-----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, BKz+sgKsewodIgIbtpRIK4Jtxx9ylrfJjIgs1qFTbw2qFpmgwbPigLYPsHAq5iBP kx0rbsxUkj1Rv2uAYEdzxw== 0000946550-97-000006.txt : 19970626 0000946550-97-000006.hdr.sgml : 19970626 ACCESSION NUMBER: 0000946550-97-000006 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 17 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970625 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: CTC COMMUNICATIONS CORP CENTRAL INDEX KEY: 0000764841 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-TELEPHONE INTERCONNECT SYSTEMS [7385] IRS NUMBER: 042731202 STATE OF INCORPORATION: MA FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-13627 FILM NUMBER: 97629435 BUSINESS ADDRESS: STREET 1: 360 SECOND AVE CITY: WALTHAM STATE: MA ZIP: 02154 BUSINESS PHONE: 6174668080 MAIL ADDRESS: STREET 1: 360 SECOND AVENUE CITY: WALTHAM STATE: MA ZIP: 02154 FORMER COMPANY: FORMER CONFORMED NAME: COMPUTER TELEPHONE CORP DATE OF NAME CHANGE: 19920703 10-K 1 3/31/97 FORM 10-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-K ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 For the fiscal year ended March 31, 1997. Commission File Number 0-13627. CTC COMMUNICATIONS CORP. (Exact name of registrant as specified in its charter) Massachusetts 04-2731202 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 360 Second Avenue, Waltham, Massachusetts 02154 (Address of principal executive offices) (Zip Code) (617) 466-8080 (Registrant's telephone number including area code) Securities registered pursuant to Section 12(b) of the Act: None. Securities registered pursuant to Section 12(g) of the Act: Common Stock. Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part IV of this Form 10-K or any amendment to this Form 10-K. [ ] Based on the closing sale price on June 17, 1997, the aggregate market value of the voting stock held by non-affiliates of the Registrant was approximately $55,690,000. At June 17, 1997, 9,924,152 shares of the Registrant's Common Stock were outstanding. PART I In addition to historical information, this Annual Report contains forward-looking statements made in good faith by the Company pursuant to the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995 including, but not limited to, those statements regarding the Company's intent to expand its non-facilities based reseller operations, its intent to expand its sales force, its expectation that commission payments under its agreement with NYNEX will not be materially reduced over the remainder of the term of the agreement and the Company's ability to meet its cash requirements for the next 12 months. The forward-looking statements contained herein are subject to certain risks and uncertainties that could cause actual results to differ materially from those reflected in the forward-looking statements. Factors that might cause such a difference include, but are not limited to, those discussed in the section entitled "Risk Factors that May Affect Future Results" at the end of this Item 1. and in Management's Discussion and Analysis of Financial Condition and Results of Operations. Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management's analysis as of the date hereof. The Company undertakes no obligation to publicly revise these forward-looking statements to reflect events or circumstances that arise after the date hereof. ITEM 1. BUSINESS GENERAL OVERVIEW CTC Communications Corp. (the "Company") was organized under the laws of the Commonwealth of Massachusetts under the name "Computer Telephone Corp." in 1980 and in September 1996, changed its name to "CTC Communications Corp." The Company is engaged in the sale of local communication services under non-exclusive agency agreements with NYNEX (since 1984), Southern New England Telephone (1990), Pacific Bell Telephone (1990), and Ameritech Corporation (1990), and long distance services on the networks of Cable and Wireless Communications, Inc. (1992), Wiltel, Inc. (1993), Frontier Communications International, Inc. (1995), and IXC Communications Inc. (1996). In addition, the Company markets Internet access on behalf of NETCOM On-line Communications Services, Inc., wireless communications services on the GEOTEK Communications network and frame relay data services on the Intermedia Communications, Inc. platform. The Company also markets a variety of specialized products, including prepaid calling cards, broadcast fax and conference calling, to its customer base. Under its agency agreements, the Company acts as a distribution channel for these companies and markets discount telephone calling plans, 800 services, Centrex systems, data transport and long distance services, and performs other management services on a commission basis. The Company operates under written 2 agreements which are generally for terms of one to three years and can be canceled by either party on 30 to 60 days notice. The agreements generally provide for automatic one year renewals provided certain minimum sales goals are satisfied. The Company's primary market for the sale of such network services consist of commercial customers with annual telephone billings between $10,000 and $250,000. The Company presently records as network service commission income the commissions and fees it earns from the Regional Bell Operating Companies ("RBOCs") and other carriers as an independent sales agent. The agency agreements with the RBOCs generally provide for payment of commissions based on unit product sales, and in some cases, the commission is based on the actual usage of the network by the customer. In addition, under contracts with NYNEX and Southern New England Telephone, the Company is paid residual fees to manage communication networks on behalf of these carriers. Currently the Company performs account management services for over 5,000 accounts that annually generate more than $250 million in telecommunications revenues. These contracts also provide for bonuses that are based on sales volume levels or the achievement of certain quality levels. Effective April 1, 1994, the Company began to record long distance usage income earned under resale agreements as a separate revenue category. This income first became significant to the Company during the fiscal year ended March 31, 1995. In October 1995, the Company entered into a non-exclusive agreement with NETCOM On-line Communications, Inc. to resell NETCOM's Internet access services. The Company offers these Internet services to its current subscriber base, as well as new customers, who are targeted as consumers of other telecommunication services offered by the Company. The revenues received by the Company from the resale of communications services are recorded at their retail value with corresponding expense items for the costs of the services, which include the costs of billing and collections. It is the Company's strategy to continue to add additional telecommunications services to this platform, in which the Company purchases services at wholesale price levels and markets them to its subscribers at competitive marked up prices. In November 1995, the Company initiated its own home page on the World Wide Web (ctcnet.com) where visitors to the website can obtain information about the Company and its products, and general information about the telecommunications industry. The website also contains an investor relations section which provides financial information about the Company, as well as the text of all press releases and the transcript of the Company's most recent analyst conference call. In February 1996, the Company entered into a new agency contract with NYNEX covering the New England and New York marketplaces. In addition, the Company and NYNEX continue to develop an electronic bonding project which, upon completion, will provide 3 the Company with access to internal NYNEX databases and systems associated with customer records, ordering, provisioning, and repair. This project, when completed, will permit the Company to provide customer service in a more efficient and cost effective manner. In March 1997, the Company entered into a non-exclusive agreement with Intermedia Communications, Inc. ("ICI") to resell ICI's frame relay data services, which is a more efficient, cost effective means of connecting multiple locations. Frame relay is an important addition to the Company's data network product line and to the Company's existing extensive customer base of dial-up and leased line networks. For the fiscal year ended March 31, 1997, the Company had total revenues of $40,290,000 of which NYNEX accounted for approximately $25,193,000 (63%) and the resale of network services accounted for approximately $11,095,000 (28%). SALES OFFICES AND MARKETING The Company maintains its corporate headquarters in Waltham, Massachusetts, with sales offices strategically located in Lexington, Springfield, North Attleboro, Marlboro and Braintree, Massachusetts; Meriden and Fairfield, Connecticut; Bedford, New Hampshire; Portland, Maine; Colchester, Vermont; New York City, Long Island, Elmsford, Albany and Kings Park, New York; Columbus, Ohio; and Los Angeles and Sacramento, California. The Company believes that its present facilities are adequate for the foreseeable future. Sales offices are staffed by full-time Company sales personnel and are supported by an administrative staff located at the Company's corporate headquarters. The marketing force is divided into two basic groups: account executives, who act as outside sales personnel and are responsible for overall account management, and the network coordinators, who expedite the provisioning, service and billing issues for the accounts. Sales efforts are directed to companies, professional organizations and others requiring network services such as discounted calling plans, 800 services, Centrex and data circuits, long distance services, Internet access, frame relay data services, and other secondary services. At present, the Company does not market to residential customers. The typical customer is a middle market commercial account with approximately $50,000 in annual telecommunications expenses. This customer usually does not employ a full time telecommunications manager on its staff, and utilizes a full array of telecommunication services. It is the strategy of the Company to build long-term relationships with its customers, in order to become the network provider for as many of the customers' communication needs as possible. 4 COMPETITION The Company competes with many other companies selling the same and similar services. The market for these services is highly competitive and the Company competes with established companies with substantially greater personnel, financial and other resources than those of the Company. The Company's competitors in the sale of network services include AT&T, MCI, Sprint, other long line companies, numerous long-distance resellers, by-pass companies, the Regional Bell Operating Companies, and other agents. In addition, secondary services such as Internet access, broadcast fax and conference calling are marketed directly by the service providers. Although the Company may compete at a scope and scale disadvantage with these companies, it has been successful in its marketing efforts as a non-exclusive independent agent for several of these competing companies in the marketing of their products as well as a non facilities based provider of both long distance services and other of its customers' communication products, by developing long term relationships with its commercial accounts and providing value added customer service and support. EMPLOYEES At May 31, 1997, the Company employed 235 persons, including seven senior management personnel, 205 sales personnel (including managers and network coordinators), and 23 administrative personnel. The employees are not represented by any labor union and management believes that its relationships with its employees are excellent. RISK FACTORS THAT MAY AFFECT FUTURE RESULTS Development of Reseller Operations A crucial component of the Company's strategy is its continuing development as a non-facilities based provider, or reseller, of local, long distance and Internet access services. For the fiscal year ended March 31, 1997, network service resale income constituted 28% of the Company's total revenues. The success of the Company's reseller expansion plan is subject to a number of risks including its ability to negotiate additional reseller agreements on commercially reasonable terms, the availability of adequate capital, the increasingly competitive nature of the telecommunications industry, including the effect of the development and introduction of new technologies and the ability to attract additional personnel. Historical Dependence on Agency Contract Commission revenue derived under the Company's agency agreement with NYNEX represented 63%, 69% and 63% of the Company's total revenues for the fiscal years ended March 31, 1997, 1996 and 1995, respectively. The Company's agreement with NYNEX expires on December 31, 1998. In addition, the commission 5 rates and fees payable to the Company under the NYNEX agreement are adjusted annually which resulted, in 1996, in a material reduction in commission rates. The loss of this agency relationship with NYNEX, or a further material reduction in commission rates under the NYNEX agreement, would have a material adverse effect on the Company's operations. Dependence on Facilities Based Carriers and Internet Access Providers The Company is dependent upon certain long distance carriers, Internet access providers, and regional and local telephone companies to provide access to long distance telephone and Internet service on a cost-effective basis. The Company has entered into agreements with long distance carriers and Internet access providers to provide access to telephone lines and transmission facilities necessary to transmit customer calls. Although the Company believes that it currently has access to transmission facilities and long distance networks on favorable terms and believes that its relationships with its carriers and Internet access providers are satisfactory, any increase in the rates charged by such carriers or providers could have a material adverse effect on the Company's operations. Failure to obtain continuing access to such facilities and networks would also have a material adverse effect on the Company. In addition, the Company's operations require that its carrier switching facilities and long distance networks operate on a continuous basis. Although these networks are designed to be redundant and incorporate disaster recovery plans, there can be no assurance that third-party switching facilities and long distance networks will not from time to time experience service interruptions or equipment failure, which could have a material adverse effect on the Company's reseller business. Dependence on Supplier Provided Timely and Accurate Call Data Records; Billing and Invoicing Disputes In its reseller business, the Company is dependent upon the timely receipt and accuracy of call data records provided to it by its suppliers. There can be no assurance that accurate information will consistently be provided by suppliers or that such information will be provided on a timely basis. Failure by suppliers to provide timely and accurate detail would increase the length of the Company's billing and collection cycles and adversely effect its operating results. The Company pays its suppliers according to the Company's calculation of the charges applicable to the Company based on supplier invoices and computer tape records of all such calls provided by suppliers which may not always reflect current rates and volumes. Accordingly, a supplier may consider the Company to be in arrears in its payments until the amount in dispute is resolved. There can be no assurance that disputes with suppliers will not arise or that such disputes will be resolved in a manner favorable to the Company. In addition, the Company is required to maintain 6 sophisticated billing and reporting systems to service the large volume of services placed over its networks. As resale volumes increase, there can be no assurance that the Company's billing and management systems will be sufficient to provide the Company with accurate and efficient billing and order processing capabilities. Customer Attrition The Company's operating results may be significantly affected by its reseller customer attrition rates. There can be no assurance that customers will continue to purchase long distance or other services through the Company in the future or that the Company will not be subject to increased customer attrition rates. The Company believes that the high level of customer attrition in the industry is primarily a result of national advertising campaigns, telemarketing programs and customer incentives provided by major competitors. There can be no assurance that customer attrition rates will not increase in the future, which could have a material adverse effect on the Company's operating results. Competition, Evolving Industry Standards, Technological Trends and Changing Regulation. The Company faces intense competition in the marketing and sale of its services and products. The Company's local access, long distance, prepaid long distance calling cards, Internet and other services and products compete for consumer recognition with other firms offering similar or like products which have achieved significant international, national and regional consumer recognition. Many of these services and products are marketed by companies which are well established, have reputations for success in the development and sale of services and products and have significantly greater financial, marketing, distribution, personnel and other resources than the Company. These resources permit such companies to implement extensive advertising and promotional campaigns, both generally and in response to efforts by additional competitors to enter into new markets and introduce new services and products. Certain of these competitors, including AT&T, MCI Telecommunications Corporation ("MCI") and Sprint Corporation ("Sprint"), dominate segments of the industry and have the financial resources to enable them to withstand substantial price competition which is continuing. These and other large telephone companies have also entered or have announced their intention to enter into the prepaid phone card and Internet segments of the telecommunications industry. Because there are minimal barriers to entry, competition from smaller resellers in the Company's target markets is also expected to continue to increase significantly. These markets for telecommunications services and products are also characterized by rapidly changing technology and evolving industry standards, often resulting in product obsolescence or short product life cycles. The proliferation of new telecommunications technologies, including personal communication 7 services, cellular telephone services and products and prepaid phone cards employing alternative "smart" card technologies, may reduce demand for traditional land-line telephone services. The Company's success will depend on the Company's ability to anticipate and respond to these and other factors affecting the industry, including changes in technology, customer preferences, business and demographic trends, unfavorable general economic conditions and discount pricing strategies by competitors. Recent regulatory changes may also result in significantly increased competition. The Telecommunications Act of 1996 is designed to introduce increased competition in domestic telecommunications markets by facilitating the entry of any entity (including cable television companies and utilities) into both the long distance and local telecommunications markets. Consequently, such act increases the potential for increased competition by permitting long distance and regional carriers to compete in local markets and well-established and well- capitalized Regional Bell Operating Companies and local exchange carriers to compete in the long distance markets. There can be no assurance that the Company will be able to continue to compete successfully, particularly as it seeks to enter into new markets and market new services and products. Dependence on Key Personnel The Company's future success will depend in significant part upon the continued service of certain key personnel (including Robert J. Fabbricatore, the Company's Chairman and Chief Executive Officer), and the ability of the Company to attract and retain highly qualified managerial and sales and marketing personnel in the telecommunications field. Competition for such personnel is intense, and there can be no assurance that the Company can retain its existing key managerial, technical and other personnel or that it can attract and retain such employees in the future. The loss of key personnel or the inability to hire or retain qualified personnel in the future could have a material adverse effect upon the Company's results of operations. The Company does not have employment agreements with its key personnel. Possible Volatility of Stock Price In recent years, the stock market in general, and the market for shares of small capitalization companies (such as the Company) in particular, have experienced extreme price fluctuations which have been unrelated