10-K 1 LOTUS DEVELOPMENT CORP 1994 10-K =========================================================================== UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K X Annual Report Pursuant to Section 13 or 15(d) -------- of the Securities Exchange Act of 1934 For the Fiscal Year Ended December 31, 1994 or ________ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Transition Period from ________ to ________ Commission File Number 0-11626 LOTUS DEVELOPMENT CORPORATION ----------------------------- (Exact name of registrant as specified in its charter) Delaware 04-2757702 ------------------------------- ---------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 55 Cambridge Parkway, Cambridge, Massachusetts 02142 ---------------------------------------------------- (Address of principal executive offices) (Zip Code) (617) 577-8500 ----------------------------------- (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, par value $.01 per share Preferred Share Purchase Rights (Titles of classes) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES__X__ NO_____ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in the definitive proxy or information statements incorporated by reference in Part III of the Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value of the voting stock held by non-affiliates of the registrant as of February 25, 1995 was $1,997,401,273. The number of shares outstanding of the registrant's common stock as of February 25, 1995 was 48,196,026. DOCUMENTS INCORPORATED BY REFERENCE Portions of the 1994 Annual Report to Shareholders are incorporated by reference in Parts I, II and IV. Portions of the definitive Proxy Statement to be delivered to shareholders in connection with the Annual Meeting of Shareholders to be held May 2, 1995 are incorporated by reference into Part III. =========================================================================== LOTUS DEVELOPMENT CORPORATION 1994 FORM 10-K ANNUAL REPORT TABLE OF CONTENTS PART I Item 1. Business ............................................... 1 Item 2. Properties ............................................. 15 Item 3. Legal Proceedings ...................................... 16 Item 4. Submission of Matters to a Vote of Security Holders .... 16 PART II Item 5. Market for Registrant's Common Equity and Related Stockholders Matters ................................... 17 Item 6. Selected Financial Data ............................... 17 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations ................... 17 Item 8. Financial Statements and Supplementary Data ........... 17 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ................... 17 PART III Item 10. Directors and Executive Officers of the Registrant .... 18 Item 11. Executive Compensation ................................ 19 Item 12. Security Ownership of Certain Beneficial Owners and Management ............................................ 19 Item 13. Certain Relationships and Related Transactions ........ 19 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K ........................................... 20 Signatures ....................................................... 25 ______________________________________________________________________________ 1 PART I Item 1. Business GENERAL Lotus Development Corporation (the "Company" or "Lotus") was incorporated in Delaware in April 1982. The Company and its subsidiaries are engaged in the development, manufacture, licensing, marketing and support of software products and services that meet the evolving technology and business application requirements of individuals, work groups and entire organizations. The Company's products and services consist of desktop applications products and communications products and services. Desktop applications products include SmartSuite (an integrated applications suite), 1-2-3 (spreadsheets), Ami Pro (word processing), Freelance Graphics (presentation graphics), Lotus Approach (end-user database), and Lotus Organizer (personal information management). Communications products and services include Lotus Notes (workgroup computing), cc:Mail (electronic mail), Soft*Switch (electronic mail switching), support and consulting services. Additionally, the Company is currently developing public network and inter-enterprise products that will further extend the reach and accessibility of Lotus Notes. Lotus' software products and its support and consulting services reflect the Company's understanding of the ways in which individuals and businesses work together to become more productive. Lotus' applications allow information to be accessed and communicated within and beyond organizational boundaries. The Company markets its products in more than 80 countries worldwide and provides numerous support and consulting services. Lotus' initial product, Lotus 1-2-3, was shipped in January 1983. 1-2-3 is a software product that combines spreadsheet, database and graphing capabilities into a single program for use with most personal computers. According to industry reports, soon after its introduction, 1-2-3 for DOS became the personal computer software industry's best selling business applications software product. Since its release in 1983, 1-2-3 has been continually updated to incorporate new technological advances, increased functionality, ease-of-use features, and compatibility with major operating system and hardware platforms. By the end of 1994, the Company had shipped approximately 18.4 million units of 1-2-3. The Company has added to its established spreadsheet products in an effort to build a strong presence in each of the predominant desktop applications categories. Lotus has acquired and subsequently enhanced the technology that forms the basis of its Freelance Graphics, Ami Pro, Lotus Approach and Lotus Organizer products. In 1992, the Company introduced SmartSuite, an integrated suite of the Company's desktop applications. The Company introduced Lotus Notes in 1990 and acquired cc:Mail, Inc. in 1991 to position itself to capitalize on the trend toward networked computing, information sharing and organizational computing. Notes has been widely acclaimed for its ability to enable workgroups to access, track, share, route and organize information across diverse computing platforms and geographical boundaries. Notes is the pre-eminent client-server product for developing and deploying groupware applications, including those found in customer service, sales and account management and product development. Notes and cc:Mail have established the Company as a leader in PC-based communications software. The Company has also integrated Notes with its desktop products to enable them to take advantage of workgroup computing environments. As of December 31, 1994, there were approximately 1.35 million Notes users and approximately 6.5 million cc:Mail users. 2 In an effort to continue to expand its communications business, Lotus completed several key acquisitions in 1994. In recognition of the importance of Notes to the Company's communications business, the Company acquired Iris Associates, Inc., the original developers of Notes, in May 1994. The July 1994 acquisition of Soft*Switch, Inc. ("Soft*Switch") reflects the Company's efforts to add to and improve its communications products by incorporating Soft*Switch's technology, which consists primarily of electronic mail message switches that link disparate messaging systems. The Company believes that as the Notes installed base grows and more corporate Notes users develop complex and mission critical workgroup applications, the need for Notes application tools and developers will grow. The Company's September 1994 acquisition of Edge Research, Inc. ("Edge"), a supplier of application development tools for Notes, reflects the Company's commitment to enhancing the programmability of Notes. The Company has developed and adopted cross-product standards for most Lotus products that enhance user value in areas such as user interface design, database access methods, international character sets, networking, mail-enabling and customization. When appropriate, the Company has worked with other major software and hardware companies to develop these standards. Furthermore, as networked computing environments continue to become more prevalent, the Company has focused on providing customers with communications products capable of being used across a broad range of hardware systems and operating environments. This provides customers with the ability to share information easily among users, to move users more readily between computing platforms and to exercise greater flexibility in selecting computing environments. The Company believes this approach is of significant value to customers because it preserves their existing investment while allowing them to take advantage of new technologies. The Company also believes this approach is necessary to maintain its competitive position. See "Competition". PRODUCTS AND SERVICES Desktop Products SmartSuite The Company packages its desktop applications in various product combinations or suites under the registered trademark "SmartSuite". Each of the applications in SmartSuite is closely integrated and shares common user interface elements, including a consistent menu structure, common Lotus "SmartIcons" buttons, a live status bar and one click access to menu items, including context-sensitive Help. SmartSuite was the first group-enabled suite to include mail-enabling and features that facilitate collaborative work. In August 1994, the Company shipped SmartSuite for Windows Release 3.0, which consists of Lotus' highly-rated desktop applications, including Lotus 1-2-3 for Windows Release 5.0, Lotus Ami Pro for Windows Release 3.1, Freelance Graphics for Windows Release 2.1, Lotus Approach for Windows Release 3.0 and Lotus Organizer Release 1.1. Each application in the Suite has been updated in 1994 to increase its integration with Notes, cc:Mail and other electronic mail systems. The Company shipped SmartSuite for Windows Release 3.1 in February 1995 to include Organizer Release 2.0, the enhanced version of Organizer that was commercially released in December 1994. In May 1994, the Company shipped SmartSuite Release 1.1 for OS/2, which includes 1-2-3 Release 2.1 for OS/2, Freelance Graphics Release 2.1 for OS/2, Ami Pro 3.0a for OS/2 and cc:Mail for OS/2 Workplace Shell 1.0. This suite leverages OS/2 's versatile drag-and-drop functionality, faster navigation, multitasking and 32-bit memory management to increase user productivity and application usability. In March 1995, the Company shipped SmartSuite Release 2.0 for OS/2, which includes enhanced versions of Ami Pro and cc:Mail for OS/2 Workplace shell. 3 Products Under Development - The Company is currently developing enhanced versions of SmartSuite for the Windows, for the "Windows 95", a new operating system that Microsoft Corporation ("Microsoft") has announced it will release in 1995, and for the OS/2 operating system platforms. Spreadsheet Products The Company's spreadsheet products are designed to deliver performance, usability, innovation, integration with other Lotus applications and workgroup enabling features. 1-2-3 is currently available across all of the most popular hardware and operating platforms, including Windows, OS/2, DOS, UNIX and Macintosh. As of December 31, 1994, versions of 1-2-3 were available in approximately 27 different languages. In July 1994, the Company shipped 1-2-3 for Windows Release 5.0, which provides users with enhanced usability, increased productivity and advanced workgroup capabilities. Lotus has designed this product with intuitive access to all of its functions and features to make it easier to create, present and maintain spreadsheets, while maintaining full compatibility with previous releases of 1-2-3. The enhanced usability features ease the completion of everyday spreadsheet tasks. The enhanced database capabilities allow users to create forms, reports, crosstabs and mailing labels directly from 1-2-3 data through integration with Lotus Approach. 1-2-3 for Windows Release 5.0 incorporates an array of powerful data analysis and programming tools to maximize users' productivity and permits users to collaborate while working within the product. The product has a consistent look and feel with Lotus' other Windows applications through the use of shared components such as "SmartIcons" buttons, Smart Status bar and a common user interface. The product also includes a new Lotus Maps feature, an integrated mapping tool to show and analyze geographical spreadsheet data. There are also several new formula functions to perform calendar, financial and mathematical calculations. Release 5.0 also retains the unique Version Manager function introduced in Release 4.0, which allows individuals and workgroups to better manage what-if analysis, track modifications to spreadsheets and effectively share spreadsheet data. In July 1994, Lotus introduced 1-2-3 for DOS Release 4.0, a major upgrade to its leading DOS spreadsheet, which delivers powerful new functionality and graphical ease of use. The product retained all the powerful features of prior releases and now includes a Version Manager and an integrated mail enabling feature that allows users to mail spreadsheet files electronically without leaving 1-2-3. Other key upgrade features include QuickStart tutorial, a Spell Checker, a Cell Notepad, which allows users to attach a comment to any spreadsheet cell, and a Column Fit-Widest command for instantly adjusting column widths. The Company's DOS spreadsheets combine an interactive WYSIWYG ("what you see is what you get") display and the ability to turn analyses into presentation quality output with powerful analytic capabilities. Lotus introduced 1-2-3 for OS/2 Release 2.1 in May 1994. This version of the spreadsheet allows users to exploit OS/2's Workplace Shell graphical environment and 32-bit technology, providing users with significant usability and productivity gains through features such as drag-and-drop editing, faster navigation, quicker screen refresh and multi-threading. 1-2-3 for OS/2 delivers three-dimensional capabilities, Solver and BackSolver advanced goal-seeking tools, and external data access capabilities through DataLens. Products Under Development - The Company is currently developing enhanced versions of 1-2-3 for the Windows, Windows 95 and OS/2 operating system platforms. 4 Presentation Graphics Products The Company's presentation graphics product, Freelance Graphics, is designed to facilitate the creation, display and sharing of graphical information, including data generated or manipulated by Lotus 1-2-3. Freelance Graphics provides a comprehensive set of graphics capabilities including bullet charts, flexible drawing and editing tools, powerful charting, and the ability to quickly and easily create presentations. Lotus currently markets Windows, OS/2 and DOS versions of Freelance Graphics. In July 1994, the Company began shipping Freelance Graphics for Windows Release 2.1. This release provides strong support for workgroup applications and allows tight integration with Notes. It also includes enhanced task-oriented SmartMaster presentation styles for such frequent tasks as weekly meetings, proposals and project updates. It includes a range of international and industry-specific SmartMaster designs and the ability to develop custom SmartMaster page layouts and prompts. The product now includes more than 101 different presentation styles, giving users a comprehensive selection of styles for their presentation needs. In April 1994, the Company also began shipping Freelance Graphics for OS/2 Release 2.1. This version brings the features of Freelance Graphics for Windows to the OS/2 operating platform. In addition to SmartMasters and other presentation management features, Freelance Graphics for OS/2 provides complete charting capabilities, extensive drawing and editing tools and seamless integration with 1-2-3. The Company also sells Freelance Graphics for DOS Release 4.0. Key features include a graphical WYSIWYG working environment, a customized outliner, enhanced presentation management tools, charting capabilities and master presentation backgrounds. The Company also sells SmartPics for Windows, an extensive clip-art library with browser for Windows applications. With more than 2,000 pieces of quality artwork, SmartPics is designed to provide users with a fast and easy means of adding memorable visuals to Windows documents and presentation materials. The Company offers versions of Freelance Graphics in 16 different languages. Products Under Development - The Company is currently developing enhanced versions of Freelance Graphics for the Windows, Windows 95 and OS/2 operating system platforms. Word Processing Products The Company's principal product offering in the word processing market, Ami Pro, provides desktop publishing functionality and graphics capabilities for personal computers and local area networks. Ami Pro for Windows Release 3.1, which was shipped in August 1994, combines now-common features, such as a thesaurus, a spell checker and interactive drawing and charting capability, with advanced functionality and ease-of-use. Ami Pro pioneered the use of "SmartIcons" buttons for single-click access to menu commands and includes fast format, drag-and-drop text editing, automated envelope printing, document and style sheet viewers, and a clean screen option. Ami Pro enables users to share data and functionality across all desktop applications included in the Company's suite. Release 3.1 works together with Notes to provide document tracking and database management for workgroups. The Document Sharing Application offers a quick and powerful tool that leverages Notes replication, security and notification services as well as its support for mobile access. Also new to Ami Pro for Windows 3.1 is a mail memo front end to cc:Mail and Notes, which enables users to create, send and reply to mail memos using Ami Pro as the mail memo editor. 5 In July 1994, Lotus shipped Ami Pro 3.0a for OS/2, which takes advantage of OS/2's multi-threading power and delivers seamless integration with the OS/2 Workplace Shell. Ami Pro 3.0a for OS/2 supports IBM's OS/2 programming language and features integration between system and application macros. The Company offers 24 different language versions of its word processing products. Products Under Development - The Company is currently developing enhanced versions of Ami Pro for the Windows, Windows 95 and OS/2 operating system platforms. Database Management Products In June 1993, Lotus acquired Approach Software Corporation, a developer of end-user relational database applications for the Windows environment. Lotus Approach for Windows makes it easy to create standalone applications and manage and report on information. The product, based on client/server technology, consists of three components: a graphical user interface, a relational layer and a series of data-access engines called PowerKeys. PowerKeys enable users to connect directly to Oracle SQL, Microsoft and Sybase SQL Server, DB2, FoxPro, Paradox, dBase and ODBC compliant databases. This feature provides users with quick access to data anywhere on a network without any conversion or intermediary file and with the ability to mix data from multiple file formats into single form or report. In July 1994, Lotus shipped Approach Release 3.0 for Windows, which offers more than 200 new features, including new strides in database usability. This product was designed for general purpose business users who do not view themselves as database programming experts. Approach enables users to complete common business tasks such as printing mailing labels, creating and distributing reports and charts, completing forms and performing analysis using crosstabs. Approach combines genuine ease of use with relational power and superior data access. The product also provides tight integration and shares a common look and feel with Lotus' other Windows products. The Company offers 16 different language versions of Approach. Products Under Development - The Company is currently developing enhanced versions of Approach for the Windows and Windows 95 operating system platforms. Personal Information Management Products Lotus Organizer is a Windows-based personal information management product that employs Lotus' core product features, such as "SmartIcons" buttons and mail-enabling. Organizer's personal calendaring technology is designed to allow workers in different groups, departments or locations to automate and expedite the process of collaborative scheduling and communications, thereby improving organizational productivity. Organizer facilitates integrated calendaring, daily planning and organization, time management, referencing and updating of contact lists, and random note taking. In December 1994, Lotus shipped Organizer 2.0 for Windows, which includes major enhancements to its personal and workgroup functionality. There are more than 100 new customer-driven features and robust group scheduling support for Notes and cc:Mail, such as the ability to retrieve individual names from an organization's cc:Mail directory or Notes Name and Address Book when scheduling a meeting. The advanced Organizer 2.0 scheduling engine also permits repeating group meetings to be scheduled, not only on a regular daily, weekly or monthly schedule, but also according to a user-defined, customized repeating schedule (e.g., the third Thursday of every month). 6 The Company offers 21 different language versions of Organizer. Products Under Development - The Company is currently developing enhanced versions of Organizer for the Windows, Windows 95 and Macintosh operating system platforms. Communications Products and Services In addition to Notes and cc:Mail, Lotus' communications products now include Lotus Messaging Switch ("LMS") (formerly Soft*Switch EMX) and Soft*Switch Central. This set of communications products takes advantage of network computing to boost organizational effectiveness and improve communications across multiple network operating systems, hardware platforms and personal computer operating systems. These products also provide the underlying messaging and shared document database layers for the deployment of enterprise-wide shared information applications. In addition, the Company offers various types of support and services, primarily related to its communications products. Lotus Notes Notes, the Company's workgroup computing product, increases productivity by enabling users to create, store, route and access shared information across networked personal computers. The product addresses the needs of workgroups, such as those in corporate, educational and governmental environments, to share information simultaneously at different locations and across different technologies. The key to simultaneous information-sharing is a procedure called replication, by which Notes copies information from computer to computer throughout a network. Notes is used for three basic categories of applications: disseminating information, such as news or reference materials; routing information, such as mail messages or forms; and enabling interactive applications, such as discussions, project control or tracking systems. Customer installations range from multinational companies, which use several thousand copies of Notes, to very small workgroups focused on solving a particular business problem. In the second half of 1994, the Company shipped Notes Release 3.2 for the Windows, Windows NT, OS/2, Macintosh, UNIX HP-UX, UNIX SCO, UNIX-AIX and Sun Solaris operating system platforms. These versions incorporate various ease-of-use features, including full-text search, Automatic Document Versioning, Lotus "SmartIcons" buttons, and a graphical installation program. Notes Release 3.2 also includes a built-in Customer Service Application, designed to improve customer service operations by providing efficient access to information and reduced time-to-action. Twenty-five additional Notes template and example files are also included. Notes features Notes Field Exchange ("Notes/FX"), an integrating technology developed by Lotus, that allows users to exchange data between Notes and desktop applications and provides the ability to bi-directionally share field level information. This integration offers the ability for Notes and desktop tools to function as if they were designed to be part of the same application. The Notes/FX technology improves organizational productivity through group collaboration and gives users the ability to share information from applications with other users. SmartSuite Release 3.0 includes updated Notes/FX 1.1 technology as one of the suite's key enhancements. 7 The Company has developed companion products with partner companies to extend the capabilities of Notes. In October 1994, Lotus shipped Lotus Notes: Document Imaging ("LN:DI") Release 2.5, a product which allows users to scan textual and graphical documents into Notes so that they may be searched and edited. This release provides support for color and grayscale document images and enables users to scan, view and print color images. Lotus Phone Notes, shipped in March 1994, enables callers to access Lotus Notes applications from touch-tone telephones. In addition, the Company has developed workflow automation and application development tools for its Notes and cc:Mail products. Lotus Forms Version 1.0, which shipped in June 1994, is electronic forms software that automates paper-based business processes by designing, routing and tracking forms on Notes, cc:Mail and Microsoft Mail. Lotus Notes ViP, which shipped in June 1994, allows developers to create client/server applications in a visual programming environment. These companion products and management and development tools, among others, are currently available on the Windows operating system platform. The Company is considering extending development of the companion products and development tools to additional operating system platforms. The Company offers 15 different language versions of Notes. Products under development - The Company is currently developing enhanced versions of Notes for the Windows, Windows 95, Windows NT, OS/2, Macintosh and UNIX operating system platforms. Additional Notes companion products and development tools are also currently under development. NotesSuite In November 1994, Lotus introduced NotesSuite, which combines SmartSuite for Windows, a Notes client and the NotesSuite Application Collection. The NotesSuite Application Collection is a set of production-quality Notes applications that integrate Notes and SmartSuite desktop applications to provide solutions for document-sharing and business process management and to provide access to information available through third-party news and information services. NotesSuite transforms familiar desktop tools used for individual tasks into workgroup collaboration tools by allowing organizations to easily distribute, share and consolidate information. All versions of NotesSuite work with the server platforms already supported by Notes. Products under development - The Company is currently developing enhanced versions of NotesSuite for the Windows and Windows 95 operating system platforms. cc:Mail cc:Mail is a highly-rated, comprehensive LAN-based electronic mail and messaging system. cc:Mail is available on more platforms today than any other LAN-based mail system, including local and remote DOS, Windows and Macintosh, and local OS/2 and UNIX, as well as all major LANs. The product provides transparent connectivity to all major public and private electronic mail systems and facsimile machines worldwide. It also supports wireless computing and other mobile platforms. The Company believes that electronic mail will continue to represent a substantial opportunity in the software industry over the next several years and that cc:Mail and Lotus' other distributed communications products put Lotus in a position to capitalize on the anticipated growth of electronic mail in networked computing environments. The Company also believes that because electronic mail has the potential for greater desktop penetration in organizations than any other application, cc:Mail products provide Lotus with an added opportunity to introduce customers to Notes as well as the Company's entire suite of desktop products, which are well integrated with cc:Mail. 8 The Company shipped Lotus cc:Mail View in December 1994. cc:Mail View gives system administrators a detailed graphical display of their cc:Mail e-mail network, alerts them should an exception condition occur and provides charts showing message system statistics. The product allows administrators to visualize the status of messaging system components on a wide-area network from any location in the world. The Company offers 21 different language versions of cc:Mail. Products under development - The Company is currently developing enhanced versions of cc:Mail for the Windows, Windows 95, DOS, Macintosh and OS/2 operating system platforms. Lotus Messaging Switch As a result of the Soft*Switch acquisition in July 1994, the Company began shipping the then-current version of LMS (1.2 patch 3), a UNIX-based multi-protocol messaging switch that links disparate electronic messaging systems. LMS is an open architecture product designed to switch messages through a local area network to other domains or networks using an X.400 message transport service. LMS is sold as a network appliance and comes with hardware and software that plug into the network. LMS runs on Data General AViiON hardware using Data General's DG/UX operating system. LMS provides standards-based connectivity, electronic mail network management and mail-enabled applications that add value to customers' expanding electronic mail networks. Products under development - The Company is currently developing significantly enhanced versions of LMS. Soft*Switch Central Also as a result of the Soft*Switch acquisition, the Company began shipping Soft*Switch Central Version 4.3, a mainframe-based enterprise network switch used to link disparate electronic messaging systems. Soft*Switch Central integrates organizations' mainframe, midrange and local area network messaging systems, including those based on standard protocols such as X.400 and the Internet's Simple Mail Transfer Protocol ("SMTP"). Soft*Switch Central runs on IBM and compatible mainframes with the MVS or VM operating system. Products under development - The Company is currently developing an enhanced version of Soft*Switch Central. Lotus Notes/cc:Mail Communications Server ("CommServer") The Company is currently developing CommServer, a technology that was formerly referred to as the Lotus Communications Server, or LCS. CommServer will present Notes and cc:Mail customers with a single and flexible enterprise-scale back end, thereby providing integration of the Notes and cc:Mail environments with common management, directories and administration. CommServer will be a bundled product that will include the Notes Version 4.0 server and the cc:Mail Connector for connectivity to cc:Mail file-sharing subnetworks. CommServer will include a cc:Mail Router backbone, native X.400 and SMTP connectivity and high function management. Over time, CommServer and enhanced versions of LMS will be integrated to provide connectivity and integration with other third-party legacy and messaging systems. 9 Support, Services and Education The Company's support, education and services offerings include technical support, consulting, education and training and research. Technical Support The Company's worldwide technical support organization provides product support programs to help users get the most out of their purchases of Lotus products. The Company hires individuals with product expertise and provides them with tools, continuous product education and training and processes to deliver quality support. Support programs range from free warranty support to various fee-based offerings. Lotus Consulting Founded in 1990, Lotus Consulting is a worldwide professional services organization. Lotus Consulting provides business process and technology services to Lotus' major commercial and government customers. Lotus Consulting focuses on delivering effective business solutions based on Lotus technology, most notably Notes. Lotus Consulting also works with third party business partners and value added resellers to develop solutions for its customers. Lotus Education Lotus Education is a worldwide organization dedicated to providing consistent, high-quality training and education programs to users of Notes, cc:Mail and the full range of Lotus desktop products. Lotus Education programs range from those that have been developed for technical professionals who want to upgrade or expand their skills to end-users who want basic training in Lotus products. Lotus Institute Lotus Institute was formed by the Company as a research and executive education endeavor. Its mission is to help customers achieve optimal performance by identifying and delivering analysis on emerging organizational, technological and business trends. Through its work with affiliated partners, industry thought leaders, business schools and researchers, the Institute offers its customers specific methods, knowledge and applied research to help them achieve their business goals. Public Networks and Inter-Enterprise Computing In 1994, the Company launched a third business area which it has named public networks and inter-enterprise computing. This business, which is in its start-up phase, has been established to help organizations share information from both within and between enterprises. In March 1994, Lotus and AT&T announced an agreement which forms the foundation of this new business. The agreement calls for Lotus to develop and AT&T to market a product known as AT&T Network Notes. This product, which is currently under development, is intended to provide businesses with access to a cost-effective, secure and reliable client/server computing platform over AT&T public networks without the costs of supporting and staffing their own private networks. The Company believes that this product will be appropriate for use by small workgroups as well as large worldwide enterprises. In addition, AT&T Network Notes will create new opportunities to provide business information and conduct business transactions over public electronic networks. The Company expects that AT&T Network Notes will become available in 1995. There has been explosive growth in the use of the public Internet for messaging and information distribution - a trend that the Company expects will continue. In January 1995, Lotus announced plans to develop InterNotes, a new group of products that will integrate Notes with popular Internet applications such as the World Wide Web ("WWW") and Usenet News. The first two products in the InterNotes product group will be InterNotes Web Publisher and InterNotes News. The InterNotes Web Publisher is intended to enable users to publish public information created in Notes on the WWW for access by NCSA Mosaic, Netscape or other WWW browsers. InterNotes News is intended to provide Notes users with seamless, bi-directional access to the Internet Usenet from Notes. Lotus expects to ship these two InterNotes products in 1995. 10 PRODUCT DEVELOPMENT The computer software industry is characterized by rapid technological change, which requires a continuous high level of expenditures for enhancing existing products and developing new products. The Company's product development activities are focused on delivering organizational productivity to its customers through its suite of desktop applications and communications products. Key development objectives of the Company include tightening integration across applications, furthering the networking and communications capability of all of its products, making applications more customizable and introducing more of its products to the growing portable computing market. Most of the Company's software products are developed internally. The Company believes that a crucial factor in the success of a new product is getting it to market quickly to respond to users' needs or technological advances, without compromising product quality. Strategic acquisitions and relationships have focused on acquiring base technology to accelerate time-to-market in the areas of communications, end-user databases, personal information management and word processing. Lotus' U.S. development organizations are located in Cambridge, Massachusetts; Atlanta, Georgia; Mountain View, California; Wayne, Pennsylvania; and Westford, Massachusetts. The Company supplements its U.S.-based development activities with product development organizations in Ireland, England, Singapore and Japan that primarily produce localized versions of Lotus products and provide third-party support for existing products. Foreign development efforts are aimed at modifying products to permit operation in different natural languages, adding features that are tailored to local markets, and supporting hardware platforms and operating systems that are prevalent outside the U.S. During the years ended December 31, 1994, 1993 and 1992, research and development costs charged to operations were $158.7 million, $126.9 million and $118.3 million. In 1994, the Company charged $67.9 million to operations for purchased research and development related to the acquisitions of Soft*Switch and Edge. In 1993, the Company charged $19.9 million to operations for purchased research and development related to the acquisition of Approach Software Corporation. Additionally, the Company capitalized internal software development costs and acquired technology intangibles of $55.1 million, $32.8 million and $43.6 million in 1994, 1993 and 1992. New product development schedules are difficult to predict, because software development, quality assurance testing and debugging are complex processes that often take longer than expected. Accordingly, although the Company estimates the shipment dates of proposed new products for internal purposes, such estimates are subject to frequent adjustment based on the Company's own periodic assessments of its progress in the development process. The Company has from time to time experienced product delays; however, it believes that its experience has been comparable with that of other companies in the software industry. No assurance can be given that any of the development projects referred to in the "Products and Services" section will be successful or that any announced shipping dates for new products will be met. See "Issues and Risks" on pages 7-9 of the Financial section of the Company's Annual Report to Shareholders for the fiscal year ended December 31, 1994 (the "1994 Annual Report to Shareholders"), which is incorporated herein by reference. A copy of the 1994 Annual Report to Shareholders has been filed as Exhibit 13 to this Form 10-K. 11 MARKETING AND SALES Lotus sells its products through four principal channels of distribution: the reseller channel, value added resellers ("VARs"), directly to end users and through original equipment manufacturers ("OEMs"). The reseller channel is Lotus' principal means of distribution and consists of distributors and resellers. To facilitate sales through this channel and provide a high level of sales support and product coverage to resellers and large corporate accounts, the Company has dedicated account teams to manage these business relationships. In addition, the Company has sales representatives who work directly with strategic end-user customers to generate large volume contracts. These volume contracts are consummated by the Company's resellers through the Passport program, a sales program launched in May 1994 that is intended to facilitate and simplify volume purchases by corporate customers on a worldwide basis. Under the Passport program, the Company's resellers offer discounted worldwide pricing to end-user customers based on customers' cumulative program purchases or their non-binding commitments to purchase certain volumes of Lotus products in the future. The Company has also established a network of business partners who provide networked computing solutions and services to their customer bases. In some instances, the Company sells its products directly to end-users. However, the Passport program was designed to increase sales through the reseller channel and consequently will decrease such direct sales. The Company also engages in direct marketing programs focused on end-users, primarily for upgrade product versions. Lotus has an OEM sales channel to sell its products to PC manufacturers. Lotus' aim is to seed new products and technology to first time users and to PC buyers who may not have otherwise purchased these products on a standalone basis. At December 31, 1994, Lotus maintained 91 sales offices throughout the world. In North America, there were 43 sales offices with a sales and sales support staff of approximately 620. The Company also has a direct presence in countries throughout Europe, the Middle East, South America, Central America, Asia, Africa, Japan and the Pacific Rim. Lotus maintained 48 foreign sales offices in 37 countries with a sales and sales support staff of approximately 440. In countries where the Company has not established a presence of its own, it sells its products through authorized distributors. In addition, the consulting services business employed approximately 190 consultants worldwide at December 31, 1994. The Company believes that the loss of a major distributor could have an adverse effect on its financial results in a given quarter. However, the Company does not believe that the loss would have a materially adverse effect on its overall operations as the Company believes there are a number of other distributors through which the Company could sell its products. Lotus offers various credit terms to its resellers and distributors that it believes are typical for the personal computer software industry. The Company's practice is to ship its products promptly upon receipt of purchase orders from its customers and, as a result, backlog is not meaningful. Ingram Micro accounted for 13% of worldwide sales in 1994. Two of the Company's distributors, Ingram Micro and Merisel, accounted for 12% and 11% of worldwide sales in 1993. No one customer was responsible for more than 10% of worldwide sales in 1992. 12 The Company continues to maintain its worldwide customer support organization, which now numbers more than 830 people. The Company's aim is to globally manage its support organization to provide consistently high quality support around the world. Support is an important part of Lotus' product offerings and will continue to play a key role in delivering organizational productivity, particularly to the Company's communications customers. Sales to unaffiliated customers in the North America, Europe/Other and Asia Pacific regions were $542.4 million, $255.3 million and $173.0 million in 1994, $527.5 million, $304.0 million and $149.7 million in 1993 and $490.2 million, $293.9 million and $116.0 million in 1992. U.S. export sales were not material in 1994, 1993 and 1992. Additional information with respect to foreign and domestic operations may be found in Note M on pages 23-24 of the Financial Section of the 1994 Annual Report to Shareholders, which is incorporated herein by reference. MANUFACTURING AND DISTRIBUTION The Company has principal manufacturing and distribution facilities in North Reading, Massachusetts; Dublin, Ireland; and Singapore. The Massachusetts facility manufactures products sold in North, South and Central America. The Ireland facility principally manufactures products that are sold by the Company's European, African and Middle Eastern subsidiaries and branches. The Singapore facility manufactures products that are sold by the Company's Japanese, Australian and other Asian subsidiaries and branches. The Company's manufacturing operations involve the duplication of diskettes, assembly of purchased parts and fulfillment of product. The chief raw materials and components used include diskettes and printed text. Raw materials for the Company's products are in adequate supply and available from a number of alternative suppliers. At present, the Company does not anticipate difficulty in securing the raw materials it will require in connection with its operations. The Company believes that its inventories are adequate to meet the expected demand. COMPETITION The personal computer industry, in both the hardware and software segments, has been subject to rapid change, which can be expected to continue. The applications software business is highly competitive. The Company's products compete with software products offered by major independent software companies, such as Microsoft and Novell, Inc. ("Novell"), which have greater resources than that of the Company. In addition, certain products offered by the Company are directed at operating environments or business applications in which these companies were early entrants and enjoy significant product acceptance and market share. As consolidation in the software industry continues, the Company believes that it must offer an integrated suite of desktop applications in order to be competitive. The desktop suite magnifies the effects of competition in the desktop applications market, since the popularity of one major product in a suite may drive the sale of the entire suite and may enable the software publisher to occupy the buyer's entire personal computer "desktop." The Company expects that sales of its desktop suites will continue to account for a growing percentage of its Windows desktop sales. In late 1994, desktop suites began to surpass aggregate sales of individual standalone Windows desktop applications. 13 The Company was an early entrant into the market for software designed to facilitate workgroup computing and believes that its offerings in this category, Notes and related products, are the leading products in the category. While the Company does not believe that competition is currently a significant factor in the workgroup computing market, several competitors, including Microsoft and Novell, have announced their intentions to enter into this market. Workgroup computing is an emerging technology and, as such, is subject to rapid changes. There can be no assurance that Notes will continue to gain market acceptance as increased competition brings new products and new technology to the marketplace for workgroup computing. Similar to the market for desktop applications, the market for LAN-based e-mail products is highly competitive. Sales of cc:Mail, the Company's LAN-based e-mail product, have grown over the last few years, but the rate of growth slowed in 1994 due to increased competition from Microsoft and a decline in the rate of growth of the LAN-based e-mail market. The principal considerations for purchasers of personal computer applications software include product reliability and performance, compatibility with presently owned hardware and software, ease-of-use, functionality, price, availability across multiple operating environments, network capability, workgroup enabling, the degree of integration across applications, vendor reputation, and quality of support and training services. The Company also believes that demand for the Company's products is indirectly linked to the demand for new personal computers for business use, particularly in the case of desktop applications. Competition in the Company's industry has intensified with greater marketing program activities, increased discounts, low-priced upgrades and special prices on introductory product offers and multi-product purchases. Competitors' marketing efforts also include price offers, including competitive upgrades, targeted at Lotus customers through direct mail telemarketing and in-channel promotions. The Company also competes with other companies in the personal computer applications software market for resellers and other product distribution channels. In addition to the factors listed above, the principal considerations for resellers and distributors in determining which products to offer include profit margins, marketing programs, product support and service and credit terms. Additional factors with respect to competition as well as other factors that could affect the future outlook of the Company may be found in the section captioned "Issues and Risks" appearing on pages 7-9 of the Financial section of the 1994 Annual Report to Shareholders. Such information is incorporated herein by reference. PRODUCT AND TRADEMARK PROTECTION The Company regards its applications as proprietary and attempts to protect them by relying upon copyrights, patents and common law safeguards, including trade secret protection, as well as restrictions on disclosure and transferability that are incorporated into its agreements with other parties. In cases where, despite these protections, others have unlawfully attempted to copy aspects of the Company's products or otherwise obtain information which the Company regards as proprietary, the Company has taken action to enforce its legal rights. Moreover, the Company actively seeks to enforce its intellectual property rights in countries around the world against the unauthorized duplication of its products by end-users and resellers. See "Legal Proceedings". The Company also believes that certain of its trademarks have significant value. The Company seeks to protect its trademarks by complying with applicable legal notice requirements and, where the Company deems it is advisable, through registration with the U.S. Patent and Trademark Office and similar governmental authorities in other jurisdictions. The Company has taken action to enforce its legal rights in cases where others have used infringing marks or filed infringing marks for registration. 14 EMPLOYEES At December 31, 1994, the Company employed 5,522 people, of which 1,811 were outside the United States. Of the total, 1,601 employees were in product research and development, 2,840 in sales, marketing and support, 502 in manufacturing, and 579 in finance, information systems and administration. As necessary, the Company supplements its regular employees with temporary and contract personnel. The Company believes that its ability to attract and retain qualified employees is an important factor in its growth and development and its future success. To date, the Company has been successful in recruiting and retaining sufficient numbers of qualified personnel to conduct its business successfully. None of the Company's employees is subject to a collective bargaining agreement, and the Company believes that its employee relations are favorable. 15 Item 2. Properties The Company has two principal office facilities located in Cambridge, Massachusetts. The Lotus Development Building (260,000 sq. ft.) houses the Company's corporate domestic sales and marketing organizations in addition to its corporate headquarters' staff. The Company has occupied space in this building since 1985. During 1994, a new eleven year lease was negotiated with an option to renew for five years. The Company's Rogers Street facility (265,000 sq. ft.) is located adjacent to the Lotus Development Building in Cambridge. The building is owned by the Company and is occupied by research and development personnel. During 1993, the Company commenced a construction project to expand the building by approximately 120,000 square feet. This project is expected to be completed in 1995. The Company's principal domestic manufacturing, distribution and warehousing operations and its customer support and service organization are located in two leased buildings (350,000 sq. ft.) in North Reading, Massachusetts. The leases, which commenced in 1992, run for a period of ten years with options to renew for two five-year periods. In 1993, the Company began leasing approximately 35,000 square feet of office space in Austin, Texas, which has been used to expand its customer support and service organization. During 1995, the Company increased this leased space from 35,000 to 42,000 square feet. The Company also leases approximately 30,000 square feet of administrative shipping and receiving space in one building in Cambridge. In January 1994, the Company sold a former manufacturing facility located in Cambridge. The Company also leases manufacturing and/or office facilities in Dublin, Ireland; Staines, England; Tokyo, Japan; and Singapore. The Staines facility has a lease term through 1999 with an option to renew through 2013. The Dublin facility has various lease terms expiring at different dates between 2001 and 2018. The portion expiring in 2001 has an option to renew through 2025. The Japan and Singapore facilities have lease terms that expire in 1996 and 1995, respectively. The Company also leases 91 sales offices worldwide, including those in North America, Europe, Central and South America, Asia and the Pacific Rim. The Company's occupied facilities are substantially utilized, well maintained and suitable for the products and services offered by the Company. 16 Item 3. Legal Proceedings The Company commenced an action on July 2, 1990 in the U.S. District Court in Boston against Borland International, Inc. ("Borland") (Civ. Action No. 90-11662-K), alleging infringement of its copyrights in the Lotus 1-2-3 software program by Borland's "Quattro" and "Quattro Pro" software products. The action against Borland alleged that the "1-2-3 compatible modes" of Quattro and Quattro Pro identically recreate substantial and significant elements of 1-2-3's user interface, including its menu structure and command choices. The action sought an injunction preventing further sale of the infringing products and an award of damages, attorney's fees and costs. On July 31, 1992, the District Court found that Borland infringed the Company's copyrights by copying the menu commands, menu command structure, macro language and keystroke sequences of Lotus 1-2-3. On June 30, 1993, the District Court ruled in the Company's favor on all remaining liability issues except the Company's claim that the macro "Key Reader" for Quattro Pro for DOS and Quattro Pro for Windows infringes the Company's copyrights in 1-2-3. On August 19, 1993, the District Court found that the Key Reader infringed the Company's copyrights and permanently enjoined Borland from developing, manufacturing or selling versions of Quattro Pro, Quattro Pro SE and Quattro Pro for Windows that include Borland's 1-2-3 compatible modes and/or its Key Reader facility. On March 9, 1995, the United States Court of Appeals for the First Circuit held that the Lotus 1-2-3 menu commands and menu command structure were not copyrightable, and thus that Borland was not liable for having copied them. The Company intends to appeal the decision of the Court of Appeals by filing a petition for writ of certiorari to the United States Supreme Court. A suit was filed against the Company on July 27, 1989, in the U.S. District Court in New York City by REFAC International, Ltd. ("REFAC"). The suit alleges that the Company has committed patent infringement with respect to a U.S. patent issued in 1983 entitled "A Process and Apparatus for Converting A Source Program Into An Object Program". The Court has determined to resolve issues concerning validity of the patent before addressing the alleged infringement. In July 1993, a trial was held on one of those issues, the Company's claim that the patent is unenforceable by reason of inequitable conduct before the Patent Office. That issue is pending the judge's decision. If the Company prevails on this issue, judgment will be entered on its behalf. If it does not prevail, the Company intends to file one or more motions for summary judgment on other grounds claiming that the subject patent is invalid or unenforceable. The Company also believes that the claim of infringement is without merit. Six complaints against the Company were filed in June and July 1994 in the U.S. District Court in Boston, which were subsequently consolidated under the caption "In re Lotus Development Corporation Securities Litigation" (Civ. Action No. 94-11279 (PBS)). The consolidated amended complaint alleges that the Company and two of its officers, Jim P. Manzi and Edwin J. Gillis, violated Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder by failing to disclose allegedly material adverse information concerning the Company's anticipated revenues and earnings for the fiscal quarter ending July 2, 1994. The amended complaint purports to be brought on behalf of a class of persons who purchased Lotus stock between April 20, 1994 and June 20, 1994, when the Company made certain public disclosures concerning its anticipated revenues and earnings. The Company has moved to dismiss the amended complaint for failure to state a claim upon which relief may be granted. The Company believes that the allegations of the amended complaint are without merit and intends to defend these actions vigorously. Item 4. Submission of Matters to a Vote of Security Holders No matters were submitted to a vote of security holders during the fourth quarter of 1994. 17 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters Information with respect to this item may be found in the section captioned "Quarterly Results of Operations" appearing on page 26 of the Financial section of the 1994 Annual Report to Shareholders. Such information is incorporated herein by reference. Item 6. Selected Financial Data Information with respect to this item may be found in the section captioned "Five-Year Summary of Selected Financial Data" appearing on page 26 of the Financial section of the 1994 Annual Report to Shareholders. Such information is incorporated herein by reference. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Information with respect to this item may be found in the sections captioned "Management's Discussion and Analysis" and "Results of Operations" appearing on pages 2 through 10 of the Financial section of the 1994 Annual Report to Shareholders. Such information is incorporated herein by reference. Item 8. Financial Statements and Supplementary Data Information with respect to this item may be found in the Financial section of the 1994 Annual Report to Shareholders on pages 11 through 26. Such information is incorporated herein by reference. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None. 18 PART III Item 10. Directors and Executive Officers of the Registrant Information with respect to Directors and compliance with Section 16(a) of the Exchange Act may be found in the sections captioned "Proposal No. 1 - Election of Directors" and "Executive Compensation and Other Information Concerning Directors and Executive Officers" appearing in the definitive Proxy Statement to be delivered to shareholders in connection with the Annual Meeting of Shareholders to be held on Tuesday, May 2, 1995. Such information is incorporated herein by reference. Executive Officers of the Registrant The executive officers of the Company as of February 28, 1995 are: Name Age Position ---- --- -------- Jim P. Manzi ............ 43 Chairman of the Board, President and Chief Executive Officer Kc Branscomb ............ 39 Senior Vice President, Business Development Edwin J. Gillis ......... 46 Senior Vice President, Finance and Operations and Chief Financial Officer John B. Landry .......... 47 Senior Vice President, Communications Business Group and Chief Technology Officer Ilene H. Lang ........... 51 Senior Vice President, Desktop Business Group June L. Rokoff .......... 45 Senior Vice President, Worldwide Services Group Robert K. Weiler ........ 44 Senior Vice President, Worldwide Sales and Marketing Mr. Manzi has served as President since October 1984 and was named Chief Executive Officer in April 1986. In July 1986 he was appointed Chairman of the Board upon the resignation of the former Chairman and founder of the Company, Mitchell Kapor. Mr. Manzi joined Lotus in May 1983 as Director of Corporate Marketing and was named Vice President of Marketing and Sales in September 1983. Ms. Branscomb joined Lotus in October 1992 as Senior Vice President of Business Development. From November 1991 until joining Lotus, Ms. Branscomb was the Chief Executive Officer of IntelliCorp, Inc. She had previously held the position of Chief Operating Officer since late 1988. Prior to joining IntelliCorp, Ms. Branscomb was Senior Vice President of Sales and Marketing at Aion Corporation, founding Principal and Vice President of Metaphor Computer Systems and a consultant with the Boston Consulting Group Inc. Mr. Gillis joined Lotus in July 1991 as Senior Vice President of Finance and Administration and Chief Financial Officer and, in February 1994, Mr. Gillis was named Senior Vice President of Finance and Operations and Chief Financial Officer. Mr. Gillis came to Lotus after 15 years at Coopers and Lybrand, an international accounting and consulting firm, where he was a partner and served as chairman of the software industry group. 19 Mr. Landry joined Lotus in December 1991 as Senior Vice President of Software Development and Chief Technology Officer and, in October 1994, Mr. Landry was named Senior Vice President of the Communications Business Group and Chief Technology Officer. From December 1990 until joining Lotus, Mr. Landry was Executive Vice President and Chief Technology Officer of Dun & Bradstreet Software. Prior to joining Dun & Bradstreet, Mr. Landry was Chairman and Chief Executive Officer of Agility Systems, Inc., which he formed in September 1989. Previously, he served as executive vice president and a member of the Board of Directors of Cullinet Software. Mr. Landry joined Cullinet Software in 1987 when it acquired Distribution Management Systems where he was Chairman. Ms. Lang joined Lotus in 1993 as Vice President of International Product Development, and was named Senior Vice President of the Desktop Business Group in October 1994. Prior to joining Lotus, Ms. Lang was interim Chief Operating Officer of the Industrial Technology Institute. Previously, Ms. Lang served as President of Adelie Corporation, and held senior management positions at Ontos, Inc. and Symbolics, Inc. Ms. Rokoff was named Senior Vice President of Worldwide Services in October 1994. She had previously held the positions of Senior Vice President of Development since May 1992, Senior Vice President of the Consulting and Information Services Group since November 1991 and Vice President of the Communications and Information Services Group since June 1990. Ms. Rokoff came to Lotus in 1986 as Director of Development for the Information Services Division. She has held several executive positions since joining Lotus including Vice President of the Graphics and Information Management Group and general manager of both the Workstation Products Group and 1-2-3 Release 3.0. Mr. Weiler joined Lotus in 1991 as Senior Vice President of Sales and Marketing, and was named Senior Vice President of the North American Business Group in November 1991. In October 1994, Mr. Weiler was named Senior Vice President of Worldwide Sales and Marketing. From 1989 until joining Lotus, Mr. Weiler was President and Chief Operating Officer of Interleaf, Inc. Prior to joining Interleaf, Mr. Weiler served as Executive Vice President of North American Sales and Client Service of Cullinet Software before being appointed President and Chief Operating Officer. Mr. Weiler joined Cullinet in 1987 when it acquired Distribution Management Systems where he was President and Chief Operating Officer. Item 11. Executive Compensation Information with respect to this item may be found in the sections captioned "Executive Compensation and Other Information Concerning Directors and Executive Officers" appearing in the definitive Proxy Statement to be delivered to shareholders in connection with the Annual Meeting of Shareholders to be held on Tuesday, May 2, 1995. Such information is incorporated herein by reference. Item 12. Security Ownership of Certain Beneficial Owners and Management Information with respect to this item may be found in the section captioned "Principal Holders of Voting Securities" appearing in the definitive Proxy Statement to be delivered to shareholders in connection with the Annual Meeting of Shareholders to be held on Tuesday, May 2, 1995. Such information is incorporated herein by reference. Item 13. Certain Relationships and Related Transactions Information with respect to this item may be found in the sections captioned "Proposal No. 1 - Election of Directors, Certain Transactions" appearing in the definitive Proxy Statement to be delivered to shareholders in connection with the Annual Meeting of Shareholders to be held on Tuesday, May 2, 1995. Such information is incorporated herein by reference. 20 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K (a) Documents Filed as Part of Form 10-K 1. Financial Statements The following information is contained in the Financial section of the 1994 Annual Report to Shareholders, filed as Exhibit 13 hereto, and such information is incorporated herein by reference: * Report of Independent Accountants * Consolidated Statements of Operations for each of the three years ended December 31, 1994 * Consolidated Balance Sheets as of December 31, 1994 and 1993 * Consolidated Statements of Cash Flows for each of the three years ended December 31, 1994 * Consolidated Statements of Stockholders' Equity for each of the three years ended December 31, 1994 * Notes to Consolidated Financial Statements * Supplemental Financial Information 2. Financial Statement Schedules * Report of Independent Accountants * Schedule II - Valuation and Qualifying Accounts Schedules other than those listed above have been omitted since they are either not required or not applicable or the information is otherwise included. 3. Exhibits Exhibit No. Description of Exhibit ----------- ---------------------- 2 Amendment and Plan of Reorganization dated as of May 23, 1994, among the Company and Iris Associates, Inc. (filed as Exhibit 2 to Amendment No. 4 to Registration Statement No. 33-53773 on Form S-4 and incorporated herein by reference). 3(a)* Third Restated Certificate of Incorporation of the Company. 3(b)* By-Laws of the Company, as amended May 25, 1994. 4(a) Rights Agreement dated as of November 7, 1988, between the Company and The First National Bank of Boston as Rights Agent in respect of Preferred Share Purchase Rights (filed as Exhibit 1 to the Company's Registration Statement on Form 8-A filed November 10, 1988, and incorporated herein by reference). 4(a)(1) Amendment dated as of April 5, 1990 between the Company and The First National Bank of Boston to the Rights Agreement dated as of November 7, 1988 (filed as Exhibit 28(a) to the Company's Current Report on Form 8-K dated April 5, 1990 and incorporated herein by reference). 4(a)(2) Amendment dated as of September 16, 1991 between the Company and the First National Bank of Boston as Rights Agent in respect of Preferred Share Purchase Rights (Filed as Exhibit 28(a) to the Company's Current Report on Form 8-K dated September 16, 1991 and incorporated herein by reference). 21 4(b) Authorizing resolutions adopted by the Board of Directors of the Company on November 7, 1988, in respect of Preferred Share Purchase Rights (filed as Exhibit 4(c)(2) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1988 and incorporated herein by reference). 4(c)* Multicurrency Revolving Credit Agreement among the Company and The First National Bank of Boston et al. dated as of June 7, 1994. 10(a)* 1986 Stock Option Plan for Non-Employee Directors, as amended May 24, 1994. 10(b) Lotus Development Corporation Defined Contribution Restoration Plan dated as of January 1, 1990 (filed as Exhibit 4(b) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1991 and incorporated herein by reference). 10(c)* Lease for Lotus Development Building, Cambridge, Massachusetts, between the Company and CC&F Cambridge Parkway Trust, dated as of May 1, 1994. 10(c)(1)* First Amendment to Lease between the Company and CC&F Cambridge Parkway Trust, dated as of May 1, 1994. 10(d) Net Lease dated as of July 25, 1990 between Lotus Rogers Street Corporation, as Landlord, and the Company, as Tenant (filed as Exhibit 4(n) to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended September 29, 1990 and incorporated herein by reference). 10(e) Form of Indemnification Agreement between the Company and each of its officers and directors pursuant to Article VII of the Company's By-Laws (filed as Exhibit 10(k) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1987 and incorporated herein by reference). 10(f)* Resolution adopted by the Board of Directors of the Company on December 15, 1994 concerning compensation of Directors. 10(g) Lease Agreement dated October 25, 1990 by and between the Trustees of River Park 93 Realty Trust, as Landlord, and the Company, as Tenant, pertaining to Lot 3A, Riverside Park Drive, North Reading, Massachusetts (filed as Exhibit (10)(l) to the Company's Annual Report on Form 10-K for the year ended December 31, 1990 and incorporated herein by reference). 10(h) Lease Agreement dated October 25, 1990 by and between the Trustees of River Park 93 Realty Trust, as Landlord, and the Company, as Tenant, pertaining to Lot 4A, Riverside Park Drive, North Reading, Massachusetts (filed as Exhibit (10)(m) to the Company's Annual Report on Form 10-K for the year ended December 31, 1990 and incorporated herein by reference). 11* Computation of Earnings Per Share. 13* Annual Report to Shareholders for the year ended December 31, 1994. With the exception of the information incorporated by reference in Items 1,5,6,7,8 and 14 of this Form 10-K, the 1994 Annual Report to Shareholders is not deemed filed as part of this report. 21* Subsidiaries of the Registrant. 23* Consent of Independent Accountants. 27* Financial Data Schedule. (NOTE: The Company agrees to furnish to the Securities and Exchange Commission upon request a copy of any instrument with respect to long-term debt of the Company or any of its subsidiaries which is not filed herewith or listed herein since it relates to outstanding debt in an amount not greater than 10% of the total assets of the Company and its subsidiaries on a consolidated basis.) _________________ *filed herewith 22 (b) Reports on Form 8-K No reports on Form 8-K were filed during the fiscal quarter ended December 31, 1994. 23 14(a) 2 Financial Statement Schedules REPORT OF INDEPENDENT ACCOUNTANTS Our report on the consolidated financial statements of Lotus Development Corporation has been incorporated by reference in this Form 10-K and is included in the Financial section of the 1994 Annual Report to Shareholders of Lotus Development Corporation. In connection with our audits of such financial statements, we have also audited the related financial statement schedule listed in Item 14(a) 2 of this Form 10-K. In our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information required to be included therein. COOPERS & LYBRAND L.L.P. Boston, Massachusetts January 24, 1995 24 Schedule II LOTUS DEVELOPMENT CORPORATION Valuation and Qualifying Accounts Years Ended December 31, 1994, 1993 and 1992 (in thousands)
--------------------------------------------------------------------------------------------------- Col. A Col. B Col. C (1) Col. C (2) Col. D Col. E --------------------------------------------------------------------------------------------------- Additions ---------------------- Balance at Charged to Charged Deductions Balance Beginning Costs and to Other Charged to At End of Description of Period Expenses Accounts Reserves Period --------------------------------------------------------------------------------------------------- Accounts receivable allowances: 1994 ....................... $30,002 $16,820 - $8,851 $37,971 1993 ....................... $25,326 $14,124 - $9,448 $30,002 1992 ....................... $24,899 $16,291 - $15,864 $25,326
