-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, ULwhCdLq5qcoHExKymW7Vb2psbuADOlx3GLQrinSfpHcfw7MkN06dELIi0spW7zw 3S1T4MY8ytLxWVGstidkFw== 0000912057-95-009851.txt : 19951119 0000912057-95-009851.hdr.sgml : 19951119 ACCESSION NUMBER: 0000912057-95-009851 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19950930 FILED AS OF DATE: 19951114 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: SILICON VALLEY BANCSHARES CENTRAL INDEX KEY: 0000719739 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 942856336 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-15637 FILM NUMBER: 95591260 BUSINESS ADDRESS: STREET 1: 2232 N FIRST ST CITY: SAN JOSE STATE: CA ZIP: 95131 BUSINESS PHONE: 4083835282 MAIL ADDRESS: STREET 1: 2232 NORTH FIRST STREET CITY: SAN JOSE STATE: CA ZIP: 95131 10-Q 1 10-Q - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ------------ FORM 10-Q (MARK ONE) [x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1995 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the transition period from ________ to ________. Commission File Number: 33-41102 SILICON VALLEY BANCSHARES (Exact name of Registrant as specified in its charter) California 94-2856336 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 3003 Tasman Drive 95054 Santa Clara, California (Zip Code) (Address of principal executive offices) (408) 383-5282 (Registrant's telephone number, including area code) 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 ___ At October 31, 1995, 8,926,118 shares of the Registrant's Common Stock (no par value) were outstanding. - -------------------------------------------------------------------------------- This Report Contains a Total of 25 Pages SILICON VALLEY BANCSHARES FORM 10-Q SEPTEMBER 30, 1995 INDEX
PAGE ---- PART I - FINANCIAL INFORMATION ITEM 1 SILICON VALLEY BANCSHARES INTERIM CONSOLIDATED FINANCIAL STATEMENTS CONDENSED BALANCE SHEETS 3 CONDENSED INCOME STATEMENTS 4 CONDENSED STATEMENTS OF CASH FLOWS 5 NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS 6 ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 10 PART II - OTHER INFORMATION ITEM 1 LEGAL PROCEEDINGS 24 ITEM 2 CHANGES IN SECURITIES 24 ITEM 3 DEFAULTS UPON SENIOR SECURITIES 24 ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 24 ITEM 5 OTHER INFORMATION 24 ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K 24 SIGNATURE 25
2 PART I - FINANCIAL INFORMATION ITEM 1 SILICON VALLEY BANCSHARES INTERIM CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- CONDENSED BALANCE SHEETS - --------------------------------------------------------------------------------
SEPTEMBER 30, December 31, 1995 1994 (Dollars in thousands) (UNAUDITED) - ------------------------------------------------------------------------------------------- ASSETS: Cash and Due from Banks $ 104,310 $ 139,792 Federal Funds Sold and Securities Purchased Under Agreement to Resell 270,128 150,057 Investment Securities: At Fair Market Value 171,517 148,703 At Cost 6,612 7,786 Loans: Commercial 596,490 616,652 Real Estate Construction 14,660 10,674 Real Estate Term 59,739 59,120 Consumer and Other 33,249 21,017 - ------------------------------------------------------------------------------------------- Gross Loans 704,139 707,463 Unearned Income on Loans (3,377) (3,654) - ------------------------------------------------------------------------------------------- Loans, Net of Unearned Income 700,762 703,809 Allowance for Loan Losses (27,000) (20,000) - ------------------------------------------------------------------------------------------- Net Loans 673,762 683,809 Premises and Equipment 4,656 2,221 Other Real Estate Owned 5,533 7,089 Accrued Interest Receivable and Other Assets 19,828 22,082 - ------------------------------------------------------------------------------------------- TOTAL ASSETS $1,256,346 $1,161,539 - ------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------- LIABILITIES AND SHAREHOLDERS' EQUITY: Liabilities: Deposits: Noninterest-Bearing Demand Deposits $ 393,898 $ 401,455 Money Market, NOW and Savings Deposits 685,503 585,171 Time Deposits 68,949 88,747 - ------------------------------------------------------------------------------------------- Total Deposits 1,148,350 1,075,373 Other Liabilities 9,833 8,909 - ------------------------------------------------------------------------------------------- Total Liabilities 1,158,183 1,084,282 - ------------------------------------------------------------------------------------------- Shareholders' Equity: Preferred Stock, No Par Value: 20,000,000 Shares Authorized; None Outstanding Common Stock, No Par Value: 30,000,000 Shares Authorized; 8,869,071 Shares Outstanding at September 30, 1995; 8,509,194 Shares Outstanding at December 31, 1994 58,130 54,068 Retained Earnings 40,426 27,702 Net Unrealized Loss on Available-for-Sale Investments (309) (4,159) Unearned Compensation (84) (354) - ------------------------------------------------------------------------------------------- Total Shareholders' Equity 98,163 77,257 - ------------------------------------------------------------------------------------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,256,346 $1,161,539 - ------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------
See notes to interim consolidated financial statements. 3 SILICON VALLEY BANCSHARES INTERIM CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- CONDENSED INCOME STATEMENTS - --------------------------------------------------------------------------------
Three Months Ended Nine Months Ended September 30, September 30, -------------------------- --------------------------- 1995 1994 1995 1994 (Dollars in thousands, except per share amounts) (UNAUDITED) (Unaudited) (UNAUDITED) (Unaudited) - ------------------------------------------------------------------------------------------------------------------------ INTEREST INCOME: Loans, including Fees $19,193 $16,315 $59,371 $43,671 Investment Securities: Taxable 2,001 2,456 6,483 8,491 Non-Taxable 110 134 348 409 Other 3,894 150 7,307 947 - ------------------------------------------------------------------------------------------------------------------------ Total Interest Income 25,198 19,055 73,509 53,518 - ------------------------------------------------------------------------------------------------------------------------ INTEREST EXPENSE: Deposits 7,282 3,880 19,062 10,292 Other Borrowings -- 2 -- 22 - ------------------------------------------------------------------------------------------------------------------------ Total Interest Expense 7,282 3,882 19,062 10,314 - ------------------------------------------------------------------------------------------------------------------------ Net Interest Income 17,916 15,173 54,447 43,204 Provision for Loan Losses 3,337 490 6,098 2,182 - ------------------------------------------------------------------------------------------------------------------------ Net Interest Income After Provision for Loan Losses 14,579 14,683 48,349 41,022 - ------------------------------------------------------------------------------------------------------------------------ NONINTEREST INCOME: Disposition of Client Warrants 3,823 9 5,626 1,876 Letter of Credit and Foreign Exchange Income 807 638 2,267 1,675 Deposit Service Charges 315 425 1,000 1,205 Investment Losses -- (396) (770) (1,294) Other 153 131 434 394 - ------------------------------------------------------------------------------------------------------------------------ Total Noninterest Income 5,098 807 8,557 3,856 - ------------------------------------------------------------------------------------------------------------------------ NONINTEREST EXPENSE: Compensation and Benefits 6,517 5,704 20,374 17,401 Professional Services 1,032 1,479 3,620 3,236 Equipment 1,473 431 2,678 1,116 Occupancy 1,007 550 2,655 1,674 FDIC Deposit Insurance 14 594 1,210 1,812 Data Processing Services 214 349 767 960 Corporate Legal and Litigation 179 1,325 571 2,535 Client Services 82 262 339 870 Cost of Other Real Estate Owned 23 45 37 1,349 Other 1,370 1,045 4,143 3,228 - ------------------------------------------------------------------------------------------------------------------------ Total Noninterest Expense 11,911 11,784 36,394 34,181 - ------------------------------------------------------------------------------------------------------------------------ INCOME BEFORE INCOME TAX EXPENSE 7,766 3,706 20,512 10,697 INCOME TAX EXPENSE 2,303 1,598 7,788 4,615 - ------------------------------------------------------------------------------------------------------------------------ NET INCOME $ 5,463 $ 2,108 $12,724 $ 6,082 - ------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------ NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE $ 0.59 $ 0.24 $ 1.40 $ 0.71 - ------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------
See notes to interim consolidated financial statements. 4 SILICON VALLEY BANCSHARES INTERIM CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- CONDENSED STATEMENTS OF CASH FLOWS - --------------------------------------------------------------------------------
Nine Months Ended September 30, ------------------------- 1995 1994 (Dollars in thousands) (UNAUDITED) (Unaudited) - ------------------------------------------------------------------------------------------------------------- CASH AND CASH EQUIVALENTS WERE PROVIDED BY (APPLIED TO): OPERATING ACTIVITIES: Net Income $ 12,724 $ 6,082 Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: Provision for Loan Losses 6,098 2,182 Net Loss on Sales of Investment Securities 770 1,294 Depreciation and Amortization 1,633 698 (Gain)/Loss on Disposal of Premises and Equipment 1,078 (49) Provision for Valuation Adjustments on Other Real Estate Owned -- 956 Gain on Sales of Other Real Estate Owned (124) (305) Increase in Accrued Interest Receivable (429) (606) Increase in Accounts Receivable (362) (55) Increase (Decrease) in Accrued Interest Payable 98 (360) Increase (Decrease) in Deferred Loan Fees (277) 626 Other, Net 197 (2,147) - ------------------------------------------------------------------------------------------------------------- Net Cash Provided by Operating Activities 21,406 8,316 - ------------------------------------------------------------------------------------------------------------- INVESTING ACTIVITIES: Proceeds from Maturities, Paydowns and Sales of Investment Securities 68,682 213,441 Purchases of Investment Securities (83,569) (133,862) Net Increase in Loans (1,406) (110,628) Proceeds from Recoveries of Charged-Off Loans 5,224 2,128 Net Proceeds from Sales of Other Real Estate Owned 2,093 19,796 Purchases of Premises and Equipment (5,151) (890) - ------------------------------------------------------------------------------------------------------------- Net Cash Applied to Investing Activities (14,127) (10,015) - ------------------------------------------------------------------------------------------------------------- FINANCING ACTIVITIES: Net Increase (Decrease) in Deposits 72,977 (16,243) Proceeds from Issuance of Common Stock, Net of Issuance Costs 4,333 1,025 - ------------------------------------------------------------------------------------------------------------- Net Cash Provided by (Applied to) Financing Activities 77,310 (15,218) - ------------------------------------------------------------------------------------------------------------- Net Increase (Decrease) in Cash and Cash Equivalents 84,589 (16,917) Cash and Cash Equivalents at January 1, 289,849 154,976 - ------------------------------------------------------------------------------------------------------------- Cash and Cash Equivalents at September 30, $374,438 $138,059 - ------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------- OTHER CASH FLOW INFORMATION: Interest Paid $ 18,964 $ 10,374 Income Taxes Paid $ 9,124 $ 7,675 - ------------------------------------------------------------------------------------------------------------- NON-CASH FINANCING AND INVESTING ACTIVITIES: Transfer of Loans to Other Real Estate Owned $ 408 $ 3,445 - ------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------
See notes to interim consolidated financial statements. 5 SILICON VALLEY BANCSHARES NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS 1. INTERIM CONSOLIDATED FINANCIAL STATEMENTS The accounting and financial reporting policies of Silicon Valley Bancshares (the "Company") and its subsidiaries conform with generally accepted accounting principles and prevailing practices within the banking industry. The interim consolidated financial statements include the accounts of the Company and those of its wholly-owned subsidiaries, Silicon Valley Bank (the "Bank") and SVB Leasing Company (inactive). The revenues, expenses, assets and liabilities of the subsidiaries are included in the respective line items in the interim consolidated financial statements after elimination of intercompany accounts and transactions. In the opinion of Management, the interim consolidated financial statements contain all adjustments (consisting of only normal recurring adjustments) necessary to present fairly the Company's consolidated financial position at September 30, 1995, the results of its operations for the three and nine month periods ended September 30, 1995 and September 30, 1994, and the results of its cash flows for the nine month periods ended September 30, 1995 and September 30, 1994. The December 31, 1994 consolidated financial statements were derived from audited financial statements, and certain information and footnote disclosures normally presented in financial statements prepared in accordance with generally accepted accounting principles have been omitted. The interim consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's 1994 Annual Report to Shareholders. The results of operations for the three and nine month periods ended September 30, 1995 may not necessarily be indicative of the operating results for the full year. Certain reclassifications have been made to the Company's 1994 consolidated financial statements to conform to the 1995 presentations. Such reclassifications had no effect on the results of operations or shareholders' equity. Cash and cash equivalents as reported in the condensed statements of cash flows include cash on hand, cash balances due from banks, Federal funds sold and securities purchased under agreement to resell. 2. NET INCOME PER SHARE COMPUTATION Net income per common and common equivalent share is calculated using weighted average shares, including the dilutive effect of stock options outstanding during the period. Weighted average shares totaled 9,305,261 and 9,073,862 for the three and nine 6 month periods ended September 30, 1995, and 8,674,977 and 8,625,924 for the three and nine month periods ended September 30, 1994, respectively. 3. FEDERAL FUNDS SOLD AND SECURITIES PURCHASED UNDER AGREEMENT TO RESELL Federal funds sold and securities purchased under agreement to resell include interest-bearing deposits in other financial institutions of $128,000 at September 30, 1995 and $57,000 at December 31, 1994. 4. INVESTMENT SECURITIES The fair market value of investment securities classified as "held-to-maturity" and recorded at historical cost, adjusted for the amortization of premium or the accretion of discount where appropriate, was $7.0 million at September 30, 1995 and $8.1 million at December 31, 1994. 5. NEW ACCOUNTING PRONOUNCEMENTS In May 1993, the Financial Accounting Standards Board issued Statement of Financial Accounting Standard ("SFAS") No. 114, "Accounting by Creditors for Impairment of a Loan." This standard, including its amendment by SFAS No. 118, "Accounting by Creditors for Impairment of a Loan -- Income Recognition and Disclosures," was adopted by the Company on January 1, 1995. SFAS No. 114 requires the Company to measure impairment of a loan based upon the present value of expected future cash flows discounted at the loan's effective interest rate, except that as a practical expedient, a creditor may measure impairment based on a loan's observable market price or the fair value of the collateral if the loan is collateral-dependent. A loan is considered impaired when, based upon current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. At the time of adoption, certain insubstance foreclosure loans previously classified as other real estate owned were reclassified as nonaccrual loans. The amount of loans reclassified to conform with this new accounting standard was $1.4 million at December 31, 1994. The aggregate recorded investment in loans for which impairment has been recognized in accordance with SFAS No. 114 totaled $20.3 million at September 30, 1995. Average impaired loans for the quarter ended September 30, 1995 totaled $14.0 million. Allocations to the allowance for loan losses related to impaired loans totaled $3.0 million 7 at September 30, 1995. The activity in the allowance for loan losses for the three and nine month periods ended September 30, 1995 and 1994 was as follows:
Three Months Ended September 30, Nine Months Ended September 30, -------------------------------- ------------------------------- (Dollars in thousands) 1995 1994 1995 1994 --------------------------------------------------------------------------------------------------- Beginning Balance $22,500 $25,000 $20,000 $25,000 Provision for Loan Losses 3,337 490 6,098 2,182 Charge-offs (1,948) (950) (4,322) (4,310) Recoveries 3,111 460 5,224 2,128 --------------------------------------------------------------------------------------------------- Balance at September 30, $27,000 $25,000 $27,000 $25,000 --------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------
Loans are placed on nonaccrual status when they become 90 days past due as to principal or interest payments (unless the principal and interest are well secured and in the process of collection), when the Company has determined that the timely collection of principal or interest is doubtful, or when the loans otherwise become impaired under the provisions of SFAS No. 114. When a loan is placed on nonaccrual status, the accrued interest receivable is reversed and the loan is accounted for on the cash or cost recovery method thereafter until qualifying for return to accrual status. 6. REGULATORY MATTERS During 1993, the Company and Bank consented to formal supervisory orders by the Federal Reserve Bank of San Francisco and the Bank consented to a formal supervisory order by the California State Banking Department. These orders require, among other actions, the following: suspension of cash dividends; restrictions on transactions between the Company and the Bank without prior regulatory approval; development of a capital plan to ensure the Bank maintains adequate capital levels subject to regulatory approval; development of plans to improve the quality of the Bank's loan portfolio through collection or improvement of the loans within specified time frames; changes to the Bank's loan policies which require the Directors' Loan Committee to approve all loans to any one borrower exceeding $3.0 million and requiring the Board of Directors to become more actively involved in loan portfolio management and monitoring activities; review of, and changes in, the Bank's loan policies to implement (i) policies for controlling and monitoring credit concentrations, (ii) underwriting standards for all loan products, and (iii) standards for credit analysis and credit file documentation; development of an independent loan review function and related loan review policies and procedures; development of Board of Directors oversight programs to establish and maintain effective control and supervision of Management and major Bank operations and activities; development of a plan, including a written methodology, to maintain an adequate allowance for loan losses, defined as a minimum of 2.0% of total loans; development of business plans to establish guidelines for growth and ensure maintenance of adequate capital levels; a review and evaluation of existing compensation practices and development officer compensation policies and procedures by the Boards of Directors of the Company and Bank; policies requiring that changes in fees paid to directors as well as bonuses paid to executive officers first receive regulatory approval; and development of a detailed internal audit plan 8 for approval by the Board of Directors of the Bank. The State Banking Department order further requires the Bank to maintain a tangible equity-to-assets ratio of 6.5%. In addition, such plans, policies, and procedures may not be amended without prior regulatory approval. The Company and the Bank have taken steps to address these requirements. The Company believes compliance with these actions has not and will not have a material adverse impact on the business of the Bank, its clients, or the Company. The Company and the Bank were in substantial compliance with such orders at September 30, 1995. 9 PART I - FINANCIAL INFORMATION ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS BUSINESS OVERVIEW - ----------------- Silicon Valley Bancshares (the "Company") is a bank holding company whose principal subsidiary is Silicon Valley Bank (the "Bank"), a California-chartered bank with headquarters in Santa Clara, California. The Bank maintains regional banking offices in Northern and Southern California, and additionally has loan offices in Oregon and Massachusetts. The Bank has also applied for regulatory approval to open a loan office in Maryland. The Bank serves emerging and middle-market growth companies in specific targeted niches, and focuses on the technology and life science industries, while identifying and capitalizing on opportunities to serve other groups of clients with unique financial needs. Substantially all assets, liabilities, and earnings of the Company relate to its investment in the Bank. Early in 1995, the Bank received regulatory approval to relocate its corporate headquarters and main branch to a new 100,000 square foot facility in Santa Clara. Concurrent with this move, the Bank closed its existing branch and operational offices in San Jose and Santa Clara, California and has consolidated them into the nearby headquarters. The Bank commenced the relocation of its staff beginning in August, 1995. A majority of the staff completed relocation during the third quarter of 1995, and the move is expected to be complete by December, 1995. RESULTS OF OPERATIONS - --------------------- EARNINGS SUMMARY The Company reported net income of approximately $5.5 million, or $0.59 per share, for the third quarter of 1995. This represents an increase of $3.4 million, or $0.35 per share, compared with net income of $2.1 million, or $0.24 per share, for the third quarter of 1994. Net income for the first nine months of 1995 was $12.7 million, or $1.40 per share, compared with net income of $6.1 million, or $0.71 per share, for the first nine months of the prior year. The increase in 1995 net income as compared with 1994 (for both the three and nine month periods ended September 30) was primarily due to an increase in both net interest income and income from the disposition of warrants held in some of the Company's clients. (See RESULTS OF OPERATIONS -- "Net Interest Income and Margin" and "Noninterest Income" for additional related discussions.) The Company's annualized return on average assets ("ROAA") was 1.8% for the third quarter of 1995, and 1.5% for the nine months ended September 30, 1995. These ratios improved from the Company's 0.9% ROAA for both the third quarter and the first nine months of 1994. The Company's annualized return on average equity was 22.4% for the third quarter of 1995 and 19.3% for the first nine months of 1995, up from 11.4% for the third quarter of 1994 and 11.1% for the first nine months of 1994. 10 NET INTEREST INCOME AND MARGIN Net interest income is the principal source of revenue for the Company. It represents the difference between interest earned primarily on loans and investments and interest paid on funding sources, primarily deposits. Net interest margin is the amount of net interest income, on a fully taxable-equivalent basis, expressed as a percentage of average interest-earning assets. 11 The following tables set forth average assets, liabilities, and shareholders' equity, interest income and interest expense, average yields and rates, and the composition of the Company's net interest margin for the three and nine month periods ended September 30, 1995 and September 30, 1994, respectively:
- ----------------------------------------------------------------------------------------------------------------------------------- AVERAGE BALANCES, RATES AND YIELDS - ----------------------------------------------------------------------------------------------------------------------------------- For the three months ended September 30, - ----------------------------------------------------------------------------------------------------------------------------------- 1995 1994 (UNAUDITED) (Unaudited) - ----------------------------------------------------------------------------------------------------------------------------------- AVERAGE Average AVERAGE YIELD/ Average Yield/ (Dollars in thousands) BALANCE INTEREST RATE Balance Interest Rate - ----------------------------------------------------------------------------------------------------------------------------------- INTEREST-EARNING ASSETS: Federal Funds Sold and Securities Purchased Under Agreement to Resell $ 264,361 $ 3,894 5.9% $ 13,426 $ 150 4.5% Investment Securities: Taxable 134,047 2,001 6.0 178,564 2,456 5.5 Non-Taxable (1) 6,686 169 10.1 8,093 206 10.2 Loans, Net of Unearned Income: Commercial 570,022 16,831 11.8 526,991 14,307 10.9 Real Estate Construction and Term 72,497 1,843 10.2 64,957 1,477 9.1 Consumer and Other 21,420 519 9.7 22,574 531 9.4 - ----------------------------------------------------------------------------------------------------------------------------------- Total Loans 663,939 19,193 11.6 614,522 16,315 10.6 - ----------------------------------------------------------------------------------------------------------------------------------- Total Interest-Earning Assets 1,069,033 25,257 9.5 814,605 19,127 9.4 - ----------------------------------------------------------------------------------------------------------------------------------- Cash and Due from Banks 111,873 122,306 Allowance for Loan Losses (24,549) (25,647) Other Real Estate Owned 5,446 7,791 Other Assets 26,519 14,059 - ----------------------------------------------------------------------------------------------------------------------------------- TOTAL ASSETS $1,188,322 $ 933,114 - ----------------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------- FUNDING SOURCES: Interest-Bearing Liabilities: Money Market, NOW and Savings Deposits $ 651,752 6,679 4.1 $ 467,393 3,404 2.9 Time Deposits 63,998 603 3.8 61,388 476 3.1 Federal Funds Purchased -- -- -- 166 2 4.8 - ----------------------------------------------------------------------------------------------------------------------------------- Total Interest-Bearing Liabilities 715,750 7,282 4.1 528,947 3,882 2.9 - ----------------------------------------------------------------------------------------------------------------------------------- Portion of Noninterest-Bearing Funding Sources 353,283 285,658 - ----------------------------------------------------------------------------------------------------------------------------------- Total Funding Sources 1,069,033 7,282 2.7 814,605 3,882 1.9 - ----------------------------------------------------------------------------------------------------------------------------------- Noninterest-Bearing Funding Sources: Demand Deposits 360,919 323,683 Portion Used to Fund Interest-Earning Assets (353,283) (285,658) Other Liabilities 15,015 6,770 Shareholders' Equity 96,638 73,714 - ----------------------------------------------------------------------------------------------------------------------------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,188,322 $ 933,114 - ----------------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------- NET INTEREST INCOME $17,975 $15,245 - ----------------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------- NET INTEREST MARGIN 6.7% 7.5% - ----------------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------- MEMORANDUM: TOTAL DEPOSITS $1,076,669 $ 852,464 - ----------------------------------------------------------------------------------------------------------------------------------- - -----------------------------------------------------------------------------------------------------------------------------------
(1) Interest income on non-taxable investments is presented on a fully taxable-equivalent basis. The tax-equivalent adjustments were $59 and $72 for the three month periods ended September 30, 1995 and 1994, respectively. 12
- ----------------------------------------------------------------------------------------------------------------------------------- AVERAGE BALANCES, RATES AND YIELDS - ----------------------------------------------------------------------------------------------------------------------------------- For the nine months ended September 30, - ----------------------------------------------------------------------------------------------------------------------------------- 1995 1994 (UNAUDITED) (Unaudited) - ----------------------------------------------------------------------------------------------------------------------------------- AVERAGE Average AVERAGE YIELD/ Average Yield/ (Dollars in thousands) BALANCE INTEREST RATE Balance Interest Rate - ----------------------------------------------------------------------------------------------------------------------------------- INTEREST-EARNING ASSETS: Federal Funds Sold and Securities Purchased Under Agreement to Resell $ 166,227 $ 7,307 5.9% $ 37,963 $ 947 3.3% Investment Securities: Taxable 146,261 6,483 5.9 207,787 8,491 5.5 Non-Taxable (1) 7,064 536 10.1 8,269 629 10.2 Loans, Net of Unearned Income: Commercial 588,841 52,547 11.9 486,798 38,130 10.5 Real Estate Construction and Term 69,269 5,287 10.2 63,524 3,969 8.4 Consumer and Other 18,777 1,537 10.9 24,140 1,572 8.7 - ----------------------------------------------------------------------------------------------------------------------------------- Total Loans 676,887 59,371 11.7 574,462 43,671 10.2 - ----------------------------------------------------------------------------------------------------------------------------------- Total Interest-Earning Assets 996,439 73,697 9.9 828,481 53,738 8.7 - ----------------------------------------------------------------------------------------------------------------------------------- Cash and Due from Banks 115,424 119,042 Allowance for Loan Losses (22,886) (25,660) Other Real Estate Owned 5,939 10,440 Other Assets 22,085 14,102 - ----------------------------------------------------------------------------------------------------------------------------------- TOTAL ASSETS $1,117,001 $ 946,405 - ----------------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------- FUNDING SOURCES: Interest-Bearing Liabilities: Money Market, NOW and Savings Deposits $ 595,922 17,372 3.9 $ 478,568 8,990 2.5 Time Deposits 64,034 1,690 3.5 64,685 1,302 2.7 Federal Funds Purchased -- -- -- 664 22 4.4 - ----------------------------------------------------------------------------------------------------------------------------------- Total Interest-Bearing Liabilities 659,956 19,062 3.9 543,917 10,314 2.5 - ----------------------------------------------------------------------------------------------------------------------------------- Portion of Noninterest-Bearing Funding Sources 336,483 284,564 - ----------------------------------------------------------------------------------------------------------------------------------- Total Funding Sources 996,439 19,062 2.6 828,481 10,314 1.7 - ----------------------------------------------------------------------------------------------------------------------------------- Noninterest-Bearing Funding Sources: Demand Deposits 355,606 325,882 Portion Used to Fund Interest-Earning Assets (336,483) (284,564) Other Liabilities 13,157 3,786 Shareholders' Equity 88,282 72,820 - ----------------------------------------------------------------------------------------------------------------------------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,117,001 $ 946,405 - ----------------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------- NET INTEREST INCOME $54,635 $43,424 - ----------------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------- NET INTEREST MARGIN 7.3% 7.0% - ----------------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------- MEMORANDUM: TOTAL DEPOSITS $1,015,562 $ 869,135 - ----------------------------------------------------------------------------------------------------------------------------------- - -----------------------------------------------------------------------------------------------------------------------------------
