating that Landlord does not elect the termination right or (ii) after the expiration of the thirty (30) day period referred to in Section 5.6.4 in the event Landlord shall not give any or timely notice under Section 5.6.2 or (b) in the event Landlord has no termination right (in whole or in part) under Section 5.6.2, as the case may be. Tenant shall have the right to assign this Lease or sublet the whole or part of the Premises substantially in accordance with Tenant's Proposed Transfer Notice provided that, in each instance. Tenant first obtains the express prior written consent of Landlord, which consent shall not be unreasonably withheld, conditioned or delayed. Landlord shall exercise its rights under this Section 5.6.3 within the time period set forth in Section 5.6.4 hereof. Without limitation. Landlord shall not be deemed to be unreasonably withholding its consent to such a proposed assignment or subleasing if:
 
(a)  
The proposed assignee or subtenant is not of a character consistent with the operation of a similar class and use building (by way of example Landlord shall not be deemed to be unreasonably withholding its consent to an assignment or subleasing to any governmental agency), or
 
(b)  
The proposed assignee or subtenant is not of good character and reputation, or
 
(c)  
Except with respect to subleases for subleased premises that are less than 25,000 rentable square feet, the proposed assignee or subtenant does not in Landlord's reasonable determination possess adequate financial capability and liquidity to perform the Tenant obligations as and when due or required (taking into account the continued liability of Tenant), or
 
(d)  
The assignee or subtenant proposes to use the Premises (or part thereof) for a purpose other than the purpose for which the Premises may be used as stated in Section 1.1 hereof, or
 
(e)  
There shall be existing an Event of Default (defined in Section 7.1), or
 
(f)  
The proposed assignee or subtenant is then a tenant or subtenant in either of the Buildings or has made to or received from Landlord or an affiliate of Landlord, a written proposal to lease comparable space and is in active negotiation with Landlord or an affiliate of Landlord for premises in either of the Buildings, or
 
(g)  
Any part of the rent payable under the proposed assignment or sublease shall be based in whole or in part on the income or profits derived from the Premises or if any proposed assignment or sublease shall potentially have any adverse effect on the real estate investment trust qualification requirements applicable to Landlord and its affiliates, or
 
 
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(h)  
The holder of any first mortgage on real property which includes the Premises does not approve of the proposed assignment or sublease for any reason that is permitted under the terms of its mortgage loan documents.
 
5.6.4        ASSIGNMENT AND SUBLETTING -- TENANT'S NOTICE. Tenant shall give Landlord notice of any proposed sublease or assignment ( - Tenant's Proposed Transfer Notice"). and said notice shall specify the provisions of the proposed assignment or subletting, including (a) the name and address of the proposed assignee or subtenant, (b) such information as to the proposed assignee's or proposed subtenant's net worth and financial capability and standing as may reasonably be required for Landlord to make the determination referred to in Section 5.6.3 above (provided, however, that Landlord, if requested, shall sign a non-disclosure agreement (an "NDA"), in Landlord's standard form of NDA, and shall hold such information confidential in accordance with the terms of the NDA), (c) all of the material business terms and provisions upon which the proposed assignment or subletting is to be made, (d) if applicable, all other information necessary to make the determination referred to in Section 5.6.3 above. In the case of a proposed assignment or subletting pursuant to Section 5.6.1 above, Tenant shall only be required to provide such information as may be reasonably required by Landlord to determine that such proposed assignment or subletting complies with the requirements of said Section 5.6.1.
 
In the case of both Section 5.6.2 and Section 5.6.3, Landlord shall exercise its rights thereunder or grant or withhold its consent, as the case may be, within ten (10) business days after receipt of Tenant's Proposed Transfer Notice; provided, however, that not later than the fifth (5 th ) business day after receipt of such notice, Landlord shall have the right to give written notice to Tenant (i) specifying in reasonable detail that Tenant's notice and the materials submitted therewith are insufficient for Landlord to make the determinations under and in accordance with Sections 5.6.2 and 5.6.3 and (ii) requesting additional information from Tenant, in which case the five (5) business day period shall recommence to run from Landlord's receipt of such additional information. If Landlord shall consent to the proposed assignment or subletting, as the case may be, then, in such event, Tenant may thereafter sublease (the whole or part of the Premises, subject to the limitations set forth herein as to partial subleases) or assign, in either case pursuant to Tenant's Proposed Transfer Notice, as given hereunder; provided, however, that if such assignment or sublease shall not be executed and delivered to Landlord within one hundred eighty (180) days after the date of Landlord's consent, the consent shall be deemed null and void and the provisions of Section 5.6.2 and/or 5.6.3, as the case may be, shall be applicable.
 
5.6.5        ASSIGNMENT AND SUBLETTING -- SPLITTING OF ASSIGNMENT/SUBLEASE   PROFITS. In addition, in the case of any assignment or subleasing as to which Landlord may consent or is otherwise permitted hereunder (other than an assignment or subletting permitted under Section 5.6.1 (A) hereof) such consent shall be upon the express and further condition, covenant and agreement, and Tenant hereby covenants and agrees that, in addition to the Annual Fixed Rent, additional rent and other charges to be paid
 
 
 
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pursuant to this Lease. fifty percent (50%) of the "Assignment/Sublease Profits" (hereinafter defined). if any, shall be paid to Landlord.
 
The "Assignment/Sublease Profits" shall be the excess, if any, of (a) the "Assignment/Sublease Net Revenues" as hereinafter defined 0v er (b) the Annual Fixed Rent and Additional Rent and other charges provided in this Lease. The "Assignment/Sublease Net Revenues" shall be the fixed rent. additional rent and all other charges and sums payable either initially or over the term of the sublease or assignment plus all other profits and increases to be derived by Tenant as a result of such subletting or assignment, less the reasonable out-of-pocket costs of Tenant incurred in such subleasing or assignment (the definition of which shall include but not necessarily be limited to attorney's fees, marketing expenses, rent concessions, brokerage commissions, alteration costs or allowances and amounts that Tenant has previously paid for tenant improvements to the transferred space (not to exceed $45 per square foot) amortized on a straight-line basis over the balance of the Lease Term then remaining at the time any such improvements were installed) and with respect to which Tenant has provided Landlord with evidence reasonably documenting the same.
 
All payments of the Assignment/Sublease Profits due Landlord shall be made within ten (10) days of receipt of same by Tenant; provided, however, that Tenant shall be entitled to recover its reasonable costs as aforesaid prior to sharing the Assignment/Sublease Profits with Landlord.
 
5.6.6        ASSIGNMENT AND SUBLETTING -- ADDITIONAL CONDITIONS. (A) It shall be a condition of the validity of any assignment or subletting of right under Section 5.6.1 above (where the Tenant entity has changed its corporate formation), or consented to under Section 5.6.3 above, that the Tenant and the assignee or sublessee agree directly with Landlord, in a separate written instrument reasonably satisfactory to Landlord, Tenant and the assignee or sublessee, which contains terms and provisions reasonably required by Landlord, including, without limitation, the agreement of the assignee or sublessee to be bound by all the obligations of the Tenant hereunder, including, without limitation, the obligation to pay the rent and other amounts provided for (i) under this Lease, in the case of an assignment, and (ii) under the sublease, in the case of a sublease (but in the case of a permitted partial subletting, such subtenant shall agree to be so bound with respect to the subleased premises) including the provisions of Sections 5.6 through 5.6.6 hereof, but such assignment or subletting shall not relieve the Tenant named herein of any of the obligations of the Tenant hereunder, and Tenant shall remain fully and primarily liable therefor and the liability of Tenant and such assignee (or subtenant, as the case may be) shall be joint and several. Further, and notwithstanding the foregoing, the provisions hereof shall not constitute a recognition of the sublease or the subtenant thereunder, and at Landlord's option, upon the termination of the Lease, the sublease shall be terminated.
 
(B) As Additional Rent, Tenant shall reimburse Landlord promptly for reasonable out of pocket legal and other expenses incurred by Landlord in connection with any request
 
 
 
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by Tenant for consent to assignment or subletting (such legal expenses not to exceed 55.000.00 in connection with any single request for consent).
 
(C)   If this Lease be assigned, or if the Premises or any part thereof be sublet or occupied by anyone other than Tenant. Landlord may upon prior notice to Tenant, at any time and from time to time following an Event of Default by Tenant under this Lease, collect rent and other charges from the assignee, sublessee or occupant and apply the net amount collected to the rent and other charges herein reserved. but no such assignment. subletting. occupancy or collection shall be deemed a waiver of this covenant, or a waiver of the provisions of Sections 5.6 through 5.6.6 hereof, or the acceptance of the assignee. sublessee or occupant as a tenant or a release of Tenant from the further performance by Tenant of covenants on the part of Tenant herein contained, the Tenant herein named to remain primarily liable under this Lease.
 
(D)   The consent by Landlord to an assignment or subletting under any of the provisions of Sections 5.6.1 or 5.6.3 shall in no way be construed to relieve Tenant from obtaining the express consent in writing to Landlord to any further assignment or subletting.
 
(E)   Tenant shall have the right to advertise available space within the Premises to prospective subtenants, subject to Landlord's prior approval as to the form and content of the advertisement (not to be unreasonably withheld, conditioned or delayed). Notwithstanding the foregoing, Tenant shall have the right to advertise space for sublease at a rental rate determined by Tenant in its sole discretion.
 
(F)   In addition to the other requirements set forth in this Lease and notwithstanding any other provision of this Lease, partial sublettings of the Building One Premises only shall be permitted (that is, Building Two may not be partially sublet) and shall only be permitted under the following terms and conditions: (i) the layout of both the subleased premises and the remainder of the Building One Premises must comply with applicable laws, ordinances, rules and/or regulations and be approved by Landlord, including, without limitation, all requirements concerning access and egress; (ii), in the event the subleased premises are separately physically demised from the remainder of the Building One Premises, Tenant shall pay all costs of separately physically demising the subleased premises; and (iii) in no event shall there exist more than four (4) partial subleases at any one time during the Term.
 
5.7           TENANT'S INDEMNITY AND INSURANCE.
 
5.7.1        (A)  Tenant's Indemnity
 
(a)           Indemnity. Subject to the provisions of Sections 5.7.13 and 8.4 below, to the maximum extent permitted by law, Tenant agrees to indemnify and save harmless the Landlord Parties (as hereinafter defined) from and against all claims of whatever nature by third parties arising from or claimed to have arisen from (i) any act, omission or negligence of the Tenant Parties (as hereinafter defined); (ii) any accident, injury or damage whatsoever caused to any person, or to the property of any person, occurring in the Premises from the
 
 
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Commencement Date. and thereafter throughout and until the end of the Lease Term, and after the end of the Lease Term for so long after the end of the Lease Term as Tenant or anyone acting by, through or under Tenant is in occupancy of the Premises or any portion thereof; (iii) any accident, injury or damage whatsoever occurring outside the Premises but within the Building(s), or on common areas of the Property, where such accident, injury or damage results, or is claimed to have resulted, from any act, omission or negligence on the part of any of the Tenant Parties; or (iv) any breach of this Lease by Tenant. In no event shall Tenant be liable for any indirect or consequential damages except under the terms of Section 8.18 below. Tenant shall pay such indemnified amounts as they are incurred by the Landlord Parties. Upon having actual notice that a claim will trigger Tenant's indemnity obligation hereunder, Landlord shall provide Tenant with timely notice of such claim. This indemnification shall not be construed to deny or reduce any other rights or obligations of indemnity that any of the Landlord Parties may have under this Lease or the common law. Notwithstanding anything contained herein to the contrary, Tenant shall not be obligated to indemnify a Landlord Party for any claims to the extent that such Landlord Party's damages in fact result from such Landlord Party's negligence or willful misconduct or Landlord's breach of the Lease.
 
(b)              Breach. In the event that Tenant breaches any of its indemnity obligations hereunder or under any other contractual or common law indemnity: (i) Tenant shall pay to the Landlord Parties all liabilities, loss, cost, or expense (including attorney's fees) incurred as a result of said breach; and (ii) the Landlord Parties may deduct and offset from any amounts due to Tenant under this Lease any amounts owed (as determined by the final judgment of a court or arbitrator) by Tenant pursuant to this Section 5.7.1 (b).
 
(c)              No limitation. The indemnification obligations under this Section 5.7.1 shall not be limited in any way by any limitation on the amount or type of damages, compensation or benefits payable by or for Tenant or any subtenant or other occupant of the Premises under workers' compensation acts, disability benefit acts, or other employee benefit acts. Tenant waives any immunity from or limitation on its indemnity or contribution liability to the Landlord Parties based upon such acts.
 
(d)             Subtenants and other occupants. Tenant shall require its subtenants and other occupants of the Premises to provide similar indemnities to the Landlord Parties in a form reasonably acceptable to Landlord and to Tenant and such subtenants or occupants.
 
(e)              Survival. The terms of this Section 5.7.1 shall survive any termination or expiration of this Lease.
 
(f)            Costs. The foregoing indemnity and hold harmless agreement shall include indemnity for all costs, expenses and liabilities (including, without limitation, attorneys' fees and disbursements) incurred by the Landlord Parties in connection with any such claim or any action or proceeding brought thereon, and the defense thereof. In addition, in the event that any action or proceeding shall be brought against one or more Landlord
 
 
 
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Parties by reason of any such claim. Tenant, upon request from the Landlord Party. shall resist and defend such action or proceeding on behalf of the Landlord Party by counsel appointed by Tenant's insurer (if such claim is covered by insurance without reservation) or otherwise by counsel reasonably satisfactory to the Landlord Party. The Landlord Parties shall not be bound by any compromise or settlement of any such claim, action or proceeding without the prior written consent of such Landlord Parties.
 