25 SIGNATURES Pursuant of the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. LOTUS DEVELOPMENT CORPORATION (Registrant) By /s/ Jim P. Manzi ----------------------- Jim P. Manzi, President Date: March 27, 1995 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on the 27th day of March 1995. Signature Title --------- ----- /s/ Jim P. Manzi Chairman of the Board, Jim P. Manzi President, CEO and Director (Principal Executive Officer) /s/ Edwin J. Gillis Senior Vice President, Finance and Edwin J. Gillis Operations and Chief Financial Officer (Principal Financial Officer) /s/ William J. Sample Director of Financial Services William J. Sample (Principal Accounting Officer) /s/ Richard S. Braddock Director Richard S. Braddock /s/ Elaine L. Chao Director Elaine L. Chao /s/ William H. Gray III Director William H. Gray III /s/ Michael E. Porter Director Michael E. Porter /s/ Henri A. Termeer Director Henri A. Termeer ______________________________________________________________________________ EX-3.1 2 THIRD RESTATED CRETIFICATE OF INCORPORATION Exhibit 3(a) THIRD RESTATED CERTIFICATE OF INCORPORATION OF LOTUS DEVELOPMENT CORPORATION FIRST. The name of the corporation (hereinafter called the "Corporation") is LOTUS DEVELOPMENT CORPORATION. SECOND. The address of the registered office of the Corporation in the State of Delaware is 32 Loockerman Square, Suite L-100, City of Dover, County of Kent, and the name of the registered agent of the Corporation at such address is The Prentice-Hall Corporation System, Inc. THIRD. The nature of the business and the purposes to be conducted and promoted by the Corporation, which shall be in addition to the authority of the Corporation to conduct any lawful business, to promote any lawful purpose, and to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware, is as follows: To develop, sell or license, and to acquire, by sale or license, (a) computer programs, (b) languages and operating systems embodied in computer hardware, (c) computer software or documentation, and (d) related tangible and intangible properties, and to engage in the performance, utilization, purchase and sale of related services. The foregoing provisions of this Article THIRD shall be construed both as purposes and powers and each as an independent purpose and power. The foregoing enumeration of specific purposes and powers shall not be held to limit or restrict in any manner the purposes and powers of the Corporation, and the purposes and powers herein specified shall, except when otherwise provided in this Article THIRD, be in no way limited or restricted by reference to, or inference from, the terms of any provision of this or any other Article of this certificate of incorporation provided that the Corporation shall not conduct any business, promote any purpose, or exercise any power or privilege within or without the State of Delaware which, under the laws thereof, the Corporation may not lawfully conduct, promote or exercise. FOURTH. The total number of shares of stock which the Corporation shall have authority to issue is two hundred five million (205,000,000) shares, of which 200,000,000 shares shall be Common Stock, $.01 par value, and 5,000,000 shares shall be Preferred Stock, $1.00 par value. The Preferred Stock may be issued in such classes, including one or more series within any such class, and will possess such specific terms including dividend rates, conversion prices, voting rights, redemption prices, maturity dates and other special rights, preferences, qualifications, limitations and restrictions thereof, as shall be determined in the resolution or resolutions providing for the issue of such Preferred Stock adopted by the Board of Directors from time to time. Subject to the powers of the Board of Directors of the Corporation to designate certain provisions relating to the Preferred Stock, a statement of the designations of the authorized classes of stock, and the power, preference and relative participatory, options or other special rights and qualifications, limitations or restrictions thereof, is as follows: Except as provided to the contrary by a resolution or resolutions of the Board of Directors establishing a class or series of Preferred Stock, each issued and outstanding share of stock of the Corporation shall entitle the holder thereof to full voting powers without distinction as to class and voting shall not be by class except as required by law, provided, however, that the holders of shares of Common Stock shall be entitled to one vote for each share of Common Stock held of record by them and, except as otherwise provided to the contrary by a resolution or resolutions of the Board of Directors establishing a class or series of Preferred Stock, the holders of shares of Preferred Stock shall be entitled to one vote for each share of Common Stock into which the shares of Preferred Stock held of record by them are convertible. FIFTH. The Corporation is to have perpetual existence. SIXTH. Whenever a compromise or arrangement is proposed between this Corporation and its creditors or any class of them and/or between this Corporation and its stockholders or any class of them, any court of equitable jurisdiction within the State of Delaware may, on the application in a summary way of this Corporation or of any creditor or stockholder thereof or on the application of any receiver or receivers appointed for this Corporation under the provisions of Section 291 of Title 8 of the Delaware Code or on the application of trustees in dissolution or of any receiver or receivers appointed for this Corporation under the provisions of Section 279 of Title 8 of the Delaware Code order a meeting of the creditors or class of creditors, and/or of the stockholders or class of stockholders of this Corporation, as the case may be, to be summoned in such manner as the said court directs. If a majority in number representing three-fourths in value of the creditors or class of creditors, and/or of the stockholders or class of stockholders of this Corporation, as the case may be, agree to any compromise or arrangement and to any reorganization of this Corporation as consequence of such compromise or arrangement, the said compromise or arrangement and the said reorganization shall, if sanctioned by the court to which the said application has been made, be binding on all the creditors or class of creditors, and/or on all the stockholders or class of creditors, and/or on all the stockholders, of this Corporation, as the case may be, and also on this Corporation. SEVENTH. For the management of the business and for the conduct of the affairs of the Corporation, and in further definition, limitation and regulation of the powers of the Corporation and of its directors and of its stockholders or any class thereof, as the case may be, it is further provided: The management of the business and the conduct of the affairs of the Corporation shall be vested in its Board of Directors. The number of directors which shall constitute the whole Board of Directors shall be fixed by, or in the manner provided in, the By-Laws. EIGHTH. The Corporation shall, to the fullest extent permitted by Section 145 of the General Corporation Law of the State of Delaware, as the same may be amended and supplemented, indemnify any and all persons whom it shall have power to indemnify under said section from and against any and all of the expenses, liabilities or other matters referred to in or covered by said section, and the indemnification provided for herein shall not be deemed exclusive of any other rights to which those indemnified may be entitled under any By-Law, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office, and shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person. NINTH. From time to time any of the provisions of this certificate of incorporation may be amended, altered or repealed, and other provisions authorized by the laws of the State of Delaware at the time in force may be added or inserted in the manner and at the time prescribed by said laws, and all rights at any time conferred upon the stockholders of the Corporation by this Certificate of Incorporation are granted subject to the provisions of this Article NINTH. ______________________________________________________________________________ EX-3.2 3 BY-LAWS OF LOTUS DEVELOPMENT CORP. Exhibit 3(b) [As amended through July 27, 1994] BY-LAWS OF LOTUS DEVELOPMENT CORPORATION Article I. Offices. Section 1. Registered Office. The registered office of the Corporation shall be c/o The Corporation Trust Company, 1209 Orange Street, in the City of Wilmington, County of New Castle, State of Delaware 19801. Section 2. Additional Offices. The Corporation may also have offices at such other places, both within and without the State of Delaware, as the Board of Directors may from time to time determine or as the business of the Corporation may require. Article II. Meetings of Stockholders. Section 1. Time and Place. A meeting of stockholders for any purpose may be held at such time and place within or without the State of Delaware as shall be stated in the notice of the meeting or in a duly executed waiver of notice thereof. Section 2. Annual Meeting. Annual meetings of stockholders, commencing with the year 1982, shall be held on the second Tuesday of May if not a legal holiday, or, if a legal holiday, then on the next secular day following, at 10:00 a.m., or at such other date and time as shall, from time to time, be designated by the Board of Directors and stated in the notice of the meeting. At such annual meetings, the stockholders shall elect a Board of Directors and transact such other business as may properly be brought before the meetings. Section 3. Notice of Annual Meeting. Written notice of the annual meeting, stating the place, date, and time thereof, shall be given of each stockholder entitled to vote at such meeting not less than ten (unless a longer period is required by law) nor more than sixty days prior to the meeting. Section 4. Special Meetings. Special meetings of the stockholders may be called for any purpose or purposes, unless otherwise prescribed by statute or by the Certificate of Incorporation, by the Chairman of the Board, if any, or the President, and shall be called by the President or Secretary at the request, in writing, of a majority of the Board of Directors. Such request shall state the purpose or purposes of the proposed meeting. Section 5. Notice of Special Meeting. Written notice of a special meeting, stating the place, date, and time thereof and the purpose or purposes for which the meeting is called, shall be given to each stockholder entitled to vote at such meeting not less than ten (unless a longer period is required by law) nor more than sixty days prior to the meeting. Section 6. List of Stockholders. The officer in charge of the stock ledger of the Corporation or the transfer agent shall prepare and make, at least ten days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting, at a place within the city where the meeting is to be held, which place, if other than the place of the meeting, shall be specified in the notice of the meeting. The list shall also be produced and kept at the place of the meeting during the whole time thereof and may be inspected by any stockholder who is present in person thereat. Section 7. Presiding Officer and Order of Business. (a) Meetings of stockholders shall be presided over by the Chairman of the Board. If he/she is not present or there is none, they shall be presided over by the President, or, if he/she is not present or there is none, by a Vice President, or, if he/she is not present or there is none, by a person chosen by the Board of Directors, or, if no such person is present or has been chosen, by a chairman to be chosen by the stockholders owning a majority of the shares of capital stock of the Corporation issued and outstanding and entitled to vote at the meeting and who are present in person or represented by proxy. The Secretary of the Corporation, or, if he/she is not present, an Assistant Secretary, or, if he/she is not present, a person chosen by the Board of Directors, shall act as secretary at meetings of stockholders; if no such person is present or has been chosen, the stockholders owning a majority of the shares of capital stock of the Corporation issued and outstanding and entitled to vote at the meeting who are present in person or represented by proxy shall choose any person present to act as secretary of the meeting. (b) The following order of business, unless otherwise determined at the meeting, shall be observed as far as practicable and consistent with the purposes of the meeting. (1)Call of the meeting to order. (2)Presentation of proof of mailing of the notice of the meeting and, if the meeting is a special meeting, the call thereof. (3)Presentation of proxies. (4)Announcement that a quorum is present. (5)Reading and approval of the minutes of the previous meeting. (6)Reports, if any, of officers. (7)Election of directors, if the meeting is an annual meeting or a meeting called for that purpose. (8)Consideration of the specific purpose or purposes, other than the election of directors, for which the meeting has been called, if the meeting is a special meeting. (9)Transaction of such other business as may properly come before the meeting. (10)Adjournment. Section 8. Quorum and Adjournments. The presence in person or representation by proxy of the holders of a majority of the shares of the capital stock of the Corporation issued and outstanding and entitled to vote shall be necessary to, and shall constitute a quorum for, the transaction of business at all meetings of the stockholders, except as otherwise provided by statute or by the Certificate of Incorporation. If, however, a quorum shall not be present or represented at any meeting of the stockholders, the stockholders entitled to vote thereat who are present in person or represented by proxy shall have the power to adjourn the meeting from time to time until a quorum shall be present or represented. If the time and place of the adjourned meeting are announced at the meeting at which the adjournment is taken, no further notice of the adjourned meeting need be given. Even if a quorum shall be present or represented at any meeting of the stockholders, the stockholders entitled to vote thereat who are present in person or represented by proxy shall have the power to adjourn the meeting from time to time for good cause to a date that is not more than thirty days after the date of the original meeting. Further notice of the adjourned meeting need not be given if the time and place thereof are announced at the meeting at which the adjournment is taken. At any adjourned meeting at which a quorum is present in person or represented by proxy, any business may be transacted that might have been transacted at the meeting as originally called. If the adjournment is for more than thirty days, or if, after the adjournment, a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote thereat. Section 9. Voting. (a) At any meeting of stockholders, every stockholder having the right to vote shall be entitled to vote in person or by proxy. Except as otherwise provided by law or the Certificate of Incorporation, each stockholder of record shall be entitled to one vote for each share of capital stock registered in his/her name on the books of the Corporation. (b) Except as otherwise provided by law and the Certificate of Incorporation, all elections shall be determined by a plurality vote, and all other matters shall be determined by a vote of a majority of the shares present in person or represented by proxy and voting on such other matters. Section 10. Action by Consent. Any action required or permitted by law or the Certificate of Incorporation to be taken at any meeting of stockholders may be taken without a meeting, without prior notice, and without a vote, if a written consent, setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present or represented by proxy and voted. Such written consent shall be filed with the minutes of the meetings of stockholders. Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing thereto. Section 11. Nomination of Directors for Election. Nominations for the election of a director or directors at any meeting of stockholders may be made by the Board of Directors or by any stockholder entitled to vote for the election of directors at such meeting. Any such stockholder may make such a nomination only if written notice of such stockholder's intent to make such nomination which complies with this Section is delivered personally to the Secretary of the Corporation or by certified United States mail, postage prepaid, return receipt requested, to the attention of the Secretary of the Corporation at its principal executive office, in either case not later than (i) with respect to an annual meeting of stockholders, the close of business on the 90th day prior to such meeting or (ii) with respect to a special meeting of stockholders, the close of business on the seventh day following the date on which notice of such meeting its first mailed to stockholders. Each such notice of intent shall set forth or be accompanied by: (a) the name and address of the stockholder intending to make such nomination and of each intended nominee; (b) a representation that such stockholder is a holder of record of stock of the Corporation entitled to vote at such meeting and that such stockholder will appear in person or by proxy at such meeting to nominate each such intended nominee; (c) a description of all arrangements or understandings between such stockholder and each such intended nominee or any other person or persons (naming and stating the address of each such person) pursuant to which such intended nominee is to be nominated by such stockholder; (d) such other information regarding each such intended nominee as would be required in a proxy statement filed pursuant to the rules of the Securities and Exchange Commission if the Board of Directors had nominated such intended nominee; and (e) the written consent of each such intended nominee to serve as a director of the Corporation if so elected. The presiding officer at such meeting may refuse to recognize the nomination of any person for election as a director of the Corporation which is not made in compliance with the procedures set forth in this Section. Section 12. Control Share Acquisitions. The provisions of Chapter 110E of the Massachusetts General Laws, as amended from time to time, shall apply to control share acquisitions (as defined in such chapter) of the shares of the Corporation. Article III. Directors. Section 1. General Powers, Number, and Tenure. The business of the Corporation shall be managed by its Board of Directors, which may exercise all powers of the Corporation and perform all lawful acts that are not by law, the Certificate of Incorporation, or these By-Laws directed or required to be exercised or performed by the stockholders. The number of directors shall be determined by the Board of Directors; if no such determination is made, the number of directors shall be 5. The directors shall be elected at the annual meeting of the stockholders, except as provided in Section 2 of this Article, and each director elected shall hold office until his/her successor is elected and shall qualify. Directors need not be stockholders. Section 2. Vacancies. Except as otherwise provided by the Certificate of Incorporation, if any vacancies occur in the Board of Directors, or if any new directorships are created, they may be filled by a majority of the directors then in office, although less than a quorum, or by a sole remaining director. Each director so chosen shall hold office until the next annual meeting of stockholders and until his/her successor is duly elected and shall qualify. If there are no directors in office, any officer or stockholder may call a special meeting of stockholders in accordance with the provisions of the Certificate of Incorporation or these By-Laws, at which meeting such vacancies shall be filled. Section 3. Removal or Resignation. (a) Except as otherwise provided by law or the Certificate of Incorporation, any director or the entire Board of Directors may be removed, with or without cause, by the holders of a majority of the shares then entitled to vote at an election of directors. (b) Any director may resign at any time by giving written notice to the Board of Directors, the Chairman of the Board, if any, or the President or Secretary of the Corporation. Unless otherwise specified in such written notice, a resignation shall take effect upon delivery thereof to the Board of Directors or the designated officer. It shall not be necessary for a resignation to be accepted before it becomes effective. Section 4. Place of Meetings. The Board of Directors may hold meetings, both regular and special, either within or without the State of Delaware. Section 5. Annual Meeting. The annual meeting of each newly elected Board of Directors shall be held at the first regular meeting of the Board of Directors following the annual meeting of stockholders, and no notice of such meeting shall be necessary to the newly elected directors in order to constitute the meeting legally, provided a quorum shall be present. Section 6. Regular Meetings. Additional regular meetings of the Board of Directors may be held without notice of such time and place as may be determined from time to time by the Board of Directors. Section 7. Special Meetings. Special meetings of the Board of Directors may be called by the Chairman of the Board, the President, or by two or more directors on at least two days' notice to each director, if such notice is delivered personally or sent by telegram, or on at least three days' notice if sent by mail. Special meetings shall be called by the Chairman of the Board, President, Secretary, or two or more directors in like manner and on like notice on the written request of one-half or more of the number of directors then in office. Any such notice need not state the purpose or purposes of such meeting, except as provided in Article XI. Section 8. Quorum and Adjournments. At all meetings of the Board of Directors, a majority of the directors then in office shall constitute a quorum for the transaction of business, and the act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the Board of Directors, except as may be otherwise specifically provided by law or the Certificate of Incorporation. If a quorum is not present at any meeting of the Board of Directors, the directors present may adjourn the meeting from time to time, without notice other than announcement at the meeting at which the adjournment is taken, until a quorum shall be present. Section 9. Compensation. Directors shall be entitled to such compensation for their services as directors and to such reimbursement for any reasonable expenses incurred in attending directors' meetings as may from time to time be fixed by the Board of Directors. The compensation of directors may be on such basis as is determined by the Board of Directors. Any director may waive compensation for any meeting. Any director receiving compensation under these provisions shall not be barred from serving the Corporation in any other capacity and receiving compensation and reimbursement for reasonable expenses for such other services. Section 10. Action by Consent. Any action required or permitted to be taken at any meeting of the Board of Directors may be taken without a meeting if a written consent to such action is signed by all members of the Board of Directors and such written consent is filed with the minutes of its proceedings. Section 11. Meetings by Telephone or Similar Communications Equipment. The Board of Directors may participate in a meeting by means of conference telephone or similar communications equipment by means of which all directors participating in the meeting can hear each other, and participation in such a meeting shall constitute presence in person by any such director at such meeting. Article IV. Committees. Section 1. Executive Committee. The Board of Directors, by resolution adopted by a majority of the whole Board, may appoint an Executive Committee consisting of one or more directors, one of whom shall be designated as Chairman of the Executive Committee. Each member of the Executive Committee shall continue as a member thereof until the expiration of his/her term as a director or his/her earlier resignation, unless sooner removed as a member or as a director. Section 2. Powers. The Executive Committee shall have and may exercise those rights, powers, and authority of the Board of Directors as may from time to time be granted to it by the Board of Directors to the extent permitted by law, and may authorize the seal of the Corporation to be affixed to all papers that may require it. Section 3. Procedure and Meetings. The Executive Committee shall fix its own rules of procedure and shall meet at such times and at such place or places as may be provided by such rules or as the members of the Executive Committee shall fix. The Executive Committee shall keep regular minutes of its meetings, which it shall deliver to the Board of Directors from time to time. The Chairman of the Executive Committee or, in his/her absence, a member of the Executive Committee chosen by a majority of the members present shall preside at meetings of the Executive Committee, and another member chosen by the Executive Committee shall act as Secretary of the Executive Committee. Section 4. Quorum. A majority of the Executive Committee shall constitute a quorum for the transaction of business, and the affirmative vote of a majority of the members present at any meeting at which there is a quorum shall be required for any action of the Executive Committee; provided, however, that when an Executive Committee of one member is authorized under the provisions of Section 1 of this Article, that one member shall constitute a quorum. Section 5. Other Committees. The Board of Directors, by resolutions adopted by a majority of the whole Board, may appoint such other committee or committees as it shall deem advisable and with such rights, powers, and authority as it shall prescribe. Each such committee shall consist of one or more directors. Section 6. Committee Changes. The Board of Directors shall have the power at any time to fill vacancies in, to change the membership of, and to discharge any committee. Section 7. Compensation. Members of any committee shall be entitled to such compensation for their services as members of the committee and to such reimbursement for any reasonable expenses incurred in attending committee meetings as may from time to time be fixed by the Board of Directors. Any member may waive compensation for any meeting. Any committee member receiving compensation under these provisions shall not be barred from serving the Corporation in any other capacity and from receiving compensation and reimbursement of reasonable expenses for such other services. Section 8. Action by Consent. Any action required or permitted to be taken at any meeting of any committee of the Board of Directors may be taken without a meeting if a written consent to such action is signed by all members of the committee and such written consent is filed with the minutes of its proceedings. Section 9. Meetings by Telephone or Similar Communications Equipment. The members of any committee designated by the Board of Directors may participate in a meeting of such committee by means of conference telephone or similar communications equipment by means of which all persons participating in such meeting can hear each other, and participation in such a meeting shall constitute presence in person by any such committee member at such meeting. Article V. Notices. Section 1. Form and Delivery. Whenever a provision of any law, the Certificate of Incorporation, or these By-Laws requires that notice be given to any director or stockholder, it shall not be construed to require personal notice unless so specifically provided, but such notice may be given in writing, by mail addressed to the address of the director or stockholder as it appears on the records of the Corporation, with postage prepaid. Except as otherwise provided by the Certificate of Incorporation, these notices shall be deemed to be given they are deposited in the United States mail. Notice to a director may also be given personally or by telegram sent to his/her address as it appears on the records of the Corporation. Section 2. Waiver. Whenever any notice is required to be given under the provisions of any law, the Certificate of Incorporation, or these By-Laws, a written waiver thereof signed by the person entitled to said notice, whether before or after the time stated therein, shall be deemed to be equivalent to such notice. In addition, any stockholder who attends a meeting of stockholders in person or is represented at such meeting by proxy, without protesting at the commencement of the meeting the lack of notice thereof to him/her, or any director who attends a meeting of the Board of Directors without protesting, at the commencement of the meeting, the lack of notice, shall be conclusively deemed to have waived notice of such meeting. Article VI. Officers. Section 1. Designations. (a) Executive Officers. The Chairman of the Board, the President and such other officers of the Corporation as the Board of Directors may expressly so designate from time to time shall be executive officers of the Corporation (each of the aforesaid being hereinafter referred to as an "Executive Officer"). Executive Officers are the only officers who shall have power and authority to make or authorize policy decisions on behalf of the Corporation. (b) Officers. The officers of the Corporation shall consist of a Chairman of the Board, a President, one or more Vice Presidents (including without limitation senior or executive vice presidents), a Secretary, a Treasurer and such other officers or agents, with such titles and designations, as the Board of Directors shall from time to time deem necessary or desirable for the conduct of the Corporation's business. Subject to such limitations as the Board of Directors may from time to time impose, each officer shall have the power and authority, in the name and on behalf of the Corporation, to execute and deliver and otherwise enter into, and cause to be fulfilled and performed, such agreements, instruments and other obligations and documents as shall from time to time be authorized by or pursuant to authority granted by the Board of Directors. Officers shall, in addition, exercise such other powers and perform such duties as shall from time to time be determined by or pursuant to authority granted by the Board of Directors. Section 2. Term of and Removal From Office. At its first regular meeting after each annual meeting of stockholders, the Board of Directors shall choose a Chairman of the Board, a President, one or more Vice Presidents, a Secretary and a Treasurer. It may also choose such other officers or agents, with such titles and designations, as it shall deem necessary or desirable for the conduct of the Corporation's business. Each officer shall hold office until the next such meeting and until his/her successor is chosen and shall qualify. Any officer may be removed, with or without cause, at any time by the affirmative vote of a majority of the Board of Directors. Removal from office, however, shall not prejudice the contract rights, if any, of the person removed. Any vacancy occurring in any office of the Corporation may be filled for the unexpired portion of the term thereof by the Board of Directors. Section 3. Compensation. The salaries and any bonuses or other compensation (except stock options) of the Chairman of the Board, the President, all officers of the Corporation who are direct subordinates of the President and any other Vice Presidents of the Corporation shall be fixed from time to time by the Board of Directors, and the salaries, bonuses or other compensation (except stock options) of all other officers of the Corporation shall be fixed from time to time in writing; provided that no officer shall be prevented from receiving a salary because he/she is also a director of the Corporation; and provided further that no officer so designated by the President shall fix his/her own compensation. Section 4. The Chairman of the Board. The Chairman of the Board, if any, shall be an officer of the Corporation and, subject to the direction of the Board of Directors, shall perform such executive, supervisory, and management functions and duties as may be assigned to him/her from time to time by the Board of Directors. He/She shall, if present, preside at all meetings of stockholders and of the Board of Directors. Section 5. The President. (a) The President shall be the chief executive officer of the Corporation and, subject to the direction of the Board of Directors, shall have general charge of the business, affairs, and property of the Corporation and general supervision over its other officers and agents. In general, he/she shall perform all duties incident to the office of President and shall see that all orders and resolutions of the Board of Directors are carried into effect. (b) Unless otherwise prescribed by the Board of Directors, the President shall have full power and authority to attend, act, and vote on behalf of the Corporation at any meeting of the security holders of other corporations in which the Corporation may hold securities. At any such meeting, the President shall possess and may exercise any and all rights and powers incident to the ownership of such securities that the Corporation might have possessed and exercised if it had been present. The Board of Directors may from time to time confer like powers upon any other person or persons. (c) (i) Subject to such limitations as the Board of Directors may from time to time impose (including without limitation by revocation), the President shall have full power and authority to execute (including without limitation by facsimile) and deliver or otherwise enter into, and cause to be fulfilled or performed all conditions, obligations and other transactions contemplated by, any and all agreements, instruments, and any other documents, including without limitation for the opening of accounts, the borrowing of money, the acquisition, liening or disposition of property or the making of guarantees; to make or issue any and all payments, orders, filings and registrations (with governmental or private bodies), designations of depositories, appointments of statutory resident agents, representations and warranties and other undertakings; and otherwise to commit the resources of the Corporation or do such other acts and things in the name and on behalf of the Corporation (including without limitation amendments, waivers or other modifications of any of the things aforesaid in this subsection (i)) as may be permitted by law and by the Certificate of Incorporation. Such power and authority shall include the power from time to time, subject to such limitations as the President may from time to time impose, to delegate (in each case by written instrument a copy of which shall have been certified by the Secretary to have been delivered to each of the Directors) all or any part of such power or authority to such subordinate officers and other employees of the Corporation (including in the case of Executive Officers the power of further delegation) as the President may from time to time determine. (ii) Without limiting the generality of the foregoing, any delegation pursuant to this subsection (c) shall be deemed automatically revoked upon the first to occur of (A) termination of the delegee's employment for any reason, (B) cessation for any other reason of the delegee's direct or indirect supervision by a person holding the office of the delegor, (C) demotion of the delegee, (D) revocation of such delegation by any direct or indirect supervisor of the delegee or (E) cessation of the delegation authority of the delegor's office. Section 6. The Vice President(s). (a) Each Vice President designated by the Board of Directors as an Executive Officer, if any, shall, in the absence of the President or in the event of his/her disability, be deemed empowered in the order designated to perform the duties and to exercise the powers of the President and shall generally assist the President and perform such other duties and have such other powers as may from time to time be prescribed by or pursuant to authority of the Board of Directors. (b) Other Vice Presidents, if any, shall generally assist the respective Executive Officers to whom they are subordinate and shall perform such other duties and have such other powers as may from time to time be prescribed by the Board of Directors or by such Executive Officers pursuant to authority granted by the Board of Directors. Section 7. The Secretary. The Secretary shall attend all meetings of the Board of Directors and the stockholders and record all votes and the proceedings of the meetings in a book to be kept for that purpose. He/She shall perform like duties for the Executive Committee or other committees, if required. He/She shall give, or cause to be given, notice of all meetings of stockholders and special meetings of the Board of Directors, and shall perform such other duties as may from time to time be prescribed by the Board of Directors, the Chairman of the Board, or the President, under whose supervision he/she shall act. He/She shall have custody of the seal of the Corporation, and he/she, or an Assistant Secretary, shall have authority to affix it to any instrument requiring it, and, when so affixed, the seal may be attested by his/her signature or by the signature of the Assistant Secretary. The Board of Directors may give general authority to any other officer to affix the seal of the Corporation and to attest the affixing thereof by his/her signature. Section 8. The Assistant Secretary. The Assistant Secretary, if any, or in the event there be more than one, the Assistant Secretaries in the order designated, or in the absence of any designation, in the order of their election, shall, in the absence of the Secretary or in the event of his/her disability, perform the duties and exercise the powers of the Secretary and shall perform such other duties and have such other powers as may from time to time be prescribed by the Board of Directors. Section 9. The Treasurer. The Treasurer shall have the custody of the corporate funds and other valuable effects, including securities, and shall keep full and accurate accounts of receipts and disbursements in books belonging to the Corporation and shall deposit all moneys and other valuable effects in the name and to the credit of the Corporation in such depositories as may from time to time be designated by or pursuant to authority of the Board of Directors. He/She shall disburse the funds of the Corporation in accord with the orders of the Board of Directors, taking proper vouchers for such disbursements, and shall render to the Chairman of the Board, if any, the President, and the Board of Directors, whenever they may require it or at regular meetings of the Board, an account of all his/her transactions as Treasurer and of the financial condition of the Corporation. Section 10. The Assistant Treasurer. The Assistant Treasurer, if any, or in the event there shall be more than one, the Assistant Treasurers in the order designated, or in the absence of any designation, in the order of their election, shall, in the absence of the Treasurer or in the event of his/her disability, perform such other duties and have such other powers as may from time to time be prescribed by or pursuant to authority of the Board of Directors. Article VII. Indemnification. Section 1. Indemnification. (a) The Corporation shall indemnify, defend and hold harmless (i) each director and officer of the Corporation, and (ii) each other person designated in writing by the President or the Chief Financial Officer from time to time, against all expenses, losses, claims, damages and liabilities, including, without limitation, attorneys' fees, judgments, fines and amounts paid in settlement (all such expenses, collectively, "Costs") actually and reasonably incurred by him/her in connection with the investigation, defense or appeal of any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, to which the director, officer or other person (collectively "persons") is a party or threatened to be made a party (all such actions, collectively, "Proceedings") (A) by reason of the fact that he/she is or was a director, officer, employee or agent of the Company or of any other corporation, partnership, joint venture, trust or other enterprise (collectively "Affiliates") of which he/she has been or is serving at the request of, for the convenience of, or to represent the interest of the Corporation or (B) by reason of anything done or not done by him/her in any such capacity referred to in the immediately foregoing clause (A). Pursuant to this Article VII, the Board of Directors may authorize the execution and delivery by the Corporation of any agreement or undertaking with or on behalf of any person not inconsistent with this Article VII or applicable law with respect to the matters set forth herein. Section 2. Culpable Action. (a) Notwithstanding the provisions of Section 1, a person shall not be entitled to indemnification if (i) the Corporation is prohibited from paying such indemnification under applicable law, (ii) the person breached his/her duty of loyalty to the Corporation or its stockholders or any Affiliate or its stockholders, (iii) the person's actions or omissions were not in good faith or involved intentional misconduct or knowing violation of law or (iv) the person derived an improper personal benefit from any transaction which is a subject of the applicable Proceeding (any existence or occurrence described in the foregoing clauses (i)-(iv), individually, a "Culpable Action"). (b) The existence or occurrence of a Culpable Action shall be conclusively determined by (i) a non-appealable, final decision of the court having jurisdiction over the applicable Proceeding or (ii) a non-appealable, final decision of the Court of Chancery of the State of Delaware (or if such a decision is appealable, by the court in such State which has jurisdiction to render a non-appealable, final decision). (c) The existence or occurrence of a Culpable Action may also be determined by (i) the Board of Directors, by a majority vote of a quorum consisting of directors who were not parties to the applicable Proceeding (the "Disinterested Directors"), (ii) the stockholders of the Corporation, by a majority vote of a quorum consisting of stockholders who were not parties to the applicable Proceeding (the "Disinterested Stockholders"), or (iii) any other entity to which the Disinterested Directors or the Disinterested Stockholders shall have delegated the authority to make such a determination: provided, however, that such determination shall not have been made or shall not be subsequently made pursuant to subsection (b) above. (d) If a Proceeding involves more than one claim, issue or matter, the determination as to whether there exists or has occurred a Culpable Action shall be severable as to each and every claim, issue and matter. (e) The termination of any proceeding by judgment, order, settlement or conviction, or upon a plea of nolo contendere or its equivalent, does not change the presumption of Section 1 that a person is entitled to indemnification hereunder and does not create a presumption that there exists a Culpable Action. Section 3. Payment of Costs. The Costs incurred by a person in connection with any Proceeding, including any Proceeding brought pursuant to Section 2(b), shall be paid by the Corporation on an "as incurred" basis; provided, however, that if it shall ultimately be determined that there exists or has occurred a Culpable Action with respect to such Proceeding, the person shall repay the Corporation the amount (or the appropriate portion thereof as contemplated by Section 2 (d)) so advanced, including the costs of obtaining a determination pursuant to Section 2(b). Article VIII. Affiliated Transactions and Interested Directors. Section 1. Affiliated Transactions. No contract or transaction between the Corporation and one or more of its directors or officers, or between the Corporation and any other corporation, partnership, association, or other organization in which one or more of its directors or officers are directors or officers or have a financial interest, shall be void or voidable solely for this reason, or solely because the director or officer is present at or participates in the meeting of the Board of Directors or committee thereof that authorizes the contract or transaction or solely because his/her or their votes are counted for such purpose if: (a) The material facts as to his/her relationship or interest and as to the contract or transaction are disclosed or are known to the Board of Directors or the committee, and the Board of Directors or committee in good faith authorizes the contract or transaction by the affirmative vote of a majority of the disinterested directors, even though the disinterested directors be less than a quorum; or (b) The material facts as to his/her relationship or interest and as to the contract or transaction are disclosed or are known to the stockholders entitled to vote thereon, and the contract or transaction is specifically approved in good faith by the vote of the stockholders; or (c) The contract or transaction is fair as to the Corporation as of the time it is authorized, approved, or ratified by the Board of Directors, a committee thereof, or the stockholders. Section 2. Determining Quorum. Common or interested directors may be counted in determining the presence of a quorum at a meeting of the Board of Directors or of a committee thereof which authorizes the contract or transaction. Article IX. Stock Certificates. Section 1. Form and Signatures. (a) Every holder of stock of the Corporation shall be entitled to a certificate stating the number and class, and series, if any, of shares owned by him/her, signed by the Chairman of the Board, if any, or the President and the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary of the Corporation, and bearing the seal of the Corporation. The signatures and the seal may be facsimile. A certificate may be signed, manually or by facsimile, by a transfer agent or registrar other than the Corporation or its employee. In case any officer who has signed, or whose facsimile signature was placed on, a certificate shall have ceased to be such officer before the certificate is issued, it may nevertheless be issued by the Corporation with the same effect as if he/she were such officer at the date of its issue. (b) All stock certificates representing shares of capital stock that are subject to restrictions on transfer or to other restrictions shall have imprinted thereon any notation to that effect determined by the Board of Directors. Section 2. Registration of Transfer. Upon compliance with provisions restricting the transfer or registration of transfer of shares of stock, if any, transfer or registration of transfer of shares of stock of the Corporation shall be made only on the stock ledger of the Corporation by the registered holder thereof, or by his/her attorney thereunto authorized by power of attorney duly executed and filed with the Secretary of the Corporation or with a transfer agent or a registrar, if any, and on surrender of the certificate or certificates for such shares of stock properly endorsed and the payment of all taxes due thereon. Section 3. Registered Stockholders. (a) Except as otherwise provided by law, the Corporation shall be entitled to recognize the exclusive right of a person who is registered on its books as the owner of shares of its capital stock to receive dividends or other distributions and to vote or consent as such owner, and to hold liable for calls and assessments any person who is registered on its books as the owner of shares of its capital stock. The Corporation shall not be bound to recognize any equitable or legal claim to, or interest in, such shares on the part of any other person. (b) If a stockholder desires that notices and/or dividends shall be sent to a name or address other than the name or address appearing on the stock ledger maintained by the Corporation, or its transfer agent or registrar, if any, the stockholder shall have the duty to notify the Corporation, or its transfer agent or registrar, if any, in writing of his/her desire and specify the alternate name or address to be used. Section 4. Record Date. (a) In order that the Corporation may determine the stockholders of record who are entitled to receive notice of, or to vote at, any meeting of stockholders or any adjournment thereof, to receive payment of any dividend or other distribution or allotment of any rights, or to exercise any rights in respect of any change, conversion, or exchange of stock or for the purpose of any lawful action, the Board of Directors may, in advance, fix a date as the record date for any such determination. Such date shall not be more than sixty nor less than ten days before the date of such meeting, nor more than sixty days prior to the date of any other action. A determination of stockholders of record entitled to notice of, or to vote at, a meeting of stockholders shall apply to any adjournment of the meeting taken pursuant to Section 8 of Article II; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. (b) In order that the Corporation may determine the stockholders entitled to consent to corporate action in writing without a meeting, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which record date shall note be more than 10 days after the date upon which the resolution fixing the record date is adopted by the Board of Directors. Any stockholder(s) of record seeking to have the stockholders authorize or take corporate action by written consent shall, by written notice to the Secretary, request the Board of Directors to fix a record date. The Board of Directors shall promptly, but in all events within 10 days after the date on which such a request is received, adopt a resolution fixing the record date. If no record date has been fixed by the Board of Directors within 10 days after the date on which such a request is received, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting, when no prior action by the Board of Directors is required by applicable law, shall be the first date on which a written consent setting forth the action taken or authorized or proposed to be taken or authorized is delivered to the Corporation, signed by one or more stockholders of record on the date of such delivery, at its registered office in the State of Delaware or its principal executive office, addressed to the attention of the Secretary of the Corporation, or personally delivered to the Secretary of the Corporation. Delivery made to the Corporation's registered or principal executive office or the Secretary shall be by hand or by postage prepaid certified United States mail, return receipt requested. If no record date has been so fixed by the Board of Directors and prior action by the Board of Directors is required by applicable law, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting shall be at the close of business on the date on which the Board of Directors adopts the resolution taking such prior action. Section 5. Lost, Stolen, or Destroyed Certificates. The President or the Treasurer may direct that a new certificate be issued to replace any certificate theretofore issued by the Corporation that, it is claimed, has been lost, stolen, or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen, or destroyed. When authorizing the issue of a new certificate, the President or the Treasurer may, in his/her discretion and as a condition precedent to the issuance thereof, require the owner of the lost, stolen, or destroyed certificate, or his/her legal representative, to advertise the same in such manner as it shall require, and/or to give the Corporation a bond in such sum, or other security in such form, as it may direct as indemnity against any claim that may be made against the Corporation with respect to the certificate claimed to have been lost, stolen, or destroyed. Article X. General Provisions. Section 1. Dividends. Subject to the provisions of law and the Certificate of Incorporation, dividends upon the outstanding capital stock of the Corporation may be declared by the Board of Directors at any regular or special meeting, and may be paid in cash, in property, or in shares of the Corporation's capital stock. Section 2. Reserves. The Board of Directors shall have full power, subject to the provisions of law and the Certificate of Incorporation, to determine whether any, and, if so, what part, of the funds legally available for the payment of dividends shall be declared as dividends and paid to the stockholders of the Corporation. The Board of Directors, in its sole discretion, may fix a sum that may be set aside or reserved over and above the paid-in capital of the Corporation as a reserve for any proper purpose, and may, from time to time, increase, diminish, or vary such amount. Section 3. Fiscal Year. The fiscal year of the Corporation shall be determined from time to time by the Board of Directors. Section 4. Seal. The corporate seal shall have inscribed thereon the name of the Corporation, the year of its incorporation, and the words "Corporate Seal" and "Delaware". Article XI. Amendments. Subject to the provisions of law and the Certificate of Incorporation, the Board of Directors shall have the power to alter and repeal these By-Laws and to adopt new By-Laws by an affirmative vote of a majority of the whole Board, provided that notice of the proposal to alter or repeal these By-Laws or to adopt new By-Laws must be included in the notice of the meeting of the Board of Directors at which such action takes place. ______________________________________________________________________________ EX-4 4 MULTICURRENCY REVOLVING CREDIT AGREEMENT Exhibit 4(c) MULTICURRENCY REVOLVING CREDIT AGREEMENT among LOTUS DEVELOPMENT CORPORATION, THE FIRST NATIONAL BANK OF BOSTON, MORGAN GUARANTY TRUST COMPANY OF NEW YORK, BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, CREDIT SUISSE THE BANK OF TOKYO TRUST COMPANY DEUTSCHE BANK AG, NEW YORK AND/OR CAYMAN ISLANDS BRANCHES THE FUJI BANK, LIMITED, NEW YORK BRANCH SHAWMUT BANK, N.A., SOCIETE GENERALE and THE FIRST NATIONAL BANK OF BOSTON, as Agent Dated as of June 7, 1994 Table of Contents Section 1 Interpretation 1 1.1 General Provisions Pertaining to Definitions 1 1.2 Terms Defined 1 Section 2 The Syndicated Advances 13 2.1 Obligations of the Banks to Make Syndicated Advances 13 2.2 Termination of Commitment 14 2.3 Making the Syndicated Advances 14 2.4 Interest Payable on the Syndicated Advances, etc. 15 Section 3 Money Market Advances 17 3.1 Money Market Borrowings 17 3.2 Interest on Money Market Advances 21 Section 4 Certain Common Provisions 22 4.1 Determination of Interest Rate 22 4.2 Overdue Amounts 22 4.3 Alternative Interest Rate 22 4.4 Repayments and Prepayments of the Advances, etc. 22 4.5 Payments and Computations 24 4.6 Payments to be Free of Deductions 25 4.7 Additional Costs, Changes in Circumstances, etc. 25 4.8 Indemnification 27 4.9 Reduction or Termination by the Company of Total Commitment 27 4.10 Regulation D Compensation 28 4.11 Optional Currencies 28 4.12 U.S. Withholding Tax Exemption Certificates 29 4.13 Lending Offices 29 Section 5 Fees 30 5.1 Facility Fee 30 5.2 Agent's Fee 30 Section 6 Conditions of Lending 30 6.1 Conditions Precedent to Each Advance 30 6.2 Conditions Precedent to First Advance 31 Section 7 Representations and Warranties 32 7.1 Representations and Warranties of the Company 32 7.1.1 Organization, Good Standing, Authority, etc. 32 7.1.2 Governmental Approvals 33 7.1.3 Subsidiaries 33 7.1.4 Compliance with Other Instruments 33 7.1.5 Litigation 33 7.1.6 Financial Statements 34 7.1.7 Changes 34 7.1.8 Business 34 7.1.9 Taxes 34 7.1.10 No Defaults 34 7.1.11 Regulation U 34 7.1.12 Pension Plans 35 7.1.13 Investment Company; Public Utility Holding Company 35 7.2 Representations and Warranties of Each Borrowing Subsidiary 35 7.2.1 Organization, Good Standing, Authority, etc. 35 7.2.2 Governmental Approvals 36 7.2.3 Borrowing Subsidiary 36 7.2.4 Investment Company; Public Utility Holding Company 36 Section 8 Certain Affirmative Covenants 36 8.1 Punctual Payment 36 8.2 Conduct of Business 36 8.3 Taxes, etc. 37 8.4 Maintenance of Properties 37 8.5 Maintenance of Insurance 37 8.6 Records and Accounts 37 8.7 Financial Statements 37 8.8 Inspection 38 8.9 Notice of Litigation 39 8.10 Further Assurances 39 8.11 Borrowing Subsidiaries 39 8.12 ERISA 39 8.13 Ownership of Subsidiaries 40 Section 9 Certain Negative Covenants 40 9.1 Liens 40 9.2 Merger, Consolidation or Sale of Assets, etc. 42 9.3 Minimum Consolidated Net Worth 43 9.4 Maximum Consolidated Debt to Consolidated Net Worth Ratio 43 Section 10 Guaranty 43 10.1 Guaranty 43 10.2 Guaranty Absolute 43 10.3 Effectiveness, Enforcement 44 10.4 Waiver 45 10.5 Subrogation 45 10.6 Payments 45 Section 11 Events of Default; Acceleration 45 Section 12 Set-Off; Pro Rata Sharing 48 Section 13 The Agent 49 13.1 Authorization 49 13.2 Employees and Agents 50 13.3 No Liability 50 13.4 No Representations 50 13.5 Distribution by Agent 50 13.6 Agent as Bank 51 13.7 Holders of Notes; Initial Lenders 51 13.8 Indemnity 51 13.9 Resignation 51 13.10 Delinquent Banks 52 13.11 Notification of Defaults and Events of Default 52 13.12 Information 52 Section 14 Miscellaneous 52 14.1 Expenses 52 14.2 Notices, etc. 53 14.3 Reliance, etc. 54 14.4 Captions 54 14.5 Consents, Amendments, Waivers, etc. 54 14.6 Benefit; Assignments; Participations 56 14.7 Governing Law 56 14.8 Counterparts 56 14.9 Consent to Jurisdiction; Waiver of Jury Trial 56 14.10 Exempt Character of Transaction 57 14.11 Indemnity for Use of Proceeds 57 14.12 Exchange Rate 58 Section 15 Assignment and Participation 58 15.1 Conditions to Assignment by Banks 58 15.2 Certain Representations and Warranties; Limitation; Covenants 59 15.3 Bank List 59 15.4 Exchange of Notes 60 15.5 Participations 60 15.6 Disclosure 61 15.7 Assignee or Participant Affiliated with any Borrower 61 15.8 Miscellaneous Assignment Provisions 61 15.9 Assignment by Borrower 62 LOTUS DEVELOPMENT CORPORATION MULTICURRENCY REVOLVING CREDIT AGREEMENT This MULTICURRENCY REVOLVING CREDIT AGREEMENT (this "Agreement") is entered into as of June 7, 1994 among LOTUS DEVELOPMENT CORPORATION, a Delaware corporation (the "Company"), THE FIRST NATIONAL BANK OF BOSTON and the other lending institutions listed on Schedule 1 hereto and THE FIRST NATIONAL BANK OF BOSTON, as Agent (in such capacity, referred to as the "Agent"). In consideration of the mutual promises, covenants and agreements contained in this Agreement, the Company, the Agent and the Banks hereby agree as follows: *. INTERPRETATION. 1.1. General Provisions Pertaining to Definitions. For all purposes of this Agreement, except as otherwise expressly provided herein or unless the context otherwise requires: (a) terms specifically defined in Section 1.2 hereof have the meanings therein assigned to them, and other terms defined elsewhere in this Agreement shall have the meanings therein assigned to them, and all such definitions shall be applicable to both the singular and plural forms of the terms defined; (b) accounting terms not otherwise defined herein have the meanings assigned to them in accordance with generally accepted accounting principles; (c) "Agreement" or "this Agreement" means this Agreement as originally executed, or if subsequently modified, amended or supplemented, as so modified, amended or supplemented and in effect at the time of reference thereto; and (d) the words "herein," "hereof," "hereunder" and other words of similar import refer to this Agreement as a whole and not to any particular Section or other subdivision of this Agreement. 1.2. Terms Defined. Subject to the provisions of Section 1.1 hereof, the following terms shall have the respective meanings set forth below: "Absolute Rate Auction" shall mean a solicitation of Money Market Quotes setting forth Money Market Absolute Rates pursuant to Section 3. "Adjustment Date" shall have the meaning assigned to such term in Section 2.4(e) hereof. "Advance" shall mean either a Syndicated Advance or a Money Market Advance, as applicable hereunder. "Affiliate" shall mean any Person that would be considered to be an affiliate of the Company under Rule 144(a) of the Rules and Regulations of the Securities and Exchange Commission, as in effect on the date hereof, if the Borrower were (at the time of determination of Affiliate status) issuing securities. "Agent" shall have the meaning assigned to such term in the preamble to this Agreement. "Agent's Fee" shall have the meaning assigned to such term in Section 5.2 hereof. "Applicable Margin" shall have the meaning assigned to such term in Section 2.4(d) hereof. "Applicable Percentage" shall mean that percentage set forth in 12 C.F.R. Section 221.2(g)(2)(i). "Assessment Rate" shall mean, for any Interest Period, the net annual assessment rate payable by the Agent to the Federal Deposit Insurance Corporation (or any successor) for such Corporation's (or such successor's) insuring time deposits made in Dollars at offices of the Agent in the United States of America during the most recent period for which such rate has been determined prior to the commencement of such Interest Period. "Assignment and Acceptance" shall have the meaning assigned to such term in Section 15 hereof. "Balance Sheet Date" shall mean December 31, 1993. "Bank Affiliate" shall mean, with respect to any Bank, any holding company or subsidiary of that Bank or any other subsidiary of any such holding company. "Bank List" shall have the meaning assigned to such term in Section 15.3 hereof. "Banks" shall mean FNBB and the other lending institutions listed on Schedule 1 hereto and any other Person who becomes an assignee of any rights and obligations of a Bank pursuant to Section 15 hereof. "Base Rate" shall mean, for any day, a fluctuating rate per annum (rounded upwards, if necessary, to the next 1/8 of 1%) equal to the greater of (a) the rate of interest publicly announced from time to time by the Agent as its base rate in effect on such day and (b) the Federal Funds Effective Rate in effect on such date plus 1/2 of 1%. "Federal Funds Effective Rate" shall mean, for any period, a fluctuating interest rate per annum equal for each day during such period to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published for such day (or, if such day is not a Business Day, for the next preceding Business Day) by the Federal Reserve Bank of New York, or, if such rate is not so published for any day which is a Business Day, the average of the quotations for such day on such transactions received by the Agent from three Federal funds brokers of recognized standing selected by it. For purposes of this Agreement any change in the Base Rate due to a change in the rate specified in clause (a) hereof or the Federal Funds Effective Rate shall be effective on the effective date of such change in the rate specified in clause (a) hereof or the Federal Funds Effective Rate, as applicable. If for any reason the Agent shall have determined (which determination shall be conclusive absent manifest error) that it is unable to ascertain the Federal Funds Effective Rate for any reason, including, without limitation, the inability or failure of the Agent to obtain sufficient bids or publications in accordance with the terms thereof, the Base Rate shall be the rate specified in clause (a) hereof until the circumstances giving rise to such inability no longer exist. Any interest rate calculated with reference to the Base Rate shall change as the Base Rate shall change, and any change in such interest rates shall become effective as of the beginning of the day during which such change in the Base Rate occurs. "Base Rate Advance" shall mean any Syndicated Advance denominated in Dollars upon which interest will accrue based on the Base Rate. "Board" shall mean the Board of Governors of the Federal Reserve System of the United States of America. "Borrower" shall mean the Company or any Borrowing Subsidiary, and "Borrowers" shall mean the Company and each Borrowing Subsidiary. "Borrowing Date" shall mean, in relation to any Advance, the day on which that Advance is made or to be made to a Borrower. "Borrowing Subsidiary" shall mean a Wholly-owned Subsidiary of the Company which shall have delivered to each of the Banks an election to become a Borrowing Subsidiary, in substantially the form of Exhibit C hereto, duly executed by such Wholly-owned Subsidiary and the Company; provided, however, that at any time at which a Borrowing Subsidiary owes no amounts hereunder, such Borrowing Subsidiary may, by written notice to the Agent (receipt of which is acknowledged by the Agent), rescind its election to become a Borrowing Subsidiary. "Business Day" shall mean a day, other than a Saturday or Sunday, on which banks are open for business in Boston, Massachusetts, and New York, New York, U.S.A., and if (a) Eurocurrency Rate Advances or Money Market Eurocurrency Advances are involved, a day on which dealings in Dollars and in relevant foreign currency and exchange can be carried on in the relevant interbank Eurocurrency market and Dollar settlements of such dealings are able to be effected in New York City, and (b) if any currency other than Dollars is involved, a day on which dealings in Dollars and in relevant foreign currency and exchange can be carried on in the principal financial center of the country in which such currency is legal tender. "Capitalized Lease" shall mean any lease if the obligation to make rental payment thereunder constitutes a Capitalized Lease Obligation. "Capitalized Lease Obligation" shall mean any rental obligation which, under generally accepted accounting principles, is required to be capitalized on the books of the Company or any Subsidiary, taken at the amount thereof accounted for as indebtedness (net of interest expense) in accordance with such principles. "Cash Flow Coverage Ratio" shall mean the ratio, determined as of the end of any fiscal quarter or year (a "Ratio Calculation Date") of (a) the sum of (i) Consolidated Pretax Income for the period of eight consecutive fiscal quarters ending with such Ratio Calculation Date plus (ii) Consolidated Interest Expense (excluding interest on Non-recourse Debt) for such period to (b) Consolidated Interest Expense (excluding interest on Non-recourse Debt) for such period. "Code" shall mean the United States Internal Revenue Code of 1986, as amended (or any successor statute), and the rules and regulations promulgated thereunder, as in effect from time to time. "Commitment" shall mean, in relation to any Bank, its commitment to participate in the revolving credit facility provided under this Agreement upon the terms and subject to the conditions of this Agreement up to the amount set opposite its name on Schedule 1 hereto (such amount to be deemed reduced by the amount of any reductions of such Bank's Commitment in accordance with this Agreement), or, if such commitment is terminated pursuant to the provisions hereof, zero (in each case such amount to be subject to appropriate adjustment upon any assignments permitted by Section 15 hereof). "Commitment Expiry Date" shall have the meaning assigned to that term in Section 2.2. hereof. "Commitment Percentage(s)" shall mean, with respect to each Bank, the percentage set forth on Schedule 1 hereto as such Bank's percentage of the Total Commitment (subject to adjustment upon any assignments permitted by Section 15 hereof). "Company" shall have the meaning assigned to such term in the preamble to this Agreement. "Compliance Certificate" shall have the meaning assigned to such term in Section 8.7 hereof. "Consolidated" or "consolidated" shall mean, as applied to any term used in this Agreement, that term as applied to the accounts of the Company and its Subsidiaries on a consolidated basis determined in accordance with generally accepted accounting principles. "Consolidated Assets" shall mean the assets of the Company and its Subsidiaries consolidated in accordance with generally accepted accounting principles. "Consolidated Current Debt" shall mean the Current Debt of the Company and its Subsidiaries, consolidated in accordance with generally accepted accounting principles. "Consolidated Debt" shall mean the Debt of the Company and its Subsidiaries, consolidated in accordance with generally accepted accounting principles. "Consolidated Interest Expense" for any period shall mean the aggregate amount of interest paid in respect of any Debt by the Company and its Subsidiaries for such period, determined and consolidated in accordance with generally accepted accounting principles consistently applied. "Consolidated Liabilities" shall mean the liabilities of the Company and its Subsidiaries consolidated in accordance with generally accepted accounting principles. "Consolidated Net Income (or Deficit)" shall mean, with respect to any fiscal period of the Company, the consolidated net income (or deficit) of the Company and its Subsidiaries for such period, determined in accordance with generally accepted accounting principles consistently applied, but excluding from such net income any net extraordinary gains for such period. "Consolidated Net Worth" shall mean, as of the time of determination thereof, the amount of Consolidated Assets less the amount of Consolidated Liabilities. "Consolidated Pretax Income" for any period shall mean Consolidated Net Income for such period, but before giving effect to any provision for income taxes for such period. "Consolidated Tangible Assets" shall mean Consolidated Assets, less cash and cash equivalents and intangible assets, all as shown on the latest balance sheet of the Company delivered in accordance with Section 8.7. "Convert," "Conversion," and "Converted" refers to the conversion of any Base Rate Advance or Eurocurrency Rate Advance into any Syndicated Advance of another type. "Current Debt" shall mean any obligation for borrowed money (and any notes payable and drafts accepted representing extensions of credit whether or not representing obligations for borrowed money) payable on demand or within a period of one year from the date of the creation thereof; provided that any such obligation shall be treated as Funded Debt (and not Current Debt) regardless of its term, if such obligation is renewable pursuant to the terms thereof or of a revolving credit or similar agreement effective for more than one year after the date of the creation of such obligation or if there is an existing commitment to loan funds sufficient to refinance (for more than one year) such obligation and such loan is available. "Debt" shall mean all Funded Debt and Current Debt. "Default" shall mean any event or condition which, with the giving of notice or the lapse of time or both, would constitute an Event of Default. "Delinquent Bank" shall have the meaning assigned to it in Section 13 hereof. "Dollar(s)" and "$" shall mean dollars of the United States of America. "Effective Date" shall mean June 7, 1994. "Eligible Assignee" shall mean any of (a) with respect to any assignor Bank, any Bank Affiliate; (b) a commercial bank organized under the laws of the United States, or any State thereof or the District of Columbia, and having total assets in excess of $1,000,000,000; (c) a savings and loan association or savings bank organized under the laws of the District of Columbia, and having a net worth of at least $100,000,000, calculated in accordance with generally accepted accounting principles; (d) a commercial bank organized under the laws of any other country which is a member of the Organization for Economic Cooperation and Development (the "OECD") or any successor organization, or a political subdivision of any such country, and having total assets in excess of $1,000,000,000, provided that such bank is acting through a branch or agency located in the country in which it is organized or another country which is also a member of the OECD; (e) the central bank of any country which is a member of the OECD; and (f) if, but only if, any Event of Default has occurred and is continuing, any other bank, insurance company, commercial finance company or other financial institution or other Person approved in writing by the Agent. "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended, and the rules and regulations promulgated thereunder, as in effect from time to time. "ERISA Affiliate" shall mean any trade or business (whether or not incorporated) which is a member of a group of which the Company is a member and which is under common control within the meaning of Sections 414(b) and 414(c) of the Code, and the regulations promulgated thereunder. "Eurocurrency Auction" shall mean a solicitation of Money Market Quotes setting forth Money Market Margins based on the Eurocurrency Rate pursuant to Section 3. "Eurocurrency Rate" shall mean, in relation to each Interest Period relating to any Eurocurrency Rate Advance, the percentage annual rate of interest determined by the Agent as being the arithmetic average of the rate at which deposits of the currency in which such Advance is to be denominated during such Interest Period are being offered to each Reference Bank by prime banks in any recognized interbank Eurocurrency market selected by the Reference Banks in good faith, at the time of the quotation thereof to the applicable Borrower, for delivery on the first day of such Interest Period, and for the number of days comprised therein, in amounts equal (as nearly as may be) to the largest amount to be provided by any Bank participating in the Advance to which such Interest Period relates. Each Reference Bank shall use its best efforts to furnish quotations of rates to the Agent as contemplated hereby. If any of the Reference Banks fails to supply such rates to the Agent upon its request, the rate of interest shall be determined on the basis of the quotations of the remaining Reference Bank(s). "Eurocurrency Rate Advance" shall mean any Syndicated Advance denominated in an Optional Currency or in Dollars upon which interest will accrue based on the Eurocurrency Rate. "Eurocurrency Reserve Percentage" shall mean, with respect to any Interest Period, for any day thereof, the percentage (expressed as a decimal) which is in effect on