to changes in the operating performance of the affected companies. Such fluctuations could adversely affect the market price of the Company's Common Stock. ITEM 2. PROPERTIES The Company's executive offices are located at 360 Second Avenue, Waltham, Massachusetts 02154, in approximately 20,000 square feet 8 of leased space from an unaffiliated lessor, under a lease expiring in 1999 at a net annual rent of approximately $161,000 (before sublease income), including taxes and insurance. The Company rents office space in each of the locations where it maintains branch sales offices. The aggregate annual lease rentals for these locations approximated $840,000 for the year ended March 31, 1997. Certain facilities are leased from affiliates of the Chairman of the Company. See Item 13. Certain Relationships and Related Transactions. ITEM 3. LEGAL PROCEEDINGS (a) Pending Legal Proceedings. The Company is party to suits arising in the normal course of business which management believes are either individually or in the aggregate not material. (b) Legal Proceedings Terminated in the Fourth Quarter. None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY SECURITIES AND RELATED STOCKHOLDER MATTERS. The Company's Common Stock trades on the Nasdaq National Market under the symbol "CPTL". The following tables set forth the ranges of the high and low sale prices for the Company's outstanding Common Stock for the periods indicated. Three Months Ended High Sale Low Sale - ------------------ --------- -------- June 30, 1995 $ 5.21 $ 2.96 September 30, 1995 $10.00 $ 4.59 December 31, 1995 $19.50 $ 9.75 March 31, 1996 $15.50 $ 8.50 June 30, 1996 $18.00 $ 9.75 September 30, 1996 $13.75 $ 8.00 December 31, 1996 $11.75 $ 6.38 March 31, 1997 $ 9.13 $ 6.38 The above stock prices have been adjusted to give retroactive effect to the stock dividends and stock splits described below. As of June 17, 1997, there were 339 holders of record of the Company's Common Stock. The Company believes there were in 9 excess of 1,500 beneficial holders of the Common Stock as of such date. The Company has never paid a cash dividend on its Common Stock and management has no present intention of paying dividends in the foreseeable future. The policy of the Company is to retain earnings and utilize the funds for Company operations and expansion. Any change to the dividend policy will be determined by the Board of Directors based on the Company's earnings, financial condition, capital requirements and other existing conditions. On January 18, 1995, the Company declared a twenty-five percent (25%) stock split, effected in the form of a dividend, payable to shareholders of record on March 1, 1995. A total of 623,359 shares of Common Stock were issued in connection with the split. On July 13, 1995, the Company declared a three-for-two stock split, payable to shareholders of record on July 25, 1995. A total of 1,560,742 shares of Common Stock were issued in connection with the split. On October 10, 1995, the Company declared a two-for-one stock split, payable to shareholders of record on October 23, 1995. A total of 4,718,172 shares of Common Stock were issued in connection with the split. From April 5, 1996 through March 28, 1997, the Company issued 36,571 shares of unregistered Common Stock in the aggregate to 22 non-executive employees upon the exercise of stock options at exercise prices ranging from $.53 to $2.71 per share, pursuant to the exemption from registration provided by Section 4(2) of the Securities Act of 1933, as amended. ITEM 6. SELECTED HISTORICAL FINANCIAL DATA OF THE COMPANY. The following selected financial data have been derived from the Company's financial statements which have been audited by Ernst & Young LLP, independent auditors. The following data should be read in conjunction with the Company's financial statements and related notes appearing elsewhere in this Report on Form 10-K. All earnings per share and weighted average share information included in the accompanying financial statements have been restated to reflect the 25% stock split effected in Fiscal 1995, and the three-for-two stock split and the two-for-one stock split effected in Fiscal 1996. STATEMENT OF INCOME DATA: Year Ended March 31, 1997 1996 1995 1994 1993 (in Thousands Except Per Share) Revenues $40,290 $30,876 $21,936 $14,945 $15,952 Net Income (Loss) 4,683 4,094 1,472 75 545 Earnings (Loss) Per Share Primary $ 0.43 $ 0.38 $ 0.17 $ 0.01 $ 0.07 Fully Diluted $ 0.43 $ 0.38 $ 0.16 $ 0.01 $ 0.07 10 BALANCE SHEET DATA: At March 31, 1997 1996 1995 1994 1993 (in Thousands) Current Assets $17,804 $10,890 $ 6,420 $ 4,063 $ 3,871 Current Liabilities 5,895 3,014 2,200 1,528 1,957 Working Capital 11,909 7,876 4,220 2,535 1,914 Total Assets 20,186 12,509 7,726 5,399 5,710 Total Long-Term Debt 0 0 0 0 0 Total Liabilities 5,895 3,014 2,200 1,528 1,957 Stockholders' Equity 14,292 9,495 5,526 3,871 3,753 Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with the Financial Statements and Notes set forth elsewhere in this Report. RESULTS OF OPERATIONS - FISCAL YEAR ENDED MARCH 31, 1997 AS COMPARED TO FISCAL YEAR ENDED MARCH 31, 1996. Total revenues for the fiscal year ended March 31, 1997 ("Fiscal 1997") increased 30% to $40,290,000 as compared to $30,876,000 for the fiscal year ended March 31, 1996 ("Fiscal 1996"). Network service commission income, which represents fees earned by the Company in its capacity as an agent for various local and long distance telephone companies, increased 15% to $29,195,000 as compared to $25,493,000 for Fiscal 1996 due to the addition of new customers, increased sales to existing customers and the addition of new products to the Company's portfolio. Effective January 1996, NYNEX reduced certain fees and commissions payable under its 1996 agency agreement with the Company. As a result, although unit sales of Centrex and Data Products, two flagship NYNEX products, increased 30% and 66%, respectively, revenues increased only 15% as stated above. Although there can be no assurance, the Company believes that there will be no further material reductions in commission rates and fees payable under the NYNEX agreement, which extends through December 1998. Network service resale income, which represents the gross billings to mid-sized commercial accounts for the Company's long distance and Internet access network services, increased 106% to $11,095,000 for Fiscal 1997 from $5,383,000 for Fiscal 1996. This increase can be attributed to the addition of new customers to the service, as well as the introduction of new products, primarily Internet access. It is the Company's strategy to continue to add new services to this platform to further leverage these long term customer relationships. Selling, general, and administrative expenses increased 19% to $23,820,000 for Fiscal 1997 from $20,009,000 for Fiscal 1996. As a percentage of revenues, these expenses were 59% for Fiscal 1997, as compared to 65% for Fiscal 1996. This increase is attributable to the increase in variable sales commission and 11 bonus expenses incurred in connection with the substantial increase in revenues. In addition, the Company has increased the number of sales offices, particularly in the Northeast, and hired additional account executives. The Company also expanded the facilities at several of its existing sales branches. The Company currently has the office space capacity to expand its sales force to its goal of approximately 170 account executives by March 31, 1998, from its current sales force of 125. The Company also made additional investments in its information systems in Fiscal 1997. Net income increased to $4,683,000 in Fiscal 1997 from $4,094,000 in Fiscal 1996, as a result of revenue growth primarily in the Northeast, combined with a continuing effort to control operating expenses. RESULTS OF OPERATIONS - FISCAL YEAR ENDED MARCH 31, 1996 AS COMPARED TO FISCAL YEAR ENDED MARCH 31, 1995. Total revenues for Fiscal 1996 increased 41% to $30,876,000 from $21,936,000 for the fiscal year ended March 31, 1995 ("Fiscal 1995"). Network service commission income increased 35% to $25,493,000 from $18,898,000 for Fiscal 1995. Network service resale income increased 77% to $5,383,000 for Fiscal 1996 from $3,038,000 for Fiscal 1995. The increase in revenues is attributable to an increase in the business in the Northeastern United States, which is a direct result of the additional account executives hired by the Company in Fiscal 1996, as well as increased penetration into the Company's existing customer base by the introduction of new products, including both local and long distance services. Selling, general, and administrative expenses increased 16% to $20,009,000 for Fiscal 1996 from $17,319,000 for Fiscal 1995. As a percentage of revenues, selling, general, and administrative expenses were 65% for Fiscal 1996, as compared to 79% for Fiscal 1995. This decrease in expenses as a percentage of revenues reflects the continuing efforts by the Company to control operating expenses as well as the increased profitability of multiple sales to the Company's existing customer base. The overall increase in selling, general, and administrative expenses is the direct result of the increase in variable sales commission and bonus expenses due to the sharp increase in revenues. Net income increased to $4,094,000 in Fiscal 1996 from $1,472,000 in Fiscal 1995, an increase of $2,622,000. The increase is a result of revenue growth primarily in the Northeast, combined with a continuing effort to control operating expenses and leverage customer opportunities. LIQUIDITY AND CAPITAL RESOURCES Working capital at March 31, 1997 was $11,909,000 as compared to $7,876,000 at March 31, 1996, an increase of $4,033,000 or 51%. 12 At March 31, 1997, the Company had cash and cash equivalents totalling $6,406,000. Accounts receivable increased to $10,905,000 at March 31, 1997 from $6,557,000 at March 31, 1996. This increase reflects a 30% increase in revenues from Fiscal 1996 to Fiscal 1997, as well as increased long distance revenues, which are recorded at the gross retail value. On September 26, 1996, the Company amended its revolving line of credit agreement with Fleet Bank, which is available under certain conditions, to provide for an increase in the credit line to $5,000,000 from $3,000,000 at the prime rate of interest, with LIBOR rates available at the Company's election. The Company presently has no bank debt (other than $300,000 outstanding as of March 31, 1997 under the Fleet Bank line of credit to finance certain letters of credit) and expects that the revolving credit line, together with cash flows from operations, will be sufficient to meet the cash requirements of the Company for the next twelve months under its current operating plan. However, any substantial increase in reselling operations and related asset investment may require additional financing. Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. Reference is made to pages F-1 through F-21 comprising a portion of this Annual Report on Form 10-K. Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. Part III Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT (a) Identification of Directors Other Capacities Period Served in Which Age as Director Currently Serving --- -------------- ------------------ Robert J. Fabbricatore 54 Since 1980 Chairman and Chief Executive Officer Philip J. Richer 61 Since 1989 None Richard J. Santagati 53 Since 1991 None J. Richard Murphy 53 Since 1995 None Henry Hermann 55 Since 1996 Consultant 13 Mr. Fabbricatore, a founder of the Company and a Director since its inception in 1980, became Chairman of the Board of Directors in March 1983 and served as President from October 1993 to August 1995. Mr. Fabbricatore also served as Treasurer of the Company from April 1987 until May 1988. Prior to April 1, 1986, Mr. Fabbricatore did not devote a substantial portion of his time to the Company's business. Mr. Richer joined the Company as Vice President-Sales in July 1989 and became a Director and Vice Chairman in August 1989. Mr. Richer retired as an officer and employee of the Company effective December 31, 1995. Prior to joining the Company, Mr. Richer served as director of Sales Channel Management for New England Telephone. During his career with New England Telephone, Mr. Richer served in a variety of other management positions. In addition, Mr. Richer was formerly Data Communications Superintendent for New England Telephone and performed numerous sales and sales management functions. Mr. Santagati became a director of the Company in September 1991. He has been the President of Merrimack College in North Andover, Massachusetts since 1994. Mr. Santagati was a partner of Lighthouse Management, Inc., a private investment firm located in Boston, Massachusetts from 1991 to 1993 and, from 1991 to February 1994, the Chairman of the Board, Chief Executive Officer and President of Artel Communications Corp., a publicly held data communications firm located in Hudson, Massachusetts. From 1986 to 1991, Mr. Santagati was the Chief Executive Officer and a member of the Executive Committee of Gaston & Snow, a Boston, Massachusetts based law firm. From 1983 to 1986, Mr. Santagati was employed by NYNEX Corp., first as Vice President of Marketing, and then as President and Chairman of NYNEX Business Information Systems Co. From 1977 to 1983, Mr. Santagati held a number of executive level positions with New England Telephone, including Vice President of Marketing and Assistant Vice President of Sales. Mr. Santagati is a member of the Board of Trustees of Lawrence General Hospital. He is also a director of ESP, Inc., a privately held communications company located in Hingham, Massachusetts. Mr. Murphy became a Director of the Company in August 1995. Mr. Murphy has been the Director of the Financial Consulting Group of Moody, Cavanaugh and Company, LLP, a North Andover, Massachusetts public accounting firm, since April 1996. Since 1992, Mr. Murphy has also been President and sole stockholder of Bradford Capital Corporation, an investment banking and corporate finance firm located in North Andover, Massachusetts. Mr. Murphy was an officer, director and principal stockholder from 1990 to 1995 of Arlington Data Corporation, a systems integration company located in Haverill, Massachusetts; since 1992 of Arlington Data Consultants, Inc., a company engaged in the installation and maintenance of computer systems and hardware; and, since 1994 of Computer Emporium, Inc., a company engaged in processing parking violations for municipalities. These three companies are privately-held affiliated companies and are located in Haverill, 14 Massachusetts. From 1989 to 1991 Mr. Murphy was an officer, director and principal stockholder of Financial Perspectives Incorporated, an investment banking and corporate finance firm located in North Andover, Massachusetts. Mr. Murphy was President and Chief Executive Officer of Shawmut Arlington Trust Company in Lawrence, Massachusetts, from 1988 to 1989 and from 1968 to 1988 held a variety of management positions, the most recent being President and Chief Executive Officer with the Arlington Trust Company, also in Lawrence, Massachusetts. From 1987 to 1995, Mr. Murphy was a trustee of Merrimack College in North Andover, Massachusetts and from 1994 to 1995 served as Chairman of the Board of Trustees. Mr. Murphy is a trustee of Holy Family Hospital, a director and Clerk of Mary Immaculate Health Care Services, located in Lawrence, Massachusetts, and a member of Covenant Health Systems, Inc., a Lexington, Massachusetts based network of religious sponsored providers of long term care and geriatric services. He is also a director of Stickney & Poor Spice Company, Inc., a privately held food manufacturing and distributing company located in Chelmsford, Massachusetts. Mr. Hermann became a director of the Company in September 1996. Since May 1997, he has been employed by Kuhns Brothers & Company, Inc., as a principal and Executive Vice President. For the previous nine years, he was employed by WR Lazard, Laidlaw and Luther, Inc., a securities brokerage firm, as Vice President, Securities Analyst and Portfolio Manager. Mr. Hermann has been an NASD Board of Arbitrators Member since 1991. Mr. Hermann is a Chartered Financial Analyst with over 30 years experience as an investment professional. Mr. Hermann has provided financial consulting services to the Company since 1993. All directors are elected to hold office until the next Annual Meeting of Stockholders and until their successors are elected and qualified. There are no arrangements or understandings between any directors of the Company and any other person pursuant to which such person was selected as a Director of the Company. (b) Identification of Executive Officers Name Age Current Office Held - ------------- --- ------------------- Robert J. Fabbricatore 54 Chairman, Chief Executive Officer Steven P. Milton 43 President, Chief Operating Officer John D. Pittenger 43 Vice President-Finance, Chief Financial Officer, Treasurer and Clerk David E. Mahan 55 Vice President-Market Planning and Development 15 Currently, there is no fixed term of office for any executive officer and all officers serve at the discretion of the Board of Directors. Each person selected to become an executive officer has consented to act as such and there are no arrangements or understandings between the executive officers or any other persons pursuant to which he was or is to be selected as an officer. Mr. Milton has been employed by the Company since 1984 and has served as President and Chief Operating Officer since August 1995. Prior to that, he held various positions within the Company including Branch Manager, District Manager, Regional Manager and, most recently, Vice President-Sales and Marketing. Mr. Pittenger has served as Treasurer, Chief Financial Officer and Clerk of the Company since August 1989 and as Vice President-Finance since September 1991. Since 1980, Mr. Pittenger has been Treasurer and a director of Comm-Tract Corp., a company which installs and services voice and data communications systems. Mr. Mahan joined the Company in October 1995 as Vice President-Market Planning and Development and in June 1996 Mr. Mahan became an executive officer of the Company. From 1982 to 1995, Mr. Mahan held a number of senior management level positions with NYNEX, most recently Vice President-Sales Channel Management. For a description of the business background of Mr. Fabbricatore see "Identification for Directors". SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE Philip J. Richer, a director of the Company, failed to file a Form 4 on a timely basis on one occasion with respect to the January 28, 1997 sale of 5,500 shares of the Company's Common Stock at a selling price of $8.00 per share. The required Form 4 with respect to said transaction was filed with the Securities and Exchange Commission on March 6, 1997. Item 11. EXECUTIVE COMPENSATION The following table provides certain summary information concerning the compensation paid or accrued by the Company to or on behalf of the Company's Chief Executive Officer and each executive officer of the Company whose remuneration exceeded $100,000 ("named executive officers") during the fiscal year ended March 31, 1997. 16 SUMMARY COMPENSATION TABLE
Long-Term Compensation ---------------------------------------- Annual Compensation Awards Payouts ---------------------------- ----------------------- ------- Other Restricted Securities All Annual Stock Underlying LTIP Other Name and Principal Salary Bonus Compen- Awards Options/ Payouts Compen- Position Year ($)(1) ($)(2) sation($) ($) SARs(#) ($) sation(3) - ------------------ ---- -------- -------- --------- --------- ---------- ------- --------- Robert J. Fabbricatore, 1997 240,000 60,000 - - 0 - 18,075 Chairman and Chief 1996 240,000 60,000 - - 0 - 16,100 Executive Officer 1995 240,000 60,000 1,500 - 124,306 - 11,636 Steven P. Milton, 1997 100,000 40,000 5,200 - 0 - 4,075 President and Chief 1996 100,000 40,000 5,200 - 0 - 4,200 Operating Officer 1995 100,000 52,000 5,200 - 126,750 - 4,440 David E. Mahan, Vice 1997 100,000 40,000 5,004 - 0 - 4,075 President - Market 1996(4) 50,000 20,000 2,500 - 100,000 - 0 Planning & Development John D. Pittenger, 1997 86,100 34,000 - - 0 - 3,437 Vice President - Finance 1996 84,800 32,000 - - 0 - 3,504 Chief Financial Officer, 1995 83,600 26,000 1,200 - 54,750 - 3,228 Treasurer and Clerk (1) For the fiscal year ended March 31, 1997, Messrs. Fabbricatore, Milton, Mahan and Pittenger's salaries included pre-tax contributions made by such officers to the CTC Communications Corp. 401(k) Savings Plan. (2) Includes bonuses accrued for Messrs. Fabbricatore, Milton, Mahan and Pittenger for the fiscal year ended March 31, 1997 in the amounts of $15,000, $10,000, $10,000 and $10,000 respectively, which were paid during the first quarter of Fiscal 1998. (3) All Other Compensation includes 50% matching contributions in the amounts of $4,500, $4,075, $4,075 and $3,437 accrued on behalf of Messrs. Fabbricatore, Milton, Mahan and Pittenger, respectively, to the CTC Communications Corp. 401(k) Savings Plan. Also included is the actuarial benefit in the amount of approximately $13,575 on the "split-dollar" life insurance policy for the benefit of Mr. Fabbricatore. (4) Mr. Mahan commenced employment with the Company on October 1, 1995.