(B)      Landlord's Indemnity. Subject to the limitations in Section 8.4 of this Lease and in the provisions of Section 5.7.2 and Section 5.7.13 of this Article, and to the extent not resulting from any act, omission, fault, negligence or misconduct of Tenant or its contractors, licensees, invitees, agents, servants or employees, Landlord agrees to indemnify and save harmless the Tenant Parties from and against any claim by a third party arising from any injury to any person occurring in the Premises or in the Property after the date that possession of the Premises is first delivered to Tenant and until the expiration or earlier termination of the Lease Term, to the extent such injury results from the negligence or willful misconduct of any Landlord Party, or from any breach or default by Landlord in the performance or observance of its covenants or obligations under this Lease; provided, however, that in no event shall the aforesaid indemnity render Landlord responsible or liable for any loss or damage to fixtures, personal property or other property of Tenant, and Landlord shall in no event be liable for any indirect or consequential damages. Tenant shall provide notice of any such third party claim to Landlord as soon as practicable. Landlord shall have the right, but not the duty, to defend the claim. The provisions of this Section shall not be applicable to the holder of any mortgage now or hereafter on the Property or Building(s) (whether or not such holder shall be a mortgagee in possession of or shall have exercised any rights under a conditional, collateral or other assignment of leases and/or rents respecting the Property or Building(s), except to the extent of liability insurance maintained by either of the foregoing.
 
5.7.2        Tenant's Risk
 
Tenant agrees to use and occupy the Premises, and to use such other portions of the Building(s) and the Property as Tenant is given the right to use by this Lease at Tenant's own risk. The Landlord Parties shall not be liable to the Tenant Parties for any damage, injury, loss, compensation, or claim (including, but not limited to, claims for the interruption of or loss to a Tenant Party's business) based on, arising out of or resulting from any cause whatsoever, including, but not limited to, repairs to any portion of the Premises or the Building(s) or the Property, any fire, robbery, theft, mysterious disappearance, or any other crime or casualty, the actions of any other tenants of the Building(s) or of any other person or persons, or any leakage in any part or portion of the Premises or the Building(s) or the Property, or from water, rain or snow that may leak into, or flow from any part of the Premises or the Building(s) or the Property, or from drains, pipes or plumbing fixtures in the Building(s) or the Property. Any goods, property or personal effects stored or placed in or about the Premises shall be at the sole risk of the Tenant Party, and neither the Landlord Parties nor their insurers shall in any manner be held responsible therefor. The Landlord Parties shall not be responsible or liable to a Tenant Party, or to those claiming by, through or under a Tenant Party, for any loss or
 
 
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damage that may be occasioned by or through the acts or omissions of persons occupying adjoining premises or any part of the premises adjacent to or connecting with the Premises or any part of the Building(s) or otherwise. Notwithstanding the foregoing, the Landlord Parties shall not be released from liability for any injury, loss, damages or liability to the extent arising from any negligence or willful misconduct of the Landlord Parties on or about the Premises: provided, however, in no event shall the Landlord Parties have any liability to a Tenant Party based on any loss with respect to or interruption in the operation of Tenant's business. The provisions of this Section shall be applicable until the expiration or earlier termination of the Lease Term, and during such further period as Tenant may use or be in occupancy of any part of the Premises or of the Buildings.
 
5.7.3        Tenant's Commercial General Liability Insurance
 
Tenant agrees to maintain in full force on or before the earlier of (i) the date on which any Tenant Party first enters the Premises for any reason or (ii) the Commencement Date, and thereafter throughout and until the end of the Lease Term, and after the end of the Lease Term for so long as Tenant or anyone acting by, through or under Tenant is in occupancy of the Premises or any portion thereafter, a policy of commercial general liability insurance, on an occurrence basis, issued on a form at least as broad as Insurance Services Office ("ISO") Commercial General Liability Coverage "occurrence" form CG 00 01 10 01 or another Commercial General Liability "occurrence" form providing equivalent coverage. Such insurance shall include broad form contractual liability coverage, specifically covering but not limited to the indemnification obligations undertaken by Tenant in this Lease. The minimum limits of liability of such insurance shall be Ten Million Dollars ($10,000,000.00) per occurrence (which limits may be satisfied through a combination of primary and excess liability coverage), and a maximum deductible of Twenty-Five Thousand Dollars ($25,000.00). In addition, in the event Tenant hosts a function in the Premises, Tenant agrees to obtain, and cause any persons or parties providing services for such function to obtain, the appropriate insurance coverages as determined by Landlord (including liquor liability coverage, if applicable) and provide Landlord with evidence of the same.
 
5.7.4        Tenant's Property Insurance
 
Tenant shall maintain at all times during the Term of the Lease, and during such earlier time as Tenant may be performing work in or to the Premises or have property, fixtures, furniture, equipment, machinery, goods, supplies, wares or merchandise on the Premises, and containing thereafter so long as Tenant is in occupancy of any part of the Premises, business interruption insurance and insurance against loss or damage covered by the so- called "all risk" type insurance coverage with respect to Tenant's property, fixtures, furniture, equipment, machinery, goods, supplies, wares and merchandise, and all alterations, improvements and other modifications made by or on behalf of the Tenant in the Premises, and other property of Tenant located at the Premises, which are permitted to be removed by Tenant at the expiration or earlier termination of the Lease Term except to the extent paid for by Landlord (collectively "Tenant's Property"). The business
 
 
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interruption insurance required by this Section 5.7.4 shall be in minimum amounts typically carried by prudent tenants engaged in similar operations. but in no event shall be in an amount less than the Annual Fixed Rent then in effect during, any year during the Term. plus an) Additional Rent due and payable for the immediately preceding year during the Term. The all risk - insurance required by this section shall be in an amount at least equal to the lull replacement cost of Tenant's Property and with a maximum deductible of Five Hundred Thousand Dollars ($500,000.00). In addition, during such time as Tenant is performing work in or to the Premises, Tenant, at Tenant's expense, shall also maintain. or shall cause its contractor(s) to maintain, builder's risk insurance for the full insurable value of such work. Landlord and such additional persons or entities as Landlord may reasonably request shall be named as loss payees, as their interests may appear. on the policy or policies required by this Lease. In the event of loss or damage covered by the all risk" insurance required by this Lease, the responsibilities for repairing or restoring the loss or damage shall be determined in accordance with Article VI. To the extent that Landlord is obligated to pay for the repair or restoration of the loss or damage covered by the policy, Landlord shall be paid the proceeds of the "all risk" insurance covering the loss or damage. To the extent Tenant is obligated to pay for the repair or restoration of the loss or damage, covered by the policy, Tenant shall be paid the proceeds of the "all risk" insurance covering the loss or damage. If both Landlord and Tenant are obligated to pay for the repair or restoration of the loss or damage covered by the policy, the insurance proceeds shall be paid to each of them in the pro rata proportion of their obligations to repair or restore the loss or damage. If the loss or damage is not repaired or restored (for example, if the Lease is terminated pursuant to Article VI), the insurance proceeds shall be paid to Landlord and Tenant in the pro rata proportion of their relative contributions to the cost of the leasehold improvements covered by the policy.
 
5.7.5        Tenant's Other Insurance
 
Tenant agrees to maintain in full force on or before the earlier of (i) the date on which any Tenant Party first enters the Premises for any reason or (ii) the Commencement Date, and thereafter throughout the end of the Term, and after the end of the Term for so long after the end of the Term as Tenant or anyone acting by, through or under Tenant is in occupancy of the Premises or any portion thereafter, (I) comprehensive automobile liability insurance (covering any automobiles owned or operated by Tenant) issued on a form at least as broad as ISO Business Auto Coverage form CA 00 01 07 97 or other form providing equivalent coverage; (2) worker's compensation insurance; and (3) employer's liability insurance. Such automobile liability insurance shall be in an amount not less than One Million Dollars ($1.000,000) for each accident. Such worker's compensation insurance shall carry minimum limits as defined by the law of the jurisdiction in which the Premises are located (as the same may be amended from time to time). Such employer's liability insurance shall be in an amount not less than One Million Dollars ($1,000,000) for each accident, One Million Dollars ($1,000,000) disease-policy limit, and One Million Dollars ($1,000,000) disease-each employee.
 
 
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5.7.6        Requirements for Tenant's Insurance
 
All insurance required to be maintained by Tenant pursuant to this Lease shall be maintained with responsible companies that are admitted to do business, and are in good standing in the Commonwealth of Massachusetts and that have a rating of at least "A" and are within a financial size category of not less than "Class X" in the most current Best's Key Rating Guide or such similar rating as may be reasonably selected by Landlord. All such insurance shall: (I) be acceptable in form and content to Landlord; (2) be primary and noncontributory; and (3) contain an endorsement prohibiting cancellation, failure to renew, reduction of amount of insurance, or change in coverage without the insurer first giving Landlord thirty (30) days' prior written notice (by certified or registered mail, return receipt requested, or by fax or email) of such proposed action. No such policy shall contain any deductible or self-insured retention greater than the maximum deductibles noted above. Such deductibles and self-insured retentions shall be deemed to be "insurance" for purposes of the waiver in Section 8.13 below. Landlord reserves the right from time to time to require Tenant to obtain higher minimum amounts of insurance based on such limits as are customarily carried with respect to similar properties in the area in which the Premises are located. The minimum amounts of insurance required by this Lease shall not be reduced by the payment of claims or for any other reason. In the event Tenant shall fail to obtain or maintain any insurance meeting the requirements of this Article, or to deliver such policies or certificates as required by this Article, Landlord may, at its option, on five (5) days notice to Tenant, procure such policies for the account of Tenant, and the cost thereof shall be paid to Landlord within five (5) days after delivery to Tenant of bills therefor. The insurance required to be maintained by Tenant pursuant to this section may be carried under blanket insurance policies covering the Premises and other properties owned or leased by Tenant, so long as such policies comply with this Lease. The coverage provided by such policies shall at all times meet the requirements of this Lease, without co-insurance.
 
5.7.7       Additional Insureds
 
The commercial general liability and auto insurance carried by Tenant pursuant to this Lease, and any additional liability insurance carried by Tenant pursuant to Section 5.7.3 of this Lease, shall name Landlord, Landlord's managing agent, and such other persons as Landlord may reasonably request from time to time as additional insureds with respect to liability arising out of or related to this Lease or the operations of Tenant (collectively "Additional Insureds"). Such insurance shall provide primary coverage without contribution from any other insurance carried by or for the benefit of Landlord, Landlord's managing agent, or other Additional Insureds. Such insurance shall also waive any right of subrogation against each Additional Insured.
 
5.7.8       Certificates of Insurance
 
On or before the earlier of (i) the date on which any Tenant Party first enters the Premises for any reason or (ii) the Commencement Date, Tenant shall furnish Landlord with certificates evidencing the insurance coverage required by this Lease, and renewal certificates shall be furnished to Landlord at least annually thereafter, and at least thirty
 
 
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(30) days prior to the expiration date of each policy for which a certificate was furnished (acceptable forms of such certificates for liability and property insurance, respectively, are attached as Exhibit E). Failure by the Tenant to provide the certificates or letters required by this Section 5.7.8 shall not be deemed to be a waiver of the requirements in this Section 5.7.8. Upon request by Landlord, a true and complete copy of any insurance policy required by this Lease shall be delivered to Landlord within ten (10) days following Landlord's request.
 
5.7.9       Subtenants and Other Occupants
 
Tenant shall require its subtenants and other occupants of the Premises to provide written documentation evidencing the obligation of such subtenant or other occupant to indemnify the Landlord Parties to the same extent that Tenant is required to indemnify the Landlord Parties pursuant to Section 5.7.1 above, and to maintain insurance that meets the requirements of this Article, and otherwise to comply with the requirements of this Article. Tenant shall require all such subtenants and occupants to supply certificates of insurance evidencing that the insurance requirements of this Article have been met and shall forward such certificates to Landlord on or before the earlier of (i) the date on which the subtenant or other occupant or any of their respective direct or indirect partners, officers, shareholders, directors, members, trustees, beneficiaries, servants, employees, principals, contractors, licensees, agents, invitees or representatives first enters the Premises or (ii) the commencement of the sublease. Tenant shall be responsible for identifying and remedying any deficiencies in such certificates or policy provisions.
 
5.7.10      No Violation of Building Policies
 
Tenant shall not commit or permit any violation of the policies of fire, boiler, sprinkler, water damage or other insurance covering the Property and/or the fixtures, equipment and property therein carried by Landlord, or do or permit anything to be done, or keep or permit anything to be kept, in the Premises, which in case of any of the foregoing (i) would result in termination of any such policies, (ii) would adversely affect Landlord's right of recovery under any of such policies, or (iii) would result in reputable and independent insurance companies refusing to insure the Property or the property of Landlord in amounts reasonably satisfactory to Landlord.
 
5.7.11      Tenant to Pay Premium Increases
 
If, because of anything done, caused or permitted to be done, or omitted by Tenant (or its subtenant or other occupants of the Premises), the rates for liability, fire, boiler, sprinkler, water damage or other insurance on the Property and equipment of Landlord or any other tenant or subtenant in the Building(s) shall be higher than they otherwise would be, Tenant shall reimburse Landlord and/or the other tenants and subtenants in the Building(s) for the additional insurance premiums thereafter paid by Landlord or by any of the other tenants and subtenants in the Building(s) which shall have been charged because of the aforesaid reasons, such reimbursement to be made from time to time on Landlord's demand.
 
 
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5.7.12      Landlord's Insurance
 
(a)               Required insurance. Landlord shall maintain insurance against loss or damage with respect to the Building(s) on an "all risk" type insurance form, with customary exceptions, subject to such deductibles as Landlord may determine (not to exceed $100,000.00, increased on an annual basis as each anniversary of the Commencement Date by the corresponding increase in CPI for the immediately preceding twelve (12) month period), in an amount equal to at least the replacement value of the Building(s). Landlord shall also maintain such insurance with respect to any improvements, alterations, and fixtures of Tenant located at the Premises to the extent paid for by Landlord. The cost of such insurance shall be treated as a part of Landlord's Operating Expenses. Such insurance shall be maintained with an insurance company selected by Landlord. Payment for losses thereunder shall be made solely to Landlord.
 