such day, as prescribed by the Board (or any successor) for determining the maximum reserve requirement (including any emergency, supplemental or other marginal reserve requirement) for such day under Regulation D of the Board (or any successor or similar regulations relating to such reserve requirements) in respect of "Eurocurrency Liabilities" (or in respect of any other category of liabilities which includes deposits by reference to which the interest on Eurocurrency Advances or Money Market Eurocurrency Advances is determined for such day) having a term comparable to such Interest Period. "Event of Default" shall mean any of the events or conditions described in Sections 11(a) through 11(n) hereof. "Excess Margin Stock" shall mean, with respect to Margin Stock owned by the Company and its Subsidiaries at any time, that portion of such Margin Stock which, if not subject to any restriction (within the meaning of Regulation U of the Board) upon the right or ability of the Company to sell, pledge or otherwise dispose of assets including Margin Stock hereunder, or under any other agreement between the Company and a Bank or an affiliate of a Bank evidencing Debt ("Pledge"), would result in all Margin Stock which would remain subject to Pledge being no more than the Applicable Percentage of the value of all such assets (including such remaining Margin Stock) subject to Pledge. "Facility Fee" shall have the meaning assigned to that term in Section 5.1 hereof. "Federal Funds Effective Rate" shall have the meaning assigned to that term in the definition of Base Rate. "Fee Letter Agreement" shall have the meaning assigned to that term in Section 5.2 hereof. "Fixed Rate Advances" shall mean Eurocurrency Rate Advances or Money Market Advances or any continuation of the foregoing permitted by the terms hereof. "FNBB" shall mean The First National Bank of Boston, a national banking association, in its individual capacity. "Funded Debt" shall mean and include without duplication, (a) any obligation payable more than one year from the date of creation thereof, which under generally accepted accounting principles is shown on the balance sheet as a liability (including Capitalized Lease Obligations but excluding reserves for deferred income taxes and other reserves to the extent that such reserves do not constitute an obligation), (b) indebtedness payable more than one year from the date of creation thereof which is secured by any lien on property owned by the Company or any Subsidiary, whether or not the indebtedness secured thereby shall have been assumed by the Company or such Subsidiary, (c) guarantees (other than guarantees of the obligations of any Subsidiaries under non-financial operating leases), endorsements (other than endorsements of negotiable instruments for collection in the ordinary course of business), reimbursement obligations in respect of letters of credit, and other contingent liabilities (whether direct or indirect) in connection with the obligations, stock or dividends of any person, (d) obligations under any contract providing for the making of loans, advances or capital contributions to any person, or for the purchase of any property from any person, in each case in order to enable such person primarily to maintain working capital, net worth or any other financial statement condition or to pay debts, dividends or expenses, (e) obligations under any contract for the purchase of materials, supplies or other property or services if such contract (or any related document) requires that payment for such materials, supplies or other property or services shall be made regardless of whether or not delivery of such materials, supplies or other property or services is ever made or tendered, (f) obligations under any contract to rent or lease (as lessee) any real or personal property if such contract (or any related document) provides that the obligation to make payments thereunder is absolute and unconditional under conditions not customarily found in operating leases then in general use (and is in the nature of a guarantee) or requires that the lessee purchase or otherwise acquire securities or obligations of the lessor, (g) obligations under any contract for the sale or use of materials, supplies or other property or services if such contract (or any related document) requires that payment for such materials, supplies or other property or services, or the use thereof, shall be subordinated to any indebtedness (of the purchaser or user of such materials, supplies or other property or the person entitled to the benefit of such services) owed or to be owed to any person, and (h) obligations under any other contract which, in economic effect, is substantially equivalent to a guarantee; all as determined in accordance with generally accepted accounting principles consistently applied. "generally accepted accounting principles" shall mean (a) when used in Section 9 hereof, whether directly or indirectly through reference to a capitalized term used therein, (i) principles that are consistent with the principles promulgated or adopted by the Financial Accounting Standards Board and its predecessors, in effect for the fiscal year ended on the Balance Sheet Date, and (ii) to the extent consistent with such principles, the accounting practice of the Company reflected in its financial statements for the year ended on the Balance Sheet Date, and (b) when used in general, other than as provided above, means principles that are (i) consistent with the principles promulgated or adopted by the Financial Accounting Standards Board and its predecessors, as in effect from time to the time, and (ii) consistently applied with the past financial statements of the Company adopting the same principles, provided that in each case referred to in this definition of "generally accepted accounting principles" a certified public accountant would, insofar as the use of such accounting principles is pertinent, be in a position to deliver an unqualified opinion (other than a qualification regarding changes in generally accepted accounting principles) as to financial statements in which such principles have been properly applied. "Guaranteed Obligations" shall have the meaning specified in Section 10.1 hereof. "Head Office" shall mean the head office of the Agent, presently located at 100 Federal Street, Boston, Massachusetts. "Interest Payment Date" shall mean, (a) with respect to Eurocurrency Rate Advances, the last day of any Interest Period, and with respect to Base Rate Advances, any date when interest is due and payable as provided under Section 2.4(c) hereof; and (b) with respect to Money Market Advances, any date when interest is due and payable as provided under Section 3.2 hereof. All interest accruing hereunder shall be payable when and as provided in Section 2.4 and Section 3.2 hereof. "Interest Period" shall mean, (a) With respect to each Eurocurrency Rate Advance (i) initially as specified by a Borrower in its notice of borrowing, the period commencing on the Borrowing Date, or, in the case of a Conversion into Eurocurrency Rate Advances, commencing on the date of such Conversion, and expiring 1, 2, 3, or 6 months thereafter or, if each of the Banks shall so agree and advise the Agent with respect to any particular requested Interest Period, 9 or 12 months thereafter, in each case as elected by such Borrower hereunder, and (ii) with respect to subsequent Eurocurrency Rate Advances as specified by such Borrower in a written notice furnished to the Agent no later than 11:00 a.m. Boston time one (1) Business Day prior to the Rate-fixing Day with respect to such Eurocurrency Rate Advance, any successive periods of 1, 2, 3, 6, 9 or 12 months, as elected by such Borrower hereunder (or as may be otherwise agreed to by the Banks) commencing on the same day on which the next preceding Interest Period with respect to such Eurodollar Rate Advance shall have expired. If such Borrower does not elect otherwise, each Interest Period with respect to a Eurocurrency Rate Advance shall be three (3) months. The number of days in each Interest Period and the particular day on which each Interest Period ends and the next begins shall be fixed by the Agent in accordance with the Agent's generally accepted practice in the relevant foreign currency deposits market and notified to such Borrower on the Rate-fixing Day therefor. If any Interest Period would otherwise end on a day which is not a Business Day, such Interest Period shall end and the next Interest Period shall commence on the next preceding or the next succeeding day which is a Business Day as determined conclusively by the Agent in accordance with the Agent's current practice in the relevant interbank Eurocurrency market and notified to such Borrower on the Rate-Fixing Day therefor. (b) With respect to each Base Rate Advance, the period commencing on the Borrowing Date of such Advance and expiring on the date when the Base Rate Advance is repaid or, as the case may be, Converted to a Eurocurrency Rate Advance. (c) With respect to each Money Market Eurocurrency Advance, the period commencing on the Borrowing Date of such Advance and ending 1, 2, 3, 6, 9 or 12 months thereafter, as a Borrower may elect in accordance with Section 3 hereof. (d) With respect to each Money Market Absolute Rate Advance, the period commencing on the Borrowing Date of such Advance and ending not more than 360 days thereafter, as a Borrower may elect in accordance with Section 3 hereof. No Interest Period may be selected in respect to all or any portion of any Advance which would expire on a date which occurs after the Commitment Expiry Date or which is not a Business Day. "Invitation for Money Market Quotes" shall have the meaning assigned to it in Section 3.1 hereof. "Loan Account(s)" shall have the meaning specified in Section 4.4(f) hereof. "Loan Documents" shall mean, collectively, this Agreement, the Notes (if any), and the Fee Letter Agreement. "Majority Banks" shall mean Banks holding at least 60% of the aggregate amount of the Total Commitment or, if the Total Commitment shall have been terminated, holding Loan Accounts (or Notes in lieu thereof) evidencing at least 60% of the aggregate unpaid principal amount of the Advances. "Margin Stock" shall have the meaning assigned to such term in Regulation U of the Board. "Money Market Absolute Rate" has the meaning set forth in Section 3.1(d)(ii)(D) hereof. "Money Market Absolute Rate Advance" shall mean an Advance to be made pursuant to Section 3 hereof by a Bank pursuant to an Absolute Rate Auction; provided that, such an Advance may only be made in Dollars. "Money Market Advance" shall mean a Money Market Eurocurrency Advance or a Money Market Absolute Rate Advance. "Money Market Eurocurrency Advance" shall mean an Advance to be made pursuant to Section 3 hereof by a Bank pursuant to a Eurocurrency Auction; provided that, such an Advance may only be made in Dollars. "Money Market Margin" has the meaning set forth in Section 3.1(d)(ii)(C) hereof. "Money Market Quote" shall mean an offer by a Bank to make a Money Market Advance in accordance with Section 3. "Money Market Quote Request" shall have the meaning assigned to it in Section 3.1 hereof. "Multiemployer Plan" shall mean any "multiemployer plan" as defined in Section 4001(a)(3) of ERISA to which the Company or any ERISA Affiliate of the Company is making or accruing any obligation to make contributions, or has within any of the preceding five plan years made or accrued an obligation to make contributions. "Non-recourse Debt" shall have the meaning specified in Section 9.4 hereof. "Notes" shall have the meaning specified in Section 4.4(g) hereof. "Notice of Money Market Borrowing" shall have the meaning assigned to it in Section 3.1(f) hereof. "OECD" shall have the meaning assigned to it in the definition of Eligible Assignee. "Optional Currency" shall mean any currency other than Dollars which is freely convertible into Dollars and which is traded on any recognized interbank foreign currency deposits market selected by the Agent in good faith. "Permitted Margin Stock" means any security constituting Margin Stock beneficially owned by the Company or any Subsidiary that belongs to a class of securities and an issuer that are the subject of a filing on Schedule 14D-1 by the Company or such Subsidiary with the United States Securities and Exchange Commission. "Person" shall mean any individual, partnership, joint venture, corporation, trust, unincorporated organization or government (including any department or agency thereof). "Plan" means any employee plan of the Company which is subject to the provisions of Title IV of ERISA and which is maintained (in whole or in part) for employees. "Pledge" shall have the meaning assigned to it in the definition of Excess Margin Stock. "Prior Credit Agreements" shall mean, collectively, (a) the Amended and Restated Multicurrency Revolving Credit Agreement dated as of December 1, 1990, as amended, among the Company; The First National Bank of Boston as Agent; FNBB, and the other parties thereto, and (b) the U.S. $50,000,000 Revolving Credit Facility Agreement dated as of June 29, 1990, as amended, among the Company; Credit Suisse First Boston Limited as Facility Agent; Barclays Bank PLC as Swing Line Agent; Credit Suisse First Boston Limited as Arranger, and the other parties thereto. "Process Agent" shall have the meaning specified in Section 14.9 hereof. "Rate-fixing Day" shall mean the second Business Day preceding the Business Day on which an Interest Period relating to a Eurocurrency Advance begins. "Ratio Calculation Date" shall have the meaning assigned to such term in the definition of Cash Flow Coverage Ratio. "Reference Banks" shall mean The First National Bank of Boston, Morgan Guaranty Trust Company of New York and Bank of America National Trust and Savings Association. "Reportable Event" shall mean a Reportable Event as defined in Section 4043(b) of ERISA. "Subsidiary" shall mean any present or future corporation a majority of whose shares of stock of any class (however designated) having voting power for the election of a majority of the members of the board of directors or other governing body of such corporation (other than stock having such power only by reason of the happening of a contingency) shall at the time be owned by the Company or by one or more of the Company's Subsidiaries. "Syndicated Advance" shall mean any Advance made or to be made to any Borrower pursuant to Section 2 hereof. "Third-Party Financing Arrangements" shall mean those arrangements whereby any Person has purchased, or advanced funds to the Company against, (i) contracts of the Company or (ii) accounts receivable of the Company in respect of inventory sold by the Company; provided that (x) the sole recourse of any such Person against the Company in respect of any account receivable so purchased (or for recovery of loans against any account receivable) is to require the Company to repurchase from such Person the inventory whose sale gave rise to such account receivable and (y) such Person shall have no recourse against the Company in respect of any contract so purchased (or for recovery of loans against any contract). "Threshold Lien Amount" shall mean, as of any time of determination, the amount equal to the excess (if any) of (a) the greater of (i) $75,000,000 or (ii) fifteen percent (15%) of Consolidated Tangible Assets as of such time, minus (b) the cumulative aggregate net book value of assets sold, leased, transferred or assigned pursuant to Section 9.2(d)(i) hereof after the date of this Agreement (such net book value of such assets to be determined as to each such disposition of assets as of the time thereof and as shown on the Company's Consolidated books maintained in accordance with this Agreement as of the time of such disposition). "Total Commitment" shall mean the aggregate Commitments of all of the Banks (including the Commitments of applicable assignee Banks pursuant to assignments made under Section 15 hereof) at any time of the determination thereof. "Wholly-owned Subsidiary" shall mean a Subsidiary all of the capital stock (exclusive of directors' qualifying shares) of which is owned directly or indirectly by the Company. Section 2. THE SYNDICATED ADVANCES. 2.1. Obligations of the Banks to Make Syndicated Advances. The Banks severally agree, on the terms and conditions of this Agreement, to make Syndicated Advances, in Dollars and/or, at any Borrower's option from time to time, subject to Section 4.11 hereof, in an Optional Currency, to the respective Borrowers from time to time from the Effective Date to (but not including) the Commitment Expiry Date in an aggregate principal amount not to exceed their respective Commitment Percentages of the Total Commitment. Notwithstanding any other provision herein to the contrary, at no time shall the aggregate principal amount of Syndicated Advances outstanding exceed the Total Commitment minus the aggregate principal amount of Money Market Advances outstanding at such time. The Company hereby confirms to the Banks that the aggregate principal amount of the advances outstanding under the Prior Credit Agreements (whether made on a syndicated basis or a competitive bid basis) on the date hereof is $0 and that no advances have been made under the Prior Credit Agreements to any Person other than the Company. The Company hereby agrees that on and as of the date hereof, the lending commitments of the respective lenders under the Prior Credit Agreements shall be terminated in full and all amounts owing thereunder, whether in respect of fees, expenses, or otherwise shall be paid in full. 2.2. Termination of Commitment. The Total Commitment will terminate in full at 11:00 A.M. Boston time, June 1, 1997 unless earlier terminated as provided in this Agreement (the "Commitment Expiry Date"). 2.3. Making the Syndicated Advances. (a) Subject to the terms and conditions of this Agreement, a Borrower may obtain Base Rate Advances, each in the minimum principal amount of $1,000,000, and Eurocurrency Rate Advances, each in the minimum principal amount of $5,000,000 (or, in the case of Eurocurrency Rate Advances, the equivalent thereof in Optional Currency), from the several Banks from time to time from and after the Effective Date, but not on or after the Commitment Expiry Date. (b) Unless otherwise agreed to by the Banks, whenever a Borrower desires and is entitled hereunder to receive any Syndicated Advance, the Borrower shall notify the Agent in writing in the case of a Base Rate Advance not later than 12:00 noon, Boston time, on the requested Borrowing Date or in the case of a Eurocurrency Rate Advance not later than 11:00 a.m., Boston time, one (1) Business Day prior to the Rate-fixing Day with respect to such Advance, of (i) the Borrowing Date (which must be a Business Day) and the amount of such Advance, stated either in Dollars or, subject to Section 4.11 hereof, in an Optional Currency, (ii) with respect to a Eurocurrency Rate Advance, the Interest Period of such Advance, and (iii) the Borrower's bank account with the Agent to which payment of the proceeds thereof is to be made. The Agent will give the Banks prompt notice of each notice of borrowing and of each other notice received from the Borrowers hereunder. (c) If, on or prior to the Borrowing Date of any requested Syndicated Advance, the Total Commitment has not terminated in full and the applicable conditions of Section 6 hereof are satisfied, each Bank will advance to the Borrower making the request such Bank's respective Commitment Percentage of the amount requested to be borrowed by crediting the Agent for further credit to the Borrower's specified account with the Agent in immediately available funds not later than the close of business on such Borrowing Date. Unless the Agent shall have received notice from a Bank (i) in the case of any Base Rate Advance, prior to 2:00 p.m., Boston time, on the applicable Borrowing Date of such Base Rate Advance, and (ii) in the case of any Eurocurrency Rate Advance, prior to the applicable Borrowing Date of such Eurocurrency Rate Advance, that such Bank will not make available to the Agent such Bank's portion of such Syndicated Advance, the Agent may assume that such Bank has made such portion available to the Agent on such Borrowing Date in accordance with this paragraph (c), and the Agent may, in reliance upon such assumption, make available to the Borrower on such date a corresponding amount. If and to the extent that such Bank shall not have made such portion available to the Agent, such Bank and the Borrower severally agree to repay to the Agent forthwith on demand such corresponding amount together with interest thereon, for each day from the date such amount is made available to the Borrower until the date such amount is repaid to the Agent at (i) in case of the Borrower, the interest rate applicable at the time to the Syndicated Advances in question and (ii) in the case of such Bank, the Federal Funds Effective Rate. If such Bank shall repay to the Agent such corresponding amount, such amount shall constitute such Bank's Advance as part of such borrowing of Syndicated Advances for purposes of this Agreement. (d) The failure of any Bank to make its pro rata share of any Syndicated Advance shall not relieve the other Banks of their obligations, if any, hereunder to make their pro rata shares of such Syndicated Advance on the requested Borrowing Date, but no Bank shall be responsible for the failure of any other Bank to make the part of the Syndicated Advance to be made by such other Bank on the Borrowing Date. 2.4. Interest Payable on the Syndicated Advances, etc. (a) With respect to any Syndicated Advance denominated in Dollars, the rate of interest which shall be payable by the applicable Borrower on the unpaid principal outstanding to such Borrower shall be the annual percentage rate of interest determined by the Agent to be the sum of (i) the Applicable Margin in effect plus (ii) either of (A) the Base Rate, or (B) if the Borrower has so elected pursuant to this paragraph (a), the Eurocurrency Rate relating to the Interest Period with respect to any such Advance. Any Borrower may elect at any time and from time to time in accordance with the terms of this Agreement, prior to the Commitment Expiry Date, (A) to draw down all or a portion of the funds available under this Agreement in Dollars upon which interest will accrue based on the Eurocurrency Rate or the Base Rate or (B) to Convert any Base Rate Advance or Eurocurrency Rate Advance denominated in Dollars (or translated into an equivalent Dollar amount from an Optional Currency at the rates in effect hereunder from time to time), to or from any other type of Syndicated Advance, on the last day of the Interest Period with respect to the Advance to be so Converted provided that, such Conversion may be effected prior to the last day of the relevant Interest Period subject to the terms of Section 4.8 hereof. In order to exercise the foregoing option, a Borrower must deliver to the Agent a written notice subject to any other notice requirements under this Agreement designating the election of the basis on which the interest rate will be determined at least (x) in the case of a Conversion to the Base Rate, on the proposed date of Conversion, and (y) in the case of a Conversion to the Eurocurrency Rate, three (3) Business Days prior to the proposed date of Conversion relating to such portion of the Borrower's Advance on which such Conversion is to occur. At the Commitment Expiry Date, all Syndicated Advances shall mature and become due and payable. (b) The rate of interest which shall be payable by a Borrower on any portion of the principal of any Syndicated Advance extended to such Borrower which is denominated in an Optional Currency for the time being, and is outstanding during each Interest Period relating thereto, shall be the annual percentage rate of interest determined by the Agent to be the sum of (i) the Applicable Margin in effect plus (ii) the Eurocurrency Rate relating to such Interest Period. (c) Interest shall be payable by each Borrower, and each Borrower hereby absolutely and unconditionally promises to pay to the Agent, for the account of the Banks, in arrears in Dollars, or, as the case may be, in the Optional Currency in which that portion of the principal amount of the Advance extended to such Borrower in respect of which payment is made is denominated (i) with respect to its Eurocurrency Rate Advances, on each Interest Payment Date, provided, however, that if the duration of any such Interest Period is longer than three months, the Borrower shall pay the accrued interest on the last Business Day of each successive three-month period within such Interest Period and on the Interest Payment Date relating thereto and (ii) with respect to Base Rate Advances, quarterly on the first Business Day of each December, March, June and September hereafter, and on any earlier date when a Base Rate Advance is Converted to a Eurocurrency Rate Advance. (d) The Applicable Margin (the "Applicable Margin") shall be the percentage rate per annum in effect from time to time in accordance with the following provisions of this Section 2.4. From time to time the Applicable Margin for Eurocurrency Rate Advances shall be determined by the Agent following the time of delivery to the Agent of the required quarterly and annual financial statements pursuant to Section 8.7 hereof together with the related Compliance Certificate, based upon the Cash Flow Coverage Ratio determined as of the Ratio Calculation Date which is the last day of the fiscal quarter or year covered by such financial statements. The Applicable Margin shall mean (i) with respect to Eurocurrency Rate Advances, (A) if the Cash Flow Coverage Ratio as so determined shall be greater than 4.0:1.0, 0.3% per annum, and (B) if the Cash Flow Coverage Ratio as so determined shall be less than or equal to 4.0:1.0, 0.425% per annum, and (ii) with respect to Base Rate Advances, at all times 0% per annum. Notwithstanding the foregoing, if at any time the Company shall fail to deliver to the Agent any quarterly or annual financial statements within the applicable time period set forth in Section 8.7 hereof, the Agent shall determine the Applicable Margin by reference to the applicable quarterly or annual financial statements appearing in the Borrower's quarterly or annual reports filed with the Securities and Exchange Commission on Form 10-Q or Form 10-K, for such fiscal quarter or year, as the case may be. (e) The Applicable Margin so determined for Eurocurrency Rate Advances pursuant to the foregoing Section 2.4(d) shall become effective as of the date (the "Adjustment Date") which is the day immediately following the applicable Ratio Calculation Date and shall apply as of such Adjustment Date to all outstanding Eurocurrency Rate Advances. The Applicable Margin which becomes effective on each such Adjustment Date shall remain in effect (subject to the other provisions of this Section 2.4 and except as otherwise provided in Section 4.2 hereof) with respect to all Eurocurrency Rate Advances outstanding from time to time until the next Adjustment Date. Notwithstanding the provisions of the preceding two sentences, if at any time, the Cash Flow Coverage Ratio for any period of eight consecutive fiscal quarters ending as of any applicable Ratio Calculation Date was actually a ratio other than the ratio on the basis of which there was determined the rate of interest in effect hereunder on any date, then such interest rate determination shall be adjusted retroactively to the appropriate Adjustment Date on the basis of such corrected determination of the actual Cash Flow Coverage Ratio as of such Ratio Calculation Date, and within three (3) Business Days after notice thereof in reasonable detail requesting a retroactive adjustment of interest previously paid given by any Borrower, the Agent or any Bank, the relevant Borrower, as the case may be, shall pay to the several Banks, or the Banks severally, on a ratable basis, shall credit such relevant Borrower with, as the case may be, the amount of the appropriate retroactive adjustment in respect of such adjusted interest rate for any portion of any Interest Period as to which interest has been paid. Section 3. MONEY MARKET ADVANCES. 3.1. Money Market Borrowings. (a) The Money Market Option. In addition to the Advances permitted to be made hereunder pursuant to Section 2 hereof, a Borrower may, pursuant to the terms of this Section 3, cause the Agent to request the Banks to make offers to fund Money Market Advances, in Dollars, to such Borrower from time to time prior to the Commitment Expiry Date. The Banks may, but shall have no obligation to, make such offers and a Borrower may, but shall have no obligation to, accept such offers in the manner set forth in this Section 3. (b) Money Market Quote Request. When a Borrower wishes to request offers to make Money Market Advances under this Section 3, it shall transmit to the Agent by telex or telecopier a Money Market Quote Request substantially in the form of Exhibit D hereto (a "Money Market Quote Request") so as to be received no later than (i) 11:00 a.m. (Boston time) on the fourth Business Day prior to the requested Borrowing Date, in the case of Eurocurrency Auction or (ii) 2:00 p.m. (Boston time) on the second Business Day prior to the requested Borrowing Date, in the case of an Absolute Rate Auction, specifying (A) the requested Borrowing Date (which must be a Business Day) and the amount of such Advance (which must be a minimum of $1,000,000), (B) the Interest Period of such Advance and (C) whether the Money Market Quotes requested are to set forth a Money Market Margin or a Money Market Absolute Rate. A Borrower may request offers to make Money Market Advances for more than one Interest Period in a single Money Market Quote Request. (c) Invitation for Money Market Quotes; Alternative Manner of Auction. Subsequent to receipt of a Money Market Quote Request, the Agent shall send to the Banks by telex or telecopier an Invitation for Money Market Quotes (as hereafter defined) not later than (i) in the case of a Eurocurrency Auction, 2:00 p.m. (Boston Time) on the fourth Business Day preceding the requested Borrowing Date and (ii) in the case of an Absolute Rate Auction, not later than 4:00 p.m. (Boston time) on the second Business Day prior to the requested Borrowing Date, substantially in the form of Exhibit D hereto (an "Invitation for Money Market Quotes"), which shall constitute an invitation by the Borrower so requesting such quote to each Bank to submit Money Market Quotes offering to make the Money Market Advances to which such Money Market Quote Request relates in accordance with this Section 3. If, after receipt by the Agent of a Money Market Quote Request from a Borrower in accordance with subsection (b) of this Section 3.1, the Agent or any Bank shall be unable to complete any procedure of the auction process described in subsections (c) through (f) (inclusive) of this Section 3.1 due to the inability of such Person to transmit or receive communications through the means specified therein, such Person may rely on telephonic notice for the transmission or receipt of such communications. In any case where such Person shall rely on telephone transmission or receipt, any communication made by telephone shall, as soon as possible thereafter, be followed by written confirmation thereof. (d) Submission and Contents of Money Market Quotes. (i) Each Bank may submit a Money Market Quote containing an offer or offers to make Money Market Advances in response to any Invitation for Money Market Quotes. Each Money Market Quote must comply with the requirements of this subsection (d) and must be submitted to the Agent by telex or telecopier not later than (A) 10:00 a.m. (Boston time) on the third Business Day prior to the requested Borrowing Date, in the case of Eurocurrency Auction or (B) 9:15 a.m. on the requested Borrowing Date in the case of an Absolute Rate Auction; provided, that, Money Market Quotes may be submitted by the Agent in the capacity of a Bank only if the Agent notifies the relevant Borrower of the terms of the offer or offers contained therein not later than 9:00 a.m. (Boston time) on the third Business Day prior to the requested Borrowing Date, in the case of a Eurocurrency Auction or 9:00 a.m. (Boston time) on the requested Borrowing Date, in the case of an Absolute Rate Auction. Subject to the provisions of Sections 6 and 11 hereof, any Money Market Quote so made shall be irrevocable except with the written consent of the Agent given on the instructions of the Borrower. (ii) Each Money Market Quote shall be in substantially the form of Exhibit F hereto and shall in any case specify: (A) the requested Borrowing Date, (B) the principal amount of the Money Market Advance for which each such offer is being made, which principal amount (X) may be greater than the Commitment of the quoting Bank but may not exceed the Total Commitment, (Y) must be $1,000,000 or a larger multiple thereof and (Z) may not exceed the principal amount of Money Market Advances for which offers were requested, (C) in the case of Eurocurrency Auction, the margin above or below the applicable Eurocurrency Rate (the "Money Market Margin") offered for each such Money Market Advance, expressed as a percentage (rounded to the nearest 1/100th of 1%) to be added to or subtracted from the Eurocurrency Rate, (D) in the case of an Absolute Rate Auction, the rate of interest per annum (rounded to the nearest 1/100th of 1%) (the "Money Market Absolute Rate") offered for each such Money Market Advance, and (E) the identity of the quoting Bank. (iii) Any Money Market Quote shall be disregarded if it: (A) is not substantially in the form of Exhibit F hereto or does not specify all of the information required by subsection (d)(ii); (B) contains qualifying, conditional or similar language; (C) proposes terms other than or in addition to those set forth in the applicable Invitation for Money Market Quotes; or (D) arrives after the time set forth in subsection (d)(i). (e) Notice to Borrower. Not later than (i) 11:00 a.m. (Boston time) on the third Business Day prior to the requested Borrowing Date, in the case of a Eurocurrency Auction or (ii) 9:45 a.m. (Boston time) on the requested Borrowing Date, in the case of an Absolute Rate Auction, the Agent shall notify the Borrower requesting such quote of the terms of any Money Market Quote submitted by a Bank that is in accordance with the preceding subsection (d). The Agent's notice to the Borrower shall specify (A) the aggregate principal amount of Money Market Advances for which offers have been received for each Interest Period specified in the related Money Market Quote Request and (B) the respective principal amounts and Money Market Margins or Money Market Absolute Rates, as the case may be, so offered. (f) Acceptance and Notice by Borrower. Not later than (i) 12:00 noon (Boston time) on the third Business Day prior to a requested Borrowing Date, in the case of a Eurocurrency Auction or (ii) 10:30 a.m. (Boston time) on the requested Borrowing Date, in the case of an Absolute Rate Auction, the Borrower shall notify the Agent by telex or telecopier of its acceptance or non-acceptance of the offers so notified to it pursuant to the preceding subsection (e). In the case of an acceptance, such notice (a "Notice of Money Market Borrowing") shall specify the aggregate principal amount of offers for each Interest Period that are accepted. A Borrower may accept any Money Market Quote in whole or in part; provided that: (i) the aggregate principal amount of each Money Market Advance may not exceed the applicable amount set forth in the related Money Market Quote Request, (ii) the principal amount of each Money Market Advance must be $1,000,000 or a larger multiple of $500,000, (iii) acceptance of offers may only be made on the basis of ascending Money Market Margins or Money Market Absolute Rates, as the case may be, and (iv) the Borrower may not accept any offer that is described in subsection (d)(iii) or that otherwise fails to comply with the requirements of this Agreement. (g) Allocation by Agent; Usage of Commitments. If offers are made by two or more Banks with the same Money Market Margins or Money Market Absolute Rates, as the case may be, for a greater aggregate principal amount than the amount in respect of which offers are accepted for the related Interest Period, the principal amount of Money Market Advances in respect of which such offers are accepted shall be allocated by the Agent among such Banks as nearly as possible (in such multiples, not greater than $100,000, as the Agent may deem appropriate) in proportion to the aggregate principal amounts of such offers. Determinations by the Agent of the amounts of Money Market Advances shall be conclusive in the absence of manifest error. Promptly upon its receipt of notice from the applicable Borrower of any acceptance or non-acceptance of offers pursuant to Section 3.1(f) hereof, the Agent shall notify each of the Banks having submitted a Money Market Quote in response to the applicable Invitation for Money Market Quotes, by telecopier or by telephone, as to the acceptance or rejection of such Bank's Money Market Quote by the Borrower. Upon each occasion that a Money Market Advance is made, and during the period for which such Money Market Advance is outstanding, each Bank's Commitment shall be deemed automatically utilized by an amount equal to the amount of such Money Market Advance multiplied by such Bank's Commitment Percentage, regardless of the extent to which such Bank makes such Money Market Advance. (h) Funding of Money Market Advances. If, on or prior to the Borrowing Date of any Money Market Advance, the Total Commitment has not terminated in full and if, on such Borrowing Date, the applicable conditions of Section 4.7(b), Section 6.1, or Section 6.2, as the case may be, are satisfied, the Bank or Banks whose offers in respect of such Money Market Advance the Borrower has accepted will fund each such Money Market Advance so accepted. The Bank or Banks funding such Money Market Advance will make such Advance by crediting the Agent, for further credit to the Borrower's specified account with the Agent, in immediately available funds not later than the close of business on such Borrowing Date. (i) Maximum Money Market Advances. Notwithstanding any other provision herein to the contrary, at no time shall the aggregate principal amount of Money Market Advances outstanding at any time exceed the Total Commitment minus the aggregate principal amount of Syndicated Advances outstanding at such time. 3.2. Interest on Money Market Advances. Each Money Market Eurocurrency Advance shall bear interest on the outstanding principal amount thereof, for the Interest Period applicable thereto, at a rate per annum equal to the sum of the Eurocurrency Rate for such Interest Period and the positive or negative Money Market Margin quoted by the Bank making such Advance in accordance with Section 3.1(d)(ii)(C) hereof. Each Money Market Absolute Rate Advance shall bear interest on the outstanding principal amount thereof, for the Interest Period applicable thereto, at a rate per annum equal to the Money Market Absolute Rate quoted by the Bank making such Advance in accordance with Section 3.1(d)(ii)(D). Such interest shall be payable for each Interest Period on the last day thereof or, if such Interest Period is longer than three months, every three months after the first day thereof and on the last day thereof. Section 4. CERTAIN COMMON PROVISIONS. 4.1. Determination of Interest Rate. Each determination of any interest rate by the Agent pursuant to the terms hereof with respect to any Advance shall be conclusive in the absence of manifest error. 4.2. Overdue Amounts. Overdue principal and, to the extent permitted by applicable law, overdue interest and other amounts overdue under any provision of this Agreement shall bear interest at the rate determined by the Agent to be one percent (1%) per annum above the rate which would otherwise be payable in respect of principal not at the time overdue. Such interest on overdue principal and overdue interest and other amounts overdue shall be payable on demand and shall continue to accrue from the due date of such principal, interest or amounts and shall be compounded monthly until the obligation of the defaulting Borrower in respect of the payment thereof is discharged (whether before or after judgment). 4.3. Alternative Interest Rate. Except as otherwise provided in this Agreement, if on any Rate-fixing Day on which the interest rate with respect to any Syndicated Advance is to be based on the Eurocurrency Rate, the Agent shall determine that it is unable to quote the Eurocurrency Rate, or that the Majority Banks are unable to or it is impracticable for them to fund the Advance for the requested Interest Period, the Agent will so notify the applicable Borrower on such day (by telephone), and unless the Borrower elects, by notice to the Agent prior to 5:00 p.m. (Boston time) on such Rate-fixing Day, to rescind its request for an Advance, the Borrower shall be deemed to have elected that the Advance be denominated in Dollars as a Base Rate Advance. 4.4. Repayments and Prepayments of the Advances, etc. (a) Each Borrower hereby absolutely and unconditionally agrees to pay to the Agent for the account of the Banks on the Commitment Expiry Date and there shall become absolutely due and payable on said date, the entire unpaid principal of and interest on such Borrower's Advances from each Bank outstanding on such date. (b) Each Borrower may, pursuant to this paragraph (b), elect to prepay the principal of any Advance outstanding at any time in full or from time to time in part without premium or penalty, except as provided in Section 4.8 hereof. The amount of any partial prepayment of the unpaid principal of any Advance pursuant to this paragraph (b) shall be (i) in the case of Base Rate Advances, in a principal amount of not less than $1,000,000, or (ii) in the case of Eurocurrency Advances, in a principal amount of not less than $5,000,000 or the equivalent thereof in any Optional Currency in which that portion of the principal amount of the Advance in respect of which the prepayment is to be made is denominated. Amounts prepaid pursuant to this paragraph (b) may, subject to the terms and conditions of this Agreement, be reborrowed before the Commitment Expiry Date. (c) Each Borrower shall make repayments as and when required by Section 4.11(c) hereof. (d) Upon each repayment or prepayment by any Borrower of any principal of any Advance pursuant to any of the provisions of this Agreement, such Borrower hereby absolutely and unconditionally promises to pay to the Agent for the account of each Bank to which a portion of such payment is owing, and there shall become absolutely due and payable on the date of each such repayment or prepayment, all of the unpaid interest accrued to such date on the amount of the principal of the Advance being repaid or prepaid on such date, together with all, if any, other sums then due and payable hereunder in respect of the principal of the Advance being repaid or prepaid on such date, including, but not limited to, any sums payable in accordance with Sections 4.7 and 4.8 hereof. Whenever any interest on and any principal of an Advance are paid simultaneously hereunder, the whole amount paid shall be applied first to interest then due and payable. (e) Each repayment or prepayment of principal which is less than the entire unpaid principal amount owed by any Borrower under this Agreement in respect of any Syndicated Advance, shall be allocated among the Banks in proportion, as nearly as practicable, to the unpaid principal amount of each Bank's portion of such Syndicated Advance, with adjustments to the extent practical to equalize any prior payments not exactly in proportion. (f) The obligations of each Borrower to repay all amounts borrowed by it hereunder, all interest thereon and all fees and other amounts payable by it in respect thereof shall be evidenced by this Agreement and by individual loan accounts (the "Loan Accounts" and individually, a "Loan Account") maintained by the Agent on its books for each of the Banks, it being the intention of the parties hereto that, except as provided for in paragraph (g) of this Section 4.4, each Borrower's obligation with respect to Advances are to be evidenced only as stated herein and not by separate promissory notes. (g) Any Bank may at any time, and from time to time, request that any Advances outstanding to such Bank be evidenced by a promissory note or notes (the "Notes") of the applicable Borrower. Upon such request, the applicable Borrower shall promptly execute and deliver to such Bank a Note substantially in the form of Exhibit A attached hereto, appropriately completed. Upon execution and delivery by a Borrower of a Note, such Borrower's obligation to repay the Advances made to it by such Bank and all interest thereon shall thereafter be evidenced by such Note. (h) Notwithstanding any other provision of this Agreement, each Fixed Rate Advance shall mature and become due and payable in full on the last day of the Interest Period relating thereto (whether upon the initial borrowing thereof or upon the continuation thereof, or any Conversion of any such Fixed Rate Advance pursuant to Section 2.4). However, at such maturity the Borrower thereof shall be entitled inter alia to reborrow the principal amount of each Syndicated Advance as a new Syndicated Advance of the same type by continuation of such Advance or a Syndicated Advance of a different type by Conversion pursuant to Section 2.4(a), for one or more additional Interest Periods, subject to all of the conditions precedent set forth in Section 6.1, exclusive, however, of Section 6.1(e) to the extent such section incorporates Section 7.1.7. At the time of each such reborrowing as a new Syndicated Advance the Company shall be deemed to have made a representation, and if the Advance is outstanding to a Borrowing Subsidiary, such Borrowing Subsidiary shall be deemed to have made a representation, in each case, to the effect set forth in Section 6.1(e), except in respect of Section 7.1.7. The provisions of this Section 4.4(h) apply to the repayment and reborrowing of Syndicated Advances which do not result in an increase in the aggregate principal amount of Syndicated Advances at the time outstanding. Borrowings increasing such aggregate principal amount are governed by the provisions of this Section 4.4 and the whole of Section 6.1. 4.5. Payments and Computations. (a) Each payment payable by a Borrower (i) denominated in Dollars hereunder shall be made to the Agent at its Head Office, in immediately available funds, or, (ii) denominated in any Optional Currency shall be made in immediately available funds, for the account of the Agent at a depository designated by the Agent in the country in which such Optional Currency is legal tender. Each payment in respect of any Advance made by a Borrower shall be made in the same currency in which such Advance was made. Each Borrower authorizes the Agent to charge any of its respective accounts with the Agent or the Banks for payments of principal, interest and commitment fees due from it hereunder or any other fees payable by it which are provided for in Section 5 hereof. (b) If any sum would, but for the provisions of this Section 4.5(b), become due and payable hereunder on a day which is not a Business Day, then such sum shall become due and payable on either the Business Day next preceding or the Business Day next succeeding the day on which such sum would otherwise have become due and payable hereunder, such Business Day to be selected (which selection shall be conclusive and binding on each Borrower) by the Agent in accordance with the Agent's current banking practice in the relevant interbank Eurocurrency market or Boston (as the case may be) and notified to such Borrower not less than five (5) Business Days prior to such non-Business Day, and interest and fees hereunder shall be adjusted accordingly. (c) All computations of interest and fees payable hereunder shall be made by the Agent on the basis of actual number of days elapsed and on a 360-day year provided that, interest on Base Rate Advances shall be calculated based on a 365-day year. (d) Each determination by the Agent of an amount of interest or any fee payable by any Borrower hereunder shall, save for manifest error, be conclusive and binding upon the Borrower. (e) Promptly upon receipt of all payments under this Agreement with respect to Syndicated Advances, the Agent shall pay to each of the Banks its pro rata share thereof. Promptly upon receipt of all payments with respect to Money Market Advances, the Agent shall pay the proper portion of such payment to each Bank which made such Money Market Advance. 4.6. Payments to be Free of Deductions. All payments by the Borrowers under this Agreement shall be made without set-off or counterclaim and free and clear of and without deduction for any taxes, levies, imposts, duties, charges, fees, deductions, withholdings, compulsory loans, restrictions or conditions of any nature now or hereafter imposed or levied by any country or any political subdivision thereof or taxing or other authority therein unless a Borrower is compelled by law to make such deduction or withholding. If any such obligation is imposed upon a Borrower with respect to any amount payable by it hereunder, the Borrower will pay to the Agent for the account of each Bank, on the date on which the said amount becomes due and payable hereunder, such additional amount as shall be necessary to enable each Bank to receive the same net amount which it would have received on such due date had no such obligation been imposed upon the Borrower. Each Borrower will deliver promptly to the Agent certificates or other valid vouchers for all taxes or other charges deducted from or paid with respect to payments made by such Borrower hereunder. 4.7. Additional Costs, Changes in Circumstances, etc. (a) Anything herein to the contrary notwithstanding, if any present or future applicable law (which expression, as used in this Agreement, includes statutes and rules and regulations thereunder and interpretations thereof by any competent court or by any governmental or other regulatory body or official charged with the administration or the interpretation thereof and requests, directives, instructions and notices at any time or from time to time heretofore or hereafter made upon or otherwise issued to the Agent or any Bank by any central bank or other fiscal, monetary or other authority, whether or not having the force of law) shall (i) subject the Agent or any Bank to any tax, levy, impost, duty, charge, fee, deduction or withholding of any nature with respect to this Agreement, the amount of any Commitment or the Total Commitment, or the payment to the Agent or any Bank of any amounts due to it hereunder, or (ii) materially change the basis of taxation of payments to the Agent or any Bank of the principal or the interest on or any other amounts payable to the Agent or any Bank hereunder, or (iii) impose or increase or render applicable any special or supplemental special deposit or reserve or similar requirements or assessment against assets held by, or deposits in or for the account of, or any eligible liabilities of, or loans by an office of the Agent or any Bank in respect of the transactions contemplated herein, or (iv) impose on the Agent or any Bank any other condition or requirement with respect to this Agreement, any Commitment or the Total Commitment, and the result of any of the foregoing is (A) to increase the cost to any Bank of making, funding or maintaining all or any part of the Advances, or (B) to reduce the amount of principal, interest or other amount payable to any Bank hereunder, or (C) to require the Agent or any Bank to make any payment or to forego any interest or other sum payable hereunder, the amount of which payment or foregone interest or other sum is calculated by reference to the gross amount of any sum receivable or deemed received by the Agent or any Bank from any Borrower hereunder, then, and in each such case not otherwise provided for hereunder, such Borrower will, upon demand made by the Agent accompanied by calculations thereof in reasonable detail, pay to the Agent for its account or for the account of such Bank, as the case may be, such additional amounts as will be sufficient to compensate them for such additional cost, reduction, payment or foregone interest or other sum, provided that the foregoing provisions of this sentence shall not apply in the case of any additional cost, reduction, payment or foregone interest or other sum resulting from any taxes charged upon or by reference to the overall net income, profits or gains of the Agent or any Bank. (b) If the Agent shall determine that any change in applicable law shall make it unlawful for any Bank to comply with or to maintain its obligations to fund Eurocurrency Rate Advances, Money Market Eurocurrency Advances or Advances in any Optional Currency hereunder in the relevant interbank market, then the Agent may notify any affected Borrower of such determination in writing. If the Agent so notifies such Borrower, then (i) each Bank's obligations to fund such Advances as Eurocurrency Rate Advances, Money Market Eurocurrency Advances or in such Optional Currency or Currencies, as the case may be, shall terminate in full on and as of the date of such notice, and (ii) such Advances shall on the last day of any Interest Period which is current when the Borrower is so notified or, if the same would be unlawful, then as soon as practicable after the date of such notice, be automatically Converted to Base Rate Advances. (c) If any change in law or any governmental rule, regulation, policy, guideline or directive (whether or not having the force of law) or the interpretation thereof by a court or governmental authority with appropriate jurisdiction affects the amount of capital required or expected to be maintained by any of the Banks or any Person controlling any of the Banks and such Bank determines that the amount of capital required is increased by or based upon the existence of the credit facility established hereunder or any Advances made pursuant hereto then such Bank shall notify the Company of such fact showing the calculation thereof in reasonable detail. To the extent that the costs of such increased capital requirements are not reflected in the Base Rate, Eurocurrency Rate, Money Market Margin, Money Market Absolute Rate, or in amounts paid by a Borrower pursuant to Section 4.7(a) hereof, the Company and such Bank shall thereafter attempt to negotiate in good faith an adjustment within thirty days of the day on which the Company receives such notice. If no such adjustment is agreed pursuant thereto within such time, then commencing on the date of such notice (but not earlier than the effective date of any such change), the amounts payable by the applicable Borrower hereunder shall increase by an amount which will, in such Bank's reasonable determination, provide adequate compensation. Such Bank shall allocate such cost increases among its customers in good faith and on an equitable basis. 4.8. Indemnification. In the event that any Borrower shall at any time (a) repay or prepay any principal of any Fixed Rate Advance on a date other than the last day of the Interest Period with respect thereto, whether such repayment or prepayment is pursuant to Sections 4.4, 4.11, as a result of acceleration or otherwise, or (b) for any reason (other than as permitted under Sections 4.3 and 4.7(b) hereof) fail to borrow or Convert any Fixed Rate Advance (including, without limitation, any Money Market Advance for which the Borrower has accepted the Money Market Quote), as requested, such Borrower shall, upon demand by the Agent accompanied by calculations in reasonable detail, pay to the Agent for the account of the Banks any amounts required to compensate the Banks for any and all losses, costs and expenses of the Banks (other than incidental, special, indirect or consequential damages, except to the extent that the amount calculated in accordance with the formula set forth below could be construed as constituting such incidental, special, indirect or consequential damages) in respect of the Borrower's payment, prepayment or failure to borrow or Convert, on the date of such payment or failure to borrow or Convert, including, but not limited to, compensation relating to liquidation or reemployment of deposits or other funds acquired by any Bank to fund or maintain such Advances. Such compensation may include, without limitation, an amount equal to the excess, if any, of (x) the amount of interest which would have accrued on the amount so paid or prepaid or not borrowed or so Converted for the period from the date of such payment or prepayment or failure to borrow or so Convert to the last day of the then current Interest Period for such Advances (or, in the case of a failure to borrow or Convert the Interest Period for such Advances which would have commenced on the date of such failure to borrow or Convert) at the applicable rate of interest for such Advances provided for herein, over (y) the amount of interest (as reasonably determined by the Agent in consultation with the Banks) the Banks would have paid on Eurocurrency deposits, certificates of deposit or deposits used to fund Advances at the Money Market Absolute Rate (as the case may be) of comparable amounts having terms comparable to such period placed with it by leading banks in the relevant Eurocurrency market in deposits of foreign currencies among banks, the New York certificate of deposit market or any other applicable deposits market (as the case may be). 4.9. Reduction or Termination by the Company of Total Commitment. Prior to the Commitment Expiry Date the Company may from time to time reduce, pro rata according to the Banks' respective Commitment Percentages in the aggregate principal amount of $5,000,000 or any integral multiple thereof, or at any time terminate, the Total Commitment, in each case by giving at least ten (10) Business Days' prior written notice thereof to the Agent and, if necessary, making, or causing to be made, a payment against principal of the Advances in such amount as will reduce the unpaid principal balance thereof to an amount not in excess of the desired reduced amount of the Total Commitment or, if the Total Commitment is being terminated, paying, or causing to be paid, all obligations then due hereunder, including, but not limited to, any accrued fees payable pursuant to Section 5 hereof. No reduction or termination of the Commitment Percentages of the Banks may be reinstated. 4.10. Regulation D Compensation. Each Bank may require a Borrower to pay, contemporaneously with each payment of interest on Eurocurrency Advances or Money Market Eurocurrency Advances, as the case may be, additional interest on the related Advance of such Bank at a rate per annum equal to the excess of (i) (A) the applicable Eurocurrency Rate divided by (B) one minus the Eurocurrency Reserve Percentage over (ii) the rate specified in clause (i)(A) of this Section 4.10. Any Bank requiring payment of such additional amounts shall notify the applicable Borrower and the Agent, showing calculations in reasonable detail, in which case such additional amounts payable in respect of such Eurocurrency Advances or Money Market Eurocurrency Advances, as the case may be, shall be payable to such Bank. 4.11. Optional Currencies. (a) A Borrower may elect, prior to the Commitment Expiry Date at any time or from time to time in accordance with the terms of this Agreement, to draw down or convert all or a portion of the funds available as Syndicated Advances under this Agreement in, or to, an Optional Currency (if any), in each case funded by the Banks on a several basis, provided that the aggregate principal amount outstanding under this Agreement immediately following any such drawdown or conversion in or to Optional Currencies (if any) shall not exceed the equivalent of the Dollar amount of the aggregate Commitments of the Banks, and provided further that any funds proposed to be converted at any one time under this Section 4.11 shall be in amounts of not less than U.S. $1,000,000 or shall be an integral multiple thereof, or the equivalent in any Optional Currency. In order to exercise the foregoing option, a Borrower must deliver to the Agent a written notice, subject to any other notice requirements under this Agreement, designating the currency in or into which the designated portion of the Borrower's Advance is to be drawn down or, as the case may be, converted, at least three (3) Business Days prior to the commencement of the subsequent Interest Period relating to such portion of the Borrower's Advance, and any such drawdown or conversion shall be effected on such date. If any such conversion notice is not delivered to the Agent by such Borrower within the required time, the Borrower shall be deemed to have elected that the relevant portion of the principal amount of the Borrower's Advance continue to be denominated in the currency in which it then currently stands denominated. No Interest Period during which a portion of the principal of a Borrower's Advance is to be denominated in any Optional Currency shall have an Interest Payment Date which occurs after the Commitment Expiry Date. If the Agent determines, after consultation with the Reference Banks (which determination shall be conclusive), on or prior to the second Business Day preceding the first day of any Interest Period during which a portion of the principal of a Borrower's Advance is to be denominated (whether as a new Advance, by conversion or otherwise) in any Optional Currency, that the Optional Currency is not freely transferable and convertible into Dollars or (whether based upon such consultation or upon notification to the Agent by any Bank) that it will be impracticable for any of the Banks to fund the Advance in such Optional Currency, then the Agent shall so notify the Borrower making the election, stating the reason therefor in reasonable detail, and that portion of the principal amount of the Borrower's Advance to be drawn down or so converted shall, notwithstanding any contrary election by such Borrower or any other provisions hereof, be denominated in Dollars and be in the form of a Base Rate Advance. (b) Except as provided in Section 14.12 hereof, for purposes of this Agreement the amount in one currency which shall be equivalent on any particular date to a specified amount in another currency shall be that amount (as conclusively ascertained by the Agent absent manifest error) in the first currency which is or could be purchased by the Agent (in accordance with its normal banking practices) with such specified amount in the second currency in any recognized interbank foreign currency deposits market selected by the Agent in good faith for delivery on such date at the spot rate of exchange prevailing on such date. (c) In the event that any portion of the funds available under the terms of this Agreement is denominated in one or more Optional Currencies, the Dollar equivalent of such portion of the funds shall be calculated pursuant to paragraph (b) above. The amount so determined shall then be added to the amount already outstanding in Dollars for the purpose of determining the remaining availability of funds under Section 4.11(a) hereof and any required repayments under Section 4.4(c) hereof. Notwithstanding the foregoing, if at any time prior to the Commitment Expiry Date, the Dollar equivalent of the aggregate principal amount outstanding hereunder shall exceed the aggregate Commitments of the Banks by an amount equal to (or exceeding) the lesser of (i) five percent (5%) of such aggregate Commitments of the Banks or (ii) $7,500,000 as a result of fluctuations in respective conversion rates, the Company shall pay or cause to be paid immediately, upon demand made by the Agent, such amounts as are sufficient to reduce the aggregate principal amount outstanding to the Dollar equivalent of the aggregate Commitments of the Bank. 4.12. U.S. Withholding Tax Exemption Certificates. If any Bank is not incorporated under the laws of the United States of America or any state thereof, it shall, prior to the date on which any interest or Facility Fees are payable hereunder for its account, deliver to the Company and the Agent proper certification as to its exemption from deduction or withholding of any United States federal income taxes. 4.13. Lending Offices. Each Syndicated Advance made by a Bank in an Optional Currency, and each payment by any Borrower in respect thereof, shall be made by, or, as the case may be, for the account of, such applicable lending office of such Bank as such Bank may from time to time specify in writing to the Agent. Section 5. FEES. 5.1. Facility Fee. The Company agrees to pay to the Agent for the account of the Banks on the first day of each December, March, June and September hereafter, so long as the Banks' Commitment to make Advances hereunder is outstanding, a facility fee (the "Facility Fee") on the average daily amount of the Total Commitment during the preceding three-month period or portion thereof. The Facility Fee shall be one-eighth of one percent (1/8%) per annum of the Total Commitment and shall be allocable among the Banks in accordance with their respective Commitment Percentages. 5.2. Agent's Fee. The Company hereby agrees to pay the Agent an agent's fee (the "Agent's Fee") in the amounts and at the times described in a letter agreement (the "Fee Letter Agreement") between the Company and the Agent, dated as of the date hereof. Section 6. CONDITIONS OF LENDING. 6.1. Conditions Precedent to Each Advance. The obligation of the Banks to make any Advance is subject to the performance by the Company or the Borrowing Subsidiary, as the case may be, of all its agreements theretofore to be performed by it hereunder and to the satisfaction, prior to or at the time of making such Advance, of the following conditions: (a) The Agent shall have timely received from the applicable Borrower any notice required under any provisions of this Agreement, signed by any one of the Chief Executive Officer, Vice President-Finance, Treasurer, Assistant Treasurer or Chief Financial Officer of the Company and if the Borrower is a Borrowing Subsidiary, an individual having comparable authority to any of such officers, which request, without more, will constitute certification by such officers as to the matters set forth in paragraphs (c) and (e) below; (b) The Agent and the Banks shall have received duly certified copies of the necessary and appropriate (if any) votes passed or other corporate action taken by the Board of Directors of the Borrower with respect to authorizing and approving the transactions contemplated by this Agreement, and duly certified copies of the incorporation or charter documents, by-laws, and other organizational documents of such Borrower, together with appropriate certificates of public officials as to the legal existence and corporate good standing of such Borrower; (c) All necessary and appropriate (if any) votes, resolutions, consents, waivers, approvals, amendments and other action on the part of the Board of Directors of the Company or any Subsidiary, or on the part of any holders of Indebtedness or shares of capital stock of any class or classes of the Company or any Subsidiary necessary and appropriate to have been obtained or effected in order to carry out its obligations to be performed pursuant to this Agreement shall have been duly obtained or effected and shall be in full force and effect; (d) The making of an Advance shall not contravene any law or rule or regulations thereunder or any Executive Order of the President of the United States binding on the Borrower or any Bank; (e) Subject to Section 4.4(h) hereof, the representations and warranties in Section 7 hereof and all other representations in writing made by or on behalf of the Company or any Subsidiary to the Banks in connection with the transactions contemplated by this Agreement shall be true as of the date on which they were made and shall also be true at and as of the time of the making of the Advance with the same effect as if made at and as of the time (except that each reference to financial statements shall be deemed a reference to the latest such financial statements delivered hereunder and except to the extent of changes resulting from transactions contemplated by this Agreement and changes occurring in the ordinary course of business which singly or in the aggregate are not materially adverse in relation to the Company and its Subsidiaries on a Consolidated basis, and to the extent that such representations and warranties relate expressly to an earlier date or to projections relating to the business of the Company and the Subsidiaries delivered to the Banks prior to the date of this Agreement) and no Default or Event of Default shall exist; and (f) All fees, and all expenses and other amounts due and payable pursuant hereto prior to or on the date of the Advance shall have been paid. 6.2. Conditions Precedent to First Advance. (a) The obligation of the Banks to make the first Advance to the Company hereunder is subject to all of the conditions set forth in Section 6.1 hereof and to the following further conditions, each to be fulfilled to the satisfaction of each of the Agent and the Banks: (i) This Agreement and the Fee Letter Agreement shall have been duly executed and delivered by the parties thereto; (ii) The Company shall have certified to the Agent and the Banks the name and a specimen signature of each officer of the Company authorized to sign requests for Advances on behalf of the Company. The Agent and the Banks may rely conclusively on such certification until the Agent receives notice in writing to the contrary from the Company; (iii) The Agent and the Banks shall have received an opinion addressed to the Banks from Christine C. Ciotti, Esq., counsel for the Company, in form and substance satisfactory to the Agent as to the matters relating to the Company specified in Sections 7.1.1, 7.1.2, 7.1.3, 7.1.4, 7.1.5, 7.1.11, 7.1.12 and 7.1.13, and as to such other matters as the Agent and the Banks may reasonably request; and (iv) On and as of the date of this Agreement, the lending commitments of the respective lenders under the Prior Credit Agreements shall have been terminated in full and all amounts owing thereunder, whether in respect of fees, expenses, or otherwise, shall have been paid in full. (b) The obligation of the Banks to make the first Advance (which shall mean the initial Advance to a Subsidiary after each election by such Subsidiary to become a Borrowing Subsidiary) to any Borrowing Subsidiary is subject to all of the conditions set forth in Section 6.1 hereof and to the following further conditions, each to be fulfilled to the satisfaction of each of the Agent and the Banks: (i) Such Borrowing Subsidiary shall have certified to the Agent and the Banks the name and a specimen signature of each officer of such Borrowing Subsidiary authorized to sign requests for Advances on behalf of such Borrowing Subsidiary. The Agent and the Banks may rely conclusively on such certification until the Agent receives notice in writing to the contrary from such Borrowing Subsidiary; (ii) The Agent and the Banks shall have received an opinion addressed to the Banks from counsel to such Borrowing Subsidiary, such counsel to be reasonably acceptable to the Agent, in form and substance reasonably satisfactory to the Agent and the Banks, as to matters relating to such Subsidiary specified in Sections 7.1.4, 7.1.11, 7.1.13, 7.2.1, 7.2.2, 7.2.3 and 7.2.4 as to such other matters as the Agent and the Banks may reasonably request; provided that as to factual matters referred to therein, such opinion may be given based on such counsel's best knowledge after reasonable inquiry; and (iii) The Agent and the Banks shall have received a certificate from a duly authorized officer of such Borrowing Subsidiary, representing and warranting to the Banks, on behalf of such Borrowing Subsidiary, that no approval of, or filing with, any governmental agency or authority (which has not already been obtained) is required to make valid and legally binding the execution, delivery and performance of the election to become a Borrower and this Agreement and consummation of the transactions contemplated hereby. Section 7. REPRESENTATIONS AND WARRANTIES. 