(1) Interest income on non-taxable investments is presented on a fully taxable-equivalent basis. The tax-equivalent adjustments were $188 and $220 for the nine month periods ended September 30, 1995 and 1994, respectively. 13 Net interest income, on a fully taxable-equivalent basis, was $18.0 million for the third quarter of 1995, up $2.7 million, or 17.9%, from the $15.2 million reported for the third quarter of 1994. The increase in net interest income was the result of an increase in average interest-earning assets over the comparable prior year period, partially offset by an increase in the total cost of funding sources. Average interest-earning assets for the third quarter of 1995 increased $254.4 million, or 31.2%, compared to the third quarter of 1994. This increase was primarily comprised of lower-yielding liquid investments in Federal funds sold and securities purchased under agreement to resell. Average Federal funds sold and securities purchased under agreement to resell were $264.4 million for the third quarter of 1995, a $251.0 million increase over the $13.4 million average for the third quarter of 1994. This increase resulted from a $224.2 million, or 26.3%, increase in the Bank's average deposits during the third quarter of 1995, as compared to the third quarter of 1994, and was also a result of the 1995 third quarter interest rate environment. The Bank's net interest margin for the quarter ended September 30, 1995 was 6.7%, compared to 7.5% for the third quarter of 1994. The decrease in the net interest margin was due to the combination of an increase in lower-yielding interest-earning assets and a higher cost of funding resulting from a shift in the Bank's deposit mix towards higher rate money market deposits. Average money market deposits were $640.6 million for the third quarter of 1995, an increase of $184.3 million, or 40.4%, compared to the prior year third quarter. Net interest income was $54.6 million for the first nine months of 1995, up $11.2 million, or 25.8%, from the $43.4 million reported for the first nine months of 1994. The Bank's net interest margin for the first nine months of 1995 increased to 7.3%, compared to 7.0% for the first nine months of the previous year. The increase in net interest income and net interest margin was the result of an increase in the volume of, and yield on, interest-earning assets over the comparable prior year period, partially offset by an increase in the total cost of funding sources. Whereas the increase in average interest-earning assets for the third quarter of 1995 was primarily concentrated in lower-yielding liquid investments, the increase of $168.0 million, or 20.3%, in average interest-earning assets for the first nine months of 1995, over the comparable prior year period, was concentrated in both higher-yielding loans as well as lower-yielding liquid investments. Average loans increased $102.4 million, or 17.8%, for the first nine months of 1995, compared to the first nine months of the previous year. This growth occurred primarily during the latter part of 1994, and was concentrated in the commercial loan portfolio. Average Federal funds sold and securities purchased under agreement to resell were $166.2 million for the first nine months of 1995, an increase of $128.3 million from the comparable prior year period. As with the quarter ended September 30, 1995, the growth in average interest-earning assets for the first nine months of 1995, compared to the first nine months of 1994, was primarily funded through deposit growth, and was also a result of the 1995 interest rate environment. Total cost of funding for the nine months ended September 30, 1995 increased from the comparable prior year period, as average total deposits increased $146.4 million, or 16.9%, from the average for the first nine months of 1994. However, the shift in the Bank's deposit mix towards higher rate money market deposits was not as pronounced for the first nine months of 1995 as it was for the third quarter of 1995. Growth in average money market deposits for the 14 first nine months of 1995, as compared to the prior year respective period, was $116.7 million, or 25.0%, versus the $184.3 million, or 40.4%, increase in the third quarter of 1995. PROVISION FOR LOAN LOSSES The provision for loan losses is based on Management's evaluation of the adequacy of the existing allowance for loan losses in relation to total loans, and on Management's continuous assessment of the inherent and identified risk dynamics of the loan portfolio resulting from reviews of selected individual loans and loan commitments. The provision for loan losses was $3.3 million for the third quarter of 1995, an increase of $2.8 million, compared with $0.5 million for the third quarter of 1994. The provision for loan losses was $6.1 million for the first nine months of 1995, an increase of $3.9 million, compared with $2.2 million for the comparable period in 1994. (See FINANCIAL CONDITION -- "Credit Risk and the Allowance for Loan Losses" for additional related information.) NONINTEREST INCOME Total noninterest income for the three and nine month periods ended September 30, 1995 was $5.1 million and $8.6 million, an increase of $4.3 million and $4.7 million, respectively, from $0.8 million and $3.9 million reported in the comparable 1994 periods. The increase in noninterest income during 1995 was primarily due to an increase in income related to the disposition of client warrants, as the Company exercised warrants held in some of its clients which recently completed public stock offerings. The Company has historically obtained rights to acquire stock (in the form of warrants) in certain nonpublic clients as part of negotiated credit facilities. The receipt of warrants does not change the loan covenants or other collateral control techniques employed by the Bank to mitigate the risk of a loan becoming nonperforming. Interest rates, loan fees and collateral requirements on loans with warrants are similar to lending arrangements where warrants are not obtained. The timing and amount of income from the disposition of warrants typically depends on factors beyond the control of the Company, including the general condition of the capital markets, and therefore cannot be predicted with any degree of accuracy and is likely to vary materially over time. Letter of credit fees, foreign exchange fees and other income related to trade finance activities were $0.8 million and $2.3 million for the third quarter and first nine months of 1995, an increase of $0.2 million, or 26.4%, and $0.6 million, or 35.4%, compared to the respective 1994 periods. The growth in this category of noninterest income reflects a concerted effort by Management to expand the penetration of trade finance-related services among the Bank's client base. Deposit service charges were $0.3 million and $1.0 million for the three and nine month periods ended September 30, 1995, a decrease of $0.1 million, or 25.8%, and $0.2 million, or 17.1%, from the $0.4 million and $1.2 million earned in the comparable 1994 periods. Clients compensate the Bank for depository services either through earnings credits computed on their demand deposit balances, or via explicit payments recognized as deposit service charges. As interest rates for the three and nine month periods ended September 30, 1995 were higher than in 15 the comparable 1994 periods, earnings credits were higher, thus lowering the amount of explicit deposit service charges. There were no gains or losses incurred through sales of investment securities during the third quarter of 1995, while in the 1994 third quarter $0.4 million in such losses were incurred. On a year-to-date basis, losses incurred through sales of investment securities were $0.8 million at September 30, 1995 and $1.3 million at September 30, 1994. The securities sold during the first nine months of 1995 were primarily mortgage-backed securities. All sales of investment securities were conducted as a normal component of the Company's interest rate risk and liquidity management activities. NONINTEREST EXPENSE Noninterest expense for the third quarter of 1995 was $11.9 million, an increase of $0.1 million, or 1.1%, compared to $11.8 million for the third quarter of 1994. Noninterest expense was $36.4 million for the first nine months of 1995, an increase of $2.2 million, or 6.5%, over the $34.2 million for the comparable 1994 period. Management closely monitors the level of noninterest expense using a variety of financial ratios, including the efficiency ratio. The efficiency ratio is calculated by dividing the amount of noninterest expense, excluding costs associated with other real estate owned, by adjusted revenues, defined as the total of net interest income and noninterest income, excluding warrant income and gains or losses incurred through securities sales. This ratio reflects the level of operating expense required to generate $1 of operating revenue. The Company's efficiency ratio improved from 71.7% for the third quarter of 1994 to 61.9% for the third quarter of 1995, and also improved from 70.6% for the first nine months of 1994 to 62.5% for the first nine months of 1995. The following tables present the detail of noninterest expense and the incremental contributions of each line item to the Company's efficiency ratio:
Three Months Ended September 30, - -------------------------------------------------------------------------------------------------- 1995 1994 - -------------------------------------------------------------------------------------------------- Percent Percent of Adjusted of Adjusted (Dollars in thousands) Amount Revenues Amount Revenues - -------------------------------------------------------------------------------------------------- Compensation and Benefits $ 6,517 34.0% $ 5,704 34.9% Professional Services 1,032 5.4 1,479 9.0 Equipment 1,473 7.7 431 2.6 Occupancy 1,007 5.2 550 3.4 FDIC Deposit Insurance 14 0.1 594 3.6 Data Processing Services 214 1.1 349 2.1 Corporate Legal and Litigation 179 0.9 1,325 8.1 Client Services 82 0.4 262 1.6 Other 1,370 7.1 1,045 6.4 ------- ----- ------- ----- Total Excluding Cost of Other Real Estate Owned 11,888 11,739 Efficiency Ratio 61.9% 71.7% ---- ---- ---- ---- Cost of Other Real Estate Owned 23 45 ------- ------- Total Noninterest Expense $11,911 $11,784 ------- ------- ------- -------
16
Nine Months Ended September 30, - -------------------------------------------------------------------------------------------------- 1995 1994 - -------------------------------------------------------------------------------------------------- Percent Percent of Adjusted of Adjusted (Dollars in thousands) Amount Revenues Amount Revenues - -------------------------------------------------------------------------------------------------- Compensation and Benefits $20,374 35.0% $17,401 37.4% Professional Services 3,620 6.2 3,236 7.0 Equipment 2,678 4.6 1,116 2.4 Occupancy 2,655 4.6 1,674 3.6 FDIC Deposit Insurance 1,210 2.1 1,812 3.9 Data Processing Services 767 1.3 960 2.1 Corporate Legal and Litigation 571 1.0 2,535 5.5 Client Services 339 0.6 870 1.9 Other 4,143 7.1 3,228 6.9 ------- ----- ------- ----- Total Excluding Cost of Other Real Estate Owned 36,357 32,832 Efficiency Ratio 62.5% 70.6% ---- ---- ---- ---- Cost of Other Real Estate Owned 37 1,349 ------- ------- Total Noninterest Expense $36,394 $34,181 ------- ------- ------- -------
Compensation and benefits expenses were $6.5 million for the third quarter of 1995, an increase of $0.8 million, or 14.2%, compared to $5.7 million for the third quarter of 1994. For the nine months ended September 30, 1995, compensation and benefits expenses were $20.4 million, an increase of $3.0 million, or 17.1%, compared to $17.4 million for the respective 1994 period. The number of average full-time equivalent staff during the third quarter of 1995 was 339, compared with 304 for the third quarter of 1994, and 331 for the first nine months of 1995, compared with 295 for the first nine months of 1994. Staff increases year-over-year were primarily due to the expansion of the Bank's lending staff in response to the growth in the client base, as well as in an effort to develop new lending markets. Professional services expenses were $1.0 million for the third quarter of 1995, a decrease of $0.5 million, or 30.2%, compared to $1.5 million for the third quarter of 1994. For the nine months ended September 30, 1995, professional services expenses were $3.6 million, an increase of $0.4 million, or 11.9%, compared to $3.2 million for the corresponding 1994 period. The reduction in third quarter 1995 professional services expenses, as compared to the third quarter of 1994, can be attributed to a number of projects related to building the Bank's infrastructure having been substantially completed during the third quarter of 1995, such as the conversion to a new in-house computer system. Professional services expenses for the nine months ended September 30, 1995 were up slightly from the corresponding prior year period, as several of the larger projects related to building the Bank's infrastructure, such as the new computer system, were started during the latter part of 1994 and continued until the third quarter of 1995. Occupancy and equipment expenses were $2.5 million for the third quarter of 1995, an increase of $1.5 million, or 152.9%, compared to $1.0 million for the third quarter of 1994. For the nine months ended September 30, 1995, occupancy and equipment expenses were $5.3 million, an 17 increase of $2.5 million, or 91.1%, compared to $2.8 million for the comparable 1994 period. These expenses increased as the Company incurred certain non-recurring costs during the first nine months of 1995 in connection with a move into a new headquarters facility. These costs included both the disposal and purchase of premises and equipment. FDIC deposit insurance expense decreased $0.6 million for the third quarter and the first nine months of 1995, compared to the respective periods of 1994, as the Bank's assessment rate was reduced in the third quarter of 1995 due to the recapitalization of the Bank Insurance Fund. Corporate legal and litigation expenses were $0.2 million for the third quarter of 1995, a decrease of $1.1 million, or 84.6%, compared to $1.3 million for the third quarter of 1994. For the nine months ended September 30, 1995, corporate legal and litigation expenses were $0.6 million, a decrease of $1.9 million, or 76.0%, compared to $2.5 million for the comparable 1994 period. Legal expenses for the first nine months of 1994 contained costs related to a shareholder class action lawsuit originally filed in June, 1993, including a $1.0 million charge in the third quarter of 1994 in connection with the settlement of this lawsuit. Costs associated with other real estate owned ("OREO") were less than $40,000 for both the three and nine month periods ended September 30, 1995, compared with $45,000 for the third quarter of 1994 and $1.3 million for the nine months ended September 30, 1994. The decline in the costs associated with OREO during the last six months of 1994 and for all of 1995 was a result of the overall reduction in the Bank's level of OREO. Total OREO declined from $15.0 million at June 30, 1994 to $7.1 million at December 31, 1994 and $5.5 million at September 30, 1995. The costs associated with OREO include: maintenance expenses; property taxes; marketing costs; net operating expense or income associated with income-producing properties; property write-downs; and gains or losses on the sales of such properties. INCOME TAXES Income tax expense was $2.3 million, with an effective tax rate of 29.7%, for the third quarter of 1995, compared to $1.6 million, with an effective tax rate of 43.1%, for the third quarter of 1994. For the nine months ended September 30, 1995, income tax expense was $7.8 million, with an effective tax rate of 38.0%, compared to $4.6 million and a 43.1% effective tax rate for the corresponding 1994 period. The reduction in the Company's estimated annual effective tax rate, during the third quarter of 1995, was attributable to adjustments in the Company's estimate of its tax liabilities. 18 FINANCIAL CONDITION - ------------------- Total assets were $1.3 billion at September 30, 1995, an increase of $94.8 million, or 8.2%, compared to $1.2 billion at December 31, 1994. FEDERAL FUNDS SOLD AND SECURITIES PURCHASED UNDER AGREEMENT TO RESELL Federal funds sold and securities purchased under agreement to resell totaled $270.1 million at September 30, 1995, an increase of $120.0 million, or 80.0%, compared to $150.1 million at year-end 1994. This increase was primarily the result of significant growth in the Bank's deposits combined with the interest rate environment at the end of the 1995 third quarter. INVESTMENT SECURITIES Investment securities totaled $178.1 million at September 30, 1995, an increase of $21.6 million, or 13.8%, compared to $156.5 million at December 31, 1994. The increase in investment securities was primarily in response to the Bank's liquidity management activities, as a portion of the increased deposit balances as of September 30, 1995 was invested in short-term money market instruments other than Federal funds sold and securities purchased under agreement to resell. LOANS As of September 30, 1995, total loans, net of unearned income, were $700.8 million, down $3.0 million, or 0.4%, from $703.8 million at year-end 1994. The slight decline in total loans from year-end reflects the combination of new loan production during 1995 offset by a higher than expected amount of loan payoffs attributable to the capital raising activities of some of the Bank's clients. CREDIT RISK AND THE ALLOWANCE FOR LOAN LOSSES Lending money involves an inherent risk of nonpayment. Through the administration of the loan policies and careful monitoring of the portfolio, Management seeks to reduce such risks to an acceptable level. The allowance for loan losses provides a financial buffer for losses, both identified and unidentified, in the loan portfolio. Management regularly reviews and monitors the loan portfolio to determine the risk profile of each credit and to identify credits whose risk profiles have changed. This review includes, but is not limited to, such factors as payment status, the financial condition of the borrower, borrower compliance with loan covenants, underlying collateral values, potential loan concentrations, and general economic conditions. Potential problem credits are identified and appropriate action plans are developed. 19 Nonperforming assets consist of loans that are past due 90 days or more but still accruing interest, loans on nonaccrual status, and OREO. The table below sets forth certain relationships between nonperforming loans, nonperforming assets, and the allowance for loan losses.
- ----------------------------------------------------------------------------------------- CREDIT QUALITY - ----------------------------------------------------------------------------------------- SEPTEMBER 30, December 31, 1995 1994 (Dollars in thousands) (UNAUDITED) - ----------------------------------------------------------------------------------------- NONPERFORMING ASSETS: Loans Past Due 90 Days or More $ 685 $ 444 Nonaccrual Loans (1) 20,272 11,269 - ----------------------------------------------------------------------------------------- Total Nonperforming Loans 20,957 11,713 OREO (1) 5,533 7,089 - ----------------------------------------------------------------------------------------- Total Nonperforming Assets $26,490 $18,802 - ----------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------- Nonperforming Loans as a Percent of Total Loans 3.0% 1.7% OREO as a Percent of Total Assets 0.4% 0.6% Nonperforming Assets as a Percent of Total Assets 2.1% 1.6% ALLOWANCE FOR LOAN LOSSES $27,000 $20,000 As a Percent of Total Loans 3.8% 2.8% As a Percent of Nonaccrual Loans 133.2% 177.5% As a Percent of Nonperforming Loans 128.8% 170.8%
(1) In accordance with Statement of Financial Accounting Standard No. 114, insubstance foreclosure loans have been reclassified from OREO to nonaccrual loans. The reclassified amount was $1,377 at December 31, 1994. Nonperforming assets were $26.5 million at September 30, 1995, an increase of $7.7 million, or 41.0%, compared to $18.8 million as of December 31, 1994. The increase in nonperforming assets was primarily due to one manufacturing loan being placed on nonaccrual status during the third quarter of 1995. Based on current information, Management believes this loan is well secured and continues a concerted effort to maintain a strong credit discipline and consistent administration of credit policies and procedures. In addition to loans included in nonperforming assets, Management has identified eight loans with principal amounts aggregating approximately $10.6 million, including one loan with a balance in excess of $6.0 million, that, on the basis of information available to Management as of September 30, 1995, were judged to have a higher than normal risk of becoming nonperforming. The Company is not aware of any other loans at September 30, 1995 where known information about possible problems of the borrower casts serious doubts about the ability of the borrower to comply with the loan repayment terms. DEPOSITS Total deposits were $1,148.4 million at September 30, 1995, an increase of $73.0 million, or 6.8%, compared to $1,075.4 million at December 31, 1994. This growth was concentrated in money market deposits, which totaled $675.6 million at September 30, 1995, an increase of $102.1 million, or 17.8%, compared to $573.5 million at December 31, 1994. 20 LIQUIDITY MANAGEMENT Management regularly reviews general economic and financial conditions, both external and internal, and determines whether the positions taken with respect to liquidity and interest rate sensitivity are appropriate. The objectives of liquidity management are to provide funds, at an acceptable cost, to meet loan demand and depositors' needs, and to service other liabilities as they come due. Liquid assets include cash and due from banks, short-term time deposits, Federal funds sold, securities purchased under agreement to resell, and investment securities maturing within one year. As of September 30, 1995, liquid assets as a percentage of deposits were 38.9%, compared with 30.4% at December 31, 1994. This increase was primarily the result of significant growth in the Bank's deposits. CAPITAL RESOURCES Management seeks to maintain adequate capital to support anticipated asset growth and credit risks, and to ensure that the Company and the Bank are in compliance with all regulatory capital guidelines. The primary source of increased capital for the Company has been the retention of earnings. Aside from current earnings, an additional source of new capital for the Company has been proceeds from the issuance of common stock under the Company's employee benefits plans, including the Company's Stock Option Plan, Employee Stock Ownership Plan, and Employee Stock Purchase Plan. Capital generated through employee benefits plans during the first nine months of 1995 was $4.3 million, compared with $1.0 million during the comparable period of 1994. Shareholders' equity also increased $3.9 million during the nine month period ended September 30, 1995 due to a decline in the net unrealized loss on investment securities, classified as available-for-sale, from $4.2 million at year-end 1994 to $0.3 million at September 30, 1995. The Company and Bank are subject to capital adequacy guidelines issued by the Federal Reserve Board. Under these guidelines, the minimum total capital requirement is 8.0% of assets and certain off-balance sheet items, weighted by risk. At least 4.0% of the 8.0% total capital ratio must consist of Tier 1 capital, defined as tangible common equity, and the remainder may consist of subordinated debt, cumulative preferred stock, and a limited amount of the allowance for loan losses. The Federal Reserve Board has established minimum capital leverage ratio guidelines for state member banks. The ratio is determined using Tier 1 capital divided by quarterly average total assets. The guidelines require a minimum of 3.0%; however, banks experiencing high growth rates are expected to maintain capital positions well above minimum supervisory levels. In addition to the foregoing requirements, the Bank is also subject to a capital requirement established by the California State Banking Department. Under the regulatory consent order with the California State Banking Department, the Bank must maintain a minimum tangible equity-to-assets ratio of 6.5%. The Bank's tangible equity-to-assets ratio at September 30, 1995 was 7.5%, compared with 6.5% at December 31, 1994. 21 The Company's risk-based capital ratios were in excess of regulatory guidelines for "well-capitalized" institutions as of September 30, 1995 and December 31, 1994. Capital ratios for the Company are set forth below:
- ------------------------------------------------------------------------------- SEPTEMBER 30, December 31, 1995 1994 - ------------------------------------------------------------------------------- Total Risk-Based Capital Ratio 11.7% 10.1% Tier 1 Risk-Based Capital Ratio 10.4% 8.9% Tier 1 Leverage Ratio 8.3% 8.3% - ------------------------------------------------------------------------------- - -------------------------------------------------------------------------------
The improvement in the total and Tier 1 risk-based capital ratios from December 31, 1994 to September 30, 1995 is attributable to 1995 asset growth primarily occuring in lower risk-weighted assets, and also to an increase in Tier 1 capital. The increase in Tier 1 capital resulted from 1995 year-to-date net income of $12.7 million and $4.3 million in capital generated through the Company's employee benefits plans during the first nine months of 1995. CURRENT OPERATING ENVIRONMENT The national economy for most of 1995 has been centered around a sharp slowdown and an inventory correction, the effect of which has been a significantly lower volume of activity, especially in the manufacturing sector. In recent months, however, a resurgence of activity has been visible as the cycle of inventory correction appears to have come to an end. Although current economic reports are still on the soft side, the national economy is showing signs of improvement from the subdued rate of growth experienced during the first half of 1995. Inflation at both the producer and consumer levels remains under control with recent data indicating an annual growth rate for the Producer Price Index of 1.8% and the Consumer Price Index of 2.6%. The current condition of moderate growth combined with low inflation has distinct characteristics of a stable Federal Reserve policy on interest rates for the immediate future. Although a moderate rate reduction during the fourth quarter of 1995 cannot be ruled out, were such a reduction to occur, it is likely the Company's net interest margin would decline from its current level. The California economy continues its recovery and progress in the transformation to a technology-driven economy. Some of the hurdles which remain include further closures of military bases, state and local government fiscal problems, and further consolidation in certain industries. Manufacturing job levels are stabilizing, retail job levels are higher, and construction jobs levels have shown strong recent growth. These factors, together with the growing strength of business services, tourism and international trade, could have a favorable impact in future periods on the local economic recovery. Economic conditions can influence the market for initial public offerings (IPO's) by certain clients of the Company. The level of activity in the IPO market can have a direct effect on loan demand, deposit growth, and the amount of warrant income realized by the Company. As a result of the high level of technology-related IPO activity during 1995, the Company has disclosed that it 22 experienced unusually large amounts of loan payoffs in combination with a significant amount of warrant income. The Company realized in excess of $3.8 million of warrant income during the third quarter of 1995, and for the nine months ended September 30, 1995, the Company's warrant income has been in excess of $5.6 million. The timing and amount of income from the disposition of warrants typically depends on factors beyond the control of the Company, including the general condition of the capital markets, and therefore cannot be predicted with any degree of accuracy and is likely to vary materially over time. Formal supervisory actions resulted from regulatory examinations completed during the fourth quarter of 1992. The Company and Bank consented to these orders during the second quarter of 1993, which require, among other matters, the actions set forth in Note 6 of the notes to the interim consolidated financial statements. While the Company cannot predict the effect of any specific requirement of these orders, the Company believes that continued compliance with these orders will not have a material adverse effect on the business of the Bank, its clients, or the Company. Competition from other financial institutions for certain segments of the Company's current and prospective client base has increased from historical levels during 1995, and this trend is expected to continue in future periods. Management of the Company, however, does not intend to lower credit standards or weaken loan covenants simply to match competitive offerings. It is not possible to predict the extent to which any such increase in competition will adversely affect the Company's future growth or earnings potential. Current financial results should not be considered to be an indicator of future financial performance, and investors should not use historical trends to anticipate results or trends in future periods. 23 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS Certain lawsuits and claims arising in the ordinary course of business have been filed or are pending against the Bank and/or the Company. Based upon information available to the Company, its review of such claims to date, and consultation with its counsel, Management believes the liability relating to these actions, if any, will not have a material adverse effect on the Company's consolidated financial position or results of operations. ITEM 2. CHANGES IN SECURITIES Not applicable ITEM 3. DEFAULTS UPON SENIOR SECURITIES Not applicable ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable ITEM 5. OTHER INFORMATION Not applicable ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K Sequentially a) Exhibits: Numbered Exhibit Number Exhibit Page - -------------- ------- ------------ 10.24 Lease Agreement between Norman B. Leventhal 1 and Edwin N. Sidman, Trustees and Silicon Valley Bank; 40 William St. Wellesley, MA 02181 10.25 Employment Agreement among Silicon Valley Bank, 64 Silicon Valley Bancshares and Roger V. Smith 10.26 Mutual General Release Agreement among Silicon 79 Valley Bank, Silicon Valley Bancshares and Dennis G. Uyemura 10.27 Consulting Agreement among Silicon Valley Bank, 83 Silicon Valley Bancshares and Dennis G. Uyemura b) No reports on Form 8-K have been filed by the Registrant during the three months ended September 30, 1995. 24 Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. SILICON VALLEY BANCSHARES ------------------------- (Registrant) Date: By: (s) Christopher T. Lutes --------------------- --------------------------------- Christopher T. Lutes Vice President and Controller (Chief Accounting Officer) 25 EX-10.24 2 EXHIBIT 10.24 Exhibit 10.24 CONTENTS 1. REFERENCE DATA.................................................... 1 2. DESCRIPTION OF PREMISES........................................... 1 2.1 Demised Premises............................................ 1 2.2 Appurtenant Rights.......................................... 1 2.3 Exclusions and Reservations................................. 1 3. TERM OF LEASE..................................................... 1 3.1 Definitions................................................. 1 3.2 Habendum ................................................... 2 3.3 Declaration Fixing Term Commencement Date................... 2 4. READINESS FOR OCCUPANCY - ENTRY BY TENANT PRIOR TO TERM COMMENCEMENT DATE................................................. 2 4.1 Completion Date - Delays.................................... 2 4.2 When Premises Deemed Ready.................................. 2 4.3 Intentionally Deleted....................................... 3 4.4 Preparation of Premises..................................... 3 4.5 Quality and Cost of Materials............................... 4 4.6 Tenant's Delay - Additional Costs........................... 4 4.7 Entry by Tenant Prior to Term Commencement Date............. 4 4.8 Conclusiveness of Landlord's Performance.................... 4 4.9 Tenant Payments of Construction Cost........................ 4 5. USE OF PREMISES................................................... 5 5.1 Permitted Use............................................... 5 5.2 Prohibited Uses............................................. 5 5.3 Licenses and Permits........................................ 5 6. RENT.............................................................. 5 7. RENTABLE AREA - ADJUSTMENT OF RENT................................ 6 8. SERVICES FURNISHED BY LANDLORD.................................... 6 8.1 Electric Current............................................ 8 8.2 Water....................................................... 8 8.3 Elevators, Heat, Cleaning................................... 8 8.4 Air Conditioning............................................ 8 8.5 Additional Heat, Cleaning and Air Conditioning Services..... 9 8.6 Additional Air Conditioning Equipment....................... 9 8.7 Repairs..................................................... 9 8.8 Interruption or Curtailment of Services..................... 9 8.9 Energy Conservation......................................... 9 8.10 Miscellaneous............................................... 10 9. ESCALATION........................................................ 10 9.1 Definitions................................................. 10 9.2 Tax Excess.................................................. 12 9.3 Operating Expense Excess.................................... 12 9.4 Part Years.................................................. 13 9.5 Effect of Taking............................................ 13 9.6 Disputes, etc............................................... 13 10. CHANGES OR ALTERATIONS BY LANDLORD................................ 13 11. FIXTURES, EQUIPMENT AND IMPROVEMENTS - REMOVAL BY TENANT.......... 14 12. ALTERATIONS AND IMPROVEMENTS BY TENANT............................ 14 1 13. TENANT'S CONTRACTORS - MECHANIC'S AND OTHER LIENS - STANDARD OF TENANT'S PERFORMANCE - COMPLIANCE WITH LAWS....................... 15 14. REPAIRS BY TENANT - FLOOR LOAD.................................... 15 14.1 Repairs by Tenant........................................... 15 14.2 Floor Load - Heavy Machinery................................ 16 15. INSURANCE, INDEMNIFICATION, EXONERATION AND EXCULPATION........... 16 15.1 General Liability Insurance................................. 16 15.2 Certificates of Insurance................................... 16 15.3 General..................................................... 17 15.4 Property of Tenant.......................................... 17 15.5 Bursting of Pipes, etc...................................... 17 15.6 Repairs and Alterations - No Diminution of Rental Value..... 18 16. ASSIGNMENT, MORTGAGING AND SUBLETTING............................. 18 17. MISCELLANEOUS COVENANTS........................................... 19 17.1 Rules and Regulations....................................... 19 17.2 Access to Premises - Shoring................................ 19 17.3 Accidents to Sanitary and Other Systems..................... 20 17.4 Signs, Blinds and Drapes.................................... 20 17.5 Estoppel Certificate........................................ 20 17.6 Prohibited Materials and Property........................... 21 17.7 Requirements of Law - Fines and Penalties................... 21 17.8 Tenant's Acts - Effect on Insurance......................... 21 17.9 Miscellaneous............................................... 22 18. DAMAGE BY FIRE, ETC............................................... 22 19. WAIVER OF SUBROGATION............................................. 23 20. CONDEMNATION - EMINENT DOMAIN..................................... 24 21. DEFAULT........................................................... 24 21.1 Conditions of Limitation - Re-entry - Termination........... 24 21.2 Damages - Assignment for Benefit of Creditors............... 25 21.3 Damages - Termination....................................... 26 21.4 Fees and Expenses........................................... 27 21.5 Waiver of Redemption........................................ 27 21.6 Landlord's Remedies Not Exclusive........................... 27 21.7 Grace Period................................................ 27 22. END OF TERM - ABANDONED PROPERTY.................................. 28 23. SUBORDINATION..................................................... 29 24. QUIET ENJOYMENT................................................... 30 25. ENTIRE AGREEMENT - WAIVER - SURRENDER............................. 31 25.1 Entire Agreement............................................ 31 25.2 Waiver by Landlord.......................................... 31 25.3 Surrender................................................... 31 26. INABILITY TO PERFORM - EXCULPATORY CLAUSE......................... 31 27. BILLS AND NOTICES................................................. 32 28. PARTIES BOUND - SEIZIN OF TITLE................................... 33 29. MISCELLANEOUS..................................................... 33 29.1 Separability................................................ 33 29.2 Captions, etc............................................... 33 29.3 Broker...................................................... 33 2 29.4 Intentionally Deleted....................................... 33 29.5 Arbitration................................................. 34 29.6 Governing Law............................................... 34 29.7 Assignment of Rents......................................... 34 29.8 Representation of Authority................................. 34 29.9 Expenses Incurred by Landlord Upon Tenant Requests.......... 34 29.10 Survival.................................................... 34 EXHIBITS Exhibit 3 Building Standard Items................................. 36 Exhibit 4 Building Services....................................... 40 Exhibit 5 Rentable Area........................................... 43 3 EXHIBIT 1, SHEET 1 Building No. 4, Wellesley Office Park 40 William Street, Wellesley, Massachusetts 02181 (the "Building") Execution Date: June 19, 1995 Tenant: Silicon Valley Bank, a California-chartered bank, with its principal place of business at 3000 Lakeside Drive, Santa Clara, CA 95054 and with a loan production office located at Wellesley Office Park, 45 William Street, Suite 370, Wellesley, MA 02181, doing business under the name "Silicon Valley East" (name) Landlord: Wellesley Holding, L.P., a Delaware limited partnership (the sole general partner of which is Beacon Properties, L.P., a Delaware limited partnership, the sole general partner of which is Beacon Properties Corporation, a Maryland corporation.) Mailing Address: 50 Rowes Wharf, Boston, Massachusetts 02110, Attention: General Partner Building: The Building in Wellesley Office Park in the Town of Wellesley, Norfolk County, Commonwealth of Massachusetts and known as and numbered 40 William Street (Building Four), on the lot shown on a plan of land in Wellesley dated January 31, 1969, prepared for Schoenfeld Associates, Inc. by Alphonse L. Savignac, Registered Land Surveyor, recorded with the Norfolk Registry of Deeds in Plan Book 226, as Plan 75 of 1969. Art. 2 Premises: An area on the third (3rd) floor of the Building, substantially as shown on Lease Plan, Exhibit 2, Sheet 1 Art. 3.1 Specified Commencement Date: September 1, 1995 Art. 3.2 Termination Date: Six (6) years after the Term Commencement Date Art. 4.3 Final Plans Date: Not applicable Art. 5 Use of Premises: General business offices Art. 6 Yearly Rent:
Lease Year(1) Yearly Rent Monthly Payment ------------- ----------- --------------- 1 $200,976.00 $16,748.00 2 $209,349.96 $17,445.83 3-6 $217,724.04 $18,143.67