(b)               Optional insurance. Landlord may maintain such additional insurance with respect to the Building(s) and the Property, including, without limitation, earthquake insurance, terrorism insurance, flood insurance, liability insurance and/or rent insurance, provided that: (i) so long as Landlord is an affiliate of Boston Properties Limited Partnership or so long as an affiliate of Boston Properties Limited Partnership owns the Buildings, such insurance is consistent with the insurance coverages then being carried by Landlord and its affiliates on buildings in New England of a similar type and location to the Buildings, and (ii) if neither Landlord nor an affiliate of Boston Properties Limited Partnership owns the Buildings, such insurance is consistent with the insurance coverages then being carried by landlords of other comparable office buildings in the Route 3/1-495 North market area. Landlord may also maintain such other insurance as may from time to time be required by the holder of any mortgage on the Building(s) or Property. The cost of all such additional insurance shall also be part of the Landlord's Operating Expenses.
 
(c)               Blanket and self-insurance. Any or all of Landlord's insurance may be provided by blanket coverage maintained by Landlord or any affiliate of Landlord under its insurance program for its portfolio of properties, or by Landlord or any affiliate of Landlord under a program of self-insurance, and in such event Landlord's Operating Expenses shall include the portion of the reasonable cost of blanket insurance or self- insurance that is reasonably allocated to the Building(s).
 
(d)               No obligation. Landlord shall not be obligated to insure, and shall not assume any liability of risk of loss for, Tenant's Property, including any such property or work of Tenant's subtenants or occupants. Landlord will also have no obligation to carry insurance against, nor be responsible for, any loss suffered by Tenant, subtenants or other occupants due to interruption of Tenant's or any subtenant's or occupant's business.
 
5.7.13      Waiver of Subrogation
 
The parties hereto waive and release any and all rights of recovery against the other, and agree not to seek to recover from the other or to make any claim against the other, and in the case of Landlord, against all "Tenant Parties" (hereinafter defined), and in the case of Tenant, against all "Landlord Parties" (hereinafter defined), for any loss or damage
 
 
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incurred by the waiving/releasing party to the extent such loss or damage is insured under any insurance policy required by this Lease or which would have been so insured had the part} carried the insurance it was required to carry hereunder, provided that this waiver and release shall not apply to the commercial general liability insurance Landlord is required to carry b) Section 5.7.12(a). Tenant shall obtain from its subtenants and other occupants of the Premises a similar waiver and release of claims against any or all of Tenant or Landlord. In addition, the parties hereto (and in the case of Tenant, its subtenants and other occupants of the Premises) shall procure an appropriate clause in, or endorsement on, any insurance policy required by this Lease pursuant to which the insurance company waives subrogation. The insurance policies required by this Lease shall contain no provision that would invalidate or restrict the parties' waiver and release of the rights of recovery in this section. The parties hereto covenant that no insurer shall hold any right of subrogation against the parties hereto by virtue of such insurance policy.
 
The term "Landlord Party" or "Landlord Parties" shall mean Landlord, any affiliate of Landlord, Landlord's managing agents for the Building(s), each mortgagee (if any), each ground lessor (if any), and each of their respective direct or indirect partners, officers, directors, members, trustees, beneficiaries, servants, employees, principals, contractors, licensees, agents or representatives. For the purposes of this Lease, the term "Tenant Party" or "Tenant Parties" shall mean Tenant, any affiliate of Tenant, any permitted subtenant or any other permitted occupant of the Premises, and each of their respective direct or indirect partners, officers, directors, members, trustees, beneficiaries, servants, employees, principals, contractors, licensees, agents, invitees or representatives.
 
5.7.14     Tenant's Work
 
During such times as Tenant is performing work or having work or services performed in or to the Premises, Tenant shall require its contractors, and their subcontractors of all tiers, to obtain and maintain commercial general liability, automobile, workers compensation, employer's liability, builder's risk, and equipment/property insurance in such amounts and on such terms as are customarily required of such contractors and subcontractors on similar projects. The amounts and terms of all such insurance are subject to Landlord's written approval, which approval shall not be unreasonably withheld. The commercial general liability and auto insurance carried by Tenant's contractors and their subcontractors of all tiers pursuant to this section shall name Landlord, Landlord's managing agent, and such other persons as Landlord may reasonably request from time to time as additional insureds with respect to liability arising out of or related to their work or services (collectively "Additional Insureds"). Such insurance shall provide primary coverage without contribution from any other insurance carried by or for the benefit of Landlord, Landlord's managing agent, or other Additional Insureds. Such insurance shall also waive any right of subrogation against each Additional Insured. Tenant shall obtain and submit to Landlord, prior to the earlier of (i) the entry onto the Premises by such contractors or subcontractors or (ii) commencement of the work or services, certificates of insurance evidencing compliance with the requirements of this section.
 
 
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5.8          OMITTED.
 
5.9          LANDLORD'S RIGHT OF ENTRY. To permit Landlord and its agents to examine the Premises at reasonable times (including, without limitation, Monday through Friday, 8:00 a.m. until 6:00 p.m.) and upon reasonable prior notice to Tenant (except in the event of an emergency where Landlord shall only be required to use reasonable efforts to provide notice, which need not be in writing, and only to the extent feasible considering the emergency) and, if Landlord shall so elect, to make any repairs or replacements Landlord may deem reasonably necessary; to remove, at Tenant's expense, any alterations, addition, signs, curtains, blinds, shades, awnings, aerials, flagpoles, or the like not consented to in writing (where such consent is required hereunder); and to show the Premises to prospective tenants during the twenty (20) months preceding expiration of the Term (unless Tenant shall have given Landlord a Tenant's Extension Notice and Tenant shall have waived any right to withdraw said Extension Notice and Tenant shall be unconditionally bound to extend the then existing Term under Section 2.4.0) and to prospective purchasers and mortgagees at all reasonable times and upon reasonable prior notice to Tenant. In addition, Landlord agrees that if it is showing the Premises to a prospective tenant or purchaser who is engaged in a business in direct competition with that of Tenant, Tenant shall have the right to have a representative present during such entry and to place reasonable restrictions on such competitor's access to areas where Tenant's work product may be in plain view. In connection with the foregoing, Landlord shall identify all prospective tenants or purchasers and their representatives by name to Tenant prior to bringing said parties into the Premises, so that Tenant may reasonably determine whether or not such parties are direct competitors of Tenant; provided, however, that in the event a prospective tenant or purchaser does not want to be thus identified, such prospective tenant's or purchaser's access will be limited to such portions of the Premises as Tenant may elect as if such party were a direct competitor of Tenant.
 
5.10         FLOOR LOAD; PREVENTION OF VIBRATION AND NOISE. Except to the extent approved by Landlord, not to place a load upon any floor of the Premises above the ground floor exceeding an average rate of 100 pounds of live load per square foot of floor area (partitions shall be considered as part of the live load); and not to move any safe, vault or other heavy equipment in, about or out of the Premises except in such manner and at such time as Landlord shall in each instance authorize; to the extent that Tenant does not occupy the Building(s) in its entirety, Tenant's business machines and mechanical equipment which cause vibration or noise that may be transmitted to the Building(s) structure or to any other space in the Building(s) shall be so installed, maintained and used by Tenant so as to eliminate such vibration or noise.
 
5.11         PERSONAL PROPERTY TAXES. To pay promptly when due all taxes that may be imposed upon Tenant's Property in the Premises to whoever assessed.
 
5.12         COMPLIANCE WITH LAWS. To comply with all applicable Legal Requirements now or hereafter in force (A) relating to or as a result of any additions, alterations or improvements performed by or for Tenant or any assignee of subtenant of Tenant, and (B) relating to or as a result of the use or occupancy of the Premises; provided that
 
 
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Tenant shall not be required to make any alterations or additions unless the same are required by such Legal Requirements as a result of or in connection with Tenant's use or occupancy of the Premises beyond normal use of space of this kind. Tenant shall promptly pay all tines, penalties and damages that may arise out of or be imposed because of its failure to comply with the provisions of this Section 5.12.
 
Landlord represents and warrants, to the best of Landlord's knowledge, that the base building cores, shells and surrounding site work (excluding any work performed by any tenants) comply with all laws, regulations and building codes (including, without limitation, the Americans With Disabilities Act, 42 U.S.C. §1210 I (et seq.) and all regulations thereunder) applicable to the Buildings and the Site at the time of construction.
 
5.13         PAYMENT OF LITIGATION EXPENSES. To pay as Additional Rent all reasonable costs, counsel and other fees incurred by Landlord in connection with the successful enforcement by Landlord of any obligations of Tenant under this Lease following the occurrence of an Event Default and during the continuance of an Event of Default (Landlord hereby similarly agreeing to pay all reasonable costs, counsel and other fees incurred by Tenant in connection with the successful enforcement by Tenant of any obligations of Landlord under this Lease).
 
5.14         PATRIOT ACT
 
As an inducement to Landlord to enter into this Lease, Tenant hereby represents and warrants that: (i) Tenant is not, nor is it owned or controlled directly or indirectly by, any person, group, entity or nation named on any list issued by the Office of Foreign Assets Control of the United States Department of the Treasury ("OFAC") pursuant to Executive Order 13224 or any similar list or any law, order, rule or regulation or any Executive Order of the President of the United States as a terrorist, "Specially Designated National and Blocked Person" or other banned or blocked person (any such person, group, entity or nation being hereinafter referred to as a "Prohibited Person"); (ii) Tenant is not (nor is it owned, controlled, directly or indirectly, by any person, group, entity or nation which is) acting directly or indirectly for or on behalf of any Prohibited Person; and (iii) from and after the effective date of the above-referenced Executive Order, Tenant (and any person, group, or entity which Tenant controls, directly or indirectly) has not conducted nor will conduct business nor has engaged nor will engage in any transaction or dealing with any Prohibited Person in violation of the U.S. Patriot Act or any OFAC rule or regulation, including without limitation any assignment of this Lease or any subletting of all or any portion of the Premises or the making or receiving of any contribution of funds, goods or services to or for the benefit of a Prohibited Person in violation of the U.S. Patriot Act or any OFAC rule or regulation. In connection with the foregoing, it is expressly understood and agreed that (x) any breach by Tenant of the foregoing representations and warranties shall be deemed an immediate Event of Default by Tenant under Section 7.1 of this Lease (without the benefit of notice or grace) and shall be covered by the indemnity provisions of Section 8.1 below, and (y) the representations and
 
 
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warranties contained in this subsection shall he continuing in nature and shall survive the expiration or earlier termination of this Lease. Not withstanding anything contained herein to the contrary, for the purposes of this Section, the phrase "owned or controlled directly or indirectly by any person, group, entity or nation - and all similar such phrases shall not include any holder of a direct or indirect interest in a publicly traded company whose shares are listed and traded on a United States national stock exchange.
 
ARTICLE VI
 
CASUALTY AND TAKING
 
6.0           LANDLORD'S RESTORATION ESTIMATE. In case during the Lease Term the Building(s) or Site are damaged by fire or other casualty, Landlord shall as soon as reasonably possible following such casualty and in any event within sixty (60) days after the occurrence thereof notify Tenant in writing of Landlord's estimate of the length of time necessary to repair or restore such fire or casualty damage ("Landlord's Restoration Estimate").
 
6.1           TERMINATION RIGHTS. In the event that during the Lease Term either of both of the Buildings are so substantially damaged by fire or other casualty that in Landlord's reasonable judgment it would be impractical or uneconomic to cause such Building or Buildings to be restored (it being understood and agreed that Landlord shall be deemed to be reasonable in its determination that restoration would be impractical or uneconomic if the holder of any mortgage which includes the Building(s) as a part of the mortgaged premises does not allow the net insurance proceeds to be applied to the restoration of the Building(s) and/or the Site in accordance with commercially reasonable provisions in its mortgage and in such case Landlord does not elect, in Landlord's sole discretion exercised in good faith, to spend the additional funds necessary to fully restore the Building(s) and/or the Site), Landlord may, at its election, terminate this Lease (or partially terminate this Lease as provided below) by notice given to Tenant within thirty (30) days after the date of Landlord's Restoration Estimate specifying the effective date of termination, provided, however, that Landlord shall only be permitted to terminate this Lease on account of such damage if Landlord terminates the leases of all other tenants in the Building similarly affected by the casualty (where Landlord has a termination right thereunder). The effective date of termination specified by Landlord shall not be less than thirty (30) days nor more than forty-five (45) days after the date of notice of such termination. Notwithstanding the foregoing, if the damage is limited to only one building and in Landlord's reasonable judgment it would be impractical or uneconomic to cause such building to be restored, Landlord shall have the option, exercisable by Landlord in its sole discretion, to notify Tenant of its election to terminate this Lease as to such building only (a "Partial Termination Notice").
 
If the time for repair or restoration in Landlord's Restoration Estimate exceeds two hundred ten (210) days from the date of the casualty, or if Landlord gives Tenant a Partial
 
 
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Termination Notice. Tenant may. at its election, either (a) terminate this Lease or (b) accept Landlord's Partial Termination Notice. in either ease by notice given to Landlord within thirty (30) days after the later of (i) the receipt of Landlord's Restoration Estimate. or (ii) the receipt of a Partial termination Notice. specifying the effective date of termination or partial termination, as applicable. The effective date of termination or partial termination specified by Tenant shall not be less than thirty (30) days nor more than forty-five (45) days after the date of notice of such termination, and in the case of a partial termination, the Lease shall be modified as necessary to reflect the reduction in the Premises and the unavailability of or change in any amenities or services.
 
In addition, in case during the final eighteen (18) months of the Lease Term, either or both of the Buildings in which Tenant then leases space is damaged by fire or other casualty and such damage either directly affects the Premises or materially impairs Tenant's access thereto or materially and adversely affects Tenant's use and quiet enjoyment thereof and Landlord's Restoration Estimate exceeds the lesser of one hundred twenty (120) days from the date of casualty or the remainder of the Term, Tenant may, at its election, terminate this Lease by notice given to Landlord within thirty (30) days after the receipt of Landlord's Restoration Estimate, specifying the effective date of termination. The effective date of termination specified by Tenant shall be not less than thirty (30) days nor more than forty-five (45) days after the date of notice of such termination.
 
