-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HdIIFoJKmj84BvyNY2//3ErkuTVY75xvzcWiKf4/P6OcuPaASUVdkv/tcoERj/W4 JNS4G3ynNy89DVoznuK82g== 0001370314-09-000023.txt : 20091105 0001370314-09-000023.hdr.sgml : 20091105 20091105160414 ACCESSION NUMBER: 0001370314-09-000023 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20090930 FILED AS OF DATE: 20091105 DATE AS OF CHANGE: 20091105 FILER: COMPANY DATA: COMPANY CONFORMED NAME: Double-Take Software, Inc. CENTRAL INDEX KEY: 0001370314 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 200230046 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-33184 FILM NUMBER: 091161223 BUSINESS ADDRESS: STREET 1: 257 TURNPIKE ROAD, SUITE 210 CITY: SOUTHBOROUGH STATE: MA ZIP: 01772 BUSINESS PHONE: 508-229-8810 MAIL ADDRESS: STREET 1: 257 TURNPIKE ROAD, SUITE 210 CITY: SOUTHBOROUGH STATE: MA ZIP: 01772 10-Q 1 form10-q.htm FORM 10-Q AS OF 9/30/2009 form10-q.htm
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

FORM 10-Q

(Mark one)
     
þ
  
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2009
OR
     
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                        to                      .

Commission file number: 001-33184

Double-Take Software, Inc.
(Exact name of registrant as specified in its charter)

     
Delaware
  
20-0230046
(State or other jurisdiction of
incorporation or organization)
  
(I.R.S. Employer Identification No.)
     
257 Turnpike Road, Suite 210, Southborough, MA
  
01772
(Address of Principal Executive Offices)
  
(Zip Code)

(877) 335-5674
(Registrant's telephone number, including area code)

None.
(Former name, former address and former fiscal year, if changed since last report)



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 þ    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 o      NO  o


    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.  (Check one).
Large accelerated filer    o                     Accelerated filer    þ                                 Non-accelerated filer   o        Smaller Reporting Company   o
                                                                                                                    &# 160;          (Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as determined in Rule 12b-2 of the Exchange Act).  YES o     NO þ

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:
     
Class
  
Outstanding at October 30, 2009
common stock, $0.001 par value
  
22,075,072
 


Form 10-Q
For The Quarterly Period Ended September 30, 2009

INDEX
 
 
PART I
  
 
 
Page No.
Item 1.
       1
        1
        2
        3
        4
Item 2.
     11
Item 3.
     22
Item 4.
     22
     
PART II
    
Item 1.
     22
Item 1A.
     22
Item 2.
     22
Item 3.
     22
Item 4.
     22
Item 5.
     22
Item 6.
     23
       
      24


Item 1.  Financial Statements.
Consolidated Balance Sheets
As of September 30, 2009 and December 31, 2008
 (in thousands, except share and per share amounts)
   
September 30,
    
December 31,
  
   
2009
    
2008
  
   
(unaudited)
        
Assets
            
Current assets:
            
Cash and cash equivalents
   $ 41,821     $ 40,659  
Short term investments
     47,573       32,524  
Accounts receivable, net of allowance for doubtful accounts of $702 and $765 at September 30, 2009 and December 31, 2008, respectively
     15,806       19,593  
Prepaid expenses and other current assets
     2,505       6,621  
Deferred tax assets
     4,449       5,438  
Total current assets
     112,154       104,835  
                 
Property and equipment — at cost, net of accumulated depreciation of $8,582 and $6,687 at September 30, 2009 and December 31, 2008, respectively
     3,274       4,236  
Customer relationships, net of accumulated amortization of $1,521 and $1,181 at September 30, 2009 and December 31, 2008, respectively
     746       1,086  
Marketing relationships, net of accumulated amortization of $835 and $648 at September 30, 2009 and December 31, 2008, respectively
     1,157       1,344  
Technology related intangibles, net of accumulated amortization of $1,174 and $533 at September 30, 2009 and December 31, 2008, respectively
     3,335       3,533  
Goodwill
     17,826       16,267  
Other assets
     874       739  
Total assets
   $ 139,366     $ 132,040  
                 
Liabilities
                
Current liabilities:
                
Accounts payable
     1,229       1,280  
Accrued expenses
     4,651       5,142  
Other liabilities
     832       390  
Deferred revenue
     25,869       27,078  
Total current liabilities
     32,581       33,890  
                 
Long-term deferred revenue
     4,646       4,614  
Other long-term liabilities
     40       126  
Total long-term liabilities
     4,686       4,740  
Total liabilities
     37,267       38,630  
                 
Stockholders’ Equity
                
Preferred Stock, $.01 par value per share; 20,000,000 shares authorized; 0 shares issued and outstanding at September 30, 2009 and December 31, 2008
     −       −  
Common stock, $.001 par value per share; 130,000,000 shares authorized; 22,075,072 and 22,013,608 shares issued and outstanding at September 30, 2009 and December 31, 2008, respectively
     22       22  
Additional paid-in capital
     156,335       152,853  
Accumulated deficit
     (52,711 )     (55,594 )
Accumulated other comprehensive income:
                
Unrealized gain (loss) on short term investments
     7       47  
Cumulative foreign currency translation
     (1,554 )     (3,918 )
Total stockholders’ equity
     102,099       93,410  
Total liabilities and stockholders’ equity
   $ 139,366     $ 132,040  
                 
See notes to financial statements


Unaudited Consolidated Statements of Operations
(in thousands, except per share amounts)

   
Three months ended September 30,
    
Nine months ended September 30,
  
 
  
2009
    
2008
    
2009
    
2008
  
                         
Revenue:
                        
Software licenses
   $ 10,214     $ 12,819     $ 28,371     $ 38,855  
Maintenance and professional services
     11,066       11,132       32,089       32,492  
Total revenue
     21,280       23,951       60,460       71,347  
                                 
Cost of revenue:
                                
Software licenses
     128       156       345       397  
Maintenance and professional services
     2,144       2,342       6,255       7,198  
Total cost of revenue
     2,272       2,498       6,600       7,595  
                                 
Gross profit
     19,008       21,453       53,860       63,752  
                                 
Operating expenses:
                                
Sales and marketing
     7,702       8,393       23,666       26,293  
Research and development
     3,659       4,331       11,543       12,479  
General and administrative
     3,212       3,371       9,460       10,045  
Depreciation and amortization
     1,005       974       3,007       2,642  
Total operating expenses
     15,578       17,069       47,676       51,459  
                                 
Income from operations
     3,430       4,384       6,184       12,293  
                                 
Interest income
     52       396       248       1,475  
Interest expense
     (4 )     (9 )     (9 )     (23 )
Foreign exchange loss
     (8 )     (79 )     (134 )     (465 )
                                 
Income before income taxes
     3,470       4,692       6,289       13,280  
Income tax expense
     1,907       2,070       3,406       5,851  
                                 
Net income
   $ 1,563     $ 2,622     $ 2,883     $ 7,429  
                                 
Net income per share:
                                
Basic
   $ 0.07     $ 0.12     $ 0.13     $ 0.34  
Diluted
   $ 0.07     $ 0.11     $ 0.12     $ 0.32  
                                 
Weighted-average number of shares used in per share amounts:
                                
Basic
     22,062       21,980       22,040       21,960  
Diluted
     23,359       23,089       23,255       23,097  
                                 

See notes to financial statements


Unaudited Consolidated Statements of Cash Flows
(in thousands, except per share amounts)

 
 
  
Nine Months Ended September 30,
  
 
  
2009
    
2008
  
             
Cash flows from operating activities:
            
Net income
   $ 2,883     $ 7,429  
Adjustments to reconcile net income to net cash provided by operating activities:
                
Depreciation
     1,839       1,718  
Amortization of intangible assets
     1,168       924  
Provision for (recovery of) doubtful accounts
     66       (180 )
Stock based compensation
     3,330       2,958  
Deferred income tax expense
     989       2,388  
Excess tax benefits from stock based compensation
     (57 )     (139 )
                 
Changes in:
                
Accounts receivable
     3,911       755  
Prepaid expenses and other assets
     4,181       (187 )
Other assets
     (98 )     (3 )
Accounts payable and accrued expenses
     (885 )     (1,809 )
Other liabilities
     496       146  
Deferred revenue
     (1,585 )     2,301  
Net cash provided by operating activities
     16,238       16,301  
                 
Cash flows from investing activities:
                
Purchase of property and equipment
     (820 )     (2,116 )
Purchase of short term investments
     (65,011 )     (57,069 )
Sales and maturities of short term investments
     50,155       66,892  
Acquisitions, net of cash acquired
     -       (10,352 )
Net cash (used in) investing activities
     (15,676 )     (2,645 )
                 
Cash flows from financing activities:
                
Proceeds from exercise of stock options
     95       88  
Excess tax benefits from stock based compensation
     57       139  
Payment on capital lease obligation
     (15 )     (38 )
Net cash provided by financing activities
     137       189  
                 
Effect of exchange rate changes on cash
     463       (604 )
                 
Net increase in cash and cash equivalents
     699       13,845  
Cash and cash equivalents — beginning of period
     40,659       25,748  
Cash and cash equivalents — end of period
   $ 41,821     $ 38,989  
                 
Supplemental disclosures of cash flow information:
                
Cash paid (received) during the period for:
                
Income taxes
   $ (978 )   $ 2,529  
    Interest                                                                                        
   $ 2     $ 4  
                 
                 
                 

See notes to financial statements


Unaudited Notes to Consolidated Financial Statements
 (in thousands, except per share amounts)

1.           ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

Nature of Business

Double-Take Software, Inc., a Delaware corporation (the “Company”), develops, sells and supports affordable software that allows IT organizations of all sizes to dynamically move, protect and recover workloads across any distance and any combination of physical and virtual server environments. The Company operates in one reportable segment and its revenues are mainly derived from sales of software and related services. Software is licensed by the Company primarily to distributors, value added resellers (“VARS”) and original equipment manufacturers (“OEMS”), located primarily in the United States and in Europe.

Significant Accounting Policies

Principles of Consolidation
 
The consolidated financial statements include all subsidiaries. All inter-company transactions and balances have been eliminated.  Double-Take Software Canada, Inc. (“Double-Take Canada”), a Canadian corporation and wholly-owned subsidiary of the Company, entered into a share purchase agreement with TimeSpring Software Corporation (“TimeSpring”) on December 24, 2007 and a share purchase agreement with emBoot, Inc (“emBoot”) on July 28, 2008 to acquire 100 percent of both entities. The consolidated financial statements include the financial results and activities related to Double-Take Canada’s acquisition of TimeSpring and emBoot from the dates of each acquisition.  Double-Take Software S.A.S. (“Double-Take EMEA”) has been consolidated since May 23, 2006, which is the date Double-Take EMEA was acquired.

Basis of Presentation
 
The accompanying consolidated balance sheet as of September 30, 2009, the consolidated income statements for the three and nine months ended September 30, 2009 and 2008, and the consolidated statements of cash flows for the nine months ended September 30, 2009 and 2008 are unaudited.  The accompanying statements should be read in conjunction with the audited consolidated financial statements and related notes contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2008.

The accompanying consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles, or GAAP, pursuant to the rules and regulations of the Securities and Exchange Commission, or SEC.  They do not include all of the financial information and footnotes required by GAAP for complete financial statements.  The consolidated financial statements have been prepared on the same basis as the audited financial statements and include all adjustments considered necessary for the fair presentation of the Company’s statement of financial position as of September 30, 2009, the Company’s results of operations for the three and nine months ended September 30, 2009 and 2008, and cash flows for the nine months ended September 30, 2009 and 2008.  All adjustments are of a normal recurring nature.  The results for the three and nine months ended September 30, 2009 are not necessarily indicative of the results to be expected for any subsequent period or for the fiscal year ending December 31, 2009.  There have been no significant changes in the Company’s accounting policies during the nine months ended September 30, 2009, as compared to the significant accounting policies described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2008.

Use of 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 assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue, costs and expenses during the periods presented. Based on historical experience and current account information, estimates are made regarding provisions for allowances for doubtful accounts receivable, sales discounts and other allowances, depreciation, amortization, asset valuations and stock based compensation. Actual results could differ from those estimates.

Goodwill

Goodwill with indefinite lives is not amortized but reviewed for impairment if impairment indicators arise and, at a minimum, annually.

Revenue Recognition

The Company’s revenue is reported net of rebates and discounts because there is no identifiable benefit in exchange for the rebate or discount. The Company derives revenues from two primary sources or elements: software licenses and services. Services include customer support, consulting, installation services and training. A typical sales arrangement includes both of these elements.
 
For software arrangements involving multiple elements, the Company recognizes revenue using the residual method. Under the residual method, the Company allocates and defers revenue for the undelivered elements based on relative fair value and recognizes the difference between the total arrangement fee and the amount deferred for the undelivered elements as revenue. The determination of fair value of the undelivered elements in multiple element arrangements is based on the price charged when such elements are sold separately, which is commonly referred to as vendor-specific objective-evidence (“VSOE”). 
 
The Company’s software licenses typically provide for a perpetual right to use the Company’s software and are sold on a per-copy basis. The Company recognizes software revenue through direct sales channels and resellers upon receipt of a purchase order or other persuasive evidence and when all other basic revenue recognition criteria are met as described below. Revenue from software licenses sold through an original equipment manufacturer partner is recognized upon the receipt of a royalty report evidencing sales.

Services revenue includes revenue from customer support and other professional services. Customer support includes software updates (including unspecified product upgrades and enhancements) on a when-and-if-available basis, telephone support and bug fixes or patches. Customer support revenue is recognized ratably over the term of the customer support agreement, which is typically one year. To determine the price for the customer support element when sold separately, the Company uses actual rates at which it has previously sold support as established VSOE. 


Other professional services such as consulting and installation services provided by the Company are not essential to the functionality of the software and can also be performed by the customer or a third party. Revenues from consulting and installation services are recognized when the services are completed. Training fees are recognized after the training course has been provided. Any paid professional services, including training, that have not been performed within three years of the original invoice date are recognized as revenue in the quarter that is three years after the original invoice date. Based on the Company’s analysis of such other professional services transactions sold on a stand-alone basis, the Company has concluded it has established VSOE for such other professional services when sold in connection with a multiple-element software arrangement. The price for other professional services has not materially changed for the periods presented. 
 
The Company has analyzed all of the undelivered elements included in its multiple-element arrangements and determined that VSOE of fair value exists to allocate revenues to services. Accordingly, assuming all basic revenue recognition criteria are met, software revenue is recognized upon delivery of the software license using the residual method. 
 
The Company considers the four basic revenue recognition criteria for each of the elements as follows: 
 
Persuasive evidence of an arrangement with the customer exists.   The Company’s customary practice is to require a purchase order and, in some cases, a written contract signed by both the customer and the Company prior to recognizing revenue with respect to an arrangement. 
 
Delivery or performance has occurred.   The Company’s software applications are usually physically delivered to customers with standard transfer terms such as FOB shipping point. Software and/or software license keys for add-on orders or software updates are typically delivered via email. The Company recognizes software revenue upon shipment to resellers and distributors because there is no right of return or refund and generally no price protection agreements. In situations where multiple copies of licenses are purchased, all copies are delivered to the customer in one shipment and revenue is recognized upon shipment. Occasionally, the Company enters into a site license with a customer that allows the customer to use a specified number of licenses within the organization. When a site license is sold, the Company delivers a master disk to the customer that allows the product to be installed on multiple servers. The Company has no further obligation to provide additional copies of the software or user manuals. Revenue on site licenses is recognized upon shipment of the master disk to the customer. Sales made by the Company’s Original Equipment Manufacturer (OEM) partners are recognized as revenue in the month the product is shipped. The Company estimates the revenue from a preliminary report received from the OEM shortly after the end of the month. Once the final report is received, the revenue is adjusted to that based on the final report, usually in the following month. Services revenue is recognized when the services are completed, except for customer support, which is recognized ratably over the term of the customer support agreement, which is typically one year.

Fee is fixed or determinable.   The fee customers pay for software applications, customer support and other professional services is negotiated at the outset of an arrangement. The fees are therefore considered to be fixed or determinable at the inception of the arrangement. 
 
Collection is probable.   Probability of collection is assessed on a customer-by-customer basis. Each new customer undergoes a credit review process to evaluate its financial position and ability to pay. If the Company determines from the outset of an arrangement that collection is not probable based upon the review process, revenue is recognized on a cash-collected basis.

The Company’s arrangements do not generally include acceptance clauses. However, if an arrangement does include an acceptance clause, revenue for such an arrangement is deferred and recognized upon acceptance. Acceptance occurs upon the earliest of receipt of a written customer acceptance, waiver of customer acceptance or expiration of the acceptance period.

Stock-Based Compensation

The Company recognizes stock option expense using the fair value recognition method.  The Company applies the fair value recognition method only to awards granted, modified, repurchased or cancelled after January 1, 2006.  Stock-based compensation expense is recognized based on the grant-date fair value of stock option awards granted or modified after January 1, 2006.  As the Company had used the minimum value method for valuing its stock options prior to January 1, 2006, all unmodified options granted prior to January 1, 2006 continue to be accounted for under using the minimum value method.

The Company accounts for stock-based compensation expense related to restricted stock units using the fair value of the nonvested stock on the grant date.  The fair value is measured as the market price of a share of nonrestricted stock on the grant date.

The Company accounts for stock awards to non-employees by recognizing the fair value of these instruments as an expense over the period in which the related services are rendered.

Income Taxes

The Company records income tax expense related to income generated during the periods using an effective tax rate expected to be in effect for the full year.  Deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities, and are measured using the enacted laws and tax rates that are expected to be in effect when the differences are expected to reverse. The measurement of deferred tax assets is reduced, if necessary, by a valuation allowance for any tax benefits not expected to be realized. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the period that such tax rate changes are enacted.

The Company accounts for any uncertainty in income taxes using a two-step process that separates recognition from measurement. During the three and nine months ended September 30, 2009, the Company did not recognize any increase or decrease to reserves for uncertain tax positions.

Reclassifications
 
    Certain reclassifications have been made to prior year amounts to conform to the current period presentation.


2.           NET INCOME PER COMMON SHARE

Basic net income per share is calculated by dividing the net income by the weighted-average number of common shares outstanding during the period. Diluted net income per share is calculated by dividing net income by the weighted-average number of common shares outstanding, adjusted for the dilutive effect, if any, of potential common shares.

The following table sets forth the computation of income per share:

   
Three months Ended September 30,
    
Nine months ended September 30,
  
 
  
2009
    
2008
    
2009
    
2008
  
                         
Net income (loss)
   $ 1,563     $ 2,622     $ 2,883     $ 7,429  
                                 
Weighted average common shares outstanding – basic
     22,062       21,980       22,040       21,960  
Dilutive effect of stock options
     971       1,109       956       1,137  
Dilutive effect of restricted stock units
     326       -       259       -  
Weighted average common shares outstanding – diluted
     23,359       23,089       23,255       23,097  
                                 
Basic net income per share
   $ 0.07     $ 0.12     $ 0.13     $ 0.34  
Diluted net income per share
   $ 0.07     $ 0.11     $ 0.12     $ 0.32  

The following potential common shares were excluded from the computation of diluted net income per share because they had an anti-dilutive impact:
 
  
Three Months Ended September 30,
    
Nine Months Ended September 30,
  
 
  
2009
    
2008
    
2009
    
2008
  
Stock options
     1,600       1,510       1,755       1,505  
                                 

3.           CASH AND CASH EQUIVALENTS, SHORT TERM INVESTMENTS AND FAIR VALUE

Cash and cash equivalents consist primarily of highly liquid investments in time deposits held at major banks, and other money market securities with original maturities at date of purchase of 90 days or less.
           
Short term investments, which are carried at fair value, generally consist of commercial paper and corporate notes with original maturities of one year or less with Standard and Poor’s ratings ranging from A to AAA, and United States Treasury obligations with original maturities of one year or less. The Company classifies these securities as available-for-sale. Management determines the appropriate classification of its investments at the time of purchase and at each balance sheet date. Available-for-sale securities are carried at fair value with unrealized gains and losses reported in accumulated other comprehensive income. Interest received on these securities is included in interest income. Realized gains or losses upon disposition of available-for-sale securities are included in other income.
 
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.  A fair value hierarchy has been established which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.  The following three levels of inputs may be used to measure fair value:

·  
Level 1 - Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.

·  
Level 2 - Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.  

·  
Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

The Company’s assets that are measured at fair value on a recurring basis are generally classified within Level 1 or Level 2 of the fair value hierarchy.  The types of instruments valued based on quoted market prices in active markets generally include most money market securities and equity investments and can include certain corporate notes, United States treasury obligations and some federal notes and bonds.  Such instruments are generally classified within Level 1 of the fair value hierarchy.  The Company invests in money market funds that are traded daily and does not adjust the quoted price for such instruments.  The types of instruments valued based on quoted prices in less active markets, broker or dealer quotations, or alternative pricing sources with reasonable levels of price transparency generally include the Company’s commercial paper and can include certain federal notes and bonds.  Such instruments are generally classified within Level 2 of the fair value hierarchy.  The Company uses consensus pricing, which is based on multiple pricing sources, to value its cash equivalents and short term investments.