Art. 7 Total Rentable Area: 8,374 square feet - ----------------- (1)For the purposes hereof, "Lease Year" shall be defined as any twelve-(12)-month period commencing as of the Term Commencement Date or as of any anniversary of the Term Commencement Date. 4 EXHIBIT 1, SHEET 2 Building No. 4, Wellesley Office Park 40 William Street, Wellesley, Massachusetts 02181 (the "Building") Art. 8. Electric current will be furnished by Landlord to Tenant and paid for by Tenant in accordance with Article 8.1(b) of the Lease. Electric Rate: $.091 per kilowatt hour. Base Electric Cost: $.728 per square foot of Total Rentable Area per year. Initial Estimated Monthly Electric Payment: $508.02 Art. 9 Operating and Tax Escalation: Operating Costs in the Base Year: The actual amount of Operating Costs for calendar year 1995 Tax Base: The actual amount of Taxes for fiscal/tax year 1995 (i.e., July 1, 1994 - June 30, 1995) Tenant's Proportionate Share: 11.65% Art. 29.3 Co-Brokers: Twigg Associates and Beacon Management Company Art. 29.5 Arbitration: Massachusetts; Superior Court Exhibit Dates: Lease Plan, Exhibit 2, Sheets 1 and 2 dated June 19, 1995 LANDLORD: TENANT: WELLESLEY HOLDING, L.P. SILICON VALLEY BANK By: Beacon Properties, L.P., General Partner By: Beacon Properties Corporation, General Partner By: _____________________ By:_________________________ Lionel P. Fortin, (Name) (Title) Senior Vice President Hereunto Duly Authorized Date Signed: ___________________ Date Signed:_____________________ 5 THIS INDENTURE OF LEASE made and entered into on the Execution Date as stated in Exhibit 1 and between the Landlord and the Tenant named in Exhibit 1. Landlord does hereby demise and lease to Tenant, and Tenant does hereby hire and take from Landlord, the premises hereinafter mentioned and described (hereinafter referred to as "premises"), upon and subject to the covenants, agreements, terms, provisions and conditions of this Lease for the term hereinafter stated: 1. REFERENCE DATA Each reference in this Lease to any of the terms and titles contained in any Exhibit attached to this Lease shall be deemed and construed to incorporate the data stated under that term or title in such Exhibit. 2. DESCRIPTION OF DEMISED PREMISES 2.1 DEMISED PREMISES. The premises are that portion of the Building as described in Exhibit 1 (as the same may from time to time be constituted after changes therein, additions thereto and eliminations therefrom pursuant to rights of Landlord hereinafter reserved) and is hereinafter referred to as "Building", substantially as shown hatched or outlined on the Lease Plan (Exhibit 2) hereto attached and incorporated by reference as a part hereof. Landlord reserves the right, at its own cost and expense, to require Tenant, upon not less than thirty (30) days' notice, to relocate its premises elsewhere in the Building or complex of which the Building is a part, to an area of substantially equivalent size, construction and finish as designated by Landlord. Notwithstanding anything to the contrary herein contained, Landlord shall be responsible for all costs incurred by Tenant in relocating to such substanitally equivalent area (including, without limitation, the costs of relocating Tenant's personal property and recabling the premises and the costs of replacing Tenant's stationery, if necessary. Any dispute between the parties as to whether the area designated by Landlord is "substantially equivalent" shall be submitted to arbitration pursuant to Article 29.5 hereof. 2.2 APPURTENANT RIGHTS. Tenant shall have, as appurtenant to the premises, rights to use in common, with others entitled thereto, subject to reasonable rules from time to time made by Landlord of which Tenant is given notice; (a) the common lobbies, hallways, stairways and elevators of the Building, serving the premises in common with others, (b) common walkways necessary for access to the Building, and (c) if the premises include less than the entire rentable area of any floor, the common toilets and other common facilities of such floor; and no other appurtenant rights or easements. 2.3 EXCLUSIONS AND RESERVATIONS. All the perimeter walls of the premises except the inner surfaces thereof, any balconies (except to the extent same are shown as part of the premises on the Lease Plan (Exhibit 2)), terraces or roofs adjacent to the premises, and any space in or adjacent to the premises used for shafts, stacks, pipes, conduits, wires and appurtenant fixtures, fan rooms, ducts, electric or other utilities, sinks or other Building facilities, and the use thereof, as well as the right of access through the premises for the purposes of operation, maintenance, decoration and repair, are expressly excluded from the premises and reserved to Landlord. 3. TERM OF LEASE 3.1 DEFINITIONS. As used in this Lease the words and terms which follow mean and include the following: (a) "Specified Commencement Date" - The date (as stated in Exhibit 1) on which it is estimated that the premises will be ready for Tenant's occupancy for its use as stated in Exhibit 1. 6 (b) "Term Commencement Date" - If the "Term Commencement Date" is a date certain agreed upon by the parties at the time of the execution of this Lease, such date shall be inserted in Exhibit 1; otherwise, the "Term Commencement Date" is the date on which the premises are ready for Tenant's occupancy (as defined in Article 4.2) for use as set forth in Exhibit 1. If the premises are not ready for such occupancy but if, pursuant to permission therefor duly given by Landlord, Tenant takes possession of the whole or any part of the premises for use as set forth in Exhibit 1, "Term Commencement Date" shall be the date on which Tenant takes such possession. 3.2 HABENDUM. TO HAVE AND TO HOLD the premises for a term of years commencing on the Term Commencement Date and ending on the Termination Date as stated in Exhibit 1 or on such earlier date upon which said term may expire or be terminated pursuant to any of the conditions of limitation or other provisions of this Lease or pursuant to law (which date for the termination of the terms hereof will hereafter be called "Termination Date"). Notwithstanding the foregoing, if the Termination Date as stated in Exhibit 1 shall fall on other than the last day of a calendar month, said Termination Date shall be deemed to be the last day of the calendar month in which said Termination Date occurs. 3.3 DECLARATION FIXING TERM COMMENCEMENT DATE. As soon as may be after the execution date hereof, each of the parties hereto agrees, upon demand of the other party to join in the execution, in recordable form, of a statutory notice, memorandum, etc. of lease and/or written declaration in which shall be stated such Term Commencement Date and (if need be) the Termination Date. If this Lease is terminated before the term expires, then upon Landlord's request the parties shall execute, deliver and record an instrument acknowledging such fact and the date of termination of this Lease, and Tenant hereby appoints Landlord its attorney-in-fact in its name and behalf to execute such instrument if Tenant shall fail to execute and deliver such instrument after Landlord's request therefor within ten (10) days. 4. READINESS FOR OCCUPANCY - ENTRY BY TENANT PRIOR TO TERM COMMENCEMENT DATE 4.1 COMPLETION DATE - DELAYS. Subject to delay by causes beyond the reasonable control of Landlord or caused by the action or inaction of Tenant, Landlord shall use reasonable speed and diligence in the construction of the Building and to have the premises ready for Tenant's occupancy on the Specified Commencement Date. The failure to have the premises ready for Tenant's occupancy on the Specified Commencement Date shall in no way affect the validity of this Lease or the obligations of Tenant hereunder nor shall the same be construed in any way to extend the term of this Lease. If the premises are not ready for Tenant's occupancy within the meaning of Article 4.2 hereof on the Specified Commencement Date, Tenant shall not have any claim against Landlord, and Landlord shall have no liability to Tenant, by reason thereof. 4.2 WHEN PREMISES DEEMED READY. A. The premises shall be conclusively deemed ready for Tenant's occupancy as soon as Landlord's Work, as defined in Paragraph B of this Article 4.2, has been substantially completed by Landlord insofar as is practicable in view of delays or defaults, if any, of Tenant or its contractors, as hereinafter specified, and the elevator, plumbing, air conditioning and electric facilities are initially substantially available to Tenant, in accordance with the obligations assumed by Landlord hereunder. Such facilities shall not be deemed to be unavailable if only minor or insubstantial details of construction, decoration or mechanical adjustments remain to be done. The premises shall not be deemed to be unready for Tenant's occupancy or incomplete if only minor or insubstantial details of construction, decoration or mechanical adjustments remain to be done in the premises or any part thereof, or if the delay in the availability of the 7 premises for occupancy is (i) due to special work, changes, alterations or additions required or made by Tenant in the layout or finish of the premises or any part thereof, (ii) caused in whole or in part by Tenant through the delay of Tenant in submitting any plans and/or specifications, supplying information, approving plans, specifications or estimates, giving authorizations or otherwise or (iii) caused in whole or in part by delay and/or default on the part of Tenant or its contractors including, without limitation, the utility companies and other entities furnishing communications, data processing or other service or equipment. If the premises are deemed ready for Tenant's occupancy, pursuant to the foregoing, (and the term shall have commenced by reason thereof), but the premises are not in fact actually ready for Tenant's occupancy, Tenant shall not (except with Landlord's consent) be entitled to take possession of the premises for use as set forth in Exhibit 1 until the premises are in fact actually ready for such occupancy. Landlord's architect's certificate of substantial completion, as hereinabove stated, given in good faith, or of any other facts pertinent to this Article 4.2 shall be deemed conclusive of the statements therein contained and binding upon Tenant. Any of Landlord's work in the premises not fully completed on the Term Commencement Date shall thereafter be so completed with reasonable diligence by Landlord. B. Landlord shall, at Landlord's cost, construct the premises substantially in accordance with the following plans dated June 16, 1995, prepared by Beacon Design Corporation ("Landlord's Work"): 1. A-1 General Notes and Specifications; 2. A-2 Demolition Plan; 3. A-3 Construction Plan; 4. A-4 Finish Plan; 5. A-5 Details; 6. A-6 Elevations, Details; 7. A-7 Elevations, Details; 8. AE-1 Reflected Ceiling Plan; 9. AE-2 Electric/Telephone Plan; 10. M-1 HVAC Plan; 11. E-1 Electrical Notes, Details; 12. E-2 Power Plan; 13. E-3 Lighting Plan; and 14. P-1 Plumbing Plan. C. Landlord shall, at Landlord's cost, engage movers to relocate Tenant's furniture and personal property from Tenant's existing premises in 45 William Street, Wellesley Office Park to the premises, provided however, that Tenant shall, at Tenant's cost, re-install Tenant's telephone and computer systems in the premises. 4.3 INTENTIONALLY DELETED. 4.4 PREPARATION OF PREMISES. (a) By Landlord. Except as is otherwise herein provided or as may be otherwise approved by the Landlord, all work necessary to prepare the premises for Tenant's occupancy, including work to be performed at Tenant's expense, shall be performed by contractors employed by Landlord. (b) By Tenant. Subject always to the provisions of Articles 4.2 and 4.3, if other than building standard categories of work are to be performed in preparing the premises for Tenant's occupancy by contractors other than those employed by Landlord, Landlord will give Tenant reasonable advance notice of the date on which the premises will be ready for such other contractors and a reasonable time will be allowed from such date for doing the work to be performed by such other contractors. 8 (c) If any work, including but not by way of limitation, installation of built-in equipment by the manufacturer or distributor thereof, shall be performed by contractors not employed by Landlord, Tenant shall take necessary reasonable measures to the end that such contractor shall cooperate in all ways with Landlord's contractors to avoid any delay to the work being performed by Landlord's contractors or conflict in any other way with the performance of such work. 4.5 QUALITY AND COST OF MATERIALS. Any construction or finish of previously constructed premises, whether by Landlord or Tenant, shall equal or exceed the specifications and quantities provided in Exhibit 3. Except for Landlord's Work, Tenant shall bear all other costs of preparing the premises for its occupancy in accordance with the final plans. Landlord shall have no liability or responsibility for any claim, injury or damage alleged to have been caused by the particular materials, whether building standard or non-building standard, selected by Tenant in the construction or other preparation of the premises for Tenant's occupancy including, without limitation, furniture and carpeting. 4.6 TENANTS DELAY - ADDITIONAL COSTS. If Tenant fails or omits to make timely submission to Landlord of pertinent information, or delays in submitting any other plans or specifications, or in supplying information, or in approving plans, specifications or estimates, or in giving authorizations or fails to comply with Section 4.4(c) hereof, or otherwise fails to honor or perform its obligations under this Lease, any additional cost to Landlord in connection with the completion of the premises in accordance with the terms of this Lease and Exhibit 3 shall be promptly paid by Tenant to Landlord if such additional cost is in whole or in part the result of such failure, omission or delay of Tenant. For the purposes of the next preceding sentence, the expression "additional cost to Landlord" shall mean the cost over and above such cost as would have been the aggregate cost to Landlord of completing the premises in accordance with the terms of this Lease and Exhibit 3 had there been no such failure, omission or delay. Nothing contained in this Article 4.6 shall limit or qualify or prejudice any other covenants, agreements, terms, provisions and conditions contained in this Lease, including, but not limited to Article 4.2. 4.7 ENTRY BY TENANT PRIOR TO TERM COMMENCEMENT DATE. With Landlord's prior written consent, which shall not be unreasonably withheld, Tenant shall have the right to enter the premises prior to the Term Commencement Date, during normal business hours and without payment of rent, to perform such work or decoration as is to be performed by, or under the direction or control of, Tenant and as is otherwise in compliance with the terms of this Lease. Such right of entry shall be deemed a license from Landlord to Tenant, and any entry thereunder shall be at the risk of Tenant. 4.8 CONCLUSIVENESS OF LANDLORD'S PERFORMANCE. Tenant shall be conclusively deemed to have agreed that Landlord has performed all of its obligations under this Article 4 unless not later than the end of the second calendar month next beginning after the Term Commencement Date Tenant shall give Landlord written notice specifying the respects in which Landlord has not performed any such obligation. 4.9 TENANT PAYMENTS OF CONSTRUCTION COST. Landlord shall have the same rights and remedies which Landlord has upon the nonpayment of Yearly Rent and other charges due under this Lease for nonpayment of any amounts which Tenant is required to pay to Landlord or Landlord's contractor in connection with the construction and initial preparation of the premises (including, without limitation, any amounts which Tenant is required to pay in accordance with Articles 4.5 and 4.6 hereof) or in connection with any construction in the premises performed for Tenant by Landlord, Landlord's contractor or any other person, firm or entity after the Term Commencement Date. 5. USE OF PREMISES 9 5.1 PERMITTED USE. Tenant shall continuously during the term hereof occupy and use the premises only for the purposes as stated in Exhibit 1 and for no other purposes. Service and utility areas (whether or not a part of the premises) shall be used only for the particular purpose for which they were designed. Without limiting the generality of the foregoing, Tenant agrees that it shall not use the premises or any part thereof, or permit the premises or any part thereof to be used for the preparation or dispensing of food, whether by vending machines or otherwise. Notwithstanding the foregoing, but subject to the other terms and provisions of this Lease, Tenant may, with Landlord's prior written consent, which consent shall not be unreasonably withheld, install at its own cost and expense so-called hot-cold water fountains, coffee makers and so-called Dwyer refrigerator-sink-stove combinations for the preparation of beverages and foods, provided that no cooking, frying, etc., are carried on in the premises to such extent as requires special exhaust venting, Tenant hereby acknowledging that the Building is not engineered to provide any such special venting. 5.2 PROHIBITED USES. Notwithstanding any other provision of this Lease, Tenant shall not use, or suffer or permit the use or occupancy of, or suffer or permit anything to be done in or anything to be brought into or kept in or about the premises or the Building or any part thereof (including, without limitation, any materials used in the construction or other preparation of the premises and furniture and carpeting): (i) which would violate any of the covenants, agreements, terms, provisions and conditions of this Lease or otherwise applicable to or binding upon the premises; (ii) for any unlawful purposes or in any unlawful manner; (iii) which, in the reasonable judgment of Landlord shall in any way (a) impair the appearance or reputation of the Building; or (b) impair, interfere with or otherwise diminish the quality of any of the Building services or the proper and economic heating, cleaning, air conditioning or other servicing of the Building; or premises, or with the use or occupancy of any of the other areas of the Building, or occasion discomfort, inconvenience or annoyance, or injury or damage to any occupants of the premises or other tenants or occupants of the Building; or (iv) which is inconsistent with the maintenance of the Building as an office building of the first class in the quality of its maintenance, use, or occupancy. Tenant shall not install or use any electrical or other equipment of any kind which, in the reasonable judgment of Landlord, might cause any such impairment, interference, discomfort, inconvenience or annoyance. 5.3 LICENSES AND PERMITS. If any governmental license or permit shall be required for the proper and lawful conduct of Tenant's business, and if the failure to secure such license or permit would in any way affect Landlord, the premises, the Building or Tenant's ability to perform any of its obligations under this Lease, Tenant, at Tenant's expense, shall duly procure and thereafter maintain such license and submit the same to inspection by Landlord. Tenant, at Tenant's expense, shall at all times comply with the terms and conditions of each such license or permit. Tenant shall furnish all data and information to governmental authorities and Landlord as required in accordance with legal, regulatory, licensing or other similar requirements as they relate to Tenant's use or occupancy of the premises or the Building. 6. RENT During the term of this Lease the Yearly Rent and other charges, at the rate stated in Exhibit 1, shall be payable by Tenant to Landlord by monthly payments, as stated in Exhibit 1, in advance and without demand on the first day of each month for and in respect of such month. The rent and other charges reserved and covenanted to be paid under this Lease shall commence on the Term Commencement Date. Notwithstanding the provisions of the next preceding sentence, Tenant shall pay the first monthly installment of rent on the execution of this Lease. If, by reason of any provisions of this Lease, the rent reserved hereunder shall commence or terminate on any day other than 10 the first day of a calendar month, the rent for such calendar month shall be prorated. The rent shall be payable to Landlord or, if Landlord shall so direct in writing, to Landlord's agent or nominee, in lawful money of the United States which shall be legal tender for payment of all debts and dues, public and private, at the time of payment, at the office of the Landlord or such place as Landlord may designate, and the rent and other charges in all circumstances shall be payable without any setoff or deduction whatsoever. Rental and any other sums due hereunder not paid within ten (10) days after the date due shall bear interest for each month or fraction thereof from the due date until paid computed at the annual rate of two percentage points over the so-called prime rate then currently from time to time charged to its most favored corporate customers by the largest national bank (N.A.) located in the city in which the Building is located, or at any applicable lesser maximum legally permissible rate for debts of this nature. 7. RENTABLE AREA - ADJUSTMENT OF RENT Total Rentable Area and Net Rentable Area of the premises shall be determined in accordance with Exhibit 5. 8. SERVICES FURNISHED BY LANDLORD 8.1 ELECTRIC CURRENT. (a) As stated in Exhibit 1, Landlord will furnish to Tenant, as an incident of this Lease, electric current for the operation of lighting fixtures, the 120-volt electrical outlets initially installed in the premises and such other installations and facilities as stated in Exhibit 3. The term "Base Electric Cost" as used in this Lease, shall be defined as the composite, effective cost per annum, as of the Execution Date, of electric current per square foot of Building Total Rentable Area for those portions of the Building as to which Landlord is providing electric current. "Electric Rate," as used in this Lease, shall be defined as the composite effective rate per kilowatt-hour taking into account the base utility rate, fuel adjustment factor, premium charges or credits for hours of use, and any other charges which Landlord is required to pay in connection with furnishing electricity to the Building. (b) The parties acknowledge that the consumption of electricity in the premises (other than electricity consumed for the purposes of providing the services which Landlord is required to provide hereunder) will be measured by a separate submeter. Tenant shall reimburse Landlord for the entire cost of such electric current as follows: 1. Commencing as of the Term Commencement Date and continuing until the procedures set forth in Paragraph 2 of this Article 8.1(b) are effected, Tenant shall pay to Landlord at the same time and in the same manner that Tenant pays its monthly payments of Yearly Rent hereunder, estimated monthly payments on account of Tenant's obligation to reimburse Landlord for electricity consumed in the premises. Said estimated monthly payments are based upon the Base Electric Cost and Electric Rate set forth on Exhibit 1. The Initial Estimated Monthly Electric Payment is set forth on Exhibit 1. 2. Periodically (i.e. monthly) after the Term Commencement Date, Landlord shall determine the actual cost of electricity consumed by Tenant in the premises (i.e. by reading Tenant's sub-meter and by applying the actual Electric Rate(s) applicable to the preceding period). If the total of Tenant's estimated monthly payments on account of such period 11 is less than the actual cost of electricity consumed in the premises during such period, Tenant shall pay the difference to Landlord when billed therefor. If the total of Tenant's estimated monthly payments on account of such period is greater than the actual cost of electricity consumed in the premises during such period, Tenant may credit the difference against its next installment of rental or other charges due hereunder. 3. After such adjustment, as set forth in Paragraph 2 above, the amount of Tenant's obligation to reimburse Landlord for electricity in the premises shall be adjusted based upon the actual cost of electricity consumed during the immediately preceding period. (c) If Landlord is furnishing Tenant electric current hereunder, Landlord, at any time, at its option and upon not less than thirty (30) days' prior written notice to Tenant, may discontinue such furnishing of electric current to the premises; and in such case Tenant shall contract with the company supplying electric current for the purchase and obtaining by Tenant of electric current directly from such company. In the event Tenant itself contracts for electricity with the supplier, either initially or pursuant to Landlord's option as above stated, Landlord shall (i) permit its risers, conduits and feeders to the extent available, suitable and safely capable, to be used for the purpose of enabling Tenant to purchase and obtain electric current directly from such company, (ii) without cost or charge to Tenant, make such alterations and additions to the electrical equipment and/or appliances in the Building as such company shall specify for the purpose of enabling Tenant to purchase and obtain electric current directly from such company, and (iii) at Landlord's expense, furnish and install in or near the premises any necessary metering equipment used in connection with measuring Tenant's consumption of electric current and Tenant, at Tenant's expense, shall maintain and keep in repair such metering equipment. (d) Whether or not Landlord is furnishing electric current to Tenant, if Tenant shall require electric current for use in the premises in excess of such reasonable quantity to be furnished for such use as hereinabove provided and if (i) in Landlord's reasonable judgment, Landlord's facilities are inadequate for such excess requirements or (ii) such excess use shall result in an additional burden on the Building air conditioning system and additional cost to Landlord on account thereof then, as the case may be, (x) Landlord upon written request and at the sole cost and expense of Tenant, will furnish and install such additional wire, conduits, feeders, switchboards and appurtenances as reasonably may be required to supply such additional requirements of Tenant if current therefor be available to Landlord, provided that the same shall be permitted by applicable laws and insurance regulations and shall not cause damage to the Building or the premises or cause or create a dangerous or hazardous condition or entail excessive or unreasonable alterations or repairs or interfere with or disturb other tenants or occupants of the Building or (y) Tenant shall reimburse Landlord for such additional cost, as aforesaid. (e) Landlord, at Tenant's expense and upon Tenant's request, shall purchase and install all replacement lamps of types generally commercially available (including, but not limited to, incandescent and fluorescent) used in the premises. (f) Landlord shall not in any way be liable or responsible to Tenant for any loss, damage or expense which Tenant may sustain or incur if the quantity, character, or supply of electrical energy is changed or is no longer available or suitable for Tenant's requirements. 12 (g) Tenant agrees that it will not make any material alteration or material addition to the electrical equipment and/or appliances in the premises without the prior written consent of Landlord in each instance first obtained, which consent will not be unreasonably withheld, and will promptly advise Landlord of any other alteration or addition to such electrical equipment and/or appliances. 8.2 WATER. Landlord shall furnish hot and cold water for ordinary premises, cleaning, toilet, lavatory and drinking purposes. If Tenant requires, uses or consumes water for any purpose other than for the aforementioned purposes, Landlord may (i) assess a reasonable charge for the additional water so used or consumed by Tenant or (ii) install a water meter and thereby measure Tenant's water consumption for all purposes. In the latter event, Landlord shall pay the cost of the meter and the cost of installation thereof and shall keep said meter and installation equipment in good working order and repair. Tenant agrees to pay for water consumed, as shown on said meter, together with the sewer charge based on said meter charges, as and when bills are rendered, and on default in making such payment Landlord may pay such charges and collect the same from Tenant. All piping and other equipment and facilities for use of water outside the building core will be installed and maintained by Landlord at Tenant's sole cost and expense. 8.3 ELEVATORS, HEAT, CLEANING. (a) Landlord at its expense shall: (i) provide necessary elevator facilities (which may be manually or automatically operated, either or both, as Landlord may from time to time elect) on Mondays through Fridays, excepting legal holidays, from 8:00 a.m. to 6:00 p.m. and on Saturdays, excepting legal holidays, from 8:00 a.m. to 1:00 p.m. (called "business days") and have one elevator in operation available for Tenant's use, non-exclusively, together with others having business in the Building, at all other times; (ii) furnish heat (substantially equivalent to that being furnished in comparably aged similarly equipped office buildings in the same city) to the premises during the normal heating season on business days; and (iii) cause the office areas of the premises to be cleaned on business days (except on Saturdays) provided the same are kept in order by Tenant. Either Exhibit 4 (if annexed hereto) or, otherwise, the cleaning standards generally prevailing in first-class office buildings in the city or town where the Building is located, shall represent substantially the extent and scope of the cleaning by Landlord referred to in this Article 8.3. (b) The parties agree and acknowledge that, despite reasonable precautions in selecting cleaning and maintenance contractors and personnel, any property or equipment in the premises of a delicate, fragile or vulnerable nature may nevertheless be damaged in the course of cleaning and maintenance services being performed. Accordingly, Tenant shall take reasonable protective precautions with such property and equipment. 8.4 AIR CONDITIONING. Landlord shall through the air conditioning equipment of the Building furnish to and distribute in the premises air conditioning as normal seasonal changes may require on business days during the hours as aforesaid in Article 8.3 when air conditioning may reasonably be required for the comfortable occupancy of the premises by Tenant. Tenant agrees to lower and close the blinds or drapes when necessary because of the sun's position, whenever the air conditioning system is in operation, and to cooperate fully with Landlord with regard to, and to abide by all the reasonable regulations and requirements which Landlord may prescribe for the proper functioning and protection of the air conditioning system. The air conditioning system referred to in this Article 8.4 shall be capable of providing 780 F dry bulb and 50% relative humidity with outside conditions of 920 F dry bulb and 740 F wet bulb. The foregoing design conditions shall be based upon an occupancy within each separately partitioned area in the premises of not more than one person per 100 square feet of Net Rentable Area 13 and upon a combined lighting and standard electrical load not to exceed 2 1/2 watts per square foot of Net Rentable Area. 8.5 ADDITIONAL HEAT, CLEANING AND AIR CONDITIONING SERVICES. (a) Landlord will use reasonable efforts upon reasonable advance written notice from Tenant of its requirements in that regard, to furnish additional heat, cleaning or air conditioning services to the premises on days and at times other than as above provided. (b) Tenant will pay to Landlord a reasonable charge (i) for any such additional heat, cleaning or air conditioning service required by Tenant, (ii) for any extra cleaning of the premises required because of the carelessness or indifference of Tenant or because of the nature of Tenant's business, and (iii) for any cleaning done at the request of Tenant of any portions of the premises which may be used for storage, shipping room or other non-office purposes. Landlord represents to Tenant that, as of the Execution Date of the Lease, the charge for such after-hours HVAC services to Tenant is Forty and 00/100 Dollars ($40.00) per hour. Landlord reserves the right to charge such charges from time to time during the term of the Lease. If the cost to Landlord for cleaning the premises shall be increased due to the installation in the premises, at Tenant's request, of any materials or finish other than those which are building standard, Tenant shall pay to Landlord an amount equal to such increase in cost. 8.6 ADDITIONAL AIR CONDITIONING EQUIPMENT. In the event Tenant requires additional air conditioning for business machines, meeting rooms or other special purposes, or because of occupancy or excess electrical loads, any additional air conditioning units, chillers, condensers, compressors, ducts, piping and other equipment, such additional air conditioning equipment will be installed and maintained by Landlord at Tenant's sole cost and expense, but only if, in Landlord's reasonable judgment, the same will not cause damage or injury to the Building or create a dangerous or hazardous condition or entail excessive or unreasonable alterations, repairs or expense or interfere with or disturb other tenants; and Tenant shall reimburse Landlord in such an amount as will compensate it for the cost incurred by it in operating such additional air conditioning equipment. 8.7 REPAIRS. Except as otherwise provided in Articles 18 and 20, and subject to Tenant's obligations in Article 14, Landlord shall keep and maintain the roof, exterior walls, structural floor slabs, columns, elevators, public stairways and corridors, lavatories, equipment (including, without limitation, sanitary, electrical, heating, air conditioning, or other systems) and other common facilities of the Building in good condition and repair. 8.8 INTERRUPTION OR CURTAILMENT OF SERVICES. When necessary by reason of accident or emergency, or for repairs, alterations, replacements or improvements which in the reasonable judgment of Landlord are desirable or necessary to be made, or of difficulty or inability in securing supplies or labor, or of strikes, or of any other cause beyond the reasonable control of Landlord, whether such other cause be similar or dissimilar to those hereinabove specifically mentioned until said cause has been removed, Landlord reserves the right to interrupt, curtail, stop or suspend (i) the furnishing of heating, elevator, air conditioning, and cleaning services and (ii) the operation of the plumbing and electric systems. Landlord shall exercise reasonable diligence to eliminate the cause of any such interruption, curtailment, stoppage or suspension, but there shall be no diminution or abatement of rent or other compensation due from Landlord to Tenant hereunder, nor shall this Lease be affected or any of the Tenant's obligations hereunder reduced, and the Landlord shall have no responsibility or liability for any such interruption, curtailment, stoppage, or suspension of services or systems. 14 8.9 ENERGY CONSERVATION. Notwithstanding anything to the contrary in this Article 8 or in this Lease contained, Landlord may institute, and Tenant shall comply with, such policies, programs and measures as may be necessary, required, or expedient for the conservation and/or preservation of energy or energy services, or as may be necessary or required to comply with applicable codes, rules regulations or standards. 8.10 MISCELLANEOUS. Other than air conditioning, all services provided by Landlord to Tenant are based upon an assumed maximum premises population of one person per two hundred (200) square feet of Total Rentable Area, which limit Tenant shall in no event exceed. 