Unless terminated pursuant to the foregoing provisions, this Lease shall remain in full force and effect following any such damage subject, however, to the following provisions. If the Building(s) or the Site or any part thereof are damaged by fire or other casualty and this Lease is not terminated by either Landlord or Tenant in accordance with the terms hereof (or if neither party has a right to terminate), Landlord shall, promptly after such damage and the determination of the net amount of insurance proceeds available, use due diligence to restore the Premises and the Building(s) in the event of damage thereto (excluding Tenant's Property) into substantially the same (or, at Landlord's option. better) condition than existed immediately prior to the fire or other casualty, and the Annual Fixed Rent, Tenant's share of Operating Expenses and Tenant's share of real estate taxes shall be justly and equitably abated from the date of the casualty according to the nature and extent of the injury to the Premises or the access thereto or use and quiet enjoyment thereof, until the Premises shall have been restored by Landlord substantially into such condition except for punch list items. Notwithstanding anything herein contained to the contrary, and provided that Landlord has maintained in full force and effect the fire and casualty insurance coverages required to be maintained by Landlord under the terms of this Lease, Landlord shall not be obligated to expend for such repair and restoration any amount in excess of the net insurance proceeds plus the amount of any insurance deductible. If such net insurance proceeds are not allowed by such mortgagee or ground lessor to be applied to, or are otherwise insufficient for, the restoration of the Building(s) (and/or the Site) and if Landlord does not otherwise elect to spend the additional funds necessary to fully restore the Building(s) (and/or the Site), then Landlord shall give notice ("Landlord's Proceeds Notice") to Tenant that Landlord does not elect to fund the amount of the within thirty (30) days of the final determination
 
 
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by such mortgagee or ground lessor as to the disbursement of proceeds and Tenant shall thereafter have the right to terminate this Lease 1)) providing Landlord with a notice of termination within thirty (30) days after Tenant's receipt of Landlord's Proceeds Notice (the effective date of which termination shall not be less than sixty (60) days after the date of notice of such termination).
 
If such restoration is not completed within the longer of 210 days from the date of the fire or casualty or the amount of time set forth in Landlord's Restoration Estimate, either such period to be subject, however, to extension where the delay in completion of such work is due to causes beyond Landlord's reasonable control (but in no event beyond fifteen (15) months from the date of the fire or casualty), Tenant shall have the right to terminate this Lease at any time after the expiration of the applicable period (as extended), which right shall continue until the restoration is substantially completed. Such termination shall be effective as of the thirtieth (30th) day after the date of receipt by Landlord of Tenant's notice, with the same force and effect as if such date were the date originally established as the expiration date hereof unless, within thirty (30) days after Landlord's receipt of Tenant's notice, such restoration is substantially completed, in which case Tenant's notice of termination shall be of no force and effect and this Lease and the Lease Term shall continue in full force and effect.
 
6.2           UNINSURED CASUALTY. Notwithstanding anything to the contrary contained in this Lease, if the Building(s) or the Premises shall be substantially damaged by fire or casualty as the result of a risk not covered by the forms of casualty insurance at the time required to be maintained by Landlord and such fire or casualty damage cannot, in the ordinary course, reasonably be expected to be repaired within ninety (90) days from the date of casualty, Landlord or Tenant may, at either party's election, terminate the Term of this Lease by notice to the other party given within thirty (30) days after such loss. If either party shall give such notice, then this Lease shall terminate as of the date of such notice with the same force and effect as if such date were the date originally established as the expiration date hereof.
 
6.3           EMINENT DOMAIN. If either of the Buildings, or such portion of the Premises as to render the balance (if reconstructed to the maximum extent practicable in the circumstances) unsuitable for Tenant's purposes, in Tenant's reasonable judgment, shall be taken by condemnation or right of eminent domain, or if either of the Buildings are substantially affected by a taking by condemnation or right of eminent domain that in Landlord's reasonable judgment it would be impractical or uneconomic to cause such Building or Buildings to be restored (it being understood and agreed that Landlord shall be deemed to be reasonable in its determination that restoration would be impractical or uneconomic if the holder of any mortgage which includes the Building(s) as a part of the mortgaged premises does not allow the net condemnation proceeds to be applied to the restoration of the Building(s) and/or the Site in accordance with commercially reasonable provisions in its mortgage and in such case Landlord does not elect, in Landlord's sole discretion exercised in good faith, to spend the additional funds necessary to fully restore the Building(s) and/or the Site), then Landlord or Tenant shall have the right to terminate
 
 
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this Lease by notice to the other of its desire to do so, provided that such notice is given not later than thirty (30) days after Tenant has been deprived of possession. In addition, if more than fifteen percent (15%) of the parking spaces available for Tenant's use in accordance with Section 2.2.1 above, shall be taken by condemnation or right of eminent domain, Tenant shall have the right to terminate this Lease by notice to Landlord of its desire to do so, provided that such notice is given not later than thirty (30) days after Tenant has been deprived of such parking spaces, provided further, that such termination right shall be Tenant sole and exclusive remedy for said reduction in parking, and if Tenant fails to terminate following such a reduction in parking, then Tenant shall be deemed to have waived any rights or remedies Tenant may otherwise have against Landlord arising out of the unavailability of parking spaces on the Site as a result of a taking by condemnation or right of eminent domain. Parking spaces shall not be considered "taken" for purposes hereof if, despite an actual taking of an existing parking space on the Site which is available for Tenant's use, Landlord makes available to Tenant alternative parking spaces on the Site or off the Site and in a reasonably convenient location, including, without limitation, by virtue of an elevated parking structure or a valet service. If either party shall give such notice, then this Lease shall terminate as of the date of such notice with the same force and effect as if such date were the date originally established as the expiration date hereof.
 
Should any part of the Premises or the Site be so taken or condemned during the Lease Term hereof, and should this Lease not be terminated in accordance with the foregoing provisions, Landlord agrees that after the determination of the net amount of condemnation proceeds awarded to Landlord, Landlord shall use due diligence to put what may remain of the Premises into proper condition for use and occupation as nearly like the condition of the Premises prior to such taking as shall be practicable (excluding Tenant's Property) and to restore or replace the portion of the parking areas affected by the taking. Notwithstanding the foregoing, Landlord shall not be obligated to expend for such repair and restoration any amount in excess of the net condemnation proceeds. If such net condemnation proceeds are insufficient for, the restoration of the Buildings (and/or the Site) and if Landlord does not otherwise elect to spend the additional funds necessary to fully restore the Buildings (and/or the Site), then Landlord shall give notice ("Landlord's Award Notice") to Tenant that Landlord does not elect to fund the amount of the insufficiency and Tenant shall thereafter have the right to terminate this Lease by providing Landlord with a notice of termination within thirty (30) days after Tenant's receipt of Landlord's Award Notice (the effective date of which termination shall not be less than sixty (60) days after the date of notice of such termination).
 
If the Premises shall be affected by any exercise of the power of eminent domain, then the Annual Fixed Rent, Tenant's share of Operating Expenses and Tenant's share of real estate taxes shall be justly and equitably abated and reduced from the date of the taking according to the nature and extent of the loss of use thereof suffered by Tenant; and in case of a taking which permanently reduces the Floor Area of the Premises or a material number of parking spaces available to Tenant, a just proportion of the Annual Fixed Rent, Tenant's share of Operating Expenses and Tenant's share of real estate taxes shall be abated for the remainder of the Lease Term.
 
 
 
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6.4           EMINENT DOMAIN DAMAGES RESERVED. Landlord shall have and hereby reserves to itself any and all rights to receive awards made for damages to the Premises, the Buildings, the Property and the Site and the leasehold hereby created, or any one or more of them, accruing by reason of exercise of eminent domain or by reason of anything lawfully done in pursuance of public or other authority. Tenant hereby grants, releases and assigns to Landlord all Tenant's rights to such awards, and covenants to execute and deliver such further assignments and assurances thereof as Landlord may from time to time request.
 
Notwithstanding the immediately preceding paragraph, if and to the extent that any improvements shall be taken pursuant to the power of eminent domain, shall have been separately paid for by Tenant when made, shall not be restored and for which a separate award shall not be made by the taking authority but the determination of the award takes into account such improvements, Tenant shall be entitled out of the award to an amount equal to Tenant's unamortized cost of such improvements. Tenant's unamortized cost of any of such improvements shall be determined from Tenant's federal income tax returns and shall exclude any contributions to such cost by Landlord whether effected by deductions from rent, special allowances, payments for Annual Fixed Rent or Additional Rent or otherwise.
 
Nothing contained herein shall be construed to prevent Tenant from prosecuting in any condemnation proceeding a claim for the value of any of Tenant's trade fixtures installed in the Premises by Tenant at Tenant's expense and for relocation and moving expenses, provided that such action and any resulting award shall not affect or diminish the amount of compensation otherwise recoverable by Landlord from the taking authority.
 
ARTICLE VII
 
DEFAULT
 
7.1            TENANT'S DEFAULT. (A) If at any time subsequent to the date of this Lease any one or more of the following events (herein sometimes called an "Event of Default") shall occur:
 
(i)  
Tenant shall fail to pay the fixed rent or additional rent for which provision is made herein for the payment by Tenant in regular installments (including, without limitation, on account of Operating Expenses and Real Estate Taxes) on or before the date on which the same become due and payable, or Tenant shall fail to pay any other charges not contemplated above within thirty (30) days after invoice and, with respect to any such failure specified in this subsection (i), the same continues for seven (7) days after written notice from Landlord thereof, or
 
 
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(ii)  
Landlord having rightfully given the notice specified in subdivision (i) above twice in an calendar y ear, Tenant shall thereafter in the same calendar year fail to pay (X) the fixed rent or additional rent for which provision is made herein for the payment by Tenant in regular installments (including, without limitation, on account of Operating Expenses and Real Estate Taxes) on or before the date on which the same become due and payable, or (Y) any other charges within thirty (30) days after invoice, in both instances without the need for a separate notice of default or,
 
(iii)  
Tenant shall neglect or fail to perform or observe any other covenant herein contained on Tenant's part to be performed or observed and Tenant shall fail to remedy the same within thirty (30) days after notice to Tenant specifying in reasonable detail such neglect or failure, or if such failure is of such a nature that Tenant cannot reasonably remedy the same within such thirty (30) day period, Tenant shall fail to commence promptly to remedy the same and to prosecute such remedy to completion with diligence and continuity; or
 
(iv)  
Tenant's leasehold interest in the Premises shall be taken on execution or by other process of law directed against Tenant; or
 
(v)  
Tenant shall make an assignment for the benefit of creditors or shall file a voluntary petition in bankruptcy or shall be adjudicated bankrupt or insolvent, or shall file any petition or answer seeking any reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief for itself under any present or future Federal, State or other statute, law or regulation for the relief of debtors, or shall seek or consent to or acquiesce in the appointment of any trustee, receiver or liquidator of Tenant or of all or any substantial part of its properties, or shall admit in writing its inability to pay its debts generally as they become due; or
 
(vi)  
A petition shall be filed against Tenant in bankruptcy or under any other law seeking any reorganization, arrangement, composition, readjustment, liquidation, dissolution, or similar relief under any present or future Federal, State or other statute, law or regulation and shall remain undismissed or unstayed for an aggregate of ninety (90) days (whether or not consecutive), or if any debtor in possession (whether or not Tenant) trustee, receiver or liquidator of Tenant or of all or any substantial part of its properties or of the Premises shall be appointed without the consent or acquiescence of Tenant and such appointment shall remain unvacated or unstayed for an aggregate of ninety (90) days (whether or not consecutive),
 
then, and in any of said cases (notwithstanding any license of a former breach of covenant or waiver of the benefit hereof or consent in a former instance), Landlord lawfully may, immediately or at any time thereafter, and without demand or further
 
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notice terminate this Lease by notice to Tenant, specifying a date not less than ten (10) day s after the giving of such notice on which this Lease shall terminate. and this Lease shall come to an end on the date specified therein as fully and completely as if such date were the date herein originally fixed for the expiration of the Lease Term (Tenant hereby waiving an) rights of redemption). and Tenant will then quit and surrender the Premises to Landlord, but Tenant shall remain liable as hereinafter provided.
 
(b)   If this Lease shall have been terminated as provided in this Article, then Landlord may, without notice, re- enter the Premises, either by summary proceedings, ejectment or otherwise, and remove and dispossess Tenant and all other persons and any and all property from the same, as if this Lease had not been made, and Tenant hereby waives the service of notice of intention to re-enter or to institute legal proceedings to that end.
 
(c)   In the event that this Lease is terminated under any of the provisions contained in Section 7.1 (a) or shall be otherwise terminated by breach of any obligation of Tenant, Tenant covenants and agrees forthwith to pay and be liable for, on the days originally fixed herein for the payment thereof, amounts equal to the several installments of rent and other charges reserved as they would, under the terms of this Lease, become due if this Lease had not been terminated or if Landlord had not entered or re-entered, as aforesaid, and whether the Premises be relet or remain vacant, in whole or in part, or relet for a period less than the remainder of the Term, and for the whole thereof, but in the event the Premises be relet by Landlord, Tenant shall be entitled to a credit in the net amount of rent and other charges received by Landlord in reletting, after deduction of all reasonable expenses incurred in reletting the Premises (including, without limitation, remodeling costs, brokerage fees and the like), and in collecting the rent in connection therewith, in the following manner:
 
Amounts received by Landlord after reletting shall first be applied against such Landlord's expenses, until the same are recovered, and until such recovery, Tenant shall pay, as of each day when a payment would fall due under this Lease, the amount which Tenant is obligated to pay under the terms of this Lease (Tenant's liability prior to any such reletting and such recovery not in any way to be diminished as a result of the fact that such reletting might be for a rent higher than the rent provided for in this Lease); when and if such expenses have been completely recovered, the amounts received from reletting by Landlord as have not previously been applied shall be credited against Tenant's obligations as of each day when a payment would fall due under this Lease, and only the net amount thereof shall be payable by Tenant. Further, amounts received by Landlord from such reletting for any period shall be credited only against obligations of Tenant allocable to such period, and shall not be credited against obligations of Tenant hereunder accruing subsequent or prior to such period; nor shall any credit of any kind be due for any period after the date when the term of this Lease is scheduled to expire according to its terms.
 