The following table sets forth a summary of the Company’s financial assets, classified as cash and cash equivalents and short term investments on its consolidated balance sheet, measured at fair value on a recurring basis as of September 30, 2009:

Description
  
Total
    
Quoted Prices in Active Markets for Identical Assets (Level 1)
    
Significant Other Observable Inputs (Level 2)
    
Significant unobservable Inputs (Level 3)
  
                         
Cash & cash equivalents
                        
     Cash Management Funds
   $ 15,339     $ 15,339     $ -     $ -  
Total
   $ 15,339     $ 15,339     $ -     $ -  
                                 
Short-term Investments
                                
     Commercial Paper
     4,996       -       4,996       -  
     Corporate Notes
     7,127       7,127       -       -  
     Money Market Mutual Fund
     4,645       4,645       -       -  
     United States Treasury Notes
     7,510       7,510       -       -  
     United States Treasury Bills
     23,295       23,295       -       -  
Total
   $ 47,573     $ 42,577     $ 4,996     $ -  
                                 





4.           PROPERTY AND EQUIPMENT

Property and equipment consists of the following:

   
September 30,
    
December 31,
  
   
2009
    
2008
  
Equipment
   $ 188     $ 188  
Furniture and fixtures
     543       508  
Motor Vehicles
     104       109  
Computer hardware
     10,180       9,406  
Leasehold improvements
     841       712  
      11,856       10,923  
Less accumulated depreciation and amortization
     8,582       6,687  
    $ 3,274     $ 4,236  

5.           INTANGIBLE ASSETS

Intangible assets consist of the following:

   
September 30,
    
December 31,
  
   
2009
    
2008
  
Customer relationships
   $ 2,267     $ 2,267  
Less accumulated amortization
     (1,521 )     (1,181 )
    $ 746     $ 1,086  
                 
Marketing relationships
   $ 1,992     $ 1,992  
Less accumulated amortization
     (835 )     (648 )
    $ 1,157     $ 1,344  
                 
Technology related intangibles                                                                                        
   $ 4,936     $ 4,936  
Foreign currency translation                                                                                        
     (427 )     (870 )
Less accumulated amortization                                                                                        
     (1,174 )     (533 )
    $ 3,335     $ 3,533  
                 

6.           CONTINGENCIES

In the normal course of its business, the Company may be involved in various claims, negotiations and legal actions; however, at September 30, 2009, the Company is not party to any litigation that is expected to have a material effect on the Company’s financial position, results of operations or cash flows.

7.           STOCKHOLDERS’ EQUITY (in thousands, except share and per share amounts)

Common stock

Options to purchase 61,464 and 60,429 shares of common stock were exercised in the nine months ended September 30, 2009 and 2008, respectively, and the Company received aggregate proceeds of $95 and $88, respectively.
 
Restricted Stock Units

In the nine months ended September 30, 2009, the Company issued 329,804 restricted stock units with a weighted average grant date fair value of $7.21.  During the nine months ended September 30, 2009, 7,022 restricted stock units were cancelled leaving 322,782 restricted stock units outstanding as of September 30, 2009.   Except for the restricted stock units granted to the French employees and board of directors, the restricted stock units vest annually in four equal installments from the grant date.  The restricted stock units granted to the French employees vest in two equal installments on the second and fourth anniversaries from the grant date.  The restricted stock units granted to the board of directors vest at the earlier of the 2010 Annual Meeting or May 14, 2010.  Upon each vesting, the restricted stock units become unrestricted shares of common stock.  In the nine months ended September 30, 2009, the Company recognized compensation expense of $437 relating to the restricted stock units.  The remaining $1,887 will be recognized over the remaining vesting period which is approximately 3.07 years.


Stock option plans

In the nine months ended September 30, 2009, the Company issued options to purchase 252,940 shares of common stock, with a weighted average exercise price of $7.64 per share, which is based on exercise prices equal to the fair market value per share on the dates of grant.  The weighted average fair value as of the grant date of the options issued was $3.83.

A summary of the Company’s stock option activity for the nine months ended September 30, 2009 is presented below:

   
 
 
 
Shares
    
Weighted
Average Exercise
 Price
    
Weighted Average Remaining Contractual Term
    
 
Aggregate Intrinsic
 Value
  
Outstanding as of December 31, 2008
     2,982,349     $ 8.15              
Options granted
     252,940     $ 7.64              
Options cancelled
     (65,907 )   $ 12.71              
Options exercised (cash received $95),
     (61,464 )   $ 1.55              
Outstanding as of September 30, 2009
     3,107,918     $ 8.14       6.83     $ 12,691  
Options exercisable as of September 30, 2009
     2,183,254     $ 6.54       6.16     $ 11,710  
Options expected to vest as of September 30, 2009
     794,339     $ 11.85       6.16     $ 887  


The Company’s policy is to issue new shares upon exercise of options as the Company does not hold shares in treasury.

All options granted are equity awards and the Company has not granted any liability awards.  The Company expects to recognize future compensation costs aggregating $6,751 for options granted but not vested as of September 30, 2009.  Such amount will be recognized over the weighted average requisite service period, which is expected to be approximately 2 years.  The options generally have a contractual life of ten years.

The fair values of options granted were estimated at the date of grant using the following assumptions:

   
Three Months Ended September 30,
    
Nine Months Ended September 30,
  
 
  
2009
    
2008
    
2009
    
2008
  
Expected Term
  
7 years
    
7 years
    
7 years
    
7 years
  
Volatility
     49.42%       41.68%     42.27 – 49.42%       41.68% - 49.97%
Risk free rate
     3.14%       3.54%       2.23% - 3.14%       3.37- 3.54%  
Dividend Yield
     —       —       —       —  


The following table presents the stock-based compensation expense for the three and nine months ended September 30, 2009 and 2008:

   
Three Months Ended September 30,
    
Nine Months Ended September 30,
  
   
2009
    
2008
    
2009
    
2008
  
Cost of revenue, maintenance and professional services
   $ 110     $ 91     $ 312     $ 275  
Sales and marketing
     240       211       732       617  
Research and development
     309       273       911       785  
General and administrative
     478       420       1,375       1,281  
    $ 1,137     $ 995     $ 3,330     $ 2,958  

8.           INCOME TAXES

In the three and nine months ended September 30, 2009 and 2008, the Company recorded a tax expense of  $1,907, $3,406, $2,070, and $5,851, respectively, related to income generated during the periods using an effective tax rate currently expected to be in effect for the full year.

As of December 31, 2008, the Company had recorded a valuation allowance of $17,354 against net deferred tax assets, which are primarily comprised of net operating loss carryforwards as a result of operating losses incurred since inception.  Realization of deferred tax assets is dependent upon future earnings, if any, the timing of which is uncertain. Accordingly, the net deferred tax assets were offset by a valuation allowance.

The Company analyzes the carrying value of its deferred tax assets on a regular basis.  In determining future taxable income, assumptions are made to forecast federal, state and international operating income, the reversal of temporary timing differences, and the implementation of any feasible and prudent tax planning strategies.  The assumptions require significant judgment regarding the forecasts of future taxable income, and are consistent with forecasts used to manage the business.  Should these assumptions change based upon changes to the forecast of future taxable income in any particular quarter, the effective tax rate in any quarter could be significantly different.   During the three and nine months ended September 30, 2009, there was no reversal of the valuation allowance.  The valuation allowance will be maintained until sufficient further positive evidence exists to support a reversal of, or decrease in, the valuation allowance.

The Company analyzes any uncertain tax positions through the application of a two-step process that separates recognition from measurement.  During the three and nine months ended September 30, 2009, the Company did not recognize any uncertain tax positions and the Company did not recognize any increase or decrease to reserves for uncertain tax positions.

The Company has elected to record interest and penalties recognized in the financial statements as income taxes.  Any subsequent change in classification interest and penalties will be treated as a change in accounting principle.


9.           DEFINED CONTRIBUTION PLAN

Effective March 1, 1996, the Company adopted a defined contribution plan (the “Plan”), which, as amended, qualifies under Section 401(k) of the Internal Revenue Code. The Plan covers all employees who meet eligibility requirements. Employer contributions are discretionary.  In the first quarter of 2009 the Company discontinued employer contributions to the Plan.  The Company recorded an expense of $0, $0, $81 and $444 for employer contributions to the Plan for the three and nine months ended September 30, 2009 and 2008, respectively.

10.           SEGMENT INFORMATION

The Company operates in one reportable segment.

The Company operates in three geographic regions: The Americas, Europe, Middle East & Africa and Asia-Pacific. All transfers between geographic regions have been eliminated from consolidated revenues. Revenue, property and equipment and intangible assets by geographic region are as follows:

   
Three months ended September 30
    
Nine months ended September 30
  
   
2009
    
2008
    
2009
    
2008
  
Revenue:
                        
North America
   $ 14,114     $ 15,535     $ 38,803     $ 45,113  
Europe, Middle East & Africa
   $ 5,841     $ 7,066     $ 17,651     $ 22,398  
Asia-Pacific
   $ 1,325     $ 1,350     $ 4,006     $ 3,836  
    $ 21,280     $ 23,951     $ 60,460     $ 71,347  
                                 

   
September 30,
    
December 31,
  
   
2009
    
2008
  
Property and equipment:
            
The Americas
   $ 2,974     $ 3,998  
Europe, Middle East & Africa
     300       238  
Asia-Pacific
     —       —  
    $ 3,274     $ 4,236  
                 


   
September 30,
    
December 31,
  
   
2009
    
2008
  
Intangible assets:
            
The Americas
   $ 3,335     $ 3,533  
Europe, Middle East & Africa
     1,903       2,430  
Asia-Pacific
     —       —  
    $ 5,238     $ 5,963  
                 

11.           RELATED PARTY TRANSACTIONS

The Company has had transactions with Sunbelt Software Distribution, Inc., or Sunbelt Distribution.  An officer of the Company who joined the Company as a result of the acquisition of Double-Take EMEA is Chairman of Sunbelt Distribution.  The balances and transactions with Sunbelt Distribution are described below:

 
  
September 30, 2009
    
December 31, 2008
  
Trade Receivable
   $ 1,077     $ 2,334  
Trade Payable
   $ 12     $ 25  

   
Three Months Ended September 30,
    
Nine Months Ended September 30,
  
   
2009
    
2008
    
2009
    
2008
  
Sales to Sunbelt Distribution
   $ 1,974     $ 2,595     $ 6,339     $ 8,244  
Purchases from Sunbelt Distribution
   $ 30     $ 57     $ 173     $ 235  

12.  
SUBSEQUENT EVENTS

Effective October 30, 2009, which was the date the Company received a counter-signed copy of its new building lease, the Company has a new lease agreement for the current location in Indianapolis, Indiana.  The new lease replaces the previous lease in effect for that office location, which has approximately 45,000 square feet of office space and has the Company's main development operation, principal call center, sales support, and other corporate functions.  The lease term expires on August 31, 2017 and the total future minimum lease payments over the term of the lease are $6,671.

The Company has evaluated subsequent events through the date of filing the financial statements which is November 5, 2009.


13.           RECENT ACCOUNTING PRONOUNCEMENTS

Effective July 1, 2009, the FASB Accounting Standards Codification (“Codification”) will be the single source of authoritative nongovernmental U.S. generally accepted accounting principles. Rules and interpretive releases of the SEC under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants.  The Codification is effective for interim and annual periods ending after September 15, 2009. All existing accounting standards are superseded and the Codification became the only level of authoritative GAAP. All other accounting literature not included in the Codification is nonauthoritative. Our accounting policies were not affected by the conversion to the Codification, but any references to specific accounting standards in our footnotes to our consolidated financial statements have been changed to refer to the appropriate section of the Codification.

In March 2008, the FASB issued guidance intended to improve financial reporting about derivative instruments and hedging activities by requiring enhanced disclosures to enable investors to better understand their effects on an entity’s financial position, financial performance, and cash flows.  The guidance also improves transparency about the location and amounts of derivative instruments in an entity’s financial statements; how derivative instruments and related hedged items are accounted for; and how derivative instruments and related hedged items affect its financial position, financial performance, and cash flows.  The guidance is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged.  The Company adopted this guidance effective January 1, 2009 and the implementation of this standard did not have an impact on the Company’s consolidated financial position and results of operations.

In December 2007, the FASB issued guidance for business combinations which establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, including goodwill, the liabilities assumed and any non-controlling interest in the acquiree. The guidance also establishes disclosure requirements to enable users of the financial statements to evaluate the nature and financial effects of the business combination. The guidance is effective for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. In April 2009, the FASB issued guidance which amended certain previous guidance related to the recognition, measurement, and disclosure of assets acquired and liabilities assumed in a business combination that arise from contingencies. This guidance became effective in the first quarter of 2009. There have been no business combinations during 2009.  As a result the implementation of this standard did not have an impact on the Company’s consolidated financial position and results of operations.  Any future impact related to these standards will be dependent on the future business combinations that the Company may pursue after January 1, 2009.

In December 2007, the FASB issued guidance which establishes accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. The guidance was effective as of the beginning of the Company’s fiscal year beginning after December 15, 2008. The Company adopted this standard effective January 1, 2009 and the implementation of this standard did not have an impact on the Company’s consolidated financial position and results of operations.

In April 2008, the FASB issued guidance which amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset.  The intent of the guidance is to improve the consistency between the useful life of a recognized intangible asset under and the period of expected cash flows used to measure the fair value of the asset.  This standard is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. Early adoption is prohibited.  The Company adopted this standard effective January 1, 2009 and the implementation of this standard did not have an impact on the Company’s consolidated financial position and results of operations.
 
In April 2009, the FASB issued additional guidance related to fair value accounting.  This guidance addresses the impact on fair value when market activity has decreased, when other-than-temporary impairment of assets has occurred and interim fair value disclosures for financial instruments.  This guidance impacts certain aspects of fair value measurement and related disclosures.  These standards are effective for interim periods beginning after June 15, 2009.  The Company adopted these standards effective the interim period ending June 30, 2009 and the implementation did not have an impact on the Company's consolidated financial position and results of operations.

In May 2009, the FASB issued new guidance which establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. The guidance sets forth (1) the period after the balance sheet date during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements, (2) the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements and (3) the disclosures that an entity should make about events or transactions that occurred after the balance sheet date. The standard is effective for interim or annual financial periods ending after June 15, 2009. The Company adopted this standard effective the interim period ending June 30, 2009 and the implementation of this standard did not have an impact on the Company’s consolidated results of operations or financial position.
 
In June 2009, the FASB issued new guidance which improves the relevance, representational faithfulness, and comparability of the information that a reporting entity provides in its financial statements about a transfer of financial assets; the effects of a transfer on its financial position, financial performance, and cash flows; and a transferor’s continuing involvement, if any, in transferred financial assets. This standard is effective as of the beginning of each reporting entity’s first annual reporting period that begins after November 15, 2009, for interim periods within that first annual reporting period and for interim and annual reporting periods thereafter. The Company is currently evaluating the impact on its consolidated results of operations and financial position of adopting this pronouncement. 
 
    In June 2009, the FASB issued guidance to amend previous guidance related to determining whether an enterprise has a controlling financial interest in a variable interest entity. This determination identifies the primary beneficiary of a variable interest entity as the enterprise that has both the power to direct the activities of a variable interest entity that most significantly impacts the entity’s economic performance, and the obligation to absorb losses or the right to receive benefits of the entity that could potentially be significant to the variable interest entity. The guidance also requires ongoing reassessments of whether an enterprise is the primary beneficiary and eliminates the quantitative approach previously required for determining the primary beneficiary. The standard is effective January 1, 2010. The Company is currently evaluating the impact on its consolidated results of operations and financial position of adopting this pronouncement.
 
In October 2009, the FASB issued new guidance which provides principles for allocation of consideration among its multiple-elements, allowing more flexibility in identifying and accounting for separate deliverables under an arrangement. The guidance 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 is permitted. The Company is currently evaluating the impact on its consolidated results of operations and financial position of adopting this pronouncement.
 
In October 2009, the FASB issued new guidance which clarifies which guidance should be used in allocating and measuring revenue arrangements which include both tangible products and software.  In particular, tangible products containing software components and nonsoftware components that function together to deliver the tangible product's essential functionality will no longer be within the scope of the software revenue guidance.  This guidance also 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 is permitted.  The Company must adopt this standard in the same period using the same transition method as it uses for the adoption of the guidance related to multiple element arrangements previously discussed.  The Company is currently evaluating the impact on its consolidated results of operations and financial position of adopting this pronouncement.
 



CAUTIONARY ADVICE REGARDING FORWARD-LOOKING STATEMENTS

Some of the statements contained in this Form 10-Q that are not historical facts are forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934 (the “Exchange Act”).  We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 21E of the Exchange Act.  Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date this Form 10-Q is filed with the Securities and Exchange Commission (“SEC”).
 
We may, in some cases, use words such as “project,” “believe,” “anticipate,” “plan,” “expect,” “estimate,” “intend,” “should,” “would,” “could,” “potentially,” “will,” or “may,” or other words that convey uncertainty of future events or outcomes to identify these forward-looking statements.  Forward-looking statements in this Form 10-Q include statements about:

     
 
• 
competition and competitive factors in the markets in which we operate;
   
 
• 
demand for our software;
   
 
• 
our ability to transition to a broader focus on software to move, protect and recover workloads;
     
 
• 
the advantages of our technology as compared to others;
   
 
• 
changes in customer preferences and our ability to adapt our product and services offerings;
   
 
• 
our ability to obtain and maintain distribution partners and the terms of these arrangements;
     
 
• 
our plans for future product development and future acquisitions;
     
 
• 
the integration of TimeSpring Software Corporation (“TimeSpring”), known as Double-Take Software Canada, Inc. (“Double-Take Canada”) and the TimeData products into our business;
     
 
• 
the integration of emBoot, Inc. (“emBoot”) and its products into our business;
     
 
• 
our ability to develop and maintain positive relationships with our customers;
   
 
• 
our ability to maintain and establish intellectual property rights;
   
 
• 
our ability to retain and hire necessary employees and appropriately staff our development, marketing, sales and distribution efforts;
   
 
• 
our cash needs and expectations regarding cash flow from operations;
   
 
• 
our ability to manage and grow our business and execution of our business strategy;
     
 
• 
our expectations for future revenue;
     
 
• 
the impact of macro-economic trends on our business; and
   
 
• 
our financial performance.

    The forward-looking statements are based on our beliefs, assumptions and expectations of our future performance, taking into account information currently available to us.  These beliefs, assumptions and expectations can change as a result of many possible events or factors, not all of which are known to us or are within our control.  If a change occurs, our business, financial condition and results of operations may vary materially from those expressed in our forward-looking statements.  There are a number of important factors that could cause actual results to differ materially from the results anticipated by these forward-looking statements.  These important factors include those that we discuss in this section of our Form 10-Q and in the “Risk Factors” section in our annual report on Form 10-K, which we filed with the SEC on March 13, 2009.  You should read these factors and the other cautionary statements made in this Form 10-Q in combination with the more detailed description of our business in our annual report on Form 10-K as being applicable to all related forward-looking statements wherever they appear in this quarterly report.  If one or more of these factors materialize, or if any underlying assumptions prove incorrect, our actual results, performance or achievements may vary materially from any future results, performance or achievements expressed or implied by these forward-looking statements.  We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

Overview

Double-Take Software currently develops, sells and supports affordable software that allows IT organizations of all sizes to move, protect and recover workloads across any distance and any combination of physical and virtual server environments.  As enterprise IT systems evolve they increasingly take the form of a dynamic infrastructure where the ability to move information freely, intelligently and securely becomes critical.  Our hardware- and application-independent software benefits these infrastructures by efficiently protecting, moving and recovering data created by any application on almost any type or brand of disk storage on any brand of server running on Microsoft Windows operating systems as well as many versions of the Linux operating system. We believe that we are the leading supplier of replication software for Microsoft server environments and that our business is distinguished by our focus on software license and recurring maintenance sales, our productive distribution network and our efficient services infrastructure. Our flagship product, Double-Take Availability, among other things, continuously replicates software and data changes made on a primary operating server to a duplicate server at a different location.  Because the duplicate server can commence operating in place of the primary server at almost any time, Double-Take Availability facilitates rapid failover and application recovery in the event of a disaster or other service interruption.


The disaster recovery market has been our primary historical focus, but as a result of recent acquisitions and internal development, we are expanding into adjacent markets for system migrations, back-up and network booting, which is part of our business model of offering products that optimize workloads for dynamic infrastructure. With our acquisition of TimeSpring Software Corporation in December 2007, now known as Double-Take Canada, Inc. (“Double-Take Canada”) and its TimeData products, now included in Double-Take Backup, we can also recover data from almost any point in time from a repository located on- or off-site.  In July 2008, we acquired emBoot, Inc., which is now part of Double-Take Canada, and which specializes in network booting technology.  The technology acquired with emBoot, now included in Double-Take Flex, allows organizations to easily assign and re-assign computing workloads to any available Windows or Linux physical servers or desktops or any virtual machine in their environment.  IT organizations can now move those workloads around in a matter of minutes, whether it is because a disaster has occurred, a data center is moving, the company has decided to virtualize its infrastructure or an application needs more capacity.  Double-Take Move, released in October 2009, is a server migration product that can migrate live server workloads across virtualization platforms.  We estimate that we have sold approximately 200,000 software licenses to about 20,000 customers.

From 2005 through 2008 we experienced substantial growth.   We increased our total revenue from $40.7 million for the year ended December 31, 2005 to $96.3 million for the year ended December 31, 2008, and we went from having a net loss of $3.8 million to net income of $17.6 million during that same period. We believe that our focus on providing affordable software to companies of all sizes through an efficient direct sales team and a robust distribution network was instrumental to our revenue growth.  However, compared to the first nine months of 2008, we experienced a decline in revenue and net income in the first nine months of 2009, as discussed below under Effect of Recent Market Conditions and Uncertain Economic Environment on our Business.

As a result of our investments in developing our software and establishing our broad distribution network, as well as legal fees and settlement costs associated with the defense and settlement of a legal case involving our intellectual property, we experienced significant operating losses through 2005.  Our ability to increase the productivity of our sales force and distribution partners while controlling our other expenses led to the improvement in our results through 2008.  Our acquisition of Double-Take EMEA on May 23, 2006 has also contributed to our improved results from 2005 through 2008, while costs associated with our acquisitions in Canada have served to decrease net income.