During the fiscal year ended March 31, 1997 the Company did not grant options or stock appreciation rights to any named executive officer. The following table sets forth information concerning option exercises and option holdings for the fiscal year ended March 31, 1997 with respect to the named executive officers. 17 AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
Value Realized (Market price at Value of Unexercised in- exercise the-money options at FY- Shares less Number of Securities End (Market price of acquired on exercise Underlying Unexercised shares at FY-End ($7.25) exercise(#) price ($) Options at FY-End (1) less exercise price) (1) ----------- ---------- -------------------------- --------------------------- Exercisable Unexercisable Exercisable Unexercisable ----------- ------------- ----------- ------------- Robert J. Fabbricatore - - 16,778 16,778 $71,642 $71,642 Steven P. Milton - - 18,000 18,000 $81,738 $81,738 David E. Mahan - - 25,000 75,000 - - John D. Pittenger - - 18,000 18,000 $81,738 $81,738 (1) All shares and amounts, as necessary, have been adjusted to reflect the 25% Common Stock dividend effected in March 1995, the three-for-two stock split effected in July 1995 and the two-for-one stock split effected in October 1995.
The Company made no Long-Term Incentive Plan Awards during the fiscal year ended March 31, 1997. The Company has no defined benefit or actuarial plan. The Company did not adjust or amend the exercise price of options previously awarded to the named executive officers. The Company has no compensation committee interlocks or insider participation. Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The following table sets forth certain information as of June 23, 1997 with respect to each stockholder known by the Company to beneficially own more than 5% of the outstanding shares of the Company's Common Stock, the beneficial ownership of the Company's Common Stock by each director and named executive officer of the Company, and by all of the directors and officers of the Company as a group. Based on the information furnished by the beneficial owners of the Common Stock listed below, the Company believes that each such stockholder exercises sole voting and investment power with respect to the shares beneficially owned. 18 Number of Shares Beneficially Percent Name of Beneficial Owner Owned of Class - ------------------------------------------------------------ Robert J. Fabbricatore (1)(2) 2,732,750 27.5% Van Wagoner Capital Management, Inc.(3) 545,350 5.5% Philip J. Richer 362,773 3.7% Henry Hermann (4) 206,588 2.1% Richard J. Santagati (5) 78,000 * J. Richard Murphy (6) 11,000 * Steven P. Milton (7) 408,932 4.1% John D. Pittenger (8) 216,588 2.2% David E. Mahan (9) 61,000 * All Officers and Directors as a Group (eight persons)(10) 4,077,631 40.7% - ------------------------------ * = Less than 1%. (1) Mr. Fabbricatore's address is c/o CTC Communications Corp., 360 Second Avenue, Waltham, MA 02154. (2) Includes 62,498 shares owned by Mr. Fabbricatore as trustee of a trust for his children and 1,133,239 shares as a general partner of a family partnership; also includes 16,776 shares issuable upon exercise of the vested portions of stock options at an option price of $2.98 per share. (3) Van Wagoner Capital Management, Inc.'s address is One Bush Street, Suite 1150, San Francisco, CA 94104. (4) Includes 9,750 shares held by Mr. Hermann's spouse and 3,000 shares issuable upon the exercise of currently exercisable options at $2.708 per share. (5) Includes 3,000 shares issuable upon the exercise of currently exercisable options at $2.708 per share. (6) Includes 1,000 shares owned by Mr. Murphy as trustee of a trust for his spouse and 10,000 shares issuable upon the exercise of currently exercisable options at $6.125 per share. (7) Includes 4,500 shares owned by Mr. Milton as trustee of a trust for his children and 18,000 shares issuable upon the exercise of currently exercisable options at $2.708 per share. (8) Includes 18,000 shares issuable upon the exercise of currently exercisable options at $2.708 per share. (9) Includes 25,000 shares issuable upon the exercise of currently exercisable options at $10.125 per share. (10) Includes the shares described in footnotes (2) through (9) above. 19 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The Company leases from trusts, of which Robert J. Fabbricatore, the Company's Chairman and Chief Executive Officer, is a beneficiary, office space in Springfield, Massachusetts and southern New Hampshire. Rental payments under the leases totalled approximately $133,000 in Fiscal 1997. The Company subleases part of its Waltham facility at its cost to Comm-Tract Corp., a company in which Mr. Fabbricatore is a principal stockholder. Sublease income totalled $80,416 for Fiscal 1997. The Company also contracts with Comm-Tract Corp. for the installation of telephone lines and for the service and maintenance of equipment marketed by the Company. During Fiscal 1997, Comm-Tract Corp. provided the Company with services, inventory and equipment aggregating $97,190. The Company believes that the payments to Mr. Fabbricatore and Comm-Tract Corp. are comparable to the costs for such services, inventory and equipment, and for rentals of similar facilities, which the Company would be required to pay to unaffiliated individuals in arms-length transactions. In connection with the exercise of Company stock options in Fiscal 1995, Steven P. Milton was advanced the sum of $135,825 by the Company, which remained outstanding at March 31, 1997. The loan is payable on demand and bears interest at 8.0% per annum. 20 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 10-K. (a)(1) The Following financial statements are included in Part II, Item 8: Balance Sheets March 31, 1997 and 1996 Statements of Income Years Ended March 31, 1997, 1996 and 1995 Statements of Stockholders' Equity Years Ended March 31, 1997, 1996 and 1995 Statements of Cash Flows Years Ended March 31, 1997, 1996 and 1995 Notes to Financial Statements (a)(2) The following financial statement schedule for the years ended March 31, 1997, 1996 and 1995 is submitted herewith: Schedule II - Valuation and Qualifying Accounts All other schedules are omitted because they are not applicable or the required information is shown in the financial statements or notes thereto. (b) REPORTS ON FORM 8-K. The Company did not file any reports on Form 8-K during the fourth quarter of the fiscal year ended March 31, 1997. (c) EXHIBITS. NUMBER DESCRIPTION OF EXHIBIT 3.1 Restated Articles of Organization, as amended (1) 3.2 By-Laws of Registrant (2) 4.1 Form of Common Stock Certificate (5) 10.1 1996 Stock Option Plan (3) 10.1A 1993 Stock Option Plan (5) 10.1B Employee Stock Purchase Plan (4) 10.2 Lease for premises at 360 Second Ave., Waltham MA (5) 10.3 Sublease for premises at 360 Second Ave., Waltham MA (5) 10.4 Lease for premises at 110 Hartwell Ave., Lexington MA (5) 10.5 Lease for premises at 120 Broadway, New York, NY (5) 10.6 Agreement dated February 1, 1996 between NYNEX and the Company (5) 21 10.7 Agreement dated May 1, 1997 between Pacific Bell and the Company (5) 10.8 Agreement dated January 1, 1996 between SNET America, Inc. and the Company (5) 10.9 Agreement dated June 23, 1995 between IXC Long Distance, Inc. and the Company, as amended (5) 10.10 Agreement dated August 19, 1996 between Innovative Telecom Corp. and the Company (5) 10.11 Agreement dated October 20, 1994 between Frontier Communications International, Inc. and the Company, as amended (5) 10.12 Agreement dated January 21, 1997 between Intermedia Communications Inc. and the Company (5) 11 Statement re: Computation of Per Share Earnings (5) 23.1 Consent of Ernst & Young LLP (5) 27 Financial Data Schedule (5) - ---------------------------- (1) Incorporated by reference to an Exhibit filed as part of the Registrant's Quarterly Report on Form 10-Q for the quarter ended December 31, 1996. (2) Incorporated by reference to an Exhibit filed as part of the Registrant's Registration Statement on Form S-18 (Reg. No. 2-96419-B). (3) Incorporated by reference to an Exhibit filed as part of the Registrant's Registration Statement on Form S-8 (File No. 333-17613). (4) Incorporated by reference to an Exhibit filed as part of the Registrant's Registration Statement on Form S-8 (File No. 33-44337). (5) Filed herewith. 22 Audited Financial Statements and Schedule CTC Communications Corp. Years ended March 31, 1997 and 1996 F-1 CTC Communications Corp. Audited Financial Statements and Schedule Years ended March 31, 1997 and 1996 Contents Report of Independent Auditors.............................. F-3 Audited Financial Statements Balance Sheets.............................................. F-4 Statements of Income........................................ F-5 Statements of Stockholders' Equity.......................... F-6 Statements of Cash Flows.................................... F-7 Notes to Financial Statements............................... F-8 Schedule.................................................... F-21 F-2 Report of Independent Auditors Board of Directors CTC Communications Corp. We have audited the accompanying financial statements of CTC Communications Corp., formerly Computer Telephone Corp., as of March 31, 1997 and 1996, and the related statements of income, stockholders' equity, and cash flows for each of the three years in the period ended March 31, 1997. Our audits also included the financial statement schedule listed in the Index at Item 14(a). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of CTC Communications Corp. at March 31, 1997 and 1996, and the results of its operations and its cash flows for each of the three years in the period ended March 31, 1997, in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. ERNST & YOUNG LLP May 12, 1997 F-3 CTC COMMUNICATIONS CORP. BALANCE SHEETS
March 31, 1997 1996 ------------- ------------- ASSETS Current assets: Cash and cash equivalents $ 6,405,670 $ 3,941,876 Accounts receivable, less allowance for doubtful accounts of $377,000 in 1997 and $190,215 in 1996 10,904,820 6,557,229 Prepaid expenses and other current assets 447,441 344,958 Amounts due from officers and employees 46,112 24,806 Income tax receivable 21,125 ------------- ------------- Total current assets 17,804,043 10,889,994 Equipment: Equipment 7,268,372 6,046,493 Accumulated depreciation (5,565,650) (4,822,755) ------------- ------------- 1,702,722 1,223,738 Deferred income taxes 566,000 277,000 Other assets 113,685 118,485 ------------- ------------- Total assets $ 20,186,450 $ 12,509,217 ============= ============= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable and accrued expenses $ 3,238,416 $ 1,176,804 Accrued income taxes 225,948 Accrued salaries and related taxes 2,423,825 1,828,288 Deferred revenue 6,588 9,302 ------------- ------------- Total current liabilities 5,894,777 3,014,394 Stockholders' equity: Series Preferred Stock--par value $1.00 per share; authorized 1,000,000 shares, none outstanding Common Stock, par value $.01 per share; authorized 25,000,000 shares, issued 9,629,407 and 9,584,122 shares in 1997 and 1996, respectively 96,294 95,841 Additional paid in capital 4,758,454 4,644,988 Retained earnings 9,572,750 4,889,819 ------------- ------------- 14,427,498 9,630,648 Amounts due from stockholders (135,825) (135,825) ------------- ------------- Total stockholders' equity 14,291,673 9,494,823 ------------- ------------- Total liabilities and stockholders' equity $ 20,186,450 $ 12,509,217 ============= =============
See accompanying notes. F-4 CTC COMMUNICATIONS CORP. STATEMENTS OF INCOME
Year ended March 31 1997 1996 1995 ------------- ------------ ------------ Network service revenues: Commissions $29,195,261 $25,492,511 $18,898,539 Resale 11,094,838 5,383,414 3,037,661 ------------ ------------ ------------ 40,290,099 30,875,925 21,936,200 Costs and expenses: Cost of resale revenue 8,709,122 4,241,575 2,451,256 Selling, general and administrative expenses 23,819,714 20,009,432 17,318,883 ------------ ------------ ------------ 32,528,836 24,251,007 19,770,139 ------------ ------------ ------------ Income from operations 7,761,263 6,624,918 2,166,061 Other: Interest income 201,369 195,979 53,935 Interest expense (17,753) (604) (7,330) Other 15,052 9,631 109,803 ------------ ------------ ------------ 198,668 205,006 156,408 ------------ ------------ ------------ Income before income taxes 7,959,931 6,829,924 2,322,469 Provision for income taxes 3,277,000 2,736,000 850,000 ------------ ------------ ------------ Net income $ 4,682,931 $ 4,093,924 $ 1,472,469 ============ ============ ============ Net income per common share: Primary $ .43 $ .38 $ .17 ============ ============ ============ Fully diluted $ .43 $ .38 $ .16 ============ ============ ============ Weighted average number of common shares: Primary 10,773,563 10,712,425 8,764,518 ============ ============ ============ Fully diluted 10,789,980 10,727,641 9,361,485 ============ ============ ============
See accompanying notes. F-5 CTC COMMUNICATIONS CORP. STATEMENTS OF STOCKHOLDERS' EQUITY
Common Stock Additional Retained- Amounts ----------------- Paid-in Earnings Treasury Due from Shares Par Value Capital (Deficit) Stock Stockholders Total ---------------------------------------------------------------------------------------- Balance at March 31, 1994 2,007,608 $20,076 $4,536,046 $(668,961) $(15,751) $3,871,410 Issuance of stock 11,939 119 29,025 29,144 Exercise of employee stock options 576,925 5,769 1,581,546 $(159,825) 1,427,490 Acquisition of treasury stock (1,274,378) (1,274,378) Retirement of treasury stock (95,394) (954) (1,275,315) 1,276,269 Stock split effected in the form of a 25% stock dividend 623,359 6,234 (6,774) (540) Net income 1,472,469 1,472,469 ---------------------------------------------------------------------------------------- Balance at March 31, 1995 3,124,437 31,244 4,871,302 796,734 (13,860) (159,825) 5,525,595 Issuance of stock 9,082 91 58,153 58,244 Exercise of employee stock options 197,143 1,971 121,053 123,024 Acquisition of treasury stock (329,125) (329,125) Retirement of treasury stock (25,454) (254) (342,731) 342,985 Settlement of amounts due from stockholders 24,000 24,000 Issuance of stock upon 3 for 2 stock split 1,560,742 15,607 (15,607) (839) (839) Issuance of stock upon 2 for 1 stock split 4,718,172 47,182 (47,182) Net income 4,093,924 4,093,924 ---------------------------------------------------------------------------------------- Balance at March 31, 1996 9,584,122 95,841 4,644,988 4,889,819 0 (135,825) 9,494,823 Issuance of stock 8,714 87 70,088 70,175 Exercise of employee stock options 36,571 366 43,378 43,744 Net income 4,682,931 4,682,931 ---------------------------------------------------------------------------------------- Balance at March 31, 1997 9,629,407 $96,294 $4,758,454 $9,572,750 $ 0 $(135,825) $14,291,673 ========================================================================================
See accompanying notes. F-6 CTC COMMUNICATIONS CORP. STATEMENTS OF CASH FLOWS
Year ended March 31 1997 1996 1995 ------------ ------------ ------------ OPERATING ACTIVITIES Net income $4,682,931 $4,093,924 $1,472,469 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 742,895 660,338 655,617 Provision for doubtful accounts 316,669 61,763 80,000 Deferred income taxes (289,000) (124,000) (30,000) Changes in operating assets and liabilities: Accounts receivable (4,664,260) (2,979,772) (1,502,326) Other current assets (123,789) (231,642) 167,103 Income tax receivable 21,125 (21,125) 50,000 Other assets 4,800 (90,200) 4,000 Accounts payable, accrued expenses, accrued salaries and related taxes 2,657,149 1,103,061 538,893 Accrued income taxes 225,948 (281,569) 150,956 Deferred revenue and other (2,714) 1,128 (6,959) ------------ ------------ ------------ Net cash provided by operating activities 3,571,754 2,191,906 1,579,753 INVESTING ACTIVITIES Additions to equipment, net (1,221,879) (759,204) (599,474) ------------ ------------ ------------ Net cash used in investing activities (1,221,879) (759,204) (599,474) FINANCING ACTIVITIES Proceeds from issuance of common stock 113,919 119,467 182,256 Repayment of notes payable and capital lease obligations (10,260) Cash paid for fractional shares in connection with stock splits (839) (540) ------------ ------------ ------------ Net cash provided by financing activities 113,919 118,628 171,456 ------------ ------------ ------------ Increase in cash and cash equivalents 2,463,794 1,551,330 1,151,735 Cash and cash equivalents at beginning of year 3,941,876 2,390,546 1,238,811 ------------ ------------ ------------ Cash and cash equivalents at end of year $6,405,670 $3,941,876 $2,390,546 ============ ============ ============