Landlord agrees to use commercially reasonable efforts to relet the Premises after Tenant vacates the same in the event this Lease is terminated based upon an Event of Default by Tenant hereunder. The marketing of the Premises in a manner similar to the manner in
 
 
 
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which Landlord markets other premises within Landlord's control within the Property shall be deemed to halve satisfied Landlord's obligation to use "commercially reasonable efforts" hereunder. In no event shall Landlord be required to (i) solicit or entertain negotiations with any other prospective tenant for the Premises until Landlord obtains full and complete possession of the Premises (including. without limitation. the final and unappealable legal right to relet the Premises free of any claim of Tenant). (ii) relet the Premises before leasing other vacant space in the Property, or (iii) lease the Premises for a rental less that the current fair market rent then prevailing for similar office space in the Property or if no such space in the Property is then being marketed, then in the Route 3/1-495 North market.
 
(d)(i) At any time after such termination and whether or not Landlord shall have collected any damages as aforesaid, Tenant shall pay to Landlord as liquidated final damages and in lieu of all other damages beyond the date of notice from Landlord to Tenant, at Landlord's election, such a sum as at the time of such notice represents the amount of the excess, if any, of (a) the discounted present value, at a discount rate equal to the United States Treasury rate (the "Discount Rate") in effect at such time for United States Treasury obligations having a maturity date which is the same as the date that the Term of the Lease would have expired but for Tenant's default, of the Annual Fixed Rent, Additional Rent and other charges which would have been payable by Tenant under this Lease for the remainder of the Lease Term if the terms of this Lease had been fully complied with by Tenant, over and above (b) the discounted present value, at the Discount Rate, of the Annual Fixed Rent, Additional Rent and other charges that would be received by Landlord if the Premises were re-leased at the time of such notice for the remainder of the Lease Term at the fair market rental value (including provisions regarding periodic increases in Annual Fixed Rent if such are applicable) prevailing at the time of such notice.
 
(d)(ii) For the purposes of this Article, if Landlord elects to require Tenant to pay damages in accordance with the immediately preceding paragraph, the total rent shall be computed by assuming that Tenant's share of real estate taxes, Tenant's share of operating expenses and Tenant's share of excess electrical costs would be, for the balance of the unexpired Term from the date of such notice, the amount thereof (if any) for the immediately preceding annual period payable by Tenant to Landlord.
 
(e) In case of any Event of Default, re-entry, dispossession by summary proceedings or otherwise, Landlord may (i) re-let the Premises or any part or parts thereof, either in the name of Landlord or otherwise, 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 of this Lease and may grant concessions or free rent to the extent that Landlord considers advisable or necessary to re-let the same and (ii) may make such alterations, repairs and decorations in the Premises as Landlord in its sole judgment considers advisable or necessary for the purpose of reletting the Premises; and the making of such alterations, repairs and decorations shall not operate or be construed to release Tenant from liability hereunder as aforesaid. Landlord shall in no event be liable in any way whatsoever for failure to re-let the Premises, or, in the event that the Premises
 
 
 
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are re-let, for failure to collect the rent under re-letting. Tenant hereby expressly waives any and all rights of redemption granted by or under an present or future laws in the event of Tenant being evicted or dispossessed. or in the event of Landlord obtaining possession of the Premises. by reason of the violation by Tenant of any of the covenants and conditions of this Lease.
 
(t)The specified remedies to which Landlord may resort hereunder are not intended to be exclusive of any remedies or means of redress to which Landlord may at any time be entitled lawfully, and Landlord may invoke any remedy (including the remedy of specific performance) allowed at law or in equity as if specific remedies were not herein provided for. Further, nothing contained in this Lease shall 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.
 
7.2           LANDLORD'S DEFAULT. Landlord shall in no event be in default in the performance of any of Landlord's obligations hereunder unless and until Landlord shall have failed to perform such obligations within thirty (30) days, or such additional time as is reasonably required to correct any such default (provided that if such default is of a nature that Landlord cannot reasonably remedy the same within said thirty (30) day period, Landlord shall commence promptly to remedy the same and to diligently prosecute such remedy to completion) after notice by Tenant to Landlord properly specifying wherein Landlord has failed to perform any such obligation.
 
ARTICLE VIII
 
8.1           EXTRA HAZARDOUS USE. Tenant covenants and agrees that Tenant will not do or permit anything to be done in or upon the Premises, or bring in anything or keep anything therein, which shall invalidate or increase the rate of insurance on the Premises or on the Building(s) above the standard rate applicable to premises being occupied for the use to which Tenant has agreed to devote the Premises; and Tenant further agrees that, in the event that Tenant shall do any of the foregoing, Tenant will promptly pay to Landlord, on demand, any such increase resulting therefrom, which shall be due and payable as additional rent thereunder.
 
8.2            WAIVER. Failure on the part of Landlord or Tenant to complain of any action or non-action on the part of the other, no matter how long the same may continue, shall never be a waiver by Tenant or Landlord, respectively, of any of its rights hereunder. Further, no waiver at any time of any of the provisions hereof by Landlord or Tenant shall be construed as a waiver of any of the other provisions hereof, and a waiver at any time of any of the provisions hereof shall not be construed as a waiver at any subsequent time of the same provisions. The consent or approval of Landlord or Tenant to or of any action by the other requiring such consent or approval shall not be construed to waive or render
 
 
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unnecessary Landlord's or Tenant's consent or approval to or of subsequent similar act by the other.
 
No payment by Tenant, or acceptance by Landlord. of a lesser amount than shall he due from Tenant to Landlord shall be treated otherwise than as a payment on account. The acceptance by Landlord of a check for a lesser amount with an endorsement or statement thereon, or upon any letter accompanying such check, that such lesser amount is payment in full, shall be given no effect, and Landlord may accept such check without prejudice to any other rights or remedies which Landlord may have against Tenant.
 
8.3           CUMULATIVE REMEDIES. The specific remedies to which either party may resort under the terms of this Lease are cumulative and are not intended to be exclusive of any other remedies or means of redress to which such party may be lawfully entitled in case of any breach or threatened breach by the other party of any provisions of this Lease. In addition to the other remedies provided in this Lease, both parties shall be entitled to the restraint by injunction of the violation or attempted or threatened violation of any of the covenants, conditions or provisions of this Lease or to a decree compelling specific performance of any such covenants, conditions or provisions.
 
8.4           QUIET ENJOYMENT AND LIMITATION ON LANDLORD'S LIABILITY. Tenant, subject to the terms and provisions of this Lease on payment of the rent and observing, keeping and performing all of the terms and provisions of this Lease on Tenant's part to be observed, kept and performed, shall lawfully, peaceably and quietly have, hold, occupy and enjoy the Premises during the Term, without hindrance or ejection by any persons lawfully claiming under Landlord to have title to the Premises superior to Tenant; the foregoing covenant of quiet enjoyment is in lieu of any other covenant, express or implied; and it is understood and agreed that this covenant and any and all other covenants of Landlord contained in this Lease shall be binding upon Landlord and Landlord's successors only with respect to breaches occurring during Landlord's or Landlord's successors' respective ownership of Landlord's interest hereunder, as the case may be.
 
Further, Tenant specifically agrees to look solely to Landlord's then equity interest in the Building(s) (including any rents and casualty or taking proceeds, subject, however, to the right of Landlord to use such proceeds or awards for reconstruction) at the time owned, or in which Landlord holds an interest as ground lessee, for recovery of any judgment from Landlord; it being specifically agreed that neither Landlord (original or successor), nor any partner in or of Landlord, nor any beneficiary of any Trust of which any person holding Landlord's interest is Trustee, shall ever be personally liable for any such judgment, or for the payment of any monetary obligation to Tenant. The provision contained in the foregoing sentence is not intended to, and shall not, limit any right that Tenant might otherwise have to obtain injunctive relief against Landlord or Landlord's successors in interest, or any action not involving the personal liability of Landlord (original or successor), any partner in or of Landlord, any successor Trustee to the persons named herein as Landlord, or any beneficiary of any Trust of which any person holding Landlord's interest is Trustee, to respond in monetary damages from Landlord's
 
 
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assets other than Landlord's equity interest aforesaid in the Building, but in no event shall Tenant have the right to terminate or cancel this Lease or to withhold rent or to set-off any claim or damages against rent as a result of any default by Landlord or breach by Landlord of its covenants or any warranties or promises hereunder, except in the case of a wrongful eviction of Tenant from the demised premises (constructive or actual) by Landlord continuing after notice to Landlord thereof and a reasonable opportunity for Landlord to cure the same. In no event shall Landlord ever be liable to Tenant for any indirect or consequential damages suffered by Tenant from whatever cause.
 
8.5           NOTICE TO MORTGAGEE AND GROUND LESSOR. After receiving notice from any person, firm or other entity that it holds a mortgage which includes the Premises as part of the mortgaged premises (each a "mortgagee"), or that it is the ground lessor under a lease with Landlord, as ground lessee, which includes the Premises as a part of the demised premises, no notice from Tenant to Landlord shall be effective unless and until a copy of the same is given to such holder or ground lessor at the address specified in such notice or such other address of which Tenant is informed in writing. For the purposes of this Section 8.5 or Section 8.15, the term "mortgage" includes a mortgage on a leasehold interest of Landlord (but not one on Tenant's leasehold interest). Landlord warrants and represents that as of the date of this Lease no mortgage or ground lease encumbers title to any portion of the Property.
 
8.6           ASSIGNMENT OF RENTS. With reference to any assignment by Landlord or Landlord's interest in this Lease, or the rents payable hereunder, conditional in nature or otherwise, which assignment is made to the holder of a mortgage or ground lease on property which includes the Premises, Tenant agrees:
 
(a)  
That the execution thereof by Landlord, and the acceptance thereof by the holder of such mortgage or the ground lessor, shall never be treated as an assumption by such holder or ground lessor of any of the obligations of Landlord hereunder, unless such holder, or ground lessor, shall, by notice sent to Tenant, specifically otherwise elect; and
 
(b)  
That, except as aforesaid, such holder or ground lessor shall be treated as having assumed Landlord's obligations hereunder only upon foreclosure of such holder's mortgage and the taking of possession of the Premises, or, in the case of a ground lessor, the assumption of Landlord's position hereunder by such ground lessor.
 
In no event shall the acquisition of title to the Building(s) and the land on which the same is located by a purchaser which, simultaneously therewith, leases the entire Building(s) or such land back to the seller thereof be treated as an assumption by such purchaser-lessor, by operation of law or otherwise, of Landlord's obligations hereunder, but Tenant shall look solely to such seller-lessee, and its successors from time to time in title, for performance of Landlord's obligations hereunder subject to the provisions of Section 8.4 hereof. In any such event, this Lease shall be
 
 
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subject and subordinate to the lease to such purchaser provided that such purchaser agrees to recognize the right of Tenant to use and occupy the Premises upon the payment of rent and other charges payable by Tenant under this Lease and the performance by Tenant of Tenant's obligations under this Lease and provided that Tenant agrees to attorn to such purchaser only if Tenant receives a subordination, non-disturbance and attornment agreement acceptable to Tenant in Tenant's reasonable discretion, and which agreement reflects the obligation to make casualty insurance proceeds and condemnation awards available for restoration under the terms of this Lease. For all purposes, such seller-lessee, and its successors in title, shall be the landlord hereunder unless and until Landlord's position shall have been assumed by such purchaser-lessor.
 
8.7     SURRENDER. No act or thing done by Landlord during the Lease Term shall be deemed an acceptance of a surrender of the Premises, and no agreement to accept such surrender shall be valid, unless in writing signed by Landlord. No employee of Landlord or of Landlord's agents shall have any power to accept the keys of the Premises prior to the termination of this Lease. The delivery of keys to any employee of Landlord or of Landlord's agents shall not operate as a termination of the Lease or a surrender of the Premises.
 
8.8     BROKERAGE. (A) Tenant warrants and represents that Tenant has not dealt with any broker in connection with the consummation of this Lease other than the Recognized Broker; and in the event any claim is made against the Landlord relative to dealings by Tenant with brokers other than the Recognized Broker designated in Section I.1 hereof, Tenant shall defend the claim against Landlord with counsel of Tenant's selection first approved by Landlord (which approval will not be unreasonably withheld) and save harmless and indemnify Landlord on account of loss, cost or damage which may arise by reason of such claim.
 
(B)   Landlord warrants and represents that Landlord has not dealt with any broker in connection with the consummation of this Lease other than the Recognized Broker designated in Section 1.1 hereof; and in the event any claim is made against the Tenant relative to dealings by Landlord with brokers other than the Recognized Broker designated in Section 1.1 hereof, Landlord shall defend the claim against Tenant with counsel of Landlord's selection first approved by Tenant (which approval will not be unreasonably withheld) and save harmless and indemnify Tenant on account of loss, cost or damage which may arise by reason of such claim. Landlord agrees that it shall be solely responsible for the payment of brokerage commissions to the Recognized Broker designated in Section I . I hereof.
 
(C)   The provisions of Sections 8.8(A) and (B) shall survive the expiration or other termination of this Lease.
 