7.1. Representations and Warranties of the Company. The Company represents and warrants to the Banks that: 7.1.1. Organization, Good Standing, Authority, etc. The Company and each Subsidiary (a) is a corporation duly organized, existing and in good standing under the laws of the jurisdiction of its incorporation, (b) has all requisite corporate power to own its property and conduct its business as now conducted and (c) to the best of the Company's knowledge, is duly qualified to do business and in good standing as a foreign corporation in each jurisdiction where the nature of its properties or its business requires such qualification except where the failure to so qualify or be in good standing will not have a materially adverse effect on the Company and its Subsidiaries on a Consolidated basis. The execution, delivery and performance of this Agreement and the transactions contemplated hereby are within the corporate authority of the Company, have been authorized by proper corporate proceedings and do not and will not contravene any provisions of its charter, other incorporation papers, by-laws or any stock provision or any amendment thereof or, to the best of the Company's knowledge, any provisions of law or of any indenture, agreement, instrument or undertaking binding upon the Company or any Subsidiary. The execution, delivery and performance of this Agreement by the Company will result in valid and legally binding obligations of the Company, enforceable against the Company in accordance with their respective terms, except as limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws relating to or affecting generally the enforcement of creditor's rights and the availability of equitable remedies. 7.1.2. Governmental Approvals. No approval or consent of, or filing with, any governmental agency or authority is required to make valid and legally binding the execution, delivery and performance of this Agreement and consummation of the transactions between the parties hereto contemplated hereby. 7.1.3. Subsidiaries. Attached hereto as Schedule 2 is a schedule which correctly identifies all present Subsidiaries. All of the issued and outstanding shares of stock of each Subsidiary have been validly issued and are fully paid and non-assessable and, except for directors' qualifying shares and as otherwise noted on Schedule 2 hereto, are owned by the Company or a Subsidiary free and clear of any mortgage, pledge, lien, encumbrance, charge or restriction on transfer. Except as described on Schedule 2 hereto, no rights to subscribe to additional shares of stock of any Subsidiary have been granted to any entity other than the Company or any majority-owned Subsidiary. 7.1.4. Compliance with Other Instruments. Neither the Company nor any Subsidiary is in material default under any provisions of its charter, other incorporation papers, by-laws or stock provisions or any amendment thereof. 7.1.5. Litigation Except as disclosed in the Company's reports filed with the Securities and Exchange Commission on Forms 10-K for the fiscal year ended December 31, 1993 and 10-Q for the fiscal quarter ended April 2, 1994 (copies of which have been provided to the Banks on or prior to the date hereof), no action, suit, investigation or proceeding is pending or known to be threatened against the Company or any Subsidiary before any court or administrative agency which, by itself or taken together with other such litigation, could reasonably be expected to have a material adverse effect upon the business or financial condition of the Company and its Subsidiaries on a Consolidated basis. 7.1.6. Financial Statements. The Company has heretofore furnished to the Agent (with copies for each of the Banks) a Consolidated balance sheet, income statements, and statements of cash flow as of and for the fiscal years ended December 31, 1993, audited and reported upon by Coopers & Lybrand, independent public accountants. Such balance sheet, income statements and statements of cash flow present fairly the financial condition and results of operations of the Company and its Subsidiaries as of the dates and for the periods indicated. Such balance sheet, together with the notes thereto, discloses all material liabilities, direct or contingent, of the Company and its Subsidiaries as of the date thereof. The financial statements referred to in this Section 7.1.6 have been prepared in accordance with generally accepted accounting principles applied on a consistent basis. 7.1.7. Changes. Since the date of the latest financial statements delivered by the Company pursuant to Section 8.7 hereof, there has been no change in the assets, liabilities, financial condition or business of the Company and its Subsidiaries on a Consolidated basis, other than changes the effect of which has not been in any case, or in the aggregate, materially adverse. 7.1.8. Business. The Company and its Subsidiaries have good and marketable title to their properties and assets, including such properties and assets as are reflected in the Consolidated balance sheets referred to in Section 7.1.6 hereof or acquired after the date hereof (subject to liens, defects in title or other encumbrances permitted under Section 9.1 hereof) except for those properties and assets disposed of since that date. The Company and each Subsidiary owns or possesses the right to own all the franchises, rights and licenses necessary for the conduct of its business as now conducted in all material respects on a Consolidated basis. 7.1.9. Taxes. All federal, state and other tax returns of the Company and the Subsidiaries required by law to be filed have been filed, and all federal, state and other taxes, assessments and other governmental charges upon the Company and the Subsidiaries or their properties which as shown thereon to be due have been paid except such of those items as are being in good faith appropriately contested by the Company or such Subsidiary, and as to which appropriate reserves (in accordance with generally accepted accounting principles) have been set aside on the Company's or such Subsidiary's books. The Company has set aside on its books provisions reasonably adequate for the payment of all taxes for periods which have elapsed subsequent to the periods for which such returns have been filed. 7.1.10. No Defaults. No event has occurred and is continuing and no condition exists which constitutes a Default or an Event of Default. 7.1.11. Regulation U. (a) Neither the Company nor any of its Subsidiaries is engaged principally, or as one of its important activities, in the business of extending credit for the purpose of purchasing or carrying Margin Stock; (b) no part of the proceeds of the Advances will be used, directly or indirectly, and whether immediately, incidentally or ultimately for any purpose which entails a violation of, or which is inconsistent with, the provisions of any of the regulations of the Board including, without limitation, Regulations G, T, U and X thereof; and (c) on the date of and after giving effect to each Advance, the Company and its Subsidiaries on a Consolidated basis will not beneficially own any Excess Margin Stock in an amount greater than the value (as determined in accordance with the provisions of Regulation U of the Board) of Permitted Margin Stock. 7.1.12. Pension Plans. The Company and each ERISA Affiliate is in compliance in all material respects with those provisions of ERISA and the regulations and published interpretations thereunder which are applicable to the Company and each ERISA Affiliate. As of the date hereof, no Reportable Event has occurred with respect to any Plan or Plans as to which the Company or any ERISA Affiliate was required to file a report with the Pension Benefit Guaranty Corporation, and no material unfunded benefit liabilities exist under any Plan. 7.1.13. Investment Company; Public Utility Holding Company. Neither the Company nor any Subsidiary is an "investment company" or a "company controlled" by an "investment company" or an "affiliate" of an "investment company" within the meaning of the Investment Company Act of 1940, as amended. Neither the Company nor any Subsidiary is a "holding company", or a "subsidiary company" of a "holding company", or an "affiliate" of a "holding company" or of a "subsidiary company" of a "holding company", as such terms are defined in the Public Utility Holding Company Act of 1935, as amended. 7.2. Representations and Warranties of Each Borrowing Subsidiary. Each Borrowing Subsidiary shall be deemed by the execution and delivery of its election to become a Borrowing Subsidiary to have represented and warranted to the Banks as of the date thereof as follows: 7.2.1. Organization, Good Standing, Authority etc. It (a) is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation, (b) has all requisite corporate power to own its property and conduct its business as now conducted and (c) to the best of its knowledge, is duly qualified to do business and in good standing as a foreign corporation in each jurisdiction where the nature of its property or business requires such qualification except where the failure to so qualify or be in good standing will not have a materially adverse effect on the Company and its Subsidiaries on a Consolidated basis. The execution, delivery and performance of its election to become a Borrowing Subsidiary, and the performance of its obligations thereunder and under the provisions of this Agreement applicable to it are within the corporate authority of such Borrowing Subsidiary, have been duly authorized by all necessary corporate proceedings, and do not and will not contravene any provisions of its charter, other incorporation papers, by-laws or any stock provision or any amendment thereof, or, to the best of its knowledge, any provisions of law or any indenture, agreement, instrument or undertaking binding upon it. The execution, delivery and performance of its election to become a Borrowing Subsidiary will result in valid and legally binding obligations of such Borrowing Subsidiary, enforceable against it in accordance with the terms and provisions thereof and hereof, except as limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws relating to or affecting generally the enforcement of creditor's rights and the availability of equitable remedies. 7.2.2. Governmental Approvals. No approval or consent of, or filing with, any governmental agency or authority (which has not already been obtained) is required to make valid and legally binding the execution, delivery and performance of the election to become a Borrower and this Agreement and consummation of the transactions contemplated hereby. 7.2.3. Borrowing Subsidiary. It qualifies as a Borrowing Subsidiary under this Agreement. 7.2.4. Investment Company; Public Utility Holding Company. Such Borrowing Subsidiary is not an "investment company" or a "company controlled" by an "investment company" or an "affiliate" of an "investment company" within the meaning of the Investment Company Act of 1940, as amended. Such Borrowing Subsidiary is not a "holding company", or a "subsidiary company" of a "holding company", or an "affiliate" of a "holding company" or of a "subsidiary company" of a "holding company", as such terms are defined in the Public Utility Holding Company Act of 1935, as amended. Section 8. CERTAIN AFFIRMATIVE COVENANTS. The Company covenants and agrees that, so long as any amounts are owing with respect to this Agreement or any Bank shall have a Commitment hereunder, the Company will (and to the extent applicable to any Subsidiary, will insure like compliance by each such Subsidiary): 8.1. Punctual Payment. Duly and punctually pay or cause to be paid the principal of and interest and all other sums due under this Agreement in accordance with the terms hereof. 8.2. Conduct of Business. (1) Comply with the requirements of all applicable laws, rules, regulations and orders of any governmental authority of the United States of America or any political subdivision thereof or any other jurisdiction to which the Company or any of its Subsidiaries may be subject, a violation of which could reasonably be anticipated to have a material adverse effect on the business, assets, operations or condition (financial or otherwise) of the Company and its Subsidiaries on a Consolidated basis, (2) at all times do or cause to be done all things necessary to preserve, renew and keep in full force and effect the rights, licenses, permits, franchises, patents, copyrights, trademarks and trade names material to the conduct of its business and the businesses of its Subsidiaries; provided that the foregoing shall not be construed to prohibit disposal by the Company or any of its Subsidiaries of any thereof if such disposal could not reasonably be anticipated to have a material adverse effect on the business, assets, operations or condition (financial or otherwise) of the Company and its Subsidiaries on a Consolidated basis, and (3) maintain and operate its businesses (on a Consolidated basis) in substantially the manner in which they are presently conducted and operated. 8.3. Taxes, etc. Except where failure to do so could not reasonably be expected to have a material adverse effect on the Company and its Subsidiaries on a Consolidated basis, duly pay and discharge, or cause to be paid and discharged, before the same shall become in arrears, all taxes, assessments and other governmental charges imposed upon it and its properties, sales and activities, or any part thereof, or upon the income or profits therefrom, as well as all claims for labor, materials, or supplies which if unpaid might by law become a lien or charge upon any of its property, except such of those items as are being in good faith appropriately contested by it. 8.4. Maintenance of Properties. Except where failure to do so could not reasonably be expected to have a material adverse effect on the Company and its Subsidiaries on a Consolidated basis, maintain and keep the properties used or deemed by it to be useful in its business in good repair, working order and condition, and make or cause to be made all needful and proper repairs thereto and replacements thereof. 8.5. Maintenance of Insurance. Maintain with financially sound and reputable insurers, insurance, including specifically product liability insurance, with respect to properties and business of the Company and the Subsidiaries against such casualties and contingencies and in such types and amounts as shall be in accordance with reasonable business practices. 8.6. Records and Accounts. Keep true records and books of account in which full, true and correct entries will be made and maintain appropriate accounts and reserves for all taxes (including income taxes), all depreciation, depletion, obsolescence and amortization of its properties, all other contingencies, and all other proper reserves, all in accordance with generally accepted accounting principles. 8.7. Financial Statements. Furnish to the Banks: (a) as soon as practicable and in any event within 60 days after the end of each of the first three quarterly periods of each fiscal year of the Company, consolidated balance sheets of the Company and the Subsidiaries as at the end of such period and the previous fiscal quarter, and Consolidated income statements and statements of cash flow of the Company and the Subsidiaries for the period from the beginning of the current fiscal year to the end of such period, all in reasonable detail, prepared in accordance with generally accepted accounting principles applied on a consistent basis except as otherwise disclosed, subject to changes resulting from audit and year-end adjustments, by the principal financial officer of the Company as such financial statements shall appear in the Company's quarterly reports on Form 10-Q filed with the Securities and Exchange Commission; (b) as soon as practicable and in any event within 90 days after the end of each fiscal year a Consolidated balance sheet of the Company and the Subsidiaries as at the end of such year, and Consolidated income statements and statements of cash flow, and, stockholders' equity of the Company and the Subsidiaries for such year, setting forth in comparative form the figures for the previous fiscal year, all in reasonable detail, prepared in accordance with generally accepted accounting principles applied on a consistent basis except as otherwise disclosed, and accompanied by a report and opinion of Coopers & Lybrand, certified public accountants, or other independent certified public accountants of internationally recognized standing selected by the Company which opinion and report shall have been prepared in accordance with generally accepted auditing standards, as such financial statements shall appear in the Company's annual report on Form 10-K filed with the Securities and Exchange Commission; (c) promptly upon their becoming available, copies of all financial statements, reports, notices and proxy statements sent by the Company to its stockholders generally, and of all regular and periodic reports filed by the Company or any Subsidiary with any securities exchange or with the Securities and Exchange Commission or any governmental authority succeeding to any or all of the functions of said Commission except for information so filed but not available for public inspection (unless such information is adverse and material in amount with respect to the Consolidated financial condition or business of the Company and its Subsidiaries); (d) from time to time any such information regarding the business and financial condition of the Company and the Subsidiaries as may reasonably be requested by the Agent; and (e) if the Company shall at any time obtain knowledge of the existence of any Default or Event of Default, the Company shall forthwith deliver to the Banks a certificate specifying the nature and period of existence thereof and what action the Company proposes to take with respect thereto. At the time of each delivery of financial statements pursuant to paragraphs (a) and (b) of this Section 8.7, the Company shall furnish a certificate (a "Compliance Certificate") of the Vice President of Finance or the President, any Vice President, or the Treasurer of the Company (substantially in the form of Exhibit G hereto). 8.8. Inspection. Permit any officer or employee designated by any Bank, at such Bank's expense, to visit and inspect any of its properties and to examine its books and discuss the business, finances and accounts of the Company or any Subsidiary with its officers, all at such reasonable times, to a reasonable extent, in a reasonable manner and as often as any Bank may reasonably request. All information and documents concerning the Company, any Borrowing Subsidiary or any other Subsidiary supplied by the Company and/or the Borrower to the Banks and designated as confidential in connection with any inspection hereunder shall be held in confidence by the Banks and the Banks shall not disclose such information and documents, except that the Borrower and the Company hereby authorize the Banks to disclose any information obtained pursuant to this Agreement (a) to any bank regulatory authority, (b) to any independent auditor of the Bank, provided that such independent auditors (other than governmental bank examiners) enter into a confidentiality agreement substantially similar to the Banks' agreement in this Section 8.8, (c) to all other appropriate governmental regulatory authorities or courts of competent jurisdiction to the extent required or subpoenaed, and to other appropriate Persons to the extent required by applicable law or legal process, but only (in each case) to the extent permitted by applicable laws and regulations, including those applying to classified material, and (d) to any other of the Banks or to any such Bank's counsel. 8.9. Notice of Litigation. Promptly give notice in writing to the Agent of the commencement of, and any material determination in, all litigation and arbitration not substantially covered by effective insurance and all proceedings before any governmental or regulatory agencies affecting the Company or any Subsidiary, except litigation, arbitration or proceedings which, if adversely determined, could not reasonably be anticipated to have a material adverse effect on the business, assets, operations or condition (financial or otherwise) of the Company and its Subsidiaries on a Consolidated basis. 8.10. Further Assurances. Cooperate with the Agent and take such action and execute such further certificates, opinions and other documents as the Agent shall reasonably request to carry out to the Agent's reasonable satisfaction the terms of this Agreement. 8.11. Borrowing Subsidiaries. (a) Permit only a Wholly-owned Subsidiary, which will be qualified as a Borrowing Subsidiary as defined in this Agreement, to execute and deliver an election to become a Borrowing Subsidiary and to request Advances from the Banks, and (b) maintain a majority ownership interest or, with the prior written consent of the Majority Banks, a minority ownership interest, whether directly or indirectly, free and clear of all liens and encumbrances, in each Borrowing Subsidiary. 8.12. ERISA. (a) Comply in all material respects with the applicable provisions of ERISA and (b) furnish to the Agent (i) as soon as possible, and in any event within 30 days after any officer of the Company knows or has reason to know that there has occurred any Reportable Event with respect to any Plan, a statement of an officer of the Company, setting forth details as to such Reportable Event and the action which the Company proposes to take with respect thereto, together with a copy of the notice of such Reportable Event given to the Pension Benefit Guaranty Corporation if any notice is required to be given to the Pension Benefit Guaranty Corporation, (ii) within 10 days after a filing with the Pension Benefit Guaranty Corporation, pursuant to Section 412(n) of the Code, of a notice of failure to make a required installment or other payment with respect any Plan, a statement of a financial officer of the Company setting forth details as to such failure and the action that the Company proposes to take with respect thereto, together with a copy of such notice given to the Pension Benefit Guaranty Corporation, (iii) promptly after receipt thereof, a copy of any notice the Company may receive from the Pension Benefit Guaranty Corporation relating to the intention of the Pension Benefit Guaranty Corporation to terminate any Plan or Plans, or to appoint a trustee to administer any Plan or Plans and (iv) promptly after receipt by the Company of a notice of complete or partial withdrawal liability from the sponsor of a Multiemployer Plan, a copy of such notice together with the statement of a financial officer of the Company setting forth details of such withdrawal and action proposed to be taken with respect thereto. 8.13. Ownership of Subsidiaries. At all times keep each of its Subsidiaries as a majority-owned Subsidiary, directly or indirectly, and shall not, nor permit any Subsidiary to, sell, transfer or otherwise dispose of such securities convertible into, or options, warrants or rights to subscribe for or purchase any shares of, any of its Subsidiaries as would, upon conversion or exercise of any or all thereof (regardless of whether any are then convertible or exercisable), cause the Company to own directly or indirectly less than a majority of all the issued and outstanding shares of such Subsidiary; provided that the Company may, and may permit any Subsidiary to, from time to time sell, transfer or otherwise dispose of shares, or such securities, options, warrants or rights, of any Subsidiary so as to cause such result if immediately thereafter the aggregate net worth (as to each such sale, transfer or disposition at the time thereof and as shown on the Consolidated books of the Company maintained in accordance with this Agreement) of all Subsidiaries as to which any such sale, transfer or other disposition shall have taken place after the date of this Agreement would be permitted if treated as an asset sale pursuant to Section 9.2(d) hereof. Section 9. CERTAIN NEGATIVE COVENANTS. So long as any amounts are outstanding hereunder or any Bank shall have a Commitment hereunder: 9.1. Liens. The Company will not and will not permit any Subsidiary to incur, create, assume or permit to exist any lien on any of its property or assets (including the stock of any direct or indirect Subsidiary), whether owned at the date hereof or hereafter acquired, or assign or convey any rights to or security interest in any future revenues (other than license or royalty obligations incurred by the Company in the ordinary course of its business), except: (a) liens incurred and pledges and deposits made in the ordinary course of business in connection with workmen's compensation, unemployment insurance, old-age pensions and other social security benefits; (b) liens securing the performance of bids, tenders, leases, contracts (other than for the repayment of borrowed money), statutory obligations, surety, customs and appeal bonds and other obligations of like nature, incurred as an incident to and in the ordinary course of business; (c) liens imposed by law, such as carriers', warehousemen's, mechanics', materialmen's and vendors' liens, incurred in good faith in the ordinary course of business and securing obligations which are not yet due or which are being contested in good faith by appropriate proceedings and as to which the Company or a Subsidiary, as the case may be, shall, to the extent required by generally accepted accounting principles applied on a consistent basis, have set aside on its books adequate reserves; (d) liens securing the payment of taxes, assessments and governmental charges or levies, either (i) not delinquent or (ii) being contested in good faith by appropriate legal or administrative proceedings and as to which the Company or a Subsidiary, as the case may be, shall, to the extent required by generally accepted accounting principles applied on a consistent basis, have set aside on its books adequate reserves; (e) zoning restrictions, easements, licenses, reservations, provisions, covenants, conditions, waivers, restrictions on the use of property or minor irregularities of title (and with respect to leasehold interests, mortgages, obligations, liens and other encumbrances incurred, created, assumed or permitted to exist and arising by, through or under a landlord or owner of the leased property, with or without consent of the lessee) which do not in the aggregate materially detract from the value of its property or assets or materially impair the use thereof in the operation of its business; (f) liens upon any real property acquired or improved by the Company or a Subsidiary which are created or incurred contemporaneously with, or within six months after, such acquisition or improvement to secure or provide for the payment of any part of the purchase price of such real property or the cost of such improvement (but no other amounts); provided that no such lien shall apply to any property of the Company or any Subsidiary except such real property; (g) liens on property of the Company or a Subsidiary existing at the time such property is acquired by the Company or a Subsidiary, or on property of another person existing at the time such person becomes a Subsidiary; provided that such liens were not created in contemplation of the acquisition by the Company or such Subsidiary of such property or such person; (h) liens on the property or assets of any Subsidiary in favor of the Company or a Wholly-owned Subsidiary; (i) liens on real property existing on the date hereof and listed on Schedule 3 hereto; (j) liens on the real property described in Schedule 4; provided that such liens shall not secure any Debt at any time in excess of 100% of the fair market value of such property at such time, as reasonably determined by independent appraisal; (k) liens consisting of the sale-leaseback arrangements with respect to certain computer equipment permitted by Section 9.2(c)(i) hereof; (l) liens on Excess Margin Stock; and (m) extensions, renewals and replacements of liens referred to in paragraphs (a) through (l), provided that any such extension, renewal or replacement lien shall be limited to the property or assets covered by the lien extended, renewed or replaced and that the obligations secured by any such extension, renewal or replacement lien shall be in an amount not greater than the amount of the obligations secured by the lien extended, renewed or replaced. 9.2. Merger, Consolidation or Sale of Assets, etc. Neither the Company nor any Subsidiary will consolidate with or merge into any other person, or sell, lease, transfer or assign to any person or otherwise dispose of (whether in one transaction or a series of transactions) all or any material portion of its assets (whether now owned or hereafter acquired), other than inventory sold in the ordinary course of business upon customary credit terms, or permit another person to merge into it, or acquire all or substantially all the capital stock or assets of any other person, except that (so long as immediately thereafter and after giving effect thereto no Event of Default has occurred and is continuing) from time to time: (a) any person may be merged with or into or consolidated with the Company or any Subsidiary in a transaction in which the surviving entity is the Company or a Subsidiary, (b) the Company or any Subsidiary may acquire all or substantially all the capital stock or assets of another Person, (c) the Company or any Subsidiary may sell in order to lease back (i) computer equipment having an aggregate Consolidated net book value (as to each such sale at the time thereof and as shown on the Consolidated books of the Company maintained in accordance with this Agreement) not exceeding $30,000,000 and (ii) property described in Schedule 4 hereto, (d) in addition to the foregoing, the Company or any Subsidiary may sell, lease, transfer or assign (i) material tangible assets, net of any accompanying liabilities other than accounts receivable and contracts, which may be sold in accordance with subsection 9.2(d)(ii) below, if and only to the extent that immediately thereafter the aggregate net book value (as to each such sale at the time thereof and as shown on the Consolidated books of the Company maintained in accordance with this Agreement) of all such net assets so sold after the date of this Agreement would not exceed the greater of fifteen percent (15%) of Consolidated Tangible Assets or $75,000,000, and (ii) contracts and accounts receivable pursuant to Third-Party Financing Arrangements in the ordinary course of business, so long as the aggregate face amount of all such contracts and receivables sold in any quarter shall not exceed thirty-five percent (35%) of the total sales of the Company for the prior fiscal quarter of the Company. 9.3. Minimum Consolidated Net Worth. The Company will not permit Consolidated Net Worth at any time to be less than an amount equal to the sum of (a) $325,000,000, plus (b) 50% of positive Consolidated Net Income, if any, for each fiscal quarter ending during the period commencing with the fiscal quarter ending July 2, 1994 to such time, plus (c) 100% of the proceeds of any sale after the date hereof by the Company of (i) equity securities issued by the Company, or (ii) warrants or subscription rights for equity securities issued by the Company. 9.4. Maximum Consolidated Debt to Consolidated Net Worth Ratio. The Company will not permit its Consolidated Debt to exceed 45% of Consolidated Net Worth at any time; provided that for the purpose of this paragraph only Consolidated Debt shall not include (i) Debt which is not a personal liability of the Company or a Subsidiary and has recourse only to specified assets, and not the general assets, of the Company or any Subsidiary and Debt of any Subsidiary that has no material business other than financing by means of such Debt (herein called "Non-recourse Debt"), (ii) Capitalized Lease Obligations which are not a personal liability of the Company or a Subsidiary and which have recourse only to the assets which are the subject of the related Capitalized Lease, (iii) Consolidated Current Debt not in excess of $10,000,000, or (iv) contingent obligations of the Company or any Subsidiary for the benefit of employees so long as each such contingent obligation is approved by the Board of Directors of the Company and the aggregate amount of such contingent obligations does not exceed $20,000,000. Section 10. GUARANTY. 10.1. Guaranty. For value received and hereby acknowledged and as an inducement to the Banks to make Advances to the Borrowing Subsidiaries, the Company hereby unconditionally and irrevocably guarantees: (a) the full punctual payment when due, whether at stated maturity, by acceleration or otherwise, of all obligations of each Borrowing Subsidiary now or hereafter existing hereunder whether for principal, interest, fees, expenses or otherwise, and (b) the strict performance and observance by each such Borrowing Subsidiary of all agreements, warranties and covenants in this Agreement applicable to each such Borrowing Subsidiary (such obligations collectively being the "Guaranteed Obligations"). 10.2. Guaranty Absolute. The Company guarantees that the Guaranteed Obligations will be paid strictly in accordance with the terms hereof, regardless of any law, regulation or order now or hereafter in effect in any jurisdiction affecting any of such terms or the rights of the Banks with respect thereto. The liability of the Company under this guaranty with regard to the Guaranteed Obligations of each Borrowing Subsidiary shall be absolute and unconditional irrespective of: (a) any lack of validity or enforceability or any illegality of such Borrowing Subsidiary's election to become a Borrowing Subsidiary, this Agreement and any amendment hereof (with regard to such Guaranteed Obligations), or any other obligation, agreement or instrument relating thereto; (b) any change in the time, manner or place of payment of, or in any other term of, all or any of the Guaranteed Obligations of such Borrowing Subsidiary or any other amendment or waiver of or any consent to departure from this Agreement (with regard to such Guaranteed Obligations); (c) any exchange, release or non-perfection of any collateral, or any release or amendment or waiver of or consent to departure from any other guaranty, for all or any of the Guaranteed Obligations of such Borrowing Subsidiary; (d) any change in ownership of such Borrowing Subsidiary; (e) any acceptance of any partial payment(s) from such Borrowing Subsidiary; or (f) any other circumstance, other than payment, which might otherwise constitute a defense available to, or a discharge of, such Borrowing Subsidiary in respect of its Guaranteed Obligations. This guaranty shall continue to be effective or be reinstated, as the case may be, if at any time any payment of any Guaranteed Obligation is rescinded or must otherwise be returned by the Banks upon the insolvency, bankruptcy or reorganization of any Borrowing Subsidiary or otherwise, all as though such payment had not been made. 10.3. Effectiveness, Enforcement. The guaranty herein of the Company shall be effective and shall be deemed to be made with respect to each Advance made to a Borrowing Subsidiary as of the time it is made. No invalidity, irregularity or unenforceability by reason of any bankruptcy or similar law, or any law or order of any government or agency thereof purporting to reduce, amend or otherwise affect any liability of a Borrowing Subsidiary, and no defect in or insufficiency or want of powers of any Borrowing Subsidiary or irregular or improperly recorded exercise thereof, shall impair, affect, be a defense to or claim against such guaranty. This guaranty is a continuing guaranty and shall (a) survive any termination of this Agreement and (b) remain in full force and effect until payment in full and performance of all Guaranteed Obligations and all other amounts payable under this guaranty. This guaranty is made for the benefit of the Banks and their respective successors and assigns, and may be enforced from time to time as often as occasion therefor may arise and without requirement on the part of any Bank first to exercise any rights against any Borrowing Subsidiary or to exhaust any remedies available to it against any Borrowing Subsidiary or to resort to any other source or means of obtaining payment of any of the Guaranteed Obligations or to elect any other remedy. In the event that acceleration of the time for payment (or the giving of notice of such acceleration) of the Guaranteed Obligations of any Borrowing Subsidiary is stayed upon the insolvency, bankruptcy or reorganization of such Borrowing Subsidiary or for any other reason, all such amounts otherwise subject to acceleration under the terms of this Agreement shall be immediately due and payable by the Company under the guaranty herein provided. 10.4. Waiver. The Company hereby waives promptness, diligence, protest, notice of protest, all suretyship defenses, notice of acceptance and any other notice with respect to any of the Guaranteed Obligations and this guaranty and any requirement that the Banks secure, perfect or protect any security interest or lien or any property subject thereto or exhaust any right or take any action against any Borrowing Subsidiary or any other person or any collateral. The Company also irrevocably waives, to the fullest extent permitted by law, all defenses which at any time may be available to it in respect of the Guaranteed Obligations by virtue of any statute of limitations, valuation, stay, moratorium law or other similar law now or hereafter in effect. 10.5. Subrogation. The Company will not exercise any rights which it may acquire by way of subrogation under this guaranty as to a defaulting Borrowing Subsidiary, by any payment made hereunder or otherwise, until all the Guaranteed Obligations of such Borrowing Subsidiary shall have been irrevocably paid in full. If any amount shall be paid by such defaulting Borrowing Subsidiary to the Company on account of such subrogation rights at any time when all the Guaranteed Obligations of such Borrowing Subsidiary shall not have been paid in full, such amount shall be held in trust for the benefit of the Banks and shall forthwith be paid to the Banks to be credited and applied upon the Guaranteed Obligations of such Borrowing Subsidiary, whether matured or unmatured, in accordance with the terms of this Agreement. 10.6. Payments. All payments made by the Company pursuant to this Section 10 in respect of any Advances made to any Borrowing Subsidiary shall be made in the same currency in which such Advance was made. Section 11. EVENTS OF DEFAULT; ACCELERATION. If any of the following events shall occur and be continuing: (a) Principal. If any Borrower shall default in any payment of any principal amount outstanding hereunder when the same shall become due and payable, whether at maturity or at any date fixed for payment or prepayment or by declaration or otherwise other than due to a failure of the Agent to charge an account of such Borrower having a sufficient collected credit balance; or (b) Interest and Fees. If any Borrower shall fail to pay any interest with respect to principal outstanding hereunder or fail to pay any Facility Fee or any other fee payable pursuant to Section 5 hereof within three (3) Business Days after the due date thereof, whether at maturity or at any date fixed for payment or prepayment or by declaration or otherwise other than due to a failure of the Agent to charge an account of such Borrower having a sufficient credit balance; or (c) Negative Covenants and Guaranty. If any Borrower shall default in the performance of or compliance with (i) any term contained in any of Sections 9.2, 9.3, 9.4, or 10 hereof, or (ii) any term contained in Section 9.1 hereof as a result of liens or security interests with respect to any property or assets of the Company or any Subsidiary having an aggregate net book value at such time exceeding the Threshold Lien Amount; or (d) Other Covenants. If any Borrower shall default in the performance of or compliance with (i) any term contained in Sections 8 or 9.1 (other than as set forth in Section 11(c) hereof), and such default shall not have been remedied within fourteen (14) days after written notice thereof shall have been given to such Borrower by the Agent, or (ii) any term contained herein other than those referred to above in this Section 11, and such default shall not have been remedied within thirty (30) days after written notice thereof shall have been given to such Borrower by the Agent; or (e) Representations and Warranties. If any representation or warranty made in writing by or on behalf of any Borrower herein or in connection with any of the transactions contemplated hereby shall prove to have been false or incorrect in any material respect on the date as of which made, provided that, if any representation or warranty proves to have been false or incorrect in any material respect, such event shall not constitute an "Event of Default" hereunder if, in the Majority Banks' reasonable judgment, such event is capable of being remedied, and it is remedied within fourteen (14) days after written notice thereof shall have been given to the Company and, in the case of a Borrowing Subsidiary, such Borrowing Subsidiary, by the Agent; or (f) Cross Default. If the Company or any Subsidiary shall default (as principal or guarantor or other surety and, in the case of any Subsidiary, such default shall not have been cured within two (2) Business Days) in the payment of any principal or premium, if any, or interest on any other Debt to the Banks, or any other Debt in respect of borrowed money or credit received or in respect of any Capitalized Leases having an outstanding principal amount equal to $10,000,000 or more in the aggregate, or if the Company or any Subsidiary shall fail to comply with any of the material terms of any evidence of such Debt or any mortgage, pledge, assignment, indenture or other agreement relating thereto, if as a consequence thereof the holder of such Debt shall have the right to declare all amounts payable with respect thereto to be due and payable by reason of such default; or (g) Declaration of Bankruptcy. If the Company or any Subsidiary makes an assignment for the benefit of creditors, or petitions or applies for the appointment of a trustee, custodian, liquidator or receiver of the Company or any Subsidiary or of any substantial part of the assets of the Company or such Subsidiary or commences any proceeding relating to the Company or such Subsidiary under any bankruptcy, reorganization, arrangement, insolvency, readjustment of debt, dissolution or liquidation or similar law of any jurisdiction, now or hereafter in effect; or (h) Undischarged Petitions. If any such petition or application is filed or any such proceeding is commenced against the Company or any Subsidiary, and the Company or such Subsidiary indicates its approval thereof, consent thereto or acquiescence therein or any petition, application or proceeding remains undischarged for forty-five (45) days, or an order is entered appointing any such trustee, custodian, liquidator or receiver, or adjudicating the Company or any Subsidiary bankrupt or insolvent, or approving a petition in any such proceeding; or (i) Dissolution. If any order is entered in any proceeding by or against the Company or any Subsidiary decreeing or permitting the dissolution or split-up of the Company or any Subsidiary or the winding-up of its affairs, except that the Company may dissolve any Subsidiary (other than a Borrowing Subsidiary owing any amounts under this Agreement at such time) not necessary, in the Company's judgment, to the ongoing conduct of the Company's business; or (j) Judgments. If there shall be in force, undischarged, unsatisfied and unstayed, for more than thirty (30) days, whether or not consecutive, any final judgment against the Company or any Subsidiary which is materially adverse to the Company and its Subsidiaries on a Consolidated basis; or (k) Reportable Event. If a Reportable Event shall have occurred with respect to any Plan with respect to which the "amount of unfunded benefit liabilities" (as defined in Section 4001(a)(18) of ERISA) exceeds $1,000,000 and, within thirty (30) days after the reporting of such Reportable Event to the Majority Banks, the Majority Banks shall have notified the Company or any ERISA Affiliate in writing that (i) the Majority Banks have made a determination that, on the basis of such Reportable Event, there are reasonable grounds for the termination of such Plan by the Pension Benefit Guaranty Corporation or for the appointment by the appropriate United States District Court of a trustee to administer such Plan and (ii) as a result thereof an Event of Default exists hereunder; or a trustee shall be appointed by a United States District Court to administer any such Plan; or the Pension Benefit Guaranty Corporation shall institute proceedings to terminate any Plan; or (l) Withdrawal Liability. If the Company or any ERISA Affiliate (i) shall have been notified by the sponsor of a Multiemployer Plan that it has incurred withdrawal liability to such Multiemployer Plan, (ii) either does not have reasonable grounds for contesting such withdrawal liability or does not in fact contest such withdrawal liability in a timely and appropriate manner, and (iii) the amount of such withdrawal liability specified in such notice, when aggregated with all other amounts required to be paid to Multiemployer Plans in connection with withdrawal liabilities (determined as of the date of such notification), requires payments exceeding $1,000,000 per annum; or (m) Unenforceability of Agreement. If either the Agent or any Bank, on the advice of independent counsel, or any court of competent jurisdiction, shall determine that this Agreement or any part hereof shall for any reason have ceased to be, or this Agreement or any part hereof shall be asserted by any Borrower not to be, a legal, valid and binding obligation of such Borrower, enforceable in accordance with its terms; or (n) Performance of Agreement Unlawful. If it shall be unlawful for any Borrower to perform or comply with any one or more of its obligations under this Agreement. then and in any such event the Agent may, and upon written request of the Majority Banks, shall, by written notice to the Borrower, and if the Borrower is a Borrowing Subsidiary, the Company, declare: (1) the obligation of each Bank to make Advances to the Borrowers to be terminated, whereupon the same shall terminate, and/or (2) the right of any Subsidiary to become a Borrowing Subsidiary shall terminate, and/or (3) the principal amount of the Loan Accounts, all interest thereon and all other amounts payable under this Agreement and the Notes to be forthwith due and payable, whereupon the same shall become and be forthwith due and payable without presentment, demand, protest or notice, all of which are hereby expressly waived by each of the Borrowers; provided that, if any of the events described in clauses (g), (h) or (i) above shall occur, and if such event involves the Company or a Borrowing Subsidiary (rather than a non-Borrowing Subsidiary) that at such time owes any amounts hereunder, the actions described in clauses (1), (2) and (3) above shall occur automatically without requests by the Banks, notice to the Company or such Borrowing Subsidiary, or declaration by the Agent. Section 12. SETOFF; PRO RATA SHARING. (a) (i) Regardless of the adequacy of any collateral, any deposits or other sums credited by or due from any of the Banks to any Borrower may be appropriately applied to or set off against any principal, interest and any other amounts due hereunder from such Borrower, by the Banks at any time without notice to such Borrower or compliance with any other condition precedent now or hereafter imposed by statute, rule of law or otherwise (all of which are hereby expressly waived by each Borrower). (ii) Each Bank agrees with each other Bank that (A) if an amount to be set off is to be applied to indebtedness of a Borrower hereunder to a Bank, other than the indebtedness evidenced by this Agreement, such amount shall be applied ratably to such other indebtedness and to the indebtedness evidenced by this Agreement, and (B) if a Bank shall receive from any Borrower or from the Company with respect to such Borrower, whether by voluntary payment, exercise of the right of setoff, counterclaim, cross action, enforcement of the claim evidenced by this Agreement by proceedings against such Borrower or enforcement of any claim against the Company in respect of its guaranty, in either case whether at law or in equity or by proof thereof in bankruptcy, reorganization, liquidation, receivership or similar proceedings, or otherwise, and shall retain and apply to the payment of the indebtedness to it hereunder of such Borrower, any amount in excess of such Bank's ratable portion of the payments received by all of the Banks in accordance with Sections 12(b) hereof, such Bank will promptly make such disposition and arrangements with the other Banks with respect to such excess, either by way of distribution, pro tanto assignment of claims, subrogation or otherwise as shall result in each Bank receiving in respect of the indebtedness to it hereunder of such Borrower such Bank's proportionate payment in accordance with Sections 12(b); provided, however, that if all or any part of such excess payment is thereafter recovered from such Bank, such disposition and arrangements shall be rescinded and the amount restored to the extent of such recovery, but without interest. (b) Except as otherwise expressly provided in this Agreement (i) each payment or prepayment of principal by a Borrower and each payment of interest by a Borrower with respect to a Syndicated Advance shall be allocated pro rata among the Banks in accordance with the respective principal amounts of the Syndicated Advances extended by each Bank, (ii) each payment or prepayment of principal by a Borrower and each payment of interest by a Borrower with respect to a Money Market Advance shall be allocated pro rata among the Banks having made such Money Market Advance in accordance with the respective principal amounts of the Money Market Advances extended by each such Bank, (iii) each cancellation of the Commitments shall be made pro rata among the Banks in accordance with their respective Commitments on the date hereof, and (iv) recoveries by any Bank (whether by direct payment, by exercise of any right of set-off, combination of accounts, or lien or otherwise (but excluding any payments of principal or interest made by any Borrower pursuant to and in accordance with the terms of Sections 2.4, 3.2 or 4.4 hereof which payments shall be applied pursuant to clauses (i) or (ii) of this Section 12(b), as applicable)) in respect of the total sum that has become due to it from any Borrower under this Agreement before that time shall be applied pro rata among the Banks in accordance with all their respective Advances outstanding. Section 13. THE AGENT. 13.1. Authorization. The Agent is authorized to take such action on behalf of each of the Banks and to exercise all such powers as are hereunder and in related documents delegated to the Agent, together with such powers as are reasonably incidental thereto; provided that no duties or responsibilities not expressly assumed herein or therein shall be implied to have been assumed by the Agent. The relationship between the Agent and the Banks is and shall be that of agent and principal only, and nothing contained in this Agreement or any of the other Loan Documents shall be construed to constitute the Agent as a trustee for any Bank. 13.2. Employees and Agents. The Agent may exercise its powers and execute its duties by or through employees or agents and shall be entitled to take, and to rely on, advice of counsel concerning all matters reasonably pertaining to its rights and duties under this Agreement. The Agent may for such purpose utilize the services of such persons as the Agent in its sole discretion may determine, and all reasonable fees and expenses of any such persons shall be paid by the Company. 13.3. No Liability. Neither the Agent nor any of its shareholders, directors, officers or employees nor any other person assisting them in their duties nor any agent or employee thereof, shall be liable to the Banks for any waiver, consent or approval given or any action taken, or omitted to be taken, in good faith by it or them hereunder, or in connection herewith or therewith or be responsible to the Banks for the consequences of any oversight or error of judgment whatsoever, except that the Agent or such other person, as the case may be, may be liable for losses due to its willful misconduct or gross negligence. 13.4. No Representations. The Agent shall not be responsible for the execution or validity or enforceability of this Agreement, the Notes, or any instrument at anytime constituting, or intended to constitute, collateral security for this Agreement, or for the value of any such collateral security or for the validity, enforceability or collectability of any such amounts owing with respect to this Agreement, or for any recitals or statements, warranties or representations herein or made in any certificate or instrument hereafter furnished to it by or on behalf of any of the Borrowers or be bound to ascertain or inquire as to the performance or observance of any of the terms, conditions, covenants or agreements herein or in any instrument at any time constituting, or intended to constitute, collateral security for this Agreement. The Agent shall not be bound to ascertain whether any notice, consent, waiver or request delivered to it by any of the Borrowers shall have been duly authorized or is true, accurate and complete. The Agent has not made nor does it now make any representations or warranties, express or implied, nor does it assume any liability to the Banks with respect to the creditworthiness or financial conditions of the Company or any of its Subsidiaries, and each Bank represents and warrants to the Agent that it has made its own independent evaluation of the creditworthiness of the Company and its Subsidiaries and has not relied upon the Agent or any material or information furnished by the Agent in making such evaluation. 13.5. Distribution by Agent. If in the opinion of the Agent the distribution of any amount received by it in such capacity hereunder might involve it in liability, it may refrain from making such distribution until its right to make such distribution shall have been adjudicated by a court of competent jurisdiction. If a court of competent jurisdiction shall adjudge that any amount received and distributed by the Agent is to be repaid, each person to whom any such distribution shall have been made shall either repay to the Agent its proportionate share of the amount so adjudged to be repaid or shall pay over the same in such manner and to such persons as shall be determined by such court. With respect to obligations of any of the Borrowers hereunder, a payment to the Agent for the account of any Bank shall constitute a payment to such Bank. The Agent agrees promptly to distribute to each Bank such Bank's applicable share of payments received by the Agent for the account of the Banks except as otherwise expressly provided in this Agreement. 13.6. Agent as Bank. In its individual capacity, FNBB shall have the same obligations and the same rights, powers and privileges in respect to its Commitment and the Advances made by it hereunder, as it would have were it not also the Agent. 13.7. Holders of Notes; Initial Lenders. The Agent may deem and treat the payee of any note or the initial lender of any Advance as the absolute owner thereof for all purposes hereof until it shall have been furnished in writing with a different name by such payee or by a subsequent holder, assignee or transferee. 13.8. Indemnity. The Banks agree hereby to indemnify and hold harmless the Agent, ratably in accordance with the outstanding Advances owed to the Banks hereunder, from and against any and all claims, actions and suits (whether groundless or otherwise), losses, damages, costs, expenses (including any expenses for which the Agent has not been reimbursed by the Borrower as required by Section 14), and liabilities of every nature and character arising out of or related to this Agreement, the Notes, or any of the other Loan Documents or the transactions contemplated or evidenced hereby or thereby, or the Agent's actions taken hereunder or thereunder, except to the extent that any of the same shall be directly caused by the Agent's willful misconduct or gross negligence; provided, however, that, in the case of any loss, cost, or expense within the scope of the Company's obligations under Section 14.1 or Section 14.11 hereof, the Banks shall only be required to indemnify the Agent pursuant to the foregoing indemnity to the extent that the Agent shall not have been reimbursed by the Company for such loss, cost or expense pursuant to Section 14.1 or Section 14.11 hereof within five (5) Business Days after the Agent shall have requested such reimbursement by the Company. 13.9. Resignation. The Agent may resign at any time upon sixty (60) days' prior written notice to the Banks and the Company. In such event, a successor Agent shall be chosen by the Company, with the appointment of such successor to be subject to the approval of the Majority Banks. If no such successor Agent shall have been so chosen by the Company or if no such approval of the Majority Banks shall have been obtained with respect to such successor Agent chosen by the Company, in either event within fifteen (15) days after the retiring Agent's giving of notice of resignation, then the Majority Banks shall have the right to appoint a successor Agent from among the remaining Banks. If no successor Agent shall have been so appointed pursuant to the foregoing provisions and shall have accepted such appointment within thirty (30) days after the retiring Agent's giving of notice of resignation, then the retiring Agent may, on behalf of the Banks, appoint a successor Agent, which shall be a financial institution having a rating of not less than A or its equivalent by Standard & Poor's Corporation. Upon the acceptance of any appointment as Agent hereunder by a successor Agent, such successor Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Agent, and the retiring Agent shall be discharged from its duties and obligations hereunder. After any retiring Agent's resignation, the provisions of this Agreement and the other Loan Documents shall continue in effect for its benefit in respect of any actions taken or omitted to be taken by it while it was acting as Agent. 13.10. Delinquent Banks. Notwithstanding anything to the contrary contained in this Agreement or any of the other Loan Documents, any Bank that fails (i) to make available to the Agent it pro rata share of any Syndicated Advances or (ii) to comply with the provisions of Section 12(a)(ii) with respect to making dispositions and arrangements with the other Banks, where such Bank's share of any payment received, whether by setoff or otherwise, is in excess of its ratable share of such payments due and payable to all of the Banks, in each case as, when and to the full extent required by the provisions of this Agreement, shall be deemed delinquent (a "Delinquent Bank") and shall be deemed a Delinquent Bank until such time as such delinquency is satisfied. A Delinquent Bank shall be deemed to have assigned any and all payments due to it from the Borrowers whether on account of outstanding Advances, interest, fees or otherwise, to the remaining nondelinquent Banks for application to, and reduction of, their respective pro rata shares of all outstanding Syndicated Advances. The Delinquent Bank hereby authorizes the Agent to distribute such payments to the nondelinquent Banks in proportion to their respective pro rata shares of all Syndicated Advances. A Delinquent Bank shall be deemed to have satisfied in full a delinquency when and if, as a result of application of the assigned payments to all outstanding Syndicated Advances of the nondelinquent Banks, the Banks' respective pro rata shares of all outstanding Syndicated Advances have returned to those in effect immediately prior to such delinquency and without giving effect to the nonpayment causing such delinquency. 13.11. Notification of Defaults and Events of Default. Each Bank hereby agrees that, after any officer of such Bank active upon and having primary responsibility for the Company's credit facilities hereunder shall learn of the existence of a Default or an Event of Default, such Bank shall promptly notify the Agent thereof. The Agent hereby agrees that upon receipt of any notice under this Section 13.11 it shall promptly notify the other Banks of the existence of such Default or Event of Default. 13.12. Information. In the event that any Bank notifies the Agent that such Bank wishes to obtain at any time any further or additional information regarding the business and financial condition of the Company and its Subsidiaries which the Agent would be entitled to obtain if so requested pursuant to Section 8.7(d) hereof, the Agent shall request such information from the Company to be furnished to the Banks pursuant to Section 8.7(d) hereof. Section 14. MISCELLANEOUS. 14.1. Expenses. The Company agrees to reimburse the Agent from time to time on demand for its reasonable out-of-pocket expenses (including reasonable fees and expenses of counsel) incurred in connection with the interpretation, administration and regulation of this Agreement and the compliance of the Agent with its role as such as set forth hereunder. Whether or not the transactions contemplated hereby shall be consummated, the Company will on demand (a) pay any taxes (other than those based on income or gross receipts of the Agent or the Banks) or filing fees in connection with the transactions contemplated under this Agreement and save the Banks harmless from and against any and all liabilities resulting from any delay in paying or omission to pay any such fee or tax, (b) pay the reasonable fees, expenses and disbursements of counsel to the Agent incurred in connection with the negotiation, preparation and completion of this Agreement and the transactions and other documents contemplated by this Agreement, or any subsequent waivers, consents or amendments in connection therewith which are requested by or caused by the conduct of the Company or any Subsidiary, or requested by the Agent pursuant to Section 8.10, and (c) pay all reasonable out-of-pocket fees, expenses and disbursements of the respective counsel of each of the Banks) in connection with the enforcement of this Agreement after the occurrence of any Default or Event of Default; provided, however, that in connection with any such enforcement action, each Bank may choose whether to be represented by in-house or outside counsel, and if in-house counsel is so utilized by any Bank, as to such Bank the Company's obligations under this clause (c) with respect to such attorneys' fees and expenses shall be the reasonable allocated costs and expenses of in-house counsel, and if outside counsel is so utilized by any Bank, as to such Bank the Company's obligations under this clause (c) with respect to such attorneys' fees and expenses shall be such counsel's reasonable fees and expenses, but in either case, the Company shall not be obligated under this clause (c) to pay both the outside counsel fees and the allocated cost of in-house counsel of any particular Bank in connection with such enforcement action. The fees and expenses payable by the Company under this Section 14.1 shall not include those incurred in connection with any dispute solely between any Banks (including the Agent) or with the preparation of any waivers, consents or amendments requested by the Agent or any of the Banks (but not agreed to by the Company), except pursuant to Section 8.10 or clause (c) of this Section 14.1. The Company's obligation to pay any amount pursuant to this Section 14.1 shall survive payment or satisfaction of all other amounts owing under this Agreement. 14.2. Notices, etc. Except as otherwise specified herein, all notices, requests and other communications pursuant to this Agreement shall be in writing and shall be mailed by first-class mail, postage prepaid, or sent by telegraph confirmed by letter, addressed as follows: (a) If to the Company, at 55 Cambridge Parkway, Cambridge, Massachusetts 02142, marked "Attention: Treasurer" or at such other address as the Company shall last have furnished to the communicating party in writing. (b) If to a Borrowing Subsidiary at its address as set forth in its election to become a Borrowing Subsidiary or at such other address as such Borrowing Subsidiary shall last have furnished to the communicating party in writing, with a copy to the Company. (c) If to the Agent, at its Head Office, marked "Attention: Tena Lindenauer" or at such other address as the Agent shall last have furnished to the communicating party in writing. (d) If to any Bank, at such Bank's address set forth on Schedule 1 hereto, or at such other address as such Bank shall last have furnished to the communicating party in writing. Any notice, request or communication so addressed shall be deemed to have been duly given or made and to have become effective (a) if delivered by hand to a responsible officer of the party to which it is directed, at the time of the receipt thereof by such officer, (b) if sent by registered or certified first-class mail, postage prepaid, five (5) Business Days after the posting thereof, and (c) if sent by telegraph, telecopier or telex, at the time of dispatch thereof, if in normal business hours on a Business Day of the country of receipt, or otherwise at the opening of business on the following Business Day. Any notice of borrowing hereunder or notices under Sections 2.4(a) or 3.1(f) hereof shall be signed on behalf of the applicable Borrower by one of its duly authorized officers and shall not be revocable by the Borrower and shall obligate the Borrower to borrow a requested Advance for, or to convert an Advance to a currency, a Borrowing Day, Interest Period or interest rate as may be so specified. Any election made by a Borrower pursuant to Sections 4.4(b) or 4.9 shall be binding upon the Borrower and irrevocable. Notice of any prepayment having been given as required and all of the other conditions to such prepayment having been satisfied by a Borrower in compliance with the provisions of Section 4.4(b), that amount of the principal of any Advance which shall have been designated for prepayment in such notice shall, on the date specified in such notice, become absolutely due and payable by the Borrower. 14.3. Reliance, etc. All covenants, agreements, representations and warranties made herein, in certificates delivered pursuant hereto or otherwise in writing in connection with the transactions evidenced hereby shall be deemed to have been relied upon by the Banks, notwithstanding any investigation made by the Banks or on the Banks' behalf, and such covenants and agreements, and the Banks' rights in respect of any representations and warranties which shall prove false when made, shall survive the execution of this Agreement and the making of each Advance hereunder and shall continue in full force and effect until all of the obligations of the Company and each Borrowing Subsidiary hereunder have been paid and satisfied in full. 14.4. Captions. The captions in this Agreement are for convenience of reference only and shall not define or limit the provisions hereof. 14.5. Consents, Amendments, Waivers, etc. Except as otherwise expressly set forth in any particular provision of this Agreement, any consent or approval required or permitted by this Agreement to be given by the Banks may be given, and any term of this Agreement or of any other instrument related hereto or mentioned herein may be amended, and the performance or observance by any Borrowers of any term of this Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively) with, but only with, the written consent of the Borrowers and the Majority Banks, provided, however, that without the written consent of Banks holding 100% of the Total Commitment, or if the Total Commitment shall have been terminated, 100% of the outstanding Advances, (a) no reduction in the principal amount of, interest rate on, or Facility Fees relating to, the Advances shall be made; and (b) no extension or postponement of the stated time of payment of the principal amount of, interest on, or Facility Fees relating to, the Advances shall be made; (c) no increase in the amount, or extension of the term, of the Commitments or the Advances beyond those provided for hereunder shall be made; and (d) no modification of, or amendment to, or waiver of compliance with, the definition of Majority Banks, or the aggregate Commitment Percentage or number of Banks required for the Banks or any of them to take any action under this Agreement, or the provisions of Sections 10, 11(a), (b), (g), (h) or (i), 14.5 or 15.9 hereof shall be made, and provided further, that (i) this Agreement shall not be amended so as to require any Bank to make any Advance or take any participation interest in any outstanding Advance after the Total Commitment shall have been terminated (pursuant to the terms of Section 11 hereof or otherwise), without the consent of 100% of the Banks, (ii) the amount or time for payment of the Agent's Fee and the provisions of Section 13 may not be amended or waived without the written consent of the Agent, and (iii) the provisions of the Fee Letter Agreement may only be amended or waived with the written consent of each of the parties thereto. No modification or waiver of any provision of this Agreement, and no consent to departure by any Borrower therefrom, shall in any event be effective unless the same shall be in writing and signed by the required percentage of the Banks, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. No notice to or demand on any Borrower in any case shall entitle any such Borrower or any other Borrower to any other or further notice or demand in similar or other circumstances or constitute a waiver of the Banks' right to take any other or further action in any circumstances without notice or demand. No failure or delay on the Agent's or the Banks' part in exercising any right hereunder shall operate as a waiver thereof; nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right. No right, power or remedy conferred hereby upon Agent or the Banks shall be exclusive of any other right, power or remedy referred to herein or now or hereafter available at law, in equity, by statute or otherwise. 14.6. Benefit; Assignments; Participations. The rights of any Borrower under this Agreement shall not be assignable by the Borrower without the prior written consent of the Banks. Any Bank may assign or grant participations in all or a part of its rights under this Agreement pursuant to and in accordance with the provisions of Section 15 hereof. This Agreement shall be binding upon the respective successors and assigns of the Borrowers and, except as otherwise provided in Section 14.10, shall inure to the benefit of and be binding upon each Bank and its successors and assigns. 14.7. Governing Law. This Agreement shall be governed by the laws of the Commonwealth of Massachusetts and is intended to take effect as a sealed instrument. 14.8. Counterparts. This Agreement may be executed in one or more counterparts each of which shall constitute an original but which taken together shall constitute but one agreement. In proving this Agreement it shall not be necessary to produce or account for more than one such counterpart. 14.9. Consent To Jurisdiction; Waiver of Jury Trial. (a) The Company and each Borrowing Subsidiary hereby irrevocably submits to the jurisdiction of any Massachusetts state or federal court sitting in Boston over any action or proceeding arising out of or relating to this Agreement, and the Company and each Borrowing Subsidiary hereby irrevocably agrees that all claims in respect of such action or proceeding may be heard and determined in such Massachusetts state or federal court. Each Borrowing Subsidiary hereby appoints the Company as its process agent (the "Process Agent"), and the Company hereby agrees to act as such agent at its principal office at 55 Cambridge Parkway, Cambridge, Massachusetts 02142, Attention: General Counsel, to receive on its behalf and with respect to its property service of copies of the summons and complaint and any other process which may be served in any such action or proceeding. Such service may be made to any Borrowing Subsidiary by mailing or delivering a copy of such process to such Borrowing Subsidiary in care of the Process Agent at the Process Agent's address set forth above, and each Borrowing Subsidiary hereby irrevocably authorizes and directs the Process Agent to accept such service on its behalf. As an alternative method of service, each Borrowing Subsidiary also irrevocably consents to the service of any and all process in any such action or proceeding by the hand delivery or mailing of copies of such process to such Borrowing Subsidiary at its address specified in its election to become a Borrowing Subsidiary. Each Borrowing Subsidiary agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. A copy of any process served hereunder shall be sent to the immediate aforesaid address of the Company. (b) Each Borrowing Subsidiary may change its Process Agent hereunder by substituting and appointing as its Process Agent another entity resident in the Commonwealth of Massachusetts and otherwise reasonably approved by the Agent, such substitution and appointment to be made pursuant to a written instrument executed by such Borrowing Subsidiary and such entity in form and substance approved by the Agent, which approval will not be unreasonably withheld; provided, however, that each Borrowing Subsidiary shall have a Process Agent at all times. (c) Nothing in this Section 14.9 shall affect the right of the Banks to serve legal process in any other manner permitted by law or affect the right of the Banks to bring any action or proceeding against any Borrowing Subsidiary or its property in the courts of any other jurisdiction. (d) Each of the parties hereto irrevocably waives its right to a jury trial with respect to any action or claim arising out of any dispute in connection with this Agreement or any of the other Loan Documents, any rights or obligations hereunder or thereunder or the performance of such rights and obligations. 