See accompanying notes. F-7 CTC COMMUNICATIONS CORP. NOTES TO FINANCIAL STATEMENTS March 31, 1997 1. Summary of Significant Accounting Policies The Company's Business CTC Communications Corp., formerly Computer Telephone Corp., (the Company) is primarily engaged in selling network services of the Regional Bell Operating Companies and other telephone operating companies on a commission basis and the resale of long distance and other network services to customers in the United States. The significant expense associated with selling network services on a commission basis is compensation to sales personnel whereas the significant costs related to the resale of long distance and other network services are obligations under network service resale agreements (see Note 5). Revenues derived from two customers in 1997, 1996 and 1995 represented, respectively, 65%, 78% and 77% of the Company's total revenues. Accounts receivable from these significant customers amounted to 77% and 72% of total accounts receivable at March 31, 1997 and 1996, respectively. Cash and Cash Equivalents The Company considers highly liquid investments with maturities of less than three months at the date of acquisition as cash equivalents. Equipment Equipment is stated on the basis of cost. Depreciation, including amortization of capitalized leases, is computed using the straight-line method. When assets are retired or otherwise disposed of, the cost and related accumulated depreciation are removed from the accounts, and any resulting gain or loss is recognized in income for the period. The cost of maintenance and repairs is charged to expense as incurred; significant renewals and betterments are capitalized. F-8 CTC COMMUNICATIONS CORP. NOTES TO FINANCIAL STATEMENTS 1. Summary of Significant Accounting Policies (continued) Revenue Recognition Commissions from the sale of network services are recognized when ordered and, if commissions are based on usage, revenues are recognized as earned. Provisions for cancellations are made at the time revenue is recognized and actual experience has consistently been within management's estimates. Network service resale revenue is recognized as the usage accrues on the network. Income Taxes The Company provides for income taxes under the liability method prescribed by Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes." Under this method, deferred income taxes are recognized for the future tax consequences of differences between the tax and financial accounting bases of assets and liabilities at each year end. Deferred income taxes are based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amounts expected to be realized. Income tax expense is the tax payable for the period and the change during the period in deferred tax assets and liabilities. Net Income Per Share Net income per share is computed based on the weighted-average number of common and, if dilutive, common equivalent shares outstanding each year. Common equivalent shares result from the assumed exercise of common stock options using the treasury stock method. All income per share and weighted average share information included in the accompanying financial statements has been restated to reflect the common stock splits disclosed in Note 6. In February 1997, the Financial Accounting Standards Board issued Statement No. 128, "Earnings per Share", which is required to be adopted on December 31, 1997. At that time, the Company will be required to change the method currently used to compute earnings per share and to restate all prior periods. Under the new requirements for calculating primary earnings per share, the dilutive effect of stock options will be excluded. F-9 CTC COMMUNICATIONS CORP. NOTES TO FINANCIAL STATEMENTS 1. Summary of Significant Accounting Policies (continued) Risks and Uncertainties Concentration of Credit Risk Financial instruments which potentially subject the Company to a concentration of credit risk principally consist of cash and cash equivalents and trade receivables. The carrying amount of cash and cash equivalents approximates fair value due to the short maturity of these instruments. Significant Estimates and Assumptions The financial statements have been prepared in conformity with generally accepted accounting principles. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make significant estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates and assumptions made by management affect the Company's provision for doubtful accounts, cancellation of orders and certain accrued expenses. Actual results could differ from those estimates. Accounting for the Impairment of Long-Lived Assets Effective April 1, 1996, the Company adopted SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long- Lived Assets to be Disposed Of", which requires impairment losses to be recognized for long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows are not sufficient to recover the assets' carrying amount. The impairment loss is measured by comparing the fair value of the asset to its carrying amount. The adoption of SFAS No. 121 did not have any effect on the carrying value of long-lived assets. F-10 CTC COMMUNICATIONS CORP. NOTES TO FINANCIAL STATEMENTS 1. Summary of Significant Accounting Policies (continued) Accounting for Stock Issued to Employees The Company grants stock options for a fixed number of shares to employees with an exercise price equal to the fair value of the shares at the date of the grant. The Company has elected to follow Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25") and related Interpretations in accounting for its employee stock options because, as discussed below, the alternative fair value accounting provided for under SFAS No. 123, "Accounting for Stock-Based Compensation," requires use of option valuation models that were not developed for use in valuing employee stock options. Under APB 25, because the exercise price of the Company's employee stock options equals the market price of the underlying stock on the date of grant, no compensation expense is recognized. Reclassifications Certain amounts in the financial statements for the years ended March 31, 1996 and 1995 have been reclassified to conform with 1997 classifications. 2. Related-Party Transactions The installation of telephone systems is generally subcontracted to a company controlled by the Chairman of the Company. Amounts paid to this subcontractor which are based on fair market value amounted to $28,217, $1,089 and $868 in 1997, 1996 and 1995, respectively. Additionally, inventory and equipment purchased from this subcontractor at fair market value amounted to $68,973, $39,791 and $67,753 in 1997, 1996 and 1995, respectively. The Company leases office space from companies in which the Chairman is a principal. Rent expense for these facilities aggregated $132,656, $133,949 and $213,105 in 1997, 1996 and 1995, respectively. These office space leases expire in fiscal 1998. Effective July 1, 1994, the Company began subleasing a part of its Waltham facility to a company controlled by the Chairman of the Company. Terms of the sublease are identical with those included in the Company's lease. Sublease income totaled $80,416, $73,417 and $55,181 in 1997, 1996 and 1995, respectively. F-11 CTC COMMUNICATIONS CORP. NOTES TO FINANCIAL STATEMENTS 3. Note Payable The Company has a revolving line of credit agreement with a bank which provides for borrowings and standby letters of credit with an aggregate principal or available stated amount at one time not to exceed $5,000,000. This revolving credit agreement, as amended, expires on August 31, 1998 and bears interest at the prime rate of interest, with LIBOR rates available at the Company's election. The agreement provides for compliance with certain covenants, including the maintenance of specified financial ratios. Borrowings are secured by substantially all the assets of the Company. During the years ended March 31, 1997, 1996 and 1995 there were no borrowings under the line of credit and standby letters of credit of $300,000 are outstanding at March 31, 1997. Interest paid for the years ended March 31, 1997, 1996 and 1995 approximates interest expense. 4. Leases The Company leases office facilities under long-term lease agreements classified as operating leases. The following is a schedule of future minimum lease payments, net of sublease income, for operating leases as of March 31, 1997: Operating Sublease Leases Income Net ------------------------------------- Year ending March 31: 1998 $984,291 $(96,437) $887,854 1999 904,776 (96,437) 808,339 2000 510,839 (43,266) 467,573 2001 381,738 (25,542) 356,196 2002 352,592 (25,542) 327,050 Thereafter 331,100 (57,470) 273,630 Net future minimum ------------------------------------- lease payments $3,465,336 $(344,694) $3,120,642 ===================================== Rental expense for operating leases amounted to $1,001,919, $673,321 and $697,787 in 1997, 1996 and 1995, respectively. Sublease income amounted to $90,016, $82,217 and $55,181 in 1997, 1996 and 1995, respectively. F-12 CTC COMMUNICATIONS CORP. NOTES TO FINANCIAL STATEMENTS 5. Network Service Resale Agreements On January 15, 1996, the Company entered into a four year non- exclusive agreement with a long-distance service provider for the right to provide long distance service to its customers at prices affected by volume attainment levels during the term of the agreement. The Company is not obligated to purchase any minimum levels of usage over the term of the agreement, but rates may be adjusted if there is a failure to achieve certain volume commitments. These provisions had no effect on the financial statements for the year ended March 31, 1997. On October 20, 1994, the Company entered into a three-year non- exclusive agreement with a long-distance service provider for the right to provide long distance service to its customers at fixed prices by service during the term of the agreement. On October 11, 1996, the Company entered into an amendment to the agreement which extended the term of the agreement by 5 years from the date of the amendment. Over such extension period, the Company shall be liable for a minimum aggregate usage commitment of $25 million. Furthermore, the rates set forth under the aforementioned amendment may be adjusted if there is a failure to meet certain periodic volume commitments. Due to existing and expected usage, these provisions had no effect on the financial statements for the year ended March 31, 1997. Prior to the execution of the agreements described above, and through March 31, 1997, the Company also provided long distance service to customers under an informal non-exclusive arrangement with another long distance service provider. The Company is not obligated to purchase any minimum level of usage on the network, and there are no other performance obligations. 6. Stockholders' Equity Common Stock The Board of Directors approved a 25% stock dividend, declared as of January 18, 1995, payable to shareholders of record on March 1, 1995. For financial reporting purposes, this transaction has been accounted for as a stock split, effected in the form of a dividend. A total of 623,359 shares of common stock were issued and $540 in cash was paid for fractional share amounts in connection with the split. F-13 CTC COMMUNICATIONS CORP. NOTES TO FINANCIAL STATEMENTS 6. Stockholders' Equity (continued) On July 13, 1995, the Board of Directors approved a 3 for 2 stock split to shareholders of record on July 25, 1995. A total of 1,560,742 shares of common stock were issued and $839 in cash was paid for fractional share amounts in connection with the split. On October 10, 1995, the Board of Directors approved a 2 for 1 stock split to shareholders of record on October 23, 1995. A total of 4,718,172 shares of common stock were issued in connection with the split. Preferred Stock The dividends, liquidation preference, voting rights and other rights of each series of preferred stock, when issued, are to be designated by the Board of Directors prior to issuance. 7. Benefit Plans Defined Contribution Plan In September 1993, the Company established a defined contribution plan (401(k) plan) covering all employees who meet certain eligibility requirements. Participants may make contributions to the plan up to 15% of their compensation (as defined) up to the maximum established by law. The Company may make a matching contribution of an amount to be determined by the Board of Directors, but subject to a maximum of 6% of compensation contributed by each participant. Company contributions vest ratably over three years. Company contributions to the plan were $230,079, $210,063 and $154,748 in 1997, 1996 and 1995, respectively. Administrative costs paid by the Company were $1,275, $7,982 and $2,377 in 1997, 1996 and 1995, respectively. F-14 CTC COMMUNICATIONS CORP. NOTES TO FINANCIAL STATEMENTS 7. Benefit Plans (continued) The Company has an employee stock purchase plan (the "ESPP") which enables participating employees to purchase Company shares at 85% of the lower of the market prices prevailing on the valuation dates as defined in the ESPP. Individuals can contribute up to 5% of their base salary. The Company made no contributions to the ESPP during the three years in the period ended March 31, 1997. Indicated below is a summary of shares of common stock purchased by the ESPP. All share and per share amounts indicated below have been presented to reflect the stock dividend and stock splits described above. In July 1996 and February 1997, the ESPP purchased 2,998 shares at $11.05 per share and 5,716 shares at $6.48 per share, respectively. In July 1995 and January 1996, the ESPP purchased 7,011 shares at $3.26 per share and 2,345 shares at $11.05 per share, respectively. In July 1994 and January 1995, the ESPP purchased 25,324 shares at $0.55 per share and 19,448 shares at $0.78 per share, respectively. Stock Option Plans Under the terms of its Employees Incentive Stock Option Plan, as amended, the 1985 Stock Option Plan, the 1993 Incentive Stock Option Plan and the 1996 Stock Option Plan, the Company may grant qualified incentive stock options for the purchase of Common Stock to employees, officers and directors who are employees of the Company for a minimum of six months. In addition, under the terms of its 1985 Stock Option Plan, the Company may grant non- qualified incentive stock options for the purchase of Common Stock to non-employees of the Company. The Plans generally provide that the option price will be fixed by a committee of the Board of Directors but will not be less than 100% (110% for 10% stockholders) of the fair market value per share on the date of grant. Nonqualified options may also be granted under the plan to directors, consultants or agents who are not employees and to employees who own more than 10% of the Company's voting securities. Nonqualified options are granted at no less than 85% (110% for 10% stockholders) of the fair market value per share on the date of grant. No options have a term of more than ten years and options to 10% stockholders may not have a term of more than five years. F-15 CTC COMMUNICATIONS CORP. NOTES TO FINANCIAL STATEMENTS 7. Benefit Plans (continued) In the event of termination of employment, other than by reason of death, disability or with the written consent of the Company, all options granted to employees are terminated. Vesting is determined by the Board of Directors. On October 11, 1994, unvested options for the purchase of 949,131 shares, which were initially exercisable in annual installments, were made exercisable in full. Stock Based Compensation Pro forma information regarding net income and earnings per share is required by SFAS No. 123, and has been determined as if the Company had accounted for its employee stock options and shares issued pursuant to the ESPP using the fair value method prescribed by that Statement. The fair value for these options and shares issued pursuant to the ESPP were estimated at the date of grant using a Black-Scholes option pricing model with the following weighted-average assumptions: Options ESPP ------------- ---------------- 1997 1996 1997 1996 ---- ---- ---- ---- Expected life (years) 3.98 3.49 0.50 0.50 Interest rate 6.28% 6.12% 5.40% 6.48% Volatility 87.88% 87.88% 93.03% 80.93% Dividend yield 0.00% 0.00% 0.00% 0.00% The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company's employee stock options have characteristics significantly different from those traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options. F-16 CTC COMMUNICATIONS CORP. NOTES TO FINANCIAL STATEMENTS 7. Benefit Plans (continued) For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting period. The Company's pro forma net income and net income per share is as follows: 1997 1996 Pro forma net income $4,094,000 $3,550,000 Pro forma net income per share $ 0.39 $ 0.34 The effects on 1997 and 1996 pro forma net income and net income per share of expensing the estimated fair value of stock options and shares issued pursuant to the ESPP are not necessarily representative of the effects on reporting the results of operations for future years as the periods presented include only one and two years of option grants under the Company's plans. A summary of the Company's stock option activity, and related information for the years ended March 31 follows:
1997 1996 1995 ------------------- ------------------ ------------------ Weighted- Weighted- Weighted- Average Average Average Exercise Exercise Exercise Options Price Options Price Options Price ----------------------------------------------------------- Outstanding at beginning of year 1,995,878 $4.01 1,526,850 $1.45 2,456,814 $0.64 Options granted 280,539 9.67 1,000,250 8.06 1,305,693 1.74 Options terminated (286,734) 7.54 (290,689) 2.37 (72,189) 0.53 Options exercised (36,571) 1.20 (240,533) 0.51 (2,163,468) 0.73 ---------- ---------- ----------- Outstanding at end of year 1,953,112 $4.36 1,995,878 $4.01 1,526,850 $1.45 ========== ========== =========== Exercisable at end of year 772,282 613,824 512,793 ========== ========== =========== Weighted-Average fair value of options granted during the year $6.43 $5.09 ========== ==========
F-17 CTC COMMUNICATIONS CORP. NOTES TO FINANCIAL STATEMENTS 7. Benefit Plans (continued) The following table presents weighted-average price and life information about significant option groups outstanding at March 31, 1997:
Options Outstanding Options Exercisable ------------------------------------------- ----------------------------- Weighted Average Weighted Weighted Range of Number Remaining Average Number Average Exercise Prices Outstanding Contractual Life Exercise Price Exercisable Exercise Price - ------------------ ------------ ----------------- -------------- ------------- --------------- $0.25 187,500 1.1 years $ 0.25 187,500 $ 0.25 0.53 181,618 6.5 years 0.53 87,376 0.53 0.90 - 1.10 488,688 6.1 years 1.04 322,666 1.01 2.70 - 2.98 269,056 7.9 years 2.74 131,528 2.74 6.00 - 8.25 417,500 4.7 years 6.50 5,000 6.13 9.12 - 13.00 399,750 4.4 years 10.65 38,212 10.32 $16.25 9,000 5.1 years $16.25 0 $ 0.00 --------- ------- 1,953,112 772,282 ========= =======
8. Income Taxes The provision for income tax expense consisted of the following: 1997 1996 ---------------------------- Current payable: Federal $2,660,000 $2,135,000 State 906,000 725,000 ---------------------------- 3,566,000 2,860,000 Deferred tax benefit (289,000) (124,000) ---------------------------- $3,277,000 $2,736,000 ============================ F-18 CTC COMMUNICATIONS CORP. NOTES TO FINANCIAL STATEMENTS 8. Income Taxes (continued) Significant components of the Company's deferred tax liabilities and assets as of March 31, are as follows: 1997 1996 ---------------------- Deferred tax assets: Depreciation $191,000 $107,000 Accruals and allowances 445,000 220,000 ---------------------- Total deferred tax asset 636,000 327,000 Deferred tax liability: Prepaid expenses (31,000) (11,000) Cash surrender value of life insurance policy (39,000) (39,000) ---------------------- Total deferred tax liability (70,000) (50,000) ---------------------- Net deferred tax asset $566,000 $277,000 ====================== The income tax expense is different from that which would be obtained by applying the statutory federal income tax rate to income before income taxes. The items causing this difference are as follows: 1997 1996 1995 ---------------------------------- Tax at U.S. statutory rate $2,706,000 $2,322,000 $790,000 State income taxes, net of federal benefit 552,000 466,000 151,000 Tax benefit of the utilization of NOL carryforwards and alternative minimum tax credits (107,000) Other 19,000 (52,000) 16,000 ---------------------------------- $3,277,000 $2,736,000 $850,000 ================================== Income taxes paid in 1997, 1996 and 1995 amounted to $3,319,000, $3,163,000 and $679,000, respectively. F-19 CTC COMMUNICATIONS CORP. NOTES TO FINANCIAL STATEMENTS 9. Supplemental Cash Flow Information On March 22, 1996, the Company received shares of common stock with an aggregate fair market value of $251,771 in lieu of cash for settlement of amounts due from an officer. These shares and the related amount were accounted for as treasury stock and were subsequently retired. On September 15, 1995, the Company received shares of common stock with an aggregate fair market value of $25,039 in lieu of cash for settlement of amount due from a non-employee of $24,000 plus accrued interest of $1,039. These shares and the related amount were accounted for as treasury stock and were subsequently retired. During the year ended March 31, 1996 and in connection with the exercise of employee stock options, the Company received shares of common stock with an aggregate fair market value of $52,315 in lieu of cash upon the exercise of these options. These shares and the related amount were accounted for as treasury stock and were subsequently retired. During the year ended March 31, 1995, the Company loaned an aggregate of $159,285 to certain stockholders who utilized the funds to exercise stock options. Also, in connection with the exercise of employee stock options, the Company received shares of common stock with an aggregate fair market value of $1,274,378 in lieu of cash upon the exercise of these options. These shares and the related amount were accounted for as treasury stock and were subsequently retired. These non-cash transactions have been excluded from the statements of cash flows for the years ended March 31, 1996 and 1995. F-20 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS CTC COMMUNICATIONS CORP.