8.9           INVALIDITY OF PARTICULAR PROVISIONS. If any term or provision of this Lease, including but not limited to any waiver of contribution or claims, indemnity obligation, or
 
 
 
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limitation of liability or damages, or the application thereof to any person or circumstance shall, to any extent, he invalid or unenforceable, the remainder of this Lease, or the application of such term or provision to persons or circumstances other than those as to which it is held invalid or unenforceable, shall not be affected thereby, and each term and provision of this Lease shall be valid and be enforced to the fullest extent permitted by law.
 
8.10         PROVISIONS BINDING, ETC. The obligations of this Lease shall run with the land, and except as herein otherwise provided, the terms hereof shall be binding upon and shall inure to the benefit of the successors and assigns, respectively, of Landlord and Tenant and, if Tenant shall be an individual, upon and to his heirs, executors, administrators, successors and assigns. Each term and each provision of this Lease to be performed by Tenant shall be construed to be both a covenant and a condition. The reference contained to successors and assigns of Tenant is not intended to constitute a consent to subletting or assignment by Tenant.
 
8.11         RECORDING; CONFIDENTIALITY. Tenant agrees not to record the within Lease, but each party hereto agrees, on the request of the other, to execute a so-called Notice of Lease or short form lease in form recordable and complying with applicable law and reasonably satisfactory to both Landlord's and Tenant's attorneys. In no event shall such document set forth rent or other charges payable by Tenant under this Lease; and any such document shall expressly state that it is executed pursuant to the provisions contained in this Lease, and is not intended to vary the terms and conditions of this Lease.
 
Tenant agrees that this Lease and the terms contained herein will be treated as strictly confidential and except as required by law (or except with the written consent of Landlord) Tenant shall not disclose the same to any third party except for Tenant's partners, lenders, accountants and attorneys who have been advised of the confidentiality provisions contained herein and agree to be bound by the same. In the event Tenant is required by law to provide this Lease or disclose any of its terms, Tenant shall give Landlord prompt notice of such requirement prior to making disclosure so that Landlord may seek an appropriate protective order. if failing the entry of a protective order Tenant is compelled to make disclosure, Tenant shall only disclose portions of the Lease which Tenant is required to disclose and will exercise reasonable efforts to obtain assurance that confidential treatment will be accorded to the information so disclosed. Notwithstanding the foregoing, to the extent required under applicable securities laws, the provisions of this paragraph shall not be construed so as to prevent Tenant from (x) disclosing the fact that Tenant has a lease with Landlord or (y) including the rent and other amounts payable under this Lease as part of any consolidated reporting of Tenant's financial liabilities, so long as the economic terms of this Lease are not specifically identified with or attributed to this Lease, Landlord or any of Landlord's affiliates.
 
8.12         NOTICES. Whenever, by the terms of this Lease, notice shall or may be given either to Landlord or to Tenant, such notice shall be in writing and shall be sent by overnight commercial courier or delivered by hand with a written acknowledgement of receipt or by registered or certified mail postage or delivery charges prepaid, as the case may be:
 
 
 
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If intended for Landlord, addressed to Landlord at the address set forth in Article I of this Lease (or to such other address or addresses as may from time to time hereafter be designated by Landlord by like notice) with a copy to Landlord, Attention: Regional General Counsel.
 
If intended for Tenant, addressed to Tenant at the address set forth in Article I of this Lease except that from and after the Commencement Date the address of Tenant shall be the Premises (or to such other address or addresses as may from time to time hereafter be designated by Tenant by like notice) with a copy to Tenant, Attention: General Counsel.
 
Except as otherwise provided herein, all such notices shall be effective when received; provided, that (i) if receipt is refused, notice shall be effective upon the first occasion that such receipt is refused, (ii) if the notice is unable to be delivered due to a change of address of which no notice was given, notice shall be effective upon the date such delivery was attempted, (iii) if the notice address is a post office box number, notice shall be effective the day after such notice is sent as provided hereinabove or (iv) if the notice is to a foreign address, notice shall be effective two (2) days after such notice is sent as provided hereinabove.
 
Where provision is made for the attention of an individual or department, the notice shall be effective only if the wrapper in which such notice is sent is addressed to the attention of such individual or department.
 
Any notice given by an attorney on behalf of Landlord or by Landlord's managing agent shall be considered as given by Landlord and shall be fully effective.
 
Time is of the essence with respect to any and all notices and periods for giving notice or taking any action thereto under this Lease.
 
8.13
WHEN LEASE BECOMES BINDING. Employees or agents of Landlord or Tenant have no authority to make or agree to make a lease or any other agreement or undertaking in connection herewith. The submission of this document for examination and negotiation does not constitute an offer to lease, or a reservation of, or option for, the Premises, and this document shall become effective and binding only upon the execution and delivery hereof by both Landlord and Tenant. All negotiations, considerations, representations and understandings between Landlord and Tenant are incorporated herein and may be modified or altered only by written agreement between Landlord and Tenant, and no act or omission of any employee or agent of Landlord shall alter, change or modify any of the provisions hereof.
 
8.14
ARTICLE TITLES AND SECTION HEADINGS. The titles of the, Articles sections and subsections throughout this Lease are for convenience and reference only, and the words
 
 
 
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contained therein shall in no w   ay be held to explain. modify. amplify or aid in the interpretation. construction or meaning of the provisions of this Lease.
 
8.15
RIGHTS OF MORTGAGEE. This Lease shall be subject and subordinate to any mortgage now or hereafter on the Site or the Building(s) or portion thereof and to each advance made or hereafter to be made under any mortgage, and to all renewals, modifications, consolidations, replacements and extensions thereof and all substitutions therefor provided that the holder of such mortgage agrees. by a written instrument (an "SNDA") in the customary form required by such mortgagee as amended by such commercially reasonable changes as Tenant may request and the mortgagee may reasonably approve, to recognize this Lease and the rights of Tenant hereunder (including the right to use and occupy the Premises) upon the payment of rent and other charges payable by Tenant under this Lease and the performance by Tenant of Tenant's obligations hereunder. Tenant acknowledges and agrees that any SNDA shall require that Tenant provide to the holder of such mortgage written notice of any defaults of Landlord and commercially reasonable cure periods to be negotiated between Tenant and such holder. In confirmation of such subordination and recognition, Tenant shall execute and deliver promptly such instruments of subordination and recognition as such mortgagee may reasonably request. In the event that any mortgagee or its respective successor in title shall succeed to the interest of Landlord, then, this Lease shall nevertheless continue in full force and effect and Tenant shall and does hereby agree to attorn to such mortgagee or successor and to recognize such mortgagee or successor as its landlord. If any holder of a mortgage which includes the Premises, executed and recorded prior to the date of this Lease, shall so elect, this Lease and the rights of Tenant hereunder, shall be superior in right to the rights of such holder, with the same force and effect as if this Lease had been executed, delivered and recorded, or a statutory Notice hereof recorded, prior to the execution, delivery and recording of any such mortgage. The election of any such holder shall become effective upon either notice from such holder to Tenant in the same fashion as notices from Landlord to Tenant are to be given hereunder or by the recording in the appropriate registry or recorder's office of an instrument in which such holder subordinates its rights under such mortgage to this Lease.
 
8.16
STATUS REPORTS AND FINANCIAL STATEMENTS. Recognizing that Landlord may find it necessary to establish to third parties, such as accountants, banks, potential or existing mortgagees, potential purchasers or the like, the then current status of performance hereunder, Tenant, on the request of Landlord made from time to time, will promptly furnish to Landlord, or any existing or potential holder of any mortgage encumbering the Premises, the Building(s), the Site and/or the Property or any potential purchaser of the Premises, the Building(s), the Site and/or the Property, (each an "Interested Party"), a statement of the status of any matter pertaining to this Lease, including, without limitation, acknowledgments that (or the extent to which) each party is in compliance with its obligations under the terms of this Lease. In addition, Tenant shall deliver to Landlord, or any Interested Party designated by Landlord, financial statements of Tenant, as reasonably requested by Landlord, including, but not limited to financial statements for the past three (3) years (provided however, that for so long as Tenant is an
 
 
 
70

 
entity whose stock is publicly traded on a nationally-recognized exchange. Tenant shall only be required to deliver such financial statements as are required by law or other applicable regulation to be made available to the general public). To the extent any financial information required to be provided by Tenant hereunder is readily available to the general public without unreasonable expense or effort via the Internet or other similar means. Tenant shall not be required to provide Landlord with the same. Any such status statement or financial statement delivered by Tenant pursuant to this Section 8.16 may be relied upon by any Interested Party. Recognizing that Tenant may find it necessary to establish to third parties. such as accountants. banks. potential or existing lenders. potential purchasers of Tenant or the like, the then current status of performance hereunder, Landlord, on the request of Tenant made from time to time, will promptly furnish to Tenant, a statement of the status of any matter pertaining to this Lease, including, without limitation, acknowledgments that (or the extent to which) each party is in compliance with its obligations under the terms of this Lease.
 
8.17
LANDLORD'S AND TENANT'S SELF HELP. (A) If Tenant shall at any time default in the performance of any obligation under this Lease beyond any applicable notice and cure period set forth in Section 7.1(a), 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 payment of money or perform any other act. All sums so paid by Landlord (together with interest at the rate of two and one-half percentage points over the then prevailing prime or base rate in Boston as set by Bank of America, N.A., or its successor, but in no event greater than the maximum rate permitted by applicable law) and all costs and expenses in connection with the performance of any such act by Landlord, shall be deemed to be additional rent under this Lease and shall be payable to Landlord within ten ( 10) business days after demand therefor. 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) In the event (a) Landlord fails to make such repairs as are required of Landlord under this Lease or to perform any other obligations of Landlord hereunder within thirty (30) days after written notice from Tenant to Landlord and to the holder of any mortgage on the Property of which Tenant has been given written notice by Landlord specifying the nature of such repairs or other obligations or (b) if such repairs or other obligations are of the type which cannot be made or performed within such thirty (30) days, then if Landlord or the holder of any such mortgage (at the option of such mortgagee) fails to (i) commence making such repairs within thirty (30) days after such written notice from Tenant and (ii) thereafter prosecute such repairs or other obligations to completion with due diligence given the nature of such repairs or other obligations or (c) if such repairs or other obligations if not performed would constitute an emergency and would result in material damage to person or property, Tenant may specify such shorter time period than thirty (30) days as is reasonable taking into account the nature of the emergency condition to Landlord and such mortgagee and if Landlord or such mortgagee (at the option of such mortgagee) fails to (i) commence making such repairs
 
 
 
71

 
within such shorter time period and (ii) thereafter prosecute such repairs or other obligations to completion with due diligence given such emergency nature thereof. then thereafter at any time prior to Landlord's commencing such repairs or other obligations. Tenant may, but need not, make such repairs or perform such other obligations and may make a demand on Landlord for payment of the reasonable out-of-pocket cost thereof (together with interest at the rate of two and one-half percentage points over the then prevailing prime or base rate in Boston as set by Bank of America, N.A., or its successor, but in no event greater than the maximum rate permitted by applicable law) and Landlord shall pay the out-of-pocket cost thereof, provided, however, if within thirty (30) days after receipt of such demand, Landlord shall not have paid same, then Tenant shall have the right to bring suit in a court of competent jurisdiction in The Commonwealth of Massachusetts seeking payment of the sum so claimed in Tenant's demand. If Tenant shall be successful in any such court action, then Landlord shall pay to Tenant Tenant's reasonable out-of-pocket legal fees actually incurred in connection with such litigation. However, in no event shall Tenant have the right to offset against, withhold or deduct from Annual Fixed Rent, or any Additional Rent or other charges payable under this Lease nor shall Landlord's failure to pay Tenant's demand be a default of Landlord nor give Tenant the right to terminate this Lease, Tenant's right being to bring suit as aforesaid.
 
8.18
 
 
 
 
 
 
 
 
 
 
 
 
 
8.19 OMITTED.
 
8.20
 
 
 
72

 
 
 
 
 
 
 
 
 
 
73

 
 
 
 
 
 
 
 
 
 
 
 
 
74

 
 
 
 
 
 
 
 
 
 
 
 
 
75

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
76

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
77

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
78

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
79

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
80

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
81

 
 
 
8.25
LATE PAYMENT. If Landlord shall not have received any payment or installment of Annual Fixed Rent or Additional Rent (the "Outstanding Amount") on or before the date on which the same first becomes payable under this Lease (the "Due Date"), the amount of such payment or installment shall incur a late charge equal to the sum of: (a) five percent (5%) of the Outstanding Amount for administration and bookkeeping costs associated with the late payment and (b) interest on the Outstanding Amount from the Due Date through and including the date such payment or installment is received by Landlord, at a rate equal to the lesser of (i) the rate announced by Bank of America, N.A (or its successor) from time to time as its prime or base rate (or if such rate is no longer available, a comparable rate reasonably selected by Landlord), plus two percent (2%), or (ii) the maximum applicable legal rate, if any. Such interest shall be deemed Additional Rent and shall be paid by Tenant to Landlord upon demand. Landlord agrees to waive the late charges due hereunder for the first late payment by Tenant under this Lease per calendar year, provided that Landlord receives such payment from Tenant within five (5) business days of the Due Date (provided further that if such payment is not received within the aforesaid five (5) business day period, interest on the Outstanding Amount will
 
 
 
 
 
 
 
 
 
82

 
accrue as of the original Due Date). Any other late payments during, that same calendar y ear shall be subject to the imposition of the late charge immediately following the Due Date as set forth above.
 