9. ESCALATION 9.1 DEFINITIONS. As used in this Article 9, the words and terms which follow mean and include the following: (a) "Operating Year" shall mean a calendar year in which occurs any part of the term of this Lease. (b) "Operating Costs in the Base Year" shall be the amount as stated in Exhibit 1. (c) "Tenant's Proportionate Share" shall be the figure as stated in Exhibit 1. (d) "Taxes" shall mean the real estate taxes and other taxes, levies and assessments imposed upon the Building and the land on which it stands and upon any personal property of Landlord used in the operation thereof, or Landlord's interest in the Building or such personal property; charges, fees and assessments for transit, housing, police, fire or other governmental services or purported benefits to the Building; service or user payments in lieu of taxes; and any and all other taxes, levies, betterments, assessments and charges arising from the ownership, leasing, operating, use or occupancy of the Building or based upon rentals derived therefrom, which are or shall be imposed by National, State, Municipal or other authorities. As of the Execution Date, "Taxes" shall not include any franchise, rental, income or profit tax, capital levy or excise, provided, however, that any of the same and any other tax, excise, fee, levy, charge or assessment, however described, that may in the future be levied or assessed as a substitute for or an addition to, in whole or in part, any tax, levy or assessment which would otherwise constitute "Taxes," whether or not now customary or in the contemplation of the parties on the Execution Date of this Lease, shall constitute "Taxes," but only to the extent calculated as if the Building and the land upon which it stands is the only real estate owned by Landlord. "Taxes" shall also include expenses of tax abatement or other proceedings contesting assessments or levies. (e) "Tax Base" shall be the amount stated in Exhibit 1 and shall apply to a Tax Period of twelve (12) months. Tax Base shall be reduced pro rata if and to the extent that the Tax Period contains fewer than twelve (12) months. (f) "Tax Period" shall be any fiscal/tax period in respect of which Taxes are due and payable to the appropriate governmental taxing authority, any portion of which period occurs during the term of this Lease, the first such Period being the one in which the Term Commencement Date occurs. (g) "Operating Costs" shall mean all costs incurred and expenditures of whatever nature made by Landlord in the operation and management, for repair and replacements, cleaning and maintenance of the Building and grounds including, without limitation, vehicular and pedestrian passageways related to the Building (but excluding those areas, if any, 15 outside the Building and for which operating expenses are chargeable to non-office (i.e. commercial) tenants), related equipment, facilities and appurtenances, elevators, cooling and heating equipment (not including, however: (i) mortgage charges, (ii) brokerage commissions, (iii) salaries of executives and owners not directly employed in the management/operation of the Building, (iv) the cost of work done by Landlord for a particular tenant for which Landlord has the right to be reimbursed by such tenant, (v) if the Building is not, as of the Execution Date, in compliance with any laws, rules, orders or regulations in effect as of the Execution Date of this Lease, the costs, if any, incurred by Landlord in bringing the Building into such compliance, and (vi) such portion of expenditures as are not properly chargeable against income), provided, however, that (i) if, during the term of this Lease, Landlord shall replace any capital items or make any capital expenditures (collectively called "capital expenditures") the total amount of which is not properly includible in Operating Costs for the Operating Year in which they were made, there shall nevertheless be included in such Operating Costs and in Operating Costs for each succeeding Operating Year the amount, if any, by which the annual charge-off (determined as hereinafter provided) of such capital expenditure (less insurance proceeds, if any, collected by Landlord by reason of damage to, or destruction of the capital item being replaced) exceeds the annual charge-off of the capital expenditure for the item being replaced; and (ii) if a new capital item is acquired which does not replace another capital item which was worn out, has become obsolete, etc., then there shall be included in Operating Costs for each Operating Year in which and after such capital expenditure is made the annual charge-off of such capital expenditure. (Annual charge-off shall be determined by (i) dividing the original cost of the capital expenditure by the number of years of useful life thereof [The useful life shall be reasonably determined by Landlord in accordance with generally accepted accounting principles and practices in effect at the time of acquisition of the capital item.]; and (ii) adding to such quotient an interest factor computed on the unamortized balance of such capital expenditure at an annual rate of either one percentage point over the AA Bond rate [Standard & Poor's corporate composite or, if unavailable, its equivalent] as reported in the financial press at the time the capital expenditure is made or, if the capital item is acquired through third-party financing, then the actual [including fluctuating] rate paid by Landlord in financing the acquisition of such capital item.) Provided, further, that if Landlord reasonably concludes on the basis of engineering estimates that a particular capital expenditure will effect savings in Building operating expenses including, without limitation, energy-related costs, and that such annual projected savings will exceed the annual charge-off of capital expenditures computed as aforesaid, then and in such events, the annual charge-off shall be determined by dividing the amount of such capital expenditure by the number of years over which the projected amount of such savings shall fully amortize the cost of such capital item or the amount of such capital expenditure; and by adding the interest factor, as aforesaid. Operating Costs shall include, but not be limited to, the following: TAXES (OTHER THAN REAL ESTATE TAXES): Sales, Federal Social Security, Unemployment and Old Age Taxes and contributions and State Unemployment taxes and contributions accruing to and paid by the Landlord on account of all employees of Landlord who are employed in, about or on account of the Building, except that taxes levied upon the net income of the Landlord and taxes withheld from employees, and "Taxes" as defined in Article 9.1(d) shall not be included herein. WATER: All charges and rates connected with water supplied to the Building and related sewer use charges. HEAT AND AIR CONDITIONING: All charges connected with heat and air conditioning supplied to the Building. 16 WAGES: Wages and cost of all employee benefits of all employees of the Landlord who are employed in, about or on account of the Building. CLEANING: The cost of labor and material for cleaning the Building, surrounding areaways and windows in the Building. ELEVATOR MAINTENANCE: All expenses for or on account of the upkeep and maintenance of all elevators in the Building. ELECTRICITY: The cost of all electric current for the operation of any machine, appliance or device used for the operation of the premises and the Building, including the cost of electric current for the elevators, lights, air conditioning and heating, but not including electric current which is paid for directly to the utility by the user/tenant in the Building. (If and so long as Tenant is billed directly by the electric utility for its own consumption as determined by its separate meter, then Operating Costs shall include only Building and public area electric current consumption and not any demised premises electric current consumption. Wherever separate metering is unlawful, prohibited by utility company regulation or tariff or is otherwise impracticable, relevant consumption figures for the purposes of this Article 9 shall be determined by fair and reasonable allocations and engineering estimates made by Landlord. Furthermore, if and to the extent that the Operating-Costs-in-the-Base-Year figure shall include any component representing the cost to the Landlord of electric current supplied to any tenant's premises under so-called "rent-inclusion" lease arrangements, then if such cost is eliminated from Operating Costs in an Operating Year in accordance with the foregoing provisions, the figure for Operating Costs in the Base Year for the purposes of this Article 9 shall likewise be reduced by the amount for such cost component.) INSURANCE, ETC.: Fire, casualty, liability and such other insurance as may from time to time be required by lending institutions on first-class office buildings in the City or Town wherein the Building is located and all other expenses customarily incurred in connection with the operation and maintenance of first-class office buildings in the City or Town wherein the Building is located including, without limitation, rental costs associated with the Building's management office. 9.2 TAX EXCESS. If in any Tax Period the Taxes exceed the Tax Base, Tenant shall pay to Landlord Tenant's Proportionate Share of such excess, such amount being hereinafter referred to as "Tax Excess". Tax Excess shall be due when billed by Landlord. In implementation and not in limitation of the foregoing, Tenant shall remit to Landlord pro rata monthly installments on account of projected Tax Excess, calculated by Landlord on the basis of the most recent Tax data available. If the total of such monthly remittances on account of any Tax Period is greater than the actual Tax Excess for such Tax Period, Tenant may credit the difference against the next installment of rental or other charges due to Landlord hereunder. If the total of such remittances is less than the actual Tax Excess for such Tax Period, Tenant shall pay the difference to Landlord when billed therefor. Appropriate credit against Tax Excess shall be given for any refund obtained by reason of a reduction in any Taxes by the Assessors or the administrative, judicial or other governmental agency responsible therefor. The original computations, as well as reimbursement or payments of additional charges, if any, or allowances, if any, under the provisions of this Article 9.2 shall be based on the original assessed valuations with adjustments to be made at a later date when the tax refund, if any, shall be paid to Landlord by the taxing authorities. Expenditures for legal fees and for other similar or dissimilar expenses incurred in obtaining the tax refund may be charged against the tax refund before the adjustments are made for the Tax Period. 9.3 OPERATING EXPENSE EXCESS. If the Operating Costs in any Operating Year exceed the Operating Costs in the Base Year, Tenant shall pay to Landlord 17 Tenant's Proportionate Share of such excess, such amount being hereinafter referred to as "Operating Expense Excess." Operating Expense Excess shall be due when billed by Landlord. In implementation and not in limitation of the foregoing, Tenant shall remit to Landlord pro rata monthly installments on account of projected Operating Expense Excess, calculated by Landlord on the basis of the most recent Operating Costs data or budget available. If the total of such monthly remittances on account of any Operating Year is greater than the actual Operating Expense Excess for such Operating Year, Tenant may credit the difference against the next installment of rent or other charges due to Landlord hereunder. If the total of such remittances is less than actual Operating Expense Excess for such Operating Year, Tenant shall pay the difference to Landlord when billed therefor. 9.4 PART YEARS. If the Term Commencement Date or the Termination Date occurs in the middle of an Operating Year or Tax Period, Tenant shall be liable for only that portion of the Operating Expense or Tax Excess, as the case may be, in respect of such Operating Year or Tax Period represented by a fraction the numerator of which is the number of days of the herein term which falls within the Operating Year or Tax Period and the denominator of which is three hundred sixty-five (365), or the number of days in said Tax Period, as the case may be. 9.5 EFFECT OF TAKING. In the event of any taking of the Building or the land upon which it stands under circumstances whereby this Lease shall not terminate under the provisions of Article 20 then, for the purposes of determining Tax Excess, there shall be substituted for the Tax Base originally provided for herein a fraction of such Tax Base, the numerator of which fraction shall be the Taxes for the first Tax Period subsequent to the condemnation or taking which takes into account such condemnation or taking, and the denominator of which shall be the Taxes for the last Tax Period prior to the condemnation or taking, which did not take into account such condemnation or taking. Tenant's Proportionate Share shall be adjusted appropriately to reflect the proportion of the premises and/or the Building remaining after such taking. 9.6 DISPUTES, ETC. Any disputes arising under this Article 9 may, at the election of either party, be submitted to arbitration as hereinafter provided. Any obligations under this Article 9 which shall not have been paid at the expiration or sooner termination of the term of this Lease shall survive such expiration and shall be paid when and as the amount of same shall be determined to be due. 10. CHANGES OR ALTERATIONS BY LANDLORD Landlord reserves the right, exercisable by itself or its nominee, at any time and from time to time without the same constituting an actual or constructive eviction and without incurring any liability to Tenant therefor or otherwise affecting Tenant's obligations under this Lease, to make such changes, alterations, additions, improvements, repairs or replacements in or to the Building (including the premises) and the fixtures and equipment thereof, as well as in or to the street entrances, halls, passages, elevators, escalators, and stairways thereof, as it may deem necessary or desirable, and to change the arrangement and/or location of entrances or passageways, doors and doorways, and corridors, elevators, stairs, toilets, or other public parts of the Building, provided, however, that there be no unreasonable obstruction of the right of access to, or unreasonable interference with the use and enjoyment of, the premises by Tenant. Nothing contained in this Article 10 shall be deemed to relieve Tenant of any duty, obligation or liability of Tenant with respect to making any repair, replacement or improvement or complying with any law, order or requirement of any governmental or other authority. Landlord reserves the right to adopt and at any time and from time to time to change the name or address of the Building. Neither this Lease nor any use by Tenant shall give Tenant any right or easement for the use of any door or any passage or any concourse connecting with any other building or to 18 any public convenience, and the use of such doors, passages and concourses and of such conveniences may be regulated or discontinued at any time and from time to time by Landlord without notice to Tenant and without affecting the obligation of Tenant hereunder or incurring any liability to Tenant therefor, provided, however, that there be no unreasonable obstruction of the right of access to, or unreasonable interference with the use of the premises by Tenant. If at any time any windows of the premises are temporarily closed or darkened for any reason whatsoever including but not limited to, Landlord's own acts, Landlord shall not be liable for any damage Tenant may sustain thereby and Tenant shall not be entitled to any compensation therefor nor abatements of rent nor shall the same release Tenant from its obligations hereunder nor constitute an eviction. 11. FIXTURES, EQUIPMENT AND IMPROVEMENTS--REMOVAL BY TENANT All fixtures, equipment, improvements and appurtenances attached to or built into the premises prior to or during the term, whether by Landlord at its expense or at the expense of Tenant (either or both) or by Tenant shall be and remain part of the premises and shall not be removed by Tenant during or at the end of the term unless Landlord otherwise elects to require Tenant to remove such fixtures, equipment, improvements and appurtenances, in accordance with Articles 12 and/or 22 of the Lease. All electric, telephone, telegraph, communication, radio, plumbing, heating and sprinkling systems, fixtures and outlets, vaults, paneling, molding, shelving, radiator enclosures, cork, rubber, linoleum and composition floors, ventilating, silencing, air conditioning and cooling equipment, shall be deemed to be included in such fixtures, equipment, improvements and appurtenances, whether or not attached to or built into the premises. Where not built into the premises, all removable electric fixtures, carpets, drinking or tap water facilities, furniture, or trade fixtures or business equipment or Tenant's inventory or stock in trade shall not be deemed to be included in such fixtures, equipment, improvements and appurtenances and may be, and upon the request of Landlord will be, removed by Tenant upon the condition that such removal shall not materially damage the premises or the Building and that the cost of repairing any damage to the premises or the Building arising from installation or such removal shall be paid by Tenant. If this Lease shall be terminated by reason of Tenant's breach or default, then, notwithstanding anything to the contrary in this Lease contained, Landlord shall have a lien against all Tenant's property in the premises or elsewhere in the Building at the time of such termination to secure Landlord's rights under Article 21 hereof. Tenant shall, within ten (10) days of Landlord's written request, from time to time, execute and deliver to Landlord such documentation (e.g., UCC statements) as may be necessary to enable Landlord to perfect such lien. 12. ALTERATIONS AND IMPROVEMENTS BY TENANT Tenant shall make no alterations, decorations, installations, removals, additions or improvements in or to the premises without Landlord's prior written consent and then only those (i) which equal or exceed the specifications and quantities provided in Exhibit 3, and (ii) made by contractors or mechanics approved by Landlord. No installations or work shall be undertaken or begun by Tenant until: (i) Landlord has approved written plans and specifications and a time schedule for such work; (ii) Tenant has made provision for either written waivers of liens from all contractors, laborers and suppliers of materials for such installations or work, the filing of lien bonds on behalf of such contractors, laborers and suppliers, or other appropriate protective measures approved by Landlord; and (iii) Tenant has procured appropriate surety payment and performance bonds. No amendments or additions to such plans and specifications shall be made without the prior written consent of Landlord. Landlord's consent and approval required under this Article 12 shall not be unreasonably withheld. Landlord's approval is solely given for the benefit of Landlord and neither Tenant nor any third 19 party shall have the right to rely upon Landlord's approval of Tenant's plans for any purpose whatsoever. Without limiting the foregoing, Tenant shall be responsible for all elements of the design of Tenant's plans (including, without limitation, compliance with law, functionality of design, and the structural integrity of the design), and Landlord's approval of Tenant's plans shall in no event relieve Tenant of the responsibility for such design. Any such work, alterations, decorations, installations, removals, additions and improvements shall be done at Tenant's sole expense and at such times and in such manner as Landlord may from time to time designate. If Tenant shall make any alterations, decorations, installations, removals, additions or improvements then Landlord may elect to require the Tenant at the expiration or sooner termination of the term of this Lease to restore the premises to substantially the same condition as existed at the Term Commencement Date. Tenant shall pay, as an additional charge, the entire increase in real estate taxes on the Building which shall, at any time prior to or after the Term Commencement Date, result from or be attributable to any alteration, addition or improvement to the premises made by or for the account of Tenant in excess of the specifications and quantities provided in Exhibit 3. 13. TENANT'S CONTRACTORS--MECHANICS' AND OTHER LIENS--STANDARD OF TENANT'S PERFORMANCE--COMPLIANCE WITH LAWS Whenever Tenant shall make any alterations, decorations, installations, removals, additions or improvements in or to the premises--whether such work be done prior to or after the Term Commencement Date--Tenant will strictly observe the following covenants and agreements: (a) Tenant agrees that it will not, either directly or indirectly, use any contractors and/or materials if their use will create any difficulty, whether in the nature of a labor dispute or otherwise, with other contractors and/or labor engaged by Tenant or Landlord or others in the construction, maintenance and/or operation of the Building or any part thereof. (b) In no event shall any material or equipment be incorporated in or added to the premises, so as to become a fixture or otherwise a part of the Building, in connection with any such alteration, decoration, installation, addition or improvement which is subject to any lien, charge, mortgage or other encumbrance of any kind whatsoever or is subject to any security interest or any form of title retention agreement. No installations or work shall be undertaken or begun by Tenant until (i) Tenant has made provision for written waiver of liens from all contractors, laborers and suppliers of materials for such installations or work, and taken other appropriate protective measures approved by Landlord; and (ii) Tenant has procured appropriate surety payment and performance bonds which shall name Landlord as an additional obligee and has filed lien bond(s) (in jurisdictions where available) on behalf of such contractors, laborers and suppliers. Any mechanic's lien filed against the premises or the Building for work claimed to have been done for, or materials claimed to have been furnished to, Tenant shall be discharged by Tenant within ten (10) days thereafter, at Tenant's expense by filing the bond required by law or otherwise. If Tenant fails so to discharge any lien, Landlord may do so at Tenant's expense and Tenant shall reimburse Landlord for any expense or cost incurred by Landlord in so doing within fifteen (15) days after rendition of a bill therefor. (c) All installations or work done by Tenant shall be at its own expense and shall at all times comply with (i) laws, rules, orders and regulations of governmental authorities having jurisdiction thereof; (ii) orders, rules and regulations of any Board of Fire Underwriters, or any other body hereafter constituted exercising similar functions, and governing insurance rating bureaus; (iii) Rules and Regulations of Landlord; and (iv) plans and specifications prepared by and at the expense of Tenant theretofore submitted to and approved by Landlord. 20 (d) Tenant shall procure all necessary permits before undertaking any work in the premises; do all of such work in a good and workmanlike manner, employing materials of good quality and complying with all governmental requirements; and defend, save harmless, exonerate and indemnify Landlord from all injury, loss or damage to any person or property occasioned by or growing out of such work. Tenant shall cause contractors employed by Tenant to carry Worker's Compensation Insurance in accordance with statutory requirements, Automobile Liability Insurance and, naming Landlord as an additional insured, Commercial General Liability Insurance covering such contractors on or about the premises in the amounts stated in Article 15 hereof or in such other reasonable amounts as Landlord shall require and to submit certificates evidencing such coverage to Landlord prior to the commencement of such work. 14. REPAIRS BY TENANT--FLOOR LOAD 14.1 REPAIRS BY TENANT. Tenant shall keep all and singular the premises neat and clean (including periodic rug shampoo and waxing of tiled floors and cleaning of blinds and drapes) and in such repair, order and condition as the same are in on the Term Commencement Date or may be put in during the term hereof, reasonable use and wearing thereof and damage by fire or by other casualty excepted. Tenant shall make, as and when needed as a result of misuse by, or neglect or improper conduct of, Tenant or Tenant's servants, employees, agents, contractors, invitees, or licensees or otherwise, all repairs in and about the premises necessary to preserve them in such repair, order and condition, which repairs shall be in quality and class equal to the original work. Landlord may elect, at the expense of Tenant, to make any such repairs or to repair any damage or injury to the Building or the premises caused by moving property of Tenant in or out of the Building, or by installation or removal of furniture or other property, or by misuse by, or neglect, or improper conduct of, Tenant or Tenant's servants, employees, agents, contractors, or licensees. 14.2 FLOOR LOAD--HEAVY MACHINERY. Tenant shall not place a load upon any floor of the premises exceeding the floor load per square foot of area which such floor was designed to carry and which is allowed by law. Landlord reserves the right to prescribe the weight and position of all business machines and mechanical equipment, including safes, which shall be placed so as to distribute the weight. Business machines and mechanical equipment shall be placed and maintained by Tenant at Tenant's expense in settings sufficient in Landlord's judgment to absorb and prevent vibration, noise and annoyance. Tenant shall not move any safe, heavy machinery, heavy equipment, freight, bulky matter, or fixtures into or out of the Building without Landlord's prior written consent. If such safe, machinery, equipment, freight, bulky matter or fixtures requires special handling, Tenant agrees to employ only persons holding a Master Rigger's License to do said work, and that all work in connection therewith shall comply with applicable laws and regulations. Any such moving shall be at the sole risk and hazard of Tenant and Tenant will defend, indemnify and save Landlord harmless against and from any liability, loss, injury, claim or suit resulting directly or indirectly from such moving. Proper placement of all such business machines, etc., in the premises shall be Tenant's responsibility. 15. INSURANCE, INDEMNIFICATION, EXONERATION AND EXCULPATION 15.1 GENERAL LIABILITY INSURANCE. Tenant shall procure, and keep in force and pay for Commercial General Liability Insurance insuring Tenant on an occurrence basis against all claims and demands for personal injury liability (including, without limitation, bodily injury, sickness, disease, and death) or damage to property which may be claimed to have occurred from and after the time Tenant and/or its contractors enter the premises in accordance with Article 4 of this Lease, of not less than Two Million ($2,000,000) Dollars in the event of personal injury to any number of persons or damage to property, arising out of any one occurrence, and from time to time thereafter shall be 21 not less than such higher amounts, if procurable, as may be reasonably required by Landlord and are customarily carried by responsible similar tenants in the City or Town wherein the Building is located. 15.2 CERTIFICATES OF INSURANCE. Such insurance shall be effected with insurers approved by Landlord, authorized to do business in the State wherein the Building is situated under valid and enforceable policies wherein Tenant names Landlord and Landlord's managing agent as additional insureds. Such insurance shall provide that it shall not be cancelled or modified without at least thirty (30) days' prior written notice to each insured named therein. On or before the time Tenant and/or its contractors enter the premises in accordance with Articles 4 and 14 of this Lease and thereafter not less than fifteen (15) days prior to the expiration date of each expiring policy, original copies of the policies provided for in Article 15.1 issued by the respective insurers, or certificates of such policies setting forth in full the provisions thereof and issued by such insurers together with evidence satisfactory to Landlord of the payment of all premiums for such policies, shall be delivered by Tenant to Landlord and certificates as aforesaid of such policies shall upon request of Landlord, be delivered by Tenant to the holder of any mortgage affecting the premises. 15.3 GENERAL. Tenant will save Landlord, its agents and employees, harmless and will exonerate, defend and indemnify Landlord, its agents and employees, from and against any and all claims, liabilities or penalties asserted by or on behalf of any person, firm, corporation or public authority arising from the Tenant's breach of the Lease or: (a) On account of or based upon any injury to person, or loss of or damage to property, sustained or occurring on the premises on account of or based upon the act, omission, fault, negligence or misconduct of any person whomsoever (other than Landlord, its agents, contractors or employees); (b) On account of or based upon any injury to person, or loss of or damage to property, sustained or occurring elsewhere (other than on the premises) in or about the Building (and, in particular, without limiting the generality of the foregoing, on or about the elevators, stairways, public corridors, sidewalks, concourses, arcades, malls, galleries, vehicular tunnels, approaches, areaways, roof, or other appurtenances and facilities used in connection with the Building or premises) arising out of the use or occupancy of the Building or premises by the Tenant, or by any person claiming by, through or under Tenant, or on account of or based upon the act, omission, fault, negligence or misconduct of Tenant, its agents, employees or contractors; and (c) On account of or based upon (including monies due on account of) any work or thing whatsoever done (other than by Landlord or its contractors, or agents or employees of either) on the premises during the term of this Lease and during the period of time, if any, prior to the Term Commencement Date that Tenant may have been given access to the premises. (d) Tenant's obligations under this Article 15.3 shall be insured either under the Commercial General Liability Insurance required under Article 15.1, above, or by a contractual insurance rider or other coverage; and certificates of insurance in respect thereof shall be provided by Tenant to Landlord upon request. 15.4 PROPERTY OF TENANT. In addition to and not in limitation of the foregoing, Tenant covenants and agrees that, to the maximum extent permitted by law, all merchandise, furniture, fixtures and property of every kind, nature and description related or arising out of Tenant's leasehold estate hereunder, which may be in or upon the premises or Building, in the public corridors, or on the sidewalks, areaways and approaches adjacent thereto, shall be at the sole risk and hazard of Tenant, and that if the whole or any part thereof shall be damaged, destroyed, stolen or removed from any cause or 22 reason whatsoever no part of said damage or loss shall be charged to, or borne by, Landlord. 15.5 BURSTING OF PIPES, ETC. Landlord shall not be liable for any injury or damage to persons or property resulting from fire, explosion, falling plaster, steam, gas, electricity, electrical or electronic emanations or disturbance, water, rain or snow or leaks from any part of the Building or from the pipes, appliances, equipment or plumbing works or from the roof, street or sub-surface or from any other place or caused by dampness, vandalism, malicious mischief or by any other cause of whatever nature, unless caused by or due to the negligence of Landlord, its agents, servants or employees, and then only after (i) notice to Landlord of the condition claimed to constitute negligence and (ii) the expiration of a reasonable time after such notice has been received by Landlord without Landlord having taken all reasonable and practicable means to cure or correct such condition; and pending such cure or correction by Landlord, Tenant shall take all reasonably prudent temporary measures and safeguards to prevent any injury, loss or damage to persons or property. In no event shall Landlord be liable for any loss, the risk of which is covered by Tenant's insurance or is required to be so covered by this Lease; nor shall Landlord or its agents be liable for any such damage caused by other tenants or persons in the Building or caused by operations in construction of any private, public, or quasi-public work; nor shall Landlord be liable for any latent defect in the premises or in the Building; provided, however, that the foregoing shall not relieve Landlord of its obligation to perform maintenance and repairs pursuant to Article 8.7. 15.6 REPAIRS AND ALTERATIONS--NO DIMINUTION OF RENTAL VALUE. Except as otherwise provided in Article 18, there shall be no allowance to Tenant for diminution of rental value and no liability on the part of Landlord by reason of inconvenience, annoyance or injury to Tenant arising from any repairs, alterations, additions, replacements or improvements made by Landlord, or any related work, Tenant or others in or to any portion of the Building or premises or any property adjoining the Building, or in or to fixtures, appurtenances, or equipment thereof, or for failure of Landlord or others to make any repairs, alterations, additions or improvements in or to any portion of the Building, or of the premises, or in or to the fixtures, appurtenances or equipment thereof. 16. ASSIGNMENT, MORTGAGING AND SUBLETTING A. Tenant covenants and agrees that neither this Lease nor the term and estate hereby granted, nor any interest herein or therein, will be assigned, mortgaged, pledged, encumbered or otherwise transferred, voluntarily, by operation of law or otherwise, and that neither the premises, nor any part thereof will be encumbered in any manner by reason of any act or omission on the part of Tenant, or used or occupied, or permitted to be used or occupied, or utilized for desk space or for mailing privileges, by anyone other than Tenant, or for any use or purpose other than as stated in Exhibit 1, or be sublet, or offered or advertised for subletting. Notwithstanding the foregoing, it is hereby expressly understood and agreed however, if Tenant is a corporation, that the assignment or transfer of this Lease, and the term and estate hereby granted, to any corporation into which Tenant is merged or with which Tenant is consolidated which corporation shall have a net worth at least equal to that of Tenant immediately prior to such merger or consolidation (such corporation being hereinafter called "Assignee"), shall not be deemed to be prohibited hereby if, and upon the express condition that Assignee and Tenant shall promptly execute, acknowledge and deliver to Landlord an agreement in form and substance satisfactory to Landlord whereby Assignee shall agree to be independently bound by and upon all the covenants, agreements, terms, provisions and conditions set forth in this Lease on the part of Tenant to be performed, and whereby Assignee shall expressly agree that the provisions of this Article 16 shall, notwithstanding such assignment 23 or transfer, continue to be binding upon it with respect to all future assignments and transfers. B. Notwithstanding anything to the contrary in the Lease contained: A. Tenant shall, prior to offering or advertising the premises, or any portion thereof for sublease or assignment give Landlord a Recapture Offer, as hereinafter defined. B. For the purposes hereof a "Recapture Offer" shall be defined as a notice in writing from Tenant to Landlord which: 1. States that Tenant desires to sublet the premises, or a portion thereof, or to assign its interest in this Lease. 2. Identifies the affected portion of the premises ("Recapture Premises"). 3. Identifies the period of time ("Recapture Period") during which Tenant proposes to sublet the Recapture Premises or to assign its interest in the Lease. 4. Offers to Landlord to terminate the Lease in respect of the Recapture Premises (in the case of a proposed assignment of Tenant's interest in the Lease or a subletting for the remainder of the term of the Lease) or to suspend the term of the Lease PRO TANTO in respect of the Recapture Period (i.e. the term of the Lease in respect of the Recapture Premises shall be terminated during the Recapture Period and Tenant's rental obligations shall be reduced in proportion to the ratio of the Total Rentable Area of the Recapture Premises to the Total Rentable Area of the premises then demised to Tenant). C. Landlord shall have sixty (60) days to accept a Recapture Offer. If Landlord does not timely give written notice to Tenant accepting a Recapture Offer, then Landlord agrees that it will not unreasonably withhold or delay its consent to a sublease of the Recapture Premises for the Recapture Period, or an assignment of Tenant's interest in the Lease, as the case may be, to a Qualified Transferee, as hereinafter defined. D. For the purposes hereof, a "Qualified Transferee" shall be defined as a person, firm or corporation which, in Landlord's reasonable opinion: 1. is financially responsible and of good reputation; 2. is engaged in a business, the functional aspects of which, with respect to the premises, are similar to the use of other premises made by other office space tenants in Wellesley Office Park; and 24 3. is not a tenant or subtenant of premises in Wellesley Office Park. E. Notwithstanding anything to the contrary in this Paragraph B contained: 1. If Tenant is in default of its obligations under the Lease at the time that it makes the aforesaid offer to Landlord, such default shall be deemed to be a "reasonable" reason for Landlord withholding its consent to any proposed subletting or assignment; and 2. If Tenant does not enter into a sublease with a subtenant (or an assignment to an assignee, as the case may be) approved by Landlord, as aforesaid, on or before the date which is one hundred fifty (150) days after the earlier of: (x) the expiration of said sixty (60) day period, or (y) the date that Landlord notifies Tenant that Landlord will not accept Tenant's offer to terminate or suspend the Lease, then Landlord shall have the right arbitrarily to withhold its consent to any subletting or assignment proposed to be entered into by Tenant after the expiration of said one hundred fifty (150) day period unless Tenant again offers, in accordance with this Paragraph B, either to terminate or to suspend the Lease in respect of the portion of the premises proposed to be sublet (or in respect of the entirety of the premises in the event of a proposed assignment, as the case may be). If Tenant shall make any subsequent offers to terminate or suspend the Lease pursuant to this Paragraph B, any such subsequent offers shall be treated in all respects as if it is Tenant's first offer to suspend or terminate the Lease pursuant to this Paragraph B, provided that the period of time Landlord shall have in which to accept or reject such subsequent offer shall be thirty (30) days. F. No subletting or assignment shall relieve Tenant of its primary obligation as party-Tenant hereunder, nor shall it reduce or increase Landlord's obligations under the Lease. C. If Tenant is an individual who uses and/or occupies the premises with partners, or if Tenant is a partnership, then: (i) Each present and future partner shall be personally bound by and upon all of the covenants, agreements, terms, provisions and conditions set forth in this Lease on the part of Tenant to be performed; and (ii) In confirmation of the foregoing, Landlord may (but without being required to do so) request (and Tenant shall duly comply) that Tenant, at the time that Tenant admits any new partner to its partnership, shall require each such new partner to execute an agreement in form and substance satisfactory to Landlord whereby such new partner shall agree to be personally bound by and upon all of the covenants, agreements, terms, provisions and conditions of this Lease on the part of Tenant to be performed, without regard to the time when such new partner is admitted to partnership or when any obligations under any such covenants, etc., accrue. 