Effect of Recent Market Conditions and Uncertain Economic Environment on our Business
 
    Total revenue for the three and nine months ended September 30, 2009 was $21.3 million and $60.5 million, respectively, which was a decrease of $2.7 million and $10.9 million from the three and nine months ended September 30, 2008, respectively.  Software revenue comprised $2.6 million and $10.5 million of the total revenue decrease for the three and nine months ended September 30, 2009, respectively.  During the second half of 2008, we began to experience the effects of worsening economic conditions, further exacerbated by customer-specific challenges and significant disruptions in the financial and credit markets globally.   We continued to experience the effects of these economic conditions in the third quarter of 2009 resulting in little growth in our sequential revenues as we experienced an increase in our total revenue of $0.3 million from the second quarter of 2009 to the third quarter of 2009.  During 2009, order delays, lengthening sales cycles and slowing deployments worldwide all contributed to the decrease in revenue from the three and nine months ended September 30, 2008 to the three and nine months ended September 30, 2009.  The first quarter of 2009 was the first quarter since before 2005 we experienced a decrease in total revenue as compared to the same quarter of the previous year.

Uncertainty around current and future macroeconomic and industry conditions continues to persist.   We believe these conditions and the lack of liquidity in the capital markets had an effect upon the capital spending of our customers during the nine months ended September 30, 2009.  Moreover, we remain uncertain of the continued impact of any near-term changes of enterprise and consumer spending and behavior, in response to these market conditions. The level of competition we face during periods of economic weakness can be expected to increase.  We cannot be certain how long these conditions will continue and the magnitude of their effects on our business and results of operations.  These conditions continue to negatively affect our ability to close business and continue to make our forecasting and planning more difficult.

While we expect the near term market conditions to remain challenging, we continue to believe in our ability to execute our business plan in the near term and our longer term market opportunities.  We believe the need for organizations to move, protect and recover their data, applications and operating systems with affordable software will require our current customers as well as new customers to continue to invest in their infrastructure.  As a result, we intend to continue to prudently invest in our business, through continued product development and sales and marketing efforts.  While the company's sales pipelines continue to support generating revenue and net income in 2009 and the predictability of closure on those pipelines improved in the second  and third quarters of 2009, the effect of the continued economic downturn remains uncertain.  Therefore financial performance for the remainder of 2009 remains more difficult to predict than in past years.

Some Important Aspects of Our Operations
 
We license our software under perpetual licenses to end-user customers directly and to a network of distributors, value-added resellers and original equipment manufacturers, or OEMs.  Our distributors primarily sell our software to our resellers. Our resellers bundle or sell our software together with their own products and also sell our software independently.  Our OEMs market, sell and support our software and services on a stand-alone basis and incorporate our software into their own hardware and software products.

Our acquisition of Double-Take EMEA in 2006 has continued to provide us with a direct presence in the European, Middle Eastern and African markets, the opportunity to further our strategic initiative to increase revenue generated outside of the United States, and opportunities for improved margins.  The inclusion of Double-Take EMEA’s assets and operations in our business since May 23, 2006 has contributed to a significant increase in the size of our business over the past years. 

On December 24, 2007, we completed our acquisition of Double-Take Canada.  The acquisition did not provide meaningful revenue in 2008 and minimal revenue for the nine months ended September 30, 2009, but we believe the acquisition of Double-Take Canada’s patented technology and the engineering expertise of the employees, specifically in the area of file systems and application level recovery, fits well into our core capabilities as does the product design into our architecture.  This acquisition has helped us broaden development efforts of our products and as a result in October 2009, we released Double-Take Backup which utilizes this acquired technology.   On July 28, 2008, we completed our acquisition of emBoot.  The acquisition did not provide meaningful revenue in 2008 and had slightly increased revenue during the nine months ended September 30, 2009.  In September 2009 we released Double-Take Flex which incorporates this acquired technology. We expect substantially all of the on-going expenses related to Double-Take Canada will be related to research and development and to a lesser extent depreciation and amortization.  We expect the on-going use of the acquired technologies to further expand our product offering in future periods.


Revenue
 
We derive revenue from sales of perpetual licenses for our software and from maintenance and professional services. 

Software Licenses.  We derive the majority of our revenue from sales of perpetual licenses of our software applications, which allow our customers to use the software indefinitely.  We do not customize our software for a specific end user customer. We recognize revenue from sales of perpetual licenses generally upon shipment of the software.  Our software revenue is reported net of rebates and discounts because we do not receive an identifiable benefit in exchange for the rebate or discount.

Our software revenue generated approximately 47% and 55% of our total revenue for the nine months ended September 30, 2009 and 2008, respectively.  Our software revenue generally experiences some seasonality.  We believe that many organizations do not make the bulk of their information technology purchases, including software, in the first quarter of any year.  We believe that this historically has generally resulted in lower revenue generated by software sales in our first quarter of any year.  In the past, we have also generally experienced lower revenue in certain regions in the summer months.  Due to the recent economic downturn, our quarterly revenue predictability has decreased from prior years.  During the second quarter of 2009, we began to see more predictability than in the first quarter of 2009, and while that improvement in predictability continued in the third quarter, we still believe that predictability has not returned to that of previous periods.  As a result, future quarterly revenue may trend differently than it has historically.  Predicting quarterly revenue trending is more difficult than ever, but we believe that in line with our historical seasonality the first quarter of 2009 should be the weakest quarter of the year.

Maintenance and Professional Services.  We also generate revenue by providing our customers with maintenance comprised of software updates and product support. We generally include our maintenance for a designated period in the price of the software at the time of sale. In addition, some of our customers enter into a maintenance agreement for periods longer than a year. These agreements entitle our customers to software updates on a when-and-if-available basis and product support for an annual fee based on the licenses purchased and the level of service subscribed. Almost all of our customers that purchase maintenance pay the entire amount payable under the agreement in advance, although we recognize maintenance revenue ratably over the term of the agreement.
 
In some cases, most often in connection with the licensing of our software, we provide professional services to assist our customers in strategic planning for disaster recovery and application high availability, the installation of our software and the training of their employees to use our software. We provide most of our professional services on a fixed price basis and we generally recognize the revenue for professional services once we complete the engagement. For any paid professional services, including training, that have not been performed within three years of the original invoice date, we recognize the services as revenue in the quarter that is three years after original invoice date.

Maintenance revenue represented 91% of total maintenance and professional services revenue for the nine months ended September 30, 2009 and 2008.  Professional services generated the remainder of our total maintenance and professional services revenue in these periods.

Of our total revenue, maintenance revenue represented 49% and 41% for the nine months ended September 30, 2009 and 2008, respectively.  Professional services accounted for 4% of our total revenue for the nine months ended September 30, 2009 and 2008.  Our maintenance and professional services revenue historically has generated lower gross margins than our software revenue.  The gross margin generated by our maintenance and professional services revenue was 81% and 78% for the nine months ended September 30, 2009 and 2008, respectively.  We have focused on increasing and maintaining our maintenance revenue and we believe it has historically increased more rapidly than license revenue due to price increases and increased renewal rates attributable to focused sales efforts and the inclusion of significant new functionality in the product at no charge for licenses on which maintenance has been purchased.  As the percentage of total revenue attributable to maintenance increases, our overall gross margins will be adversely affected.  In the current economic environment, companies may decide not to renew their annual maintenance.  Should this happen, maintenance and professional services revenue may decrease.  Should license revenue increase in future periods, maintenance revenue will likely decrease as a percentage of total revenue.  We will continue to focus on maintaining our current and future customer base with renewal of licenses as functionality is enhanced throughout the products.

Cost of Revenue
 
 
Our cost of revenue primarily consists of the following:
 
 
Cost of Software Revenue.   Cost of software revenue consists primarily of media, manual, translation and distribution costs, and royalties to third-party software developers for technology embedded within our software. Because our development initiatives have resulted in insignificant time and costs incurred between technological feasibility and the point at which the software is ready for general release, we do not capitalize any of our internally-developed software.
 
 
Cost of Services Revenue.   Cost of services revenue consists primarily of salary and other personnel-related costs incurred in connection with our provision of maintenance and professional services. Cost of services revenue also includes other allocated overhead expenses for our professional services and product support personnel, as well as travel-related expenses for our staff to perform work at a customer’s site.


Operating Expenses
 
 
We classify our operating expenses as follows:
 
 
Sales and Marketing.   Sales and marketing expenses primarily consist of the following:
   
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personnel and related costs for employees engaged in sales, corporate marketing, product marketing and product management with partners in our distribution network, including salaries, commissions and other incentive compensation, including equity-based compensation, related employee benefit costs and allocated overhead expenses;
   
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travel related expenses to meet with existing and potential customers, and for other sales and marketing related purposes; and
   
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sales promotion expenses, public relations expenses and costs for marketing materials and other marketing events, including trade shows, industry conventions and advertising, and marketing development funds for our distribution partners.

We expense our sales commissions at the time of sale. We expect our sales and marketing expense to increase in the future as we continue to invest in marketing programs and we increase various sales activities which may include an increase in the number of direct sales professionals.

 
Research and Development.   Research and development expenses primarily represent the expense of developing new software and modifying existing software. These expenses primarily consist of the following:
 
 
   
•
personnel and related costs, including salaries, employee benefits, equity and other incentive compensation and allocated overhead expenses, for research and development personnel, including software engineers, software quality assurance engineers and systems engineers; and
   
•
contract labor expense and consulting fees paid to independent consultants and others who provide software engineering services to us, as well as other expenses associated with the design and testing of our software. 
 
 
Historically, our research and development efforts have been primarily devoted to increases in features and functionality of our existing software. We expect research and development expense to increase in the future as we continue to develop new solutions for our customers.  We expect research and development expense to increase as a percentage of revenue in 2009 as we continue to invest in product development efforts. The 2009 research and development expense will include a full year of expense related to Double-Take Canada’s acquisition of emBoot as compared to a partial year in 2008 as the acquisition was made in July 2008.
 
 
General and Administrative.   General and administrative expenses represent the costs and expenses of managing and supporting our operations. General and administrative expenses consist primarily of the following:
 
 
   
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personnel and related costs including salaries, employee benefits, equity and other incentive compensation and allocated overhead expenses, for our executives, finance, human resources, corporate information technology systems, strategic business, corporate quality, corporate training and other administrative personnel;
   
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legal and accounting professional fees;
   
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recruiting and training costs;
   
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travel related expenses for executives and other administrative personnel; and
   
•
computer maintenance and support for our internal information technology system.
 
 
General and administrative expenses have historically increased as a result of being a publicly-traded company and investing in an infrastructure to support our growth. However, we generally expect general and administrative expenses to remain substantially similar or slightly decrease as a percentage of revenue for the foreseeable future.
 
 
Depreciation and Amortization.   Depreciation and amortization expense consists of depreciation expense primarily for computer equipment we use for information services and in our development and test labs, and amortization of intangible assets acquired.


Results of Operations
 
    Three Months Ended September 30, 2009 Compared to Three Months Ended September 30, 2008
 
    Revenue. We derive our revenue from sales of our products and support and services.  Revenue decreased 11% to $21.3 million, for the three months ended September 30, 2009, from $24.0 million for the three months ended September 30, 2008.  Of our sales in the three months ended September 30, 2009 and 2008, 88% and 91%, respectively, was attributable to sales to or through our indirect channels such as distributors, value-added resellers and OEMs. This percentage can vary from quarter to quarter and we do not expect to significantly increase our proportion of sales from direct sales.  Of our sales in the three months ended September 30, 2009 and 2008, 12% and 9%, respectively, was attributable to direct sales to end users.  Historically, our total revenue has generally increased each quarter within a calendar year with the first quarter of the year being the weakest quarter.  The current quarter’s total revenue decreased from the same quarter of the previous year and increased slightly from the second quarter of 2009.  We currently expect revenue will likely be flat or slightly increase from the third quarter of 2009 to the fourth quarter of 2009, as well as decrease in the fourth quarter of 2009 from the same quarter of the previous year.  This decrease from the same quarter a year ago is a result of the global economic weakness currently being experienced as discussed above in Effect of Recent Market Conditions and Uncertain Economic Environment on our Business.
 

Software License Revenue.  Software revenue decreased $2.6 million, or 20%, from $12.8 million in the three months ended September 30, 2008 to $10.2 million in the three months ended September 30, 2009.  While we had approximately $0.4 million of software license revenue related to new products offered during the three months ended September 30, 2009 which were not available during the three months ended September 30, 2008, software revenue decreased.  The decrease in software revenue was primarily due to the global economic slowdown which has resulted in decreased or delayed corporate capital expenditures.  To a lesser extent, changing foreign currency exchange rates also had an effect on software license revenue.  During the three months ended September 30, 2009 as compared to the three months ended September 30, 2008, the United States dollar was stronger against both the euro and the pound sterling.  Had exchange rates stayed constant, license revenue would have decreased by approximately 19% in the three months ended September 30, 2009 from the three months ended September 30, 2008.

Software sales made to or through our distributors, value-added resellers and OEMs generated approximately 92% and 94% of total software sales in the three months ended September 30, 2009 and 2008, respectively. During the three months ended September 30, 2009 and 2008, respectively, approximately 8% and 6% of our software sales were made solely by our direct sales force.  During the three months ended September 30, 2009 and 2008, approximately 16% and 13%, respectively, of our software sales were made to our distributors for sale to value-added resellers, approximately 71% and 76%, respectively, of our software sales were made directly through resellers and approximately 5% of our software sales were made through OEMs. We believe that we will need to continue to maintain close relationships with our partners to sustain and increase profitability. We have no current plans to focus future growth on one distribution channel versus another. We believe our direct sales force complements our indirect distribution network, and we intend to continue to increase revenue generated by both.

In the three months ended September 30, 2009 and 2008, the median price of sales of Double-Take software licenses to customers was approximately $4,000 and $6,000, respectively.  We believe that, historically, the pricing and sales cycles have contributed to more balanced sales throughout the year and more predictable revenue streams in comparison to other software companies with perpetual license models. We believe that the affordability of our software is a competitive advantage.  However, the predictability of software sales has declined over the past several quarters compared to 2007 and early 2008.
 
Maintenance and Professional Services Revenue.  Maintenance and professional services revenue was $11.1 million in the three months ended September 30, 2009 and 2008.  Maintenance and professional services revenue represented 52% of our total revenue in the three months ended September 30, 2009 and 47% of our total revenue in the three months ended September 30, 2008. Maintenance revenue was $10.1 million for the three months ended September 30, 2009 and 2008.  Professional services revenue  was $1.0 million in the three months ended September 30, 2009 and 2008.  There are variations in scheduling of the delivery of professional services from quarter to quarter which will impact the amount of professional services recognized in each quarter.  Additionally, to a lesser extent, changing foreign currency exchange rates also had an effect on maintenance and professional services revenue.  Had exchange rates stayed constant, professional services and maintenance revenue would have increased by approximately 2% in the three months ended September 30, 2009 from the three months ended September 30, 2008.
 
Cost of Revenue and Gross Profit
 
Total cost of revenue decreased $0.2 million, or 9%, from $2.5 million for the three months ended September 30, 2008 to $2.3 million in the three months ended September 30, 2009.  Total cost of revenue represented 11% and 10% of our total revenue in the three months ended September 30, 2009 and 2008, respectively.

Cost of software revenue decreased $28,000, or 18%, from $156,000 for the three months ended September 30, 2008 to $128,000 for the three months ended September 30, 2009.  The decrease was a result of decreased software license revenue.  In the three months ended September 30, 2009 and 2008 the cost of software revenue was 1% of software revenue.

Cost of services revenue decreased $0.2 million, or 9%, from $2.3 million for the three months ended September 30, 2008 to $2.1 million in the three months ended September 30, 2009.  The decrease was primarily related to a decrease of $0.1 million of personnel expenses directly related to a temporary salary decrease of approximately 10% effective for two months in the third quarter of 2009, decreased bonus expense directly related to reduced revenue and profitability and the discontinued employer match to the 401(k) plan.   Additionally as a result of our continued cost control efforts, travel and consulting expense decreased by approximately $0.1 million.  Cost of services revenue represented 19% of our services revenue in the three months ended September 30, 2009 and 21% in the three months ended September 30, 2008.
 
Gross profit decreased $2.4 million, or 11%, from $21.5 million for the three months ended September 30, 2008 to $19.0 million for the three months ended September 30, 2009.  The decrease is due primarily to the drop in revenue in the third quarter of 2009.  Gross margin remained substantially constant at 89% and 90% in the three months ended September 30, 2009 and 2008, respectively.
 


Operating Expenses

Effect of Changing Foreign Currency Rates on Expenses. During the three months ended September 30, 2009 as compared to the three months ended September 30, 2008, the United States dollar was stronger than the euro, the pound sterling and the Canadian dollar.  As a result, operating expenses decreased by approximately 2% during the three months ended September 30, 2009 from what they would have been during the time period had foreign currency exchange rates remained constant from the three months ended September 30, 2008. The overall fluctuation in operating expenses, which includes the effect of foreign currency rates, is described below.
 
Sales and Marketing.  Sales and marketing expenses decreased $0.7 million, or 8%, from $8.4 million for the three months ended September 30, 2008 to $7.7 million for the three months ended September 30, 2009.  The decrease was substantially due to decreased commission and personnel expenses.  Commission expense decreased by approximately $0.3 million as a direct result of the decreased revenue.  Personnel expenses decreased by approximately $0.1 million which was a result of decreased bonus expense due to decreased revenue and profitability, a temporary salary decrease of approximately 10% effective for two months in the third quarter of 2009 and the discontinued employer match to the 401(k) plan, all of which were partially offset by an increase in health insurance benefits.  As a result of our continued cost control efforts, travel expense decreased by approximately $0.1 million and outside marketing expense decreased by approximately $0.3 million.
 
Research and Development.  Research and development expenses decreased $0.7 million, or 16%, from $4.3 million for the three months ended September 30, 2008 to $3.7 million for the three months ended September 30, 2009.  Personnel expenses decreased by approximately $0.3 million which was a result of decreased bonus expense due to decreased revenue and profitability, a temporary salary decrease of approximately 10% effective for two months in the third quarter of 2009 and the discontinued employer match to the 401(k) plan, all of which were partially offset an increase in health insurance benefits.  As a result of our continued cost control efforts, third party development expense and travel expense decreased by approximately $0.3 million.

General and Administrative.  General and administrative expenses decreased $0.2 million, or 5%, from $3.4 million for the three months ended September 30, 2008 to $3.2 million for the three months ended September 30, 2009.  Personnel expenses decreased by approximately $0.3 million which was a result of decreased bonus expense due to decreased revenue and profitability, a temporary salary decrease of approximately 10% effective for two months in the third quarter of 2009 and the discontinued employer match to the 401(k) plan, all of which were partially offset by an increase in health insurance benefits.  The expense decreases were partially offset by an increase of approximately $0.2 million in legal and accounting fees.
 
Depreciation and Amortization.  Depreciation and amortization expense increased $31,000, or 3%, from $974,000 in the three months ended September 30, 2008 to $1.0 million for the three months ended September 30, 2009.  The increase was attributable to increased depreciation expense associated with capital expenditures and increased amortization related to the technology related intangibles which were acquired in connection with the acquisition of emBoot on July 28, 2008.
 
Interest Income.  Interest income was $0.1 million for the three months ended September 30, 2009 as compared to $0.4 million for the three months ended September 30, 2008.  While our cash and short term investments increased by $21.5 million from September 30, 2008 to September 30, 2009, our interest income decreased by $0.3 million.  The decrease was a result of lower returns on our cash and short term investments which matured during the three months ended September 30, 2009 and were reinvested at lower rates than in 2008.  The cash and short term investments were reinvested substantially in United States treasury notes and bonds and cash management funds.  During the remainder of 2009, should the interest rates continue to remain at lower or even similar levels than those experienced in 2008, we expect our interest income to remain at the lower amounts attained in the third quarter of 2009.
 
Foreign Exchange (Loss)
 
The foreign exchange loss was $8,000 for the three months ended September 30, 2009 as compared to $79,000 for the three months ended September 30, 2008.  The foreign currency fluctuations are substantially related to Double-Take EMEA.  For the three months ended September 30, 2008, the loss occurred on assets we had which were denominated in pounds sterling in Europe.  These assets were converted to Euros and then subsequently to US dollars for financial statement reporting purposes.  The conversion to euros and then subsequently to US dollars produced the loss.  In the fourth quarter of 2008, we had a reorganization of the legal entity structure of Double-Take EMEA.  The reorganization of the entities reduced the amount of Double-Take EMEA assets denominated in pounds sterling therefore reducing our exposure to currency fluctuations between the pound sterling and the euro.  We may from time to time have assets which are denominated in currencies other than the functional currency of the Double-Take EMEA entity.  As a result, we do still have exposure to currency fluctuations.
 
Income Tax Expense

Income tax expense was $1.9 million for the three months ended September 30, 2009 compared to $2.1 million for the three months ended September 30, 2008.  In the three months ended September 30, 2009 and 2008, we recorded a tax expense using the effective tax rate currently expected to be in effect for the full year.  The effective tax rate increased from 44% for the three months ended September 30, 2008 to 55% for the three months ended September 30, 2009.   The increase in the effective tax rate was substantially a result of decreased taxable income generated from operations in the United States and increased stock option expense which is not deductible for tax purposes.
 
In determining future taxable income, assumptions are made to forecast federal, state and international operating income, the reversal of temporary timing differences, and the implementation of any feasible and prudent tax planning strategies.  The assumptions require significant judgment regarding the forecasts of future taxable income, and are consistent with forecasts used to manage the business.  Should these assumptions change based upon changes to the forecast of future taxable income in any particular quarter, the effective tax rate in any quarter could be significantly different.   As of December 31, 2008 we had a valuation allowance of $17.4 million recorded against net deferred tax assets, which are primarily comprised of net operating loss carryforwards as a result of operating losses incurred since inception.  For the three months ended September 30, 2009 there was no reversal  of the valuation allowance.  Realization of deferred tax assets is dependent upon future earnings, if any, the timing of which is uncertain. Accordingly, the net deferred tax assets are partially offset by the valuation allowance.  Utilization of these net operating losses and credit carryforwards are subject to annual limitations due to provisions of the Internal Revenue Code of 1986, as amended, that are applicable due to “ownership changes” that have occurred.  We will maintain the valuation allowance until sufficient further positive evidence exists to support a reversal of, or decrease in, the valuation allowance.
 