14.10. Exempt Character of Transaction. This Agreement is made with the Banks in reliance upon their several representations to the Company, which by their execution of this Agreement they hereby confirm, that each Bank for itself and not for any other Bank has no present intention of selling or otherwise disposing of any interest in the Loan Accounts (or the Notes, if any) other than assignments and participations to banking institutions or other financial institutions of the type permitted by Section 15. Each Bank agrees that it will not, directly or indirectly, sell or offer, or attempt to offer to dispose of, any interest in the Loan Accounts (of the Notes, if any) to, or solicit any offers to buy any interest therein from, or otherwise approach or negotiate with respect thereto with, any entity whatsoever so as to bring the execution and delivery of either this Agreement within the provisions of Section 5 of the Securities Act of 1933, as now in effect or as later amended. 14.11. Indemnity for Use of Proceeds. The Company agrees to indemnify the Agent and each Bank and their respective directors, officers, employees and agents against, and to hold each such entity harmless from, any and all losses, claims, damages, liabilities and related expenses, including reasonable counsel fees and expenses, incurred by or asserted against any such Person and arising out of, in connection with, or as a result of, the use of any of the proceeds of the Advances to purchase voting securities of any entity; provided that such indemnity shall not apply to any such losses, claims, damages, liabilities or related expenses arising from (i) any unexcused breach by such indemnified Person of any of its obligations under this Agreement or (ii) the gross negligence or willful misconduct of such Person. In litigation, or the preparation therefor, the Banks and the Agent shall be entitled to select their own counsel and, in addition to the foregoing indemnity, subject to the limitations of the foregoing proviso, the Company agrees to pay promptly the reasonable fees and expenses of such counsel (including those of outside counsel or the allocated costs of in-house counsel of each Bank, but not both with respect to any particular Bank). If, and to the extent that the obligations of the Company under this Section 14.11 are unenforceable for any reason, the Company hereby agrees, subject to the limitations of the foregoing proviso clause, to make the maximum contribution to the payment in satisfaction of such obligations which is permissible under applicable law. The covenants contained in this Section 14.11 shall survive payment or satisfaction in full of all other amounts owing under this Agreement. 14.12. Exchange Rate. If, for the purpose of obtaining judgment in any court or obtaining an order enforcing a judgment, it becomes necessary to convert any amount due under this Agreement in Dollars or in any other currency (hereinafter in this Section 14.12 called the "first currency") into any other currency (hereinafter in this Section 14.12 called the "second currency"), then the conversion shall be made at the Agent's spot rate of exchange for buying the first currency with the second currency prevailing at the Agent's close of business on the Business Day next preceding the day on which the judgment is given or (as the case may be) the order is made. In the event that there is a difference between the rate of exchange on the basis of which the amount of such judgment or order is determined and the rate of exchange prevailing on the date of payment, then the rate of exchange prevailing on the date of payment shall govern the amount owing hereunder, and each Borrower and each Bank (solely with respect to any such judgment against such Bank) hereby agrees to pay such amount as may be necessary to ensure that the amount paid on such date in the second currency is the amount in such second currency which, when converted at the Agent's spot rate of exchange for buying the first currency with the second currency prevailing at the Agent's opening of business on the date of payment, is the amount which was due under this Agreement in the first currency before such judgment was obtained or made. Any amount due from any Borrower to the Banks under the second sentence of this Section 14.12 will be due as a separate debt of such Borrower to the Banks and shall not be affected by judgment or order being obtained for any other sum due under or in respect of this Agreement. The covenant contained in this Section 14.12 shall survive the payment in full of all of the other obligations of the Borrowers under this Agreement. Section 15. ASSIGNMENT AND PARTICIPATION. 15.1. Conditions to Assignment by Banks. Except as provided herein, each Bank may assign to one or more Eligible Assignees all or a portion of its interests, rights and obligations under this Agreement (including all or a portion of its Commitment Percentage and Commitment and the same portion of the Advances at the time owing to it, and any Notes held by it); provided that (a) each of the Agent and the Company shall have given its prior written consent to such assignment, which consent, in either case, will not be unreasonably withheld (except that an assignment by a Bank to its Bank Affiliates may be made without the consent of any party), (b) each such assignment shall be a constant, and not a varying, percentage of all the assigning Bank's rights and obligations under this Agreement, (c) each assignment shall be in a minimum amount of $5,000,000 or any whole multiple of $1,000,000 in excess of $5,000,000, (d) the parties to such assignment shall execute and deliver to the Agent, for recording in the Bank List (as hereinafter defined), an Assignment and Acceptance, substantially in the form of Exhibit B hereto (an "Assignment and Acceptance"), together with any outstanding Notes subject to such assignment, and (e) except where the Company has consented in writing to such assignment, any Borrower shall not be under any obligation to pay to or for the account of any assignee in respect of any assigned rights any greater amount than it would have been obliged to pay to or for the account of the Bank originally entitled to such assigned rights. Upon such execution, delivery, acceptance and recording, from and after the effective date specified in each Assignment and Acceptance, which effective date shall be at least five (5) Business Days after the execution thereof, (i) the assignee thereunder shall be a party hereto and, to the extent provided in such Assignment and Acceptance, have the rights and obligations of a Bank hereunder, and (ii) the assigning Bank shall, to the extent provided in such assignment, and upon payment (either by the assigning Bank or the assignee) to the Agent of the registration fee referred to in Section 15.3 be released from its obligations under this Agreement. 15.2 Certain Representations and Warranties; Limitation; Covenants. By executing and delivering an Assignment and Acceptance, the parties to the assignment thereunder confirm to and agree with each other and the other parties hereto as follows: (a) other than the representation and warranty that it is the legal and beneficial owner of the interest being assigned thereby free and clear of any adverse claim, the assigning Bank makes no representation or warranty, express or implied, and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with this Agreement or the execution, legality, validity, enforceability, genuineness, sufficiency or value or this Agreement, the other Loan Documents or any other instrument or document furnished pursuant hereto or any applicable collateral security arrangement; (b) the assigning Bank makes no representation or warranty and assumes no responsibility with respect to the financial condition of the Company and its Subsidiaries or any other Person primarily or secondarily liable in respect of any of the obligations owing under this Agreement, or the performance or observance by the Company and its Subsidiaries or any other Person primarily or secondarily liable in respect of any of their obligations under this Agreement or any of the other Loan Documents or any other instrument or document furnished pursuant hereto or thereto; (c) such assignee confirms that it has received a copy of this Agreement, together with copies of the most recent financial statements referred to in Section 7.1.6 and Section 8.7 and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into such Assignment and Acceptance; (d) such assignee will, independently and without reliance upon the assigning Bank, the Agent or any other Bank and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement; (e) such assignee represents and warrants that it is an Eligible Assignee; (f) such assignee appointments and authorizes the Agent to take such action as agent on its behalf and to exercise such power under this Agreement and the other Loan Documents as are delegated to the Agent by the terms hereof or thereof, together with such powers as are reasonably incidental thereto; (g) such assignee agrees that it will perform in accordance with their terms all of the obligations that by the terms of this Agreement are required to be performed by it as a Bank; and (h) such assignee represents and warrants that it is legally authorized to enter into such Assignment and Acceptance. 15.3. Bank List. The Agent shall maintain a copy of each Assignment and Acceptance delivered to it and a register or similar list (the "Bank List") for the recordation together with the Loan Accounts of the names and addresses of the Banks and the respective Commitments and Commitment Percentages of, and the principal amount of the respective Advances held by, the Banks from time to time. The entries in the Bank List shall be conclusive, in the absence of manifest error, and the Borrowers, the Agent and the Banks may treat each Person whose name is recorded in the Bank List as a Bank hereunder for all purposes of this Agreement. The Bank List shall be available for inspection by the Borrowers and the Banks at any reasonable time and from time to time upon reasonable prior notice. Upon each such recordation, the assigning Bank or the assignee, as agreed between such assigning Bank and such assignee, shall pay to the Agent a registration fee in the sum of $1,000. 15.4 Exchange of Notes. Upon its receipt of an Assignment and Acceptance executed by the parties to such assignment, together with any Note subject to such assignment, the Agent shall (a) record the information contained therein in the Bank List, and (b) give prompt notice thereof to the Company and the Banks (other than the assigning Bank). Within five (5) Business Days after receipt of such notice, the applicable Borrower, at its own expense, shall execute and deliver to the Agent, in exchange for each (if any) surrendered Note, a new Note payable to the order of such Eligible Assignee in an amount equal to the amount assumed by such Eligible Assignee pursuant to such Assignment and Acceptance and, if the assigning Bank held a Note and has retained some portion of its obligations hereunder, a new Note payable to the order of the assigning Bank in an amount equal to the amount retained by it hereunder. Such new Notes shall provide that they are replacements for the surrendered Notes, shall be in an aggregate principal amount equal to the aggregate principal amount of the surrendered Notes, shall be dated the effective date of such Assignment and Acceptance and shall otherwise be in substantially the form of the assigned Notes. Within five (5) days after issuance of any new Notes pursuant to this Section 15.4, the applicable Borrower shall deliver an opinion of counsel, addressed to the Banks and the Agent, relating to the due authorization, execution and delivery of such new Notes and the legality, validity and binding effect thereof, in form and substance satisfactory to the Banks. The surrendered Notes shall be canceled and returned to the applicable Borrower. 15.5. Participations. Each Bank may sell participations to one or more banks or other entities in all or a portion of such Bank's rights and obligations under this Agreement and the other Loan Documents; provided that (a) each such participation shall be in an amount of not less than $5,000,000, (b) any such sale or participation shall not affect the rights and obligations of the selling Bank hereunder to the Borrowers and such Bank shall remain solely responsible to the other parties hereto for the performance of such obligations, (c) the participants shall be entitled to the benefit of the cost protection provisions contained in this Agreement (provided that a Borrower shall not be under any obligation to pay to or for the account of any such participant in respect of such provisions any greater amount than such Borrower would have been obliged to pay to or for the account of the Bank originally entitled to the benefit of such provisions), (d) any Borrower, the Agent, and the other Banks, as the case may be, shall continue to deal solely and directly with the Bank selling such participation, in connection with such Bank's rights and obligations under this Agreement, and the Borrowers shall not be obligated to communicate directly or indirectly with any holder of a participation, and (d) the only rights permitted to be granted to the participant pursuant to such participation arrangements with respect to waivers, amendments or modifications of the Loan Documents shall be the rights to approve waivers, amendments or modifications that would reduce the principal of or the interest rate on any Advances, extend the term or increase the amount of the Commitment of such Bank as it relates to such participant, reduce the amount of any Facility Fees to which such participant is entitled, or extend any regularly scheduled payment date for principal, interest, or Facility Fees. 15.6. Disclosure. The Borrowers agree that in addition to disclosures made in accordance with Section 8.8 hereof, any Bank may disclose information obtained by such Bank pursuant to this Agreement to assignees or participants and potential assignees or participants hereunder; provided that such assignees or participants or potential assignees or participants shall agree (a) to treat in confidence such information unless such information otherwise becomes public knowledge, (b) not to disclose such information to any third party, except as required by law or legal process and (c) not to make use of such information for purposes of transactions unrelated to such contemplated assignment or participation. 15.7. Assignee or Participant Affiliated with any Borrower. If any assignee Bank is an Affiliate of any Borrower, then any such assignee Bank shall have no right to vote as a Bank hereunder or under any of the other Loan Documents for purposes of granting consents or waivers or for purposes of agreeing to amendments or other modifications to any of the Loan Documents or for purposes of making requests to the Agent pursuant to Section 11, and the determination of the Majority Banks shall for all purposes of this Agreement and the other Loan Documents be made without regard to such assignee Bank's interest in any of the Advances. If any Bank sells a participating interest in any of the Advances to a participant, and such participant is a Borrower or an Affiliate of any Borrower, then such transferor Bank shall promptly notify the Agent of the sale of such participation. A transferor Bank shall have no right to vote as a Bank hereunder or under any of the other Loan Documents for purposes of granting consents or waivers or for purposes of agreeing to amendments or modifications to any of the Loan Documents or for purposes of making requests to the Agent pursuant to Section 11 to the extent that such participation is beneficially owned by a Borrower or any Affiliate of any Borrower, and the determination of the Majority Banks shall for all purposes of this Agreement and the other Loan Documents be made without regard to the interest of such transferor Bank in the Advances to the extent of such participation. 15.8. Miscellaneous Assignment Provisions. Any assigning Bank shall retain its rights to be indemnified pursuant to Section 14 with respect to any claims or actions arising prior to the date of such assignment. If any assignee Bank is not incorporated under the laws of the United States of America or any state thereof, it shall, prior to the date on which any interest or fees are payable hereunder for its account, deliver to the Company and the Agent proper certification as to its exemption from deduction or withholding of any United States federal income taxes. If any Reference Bank transfers all of its interest, rights and obligations under this Agreement, the Agent shall, in consultation with the Company and with the consent of the Company and the Majority Banks, appoint another Bank to act as a Reference Bank hereunder. Anything contained in this Section 15 to the contrary notwithstanding, any Bank may at any time pledge all or any portion of its interest and rights under this Agreement (including all or any portion of any Notes it may hold) to any of the twelve Federal Reserve Banks organized under Section 4 of the Federal Reserve Act, 12 U.S.C. Section 341. No such pledge or the enforcement thereof shall release the pledgor Bank from its obligations hereunder or under any of the other Loan Documents. 15.9. Assignment by Borrower. The Borrowers shall not assign or transfer any of their rights or obligations under any of the Loan Documents without the prior written consent of each of the Banks. [Remainder of page intentionally left blank] IN WITNESS WHEREOF, this Agreement has been executed by on behalf of the parties hereto on the day first above written by their respective officers or agents thereunto duly authorized. LOTUS DEVELOPMENT CORPORATION [Seal] By: /s/Frederick H. Phillips ------------------------ Name: Frederick H. Phillips Title: Assistant Treasurer THE FIRST NATIONAL BANK OF BOSTON, individually and as Agent By: /s/Tena C. Lindenauer --------------------- Name: Tena C. Lindenauer Title: Vice President MORGAN GUARANTY TRUST COMPANY OF NEW YORK By: /s/Deborah A. Brodheim ---------------------- Name: Deborah A. Brodheim Title: Vice President BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION By: /s/Kevin McMahon ---------------- Name: Kevin McMahon Title: Vice President CREDIT SUISSE By: /s/Demian M. Gage /s/Juerg Johner ----------------- --------------- Name: Demian M. Gage Juerg Johner Title: Associate Associate THE BANK OF TOKYO TRUST COMPANY By: /s/Michael J. Cronin -------------------- Name: Michael J. Cronin Title: Vice President DEUTSCHE BANK AG, NEW YORK AND/OR CAYMAN ISLANDS BRANCHES By: /s/Jeffrey N. Wieser -------------------- Name: Jeffrey N. Wieser Title: Director By: /s/Gregory M. Hill ------------------ Name: Gregory M. Hill Title: Vice President THE FUJI BANK, LIMITED, NEW YORK BRANCH By: /s/Yoshihiko Shiotsugu ---------------------- Name: Yoshihiko Shiotsugu Title: Vice President and Manager SHAWMUT BANK, N.A. By: /s/John B. Desmond ------------------ Name: John B. Desmond Title: Vice President SOCIETE GENERALE By: /s/Jan Wertlieb ---------------- Name: Jan Wertlieb Title: Vice President ______________________________________________________________________________ EX-10.1 5 1986 STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS Exhibit 10(a) LOTUS DEVELOPMENT CORPORATION 1986 STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS 1. Purpose The purpose of the Lotus Development Corporation Stock Option Plan for Non-Employee Directors (the "Plan") is to attract and retain the services of experienced and knowledgeable independent directors of Lotus Development Corporation (the "Corporation") for the benefit of the Corporation and its stockholders and to provide additional incentive for such directors to continue to work for the best interests of the Corporation and its stockholders through continuing ownership of its common stock. 2. Shares Subject to the Plan The total number of shares of common stock, par value $.01 per share ("Shares"), of the Corporation for which options may be granted under the Plan shall not exceed 500,000 in the aggregate, subject to adjustment in accordance with Section 12 hereof. Within the foregoing limitations, Shares for which options have been granted pursuant to the Plan but which options have lapsed or otherwise terminated shall become available for the grant of additional options. There will initially be reserved for issuance or transfer from the Corporation's treasury upon the exercise of options granted under the Plan 300,000 Shares, subject to adjustment in accordance with Section 12 hereof. 3. Administration of Plan The Plan shall be administered by the Board of Directors of the Corporation (the "Board"). The Board shall have the power to construe the Plan, to determine all questions arising thereunder, and to adopt and amend such rules and regulations for the administration of the Plan as it may seem desirable. 4. Eligibility; Grant of Option Each director of the Corporation who is not, and has not during the immediately preceding 12 month period been, an employee of the Corporation or any subsidiary of the Corporation (a "Participant") shall automatically be a participant in the Plan. Each Participant who is in office on November 15 of any year (commencing with November 15, 1986) shall, on the immediately succeeding January 1, automatically be granted an option to acquire 10,000 Shares under the Plan. In addition, any Participant who is elected to the Board of Directors on or between January 1, 1994 and June 30, 1994 or during any seven and one-half month period beginning November 16 and ending June 30 thereafter shall automatically be granted an option to acquire 10,000 Shares on the later to occur of (i) March 24, 1994 or (ii) the date of the first meeting of the Board following the election of such Participant as a director. 5. Option Agreement Each option granted under the Plan shall be evidenced by an option agreement (the "Agreement") duly executed on behalf of the Corporation and by the Participant to whom such option is granted, which Agreements may but need not be identical and which shall (i) comply with and be subject to the terms and conditions of the Plan and (ii) provide that the Participant agrees to continue to serve as a director of the Corporation during the term for which he or she was elected. Any Agreement may contain such other terms, provisions and conditions not inconsistent with the Plan as may be determined by the Board. No option shall be deemed granted within the meaning of the Plan and no purported grant of any option shall be effective, until such Agreement shall have been duly executed on behalf of the Corporation and the Participant to whom the option is to be granted. 6. Option Exercise Price The option exercise price for an option granted under the Plan on or prior to January 1, 1988, shall be the fair market value of the Shares covered by the option on the November 15, or, if such November 15 is not a day on which Shares are traded, on the next succeeding trading day, immediately preceding the date on which the option is granted. The option exercise price for an option granted under the Plan on or after January 1, 1989, shall be the fair market value of the Shares covered by the option on the date of grant, or if such date is not a day on which Shares are traded, on the next succeeding trading day, immediately preceding the date on which the option is granted. The date on which the fair market value is determined in accordance with the two immediately preceding sentences is referred to herein as the "Pricing Date". For purposes hereof, the fair market value of the Shares covered by an option shall be the average of the high and low sales prices of the Shares on the applicable date as reported in the National Market List of the National Association of Securities Dealers Inc. Automated Quotation System or on the principal national securities exchange on which the Shares are then listed for trading. 7. Time and Manner of Exercise of Option (a) Options granted under the Plan shall become exercisable in installments of 25 percent upon each anniversary of the date of grant. (b) To the extent that the right to exercise an option has accrued and is in effect, the option may be exercised from time to time, by giving written notice, signed by the person or persons exercising the option, to the Corporation, stating the number of shares with respect to which the option is being exercised, accompanied by payment in full for such Shares, which payment may be in whole or in part in shares of the common stock of the Corporation already owned by the person or persons exercising the option, valued at fair market value on the date of payment (as determined pursuant to Section 6 hereof). (c) Upon exercise of the option, delivery of a certificate for fully paid and non-assessable Shares shall be made at the principal office of the Corporation in the Commonwealth of Massachusetts to the person or persons exercising the option as soon as practicable (but in no event more than 30 days) after the date of receipt of the notice of exercise by the Corporation, or at such time, place and manner as may be agreed upon by the Corporation and the person or persons exercising the option. 8. Term of Options Each option, shall expire ten years from the date of the granting thereof, but shall be subject to earlier termination as follows: (a) In the event of the death of a Participant, the option granted to such Participant may be exercised, to the extent exercisable on the date of death pursuant to Section 7(a), by the estate of such Participant, or by any person or persons who acquired the right to exercise such option by will or by the laws of descent and distribution. Such option may be exercised at any time within 180 days after the date of death of such Participant or prior to the date on which the option expires by its terms, whichever is earlier. (b) In the event that a Participant ceases to be a director of the Corporation, other than by reason of his or her death, the option granted to such Participant may be exercised, to the extent exercisable on the date the Participant ceases to be a director, for a period of 30 days after such date, or prior to the date on which the option expires by its terms, whichever is earlier. 9. Merger, Consolidation, Sale of Assets, etc., Resulting in a Change of Control (a) In the event of a Change in Control (as hereinafter defined), notwithstanding the provisions of Sections 7(a) and 8, an option granted to a Participant shall become fully exercisable if, within one year of such Change in Control, such Participant shall cease for any reason to be a member of the Board. For purposes hereof, a Change in Control of the Corporation shall be deemed to have occurred if (i) there shall be consummated (x) any consolidation or merger of the Corporation in which the Corporation is not the continuing or surviving Corporation or pursuant to which shares of the common stock of the Corporation would be converted into cash, securities or other property, other than a merger of the Corporation in which the holders of the common stock of the Corporation immediately prior to the merger have the same proportionate ownership of common stock of the surviving corporation immediately after the merger, or (y) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all, or substantially all, of the assets of the Corporation; or (ii) the stockholders of the Corporation approve any plan or proposal for the liquidation or dissolution of the Corporation; or (iii) any person (as such term is used in Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934 (the "Exchange Act"), shall become the beneficial owner (within the meaning of Rule 13d-3 under the Exchange Act) of 30% or more of the Corporation's outstanding common stock; or (iv) during any period of two consecutive years, individuals who at the beginning of such period constitute the entire Board of Directors shall cease for any reason to constitute a majority thereof unless the election, or the nomination for election by the Corporation's stockholders, of each new director was approved by a vote of at least two-thirds of the directors then still in office who were directors at the beginning of the period. (b) Any exercise of an option permitted pursuant to Section 9(a) shall be made within 180 days of the related Participant's termination as a director of the Corporation. 10. Options Not Transferable The right of any Participant to exercise an option granted to him or her under the Plan shall not be assignable or transferable by such Participant otherwise than by will or the laws of descent and distribution, and any such option shall be exercisable during the lifetime of such Participant only by him or her. 11. No Rights as Stockholder until Exercise Neither the recipient of an option under the Plan nor his successors in interest shall have any rights as a stockholder of the Corporation with respect to any Shares subject to an option granted to such person until such person becomes a holder of record of such Shares. 12. Adjustments Upon Changes in Capitalization In the event that the outstanding shares of the common stock of the Corporation are changed into or exchanged for a different number or kind of shares or other securities of the Corporation or of another corporation, by reason of any reorganization, merger, consolidation, recapitalization, reclassification, stock split-up, combination of shares or dividend payable in capital stock, appropriate adjustment shall be made in the number and kind of shares subject to and reserved for issuance or transfer under the Plan and as to which outstanding options (or portions thereof then unexercised) shall be exercisable, to the end that the proportionate interest of Participants and prospective Participants, with respect to options theretofore granted and to be granted, shall be maintained as before the occurrence of such event. Such adjustment in outstanding options shall be made without change in the total price applicable to the unexercised portion of such options, but with a corresponding adjustment in the option price per share. 13. Restrictions on Issue of Shares Anything in this Plan to the contrary notwithstanding, the Corporation may delay the issuance of Shares covered by the exercise of any option and the delivery of a certificate for such Shares until one of the following conditions shall be satisfied: (1)the Shares with respect to which an option has been exercised are at the time of the issue or transfer of such Shares effectively registered under applicable federal securities laws now in force or hereafter amended; or (2)counsel for the Corporation shall have given an opinion, which opinion shall not be unreasonably conditioned or withheld, that such Shares are exempt from the registration under applicable federal securities laws now in force or hereafter amended. It is intended that all exercises of options shall be effective. Accordingly, the Corporation shall use its best efforts to bring about compliance with the above conditions within a reasonable time, except that the Corporation shall be under no obligation to cause a registration statement or a post-effective amendment to any registration statement to be prepared at its expense solely for the purpose of covering the issuance or transfer from the Corporation's treasury of Shares in respect of which any option may be exercised. 14. Purchase for Investment Unless the Shares to be issued upon exercise of an option granted under the Plan have been effectively registered under the Securities Act of 1933 as now in force or hereafter amended, the Corporation shall be under no obligation to issue or transfer any Shares covered by any option unless the person or persons who exercise such option, in whole or in part, shall give a written representation and undertaking to the Corporation, which is satisfactory in form and scope to counsel to the Corporation and upon which, in the opinion of such counsel, the Corporation may reasonably rely, that he or she is acquiring the Shares issued or transferred to him or her pursuant to such exercise of the option for his or her own account as an investment and not with a view to, or for sale in connection with, the distribution for any such Shares, and that he or she will make no transfer of the same except in compliance with any rules and regulations in force at the time of such transfer under the Securities Act of 1933, or any other applicable law, and that if Shares are issued or transferred without such registration a legend to this effect may be endorsed upon the certificates representing the Shares. 15. Effective Date The effective date (the "Effective Date") of this Plan shall be the date which is the later of (i) the date of which the Plan is approved by stockholders of the Corporation and (ii) the date on which the Corporation receives an interpretive letter from the Securities and Exchange Commission to the effect that participants in the Plan are disinterested persons within the meaning of Rule 16b-3 of the Securities Exchange Act of 1934 for the purpose of administering certain other compensation plans for the Corporation. 16. Expenses of the Plan All costs and expenses of the adoption and administration of the Plan shall be borne by the Corporation and none of such expenses shall be charged to any Participant. 17. Termination and Amendment of Plan Unless sooner terminated as herein provided, the Plan shall terminate ten years from the Effective Date. The Board may at any time terminate the Plan or make such modification or amendment thereof as it deems advisable; provided, however, that, except as provided in Section 12, the Board may not, without the approval of the stockholders of the Corporation increase the maximum aggregate number of shares for which options may be granted under the Plan or the number of Shares for which an option may be granted to any Participant. Termination or any modification or amendment of the Plan shall not, without the consent of a Participant, affect his or her rights under an option previously granted to him or her. ______________________________________________________________________________ EX-10.2 6 LEASE Exhibit 10(c) Lotus Development Building 55 Cambridge Parkway Cambridge, Massachusetts LEASE dated as of May 1, 1994 ARTICLE I Reference Data 1.1 Subjects Referred To. Each reference in this Lease to any of the following subjects shall be construed to incorporate the data stated for that subject in this Article: LANDLORD: John A. Pirovano, as Trustee of CC&F Cambridge Parkway Trust under Declaration of Trust dated May 26, 1982 and recorded with Middlesex South Registry of Deeds in Book 14637, Page 527. LANDLORD'S ORIGINAL c/o Cabot, Cabot & Forbes ADDRESS: 99 Summer Street Boston, MA 02110 TENANT: Lotus Development Corporation TENANT'S 55 Cambridge Parkway ADDRESS: Cambridge, Massachusetts 02142 COMMENCEMENT DATE: May 1, 1994 TENANT'S SPACE: The portions of the Building shown on Exhibit B hereto, consisting of 261,222 net rentable square feet. BUILDING: As defined in Section 2.1. PREMISES: As defined in Section 2.1. TERM: A period commencing on the Commencement Date and terminating at midnight on April 30, 2005, as such term may be extended pursuant to Section 2.9, and subject to the Early Expiration Option set forth in Section 2.12. LEASE YEAR: Each period of time from May 1 until the following April 30. ANNUAL FIXED RENT: Lease Year 1: $8,899,570.00 Lease Year 2: $5,319,884.00 Lease Year 3: $5,434,232.00 Lease Year 4: $5,948,901.00 Lease Year 5: $6,363,936.00 Lease Year 6: $6,379,384.00 Lease Year 7: $6,917,643.00 Lease Year 8: $6,933,825.00 Lease Year 9: $6,950,465.00 Lease Year 10: $6,967,471.00 Lease Year 11: $6,984,936.00 TOTAL RENTABLE FLOOR AREA OF THE BUILDING: 268,710 net rentable square feet PERMITTED USES: Office; technical office for research and development of computer software and related products and to the extent permitted by law the ancillary sale, service, demonstration and storage of computer software and related products. PUBLIC LIABILITY INSURANCE: Combined Single Limit - $2,000,000 MORTGAGE: As defined in Section 9.1. 1.2 Exhibits. These are incorporated as a part of this Lease: EXHIBIT A - Description of Lot EXHIBIT B - Floor Plans showing Premises EXHIBIT C - Landlord Services EXHIBIT D - Examples of Items Included in Building M&R EXHIBIT E - Agreement Regarding Operating Expenses and Existing Leases EXHIBIT F - List of Tenant's Equipment and Trade Fixtures EXHIBIT G - Outline of Restructuring of Interest of Lotus Development Corporation in CC&F Riverside Place Limited Partnership 1.3 Table of Articles and Sections. ARTICLE I - Reference Data 1.1 Subjects Referred To 1 1.2 Exhibits 3 1.3 Table of Articles and Sections 3 ARTICLE II - Premises, Term and Rent 2.1 The Premises 7 2.1.1 Parking Garage 7 2.2 Rights to Use Common Facilities 9 2.3 Landlord Reservations 9 2.4 Habendum 10 2.5 Monthly Fixed Rent Payments 10 2.6 Operating Expenses and Adjustments 10 2.7 Real Estate Taxes 21 2.8 Due Date of Additional Payments 24 2.9 Extension Option 25 2.10 Fair Market Net Rent 26 2.11 Agreement Regarding Operating Expenses and Existing Leases 31 2.12 Early Expiration Option 31 ARTICLE III - Construction 3.1 Current Condition of Premises 31 3.2 Alterations and Additions 33 3.3 General Provisions Applicable to Construction 36 3.4 License for Use of Roof Space 36 ARTICLE IV - Landlord's Covenants; Interruptions and Delays 4.1 Landlord's Covenant's 43 4.1.1 Services Furnished by Landlord 43 4.1.2 Additional Services Available to Tenant 44 4.1.3 Roof, Exterior, Floor Slab and Common Facility Repairs 44 4.1.4 Signs and Building Name 44 4.1.5 Quiet Enjoyment 45 4.1.6 Payment of Litigation Expenses 45 4.2 Interruptions and Delays in Repairs 45 4.3 Landlord's Insurance 51 ARTICLE V - Tenant's Covenants 5.1 Payments 52 5.2 Repair and Yield Up 52 5.3 Use........... 53 5.4 Obstructions; Items Visible From Exterior; Rules and Regulations 54 5.5 Safety Appliances; Licenses 55 5.6 Assignment; Sublease 55 5.7 Indemnity; Liability Insurance 57 5.8 Personal Property At Tenant's Risk; Tenant's Insurance on Personal Property 59 5.9 Right of Entry 60 5.10 Floor Load 60 5.11 Personal Property Taxes 61 5.12 Payment of Enforcement Expenses 61 5.13 Compliance with Insurance Regulations 61 5.14 Tenant's Self-Help. 62 5.15 Hazardous Substances 65 ARTICLE VI - Casualty and Taking 6.1 Termination or Restoration; Rent Adjustment 68 6.2 Eminent Domain Damages 70 6.3 Temporary Taking 70 ARTICLE VII - Default 7.1 Events of Default 71 7.2 Damages 73 ARTICLE VIII - Miscellaneous 8.1 Computation of Rental Floor Areas 74 8.2 Notice of Lease; Consent or Approval; Notices; Bind and Inure; Trust Estate 75 8.3 Failure to Enforce 76 8.4 Acceptance of Partial Payments of Rent 77 8.5 Cumulative Remedies 77 8.6 Partial Invalidity 78 8.7 Landlord's Self-Help 78 8.8 Tenant's Estoppel Certificate 79 8.9 Waiver of Subrogation 80 8.10 All Agreements Contained 80 8.11 Brokerage 80 8.12 Submission Not an Option 81 8.13 Applicable Law 81 8.14 Waiver of Jury Trial 81 8.15 Holdover 81 8.16 Evidence of Corporate Authority 82 8.17 Americans With Disabilities Act 82 8.18 Riverside Place Limited Partnership 83 ARTICLE IX - Rights of Parties Holding Prior Interests 9.1 Lease Subordinate - Superior 83 9.2 Modification, Termination or Cancellation 85 9.3 Rights of Holder of Mortgage 85 9.4 Implementation of Article IX 86 ARTICLE II Premises, Term and Rent 2.1 The Premises. Landlord hereby leases to Tenant, and Tenant hereby hires from Landlord, Tenant's Space in the Building, excluding exterior faces of exterior walls, floor slabs, the common stairways and stairwells, elevators and elevator wells, fan rooms, electric and telephone closets, janitor closets, fire tower, fire tower court, freight elevator vestibules, and pipes, ducts, conduits, wires and appurtenant fixtures serving exclusively or in common other parts of the Building, but including all tenant special installations, stairs, special flues, dumbwaiter shafts and special air conditioning facilities, specially installed or leased telephone or electric switchboard, and if Tenant's Space includes less than the entire rentable area of any floor, excluding the common corridors, elevator lobby and toilets located on such floor. Tenant's Space with such inclusions and exclusions is hereinafter referred to as the "Premises". The term "Building" means the building erected on the Lot by Landlord, including the Parking Garage (as hereinafter defined), and the term "Lot" means all, and also any part of, the land described in Exhibit A plus any additions less any deletions thereto resulting from the change of any abutting street line. "Property" means the Building and Lot. 2.1.1 Parking Garage. Landlord hereby leases to Tenant, and Tenant hereby hires from Landlord 382 parking spaces in the Building's parking garage (the "Parking Garage"), eight (8) of which parking spaces are currently not used by Tenant for parking motor vehicles. Tenant agrees that of the 382 parking spaces available for its use, six (6) parking spaces are required to be set aside for handicapped use. Tenant shall be solely responsible for accommodating handicapped parkers from the 382 spaces made available to Tenant for its use. Tenant shall have the right to sublet parking spaces in the Parking Garage provided that Tenant first gives Landlord notice of the identity of the proposed subtenant and Landlord approves such subtenant, which approval will not be unreasonably withheld. For each parking space so sublet, Landlord shall be entitled to receive on a monthly basis one-half of all amounts received by Tenant in excess of the "monthly parking base" (as defined below) during the initial Term, and if Tenant exercises the Extension Option pursuant to Section 2.10, one-half of all amounts received by Tenant in excess of the monthly portion of the Fair Market Parking Charge (as defined in Section 2.10) per space during the Term as so extended, whether such amounts received by Tenant are characterized as consideration for the sublease, differences in rent, or otherwise. The monthly parking base shall mean $125.00 during the first Lease Year, $125.00 during the second Lease Year, $128.13 during the third Lease Year, $131.33 during the fourth Lease Year, $134.61 during the fifth Lease Year, $137.98 during the sixth Lease Year, $141.43 during the seventh Lease Year, $144.96 during the eighth Lease Year, $148.59 during the ninth Lease Year, $152.30 during the tenth Lease Year and $156.11 during the eleventh Lease Year. 2.2 Rights to Use Common Facilities. Tenant shall have, as appurtenant to the Premises, rights to use in common, subject to reasonable rules of general applicability to tenants of the Building from time to time made by Landlord of which Tenant is given notice and provided such rules do not materially interfere with Tenant's use of the Premises: (a) the common lobbies, corridors, stairways, elevators and loading platform of the Building, and the pipes, ducts, conduits, wires and appurtenant meters and equipment serving the Premises in common with others, (b) common walkways and driveways necessary for access to the Building, and (c) if the Premises include less than the entire rentable floor area of any floor, the common toilets, corridors and elevator lobby of such floor. 2.3 Landlord Reservations. Landlord reserves the right from time to time, without unreasonable interference with Tenant's use and, except during an emergency, after written notice given to Tenant: (a) to install, use, maintain, repair, replace and relocate for service to the Premises and other parts of the Building, or either, pipes, ducts, conduits, wires and appurtenant fixtures, wherever located in the Premises or Building, and (b) to alter or relocate any other common facility, provided that substitutions are substantially equivalent or better. Installations, replacements and relocations referred to in clause (a) above shall be located so far as practicable in the central core area of the Building, above ceiling surfaces, below floor surfaces or within perimeter walls of the Premises. 2.4 Habendum. Tenant shall have and hold the Premises for a period commencing on the Commencement Date and continuing for the Term unless sooner terminated as expressly provided herein. The word "Term" refers as of any particular time to the initial Term set forth in Section 1.1 and also to any extension thereof with respect to which Tenant has, as of that time, exercised its Extension Option set forth in Section 2.10. 2.5 Monthly Fixed Rent Payments. Tenant shall pay, without notice or demand, monthly installments of 1/12 of the Annual Fixed Rent (sometimes hereinafter referred to as "fixed rent") in advance for each full calendar month of the Term and the corresponding fraction of said 1/12 for any fraction of a calendar month at the beginning or end of the Term. At the request of Landlord portions of Annual Fixed Rent and additional rent shall be paid to one or more parties at such addresses as may be directed by Landlord in writing from time to time. 2.6 Operating Expenses and Adjustments. (a) The "Operating Expenses for the Property" means the costs of operation of the Property including, without limitation, the following: premiums for insurance carried with respect to the Property (including without limitation insurance against loss in case of fire or casualty and loss of monthly installments of fixed and additional rent, liability insurance, and such insurance as may be required by any management agreement, mortgage, deed of trust or ground lease); compensation and all fringe benefits, worker's compensation insurance premiums and payroll taxes (sometimes referred to herein as "Labor Expenditures") paid to, for or with respect to all persons engaged in operating, maintaining, or cleaning the Building or Lot (excluding such Labor Expenditures paid to or with respect to any person engaged in investigating, designing or performing Special Structural Repairs (as defined below) or any Capital Repairs (as defined below) which are not Cost-Saving Capital Items or Code-Compliance Capital Items (each as defined below)); steam, water, sewer, electric, gas, oil and telephone charges (excluding utility charges separately chargeable to tenants for additional or special services); cost of Building and cleaning supplies and equipment; cost of Building security; cost of maintenance, cleaning and repairs including maintenance and repair of the roof, exterior walls, floor slabs, elevators, and common areas and facilities other than "Special Structural Repairs" and "Capital Repairs", as hereinafter defined, provided, however, there shall be included depreciation for capital expenditures and Labor Expenditures associated therewith made by Landlord to reduce operating expenses ("Cost-Saving Capital Items"), if Landlord shall have reasonably demonstrated to Tenant, with acknowledgment by Tenant of such demonstration by Landlord not to be unreasonably withheld by Tenant, that the annual reduction in operating expenses shall exceed depreciation therefor, and there shall be included depreciation for capital expenditures and Labor Expenditures associated therewith made by Landlord to comply with legal requirements imposed after the date of this Lease ("Code-Compliance Capital Items") (depreciation in the case of Cost-Saving Capital Items and Code-Compliance Capital Items shall equal a level monthly charge which would theoretically amortize the capital item at an interest rate of 9% per annum over the useful life of the capital item (and the useful life shall be reasonably determined by Landlord in accordance with generally accepted accounting principles in effect at the time of acquisition of the capital item)); cost of interior landscaping and pest control; cost of snow removal and care of non-interior landscaping on the Lot and the adjacent park (except as set forth below); payments under service contracts with independent contractors and management fees at reasonable rates consistent with the type of occupancy, the service rendered and the size of the Building and subject to the management fee limitations set forth below; and all other reasonable and necessary expenses paid in connection with operating, cleaning and maintaining the Building and Lot; but specifically excluding the following: (a) costs of special services rendered to tenants for which a separate charge is made; (b) any costs incurred for the exclusive benefit of a specific tenant or of space occupied by Landlord, such as costs for any alteration, renovation, redecoration or finish of any space occupied by another tenant or by Landlord; (c) salaries of officers and executives of Landlord and Landlord's administrative overhead costs; (d) any costs arising from the negligent acts or omissions or intentional misconduct of the Landlord, its agents, employees or contractors; (e) leasing fees or commissions and advertising costs in connection with the Building; (f) interest, mortgage charges, financing and refinancing costs, ground rent and taxes (except as otherwise provided in Section 2.7); (g) any costs of reconstruction or other work incurred in connection with any fire or other casualty insured or required to be insured against hereunder, except with respect to the amount of any deductible amount under any insurance policy up to $25,000; (h) management fees paid to Landlord except to the extent Landlord actually manages the Building, and then subject to the Management Fee Cap set forth below; (i) attorneys fees incurred in leasing space in the Building or in enforcing the obligations of other tenants in the Building; (j) major landscaping of the Lot or the adjacent park initiated by the Landlord; and (k) capital expenditures and depreciation (except as otherwise provided herein), including, without limitation, repairs of a structural nature required under Section 4.1.3 hereof which are not properly chargeable against income or reimbursed from contractors under guaranties ("Capital Repairs"), and any costs of Landlord associated with the investigation of the status of, and any resulting repair or replacement required under Section 4.1.3 hereof ("Special Structural Repairs") of the Building's structural panels ("Special Structural Matters"). For the purposes of distinguishing between Capital Repairs and repairs which are not Capital Repairs, the parties agree that it is their intention and agreement that repairs which do not materially add to the value of the Building nor appreciably prolong its life, but keep it in an ordinarily efficient operating condition, are not Capital Repairs; repairs in the nature of replacement necessitated by material deterioration, or which appreciably prolong the life of the asset repaired, shall be considered Capital Repairs. Operating expenses for the Property shall be reduced by the amount of insurance, reimbursement, discount or allowance received by Landlord in connection with such costs. Further, Operating Expenses for the Property shall not include in any Lease Year that portion of any management fees, excluding Labor Expenditures for persons engaged on-site in the management of the Property, in excess of the "Management Fee Cap" (as defined below). Such Labor Expenditures shall not be subject to the Management Fee Cap. The "Management Fee Cap" shall be the "Fair Market Management Fee" (as defined below) for each calendar year or portion thereof through the end of the initial Term. "Fair Market Management Fee" shall, subject to the immediately preceding sentence, be the fee generally charged for building management services for buildings in Boston and Cambridge similar in size and type of occupancy and with similar facilities, amenities and services as the Building; provided, however, that commencing in the second Lease Year, the Fair Market Management Fee shall in no event exceed the product of $110,000 multiplied by a fraction, the numerator of which is the CPI Index (as defined below in this Section 2.6) as of January 1 of the year for which the Fair Market Management fee is to be determined, and the denominator of which is the CPI Index as of January 1, 1995. The Landlord and Tenant agree that the management fee for the first Lease Year shall be $180,000. Prior to May 1, 1995 and January 1 of each year thereafter through 2005, the parties shall attempt in good faith to agree on the amount of the Fair Market Management Fee for that calendar year, but if the parties fail to so agree, either party may submit such disagreement as to the amount of the Fair Market Management Fee to mediation administered by the BOMA Mediation Service in accordance with applicable BOMA ADR Rules, as the same may be amended from time to time. The parties will attempt in good faith to resolve such disagreement through such mediation but if the parties have not so agreed after 30 days from the time of submission to mediation, then the parties shall submit the disagreement to arbitration by the BOMA Arbitration Service in accordance with said BOMA ADR Rules. Each party shall pay its own counsel fees and expenses, if any, in connection with any mediation and, if needed, arbitration. The parties shall share equally the fees and expenses of the mediator, any arbitrator and any fees due BOMA. To the extent that Landlord is at any time obligated hereunder to provide any services hereunder, such services may be performed by subsidiaries or affiliates of CC&F Investment Company Limited Partnership or of Landlord, provided that the contracts for the performance of such services shall be competitive with similar contracts and transactions with unaffiliated entities for the performance of such services in comparable buildings in the Cambridge area. Landlord agrees that it will hire a reputable management company qualified and experienced in management of similar first-class office buildings to perform the general management of the Building. In addition, Landlord agrees that, in order to ensure that qualified subcontractors are providing subcontracted services at competitive prices, Tenant shall have the right to approve the award by Landlord's general management company of subcontracts relating to cleaning, window-washing, rubbish-removal, and other similar major subcontracts, if any, but excluding any subcontracts that relate to structural elements of the Building or to Building M&R (as defined below); provided, however, that (i) when Tenant is notified of the material terms of a proposed major subcontract Tenant shall notify Landlord within fifteen (15) days of its approval or disapproval of the proposed subcontract and if Tenant fails to do so Tenant shall be deemed to have approved of said subcontract, and (ii) Tenant shall not unreasonably withhold its approval of a proposed subcontract. Tenant shall have the right to select the subcontractor to provide security services for the Building. With respect to subcontractors for maintenance and repair of elevators and heating, ventilation and air conditioning equipment, the Landlord will in good faith consider input from the Tenant regarding the selection thereof. Notwithstanding the foregoing provisions of this Section 2.6(a), Landlord agrees that during the initial Term (but not during any extension thereof), the portion of Operating Expenses for the Property attributable to "Building M&R" (as defined below) chargeable to Tenant as one of the Operating Expenses Allocable to the Premises (as defined below) will not exceed the "Building M&R Cap" (as defined below). "Building M&R" shall mean maintenance, repairs and replacements on or to the roof, exterior walls, building systems (plumbing, HVAC, mechanical and electrical), floor slabs, elevators or other structural elements which would not constitute a Capital Repair, Special Structural Repair, or a repair or replacement which would give rise to a Code-Compliance Capital Item (a "Code-Compliance Capital Repair") or Cost-Saving Capital Item (a "Cost-Saving Capital Repair"), as more fully described in Exhibit D. "Building M&R Cap" shall mean $235,000 per calendar year for 1994 through 2005 (adjusted to reflect partial calendar years occurring at the beginning and end of Term); provided, however, that, to reflect cost-of-living increases after the Commencement Date, the amounts listed above for each calendar year commencing with 1996 through and including 2005 (but applied only through April 30, 2005) shall be increased on an annual basis by the same percentage, if any, by which the Consumer Price Index for All Urban Consumers for Boston (1982-84=100) (the "CPI Index") as of January 1 of the year in which the Building M&R Cap is to be determined exceeds the CPI Index as of January 1, 1995. In addition, in the 1994 calendar year the Landlord shall perform deferred Building M&R on the Parking Garage, having a budget cost of $70,300 (the "Deferred Parking Garage M&R"). The entire amount of the Deferred Parking Garage M&R shall be permitted Operating Expense for the Property. $46,867 of the Deferred Parking Garage M&R shall not be subject to the Building M&R Cap and $26,633 of the Deferred Parking Garage M&R shall be subject to the Building M&R Cap. In addition, in the event Tenant requests Landlord to paint the Parking Garage, the cost of such painting shall an Operating Expense for the Property which is not subject to the Building M&R Cap. Landlord shall have the right, but not the obligation, to amortize the cost of any individual item of Building M&R, the cost of which (including the labor costs associated therewith) exceeds $12,000, by including in Operating Expenses a level monthly charge which would theoretically amortize the item at an interest rate of 9% per annum over the useful life of such item, as determined in accordance with generally accepted accounting principles in effect at the time the cost is incurred, provided that the portion of such cost charged to Tenant in each year shall be included in the costs which are subject to the Building M&R Cap. (b) "Operating Expenses Allocable to the Premises" means the same proportion of the Operating Expenses for the Property as rentable floor area of Tenant's Space from time to time bears to the Total Rentable Floor Area of the Building. (c) "Tax Expenses Allocable to the Premises" and "Landlord's Tax Expenses" shall have the meanings assigned in Section 2.7. (d) "Premises Expenses" shall mean the sum of the Operating Expenses Allocable to the Premises and the Tax Expenses Allocable to the Premises. (e) Tenant shall pay to Landlord, as additional rent, Premises Expenses in excess of $9.00 per annum per net rentable square foot prorated in the case of the first and last Lease Years (the "Premises Expense Base"); provided, however, that if Tenant has exercised the Extension Option, the Premises Expense Base for the Term as so extended shall be the Premises Expenses for calendar year 2004. (f) Not later than ninety (90) days after the end of the first calendar year, or fraction thereof ending December 31, and of each succeeding calendar year during the Term, or fraction thereof at the end of the Term, Landlord shall render Tenant a statement in reasonable detail and according to sound accounting practices certified by a representative of Landlord, showing for the preceding calendar year or fraction thereof, as the case may be, the Premises Expenses. Said statement to be rendered to Tenant shall also show for the preceding year or fraction thereof, as the case may be, the amounts of Premises Expenses already paid by Tenant as additional rent, and the amount of Premises Expenses remaining due as additional rent from, or overpaid by, Tenant for the year or other period covered by the statement. Provided Tenant is not in default hereunder, any amounts so overpaid shall be applied against future payment thereafter becoming due under this Section 2.6. Within 30 days after the date of delivery of such statement, Tenant shall pay to Landlord as additional rent the balance of the amounts, if any, required to be paid pursuant to the provisions hereof with respect to the preceding year or fraction thereof. Tenant shall have the right at its own cost and expense, upon not less than ten (10) business days' notice, to inspect during usual business hours those portions of the books and records kept by Landlord relating to the Premises Expenses. In addition, Landlord shall prepare and deliver to Tenant, together with the statement of expenses for the prior calendar year of the Term (or fraction thereof), a budget for the then-current calendar year based on the statement of expenses for the prior year and projected increases or decreases in Premises Expenses reasonably anticipated by Landlord. Commencing with the first day of the first month following the delivery to Tenant of each budget referred to above and on the first day of each month thereafter until delivery to Tenant of the next such budget, Tenant shall pay to Landlord as additional rent, on account toward Tenant's share of increases in Premises Expenses anticipated for the then-current year, one-twelfth of the total annualized amount by which Premises Expenses for the then-current year exceed the Premises Expense Base, as shown on the budget for such year. 2.7 Real Estate Taxes. Terms used herein are defined as follows: (i) "Tax Year" means the twelve-month period beginning July 1 each year during the Term or if the appropriate governmental tax fiscal period shall begin on any date other than July 1, such other date. (ii) "Landlord's Tax Expenses" with respect to any Tax Year means the aggregate real estate taxes on the Property with respect to that Tax Year, reduced by any abatement receipts with respect to that Tax Year. (iii) "Tax Expenses Allocable to the Premises" means the same proportion of Landlord's Tax Expenses as the rentable floor area of Tenant's Space from time to time bears to the Total Rentable Floor Area of the Building. (iv) "Real Estate Taxes" means all taxes and special assessments of every kind and nature assessed by any governmental authority on the Lot or the Building or the Property which the Landlord shall become obligated to pay because of or in connection with the ownership, leasing and operation of the Lot, the Building and the Property, and reasonable expenses incurred by Landlord for any proceedings for abatement of taxes. The amount of special taxes or special assessments to be included shall be limited to the amount of the installment (plus any interest, other than penalty interest, payable thereon) of such special tax or special assessment required to be paid during the year in respect of which such taxes are being determined. Except as otherwise required by the holder of any mortgage on the Property, Landlord shall pay such special taxes or special assessments over the longest period of time permitted by law. There shall be excluded from such taxes all income, estate, succession, inheritance and transfer taxes; provided, however, that if at any time during the Term the present system of ad valorem taxation of real property shall be changed so that in lieu of the whole or any part of the ad valorem tax on real property, there shall be assessed on Landlord a capital levy or other tax on the gross rents received with respect to the Lot or Building or Property, or a federal, state, county, municipal, or other local income, franchise, excise or similar tax, assessment, levy or charge (distinct from any now in effect in the jurisdiction in which the Property is located) measured by or based, in whole or in part, upon any such gross rents, then any and all of such taxes, assessments, levies or charges, to the extent so measured or based, shall be deemed to be included within the term "Real Estate Taxes" but only to the extent that the same would be payable if the Lot, Building and Property were the only property of Landlord. After the Commencement Date, if Tenant shall deem itself aggrieved by the amount of any such Real Estate Taxes it may seek an abatement of such taxes by the commencement and diligent prosecution of appropriate proceedings. To the extent required by law, such proceeding may be maintained in the name of Landlord, and to the extent so required Landlord agrees to execute such applications and other documents as may reasonably be required to effectuate the foregoing. Landlord may participate in any proceedings initiated by Tenant, and Tenant shall not discontinue or settle any abatement proceedings begun by it without first giving Landlord prior notice of its intent so to do and in the case of any proposed settlement, receiving Landlord's consent, which consent shall not be unreasonably withheld, and in the case of Tenant's proposed discontinuance, affording Landlord reasonable opportunity to be substituted in such proceedings. Tenant shall reimburse Landlord for, and indemnify and hold Landlord harmless from and against all loss, cost or expenses arising in connection with such abatement proceedings, including, without limitation, administrative costs and expenses and any increase in taxes on the Lot and Building subject to the abatement proceeding for the tax period to which such proceeding related, but excluding expenses incurred by Landlord as a result of Landlord's voluntary participation in proceedings initiated by Tenant. Nothing contained herein shall prohibit Landlord at any time from initiating a tax abatement proceeding in its sole discretion. The reasonable cost of any tax abatement proceeding initiated by Landlord shall be an Operating Expense provided that the initiation of the proceeding has been approved in writing by Tenant, which approval may be given or withheld in Tenant's sole discretion. 2.8 Due Date of Additional Payments. Except as otherwise specifically provided herein, any sum, amount, item or charge designated or considered as additional rent in this Lease shall be paid by Tenant to Landlord on the first day of the month following the date on which Landlord notifies Tenant of the amount payable or on the thirtieth day after the giving of such notice, whichever shall be later. Any such notice shall specify in reasonable detail the basis of such additional rent. Except as expressly set forth herein, fixed rent and additional rent shall be paid by Tenant to Landlord without offset or deduction. 2.9 Extension Option. Provided that at the time of exercise of the option and the commencement of the extended Term (i) Tenant has not assigned this Lease or sublet more than 100,000 square feet of the Premises, except pursuant to the last paragraph of Section 5.6, (ii) there is no Event of Default then existing under this Lease, (iii) the Lease has not been otherwise terminated, and (iv) Tenant or its sublessees or assignees pursuant to the last paragraph of Section 5.6 are in physical occupancy of the Premises, then Tenant shall have the option to extend the Term for one (1) period of five (5) years (the "Extension Option"). If Tenant chooses to exercise the Extension Option, Tenant shall do so by written notice to Landlord given no less than twelve (12) months prior to the expiration of the then current Term (the "Extension Exercise Date"). Failure of Tenant to exercise such option in a timely manner shall terminate Tenant's right to lease and occupy the Premises beyond the then current Term, and shall terminate all further rights under the Extension Option set forth in this Section 2.9. The terms and conditions of this Lease during such extension shall be the same as contained herein, except that (i) the Annual Fixed Rent for the Premises shall be the sum of (w) the greater of (i) 95% of the Fair Market Net Rent (as defined below) for the Premises and (ii) $3,918,330, plus (x) the Premises Expenses in calendar year 2004, plus (y) the greater of (i) 95% of the Fair Market Parking Charge (as defined below) and (ii) $715,608; and (ii) Tenant shall have no additional options to extend the Term. 2.10 Fair Market Net Rent. If the Tenant wishes to determine the Annual Fixed Rent which would be payable if Tenant were to exercise the Extension Option, Tenant shall, at least four (4) months prior to the Extension Exercise Date, notify Landlord (the "Tenant's Request Notice") that Tenant requests Landlord to propose a fair market net rent for the Premises and fair market charge for the parking spaces in the parking garage for the extension period. After Landlord has received Tenant's Request Notice, then no later than the later to occur of (i) four months prior to the Extension Exercise Date, or (ii) fifteen (15) days from the date of Tenant's Request Notice (the "Landlord's Response Date"), Landlord shall propose a fair market net rent for the Premises (the "Landlord's Proposed Fair Market Net Rent") and a fair market charge for the parking spaces (the "Landlord's Proposed Fair Market Parking Charge") and give written notice thereof to Tenant. "Fair Market Net Rent" for purposes of this Lease shall mean the rental income, net of the Premises Expenses in calendar year 2004 which will be included in the Annual Fixed Rent during the Extension Term, that the demised premises would most probably command on the open market as indicated by current rentals being paid for comparable space (as of the time such rental will become effective), giving due consideration to all matters as are customarily and appropriately considered by landlords and tenants engaged in leasing similar space in the vicinity of the demised premises as of the time of such determination. "Fair Market Parking Charge" for purposes of this Lease shall mean the amount that could be charged for the parking spaces on the open market as indicated by current charges being paid for comparable parking spaces (as of the time such charges will become effective), giving due consideration to all matters as are customarily and appropriately considered by landlords and tenants for similar parking spaces in the vicinity of the Building as of the time of such determination. The Landlord's Proposed Fair Market Net Rent shall be the "Fair Market Net Rent" and Landlord's Proposed Fair Market Parking Charge shall be the "Fair Market Parking Charge" unless Tenant notifies Landlord, within fifteen (15) days of the date of Landlord's notice containing Landlord's Proposed Fair Market Net Rent and Landlord's Proposed Fair Market Parking Charge proposal, that Landlord's Proposed Fair Market Net Rent, or Landlord's Proposed Fair Market Parking Charge, or both, is not satisfactory to Tenant (a "Tenant's Appraisal Notice"), in which event the Fair Market Net Rent, or the Fair Market Parking Charge, or both, shall be determined by the following appraisal procedure. In addition, if Tenant has delivered a Tenant's Request Notice to Landlord and Landlord fails to respond within the time period required, Tenant may within 15 days after the Landlord's Response Date deliver notice to Landlord that the Fair Market Net Rent or Fair Market Parking Charge, or both, as the case may be, are to be determined by the following appraisal procedure. Within fifteen (15) days of the date of Tenant's Appraisal Notice, Landlord and Tenant shall each appoint an appraiser who is a reputable independent commercial real estate consultant, professional appraiser or broker, each of whom shall have at least ten (10) years of experience in the Cambridge office rental market and each of whom is hereinafter referred to as an "appraiser". Within forty-five (45) days of the date of Tenant's Appraisal Notice, Landlord and Tenant shall each notify the other of its respective appraiser's determination of the Fair Market Net Rent or Fair Market Parking Charge, or both, as the case may be. If the appraisers' determinations of either the Fair Market Net Rent or Fair Market Parking Charge, or both, are the same, the appraisers' determinations of the Fair Market Net Rent or Fair Market Parking Charge, or both, as the case may be, will be the "Fair Market Net Rent" or "Fair Market Parking Charge," or both, respectively. If the appraisers' determinations of the Fair Market Net Rent or Fair Market Parking Charge differ by an amount less than or equal to ten (10%) percent of the lower value in either case, the Fair Market Net Rent or Fair Market Parking Charge, or both, as the case may be, shall each be the average of the two corresponding determinations. If the appraisers' determinations of the Fair Market Net Rent or Fair Market Parking Charge, or both, differ by more than ten (10%) percent of the lower value in either case, the two appraisers shall, within ten (10) days of the date of the later of the two determinations, appoint a third appraiser. If the appraisers cannot agree on the identity of a third appraiser, then either party on behalf of both may apply to the President of the New England Chapter of the American Institute of Real Estate Appraisers, or on its failure or inability to commence an appraisal within ten (10) days of the application to that person to act, to a court of competent jurisdiction, for the appointment of an appraiser to serve as the third appraiser. The third appraiser shall within fifteen (15) days of his or her appointment make his or her determination of the Fair Market Net Rent or Fair Market Parking Charge, or both, as the case may be. The "Fair Market Net Rent" or the "Fair Market Parking Charge", or both, shall be deemed to be the average of (i) the determination of the third appraiser of the Fair Market Net Rent or Fair Market Parking Charge, or both, as the case may be, and (ii) the prior corresponding determination of an appraiser which is closest in amount thereto. The Fair Market Net Rent of the subject space and the Fair Market Parking Charge for the parking spaces in the Parking Garage, each determined in accordance with the provisions of this section, shall be binding and conclusive on Tenant and Landlord. The cost and expense of each appraiser appointed separately by Tenant and Landlord shall be borne by the party who appointed the appraiser, and the cost and expense of the third appraiser shall be shared equally by Tenant and Landlord. Notwithstanding the foregoing, if either party shall fail to appoint its appraiser within the period specified above (such party referred to hereinafter as the "failing party"), the other party may serve notice on the failing party requiring the failing party to appoint its appraiser within ten (10) days of the giving of such notice and if the failing party shall not respond by appointment of its appraiser within said ten (10) day period, then the appraiser appointed by the other party shall be the sole appraiser whose determination of the Fair Market Net Rent and Fair Market Parking Charge shall be binding and conclusive upon Tenant and Landlord. In no event shall the date by which Tenant must exercise the Extension Option pursuant to Section 2.9 be extended for purposes of this Section 2.10, provided that so long as Tenant's Request Notice has been given at least four (4) months prior to the Extension Exercise Date, if, through no fault of Tenant, the appraisers' determination has not been made at least fifteen (15) days prior the Extension Exercise Date, the Extension Exercise Date shall be deemed to have been extended until the first to occur of (x) fifteen (15) days after the appraisers' determination has been made and (y) ten (10) months prior to the expiration of the then current Term. Time is of the essence with respect to the Extension Option. 