8.26
ARBITRATION. Notwithstanding anything to the contrary herein, any disputes (i) under Sections 2.6, 2.7 or 2.8 (provided, however. Tenant shall not have a right to dispute any amounts paid by Tenant under Section 2.8 for Building Two or for Building One to the extent based on and determined by separate meters) above as to whether Tenant has overpaid or underpaid Operating Expenses Allocable to the Premises. Landlord's Tax Expenses Allocable to the Premises, and/or Tenant's payments on account of electricity relating to matters in excess of Fifty Thousand and 00/100 Dollars ($50,000.00) and/or (ii) under Section 8.17(B) above as to whether Landlord is required to reimburse Tenant for costs incurred by Tenant in connection with the exercise of its self-help rights, shall be submitted to arbitration in accordance with the provisions of applicable Massachusetts state law, as from time to time amended. Arbitration proceedings, including the selection of an arbitrator, shall be conducted pursuant to the rules, regulations and procedures from time to time in effect as promulgated by the American Arbitration Association. Prior written notice of application by either party for arbitration shall be given to the other at least ten (10) days before submission of the application to the said Association's office in Boston, Massachusetts. Any award of an arbitrator rendered hereunder shall be subject to confirmation and entry of judgment thereon in any court of competent jurisdiction sitting in Suffolk or Middlesex Counties, Massachusetts, and the parties hereby consent to the jurisdiction of such court. The costs and administration expenses of each arbitration hereunder and their apportionment between the parties shall be borne equally by the parties, and each party shall be responsible for its own attorneys' fees and expert witness fees. In connection with the foregoing, it is expressly understood and agreed that the parties shall continue to perform their respective obligations under this Lease during the pending of any such arbitration proceeding hereunder (with any adjustments or reallocations to be made on account of such continued performance as determined by the arbitrator in his or her award).
 
8.27
CONSENTS. Landlord and Tenant agree that, unless otherwise addressed herein, whenever a specific consent or approval of a party is required or requested under the terms hereof, the party from whom such consent or approval is sought shall not unreasonably withhold, condition or delay its consent.
 
8.28
GOVERNING LAW. This Lease shall be governed exclusively by the provisions hereof and by the law of The Commonwealth of Massachusetts, as the same may from time to time exist.
 
 
 
 
83

 
EXECUTED as a sealed instrument in two or more counterparts each of which shall be deemed to be an original.
 
                    LANDLORD:
 
BOSTON PROPERTIES LIMITED PARTNERSHIP
 
 
By:  Boston Properties, Inc., its general partner
 
By:  /s/ Bryan J. Koop
Name:  Bryan J. Koop
Title:  Senior Vice President – Regional Manager
Hereunto Duly Authorized
 
 
TENANT:
 
ZOLL MEDICAL CORPORATION
 
By:  /s/ Jonathan A. Reneault
Name:  Jonathan A. Reneault
Title:  President
Hereunto Duly Authorized
 
 
 
ATTEST:
 
By: /s/ Stephen Korn
Name:  Stephen Korn
Title:  SECRETARY
 
By:  /s/ John P. Bergeron
Name:  John P. Bergeron
Title:  Treasurer
Hereunto Duly Authorized
 
 
 
 
(CORPORATE SEAL)
 
 
 
 
 
 
 
 
 
84

 
 
EXHIBIT A
 
LEGAL DESCRIPTION OF THE SITE
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
A-1
 
 

 
EXHIBIT A
 
PARCEL
 
The land in Chelmsford, consisting of five parcels, as follows:
 
I-A:
 
A certain parcel of land on the southeasterly side of Mill Road, Chelmsford, Middlesex County, Massachusetts, being shown as "Lot 3AREA = 461,271 ±S.F. (10.59± ACRES)" on "Plan of Land in Chelmsford & Billerica, Massachusetts, Showing Existing Property Lines and Issued for Conveyancing Purposes," Prepared for Boston Properties, dated November 17, 1999, by Vanessa Hangen Brustlin, Inc. (the 'Plan"), to be recorded with Middlesex North Registry of Deeds.
 
 
I-B:
 
A certain parcel of land on the southeasterly side of Mill Road, Chelmsford, Middlesex County, Massachusetts, being shown as "Lot 2, AREA = 456,067 ± S.F. (10.47± ACRES)," on "Plan of Land in Chelmsford & Billerica, Massachusetts, Showing Existing Property Lines and Issued for Conveyancing Purposes," Prepared for Boston Properties, dated November 17, 1999, by Vanessa Hangen Brustlin, Inc., to be recorded with Middlesex North Registry of Deeds.
 
 
I-C:
 
A certain parcel of land on the southeasterly side of /v ill Road, Chelmsford, Middlesex County, Massachusetts, being "QUORUM WAY, PRIVATE (PAPER STREET) 80.00' WIDE, AREA = 24.062 S.F. (0.552 ACRES)"," as shown on "Plan of Land in Chelmsford & Billerica, Massachusetts, Showing Existing Property Lines and Issued for Conveyancing Purposes", Prepared for Boston Properties, dated November 17, 1999, by Vanessa Hangen Brustlin, Inc., to be recorded with Middlesex North Registry of Deeds.
 
I-D:
 
The land in Chelmsford, consisting of one parcel, as follows:
 
The land with the buildings thereon situated on the NORTHWESTERLY Side of Russell Mill Road and the NORTHEASTERLY side of Mill Road and SOUTHERLY side of Billerica Road, in Chelmsford, Middlesex County, Massachusetts and being shown as Lot 2 on a plan of land entitled: "Plan of Land in Chelmsford, Mass., Owner: Sadie J. Carey, Robert M. Gill & Associate; Inc., Civil Engineers and Surveyors, August 4, 1978," which plan is recorded with
 
 
1

 
 
Middlesex North District Registry of Deeds in Plan Book 127, Plan 40, and thus bounded and described:
 
NORTHEASTERLY:          by Russell Mill Road, as shown on said plan,
   163.77 feet;
 
SOUTHWESTERLY:         by a curve forming the junction of Russell Mill Road and Mill Road, 37.32 feet, and 5.68 feet
 
WESTERLY:                by Mill Road, as shown on said plan, 212.41 feet;
 
NORTHERLY:           by Billerica Road, as shown on said plan, 88.70 feet
  and
 
NORTHEASTERLY:          by Route 3, as shown on said plan, 122.60 feet,
 
containing 19,509 square feet as shown on said plan.
 
I-E:
 
The fee in the discontinued portion of Russell Mill Road, subject to and with the benefit of Order by the Middlesex County Commissioners for Discontinuance of Russell Mill Road, as shown on the plan entitled "Plan of the Discontinuance of a Portion of Russell Mill Road, Chelmsford, as Ordered by the County Commissioners, 1984, Scale 1 Inch = 40 Fee," dated November 14, 1984, to be recorded with the Middlesex North Registry of Deeds.
 
PARCEL II
 
The land in Billerica, consisting of two parcels, as follows:
 
II-A:
 
A certain parcel of land in Billerica being shown as "Parcel A, AREA = 35,485 SF. (0.815 ACRES)" on "Plan of Land in Chelmsford & Billerica, Massachusetts, Showing Existing Property Lines and Issued for Conveyancing Purposes," Prepared for Boston Properties, dated November 17, 1999, by Vanasse Hangen Brustlin, Inc., to be recorded with Middlesex North Registry of Deeds.
 
II-B:
 
A parcel of land situated in Billerica near the Chelmsford line, and being shown as "Fanner Parcel" on "Plan of Land in Chelmsford & Billerica, Massachusetts,
 
 
 
2

 
EXHIBIT A (Cont.)
 
 
Showing Existing Property Lines and Issued for Conveyancing Purposes," Prepared for Boston Properties, dated November 17, 1999, by Vanasse Hangen Brustlin, Inc., to be recorded with Middlesex North Registry of Deeds.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
3

 
EXHIBIT B
Building One Premises Floor Plan
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
B-1
 
 

 
 
 
 

 
 
 
 
 
 

 
EXHIBIT C
BROKER'S DETERMINATION OF PREVAILING MARKET RATE
 
The following procedures and requirements shall apply:
 
1.
Tenant's Request. Tenant shall send a notice to Landlord in accordance with the Lease. requesting a Broker Determination of the Prevailing Market Rent, which notice to be effective must (i) include the name of a broker selected by Tenant to act for Tenant. which broker shall be affiliated with a major Boston commercial real estate brokerage firm selected by Tenant and which broker shall have at least ten (10) years experience dealing in properties of a nature and type generally similar to the Building located in the Route 3/1-495 North market, and (ii) explicitly state that Landlord is required to notify Tenant within thirty (30) days of an additional broker selected by Landlord.
 
2.             
Landlord's Response. Within thirty (30) days after Landlord's receipt of Tenant's notice requesting the Broker Determination and stating the name of the broker selected by Tenant, Landlord shall give written notice to Tenant of Landlord's selection of a broker having at least the affiliation and experience referred to above.
 
3.             
Selection of Third Broker. Within ten (10) days thereafter the two (2) brokers so selected shall select a third such broker also having at least the affiliation and experience referred to above (the "Third Broker").
 
4.             
Rental Value Determination. Within thirty (30) days after the selection of the third broker, the first and second Brokers (that is, the brokers selected by Landlord and Tenant aforesaid) shall each send a notice to the Third Broker, setting forth their individual determinations of such annual fair market rental value, and the Third Broker shall select from the two determinations that one which such Third Broker believes to be the more reasonable determination of annual fair market rental. The determination selected by the Third Broker shall be deemed to be the determination of annual fair market rental value and shall be final and binding on the parties.
 
5.             
Costs. Each party shall pay the costs and expenses of the broker selected by it and each shall pay one half (1/2) of the costs and expenses of the third broker.
 
6.             
Failure to Select Broker or Failure of Broker to Serve. If Tenant shall have requested a Broker Determination and Landlord shall not have designated a broker within the time period provided therefor above and such failure shall continue for more than ten (10) days after notice thereof, then Tenant's broker shall alone make the determination of the fair market rent of value in writing to Landlord and Tenant within thirty (30) days after the expiration of Landlord's right to designate a broker hereunder. If Tenant and Landlord have both designated brokers but the two brokers so designated do not, within a period of fifteen (15) days after the appointment of the second broker, agree upon and designate the third broker willing so to act, the Tenant, the Landlord or either broker previously designated may request the president of the Commercial Brokers Association division of the Greater Boston Real Estate Board (the "CBA") (or such organization as
 
C-1
 
 

 
may succeed to the CBA) to designate the third broker willing so to act and a broker so appointed shall, for all purposes. have the same standing and pokers as though he had been seasonably appointed b> the brokers first appointed. In case of the inability or refusal to serve of any person designated as a broker, or in case any broker for any reason ceases to be such, a broker to till such vacancy shall be appointed by the Tenant, the Landlord, the brokers first appointed or the CBA as the case may be, whichever made the original appointment, or if the person who made the original appointment fails to fill such vacancy, upon application of any broker who continues to act or by the Landlord or Tenant such vacancy may be filled by the CBA and any broker so appointed to fill such vacancy shall have the same standing and powers as though originally appointed.
 
 
 
 
 
 
C-2
 
 

 
EXHIBIT C-1
FIRST OFFER SPACE BROKER'S DETERMINATION
 
The following procedures and requirements shall apply:
 
1.
Tenant's Request. In order to be effective, Tenant shall in its Tenant's Election Notice (which notice to Landlord shall be made in accordance with the notice provisions of the Lease) must (i) include the name of a broker selected by Tenant to act for Tenant. which broker shall be affiliated with a major Boston commercial real estate brokerage firm selected by Tenant and which broker shall have at least ten ( 10) years experience dealing in properties of a nature and type generally similar to the Building located in the Route 3/1-495 North market, and (ii) explicitly state that Landlord is required to notify Tenant within thirty (30) days of an additional broker selected by Landlord.
 
2.
Landlord's Response. Within thirty (30) days after Landlord's receipt of Tenant's Election Notice requesting the Broker Determination and stating the name of the broker selected by Tenant, Landlord shall give written notice to Tenant of Landlord's selection of a broker having at least the affiliation and experience referred to above.
 
3.    
Selection of Third Broker. Within ten (10) days thereafter the two (2) brokers so selected shall select a third such broker also having at least the affiliation and experience referred to above (the "Third Broker").
 
4.
Rental Value Determination. Within thirty (30) days after the selection of the Third Broker, the first and second Brokers (that is, the brokers selected by Landlord and Tenant aforesaid) shall each send a notice to the Third Broker, setting forth their individual determinations of such Annual Market Rent, and the Third Broker shall select from the two determinations that one which such Third Broker believes to be the more reasonable determination of Annual Market Rent. The determination selected by the Third Broker shall be deemed to be the determination of Annual Market Rent and it shall be final and binding on the parties.
 
5.
Costs. Each party shall pay the costs and expenses of the broker selected by it and each shall pay one half (1/2) of the costs and expenses of the third broker.
 
6.   
Failure to Select Broker or Failure of Broker to Serve. If Tenant shall have requested a First Offer Space Broker Determination and Landlord shall not have designated a broker within the time period provided therefor above and such failure shall continue for more than ten (10) days after notice thereof, then Tenant's broker shall alone make the determination of the Annual Market Rent in writing to Landlord and Tenant within thirty (30) days after the expiration of Landlord's right to designate a broker hereunder. If Tenant and Landlord have both designated brokers but the two brokers so designated do not, within a period of fifteen (15) days after the appointment of the second broker, agree upon and designate the third broker willing so to act, the Tenant, the Landlord or either broker previously designated may request the president of the Commercial Brokers Association division of the Greater Boston Real Estate Board (the "CBA") (or such
 
 
C-1-1
 
 

 
organization as ma) succeed to the CBA). to designate the third broker willing so to act and a broker so appointed shall, for all purposes. have the same standing and powers as though he had been seasonably appointed by the brokers first appointed. In case of the inability or refusal to serve of any person designated as a broker. or in case any broker for any reason ceases to be such. a broker to till such vacancy shall be appointed by the Tenant, the Landlord, the brokers first appointed or the CBA as the case may be, whichever made the original appointment, or if the person who made the original appointment fails to till such vacancy, upon application of any broker who continues to act or by the Landlord or Tenant such vacancy may be tilled by the CBA and any broker so appointed to till such vacancy shall have the same standing and powers as though originally appointed.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
C-1-2
 
 

 
EXHIBIT D
 
LANDLORD SERVICES
 
BUILDING TWO (269 MILL ROAD) (SINGLE-TENANT BUILDING)
 
I.              WINDOW CLEANING
 
All exterior windows shall be washed on the inside and outside at a frequency necessary to maintain a first class appearance.
 