25 D. The listing of any name other than that of Tenant, whether on the doors of the premises or on the Building directory, or otherwise, shall not operate to vest in any such other person, firm or corporation any right or interest in this Lease or in the premises or be deemed to effect or evidence any consent of Landlord, it being expressly understood that any such listing is a privilege extended by Landlord revocable at will by written notice to Tenant. E. If this Lease be assigned, or if the premises or any part thereof be sublet or occupied by anybody other than Tenant, Landlord may, at any time and from time to time, collect rent and other charges from the assignee, subtenant or occupant, and apply the net amount collected to the rent and other charges herein reserved then due and thereafter becoming due, but no such assignment, subletting, occupancy or collection shall be deemed a waiver of this covenant, or the acceptance of the assignee, subtenant or occupant as a tenant, or a release of Tenant from the further performance by Tenant of covenants on the part of Tenant herein contained. Any consent by Landlord to a particular assignment or subletting shall not in any way diminish the prohibition stated in the first sentence of this Article 16 or the continuing liability of the Tenant named on Exhibit 1 as the party Tenant under this Lease. No assignment or subletting or use of the premises by an affiliate of Tenant shall affect the purpose for which the premises may be used as stated in Exhibit 1. 17. MISCELLANEOUS COVENANTS Tenant covenants and agrees as follows: 17.1 RULES AND REGULATIONS. Tenant will faithfully observe and comply with the Rules and Regulations, if any, annexed hereto and such other and further reasonable Rules and Regulations as Landlord hereafter at any time or from time to time may make and may communicate in writing to Tenant, which in the reasonable judgment of Landlord shall be necessary for the reputation, safety, care or appearance of the Building, or the preservation of good order therein, or the operation or maintenance of the Building, or the equipment thereof, or the comfort of tenants or others in the Building, provided, however, that in the case of any conflict between the provisions of this Lease and any such regulations, the provisions of this Lease shall control, and provided further that nothing contained in this Lease shall be construed to impose upon Landlord any duty or obligation to enforce the Rules and Regulations or the terms, covenants or conditions in any other lease as against any other tenant and Landlord shall not be liable to Tenant for violation of the same by any other tenant, its servants, employees, agents, contractors, visitors, invitees or licensees. 17.2 ACCESS TO PREMISES--SHORING. Tenant shall: (i) permit Landlord to erect, use and maintain pipes, ducts and conduits in and through the premises, provided the same do not materially reduce the floor area or materially adversely affect the appearance thereof; (ii) upon prior oral notice (except that no notice shall be required in emergency situations), permit Landlord and any mortgagee of the Building or the Building and land or of the interest of Landlord therein, and any lessor under any ground or underlying lease, and their representatives, to have free and unrestricted access to and to enter upon the premises at all reasonable hours for the purposes of inspection or of making repairs, replacements or improvements in or to the premises or the Building or equipment (including, without limitation, sanitary, electrical, heating, air conditioning or other systems) or of complying with all laws, orders and requirements of governmental or other authority or of exercising any right reserved to Landlord by this Lease (including the right during the progress of any such repairs, replacements or improvements or while performing work and furnishing materials in connection with compliance with any such laws, orders or requirements to take upon or through, or to keep and store within, the premises all necessary materials, 26 tools and equipment); and (iii) permit Landlord, at reasonable times, to show the premises during ordinary business hours to any existing or prospective mortgagee, ground lessor, space lessee, purchaser, or assignee of any mortgage, of the Building or of the Building and the land or of the interest of Landlord therein, and during the period of 12 months next preceding the Termination Date to any person contemplating the leasing of the premises or any part thereof. If, during the last month of the term, Tenant shall have removed all or substantially all of Tenant's property therefrom, Landlord may immediately enter and alter, renovate and redecorate the premises, without elimination or abatement of rent, or incurring liability to Tenant for any compensation, and such acts shall have no effect upon this Lease. If Tenant shall not be personally present to open and permit an entry into the premises at any time when for any reason an entry therein shall be necessary or permissible, Landlord or Landlord's agents may enter the same by a master key, or may forcibly enter the same, without rendering Landlord or such agents liable therefor (if during such entry Landlord or Landlord's agents shall accord reasonable care to Tenant's property), and without in any manner affecting the obligations and covenants of this Lease. Provided that Landlord shall incur no additional expense thereby, Landlord shall exercise its rights of access to the premises permitted under any of the terms and provisions of this Lease in such manner as to minimize to the extent practicable interference with Tenant's use and occupation of the premises. If an excavation shall be made upon land adjacent to the premises or shall be authorized to be made, Tenant shall afford to the person causing or authorized to cause such excavation, license to enter upon the premises for the purpose of doing such work as said person shall deem necessary to preserve the Building from injury or damage and to support the same by proper foundations without any claims for damages or indemnity against Landlord, or diminution or abatement of rent. 17.3 ACCIDENTS TO SANITARY AND OTHER SYSTEMS. Tenant shall give to Landlord prompt notice of any fire or accident in the premises or in the Building and of any damage to, or defective condition in, any part or appurtenance of the Building including, without limitation, sanitary, electrical, heating and air conditioning or other systems located in, or passing through, the premises. Except as otherwise provided in Articles 18 and 20, and subject to Tenant's obligations in Article 14, such damage or defective condition shall be remedied by Landlord with reasonable diligence, but if such damage or defective condition was caused by Tenant or by the employees, licensees, contractors or invitees of Tenant, the cost to remedy the same shall be paid by Tenant. Tenant shall not be entitled to claim any eviction from the premises or any damages arising from any such damage or defect unless the same (i) shall have been occasioned by the negligence of the Landlord, its agents, servants or employees and (ii) shall not, after notice to Landlord of the condition claimed to constitute negligence, have been cured or corrected within a reasonable time after such notice has been received by Landlord; and in case of a claim of eviction unless such damage or defective condition shall have rendered the premises untenantable and they shall not have been made tenantable by Landlord within a reasonable time. 17.4 SIGNS, BLINDS AND DRAPES. Tenant shall put no signs in any part of the Building. No signs or blinds may be put on or in any window or elsewhere if visible from the exterior of the Building, nor may the building standard drapes or blinds be removed by Tenant. Tenant may hang its own drapes, provided that they shall not in any way interfere with the building standard drapery or blinds or be visible from the exterior of the Building and that such drapes are so hung and installed that when drawn, the building standard drapery or blinds are automatically also drawn. Any signs or lettering in the public corridors or on the doors shall conform to Landlord's building standard design. Neither Landlord's name, nor the name of the Building or any Center, Office Park or other complex of which the Building is a part, or the name of any other structure erected therein shall be used without Landlord's consent in any advertising material (except on business stationery or as an address in advertising matter), nor shall any such name, 27 as aforesaid, be used in any undignified, confusing, detrimental or misleading manner. 17.5 ESTOPPEL CERTIFICATE. Tenant shall at any time and from time to time upon not less than ten (10) days' prior notice by Landlord to Tenant, execute, acknowledge and deliver to Landlord a statement in writing certifying that this Lease is unmodified and in full force and effect (or if there have been modifications, that the same is in full force and effect as modified and stating the modifications), and the dates to which the Yearly Rent and other charges have been paid in advance, if any, stating whether or not Landlord is in default in performance of any covenant, agreement, term, provision or condition contained in this Lease and, if so, specifying each such default and such other facts as Landlord may reasonably request, it being intended that any such statement delivered pursuant hereto may be relied upon by any prospective purchaser of the Building or of the Building and the land or of any interest of Landlord therein, any mortgagee or prospective mortgagee thereof, any lessor or prospective lessor thereof, any lessee or prospective lessee thereof, or any prospective assignee of any mortgage thereof. Time is of the essence in respect of any such requested certificate, Tenant hereby acknowledging the importance of such certificates in mortgage financing arrangements, prospective sale and the like. Tenant hereby appoints Landlord Tenant's attorney-in-fact in its name and behalf to execute such statement if Tenant shall fail to execute such statement within such ten-(10)-day period. 17.6 PROHIBITED MATERIALS AND PROPERTY. Tenant shall not bring or permit to be brought or kept in or on the premises or elsewhere in the Building (i) any inflammable, combustible or explosive fluid, material, chemical or substance including, without limitation, any hazardous substances as defined under Massachusetts General Laws chapter 21E, the Federal Comprehensive Environmental Response Compensation and Liability Act (CERCLA), 42 USC 9601 ET SEQ., as amended, under Section 3001 of the Federal Resource Conservation and Recovery Act of 1976, as amended, or under any regulation of any governmental authority regulating environmental or health matters (except for standard office supplies stored in proper containers), (ii) any material (including, without limitation, materials selected by Tenant for the construction or other preparation of the premises and furniture and carpeting) which pose any danger to life, safety or health or may cause damage, injury or death; (iii) any unique, unusually valuable, rare or exotic property, work of art or the like unless the same is fully insured under all-risk coverage, or (iv) any data processing, electronic, optical or other equipment or property of a delicate, fragile or vulnerable nature unless the same are housed, shielded and protected against harm and damage, whether by cleaning or maintenance personnel, radiations or emanations from other equipment now or hereafter installed in the Building, or otherwise. Nor shall Tenant cause or permit any odors of cooking or other processes, or any unusual or other objectionable odors to emanate from or permeate the premises. 17.7 REQUIREMENTS OF LAW--FINES AND PENALTIES. Tenant at its sole expense shall comply with all laws, rules, orders and regulations, including, without limitation, all energy-related requirements, of Federal, State, County and Municipal Authorities and with any direction of any public officer or officers, pursuant to law, which shall impose any duty upon Landlord or Tenant with respect to or arising out of Tenant's use or occupancy of the premises. Tenant shall reimburse and compensate Landlord for all expenditures made by, or damages or fines sustained or incurred by, Landlord due to nonperformance or noncompliance with or breach or failure to observe any item, covenant, or condition of this Lease upon Tenant's part to be kept, observed, performed or complied with. If Tenant receives notice of any violation of law, ordinance, order or regulation applicable to the premises, it shall give prompt notice thereof to Landlord. 17.8 TENANT'S ACTS--EFFECT ON INSURANCE. Tenant shall not do or permit to be done any act or thing upon the premises or elsewhere in the Building which will invalidate or be in conflict with any insurance policies covering 28 the Building and the fixtures and property therein; and shall not do, or permit to be done, any act or thing upon the premises which shall subject Landlord to any liability or responsibility for injury to any person or persons or to property by reason of any business or operation being carried on upon said premises or for any other reason. Tenant at its own expense shall comply with all rules, orders, regulations and requirements of the Board of Fire Underwriters, or any other similar body having jurisdiction, and shall not (i) do, or permit anything to be done, in or upon the premises, or bring or keep anything therein, except as now or hereafter permitted by the Fire Department, Board of Underwriters, Fire Insurance Rating Organization, or other authority having jurisdiction, and then only in such quantity and manner of storage as will not increase the rate for any insurance applicable to the Building, or (ii) use the premises in a manner which shall increase such insurance rates on the Building, or on property located therein, over that applicable when Tenant first took occupancy of the premises hereunder. If by reason of the failure of Tenant to comply with the provisions hereof the insurance rate applicable to any policy of insurance shall at any time thereafter be higher than it otherwise would be, the Tenant shall reimburse Landlord for that part of any insurance premiums thereafter paid by Landlord, which shall have been charged because of such failure by Tenant. Landlord represents and warrants to Tenant that, to the best of Landlord's knowledge, the Building complies with all applicable laws, rules, orders, regulations, energy requirements, etc., in effect as of the Execution Date of this Lease. 17.9 Miscellaneous. Tenant shall not suffer or permit the premises or any fixtures, equipment or utilities therein or serving the same, to be overloaded, damaged or defaced, nor permit any hole to be drilled or made in any part thereof. Tenant shall not suffer or permit any employee, contractor, business invitee or visitor to violate any covenant, agreement or obligations of the Tenant under this Lease. 18. DAMAGE BY FIRE, ETC. A. During the entire term of this Lease, and adjusting insurance coverages to reflect current values from time to time:--(i) Landlord shall keep the Building (excluding work, installations, improvements and betterments in the premises which exceed the specifications provided in Exhibit 3, [called "Over-Building-Standard Property"] and any other property installed by or at the expense of Tenant) insured against loss or damage caused by any peril covered under fire, extended coverage and all risk insurance in an amount equal to at least eighty percent (80%) of the full insurable value thereof above foundation walls; and (ii) Tenant shall keep its personal property in and about the premises and the Over-Building-Standard Property insured against loss or damage caused by any peril covered under fire, extended coverage and all risk insurance in an amount equal to at least eighty percent (80%) of the full insurable value thereof. Such Tenant's insurance shall insure the interests of both Landlord and Tenant as their respective interests may appear from time to time and shall name Landlord as an additional insured; and the proceeds thereof shall be used only for the replacement or restoration of such personal property and the Over-Building-Standard Property. B. If any portion of the premises required to be insured by Landlord under the preceding paragraph shall be damaged by fire or other insured casualty, Landlord shall proceed with diligence, subject to the then applicable statutes, building codes, zoning ordinances, and regulations of any governmental authority, and at the expense of Landlord (but only to the extent of insurance proceeds made available to Landlord by any mortgagee and/or ground lessor of the real property of which the premises are a part) to repair or cause to be repaired such damage, provided, however, in respect of any over-Building Standard Property as shall have been damaged by such fire or 29 other casualty and which (in the judgment of Landlord) can more effectively be repaired as an integral part of Landlord's repair work on the premises, that such repairs to such Tenant's alterations, decorations, additions and improvements shall be performed by Landlord but at Tenant's expense; in all other respects, all repairs to and replacements of Tenant's property and Over-Building-Standard Property shall be made by and at the expense of Tenant. If the premises or any part thereof shall have been rendered unfit for use and occupation hereunder by reason of such damage the Yearly Rent or a just and proportionate part thereof, according to the nature and extent to which the premises shall have been so rendered unfit, shall be suspended or abated until the premises (except as to the property which is to be repaired by or at the expense of Tenant) shall have been restored as nearly as practicably may be to the condition in which they were immediately prior to such fire or other casualty, provided, however, that if Landlord or any mortgagee of the Building or of the Building and the land shall be unable to collect the insurance proceeds (including rent insurance proceeds) applicable to such damage because of some action or inaction on the part of Tenant, or the employees, licensees or invitees of Tenant, the cost of repairing such damage shall be paid by Tenant and there shall be no abatement of rent. Landlord shall not be liable for delays in the making of any such repairs which are due to government regulation, casualties and strikes, unavailability of labor and materials, and other causes beyond the reasonable control of Landlord, nor shall Landlord be liable for any inconvenience or annoyance to Tenant or injury to the business of Tenant resulting from delays in repairing such damage. If (i) the premises are so damaged by fire or other casualty (whether or not insured) at any time during the last thirty months of the term hereof that the cost to repair such damage is reasonably estimated to exceed one third of the total Yearly Rent payable hereunder for the period from the estimated date of restoration until the Termination Date, or (ii) the Building (whether or not including any portion of the premises) is so damaged by fire or other casualty (whether or not insured) that substantial alteration or reconstruction or demolition of the Building shall in Landlord's judgment be required, then and in either of such events, this Lease and the term hereof may be terminated at the election of Landlord by a notice in writing of its election so to terminate which shall be given by Landlord to Tenant within sixty (60) days following such fire or other casualty, the effective termination date of which shall be not less than thirty (30) days after the day on which such termination notice is received by Tenant. In the event of any termination, this Lease and the term hereof shall expire as of such effective termination date as though that were the Termination Date as stated in Exhibit 1 and the Yearly Rent shall be apportioned as of such date; and if the premises or any part thereof shall have been rendered unfit for use and occupation by reason of such damage the Yearly Rent for the period from the date of the fire or other casualty to the effective termination date, or a just and proportionate part thereof, according to the nature and extent to which the premises shall have been so rendered unfit, shall be abated. C. In the event that the premises or the Building are damaged by fire or other casualty to such an extent so as to render the premises untenantable, and if Landlord shall fail to substantially complete said repairs or restoration within one hundred fifty (150) days after the date of such fire or other casualty for any reason other than Tenant's fault, Tenant may terminate this Lease by giving Landlord written notice as follows: (a) Said notice shall be given after said one hundred fifty (150) day period. (b) Said notice shall set forth an effective date which is not earlier than thirty (30) days after Landlord receives said notice. (c) If said repairs or restoration are substantially complete on or before the date thirty (30) days (which thirty-(30)-day period 30 shall be extended by the length of any delays caused by Tenant or Tenant's contractors) after Landlord receives such notice, said notice shall have no further force and effect. (d) If said repairs or restoration are not substantially complete on or before the date thirty (30) days (which thirty-(30)-day period shall be extended by the length of any delays caused by Tenant or Tenant's contractors) after Landlord receives such notice, the Lease shall terminate as of said effective date. 19. WAIVER OF SUBROGATION In any case in which Tenant shall be obligated to pay to Landlord any loss, cost, damage, liability, or expense suffered or incurred by Landlord, Landlord shall allow to Tenant as an offset against the amount thereof (i) the net proceeds of any insurance collected by Landlord for or on account of such loss, cost, damage, liability or expense, provided that the allowance of such offset does not invalidate or prejudice the policy or policies under which such proceeds were payable, and (ii) if such loss, cost, damage, liability or expense shall have been caused by a peril against which Landlord has agreed to procure insurance coverage under the terms of this Lease, the amount of such insurance coverage, whether or not actually procured by Landlord. In any case in which Landlord or Landlord's managing agent shall be obligated to pay to Tenant any loss, cost, damage, liability or expense suffered or incurred by Tenant, Tenant shall allow to Landlord or Landlord's managing agent, as the case may be, as an offset against the amount thereof (i) the net proceeds of any insurance collected by Tenant for or on account of such loss, cost, damage, liability, or expense, provided that the allowance of such offset does not invalidate the policy or policies under which such proceeds were payable and (ii) the amount of any loss, cost, damage, liability or expense caused by a peril covered by fire insurance with the broadest form of property insurance generally available on property in buildings of the type of the Building, whether or not actually procured by Tenant. The parties hereto shall each procure an appropriate clause in, or endorsement on, any property insurance policy covering the premises and the Building and personal property, fixtures and equipment located thereon and therein, pursuant to which the insurance companies waive subrogation or consent to a waiver of right of recovery in favor of either party, its respective agents or employees. Having obtained such clauses and/or endorsements, each party hereby agrees that it will not make any claim against or seek to recover from the other or its agents or employees for any loss or damage to its property or the property of others resulting from fire or other perils covered by such property insurance. 20. CONDEMNATION - EMINENT DOMAIN In the event that the premises or any part thereof, or the whole or any part of the Building, shall be taken or appropriated by eminent domain or shall be condemned for any public or quasi-public use, or (by virtue of any such taking, appropriation or condemnation) shall suffer any damage (direct, indirect or consequential) for which Landlord or Tenant shall be entitled to compensation, then (and in any such event) this Lease and the term hereof may be terminated at the election of Landlord by a notice in writing of its election so to terminate which shall be given by Landlord to Tenant within sixty (60) days following the date on which Landlord shall have received notice of such taking, appropriation or condemnation. In the event that a substantial part of the premises or of the means of access thereto shall be so taken, appropriated or condemned, then (and in any such event) this Lease and the term hereof may be terminated at the election of Tenant by a notice in 31 writing of its election so to terminate which shall be given by Tenant to Landlord within sixty (60) days following the date on which Tenant shall have received notice of such taking, appropriation or condemnation. Upon the giving of any such notice of termination (either by Landlord or Tenant) this Lease and the term hereof shall terminate on or retroactively as of the date on which Tenant shall be required to vacate any part of the premises or shall be deprived of a substantial part of the means of access thereto, provided, however, that Landlord may in Landlord's notice elect to terminate this Lease and the term hereof retroactively as of the date on which such taking, appropriation or condemnation became legally effective. In the event of any such termination, this Lease and the term hereof shall expire as of such effective termination date as though that were the Termination Date as stated in Exhibit 1, and the Yearly Rent shall be apportioned as of such date. If neither party (having the right so to do) elects to terminate Landlord will, with reasonable diligence and at Landlord's expense, restore the remainder of the premises, or the remainder of the means of access, as nearly as practicably may be to the same condition as obtained prior to such taking, appropriation or condemnation in which event (i) the Total Rentable Area shall be adjusted as in Exhibit 5 provided, (ii) a just proportion of the Yearly Rent, according to the nature and extent of the taking, appropriation or condemnation and the resulting permanent injury to the premises and the means of access thereto, shall be permanently abated, and (iii) a just proportion of the remainder of the Yearly Rent, according to the nature and extent of the taking, appropriation or condemnation and the resultant injury sustained by the premises and the means of access thereto, shall be abated until what remains of the premises and the means of access thereto shall have been restored as fully as may be for permanent use and occupation by Tenant hereunder. Except for any award specifically reimbursing Tenant for moving or relocation expenses, there are expressly reserved to Landlord all rights to compensation and damages created, accrued or accruing by reason of any such taking, appropriation or condemnation, in implementation and in confirmation of which Tenant does hereby acknowledge that Landlord shall be entitled to receive all such compensation and damages, grant to Landlord all and whatever rights (if any) Tenant may have to such compensation and damages, and agree to execute and deliver all and whatever further instruments of assignment as Landlord may from time to time request. In the event of any taking of the premises or any part thereof for temporary use, (i) this Lease shall be and remain unaffected thereby, and (ii) Tenant shall be entitled to receive for itself any award made for such use, provided, that if any taking is for a period extending beyond the term of this Lease, such award shall be apportioned between Landlord and Tenant as of the Termination Date or earlier termination of this Lease. 21. DEFAULT 21.1 CONDITIONS OF LIMITATION - RE-ENTRY - TERMINATION. This Lease and the herein term and estate are, upon the condition that if (a) subject to Article 21.7, Tenant shall neglect or fail to perform or observe any of the Tenant's covenants or agreements herein, including (without limitation) the covenants or agreements with regard to the payment when due of rent, additional charges, reimbursement for increase in Landlord's costs, or any other charge payable by Tenant to Landlord (all of which shall be considered as part of Yearly Rent for the purposes of invoking Landlord's statutory or other rights and remedies in respect of payment defaults); or (b) Tenant shall desert or abandon the premises or the same shall become, or shall appear to have become, vacant (whether or not the keys shall have been surrendered or the rent shall have been paid); or (c) Tenant shall be involved in financial difficulties as evidenced by an admission in writing by Tenant of Tenant's inability to pay its debts generally as they become due, or by the making or offering to make a composition of its debts with its creditors; or (d) Tenant shall make an assignment or trust mortgage, or other conveyance or transfer of like nature, of all or a substantial part of its property for the benefit of its creditors, or (e) an attachment on mesne process, on execution or 32 otherwise, or other legal process shall issue against Tenant or its property and a sale of any of its assets shall be held thereunder; or (f) any judgment, final beyond appeal or any lien, attachment or the like shall be entered, recorded or filed against Tenant in any court, registry, etc. and Tenant shall fail to pay such judgment within thirty (30) days after the judgment shall have become final beyond appeal or to discharge or secure by surety bond such lien, attachment, etc. within thirty (30) days of such entry, recording or filing, as the case may be; or (g) the leasehold hereby created shall be taken on execution or by other process of law and shall not be revested in Tenant within thirty (30) days thereafter; or (h) a receiver, sequesterer, trustee or similar officer shall be appointed by a court of competent jurisdiction to take charge of all or any part of Tenant's property and such appointment shall not be vacated within thirty (30) days; or (i) any proceeding shall be instituted by or against Tenant pursuant to any of the provisions of any Act of Congress or State law relating to bankruptcy, reorganizations, arrangements, compositions or other relief from creditors, and, in the case of any proceeding instituted against it, if Tenant shall fail to have such proceedings dismissed within thirty (30) days or if Tenant is adjudged bankrupt or insolvent as a result of any such proceeding, or (j) any event shall occur or any contingency shall arise whereby this Lease, or the term and estate thereby created, would (by operation of law or otherwise) devolve upon or pass to any person, firm or corporation other than Tenant, except as expressly permitted under Article 16 hereof - then, and in any such event (except as hereinafter in Article 21.2 otherwise provided) Landlord may, by notice to Tenant, elect to terminate this Lease; and thereupon (and without prejudice to any remedies which might otherwise be available for arrears of rent or other charges due hereunder or preceding breach of covenant or agreement and without prejudice to Tenant's liability for damages as hereinafter stated), upon the giving of such notice, this Lease shall terminate as of the date specified therein as though that were the Termination Date as stated in Exhibit 1. Without being taken or deemed to be guilty of any manner of trespass or conversion, and without being liable to indictment, prosecution or damages therefor, Landlord may, forcibly if necessary, enter into and upon the premises (or any part thereof in the name of the whole); repossess the same as of its former estate; and expel Tenant and those claiming under Tenant. Wherever "Tenant " is used in subdivisions (c), (d), (e), (f), (g), (h) and (i) of this Article 21.1, it shall be deemed to include any one of (i) any corporation of which Tenant is a controlled subsidiary and (ii) any guarantor of any of Tenant's obligations under this Lease. The words "re-entry" and "re-enter" as used in this Lease are not restricted to their technical legal meanings. 21.2 DAMAGES - ASSIGNMENT FOR BENEFIT OF CREDITORS. For the more effectual securing to Landlord of the rent and other charges and payments reserved hereunder, it is agreed as a further condition of this Lease that if at any time Tenant shall make any transfer similar to or in the nature of an assignment of its property for the benefit of its creditors, the term and estate hereby created shall terminate ipso facto, without entry or other action by Landlord; and notwithstanding any other provisions of this Lease, Landlord shall forthwith upon such termination, without prejudice to any remedies which might otherwise be available for arrears of rent or other charges due hereunder or preceding breach of this Lease, be ipso facto entitled to recover as liquidated damages the sum of (a) the amount described in clause (x) of Article 21.3 and (b) (in view of the uncertainty of prompt re-letting and the expense entailed in re-letting the premises) an amount equal to the rent and other charges payable for and in respect of the twelve-(12)-month period next preceding the date of termination, as aforesaid. 