Net Income (Loss)
 
For the three months ended September 30, 2009, we recorded net income of $1.6 million which is a decrease of 40% or $1.1 million from the net income recorded for the three months ended September 30, 2008.  During the three months ended September 30, 2009 revenue decreased by $2.7 million.  The decrease in revenue was partially offset by decreased cost of revenue of $0.2 million and decreased operating expenses of $1.5 million.  The decrease in revenue is primarily a result of the decreased demand caused by the economic slowdown currently being experienced.  Overall, the decrease in operating expenses is related to our continued cost control efforts. The decrease in operating expenses is substantially a result of decreased sales and marketing expense of $0.7 million and decreased research and development expense of $0.7 million.  In addition to our cost control efforts, sales and marketing expense also decreased directly as a result of our decreased revenue.  Our income from operations decreased by $1.0 million, or 22%, from $4.4 million for the three months ended September 30, 2008 to $3.4 million for the three months ended September 30, 2009.  The decrease in income from operations was partially offset by decreased tax expense of $0.2 million as a result of decreased taxable income at an increased effective tax rate.
 
    Nine Months Ended September 30, 2009 Compared to Nine Months Ended September 30, 2008
 
    Revenue. We derive our revenue from sales of our products and support and services.  Revenue decreased 15% to $60.5 million, for the nine months ended September 30, 2009, from $71.3 million for the nine months ended September 30, 2008.  Of our sales in the nine months ended September 30, 2009 and 2008, 89% were attributable to sales to or through our indirect channels such as distributors, value-added resellers and OEMs. This percentage can vary from quarter to quarter and we do not expect to significantly increase our proportion of sales from direct sales.  Of our sales in the nine months ended September 30, 2009 and 2008, 11% were attributable to direct sales to end users.  Historically, our total revenue has generally increased each quarter within a calendar year with the first quarter of the year being the weakest quarter.  Total revenue decreased from the same period of the previous year.  We currently expect flat to slightly increased revenue from the third quarter of 2009 to the fourth quarter of 2009, as well as decreased revenue from the same period of the previous year.  This decrease is a result of the global economic weakness currently being experienced as discussed above in Effect of Recent Market Conditions and Uncertain Economic Environment on our Business.

Software License Revenue.  Software revenue decreased $10.5 million, or 27%, from $38.9 million in the nine months ended September 30, 2008 to $28.4 million in the nine months ended September 30, 2009.  While we had approximately $2.5 million of software license revenue related to new products offered during the nine months ended September 30, 2009 which were not available during the nine months ended September 30, 2008, software revenue decreased.  The decrease in software revenue was primarily due to the global economic slowdown which has resulted in decreased or delayed corporate capital expenditures.  To a lesser extent, changing foreign currency exchange rates also had an effect on software license revenue.  During the nine months ended September 30, 2009 as compared to the nine months ended September 30, 2008, the United States dollar was stronger against both the euro and the pound sterling.  Had exchange rates stayed constant, license revenue would have decreased by approximately 24% in the nine months ended September 30, 2009 from the nine months ended September 30, 2008.

Software sales made to or through our distributors, value-added resellers and OEMs generated approximately 91% of total software sales in the nine months ended September 30, 2009 and 2008. During the nine months ended September 30, 2009 and 2008, approximately 9% of our software sales were made solely by our direct sales force.  During the nine months ended September 30, 2009 and 2008, approximately 15% and 13%, respectively, of our software sales were made to our distributors for sale to value-added resellers, approximately 69% and 72%, respectively, of our software sales were made directly through resellers and approximately 7% and 6%, respectively, of our software sales were made through OEMs. We believe that we will need to continue to maintain close relationships with our partners to sustain and increase profitability. We have no current plans to focus future growth on one distribution channel versus another. We believe our direct sales force complements our indirect distribution network, and we intend to continue to increase revenue generated by both.

In the nine months ended September 30, 2009 and 2008, the median price of sales of Double-Take software licenses to customers was approximately $4,000 and $6,000.  We believe that, historically, the pricing and sales cycles have contributed to more balanced sales throughout the year and more predictable revenue streams in comparison to other software companies with perpetual license models. We believe that the affordability of our software is a competitive advantage.  However, the predictability of software sales has declined over the past several quarters compared to where it was in 2007 and early 2008.
 
Maintenance and Professional Services Revenue.  Maintenance and professional services revenue decreased $0.4 million, or 1%, from $32.5 million in the nine months ended September 30, 2008, to $32.1 million in the nine months ended September 30, 2009.  Maintenance and professional services revenue represented 53% of our total revenue in the nine months ended September 30, 2009 and 46% of our total revenue in the nine months ended September 30, 2008. Maintenance revenue was $29.7 and $29.4 million for the nine months ended September 30, 2009 and 2008, respectively, an increase of approximately 1%.  The slight increase in maintenance revenue was attributable to continued maintenance renewals resulting from heightened sales focus and the inclusion of significant new functionality in the product at no charge for licenses on which maintenance has been purchased.  Additionally, maintenance revenue was recognized in the nine months ended September 30, 2009 on new licenses sold in the past year.  Professional services revenue decreased $0.7 million, or 21%, from $3.1 million in the nine months ended September 30, 2008, to $2.4 million in the nine months ended September 30, 2009. The decrease in professional services revenue for the nine months ended September 30, 2009 was due to fewer engagements being completed in the nine months ended September 30, 2009 as compared to the nine months ended September 30, 2008 as many customers delayed the implementation of projects previously scheduled and there were fewer new projects sold during the nine months ended September 30, 2009 compared to the nine months ended September 30, 2008.  There are variations in scheduling of the delivery of professional services from quarter to quarter which will impact the amount of professional services recognized.  Additionally, changing foreign currency exchange rates also had an effect on maintenance and professional services revenue.  Had exchange rates stayed constant, maintenance and professional services revenue would have increased by approximately 4% in the nine months ended September 30, 2009 from the nine months ended September 30, 2008.
 


Cost of Revenue and Gross Profit
 
Total cost of revenue decreased $1.0 million, or 13%, from $7.6 million for the nine months ended September 30, 2008 to $6.6 million in the nine months ended September 30, 2009.  Total cost of revenue represented 11% of our total revenue in the nine months ended September 30, 2009 and 2008.

Cost of software revenue decreased $52,000, or 13%, from $397,000 for the nine months ended September 30, 2008 to $345,000 for the nine months ended September 30, 2009.  The decrease was a result of decreased sales of our product.  In the nine months ended September 30, 2009 and 2008 the cost of software was 1% of software revenue.

Cost of services revenue decreased $0.9 million, or 13%, from $7.2 million for the nine months ended September 30, 2008 to $6.3 million in the nine months ended September 30, 2009.  The decrease was primarily related to a decrease of approximately $0.4 million of personnel expenses directly related to a temporary salary decrease of approximately 10% effective for three months in the nine months of 2009, decreased bonus expense directly related to reduced revenue and profitability and the discontinued employer match to the 401(k) plan, as well as the effects of foreign currency (see Effect of Changing Foreign Currency Rates on Expenses below).  This decrease was partially offset by increased health insurance benefits.  Additionally as a result of our continued cost control efforts, travel and consulting expense decreased by approximately $0.3 million.  Cost of services revenue represented 20% of our services revenue in the nine months ended September 30, 2009 and 22% in the nine months ended September 30, 2008.
 
Gross profit decreased $9.9 million, or 16%, from $63.8 million for the nine months ended September 30, 2008 to $53.9 million for the nine months ended September 30, 2009.  The decrease is due primarily to the drop in revenue during 2009.  Gross margin remained substantially constant at 89% in the nine months ended September 30, 2009 and 2008.

Operating Expenses
 
Effect of Changing Foreign Currency Rates on Expenses. During the nine months ended September 30, 2009 as compared to the nine months ended September 30, 2008, the United States dollar was stronger than the euro, the pound sterling and the Canadian dollar.  As a result, operating expenses decreased by approximately 4% during the nine months ended September 30, 2009 from what they would have been during the time period had foreign currency exchange rates remained constant from the nine months ended September 30, 2008. The overall fluctuation in operating expenses, which includes the effect of foreign currency rates, is described below.
 
Sales and Marketing.  Sales and marketing expenses decreased $2.6 million, or 10%, from $26.3 million for the nine months ended September 30, 2008 to $23.7 million for the nine months ended September 30, 2009.  The decrease was substantially due to decreased bonus and commission expense of approximately $1.5 million directly related to decreased revenue and profitability.  As a result of our continued cost control efforts, travel expense decreased by approximately $0.5 million and outside marketing and consulting expense decreased by approximately $0.1 million.  As a further cost control measure, the employer match to the 401(k) plan was discontinued which resulted in an expense decrease of approximately $0.2 million.  The decreased expenses were partially offset by increased compensation expense and medical benefits of approximately $0.5 million primarily resulting from increased headcount during the nine months ended September 30, 2009.  The increase in compensation was offset by a temporary salary reduction of approximately 10% effective for three months during 2009.
 
Research and Development.  Research and development expenses decreased $0.9 million, or 8%, from $12.5 million for the nine months ended September 30, 2008 to $11.5 million for the nine months ended September 30, 2009.  The decrease in expenses is a result of decreased bonus expense of approximately $0.3 million directly related to decreased revenue and profitability.  As a result of our continued cost control efforts, third party development expense and travel expense decreased by approximately $0.5 million.  As a further cost control measure, the employer match to the 401(k) plan was discontinued which resulted in an expense decrease of approximately $0.2 million.  The expense decreases were partially offset by increased compensation expense of approximately $0.3 which is substantially all a result of our acquisition of emBoot in July 2008.  The increase in compensation was offset by a temporary salary decrease of approximately 10% effective for three months during 2009.

General and Administrative.  General and administrative expenses decreased $0.6 million, or 6%, from $10.0 million for the nine months ended September 30, 2008 to $9.5 million for the nine months ended September 30, 2009.  Personnel expenses decreased by approximately $0.3 million due to decreased headcount and a temporary salary reduction of approximately 10% effective for three months during 2009, partially offset by an increase in medical benefits.  Additionally, bonus expense decreased by $0.3 million directly related to decreased revenue and profitability.   As a result of our continued cost control efforts, third party consulting expense and travel expense decreased by approximately $0.3 million.  The expense decreases were partially offset by an increase of approximately $0.3 million legal and accounting fees.
 
Depreciation and Amortization.  Depreciation and amortization expense increased $0.4 million, or 14%, from $2.6 million in the nine months ended September 30, 2008 to $3.0 million for the nine months ended September 30, 2009.  The increase was attributable to increased depreciation expense associated with capital expenditures and increased amortization related to the technology related intangibles which were acquired in connection with the acquisition of emBoot on July 28, 2008.
 
Interest Income.  Interest income was $0.2 million for the nine months ended September 30, 2009 as compared to $1.5 million for the nine months ended September 30, 2008.  While our cash and short term investments increased by $21.5 million from September 30, 2008 to September 30, 2009, our interest income decreased by $1.2 million.  The decrease was a result of lower returns on our cash and short term investments which matured during the nine months ended September 30, 2009 and were reinvested at lower rates than in 2008.  The cash and short term investments were reinvested substantially in United States treasury notes and bonds and cash management funds.  During the remainder of 2009, should the interest rates continue to remain at lower or even similar levels than those experienced in 2008, we expect our interest income to remain at the lower amounts attained in the third quarter of 2009.
 


Foreign Exchange (Loss)
 
The foreign exchange loss was $0.1 and $0.5 million for the nine months ended September 30, 2009 and 2008, respectively.  The foreign currency fluctuations are substantially related to Double-Take EMEA.  For the nine months ended September 30, 2008, the loss occurred on assets we had which were denominated in pounds sterling in Europe.  These assets were converted to Euros and then subsequently to US dollars for financial statement reporting purposes.  In the fourth quarter of 2008, we had a reorganization of the legal entity structure of Double-Take EMEA.  The reorganization of the entities reduced the amount of Double-Take EMEA assets denominated in pounds sterling therefore reducing our exposure to currency fluctuations between the pound sterling and the euro.  We may from time to time have assets which are denominated in currencies other than the functional currency of the Double-Take EMEA entity.  As a result, we do still have exposure to currency fluctuations.
 
Income Tax Expense

Income tax expense was $3.4 million for the nine months ended September 30, 2009 compared to $5.9 million for the nine months ended September 30, 2008.  In the nine months ended September 30, 2009 and 2008, we recorded a tax expense using the effective tax rate currently expected to be in effect for the full year.  The effective tax rate increased from 44% for the nine months ended September 30, 2008 to 54% for the nine months ended September 30, 2009.   The increase in the effective tax rate was substantially a result of decreased taxable income generated from operations in the United States and increased stock option expense which is not deductible for tax purposes.
 
In determining future taxable income, assumptions are made to forecast federal, state and international operating income, the reversal of temporary timing differences, and the implementation of any feasible and prudent tax planning strategies.  The assumptions require significant judgment regarding the forecasts of future taxable income, and are consistent with forecasts used to manage the business.  Should these assumptions change based upon changes to the forecast of future taxable income in any particular quarter, the effective tax rate in any quarter could be significantly different.   As of December 31, 2008 we had a valuation allowance of $17.4 million recorded against net deferred tax assets, which are primarily comprised of net operating loss carryforwards as a result of operating losses incurred since inception.  For the nine months ended September 30, 2009 there was no reversal  of the valuation allowance.  Realization of deferred tax assets is dependent upon future earnings, if any, the timing of which is uncertain. Accordingly, the net deferred tax assets are partially offset by the valuation allowance.  Utilization of these net operating losses and credit carryforwards are subject to annual limitations due to provisions of the Internal Revenue Code of 1986, as amended, that are applicable due to “ownership changes” that have occurred.  We will maintain the valuation allowance until sufficient further positive evidence exists to support a reversal of, or decrease in, the valuation allowance.

Net Income (Loss)
 
For the nine months ended September 30, 2009, we recorded net income of $2.9 million which is a decrease of 61% or $4.5 million from the net income recorded for the nine months ended September 30, 2008.  During the nine months ended September 30, 2009 revenue decreased by $10.9 million.  The decrease in revenue was partially offset by decreased cost of revenue of $1.0 million and decreased operating expenses of $3.8 million.  The decrease in revenue is primarily a result of the decreased demand caused by the economic slowdown currently being experienced.  Overall, the decrease in operating expenses is related to our continued cost control efforts. The decrease in operating expenses is substantially a result of decreased sales and marketing expense of $2.6 million, decreased research and development expense of $0.9 million and decreased general and administrative expense of $0.6 million all partially offset by $0.4 million of increased depreciation and amortization expense.  In addition to our cost control efforts, sales and marketing expense also decreased directly as a result of our decreased revenue.  Depreciation and amortization expense increased primarily as a result of our acquisition of emBoot.  Our income from operations decreased by $6.1 million, or 50%, from $12.3 million for the nine months ended September 30, 2008 to $6.2 million for the nine months ended September 30, 2009.  The decrease in income from operations was partially offset by decreased tax expense of $2.4 million as a result of decreased taxable income.

Critical Accounting Policies

In presenting our financial statements in conformity with accounting principles generally accepted in the United States, we are required to make estimates and judgments that affect the amounts reported in our financial statements. Some of the estimates and assumptions we are required to make relate to matters that are inherently uncertain as they pertain to future events. We formulate these estimates and assumptions based on historical experience and on various other matters that we believe to be reasonable and appropriate. Actual results may differ significantly from these estimates. Of our significant accounting policies described in Note 1 to the financial statements included elsewhere in this Form 10-Q, we believe that the following policies may involve a higher degree of judgment and complexity.

Revenue Recognition

Our revenue is reported net of rebates and discounts because there is no identifiable benefit in exchange for the rebate or discount. We derive revenues from two primary sources or elements: software licenses and services. Services include customer support, consulting, installation services and training. A typical sales arrangement includes both of these elements.
 
For software arrangements involving multiple elements, we recognize revenue using the residual method. Under the residual method, we allocate and defer revenue for the undelivered elements based on relative fair value and recognize the difference between the total arrangement fee and the amount deferred for the undelivered elements as revenue. The determination of fair value of the undelivered elements in multiple element arrangements is based on the price charged when such elements are sold separately, which is commonly referred to as vendor-specific objective-evidence (“VSOE”). 
 
Our software licenses typically provide for a perpetual right to use our software and are sold on a per-copy basis. We recognize software revenue through direct sales channels and resellers upon receipt of a purchase order or other persuasive evidence and when all other basic revenue recognition criteria are met as described below. Revenue from software licenses sold through an OEM partner is recognized upon the receipt of a royalty report evidencing sales.


Services revenue includes revenue from customer support and other professional services. Customer support includes software updates (including unspecified product upgrades and enhancements) on a when-and-if-available basis, telephone support and bug fixes or patches. Customer support revenue is recognized ratably over the term of the customer support agreement, which is typically one year. To determine the price for the customer support element when sold separately, we use actual rates at which we have previously sold support as established VSOE.
 
Other professional services such as consulting and installation services provided by us are not essential to the functionality of the software and can also be performed by the customer or a third party. Revenues from consulting and installation services are recognized when the services are completed. Training fees are recognized after the training course has been provided. Any paid professional services, including training, that have not been performed within six years of the original invoice date are recognized as revenue in the quarter that is six years after the original invoice date. Based on our analysis of such other professional services transactions sold on a stand-alone basis, we have concluded we have established VSOE for such other professional services when sold in connection with a multiple-element software arrangement. The price for other professional services has not materially changed for the periods presented. 
 
We have analyzed all of the undelivered elements included in our multiple-element arrangements and determined that VSOE of fair value exists to allocate revenues to services. Accordingly, assuming all basic revenue recognition criteria are met, software revenue is recognized upon delivery of the software license using the residual method. 
 
We consider the four basic revenue recognition criteria for each of the elements as follows: 
 
Persuasive evidence of an arrangement with the customer exists.   Our customary practice is to require a purchase order and, in some cases, a written contract signed by both the customer and us prior to recognizing revenue with respect to an arrangement.
 
Delivery or performance has occurred.   Our software applications are usually physically delivered to customers with standard transfer terms such as FOB shipping point. Software and/or software license keys for add-on orders or software updates are typically delivered via email. We recognize software revenue upon shipment to resellers and distributors because there is no right of return or refund and generally no price protection agreements. In situations where multiple copies of licenses are purchased, all copies are delivered to the customer in one shipment and revenue is recognized upon shipment. Occasionally, we enter into a site license with a customer that allows the customer to use a specified number of licenses within the organization. When a site license is sold, we deliver a master disk to the customer that allows the product to be installed on multiple servers. We have no further obligation to provide additional copies of the software or user manuals. Revenue on site licenses is recognized upon shipment of the master disk to the customer. Sales made by our Original Equipment Manufacturer (“OEM”) partners are recognized as revenue in the month the product is shipped. We estimate the revenue from a preliminary report received from the OEM shortly after the end of the month. Once the final report is received, the revenue is adjusted to that based on the final report, usually in the following month. Services revenue is recognized when the services are completed, except for customer support, which is recognized ratably over the term of the customer support agreement, which is typically one year.

Fee is fixed or determinable.   The fee customers pay for software applications, customer support and other professional services is negotiated at the outset of an arrangement. The fees are therefore considered to be fixed or determinable at the inception of the arrangement.
 
Collection is probable.   Probability of collection is assessed on a customer-by-customer basis. Each new customer undergoes a credit review process to evaluate its financial position and ability to pay. If we determine from the outset of an arrangement that collection is not probable based upon the review process, revenue is recognized on a cash-collected basis.

Our arrangements do not generally include acceptance clauses. However, if an arrangement does include an acceptance clause, revenue for such an arrangement is deferred and recognized upon acceptance. Acceptance occurs upon the earliest of receipt of a written customer acceptance, waiver of customer acceptance or expiration of the acceptance period.

Stock-Based Compensation

We recognize stock option expense using the fair value recognition method.  We apply the fair value recognition method only to awards granted, modified, repurchased or cancelled after January 1, 2006.  Stock-based compensation expense is recognized based on the grant-date fair value of stock option awards granted or modified after January 1, 2006.  As we had used the minimum value method for valuing our stock options, all unmodified options granted prior to January 1, 2006 continue to be accounted using the minimum value method.
 
We account for stock-based compensation expense related to restricted stock units using the fair value of the nonvested stock on the grant date.  The fair value is measured as the market price of a share of nonrestricted stock on the grant date.

We account for stock awards to non-employees by recognizing  the fair value of these instruments as an expense over the period in which the related services are rendered.

Income Taxes

            Deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities, and are measured using the enacted laws and tax rates that are expected to be in effect when the differences are expected to reverse. The measurement of deferred tax assets is reduced, if necessary, by a valuation allowance for any tax benefits not expected to be realized. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the period that such tax rate changes are enacted.

In the three and nine months ended September 30, 2009 and 2008, we recorded a tax expense of  $1,907, $3,406, $2,070 and $5,851, respectively, related to income generated during the periods using an effective tax rate currently expected to be in effect for the full year.

As of December 31, 2008, we recorded a valuation allowance of $17.4 million against net deferred tax assets, which are primarily comprised of net operating loss carryforwards as a result of operating losses incurred since inception.  Realization of deferred tax assets is dependent upon future earnings, if any, the timing of which is uncertain. Accordingly, the net deferred tax assets were offset by a valuation allowance.



We analyze the carrying value of our deferred tax assets on a regular basis.  In determining future taxable income, assumptions are made to forecast federal, state and international operating income, the reversal of temporary timing differences, and the implementation of any feasible and prudent tax planning strategies.  The assumptions require significant judgment regarding the forecasts of future taxable income, and are consistent with forecasts used to manage the business.  Should these assumptions change based upon changes to the forecast of future taxable income in any particular quarter, the effective tax rate in any quarter could be significantly different.   During the nine months ended September 30, 2009, there was no reversal of the valuation allowance.  We will maintain a valuation allowance until sufficient further positive evidence exists to support a reversal of, or decrease in, the valuation allowance.