- --------------------------------------------------------------------------------------- COL. A COL. B COL. C COL. D COL. E - --------------------------------------------------------------------------------------- ADDITIONS -------------------- (1) (2) Charged to Balance at Charged to Other Balance Beginning Costs and Accounts- Deductions- at End DESCRIPTION of Period Expenses Describe Describe of Period - --------------------------------------------------------------------------------------- Year ended March 31, 1997: Allowance for doubtful accounts $190,215 $316,669(b) $129,884(a) $377,000 Year ended March 31, 1996: Allowance for doubtful accounts $128,452 $ 61,763 $190,215 Year ended March 31, 1995: Allowance for doubtful accounts $ 70,401 $ 80,000 $ 21,949(a) $128,452 (a) = Bad debts written off net of collections. (b) Increase in provision in 1997 compared to 1996 and 1995 attributable to a significant increase in network service resale income for which bad debt write-offs are significantly higher than commission income.
F-21 FORM 10-K FOR THE PERIOD ENDED MARCH 31, 1997 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on behalf by the undersigned thereunto duly authorized. CTC COMMUNICATIONS CORP. /S/ ROBERT J. FABBRICATORE --------------------------- Robert J. Fabbricatore, Chairman and CEO /S/ JOHN D. PITTENGER --------------------------- John D. Pittenger, Vice President, Finance, Treasurer, and Chief Financial Officer Date: June 25, 1997 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated. /S/ ROBERT J. FABBRICATORE -------------------------------- Robert J. Fabbricatore, Chairman /S/ PHILIP J. RICHER -------------------------------- Philip J. Richer, Director /S/ RICHARD J. SANTAGATI ------------------------------- Richard J. Santagati, Director /S/ J. RICHARD MURPHY ------------------------------- J. Richard Murphy, Director /S/ HENRY HERMANN ------------------------------- Henry Hermann, Director Date: June 25, 1997 EX-4.1 2 FORM OF COMMON STOCK CERTIFICATE EXHIBIT 4.1 [TEXT OF FACE OF STOCK CERTIFICATE] [Logo] COMMON STOCK CTC COMMUNICATIONS CORP. COMMON STOCK SHARES Number S SEE REVERSE FOR CERTAIN DEFINITIONS COMMON STOCK CUSIP 126418 10 2 INCORPORATED UNDER THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS THIS CERTIFICATE IS TRANSFERABLE IN BOSTON, MA AND NEW YORK, NY THIS CERTIFIES THAT is the owner of FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK OF THE PAR VALUE OF ONE CENT ($.01) CENT EACH OF CTC COMMUNICATIONS CORP. (hereinafter called the "Company") transferable upon the books of the Company by the holder hereof in person or by duly authorized attorney upon surrender of this certificate properly endorsed. This certificate and the shares represented hereby are issued and shall be subject to all the provisions of the Articles of Organization and By-Laws of the Company as from time to time amended (copies of which are on file with the Company) to all of which the holder, by acceptance hereof, assents. This certificate is not valid unless countersigned by the Transfer Agent and registered by the Registrar. IN WITNESS WHEREOF, the Company has caused this certificate to be signed by the facsimile signatures of its duly authorized officers and its facsimile corporate seal to be hereunto affixed. Dated: /s/ John D. Pittenger [corporate seal] /s/ Steven P. Milton Treasurer President Countersigned and Registered: STATE STREET BANK AND TRUST COMPANY (Boston) By Transfer Agent and Registrar Authorized Signature [TEXT OF REVERSE OF STOCK CERTIFICATE] The following abbreviations, when used in the inscription of the face of this certificate, shall be construed as though they were written out in full according to applicable laws or regulations: TEN COM - as tenants in common UNIF GIFT MIN ACT _______Custodian___ TEN ENT - as tenants by the entireties under Uniform Gifts to Minors JT TEN - as joint tenants with right of Act_________ (state) survivorship and not as tenants UNIF TRF MIN ACT _____Custodian in common (until age__)______ under Uniform Transfers to Minors Act __(state) Additional abbreviations may also be used though not in the above list. FOR VALUE RECEIVED, _____ hereby sell, assign and transfer unto PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE _____________________________________________________________________________ (Please print or typewrite name and address, including zip code, of assignee) _______________________________________________________________________Shares of the capital stock represented by the within Certificate, and do hereby irrevocably constitute and appoint___________________________________Attorney to transfer the said stock on the books of the within named Corporation with full power of substitution in the premises. Dated____________ X________________________________________________________ X________________________________________________________ NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME(S) AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER. Signature(s) Guaranteed By______________________ THE SIGNATURE SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT TO S.E.C. RULE 17Ad-15. EX-10.1A 3 1993 STOCK OPTION PLAN EXHIBIT 10.1A COMPUTER TELEPHONE CORP. 1993 STOCK OPTION PLAN I. Purposes of the Plan. The purposes of this Stock Option Plan are to attract and retain the best available personnel for positions of substantial responsibility, to provide additional incentive to the Employees and Consultants of the Company and to promote the success of the Company's business. Options granted hereunder may be either "incentive stock options," as defined in Section 422 of the Internal Revenue Code of 1986, as amended, or "nonqualified stock options," at the discretion of the Board and as reflected in the terms of the written option agreement. In addition, shares of the Company's Common Stock may be Sold hereunder independent of any Option grant. II. Definitions. As used herein, the following definitions shall apply: A. "Board" shall mean the Committee, if one has been appointed, or the Board of Directors of the Company, if no Committee is appointed. B. "Code" shall mean the Internal Revenue Code of 1986, as amended. C. "Common Stock" shall mean the Common Stock of the Company. D. "Company" shall mean COMPUTER TELEPHONE CORP., a Massachusetts corporation. E. "Committee" shall mean the Committee appointed by the Board of Directors in accordance with Section IV, Paragraph A1 of the Plan, if one is appointed. F. "Consultant" shall mean any person who is engaged by the Company or any Subsidiary to render consulting services and is compensated for such consulting services and any director of the Company whether compensated for such services or not. G. "Continuous Status as an Employee or Consultant" shall mean the absence of any interruption or termination of service as an Employee or Consultant. Continuous Status as an Employee or Consultant shall not be considered interrupted in the case of sick leave, military leave, or any other leave of absence approved by the Board; provided, however, that such leave is for a period of not more than ninety (90) days or reemployment upon the expiration of such leave is guaranteed by contract or statute. H. "Employee" shall mean any person, including officers and directors, employed by the Company or any Parent or Subsidiary of the Company. The payment of a director's fee by the Company shall not be sufficient to constitute "employment" by the Company. I. "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended. J. "Incentive Stock Option" shall mean an Option intended to qualify as an incentive stock option within the meaning of Section 422 of the Code. K. "Nonqualified Stock Option" shall mean an Option not intended to qualify as an incentive stock option within the meaning of Section 422 of the Code. L. "Option" shall mean a stock option granted pursuant to the Plan. M. "Optioned Stock" shall mean the Common Stock subject to an Option. N. "Optionee" shall mean an Employee or Consultant who receives an Option. O. "Parent" shall mean a "parent corporation," whether now or hereafter existing, as defined in Section 424(e) of the Code. P. "Plan" shall mean this Stock Option Plan. Q. "Sale" or "Sold" shall include, with respect to the sale of Shares under the Plan, the sale of Shares for consideration in the form of cash or notes, as well as a grant of Shares without consideration, except past or future services. R. "Share" shall mean a share of the Common Stock, as adjusted in accordance with Section XI of the Plan. S. "Subsidiary" shall mean a "subsidiary corporation," whether now or hereafter existing, as defined in Section 424(f) of the Code. III. Stock Subject to the Plan. Subject to the provisions of Section XI of the Plan, the maximum aggregate number of Shares which may be optioned and/or Sold under the Plan is 750,000 shares of Common Stock. The Shares may be authorized, but unissued, or reacquired Common Stock. If an Option should expire or become unexercisable for any reason without having been exercised in full, the unpurchased Shares which were subject thereto shall, unless the Plan shall have been terminated, become available for future Option grants and/or Sales under the Plan. If Shares Sold under the Plan or purchased upon the exercise of an Option are repurchased by the Company pursuant to restrictions applicable to such Shares, the number of Shares repurchased shall, unless the Plan shall have been terminated, become available for future Option grants and/or Sales under the Plan. IV. Administration of the Plan. A. Procedure. The Plan shall be administered by the Board of Directors of the Company. 1. Subject to Paragraph A2 of this Section IV, the Board of Directors may appoint a Committee consisting of not less than two (2) members of the Board of Directors to administer the Plan on behalf of the Board of Directors, subject to such terms and conditions as the Board of Directors may prescribe. Once appointed, the Committee shall continue to serve until otherwise directed by the Board of Directors. From time to time the Board of Directors may increase the size of the Committee and appoint additional members thereof, remove members (with or without cause) and appoint new members in substitution therefor, fill vacancies however caused, or remove all members of the Committee and thereafter directly administer the Plan. Members of the Board who are either eligible for Options and/or Sales or have been granted Options or Sold Shares may vote on any matters affecting the administration of the Plan or the grant of any Options or Sale of any Shares pursuant to the Plan, except that no such member shall act upon the granting of an Option or Sale of Shares to himself, but any such member may be counted in determining the existence of a quorum at any meeting of the Board during which action is taken with respect to the granting of Options or Sale of Shares to him. 2. Notwithstanding the foregoing Paragraph A1 of this Section IV, if and in any event the Company registers any class of any equity security pursuant to Section 12 of the Securities Exchange Act of 1934, from the effective date of such registration until six (6) months after the termination of such registration, any grants of Options to officers or directors shall only be made by the Board if each member of the Board is a disinterested person, or if every member of the Board is not a disinterested person, by a committee of two or more directors, each of whom is a disinterested person. A "disinterested person" is a director who has not, during the one year period prior to service as an administrator of the Plan, or during such service, been granted or awarded equity securities pursuant to the Plan or any other plan of the Company or any of its affiliates, with these qualifications: a. participation in a formula plan meeting the conditions in paragraph (c)(2)(ii) of SEC Rule 16b-3 shall not disqualify a director from being a disinterested person; b. participation in an ongoing securities acquisition plan meeting the conditions in paragraph (d)(2)(i) of SEC Rule 16b-3 shall not disqualify a director from being a disinterested person; c. an election to receive an annual retainer fee in either cash or an equivalent amount of securities, or partly in cash and partly in securities, shall not disqualify a director from being a disinterested person; and d. participation in a plan shall not disqualify a director from being a disinterested person for the purpose of administering another plan that does not permit participation by directors. B. Powers of the Board. Subject to the provisions of the Plan, the Board shall have the authority, in its discretion: 1. to grant Incentive Stock Options in accordance with Section 422 of the Code, or Nonqualified Stock Options; 2. to authorize Sales of Shares of Common Stock hereunder; 3. to determine, upon review of relevant information and in accordance with Section VIII, Paragraph B of the Plan, the fair market value of the Common Stock; 4. to determine the exercise/purchase price per Share of Options to be granted or Shares to be Sold, which exercise/purchase price shall be determined in accordance with Section VIII, Paragraph A of the Plan; 5. to determine the Employees or Consultants to whom, and the time or times at which, Options shall be granted and the number of Shares to be represented by each Option; 6. to determine the Employees or Consultants to whom, and the time or times at which, Shares shall be Sold and the number of Shares to be Sold; 7. to interpret the Plan; 8. to prescribe, amend and rescind rules and regulations relating to the Plan; 9. to determine the terms and provisions of each Option granted (which need not be identical) and, with the consent of the holder thereof, modify or amend each Option; 10. to determine the terms and provisions of each Sale of Shares (which need not be identical) and, with the consent of the purchaser thereof, modify or amend each Sale; 11. to accelerate or defer (with the consent of the Optionee) the exercise date of any Option; 12. to accelerate or defer (with the consent of the Optionee or purchaser of Shares) the vesting restrictions applicable to Shares Sold under the Plan or pursuant to Options granted under the Plan; 13. to authorize any person to execute on behalf of the Company any instrument required to effectuate the grant of an Option or Sale of Shares previously granted or authorized by the Board; 14. to determine the restrictions on transfer, vesting restrictions, repurchase rights, or other restrictions applicable to Shares issued under the Plan; 15. to effect, at any time and from time to time, with the consent of the affected Optionees, the cancellation of any or all outstanding Options under the Plan and to grant in substitution therefor new Options under the Plan covering the same or different numbers of Shares, but having an Option price per Share consistent with the provisions of Section VIII of this Plan as of the date of the new Option grant; 16. to establish, on a case-by-case basis, different terms and conditions pertaining to exercise or vesting rights upon termination of employment, whether at the time of an Option grant or Sale of Shares, or thereafter; and 17. to make all other determinations deemed necessary or advisable for the administration of the Plan. C. Effect of Board's Decision. All decisions, determinations and interpretations of the Board shall be final and binding on all Optionees and any other holders of any Options granted under the Plan or Shares Sold under the Plan. V. Eligibility. A. Persons Eligible. Options may be granted and/or Shares Sold only to Employees and Consultants. Incentive Stock Options may be granted only to Employees. An Employee or Consultant who has been granted an Option or Sold Shares may, if he is otherwise eligible, be granted an additional Option or Options or Sold additional Shares. B. $100,000 Limitation. No Incentive Stock Option may be granted to an Employee which, when aggregated with all other Incentive Stock Options granted to such Employee by the Company or any Parent or Subsidiary, would result in Shares having an aggregate fair market value (determined for each Share as of the date of grant of the Option covering such Share) in excess of $100,000 becoming first available for purchase upon exercise of one or more Incentive Stock Options during any calendar year. C. Section V, Paragraph B Limitations. Section V, Paragraph B of the Plan shall apply only to an Incentive Stock Option evidenced by an "Incentive Stock Option Agreement" which sets forth the intention of the Company and the Optionee that such Option shall qualify as an Incentive Stock Option. Section V, Paragraph B of the Plan shall not apply to any Option evidenced by a "Nonqualified Stock Option Agreement" which sets forth the intention of the Company and the Optionee that such Option shall be a Nonqualified Stock Option. D. No Right to Continued Employment. The Plan shall not confer upon any Optionee any right with respect to continuation of employment or consulting relationship with the Company, nor shall it interfere in any way with his right or the Company's right to terminate his employment or consulting relationship at any time. VI Term of Plan. The Plan shall become effective upon the earlier to occur of its adoption by the Board of Directors or its approval by the stockholders of the Company as described in Section XVII of the Plan. It shall continue in effect for a term of ten (10) years, unless sooner terminated under Section XIII of the Plan. VII. Term of Option. The term of each Incentive Stock Option shall be ten (10) years from the date of grant thereof or such shorter term as may be provided in the Stock Option Agreement. The term of each Nonqualified Stock Option shall be ten (10) years and one (1) day from the date of grant thereof or such other term as may be provided in the Stock Option Agreement. However, in the case of an Option granted to an Optionee who, at the time the Option is granted, owns stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or any Parent or Subsidiary, (a) if the Option is an Incentive Stock Option, the term of the Option shall be five (5) years from the date of grant thereof or such shorter time as may be provided in the Stock Option Agreement, or (b) if the Option is a Nonqualified Stock Option, the term of the Option shall be five (5) years and one (1) day from the date of grant thereof or such other term as may be provided in the Stock Option Agreement. VIII. Exercise/Purchase Price and Consideration. A. Exercise/Purchase Price. The per-Share exercise/purchase price for the Shares to be issued pursuant to exercise of an Option or a Sale (other than a Sale which is a grant for which no purchase price is payable) shall be such price as is determined by the Board, but shall be subject to the following: 1. In the case of an Incentive Stock Option a. granted to an Employee who, at the time of the grant of such Incentive Stock Option, owns stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or any Parent or Subsidiary, the per Share exercise price shall be no less than one hundred ten percent (110%) of the fair market value per Share on the date of the grant. b. granted to any other Employee, the per Share exercise price shall be no less than one hundred percent (100%) of the fair market value per Share on the date of grant. 2. In the case of a Nonqualified Stock Option or Sale a. granted or Sold to a person who, at the time of the grant of such Option or authorization of such Sale, owns stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or any Parent or Subsidiary, the per Share exercise/purchase price shall be no less than one hundred ten percent (110%) of the fair market value per Share on the date of the grant or authorization of Sale, unless otherwise expressly determined by the Board of Directors. b. granted or sold to any other person, the per Share exercise/purchase price shall be no less than eighty-five percent (85%) of the fair market value per Share on the date of grant or authorization of Sale, unless otherwise expressly determined by the Board of Directors. c. Any determination to sell stock at less than fair market value on the date of the grant or authorization of Sale shall be accompanied by an express finding by the Board of Directors specifying that the sale is in the best interest of the Company, and specifying both the fair market value and the grant or sale price of the stock. 