2.11 Agreement Regarding Operating Expenses and Existing Leases. Reference is made to certain "Existing Leases" (as defined in Exhibit E) between Landlord and Tenant relating to portions of the Building. Simultaneously with the execution hereof, Landlord and Tenant shall execute and deliver to each other the Agreement regarding Operating Expenses and Existing Leases in the form of Exhibit E hereof. 2.12 Early Expiration Option. Tenant shall have the option (the "Early Expiration Option"), exercisable by written notice to Landlord given no later than April 30, 2001 (the "Early Expiration Notice") to cause the Term of this Lease to come to an end at Midnight on April 30, 2002 (the "Early Expiration Date"), as if this Lease had originally provided that such date would be the scheduled expiration of the Term. Time is of the essence with respect to the Early Expiration Option, and if Tenant fails to timely exercise it, it shall be deemed to have been irrevocably waived. ARTICLE III Condition of the Premises 3.1 Current Condition of Premises; Allowance. Tenant acknowledges that the Premises and the Parking Garage are in satisfactory condition. Tenant shall accept the Premises in their "as is" condition as of the Commencement Date. Except as otherwise provided in this Lease, Landlord has no obligation to Tenant to make any additions or alterations to the Premises, the Building or the Lot. If Tenant undertakes alterations and additions to the Premises prior to the end of the second Lease Year and provided that (i) Landlord and the holders of any Mortgage (as defined in Section 9.1) are reasonably satisfied (by inspection, if required) that such alterations and additions have been completed on a lien-free basis in accordance with applicable law, (ii) no Event of Default has occurred hereunder and is continuing, and (iii) Tenant has delivered to Landlord an Estoppel Certificate (as defined in Section 8.8), at Tenant's option and request, Landlord shall reimburse Tenant in the manner hereinafter set forth the lesser of (x) its out-of-pocket costs of design and construction of such alterations and additions, as evidenced by paid invoices and receipts or other evidence reasonably satisfactory to Lessor, and (y) $1,000,000 (the "Allowance"). The Tenant may draw the Allowance in two (2) requisitions. The first requisition shall be paid to Tenant on the first anniversary of the Commencement Date and the second requisition shall be paid to Tenant on the second anniversary of the Commencement Date. Commencing on the date of each such payment of the Allowance, Tenant shall pay to Landlord, as additional rent, on the first day of each calendar month through and including the month ending on April 30, 2002, that portion of the Allowance paid to Tenant in such requisition which will fully amortize the amount of such requisition by April 30, 2002, including interest on the unamortized portion thereof at an interest rate of 9% per annum. By way of example, if the first requisition is for $600,000, then commencing on May 1, 1995 and ending on April 30, 2002, the Tenant shall pay Landlord additional rent in the amount of $9,581.58 per month. If an additional $350,000 is requisitioned on May 1, 1996, then commencing on May 1, 1996 and ending on April 30, 2002, the Tenant shall pay Landlord additional rent for the second requisition in the amount of $6,261.97 per month. 3.2 Alterations and Additions. Except as set forth below, Tenant shall not make alterations and additions to Tenant's Space, except in accordance with plans and specifications first approved by Landlord, which approval shall not be unreasonably withheld. Landlord shall not be deemed unreasonable for withholding approval of any alterations or additions which do not satisfy the "Alteration Conditions", which means they will not (a) involve or affect any structural or exterior element of the Building (including, without limitation, Building systems), any area or element outside of the Premises, or any facility serving any area of the Building outside of the Premises (including, without limitation, any other tenant), or (b) require unusual expense to readapt the Premises to normal office use on Lease termination, unless in the case of (b) Tenant first gives assurance reasonably acceptable to Landlord that such readaptation will be made prior to such termination without expense to Landlord. Notwithstanding the foregoing, Tenant shall be entitled to undertake alterations and additions the cost of which in the aggregate for all alterations and additions which are reasonably related to each other are less than $100,000, provided that the alterations and additions satisfy the Alteration Conditions, and Tenant gives notice of such alterations and additions prior to the time they are made. Tenant shall provide to Landlord within a reasonable time of completion of all alterations or additions, regardless of the cost thereof, complete as-built plans and specifications for such alterations and additions. All alterations and additions shall at Landlord's option become a part of the Building, which option must be exercised at the time Landlord consents to such alterations or additions, or, if consent is not necessary, within 15 days of Landlord's receipt of the notice required by the preceding sentence. All of Tenant's alterations and additions and installation of furnishings shall be coordinated with any work being performed by Landlord and in such manner as to maintain harmonious labor relations and not to damage the Building or Lot or interfere with Building operation and, except for installation of furnishings, shall be performed by contractors or workmen first approved by Landlord (such approval not to be unreasonably withheld). Tenant before its work is started shall: secure all licenses and permits necessary therefor; deliver to Landlord a statement of the names of all its contractors and subcontractors and the estimated cost of all labor and material to be furnished by them, and in the event that the cost in the aggregate for all alterations and additions which are reasonably related to each other as part of such work exceeds $100,000, security satisfactory to Landlord protecting Landlord against liens arising out of the furnishing of such labor and material; and cause each contractor to carry workmen's compensation insurance in statutory amounts covering all the contractor's and subcontractor's employees and commercial general liability insurance with such limits as Landlord may reasonably require, but in no event less than a combined single limit of $1,000,000 or such lesser amount as may be approved by Landlord in writing (all such insurance to be written in companies reasonably approved by Landlord and insuring Landlord and Tenant as well as the contractors), and to deliver to Landlord certificates of all such insurance. Tenant agrees to pay promptly when due the entire cost of any work done on the Premises by Tenant, its agents, employees, or independent contractors, and not to cause or permit any liens for labor or materials performed or furnished in connection therewith to attach to the Premises and immediately to discharge any such liens which may so attach, which discharge may be by Tenant's posting a bond in the amount of such lien provided that such bond shall name in addition to Owner the holder from time to time of any Mortgage and the ground lessor under the Ground Lease. Nothing in this Section shall preclude Tenant from contesting any claim by any contractor or materialman provided that any lien in connection therewith is discharged as aforesaid. 3.3 General Provisions Applicable to Construction. All construction work required or permitted by this Lease shall be done in a good and workmanlike manner and in compliance with all applicable laws and all lawful ordinances, regulations and orders of governmental authority and insurers of the Building. Each party may inspect the work of the other at reasonable times and shall promptly give notice of observed defects. 3.4 License for Use of Roof Space. Subject to the conditions and provisions of this Section 3.4, Landlord hereby grants to Tenant a license to utilize for the purposes described below and from time to time during the Term hereof, and at Tenant's sole risk and expense, portions of the roof of the Building (the "Roof Space"). The conditions under which Landlord grants said license to Tenant are as follows: A. Tenant may install, use and maintain communications microwave dishes, antennas, related control equipment and requisite cables (the "Equipment") on the Roof Space, and Tenant may install, use and maintain cables (the "Cables") between the Roof Space and the Tenant's premises in the Building, provided that Landlord in all cases shall have first approved in writing the locations of the Equipment and Cables, which approval shall not be unreasonably withheld or delayed. The installation of the Equipment and the Cables shall be performed by a contractor acceptable to Landlord and shall be in accordance with plans and specifications approved in writing in advance by Landlord. The installation, use and maintenance of the Equipment and Cables shall in no way interfere with Landlord's operation of the Building or with the quiet enjoyment of the other tenants of the Building. If at any time Landlord shall reasonably deem it necessary or desirable to modify the plans and/or specifications pursuant to which the Equipment and Cables were installed for reasons of safety, Tenant shall perform such modifications promptly upon request by Landlord. Tenant and/or its contractor shall exercise a high standard of care in all of its activities in, on and about the Building and shall ensure that no mechanics' or materialmen's liens are placed on the Roof Space or the Building and will promptly remove any such liens so placed. B. Tenant shall bear all expenses in connection with the installation, use and maintenance of the Equipment and the Cables and the removal thereof. C. The Equipment and the Cables shall remain the property of the Tenant or its contractor. Tenant shall, at its expense, (1) remove the Equipment and the Cables on the expiration or sooner termination of this Lease and (2) upon removal of such equipment, restore Landlord's affected facilities to the condition they were in at the commencement of Tenant's occupancy of the Building, reasonable wear and tear excepted. D. Tenant shall maintain the Equipment and the Cables at all times in a state of good repair and good and safe condition at its sole cost and expense and shall not permit the Equipment or the Cables to decay, wear out or have an unsightly appearance; nor shall Tenant permit the Equipment or the Cables to deteriorate such that they may threaten to damage the Building, any portion thereof, or any occupants therein. Landlord may, at its option, from time to time and at Tenant's expense, have testing and analysis performed to determine whether the Equipment and/or Cables will affect the integrity of the Building, and if such testing or analysis disclose any harmful effects, Tenant shall cure the same promptly upon request by Landlord. Tenant shall paint (and repaint when necessary) in a brick red color approved by Landlord such portions of the Equipment and Cables as are visible from the street level of surrounding properties. E. Without limiting the provisions of Section 5.7 hereof, Tenant shall indemnify and hold Landlord harmless from and against any liability for injury, loss, accident or damage to any person or property, and from and against any claims, actions, proceedings, costs and expenses, including attorneys' fees, arising from Tenant's installation, use and maintenance of the Equipment and/or the Cables and the removal thereof, or resulting from the failure of Tenant to perform and discharge its covenants under this Section 3.4; provided, however, that Tenant shall not indemnify Landlord for any injury, loss accident or damage or any claims, actions, proceedings, costs or expenses which arise as a result of the negligence or willful misconduct of Landlord or its employees or contractors. Further, Landlord shall not be liable for any loss or damage due to imperfect or unsatisfactory communications experienced by Tenant for any reason whatsoever. F. The insurance maintained by Tenant pursuant to Section 5.7 hereof shall extend to and cover the Roof Space as well as those areas described in said Section 5.7. Tenant shall furnish Landlord with certificates of insurance evidencing such coverage prior to Tenant's exercise of its rights under this Section 3.4. G. Tenant shall not do or allow any act or thing in, upon or about the Building in connection with the rights granted to Tenant under this Section 3.4 which will invalidate or conflict with fire insurance policies or public liability insurance policies covering the Building and fixtures and property therein. H. Tenant and its contractors shall comply with all applicable federal, state and municipal laws, ordinances and regulations, including, without implied limitation, local zoning and building codes and Federal Aviation Authority or Federal Communications Commission regulations and approvals, in connection with the installation, use and maintenance of the Equipment and the Cables. Landlord makes no representation whatsoever that Tenant is likely to obtain said permits and approvals to install, use and maintain the Equipment and the Cables and Landlord assumes no responsibility whatsoever for obtaining said permits and approvals. I. Landlord agrees to permit Tenant reasonable access, during normal business hours, to the Roof Space and such other areas of the Building designated by Landlord as are necessary to facilitate the installation, use and maintenance of the Equipment and the Cables and the removal thereof. Tenant shall notify Landlord prior to Tenant's entry of the Building to install or place the Equipment or the Cables, and Landlord shall inform Tenant as to a time for entry acceptable to it, the means of ingress and egress to be used by Tenant and any special preparation required of Tenant by Landlord in connection with the entrance and installation. Tenant and/or its contractor entering the Building to exercise the rights granted by this Section 3.4 shall at all times be subject to the direction and supervision of Landlord's building managerial staff, if any (and Landlord's security personnel, if any), or to the Manager, who shall have the right to (a) deny admittance to those persons who fail to show proper identification as agents or employees of Tenant and/or its contractor or (b) eject any such employees or agents who fail to follow such direction. J. In the event that any tax or assessment is made with respect to the Building on account of the Equipment or Cables by any federal, state or local governmental authority (whether assessed against Landlord, Tenant, the Roof Space, the Equipment and/or Cables), Tenant shall pay the same in a timely manner before any lien or penalty is assessed thereon. K. Tenant warrants that the installation and operation of the Equipment and the Cables will not cause material television, radio, or other interference, or any material amount of noise or annoyance, to tenants of the Building or occupants of neighboring properties, and that if it should occur, Tenant will, as soon as practicable, cease use of the Equipment until it has eliminated such interference, noise or annoyance. L. The rights granted to Tenant pursuant to this Section 3.4 are intended to be a license only and shall not be construed to give to Tenant any of the rights and privileges ordinarily associated with a leasehold or term of years. Anything herein to the contrary notwithstanding, in the event Tenant breaches any of the covenants and conditions contained in this Section 3.4 and such breach continues for twenty (20) days after written notice of such breach is delivered by Landlord to Tenant, Landlord may terminate this license and the rights granted to Tenant pursuant to this Section 3.4. M. The license granted herein is expressly limited to the Equipment and the Cables described herein and shall not extend to any other use of the Roof Space by Tenant. N. If at any time in the future or during the course of renovation, alteration of improvements of the Building it becomes necessary to remove the Equipment or the Cables, Landlord, in cooperation with Tenant, may so remove the Equipment or the Cables so long as they are replaced or restored in such a way that Tenant is given equivalent service, provided that such removal, replacement or restoration shall be done at Landlord's expense if undertaken in connection with renovation, alteration or improvements of the Building. Said restoration or replacement shall commence as soon as reasonably possible and any interruption in service shall be limited to that extent reasonably necessary to do such work. O. The rights granted to Tenant pursuant to this Section 3.4 are subject to all recorded easements, encroachments, liens, mortgages and other matters of record and this license shall be subject and subordinate to any Mortgage and any recorded easement, recorded lien or agreement now or hereafter on the Building. P. The rights granted by this Section 3.4 are for the exclusive benefit of Tenant only and Tenant may not assign, lease, sell or otherwise transfer any of its rights hereunder (whether legal or equitable) without the express written consent of Landlord, which consent shall not be unreasonably withheld. Q. Landlord hereby approves and agrees that Tenant may keep, use and maintain, subject to all of the provisions of this Section 3.4, the Equipment and Cables installed on the Roof Space as of the date hereof (the "Existing Equipment and Cables"). In this regard, Landlord specifically approves the present locations of the Existing Equipment and Cables and agrees that Tenant shall not be required to seek from Landlord any additional approval of the Existing Equipment and Cables pursuant to the requirements of Section 3.4A above. Tenant expressly agrees, however, that the Existing Equipment and Cables shall in all other respects be governed by the provisions of this Section 3.4. ARTICLE IV Landlord's Covenants; Interruptions and Delays 4.1 Landlord's Covenants. Landlord covenants during the Term: 4.1.1 Services Furnished by Landlord. To furnish services, utilities, facilities and supplies set forth in Exhibit C, and a lobby directory, equal in quality to those customarily provided by landlords in high quality buildings in Cambridge, the expense of which shall be charged in accordance with Section 2.6. 4.1.2 Additional Services Available to Tenant. To furnish, at Tenant's expense, reasonable additional building operation services which are usual and customary in similar office buildings in Cambridge upon reasonable advance request of Tenant at reasonable and equitable rates from time to time established by Landlord. 4.1.3 Roof, Exterior, Floor Slab and Common Facility Repairs. Except as otherwise provided in Article VI to make such repairs and replacements (including without limitation Capital Repairs and Special Structural Repairs) to all structural portions of the Building, including but not limited to, the roof, exterior walls, floor slabs, and common areas and facilities, as may be necessary to keep them in serviceable condition, the expense of which shall be charged in accordance with Section 2.6. 4.1.4 Signs and Building Names. To provide and install, at Tenant's expense, letters or numerals on doors in the Premises to identify Tenant's official name and Building address, all such letters and numerals being in the building standard. The signs on the exterior of the Building existing as of the date hereof may remain thereon and Tenant shall be permitted to modify such signs provided that prior to any such modification (i) Tenant has received Landlord's approval, which shall not be unreasonably withheld or delayed, and (ii) Tenant has obtained any approvals, permits, and licenses required under applicable laws, codes, ordinances, and regulations. Tenant shall remove all such signs and any modifications thereto prior to such time as Tenant vacates the Building, and upon such removal Tenant shall restore any portion of the Building damaged by such removal to good order, repair and condition. 4.1.5 Quiet Enjoyment. That Tenant on paying the rent and performing the tenant obligations in this Lease shall peacefully and quietly have, hold and enjoy the Premises, subject to all of the terms and provisions hereof. 4.1.6 Payment of Litigation Expenses. To pay all reasonable costs, counsel and other fees incurred by Tenant in connection with the successful enforcement by Tenant of any obligation of Landlord under this Lease. 4.2 Interruptions and Delays in Repairs. Landlord shall not be liable to Tenant for any compensation or reduction of rent by reason of inconvenience or annoyance or for loss of business arising from the necessity of Landlord or its agents entering the Premises for any of the purposes in this Lease authorized, or for repairing the Premises or any portion of the Building however the necessity may occur. In case Landlord fails to make any repairs or to perform any other duty or covenant to be performed on Landlord's part for reasons not due to Landlord's negligence, or is prevented or delayed from making any repairs or performing any other covenant or duty to be performed on Landlord's part by reason of any cause reasonably beyond Landlord's control, including without limitation, fire, unusual delays in transportation, delays in adjusting insurance awards, adverse weather conditions, casualties, governmental regulations, inability to obtain governmental approvals, unusual scarcity of labor or materials, and labor difficulties, (a "Force Majeure Event"), Landlord shall not be liable to Tenant therefor, for any consequential damages arising therefrom, nor, except as expressly otherwise provided in this Section 4.2 or in Section 6.1, shall Tenant be entitled to any abatement or reduction of rent by reason thereof, nor shall the same give rise to a claim in Tenant's favor that such failure constitutes actual or constructive, total or partial, eviction from the Premises. Notwithstanding the foregoing provision of this Section 4.2, if for more than five (5) continuous days the use and occupancy of a material portion of the Premises for the Permitted Uses is impracticable due to any reason (which reason may include a Force Majeure Event) not attributable in whole or material part to any act or inaction of Tenant, its agents, servants, employees or contractors including, without limitation, any default of Tenant hereunder (an "Abatement Event"), and provided that Tenant gives at least 3 days advance notice of Tenant's intention to rely on this subparagraph (which notice may be given at any time after the occurrence of the circumstance which, with the passage of time, causes the occurrence of the Abatement Event) to Landlord and the holder of any Mortgage, a just proportion of the fixed rent and additional rent, according to the nature and extent of the injury, shall be abated (with due consideration being given to whether Tenant has actually removed any employees or personal property from any portion of the Premises) from 3 days after such notice has been given until the Abatement Event no longer exists; provided that such abatement shall be permitted only if and to the extent that rental value insurance is payable to Landlord in the amount abated; and provided further that all fixed rent and additional rent which is so abated shall be placed in a separate, interest-bearing escrow account with an escrow agent reasonably satisfactory to Landlord and Tenant, which escrow agent may be the holder of the GECC Mortgage (as defined below), pending final agreement between the parties or a final determination pursuant to Section 5.14, if applicable, or otherwise, of whether such abatement is allowed hereunder, with interest to be paid to the party entitled to the amounts abated hereunder. In the event that rent is placed in escrow as aforesaid, and rental value insurance proceeds are thereafter paid to Landlord in lieu of the rent abatement claimed by Tenant, an amount in escrow equal to the amount of insurance proceeds paid to Landlord shall immediately be released by the escrow agent to Tenant. Further, in the event that an Abatement Event shall continue for more than 60 days after notice thereof from Tenant to Landlord and the holder of any Mortgage which notice makes reference to this Section 4.2 (such time being extended by the number of days, not to exceed 120 in the aggregate, of delays in curing an Abatement Event attributable to the occurrence of a Force Majeure Event), or if the Dispute Resolution Procedure is applicable under e 5.14, and any party has invoked the Dispute Resolution Procedure and the determination of the arbitrator in the Dispute Resolution Procedure is that the condition giving rise to the impracticability of the use and occupancy of the material portion of the Premises in question is not attributable in material part to the failure of the Tenant to perform its obligations under this Lease, Tenant may terminate this Lease by written notice delivered to Landlord within the later to occur of (i) ten (10) days after the expiration of said 60 day period (as so extended), or (ii) if the Dispute Resolution Procedure (as defined below) is invoked at any time prior to the effective date of termination, ten (10) days after the determination by the arbitrator that such condition as aforesaid is not attributable in material part to the failure of Tenant to perform its obligations under this Lease, the termination date of this Lease in either case to be thirty (30) days after the date of Tenant's notice of termination, unless a cure of such Abatement Event is commenced within said thirty (30) days and the cure is diligently pursued to completion and is completed within sixty (60) days after the date of Tenant's notice (such 60-day period to be extended for the number of days, not to exceed one hundred twenty (120) days in the aggregate of delays attributable to a Force Majeure Event), in which event such notice of termination shall not be effective. Any amount abated and in escrow attributable to any period of time during which it is agreed or determined that an Abatement Event did not exist shall be paid to Landlord, together with any interest on such amount. Any amount abated and in escrow attributable to any period of time during which it is agreed or determined that an Abatement Event did exist shall be paid to Tenant, together with any interest on such amount. Notwithstanding anything to the contrary contained herein, the abatement and termination provisions of this Section 4.2 shall not apply to any casualty or taking for which provision is made in Section 6.1. In addition, as of the date of this Lease and as of the date that this Lease is released from escrow pursuant to an escrow agreement executed contemporaneously herewith (each, an "Estoppel Date"), Tenant acknowledges and agrees, based upon its best knowledge on each Estoppel Date of the condition of the Building's structural panels, Parking Garage, building systems, and roof, that (i) no Abatement Event exists, and (ii) no basis exists on which Tenant may exercise its rights pursuant to Section 5.14 to make a repair which it believes is a Capital Repair or Special Structural Repair. The foregoing acknowledgment and agreement is based upon Tenant's best knowledge regarding the condition of the Building's structural panels, Parking Garage, building systems, and roof as of each Estoppel Date, and the impact of such condition upon Tenant's use of the Premises as of each Estoppel Date, and shall not prohibit Tenant from claiming that an Abatement Event or the right to self-help under Section 5.14 exists due to any material change in the condition of the Building's structural panels, Parking Garage, building systems or roof after the date this Lease is released from escrow, or any material change in the impact of such condition on Tenant's use of the Premises. Landlord reserves the right to stop any service or utility system, when necessary by reason of accident or emergency, or until necessary repairs have been completed; provided, however, that in each instance of stoppage, Landlord shall exercise reasonable diligence to eliminate the cause thereof and permit Tenant to use the Premises without interruption. Except in case of emergency repairs Landlord will give Tenant reasonable advance notice of any contemplated stoppage and will use reasonable efforts to avoid unnecessary inconvenience to Tenant by reason thereof. During normal business hours, Tenant, its employees, agents and business invitees shall have the free and uninterrupted right of access in common with others entitled thereto to the Premises and all common areas of the Property. Subject to reasonable security measures, Tenant and its employees shall have at all other times the free and uninterrupted right of access in common with others entitled thereto to the Premises and all common areas. 4.3 Landlord's Insurance. Landlord shall at all times during the term of this Lease, maintain in effect fire and extended coverage insurance covering the Building, at its full replacement cost, the expense of which shall be charged in accordance with Section 2.6. Landlord shall save Tenant harmless and indemnified from and against all injury, loss, claim or damage to any person or property while on or within the common areas (unless caused by the act, negligence or default of Tenant, its employees, agents licensees or contractors) occasioned by the negligence or misconduct of Landlord. Landlord shall maintain commercial general liability and property damage insurance in amounts not less than $2,000,000 combined single limit for bodily injury and property damage. Such insurance shall be with companies qualified to do business in Massachusetts, insuring Landlord against injury to persons or damage to property as herein provided. Landlord shall deposit with Tenant certificates of insurance that it is required to maintain under this Lease, at or prior to the Commencement Date, and thereafter, within ten (10) days prior to the expiration of each such policy. Such policies shall, to the extent obtainable, provide that the policies may not be materially changed or canceled without at least twenty (20) days' prior written notice to Tenant. Such insurance may be maintained by Landlord under a blanket policy or policies so-called. ARTICLE V Tenant's Covenants Tenant covenants during the Term and such further time as Tenant occupies any part of the Premises: 5.1 Payments. To pay when due all fixed rent and additional rent and all charges for utility services rendered to the Premises (except as otherwise provided in Exhibit C), and, as further additional rent, all charges for additional services rendered pursuant to Section 4.1.2. All amounts required to be paid hereunder by Tenant other than fixed rent, however characterized, shall be additional rent. 5.2 Repair and Yield Up. Except as otherwise provided in Article VI and Section 4.1.1, to keep the Premises in good order, repair and condition, reasonable wear and tear and damage by fire or other insured casualty only excepted, and all glass in windows (except glass in exterior walls unless any damage thereto is attributable to Tenant's negligence or misuse) and doors of the Premises whole and in good condition with glass of the same quality as that injured or broken, damage by fire or other insured casualty only excepted. At the expiration or termination of this Lease, Tenant shall peaceably yield up the Premises, and all alterations and additions to the Premises that are a part of the Building pursuant to Section 3.2, excepting, however, all Tenant's equipment and trade fixtures described on Exhibit F attached hereto, whether or not affixed to the Premises, in good order, repair and condition, reasonable wear and tear and damage by fire or other insured casualty only excepted, first removing (a) all goods and effects of Tenant (including, without limitation, the equipment and trade fixtures described in Exhibit F), and (b) all alterations and additions to the Premises that are not a part of the Building pursuant to Section 3.2, except that Tenant may at its option yield up or remove such items of the preceding clause (b) Landlord may specify in a notice given to Tenant at least thirty (30) days before such expiration or termination. Tenant shall repair any damage caused by such removal, restore the Premises and leave them clean and neat. 5.3 Use. Continuously from the commencement of the Term to use and occupy the Premises for the Permitted Uses, and throughout the Term not to injure or deface the Premises, Building or Lot, nor to permit in the Premises any auction sale, or inflammable fluids or chemicals, or nuisance, or the emission from the Premises of any objectionable noise or odor, nor to use or devote the Premises or any part thereof for any purpose other than the Permitted Uses, nor any use thereof which is inconsistent with the maintenance of the Building as an office building of the first class in the quality of its maintenance, use and occupancy, or which is contrary to law or ordinance or liable to invalidate or increase the premiums for any insurance on the Building or its contents or liable to render necessary any alteration or addition to the Building. 5.4 Obstructions; Items Visible From Exterior; Rules and Regulations. Not to obstruct in any manner any portion of the Building not hereby leased or any portion thereof or of the Lot used by Tenant in common with others; not without prior consent of Landlord (which consent shall not be unreasonably withheld) to permit the painting or placing or any signs, awnings, aerials or flagpoles or the like, visible from outside the Premises except as provided in Section 4.1.4 herein; not to hang or install drapes, blinds or shades visible from the outside of the Premises without the prior written consent of Landlord which will not be unreasonably withheld, except Landlord shall be presumed to be reasonable if it believes that Tenant's proposed drapes, blinds or shades are not consistent with the overall exterior appearance of the Building; and to comply with all reasonable Rules and Regulations now or hereafter made by Landlord, of which Tenant has been given notice, for the care and use of the Building and Lot and their facilities and approaches; Landlord shall not be liable to Tenant for the failure of other occupants of the Building to conform to such Rules and Regulations, provided however, that when Landlord enforces such Rules and Regulations, it shall enforce them uniformly against all tenants. 5.5 Safety Appliances; Licenses. To keep the Premises equipped with all safety appliances required by law or ordinance or any other regulation of any public authority because of any use made by Tenant other than normal office use, and to procure all licenses and permits so required because of such use and, if requested by Landlord, to do any work so required because of such use, it being understood that the foregoing provisions shall not be construed to broaden in any way Tenant's Permitted Uses. 5.6 Assignment; Sublease. Tenant shall not without prior written consent of Landlord, directly or indirectly assign, mortgage, pledge or otherwise transfer this Lease, make any sublease, or permit occupancy of the Premises or any part thereof by anyone other than Tenant except as provided in this Section 5.6. As additional rent, Tenant shall reimburse Landlord promptly for reasonable legal and other expenses incurred by Landlord in connection with any request by Tenant for consent to assignment or subletting, excluding, however, legal and other expenses incurred which are not attributable to any unusual, repetitive, or unduly complex requests for consent. Landlord shall not unreasonably withhold its consent to the requested assignment or subletting, provided that (i) the terms and provisions of such assignment or subletting shall specifically make applicable to the assignee or sublessee all of the provisions of this Section 5.6 so that Landlord shall have against the assignee or sublessee all rights with respect to any further assignment and subletting which are set forth herein; (ii) the character of the proposed assignee or subtenant must be consistent with the character of the Building as a first-class office building; (iii) no assignment or subletting shall affect the continuing primary liability of Tenant (which, following assignment shall be joint and several with the assignee); (iv) no consent to any of the foregoing in a specific instance shall operate as a waiver in any subsequent instance; (v) no assignment shall be binding upon Landlord or any of Landlord's mortgagees, unless Tenant shall deliver to Landlord an instrument in recordable form which contains a covenant of assumption by the assignee running to Landlord and all persons claiming by, through or under Landlord, but the failure or refusal of the assignee to execute such instrument of assumption shall not release or discharge assignee from its liability as Tenant hereunder; and (vi) any assignee shall be acceptable to Landlord's mortgagees and such approval shall not be unreasonably withheld. Landlord shall be entitled to receive one-half of all amounts received by Tenant in excess of the Annual Fixed Rent and additional rent reserved in this Lease applicable to the space being so assigned or sublet (after first deducting, by amortizing over the Term of the said Lease, all reasonable out-of-pocket expenses incurred in the subleasing or assignment, including but not limited to such brokerage expenses, attorneys' fees, and costs of alterations and repairs necessary to sublease or assign such space as are incurred by Tenant and free rent granted by Tenant, to the extent all of which are consistent with then current marketplace practices in Cambridge), whether such amounts received by Tenant are characterized as consideration for the assignment or sublease, differences in rent, or otherwise. Notwithstanding the foregoing, Landlord's consent shall not be required (i) for a sublease or assignment to any entity controlled by Tenant, or (ii) for an assignment to any entity which is a successor to Tenant by virtue of the acquisition of all or substantially all of the assets or voting shares of Tenant, provided that in either case no assignment or subletting shall affect the continuing primary liability of Tenant (which, following assignment shall be joint and several with the assignee), and provided further that Tenant's right of assignment under clause (ii) above shall be conditioned upon Landlord's written acknowledgment, which it shall not unreasonably withhold, that it has received from Tenant, at least 15 days prior to any proposed assignment pursuant to clause (ii), evidence satisfactory to Landlord that the net worth of the successor is and will be immediately after such assignment equal to or greater than the net worth of Tenant as of the date of such notice. 5.7 Indemnity; Liability Insurance. To defend with counsel selected by Tenant after consultation with Landlord, save harmless, and indemnify Landlord from any liability for injury, loss, accident or damage to any person or property, and from any claims, actions, proceedings and expenses and costs in connection therewith (including without limitation reasonable counsel fees), (i) arising from (a) the omission, fault, willful act, negligence or other misconduct of Tenant or (b) from any use made or thing done or occurring on the Premises not due to the omission, fault, willful act, negligence or other misconduct of Landlord, or (ii) resulting from the failure of Tenant to perform and discharge its covenants and obligations under this Lease. To maintain in responsible companies qualified to do business, and in good standing, in Massachusetts commercial 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 those stated in Section 1.1 and from time to time during the Term shall be for such higher limits, if any, as are customarily carried in Cambridge with respect to similar properties, and workmen's compensation insurance with statutory limits covering all of Tenant's employees working in the Premises, and to deposit promptly with Landlord certificates for such insurance, and all renewals thereof, bearing the endorsement that the policies will not be materially changed or canceled without 20 days prior written notice to Landlord. Landlord and the holder of any Mortgage shall be additional insureds under such commercial general liability insurance policies. Such insurance may be maintained by Tenant under a blanket policy or policies. 5.8 Personal Property at Tenant's Risk; Tenant's Insurance on Personal Property. That all of the furnishings, fixtures, equipment, effects and property of every kind, nature and description of Tenant and of all persons claiming by, through or under Tenant which, during the continuance of this Lease or any occupancy of the Premises by Tenant or anyone claiming under Tenant, may be on the Premises or elsewhere in the Building or on the Lot, shall be at the sole risk and hazard of Tenant, and if the whole or any part thereof shall be destroyed or damaged by fire, water or otherwise, or by the leakage or bursting of water pipes, steam pipes, or other pipes, by theft or from any other cause, no part of said loss or damage is to be charged to or borne by Landlord, except that Landlord shall in no event be indemnified or held harmless or exonerated from any liability to Tenant or to any other person, for any injury, loss, damage or liability to the extent such indemnity, hold harmless or exoneration is prohibited by law. Tenant shall maintain property insurance including standard fire and extended coverage insurance, vandalism and malicious mischief endorsement, and "all-risks" coverage upon all property owned by Tenant and located in the Building or on the Lot. Tenant shall deposit promptly with Landlord certificates for such insurance and all renewals thereof, bearing the endorsement that the policies will not be materially changed or cancelled without 20 days prior written notice to Landlord. In addition, Tenant shall maintain business interruption insurance in an amount sufficient to reimburse Tenant for loss of income attributable to Tenant's inability to gain access or conduct business at the Premises as a result of direct damage to the Premises from a covered peril. 5.9 Right of Entry. To permit Landlord and its agents: to examine the Premises at reasonable times and, if Landlord shall so elect, to make any repairs or replacements Landlord may deem necessary; to remove, at Tenant's expense, any alterations, additions, signs, curtains, blinds, shades, awnings, aerials, flagpoles or the like not consented to in writing or permitted hereunder; and to show the Premises to prospective tenants during the eighteen (18) months preceding expiration of the Term and to prospective purchasers and mortgagees at all reasonable times, provided that Landlord observes and respects all of Tenant's reasonable security requirements and, except in cases of emergency, provides Tenant with reasonable advance notice of the exercise of rights under this Section. 5.10 Floor Load. Not to place a load upon the Premises exceeding an average rate of 70 pounds of live load per square foot of floor area (partitions shall be considered as part of the live load); and not to move any safe, vault or other heavy equipment into, about or out of the Premises except in such manner and at such time as Landlord shall in each instance authorize; Tenant's business machines and mechanical equipment which cause vibration or noise that may be transmitted to the Building structure or to any other space in the Building shall be so installed, maintained and used by Tenant as to eliminate such vibration or noise. Landlord acknowledges, without having undertaken any investigation of the matter, that it is not aware as of the date of this Lease of any violation of covenants set forth in this Section. 5.11 Personal Property Taxes. To pay promptly when due all taxes which may be imposed upon personal property (including, without limitation, fixtures and equipment) in the Premises to whomever assessed. 5.12 Payment of Enforcement Expenses. As additional rent, to pay all reasonable costs, counsel and other fees incurred by Landlord in connection with the successful enforcement by Landlord of any obligation of Tenant under this Lease after an Event of Default has occurred. 5.13 Compliance with Insurance Regulations. Not to do or permit to be done any act or thing upon the Premises which will invalidate or be in conflict with the terms of the Massachusetts standard form of fire, boiler, sprinkler, water damage or other insurance policies covering the Building and the fixtures and property therein; Tenant shall, at its own expense, comply with all rules, regulations, and requirements of the National Board of Fire Underwriters or any state or other similar body having jurisdiction, and shall not knowingly do or permit anything to be done in or upon the Premises in a manner which increases the rate of fire insurance upon the Building or on any property or equipment located therein. 5.14 Tenant's Self-Help; Arbitration of Certain Matters. It is possible that Landlord and Tenant may disagree from time to time as to whether any failure in the provision of a service or utility or the failure of the structural portions of the Building to be in serviceable condition is attributable to Landlord's failure to make a repair (including without limitation a Capital Repair or Special Structural Repair) required hereunder. For purposes of this Section 5.14, completion of the Dispute Resolution Procedure (as defined below) in a determination by the arbitrator that a failure in the provision of a service or utility or the failure of the structural portions of the Building to be in serviceable condition is attributable to a failure by Landlord to make such a repair shall be referred to as "completion of the Dispute Resolution Procedure in favor of Tenant". In the event Landlord and Tenant disagree as aforesaid, Tenant may, but shall not be obligated to, make such repair, provided that (i) Tenant has given written notice to Landlord and the holder of any Mortgage of its belief that Landlord has failed to make such a repair and Landlord shall not have made such repair or commenced to have made such repair within 90 days after such notice and thereafter diligently prosecuted such repair to completion, and (ii) the "Dispute Resolution Procedure", as hereinafter defined, shall have been completed in favor of Tenant. In such event, (i) Tenant may deduct any reasonable costs and expenses incurred in making such repair from any portion of fixed rent thereafter coming due, provided that in the aggregate such deductions shall not exceed $4,000,000.00 during the initial Term and $2,000,000.00 during any extension of the Term; and (ii) any work done pursuant to this Section shall be subject to the second paragraph of Section 3.2 and to Section 3.3 hereof. Notwithstanding the foregoing, if such event is an emergency such that there is an imminent threat to health or safety, Tenant may, but shall not be obligated to, make any such repair prior to the passage of ninety (90) days and the completion of the Dispute Resolution Procedure as aforesaid, the cost of which repair does not exceed $100,000, provided that (i) Tenant has given prior written notice to Landlord and the holder of any Mortgage; (ii) Tenant shall not be entitled to deduct any costs and expenses incurred in making such repair unless and until completion of the Dispute Resolution Procedure in favor of Tenant; (iii) any work done pursuant to this Section shall be subject to the second paragraph of Section 3.2 and to Section 3.3 hereof; and (iv) the $100,000 limitation shall not apply to any cure of an emergency which is required prior to the time that the Dispute Resolution Procedure can be completed by an order of the Cambridge Building Inspector or other governmental authority. In the event of a disagreement as aforesaid, either party may submit such disagreement to arbitration, in accordance with the following procedure and the Commercial Arbitration Rules of the American Arbitration Association, as the same may be amended from time to time, to the extent not inconsistent with the provisions of this Lease (the "Dispute Resolution Procedure"): (i) The party seeking arbitration shall (A) notify the other party of its intention to arbitrate, (B) identify with specificity the issue(s) to be arbitrated, and (C) nominate at least three individuals who are impartial, qualified experts in the area(s) to be arbitrated; (ii) the other party shall, within ten (10) business days of its receipt of such notice, respond in writing setting forth (X) any additional issues which it desires to arbitrate, and (Y) the names of at least three individuals who are qualified experts in the area(s) to be arbitrated (one or more of whom may have also been on the initiating party's list); (iii) the parties shall attempt to select a mutually acceptable arbitrator from the lists circulated, but if the parties are unable to agree, then either party may submit the two lists to a court of competent jurisdiction and request that said court choose one name from either of the lists to serve as the arbitrator hereunder, such choice to be made on the basis of the most qualified impartial person with respect to the subject matter at issue; (iv) each party shall immediately submit to the arbitrator so selected a detailed written statement setting forth (A) the issue(s) in dispute and (B) the reasons for the party's position on each such issue. The arbitrator shall conduct such hearings, investigations and discovery as may be appropriate with access provided to all parties and shall, as expeditiously as possible and in any event within 90 days after the date of submission of the dispute for his/her determination, render his/her decision. Each party shall pay its own counsel fees and expenses, if any, in connection with any arbitration. The parties shall share equally the fees and expenses of the arbitrator. The determination rendered by such arbitrator shall be final and binding on Landlord and Tenant, shall have the same force and effect as a judgment made in a court of competent jurisdiction, and either party shall be entitled to have a judgment entered thereon in a court of competent jurisdiction. 5.15 Hazardous Substances. Tenant shall not cause, suffer or allow any hazardous or toxic wastes, hazardous or toxic substances or hazardous or toxic materials (collectively, "Hazardous Materials") to be used, generated or stored on, under or about, the Premises, or any portion of the Building or the Lot (collectively, "Hazardous Materials Activities") without first receiving Landlord's written consent, which consent shall not be unreasonably withheld if the use, storage or generation of such Hazardous Materials is necessary for the conduct of Tenant's business in accordance with the Permitted use and provided that Landlord receives such assurances as it shall reasonably require against any loss or damage arising out of the use, storage or generation of any Hazardous Materials. If Landlord consents to any Hazardous Materials Activities, Tenant shall conduct them in strict compliance at Tenant's expense with all applicable Regulations, as hereinafter defined, and using all necessary and appropriate precautions. Landlord shall not be liable to Tenant for any Hazardous Materials Activities by Tenant, Tenant's employees, agents, contractors, licensees or invitees, whether or not consented to by Landlord. Tenant shall indemnify, defend with counsel reasonably acceptable to Landlord and hold Landlord harmless from and against any claims, damages, costs and liabilities arising out of Tenant's Hazardous Materials Activities, whether or not approved by Landlord and any breach by Tenant of any covenant under this Section. Tenant shall not dispose of hazardous substances except in compliance with all applicable Regulations. For the purposes hereof, Hazardous Materials shall include 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 ("RCRA"); those substances defined as "hazardous wastes" in the Massachusetts Hazardous Waste Facility Siting Act, as amended (Massachusetts General Laws Chapter 21D); those substances defined as "hazardous materials" or "oil" in Massachusetts General Laws Chapter 21E, as amended; and as such substances are defined in any regulations adopted and publications promulgated pursuant to said laws (collectively, "Regulations"). Prior to using, storing or maintaining any Hazardous Materials on or about the Premises other than those commonly used in normal office operation, Tenant shall provide to Landlord a plan regarding Hazardous Waste management (a "Hazardous Materials Management Plan") which shall include a list of the types and quantities of any Hazardous Materials to be used, stored or maintained on or about the Premises, a description of the precise location where such Hazardous Materials will be used, stored or maintained, and a description of the steps Tenant shall take to inspect for, detect, minimize, respond to and mitigate any release of Hazardous Materials. The Hazardous Materials Management Plan shall be updated annually by Tenant, or more frequently if necessary. Tenant shall at all times strictly comply with the Hazardous Materials Management Plan. Tenant shall also provide Landlord a copy of any Hazardous Materials inventory statement required by any applicable Regulations and any update filed in accordance with any applicable regulations. If Tenant's activities violate or create a risk of violation of any Regulations or the Hazardous Materials Management Plan, Tenant shall cease such activities immediately. Tenant shall immediately notify Landlord both by telephone and in writing of any spill or unauthorized discharge of Hazardous Materials or of any condition constituting an "imminent hazard" under any Regulations. Landlord, and Landlord's representatives and employees, may enter the Premises at any time during the Term to inspect Tenant's compliance herewith, and may disclose any violation of any Regulations to any governmental agency with jurisdiction. At the expiration or termination of this Lease, Tenant shall yield up the Premises free of all Hazardous Materials and illegal contaminants of any kind resulting from Tenant's use of the Premises. ARTICLE VI Casualty and Taking 6.1 Termination or Restoration; Rent Adjustment. In case during the Term fifty percent (50%) or more of the total rentable floor area of the Premises or the Building are damaged by fire or other casualty or by action of public or other authority in consequence thereof, or the Building is damaged to such an extent that Landlord determines that the Building should be demolished ("Substantial Damage"), or twenty percent (20%) or more of the Building or the Lot are taken by eminent domain or Landlord receives compensable damage by reason of anything lawfully done pursuant to public or other authority, or the Building is taken to such an extent that Landlord determines that the Building should be demolished (a "Taking"), this Lease shall terminate at Landlord's or Tenant's election, which may be made notwithstanding Landlord's entire interest may have been divested, by notice given to the other within 90 days after the election to terminate arises specifying the effective date of termination. The effective date of termination specified shall not be less than 15 nor more than 30 days after the date of notice of such termination. Unless terminated pursuant to the foregoing provisions, this Lease shall remain in full force and effect following any damage or taking, subject, however, to the following provisions. If in any such case the Premises (or a portion thereof) are rendered unfit for use and occupation and this Lease is not so terminated, Landlord shall use due diligence (following the expiration of the period, if any, in which either party may terminate this Lease pursuant to the foregoing provisions of this Section 6.1) to put the Premises, or in case of a taking what may remain thereof (excluding in case of both damage and taking any items installed or paid for by Tenant which Tenant may be required to remove pursuant to Section 5.2), into proper condition for use and occupation. A just proportion of the fixed rent and additional rent according to the nature and extent of the injury shall be abated from the time of the damage or taking until the Premises or such remainder shall have been put by Landlord into proper condition for use and occupation or until termination of this Lease; and in case of a taking which permanently reduces the area of the Premises, a just proportion of the fixed rent and additional rent shall be abated for the remainder of the Term. If Landlord has not put the Premises into proper condition for use and occupation within one (1) year after its election to terminate arises, Tenant shall have the right to terminate this Lease by notice to Landlord given within sixty (60) days after such one (1) year period expires specifying the effective date of termination. 6.2 Eminent Domain Damages. Any awards made for damages to the Premises and Building and Lot and the leasehold hereby created, or any one or more of them, accruing by reason of exercise of eminent domain or by reason of anything lawfully done in pursuance of public or other authority shall be paid to the extent of their respective interests first to the ground lessor under the Ground Lease, and second to the holders of any Mortgages in order of priority of said Mortgages, and any remainder shall be allocated on an equitable basis between Landlord and Tenant in accordance with their respective interests. Nothing contained herein shall be deemed to preclude Tenant from obtaining, or to give Landlord any interest in, any separate award to Tenant for loss or damage to Tenant's removable personal property or Tenant's relocation costs. 6.3 Temporary Taking. In the event of any taking of the Premises or any part thereof for temporary use (a "Temporary Taking"), provided that Tenant gives at least three (3) days, advance notice of its intention to rely on this Section to Landlord and the holder of any Mortgage (which notice may be given at any time after the Temporary Taking), a just proportion of the fixed rent and additional rent (with due consideration being given to whether Tenant has actually removed any employees or personal property from any portion of the Premises) shall be abated for the period from three (3) days after such notice has been given until the Temporary Taking has ended, but in no event shall such abatement exceed the amount of the award made on account of the Temporary Taking. In the event that rent is so abated, (i) Tenant waives any and all of Tenant's rights to any award on account of a Temporary Taking, and (ii) Tenant hereby releases and assigns to Landlord all Tenant's rights to such awards, and covenants to deliver such further assignments and assurances thereof as Landlord may from time to time reasonably request. ARTICLE VII Default 7.1 Events of Default. If any default by Tenant continues after written notice, in case of fixed rent or additional rent for more than ten (10) days, or in any other case for more than thirty (30) days and such additional time, if any, as is reasonably necessary to cure the default if the default is of such a nature that it cannot reasonably be cured in thirty (30) days; or if Tenant becomes insolvent or fails to pay its debts as they fall due; or if Tenant makes any trust mortgage or assignment for the benefit of creditors; or if Tenant proposes any composition, arrangement, reorganization or recapitalization with creditors; or if Tenant's leasehold hereunder or any substantial part of the property of Tenant is taken on execution or other process of law or is attached or subjected to any other voluntary encumbrance; or if a receiver, trustee, custodian, guardian, liquidator or similar agent is appointed with respect to Tenant, or if any such person or a mortgagee, secured party or other creditor takes possession of the Premises or of any substantial part of the property of Tenant, and, in either case, if such appointment or taking of possession is not terminated within 60 days after it first occurs; or if a petition is filed by or with the consent of Tenant, or is filed against Tenant under any chapter of the U.S. Bankruptcy Code, 11 U.S.C. e101 et seq. or any similar petition under any law of any jurisdiction concerning insolvency, reorganization, arrangement, or relief from creditors; (and in the case of a petition filed against Tenant, such petition is not stayed or dismissed within 60 days), or if Tenant dissolves or is dissolved or liquidated or adopts any plan or commences any proceeding, the result of which is intended to include dissolution or liquidation; then in any such case (each an "Event of Default"), whether or not the Term shall have begun, Landlord may immediately, or at any time while such Event of Default exists and without further notice, terminate this Lease by notice to Tenant, specifying a date not less than ten days after the giving of such notice on which this Lease shall terminate and this Lease shall come to an end on the date specified therein as fully and completely as if such date were the date herein originally fixed for the expiration of the Term, and Tenant will then quit and surrender the Premises to Landlord, but Tenant shall remain liable as hereinafter provided. 7.2 Damages. In the event that this Lease is terminated under any of the provisions contained in Section 7.1, Tenant covenants to pay forthwith to Landlord, as compensation, the excess, if any, of the total rent reserved for the residue of the Term over the rental value of the Premises for said residue of the Term. In calculating the rent reserved there shall be included, in addition to the fixed rent and all additional rent, the value of all other considerations agreed to be paid or performed by Tenant for said residue. Tenant further covenants as an additional and cumulative obligation after any such ending to pay punctually to Landlord all the sums and perform all the obligations which Tenant covenants in this Lease to pay and to perform in the same manner and to the same extent and at the same time as if this Lease had not been terminated. In calculating the amounts to be paid by Tenant under the next foregoing covenant Tenant shall be credited with any amount paid to Landlord as compensation as in this Section 7.2 provided and also with the net proceeds of any rent obtained by Landlord by reletting the Premises after deducting all Landlord's expenses in connection with such reletting, including, without limitation, all commercially reasonable repossession costs, brokerage commissions, fees for legal services and expenses of preparing the Premises for such reletting, it being agreed by Tenant that Landlord may (i) relet the Premises or any part or parts thereof, for a term or terms which may at Landlord's option be equal to or less than or exceed the period which would otherwise have constituted the balance of the Lease Term and may grant such concessions and free rent as Landlord in its sole judgment considers advisable or necessary to relet the same and (ii) make such alterations, repairs and decorations in the Premises as Landlord in its sole judgment considers advisable or necessary to relet the same, and no action of Landlord in accordance with the foregoing or failure to relet or to collect rent under reletting shall operate or be construed to release or reduce Tenant's liability as aforesaid. 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 proved, whether or not the amount be greater, equal to, or less than the amount of the loss or damages referred to above. ARTICLE VIII Miscellaneous 8.1 Computation of Rental Floor Areas. The parties agree that the computations of rentable floor areas set forth in this Lease shall be conclusive, and there shall be no remeasurement of the same for any purposes hereunder. 8.2 Notice of Lease; Consent or Approval; Notices; Bind and Inure, Trust Estate. The titles of the Articles are for convenience only and are not to be considered in construing this Lease. Tenant agrees not to record this Lease, but upon request of either party both parties shall execute and deliver a notice of this Lease in form appropriate for recording or registration, and if this Lease is terminated before the Term expires, an instrument in such form acknowledging the date of termination. Whenever any notice, approval, consent, request or election is given or made pursuant to this Lease it shall be in writing. Communications and payments shall be addressed if to Landlord at Landlord's Original Address or at such other address as may have been specified by prior notice to Tenant, and if to Tenant, at Tenant's Original Address or at such other place as may have been specified by prior notice to Landlord. Any communication so addressed shall be deemed duly served upon receipt or refusal of delivery if mailed by registered or certified mail, return receipt requested, or if delivered by hand. If Landlord by notice to Tenant at any time designates some other person to receive payments or notices, all payments or notices thereafter by Tenant shall be paid or given to the agent designated until notice to the contrary is received by Tenant from Landlord. The obligations of this Lease shall run with the land, and this Lease shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, except that only the original Landlord named herein shall be liable for obligations accruing before the beginning of the Term. No trustee, partner, partner of such partner, director, officer, shareholder or beneficiary of Landlord or any constituent partner of any beneficiary of Landlord shall have any personal liability hereunder, it being expressly agreed that all liability of Landlord shall be limited to Landlord's interest in the Property and any proceeds of any insurance required to be kept by Landlord, and that Tenant shall not seek recourse against any trustee, partner, partner of such partner, director, officer, shareholder or beneficiary of Landlord or any constituent partner of any beneficiary of Landlord, or any of their personal assets for satisfaction of any liability with respect to this Lease. Nothing contained herein shall be deemed to limit any rights which Tenant may otherwise have to obtain injunctive relief or specific performance against Landlord. 8.3 Failure to Enforce. The failure of Landlord or of Tenant to seek redress for violation of, or to insist upon strict performance of, any covenant or condition of this Lease, or, with respect to such failure of Landlord, any of the Rules and Regulations referred to in Section 5.4, whether heretofore or hereafter adopted by Landlord, shall not be deemed a waiver of such violation nor prevent a subsequent act, which would have originally constituted a violation, from having all the force and effect of an original violation, nor shall the failure of Landlord to enforce any of said Rules and Regulations against any other tenant of the Building be deemed a waiver of any such Rules or Regulations. The receipt by Landlord of fixed rent or additional rent with knowledge of the breach of any covenant of this Lease shall not be deemed a waiver of such breach. No provision of this Lease shall be deemed to have been waived by Landlord, or by Tenant, unless such waiver be in writing signed by the party to be charged. No consent or waiver, express or implied, by Landlord or Tenant to or of any breach of any agreement or duty shall be construed as a waiver or consent to or of any other breach of the same or any other agreement or duty. 8.4 Acceptance of Partial Payments. No acceptance by Landlord of a lesser sum than the fixed rent and additional rent then due shall be deemed to be other than on account of the earliest installment of such rent due, nor shall any endorsement or statement on any check or any letter accompanying any check or payment as rent be deemed an accord and satisfaction, and Landlord may accept such check or payment without prejudice to Landlord's right to recover the balance of such installment or pursue any other remedy in this Lease provided. The delivery of keys to any employee of Landlord or to Landlord's agent or any employee thereof shall not operate as a termination of this Lease or a surrender of the Premises. 8.5 Cumulative Remedies. The specific remedies to which Landlord may resort under the terms of this Lease are cumulative and are not intended to be exclusive of any other remedies or means of redress to which it may be lawfully entitled in case of any breach or threatened breach by Tenant of any provisions of this Lease. In addition to the other remedies provided in this Lease, Landlord shall be entitled to the restraint by injunction of the violation or attempted or threatened violation of any of the covenants, conditions or provisions of this Lease or to a decree compelling specific performance of any such covenants, conditions or provisions. 8.6 Partial Invalidity. If any term of this Lease, or the application thereof to any person or circumstances, shall to any extent be invalid or unenforceable, the remainder of this Lease, or the application of such term to persons or circumstances other than those as to which it is invalid or unenforceable, shall not be affected thereby, and each term of this Lease shall be valid and enforceable to the fullest extent permitted by law. 8.7 Landlord's Self-Help. If Tenant shall at any time default in the performance of any obligation under this Lease, and (except in cases of emergency) such default continues beyond the notice and grace periods herein and therein provided, Landlord shall have the right, but shall not be obligated, to enter upon the Premises and to perform such obligation notwithstanding the fact that no specific provision for such substituted performance by Landlord is made in this Lease with respect to such default. In performing such obligation, Landlord may make any payment of money or perform any other act. All sums so paid by Landlord (together with interest at the rate of 2 1/2 percentage points over the prevailing prime rate in Boston as set by The Bank of Boston from time to time, but not in excess of the maximum rate allowable by law) and all necessary incidental costs and expenses in connection with the performance of any such act by Landlord, shall be deemed to be additional rent under this Lease and shall be payable to Landlord immediately on demand. Landlord may exercise the foregoing rights without waiving any other of its rights or releasing Tenant from any of its obligations under this Lease. 