21.3 DAMAGES - TERMINATION. Upon the termination of this Lease under the provisions of this Article 21, then except as hereinabove in Article 21.2 otherwise provided, Tenant shall pay to Landlord the rent and other charges payable by Tenant to Landlord up to the time of such termination, shall continue to be liable for any preceding breach of covenant, and in addition, shall pay to Landlord as damages, at the election of Landlord 33 either: (x) the amount by which, at the time of the termination of this Lease (or at any time thereafter if Landlord shall have initially elected damages under subparagraph (y), below), (i) the aggregate of the rent and other charges projected over the period commencing with such termination and ending on the Termination Date as stated in Exhibit 1 exceeds (ii) the aggregate projected rental value of the premises for such period; or: (y) amounts equal to the rent and other charges which would have been payable by Tenant had this Lease not been so terminated, payable upon the due dates therefor specified herein following such termination and until the Termination Date as specified in Exhibit 1, provided, however, if Landlord shall re-let the premises during such period, that Landlord shall credit Tenant with the net rents received by Landlord from such re-letting, such net rents to be determined by first deducting from the gross rents as and when received by Landlord from such re-letting the expenses incurred or paid by Landlord in terminating this Lease, as well as the expenses of re-letting, including altering and preparing the premises for new tenants, brokers' commissions, and all other similar and dissimilar expenses properly chargeable against the premises and the rental therefrom, it being understood that any such re-letting may be for a period equal to or shorter or longer than the remaining term of this Lease; and provided, further, that (i) in no event shall Tenant be entitled to receive any excess of such net rents over the sums payable by Tenant to Landlord hereunder and (ii) in no event shall Tenant be entitled in any suit for the collection of damages pursuant to this Subparagraph (y) to a credit in respect of any net rents from a re-letting except to the extent that such net rents are actually received by Landlord prior to the commencement of such suit. If the premises or any part thereof should be re-let in combination with other space, then proper apportionment on a square foot area basis shall be made of the rent received from such re-letting and of the expenses of re-letting. In calculating the rent and other charges under Subparagraph (x), above, there shall be included, in addition to the Yearly Rent, Tax Excess and Operating Expense Excess and all other considerations agreed to be paid or performed by Tenant, on the assumption that all such amounts and considerations would have remained constant (except as herein otherwise provided) for the balance of the full term hereby granted. Suit or suits for the recovery of such damages, or any installments thereof, may be brought by Landlord from time to time at its election, and nothing contained herein shall be deemed to require Landlord to postpone suit until the date when the term of this Lease would have expired if it had not been terminated hereunder. Nothing herein contained shall be construed as limiting or precluding the recovery by Landlord against Tenant of any sums or damages to which, in addition to the damages particularly provided above, Landlord may lawfully be entitled by reason of any default hereunder on the part of Tenant. 21.4 FEES AND EXPENSES. (a) If Tenant shall default in the performance of any covenant on Tenant's part to be performed as in this Lease contained, Landlord may immediately, or at any time thereafter, without notice, perform the same for the account of Tenant. If Landlord at any time is compelled to pay or elects to pay any sum of money, or do any act which will require the payment of any sum of money, by reason of the failure of Tenant to comply with any provision hereof, or if Landlord is compelled to or does incur any expense, including 34 reasonable attorneys' fees, in instituting, prosecuting, and/or defending any action or proceeding instituted by reason of any default of Tenant hereunder, Tenant shall on demand pay to Landlord by way of reimbursement the sum or sums so paid by Landlord with all costs and damages, plus interest computed as provided in Article 6 hereof. (b) Tenant shall pay Landlord's cost and expense, including reasonable attorneys' fees, incurred (i) in enforcing any obligation of Tenant under this Lease or (ii) as a result of Landlord, without its fault, being made party to any litigation pending by or against Tenant or any persons claiming through or under Tenant. 21.5 WAIVER OF REDEMPTION. Tenant does hereby waive and surrender all rights and privileges which it might have under or by reason of any present or future law to redeem the premises or to have a continuance of this Lease for the term hereby demised after being dispossessed or ejected therefrom by process of law or under the terms of this Lease or after the termination of this Lease as herein provided. 21.6 LANDLORD'S REMEDIES NOT EXCLUSIVE. The specified remedies to which Landlord may resort hereunder are cumulative and are not intended to be exclusive of any remedies or means of redress to which Landlord may at any time be lawfully entitled, and Landlord may invoke any remedy (including the remedy of specific performance) allowed at law or in equity as if specific remedies were not herein provided for. 21.7 GRACE PERIOD. Notwithstanding anything to the contrary in this Article contained, Landlord agrees not to take any action to terminate this Lease (a) for default by Tenant in the payment when due of any sum of money, if Tenant shall cure such default within ten (10) days after written notice thereof is given by Landlord to Tenant, provided, however, that no such notice need be given and no such default in the payment of money shall be curable if on two (2) prior occasions there had been a default in the payment of money which had been cured after notice thereof had been given by Landlord to Tenant as herein provided or (b) for default by Tenant in the performance of any covenant other than a covenant to pay a sum of money, if Tenant shall cure such default within a period of thirty (30) days after written notice thereof given by Landlord to Tenant (except where the nature of the default is such that remedial action should appropriately take place sooner, as indicated in such written notice), or within such additional period as may reasonably be required to cure such default if (because of governmental restrictions or any other cause beyond the reasonable control of Tenant) the default is of such a nature that it cannot be cured within such thirty-(30)-day period, provided, however, (1) that there shall be no extension of time beyond such thirty-(30)-day period for the curing of any such default unless, not more than ten (10) days after the receipt of the notice of default, Tenant in writing (i) shall specify the cause on account of which the default cannot be cured during such period and shall advise Landlord of its intention duly to institute all steps necessary to cure the default and (ii) shall, as soon as reasonably practicable, duly institute and thereafter diligently prosecute to completion all steps necessary to cure such default and, (2) that no notice of the opportunity to cure a default need be given, and no grace period whatsoever shall be allowed to Tenant, if the default is incurable or if the covenant or condition the breach of which gave rise to default had, by reason of a breach on a prior occasion, been the subject of a notice hereunder to cure such default. Notwithstanding anything to the contrary in this Article 21.7 contained, except to the extent prohibited by applicable law, any statutory notice and grace periods provided to Tenant by law are hereby expressly waived by Tenant. 22. END OF TERM - ABANDONED PROPERTY 35 Upon the expiration or other termination of the term of this Lease, Tenant shall peaceably quit and surrender to Landlord the premises and all alterations and additions thereto, broom clean, in good order, repair and condition (except as provided herein and in Articles 8.7, 18 and 20) excepting only ordinary wear and use and damage by fire or other casualty for which, under other provisions of this Lease, Tenant has no responsibility of repair or restoration. Tenant shall remove all of its property and, to the extent specified by Landlord, all alterations and additions made by Tenant and all partitions wholly within the premises, and shall repair any damages to the premises or the Building caused by their installation or by such removal. Tenant's obligation to observe or perform this covenant shall survive the expiration or other termination of the term of this Lease. Tenant will remove any personal property from the Building and the premises upon or prior to the expiration or termination of this Lease and any such property which shall remain in the Building or the premises thereafter shall be conclusively deemed to have been abandoned, and may either be retained by Landlord as its property or sold or otherwise disposed of in such manner as Landlord may see fit. If any part thereof shall be sold, that Landlord may receive and retain the proceeds of such sale and apply the same, at its option, against the expenses of the sale, the cost of moving and storage, any arrears of Yearly Rent, additional or other charges payable hereunder by Tenant to Landlord and any damages to which Landlord may be entitled under Article 21 hereof or pursuant to law. If Tenant or anyone claiming under Tenant shall remain in possession of the premises or any part thereof after the expiration or prior termination of the term of this Lease without any agreement in writing between Landlord and Tenant with respect thereto, then, prior to the acceptance of any payments for rent or use and occupancy by Landlord, the person remaining in possession shall be deemed a tenant-at-sufferance. Whereas the parties hereby acknowledge that Landlord may need the premises after the expiration or prior termination of the term of the Lease for other tenants and that the damages which Landlord may suffer as the result of Tenant's holding-over cannot be determined as of the Execution Date hereof, in the event that Tenant so holds over, Tenant shall pay to Landlord in addition to all rental and other charges due and accrued under the Lease prior to the date of termination, charges (based upon fair market rental value of the premises) for use and occupation of the premises thereafter and, in addition to such sums and any and all other rights and remedies which Landlord may have at law or in equity, an additional use and occupancy charge in the amount of fifty percent (50%) of either the Yearly Rent and other charges calculated (on a daily basis) at the highest rate payable under the terms of this Lease, but measured from the day on which Tenant's hold-over commenced and terminating on the day on which Tenant vacates the premises or the fair market value of the premises for such period, whichever is greater. Notwithstanding the foregoing, Landlord shall have the right to elect to recover any other damages which Landlord is permitted to recover under this Lease in lieu of said liquidated damages by giving Tenant written notice of such election. From and after the date on which Landlord gives Tenant such notice, said liquidated damages shall cease to accrue and Tenant shall be liable to Landlord for any damages recoverable under this Lease which accrue thereafter. 23. SUBORDINATION (a) Subject to any mortgagee's or ground lessor's election, as hereinafter provided for, this Lease is subject and subordinate in all respects to all matters of record (including, without limitation, deeds and land disposition agreements), ground leases and/or underlying leases, and all mortgages, any of which may now or hereafter be placed on or affect such leases and/or the real property of which the premises are a part, or any part of such real property, and/or Landlord's interest or estate therein, and to each advance made and/or hereafter to be made under any such mortgages, and to all renewals, modifications, consolidations, replacements and extensions 36 thereof and all substitutions therefor. This Article 23 shall be self-operative and no further instrument or subordination shall be required. In confirmation of such subordination, Tenant shall execute, acknowledge and deliver promptly any certificate or instrument that Landlord and/or any mortgagee and/or lessor under any ground or underlying lease and/or their respective successors in interest may request, subject to Landlord's, mortgagee's and ground lessor's right to do so for, on behalf and in the name of Tenant under certain circumstances, as hereinafter provided. Tenant acknowledges that, where applicable, any consent or approval hereafter given by Landlord may be subject to the further consent or approval of such mortgagee and/or ground lessor; and the failure or refusal of such mortgagee and/or ground lessor to give such consent or approval shall, notwithstanding anything to the contrary in this Lease contained, constitute reasonable justification for Landlord's withholding its consent or approval. Notwithstanding anything to the contrary in this Article 23 contained, as to any future mortgages, ground leases, and/or underlying lease or deeds of trust, the herein provided subordination and attornment shall be effective only if the mortgagee, ground lessor or trustee therein, as the case may be, agrees, by a written instrument in recordable form and in the customary form of such mortgagee, ground lessor, or trustee that, as long as Tenant shall not be in terminable default of the obligations on its part to be kept and performed under the terms of this Lease, this Lease will not be affected and Tenant's possession hereunder will not be disturbed by any default in, termination, and/or foreclosure of, such mortgage, ground lease, and/or underlying lease or deed of trust, as the case may be. (b) Any such mortgagee or ground lessor may from time to time subordinate or revoke any such subordination of the mortgage or ground lease held by it to this Lease. Such subordination or revocation, as the case may be, shall be effected by written notice to Tenant and by recording an instrument of subordination or of such revocation, as the case may be, with the appropriate registry of deeds or land records and to be effective without any further act or deed on the part of Tenant. In confirmation of such subordination or of such revocation, as the case may be, Tenant shall execute, acknowledge and promptly deliver any certificate or instrument that Landlord, any mortgagee or ground lessor may request, subject to Landlord's, mortgagee's and ground lessor's right to do so for, on behalf and in the name of Tenant under certain circumstances, as hereinafter provided. (c) Without limitation of any of the provisions of this Lease, if any ground lessor or mortgagee shall succeed to the interest of Landlord by reason of the exercise of its rights under such ground lease or mortgage (or the acceptance of voluntary conveyance in lieu thereof) or any third party (including, without limitation, any foreclosure purchaser or mortgage receiver) shall succeed to such interest by reason of any such exercise or the expiration or sooner termination of such ground lease, however caused, then such successor may, upon notice and request to Tenant (which, in the case of a ground lease, shall be within thirty (30) days after such expiration or sooner termination), succeed to the interest of Landlord under this Lease, provided, however, that such successor shall not: (i) be liable for any previous act or omission of Landlord under this Lease; (ii) be subject to any offset, defense, or counterclaim which shall theretofore have accrued to Tenant against Landlord; (iii) have any obligation with respect to any security deposit unless it shall have been paid over or physically delivered to such successor; or (iv) be bound by any previous modification of this Lease or by any previous payment of Yearly Rent for a period greater than one (1) month, made without such ground lessor's or mortgagee's consent where such consent is required by applicable ground lease or mortgage documents. In the event of such succession to the interest of the Landlord --and notwithstanding that any such mortgage or ground lease may antedate this Lease -- the Tenant shall attorn to such successor and shall ipso facto be and become bound directly to such successor in interest to Landlord to perform and observe all the Tenant's obligations under this Lease without the necessity of the execution of any 37 further instrument. Nevertheless, Tenant agrees at any time and from time to time during the term hereof to execute a suitable instrument in confirmation of Tenant's agreement to attorn, as aforesaid, subject to Landlord's, mortgagee's and ground lessor's right to do so for, on behalf and in the name of Tenant under certain circumstances, as hereinafter provided. (d) The term "mortgage(s)" as used in this Lease shall include any mortgage or deed of trust. The term "mortgagee(s)" as used in this Lease shall include any mortgagee or any trustee and beneficiary under a deed of trust or receiver appointed under a mortgage or deed of trust. The term "mortgagor(s)" as used in this Lease shall include any mortgagor or any grantor under a deed of trust. (e) Tenant hereby irrevocably constitutes and appoints Landlord or any such mortgagee or ground lessor, and their respective successors in interest, acting singly, Tenant's attorney-in-fact to execute and deliver any such certificate or instrument for, on behalf and in the name of Tenant, but only if Tenant fails to execute, acknowledge and deliver any such certificate or instrument within ten (10) days after Landlord or such mortgagee or such ground lessor has made written request therefor. (f) Notwithstanding anything to the contrary contained in this Article 23, if all or part of Landlord's estate and interest in the real property of which the premises are a part shall be a leasehold estate held under a ground lease, then: (i) the foregoing subordination provisions of this Article 23 shall not apply to any mortgages of the fee interest in said real property to which Landlord's leasehold estate is not otherwise subject and subordinate; and (ii) the provisions of this Article 23 shall in no way waive, abrogate or otherwise affect any agreement by any ground lessor (x) not to terminate this Lease incident to any termination of such ground lease prior to its term expiring or (y) not to name or join Tenant in any action or proceeding by such ground lessor to recover possession of such real property or for any other relief. (g) In the event of any failure by Landlord to perform, fulfill or observe any agreement by Landlord herein, in no event will the Landlord be deemed to be in default under this Lease permitting Tenant to exercise any or all rights or remedies under this Lease until the Tenant shall have given written notice of such failure to any mortgagee (ground lessor and/or trustee) of which Tenant shall have been advised and until a reasonable period of time shall have elapsed following the giving of such notice, during which such mortgagee (ground lessor and/or trustee) shall have the right, but shall not be obligated, to remedy such failure. 24. QUIET ENJOYMENT Landlord covenants that if, and so long as, Tenant keeps and performs each and every covenant, agreement, term, provision and condition herein contained on the part and on behalf of Tenant to be kept and performed, Tenant shall quietly enjoy the premises from and against the claims of all persons claiming by, through or under Landlord subject, nevertheless, to the covenants, agreements, terms, provisions and conditions of this Lease and to the mortgages, ground leases and/or underlying leases to which this Lease is subject and subordinate, as hereinabove set forth. Without incurring any liability to Tenant, Landlord may permit access to the premises and open the same, whether or not Tenant shall be present, upon any demand of any receiver, trustee, assignee for the benefit of creditors, sheriff, marshal or court officer entitled to, or reasonable purporting to be entitled to, such access for the purpose of taking possession of, or removing, Tenant's property or for any other lawful purpose (but this provision and any action by Landlord hereunder shall not be deemed a recognition by Landlord that the person or official making such demand has any right or interest in or 38 to this Lease, or in or to the premises), or upon demand of any representative of the fire, police, building, sanitation or other department of the city, state or federal governments. 25. ENTIRE AGREEMENT -- WAIVER -- SURRENDER 25.1 ENTIRE AGREEMENT. This Lease and the Exhibits made a part hereof contain the entire and only agreement between the parties and any and all statements and representations, written and oral, including previous correspondence and agreements between the parties hereto, are merged herein. Tenant acknowledges that all representations and statements upon which it relied in executing this Lease are contained herein and that the Tenant in no way relied upon any other statements or representations, written or oral. Any executory agreement hereafter made shall be ineffective to change, modify, discharge or effect an abandonment of this Lease in whole or in part unless such executory agreement is in writing and signed by the party against whom enforcement of the change, modification, discharge or abandonment is sought. 25.2 WAIVER BY LANDLORD. The failure of Landlord to seek redress for violation, or to insist upon the strict performance, of any covenant or condition of this Lease, or any of the Rules and Regulations promulgated hereunder, shall not prevent a subsequent act, which would have originally constituted a violation, from having all the force and effect of an original violation. The receipt by Landlord of rent with knowledge of the breach of any covenant of this Lease shall not be deemed a waiver of such breach. The failure of Landlord to enforce any of such Rules and Regulations against Tenant and/or any other tenant in the Building shall not be deemed a waiver of any such Rules and Regulations. No provisions of this Lease shall be deemed to have been waived by Landlord unless such waiver be in writing signed by Landlord. No payment by Tenant or receipt by Landlord of a lesser amount than the monthly rent herein stipulated shall be deemed to be other than on account of the stipulated rent, 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 rent or pursue any other remedy in this Lease provided. 25.3 SURRENDER. No act or thing done by Landlord during the term hereby demised shall be deemed an acceptance of a surrender of the premises, and no agreement to accept such surrender shall be valid, unless in writing signed by Landlord. No employee of Landlord or of Landlord's agents shall have any power to accept the keys of the premises prior to the termination of this Lease. The delivery of keys to any employee of Landlord or of Landlord's agents shall not operate as a termination of the Lease or a surrender of the premises. In the event that Tenant at any time desires to have Landlord underlet the premises for Tenant's account, Landlord or Landlord's agents are authorized to receive the keys for such purposes without releasing Tenant from any of the obligations under this Lease, and Tenant hereby relieves Landlord of any liability for loss of or damage to any of Tenant's effects in connection with such underletting. 26. INABILITY TO PERFORM - EXCULPATORY CLAUSE Except as provided in Article 4.1 and 4.2 hereof, this Lease and the obligations of Tenant to pay rent hereunder and perform all the other covenants, agreements, terms, provisions and conditions hereunder on the part of Tenant to be performed shall in no way be affected, impaired or excused because Landlord is unable to fulfill any of its obligations under this Lease or is unable to supply or is delayed in supplying any service expressly or impliedly to be supplied or is unable to make or is delayed in making any repairs, replacements, additions, alterations, improvements or decorations or is unable to supply or is delayed in supplying any equipment or fixtures if Landlord is prevented or delayed from so doing by reason of strikes or labor 39 troubles or any other similar or dissimilar cause whatsoever beyond Landlord's reasonable control, including but not limited to, governmental preemption in connection with a national emergency or by reason of any rule, order or regulation of any department or subdivision thereof of any governmental agency or by reason of the conditions of supply and demand which have been or are affected by war, hostilities or other similar or dissimilar emergency. In each such instance of inability of Landlord to perform, Landlord shall exercise reasonable diligence to eliminate the cause of such inability to perform. Tenant shall neither assert nor seek to enforce any claim against Landlord, or Landlord's agents or employees, or the assets of Landlord or of Landlord's agents or employees, for breach of this Lease or otherwise, other than against Landlord's interest in the Building of which the premises are a part and in the uncollected rents, issues and profits thereof, and Tenant agrees to look solely to such interest for the satisfaction of any liability of Landlord under this Lease, it being specifically agreed that in no event shall Landlord or Landlord's agents or employees (or any of the officers, trustees, directors, partners, beneficiaries, joint venturers, members, stockholders or other principals or representatives, and the like, disclosed or undisclosed, thereof) ever be personally liable for any such liability. This paragraph shall not limit any right that Tenant might otherwise have to obtain injunctive relief against Landlord or to take any other action which shall not involve the personal liability of Landlord to respond in monetary damages from Landlord's assets other than the Landlord's interest in said real estate, as aforesaid. In no event shall Landlord or Landlord's agents or employees (or any of the officers, trustees, directors, partners, beneficiaries, joint venturers, members, stockholders or other principals or representatives and the like, disclosed or undisclosed, thereof) ever be liable for consequential or incidental damages. If by reason of Landlord's failure to acquire title to the real property of which the premises are a part or to complete construction of the Building or premises, Landlord shall be held to be in breach of this Lease, Tenant's sole and exclusive remedy shall be a right to terminate this Lease. 27. BILLS AND NOTICES Any notice, consent, request, bill, demand or statement hereunder by either party to the other party shall be in writing and, if received at Landlord's or Tenant's address, shall be deemed to have been duly given when either delivered or served personally or mailed in a postpaid envelope, deposited in the United States mail addressed to Landlord at its address as stated in Exhibit 1 and to Tenant at the premises (or at Tenant's address as stated in Exhibit 1, if mailed prior to Tenant's occupancy of the premises), or if any address for notices shall have been duly changed as hereinafter provided, if mailed as aforesaid to the party at such changed address. Either party may at any time change the address or specify an additional address for such notices, consents, requests, bills, demands or statements by delivering or mailing, as aforesaid, to the other party a notice stating the change and setting forth the changed or additional address, provided such changed or additional address is within the United States. If Tenant is a partnership, Tenant, for itself, and on behalf of all of its partners, hereby appoints Tenant's Service Partner, as identified on Exhibit 1, to accept service of any notice, consent, request, bill, demand or statement hereunder by Landlord and any service of process in any judicial proceeding with respect to this Lease on behalf of Tenant and as agent and attorney-in-fact for each partner of Tenant. All bills and statements for reimbursement or other payments or charges due from Tenant to Landlord hereunder shall be due and payable in full ten (10) days, unless herein otherwise provided, after submission thereof by Landlord to Tenant. Tenant's failure to make timely payment of any amounts indicated by such bills and statements, whether for work done by Landlord at 40 Tenant's request, reimbursement provided for by this Lease or for any other sums properly owing by Tenant to Landlord, shall be treated as a default in the payment of rent, in which event Landlord shall have all rights and remedies provided in this Lease for the nonpayment of rent. 28. PARTIES BOUND -- SEIZIN OF TITLE The covenants, agreements, terms, provisions and conditions of this Lease shall bind and benefit the successors and assigns of the parties hereto with the same effect as if mentioned in each instance where a party hereto is named or referred to, except that no violation of the provisions of Article 16 hereof shall operate to vest any rights in any successor or assignee of Tenant and that the provisions of this Article 28 shall not be construed as modifying the conditions of limitation contained in Article 21 hereof. If, in connection with or as a consequence of the sale, transfer or other disposition of the real estate (land and/or Building, either or both, as the case may be) of which the premises are a part, Landlord ceases to be the owner of the reversionary interest in the premises, Landlord shall be entirely freed and relieved from the performance and observance thereafter of all covenants and obligations hereunder on the part of Landlord to be performed and observed, it being understood and agreed in such event (and it shall be deemed and construed as a covenant running with the land) that, subject to subparagraph (c) of Article 23 of this Lease, the person succeeding to Landlord's ownership of said reversionary interest shall thereupon and thereafter assume, and perform and observe, any and all of such covenants and obligations of Landlord, except that in the event of a transfer of Landlord's interest in the premises by reason of a foreclosure of a mortgage affecting the premises or a deed in lieu of foreclosure of such a mortgage, Landlord shall not be relieved of any covenants or obligations of Landlord which arise prior to such foreclosure or deed in lieu of foreclosure. 29. MISCELLANEOUS 29.1 SEPARABILITY. If any provision of this Lease or portion of such provision or the application thereof to any person or circumstance is for any reason held invalid or unenforceable, the remainder of the Lease (or the remainder of such provision) and the application thereof to other persons or circumstances shall not be affected thereby. 29.2 CAPTIONS, ETC. The captions are inserted only as a matter of convenience and for reference, and in no way define, limit or describe the scope of this Lease nor the intent of any provisions thereof. References to "State" shall mean, where appropriate, the District of Columbia and other Federal territories, possessions, as well as a state of the United States. 29.3 BROKER. Tenant represents and warrants that it has not directly or indirectly dealt, with respect to the leasing of office space in the Building or any Center, Office Park or other complex of which it is a part (called "Building, etc." in this Article 29.3) with any broker or had its attention called to the premises or other space to let in the Building, etc. by anyone other than the broker, person or firm, if any, designated in Exhibit 1. Tenant agrees to defend, exonerate and save harmless and indemnify Landlord and anyone claiming by, through or under Landlord against any claims for a commission arising out of the execution and delivery of this Lease or out of negotiations between Landlord and Tenant with respect to the leasing of other space in the Building, etc., provided that Landlord shall be solely responsible for the payment of brokerage commissions to the broker, person or firm, if any, designated in Exhibit 1. 29.4 INTENTIONALLY DELETED 29.5 ARBITRATION. Any disputes relating to provisions or obligations in this Lease as to which a specific provision for a reference to arbitration 41 is made herein shall be submitted to arbitration in accordance with the provisions of applicable state law (as identified on Exhibit 1), as from time to time amended. Arbitration proceedings, including the selection of an arbitrator, shall be conducted pursuant to the rules, regulations and procedures from time to time in effect as promulgated by the American Arbitration Association. Prior written notice of application by either party for arbitration shall be given to the other at least ten (10) days before submission of the application to the said Association's office in the City wherein the Building is situated (or the nearest other city having an Association office). The arbitrator shall hear the parties and their evidence. The decision of the arbitrator shall be binding and conclusive, and judgment upon the award or decision of the arbitrator may be entered in the appropriate court of law (as identified on Exhibit 1); and the parties consent to the jurisdiction of such court and further agree that any process or notice of motion or other application to the Court or a Judge thereof may be served outside the State wherein the Building is situated by registered mail or by personal service, provided a reasonable time for appearance is allowed. The costs and expenses of each arbitration hereunder and their apportionment between the parties shall be determined by the arbitrator in his award or decision. No arbitrable dispute shall be deemed to have arisen under this Lease prior to (i) the expiration of the period of twenty (20) days after the date of the giving of written notice by the party asserting the existence of the dispute together with a description thereof sufficient for an understanding thereof; and (ii) where a Tenant payment (e.g., Tax Excess or Operating Expense Excess under Article 9 hereof) is in issue, the amount billed by Landlord having been paid by Tenant. 29.6 GOVERNING LAW. This Lease is made pursuant to, and shall be governed by, and construed in accordance with, the laws of the State wherein the Building is situated and any applicable local municipal rules, regulations, by-laws, ordinances and the like. 29.7 ASSIGNMENT OF RENTS. With reference to any assignment by Landlord of its interest in this Lease, or the rents payable hereunder, conditional in nature or otherwise, which assignment is made to or held by a bank, trust company, insurance company or other institutional lender holding a mortgage or ground lease on the Building, Tenant agrees: (a) that the execution thereof by Landlord and the acceptance thereof by such mortgagee and/or ground lessor shall never be deemed an assumption by such mortgagee and/or ground lessor of any of the obligations of the Landlord thereunder, unless such mortgagee and/or ground lessor shall, by written notice sent to the Tenant, specifically otherwise elect; and (b) that, except as aforesaid, such mortgagee and/or ground lessor shall be treated as having assumed the Landlord's obligations thereunder only upon foreclosure of such mortgagee's mortgage or deed of trust or termination of such ground lessor's ground lease and the taking of possession of the demised premises after having given notice of its exercise of the option stated in Article 23 hereof to succeed to the interest of the Landlord under this Lease. 29.8 REPRESENTATION OF AUTHORITY. By his execution hereof each of the signatories on behalf of the respective parties hereby warrants and represents to the other that he is duly authorized to execute this Lease on behalf of such party. If Tenant is a corporation, Tenant hereby appoints the signatory whose name appears below on behalf of Tenant as Tenant's attorney-in-fact for the purpose of executing this Lease for and on behalf of Tenant. 29.9 EXPENSES INCURRED BY LANDLORD UPON TENANT REQUESTS. Tenant shall, upon demand, reimburse Landlord for all reasonable expenses, including, without limitation, legal fees, incurred by Landlord in connection with all requests by Tenant for consents, approvals or execution of collateral documentation related to this Lease, including, without limitation, costs 42 incurred by Landlord in the review and approval of Tenant's plans and specifications in connection with proposed alterations to be made by Tenant to the premises, requests by Tenant to sublet the premises or assign its interest in the Lease, the execution by Landlord of estoppel certificates requested by Tenant, and requests by Tenant for Landlord to execute waivers of Landlord's interest in Tenant's property in connection with third party financing by Tenant. Such costs shall be deemed to be additional rent under the Lease. 29.10 SURVIVAL. Without limiting any other obligation of the Tenant which may survive the expiration or prior termination of the term of the Lease, all obligations on the part of Tenant to indemnify, defend, or hold Landlord harmless, as set forth in this Lease (including, without limitation, Tenant's obligations under Articles 13(d), 15.3, and 29.3) shall survive the expiration or prior termination of the term of the Lease. IN WITNESS WHEREOF the parties hereto have executed this Indenture of Lease in multiple copies, each to be considered an original hereof, as a sealed instrument on the day and year noted in Exhibit 1 as the Execution Date. LANDLORD: TENANT: WELLESLEY HOLDING, L.P. SILICON VALLEY BANK By: Beacon Properties, L.P., General Partner By:_____________________ (Name) (Title) By: Beacon Properties Hereunto Duly Authorized Corporation, General Partner By:_____________________ Lionel P. Fortin, Senior Vice President IF TENANT IS A CORPORATION, A SECRETARY'S OR CLERK'S CERTIFICATE OF THE AUTHORITY AND THE INCUMBENCY OF THE PERSON SIGNING ON BEHALF OF TENANT SHOULD BE ATTACHED. 