II.            ELECTRICAL SERVICES
 
A.  
Landlord shall provide electric power for a combined load of 4.0 watts per square foot of useable area for lighting and for office machines through standard receptacles for the typical office space.
 
B.  
Landlord will furnish and install, at Tenant's expense, all replacement lighting tubes, lamps and ballasts required by Tenant. Landlord will clean lighting fixtures on a regularly scheduled basis at Tenant's expense.
 
III.           ELEVATORS (Not applicable to the Connector)
 
Provide passenger elevator service.
 
IV.           WATER (Not applicable to the Connector)
 
Provide hot water for lavatory purposes and cold water for drinking, lavatory and toilet purposes.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
D-1-1
 
 

 
EXHIBIT D-I
 
LANDLORD SERVICES
BUILDING ONE (271 MILL ROAD) (MULTI-TENANT BUILDING)
 
I.              CLEANING
 
Cleaning and janitorial services shall be provided as needed Monday through Friday, exclusive of holidays observed by the cleaning company, Saturdays and Sundays.
 
A.            LAVATORIES (FIRST FLOOR ONLY)
 
Cleaning and janitorial services to be provided in the common area lavatories of the building shall include:
 
1.             
Dusting, damp mopping of resilient floors, trash removal, sanitizing of basins, bowls and urinals as well as cleaning of mirrors and bright work.
 
2.             
Refilling of soap, towel, tissue and sanitary dispensers to be rendered as necessary.
 
3.             
High dusting to be rendered as needed.
 
B.            MAIN LOBBIES, ELEVATORS, STAIRWELLS AND
 
COMMON AREAS
 
Cleaning and janitorial services to be provided in the common areas of the building shall include:
 
I.             Trash removal, vacuuming, dusting and damp mopping of
resilient floors and cleaning and sanitizing of water fountains.
 
2.             High dusting to be rendered as needed.
 
C.             WINDOW CLEANING
 
All exterior windows shall be washed on the inside and outside surfaces at a frequency necessary to maintain a first class appearance.
 
II.             HVAC
 
D-1-1
 
 

 
A.            Heating, ventilating and air conditioning equipment will be provided with sufficient capacity to accommodate a maximum population density of one (I) person per one hundred fifty (150) square feet of useable floor area served, and a combined lighting and standard electrical load of 3.0 watts per square foot of useable floor area. In the event Tenant introduces into the Premises personnel or equipment which overloads the system's ability to adequately perform its proper functions, Landlord shall so notify Tenant in writing and supplementary system(s) may be required and installed by Landlord at Tenant's expense, if within fifteen (15) days Tenant has not modified its use so as not to cause such overload.
 
Operating criteria of the basic system are in accordance with the Massachusetts Energy Code and shall not be less than the following:
 
(i)  
Cooling season indoor temperatures of not in excess of 73-79 degrees Fahrenheit when outdoor temperatures are 91 degrees Fahrenheit ambient.
 
(ii)  
Heating season minimum room temperature of 68-75 degrees Fahrenheit when outdoor temperatures are 6 degrees Fahrenheit ambient.
 
B.            Landlord shall provide heating, ventilating and air conditioning as normal seasonal changes may require during the hours of 8:00 a.m. to 6:00 p.m., Monday through Friday (legal holidays in all cases excepted).
 
If Tenant shall require air conditioning (during the air conditioning season) or heating or ventilating during any other time period, Landlord shall use Landlord's best efforts to furnish such services for the area or areas specified by request of Tenant delivered to the Building Superintendent or the Landlord before 3:00 p.m. of the business day preceding the extra usage. Landlord shall charge Tenant for such extra-hours usage at reasonable rates customary for first-class office buildings in the Boston Suburban market, and Tenant shall pay Landlord, as Additional Rent, upon receipt of billing therefor.
 
III.            ELECTRICAL SERVICES
 
A.            Landlord shall provide electric power for a combined load of 4.0 watts per square foot of useable area for lighting and for office machines through standard receptacles for the typical office space.
 
D-1-2
 
 

 
B.            
In the event that Tenant has special equipment (such as computers and reproduction equipment) that requires either 3-phase electric power or any voltage other than 120 volts, or for any other usage in excess of 4.0 watts per square foot, Landlord may at its option require the installation of separate metering (Tenant being solely responsible for the costs of any such separate meter and the installation thereof) and direct billing to Tenant for the electric power required for any such special equipment.
 
C.            
Landlord will furnish and install, at Tenant's expense, all replacement lighting tubes, lamps and ballasts required by Tenant. Landlord will clean lighting fixtures on a regularly scheduled basis at Tenant's expense.
 
IV.               ELEVATORS
 
Provide passenger elevator service.
 
V.                WATER
 
Provide hot water for lavatory purposes and cold water for drinking, lavatory and toilet purposes.
 
VI.               BUILDING DIRECTORY
 
Provide a building directory.
 
VII.             CARD ACCESS SYSTEM
 
Landlord will provide a card access system at one entry door of the building.
 
 
D-1-3
 
 

 
 
 
 
 

 
 
 
 

 
 
EXHIBIT F
TELLABS EQUIPMENT
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
F-1
 
 

 
 
 

 
 
 
 

 
 
 
 

 
 
 
 

 
 
 
 

 
 
 
 
 

 
EXHIBIT B
 
DEPICTION OF PREMISES
 
[See attached]
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
B-1
 
 

 
EXHIBIT 10.34

February 1, 2007


Mr. Daniel Incropera
17 Stacey Circle
Windham, NH  03087

Dear Dan:

The purpose of this letter is to memorialize the terms of your eligibility for severance with Datawatch Corporation (“the Company”) in the event that you are involuntarily terminated by the Company without Cause (as defined in Paragraph 3) or if you terminate your employment for Good Reason (as defined in Paragraph 2).

1.           As an at-will employee, either you or the Company may terminate your employment at any time for any or no reason with or without notice.  Neither this letter nor its terms constitute a contract for continued employment or a contract for a specific term of employment.  Instead, this letter sets forth the terms of our agreement with respect to your eligibility for severance.

2.           In the event that you voluntarily terminate your employment with the Company at your own election and without Good Reason, you shall be entitled to no severance.  For the purpose of this Agreement, “Good Reason” is defined as a material diminution in the nature or scope of your responsibilities, duties or authority; provided, however, that the transfer of certain job responsibilities, or the assignment to others of your duties and responsibilities while you are out of work due to a disability or on a leave of absence for any reason, shall not constitute a material diminution in the nature or scope of the your responsibilities, duties or authority as set forth in this Section.

3.           In the event that the Company terminates your employment for “Cause,” you shall be entitled to no severance.  Termination by the Company shall constitute a termination for Cause under this Paragraph 3 if such termination is for one or more of the following reasons:

(a)           the willful and continuing failure or refusal by you to render services to the Company in accordance with your obligations to the Company;

(b)           gross negligence, dishonesty, breach of fiduciary duty or breach of the terms of any other agreements executed in connection herewith;

 
 

 
(c)           the commission by you of an act of fraud, embezzlement or substantial disregard of the rules or policies of the Company;

(d)           acts which, in the judgment of the Board of Directors, would tend to generate significant adverse publicity toward the Company;

(e)           the commission, or plea of nolo contendere, by you of a felony; or

(f)           a breach by you of the terms of the Proprietary Information,  Inventions and Non-Competition Agreement executed by you.

4.           In the event that the Company terminates your employment for any reason other than those stated in Paragraph 3 above or if you terminate your employment for Good Reason as defined in Paragraph 2, and you sign a comprehensive release in the form, and of a scope, acceptable to the Company (the “Release”), the Company will pay you severance payments in equal monthly installments at your then monthly base salary for six months following your termination (the “Severance Period”).  Such payments shall be made in accordance with the Company’s customary payroll practices and shall be subject to all applicable federal and state withholding, payroll and other taxes.

If you breach your post-employment obligations under your Proprietary Information Inventions and Non-Competition Agreement, the Company may immediately cease payment of all severance and/or benefits described in this Agreement.  This cessation of severance and/or benefits shall be in addition to, and not as an alternative to, any other remedies in law or in equity available to the Company, including the right to seek specific performance or an injunction.

5.           The terms of this agreement constitute the entire understanding relating to your employment and supersede and cancel all agreements, written or oral, made prior to the date hereof between you and the Company relating to your employment with the Company; provided, however, that nothing herein shall be deemed to limit or terminate the provisions of Proprietary Information, Inventions and Non-Competition Agreement executed by you or in any manner alter the terms of any stock option entered into between you and the Company.

6.           This Agreement, the employment relationship contemplated herein and any claim arising from such relationship, whether or not arising under this Agreement, shall be governed by and construed in accordance with the internal laws of Massachusetts, without giving effect to the principles of choice of law or conflicts of law of Massachusetts and this Agreement shall be deemed to be performable in Massachusetts.  Any claims or legal actions by one party against the other arising out of the relationship between the parties contemplated herein (whether or not arising under this Agreement) shall be commenced or maintained in any state or federal court located in Massachusetts, and Executive hereby submits to the jurisdiction and venue of any such court.
 
 
 

 
7.           No waiver by either party of any breach by the other or any provision hereof shall be deemed to be a waiver of any later or other breach thereof or as a waiver of any other provision of this Agreement.  This Agreement and its terms may not be waived, changed, discharged or terminated orally or by any course of dealing between the parties, but only by an instrument in writing signed by the party against whom any waiver, change, discharge or termination is sought.  No modification or waiver by the Company shall be effective without the consent of the Board of Directors then in office at the time of such modification or waiver.

8.           You acknowledge that the services to be rendered by you to the Company are unique and personal in nature.  Accordingly, you may not assign any of your rights or delegate any of your duties or obligations under this Agreement.  The rights and obligations of the Company under this Agreement may be assigned by the Company and shall inure to the benefit of, and shall be binding upon, the successors and assigns of the Company.

If this letter correctly states the understanding we have reached, please indicate your acceptance by countersigning the enclosed copy and returning it to me.


Very truly yours,

DATAWATCH CORPORATION
 
/s/ Robert Hagger                                 
Robert Hagger
President and Chief Executive Officer


YOU REPRESENT THAT YOU HAVE READ THE FOREGOING AGREEMENT, THAT YOU FULLY UNDERSTAND THE TERMS AND CONDITIONS OF SUCH AGREEMENT AND THAT YOU ARE VOLUNTARILY EXECUTING THE SAME.

ACCEPTED:
/s/ Daniel F. Incropera                      
Daniel F. Incropera          February 1, 2007


EXHIBIT 21.1
 

SUBSIDIARIES OF THE REGISTRANT
 

   
PLACE OF
   
SUBSIDIARY
 
INCORPORATION
 
D/B/A NAME
         
Personics Corporation
 
Delaware, USA
 
Personics Corporation
         
Auxilor, Inc.
 
Delaware, USA
 
Auxilor, Inc.
         
Datawatch International
 
England and Wales
 
Datawatch International
Limited
     
Limited
         
Datawatch Pty Ltd.*
 
Australia
 
Datawatch Pty Ltd.
         
Datawatch Europe Limited*
 
England and Wales
 
Datawatch Europe
         
 Datawatch GmbH*
 
 Germany
 
Datawatch GmbH
         
 
_________________________
*All of the shares of capital stock of Datawatch Pty Ltd., Datawatch Europe Limited and Datawatch GmbH are owned by Datawatch International Limited.
EXHIBIT 23.1


 
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM’S CONSENT
 
We consent to the incorporation by reference in the Registration Statements of Datawatch Corporation on Form S-8 (Nos. 333-134291, 333-134015, 333-104011, 333-84312, 333-57244, 333-34312 and 333-39627) of our report dated December 22, 2011, with respect to our audits of the consolidated financial statements of Datawatch Corporation and subsidiaries as of September 30, 2011 and 2010 and for the years then ended, which report is included in this Annual Report on Form 10-K of Datawatch Corporation for the year ended September 30, 2011.
 
 
/s/ Marcum LLP
Marcum LLP

Boston, Massachusetts
December 22, 2011


EXHIBIT 31.1
CERTIFICATIONS

I, Michael A. Morrison, certify that:

1.   I have reviewed this annual report on Form 10-K of Datawatch Corporation;

2.   Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.   Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.   The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

     (a)  
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

     (b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

     (c)  
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

     (d)  
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting.

5.   The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

     (a)  
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

     (b)  
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date:  December 22, 2011
                                              /s/ Michael A. Morrison                   
                                             Michael A. Morrison
                                             President, Chief Executive Officer
                                             and Director
EXHIBIT 31.2
 
 
CERTIFICATIONS
I, Murray P. Fish, certify that:

1.   I have reviewed this annual report on Form 10-K of Datawatch Corporation;

2.   Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.   Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.   The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

     (a)  
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

     (b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

     (c)  
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

     (d)  
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting.

5.   The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

     (a)  
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

     (b)  
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: December 22, 2011
                                              /s/ Murray P. Fish                        
                                             Murray P. Fish
                                             Chief Financial Officer, Vice President of
              Finance, Treasurer and Secretary
EXHIBIT 32.1
 
 

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 
 
In connection with the Annual Report of Datawatch Corporation (the "Company") on Form 10-K for the fiscal year ended September 30, 2011 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Michael A. Morrison, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that:

(1)  
The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)  
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

     
 
/s/ Michael A. Morrison
 
 
Michael A. Morrison
 
 
Chief Executive Officer
 
  December 22, 2011  
                                                                                        
EXHIBIT 32.2
 
 

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

     In connection with the Annual Report of Datawatch Corporation (the "Company") on Form 10-K for the fiscal year ended September 30, 2011 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Murray P. Fish, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that:

(1)  
The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)  
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

     
 
/s/ Murray P. Fish
 
 
Murray P. Fish
 
 
Chief Financial Officer
 
  December 22, 2011