8.8 Tenant's Estoppel Certificate. Tenant agrees from time to time, upon not less than fifteen days prior written request by Landlord, to execute, acknowledge and deliver to Landlord a statement in writing certifying as of the date of such statement that this Lease is unmodified and in full force and effect and that Tenant has no defenses, offsets or counterclaims against its obligations to pay the fixed rent and additional rent and to perform its other covenants under this Lease and that there are no uncured defaults of Landlord or Tenant under this Lease (or, if there have been any modifications that the same is in full force and effect as modified and stating the modifications and, if there are any defenses, offsets, counterclaims, or defaults, setting them forth in reasonable detail), and the dates to which the fixed rent, additional rent and other charges have been paid (an "Estoppel Certificate"). Any such statement delivered pursuant to this Section 8.8 may be relied upon by any prospective purchaser or mortgagee of the Premises or any prospective assignee of any mortgagee of the Premises. 8.9 Waiver of Subrogation. Any insurance carried by either party with respect to the Premises or property therein or occurrences thereon shall include a clause or endorsement denying to the insurer rights of subrogation against the other party to the extent rights have been waived by the insured prior to occurrence of injury or loss. Each party, notwithstanding any provisions of this Lease to the contrary, hereby waives any rights of recovery against the other for injury or loss due to hazards covered by such insurance to the extent of the indemnification received thereunder. 8.10 All Agreements Contained. This Lease contains all of the agreements of the parties with respect to the subject matter hereof and supersedes all prior dealings between them with respect to such subject matter. 8.11 Brokerage. Each of Landlord and Tenant warrants that it has had no dealings with any broker, consultant or agent in connection with this Lease other than Avalon Partners, Inc. ("Avalon"). Landlord and Tenant each covenant to defend with counsel approved by the other party, hold harmless and indemnify each other from and against any and all cost, expense or liability for any compensation, commissions and charges claimed by any broker or agent with respect to the dealings of Tenant or Landlord, as applicable, in connection with this Lease or the negotiation thereof, other than Avalon. Landlord shall be responsible for all compensation, commissions and charges due to Avalon. 8.12 Submission Not an Option. The submission of this Lease or a summary of some or all of its provisions for examination does not constitute a reservation of or option for the Premises or an offer to lease, it being understood and agreed that neither Landlord nor Tenant shall be legally bound with respect to the leasing of the Premises unless and until this Lease has been executed and delivered by both Landlord and Tenant. 8.13 Applicable Law. This Lease, and the rights and obligations of the parties hereto, shall be construed and enforced in accordance with the laws of the Commonwealth of Massachusetts. 8.14 Waiver of Jury Trial. 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 damages. 8.15 Holdover. Should Tenant holdover in occupancy of the Premises after the expiration of the Term of this Lease, it shall be liable to Landlord for rent equal to (i) for the first 60 days after the expiration of the Term of this Lease, 125% of the Annual Fixed Rent rate in effect at the end of the Term, and all additional rent due hereunder, and (ii) thereafter twice the Annual Fixed Rent rate in effect at the end of the Term, all additional rent due hereunder, and also for all damages sustained by Landlord on account of such holding over. The provisions of this Section shall not operate as a waiver of any right of reentry provided in this Lease. 8.16 Evidence of Corporate Authority. Tenant shall deliver to Landlord a secretary's or assistant secretary's certificate of vote or other evidence satisfactory to Landlord, as to the authority of the persons executing this Lease on behalf of Tenant to enter into, execute, deliver and bind Tenant to this Lease. 8.17 Americans With Disabilities Act. Landlord shall be responsible, at its sole cost and expense, for causing (i) the exterior pedestrian entrances, (ii) the Building's first floor lobby, and (iii) the second floor mezzanine (to the extent any work is required with respect thereto in Landlord's reasonable judgment) to comply with the provisions of the Americans With Disabilities Act, 42 U.S.C. e 12,101 et seq. (the "ADA") as in effect on the date hereof. Tenant shall be responsible, at its sole cost and expense, for causing the Premises to comply with the ADA. In the event of any modification to the ADA after the date hereof which requires further changes to the exterior pedestrian entrances, the Building's first floor lobby or the second floor mezzanine, or if changes to other portions of the Building which are not a part of the Premises are required by the ADA as now or hereafter in effect, the cost of such changes shall be treated as a Code-Compliance Capital Item. 8.18 Riverside Place Limited Partnership. Landlord and Tenant shall enter into such documentation as shall be reasonably necessary to effectuate a restructuring of Tenant's interests as a limited partner in CC&F Riverside Place Limited Partnership, a Massachusetts limited partnership created by Limited Partnership Agreement dated as of October 20, 1983, as outlined in Exhibit G hereof. ARTICLE IX Rights of Parties Holding Prior Interests 9.1 Lease Subordinate-Superior. This Lease shall be subject and subordinate to any mortgage on the Property from time to time, including without limitation, a Leasehold Mortgage and Security Agreement and Fixture Filing dated October 31, 1985 by Ferdinand Colloredo-Mansfeld, John M. Hines and James V. Young as Trustees of CC&F Cambridge Parkway Trust under Declaration of Trust dated May 26, 1982, recorded with Middlesex South Registry of Deeds in Book 14637, Page 527 to General Electric Credit Corporation, recorded with the Middlesex South Registry of Deeds in Book 16541, Page 500, as now or hereafter amended (the "GECC Mortgage"), now or hereinafter placed on Property, or any portion or portions thereof (each of which is referred to herein as a "Mortgage") and to each advance made or hereafter to be made under any Mortgage, and to all renewals, modifications, consolidations, replacements and extensions thereof and all substitutions therefor, provided that the holder of any Mortgage shall enter into an agreement with Tenant by the terms of which such holder will agree to recognize the rights of the Tenant under this Lease and to accept Tenant as tenant of the Premises under the terms and conditions of this Lease in the event of acquisition of title by such holder through foreclosure proceedings or otherwise and Tenant will agree to recognize the holder of any such Mortgage as Landlord in such event, which agreement shall be made expressly to bind and inure to the benefit of the successors and assigns of Tenant and of the holder of such Mortgage and upon anyone purchasing the Premises at any foreclosure sale. Notwithstanding the foregoing any such holder may at its election subordinate its mortgage to this Lease without the consent or approval of Tenant. Tenant and Landlord agree to execute and deliver simultaneously with the execution of this Lease any appropriate instruments necessary to carry out the nondisturbance and subordination agreements contained in this Section 9.1. This Lease shall be subject and subordinate to a Ground Lease dated as of November 12, 1982 from George Howland, et al., as Trustees of Real Estate Investment Trust of America under Declaration of Trust dated November 1, 1955, recorded with Middlesex South Registry of Deeds, Book 8735, Page 367, whose interest has been succeeded to by John A. Pirovano, as Trustee of CC&F Cambridge Parkway II Trust, (the "Ground Lease"). Tenant agrees, and Landlord agrees to cause the holder of the lessor's interest under the Ground Lease, to execute and deliver a nondisturbance, recognition and attornment agreement in the form customarily used by the holder of the Ground Lease. 9.2 Modification, Termination or Cancellation. 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 material obligations or liability under this Lease, shall be valid unless consented to by Landlord's mortgagees of record, if any. No fixed rent, additional rent, or any other charge shall be paid more than thirty days prior to the due date thereof and payments made in violation of this provision shall (except to the extent that such payments are actually received by a mortgagee) be a nullity as against any mortgagee and Tenant shall be liable for the amount of such payments to such mortgagee. 9.3 Rights of Holder of Mortgage. No act or failure to act on the part of Landlord which would entitle Tenant under the terms of this Lease, or by law, to be relieved of Tenant's obligations hereunder or to terminate this Lease, shall result in a release or termination of such obligations or a termination of this Lease unless (i) Tenant shall have first given written notice of Landlord's act or failure to act to Landlord's mortgagees of which Tenant has been given written notice, if any, specifying the act or failure to act on the part of Landlord which could or would give basis to Tenant's rights; and (ii) such mortgagees, after receipt of such notice, have failed or refused to correct or cure the condition complained of within a reasonable time thereafter; but nothing contained in this Section 9.3 shall be deemed to impose any obligation on any such mortgagees to correct or cure any condition. Notwithstanding the foregoing, the provisions of this Section 9.3 shall not derogate from Tenant's rights pursuant to Sections 4.2 and 5.14 and shall not operate so as to extend the time periods prescribed in said Sections 4.2 and 5.14. "Reasonable time" as used above means and includes a reasonable time to obtain possession of the mortgaged premises if the mortgagee elects to do so and a reasonable time to correct or cure the condition if such condition is determined to exist. 9.4 Implementation of Article IX. Tenant agrees on request of Landlord to execute and deliver from time to time any agreement which may reasonably be deemed necessary to implement the provisions of this Article IX. EXECUTED as a sealed instrument in two or more counterparts on the day and year first above written. LANDLORD /s/John A. Pirovano -------------------- John A. Pirovano As Trustee of CC&F Cambridge Parkway Trust but not individually TENANT: LOTUS DEVELOPMENT CORPORATION By:/s/Edwin J. Gillis ---------------------- Name: Edwin J. Gillis Title: Senior Vice President, Chief Financial Officer Finance and Administration Hereunto duly authorized EXHIBIT C Landlord Services Attached to and made part of Lease dated Between Trustees of CC&F Cambridge Parkway Trust, Landlord and Lotus Development Corporation, Tenant I. CLEANING A. Office Area Daily: (Monday through Friday, inclusive. Holidays excepted.) 1. Empty and clean all waste receptables and ash trays and remove waste material from the Premises; wash receptacles as necessary. 2. Sweep and dust mop all uncarpeted areas using a dust-treated mop. 3. Vacuum all rugs and carpeted areas. 4. Hand dust and wipe clean with treated cloths all horizontal surfaces including furniture, office equipment, window sills, door ledges, chair rails, and convector tops, within normal reach. 5. Wash clean all water fountains. 6. Remove and dust under all desk equipment and telephones and replace same. 7. Wipe clean all brass and other bright work. 8. Hand dust all grill work within normal reach. 9. Upon completion of cleaning, all lights will be turned off and doors locked, leaving the Premises in an orderly condition. Weekly: 1. Dust coat racks, and the like. 2. Remove all finger marks from private entrance doors, light switches and doorways. Quarterly: 1. Clean and spray wax vinyl asbestos tile floors in tenant areas. 2. Render high dusting not reached in daily cleaning to include: a. Dusting all pictures, frames, charts, graphs, and similar wall hangings. b. Dusting all vertical surfaces, such as walls, partitions, doors, and ducts. c. Dusting of all pipes, ducts, and high moldings. B. Lavatories Daily: (Monday through Friday, inclusive, holidays excepted.) 1. Sweep and damp mop floors. 2. Clean all mirrors, powder shelves, dispensers and receptacles, bright work, flushometers, piping, and toilet seat hinges. 3. Wash both sides of all toilet seats. 4. Wash all basins, bowls and urinals. 5. Dust and clean all powder room fixtures. 6. Empty and clean paper towel and sanitary disposal receptacles. 7. Remove waste paper and refuse. 8. Refill tissue holders, soap dispensers, towel dispensers, vending sanitary dispensers; materials to be furnished by Landlord. 9. A sanitizing solution will be used in all lavatory cleaning. Monthly: 1. Machine scrub lavatory floors. 2. Wash all partitions and tile walls in lavatories. C. Main Lobby, Elevators, Building Exterior and Corridors Daily: (Monday through Friday, inclusive, holidays excepted.) 1. Sweep and wash all floors. 2. Wash all rubber mats. 3. Clean elevators, wash or vacuum floors, wipe down walls and doors. 4. Spot clean any metal work inside lobby. 5. Spot clean any metal work surrounding Building Entrance doors. Monthly: All resilient tile floors in public areas to be treated equivalent to spray buffing. D. Window Cleaning Windows of exterior walls will be washed quarterly. E. Tenant requiring services in excess of those described above shall request same through Landlord, at Tenant's expense. II. HEATING, VENTILATING, AIR CONDITIONING A. 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 8:00 a.m. to 6:00 p.m. (Saturdays to 1:00 p.m.), Sundays and holidays excepted. If Tenant shall require air conditioning or heating or ventilation outside the hours and days above specified, Landlord shall furnish such service at Tenant's expense. B. The air conditioning system is based upon an occupancy of not more than one person per 150 square feet of usable area, and upon a combined lighting and standard electrical load not to exceed 2.4 watts per square foot of usable area. In the event Tenant exceeds this condition or introduces onto the Premises equipment which overloads the system, and/or in any other way causes the system not adequately to perform their proper functions, supplementary systems may at Landlord's option be provided by Landlord at Tenant's expense. III. WATER A. Cold water at temperatures supplied by the City of Cambridge water mains for drinking, lavatory, kitchen, restaurant and toilet purposes and hot water for lavatory purposes only from regular building supply at prevailing temperatures; provided, however, that Landlord may, at its expense, install a meter or meters to measure the water supplied to any kitchen (including dishwashing) and restaurant areas in the Premises, in which case Tenant shall upon Landlord's request reimburse Landlord for the cost of the water (including heating thereof) consumed in such areas and the sewer use charges resulting therefrom. IV. ELEVATORS A. The passenger elevator system shall be in automatic operation and available to Tenant at all times. The use of the service elevator will have to be scheduled with the Landlord and coordinated with the needs of the other tenants. B. At Tenant's request, Landlord will exercise reasonable efforts to arrange for the passenger elevator to be locked off from one or more of Tenant's floors, at Tenant's expense and subject to other governmental requirements. V. ELECTRICAL SERVICE A. Landlord shall, at Tenant's expense, provide electric power for up to 2.25 watts per square foot of usable area for lighting plus 3.75 watts per square foot of usable area for special equipment and office machines through standard receptacles for the typical office space. B. Landlord, at its option, may require separate metering and billing to Tenant for the electric power required for any special equipment (such as computers and reproduction equipment) that require either 3-phase electric power or any voltage other than 120. Landlord will furnish and install at Tenant's expense all replacement lighting tubes, lamps, and ballasts required by Tenant. Landlord will clean lighting fixtures on a regularly scheduled basis at Tenant's expense. EXHIBIT F TENANT'S EQUIPMENT AND TRADE FIXTURES * Telephone Switch & Equipment * Data Communications Equipment (Not including wiring) * Electrical Power Distribution Modules - Lotus installed * Supplemental HVAC Units (installed by Tenant) * Computer Room Liebert HVAC and Power Distribution Units * Computer Room Furniture - including but not limited to built-in consoles * AV Equipment - Free standing or installed, to include rear screen projection screens * Kitchen Equipment which is not permanently installed including, but not limited to: -- refrigerators -- deli counters -- serving counters -- preparation tables But specifically excluding: -- stoves, ovens, walk-in-freezer ______________________________________________________________________________ EX-10.3 7 FIRST AMENDMENT TO LEASE Exhibit 10(c)(1) FIRST AMENDMENT TO LEASE FIRST AMENDMENT TO LEASE dated as of May 1, 1994, by and between John A. Pirovano, as Trustee of CC&F Cambridge Parkway Trust under Declaration of Trust dated May 26, 1982, and recorded with Middlesex South Registry of Deeds in Book 14637, Page 527, and not individually, ("Landlord") and Lotus Development Corporation ("Tenant"). WHEREAS Landlord and Tenant have entered into a lease of premises located at 55 Cambridge Parkway, Cambridge, Massachusetts dated as of May 1, 1994 (the "Lease"); and WHEREAS Landlord and Tenant wish to amend the Lease for the purposes of clarifying certain matters intended to be included inthe Lease, all on the terms set forth herein. NOW THEREFORE, Landlord and Tenant hereby amend the Lease as follows: 1. In the definition of "Annual Fixed Rent" in Section 1.1 of the Lease, the following is added after the description of Annual Fixed Rent for Lease Year 11: "Landlord and Tenant acknowledge and agree that included within the Annual Fixed Rent for each Lease Year is (i) a charge attributable to the 382 parking spaces leased to Tenant pursuant to Section 2.1.1, at a monthly rate per parking space during each Lease year as described in the last sentence of said Section 2.1.1, and (ii) a charge attributable to Premises Expenses (as defined in Section 2.6(d)) on account of additional rent of $9.00 per annum per net rentable square foot (pro rated in the case of the first and last Lease Years), all as described in Section 2.6(e)." 2. Section 2.6(e) is amended by adding the following, after the phrase "(the 'Premises Expense Base')" in line 4 thereof: "and Tenant shall receive from Landlord a credit, as more particularly described in section 2.6(f) below, to the extent that Premises Expenses are less than $9.00 per annum per net rentable square foot, pro rated in the case of the first and last Lease Year". 3. Section 2.6(f) is amended by changing the period at the end of the third sentence thereof to a comma (after the words "this Section 2.6"), and adding the following: "Or, if the then applicable budget for the ten-current calendar year assumes that no payment will become due under this Section 2.6 in that calndar year, any amount so overpaid shall be applied against future payment of Annual Fixed Rent thereafter becoming due under this Lease." In all other respects, the Lease is hereby ratified and confirmed. Executed as a sealed instrument in two or omore counterparts as of the day and year first written above. LANDLORD: /s/John A. Pirovano ---------------------------- John A. Pirovano, as Trustee of CC&F Cambridge Parkway Trust, but no individually TENANT: LOTUS DEVELOPMENT CORPORATION By: /s/Edwin J. Gillis -------------------- Edwin J. Gillis, Senior Vice President, Chief Financial Officer, Finance and Operations, Hereunto duly authorized ______________________________________________________________________________ EX-10.4 8 CERTIFICATE OF ASSISTANT SECRETARY Exhibit 10(f) LOTUS DEVELOPMENT CORPORATION Certificate of Assistant Secretary The undersigned, Larry J. Braverman, does hereby certify that he is the Assistant Secretary of Lotus Development Corporation, a Delaware corporation (the "Company"), and that he has been duly elected or appointed to such office in accordance with the By-laws of the Company and DOES HEREBY CERTIFY that the following resolution is a true, complete and correct copy of a resolution duly adopted at a meeting of the Board of Directors of the Company on December 15, 1994, such resolution is in full force and effect on the date hereof in the form in which it was adopted and no other resolution has been adopted by the Board of Directors of the Company or any committee thereof relating to the transaction referred to in such resolution. RESOLVED: That the compensation for the Corporation's non-employee Directors for 1995 shall be the sum of $24,000. IN WITNESS WHEREOF, the undersigned has hereunto set his hand and the seal of the Company on this 20th day of March, 1995. /s/Larry J. Braverman ---------------------- Larry J. Braverman Assistant Secretary ______________________________________________________________________________ EX-11 9 COMPUTATION OF PER SHARE EARNINGS Exhibit 11 LOTUS DEVELOPMENT CORPORATION Computation of Primary and Fully Diluted Earnings Per Share (in thousands, except per share data)
Years Ended December 31, ----------------------------- 1994 1993 1992 --------- -------- -------- Net income (loss).................................................... ($20,879) $55,535 $80,403 ========= ======== ======== Weighted average shares outstanding during the year ................. 47,013 43,089 42,306 Common equivalent shares ............................................ -- 1,632 688 --------- -------- -------- Common and common equivalent shares outstanding for purpose of calculating primary net income (loss) per share ....... 47,013 44,721 42,994 Incremental shares to reflect full dilution ......................... -- 924 -- --------- -------- -------- Total shares for purpose of calculating fully diluted net income (loss) per share ........................ 47,013 45,645 42,994 ========= ======== ======== Primary net income (loss) per share ................................. ($0.44) $1.24 $1.87 ========= ======== ======== Fully diluted net income (loss) per share ........................... ($0.44) $1.22 $1.87 ========= ======== ========
______________________________________________________________________________ EX-13 10 LOTUS 1994 ANNUAL REPORT TO SHAREHOLDERS Exhibit 13 LOTUS DEVELOPMENT CORPORATION 1994 REPORT TO SHAREHOLDERS FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------------------- (In thousands, except per share data) 1994 1993 1992 1991 1990 --------------------------------------------------------------------------------------------- Net sales ................. $970,723 $981,168 $900,149 $828,895 $692,242 Net income (loss) ......... (20,879) (1) 55,535 (2) 80,403 (3) 33,116 (4) 23,254 (5) Net income (loss) per share (0.44) (1) 1.24 (2) 1.87 (3) 0.75 (4) 0.54 (5) Total assets .............. 904,079 905,345 763,444 725,537 656,807 Stockholders' equity ...... 554,130 528,391 399,438 323,113 309,439 ============================================================================================= Notes: (1) 1994 amounts include a non-tax deductible charge to operations of $67.9 million, or $1.40 per share, for purchased research and development related to the acquisitions of Soft*Switch, Inc. and Edge Research, Inc. 1994 amounts also include a restructuring charge of $9 million on a pre-tax basis and $5.8 million, or $0.12 per share, on an after-tax basis. (2) 1993 amounts include a non-tax deductible charge to operations of $19.9 million, or $0.45 per share, for purchased research and development related to the acquisition of Approach Software Corporation. (3) 1992 amounts include gains on the sale of the Company's investment in Sybase, Inc., of $49.7 million on a pre-tax basis and $33.3 million, or $0.77 per share, on an after-tax basis. 1992 amounts also include a restructuring charge of $15 million on a pre-tax basis and $10.1 million, or $0.23 per share, on an after-tax basis. (4) 1991 amounts include a restructuring charge of $23 million on a pre-tax basis and $18.6 million, or $0.42 per share, on an after-tax basis. (5) 1990 amounts include a non-tax deductible charge to operations of $53 million, or $1.23 per share, for purchased research and development related to the acquisition of Samna Corporation.
PRESIDENT'S LETTER 1994 was the year of the information superhighway - in the media, countless conference speeches, and almost anything associated with information technology. We've been unable to escape from the metaphor. So we've made it the theme for this year's annual report. But we've got our own take on it. For us, it's as much a continuing journey as an ultimate destination. Last year I vowed to never again mention the word "transition," but in retrospect, that was unrealistic. Transition is another word for change, and in our business, change is inevitable. In fact, our company is all about creating and exploiting change. Lotus began an important journey back in 1985 with the start of development for Notes. Back then, all the focus was on the individual desktop, which was perhaps not inappropriate for the flood tide of the PC Revolution. The idea of personal computers that would reach beyond the individual desktop and allow people to communicate and share information had fewer adherents. With Notes, we soon blazed a rather substantial road. Today, we have more than 5,000 customers and 1.35 million users. An entire industry has built up around Notes, with more than 8,000 business partners offering new products and services. cc:Mail, the industry's leading mail product, now has 6.5 million users. For Lotus, the information superhighway is not something on the drawing boards, or under construction. We have ten years of development experience and five years of in-market experience with our communications products, and people are using it to get places. In early 1994, IDC announced the results of a study showing that companies deploying Notes are realizing returns on investment averaging 179 percent. This past year, we've been joined by several partners in broadening the scope of Notes in the marketplace, including AT&T, Hewlett-Packard, and IBM. Our communications strategy has clearly given us a fast lane for growth - with revenues increasing 94 percent this past year. In the fourth quarter, communications revenues exceeded desktop revenues for the first time. We now have three major businesses. The first two, communications and desktop applications, are well established. As the transition toward communications continues, the desktop business remains substantial, generating revenues and profits that enable us to invest in growth. Our third business, public networks and inter-enterprise computing, is just getting started and has vast potential. Our commitment to the desktop remains strong. We continued to move ahead with our desktop applications in 1994, with 1-2-3 Release 5, a new SmartSuite, and new releases of Approach, Organizer, Freelance Graphics and Ami Pro. But this is no longer an easy business. There are factors, such as the maturity of the business and the unrelenting competition, that have changed this business forever. We also made our own mistakes - a series of product slips at mid-year and poor performance in Europe - but we've taken steps to correct them. The pace of growth for each of our businesses is clearly quite different. The desktop business has become mature, with marginal growth. Renewed growth will depend on our ability to reinvent it through team computing. Our communications business, on the other hand, has established considerable momentum. And our public network inter-enterprise business is a classic start-up, with no profits now, but enormous growth potential. Given this mix and range in our businesses, it is not surprising that our stock price was volatile this past year. The market had a wide range of views on the size and timing of future profits. For our part, we are quite happy with our mix. It provides a good balance of steady revenues and substantial growth opportunities. The question we must always ask is: Are we there yet? Part of the answer, obviously, is yes. We have built a great road. We are out in front with Notes. No competitor has anything like it. Our customers are reaching destinations in terms of return on investment and achieving business goals. But in another sense, we are still on our way. Our customers continue to face difficult technology and investment choices, and no one is going to get there all at once. Our job is to help them manage the journey. As Jack Kerouac said in On the Road: "There's always more, a little further - it never ends." That's fine with us. There are many opportunities still ahead - for Lotus, our shareholders, and our customers. /s/ Jim Manzi Jim Manzi President and CEO Figure 1 - photo of Jim Manzi, President and CEO Lotus Development Corporation. Figure 2 - graphic text reads across the top of all pages of the story. Figure 3 - photo of a portion of a yellow line in road. Figure 4 - the words STARTING OUT appear in vertical text format along left side of page. There is such a thing as vision in the world of business. It is never as dramatic or far-reaching as what happened to Saul on the road to Damascus, but it does occur, and when it does, it can have a major impact on a company and its customers, even on the way that all companies do business. The vision that now guides Lotus began back in 1985, when Ray Ozzie and a small team of developers started work on the software that became Lotus Notes. It began with an idea that was different - at the time. In 1985, the PC Revolution was in full flower, and all the attention was on the possibilities of individual empowerment and, it was assumed, individual productivity. The different view - or vision - of the Notes developers was that personal computers were more interesting, and quite possibly more valuable, if people could use them, not just to work in isolation, but to communicate and share information with other people. Work in any organization is, after all, as much collaborative as personal. In fact, work always involves other people, and in business, products are rarely developed or sold, and revenues are rarely generated, by people acting alone. Figure 5 - photo of a "Pedestrians Crossing" street sign. The insight seems obvious today, when everyone is clamoring to engineer their way onto the information superhighway. But back in 1985, developing Notes was an errand into the wilderness, an errand that took five years of development, followed by five years of in-market and further development to reach what it's become today. But our foresight has paid off with annual growth rates of nearly 100 percent for Lotus communications products, and we are ahead of the rush to the highway. We have been on it, with our customers, for some time. As Old Bull Lee says in On the Road: "Only damn fools pay no attention to visions." Figure 6 - photo of a pair of binoculars in the lower right corner of page. Figure 7 - photo of tire tread marks in road. Figure 8 - the words ROADS PRECEDE MAPS appear in vertical text format along left side of page. If you are making a map, it helps if you've been there. Otherwise you are like those mapmakers before Columbus who drew wild beasts at the edge of the world. Or those real estate boosters in early 19th century America who created maps of imaginary roads to imaginary cities in order to sell land on the frontier. For Lotus, there is nothing new about groupware, communications software, or helping people use computer networks to share information and achieve organizational goals. We've been exploring this territory with our customers for some time. Roads have been built, and people are using them to get where they want to go. There are now 1.35 million users of Notes, and 6.5 million users of cc:Mail, and thousands more are being added every month. Lotus has more than 5,000 customers and 8,000 business partners developing applications for Notes and cc:Mail. Figure 9 - photo of bridge overpass. Other substantial roads built by Lotus preceded these newer ones. They are our desktop applications. One of them, 1-2-3, pretty much blazed the way for a whole new industry. When we began building communications software, at first it appeared to diverge from traditional desktop applications. But we always believed that all of our products are more useful if they work together, if you can readily get from one to the other, if the roads converge. Today, many customers use our desktop suite because it works so well with our communications applications, and vice versa. In discussions of computer systems and software, you often hear the term "architecture." It is like a map, and some say that when you don't have products in the marketplace, an architecture is the next best thing. But Lotus' communications architecture is real, something on which real products, tools, services, and thousands of applications are being built. It is a map being drawn from ever-widening experience and knowledge. Figure 10 - photo of a globe in lower right corner. Figure 11 - an abstract photo of an interstate highway sign. Figure 12 - the words ROADS ARE FOR COMMERCE appear in vertical text format along the left side of page. The Romans built roads to administer their empire, and one rationale for the interstate highway system in the United States was civil defense. But the main purpose of roads has always been commerce: getting goods and services to market, connecting business with customers, producers with suppliers. The same is true of today's electronic highways. The main purpose is not home entertainment, but work and commerce. Eventually there may be movies on demand and a marketplace for home shopping that goes beyond ordering pizza or floral arrangements. But in the meantime, there's already substantial and rapidly growing traffic that serves the business (as distinct from the consumer) marketplace. Companies invest in Notes applications because they can reduce the time and enhance the quality of such basic business processes as product development and customer service. The growth of the business market is driven by the tangible returns companies receive on their investment. Figure 13 - photo of the side of a truck. The first electronic links are internal, connecting groups within the enterprise, but soon reach outward to connect the enterprise with customers and suppliers. As a result of this electronic web, the structure of business organizations, and the nature of commerce itself, is changing. Businesses are able to focus on what they do best, and "outsource" other functions. The lines between companies, even industries, become blurred, and new configurations and new opportunities for commerce become possible. One road leads to another. Figure 14 - photo of a scale in the lower right corner of page. Figure 15 - photo of a 15-minute parking sign. Figure 16 - the words YOU NEED TO GET THERE FROM HERE appear in vertical text format along the left side of page. There is no standing still - we know we can't be complacent. Lotus' communications strategy rests on the premise that our customers have little interest in open-ended questions. Companies are more concerned with achieving specific goals, such as profitability and market share. "Are we there yet?" is about as general as any business question gets, and it implies a destination. Surfing on a sea of information is not a business goal. Nor is the accumulation of information. Since economic value is based on scarcity, and since the amount of information in the world is infinite, information has no value by itself. It is valuable when it is used, when it leads to the production of goods and services. Figure 17 - photo of tire tread marks on the road into the horizon. The information economy is nothing new. Every economy - from the hunter-gatherer clans to market economies and even planned economies - depends on information. What has changed is the velocity of information and the potential access to it - both the result of today's information and communications technology. This places a premium on getting the right information and getting it fast, and on marshalling information in order to decide and act. Businesses are attempting to transform themselves with information technology ("reengineering" has become well established in business parlance). Lotus' business lies at the heart of a major intersection where technology, organizational change, and the impact on people at work all converge. Our purpose is to provide not just great products - Notes, cc:Mail and desktop applications for team computing - but also the benefit of our experience and knowledge, so that our customers can get where they want to go. Figure 18 - photo of a welcome mat in lower right corner of page. 2 MANAGEMENT'S DISCUSSION AND ANALYSIS As an aid to understanding the Company's operating results, the table below indicates the percentage relationships of income and expense items included in the Consolidated Statements of Operations for each of the three years ended December 31, 1994 and the percentage changes in those items for each of the two years ended December 31, 1994.
Percent changes year to year Items as a percentage of net sales ------------------------------------------------------------------------------------------ 1994-93 1993-92 Income and expense items 1994 1993 1992 ------------------------------------------------------------------------------------------ (1%) 9% Net sales 100.0% 100.0% 100.0% (15%) 1% Cost of sales 17.8% 20.6% 22.2% ------------------------------------------------------------------------------------------ 3% 11% Gross margin 82.2% 79.4% 77.8% Expenses: 25% 7% Research and development 16.3% 12.9% 13.1% 8% 9% Sales and marketing 51.2% 47.2% 47.1% (2%) 1% General and administrative 7.1% 7.1% 7.7% - - Other (income)/expense, net (A) 7.0% 1.8% (3.4%) ------------------------------------------------------------------------------------------ 17% 17% Total expenses 81.6% 69.0% 64.5% ------------------------------------------------------------------------------------------ (94%) (15%) Income before provision for income taxes 0.6% 10.4% 13.3% (43%) 17% Provision for income taxes 2.7% 4.7% 4.4% ------------------------------------------------------------------------------------------ (138%) (31%) Net income (loss) (2.1%) 5.7% 8.9% ========================================================================================== (135%) (34%) Net income (loss) per share ($0.44) $1.24 $1.87 ========================================================================================== Note (A): 1994, 1993 and 1992 amounts include significant non-recurring income and expense items which are set forth in Footnote J to the financial statements.
3 RESULTS OF OPERATIONS 1994 compared to 1993 --------------------- Revenue The Company's revenue is derived from desktop applications products and communications products and services. Desktop applications products include SmartSuite (an integrated applications suite), 1-2-3 (spreadsheets), Ami Pro (word processing), Freelance Graphics (presentation graphics), Lotus Approach (end-user database) and Lotus Organizer (personal information management). Communications products and services include Lotus Notes (workgroup computing), cc:Mail (electronic mail), Soft*Switch (electronic mail switching) and consulting services. The Company's worldwide revenue decreased 1% to $971 million in 1994. Revenue from desktop applications declined by 20%, while revenue from communications products and services grew by 94%. This performance generally reflects competition for the Company's products in the maturing desktop applications market, growing momentum for the Company's products in the expanding client-server communications market and an initial adverse effect from the implementation of the Company's Passport program. Desktop Applications Revenue Revenue from desktop applications represented 64% of total revenue in 1994, as compared to 79% in 1993. DOS desktop applications revenue, primarily from 1-2-3 for DOS, declined approximately $135 million in 1994. Windows desktop applications revenue remained relatively unchanged in 1994, as an increase in revenue from SmartSuite was offset by a decline in revenue from standalone applications. SmartSuite represented 46% of Windows desktop applications revenue in 1994 compared to 30% in 1993. The 20% decline in desktop applications revenue in 1994 is primarily attributable to severe competition, as well as downward pricing pressure and the continuing migration of users from DOS-based to Windows-based applications. The Company believes that intense competition, particularly from its largest competitor, Microsoft Corporation ("Microsoft"), resulted in a reduction in Windows desktop applications revenue and market share. The Company believes that mid-year delays in the shipment of certain Windows desktop products also contributed to a decrease in revenue and market share as certain end-users may have purchased competitive products rather than waiting for the Company's new product offerings. Windows market share losses were particularly pronounced in the Company's European business, where weaker-than-expected end-user demand, higher-than-desired distribution channel inventories in certain markets and severe competition contributed to the decline in desktop applications revenue. On a worldwide basis, pricing for Windows desktop applications products declined in 1994 compared to 1993 due to competitive factors and an increase in the number of volume sales contracts with large corporate customers. The Company anticipates that downward pressure on pricing will continue. The marketplace migration from DOS to Windows adversely affected and will continue to affect the Company's results, as its current market share for Windows spreadsheets is lower than that for DOS spreadsheets. However, the Company believes that the magnitude of the decline in DOS-based revenue in 1995 should not be as dramatic as that experienced in recent years, as DOS-based revenue continues to represent a smaller share of overall revenue. Other factors that could affect the Company's desktop applications revenue over its next fiscal year include the rate of growth of the Windows market, the market shift from standalone applications to integrated suites, the impact of "Windows 95", a new operating system that Microsoft has announced it will release in 1995, and the sales and marketing efforts of Microsoft and Novell, Inc. ("Novell") relative to those of the Company. See "Issues and Risks". Significant new desktop products released in the third quarter of 1994 included 1-2-3 for Windows Release 5.0, 1-2-3 for DOS Release 4.0, SmartSuite for Windows Release 3.0, Ami Pro for Windows Release 3.1, Freelance Graphics for Windows Release 2.1 and Lotus Approach for Windows Release 3.0. In the fourth quarter of 1994, the Company released Lotus Organizer for Windows Release 2.0. 4 Communications Products and Services Revenue Revenue from communications products and services represented 36% of total revenue in 1994 as compared to 19% in 1993. The primary component of the communications revenue growth was a substantial increase in Lotus Notes revenue. Notes revenue increased more than 100% during the year, and the number of Notes users more than doubled. As of December 31, 1994, there were approximately 1.35 million users of Notes worldwide. The Company believes that its Notes revenue performance was driven by several elements. As the client-server market expands and there is a greater availability of networked personal computers, demand for networked applications, such as Notes, has increased. In addition, end-user demand for Notes has grown dramatically as customers have begun to understand how the product's workgroup computing capabilities can enable them to become more productive. The Company has further enhanced the product's value to customers by expanding the number of third parties, or business partners, who are capable of developing applications for Notes. As of December 31, 1994, the number of business partners offering products and services for Notes had increased to more than 8,000. Also contributing to the growth in Notes revenue is the greater availability of Notes on different operating system platforms. As of December 31, 1994, Notes was available on the Windows, Windows NT, OS/2, Macintosh, UNIX SCO, UNIX AIX, UNIX HP-UX and Sun Solaris operating system platforms. The Company announced that it will lower its pricing for Notes in 1995 in an effort to accelerate growth in the number of end-users. While the Company does not believe that competition is currently a significant factor in the workgroup computing market, several competitors with greater resources than those of the Company have announced their intentions to enter into this market. In addition, the Company expects that continued growth in this market will attract other competitors. The latest commercially available version of Notes, Release 3.2, was last updated in the third quarter of 1994. Also contributing to the communications revenue growth were increases in product and service revenue from cc:Mail, consulting services and customer support. In addition, communications revenue in 1994 included five months of revenue from newly acquired Soft*Switch, Inc. ("Soft*Switch"). While cc:Mail revenue continues to grow, its rate of growth is lower than that of the prior year. The Company believes that the decline in the rate of growth of cc:Mail revenue is attributable to a decline in the growth rate of the LAN-based electronic mail market and to increased competition. As of December 31, 1994, there were approximately 6.5 million cc:Mail users worldwide. The Company anticipates that customer support revenue from communications products will continue to represent a growing component of communications revenue as the installed base of Notes, cc:Mail and Soft*Switch customers grows. Passport Program In May 1994, the Company launched Passport, a new sales program intended to facilitate and simplify volume purchases by corporate customers on a worldwide basis. Under the Passport program, the Company's resellers offer discounted worldwide pricing to end-user customers based on customers' cumulative program purchases or their non-binding commitments to purchase certain volumes of Lotus products in the future. Customers can select options that may or may not require an initial purchase. However, if an initial purchase is not required, customers can maintain their program pricing by purchasing against their commitments in a specified period of time and by purchasing a certain percentage of their total commitment within the first six months. The Company believes that the transition to Passport resulted in a slower-than-expected conversion of customer purchase commitments into actual sales in the second and third quarters of 1994. However, the Company believes that over time Passport will strengthen its competitive position and will result in increased sales. International Revenue Revenue outside the United States declined to 48% of the Company's worldwide revenue in 1994 from 51% in 1993, primarily due to the decline in desktop revenue in Europe. This decline was partially offset by sales gains in the Asia Pacific region, particularly in communications revenue in Japan. The impact of foreign currency fluctuations on international revenue was insignificant. 5 Expenses and Profit Margins Gross margin as a percentage of sales increased to 82% in 1994 compared with 79% in 1993. The gross margin improvement is primarily attributable to reduced manufacturing and delivery costs resulting from an increase in the percentage of sales in the form of non-physical license rights, a corresponding decrease in the percentage of sales in the form of physical units ("shrinkwrap product") and material cost reductions. Gross profit margins in the United States were approximately 85% in 1994 as compared to approximately 80% in 1993. International gross profit margins were approximately 77% in 1994 as compared to approximately 78% in 1993. The difference in geographic margins in 1994 was primarily due to a more rapid shift in the United States of sales from physical units to non-physical license rights. The Company continues to make investments in research and development to maintain a competitive position in the desktop market and to add to and improve its communications products. Research and development expenses increased 25% to $159 million in 1994, reflecting a constant level of desktop development spending year over year and significantly higher spending associated with the Company's communications products. Additionally, the acquisition of Soft*Switch and an increase in international product development spending contributed to higher research and development expenses. Capitalized software development costs during 1994 were $36 million compared with $25 million for 1993. The increase reflects the growth in research and development spending on communications products. Sales and marketing expenses increased 8% to $497 million in 1994. The increase consists of significantly higher spending for marketing, sales and support of communications products and a slight decrease in marketing spending for desktop products. The Company's expansion of its communications support capability and growth in the consulting services business also drove higher sales and marketing spending in 1994. General and administrative expenses decreased 2% to $69 million in 1994 as the Company continued efforts to control infrastructure and fixed costs. In May 1994, the Company acquired all of the outstanding shares of Iris Associates, Inc. ("Iris") in a transaction that was accounted for as a pooling of interests. The acquisition had an immaterial impact on the results of operations in 1994. In July 1994, the Company acquired Soft*Switch, Inc. The purchase price consisted of approximately $64.3 million of cash consideration, $8 million of assumed liabilities and $5.2 million of deferred tax liabilities. A significant portion of the purchase price was allocated to purchased research and development, resulting in a $62.5 million charge to the Company's 1994 operations. See Note K of Notes to Consolidated Financial Statements. This charge, which is included in other income and expense, is not deductible for tax purposes. Subsequent to the acquisition, the Company initiated substantial development efforts to make Soft*Switch's EMX products more competitive in a rapidly changing environment. These efforts are focused on the development of the ultimate standalone EMX product and the integration of the underlying EMX technology with the Company's other communications products. Development efforts will be concentrated on improving performance, cross-platform functionality, usability, connectivity, systems management and communication protocol layers and are expected to involve extensive rewriting of the code. The Company expects to invest considerable amounts through 1997 to complete and continue development of the ultimate technologies using the purchased research and development. In September 1994, the Company acquired Edge Research, Inc. ("Edge"). The purchase price was allocated to purchased research and development resulting in a $5.4 million non-tax deductible charge to other income and expense in 1994. See Note K of Notes to Consolidated Financial Statements. 6 In the third quarter of 1994, the Company recorded a $9 million restructuring charge to other income and expense related to the Company's European operations and to the discontinuation of a product. European restructuring activities include the streamlining of the marketing organization from a product focus to a market segment focus, the centralization of certain finance and administration functions and a reduction in desktop applications support staff. The restructuring activities in 1994 resulted in a reduction in force of approximately 130 positions, primarily in the United Kingdom and Germany. The associated charge reflects severance and related costs, of which $5.8 million was paid in 1994. The charge related to the discontinued product reflects a $1.1 million non-cash write-off of capitalized software due to the decision to discontinue further development and marketing. The Company anticipates that these restructuring activities will be essentially completed within the next six months and that the likely effects on future operating results will principally consist of a reduction in compensation and amortization expenses. The Company expects to save approximately $8 million annually over the next several years as a result of the restructuring. The Company does not believe that the restructuring will have a material impact on future liquidity. Other income and expense also includes interest income and expense and the effect of currency transaction gains and losses. Interest income was higher in 1994 than in 1993 because of higher average cash and short-term investment balances and higher interest rates. Interest expense declined primarily due to scheduled debt repayments. In June 1993, the Company acquired Approach Software Corporation ("Approach"). The purchase price consisted of approximately $23 million of cash consideration and assumed liabilities. A significant portion of the purchase price was allocated to purchased research and development, resulting in a $19.9 million charge to the Company's 1993 operations. See Note K of Notes to Consolidated Financial Statements. This charge, which is included in other income and expense, is not deductible for tax purposes. Subsequent to the acquisition, the Company initiated substantial development efforts focused on improving the user interface, conforming the technology to the Company's cross-product standards and integrating the technology into the Company's suite of desktop applications. These efforts are expected to involve extensive rewriting of the code and the addition of significant new product features. At the time of the acquisition, the Company expected to invest approximately $20 million through 1996 to complete and continue the development of the ultimate technology using the purchased research and development. Earnings for 1994, excluding the restructuring and purchased research and development charges, were $52.8 million, or $1.08 per share. Earnings for 1993, excluding the charge for purchased research and development, were $75.4 million, or $1.69 per share. The effective tax rate for 1994 of 36%, excluding the effect of non-tax deductible charges for purchased research and development related to the acquisitions of Soft*Switch and Edge, compares with 38% for 1993, excluding the effect of a non-tax deductible charge for purchased research and development related to the acquisition of Approach. The decrease in the rate reflects benefits derived from the Company's international manufacturing operations. 7 Issues and Risks ---------------- There are a number of business factors, which singularly or combined, may affect the future results of the Company. The following issues and risks, among others, should be considered when evaluating the future outlook of the Company. Competition, generally. The applications software business is highly competitive. The Company's products compete with software products offered by larger independent software companies, such as Microsoft and Novell. Certain products offered by the Company are directed at operating environments or business applications in which one or more companies were early entrants and enjoy significant product and market share. Rapid technological change. The personal computer and software industries are characterized by rapid technological change, such as changes in operating systems, and uncertainties as to widespread acceptance of new products. The Company's success in the future will depend in part on its ability to anticipate and respond to these changes on a timely basis. Changes in the personal computer industry. The Company believes that demand for the Company's products is indirectly linked to the demand for new personal computers for business use, particularly in the case of desktop applications. Historically, the industry has been characterized by sustained growth in unit sales of personal computers, but no assurance can be given that this trend will continue. Accordingly, the level of demand for personal computers for business use may be viewed by certain investors as potentially predictive of future demands for the Company's products. Long-term investment cycle. Developing, manufacturing and licensing software is expensive and the investment in product development often involves a long pay-back cycle. The Company's future plans include significant investments in software research and development, from which significant revenues may not be realized for a number of years. Historical significance of desktop revenue. Historically, the Company has used profits from desktop revenue to make substantial investments in the Company's communications products. Although revenue from communications products has grown significantly over the last few years, revenue from desktop applications is important to the continued funding of the communications business. There can be no assurance that desktop revenue will continue at historical levels. Windows desktop applications competition. The Company believes that its share of the Windows desktop applications market will be an important factor in its future success. Although the Company's share of this market fluctuates from quarter to quarter, management believes that the Company is second in market share to Microsoft, the developer of the MS-DOS and Microsoft Windows operating environments, in the spreadsheet and desktop suite product categories, and third behind Microsoft and WordPerfect, a unit of Novell, in the word processing product category. Furthermore, the Company believes that Microsoft has and will continue to use its position in operating systems to leverage its lead in the Windows desktop applications market. The market for Windows desktop applications is highly competitive and attempts by these larger competitors to maintain or increase market share may lead to product price reductions and increased marketing efforts aimed at sales of bundled desktop applications sold as suites. Desktop suites competition. Competition in the Windows applications market has been intensified by the emergence of desktop "suites", in which software publishers combine and integrate standalone applications for sale as a unit. The desktop suite magnifies the effects of competition in the desktop applications market, since the popularity of one major product in a suite may drive the sale of the entire suite and may enable the software publisher to occupy the buyer's entire personal computer "desktop". Generally, the sales price of a suite is greater than the price of any single application included in the suite, but is significantly less than the aggregate price of all the applications included in the suite, if purchased separately. The Company believes that sales of SmartSuite generate greater revenue per user desktop and do not significantly reduce gross margins, despite imputed lower sales prices per application, because users of the suite purchase applications that they would not otherwise purchase on a standalone basis. The Company expects that sales of desktop suites will continue to account for a growing percentage of all Windows desktop sales and will eventually surpass aggregate sales of individual desktop applications as a percentage of all Windows desktop sales. 8 The Company, Microsoft and Novell each market applications suites for the Windows operating environment. The Company believes that SmartSuite revenue has been driven by growing demand for desktop suites, the Company's highly rated individual applications, particularly 1-2-3 for Windows, and the high degree of integration among the products in its suite. However, no assurance can be given that sales of SmartSuite will grow. Communications products competition. The Company was an early entrant into the market for software designed to facilitate workgroup computing and believes that its offering, Lotus Notes, is the leading product in this category. Workgroup computing is an emerging technology and, as such, is subject to rapid changes. There can be no assurance that Notes will continue to gain market acceptance as increased competition brings new products and new technology to the marketplace for workgroup computing. Like the market for desktop applications generally, the market for local area network-based e-mail products is also highly competitive. The Company's largest competitor in this market is Microsoft, which has announced its intention to include certain e-mail functions in future versions of its operating systems software. There can be no assurance that such development will not have an adverse effect on the Company's market share for communications products. Possibility of new product delays. As is common in the computer software industry, the Company has from time to time experienced delays in its product development and "debugging" efforts, and may experience similar delays from time to time in the future. Significant delays in developing, completing or shipping new or enhanced products could adversely affect the Company. Historical patterns of revenue flow. The Company's sales revenue typically fluctuates from quarter to quarter, with sales being relatively higher in the fourth quarter and in quarters in which new versions of established products are introduced. In addition, a high percentage of the Company's revenues are expected to be realized in the third month of each fiscal quarter and tend to be concentrated in the latter half of that month. The Company's backlog early in a quarter will not generally be large enough to assure that it will meet its revenue targets for any particular quarter. Accordingly, the Company's quarterly results may be difficult to predict until the end of the quarter, and a shortfall in shipments or contract orders at the end of any particular quarter may cause the results of that quarter to fall short of anticipated levels. Reserves for sales returns. The Company engages channel partners to sell products to end-users. Channel partners buy significant quantities of products from the Company in anticipation of sales of such products. In certain circumstances, channel partners may be unable to sell their inventories to end-users and thus may return inventory to the Company. Consequently, the Company maintains reserves for product returns in accordance with historical experience and by making judgments about future competitive conditions and product life cycles. There can be no assurance that historical experience will be an accurate guide for the future, because the rate of product returns is primarily a function of the competitive state of the market in the future, and thus, in large part, is a function of the actions of the Company's competitors, which the Company cannot anticipate. Protection of intellectual property and other proprietary rights. The Company regards its applications as proprietary and attempts to protect its intellectual property rights by relying on copyrights, trademarks, patents, and common law safeguards, including trade secret protection, as well as restrictions on disclosure and transferability in its agreements with other parties. Although the Company intends to protect its intellectual property rights vigorously, there can be no assurance that the laws of all jurisdictions in which the Company's products are or may be developed, manufactured or sold will afford the same protection to its products and intellectual property, or will be enforced or enforceable by the Company, to the same extent as under the laws of the United States. The software industry is characterized by frequent litigation regarding copyright, patent and other intellectual property rights. The Company has from time to time had infringement claims asserted by third parties against it and its products. There can be no assurance that such third party claims will be resolved in a satisfactory manner, that third parties will not assert other claims against the Company with respect to existing or future products or that licenses will be available on reasonable terms, or at all, with respect to any third party technology underlying any such claims. In the event of litigation to determine the validity of any third party claims, such litigation could result in significant expense to the Company and divert the efforts of the Company's technical and management personnel, whether or not such litigation is determined in favor of the Company. 9 Volatility of the Company's Common Stock. Market prices for securities of software companies have generally been volatile. In particular, the market price of the Company's Common Stock has been and may continue to be subject to significant fluctuations. These fluctuations may be due to factors specific to the Company (including those described above) or to factors affecting the computer industry or the securities markets in general. 1993 compared to 1992 --------------------- Worldwide revenue increased 9% in 1993 as compared to 1992. Desktop revenue was essentially unchanged in 1993, while communications-related revenue grew approximately 55%. Revenue from desktop applications was 79% of total revenue in 1993 and 84% of total revnue in 1992. In 1993, users continued to migrate from DOS-based applications to Windows-based applications. As a result, Windows revenue more than doubled as compared to 1992, while DOS-based revenue, particularly spreadsheets, declined approximately $215 million. Due to the full-fledged emergence of desktop "suites" in 1993, the Company's suite offering, SmartSuite, grew to represent approximately one-third of total 1993 Windows desktop applications revenue. Pricing declined during the first half of 1993, but remained relatively stable during the second half of 1993. Significant new Windows desktop products released in 1993 included 1-2-3 for Windows Release 4.0, Improv for Windows Release 2.0, Freelance Graphics for Windows Release 2.0, Lotus Organizer for Windows Release 1.1 and SmartSuite for Windows Release 2.0. Also released in 1993 were 1-2-3 for OS/2 Release 2.0, Freelance Graphics for OS/2 Release 1.0, Ami Pro for OS/2 Release 3.0 and an OS/2 SmartSuite. Communications products and services represented 19% of total revenue in 1993 as compared to 13% in 1992. Notes revenue more than doubled over 1992 and cc:Mail revenue grew considerably in 1993 as well. Consulting services revenue also increased significantly, resulting from internal growth and from the acquisition of several consulting businesses. New versions of Notes 3.0 were shipped for the Windows, Macintosh and OS/2 operating platforms in May 1993. Revenue outside the United States grew by 12% during 1993 and accounted for 51% of worldwide revenue in 1993 as compared to 49% in 1992. The impact of foreign currency fluctuations on international revenue was insignificant in 1993 and in 1992. Gross margin as a percentage of sales increased to 79% in 1993 compared with 78% in 1992. The rate was favorably affected by the achievement of manufacturing efficiencies resulting from higher production volumes, the closing of the Company's Puerto Rican manufacturing plant and material cost reductions. The increase in operating expenses in 1993 reflected higher spending associated with the development and enhancement of the communications products as well as a substantial investment in the sales and marketing of the communications business and SmartSuite. During 1993, research and development expenses increased 7% compared with 1992, and sales and marketing expenses increased 9% compared with 1992. General and administrative expenses increased only 1% and reflected the Company's continued efforts to control infrastructure and fixed costs. Interest income was higher in 1993 than 1992 because of higher average cash and short-term investment balances. Interest expense declined primarily due to scheduled repayments of long-term debt obligations. In June 1993, the Company acquired Approach Software Corporation. The purchase price consisted of approximately $23 million of cash consideration and assumed liabilities. A significant portion of the purchase price was allocated to purchased research and development, resulting in a $19.9 million non-tax deductible charge to the Company's 1993 operations. Earnings for 1993, excluding the charge for purchased research and development, were $75.4 million or $1.69 per share. Other income and expense in 1992 included a pre-tax gain of $49.7 million from the sale of the Company's investment in Sybase, Inc., offset by a restructuring charge of $15 million. The restructuring charge related principally to plans initiated by the Company in the fourth quarter of 1992 to close its Puerto Rican manufacturing subsidiary and to reorganize and centralize its North American and European operations related to logistics, distribution and support. Earnings for 1992, excluding the gain and the restructuring charge, were $57.2 million or $1.33 per share. The effective tax rate for 1993 was 38% compared with 33% in 1992. The increase in the tax rate reflected the effect of the loss of tax benefits associated with the closing of the Company's Puerto Rican manufacturing plant, a one percentage point increase in the U.S. federal statutory tax rate, and the impact of the statutory rate change on deferred taxes in accordance with FAS 109. 10 Liquidity and Capital Resources Cash and short-term investments decreased $40 million to $376 million at December 31, 1994. The two primary sources of cash flow in 1994 were $97 million of cash generated by operations and $56 million in proceeds from the issuance of common stock under the Company's employee stock plans. The primary uses of cash flow for investing and financing activities were $44 million for the purchase of property and equipment, $39 million for payments for software and other intangibles, $66 million for acquisition payments, $28 million for the scheduled repayment of debt and $13 million to repurchase the Company's common stock under a previously announced buyback program. A substantial portion of the Company's cash and short-term investments are either deposited in financial institutions located in Puerto Rico or held by subsidiaries outside the United States. These investments can be readily transferred to the United States as required, subject to income and/or withholding taxes upon repatriation, for which taxes have been provided. The Company's financial resources are represented by cash, short-term investments and unused portions of credit facilities. The Company believes its financial resources and funds provided by ongoing operations are adequate to meet future liquidity requirements. 11 LOTUS DEVELOPMENT CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS
----------------------------------------------------------------------------------------- Years ended December 31, (In thousands, except per share data) 1994 1993 1992 ----------------------------------------------------------------------------------------- Net sales $970,723 $981,168 $900,149 Cost of sales 172,325 202,443 200,103 ----------------------------------------------------------------------------------------- Gross margin 798,398 778,725 700,046 Expenses: Research and development 158,669 126,884 118,308 Sales and marketing 497,396 462,658 423,813 General and administrative 68,520 70,057 69,103 Other (income)/expense, net (Note J) 68,214 17,357 (31,183) ----------------------------------------------------------------------------------------- Total expenses 792,799 676,956 580,041 ----------------------------------------------------------------------------------------- Income before provision for income taxes 5,599 101,769 120,005 Provision for income taxes (Note H) 26,478 46,234 39,602 ----------------------------------------------------------------------------------------- Net income (loss) ($20,879) $55,535 $80,403 ========================================================================================= Net income (loss) per share ($0.44) $1.24 $1.87 ========================================================================================= Shares used in calculation of net income (loss) per share 47,013 44,721 42,994 ========================================================================================= The accompanying notes are an integral part of the consolidated financial statements.