43 COMMONWEALTH, DISTRICT OR STATE OF COUNTY OF On the Execution Date stated in Exhibit 1, the person above signing this Lease for and on behalf of the Tenant, to me personally known, did sign and execute this Lease and, being by me duly sworn, did depose and say that he is the officer of the above named Tenant, as noted, and that he signed his name hereto by order of the Board of Directors of said Tenant. _____________________________________ Notary Public My Commission Expires:_______________ COMMONWEALTH OF MASSACHUSETTS COUNTY OF SUFFOLK On the Execution Date stated in Exhibit 1, the person above signing this Lease for and on behalf of Landlord to me personally known, did sign and execute this Lease and, being by me duly sworn, did depose and say that he is the duly authorized representative of Landlord. _____________________________________ Notary Public My Commission Expires:_______________ 44 EXHIBIT 3 BUILDING STANDARD ITEMS The following exhibit sets forth the Building standard level of leasehold improvements and does not, notwithstanding anything to the contrary in this Exhibit 3 contained, impose any obligation on Landlord to provide any such items in the premises. A. EXTERIOR WALLS, LOBBY WALLS AND CORE WALLS 1. FINISH The exposed surfaces are to receive a drywall finish. The toilet room walls are to be finished with ceramic tile and drywall, or equal. 2. DOORS-FRAMES Flush hollow metal doors or solid core wood doors 1-3/4" in thickness will be installed in pressed metal door frames. 3. HARDWARE Each swing door shall be provided with one and one-half pairs of butts, a latch set, or lockset where required, and a door stop where required. A surface mounted door closer will be provided at such additional locations as may be required by the local code. All hardware shall be Sargent, Schlage, Yale and Towne or equal. B. PARTITIONS AND DOORS 1. PARTITIONS SEPARATING PREMISES (DEMISING) A. PARTITIONS Partitions separating premises shall be constructed of metal studs with two layers of 5/8" wallboard on each side extending above the ceiling, with one layer of wallboard on each side extended to the underside of the floor construction above, or equal. B. DOORS All doors shall have pressed metal door frames or wood door frames and casings, as Landlord may elect. The doors shall be solid core wood doors and shall be provided with two pairs of butts, a lockset, and doorstop where required. A door closer will be provided for the principal entrance to the premises and at such additional locations as may be required by the local code. The locksets which are provided at the entrance will be master-keyed to building standard and shall be Sargent, Yale and Towne, Schlage or equal. 2. PARTITIONS SEPARATING OFFICES WITHIN SINGLE PREMISES A. PARTITIONS The partitions shall be constructed of metal studs with one layer of 5/8" wallboard on each side or equal. B. DOORS 45 The swing doors shall have pressed metal door frames or wood frames and casings, as Landlord may elect. The doors shall be solid core and shall be provided with two pairs of butts, latch sets, and doorstop where required. The number of doors shall not exceed one door for each 25 lineal feet of allowed partitions. All hardware shall be Sargent, Yale and Towne, Schlage or equal. 3. STANDARD QUALITY OF PARTITIONS The total lineal footage of partitions shall not exceed one lineal foot for each 15 square feet of (i) Net Rentable Area(1) for multi-tenant floors or (ii) Gross Area(1), not including building core area, for single-tenant floors. C. CEILINGS 1. Mechanically suspended, 24" x 24" exposed slotted tee system with fissured acoustic ceiling tiles, Class "A" (incombustible), 24" x 24", square edged. 2. The mechanical suspension system shall be of the concealed type. D. LIGHTING 1. At Landlord's election, either: (i) recessed 18 cell parabolic lighting fixtures (2' x 4') with three (3) 35-watt rapid start tubes to the extent of one such fixture per 85 square feet (average) of (x) New Rentable Area for multi-tenant floors or (y) Gross Area, excluding core area, for single-tenant floor, or (ii) a (1' x 4') recessed fluorescent lighting fixture with two (2) 35-watt rapid start tubes to the extent of one such fixture per seventy (70) square feet (average) of (x) New Rentable Area for multi-tenant floors or (y) Gross Area, excluding core area, for single-tenant floors, shall be installed by Landlord. Where required by design conditions, smaller recessed florescent fixtures may be substituted at Landlord's option. 2. Miscellaneous fixtures, fluorescent and/or incandescent, shall be installed in mechanical spaces, toilet areas, stairwell and utility areas to conform to building operation requirements and existing codes. 3. Wall switches of the single pole, quiet type to the extent of one switch for each ten lighting fixtures averaged shall be installed by Landlord. Each private office shall have at least one wall switch (which will be counted in the allowance). E. ELECTRICAL AND TELEPHONE 1. Duplex wall base and floor receptacles (not to exceed one per 125 square feet of (i) Net Rentable Area for multi-tenant floors or (ii) Gross Area, not including building core area, for single-tenant floors) shall be installed by Landlord. It is understood that not more than 10% of the total number of such receptacles may be located in the floor. 2. Landlord will make the necessary provisions for wall and baseboard telephone outlets (not to exceed one per 200 square feet of (i) _______________________________ (1)The terms "Gross Area" and "Net Rentable Area" used in computing allowances under this Exhibit 3 refer to definitions appearing in Article 7 of the Lease. 46 Net Rentable Area for multi-tenant floors or (ii) Gross Area, not including building core area, for single-tenant floors). Installation of the wiring by the telephone company is the responsibility of Tenant. It is understood that not more than 10% of the total number of such outlets may be located in the floor. 3. Power wiring circuits, including terminal device (208 Volt, 3 Phase, grounded) shall be made available to Tenant as may be agreed between the parties in connection with Tenant equipment at the rate of one per 6,000 square feet of (i) Net Rentable Area for multi-tenant floors or (ii) Gross Area, not including building core area, for single tenant floors. F. PLUMBING 1. Wet stacks will be available on the typical office floor containing cold water, waste, and vents. Tenant equipment can be connected at these points by the Landlord at the Tenant's expense. G. PAINTING AND WALL COVERING 1. All wall surface shall receive a finish coat of building standard Polomyx paint over one prime coat, or equal, as Landlord may elect. Doors and frames shall receive one coat of enamel over one prime coat or shall have a natural finish of one coat of sealer and one coat of varnish. 2. Paint colors shall be selected from the building standard color chart with not more than one accent color (flat paint) on one wall in each individual office. 3. Where Tenant desires wall covering, Landlord shall initially prepare walls to receive wall covering as designated by Tenant. Such wall covering shall be furnished and installed at Tenant's expense. Wall covering shall be subject to Landlord's approval prior to installation. 4. Public areas, corridors and lobbies shall be finished in accordance with the Landlord's Architect's schedule of room finish. H. SUN-CONTROL BLINDS Landlord shall furnish and install sun-control blinds or drapes, including the tracks therefor, in colors selected by Landlord. I. MECHANICAL 1. Landlord will install one thermostat for every four perimeter units in premises served by the Building perimeter system. 2. Landlord will install one supply diffuser with 6 feet of flexible hose for every 200 square feet of (i) Net Rentable Area for multi-tenant floors or (ii) Gross Area, not including core area, for single-tenant floors in any premises served by the Building central air distribution system. 3. Landlord will install a sprinkler system for the public areas and tenant premises to the extent of one head per 225 square feet of (i) Net Rentable Area for multi-tenant floors or (ii) Gross Area, not including building core area, for single-tenant floors. 47 Such head shall be a chrome pendant head. Heads will be installed in accordance with approved Tenant's final plans and all other governing agencies and regulations. 48 EXHIBIT 4 BUILDING SERVICES A. GENERAL CLEANING (MONDAY THROUGH FRIDAY) 1. All stone, ceramic, tile, marble, terrazzo and other unwaxed flooring to be swept nightly, using approved dust-down preparation. 2. All wood, linoleum, vinyl-asbestos, vinyl and other similar types of floors to be swept or dry mopped nightly, using dust-down preparation; all carpeting and rugs in the main traffic areas (corridors, reception areas, etc.) to be vacuumed nightly and all other carpeted areas to be vacuumed at least once each week. 3. Wax all public areas monthly. 4. Hand dust all furniture, files and fixtures nightly. 5. Empty all waste receptacles nightly and remove waste paper and waste materials, including folded paper boxes and cartons, to a designated area. 6. Empty and clean all ash trays and screen all sand urns nightly. 7. Wash and clean all water fountains and coolers nightly. Sinks and floors adjacent to sinks to be washed nightly. 8. Hand dust all door and other ventilating louvers within reach, as necessary, but not less often than monthly. 9. Dust all telephones as necessary. 10. Keep lockers and janitor sink rooms in a neat, orderly condition at all times. 11. Wipe clean all bright metal work as necessary. 12. Check all stairwells throughout entire building nightly and keep in clean condition. 13. Metal doors and trim of all public elevator cars to be properly maintained and kept clean. B. COMMON AREA LAVATORIES 1. Sweep and wash all lavatory floors nightly, using proper non-scented disinfectants. 2. Clean all mirrors, powder shelves, bright work and enameled surfaces in all lavatories nightly. Scour, wash and disinfect all basins, bowls and urinals using non-scented disinfectants. 3. Police lavatories during the day with matron or porter to pick up waste and replenish materials. 4. Wash all toilet seats nightly. 5. Fill toilet tissue holders nightly. 6. Empty paper towel receptacles nightly. 49 7. Empty sanitary disposal receptacles nightly. 8. Thoroughly clean all wall tile and stall surfaces as necessary. C. HIGH DUSTING Do all high dusting (not reached in nightly cleaning) quarterly which includes the following: 1. Dust all pictures, frames, charts, graphs, and similar wall hangings. 2. Dust exposed pipes, ventilation and air conditioning louvers, ducts and high moldings. D. WINDOW CLEANING 1. All exterior windows (except for any retail/commercial areas) from the second floor and above will be cleaned inside and outside except when cleaning is rendered impracticable by inclement weather. 2. Entrance doors and elevator lobby glass to be cleaned daily and kept in a clean condition at all times during the day. 3. Wipe down all metal window frames as necessary but not less often than monthly. E. BUILDING LOBBIES 1. Floors to be swept and washed or vacuumed nightly, and machine scrubbed according to Building Standard frequency. 2. Carpeting in passenger elevator cabs to be vacuum cleaned nightly. 3. Lobby walls to be dusted as often as necessary, but not less than weekly. 4. Screen and clean sand urns nightly. 5. Clean all unpainted metal work in a manner appropriate to original finish. F. PORTERS Necessary number of day porters under supervision will be assigned for the following services: 1. Service all public and building operating space throughout the Building. 2. Keep elevator cars clean and neat during the day. 3. Maintain lobbies clean and, during wet weather, mopped dry to the extent practicable. 4. Dust and rub down all elevator doors, frames, telephone booths and directories daily. 5. Sweep sidewalks, ramps, etc. daily. 6. Clean roofs and setbacks as often as necessary. 7. Maintain firehose and equipment clean. 50 8. Lay and remove lobby runners as necessary. 9. Replenish toilet tissue, towels and other supplies in lavatories. 10. Maintain fan rooms, motor rooms and air conditioning rooms in clean condition. 11. Check stairways and keep same neat and clean during the day. 12. Clean exterior columns, exterior signs and metal work, standpipe and sprinkler system, walkways and stairs as necessary. 13. If directed by superintendent, fill towel and soap dispensers and perform any emergency cleaning required. 51 EXHIBIT 5 RENTABLE AREA (1) MEASUREMENT STANDARDS - SINGLE TENANCY FLOORS Three steps, in sequence, are to be followed to determine the Total Rentable Area: (i) compute gross area; (ii) deduct certain areas; and (iii) add applicable share of areas to be apportioned. (See below paragraph (c), below). (a) GROSS AREA: The gross area of a floor shall be the entire area within the exterior walls. If the exterior or demising wall consists in whole or part of windows, fixed clear glass or other transparent material, the measurement along the entire such wall shall be taken to a line established by the horizontal place of the inside of the glass or other transparent material. If it consists solely of a non-transparent material, the measurement shall be taken to the inside surface of the outer building wall. If a floor has no exterior wall within the property line, measurements shall be taken to the property line. If a floor has no full-height enclosing wall, measurements shall be taken to the edge of the floor slab. (b) DEDUCTIONS FROM GROSS AREA: The following non-rentable building areas with one-half of their enclosing walls are to be deducted. 1. Public elevator shafts and associated elevator machine rooms. 2. Required egress stairways. 3. Areas within the gross area which are to be apportioned pursuant to paragraph (c) below. (c) AREAS TO BE APPORTIONED ("ATTRIBUTABLE AREA"): 1. Common facilities including without limitation, all heating, ventilating, air conditioning, mechanical, electrical, cooling tower, telephone and other service floors, rooms or areas, containing equipment or supplies (exclusive of any tenant's special air conditioning or mechanical area or facilities) and all public lobbies (including monumental stair and/or escalator), loading, and other common service areas, throughout and within the Building including one-half of their enclosing walls, are to be apportioned based upon the relative areas of the tenants' premises served by such facilities. 2. Whenever the height of any room or space used for a heating, ventilation, air conditioning, mechanical, or electrical facility above the ground floor shall exceed the average story height in the Building by more than 25%, then the floor area of such room or space shall be determined by multiplying the actual floor area by the percentage that the height of the room or space exceeds the average story height, and adding the area so determined to the actual floor area of such room or space; however, if any such rooms or spaces penetrate the next higher floor, then the entire area of such room or space on both floors shall be apportioned under this paragraph (c) based upon the relative area of the tenants' premises served by such facility, room or space. 52 (2) MEASUREMENT STANDARDS - MULTIPLE OCCUPANCY FLOORS The sum of the Total Rentable Area for two or more tenants in a floor shall be the Total Rentable Area for that floor as computed in the manner for single tenancy floors. Three steps are to be followed to determine the Total Rentable Area for each tenant on a multiple occupancy floor: (i) compute the Net Rentable Area for such floor pursuant to (a) below; (ii) compute the Net Rentable Area for each tenant pursuant to (b) below; and (iii) multiply the Total Rentable Area of such floor by a fraction whose numerator is the Net Rentable Area for such tenant and whose denominator is the Net Rentable Area for such floor. (a) NET RENTABLE AREA FOR ANY FLOOR: The Net Rentable Area shall be the gross area as described for single tenancy floors less the entire core area (measured to the finished enclosing walls thereof, but excluding any part of the core rented to a tenant) and public corridors measured to the corridor side of the enclosing walls thereof. (b) NET RENTABLE AREA FOR EACH TENANT: Exterior walls are to be measured as described in the procedure for gross area. Demising walls between tenants are to be equally divided. Corridor walls to the finished corridor side are to be included in the Net Rentable Area of each tenant. (c) RETAIL AREA: The Total Rentable Area of a store or other retail facility in the Building shall be computed in accordance with the foregoing measurement standards for multiple occupancy floors. 53 RIDER TO LEASE LANDLORD: Wellesley Holding, L.P. TENANT: Silicon Valley Bank The subject Lease is hereby amended as follows: 1. TENANT'S OPTIONS TO EXTEND THE TERM OF LEASE A. On the conditions, which conditions Landlord may waive, at its election, by written notice to Tenant at any time, that Tenant is not in default of its covenants and obligations under the Lease, and that Silicon Valley Bank, itself, is occupying the entirety of the premises then demised to Tenant, both as of the time of option exercise and as of the commencement of the hereinafter described additional terms, Tenant shall have the option to extend the term of this Lease for two (2) additional one (1) year terms, the first such additional term commencing as of the day after the expiration of the initial term of the Lease, and the second such additional term commencing as of the day after the expiration of the first additional term. Tenant may exercise each such option to extend by giving Landlord written notice on or before the date nine (9) months prior to the expiration of the then current term of the Lease. Upon the timely giving of such notice, the term of this Lease shall be deemed extended upon all of the terms and conditions of this Lease, except that Landlord shall have no obligation to construct or renovate the premises and that the Yearly Rent, Operating Costs in the Base Year, and Tax Base during each such additional term shall be as hereinafter set forth. If Tenant fails to give timely notice, as aforesaid, Tenant shall have no further right to extend the term of this Lease, time being of the essence of this Paragraph 1. B. Notwithstanding anything to the contrary herein contained, in the event that Tenant exercises its option to extend the term for the first additional term, Landlord shall, at Landlord's cost repaint the premises using Building standard paint and shampoo the carpeting throughout the premises. C. YEARLY RENT The Yearly Rent during each such additional term shall be based upon the Fair Market Rental Value, as defined in Paragraph 3 of this Rider, as of the 54 commencement of each such additional term, of the premises then demised to Tenant; provided however, that in no event shall the sum of Yearly Rent, Operating Expense Excess and Tax Excess payable by Tenant for any twelve-(12)-month period during each such additional term be less than the sum of Yearly Rent, Operating Expense Excess and Tax Excess payable by Tenant in respect of the twelve-(12)-month period immediately preceding the commencement of each such additional term. D. Tenant shall have no further option to extend the term of the Lease other than the two (2) additional one (1) year terms herein provided. E. Notwithstanding the fact that upon Tenant's exercise of the herein options to extend the term of the Lease such extensions shall be self-executing, as aforesaid, the parties shall promptly execute a lease amendment reflecting each such additional term after Tenant exercises the herein options. The execution of such lease amendment shall not be deemed to waive any of the conditions to Tenant's exercise of its rights under this Paragraph 1, unless otherwise specifically provided in such lease amendment. 2. TENANT'S EXPANSION OPTIONS On the conditions (which conditions Landlord may waive, at its election, by written notice to Tenant at any time) that Tenant is not in default of its covenants and obligations under the Lease and that only Silicon Valley Bank, itself is occupying the entirety of the premises then demised to Tenant, both as of the time of option exercise and at the Term Commencement Date in respect of each Expansion Area, as hereinafter defined, Tenant shall have the option to lease the Expansion Areas, as hereinafter defined. A. For the purposes hereof, the Expansion Areas shall be defined as follows: Expansion Area Location -------------- -------- First Expansion Area: An area on the third (3rd) floor of the Building, contiguous to the premises initially demised by Tenant, containing 1,243 square feet of Total Rentable Area, substantially as shown cross-hatched on Lease Plan, Exhibit 2, Sheet 2 dated June 19, 1995. 55 Second Expansion Area: An area on the third (3rd) floor of the Building, containing all or a portion of 5,075 square feet of Total Rentable Area, substantially as shown hatched on Lease Plan, Exhibit 2, Sheet 2 dated June 19, 1995. B. EXERCISE OF RIGHTS TO EXPANSION AREA (i) Tenant may exercise its option to lease each of the Expansion Areas by giving written notice ("Expansion Notice") to Landlord on or before the respective Notice Date, as hereinafter defined, in respect of such Expansion Area. If Tenant fails timely to give such notice, Tenant shall have no further right to lease such Expansion Area, time being of the essence of this Paragraph 2. Upon the timely giving of such notice, Landlord shall lease and demise to Tenant, and Tenant shall hire and take from Landlord, such Expansion Area, without the need for further act or deed by either party, for the term and upon all of the same terms and conditions of this Lease, except as hereinafter set forth. (ii) If Tenant exercises its right to lease the First Expansion Area, Tenant shall be required to demise the entirety of the First Expansion Area. If Tenant leases the Second Expansion Area, Tenant shall have the right to lease either the entirety of the Second Expansion Area or a portion of the Second Expansion Area, at Tenant's election, subject to the following: 1. Tenant shall make such election in the Expansion Area Notice in respect of the Second Expansion Area. 2. If Tenant fails to make such election in the Expansion Area Notice, Tenant shall be deemed to have elected to lease the entirety of the Second Expansion Area. 3. Tenant shall designate the proposed location of the Second Expansion Area in the Expansion Area Notice, which location shall be subject to Landlord's approval. 4. Landlord shall base its approval on Landlord's determination as to whether the Second Expansion Area designated by Tenant and the balance (i.e., the balance of 56 the Second Expansion Area not leased by Tenant) of the Second Expansion Area are of marketable configuration. 5. If Landlord determines that either the Second Expansion Area designated by Tenant or the balance of the Second Expansion Area is not of marketable configuration, Landlord shall have the right to make such adjustment to the location of the Second Expansion Area as necessary to create areas of marketable configuration. C. CONDITION OF TENANT'S EXERCISE Notwithstanding anything to the contrary herein contained, in the event that Tenant exercises its right to lease the Second Expansion Area pursuant to this Paragraph 2, then the term of the Lease is respect of the premises initially demised to Tenant under the Lease ("Original Premises"), and the First Expansion Area, if Tenant timely and properly exercises its right to lease the First Expansion Area, shall be automatically extended for an additional period commencing as of the Termination Date set forth in Exhibit 1 and expiring as of the date ("Extended Termination Date") four (4) years after the date of expiration of the initial term of the Lease. Said additional term shall be on all of the same terms and conditions applicable to the Original Premises, and to the First Expansion Area, as the case may be, during the original term except that the Yearly Rent during such additional term shall be based upon the Fair Market Rental Value, as defined in Paragraph of this Rider, as of the commencement of such additional term, of the premises then demised to Tenant; provided however that in no event shall the sum of Yearly Rent, Operating Expense Excess and Tax Excess payable by Tenant for any twelve-(12)-month period during such additional term be less than the sum of Yearly Rent, Operating Expense Excess and Tax Excess payable by Tenant in respect of the twelve-(12)-month period immediately preceding the commencement of such additional term. In addition, in such event, Tenant's right to extend the term of the Lease for two (1) additional one (1) year terms, pursuant to Paragraph 1 of this Rider, shall be applicable after the expiration of the Extended Termination Date. 57 D. EXPIRATION DATES OF OTHER LEASES IN EXPANSION AREAS (1) Landlord hereby agrees that if an Expansion Area is occupied by a tenant ("Expansion Area Tenant") during the applicable Expiration Period, as hereinafter defined, in respect of such Expansion Area, the expiration date of the lease of such Expansion Area Tenant shall either (a) occur during the applicable Expiration Period or (b) Landlord shall use its best efforts to relocate the Expansion Area Tenant of the Expansion Area, or obtain an early termination of the lease of such Expansion Area, to the end that the Expansion Area shall be vacant, with respect to the First Expansion Area, during the Expiration Period in respect of the First Expansion Area, or, with respect to the Second Expansion Area, as of the last day of the Expiration Period in respect of the Second Expansion Area: Expansion Area Expiration Period -------------- ----------------- First Expansion Area: Third (3rd) anniversary of the initial Term Commencement Date through the date three years and four (4) months after the initial Term Commencement Date. Second Expansion Area: On or before the fourth (4th) anniversary of the initial Term Commencement Date. E. NOTICE DATES (1) The Notice Date in respect of the First Expansion Area shall be on or after the date two (2) years and three (3) months after the initial Term Commencement Date and on or before the date two (2) years and seven (7) months after the initial Term Commencement Date. (2) The Notice Date in respect of the Second Expansion Area shall be the date four (4) years and three (3) months after the initial Term Commencement Date. F. LEASE PROVISIONS APPLYING TO EXPANSION AREAS The leasing to Tenant of an Expansion Area shall be upon all the same terms and conditions of the Lease except as follows: (1) TERM COMMENCEMENT DATE (a) The Term Commencement Date in respect of the First Expansion Area shall be later of (x) the date nine (9) months after 58 Landlord receives Tenant's Expansion Notice in respect of the First Expansion Area and (4) the date that the Expansion Area Tenant of the First Expansion Area vacates the First Expansion Area. (b) The Term Commencement Date in respect of the Second Expansion Area shall be the later of (x) the fourth (4th) anniversary of the initial Term Commencement Date and (y) the date that the Expansion Area Tenant of the Second Expansion Area vacates the Second Expansion Area. (2) TERMINATION DATE (a) The Termination Date in respect of the First Expansion Area shall be the Termination Date in respect of the premises initially demised to Tenant, subject to extension in accordance with Paragraph 2(C) of this Rider. (b) The Termination Date in respect of the Second Expansion Area shall be the Extended Termination Date. (3) YEARLY RENT (a) The Yearly Rent payable in respect of the First Expansion Area shall be equal to the same Yearly Rent rental rate applicable, from time to time, to the premises initially demised to Tenant. (b) The Yearly Rent payable in respect of the Second Expansion Area shall be based upon the Fair Market Rental Value, as defined in Paragraph 3 of this Rider, of the Second Expansion Area, as of the Term Commencement Date in respect of the Second Expansion Area, provided however, that in no event shall the Yearly Rent rental rate plus the rate per square foot of Total Rentable Area of Tax Excess and Operating Expense Excess payable in respect of each the Second Expansion Area be less than the sum, from time to time, of the Yearly Rent rental rate plus the rate per square foot of Total Rentable Area of Tax Excess and Operating Expense Excess applicable to the premises initially demised to Tenant. (3) CONDITION OF EXPANSION AREAS Each Expansion Area shall be delivered by Landlord and accepted by Tenant "as is", in its then (i.e. as of the Term Commencement Date in respect of such Expansion Area), state of construction, finish and 59 decoration, without any obligation for preparation or construction of such premises by Landlord for Tenant's occupancy and without any representation or warranty as to the condition of the premises or the Building. In implementation of the foregoing, Article 4 of the Lease shall have no force and effect in respect of the Expansion Areas. Notwithstanding anything to the contrary herein contained, in the event that Tenant exercises its right to lease both the First Expansion Area and the Second Expansion Area, then Landlord shall, at Landlord's cost, prior to the Term Commencement Date in respect of the Second Expansion Area, create an internal connection through the firewall between the First Expansion Area and the Second Expansion Area. In the event that Tenant elects to lease less than the entirety of the Second Expansion Area, pursuant to Paragraph 2(B)(ii) of the Rider, then Landlord shall, at Landlord's cost, prior to the Term Commencement Date in respect of the Second Expansion Area, construct a demising wall between the Second Expansion Area designated by Tenant and the balance of the Second Expansion Area. D. EXECUTION OF LEASE AMENDMENTS Notwithstanding the fact that Tenant's exercise of the above-described expansion options shall be self-executing, as aforesaid, the parties hereby agree promptly to execute a lease amendment reflecting the addition of each such Expansion Area, except that the Yearly Rent payable in respect of such Expansion Area, the Operating Costs in the Base Year in respect of such Expansion Area and the Tax Base in respect of such Expansion Area may not be as set forth in such Amendment. Subsequently, after such Yearly Rent, Operating Costs in the Base Year and Tax Base are determined, the parties shall execute a written agreement confirming the same. The execution of such lease amendment shall not be deemed to waive any of the conditions to Tenant's exercise of the herein expansion options, unless otherwise specifically provided in such lease amendment. 3. DEFINITION OF FAIR MARKET RENTAL VALUE For the purposes of this Rider: 60 A. "Fair Market Rental Value" shall be computed as of the date in question at the then current annual rental charge (i.e., the sum of Yearly Rent plus escalation and other charges), including provisions for subsequent increases and other adjustments for leases or agreements to lease then currently being negotiated, or executed in comparable space located in the Building, or if no leases or agreements to lease are then currently being negotiated or executed in the Building, the Fair Market Rental Value shall be determined by reference to new leases then currently being negotiated or executed for comparable space located in Wellesley Office Park. In determining Fair Market Rental Value, the following factors, among others, shall be taken into account and given effect: size, location of premises, lease term, condition of building, and services provided by the landlord. B. Notwithstanding anything to the contrary herein contained, the parties hereby agree that upon the determination of the Fair Market Rental Value, Landlord shall have the right, exercisable by written notice to Tenant on or before the time that Landlord gives Tenant its initial designation of Fair Market Rental Value: (1) to change Operating Costs in the Base Year as stated on Exhibit 1 from the amount stated on Exhibit 1 to an amount equal to the actual amount of Operating Costs for the immediately preceding Operating Year; and (2) to change the Tax Base as stated on Exhibit 1 from the amount stated on Exhibit 1 to an amount equal to the actual amount of Taxes for the immediately preceding fiscal/tax year for which Landlord has actual tax data. If Landlord shall exercise such right, the amount of Yearly Rent payable hereunder shall be commensurately adjusted to reflect such change in Operating Costs in the Base Year and in Tax Base. C. DISPUTE AS TO FAIR MARKET RENTAL VALUE Landlord shall initially designate Fair Market Rental Value and Landlord shall furnish data in support of such designation. If Tenant disagrees with Landlord's designation of a Fair Market Rental Value, Tenant 61 shall have the right, by written notice given within thirty (30) days after Tenant has been notified of Landlord's designation, to submit such Fair Market Rental Value to arbitration. Fair Market Rental Value shall be submitted to arbitration as follows: Fair Market Rental Value shall be determined by impartial arbitrators, one to be chosen by the Landlord, one to be chosen by Tenant, and a third to be selected, if necessary, as below provided. The unanimous written decision of the two first chosen, without selection and participation of a third arbitrator, or otherwise, the written decision of a majority of three arbitrators chosen and selected as aforesaid, shall be conclusive and binding upon Landlord and Tenant. Landlord and Tenant shall each notify the other of its chosen arbitrator within ten (10) days following the call for arbitration and, unless such two arbitrators shall have reached a unanimous decision within thirty (30) days after their designation, they shall so notify the President of the Boston Bar Association (or such organization as may succeed to said Boston Bar Association) and request him to select an impartial third arbitrator, who shall be an office building owner, a real estate counsellor or a broker dealing with like types of properties, to determine Fair Market Rental Value as herein defined. Such third arbitrator and the first two chosen shall, subject to commercial arbitration rules of the American Arbitration Association, hear the parties and their evidence and render their decision within thirty (30) days following the conclusion of such hearing and notify Landlord and Tenant thereof. Landlord and Tenant shall bear the expense of the third arbitrator (if any) equally. The fifth (5th) grammatical sentence of Article 29.5 of the Lease is hereby incorporated by reference in this Subparagraph C. If the dispute between the parties as to a Fair Market Rental Value has not been resolved before the commencement of Tenant's obligation to pay rent based upon such Fair Market Rental Value, then Tenant shall pay Yearly Rent and other charges under the Lease in respect of the premises in question based upon the Fair Market Rental Value designated by Landlord until either the agreement of the parties as to the Fair Market Rental Value, or the decision of the arbitrators, as the case may be, at which 62 time Tenant shall pay any underpayment of rent and other charges to Landlord, or Landlord shall refund any overpayment of rent and other charges to Tenant. EX-10.25 3 EXHIBIT 10.25 EXHIBIT 10.25 EMPLOYMENT AGREEMENT This Agreement is entered into by and among Silicon Valley Bank (the "Bank"), Silicon Valley Bancshares, the holding company of the Bank (the "Holding Company") (the Bank and the Holding Company shall be referred to collectively herein as the "Companies"), and Roger V. Smith (referred to herein as "Employee"). RECITALS WHEREAS Employee is currently employed by and associated with the Bank, and is currently a director of the Holding Company; WHEREAS Employee desires to voluntarily resign his position as director of the Holding Company; WHEREAS the Bank desires to retain Employee's services for a period of time commencing November 1, 1995 (the "Effective Date") and ending with the expiration of the Employment Term (defined below), upon the terms set forth herein; WHEREAS Employee is willing to provide services to the Bank pursuant to this Agreement; 64 WHEREAS Employee previously entered into an agreement with the Companies governing the terms and conditions of Employee's employment with the Bank entitled "New Employment Agreement" and dated February 18, 1994 (the "Prior Agreement"); and WHEREAS both Employee and the Bank desire that the terms and conditions of this Agreement shall cancel, supersede and supplant the terms of the Prior Agreement. NOW, THEREFORE, the parties agree for good and valuable consideration the adequacy and receipt of which is hereby acknowledged: 1. TERMINATION OF DIRECTORSHIP. Employee acknowledges that effective upon execution of this Agreement, he irrevocably resigns as a member of the Holding Company's Board of Directors, and terminates all other relationships with the Companies, except as specifically provided herein. Pursuant to this Agreement, Employee will execute a written notice of resignation in a substantially similar form as that attached hereto as Exhibit A, and shall tender said written notice of resignation to the Chairman of the Board, the President or the Secretary of the Holding Company immediately upon execution of this Agreement. Further, within ten (10) days following the Effective Date, Employee and the Companies will issue a mutually acceptable press release, the terms of which are to be agreed upon in advance, concerning Employee's resignation as Director of the Holding Company and Employee's continuation as an employee of the Bank. 65 2. EMPLOYMENT. Employee shall remain employed by the Bank throughout the term of this Agreement (the "Employment Term," defined below), and make himself available for such tasks as the President of the Bank may reasonably request. In consideration for his employment with the Bank, Employee shall receive a monthly salary from the Bank of $8,333.00, less applicable withholding ("Salary Payments"), throughout the Employment Term. The Salary Payments shall be made on the Bank's regular payroll dates in accordance with the Bank's payroll practices. Further, the Bank shall furnish Employee with a medical, dental and vision insurance plan commensurate with that received by other Bank employees. Finally, Employee shall continue to participate in the Bank's combined 401k/ESOP Plan until the end of the Employment Term. Employee shall not be entitled to any other employee benefits including, but not limited to, vacation pay, participation in bonus plans, stock plans, or other cash or stock compensatory plans. 