We analyze any uncertain tax positions through the application of  a two-step process that separates recognition from measurement.  During the three and nine months ended September 30, 2009, the Company did not recognize any uncertain tax positions and the Company did not recognize any increase or decrease to reserves for uncertain tax positions.

We have elected to record interest and penalties recognized in the financial statements as income taxes.  Any subsequent change in classification interest and penalties will be treated as a change in accounting principle.

Liquidity and Capital Resources

Overview

Our ability to sustain a level of positive cash flow from operations that is sufficient to continue to meet all of our future operating, capital and other cash requirements is subject to the risks associated with our business, including those described under “Risk Factors” in our annual report on Form 10-K, which we filed with the Securities and Exchange Commission on March 13, 2009 and to changes in our business plan, capital structure and other events. As of September 30, 2009, we had cash and short term investments of $89.4 million and accounts receivable of $15.8 million.

In January 2006, in connection with the settlement of an intellectual property dispute reached in December 2005, we paid $3.8 million to another company. We also agreed to make future payments of $0.5 million in each of January 2007, 2008, 2009 and 2010, which we collateralized by a $2.0 million letter of credit to that company. The letter of credit was to be drawn down automatically in increments of $0.5 million at the time of each payment requirement. Our future obligations under the settlement were reduced on a dollar-for-dollar basis to the extent that we purchased or resold the other company’s products. As of September 30, 2009, we had made the payment on the final $0.2 million of computer equipment.  As a result, both parties have agreed that the $2.0 million obligation under the settlement agreement has been fulfilled.  In July 2009, the letter of credit related to the settlement agreement was cancelled. 
 
As of September 30, 2009, we had no borrowings under our $2.0 million credit facility with Silicon Valley Bank (“SVB”) which expires on April 28, 2010.
 

Sources and Uses of Cash
 

   
Nine Months Ended Months Ended
September 30,
   
2009
    
2008
   
(in thousands)
Cash flow data:
        
Net cash provided by operating activities
   $ 16,238     $ 16,301  
Net cash(used in) investing activities
     (15,676 )     (2,645 )
Net cash provided by financing activities
     137       189  
Effect of exchange rate changes on cash and cash equivalents
     463       (604 )
Net increase in cash and equivalents
     1,162       13,241  
Cash and cash equivalents, beginning of period
     40,659       25,748  
Cash and equivalents, end of period
   $ 41,821     $ 38,989  


Cash Flows from Operating Activities

Cash provided by operating activities decreased by $0.1 million from $16.3 million in the nine months ended September 30, 2008 to $16.2 million in the nine months ended September 30, 2009.  The decrease in cash provided by operations is primarily a result of the decrease in net income of $4.5 million offset by the decrease in accounts receivable during 2009 of $3.9 million primarily related to cash collections partially offset by billings during 2009 and a $4.1 million decrease in prepaid expenses and other assets.  Additionally, the add backs related to depreciation and amortization were $3.0 million as a result of capital expenditures and amortization expense related to our acquisitions.  Stock based compensation expense was $3.3 million.
 



Cash Flows from Investing Activities

Cash used in investing activities was $15.7 million in the nine months ended September 30, 2009 which was an increase of $13.0 million from $2.6 million of cash used in investing activities in the nine months ended September 30, 2008.  The fluctuation from cash provided by investing activities to cash used in investing activities is primarily due increased short term investments.
 

Cash Flows from Financing Activities

Cash provided by financing activities was $0.1 million in the nine months ended September 30, 2009, which was a nominal decrease compared to the nine months ended September 30, 2008.  The decrease was due to less tax benefits from stock based compensation and decreased payments on capital lease obligations offset by a slight increase in stock option exercises.
 

Off-Balance Sheet Arrangements

As of September 30, 2009, other than our operating leases, we do not have off-balance sheet financing arrangements, including any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities.


We do not engage in trading activities involving non-exchange traded contracts. As such, we are not materially exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in these relationships.
 
 
As a result of our acquisition of Double-Take EMEA in May 2006, Double-Take Canada in December 2007, and emBoot in July 2008, we have international sales and expenses that are denominated in foreign currencies, and we face exposure to adverse movements in foreign currency exchange rates. Depending on the amount of our revenue generated from Double-Take EMEA and Double-Take Canada (including emBoot), adverse movement in foreign currency exchange rates could have a material adverse impact on our financial results. Our primary exposures are to fluctuations in exchange rates for the United States dollar versus the euro and Canadian dollar, as well as the euro versus the pound sterling.  See “Foreign Exchange( Loss)” in Item 2 above. Changes in currency exchange rates could adversely affect our reported revenue and could require us to reduce our prices to remain competitive in foreign markets, which could also materially adversely affect our results of operations. We have not historically hedged exposure to changes in foreign currency exchange rates and, as a result, we could incur unanticipated gains or losses.


We maintain disclosure controls and procedures, which are designed to ensure that information required to be disclosed in the reports we file or submit under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commissions rules and forms, and that such information is accumulated and communicated to our management, including our CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.

Under the supervision and with the participation of our management, including our CEO and CFO, an evaluation was performed on the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this quarterly report. Based on that evaluation, our management, including our CEO and CFO, concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report.

There were no changes in the Company’s internal controls over financial reporting during the most recently completed fiscal quarter that have materially affected or are reasonably likely to materially affect the Company’s internal control over financial reporting.


 
    We currently have no material legal proceedings pending.

 
    An investment in our stock involves a high degree of risk. You should carefully consider the risks set forth in the Risk Factors section of our annual report on Form 10-K, which we filed with the SEC on March 13, 2009, and all of the other information set forth in this Form 10-Q and our Form 10-K before deciding to invest in our common stock.



Unregistered Sales of Equity Securities

None.

Use of Proceeds

None


Not Applicable.


None.


    Effective October 30, 2009, which was the date the Company received a counter-signed copy of its new building lease, the Company has a new lease agreement for the current location in Indianapolis, Indiana.  The new lease replaces the previous lease in effect for that office location, which has approximately 45,000 square feet of office space and has the Company's main development operation, principal call center, sales support, and other corporate functions.  The lease term expires on August 31, 2017 and the total future minimum lease payments over the term of the lease are $6,671.



Exhibit No.
  
Exhibit Description
  10.13  
Lease Agreement, dated October 21, 2009 between Sun Life Assurance Company of Canada and the Company.
  31.01  
Certification of Chief Executive officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
  31.02  
Certification of Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
  32.01  
Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
       



Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
                           
 
  DOUBLE-TAKE SOFTWARE, INC.  
       
Date: November 5, 2009
By:
/s/ S. Craig Huke  
    S. Craig Huke   
   
Chief Financial Officer
(Principal Financial and Principal Accounting Officer)
  
       
 
 
 


24
 
 

 EX-10.13 2 ex10-13.htm LEASE AGREEMENT BETWEEN SUN LIFE ASSURANCE COMPANY OF CANADA AND THE COMPANY ex10-13.htm Exhibit 10.13
 
 








OFFICE LEASE


LAKE POINTE CENTER III
8470 Allison Pointe, Second and Third Floors
Indianapolis, Indiana  
 

 

                                     Landlord:   Sun Life Assurance Company of Canada  

 
                                     Tenant :       Double-Take Software, Inc.
 

                                             Date:           October 21, 2009



 
 
 

PART I

COVER SHEET

           The terms listed below shall have the following meanings throughout this Lease:


DATE OF LEASE:
October 21, 2009, the date on which Landlord has signed this Lease
 
LANDLORD:
Sun Life Assurance Company of Canada, a Canadian corporation
 
TENANT:
Double-Take Software, Inc.,
a Delaware corporation
 
TENANT'S ADDRESS:
8470 Allison Pointe Boulevard
Suite 300
Indianapolis, IN  46250
c/o Chief Financial Officer
 
MANAGER:
Colliers Turley Martin Tucker
 
MANAGER'S ADDRESS:
Chase Tower, 111 Monument Circle, Suite 3960
Indianapolis, IN  46204
c/o Chief Financial Officer
 
PREMISES:
The area consisting of approximately 45,429 rentable square feet of the Building, as shown on Exhibit A attached hereto
 
BUILDING:
 
 
The building in which the Premises are located, known as Lake Pointe Center III, with a street address of 8470 Allison Pointe Boulevard, Indianapolis, Indiana  46250 and consisting of a total of approximately 89,200 square feet of space
 
PROPERTY:
The Building, other improvements and land (the "Lot"), a legal description of which is shown on Exhibit B attached hereto
 
TENANT'S PERCENTAGE:
50.93% (45,429 rentable square feet in the Premises divided by 89,200 rentable square feet in the Building)
 
PERMITTED USES:
Office purposes
 
SCHEDULED COMMENCEMENT DATE:
 
July 1, 2009
 
TERM:
Ninety-eight (98) months
 

PREMISES BASE RENT:
Tenant shall pay Base Rent for the Premises in accordance with the following schedule:
 
 
 
Months
 
Rent
Per Month
 
Annual
Rent
Annual
Rent
p.r.s.f.
 
1-13
$45,429.00
$545,148.00
$12.00
 
14-38
$68,143.50
$817,722.00
$18.00
 
39-63
$70,982.81
$851,793.75
$18.75
 
64-88
$73,822.13
$885,865.50
$19.50
 
89-98
$75,715.00
$908,580.00
$20.00
         
SECURITY DEPOSIT:
$0.00
 
PUBLIC LIABILITY INSURANCE AMOUNT:
 
$2,000,000.00 combined limit
 
BROKER(S):
Landlord Representatives:  Michael R. Semler and Andrew D. Martin of Colliers Turley Martin Tucker
 
Tenant Representative:  Brian Askins of UGL - Equis
 
GUARANTOR(S):
 
None
 
TENANT IMPROVEMENT ALLOWANCE:
$17.00 per square foot; must be utilized by December 31, 2011
 


 
 
 

TABLE OF CONTENTS OF STANDARD LEASE PROVISIONS


ARTICLE I:  PREMISES                                                                         Page
1.1Premises   ....................................................................................................................................1
1.2Common Areas      ..............................................................................................................................1

ARTICLE II:  TERM

2.1Term ........................................................................................................................................1
2.2Early Termination Right    ........................................................................................................................1

ARTICLE III:  RENT

3.1Base Rent ....................................................................................................................................2
3.2Additional Rent for Operating Expenses, Taxes, and Capital Costs .........................................................................................2

ARTICLE IV:  DELIVERY OF PREMISES AND TENANT IMPROVEMENTS

4.1Condition of Premises   ..........................................................................................................................5
4.2Delay in Possession ............................................................................................................................5
4.3Delivery and Acceptance of Possession  ..............................................................................................................5
4.4Early Occupancy  ..............................................................................................................................6
 
 
ARTICLE V:  ALTERATIONS AND TENANT'S PERSONAL PROPERTY
 
 
5.1 Alterations       ................................................................................................................................6
5.2Tenant's Personal Property .......................................................................................................................7

ARTICLE VI:  LANDLORD'S COVENANTS
 
 
6.1Services Provided by Landlord ....................................................................................................................7
6.2Repairs and Maintenance    .......................................................................................................................8
6.3Quiet Enjoyment ...............................................................................................................................8
6.4Insurance ....................................................................................................................................8
 
 
ARTICLE VII:  TENANT'S COVENANTS
 
 
7.1Repairs, Maintenance and Surrender  ...............................................................................................................9
7.2Use   ........................................................................................................................................9
7.3Assignment; Sublease ..........................................................................................................................10
7.4Indemnity  ..................................................................................................................................11
7.5Tenant's Insurance ............................................................................................................................11
7.6Payment of Taxes   .............................................................................................................................11
7.7Environmental Assurances .......................................................................................................................11
7.8Americans With Disabilities Act ...................................................................................................................13



ARTICLE VIII:  DEFAULT
 
 
8.1Default  .....................................................................................................................................13
8.2Remedies of Landlord and Calculation of Damages ....................................................................................................14
 
 
ARTICLE IX:  CASUALTY AND EMINENT DOMAIN
 
 
9.1Casualty ....................................................................................................................................15
9.2Eminent Domain  .............................................................................................................................16

ARTICLE X:  RIGHTS OF PARTIES HOLDING SENIOR INTERESTS
 
 
10.1Subordination ..............................................................................................................................17
10.2Mortgagee's Consent .........................................................................................................................17

ARTICLE XI:  GENERAL

11.1Representations by Tenant   .....................................................................................................................17
11.2Notices    ...................................................................................................................................17
11.3No Waiver or Oral Modification   .................................................................................................................17
11.4Severability ................................................................................................................................17
11.5Estoppel Certificate and Financial Statements ......................................................................................................18
11.6Waiver of Liability ...........................................................................................................................18
11.7Execution; Prior Agreements and No Representations ................................................................................................ 19
11.8Brokers ....................................................................................................................................19
11.9Successors and Assigns  ........................................................................................................................19
11.10Applicable Law and Lease Interpretation   .........................................................................................................19
11.11Costs of Collection, Enforcement and Disputes   .....................................................................................................19
11.12Holdover   .................................................................................................................................19
11.13Force Majeure   .............................................................................................................................20
11.14Limitation On Liability   .......................................................................................................................20
11.15Notice of Landlord's Default   ...................................................................................................................20
11.16Lease not to be Recorded    .....................................................................................................................20
11.17Security Deposit  ............................................................................................................................20
11.18Guaranty of Lease ...........................................................................................................................20
11.19Option to Renew    ...........................................................................................................................20
11.20Right of First Offer ...........................................................................................................................21



 
 
 

PART II   STANDARD LEASE PROVISIONS

ARTICLE I   PREMISES

           1.1Premises.
 
 
           (a)Demise of Premises.  This Lease (the "Lease") is made and entered into by and between Landlord and Tenant and shall become effective as of the Date of Lease.  In consideration of the mutual covenants made herein, Landlord hereby leases to Tenant, and Tenant hereby leases from Landlord, the Premises, on all of the terms and conditions set forth in this Lease.

           (b)Access to Premises.  Landlord shall have reasonable access to the Premises, at any time during the Term, to inspect Tenant's performance hereunder and to perform any acts required of or permitted to Landlord herein, including, without limitation, (i) the right to make any repairs or replacements Landlord deems necessary, (ii) the right to show the Premises to prospective purchasers and mortgagees, and (iii) during the last nine (9) months of the Term, the right to show the Premises to prospective tenants.  Landlord shall at all times have a key to the Premises, and Tenant shall not change any existing lock(s), nor install any additional lock(s) without Landlord's prior consent.  Except in the case of any emergency, any entry into the Premises by Landlord shall be on reasonable advance notice.

           1.2Common Areas.  Tenant shall have the right to use, in common with other tenants, the Building's common lobbies, corridors, stairways, and elevators necessary for access to the Premises, and the common walkways and driveways necessary for access to the Building, the common toilets, corridors and elevator lobbies of any multi-tenant floor, and the parking areas for the Building ("Common Areas").  Tenant's use of the Building parking areas shall be on an unreserved, non-exclusive basis and solely for Tenant's employees and visitors.  Landlord shall not be liable to Tenant, and this Lease shall not be affected, if any parking rights of Tenant hereunder are impaired by any law, ordinance or other governmental regulation imposed after the Date of Lease.  If Landlord grants to any other tenant the exclusive right to use any particular parking spaces, neither Tenant nor its visitors shall use such spaces.  Use of the Common Areas shall be only upon the terms set forth at any time by Landlord.  Landlord may at any time and in a manner consistent with other Class A multi-tenant office buildings in the greater Indianapolis Metropolitan area, make any changes, additions, improvements, repairs or replacements to the Common Areas that it considers desirable, provided that Landlord shall use reasonable efforts to minimize interference with Tenant's normal activities.  Such actions of Landlord shall not constitute constructive eviction or give rise to any rent abatement or liability of Landlord to Tenant.

ARTICLE II   TERM

           2.1Term.  The Term shall begin on July 1, 2009, the Commencement Date, and shall continue for the length of the Term, unless sooner terminated as provided in this Lease.

           2.2Early Termination Right.  On July 30th 2015, Tenant will have the one time right to terminate this Lease, including any amendments hereto.  Tenant will provide 9 months notice of its intent to exercise its right to terminate, and provide payment on or before July 30, 2015, equal to all unamortized leasing costs (consisting of the Tenant Improvement Allowance and the real estate leasing commissions) at a discount rate of 8% plus three (3) months' Base Rent.
ARTICLE III   RENT

           3.1Base Rent.

           (a)Payment of Base Rent.  Tenant shall pay the Base Rent each month in advance on the first day of each calendar month during the Term.  If the Commencement Date is other than the first day of the month, Tenant shall pay a proportionate part of such monthly installment on the Commencement Date.  An adjustment in the Base Rent for the last month of the Term shall be made if the Term does not end on the last day of the month.  All payments shall be made to Manager at Manager's Address or to such other party or to such other place as Landlord may designate in writing, without prior demand and without abatement, deduction or offset.  All charges to be paid by Tenant hereunder, other than Base Rent, shall be considered additional rent for the purposes of this Lease, and the words "rent" or "Rent" as used in this Lease shall mean both Base Rent and additional rent unless the context specifically or clearly indicates that only Base Rent is referenced.  

           (b)Late Payments.  If any rent or other sum due from Tenant is not received when due, Landlord shall send a letter notifying Tenant to comply within ten (10) days from rental due date and Tenant shall pay to Landlord no later than ten (10) calendar days after the rental due date an additional sum equal to 5% of such overdue payment.  In addition to such late charge, all such delinquent rent or other sums due to Landlord, including the late charge, shall bear interest beginning on the date such payment was due at the rate of twelve percent (12%) per annum.  The notice and cure period provided in Paragraph 8.1(a) does not apply to the foregoing late charges and interest.  If payments of any kind are returned for insufficient funds Tenant shall pay to Landlord an additional handling charge of $50.00.

 
3.2
Additional Rent for Operating Expenses, Taxes, and Capital Costs.
 
 
           (a)Additional Rent.  For each Comparison Year, as defined herein, Tenant shall pay to Landlord as additional rent the sum of (1) the difference between Comparison Year Operating Expenses and the Base Year Operating Expenses, (2) the difference between the Comparison Year Taxes and the Base Year Taxes and (3) the Capital Costs as defined herein, times Tenant's Percentage ("Tenant's Share of Expenses").
 
 
           (b)Definitions.  As used herein, the following terms shall have the following meanings:
 
(i)
Base Year.  The calendar year in which the Term commences.

 
 
(ii)
Comparison Year.  Each calendar year of the Term after the Base Year.

 
(iii)Lease Year.  Each successive 12 month period following the Commencement Date.
 
 
 
 
(iv)
Operating Expenses.  The total cost of operation of the Property, including, without limitation, (1) premiums and deductibles for insurance carried with respect to the Property; (2) all reasonable costs of supplies, materials, equipment, and utilities used in or related to the operation, maintenance, and repair of the Property or any part thereof (including utilities, unless the cost of any utilities is to be paid for separately by Tenant pursuant to
Paragraph 6.1(b)); (3) all reasonable labor costs, including without limitation, salaries, wages, payroll and other taxes, unemployment insurance costs, and employee benefits excluding executives, directors, officers or partners of Landlord; (4) all maintenance, management fees (not to exceed five percent (5%) of the gross rents of the Building), janitorial, inspection, legal, accounting, and service agreement costs related to the operation, maintenance, and repair of the Property or any part thereof, including, without limitation, service contracts with independent contractors.  Any of the above services may be performed by Landlord or its affiliates, provided that fees for the performance of such services shall be reasonable and competitive with fees charged by unaffiliated entities for the performance of such services in comparable buildings in the area.  Operating Expenses shall not include Taxes, leasing commissions; all costs relating to activities for the solicitation and execution of leases in the Building; the costs of correcting defects in the construction of the Building or equipment; the costs of any repair made by Landlord due to partial or total destruction or condemnation of the Building; repair costs paid by insurance proceeds or by any tenant or third party; the initial construction cost of the Building or any depreciation thereof; any debt service or costs related to sale or financing of the Property; any capital expenses, except those which normally would be regarded as operating, maintenance, or repair costs; tenant improvements provided for any tenant; or any special services rendered to tenants (including Tenant) for which a separate charge is made; depreciation on equipment; the cost of any removal, treatment or remediation of asbestos or any other hazardous substance or gas in the Building caused by Landlord or other tenant; the cost of overtime or other expenses Landlord incurs in curing its defaults or performing work expressly provided for in this Lease to be paid by Landlord.  Increases for Controllable Operating Expenses defined as janitorial service; management fees, lawn and sprinkler maintenance; parking lot cleaning; interior plant management; window cleaning; signs, day porter; security costs; fire equipment service and maintenance; phone/alarm; exterminating; uniforms; and on-site office expenses; shall be capped annually at no more than five percent (5%) per annum.   
 
 
 
 
(v)
Base Year Operating Expenses.  Operating Expenses incurred during the Base Year, provided that: (1) in the event that the Building is less than 100% occupied during the Base Year, then in determining the Base Year Operating Expenses, all Operating Expenses that may reasonably be determined to vary in accordance with the occupancy level of the Building, shall be grossed up to reflect 95% occupancy by multiplying the amount of such expenses by a fraction, the numerator of which is the total rentable square feet in the Building and the denominator of which is the average square feet in the Building that is occupied by tenants during the Base Year; and (2) if any extraordinary expenses are incurred during the Base Year which typically are not operations, maintenance, or repair costs of a stabilized property, as reasonably estimated by Landlord, then such expenses shall be excluded from the calculation of Operating Expenses during the Base Year.
 
 
 
 
(vi)
Comparison Year Operating Expenses.  Operating Expenses incurred during the Comparison Year, provided that: (1) if the Building is less than 100% occupied during the Comparison Year, then in determining the Comparison Year Operating Expenses, all Operating Expenses that may reasonably be determined to vary in accordance with the occupancy level of the Building, shall be grossed up to reflect 95% occupancy by multiplying the amount of such expenses by a fraction, the numerator of which is the total rentable square feet in the Building and the denominator of which is the average square feet in the Building that is occupied by tenants during the Comparison Year; and (2) if any extraordinary expenses are incurred during the Comparison Year which typically are not operations, maintenance, or repair costs of a stabilized property, as reasonably estimated by Landlord, then such expenses shall be excluded from the calculation of Operating Expenses for that Comparison Year.
 