3. In the case of an Option granted or Sale authorized on or after the effective date of registration of any class of equity security of the Company pursuant to Section 12 of the Exchange Act and prior to six (6) months after the termination of such registration, the per Share exercise/purchase price shall be no less than one hundred percent (100%) of the fair market value per Share on the date of grant or authorization of Sale. B. Fair Market Value. The fair market value per Share shall be determined by the Board in its discretion, said fair market value to be determined in good faith at the time of the grant of such Option by the Board; provided, however, that where there is a public market for the Common Stock, the fair market value per Share shall be the closing price of the Common Stock for the date of grant or authorization of Sale, as reported in The Wall Street Journal (or, if not so reported, as otherwise reported by the National Association of Securities Dealers Automated Quotation (NASDAQ) System) or, in the event the Common Stock is listed on a stock exchange, the fair market value per Share shall be the closing price on such exchange on the date of grant of the Option or authorization of Sale, as reported in The Wall Street Journal. C. Consideration. The consideration to be paid for the Shares to be issued upon exercise of an Option or pursuant to a Sale, including the method of payment, shall be determined by the Board and may consist in whole or part of: 1. cash; 2. check; 3. promissory note; 4. transfer to the Company of Shares having a Fair Market Value at the time of such exercise equal to the Option exercise price; or 5. delivery of instructions to the Compa4.any to withhold from the Shares that would otherwise be issued on the exercise that number of Shares having a Fair Market Value at the time of such exercise equal to the Option exercise price. If the Fair Market Value of the number of whole Shares transferred or the number of whole Shares surrendered is less than the total exercise price of the Option, the shortfall must be made up in cash or by check. IX. Exercise of Option. A. Procedure for Exercise: Rights as a Stockholder. Any Option granted hereunder shall be exercisable at such times and under such conditions as determined by the Board, including performance criteria with respect to the Company and/or the Optionee, and as shall be permissible under the terms of the Plan. An Option may not be exercised for a fraction of a Share. An Option shall be deemed to be exercised when written notice of such exercise has been given to the Company in accordance with the terms of the Option by the person entitled to exercise the Option and full payment for the Shares with respect to which the Option is exercised has been received by the Company. Full payment may, as authorized by the Board, consist of any consideration and method of payment allowable under Section VIII, Paragraph C of the Plan. Each Optionee who exercises an Option shall, upon notification of the amount due (if any) and prior to or concurrent with delivery of the certificate representing the Shares, pay to the Company amounts necessary to satisfy applicable federal, state and local tax withholding requirements. An Optionee must also provide a duly executed copy of any stock transfer agreement then in effect and determined to be applicable by the Board. Until the issuance (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company) of the stock certificate evidencing such Shares, no right to vote or receive dividends or any other rights as a stockholder shall exist with respect to the Optioned Stock, notwithstanding the exercise of the Option. No adjustment will be made for a dividend or other right for which the record date is prior to the date the stock certificate is issued, except as provided in Section XI of the Plan. Exercise of an Option in any manner shall result in a decrease in the number of Shares which thereafter may be available, both for purposes of the Plan and for sale under the Option, by the number of Shares as to which the Option is exercised. B. Termination of Status as an Employee or Consultant. If an Employee or Consultant ceases to serve as an Employee or Consultant (as the case may be), he may, but only within three (3) months (or such other period of time not exceeding the limitations of Section VII above as is determined by the Board at the time of grant of an Option or thereafter) after the date he ceases to be an Employee or Consultant (as the case may be) of the Company, exercise his Option to the extent that he was entitled to exercise it at the date of such termination. To the extent that he was not entitled to exercise the Option at the date of such termination, or if he does not exercise such Option (which he was entitled to exercise) within the time specified herein, the Option shall terminate. C. Disability of Optionee. Notwithstanding the provisions of Paragraph B of this Section IX above, in the event an Employee or Consultant is unable to continue his employment or consulting relationship (as the case may be) with the Company as a result of his total and permanent disability (as defined in Section 22(e)(3) of the Code), he may, but only within twelve (12) months (or such other period of time not exceeding the limitations of Section VII above as is determined by the Board at the time of grant of an Option or thereafter) from the date of termination, exercise his Option to the extent he was entitled to exercise it at the date of such termination. To the extent that he was not entitled to exercise the Option at the date of termination, or if he does not exercise such Option (which he was entitled to exercise) within the time specified herein, the Option shall terminate. D. Death of Optionee. In the event of the death of an Optionee during the term of the Option who is at the time of his death an Employee or Consultant of the Company and who shall have been in Continuous Status as an Employee or Consultant since the date of grant of the Option, the Option may be exercised, at any time within twelve (12) months (or such other period of time not exceeding the limitations of Section VII above as is determined by the Board at the time of grant of an Option or thereafter) following the date of death, by the Optionee's estate or by a person who acquired the right to exercise the Option by bequest or inheritance, but only to the extent of the right to exercise as of the date of death. X. Nontransferability of Options. An Option may not be sold, pledged, assigned, hypothecated, transferred or disposed of in any manner other than by will, or by the laws of descent and distribution, and may be exercised during the lifetime of the Optionee only by the Optionee or, if incapacitated, by his or her legal guardian or legal representative. XI. Adjustments Upon Changes in Capitalization or Merger. Subject to any required action by the stockholders of the Company, the number of shares of Common Stock covered by each outstanding Option and the number of shares of Common Stock which have been authorized for issuance under the Plan but as to which no Options have yet been granted or Sales made or which have been returned to the Plan upon cancellation or expiration of an Option, as well as the price per share of Common Stock covered by each such outstanding Option, shall be proportionately adjusted for any increase or decrease in the number of issued shares of Common Stock resulting from a stock split, reverse stock split, stock dividend, combination or reclassification of the Common Stock, or any other increase or decrease in the number of issued shares of Common Stock effected without receipt of consideration by the Company; provided, however, that conversion of any convertible securities of the Company shall not be deemed to have been "effected without receipt of consideration." Such adjustment shall be made by the Board, whose determination in that respect shall be final, binding and conclusive. Except as expressly provided herein, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares of Common Stock subject to an Option. In the event of the proposed dissolution or liquidation of the Company, the Option will terminate immediately prior to the consummation of such proposed action, unless otherwise provided by the Board. The Board may, in the exercise of its sole discretion in such instances, declare that any Option shall terminate as of a date fixed by the Board and give each Optionee the right to exercise his Option as to all or any part of the Optioned Stock, including Shares as to which the Option would not otherwise be exercisable. In the event of a proposed sale of all or substantially all of the assets of the Company, or the merger of the Company with or into another corporation, the Option shall be assumed or an equivalent option shall be substituted by such successor corporation or a parent or subsidiary of such successor corporation, unless the Board determines, in the exercise of its sole discretion and in lieu of such assumption or substitution, that the Optionee shall have the right to exercise the Option as to all of the Optioned Stock, including Shares as to which the Option would not otherwise be exercisable. If the Board makes an Option fully exercisable in lieu of assumption or substitution in the event of a merger or sale of assets, the Board shall notify the Optionee that the Option shall be fully exercisable for a period of thirty (30) days from the date of such notice or such shorter period as the Board may specify in the notice, and the Option will terminate upon the expiration of such period. XII. Time of Granting Options. The date of grant of an Option shall, for all purposes, be the date on which the Board makes the determination granting such Option. Notice of the determination shall be given to each Employee or Consultant to whom an Option is so granted within a reasonable time after the date of such grant. XIII.Amendment and Termination of the Plan. A. Amendment and Termination. The Board may amend or terminate the Plan from time to time in such respects as the Board may deem advisable; provided, however, that if required to qualify the Plan under Rule 16b-3 promulgated under Section 16 of the Securities Exchange Act of 1934, as amended, no amendment shall be made more than once every six months that would change the amount, price or timing of the option grants, other than to comport with changes in the Code, or the rules and regulations promulgated thereunder; and provided, further, that, if required to qualify the Plan under Rule 16b-3, no amendment shall be made without the approval of the stockholders of the Company in the manner described in Section XVII of the Plan if the amendment would: 1. increase the number of Shares subject to the Plan, other than in connection with an adjustment under Section XI of the Plan; 2. make a change in the designation of the class of Employees or Consultants eligible to be granted Options; or 3. if the Company has a class of equity security registered under Section 12 of the Exchange Act at the time of such revision or amendment, cause any material increase in the benefits accruing to participants under the Plan. B. Stockholder Approval. If any amendment requiring stockholder approval under Section XIII, Paragraph A of the Plan is made subsequent to the first registration of any class of equity security by the Company under Section 12 of the Exchange Act, such stockholder approval shall be solicited as described in Section XVII, Paragraph A of the Plan. C. Effect of Amendment or Termination. Any such amendment or termination of the Plan shall not affect Options already granted, and such Options shall remain in full force and effect as if this Plan had not been amended or terminated, unless mutually agreed otherwise between the Optionee and the Board, which agreement must be in writing and signed by the Optionee and the Company. XIV. Conditions Upon Issuance of Shares. Shares shall not be issued pursuant to the exercise of an Option or a Sale unless the exercise of such Option or consummation of the Sale and the issuance and delivery of such Shares pursuant thereto shall comply with all relevant provisions of law, including, without limitation, the Securities Act of 1933, as amended, applicable state securities laws, the Exchange Act, the rules and regulations promulgated thereunder, and the requirements of any stock exchange (including NASDAQ) upon which the Shares may then be listed, and shall be further subject to the approval of counsel for the Company with respect to such compliance. As a condition to the exercise of an Option or a Sale, the Company may require the person exercising such Option or to whom Shares are being Sold to represent and warrant at the time of any such exercise or Sale that the Shares are being purchased only for investment and without any present intention to sell or distribute such Shares if, in the opinion of counsel for the Company, such a representation is required by any of the aforementioned relevant provisions of law. XV. Reservation of Shares. The Company, during the term of this Plan, will at all times reserve and keep available such number of Shares as shall be sufficient to satisfy the requirements of the Plan. Inability of the Company to obtain authority from any regulatory body having jurisdiction, which authority is deemed by the Company's counsel to be necessary to the lawful issuance and sale of any Shares hereunder, shall relieve the Company of any liability in respect of the failure to issue or sell such Shares as to which such requisite authority shall not have been obtained. XVI. Option Agreement. Options shall be evidenced by written option agreements in such form as the Board shall approve. XVII. Stockholder Approval. Continuance of the Plan shall be subject to approval by the stockholders of the Company within twelve months before or after the date the Plan is adopted. if such stockholder approval is obtained at a duly held stockholders' meeting, it may be obtained by the affirmative vote of the holders of a majority of the outstanding shares of the Company, such holders being present or represented and entitled to vote thereon. If and in the event that the Company registers any class of any equity security pursuant to Section 12 of the Exchange Act, the approval of such stockholders of the Company shall be: A. Solicitation. 1. solicited substantially in accordance with Section 14(a) of the Exchange Act and the rules and regulations promulgated thereunder, or 2. solicited after the Company has furnished in writing to the holders entitled to vote substantially the same information concerning the Plan as that which would be required by the rules and regulations in effect under Section 14(a) of the Exchange Act at the time such information is furnished; and B. Time. Obtained at or prior to the first annual meeting of stockholders held subsequent to the first registration of any class of equity securities of the Company under Section 12 of the Exchange Act. If such stockholder approval is obtained by written consent, it must be obtained by the written consent of stockholders of the Company in compliance with the requirements of applicable state law. XVIII. Six Month Holding Period for Affiliates. If the Company registers any class of any equity security pursuant to Section 12 of the Exchange Act, then from the effective date of such registration until six (6) months after the termination of such registration (the "Public Period"), these limits will apply to each officer, director and beneficial owner of ten percent (10%) or more of any class of equity securities of the Company ("Affiliates"). During the Public Period, any Affiliate shall hold Shares Sold hereunder at least six months from the date of Sale. During the Public Period, at least six months must elapse from the date of grant of an Option to an Affiliate to the date the Affiliate disposes of the Shares acquired upon exercise of the Option, or (if the Option is disposed of other than by exercise) to the date of disposition of the Option itself. EX-10.2 4 CORPORATE HEADQUARTERS LEASE EXHIBIT 10.2 WITNESS this lease hereby made on the 16th day of February, 1994 by and between HILLSIDE ASSOCIATES, a co-partnership, having it place of business at 100 Ring Road West, Garden City, New York 11530 hereinafter known as the Landlord which expression shall include its heirs, successors and assigns and COMPUTER TELEPHONE CORP. having its place of business at 360 Second Avenue, Waltham, Massachusetts, a Massachusetts corporation, hereinafter known as the Tenant, which expression shall include its successors and assigns. 1. Premises and Use: The Landlord hereby leases to the Tenant the premises described as follows: Approximately Nineteen Thousand Five Hundred and Eighty Two Square Feet (19,582 SF) of space as shown on the annexed sketch in the building known as Tech Center 128, Building #1, 360 Second Avenue, Waltham, Massachusetts, and Two Thousand (2,000) Square Feet of outside storage space to be fenced by the Tenant, together with the use in common with other Tenants in the building of outside parking and yard areas in the land on which the leased premises are situated for the parking of automobiles and trucks. Parking or storage of office trailers in the lot is prohibited. Tech Center 128, Building #1 is located on Lot B-1 as shown in plan entitled "Plan of Land in Waltham, Massachusetts owned by Bear Hill Industrial Development Trust, scale 1 inch equals 40 feet, October 5, 1960 survey by MacCarthy Engineering Service, Inc., Natick, Mass.", recorded with the Middlesex South Registry of Deeds as Plan 1851 of 1960, and a portion of Lot B, which lot is shown on a plan entitled "Plan of Land in Waltham, Massachusetts owned by Bear Hill Industrial Development Trust, scale 1 inch equals 100 feet, March 17th, 1959, Plan by MacCarthy Engineering Service, Inc., Natick, Mass.", recorded with said deeds as Plan 1157 of 1959. The premises may be used by the Tenant for offices, manufacturing, engineering and warehousing or other lawful purposes. 2. Term: (a) The initial term of this Lease shall be for period of five (5) years, commencing on the Commencement Date and ending at midnight on the last day of the month in which the fifth anniversary of the Commencement Date (the "Expiration Date") takes place. (b) Tenant shall have one (1) option to extend the term of this Lease from the dates upon which it would otherwise expire for one (1) renewal period of five (5) years. If Tenant: elects to exercise said option, it shall do so by giving notice of such election to Landlord at any time on or before the date which is 180 days before the expiration of the Term of this Lease, as to which time, time shall be of the essence. The term of the extended period shall be upon the same terms and conditions as are in effect hereunder immediately preceding the commencement of the extended period, except that the rent for the extended period shall be at 95% of the then current market rate. (c) The renewal option contained in subsection (b) above shall be effective only if this Lease is in force and effect on the day prior to the effective date of the renewal and no default by Tenant is existing under this Lease on the date the renewal option is exercised and on the date the renewal term begins. The Tenant will provide a renewal notice in accordance with subsection (b) above the Landlord and Tenant will further evidence the acceptance of the renewal term by executing a lease renewal document which will describe the terms of such lease extension. 