12 LOTUS DEVELOPMENT CORPORATION CONSOLIDATED BALANCE SHEETS
----------------------------------------------------------------------------------------- December 31, (In thousands) 1994 1993 ----------------------------------------------------------------------------------------- Assets ----------------------------------------------------------------------------------------- Current assets: Cash and short-term investments (Note B) $376,218 $416,693 Accounts receivable, net of allowances of $37,971 and $30,002 230,977 217,336 Inventory (Note C) 20,711 21,220 Other current assets 24,452 20,817 ----------------------------------------------------------------------------------------- Total current assets 652,358 676,066 ----------------------------------------------------------------------------------------- Property and equipment, net of accumulated depreciation and amortization of $185,286 and $153,768 (Note D) 138,664 127,437 Software and other intangibles, net of accumulated amortization of $128,140 and $123,016 (Note B) 96,228 88,625 Other assets (Note E) 16,829 13,217 ----------------------------------------------------------------------------------------- Total assets $904,079 $905,345 ========================================================================================= The accompanying notes are an integral part of the consolidated financial statements. 13 ----------------------------------------------------------------------------------------- December 31, (In thousands, except per share data) 1994 1993 ----------------------------------------------------------------------------------------- Liabilities and Stockholders' Equity ----------------------------------------------------------------------------------------- Current liabilities: Current portion of long-term debt (Note I) $ - $28,480 Accounts payable 44,815 45,914 Accrued compensation and benefits 35,674 36,368 Accrued and deferred income taxes (Note H) 35,219 49,017 Other accrued expenses 74,516 77,648 Deferred revenue 70,130 39,996 ----------------------------------------------------------------------------------------- Total current liabilities 260,354 277,423 ----------------------------------------------------------------------------------------- Deferred income taxes (Note H) 39,595 49,531 Long-term debt (Note I) 50,000 50,000 Commitments and contingencies (Note F) Stockholders' equity (Note G): Preferred stock, $1.00 par value, 5,000 shares authorized, none issued - - Common stock, $.01 par value, 200,000 and 100,000 shares authorized; 63,575 and 62,152 issued; and 47,849 and 44,928 outstanding 636 622 Additional paid-in capital 280,815 251,414 Retained earnings 507,380 526,554 Treasury stock, 15,726 and 17,224 shares at an average cost of $14.95 and $14.44 per share (235,047) (248,728) Translation adjustment 346 (1,471) ----------------------------------------------------------------------------------------- Total stockholders' equity 554,130 528,391 ----------------------------------------------------------------------------------------- Total liabilities and stockholders' equity $904,079 $905,345 ========================================================================================= The accompanying notes are an integral part of the consolidated financial statements.
14 LOTUS DEVELOPMENT CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS
----------------------------------------------------------------------------------------- Years ended December 31, (In thousands) 1994 1993 1992 ----------------------------------------------------------------------------------------- Cash flows from operating activities: Net income (loss) ($20,879) $55,535 $80,403 Gain on sale of investment in Sybase, Inc. - - (49,706) Charge for purchased research and development 67,944 19,900 - Depreciation and amortization 87,392 86,973 84,319 Change in assets and liabilities, net of effects from acquisitions: (Increase) decrease in accounts receivable 1,031 (42,000) (11,031) Decrease in inventory 3,237 3,207 7,681 Increase (decrease) in accounts payable and accrued expenses (24,986) 10,832 (1,295) Increase (decrease) in accrued and deferred income taxes (30,075) 11,892 20,620 Increase in deferred revenue 20,263 15,601 521 Net change in other working capital items (6,532) 259 (3,170) ------------------------------------------------------------------------------------------ Net cash provided by operating activities 97,395 162,199 128,342 ------------------------------------------------------------------------------------------ Cash flows from investing activities: Purchases of property and equipment (44,413) (30,587) (34,042) Payments for software and other intangibles (39,265) (36,771) (39,315) Proceeds from sale of investment in Sybase, Inc. - - 77,719 Proceeds from sales (purchases) of short-term investments, net 84,702 (79,883) (31,551) Payments for acquisitions, net of cash received (66,345) (15,455) (8,725) Other, net (2,449) 2,002 1,364 ------------------------------------------------------------------------------------------ Net cash used for investing activities (67,770) (160,694) (34,550) ------------------------------------------------------------------------------------------ Cash flows from financing activities: Repayment of long-term debt (28,480) (30,260) (30,260) Purchase of common stock for treasury (12,625) (8,107) (35,876) Issuance of common stock, including tax benefit thereon 55,707 81,708 32,244 Decrease in short-term borrowings - (1,130) (23,167) ------------------------------------------------------------------------------------------ Net cash provided by (used for) financing activities 14,602 42,211 (57,059) ------------------------------------------------------------------------------------------ Net increase in cash and cash equivalents 44,227 43,716 36,733 Cash and cash equivalents, beginning of year 164,849 121,133 84,400 ------------------------------------------------------------------------------------------ Cash and cash equivalents, end of year 209,076 164,849 121,133 Short-term investments 167,142 251,844 171,961 ------------------------------------------------------------------------------------------ Cash and short-term investments $376,218 $416,693 $293,094 ==========================================================================================
Supplemental Cash Flow Information
------------------------------------------------------------------------------------------ (In thousands) 1994 1993 1992 ------------------------------------------------------------------------------------------ Interest received $17,062 $9,971 $10,952 Interest paid $5,765 $8,702 $13,970 Income taxes paid $56,238 $24,698 $18,982 ========================================================================================== The accompanying notes are an integral part of the consolidated financial statements.
15 LOTUS DEVELOPMENT CORPORATION CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
--------------------------------------------------------------------------------------------------------------------- Years ended December 31, 1992, 1993, and 1994 Additional Common Paid-In Retained Treasury Translation (In thousands) Stock Capital Earnings Stock Adjustment Total -------------------------------------------------------------------------------------------------------------------- Balance, December 31, 1991 $613 $194,710 $390,616 ($261,984) ($842) $323,113 -------------------------------------------------------------------------------------------------------------------- Net income - - 80,403 - - 80,403 Acquisition of 1,968 shares of common stock - - - (35,876) - (35,876) Issuance of 395 shares of common stock under employee stock purchase plan - 1,308 - 5,518 - 6,826 Exercise of 1,229 non-qualified stock options 9 20,722 - 4,687 - 25,418 Currency translation effect - - - - (446) (446) -------------------------------------------------------------------------------------------------------------------- Balance, December 31, 1992 622 216,740 471,019 (287,655) (1,288) 399,438 -------------------------------------------------------------------------------------------------------------------- Net income - - 55,535 - - 55,535 Acquisition of 250 shares of common stock - - - (8,107) - (8,107) Issuance of 360 shares of common stock under employee stock purchase plan - 2,894 - 5,139 - 8,033 Exercise of 2,937 non-qualified stock options - 22,604 - 41,895 - 64,499 Income tax benefit related to exercise of stock options - 9,176 - - - 9,176 Currency translation effect - - - - (183) (183) -------------------------------------------------------------------------------------------------------------------- Balance, December 31, 1993 622 251,414 526,554 (248,728) (1,471) 528,391 -------------------------------------------------------------------------------------------------------------------- Net loss - - (20,879) - - (20,879) Pooling of interests with Iris Associates, Inc. (Note K) 14 - 1,705 - - 1,719 Acquisition of 323 shares of common stock - - - (12,625) - (12,625) Issuance of 286 shares of common stock under employee stock purchase plan - 6,807 - 4,135 - 10,942 Exercise of 1,535 non-qualified stock options - 13,270 - 22,171 - 35,441 Income tax benefit related to exercise of stock options - 9,324 - - - 9,324 Currency translation effect - - - - 1,817 1,817 -------------------------------------------------------------------------------------------------------------------- Balance, December 31, 1994 $636 $280,815 $507,380 ($235,047) $346 $554,130 ==================================================================================================================== The accompanying notes are an integral part of the consolidated financial statements.
16 LOTUS DEVELOPMENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS A BUSINESS The Company and its subsidiaries are engaged in the development, manufacturing, marketing and support of applications software. The Company sells its products primarily through distributors and resellers. B SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation --------------------- The consolidated financial statements comprise those of the Company and its wholly owned domestic and foreign subsidiaries. All significant intercompany accounts and transactions have been eliminated. Certain amounts in the financial statements of prior years have been reclassified to conform with the current year presentation. Revenue Recognition ------------------- Revenue from the sale of software products to distributors, resellers and original equipment manufacturers is recognized when the products are shipped. Revenue is recognized from the sale of software products under installation agreements with end-users based upon the expected installation period, provided that payment is due currently. Maintenance, service and subscription revenue are recognized ratably over the term of the related sales contract or as services are performed. Allowances for estimated future product returns under the Company's agreements with its distributors and resellers for stock balancing and upgrade swaps are provided in the same period as the related revenue. Allowances for bad debts, which have not been material, are also provided. At the time the Company recognizes revenue from the sale of software products, no significant vendor and postcontract support obligations remain, and the costs of insignificant support obligations are accrued. Cash and Short-term Investments ------------------------------- All highly liquid investments with a maturity of three months or less at the date of purchase are considered to be cash equivalents, and those with maturities greater than three months are considered to be short-term investments. Short-term investments are stated at cost or amortized cost, which approximates market. Cash equivalents and short-term investments consist primarily of certificates of deposit, repurchase agreements, commercial paper, corporate bonds, Eurobonds, collateralized mortgage obligations and other money market instruments. In the first quarter of 1994, the Company adopted Statement of Financial Accounting Standard No. 115, "Accounting for Certain Investments in Debt and Equity Securities" ("FAS 115"). The Company has the intent and ability to hold to maturity all securities that mature in less than one year. Accordingly, these "held-to-maturity" securities have been recorded at amortized cost. The Company has categorized all other securities as "available-for-sale," since the Company may liquidate these investments currently. FAS 115 requires that unrealized gains and losses on available-for-sale securities be excluded from earnings and reported in a separate component of stockholders' equity. At December 31, 1994, the unrealized loss was immaterial. The amortized cost of securities, which approximates fair value, consists of the following at December 31, 1994: ---------------------------------------------------------------------------- (In thousands) Maturity Less than One to Type of security one year five years Total ---------------------------------------------------------------------------- Corporate bonds and Eurobonds $18,441 $51,058 $69,499 Commercial paper 17,704 199 17,903 Collateralized mortgage obligations 4,145 12,640 16,785 ---------------------------------------------------------------------------- 40,290 63,897 104,187 Cash, other cash equivalents and other short-term investments 272,031 ---------------------------------------------------------------------------- Total cash and short-term investments $376,218 ============================================================================ Inventory --------- Inventory is stated at cost, using the first-in, first-out (FIFO) method, but not in excess of net realizable value. Property, Equipment and Depreciation ------------------------------------ Property and equipment are stated at cost. Depreciation and amortization of property and equipment are computed using the straight-line method over the estimated useful lives of the assets as follows: ---------------------------------------------------------------------------- Buildings 30 years Computer equipment 3 - 5 years Manufacturing and other equipment 3 - 5 years Furniture and fixtures 5 years Leasehold improvements Shorter of lease term or life of asset Building improvements Shorter of 10 years or life of asset ============================================================================ Maintenance and repairs are expensed as incurred. The costs of retired assets are removed from asset accounts and related depreciation is removed from accumulated depreciation. 17 Software and Other Intangibles ------------------------------ Costs related to research, design and development of computer software are charged to research and development expense as incurred. The Company capitalizes eligible software costs upon establishing product technological feasibility and amortizes these costs on a product-by-product basis commencing upon general release of the products to customers. Capitalized software costs are amortized on a straight-line basis over the economic life of the product, generally three years. The straight-line method of amortization generally results in approximately the same amount of expense as that calculated using the ratio that current period gross product revenues bear to the total of current and anticipated future gross product revenues. Internal software costs of $36.0 million, $25.0 million and $26.0 million were capitalized in 1994, 1993 and 1992. Related amortization charges of $29.1 million for 1994, $25.2 million for 1993 and $22.2 million for 1992 are reflected in cost of sales. The net amount of capitalized software was $53.6 million and $47.8 million as of December 31, 1994 and 1993. Intangible assets of $21.8 million capitalized in 1994 were largely attributable to the acquisitions of Soft*Switch, Inc. and a consulting services business. Intangible assets of $15.2 million and $22.1 million capitalized in 1993 and 1992 were primarily related to other acquisitions. These assets are amortized on a straight-line basis, generally over a three to five year period. Related amortization charges, the majority of which were reflected in cost of sales, totaled $20.2 million in 1994, $22.5 million in 1993 and $19.2 million in 1992. The Company evaluates the net realizable value of capitalized software and other intangibles on an ongoing basis relying on a number of factors including operating results, business plans, budgets and economic projections. In addition, the Company's evaluation considers non-financial data such as market trends, product development cycles and changes in management's market emphasis. Income Taxes ------------ Deferred tax liabilities and assets are determined based on the difference between the financial statement and tax basis carrying amounts of assets and liabilities using current statutory tax rates. A valuation reserve against deferred tax assets is recorded if, based upon weighted available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. U.S. Federal income taxes, net of applicable foreign tax credits, are provided on the portion of foreign earnings which may be remitted to the Company's parent corporation in future years. Undistributed earnings of foreign affiliates reinvested in those operations indefinitely, and for which no U.S. taxes are provided, aggregated approximately $60 million and $40 million at December 31, 1994 and 1993. Net Income (Loss) per Share --------------------------- Per share amounts are calculated using the weighted average number of common shares and common share equivalents outstanding during periods of net income. Common share equivalents are attributable to unexercised stock options and are computed using the treasury stock method. Per share amounts are calculated using only the weighted average number of common shares outstanding during periods of net loss. Fully diluted net income per share is not materially different from reported primary net income per share. Foreign Currency Translation ---------------------------- Assets and liabilities of foreign subsidiaries are translated to U.S. dollars at year-end exchange rates. Income and expense items are translated at average rates of exchange during the year. Resulting translation adjustments are accumulated in a separate component of stockholders' equity. The effect of exchange rate changes on cash and cash equivalents was immaterial in 1994, 1993 and 1992. In an effort to minimize the effect of exchange rate fluctuations on the results of its operations and the asset and liability positions of foreign subsidiaries, the Company hedges certain portions of its foreign currency exposure through the use of forward exchange contracts and options on foreign currencies. The Company does not engage in foreign currency speculation. The cash flows related to the gains and losses on foreign currency hedges are classified in the statements of cash flows as part of cash flows from operating activities. Forward exchange contracts totaling $55 million, primarily to exchange foreign currencies for U.S. dollars, were outstanding at December 31, 1994. These contracts are used to hedge asset and liability positions of foreign subsidiaries. Gains and losses associated with currency rate changes on these contracts are recorded currently in income, offsetting losses and gains on the related assets and liabilities. All contracts, which primarily hedge European currencies and Japanese yen, mature during 1995. Forward exchange contracts outstanding at December 31, 1993, totaling $50 million, matured during 1994. Foreign currency options are used to hedge certain anticipated transactions denominated primarily in European currencies and Japanese yen. Potential losses on such contracts are limited to the cost of the options. Gains on such options are recorded in income only when realized, offsetting foreign exchange losses of the related transactions. There were no option contracts outstanding at December 31, 1994, and at December 31, 1993, the amount of option contracts outstanding was $96 million. The market risk exposure from currency options is limited to the cost of such instruments. The market risk exposure from forward contracts is assessed in light of the underlying currency exposures and is controlled by the initiation of additional or offsetting foreign currency contracts. Credit risk exposure from currency options and forward contracts is minimized as these instruments are contracted with multiple financial institutions. 18 The fair value of currency options is established by obtaining bids, based upon a hypothetical sale of the options, from banks that are authorized currency traders. Forward contracts are revalued monthly by comparing contract rates to month-end exchange rates. The Company's currency options and forward contracts are over-the-counter instruments. Financial Instruments --------------------- The fair values of financial instruments, including cash equivalents, short-term investments, marketable securities, debt, options on foreign currencies and forward exchange contracts, approximated their carrying values at December 31, 1994 and 1993. Fair values have been determined through information obtained from market sources and management estimates. Diversification of Credit Risk ------------------------------ The Company's investment portfolio is diversified and consists of cash equivalents and short-term investments placed with high credit qualified institutions. At December 31, 1994 and 1993, approximately 40% and 41% of accounts receivable represented amounts due from ten customers. The credit risk in the Company's trade accounts receivable is substantially mitigated by the Company's credit evaluation process, reasonably short collection terms and the geographical dispersion of sales transactions. C INVENTORY Inventory consists of the following: -------------------------------------------------------------------- December 31, (In thousands) 1994 1993 -------------------------------------------------------------------- Finished goods $13,041 $13,962 Raw materials 7,670 7,258 -------------------------------------------------------------------- Total $20,711 $21,220 ==================================================================== D PROPERTY AND EQUIPMENT Property and equipment consists of the following: -------------------------------------------------------------------- December 31, (In thousands) 1994 1993 -------------------------------------------------------------------- Land $5,800 $7,395 Buildings and building improvements 58,185 55,463 Leasehold improvements 38,891 36,699 Computer equipment 139,964 111,045 Manufacturing and other equipment 49,841 44,191 Furniture and fixtures 31,269 26,412 -------------------------------------------------------------------- 323,950 281,205 Less accumulated depreciation and amortization 185,286 153,768 -------------------------------------------------------------------- Property and equipment, net $138,664 $127,437 ==================================================================== E OTHER ASSETS Other assets consist of the following: -------------------------------------------------------------------- December 31, (In thousands) 1994 1993 -------------------------------------------------------------------- Marketable securities $3,004 $3,004 Deposits and other 13,825 10,213 -------------------------------------------------------------------- Total $16,829 $13,217 ==================================================================== Marketable securities represent investments in interest bearing securities held at a custodial institution in Puerto Rico. These securities are carried at cost, which approximates market. F COMMITMENTS AND CONTINGENCIES Lease Commitments ----------------- The Company leases certain facilities and equipment under various operating leases. At December 31, 1994, future minimum lease payments under operating leases with terms in excess of one year were as follows: -------------------------------------------------------------------- Year (In thousands) -------------------------------------------------------------------- 1995 $37,027 1996 32,171 1997 21,287 1998 17,003 1999 12,931 Future years 42,795 -------------------------------------------------------------------- Total $163,214 ==================================================================== Total rental expense was approximately $43.7 million, $41.7 million and $40.2 million for the years ended December 31, 1994, 1993 and 1992. 19 G STOCK PLANS Stock Option Plans ------------------ The Company has stock option plans for employees and consultants which provide for non-qualified and incentive stock options. Options are granted at a price not less than the fair market value on the date of grant. The options generally become exercisable over a four-year period and expire over a period not exceeding ten years. At December 31, 1994, 2.6 million shares were available for grant. The Company also has a stock option plan for non-employee directors which provides that each independent director of the Company be granted annually an option to acquire 10,000 shares of common stock at a price equal to the fair market value on the date of grant. The options become exercisable over a four year period and expire over a period not exceeding ten years. At December 31, 1994, 170,000 shares were available for grant. Activity in these plans was as follows: -------------------------------------------------------------------------- Years ended December 31, (In thousands, except option prices) 1994 1993 1992 -------------------------------------------------------------------------- Shares under option, beginning of year 5,814 7,154 8,782 Options granted (at option prices of $30.50 to $64.50 in 1994, $19.63 to $47.38 in 1993, and $17.38 to $33.88 in 1992) 3,955(B) 2,453 788(A) Options exercised (1,535) (2,937) (1,229) Options cancelled (628) (856) (1,187) -------------------------------------------------------------------------- Shares under option, end of year (at exercise prices of $16.00 to $64.50 in 1994, $16.00 to $47.38 in 1993, and $6.25 to $37.88 in 1992) 7,606 5,814 7,154 -------------------------------------------------------------------------- Average price of options exercised $23.09 $22.09 $20.74 -------------------------------------------------------------------------- Shares exercisable 1,936 1,412 2,919 -------------------------------------------------------------------------- Average option price of shares exercisable $23.16 $23.71 $22.49 ========================================================================== (A) The Company's annual grant to employees, historically made in December, was moved to January 1993 to more closely link option grants to performance. In January 1993, the Company granted 1.8 million options at fair market value on the date of grant. (B) In January 1994, the Company granted a total of 2.6 million options to its employees. Of the total grant, 1.6 million options were granted at fair market value at the date of the grant. The remaining 1.0 million options were granted at 120% of fair market value on the date of grant. Employee Stock Purchase Plan ---------------------------- The Employee Stock Purchase Plan authorizes the Company to sell up to 4.1 million shares of common stock to employees through voluntary payroll withholdings. The stock price to employees is equal to 85% of the market price on the first or last day of each six-month withholding period, whichever is lower. Purchases are limited to ten percent of an employee's eligible compensation, subject to an annual maximum as defined in the plan. Through December 31, 1994, approximately 2.5 million shares were purchased by employees pursuant to the plan. Shares issued to employees during the past three years are summarized in the table below. --------------------------------------------------------------------------- Years ended December 31, (In thousands, except per share data) 1994 1993 1992 --------------------------------------------------------------------------- Number of shares 286 360 395 Proceeds $10,942 $8,033 $6,826 Average price per share $38.21 $22.34 $17.29 =========================================================================== H INCOME TAXES The components of the provision for income taxes were as follows: --------------------------------------------------------------------------- Years ended December 31, (In thousands) 1994 1993 1992 --------------------------------------------------------------------------- Domestic: Current $22,450 $18,437 $7,970 Deferred (9,119) 7,581 17,902 --------------------------------------------------------------------------- 13,331 26,018 25,872 --------------------------------------------------------------------------- Foreign: Current 13,862 19,763 9,470 Deferred (2,215) (347) 3,460 --------------------------------------------------------------------------- 11,647 19,416 12,930 --------------------------------------------------------------------------- State: Current 1,500 800 800 Deferred - - - --------------------------------------------------------------------------- 1,500 800 800 --------------------------------------------------------------------------- Total: Current 37,812 39,000 18,240 Deferred (11,334) 7,234 21,362 --------------------------------------------------------------------------- Total income taxes $26,478 $46,234 $39,602 =========================================================================== Income before provision for income taxes from domestic and foreign operations was as follows: --------------------------------------------------------------------------- Years ended December 31, (In thousands) 1994 1993 1992 --------------------------------------------------------------------------- Domestic $37,080 $37,337 $72,622 Foreign (31,481) 64,432 47,383 --------------------------------------------------------------------------- Total $5,599 $101,769 $120,005 =========================================================================== 20 Provisions for income taxes were at rates other than the U.S. Federal statutory tax rate for the following reasons: --------------------------------------------------------------------------- Years ended December 31, 1994 1993 1992 --------------------------------------------------------------------------- U.S. Federal statutory tax rate 35.0% 35.0% 34.0% Foreign operations 1.3 4.4 (0.8) Research and development credit (5.0) (4.5) (4.0) Impact of U.S. Federal statutory rate increase on beginning deferred taxes - 2.0 - Tax exempt interest income - (0.6) (0.9) Non-deductible amortization 2.2 2.0 3.7 State taxes 1.6 0.8 0.7 Other, net 0.9 (1.1) 0.3 --------------------------------------------------------------------------- Subtotal 36.0 38.0 33.0 Non-deductible charges for purchased research and development 436.9 7.4 - --------------------------------------------------------------------------- Effective tax rate 472.9% 45.4% 33.0% =========================================================================== Consolidated results of operations in 1994 include results of manufacturing operations in Ireland and Singapore. In 1993 and 1992, net income also included income from the Company's Puerto Rican manufacturing subsidiary. Income from the sale and licensing of products manufactured or developed in Ireland is subject to a 10% tax rate through the year 2010. Income from Singapore operations is taxed at favorable rates, relative to U.S. statutory rates, until 1997 under a grant issued by the Singapore government. 1993 and 1992 income from products manufactured in Puerto Rico, which was not subject to U.S. Federal income tax, was subject to a local tax rate of approximately 5%. In addition, remitted Puerto Rico earnings may be subject to Puerto Rico withholding taxes at rates not in excess of 10%. The aggregate dollar and per share tax benefits from tax holidays were immaterial to the results of operations in 1994, 1993 and 1992. For U.S. Federal income tax purposes, at December 31, 1994, the Company has tax credit carryforwards of approximately $41 million and a net operating loss carryforward of $16 million, which expire between 1996 and 2009. The net operating loss carryforward and approximately $1 million of tax credit carryforwards represent tax benefits resulting from the acquisition of Soft*Switch, Inc. The Internal Revenue Service ("IRS") has proposed adjustments to the Company's U.S. income tax returns for the years 1985 through 1989. The Company will appeal these adjustments and believes that any sustained adjustments will not be material to the financial statements. The IRS has commenced its examination of the Company's U.S. income tax returns for the years 1990 through 1992. The Company believes that sustained adjustments, if any, from the examination will not be material to the financial statements. Deferred taxes result from temporary differences in the recognition of revenues and expenses for tax and financial reporting purposes. The sources of these temporary differences for 1994, 1993 and 1992, and the effect of each on the tax provision, were as follows: --------------------------------------------------------------------------- Years ended December 31, (In thousands) 1994 1993 1992 --------------------------------------------------------------------------- Unrepatriated foreign earnings, net ($8,101) $14,110 $11,911 Depreciation (980) (1,130) (1,769) Compensation (1,048) (1,423) 4,338 Capitalized software costs 566 1,590 557 Charges to (provision for) reserves (268) (1,654) 2,031 Deferred revenue - (2,171) 3,628 Other, net (1,503) (2,088) 666 --------------------------------------------------------------------------- Total ($11,334) $7,234 $21,362 =========================================================================== The components of the net deferred tax liability are as follows: -------------------------------------------------------------- December 31, (In thousands) 1994 1993 -------------------------------------------------------------- Deferred tax assets: Reserves $13,587 $16,352 Depreciation 5,072 5,871 Tax credits against unrepatriated foreign earnings 85,045 77,363 Tax return carryforwards 47,131 48,233 Deferred revenue 2,770 2,574 Other 12,458 11,934 -------------------------------------------------------------- Total 166,063 162,327 -------------------------------------------------------------- Valuation allowances (A) 49,162 35,794 -------------------------------------------------------------- Net deferred tax assets 116,901 126,533 -------------------------------------------------------------- Deferred tax liabilities: Capitalized software costs 10,947 10,381 Unrepatriated foreign earnings 114,832 130,417 Compensation 99 2,972 Other 4,601 6,389 -------------------------------------------------------------- Total 130,479 150,159 -------------------------------------------------------------- Net deferred tax liability $13,578 $23,626 ============================================================== (A) The valuation allowance at December 31, 1994 and 1993 includes $10 million for foreign tax benefits. During 1994, a $7 million valuation allowance was established for tax benefits resulting from the acquisition of Soft*Switch, Inc. due to the limitations imposed by U.S. tax rules on the use of tax benefits following certain changes in ownership. In addition, valuation allowances of $32.2 million and $25.8 million at December 31, 1994 and 1993 have been established for tax return carryforwards resulting from stock option compensation deductions. The tax benefit associated with the stock option compensation deductions will be credited to equity when realized. 21 I DEBT Long-term Debt -------------- Long-term debt consists of the following: ------------------------------------------------------------------ December 31, (In thousands) 1994 1993 ------------------------------------------------------------------ Notes payable to banks, bearing interest at LIBOR plus 0.45% per annum $50,000 $50,000 Notes payable to insurance companies, bearing interest at 10.57% per annum - 28,480 ------------------------------------------------------------------ Total debt 50,000 78,480 ------------------------------------------------------------------ Less current portion - 28,480 ------------------------------------------------------------------ Long-term debt $50,000 $50,000 ================================================================== In July 1990, the Company completed a $50 million floating rate financing with a group of banks collateralized by its office facility in Cambridge, Massachusetts. Principal payment of the notes is due in 1997. In May 1989, the Company arranged a $100 million private debt placement with a group of insurance companies. The final principal payment of $28 million was paid in June 1994. The Company renegotiated its revolving credit agreements during 1994 and now maintains one multi-currency revolving credit agreement with a group of domestic and international banks. The agreement, which expires June 1997, commits the participating banks, subject to certain terms and conditions, to lend an aggregate of $150 million. There were no borrowings under this credit agreement as of December 31, 1994. Interest rates on borrowings are set under a number of bid options not exceeding .425% over LIBOR. Commitment fees are payable on unborrowed amounts at a maximum rate of 1/8% per annum. The Company is required to maintain a minimum level of net worth as well as a maximum debt to net worth ratio, among other things specified in the revolving credit agreement. The Company was in compliance with the covenants of its credit agreement at December 31, 1994. Short-term Debt --------------- The Company occasionally borrows under unsecured credit facilities with several domestic and international banks in order to meet short-term domestic and international cash requirements. There were no such borrowings at December 31, 1994 and 1993. As of December 31, 1994, the Company had unused short-term credit facilities of $29 million. J OTHER (INCOME)/EXPENSE, NET Other (income)/expense consists of the following: --------------------------------------------------------------------------- Years ended December 31, (In thousands) 1994 1993 1992 --------------------------------------------------------------------------- Charges for purchased research and development (Note K) $67,944 $19,900 $ - Restructuring charges 9,000 - 15,000 Gain on sale of investment in Sybase, Inc. - - (49,706) Interest income (16,442) (11,890) (10,679) Interest expense 5,295 8,525 13,547 Other, net 2,417 822 655 --------------------------------------------------------------------------- Total other (income)/ expense, net $68,214 $17,357 ($31,183) =========================================================================== In the third quarter of 1994, the Company acquired all outstanding shares of Soft*Switch, Inc. and Edge Research, Inc. A significant portion of the purchase price of these acquisitions, $67.9 million, was allocated to purchased research and development. This amount, which is not deductible for tax purposes, was charged to operations in the third quarter of 1994. In the third quarter of 1994, the Company recorded a $9 million restructuring charge related to its European operations and the discontinuation of a product. European restructuring activities include the streamlining of the marketing organization from a product focus to a market segment focus, the centralization of certain finance and administration functions, and a reduction in desktop applications support staff. The charge related to the discontinued product reflects a $1.1 million write-off of capitalized software due to the decision in the third quarter of 1994 to discontinue further development and marketing. In June 1993, the Company acquired all outstanding shares of Approach Software Corporation. A significant portion of the purchase price, $19.9 million, was allocated to purchased research and development. This amount, which is not deductible for tax purposes, was charged to operations at the acquisition date. In December 1992, the Company recorded a restructuring charge of $15 million for employee separations and related facilities consolidations and equipment write-downs associated with the closing of its Puerto Rican manufacturing facility and the restructuring of operations in North America and Europe. In 1992, the Company sold its investment in Sybase, Inc., for cash consideration of $77.7 million, resulting in a pre-tax gain of $49.7 million. The investment of $28.0 million consisted of 2.5 million common shares and was accounted for at cost. 22 K ACQUISITIONS AND DISPOSITIONS Iris Associates, Inc. --------------------- In May 1994, the Company acquired all outstanding shares of Iris Associates, Inc. ("Iris"), the privately held developer of Lotus Notes ("Notes"), in exchange for approximately 1.4 million shares of Lotus common stock. The transaction was accounted for as a pooling of interests. Acquired net assets of approximately $1.7 million have been recorded at historical amounts. Prior periods were not restated due to immateriality, and, accordingly, results of operations have been included since the date of acquisition. Prior to the combination, the Company funded the development of Notes and paid royalties to Iris based upon product sales. Soft*Switch, Inc. ----------------- In July 1994, the Company acquired all outstanding shares of Soft*Switch, Inc. ("Soft*Switch"), a privately held developer of electronic mail message switches that link disparate electronic messaging systems. The two principal products sold by Soft*Switch at the acquisition date were Soft*Switch Central, a mainframe-based message switch, and EMX, a LAN-based message switch. The total purchase price of $77.5 million consisted of approximately $64.3 million of cash consideration, $8 million of assumed liabilities and $5.2 million of deferred tax liabilities. The acquisition was accounted for using the purchase method. The purchase price was allocated among the identifiable tangible and intangible assets based on the fair market value of those assets. Purchased software that had reached technological feasibility, and was principally represented by the technology comprising the Central product, was valued using a risk adjusted cash flow model, under which future cash flows were discounted taking into account risks related to existing and future markets and an assessment of the life expectancy of the purchased software. This analysis resulted in an allocation of $15 million to purchased software, which was capitalized and is being amortized over five years. Purchased research and development that had not reached technological feasibility and that had no alternative future use was valued using the same methodology. Purchased research and development that had not reached technological feasibility is represented by the EMX technology. Expected future cash flows associated with in-process research and development were discounted considering risks and uncertainties related to the viability of and potential changes in future target markets and to the completion of the products that will ultimately be marketed by the Company. This analysis resulted in an allocation of $62.5 million to purchased research and development expense. This amount, which is not deductible for tax purposes, was charged to operations at the acquisition date. Soft*Switch's operating results have been included in the consolidated financial statements from the date of acquisition. Pro forma statements of operations would not differ materially from reported results. Edge Research, Inc. ------------------- In September 1994, the Company acquired all the outstanding shares of Edge Research, Inc. ("Edge"), a privately held developer of applications development tools for Lotus Notes, for approximately $5.4 million of cash consideration. The acquisition was accounted for using the purchase method. Using methodology consistent with that used to account for the Soft*Switch acquisition, the Company identified no tangible or intangible assets, other than research and development that had not reached technological feasibility and had no alternative future use. This analysis resulted in the allocation of $5.4 million to purchased research and development expense. This amount, which is not deductible for tax purposes, was charged to operations at the acquisition date. Edge's operating results have been included in the consolidated financial statements from the date of acquisition. Pro forma statements of operations would not differ materially from reported results. Approach Software Corporation ----------------------------- In June 1993, the Company acquired all outstanding shares of Approach Software Corporation ("Approach"), a privately held developer of end-user relational database applications for the Windows environment. The purchase price consisted of approximately $23 million of cash consideration and assumed liabilities. The acquisition has been accounted for using the purchase method. The purchase price was allocated among the identifiable tangible and intangible assets based on the fair market value of those assets. After allocating the purchase price to net tangible assets, purchased software that had reached technological feasibility, and was principally represented by the technology comprising the database products being sold by Approach at the date of the acquisition, was valued using a risk adjusted cash flow model, under which future cash flows were discounted taking into account risks related to existing and future markets and an assessment of the life expectancy of the purchased software. This analysis resulted in an allocation of $3.4 million to purchased software, which was capitalized and is being amortized over three years. Purchased research and development that had not reached technological feasibility and which had no alternative future use was valued using the same methodology. Expected future cash flows associated with in-process research and development were discounted considering risks and uncertainties related to the viability of and potential changes in future target markets and to the completion of the products that will ultimately be marketed by the Company. This analysis resulted in an allocation of $19.9 million to purchased research and development expense. This amount, which is not deductible for tax purposes, was charged to operations at the acquisition date. Approach's operating results have been included in the consolidated financial statements from the date of acquisition. Pro forma statements of operations would not differ materially from reported results. 23 One Source ---------- Effective August 28, 1993, the Company sold its One Source business, a developer and marketer of CD-ROM information products. Total consideration received was immaterial and no gain or loss was recognized on the sale. The financial statements reflect the operations of One Source through the effective date. L EMPLOYEE BENEFIT PLANS The Company maintains a discretionary, non-contributory profit sharing plan for its employees. Contributions are based on a percentage of consolidated operating profit and are allocated among employees on the basis of compensation received during the plan year. Profit sharing expense was $6.9 million, $11.1 million and $7.1 million in 1994, 1993 and 1992. In the U.S., the profit sharing plan was integrated with a pension plan which provided a minimum guaranteed defined benefit based on the employee's years of service and final average compensation. In June 1992, the Company elected to suspend the pension plan with the intent to terminate at a future date. The curtailment did not have a material impact on the Company's financial statements, nor will the expected termination. The actuarially determined pension cost related to the minimum guaranteed retirement benefit under the pension plan was not significant in 1994, 1993 and 1992. Additionally, the Company offers a savings plan which allows eligible U.S. employees to make tax-deferred contributions, a portion of which are matched by the Company. Company contributions under the savings plan were $4.3 million in 1994, $3.8 million in 1993 and $3.2 million in 1992. The Company also maintains retirement plans, principally defined contribution plans, covering substantially all of its international employees. Costs related to these plans amounted to approximately $4.0 million in 1994, $3.4 million in 1993 and $3.2 million in 1992. The Company does not offer postretirement benefits other than those described above. M INTERNATIONAL OPERATIONS Sales and marketing operations outside the United States are conducted principally through foreign sales subsidiaries and through various representative and distributorship arrangements. The Company's international manufacturing operations are located in Ireland and Singapore. The products of these manufacturing facilities are sold through the Company's foreign sales subsidiaries and, where the Company has not established a presence of its own, direct to distributors in those countries. Other financial information by geographical area is summarized below:
------------------------------------------------------------------------------------------ North Asia Europe/ (In thousands) America Pacific Other Eliminations Consolidated ------------------------------------------------------------------------------------------ 1994: Net sales $544,486 $173,026 $258,461 ($5,250) $970,723 ------------------------------------------------------------------------------------------ Operating income (loss): By area 55,453 45,162 (24,796) 1,803 77,622 Corporate expenses (80,753) Other income/ (expense) 8,730 Income before -------- provision for income taxes 5,599 ------------------------------------------------------------------------------------------ Total assets $526,525 $179,097 $213,670 ($15,213) $904,079 ========================================================================================== 1993: Net sales $531,536 $149,700 $308,938 ($9,006) $981,168 Operating income: By area 51,151 34,085 46,659 (441) 131,454 Corporate expenses (32,228) Other income/ (expense) 2,543 Income before -------- provision for income taxes 101,769 ------------------------------------------------------------------------------------------ Total assets $489,419 $130,869 $299,577 ($14,520) $905,345 ========================================================================================== 1992: Net sales $494,592 $116,199 $300,049 ($10,691) $900,149 Operating income: By area 34,972 25,066 26,019 (567) 85,490 Corporate expenses (11,668) Other income/ (expense) 46,183 Income before -------- provision for income taxes 120,005 ------------------------------------------------------------------------------------------ Total assets $431,487 $78,545 $266,017 ($12,605) $763,444 ==========================================================================================
24 Sales between geographic areas presented are insignificant. For this presentation, corporate expenses includes certain expenses incurred at the Company's corporate offices and charges for purchased research and development. U.S. research and development expenses were allocated to geographic areas on the basis of sales. Other income/(expense) includes interest income, interest expense, other expense, net, and in 1992, the $49.7 million gain on the sale of investment in Sybase, Inc. The decrease in operating income in the Europe/Other region in 1994 as compared to 1993 and 1992 was attributable to a decline in desktop applications revenue, which resulted from severe competition in Europe. The decrease in assets in the Europe/Other region in 1994 as compared to 1993 was due to lower cash and receivable balances, which resulted from the decline in revenue and the operating loss in Europe. The increase of assets in the Asia Pacific region is due to the accumulation of unremitted earnings of the region. Sales to unaffiliated customers outside the United States, including U.S. export sales, were $470.2 million for 1994, $485.9 million for the year 1993 and $434.9 million for the year 1992. In 1994, one customer accounted for 13% of worldwide sales. In 1993, one customer accounted for 12% of worldwide sales and a second customer accounted for 11% of such sales. No one customer accounted for more than 10% of worldwide sales in 1992. N SHAREHOLDER RIGHTS PLAN The Company has a shareholder rights plan which grants to holders of record one stock purchase right per share of common stock upon the occurrence of certain triggering events. Such events would include the acquisition of Lotus shares through open market purchases or a tender offer that, in the aggregate, equal or exceed 15% of outstanding shares. Should a triggering event occur, holders of such rights would be entitled to purchase Lotus common stock (or stock of the acquiring entity, as the case may be) at a 50% discount from its then current market value. Each right entitles the holder to purchase shares with a market value aggregating $150 for a price of $75. Such rights do not extend to any holder whose action triggered the rights. The rights expire in November 1998 and may be redeemed prior to that time at the option of the Board of Directors for nominal consideration. Until a triggering event occurs, the rights will not trade separately from the related Lotus common stock. 25 REPORT OF INDEPENDENT ACCOUNTANTS To the Stockholders and Board of Directors of Lotus Development Corporation We have audited the accompanying consolidated balance sheets of Lotus Development Corporation as of December 31, 1994 and 1993, and the related consolidated statements of operations, cash flows, and stockholders' equity for each of the three years in the period ended December 31, 1994. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Lotus Development Corporation as of December 31, 1994 and 1993, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 1994, in conformity with generally accepted accounting principles. Coopers & Lybrand L.L.P. Boston, Massachusetts January 24, 1995 26 LOTUS SUPPLEMENTAL FINANCIAL INFORMATION
Five-Year Summary of Selected Financial Data ------------------------------------------------------------------------------------------- (In thousands, except per share data) 1994 1993 1992 1991 1990 ------------------------------------------------------------------------------------------- Net sales $970,723 $981,168 $900,149 $828,895 $692,242 Income before provision for income taxes 5,599 101,769 120,005 67,686 52,826 Net income (loss) (20,879) 55,535 80,403 33,116 23,254 Net income (loss) per share (0.44) 1.24 1.87 0.75 0.54 Total assets 904,079 905,345 763,444 725,537 656,807 Cash and short-term investments 376,218 416,693 293,094 224,810 245,386 Working capital 392,004 398,643 296,166 207,670 226,961 Long-term debt 50,000 50,000 108,740 139,000 160,000 Stockholders' equity 554,130 528,391 399,438 323,113 309,439 ==========================================================================================
Quarterly Results of Operations (Unaudited)
----------------------------------------------------------------------------------- (In thousands, except 1994, Three Months Ended per share data) April 2 July 2 Oct 1 Dec 31 Year ----------------------------------------------------------------------------------- Net sales $246,992 $224,009 $235,246 $264,476 $970,723 Gross margin 200,584 185,141 192,516 220,157 798,398 Income (loss) before provision for income taxes 33,346 15,186 (65,504) 22,571 5,599 Net income (loss) 21,341 9,719 (66,385) 14,446 (20,879) Net income (loss) per share $0.45 $0.20 ($1.39) $0.30 ($0.44) ----------------------------------------------------------------------------------- Common stock prices High 86 1/2 73 1/2 46 1/2 46 1/4 86 1/2 Low 51 3/4 33 29 3/4 34 29 3/4 =================================================================================== ----------------------------------------------------------------------------------- (In thousands, except 1993, Three Months Ended per share data) April 3 July 3 Oct 2 Dec 31 Year ----------------------------------------------------------------------------------- Net sales $227,004 $235,785 $240,104 $278,275 $981,168 Gross margin 176,625 184,751 193,295 224,054 778,725 Income before provision for income taxes 20,791 5,949 28,600 46,429 101,769 Net income (loss) 12,267 (4,649) 18,304 29,613 55,535 Net income (loss) per share $0.29 ($0.11) $0.41 $0.64 $1.24 ----------------------------------------------------------------------------------- Common stock prices High 28 1/2 37 48 1/4 58 3/4 58 3/4 Low 18 3/4 23 1/2 30 1/4 41 3/4 18 3/4 ===================================================================================
The Company has historically not paid cash dividends on its common stock and has retained earnings for use in its business. At the end of 1994, the number of shareholders of the Company's common stock was approximately 46,000. Notes to Supplemental Financial Information and Quarterly Results of Operations: (1) 1994 amounts include a charge to operations of $67.9 million, or $1.40 per share, in the third quarter for purchased research and development related to the acquisitions of Soft*Switch, Inc. and Edge Research, Inc. 1994 amounts also include a restructuring charge in the third quarter of $9 million on a pre-tax basis and $5.8 million, or $0.12 per share, on an after-tax basis. (2) 1993 amounts include a charge to operations of $19.9 million, or $0.45 per share, in the second quarter for purchased research and development related to the acquisition of Approach Software Corporation. (3) 1992 amounts include gains on the sale of the Company's investment in Sybase, Inc. of $34.6 million in the third quarter and $15.1 million in the fourth quarter resulting in a total gain for the year of $49.7 million on a pre-tax basis and $33.3 million, or $0.77 per share, on an after-tax basis. 1992 amounts also include a restructuring charge in the fourth quarter of $15 million on a pre-tax basis and $10.1 million, or $0.23 per share, on an after-tax basis. (4) 1991 amounts include a fourth quarter restructuring charge of $23 million on a pre-tax basis and $18.6 million, or $0.42 per share, on an after-tax basis. (5) 1990 amounts include a charge to operations of $53 million, or $1.23 per share, in the fourth quarter for purchased research and development related to the acquisition of Samna Corporation. (6) The Company's common stock is traded on the over-the-counter market and is quoted on the NASDAQ National Market System under the symbol LOTS. 27 BOARD OF DIRECTORS Jim Manzi President, CEO and Chairman of the Board Lotus Development Corporation Richard S. Braddock Partner Clayton, Dubilier, and Rice Elaine L. Chao President and CEO United Way of America William H. Gray, III President and CEO United Negro College Fund Michael E. Porter Professor of Business Administration Harvard Business School Henri A. Termeer Chairman and CEO Genzyme Corporation EXECUTIVE AND CORPORATE OFFICERS Jim Manzi President and CEO Kc Branscomb Senior Vice President Business Development Edwin J. Gillis Senior Vice President Finance and Operations Chief Financial Officer John B. Landry Senior Vice President Communications Business Group Chief Technology Officer Ilene H. Lang Senior Vice President Desktop Business Group June L. Rokoff Senior Vice President Worldwide Services Group Robert K. Weiler Senior Vice President Worldwide Sales and Marketing Thomas M. Lemberg Vice President General Counsel and Secretary VICE PRESIDENTS Jeffrey Beir Vice President Desktop Product Line Deborah M. Besemer Vice President North, Central and South America Russell J. Campanello Vice President Human Resources Allen Carney Vice President Desktop Marketing Kevin Cavanaugh Vice President International Product Development David Champagne Vice President Worldwide Customer Service and Support Hemang D. Dave Vice President Strategic Alliances Tim Davenport Vice President Developer Tools Group James Fieger Vice President Lotus Development Europe, Middle East, Africa Charles B. Hamlin Vice President Corporate Marketing Stuart C. Kazin Vice President Worldwide Operations and Information Systems Saburo Kikuchi President Lotus Development Japan Steve King Vice President Lotus Development Asia Pacific Jack Martin Vice President Communications Products Group Finance and Business Development Larry Moore Vice President Inter-enterprise Communications Division Ray Ozzie President Iris Associates Jeffrey P. Papows Vice President Communications Products Group Ian Richmond Vice President Lotus Consulting Eileen Rudden Vice President Inter-enterprise Communications Division John C. Throckmorton Vice President Word Processing Division Michael Wyzga Vice President Worldwide Sales and Marketing Plans and Controls Michael Zisman Vice President Communications Products Group 28 SHAREHOLDER INFORMATION Annual Meeting The Annual Meeting of Shareholders will be held on Tuesday, May 2, 1995 at 10:00 a.m. at the following location: Museum of Transportation Larz Anderson Park 15 Newton Street Brookline, Massachusetts Copies of Lotus' Annual Report on Form 10-K are available, without charge, upon request from: Kay Waxman Director of Investor Relations Lotus Development Corporation 55 Cambridge Parkway Cambridge, Massachusetts 02142 To request further information about Lotus Development Corporation, please contact the Investor Relations Information Line at (617) 693-1900. Common Stock Lotus' common stock is traded over the counter on the NASDAQ National Market System - symbol LOTS. Auditors Coopers & Lybrand L.L.P. Boston, Massachusetts Legal Counsel Baker & Botts, L.L.P. New York, New York Transfer Agent Bank of Boston Boston, Massachusetts (617) 575-2900 CORPORATE DIRECTORY Corporate Headquarters 55 Cambridge Parkway Cambridge, Massachusetts 02142 (617) 577-8500 Lotus North American Offices Phoenix, Arizona Irvine, California Los Angeles, California Mountain View, California San Francisco, California Denver, Colorado Farmington, Connecticut Del Ray Beach, Florida Key Largo, Florida Miami, Florida Orlando, Florida Atlanta, Georgia Chicago, Illinois Overland Park, Kansas Boston, Massachusetts Detroit, Michigan Grand Rapids, Michigan Minneapolis, Minnesota St. Louis, Missouri Edison, New Jersey Clifton Park, New York New York, New York Rochester, New York Clemmons, North Carolina Durham, North Carolina Cincinnati, Ohio Cleveland, Ohio Columbus, Ohio Bala Cynwyd, Pennsylvania Pittsburgh, Pennsylvania Wayne, Pennsylvania Newport, Rhode Island Chattanooga, Tennesee Austin, Texas Dallas, Texas Houston, Texas Arlington, Virginia Seattle, Washington Calgary, Alberta Vancouver, B.C. Ottawa, Ontario Toronto, Ontario Montreal, Quebec Manufacturing and Distribution Lotus Development Corporation North Reading, Massachusetts Lotus Development B.V. Dublin, Ireland Lotus Development Distribution Ltd. Dublin, Ireland Lotus Development B.V. Singapore, Republic of Singapore International Locations Lotus Development Pty. Ltd. Sydney, Melbourne, Canberra, Brisbane and Perth, Australia Lotus Development GmbH Vienna, Austria Lotus Development Benelux BV Brussels, Belgium Lotus Desenvolvimento de Software Ltda. Sao Paulo and Rio de Janeiro, Brazil Lotus Development SOLA (Argentina, Bolivia, Chile, Paraguay, Peru, Uruguay) Santiago, Chile Lotus Development Czech Republic Prague, Czech Republic Lotus Development Denmark A/S Horsholm, Denmark Lotus Development Finland Helsinki, Finland Lotus Development SA Paris, France Lotus Development GmbH Berlin, Dusseldorf, Frankfurt, Hamburg Stuttgart and Munich, Germany Lotus Development Software (Hong Kong) Ltd. Hong Kong Lotus Development Hungary Budapest, Hungary Lotus Development India New Delhi, India Lotus Development European Corporation Jakarta, Indonesia Lotus Development Ireland Dublin, Ireland Lotus Development Italia SPA Milan and Rome, Italy Lotus Development Software, Ltd. Tel Aviv, Israel Lotus Development Japan, Ltd. Tokyo, Japan Lotus Sales and Services Sdn Bhd Kuala Lumpur, Malaysia Lotus Development Corporation de Mexico, S.A. de C.V. Mexico City, Mexico Lotus Development Benelux BV Diemen, The Netherlands Lotus Development B.V. Curacao, Netherlands Antilles Lotus Development Pty. Ltd. Auckland and Wellington, New Zealand Lotus Development Norway Oslo, Norway Lotus Development Pte. Ltd. Beijing, People's Republic of China Lotus Development, Office Warsaw Warsaw, Poland Lotus Development European Corporation Lisbon, Portugal Lotus Development Russia Moscow, Russia Lotus Development B.V. Singapore, Republic of Singapore Lotus Development SA Pty. Ltd. Johannesburg, South Africa Lotus Development Korea Ltd. Seoul, South Korea Lotus Development Iberica S.A. Barcelona and Madrid, Spain Lotus Development Nordic AB Stockholm, Sweden Lotus Development (Schweiz) AG Glattbrugg, Switzerland Lotus Development European Corporation Taipei, Taiwan Lotus Development Middle East Office Dubai, United Arab Emirates Lotus Development U.K. Ltd. Staines, Slough, Manchester and Edinburgh, U.K. Lotus Development Corporation Caracas, Venezuela Lotus is represented by authorized distributors in the following countries: Argentina Botswana Bulgaria Byelorussia Colombia Costa Rica Croatia Egypt Greece Hungary Kazakhstan Mauritius Morocco Nepal Pakistan Philippines Poland Romania Slovak Republic Thailand Turkey Ukraine Uruguay Lotus, 1-2-3, Lotus Notes, SmartSuite, Freelance Graphics, Approach and Ami Pro are registered trademarks and Organizer and Notes are trademarks of Lotus Development Corporation. cc:Mail is a trademark of cc:Mail, Inc., a wholly-owned subsidiary of Lotus Development Corporation. _______________________________________________________________________________ APPENDIX TO 1994 REPORT TO SHAREHOLDERS GRAPHIC AND IMAGE MATERIAL CONTAINED IN PRESIDENT'S LETTER AND STORY Figure/Image Description 1 Photo of Jim Manzi, President and CEO 2 Graphic text reads across the top of all pages in the story as follows: Today we have more than 5,000 customers and 1.35 million users of Notes. An entire industry has built up around Notes, with more than 8,000 business partners offering new products and services. cc:Mail, the industry's leading mail product, now has 6.5 million users. For Lotus, the information superhighway is not something on the drawing boards, or under construction. We have ten years of development experience and five years of in-market experience with our communications products, and people are using it to get places. In early 1994, IDC announced the results of a study showing that companies deploying Notes are realizing returns on investment averaging 179 percent. This past year, we've been joined by several partners in broadening the scope of Notes in the marketplace, including AT&T, Hewlett-Packard, and IBM. Our communications strategy has clearly given us a fast lane for growth - with revenues increasing 94 percent this past year. We have built a great road. We are out in front with Notes. No competitor has anything like it. Our customers are reaching destinations in terms of return on investment and achieving business goals. But in another sense, we are still on our way. Our customers continue to face difficult technology and investment choices, and no one is going to get there all at once. Our job is to help them manage the journey. 3 Photo of a portion of a yellow line in road. 4 The words "STARTING OUT" appear in a vertical format going up the left side of the page. 5 Photo of a "Pedestrians Crossing" street sign. 6 Photo of a pair of binoculars in lower right corner of page. 7 Photo of tire tread marks in road. 8 The words "ROADS PRECEDE MAPS" appear in a vertical format going up the left side of the page. 9 Photo of a bridge overpass. 10 Photo of a globe in lower right corner of page. 11 An abstract photo of an interstate sign. 12 The words "ROADS ARE FOR COMMERCE" appear in a vertical format going up the left side of the page. 13 Photo of the side of a truck. 14 Photo of a scale in lower right corner. 15 Photo of a 15-minute parking sign. 16 The words "YOU NEED TO GET THERE FROM HERE" appear in a vertical format going up the left side of the page. 17 Photo of tire tread marks on road into the horizon. 18 Photo of a welcome mat in lower right corner of page. ______________________________________________________________________________ EX-21 11 SUBSIDIARIES OF THE REGISTRANT Exhibit 21 SUBSIDIARIES OF THE REGISTRANT Name of Organization Jurisdiction -------------------- ------------ Approach Software Corporation Delaware cc:Mail, Inc. California Edge Research, Inc. New Hampshire Iris Associates, Inc. Delaware Lotus Charles Park Corporation Massachusetts Lotus CSG Canada Limited Canada Lotus Desenvolvimento de Software Ltda. Brazil Lotus Development, B.V. Netherlands Lotus Development Benelux, B.V. Netherlands Lotus Development Canada Ltd. Canada Lotus Development Caribe Corporation Delaware Lotus Development Corporation Massachusetts Lotus Development Corporation de Mexico, S.A. Mexico Lotus Development Denmark A/S Denmark Lotus Development Distribution Limited Ireland Lotus Development European Corporation Delaware Lotus Development Finland OY Finland Lotus Development Foreign Sales Corporation, Ltd. Jamaica Lotus Development GmbH Austria Lotus Development GmbH Germany Lotus Development Holdings, B.V. Netherlands Lotus Development Iberica Spain Lotus Development Italia SpA Italy Lotus Development Japan Ltd. Japan Lotus Development New Zealand, Ltd. New Zealand Lotus Development Nordic A.B. Sweden Lotus Development Norge AS Norway Lotus Development Pty, Ltd. Australia Lotus Development Russia Russia Lotus Development S.A. France Lotus Development S.A. (Pty.) Ltd. South Africa Lotus Development (Schweiz) A.G. Switzerland Lotus Development Security Corporation Delaware Lotus Development Asia Pte. Ltd. Singapore Lotus Development (Software) Ltd. Israel Lotus Development Software (Hong Kong) Ltd. Hong Kong Lotus Development (U.K.), Ltd. United Kingdom Lotus Equity Corporation Delaware Lotus Korea Development Co. Ltd. Korea Lotus Rogers Street Corporation Delaware Lotus Sales & Service Sdn. Bhd. Malaysia PS Publishing, Inc. California Samna Corporation Georgia Soft*Switch, Inc. Delaware Soft*Switch Ltd. United Kingdom Soft*Switch SARL France Soft*Switch GmbH Germany Soft*Switch AS Norway The Human Interface Group, Inc. Delaware The Lotus Development Foundation, Inc. Massachusetts Vanguard Business Solutions, Inc. California _____________________________________________________________________________ EX-23 12 EXHIBIT 23 - CONSENT OF INDEPENDENT ACCOUNTANTS Exhibit 23 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the registration statement of Lotus Development Corporation on Form S-3 (No. 33-53773) and related prospectus and in the registration statements of Lotus Development Corporation on Form S-8 and related prospectuses with respect to the 1992 Stock Option Plan (No. 33-51263), Employee Stock Purchase Plan (Nos. 2-88906, 33-6366), 1986 Stock Option Plan for Non-Employee Directors (Nos. 33-35497, 33-55488), Amended and Restated 1983 Non-Qualified Stock Option Plan (Nos. 2-92360, 33-6702, 33-46652) and Soft-Switch, Inc. Amended and Restated Stock Option Plan (No. 33-55077), of our reports dated January 24, 1995, on our audits of the consolidated financial statements and financial statement schedule of Lotus Development Corporation as of December 31, 1994 and 1993 and for each of the three years in the period ended December 31, 1994, which reports are included or incorporated by reference in this Annual Report on Form 10-K. COOPERS & LYBRAND L.L.P. Boston, Massachusetts March 27, 1995 ______________________________________________________________________________ EX-27 13 FINANCIAL DATA SCHEDULE
5 1,000 12-MOS DEC-31-1994 DEC-31-1994 209,076 167,142 230,977 37,971 20,711 652,358 138,664 185,286 904,079 260,354 50,000 636 0 0 553,494 904,079 970,723 970,723 172,325 172,325 785,519 1,985 5,295 5,599 26,478 (20,879) 0 0 0 (20,879) (0.44) (0.44)