 
 
 
(vii)
Taxes.  Any form of assessment, rental tax, license tax, business license tax, levy, charge, tax or similar imposition imposed by any authority having the power to tax, including any city, county, state or federal government, or any school, agricultural, lighting, library, drainage, or other improvement or special assessment district, as against the Property or any part thereof or any legal or equitable interest of Landlord therein, or against Landlord by virtue of its interest therein, and any reasonable costs incurred by Landlord in any proceedings for abatement thereof, including, without limitation, attorneys' and consultants' fees, and regardless of whether any abatement is obtained.  Landlord's income taxes; franchise taxes; inheritance taxes; gift taxes; excise taxes; increases in property taxes attributable to the sale of the Building; and special assessments levied against Landlord's property other than real estate, are excluded from Taxes.
 
 
 
 
(viii)
Base Year Taxes.  Taxes paid during the Base Year.
 
 
 
 
(ix)
Comparison Year Taxes. Taxes paid during the Comparison Year.
 
 
 
 
(x)
Capital Costs.  The annual cost of any capital improvements to the Property made by Landlord after the Base Year that are designed to reduce Operating Expenses, or to comply with any governmental law or regulation imposed after initial completion of the Building, amortized over the useful life of such item, together with a fixed annual interest rate equal to the Prime Rate plus 2% on the unamortized balance.  The Prime Rate shall be the prime rate published in the Wall Street Journal on the date the construction is completed.
 
 
  (c)Estimate of Tenant's Share of Expenses.  Before each Comparison Year, and from time to time as Landlord deems appropriate, Landlord shall give Tenant estimates for the coming Comparison Year of Operating Expenses,  Taxes,  Capital Costs, and Tenant's Share of Expenses.  Landlord shall make reasonable efforts to provide estimates fifteen (15) days before the beginning of each Comparison Year.  Tenant shall pay one twelfth (1/12) of the estimated amount of Tenant's Share of Expenses with each monthly payment of Base Rent during the Comparison Year.  Each Comparison Year, Landlord shall give Tenant a statement (the "Share of Expenses Statement") showing the  Operating Expenses,  Taxes, and  Capital Costs for the prior Comparison Year, a calculation of Tenant's Share of Expenses due for the prior Comparison Year and a summary of amounts already paid by Tenant for the prior Comparison Year.  Landlord shall make reasonable efforts to provide the Share of Expenses Statement within one hundred twenty (120) days after the end of the prior Comparison Year.  Any underpayment by Tenant shall be paid to Landlord within thirty (30) days after delivery of the Share of Expenses Statement; any overpayment shall be credited against the next installment of Base Rent due, provided that any overpayment shall be paid to Tenant within thirty (30) days if the Term has ended.  No delay of up to 365 days by Landlord in providing any Share of Expenses Statement shall be deemed a waiver of Tenant's obligation to pay Tenant's Share of Expenses.  Notwithstanding anything contained in this paragraph, the total rent payable by Tenant shall in no event be less than the Base Rent.

           (d)Audit Rights.  Notwithstanding any provisions of this Lease to the contrary, Tenant shall have the right, after reasonable notice and at reasonable times to inspect Landlord's accounting records one time per year within sixty (60) days of Tenant's receipt of its invoice for its pro rata share of expenses.  If Tenant's inspection reveals that Landlord has overcharged Tenant for Operating Costs or Taxes, Landlord shall reimburse Tenant the amount of such overcharge within ninety (90) days of verification thereof plus interest on said overage at the rate of twelve percent (12%) per annum.  
 
 
ARTICLE IV   DELIVERY OF PREMISES AND TENANT IMPROVEMENTS

           4.1Condition of Premises.  Landlord shall deliver the Premises to Tenant in its "as-is" condition provided, however, that Landlord is required to construct certain tenant improvements during the Term pursuant to and in accordance with the terms set forth in Exhibit D of this Lease ("Tenant Improvements").  Such Tenant Improvements shall become and remain the property of Landlord.

           4.2Delay in Possession.  If Landlord is required to construct Tenant Improvements pursuant to Exhibit D, and Landlord is unable to deliver possession of the Premises to Tenant on or before the Scheduled Commencement Date for any reason whatsoever, Landlord shall not be liable to Tenant for any loss or damage resulting therefrom and this Lease shall continue in full force and effect; provided, however, that if Landlord shall not deliver the Premises within one hundred eighty (180) days after the Scheduled Commencement Date and the reasons for such delay are under the control of Landlord, then Tenant may cancel this Lease by notice in writing to Landlord within ten (10) days thereafter.

           4.3Delivery and Acceptance of Possession.  Tenant shall accept possession and enter in good faith occupancy of the entire Premises and commence the operation of its business therein within thirty (30) days after the Commencement Date.  Tenant's taking possession of any part of the Premises shall be deemed to be an acceptance and an acknowledgment by Tenant that (i) Tenant has had an opportunity to conduct, and has conducted, such inspections of the Premises as it deems necessary to evaluate its condition, (ii) except as otherwise specifically provided herein, Tenant accepts possession of the Premises in its then existing condition, "as-is", including all patent and latent defects, (iii) upon completion of Tenant Improvements provided for in Exhibit D after the Commencement Date, Tenant's taking possession of a part of the Premises following completion of the Tenant Improvements shall be deemed to be an acceptance and an acknowledgement by Tenant that the Tenant Improvements have been completed in accordance with the terms of this Lease, except for defects, deficiencies, or omissions of which Tenant has given Landlord written notice within the first ninety (90) days after Tenant takes possession; and (iv) neither Landlord, nor any of Landlord's agents, has made any oral or written representations or warranties with respect to such matters other than as set forth in this Lease.

           4.4Early Occupancy.  If Landlord agrees in writing to allow Tenant or its contractors to enter the Premises prior to the Commencement Date, Tenant (and its contractors) shall do so upon all of the provisions of this Lease (including Tenant's obligations regarding indemnity and insurance), except those provisions regarding Tenant's obligation to pay Base Rent or additional rent, which obligation shall commence on the Commencement Date.

ARTICLE V   ALTERATIONS AND TENANT'S PERSONAL PROPERTY

           5.1Alterations.

           (a)Landlord's Consent.  Tenant shall not make any alterations, additions, installations, substitutes or improvements ("Alterations") in and to the Premises without first obtaining Landlord's written consent.  Landlord shall not unreasonably withhold or delay its consent; provided, however, that Landlord shall have no obligation to consent to Alterations of a structural nature or Alterations that would violate the certificate of occupancy for the Premises or any applicable law, code or ordinance or the terms of any superior lease or mortgage affecting the Property.  No consent given by Landlord shall be deemed as a representation or warranty that such Alterations comply with laws, regulations and rules applicable to the Property ("Laws").  Tenant shall pay Landlord's reasonable costs of reviewing or inspecting any proposed Alterations and any other reasonable costs that may be incurred by Landlord as a result of such Alterations provided Landlord gives Tenant, if commercially reasonable, estimates of expected reasonable costs prior to incurring the expense and Tenant provides written acceptance of reasonable costs.

           (b)Workmanship.  All Alterations shall be done at reasonable times in a first-class workmanlike manner, by contractors approved by Landlord, and according to plans and specifications previously approved by Landlord.  All work shall be done in compliance with all Laws, and with all regulations of the Board of Fire Underwriters or any similar insurance body or bodies.  Tenant shall be solely responsible for the effect of any Alterations on the Building's structure and systems, notwithstanding that Landlord has consented to the Alterations, and shall reimburse Landlord within forty-five (45) days from receipt of invoice any reasonable costs incurred by Landlord by reason of any faulty work done by Tenant or its contractors.  Upon completion of Alterations, Tenant shall provide Landlord with a complete set of "as-built" plans.

           (c)Mechanics and Other Liens.  Tenant shall keep the Property and Tenant's leasehold interest therein free of any liens or claims of liens, and shall discharge any such liens within thirty  (30) days of their filing.  Before commencement of any work, Tenant's contractor shall provide payment, performance and lien indemnity bonds required by Landlord, and Tenant shall provide evidence of such insurance as Landlord may require, naming Landlord as an additional insured.  Tenant shall indemnify Landlord and hold it harmless from and against any claim, or liability including reasonable costs and attorneys’ fees arising from any work done by or at the direction of Tenant which does not arise from Landlord’s negligence or willful misconduct.

           (d)Removal of Alterations.  All Alterations affixed to the Premises shall become part thereof and remain therein at the end of the Term.  However, if Landlord gives Tenant notice, at least thirty (30) days before the end of the Term, to remove any Alterations, Tenant shall remove the Alterations, make any repair required by such removal, and restore the Premises to its original condition. Notwithstanding the aforesaid, tenant shall remove cabling and wiring it has installed, or had installed at its request, unless Landlord gives Tenant notice, at least thirty (30) days before the end of the Term, that such cabling and wiring is to remain.

           5.2Tenant's Personal Property.

           (a)In General.  Tenant may provide and install, and shall maintain in good condition, all trade fixtures, personal property, equipment, furniture and moveable partitions required in the conduct of its business in the Premises.  All of Tenant's personal property, trade fixtures, equipment, furniture, movable partitions, and any Alterations not affixed to the Premises shall remain Tenant's property ("Tenant's Property").


           (b)Payment of Taxes.  Tenant shall pay before delinquency all taxes levied against Tenant's Property and any Alterations installed by or on behalf of Tenant.  If any such taxes are levied against Landlord or its property, or if the assessed value of the Premises is increased by the inclusion of a value placed on Tenant's Property, Landlord may pay such taxes, and Tenant shall within forty-five (45) days from receipt of notice repay to Landlord the portion of such taxes resulting from such increase.

ARTICLE VI   LANDLORD'S COVENANTS

           6.1Services Provided by Landlord.

           (a)Services.  Landlord shall provide services, utilities, facilities and supplies equal in quality to those customarily provided by landlords in other Class A multi-tenant office buildings in the greater Indianapolis Metropolitan area.  Landlord shall provide reasonable additional Building operation services upon reasonable advance request of Tenant at reasonable rates from time to time established by Landlord.  Landlord shall furnish space heating and cooling as normal seasonal changes may require to provide reasonably comfortable space temperature and ventilation for occupants of the Premises under normal business operation, daily from 7:00 a.m. to 7:00 p.m. (Saturdays from 9:00 a.m. to 1:00 p.m.), Sundays and legal state holidays excepted.  If Tenant shall require space heating or cooling outside the hours and days above specified, Landlord shall provide such service at Tenant's expense in accordance with any reasonable advance notice requirements established from time to time by Landlord.

           (b)Separately Metered Utilities.  If the Premises are separately metered as of the Commencement Date, Tenant shall pay all charges for all separately metered and separately billed gas, electricity, telephone and other utility services used, rendered or supplied upon or in connection with the Premises on a monthly basis and shall indemnify Landlord against liability or damage on such account.

           The costs of any utilities which are not separately metered shall be included as an Operating Expense. Tenant shall not use utility services in excess of amounts reasonably determined by Landlord to be within the normal range of demand for the Permitted Uses without making arrangements to reimburse Landlord for such excess use.  If Landlord has reason to believe that Tenant is using a disproportionate share of any utility which is not separately metered, Landlord may, at Landlord's election, and at Landlord's expense, conduct an engineering audit to estimate Tenant's actual use.  If such audit determines that Tenant is using more than its proportionate share of any utility. Tenant shall pay for any use above its proportionate share as additional rent.

           (c)Graphics and Signs.  Landlord shall provide, at Landlord's expense, identification of Tenant's name and suite numerals at the main entrance door to the Premises.  All signs, notices, graphics and decorations of every kind or character which are visible in or from the Common Areas or the exterior of the Premises shall be subject to Landlord's prior written approval, which Landlord shall have the right to withhold in its absolute and sole discretion; however, Tenant shall be entitled to install signage at its sole cost and expense on the center raceway of the North exterior elevation of the Building.  Tenant shall submit the plans and specifications for such signage to Landlord for Landlord's review and approval, including necessary utilities and exact location to be approved by Landlord, in Landlord's sole and absolute discretion. Tenant shall at all times comply with all laws, governmental regulations, zoning ordinances, and covenants, conditions and restrictions of record, and shall obtain all required permits in conjunction with any such signage.  Any changes to the plans and specifications for such signage, the method, the necessary utilities, the size, location, shape, or general appearance thereof shall be subject to Landlord's approval in its absolute discretion.  Tenant shall maintain all such signage in good repair.  Tenant shall remove all such signage within thirty (30) days after the termination of the Lease.   

           (d)Right to Cease Providing Services.  In case of Force Majeure or in connection with any repairs, alterations or additions to the Property or the Premises, or any other acts required of or permitted to Landlord herein, Landlord may reduce or suspend service of the Building's utilities, facilities or supplies, provided that Landlord shall use reasonable diligence to restore such services, facilities or supplies as soon as possible.  No such reduction or suspension shall constitute an actual or constructive eviction or disturbance of Tenant's use or possession of the Premises unless such services, facilities or supplies prevent Tenant’s reasonable use and enjoyment of the Premises for more than ten (10) days due to Landlord’s negligence or willful misconduct.  In such event, all Base Rent, Additional Rent and other expenses and payments due under this Lease shall be abated until Tenant’s reasonable use and enjoyment of the Premises is fully restored.

           6.2Repairs and Maintenance.  Landlord shall repair and maintain (i) the Common Areas, (ii) the structural portions of the Building, (iii) the exterior walls of the Building (including exterior windows and glazing), (iv) the roof and roof membrane, (v) the basic plumbing, electrical, mechanical and heating, ventilating and air-conditioning systems serving the Premises, and (vi) parking lots in the manner and to the extent customarily provided by landlords in similar Class A multi-tenant office buildings in the greater Indianapolis Metropolitan area.  Tenant shall pay for such repairs as set forth in Paragraph 3.2.  If any maintenance, repair or replacement is required because of any act, omission or neglect of duty by Tenant or its agents, employees, invitees or contractors, the cost thereof shall be paid by Tenant to Landlord as additional rent within forty-five (45) days from receipt of invoice.

           6.3Quiet Enjoyment.  Upon Tenant's paying the rent and performing its other obligations, Landlord shall permit Tenant to peacefully and quietly hold and enjoy the Premises, subject to the provisions of this Lease.

           6.4 Insurance.  Landlord shall insure the Property, including the Building and Tenant Improvements and approved Alterations, if any, against damage by fire and standard extended coverage perils, and shall carry public liability insurance, all in such reasonable amounts  as would be carried by a prudent owner of a Class A multi-tenant building in the greater Indianapolis Metropolitan area.  Landlord may carry any other forms of insurance as it or its mortgagee may deem advisable.  Insurance obtained by Landlord shall not be in lieu of any insurance required to be maintained by Tenant.  Landlord shall not carry any insurance on Tenant's Property, and shall not be obligated to repair or replace any of Tenant's Property unless due to Landlord's negligence or willful misconduct.  All insurance maintained by Landlord shall contain a waiver of subrogation in favor of Tenant.

ARTICLE VII   TENANT'S COVENANTS

           7.1Repairs, Maintenance and Surrender.

           (a)Repairs and Maintenance.  Tenant shall keep the Premises in good order and condition, and shall promptly repair any damage to the Premises excluding glass in exterior walls of the Premises. Tenant shall also repair any damage to the rest of the Property, including glass in interior walls, if such damage is attributable to Tenant's negligence or misuse caused by Tenant or its agents, employees, or invitees, licensees or independent contractors.  All repairs shall be made in a workmanlike manner and any replacements or substitutions shall be of a quality, utility, value and condition similar to or better than the replaced or substituted item.  

           (b)Surrender.  At the end of the Term, Tenant shall peaceably surrender the Premises in good order, repair and condition, except for reasonable wear and tear, and Tenant shall remove Tenant's Property and (if required by Landlord and subject to section 5.1(d)) any Alterations, repairing any damage caused by such removal and restoring the Premises and leaving them clean and neat.  Any property not so removed shall be deemed abandoned and may be retained by Landlord or may be removed and disposed of by Landlord in such manner as Landlord shall determine.  Tenant shall be responsible for costs and expenses incurred by Landlord in removing any Alterations and disposing any such abandoned property, making any incidental repairs and replacements to the Premises, and restoring the Premises to its original condition, excluding normal wear and tear.

           7.2Use.

           (a)General Use.  Tenant shall use the Premises only for the Permitted Uses, and shall not use or permit the Premises to be used in violation of any law or ordinance or of any certificate of occupancy issued for the Building or the Premises, or of the Rules and Regulations.  Tenant shall not cause, maintain or permit any nuisance in, on or about the Property, or commit or allow any hazardous or excess waste in or upon the Property.  

(b)Obstructions and Exterior Displays.  Tenant shall not obstruct any of the Common Areas or any portion of the Property outside the Premises, and shall not, except as otherwise previously approved by Landlord, place or permit any signs, decorations, curtains, blinds, shades, awnings, aerials or flagpoles, or the like, that may be visible from outside the Premises.  If Landlord designates a standard window covering consistent with those used in other Class A multi-tenant office buildings located in the greater Indianapolis Metropolitan area for use throughout the Building, at Landlord’s expense, Tenant shall use this standard window covering to cover all windows in the Premises.

           (c)Floor Load.  Tenant shall not place a load upon the floor of the Premises exceeding the load per square foot such floor was designed to carry, as determined by applicable building code without the prior written approval of Landlord.

           (d)Compliance with Insurance Policies.  Tenant shall not knowingly keep or use any article in the Premises, or permit any activity therein, which is prohibited by any insurance policy covering the Building, or would result in an increase in the premiums thereunder.

           (e)Rules and Regulations.  Tenant shall observe and comply with the rules and regulations attached as Exhibit E ( the "Rules and Regulations"), and all modifications thereto as made by Landlord and put into effect from time to time.  Landlord shall not be responsible to Tenant for the violation or non-performance by any other tenant or occupant of the Building of the Rules and Regulations.

           7.3Assignment; Sublease.  Tenant shall not assign its rights under this Lease nor sublet the whole or any part of the Premises without Landlord's prior written consent.  In the event that Landlord grants such consent, Tenant shall remain primarily liable to Landlord for the payment of all rent and for the full performance of the obligations under this Lease.  Tenant shall be responsible for payment of all reasonable costs incurred by Landlord in connection with any such request for Landlord's consent to a proposed assignment or subletting, as provided in Paragraph 11.5. Landlord shall not incur any costs related to Tenant’s request in this Section 7.3 without providing Tenant with a written estimate for Tenant’s review and written approval.  Any assignment or subletting which does not conform with this Paragraph 7.3 shall be void and a default hereunder.

In addition to, but not in limitation of, the foregoing: in the event of a request by Tenant for Landlord's consent to a proposed assignment of the Lease or a proposed subletting Landlord, at Landlord's sole option, may cancel the Lease with respect to the area in question for the proposed term of such sublease.  Landlord shall exercise any such option by written notice given to Tenant within thirty (30) days after Landlord's receipt of such request from Tenant, and in each case such termination or cancellation shall take effect as of the date set forth in Tenant's proposed sublease agreement with sublessee.  If Landlord exercises any such option to terminate or cancel the Lease, Tenant shall surrender possession of the portion of the Premises to which the termination or cancellation applies on or before the date set forth in Landlord's notice, in accordance with the provisions of this Lease relating to the surrender of the Premises at expiration of the Term.  If the Lease is cancelled as to a portion of the Premises only, Base Rent after the date of such cancellation shall be abated on a pro-rata basis, as determined by Landlord, and Tenant's Percentage shall be proportionally reduced. Landlord's failure to exercise such option to terminate or cancel the Lease shall not be construed as Landlord's consent to the proposed assignment or subletting. If Landlord allows Tenant to sublease, Tenant shall remain liable for its obligations under this Lease.  Notwithstanding the foregoing, if Landlord provides notice of intent to cancel or terminate the portion under consideration for the sublease, Tenant may within five (5) days from receipt of notice rescind its request to sublease and Landlord will have no right to terminate or cancel the space under consideration in the assignment or subletting request.

           Notwithstanding the foregoing, Landlord's consent shall not be required in the event Tenant assigns this Lease or subleases the Premises to (i) an affiliate under common control with Tenant, or (ii) an entity resulting from a corporate merger, non-bankruptcy reorganization or recapitalization, provided that the net worth of such affiliate or entity is equal to or greater than Tenant's net worth at the time this Lease is signed, as verified by Landlord.  Additionally, Tenant shall remain liable for its obligations under this Lease.  Tenant shall provide Landlord at least thirty (30) days' written notice of such assignment or sublease.
  
           7.4 Indemnity.  Except for any claims related to Landlord’s gross negligence or willful misconduct, Tenant, at its expense, shall defend, indemnify and hold harmless Landlord and its agents, employees, and contractors from and against any claim, action, liability or damage including reasonable costs and attorneys’ fees of any kind arising directly from (i) Tenant's use and occupancy of the Premises or the Property or any activity done or permitted by Tenant in, on, or about the Premises or the Property, (ii) any breach or default by Tenant of its obligations under this Lease, or (iii) any negligent, tortious, or illegal act or omission of Tenant, its agents or employees.  Landlord shall not be liable to Tenant or any other person or entity for any damages arising from any act or omission of any other tenant of the Building.  The obligations in this Paragraph 7.4 shall survive the expiration or termination of this Lease.