3. Basic Rent: The basic rent for the premises shall be the sum of One Hundred Twenty Seven Thousand Two Hundred and Eighty Three and 00/100 ($127,283.00) Dollars per annum, payable in advance in equal monthly installments of Ten Thousand Six Hundred and Six and 92/500 ($10,606.92) Dollars on the first day of each and every month of the Lease term at the office of the Landlord as stated in Paragraph 30 of this Lease. If the lease term should commence and end on any day except that first day of the calendar month, then the first and the last monthly rent installment shall be pro rated for the portion of the calendar month covered by the Lease term. 4. Real Estate Taxes and Betterments: (a) The Tenant agrees to pay to the Landlord, as additional rent, nineteen and thirty nine one hundredths (19.39%) Percent of the real estate taxes and betterments and other municipal assessments, on the lot and building in which the leased premises are situated. The real estate taxes shall be payable in advance on a monthly basis for the lease period covered by same. The basic rent and the betterments and municipal assessments shall be paid upon submission of a bill. The Landlord shall submit to the Tenant an invoice accompanied by a copy of the Real Estate Tax Bill, Bill for Betterments and/or municipal assessments which bill will be conclusive evidence of those charges. The current annual Real Estate Tax is $157,590.00 from July to June which computes to $2,546.39 per month. (b) Both the Landlord and the Tenant shall have the right to apply for real estate tax abatement. In the event that Landlord elects to file a claim for real estate tax abatement .or the entire building, Tenant shall pay its proportionate share of any expenses incurred and shall share in any refund or adjustment accordingly. In the event that a portion of the expenses incurred are for the tax period subsequent to the expiration of the term or extended term of this Lease, the Tenant shall be excused from the prorata portion of the expense and accordingly shall not share in any refund or adjustment for said period. 5. Utilities: (a) The Tenant's demised premises shall be directly metered for electrical service. The tenant shall pay directly to the utility company for said service. (b) Water and sewerage and gas service for the premises are not separately metered. The Tenant shall pay its proportionate share of water charges (and sewer charges, should such be instituted) and gas charges for the Building as additional rent within thirty (30) days following receipt by it of the Landlord's bill for such charges. The Landlord reserves the right to install a sub-meter for the purpose of measuring the Tenant's water and gas consumption. 6. Repairs, Maintenance and Operation of the Premises: The Landlord shall be responsible for the structural repairs, exterior repairs and roof surface repairs as well as repairs to the parking lot. All repairs which are the responsibility of the Landlord and shall be made promptly and at the earliest possible opportunity. The Landlord shall not be responsible for any repairs or replacements to the premises caused by the willful acts or negligence of the Tenant, its agents, employees, invitees or licensees, nor shall the Landlord be responsible for any repairs or replacements caused by vandalism or malicious mischief caused by the Tenant, its agents, employees, invitees or licensees. The Tenant shall be responsible for all maintenance, repairs or replacements to the premises not hereinbefore stated as the Landlord's 2 obligation. The Tenant agrees either by its employees, servants or agents or by executing contracts with acceptable service companies to furnish regular maintenance of the heating, ventilating and air conditioning equipment furnished by the Landlord or by others for the leased premises, any equipment that is under warranty, that warranty will be assigned to the Tenant. The Tenant shall keep its premises, including the driveway and yard abutting same neat and clean, free of ice and snow and maintain appropriate trash collection and removal services. The Landlord shall arrange snow and ice removal service and landscaping maintenance. The Tenant agrees to pay to the Landlord nineteen and thirty nine one hundredths (19.39%) Percent of the cost for snow and ice removal and landscaping maintenance as additional rent. The Landlord shall submit to the Tenant an invoice accompanied by a copy of the snow and ice bill or landscaping bill which bill will be considered evidence of these charges. 7. Alterations: The Tenant shall make no alterations or additions to the premises nor replace buildings equipment, except in accordance with plans and specifications theretofore first approved in writing by the Landlord. Tenant agrees to pay promptly, when due, the entire cost of any work done on the premises by Tenant, its agents, employees or contractors and not to cause or permit any liens for labor or materials performed or furnished in connection therewith to attach to the premises and within thirty days to discharge or cause the discharge or cancellation of any such liens which may so attach, whether or not such liens are proper and justified. 8. Insurance: (a) The Tenant agrees to pay to the Landlord, as additional rent, in advance monthly, on the first day of each and every month, one-twelfth (1/12) of nineteen and thirty nine one hundredths (19.39%) Percent of the annual insurance premiums for the Landlord's fire and extended insurance coverage for the building including vandalism and malicious mischief in which the leased premises are situated. Said insurance shall also include loss of rental value for a twelve month period for said building together with comprehensive general liability coverage insuring the Landlord's risks in the following amounts: One Million Dollars per claim for bodily injury, Three Million Dollars per accident for bodily injury, One Million Dollars for property damage. The additional rent due pursuant to this paragraph shall be calculated on the basis of the most recent insurance premiums charged with reference to insurance coverage on the building. Should the premium charges change, an adjustment is to be made with reference to the additional rent charged herein to reflect the change. The current annual insurance premium for the entire building covering a period from April 1, 1992 to March 31, 1993 is $24,700.00. The Landlord shall furnish a copy of the insurance premium bills to the Tenant at the beginning of each year. (b) The Tenant agrees, at its own expense, to carry comprehensive general liability insurance concerning same for the premises and to add the Landlord's name and that of Omnibus Management, Ltd., as managing agent to the policy as additional insured in the following amounts: One Million Dollars per claim for bodily injury, Three Millions per accident for bodily injury, One Million Dollars property damage. Should the Tenant fail to provide the aforesaid insurance coverage or to pay the premiums therefor, the Landlord at its option, may obtain said coverage, pay the premiums therefor and the Tenant shall promptly reimburse the Landlord as additional rent, for the premium costs for said insurance coverage. (c) All insurance policies which are to be provided and the premiums therefore in accordance with the terms of this clause, shall be placed with insurance carriers qualified to do business in Massachusetts, subject to the reasonable approval of the Landlord and the institution holding the first mortgage on the premises. 3 (d) Tenant shall assume risk of damage or loss to any of the Tenant's fixtures, goods, inventory, equipment, furniture or other property which may be on the premises. (e) In the event that there is vandalism and/or malicious mischief committed on the premises, the Landlord shall make available to the Tenant, all insurance proceeds that it receives with regard to the claims made by it with regard to the above mentioned insured hazards provided that the Tenant has made all necessary repairs to the premises to eliminate the damages caused by an vandalism or malicious mischief. (f) The Landlord shall make available to the Tenant for inspection all of its insurance policies covering the premises. 9. Fire Protection: Tenant agrees to maintain approved, labelled fire extinguishers within the leased premises as recommended by the New England Fire Insurance Rating Association for protection credit. Tenant agrees not to obstruct the fire sprinkler system in any way and to comply in all reasonable ways with fire prevention requests of City officials, the insurance company insuring the premises and the Landlord. 10. Indemnification: (a) The Tenant agrees to and shall hold and save harmless and indemnify the Landlord and its employees, agents, contractors, invitees and other persons designated by Landlord from and for any and all payments, expenses, costs, attorney fees and from and for any and all claims and liability for losses or damage to property or injuries to persons occasioned wholly or in part by or resulting from any negligent or intentional or willful acts or omissions by the Tenant or the Tenant's agents, employees, guests, licensees, invitees, subtenants, assignees or successors. (b) The Landlord shall indemnify and hold harmless Tenant and its agents, employees, contractors and invitees for all losses, costs and expenses (including reasonable attorney's fees), settlement payments, and all liabilities, damages, or fines paid, incurred or suffered by Tenant (i) by reason of any breach, violation and/or nonperformance by Landlord or Landlord's employees, agents, licensees, invitees or visitors, of any covenants or provision of this Lease; and/or (ii) .rom any other cause due to the negligence or intentional act or omission of Landlord and/or Landlord's contractors, servants, employees, agents, licensees and/or invitees. 11. Inability to Repair or Provide Service: Landlord shall not be liable to Tenant for any damages, consequential or otherwise reduction of rent by reason of inconvenience, annoyance or loss of business arising from the necessity of Landlord's entering the premises for any purpose authorized in this lease or for repairing the premises or any portion of the building; however, the necessity may occur, subject to Tenant's security regulations as stated in Paragraph 16. If the Landlord is prevented or delayed from making any repairs, alterations or improvements, furnishing services or performing any covenant under this lease by reason of any cause beyond Landlord's controls, Landlord shall not be liable for, nor shall Tenant be entitled to any reduction of rent. 12. Assignment or Sublet: The Tenant shall not have the right to assign this lease or sublet the premises in whole or in part without the written approval of the Landlord which approval will not be unreasonably withheld or delayed. If there has been an assignment of this lease or a subletting of the premises in whole or in part, the Tenant shall, however, remain liable for the performance of all the covenants and conditions which it is obligated to so perform under this lease. In lieu of consenting to an assignment of this Lease or a subletting of the premises in whole or in part, the Landlord reserves the right to terminate this Lease and enter into a Lease with another prospective Tenant or Tenants. 4 The Landlord acknowledges and approves Comm-Tract as a subtenant of Computer Telephone. 13. Signs: The Tenant shall have the right to erect signs on the outside of the premises subject to the review and prior approval of the Landlord and subject to the Tenant's compliance with all applicable laws governing sign erection. 14. Surrender: At the termination of this lease, the Tenant shall peacefully yield up the demised premises and all additions thereto in good order, repair and condition, first removing all goods and effects except those of the Landlord and leaving the premises clean and tenantable, excepting, however, reasonable wear and tear damage which the Landlord is obligated to repair and damage not caused by the negligence of the Tenant, its agents, employees, invitees or licensees. All fixtures, machinery and equipment which may, at any time, be brought upon and permanently installed in the premises may not be removed without the written approval of the landlord. The Tenant shall have the right to remove all other machinery, equipment and/or fixtures provided repairs are made for damages caused by such removal by the Tenant and the Tenant will restore the premises to the same condition that existed prior to the removal of the machinery, equipment and/or fixtures, reasonable wear and tear excepted. 15. Misuse and Compliance with all Government Laws Orders, Ordinances and Regulations: (a) The Tenant agrees not to damage, deface, strip, overload or waste the premises as described in Clause 1, nor to permit on said premises any flammable fluids or chemicals or any nuisance or the emission therefrom of any objectionable noise or odor, nor to permit the use thereof for any purpose other than the Tenant's business, nor any use thereof which is improper, offensive, contrary to law or ordinance, or liable to render necessary any alterations or additions to the building, or liable to invalidate or increase the premises for any insurance on the building unless Tenant pays such increased premiums on its contents. The Tenant agrees to comply with all governmental laws, orders, rules and ordinances and regulations which affect the premises and to promptly remove or correct any violations affecting the premises cited by the governmental body or agency except for those caused by the initial construction of the premises. (b) Prohibition Against Hazardous Waste - As used in this paragraph, the terms "Hazardous Waste", "Hazardous Materials" or "Oil" shall be defined as provided in Section 2 of Chapter 21C, Section 2 of Chapter 21D and Section 2 of Chapter 21E of the General Laws of Massachusetts, and the regulations promulgated thereunder, as such laws and regulations may be amended from time to time. As of January 21, 1984, such terms were defined in such laws as follows: "Hazardous Waste", a waste or combination of wastes, which because of its quantity, concentration, or physical, chemical or infectious characteristics may cause, or significantly contribute to an increase in mortality or any increase in serious irreversible, or incapacitating reversible illness or pose a substantial present or potential hazard to human health safety or welfare or to the environment, when improperly treated, stored, transported, used, disposed of, or otherwise managed, however not to include solid or dissolved material in domestic sewage, or solid or dissolved materials in irrigation return flows or industrial discharges which are point sources subject to permits under Section 402 of the Federal Water Pollution Control act of 1967 as amended, or source, special nuclear, or by-product material as defined by the Atomic Energy Acts of 1954; "Hazardous Material", material including but not limited to, any material, in whatever form, which because of its quantity, concentration, chemical, corrosive, flammable, reactive, toxic, infectious, or radioactive characteristics, either separately or in combination with any substance constitutes a present or potential threat to human health, safety, welfare, or to the environment, when improperly stored, treated, transported, disposed of, used, or otherwise managed. 5 The term shall not include oil. The term shall also include all those substances which are included under 42 USC 9601(14), but it is not limited to those substances; "Oil", insoluble or partially soluble oils of any kind of origin or in any form, including, without limitation, crude or fuel oils, lube oil or sludge, asphalt, insoluble or partially insoluble derivatives of mineral, animal or vegetable oils. The term shall not include waste oil, and shall not include those substances which are included in 42 USE Section 9601(14). (1) Tenant shall not use, maintain, generate or bring on the demised premises, the Building or the Lot or transport or dispose of on or from the demised premises, the Building or the Lot (whether through the sewer or septic system or into the ground or by removal off-site or otherwise) any Hazardous Waste, Hazardous Material, Oil or radioactive material; and Tenant shall prevent any agent, servant, employee, contractor, supplier, guest, visitor, customer or invitee of Tenant, and of such parties, and any other party claiming under Tenant, from using, maintaining, generating or bringing to the demised premises, the Building or the Lot or transporting or disposing of, on or from the demised premises, the Building or the Lot (whether through the sewer or septic systems or into the ground or by removal off site or otherwise) any Hazardous Waste, Hazardous Material, Oil or radioactive material. (2) Tenant shall deliver to Landlord, within ten (10) days after Tenant receives same, copies of all letters, inquiries, summons, subpoenas, complaints, restraining orders and any other written communication received by Tenant, and written notice of any oral communication received by Tenant, and written or oral communication related to Tenant's compliance or noncompliance, or the compliance or noncompliance of any activities being conducted on or from the demised premises, with any laws, orders, regulations and the like to any governmental authorities or any public body relating to Hazardous Waste, Hazardous Material, Oil or radioactive material. (3) Tenant shall be solely responsible for becoming informed of any amendments made from time to time to the laws and regulations referred to in this paragraph of this Lease; and Landlord shall not be obligated to notify Tenant of any of said amendments. (4) Any breach of the provisions of this paragraph shall be deemed to be a breach and default of a material obligation of Tenant under this Lease, and Landlord shall have with respect thereto all remedies provided in this Lease for defaults of Tenant. 16. Access: The Tenant agrees to permit the Landlord or the Landlord's agent to examine the premises at reasonable times during usual business hours, subject to Tenant's reasonable security requirements, and if the Landlord shall so elect, to allow the Landlord, at the expense of the Landlord, to make any repairs or additions the Landlord may deem necessary which additions shall not interfere with the Tenant's use of the premises and at the expense of the Tenant, to remove any alterations, additions, signs, awnings, aerials or flag poles or the like, not consented to in writing according to the terms of this Lease and to show the premises during Tenant's normal and usual business hours; and without interfering with Tenant's use of the premises at any reasonable time to prospective purchasers and tenants and to keep affixed to any suitable part of the premises during the six months proceeding the expiration of the term as described in Clause 2 or any extension thereof appropriate notices for letting or selling. 6 17. Enforcement: Both the Tenant and the Landlord agree to pay each others expenses including reasonable attorney fees incurred in enforcing any obligations of this Lease which are violated by the other party provided that either party has given, to the other, written notice of such violation and that the party to whom the notice was directed has not rectified said violation within thirty (30) days after such notice provided however if correction has been commenced within said thirty (30) day period and the other obligated would have made such correction completing the work with all due diligence, it shall not be deemed a violation. If said violation be for non-payment of the basic or additional rent, then and in that event, this clause shall be applicable if said violation has not been rectified within fourteen (14) days of such written notice. 18. Tenant to Enforce: The Tenant agrees not to permit any employee, servant or agent of the Tenant to violate any covenant or obligation of the Tenant herein set forth. 