3. TERM OF EMPLOYMENT. The term of this Agreement shall commence upon the Effective Date, and shall continue until October 31, 1997 (the "Initial Term"). Thereafter, this Agreement may be renewed at the sole option of the Bank every twelve (12) months for three (3) years (the "Renewal Terms"), and under the following conditions and circumstances: (a) The Renewal Terms will commence November 1, 1997, November 1, 1988, and November 1, 1999, respectively. (b) In the event Employee wishes to renew this Agreement upon expiration of the Initial Term or any Renewal Term, Employee should submit a written 66 request to the Board of Directors of the Bank at least 60 days prior to the expiration of the term during which the request is made. (c) The Board of Directors shall provide Employee with a written response to any such request at least thirty (30) days prior to the end of the term during which the request is made. (d) The Initial Term and the Renewal Terms, if any, are referred to collectively as the "Employment Term." In no event shall the Employment Term extend beyond October 31, 2000. 4. STOCK OPTIONS. During the Employment Term, all incentive stock options to purchase stock of the Holding Company held by Employee shall continue to be outstanding and vest in accordance with their respective terms and the terms of the stock option plans under which they were issued. Likewise, during the Employment Term, all non-qualified stock options to purchase stock of the Holding Company held by Employee shall continue to be outstanding and vest in accordance with their respective terms and the terms of the stock option plans under which they were issued. 5. NON-PARTICIPATION, NON-INTERFERENCE AND NON-COMPETITION. Employee agrees that during the Employment Term: 67 (a) Employee will not stand for election to the Board of Directors of the Holding Company; (b) Employee will not participate in, disrupt or in any way interfere with the Companies' Board of Directors' meetings, annual shareholders' meetings or any other of the Companies' respective corporate governance activities, nor will he direct his affiliates or associates (as those terms are defined in Regulation 12b-2 promulgated under the Securities and Exchange Act of 1934, as amended (the "Exchange Act Regulations")) to engage in such conduct; (c) Employee will not conduct any business on behalf of the Companies, hold himself out as a representative of the Companies or otherwise participate in the respective business or affairs of the Companies, or their respective subsidiaries, except as specifically requested in writing by the President of the Bank, nor will he direct his affiliates or associates (as those terms are defined in Regulation 12b-2 of the Exchange Act Regulations) to engage in such conduct; (d) Employee will not attempt to influence or disrupt the management of the Companies, or their respective subsidiaries, nor will he direct his affiliates or associates (as those terms are defined in Regulation 12b-2 of the Exchange Act Regulations) to engage in such influencing or disruption; 68 (e) Employee will not participate in any proxy contest or interfere with any proxy solicitation efforts by the Holding Company, nor will he direct his affiliates or associates (as those terms are defined in Regulation 12b-2 of the Exchange Act Regulations) to engage in such participation or interference; (f) Employee will not directly, indirectly or through his affiliates or associates (as those terms are defined in Regulation 12b-2 of the Exchange Act Regulations) engage in or otherwise be employed by or act as a consultant or lender to, or be a director, officer, employee, member, shareholder, investor, owner or partner of any other business or organization which competes, directly or indirectly, with the Holding Company or the Bank or any of their respective subsidiaries. For the purposes of this Agreement, "compete" shall include, but not be limited to, soliciting business relationships, or providing or attempting to provide products or services similar to those provided by the Holding Company, the Bank or any of their respective subsidiaries to existing or prospective clients of the Holding Company, the Bank or any of their respective subsidiaries. This noncompetition provision does not prevent (i) Employee's remaining a member of the board of directors of Venture Lending and Leasing, Inc. (provided that Employee does not act in any other capacity for, and does not participate in any other business affairs of, Venture Lending and Leasing, Inc. [the "Leasing Company"], including without limitation, as an employee of the Leasing Company and provided further that if in the sole discretion of the Holding Company or the Bank, it is determined during the Employment Term that the Leasing Company is in competition with the Holding Company, the Bank, or any of their respective subsidiaries, Employee shall step down from the board of the Leasing Company); or (ii) 69 employment during the Employment Term, in a business, or becoming a partner, shareholder holding less than a 25% interest in a company, director, or officer of a business that does not compete with the Companies, provided that Employee first obtains the written consent of the Holding Company or the Bank prior to engaging in such employment or business (the Holding Company and the Bank shall use best efforts to respond to Employee's written request for consent within 15 days after receipt by the Holding Company and the Bank of such request), and (g) Employee agrees that he will be bound by and comply with the provisions of the Bank's Code of Conduct, except to the extent that said Code of Conduct conflicts with the terms of this Agreement, in which case the terms of this Agreement shall control and be binding upon Employee. Notwithstanding the foregoing, on or after the Effective Date, Employee may purchase and hold stock in customers of the Bank. 6. DAMAGES FOR BREACH OF THE TERMS OF PARAGRAPH FIVE OF THE AGREEMENT. Employee acknowledges that the terms contained in Paragraph 5 of this Agreement are material terms of this Agreement, and that the Companies entered into this Agreement in reliance upon Employee's agreement to said terms. Employee further acknowledges that any violation of said terms shall be considered a material breach of this Agreement. Further, Employee and the Companies agree that it would be impractical or extremely difficult to fix the actual damages sustained in the event Employee breaches the foregoing terms. Accordingly, Employee and the Companies agree that in the event of a breach of any of the terms of Paragraph 5 by Employee, 70 Employee shall pay to the Companies $100,000 as liquidated damages, as that amount is a reasonable pre-estimate of damages for each such breach. 7. REPRESENTATIONS AND WARRANTIES. Employee warrants and represents that he has not competed with the Holding Company or the Bank as described in Paragraph 6 of the Prior Agreement, and further warrants and represents that he has fully complied with that Paragraph. Employee further warrants and represents that he has not directed his affiliates or associates (as those terms are defined in Regulation 12b-2 of the Exchange Act Regulations) to engage in such competition, nor, to Employee's knowledge, have Employee's affiliates or associates engaged in such competition. Employee further warrants and represents that he understands that the Companies' execution of this Agreement is contingent upon the truth of the foregoing representation, and that the Companies would not have entered into this Agreement had they been aware that Employee had engaged in the above-described conduct. 8. DAMAGES FOR BREACH OF WARRANTY. Employee acknowledges that his representations and warranties made in Paragraph 7 of this Agreement are material terms of this Agreement, and that the Companies entered into this Agreement in reliance upon said representations and warranties. Further, Employee and the Companies agree that it would be impractical or extremely difficult to fix the actual damages sustained in the event Employee breached the representations and warranties contained in Paragraph 7. Accordingly, Employee and the Companies agree that in the event of a breach of the terms of Paragraph 7 of the 71 Agreement Employee shall Employee shall pay to the Companies $100,000 as liquidated damages, as that amount is a reasonable pre-estimate of damages for such breach. 9. CONFIDENTIALITY. Employee agrees that both during and after the Employment Term he will maintain confidentiality with respect to all confidential and proprietary information of any type which he may have obtained during the course of his service as an employee, officer or director of the Holding Company or the Bank. Employee further agrees that both during and after the Employment Term Employee will maintain the confidentiality of this Agreement and its underlying facts and circumstances. Employee further agrees to return to the Companies, upon their reasonable request, all manuals, documents, files or other proprietary materials used by Employee during his service to the Companies (which Employee hereby acknowledges to be property of the Companies), unless Employee is expressly authorized by the President of the Bank to retain and/or utilize such propriety materials in the performances of Employee's obligations under this Agreement. Employee further agrees that the terms of this Paragraph 9 shall survive the expiration, suspension or termination, for any reason, of this Agreement and Employee's employment with the Bank. 10. NONDISPARAGEMENT. The Holding Company, the Bank and Employee acknowledge and agree that they shall not now or in the future mention to any other person in a business-related context any negative or disparaging comments or statements about the other, or any of their respective officers, agents or employees, including disparaging or negative comments regarding business practices, and that none of them shall communicate to any person any facts or 72 opinions that might tend to reflect adversely upon the other or to harm the reputation of the other in conduct of their respective personal, business or professional affairs. Without limiting the generality of the foregoing sentence, the Holding Company and Bank agree that, when responding to inquiries by third parties regarding the circumstances of Employee's departure from the Board of Directors of the Holding Company, the Holding Company and/or the Bank will communicate that Employee left in good standing. For the purposes of this provision, the "Holding Company" and the "Bank" shall refer only to their respective executive officers and directors. 11. EARLY TERMINATION. Subject to the provisions of Paragraph 3 of this Agreement regarding Renewal Terms, Employee's employment shall terminate as of the end of the Employment Term (defined above), except as mutually agreed in writing by Employee and the Bank. 12. TERMINATION FOR CAUSE. Notwithstanding the provisions of Paragraph 11 of this Agreement, the Bank shall have the right to terminate Employee's employment at any time during the Employment Term for cause. For purposes of this Agreement, "cause" shall mean (a) any act of dishonesty, unauthorized disclosure of confidential information or fraud by Employee; (b) the commission of a felony; (c) misconduct, including insubordination, with respect to the duties and obligations of Employee under this Agreement; (d) the engagement by Employee in conduct which is injurious to either of the Companies, or to their business reputation; or (e) a breach by Employee of any of his obligations under this Agreement, provided, however, if Employee commits a breach of any of the provisions of this Agreement, the Bank first shall given 73 written notice to Employee of such breach, and Employee shall be granted seven (7) days within which to cure such breach, in all instances except the following: a. Any breach of the terms of Paragraph 5 of this Agreement; and/or b. Any breach of the warranties contained in Paragraph 7 of this Agreement. The Bank's right to to terminate Employee pursuant to the terms of this Paragraph 12 is in addition to and shall in no way limit the Bank's rights under Paragraphs 6 and 8 of this Agreement. Further, Employee and the Companies agree that in the event of a breach or default by Employee, the foregoing provision shall not limit the Companies' ability to seek and obtain such other and further equitable relief as they may be entitled to including, but not limited to, specific performance and injunctive relief, and that, except as expressly stated in this Agreement, the rights and remedies of the Companies are cumulative, and the exercise by the Companies of one or more of such rights or remedies shall not preclude the exercise by them, at the same time or different times, of any other rights or remedies for the same breach or default hereunder. 13. TERMINATION OF THE BANK'S OBLIGATIONS UNDER THIS AGREEMENT. All obligations of the Bank under this Agreement, including but not limited to its obligation to provide Employee with Salary Payments and insurance as described in Paragraph 2 of this Agreement, shall cease upon the termination of Employee's employment with the Bank, whether such termination results from the expiration of the Employment Term, Employee's termination pursuant to Paragraphs 11 or 12 of the Agreement, Employee's death, or any other circumstance. 74 14. NON-INSIDER. Commencing on January 1, 1996, Employee shall not be deemed an "insider" for purposes of compliance with the Holding Company's Insider Trading Policy. Notwithstanding the foregoing, Employee shall continue to be bound by applicable provisions of federal and state securities laws, including without limitation, Section 16 of the Securities Exchange Act of 1934 and Rule 144 promulgated under the Securities Act of 1933. 15. NO ORAL MODIFICATION. This Agreement may only be amended in writing signed by Employee and an authorized representative of each of the Holding Company and the Bank. 16. GOVERNING LAW. This Agreement shall be governed by the laws of the State of California. 17. NO JURY TRIAL. IN THE EVENT OF A DISPUTE BETWEEN EMPLOYEE AND THE HOLDING COMPANY OR THE BANK ARISING FROM OR RELATED TO THIS AGREEMENT OR ITS PERFORMANCE OR BREACH, OR FROM EMPLOYEE'S EMPLOYMENT RELATIONSHIP WITH THE BANK, THE PARTIES HEREBY AGREE THAT ANY SUCH DISPUTE SHALL BE RESOLVED BEFORE A COURT OF COMPETENT JURISDICTION IN THE 75 STATE OF CALIFORNIA, AND BE TRIED TO A JUDGE OF SUCH COURT WITHOUT A JURY. THE PARTIES HEREBY ACKNOWLEDGE THAT THEY ARE GIVING UP THEIR RESPECTIVE RIGHTS TO A TRIAL BY JURY, AND DO SO KNOWING THE CONSEQUENCES OF SUCH WAIVER. 18. AMBIGUITY. It is agreed and understood that the general rule that ambiguities are to be construed against the drafter shall not apply to this agreement. In the event any language of this Agreement is found to be ambiguous, each party shall have an opportunity to present evidence as to the actual intent of the parties with respect to any such ambiguous language, consistent with the parole evidence rule. 19. ENTIRE AGREEMENT. This Agreement constitutes the entire understanding between the parties with respect to the subject matter hereof and supersedes prior written or oral agreement with respect to their relationship, including specifically the Prior Agreement. The parties acknowledge that this Agreement covers the relationship between the parties. IN WITNESS WHEREOF the parties execute this Agreement as of October 24, 1995. 76 SILICON VALLEY BANK By: -------------------------------------- Title: SILICON VALLEY BANCSHARES By: ---------------------------------------- Title: ---------------------------------------- Roger V. Smith DATED: October 24, 1995 77 SILICON VALLEY BANCSHARES MEMORANDUM To: Board of Directors, Silicon Valley Bancshares From: Roger V. Smith cc: President, Silicon Valley Bancshares Dated: October 24, 1995 - ---------------------------------------------------------------------------- Effective as of Ocotber 24, 1995, I hereby resign my position as Director of Silicon Valley Bancshares. ----------------------------------- Roger V. Smith 78 EX-10.26 4 EXHIBIT 10.26 EXHIBIT 10.26 GENERAL RELEASE --------------- This General Release ("Agreement") is made as of September 15, 1995, among Silicon Valley Bank (the "Bank"), Silicon Valley Bancshares ("Bancshares"), and Dennis G. Uyemura ("Employee"). Hereinafter, the Bank and Bancshares collectively shall be referred to as the "Company". RECITALS -------- A. Employee and the Company previously entered into a Termination Agreement ("Original Termination Agreement"), dated September 7, 1994. The Original Termination Agreement provides for the rights and benefits of the Employee and the Company in the event of a change in ownership of the Company, or termination of employment of Employee without cause. B. Pursuant to Section 4(a) of the Original Termination Agreement, the Company's grant of rights and benefits to Employee upon a termination without cause is subject to Employee's execution of a release in a form acceptable to the Company. C. Effective as of September 15, 1995, the Employee and the Company have agreed that Employee's employment with the Company is terminated without "Cause" (as defined in the Original Termination Agreement). D. This Agreement sets forth the terms and conditions of Employee's termination of employment without cause, including without limitation, Employees's release of the Company in exchange for the benefits provided for in this Agreement, as contemplated in the Original Termination Agreement. AGREEMENT --------- NOW, THEREFORE, in consideration of the foregoing recitals, which are incorporated into this Agreement, the mutual promises of the parties and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Employee and the Company hereby agree as follows: 1. TERMINATION. Effective as of September 15, 1995, the Employee and the Company have agreed that Employee's employment with the Company is terminated without "Cause" (as defined in the Original Termination Agreement). 2. ORIGINAL TERMINATION AGREEMENT. In accordance with the terms of the Original Termination Agreement, Employee shall be entitled to the following: (a) 50% OF ANNUAL BASE SALARY. The Bank shall pay Employee $80,000 (the "Termination Payment"), which is 50% of the annual base salary Employee would have been paid for 1995 (if Employee had remained employed by the Company for the full 1995 calendar year). The Termination Payment shall be paid in equal installments on the Company's normal payroll dates for a period of 6 months, beginning on September 15, 1995 and ending on March 15, 1995 (the "Final Payment Date"). Hereinafter, this 6-month period during which Employee shall be paid the Termination Payment installments shall be referred to as the "Termination Payment Period". (b) PRO RATA INCENTIVE COMPENSATION PAYMENT. The Bank shall pay Employee 8.5/12 of the 1995 incentive compensation payment to which Employee would have been entitled (if Employee had continued to be employed by the Company through 1995 year-end). Such payment shall be made during the first calendar quarter of 1996 in accordance with the terms of the Bank's incentive compensation policy, which terms include, without 79 limitation, payment of no incentive compensation award in the event that the Employee receives an unsatisfactory performance rating for 1995. (c) ACCELERATION OF STOCK OPTIONS. All of Employee's stock options and shares granted to Employee under Bancshares' 1989 Stock Option Plan, as amended ("Plan"), immediately shall become 100% vested. The options may be exercised at any time within 3 months after the date of Employee's termination by the Company. A list of all such stock options and shares held by Employee as of the effective of this Agreement are set forth in Exhibit A, which is attached to the Agreement and incorporated by reference herein. (d) REIMBURSEMENT OF GROUP MEDICAL, VISION AND DENTAL PREMIUMS/LIFE INSURANCE PREMIUMS. In the event Employee elects to continue the group medical, vision, and dental benefits, as well as life insurance benefits (including conversion of group life insurance to individual life insurance benefits) provided to him prior to the effective date of termination under the provisions of COBRA, the Bank shall reimburse Employee for the cost of COBRA continuation premiums paid by him for such group medical, vision, and dental, and life insurance benefits until the earlier of (i) the Final Payment Date or (ii) the date on which Employee becomes eligible for coverage under any other employer's group medical benefits plan. (e) OUTPLACEMENT SERVICES. The Bank shall reimburse Employee for the actual cost to Employee of reasonable and appropriate executive outplacement services provided by deRecat and Associates. 3. PAYMENT OF VESTED BENEFITS. As of the effective date of this Agreement, all accrued and unused vacation, less applicable withholding and Employee-designated deductions, shall be paid to Employee. Employee's benefits under the Company's 401(k) and Employee Stock Ownership Plan and Employee Stock Purchase Plan shall be distributed to Employee in accordance with applicable provisions of the plan documents governing such distributions. 4. INELIGIBILITY TO PARTICIPATE IN PLANS. Unless otherwise provided in this Agreement, Employee acknowledges and understands that he is not entitled to continued participation in any benefit plans previously provided to him by the Company, including without limitation, the 401(k) and Employee Stock Ownership Plan, Employee Stock Purchase Plan, Flex Plan, and Group Long-Term Disability Benefits. 5. PAYMENT OF WAGES DUE. Employee acknowledges and represents that the consideration for this Agreement is not accrued salary, wages or vacation, and is in excess of any established severance practice or policy of the Company, and further acknowledges that California Labor Code Section 206.5 is not applicable to this Agreement or to the parties hereto. That section provides in pertinent part: No employer shall require the execution of any release of any claim or right on account of wages due, or to become due, or made as an advance on wages to be earned, unless payment of such wages has been made. 6. RELEASE. Except as expressly set forth herein, Employee agrees that the consideration provided for in this Agreement represents settlement in full of all outstanding obligations owed to Employee by the Company. Employee, on behalf of himself and his heirs, executors, and assigns, hereby fully and forever releases Company and its officers, directors, employees, predecessor, subsidiary and successor corporations, and assigns, of and from, and agrees not to sue concerning, any claim, duty, obligation or cause of action relating to any matters of any kind, whether presently known or unknown, suspected or unsuspected, that he may possess arising from any omissions, acts or facts that have occurred up to and including the effective date (as defined below) of this Agreement, including, without limitation, (a) any and all claims relating to or arising from Employee's employment and/or termination of employment with the Company; (b) any and all claims for violation of any federal, state or municipal statute, including but not limited to Title VII of the Civil Rights Act of 1964, the Civil Rights Act of 1991, the Age Discrimination in Employment Act of 1967, 80 the Americans With Disabilities Act of 1990, the Employee Retirement Income Security Act, and the California Fair Employment and Housing Act; and (c) any and all claims arising out of any other laws and regulations relating to employment or employment discrimination. 7. SECTION 1542 WAIVER. The provisions of Section 1542 of the Civil Code of the State of California are expressly waived by Employee, and Employee understands that it provides: A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR. 8. NON-ADMISSION. Employee understands and acknowledges that this Agreement constitutes a compromise and settlement of all differences between Employee and the Company, that the liability for any and all claims has been and is denied by the Company, and this final compromise and settlement of all claims shall never be deemed to be, nor construed as, an admission of liability or responsibility by either party to the other party or to any third party, at any time for any purpose. 9. CONFIDENTIALITY. The Company and Employee agree to use their best efforts to maintain in confidence the existence of this Agreement and its terms and conditions, and the consideration for this Agreement. The Company and Employee agree to take every reasonable precaution to prevent disclosure of any of the terms and conditions of this Agreement to any third party, and further agree that there will be no publicity, directly or indirectly, concerning this Agreement or any of its terms and conditions unless agreed to by the Company and Employee or unless they are legally compelled to do so. The Company and Employee further agree to take every precaution to disclose information concerning this Agreement only to those employees, officers, directors, attorneys, accountants, governmental entities, and family members who have a reasonable need to know of such information. Notwithstanding the foregoing, nothing in this Agreement shall be construed to prevent the Company from disclosing this Agreement or any of its terms in a proxy statement or to government regulatory agencies. 10. TAX CONSEQUENCES. The Company makes no representations or warranties with respect to the tax consequences to Employee under the terms of the Agreement including without limitation, with regard to the acceleration of stock options provided for in this Agreement. Employee and the Company agree that all sums paid under Paragraph 2 of this Agreement shall be subject to normal federal and state payroll tax withholding. 11. SEPARABILITY. Should any part, term or provision of this Agreement be declared or determined by any Court or other tribunal to be illegal, invalid or unenforceable, any illegal, invalid or unenforceable part, term or provision shall be deemed stricken from this Agreement and all of the other parts, terms and provisions of this Agreement shall remain in full force and effect to the fullest extent permitted by law. 12. EFFECTIVE DATE. The Company and Employee agree that Employee shall have the right to revoke this Agreement for a period of seven (7) calendar days after signing it, and that this Agreement shall become effective on the eighth (8th) calendar day after Employee has signed this Agreement. 13. BREACH OF AGREEMENT/ARBITRATION. In the event of a breach of the representations or the obligations set forth in this Agreement, the sole and exclusive remedy for such breach shall be through final and binding arbitration, in which the prevailing party shall be entitled to recover all provable damages, consequential or otherwise, in addition to such other remedies as may be available under this Agreement, at law or in equity. Any arbitration hearing under this provision shall be held in the County of Santa Clara, California. 14. COSTS AND ATTORNEYS' FEES. Should any action be brought to enforce any of the terms or conditions of this Agreement, the prevailing party shall be entitled to recover all costs and expenses incurred in the prosecution or defense of that action, including attorneys' fees. 81 15. GOVERNING LAW. This Agreement shall be governed by the laws of the State of California. 16. NO ORAL MODIFICATION. This Agreement may only be amended in writing, signed by both Employee and the Chief Executive Officer of the Company. 17. VOLUNTARY EXECUTION OF AGREEMENT. Employee agrees that this Agreement is executed by him voluntarily and without any duress or undue influence on the part or behalf of the parties hereto, with the full intent of releasing all claims. Employee acknowledges that: (a) he has read this Agreement; (b) he has been given a reasonable period of time to consider the legal effects of this Agreement; (c) he has been represented in the preparation, negotiation, and execution of this Agreement by legal counsel of his own choice; (d) he understands the terms and consequences of this Agreement and of the releases it contains; and (e) he is fully aware of the legal and binding effect of this Agreement. 18. SUCCESSORS. This Agreement and the respective rights and obligations of the parties hereunder shall inure to the benefit of, and be binding upon, their respective successors, assigns and legal representatives. This provision with respect to Employee's right of successorship shall, however, inure only to the benefit of Employee's estate, executor, administrator, and heirs. 19. ENTIRE AGREEMENT. This Agreement represents the entire agreement and understanding between the Company and Employee, and supersedes and replaces any and all prior agreements and understandings between Employee and the Company. 20. ADDITIONAL TIME. Employee acknowledges that he has been advised that he could have twenty-one (21) days to consider this Agreement and that he was informed that he has the right to consult with counsel regarding this Agreement and he has consulted with counsel regarding this Agreement. To the extent that Employee has taken less than twenty-one (21) days to consider this Agreement, Employee acknowledges that he has had sufficient time to consider the Agreement and to consult with counsel and that he does not desire additional time. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above. DENNIS G. UYEMURA, an individual ---------------------------------- SILICON VALLEY BANCSHARES By: -------------------------------- John C. Dean, Jr. President and Chief Executive Officer SILICON VALLEY BANK By: ----------------------------------- John C. Dean, Jr. President and Chief Executive Officer 82 EX-10.27 5 EXHIBIT 10.27 EXHIBIT 10.27 CONSULTING AGREEMENT -------------------- This Consulting Agreement (this "Agreement") is entered into as of the 15th day of September, 1995, among Dennis G. Uyemura ("Consultant"), Silicon Valley Bank ("Bank"), and Silicon Valley Bancshares ("Bancshares"). Hereinafter, the Bank and Bancshares collectively shall be referred to as the "Company". RECITALS -------- A. On or about the date of this Agreement, Consultant and the Company have entered into a General Release, pursuant to which, among other things, the Employee and the Company have agreed that Consultant's employment with the Company is terminated without "Cause" (as such term is defined in the General Release [the "Termination Agreement"] ). B. Following termination of employment with the Company on September 15, 1995, the Company desires to engage Consultant to (i) provide technical documentation on the Company's financial systems, including without limitation the NDR system (which technical documentation shall include, without limitation, query designs, table structures and naming conventions) (the "ISG Documentation") and (ii) assist on the Company's transition to an Economic Value Added financial management system (the "EVA Program"). Consultant desires to be so engaged, on the terms and conditions set forth in this Agreement. AGREEMENT --------- NOW, THEREFORE, in consideration for the mutual promises of the parties and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Consultant and the Company hereby agree as follows: 1. ENGAGEMENT. The Company hereby engages Consultant, and Consultant hereby accepts such engagement, to work on the ISG Documentation and the EVA Program during the term of this Agreement. Consultant shall perform such duties related to the ISG Documentation and the EVA Program as requested from time to time by the Chief Executive Officer of the Company or the Chief Executive Officer's designees. Consultant shall be required to provide 90 hours of services to the Company per calendar month. Consultant shall not render consulting or other services to third parties (other than to Stern Stewart & Co.) during the term of this Agreement without the prior written consent of the Company. The Company shall not withhold consent unless the Company determines in its sole discretion that such services would significantly interfere with Consultant's performance under this Agreement. 2. TERM OF ENGAGEMENT AND TERMINATION. (a) TERM. Unless sooner terminated pursuant to subsection (b) below, the term of engagement under this Agreement shall commence on September 15, 1995 and shall continue until March 15, 1996. 83 (b) TERMINATION. Consultant's engagement under this Agreement shall terminate prior to the expiration of its term upon the occurrence of any of the following: (i) The mutual agreement of Consultant and the Company; (ii) At the Company's option, (1) immediately upon a breach of this Agreement by Consultant or (2) at any other time following two weeks' prior notice; (iii) At the Consultant's option, at any time following two weeks' prior notice; or (iv) The death of Consultant. 3. COMPENSATION AND EXPENSE REIMBURSEMENT. (a) COMPENSATION. As the total consideration for the services and obligations of Consultant under this Agreement, the Company shall pay Consultant $6,667 per month, payable on the 15th and 30th day of each month during the term of the engagement. (b) REIMBURSEMENT OF EXPENSES. The Company shall reimburse Consultant for any reasonable documented expenses incurred by Consultant in the performance of Consultant's duties under this Agreement, in accordance with the Company's expense reimbursement policy. 4. OFFICE EQUIPMENT. During the consulting term, Employee may use the Company's laptop computer, external disc drive, and printer, which Consultant previously used while employed by the Company. Within one business day following termination of the consulting term, Consultant shall deliver all of the above-described equipment to the Company at its principal place of business. 5. CONFIDENTIALITY. Consultant shall not disclose any confidential business or other information relating to the Company, including without limitation, the EVA Program, to any third party. This obligation to maintain the confidentiality of the Company's business and other information shall continue indefinitely following termination of the consulting term. 6. NON-COMPETITION. During the consulting term, Consultant shall not provide consulting or other services, whether directly or indirectly, for any company which "competes" with the Company. For the purpose of this Agreement, "compete" shall mean performing, or attempting to perform, services to companies that provide services similar to those provided by Company to existing or prospective clients of the Company. 7. MISCELLANEOUS. (a) GOVERNING LAW. This Agreement shall be construed in accordance with the laws of the State of California. (b) ENTIRE AGREEMENT. This Agreement represents the entire agreement between the parties pertaining to the subject matter of this Agreement. There are no promises or other terms or obligations of the parties pertaining to this subject matter other than as contained in this Agreement. (c) AMENDMENT. This Agreement may be amended only by in writing executed by Consultant and the Company. (d) ATTORNEYS' FEES. Should any action be brought to enforce any of the terms or conditions of this Agreement, the prevailing party shall be entitled to recover all costs and expenses incurred in the prosecution or defense of that action, including attorneys' fees. 84 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above. DENNIS G. UYEMURA, an individual --------------------------------- SILICON VALLEY BANCSHARES By: -------------------------------- John C. Dean, Jr. President and Chief Executive Officer SILICON VALLEY BANK By: -------------------------------- John C. Dean, Jr. President and Chief Executive Officer 85 EX-27 6 EXHIBIT 27
9 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS, RELATED NOTES, AND MANAGEMENT'S DISCUSSION AND ANALYSIS CONTAIN IN THE REPORT ON FORM 10-Q FILED BY SILICON VALLEY BANCSHARES FOR THE QUARTER ENDED SEPTEMBER 30, 1995. 1,000 9-MOS DEC-31-1995 JAN-01-1995 SEP-30-1995 104,310 128 270,000 0 171,517 6,612 7,011 700,762 27,000 1,256,346 1,148,350 0 9,833 0 58,046 0 0 40,117 1,256,346 59,371 6,831 7,307 73,509 19,062 19,062 54,447 6,098 (770) 4,143 20,512 20,512 0 0 12,724 1.40 1.40 9.9 20,272 685 0 10,609 20,000 4,322 5,224 27,000 12,926 0 14,074
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