           7.5Tenant's Insurance.  Tenant shall maintain in responsible companies qualified to do business, in good standing in the state in which the Premises are located and otherwise acceptable to Landlord and at its sole expense the following insurance: (i) comprehensive general liability insurance covering the Premises insuring Landlord as well as Tenant with limits which shall, at the commencement of the Term, be at least equal to the Public Liability Insurance Amount and from time to time during the Term shall be for such higher limits, if any, as are customarily carried in the area in which the Premises are located with respect to similar properties, (ii) workers' compensation insurance with statutory limits covering all of Tenant's employees working in the Premises, (iii) property insurance insuring Tenant's Property for the full replacement value of such items and Tenant’s deductible for this Section 7.5 (iii) shall not be greater than Two Hundred and Fifty Thousand Dollars ($250,000.00); and (iv) business interruption insurance.  Tenant shall deposit promptly with Landlord certificates for such insurance, and all renewals thereof, bearing the endorsement that the policies will not be canceled until after thirty (30) days' written notice to Landlord.  Landlord agrees that it is not an act of default if Tenant changes its deductible and fails to notify Landlord within sixty (60) days of the change.  All policies shall be taken out with insurers with a rating of A-IX by Best's or otherwise acceptable to Landlord.

           7.6Payment of Taxes.  If at any time during the Term, any political subdivision of the state in which the Property is located, or any other governmental authority, levies or assesses against Landlord a tax or excise on rents or other tax (excluding income tax), however described, including but not limited to assessments, charges or fees required to be paid, by way of substitution for or as a supplement to real estate taxes, or any other tax on rent or profits in substitution for or as a supplement to a tax levied against the Property, Building or Landlord's personal property, then Tenant will pay to Landlord as additional rent its proportionate share based on Tenant's Percentage of said tax or excise consistent with the provisions in Section 3.2.

           7.7Environmental Assurances.

           (a)Covenants.  

 
 
(i)
Tenant shall not cause any Hazardous Materials to be used, generated, stored or disposed of on, under or about, or transported to or from, the Premises unless the same is specifically approved in advance by Landlord in writing other than small quantities of retail, household, and office chemicals customarily sold over-the-counter to the public and which are related to Tenant's Permitted Uses.

 
 
(ii)
Tenant shall comply with all obligations imposed by Environmental Laws, and all other restrictions and regulations upon the use, generation, storage or disposal of Hazardous Materials at, to or from the Premises.

 
 
(iii)
Tenant shall deliver promptly to Landlord true and complete copies of all notices received by Tenant from any governmental authority with respect to the use, generation, storage or disposal by Tenant of Hazardous Materials at, to or from the Premises and shall immediately notify Landlord both by telephone and in writing of any unauthorized discharge of Hazardous Materials or of any condition that poses an imminent hazard to the Property, the public or the environment.

 
 
(iv)
Tenant shall complete fully, truthfully and promptly any questionnaires sent by Landlord with respect to Tenant's use of the Premises and its use, generation, storage and disposal of Hazardous Materials at, to or from the Premises.

 
 
(v)
Tenant shall permit entry onto the Premises by Landlord or Landlord's representatives at any reasonable time to verify and monitor Tenant's compliance with its covenants set forth in this Paragraph 7.7 and to perform other environmental inspections of the Premises.

 
 
(vi)
If Landlord conducts any environmental inspections because it has reason to believe that Tenant's activities have or are likely to result in a violation of Environmental Laws or a release of Hazardous Materials on the Property, then Tenant shall pay to Landlord, as additional rent, the reasonable costs incurred by Landlord for such inspections.

 
 
(vii)
Tenant shall cease immediately upon notice from Landlord any activity which violates or creates a risk of violation of any Environmental Laws.

 
 
(viii)
After notice to and approval by Landlord, Tenant shall promptly remove, clean-up, dispose of or otherwise remediate, in accordance with Environmental Laws and good commercial practice, any Hazardous Materials on, under or about the Property resulting from Tenant's activities on the Property.  

           (b)Indemnification.  Except for any claims related to Landlord’s negligence and willful misconduct Tenant shall indemnify, defend and hold Landlord harmless from and against any claims, damages, liabilities or losses (including, without limitation, any decrease in the value of the Property, loss or restriction of any area of the Property, and adverse impact of the marketability of the Property or Premises), to include reasonable costs and attorneys’ fees directly arising out of Tenant's use, generation, storage or disposal of Hazardous Materials at, to or from the Premises.

           (c)Definitions.  Hazardous Materials shall include but not be limited to substances defined as "hazardous substances", "toxic substances", or "hazardous wastes" in the federal Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended; the federal Hazardous Materials Transportation Act, as amended; and the federal Resource Conservation and Recovery Act, as amended; those substances defined as "hazardous substances", "materials", or "wastes" under the law of the state in which the Premises are located; and as such substances are defined in any regulations adopted and publications promulgated pursuant to said laws ("Environmental Laws"); materials containing asbestos or urea formaldehyde; gasoline and other petroleum products; flammable explosives; radon and other natural gases; and radioactive materials.  

           (d)Survival.  The obligations of Tenant in this Paragraph 7.7 shall survive the expiration or termination of this Lease.

           7.8Americans With Disabilities Act.  To the extent applicable, Tenant shall comply with the Americans with Disabilities Act of 1990 ("ADA") and the regulations promulgated thereunder.  Tenant hereby expressly assumes all responsibility for compliance with the ADA relating to the Premises and the activities conducted by Tenant within the Premises.  Any Alterations to the Premises made by Tenant for the purpose of complying with the ADA or which otherwise require compliance with the ADA shall be done in accordance with this Lease; provided, that Landlord's consent to such Alterations shall not constitute either Landlord's assumption, in whole or in part, of Tenant's responsibility for compliance with the ADA, or representation or confirmation by Landlord that such Alterations comply with the provisions of the ADA.

ARTICLE VIII   DEFAULT

           8.1Default.  The occurrence of any one or more of the following events shall constitute a default hereunder by Tenant:

           (a)The failure by Tenant to make any payment of Base Rent or additional rent or any other undisputed payment required hereunder, as and when due, such failure shall continue for a period of five (5) days after receipt of written notice as provided in Section 3.1(b) thereof from Landlord to Tenant; provided, that Landlord shall not be required to provide such notice more than twice during a twenty-four (24) month period with respect to non-payment of Rent, the third such non-payment constituting a default without requirement of notice;

           (b)The failure by Tenant to observe or perform any of the express or implied covenants or provisions of this Lease to be observed or performed by Tenant, other than as specified in clause (a) above, where such failure shall continue for a period of more than thirty (30) days after receipt of written notice thereof from Landlord to Tenant; provided, however, that if the nature of Tenant's default is such that more than thirty (30) days are reasonably required for its cure, then Tenant shall not be deemed to be in default if Tenant commences such cure within said thirty (30) day period,  diligently prosecutes such cure to completion, and completes such cure no later than sixty (60) days from the date of such notice from Landlord;
 
 
           (c)Tenant or any such Guarantor (if any) becoming insolvent, filing or having filed against it a petition under any chapter of the United States Bankruptcy Code, 11 U.S.C. Paragraph 101 et seq. (or any similar petition under any insolvency law of any jurisdiction) and such petition is not dismissed within sixty (60) days thereafter, proposing any dissolution, liquidation, composition, financial reorganization or recapitalization with creditors, making an assignment or trust mortgage for the benefit of creditors, or if a receiver, trustee, custodian or similar agent is appointed or takes possession with respect to any property or business of Tenant or Guarantor (if any); or
 
 
           (d)If the leasehold estate under this Lease or any substantial part of the property or assets of Tenant or of Guarantor of this leasehold is taken by execution, or by other process of law, or is attached or subjected to any involuntary encumbrance if such attachment or other seizure remains undismissed or undischarged for a period of thirty business (30) days after the levy thereof.

           8.2Remedies of Landlord and Calculation of Damages.

           (a)Remedies.  In the event of any default by Tenant   Landlord shall provide Tenant with at least sixty (60) days prior written notice of Landlord’s intent to exercise any or all of its options under this Section 8.2, and during this sixty (60) days, parties shall work together to resolve the default issue.  After the sixty (60) day period, Landlord may in addition to any other remedies available to Landlord at law or in equity exercise any or all of the following remedies:

 
 
(i)
Terminate the Lease and upon notice to Tenant of termination of the Lease all rights of Tenant hereunder shall thereupon come to an end as fully and completely as if the date such notice is given were the date originally fixed for the expiration of the Term, and Tenant shall then quit and surrender the Premises to Landlord and Landlord shall have the right, with  judicial process, to re-enter the Premises.  No such expiration or termination of the Lease shall relieve Tenant of its liability and obligations under the Lease.

 
 
(ii)
Accelerate the payment of Base Rent and all additional rent under this Lease for the remainder of the Term and terminate the Lease in the same manner, and with the same force and effect, as provided in clause (i) above.

 
 
(iii)
Enter the Premises and cure any default by Tenant and in so doing, Landlord may make any payment of money other than sums disputed by Tenant or perform any other act.  All sums so paid by Landlord, and all incidental costs and expenses, including reasonable attorneys' fees, shall be considered additional rent under this Lease and shall be payable to Landlord forty-five (45) days after receipt of a valid invoice together with interest from the date of demand to the date of payment at the rate of twelve percent (12%) per annum.
  
 
 
           (b) Calculation of Damages. If this Lease is terminated as provided in Paragraph 8.2(a)(i) above, Tenant, until the end of the Term, or what would have been such Term in the absence of any such event, shall be liable to Landlord, as damages for Tenant's default, for the amount of the Base Rent and all additional rent and other charges which would be payable under this lease by Tenant if this Lease were still in effect, less the net proceeds of any reletting of the Premises actually collected by Landlord after deducting all Landlord's reasonable expenses in connection with such reletting, including, without limitation, all repossession costs, brokerage and management commissions, operating expenses, legal expenses, reasonable attorneys' fees, reasonable alteration costs and expenses of preparation of the Premises for such reletting. Tenant shall pay such damages to Landlord monthly on the days on which the Base Rent would have been payable as if this Lease were still in effect, and Landlord shall be entitled to recover from Tenant such damages monthly as the same shall arise.

           Whether or not the Lease is terminated, Landlord shall have an obligation to mitigate its damages and shall use commercially reasonable efforts to relet the Premises and collect any monies due based upon the reletting of the premises.

           (c)No Limitations.  Nothing contained in this Lease shall limit or prejudice the right of Landlord to prove for 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 provided, whether or not the amount be greater, equal to, or less than the amount of the loss or damages referred to above.

           (d)Cumulative Remedies.  Landlord's remedies under this Lease are cumulative and not exclusive of any other remedies to which Landlord may be entitled in case of Tenant's default or threatened default under this Lease, including, without limitation, the remedies of injunction and specific performance.

ARTICLE IX   CASUALTY AND EMINENT DOMAIN

           9.1Casualty.

           (a)Casualty in General.  If, during the Term, the Premises, the Building or the Lot, are wholly or partially damaged or destroyed by fire or other casualty, and the casualty renders the Premises totally or partially inaccessible or unusable by Tenant in the ordinary conduct of Tenant's business, then Landlord shall, within thirty (30) days of the date of the damage, give Tenant a notice ("Damage Notice") stating whether, according to Landlord's good faith estimate, the damage can be repaired within one hundred eighty (180) days from the date of damage ("Repair Period"), without the payment of overtime or other premiums.  The parties' rights and obligations shall then be governed according to whether the casualty is an Insured Casualty or an Uninsured Casualty as set forth in the following paragraphs.

           (b)Insured Casualty.  If the casualty results from a risk, the loss to Landlord from which is fully covered by insurance maintained by Landlord or for Landlord's benefit (except for any deductible amount), it shall be an "Insured Casualty" and governed by this Paragraph 9.1(b).  In such event, if the Damage Notice states that the repairs can be completed within the Repair Period without the payment of overtime or other premiums, then Landlord shall promptly proceed to make the repairs, this Lease shall remain in full force and effect, and Base Rent and additional rent shall be reduced, during the period between the casualty and completion of the repairs, in proportion to the portion of the Premises that is inaccessible or unusable during that period and which is, in fact, not utilized by Tenant.  Base Rent shall not be reduced by reason of any portion of the Premises being unusable or inaccessible for a period of five (5) business days or less.  If the Damage Notice states that the repairs cannot, in Landlord's estimate, be completed within the Repair Period without the payment of overtime or other premiums, then either party may, terminate this Lease by written notice given to the other within thirty (30) days after the giving of the Damage Notice.  If either party elects to terminate this Lease, the Lease shall terminate as of the date of the occurrence of such damage or destruction and Tenant shall vacate the Premises five (5) business days from the date of the written notice terminating the Lease.  If neither party so terminates, then this Lease shall remain in effect, Landlord shall make repairs, and Base Rent shall be proportionately reduced as set forth above during the period when the Premises is inaccessible or unusable and is not used by Tenant.

           (c)Casualty within final six months of Term.  Notwithstanding anything to the contrary contained in this Paragraph 9.1, if the Premises or the Building is wholly or partially damaged or destroyed within the final six (6) months of the Term of this Lease, Landlord shall not be required to repair such casualty and either Landlord or Tenant may elect to terminate this Lease and no further payments from the date of termination are owed to Landlord by Tenant in the event of termination.

           (d)Tenant Improvements and Alterations.  If Landlord elects to repair after a casualty in accordance with this Paragraph 9.1, Landlord shall cause Tenant Improvements and Alterations which Landlord has approved, to be repaired and restored at Landlord's sole expense.  Landlord shall have no responsibility for any personal property placed or kept in or on the Premises or the Building by Tenant or Tenant's agents, employees, invitees or contractors and Landlord shall not be required to repair any damage to, or make any repairs to or replacements of, such personal property.

(e) Cumulative Remedy.  Tenant’s remedies under this Lease are cumulative and not exclusive of any other remedies at law or in equity, to which Tenant may be entitled to claim due to Landlord’s breach, including, without limitation, the remedies of injunction and specific performance.
           
(f)  Waiver of Subrogation.  Landlord and Tenant shall use reasonable efforts to cause each insurance policy obtained by each of them to provide that the insurer waives all right of recovery by way of subrogation against either Landlord or Tenant in connection with any loss or damage covered by such policy.

           9.2Eminent Domain.

           (a)Eminent Domain in General.  If the whole of the Premises, or so much of the Premises as to render the balance unusable by Tenant, shall be taken or appropriated under the power of eminent domain or condemnation (a "Taking"), either Landlord or Tenant may terminate this Lease and the termination date shall be the date of the Order of Taking, or the date possession is taken by the Taking authority, whichever is earlier.  If any part of the Property is the subject of a Taking and such Taking materially affects the normal operation of the Building or Common Areas or a Taking affects the Tenant’s ability to use the Premises, a party may elect to terminate this Lease.  A sale by Landlord under threat of a Taking shall constitute a Taking for the purpose of this Paragraph 9.2.  No award for any partial or entire Taking shall be apportioned.  Landlord shall receive (subject to the rights of Landlord's mortgagees) and Tenant hereby assigns to Landlord any award which may be made and any other proceeds in connection with such Taking, together with all rights of Tenant to such award or proceeds, including, without limitation, any award or compensation for the value of all or any part of the leasehold estate; provided that nothing contained in this Paragraph 9.2(a) shall be deemed to give Landlord any interest in or to require Tenant to assign to Landlord any separate award made to Tenant for (i) the taking of Tenant's Property, or (ii) interruption of or damage to Tenant's business, or (iii) Tenant's moving and relocation costs.


(b)Reduction in Base Rent.  In the event of a Taking which does not result in a termination of the Lease, Base Rent shall be proportionately reduced based on the portion of the Premises rendered unusable, and Landlord shall restore the Premises or the Building to the extent of available proceeds or awards from such Taking.  Landlord shall not be required to repair or restore any damage to Tenant's Property or any Alterations.

           (c)Sole Remedies.  This Paragraph 9.2 sets forth Tenant's and Landlord's sole remedies for Taking.  Upon termination of this Lease pursuant to this Paragraph 9.2, Tenant and Landlord hereby agree to release each other from any and all obligations and liabilities with respect to this Lease except such obligations and liabilities which arise or accrue prior to such termination.

ARTICLE X   RIGHTS OF PARTIES HOLDING SENIOR INTERESTS

           10.1Subordination.  This Lease shall be subject and subordinate to any and all mortgages, deeds of trust and other instruments in the nature of a mortgage, ground lease or other matters or record ("Senior Interests") which now or at any time hereafter encumber the Property and Tenant shall, within twenty (20) days of Landlord's request, execute and deliver to Landlord such recordable written instruments as shall be necessary to show the subordination of this Lease to such Senior Interests.  Notwithstanding the foregoing, if any holder of a Senior Interest succeeds to the interest of Landlord under this Lease, then, at the option of such holder, this Lease shall continue in full force and effect and Tenant shall attorn to such holder and to recognize such holder as its landlord.

           10.2Mortgagee's Consent.  No assignment of the Lease and no agreement to make or accept any surrender, termination or cancellation of this Lease and no agreement to modify so as to reduce the Rent, change the Term, or otherwise materially change the rights of Landlord under this Lease, or to relieve Tenant of any obligations or liability under this Lease, shall be valid unless consented to by Landlord's mortgagees of record, if any.

ARTICLE XI   GENERAL

           11.1Representations by Tenant.  Tenant represents and warrants that any financial statements provided by it to Landlord were true, correct and complete when provided, and that no material adverse change has occurred since that date that would render them inaccurate or misleading.  Tenant represents and warrants that those persons executing this Lease on Tenant's behalf are duly authorized to execute and deliver this Lease on its behalf, and that this Lease is binding upon Tenant in accordance with its terms, and simultaneously with the execution of this Lease, Tenant shall deliver evidence of such authority to Landlord in form satisfactory to Landlord.

           11.2Notices.  Any legal notice required or permitted hereunder shall be in writing.  Notices shall be addressed to Landlord c/o Manager at Manager's Address and to Tenant at Tenant's Address.  Any communication so addressed shall be deemed duly given on the date signed for by the receiving party when delivered by hand, a nationally recognized overnight delivery service or U.S. Mail (registered or certified mail return receipt requested).  Either party may change its address by giving notice to the other.

           11.3No Waiver or Oral Modification.  No provision of this Lease shall be deemed waived by Landlord or Tenant except by a signed written waiver.  No consent to any act or waiver of any breach or default, express or implied, by Landlord or Tenant, shall be construed as a consent to any other act or waiver of any other breach or default.

           11.4Severability.  If any provision of this Lease, or the application thereof in any circumstances, shall to any extent be invalid or unenforceable, the remainder of this Lease shall not be affected thereby, and each provision hereof shall be valid and enforceable to the fullest extent permitted by law.
           
           11.5Estoppel Certificate and Financial Statements.

           (a)Estoppel Certificate.  Within ten (10) business days after written request by Landlord, Tenant shall execute, acknowledge and deliver to Landlord a written statement certifying (i) that this Lease is unmodified and in full force and effect, or is in full force and effect as modified and stating the modifications; (ii) the amount of Base Rent currently payable by Tenant to Landlord; (iii) Tenant's Percentage, the Base Year and Tenant's Share of Expenses currently payable by Tenant to Landlord; (iv) the date to which Base Rent and Tenant's Share of Expenses have been paid in advance; (v) the amount of any security deposited with Landlord; (vi) that Landlord is not in default hereunder or, if Landlord is claimed to be in default, stating the nature of any claimed default, and (vii) such other matters as may be reasonably requested by Landlord.  Any such statement may be relied upon by a purchaser, assignee or lender.  Tenant's failure to execute and deliver such statement within the time required shall be a default under this Lease and shall also be conclusive upon Tenant that this Lease is in full force and effect and has not been modified except as represented by Landlord; and there are no uncured defaults in Landlord's performance and Tenant has no right of offset, counterclaim or deduction against rent.

           (b)Financial Statements.  Tenant is a publically traded company and any financial information available to the public is located at www.doubletake.com.  As to this Section 11.5(b), in the event Tenant becomes a private entity, Tenant shall, at Landlord’s cost and, within thirty (30) days following a request by Landlord, deliver to Landlord, or to any other party designated by Landlord, a true and accurate copy of Tenant's most recent financial statements, which shall be considered confidential information and Landlord shall not disclose such information to a third party.  Landlord is limited to one (1) request  under this provision within a twelve (12) month period.  All requests made by Tenant regarding renewals or expansions must be accompanied by Tenant's most recent financial statements.  All requests made by Tenant regarding subleases, or assignments must be accompanied by Tenant's prospective subtenant's and prospective assignee's most recent financial statements.

           11.6Waiver of Liability.  Landlord and Tenant each hereby waive all rights of recovery against the other and against the officers, employees, agents, and representatives of the other, on account of loss by or damage to the waiving party or its property or the property of others under its control, to the extent that such loss or damage is insured against under any insurance policy that either may have in force at the time of the loss or damage or that would or could be covered by any insurance policy that is required under this Lease.  Each party shall notify its insurers that the foregoing waiver is contained in this Lease.  

           11.7Execution, Prior Agreements and No Representations.  This Lease shall not be binding and enforceable until executed by authorized representatives of Landlord and Tenant.  This Lease contains all of the agreements of the parties with respect to the subject matter hereof and supersedes all prior dealings, whether written or oral, between them with respect to such subject matter.  Each party acknowledges that the other has made no representations or warranties of any kind except as may be specifically set forth in this Lease.

           11.8Brokers.  Each party represents and warrants that it has not dealt with any real estate broker or agent in connection with this Lease or its negotiation except its respective Broker.  Each party shall indemnify the other and hold it harmless from any cost, expense, or liability (including costs of suit and reasonable attorneys' fees) for any compensation, commission or fees claimed by any other real estate broker or agent in connection with this Lease or its negotiation by reason of any act or statement of the indemnifying party.

           11.9Successors and Assigns.  This Lease shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns; provided, however, that only the original Landlord named herein shall be liable for obligations accruing before the beginning of the Term, and thereafter the original Landlord named herein and each successive owner of the Premises shall be liable only for obligations accruing during the period of their respective ownership.

           11.10Applicable Law and Lease Interpretation.  This Lease shall be construed, governed and enforced according to the laws of the state in which the Property is located.  In construing this Lease, paragraph headings are for convenience only and shall be disregarded.  Any recitals herein or exhibits attached hereto are hereby incorporated into this Lease by this reference.  Time is of the essence of this Lease and every provision contained herein.  The parties acknowledge that this Lease was freely negotiated by both parties, each of whom was represented by counsel; accordingly, this Lease shall be construed according to the fair meaning of its terms, and not against either party.

           11.11 Costs of Collection, Enforcement and Disputes.  Tenant shall pay all costs of collection, including reasonable attorneys' fees, incurred by Landlord in connection with any default by Tenant, if the court determines that Landlord prevails in its claim.  If either Landlord or Tenant institutes any action to enforce the provisions of this Lease or to seek a declaration of rights hereunder, the prevailing party shall be entitled to recover all costs including its reasonable attorneys' fees and court costs as part of any award.  Landlord and Tenant hereby waive trial by jury in any action, proceeding or counterclaim brought by either of the parties hereto against the other, on or in respect to any matter whatsoever arising out of or in any way connected with this Lease, the relationship of Landlord and Tenant hereunder, Tenant's use or occupancy of the Premises, and/or claim of injury or damage.

           11.12Holdover.  If Tenant holds over in occupancy of the Premises after the expiration of the Term, Tenant shall, at the election of Landlord, become a tenant at sufferance only on a month-to-month basis subject to the terms and conditions herein specified, so far as applicable. Tenant shall pay rent during the holdover period, at a base rental rate equal to one hundred fifty percent (150%) of the Base Rent in effect at the end of the Term, plus the amount of Tenant's Share of Expenses then in effect. In the event that Landlord and Tenant are in negotiations to extend the Term of this Lease, the Tenant's continued occupancy after the expiration of the Term shall be deemed to be with Landlord's consent for a period of up to ninety (90) days and the Lease shall continue on a month to month basis upon the then existing terms and  conditions until the later of ninety (90) days or the date upon which Landlord and Tenant end their negotiations.


11.13Force Majeure.  If Landlord or Tenant is prevented from or delayed in performing any act required of it hereunder, and such prevention or delay is caused by strikes, labor disputes, inability to obtain labor, materials, or equipment, inclement weather, acts of God, governmental restrictions, regulations, or controls, judicial orders, enemy or hostile government actions, civil commotion, fire or other casualty, or other causes beyond such party's reasonable control ("Force Majeure"), the performance of such act shall be excused for a period equal to the period of prevention or delay.  A party's financial inability to perform its obligations shall in no event constitute Force Majeure.  Nothing in this Paragraph 11.13 shall excuse or delay Tenant's obligation to pay any rent or other charges due under this Lease.

           11.14 Limitation On Liability.  Landlord, and its partners, directors, officers, shareholders, trustees or beneficiaries, shall not be liable to Tenant for any damage to or loss of personal property in, or to any personal injury occurring in, the Premises, unless such damage, loss or injury is the result of the gross negligence or willful misconduct of Landlord or its agents as determined by a judicial proceeding.  The obligations of either party under this Lease do not constitute personal obligations of the individual partners, directors, officers, shareholders, trustees or beneficiaries of Landlord, and Tenant shall not seek recourse against the partners, directors, officers, shareholders, trustees or beneficiaries of Landlord, or any of their personal assets for satisfaction of any liability with respect to this Lease.  Except for claims related to Landlord’s negligence or willful misconduct, in the event of any default by Landlord under this Lease, Tenant's sole and exclusive remedy shall be against Landlord's interest in the Property. 

           11.15Notice of Landlord's Default.  The failure by Landlord to observe or perform any of the express or implied covenants or provisions of this Lease to be observed or performed by Landlord shall not constitute a default by Landlord unless such failure shall continue for a period of more than thirty (30) days after written notice thereof from Tenant to Landlord specifying Landlord's default; provided, however, that if the nature of Landlord's default is such that more than thirty (30) days are reasonably required for its cure, then Landlord shall not be deemed to be in default if Landlord commences such cure within said thirty (30) day period and diligently prosecutes such cure to completion and completes such cure no later than sixty (60) days from the date of such notice.  Tenant shall, simultaneously with delivery to Landlord, provide written notice specifying the Landlord default to the holder of any first mortgage or deed of trust covering the Premises whose name and address have been furnished to Tenant in writing.  Except as otherwise expressly stated to the contrary herein, in the event of a default by Landlord, Tenant shall have the right to pursue any of its remedies provided for at law or in equity, including the right to terminate this Lease, an injunction and specific performance.

           11.16Lease not to be Recorded.  Tenant agrees that it will not record this Lease.  Both parties shall, upon the request of either, execute and deliver a notice or short form of this Lease in such form, if any, as may be permitted by applicable statute.  If this Lease is terminated before the Term expires the parties shall execute, deliver and record an instrument acknowledging such fact and the actual date of termination of this Lease, signed by both parties.

           11.17Security Deposit.  Intentionally Omitted.

11.18Guaranty of Lease.  Intentionally Omitted.

           11.19Option to Renew.  Tenant shall have the option to extend the Term for two consecutive renewal periods of five (5) years each by delivering written notice to Landlord six (6) months prior to the expiration of the original Term.  The renewal term shall commence on the date immediately succeeding the last day of the original Term.  If Tenant exercises the option to renew, the renewal Term shall be on the same terms and conditions as those contained in this Lease, except that Base Rent shall be the lesser of (a) ninety-five percent (95%) of fair market rent for comparable Class A buildings in the Northeast submarket, or (b) the then escalated fair market rate, including consideration of Landlord provided improvements, concessions, inducements, and brokerage commissions.

           11.20   Right of First Offer.  During the Term of this Lease, Tenant shall have the right of first offer on the entire Building pursuant to the terms of this Lease.  If Tenant exercises its option, the rent will be the same per square foot rate then applicable under this Lease.  Tenant shall exercise its option, if at all, by giving written notice ("Tenant's Notice") to Landlord One Hundred Eighty (180) days after providing Landlord with written notice exercising its option.  The additional space shall be added to the Premises in its then condition, "as is", effective on the date that it is vacated by the prior tenant.  Landlord shall prepare and deliver to Tenant an amendment to this Lease which adds the Option Area to the Premises on the same terms and conditions and to be co-terminus with the current expiration as provided in this Lease, except that Tenant's Percentage for purposes of the adjustment set forth in Section 3 shall be increased in proportion to the useable area of the Option Area as same relates to the area of the Building.  Tenant shall promptly execute and deliver the amendment to the Landlord.

[Remainder of page is intentionally left blank.]

 
 
 

IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease, which includes the cover sheet, the foregoing Standard Provisions, Additional Provisions, if any, and Exhibits attached to this Lease, with the intent that each of the parties shall be legally bound thereby and that this Lease shall become effective as of the Date of Lease.

 
TENANT:

 
DOUBLE-TAKE SOFTWARE, INC.

                                                      By:

 
Name: /s/ S. Craig Huke
    

 
Title: Chief Financial Officer
 
              
 
Date: October 21, 2009
      
                                                        
    

                                                      LANDLORD:

 
 
SUN LIFE ASSURANCE COMPANY OF CANADA

                                                                      By:                    & #160;                                                


 
Name:
/s/ Thomas V. Pedulla
      
 
 
 
Title:          
Senior Managing Director
    

                                                                             Date:   October 29, 2009   


                                                                      By:                   &# 160;                                                
 
 

 
Name:
/s/ John G. Mulvihill
      
 
 
 
Title:
Managing Director
      

                                                                             Date:   October 29, 2009


 
 
 

PART III   EXHIBITS

 
 
 

EXHIBIT A

DESCRIPTION OF THE PREMISES

 
 
 

EXHIBIT B

DESCRIPTION OF THE LOT


Allison Pointe
Parcel P-5

Part of the Northwest Quarter of Section 21, Township 17 North, Range 4 East in Marion Count, Indiana, more particularly described as follows:

Commencing at the southeast corner of said Northwest Quarter Section; thence along the South line thereof, South 89 degrees 06 minutes 37 seconds West (assumed bearing) 119.71 feet then North 00 degrees 00 minutes 52 seconds West 12.57 feet to a point on the centerline of East 82nd Street as located by D.O.T. plan for Project ST-05-004A, which point is also the Southwest corner of the Grant of Right of Way for Allison Ponte Boulevard as recorded September 9, 1987 as Instrument 87-105141 in the Office of the Recorder of Marion Count, Indiana (the next five courses are along the Westerly and Southerly lines of said Grant of Right of Way); (1) thence continuing North 00 degrees 00 minutes 52 seconds West 536.80 feet to a curve having a radius of 385.00 feet, the radius point of which bears North 89 degrees 59 minutes 08 seconds East; (2) then Northerly and Northeasterly along said curve 212.52 feet to a point which bears North 58 degrees 23 minutes 15 seconds West from said radius point; (3) thence North 31 degrees 36 minutes 45 seconds East 762.23 feet to curve having a radius of 305.00 feet, the radius point of which bears North 58 degrees 23 minutes 15 seconds West; (4) thence Northerly, Northwesterly and Westerly along said curve 650.79 feet to a point which bears North 00 degrees 38 minutes 30 seconds West from said radius point; (5) thence South 89 degrees 21 minutes 30 seconds West 204.00 feet to the Point of Beginning, which point is also the Northwest corner of a 4.244 are tract described in a Warranty Deed recorded June 4, 1990 as Instrument 90-54079 in said Recorder’s Office; thence along the West line of said 4.244 acre tract, South 00 degrees 38 minutes 30 seconds East 537.17 feet to a point on the South line of the North Half of said Northwest Quarter Section; thence along said South line, South 89 degrees 11 minutes 38 seconds West 345.00 feet; thence North 00 degrees 38 minutes 30 seconds West 473.16 feet to a point on the Southerly right of way line of said Allison Ponte Boulevard, which points is on a curve having a radius of 100.00 feet, the radius point of which bears North 00 degrees 38 minutes 30 seconds West (the next three courses are along the Southerly line of said Allison Pointe Boulevard); (1) thence Easterly and Northeasterly along said curve, 82.98 feet to a point which bears South 48 degrees 11 minutes 15 seconds East from said radius point, and which point is on a reverse curve having a radius of 100.00 feet, the radius point of which bears South 48 degrees 11 minutes 15 seconds East; (2) thence Northeasterly and Easterly along said curve, 82.98 feet to a point which bears North 00 degrees 38 minutes 30 seconds West from said radius point; (3) thence North 89 degrees 21 minutes 30 seconds East 197.44 feet to the Point of Beginning, containing 4.148 acres, more or less.

 
 
 

EXHIBIT C

ADDITIONAL PROVISIONS

           The following provisions ("Additional Provisions") identified below and attached and/or set forth below are included as part of the Lease between Landlord and Tenant.  Capitalized terms used in any of the Additional Provisions and not otherwise defined shall have the meanings given such terms in Part I and Part II of this Lease.  Unless express reference is made to a provision in Part I and Part II of this Lease for the purpose of modifying such provision, in the event of any conflict between the Additional Provisions and the provisions of Part I and Part II of this Lease, the provisions contained in Parts I and II shall control.


 
Tenant Improvement
 
Allowance:          Original Premises
Tenant will receive $17 / SF to make the improvements to the original premises.

Any portion of present or future Landlord contributed funds, including expansions, shall be utilized by Tenant at its sole discretion for soft or hard costs of improvements throughout any portion of its leased space.  Tenant agrees to utilize the Improvement Allowance by December 31, 2011.  After such date, any unused Tenant Improvement Allowance will be forfeited by Tenant.  Also, Tenant cannot use the Tenant Improvement Allowance towards any Furniture, Fixtures or Equipment.

 
Landlord will competitively bid all tenant improvement finish to three (3) competent and experienced bidders and select/contract with its own general contractor with Tenant approval.  To the extent not caused by Tenant changes after the bids, Landlord shall be solely responsible for any costs in excess of lowest bid.  Tenant shall be solely responsible for any costs resulting from Tenant changes after the bid and for the excess, if any, of the lowest bid over Landlord’s allowance as above stated.  Landlord will provide Tenant copies of all bids and the identity of all bidders. All fees associated with Landlord’s construction and general contracting shall be normal market fees.

Any equipment considered to be capital (i.e. replacement of HVAC units, etc.) in nature will be at Landlord’s cost and will not be deducted from the Tenant Improvement Allowance, unless such items are specifically required for Tenant’s use.



 
Architectural Services:  All architectural services and drawings, including but not limited to space plans and construction drawings shall be paid by the Tenant Improvement Allowance(s).  Tenant will continue to utilize the services of Schott Design for all architectural services.

 
Smoking Area: Landlord shall construct a designated smoking area at the south end of the parking lot on or before July 1, 2011 and all individuals shall be mandated to smoke in this designated smoking area, and Landlord shall send notices and provide signs to the designated smoking area.

 
Expansion Rights:Regardless of tenant exercising a Right of First Offer; Tenant shall have a pro-rated tenant improvement allowance utilizing $28 / Rentable Square Foot as the baseline for any and all expansions. No additional lease term shall be required by tenant if a Right of First Offer is exercised or if tenant expands so long as said right is exercised prior to July 31, 2013.  Thereafter, expansion will be at the then current market conditions.  


 
 
 

EXHIBIT D

TENANT IMPROVEMENTS

           The following provisions are included as part of the Lease between Landlord and Tenant.  Capitalized terms not otherwise defined shall have the meanings given such terms in Part I and Part II of this Lease.   

I – Tenant Improvement Allowance.  

Landlord shall be responsible for the build-out of the Original Premises according to a mutually agreed upon space plan (the “Tenant Improvement Work”).  The Tenant Improvement Work shall be completed in accordance with the set of construction documents, including a mechanical, electrical and plumbing plan, submitted by Tenant and approved by Landlord before commencement of construction, and shall be paid for as set forth below, and shall be constructed in accordance with the following procedures:

 
  (a) Tenant shall by January 1, 2010, engage Schott Design to prepare plans and specifications of the Tenant Improvement Work (the “Construction Plans”) for Landlord’s review and approval.  The Construction Plans shall be submitted to Landlord on or before June 1, 2010, and Landlord shall review and either approve or notify Tenant of proposed changes thereto within 10 business days after receiving the Construction Plans.  Tenant shall make any changes to the Construction Plans reasonably requested by Landlord or necessary to make the Construction Plans conform to the space plan.

 
  (b) Promptly after the plans and specifications have been finalized, Landlord shall solicit bids from three (3) general contractors and submit a summary of such bids with a recommended general contractor, and other information regarding the bids as reasonably requested by Tenant to Tenant and Tenant’s Representative, David R. Byard of UGL-Equis, for review and written approval to be delivered within 7 business days of receipt or deemed accepted. Once such approval is received Landlord shall enter into a written contract with the approved general contractor on an AIA approved form for the construction of the Tenant Improvement Work and with other professionals for appropriate services in connection therewith.  

 
  (c) At all times during Landlord’s construction of the Tenant Improvement Work, Landlord’s general contractor shall have a full time supervisor on-site to oversee the construction.  All such construction shall be overseen by Landlord through its construction manager, at no cost to Tenant other than the construction administration fee of five percent (5%) of the Tenant Improvement Work costs.  Landlord shall at all reasonable  times permit Tenant and its Tenant’s Representative to inspect the Premises and Tenant’s improvement work during construction and Tenant will coordinate such inspection with Landlord's Construction Manager. Landlord will provide Tenant’s Representative with written weekly updates inclusive of digital photos of the progress of the work.

 
 (d) Tenant and its agents and contractors shall have the right to enter the Premises prior to the Commencement Date for such construction purposes at reasonable times and with reasonable notice to Landlord.  

 
  (e) Landlord agrees to provide Tenant with an allowance in the amount of ($17.00 X the rentable square footage of the Premises (the “Tenant Improvement Allowance”), to be applied against the costs and expenses incurred in connection with the design and construction of the Tenant Improvement Work in the Premises (including the actual construction costs and architectural, construction oversight and engineering fees, cabling and moving costs incurred in connection therewith).  The Tenant Improvement Allowance shall not be applied to the costs of any furniture, computers, equipment, personal property, inventory or for any other costs other than as provided above.  If the costs of the Tenant Improvement Work exceed the Tenant Improvement Allowance, Tenant shall be responsible for the full and prompt payment of such costs within 10 business days of an appropriate invoice and documentation for such overage.  Any undisbursed Tenant Improvement Allowance will be forfeited by Tenant on December 31, 2011.  Any equipment considered to be capital in nature will be at Landlord’s cost and will not be deducted from the Tenant Improvement Allowance.




 
 
 

EXHIBIT E

RULES AND REGULATIONS


           1.The driveways, parking areas, plazas, sidewalks, entrances, passages, courts, vestibules, stairwells, corridors or halls shall not be obstructed or encumbered by any tenant or used for any purpose other than ingress and egress to and from the premises.

           2.No awnings, canopies, or other projections shall be attached to the outside walls of the building.  No drapes, curtains, blinds, shades, or screens shall be attached to or hung in, or used in connection with, any window or door or the premises without the prior written consent of Landlord which consent shall not be unreasonably withheld or delayed.
 
3.Except as otherwise provided in the Lease, Tenants are prohibited from displaying any sign, picture, advertisement or notice on the inside or outside of the building, or the premises, except the usual name signs on the doors leading to the premises, which shall conform to the requirements of the management of the building, and excepting also the name strips on the directory board of the building.  The directory board of the building will be maintained by Landlord.  In the event of the violation of the foregoing by any tenant, Landlord may remove same without any liability, and may charge the expense incurred by such removal to the tenant.

           4.The sash doors, windows, and doors that reflect or admit light and air into the halls, passageways or other public places in the building shall not be covered or obstructed by any tenant, nor shall any bottles, parcels or other articles be placed on the windowsills or perimeter fan coil consoles.

           5.No showcases or other articles shall be put in front of or affixed to any part of the exterior of the building nor placed in the halls, corridors, or vestibules without the prior written consent of Landlord.

           6.The water and wash closets and other plumbing fixtures shall not be used for any purposes other than those for which they were constructed, and no sweepings, rubbish, rags or other substances shall be thrown therein.  All damages resulting from any misuse of the fixtures shall be borne by the tenant who, or whose servants, employees, agents, visitors or licensees, shall have caused the same.

           7.No tenant shall mark, paint, drill into, or in any way deface any part of the premises or the building of which they form a part.  No boring, cutting or stringing of wires shall be permitted, except with the prior written consent of Landlord, and as Landlord may direct.  No tenant shall lay any type of floor covering without first obtaining Landlord's written permission.

           8.No  motorized vehicles or animals of any kind shall be brought into or kept in or about the premises, and no cooking shall be done or permitted by any tenant on the premises.  No tenant shall cause or permit any unusual or objectionable odors to be produced upon or permeate from the premises.

           9.No tenant shall make or permit to be made, any unseemly or disturbing noises or disturb or interfere with occupants of this building, or premises, or neighboring buildings.

           10.No tenant, and no servants, employees, agents, visitors or licensees of any tenant, shall at any time bring or keep upon the premises any inflammable, combustible or explosive fluid, chemical or substance.

           11.Tenants are prohibited from installing additional locks upon any of the doors or having duplicate keys made for any of the doors leading to the premises.  (All necessary keys will be furnished to the tenants by Landlord).  Each tenant must, upon the termination of tenancy, return all keys to Landlord.

           12.Landlord shall have the right to prohibit any advertising by any tenant which, in Landlord's opinion, tends to impair the reputation of the building or their desirability for offices, and upon written notice from Landlord, the tenants shall refrain from or discontinue such advertising.

           13.The premises shall not be used for lodging or sleeping.

           14.The requirements of tenants will be attended to only upon application at the office of the building.  Building employees shall not perform any work or do anything outside of their regular duties, unless under special instructions from the office of the building.

           15.Canvassing, soliciting and peddling in the building are prohibited and each tenant shall cooperate to prevent the same.

           16.Landlord and its agents may retain a pass key to the premises and shall have the right to enter the premises at any and all times for the purpose of servicing and examining the same.

           17.Landlord reserves the right to make such other and further Rules and Regulations as in its judgment may from time to time be needful and proper, and upon delivery of the same to the tenants they shall become binding upon the parties hereto.




 

 
 
 

EX-31.01 3 ex31-01.htm CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO RULE 13A-14(A) UNDER THE SECURITIES EXCHANGE ACT OF 1934 AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 ex31-01.htm
 
Exhibit 31.01
CERTIFICATIONS

I, Dean Goodermote, certify that:

1.      I have reviewed this quarterly report of Double-Take Software, Inc.;

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.

  Double-Take Software, Inc.  
       
Date:  November 5, 2009
By:
/s/ Dean Goodermote  
    Dean Goodermote  
   
Title: President, Chief Executive Officer and Chairman of Board of Directors
(Principal Executive Officer)  
  
       

EX-31.02 4 ex31-02.htm CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO RULE 13A-14(A) UNDER THE SECURITIES EXCHANGE ACT OF 1934 AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 ex31-02.htm
 
Exhibit 31.02



CERTIFICATIONS

I, S. Craig Huke, certify that:

1.      I have reviewed this quarterly report of Double-Take Software, Inc.;

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.

 

  Double-Take Software, Inc.  
       
Date:  November 5, 2009
By:
/s/ S. Craig Huke  
    S. Craig Huke  
   
Chief Financial Officer
(Principal Financial Officer)
  
       
EX-32.01 5 ex32-01.htm CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 ex32-01.htm
 
Exhibit 32.01



CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350


In connection with the Quarterly Report of Double-Take Software, Inc. (the “registrant”) on Form 10-Q for the fiscal quarter ending September 30, 2009 as filed with the Securities and Exchange Commission on the date hereof (the “report”), we, Dean Goodermote and S. Craig Huke, Chief Executive Officer and Chief Financial Officer, respectively, of the registrant, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that to our knowledge, on the date hereof:

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

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


November 5, 2009
         
/s/Dean Goodermote
    
/s/ S. Craig Huke
  
Dean Goodermote
    
S. Craig Huke
  
Chief Executive Officer
    
Chief Financial Officer
  

 
 
 
 
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