19. Destruction by Fire or Other Casualty: It is further agreed by and between the parties hereto that in case the said premises or a substantial pa,t thereof shall, during the initial term or any extended term, be destroyed or rendered unusable by fire or other casualty so that a substantial part thereof, which shall consist of more than twenty (20%) percent of same, be destroyed or rendered unusable for Tenant's purposes during the initial term or any extended term of this lease, then, and in such case, the rent payable hereunder or a just and proportionate part thereof in accordance with the nature and extent of the injury sustained, shall be abated until the said premises shall have been reconstructed to substantially as good a condition as before. If said damages should cause the premises to be rendered reasonably unfit for use and habitation, then and in that event, the Landlord shall have the option, within thirty (30) days after the occurrence of said damages, to terminate this lease. Moreover, if said damages should cause the premises to be rendered reasonably unfit for use and habitation, then, in that event, the Tenant shall have the option to terminate this lease within thirty (30) days after the occurrence of said damages provided the Landlord does not elect, by written notice to the Tenant given within the aforementioned thirty (30) day period, to repair or restore the premises. In the event that the Landlord elects to repair or restore, the Tenant may terminate this lease if such repair or restoration is not accomplished within twenty-six (26) weeks of the occurrence of said damages, provided said Tenant makes this election in writing within ten (10) days subsequent to the passing of the aforementioned twenty-six (26) week period. 20. Eminent Domain: (a) If the whole of the demised premises shall be taken by condemnation proceedings or right of eminent domain then, and in that event, the terms of this.lease shall terminate and end as of the date when the possession of the demised premises shall be required for such use and purpose and the parties shall be released from further obligations hereunder. (b) If only part of the demised premises shall be taken by condemnation proceedings or right of eminent domain, then, and in that event, the term of this lease shall terminate and end as of the date when the possession of the demised premises shall be required for such use and purpose. This clause shall only be applicable if the premises become unusable and the Landlord elects not to replace, rebuild or restore the premises in accordance with sub-paragraph C of this paragraph. (c) If only part of the demised premises, including common areas, shall be taken by condemnation proceedings or right of eminent domain, then, and in that event, the rent shall abate in proportion to the value of the loss of use of the Tenant, but with the right of the Landlord to replace, rebuild and to 7 restore the original use of the demised premises by replacing or rebuilding even though such replacing or rebuilding shall require the relocation of same in the building in which these premises are situated. It is expressly understood, however, that in the event any taking by condemnation or eminent domain shall leave the demised premises not reasonably suitable for the conduct of Tenant's business in the sole determination of Tenant, Tenant my at its option, terminate this lease. If only part of the demised premises shall be taken by condemnation proceedings or right of eminent domain, then, in that event, the rent shall abate in proportion to the value of use to the Tenant but with the right of the Landlord to replace, rebuild and restore the original use of the demised premises by replacing or rebuilding, even though such replacing or rebuilding shall require the relocation of same. It is expressly understood, however, that in the event any taking by condemnation or eminent domain shall leave the demised premises not reasonably suitable for the conduct of Tenant's business is the sole determination of Tenant, Tenant may, at its option, terminate this lease. (d) Nothing in this lease shall be deemed or construed to prevent the Tenant from interposing and prosecuting in any condemnation proceeding, a claim for the value of the fixtures and improvements installed in or made to the premises by the Tenant, or the Tenant's relocation or any other costs or damages imposed upon or suffered by the Tenant on account of the aforementioned condemnation. 21. Default and Bankruptcy: (a) In the event of any failure of Tenant to pay any rent due hereunder, including additional rent, within fourteen (14) days after written notice of such default has been given to Tenant or any failure to perform any other of the terms, conditions or covenants of this lease to be observed or performed by Tenant for more than.thirty (30) days after written notice of such default shall be given to Tenant or if Tenant shall have declared bankruptcy or insolvency or filed any debtor proceedings or if there shall have been taken against Tenant, and the Tenant shall have not applied to a court of competent jurisdiction within thirty (30) days and shall not have had the same discontinued or terminated within ninety (90) days subsequent to said filing in any court pursuant to any statute either of the United States or of any State, a petition of bankruptcy or insolvency or for reorganization or for the appointment of a receiver of trustee of all or any part of Tenant's property, or if Tenant makes an assignment for the benefit of creditors or petitions for or enters into an arrangement or if Tenant shall abandon the demised premises or suffer this lease to be taken under any writ of execution, then Landlord, in addition to any and all other rights or remedies it may have, shall have the immediate right of re-entry and may remove all persons and property from the demised premises and such property may be removed and stored in a public warehouse or elsewhere at the cost of and for the account of Tenant all without service of notice or resort to legal process and all without being deemed guilty of trespass or becoming liable for any loss which may be occasioned thereby. (b) Should Landlord elect to re-enter as herein provided or should it take possession pursuant to legal proceedings or pursuant to any notice provided by law, it may either terminate this lease or may, from time to time, without terminating this lease, make such alterations and repairs as may be necessary to relet the demised premises and relet said demised premises or any part thereof for such term or terms and at such rental or rentals and upon such other terms and conditions as Landlord in its discretion deemed advisable. Upon each such reletting, all rentals received by the Landlord from such reletting shall be applied in the order set forth below: (1) To the payment of any indebtedness, other than rent due hereunder from Tenant to Landlord. 8 (2) To the payment of any costs and expenses of such reletting including brokerage fees, attorney's fees and costs of such alterations and repairs. (3) To the payment of rent due and unpaid hereunder. (4) The balance, if any, shall be held by Landlord and applied in payment of future rents or expenses if the same may become due and payable in accordance with the order set forth above. If such rentals received from such reletting during any month shall be less than the amount to be paid during that month by Tenant pursuant to this lease, then Tenant shall pay to Landlord any such deficiency, said deficiency to be calculated and paid monthly. No such re-entry or taking possession of the demised premises by Landlord shall be construed as an election on its part to terminate this lease unless a written notice of such intention shall be given to Tenant or unless the termination of this lease shall be decreed by a court of competent jurisdiction. (c) Notwithstanding any such reletting without termination, Landlord may, at any time thereafter, elect to terminate this lease for such previous breach. Should Landlord at any time terminate this lease for any breach, in addition to any other remedies it may have, it may recover from Tenant all damages it may incur by reason of such breach including the cost of recovering the demised premises reasonable attorney's fees and including the worth at the time of such termination of the excess, if any, of the amount of rent, including additional rent, reserved in this lease for the remainder of the stated term, all of which amounts shall be immediately due and payable by Tenant to the Landlord. 22. Subordination: The Tenant hereby agrees that its rights under this lease shall be subordinate to any and all mortgages existing on or hereinafter placed from time to time on said premises and the Tenant further agrees to execute any and all documents relating to said subordination to be recorded in the applicable Registry of Deeds or Mortgages when requested to do so by the Landlord. The Tenant further appoints the Landlord, as its attorney in fact to execute any such document on its behalf. 23. Financial Statement of Tenant: The Tenant will furnish to the Landlord, a copy of its annual financial report. 24. Tenant's Certificates: The Tenant agrees at any time, and from time to time, upon not less than ten (10) days prior written request by the Landlord, to execute, acknowledge and deliver to the Landlord, a statement in writing that this lease is unmodified and in full force and effect (or if there should have been modification that the same are in full force and effect as modified and stating such modifications) and that the Landlord is not in default in accordance with the terms and conditions thereof and the dates to which basic rent and other rent or charges have been paid in advance if any; it being intended that any such statement or certificate delivered pursuant to this clause, may be relied upon by any prospective purchaser of the premises or mortgagee or assignee of any mortgagee with regard to the demised premises. 25. Landlord's Right to Remedy Tenant's Default: If the Tenant fails to pay for, maintain or deliver any insurance policies which it is obligated to so pay, maintain and deliver to should fail to make any other payment or perform any other act on its part to be made or performed as provided for in this Lease, then the Landlord may, but shall not be obligated to do so and without waiving or releasing the Tenant from any obligations of the Tenant under this Lease contained, pay for and/or effect any such insurance coverage, make any other payment or perform any other act on the part of the Tenant to be performed as in this lease provided in such manner and to such extent as the Landlord may deem desirable and may exercise any such rights to pay 9 necessary and incidental costs and expenses, employ counsel and incur and pay reasonable attorney's fees. All sums so paid by the Landlord and all necessary and incidental costs and expenses in connection with the performance of any such act by the Landlord together with interest thereon at the prime rate of the Bank of Boston chargeable to its customers for unsecured loans, plus an additional two (2%) percent per annum from the date of the making of such expenditure by the Landlord, shall be deemed additional rent hereunder and, except as otherwise in this Lease expressly provided, shall be payable to the Landlord on demand or at the option of the Landlord may be added to any additional rent than due or thereafter becoming due under this Lease and the Tenant covenants to pay such sum or sums with interest as aforementioned and the Landlord shall have in addition to any other right or remedy of the Landlord the same rights and remedies in the event of the non-payment thereof by the Tenant as in the case of default by the Tenant in the payment of the basic rent. 26. Improvements to the Leased Premises: The Landlord agrees to make alterations to the leased premises as shown on Exhibits A and B attached. The Tenant is given the right, during the course of the construction of those improvements contemplated by this Lease, to have access to the premises for the purpose of inspecting same during normal business hours. 27. Landlord's Warranties: The Landlord represents that it is the fee owner of the premises described in this Lease; that it has the capacity to lease the premises to the Tenant and to deliver the premises with all improvements contemplated in this Lease to the Tenant and that at all times during which the Tenant is in compliance with its covenants and obligations in accordance with this Lease, the Tenant may quietly enjoy said premises for the purpose contemplated hereby during the original term or any extended term of this Lease. 28. Holding Over: Upon the expiration or other termination of the Term of this Lease, Tenant shall quit and surrender to Landlord the Leased Premises. Tenant's obligation to observe or perform this covenant shall survive the expiration or other termination of this Lease. If the last day of the Term of this Lease or renewal thereof, falls on Sunday, this Lease shall expire at noon on the preceding Saturday unless it be a legal holiday in which case it shall expire at noon on the preceding business day. Should Tenant hold over in possession of the Leased Premises after the expiration of this Lease, by operation of law or otherwise, such holding over shall not be deemed to extend the Term or renew this Lease; but the tenancy thereafter shall continue as a tenancy from month to month, cancelable by either party with thirty (30) days' prior written notice, upon the same terms and conditions herein contained, except for the monthly rent which shall increase to two hundred (150%) percent of the Basic Annual Rent and all other reimbursable expense immediately payable preceding the expiration date. 29. Brokerage: The parties agree and represent to each other that Neelon Associates of 255 Bear Hill Road, Waltham, Massachusetts 02154 and Lynch, Murphy, Walsh and Partners, 1 Financial Center, Boston, Massachusetts 02111, are the sole brokers which brought about this transaction. The Landlord agrees to pay to said brokers, all commissions due to it in accordance with a separate agreement. The Tenant agrees to indemnify the Landlord against said Landlord for commissions for this transaction, which claims may be brought by any other brokers or parties claiming to have dealt with the Tenant. 30. Notices: Any notices, requests or demands under this Lease to or from any Landlord or the Tenant shall be in writing and shall be given by Certified or Registered Mail, Postage Prepaid, Return Receipt Requested, and 10 shall be deemed given as on the date received by or attempted to be delivered to the party address and shall be addressed to the Landlord at 100 Ring Road West, Garden City, New York 11530, or at such other addresses as the Landlord may, in writing, furnish to the Tenant and addressed to the Tenant at 360 Second Avenue, Waltham, Massachusetts or at such other addresses as the Tenant may, in writing furnish to the Landlord. 31. Failure to Insist Upon Strict Performance: The failure of the Landlord to insist upon the strict performance by the Tenant of any one of the terms, covenants or conditions of this Lease or to exercise any option herein conferred, in any one or more instances, shall not be construed as a waiver or relinquishment for the future of any such terms, covenants, conditions or options, but the same shall continue and remain in full force and effect. The receipt by the Landlord of rent with knowledge of the breach of any covenant herein contained shall not be deemed a waiver of such breach. No provisions of this Lease shall be deemed to have been waived by Landlord, unless such waiver be in writing, signed by the Landlord or its successors or assigns during the term hereby granted and no agreement to accept a surrender of this Lease or of said premises shall be valid unless the same be in writing and subscribed by the Landlord. 32. Limits of Landlord's Liability: In the event of a breach by the Landlord or its successors or assigns for any covenants or conditions of this Lease, the Tenant shall look solely to the equity of the Landlord in the premises for the satisfaction of its remedies. 33. Merger and Succession: This Lease contains all of the agreements of the parties heretofore made and the covenants and agreements herein contained shall bind and inure to the benefit of the Landlord, its heirs, successors and assigns and to the Tenant, its successors and assigns. IN WITNESS WHEREFORE, the parties hereto by their duly authorized officers or representatives have hereunto set their hands and day and year first above written. HILLSIDE ASSOCIATES By: /s/ Fredric Oliver COMPUTER TELEPHONE CORP. By: /s/ John D. Pittenger 11 EX-10.3 5 COMM-TRACT CORP. SUBLEASE Exhibit 10.3 SUBLEASE AGREEMENT The parties agree as follows: Date of this Sublease: June 15, 1994 Parties to this Overtenant: COMPUTER TELEPHONE CORP. Sublease: Address for notices: 360 Second Avenue Waltham, Massachusetts 02154 You, the Undertenant: COMM-TRACT CORP. Address for notices: 360 Second Avenue Waltham, Massachusetts 02154 If there is more than one Overtenant or Undertenant, the words "Overtenant" and "Undertenant" used in this Sublease include them. Information from Landlord: HILLSIDE ASSOCIATES Over-Lease: Address for notices: 100 Ring Road West Garden City, New York Overtenant: COMPUTER TELEPHONE CORP. Address for notices: Date of Over-Lease: February 16, 1994 Term: Five years From: July 1, 1994 To: June 30, 1999 A copy of the Over-Lease is attached as an important part of the Sublease. Term: 1. Five (5) years: months: Beginning: July 1, 1994 Ending: June 30, 1999 Premises rented: 2. Approximately 8600 square feet in the building known as Tech Center 128, Building #1, 360 Second Avenue, Waltham, Massachusetts on the annexed sketch. Use of premises: 3. The premises may be used for offices, manufacturing, engineering and warehousing only. Rent: 4. The basic yearly rent for the premises is $55,899.96. You, the Undertenant, will pay this yearly rent to the Overtenant in twelve equal monthly payments of $4,658.33. In addition, the Undertenant will be responsible for 43.92% of All other expenses associated with the lease. These expenses include, but are not limited to, real estate taxes, insurance, utilities, etc. Payments shall be paid in advance on the first day of each month during the Term. Security: 5. The security for the Undertenant's performance is $0.00. Overtenant states that Overtenant has received it. Overtenant shall hold the security in accordance with Paragraph ____ of the Over-Lease. Agreement to lease 6. Overtenant sublets the premises to you, the and pay rent: Undertenant, for the Term. Overtenant states that it has the authority to do so. You, the Undertenant, agree to pay the Rent and other charges as required in the Sublease. You, the Undertenant, agree to do everything required of you in the Sublease. Notices: 7. All notices in the Sublease shall be sent by certified mail, "return receipt requested". Subject to: 8. The Sublease is subject to the Over-Lease. It is also subject to any agreement to which the Over-Lease is subject. You, the Undertenant, state that you have read and initialed the Over-Lease and will not violate it in any way. Overtenant's 9. The Over-Lease describes the Landlord's duties. duties: The Overtenant is not obligated to perform the Landlord's duties. If the Landlord fails to perform, you, the Undertenant, must send the Overtenant a notice. Upon receipt of the notice, the Overtenant shall then promptly notify the Landlord and demand that the Over-Lease agreements be carried out. The Overtenant shall continue the demands until the Landlord performs. Consent: 10. If the Landlord's consent to the Sublease is required, this consent has been received. If the Landlord's consent is not received within this time, the Sublease will be void. In such event all parties are automatically released and all payments shall be refunded to you, the Undertenant. Adopting the 11. The provisions of the Over-Lease are part of Over-Lease this Sublease. All the provisions of the Over- and Lease applying to the Overtenant are binding on Exceptions: you, the Undertenant, except these: a) These numbered paragraphs of the Over-Lease shall not apply: Inapplicable. b) These numbered paragraphs of the Over-Lease are changed as follows: Inapplicable. No authority: 12. You, the Undertenant, have no authority to contact or make any agreement with the Landlord about the premises or the Over-Lease. You, the Undertenant, may not pay rent or other charges to the Landlord, but only to the Overtenant. Successors: 13. Unless otherwise stated, the Sublease is binding on all parties who lawfully succeed to the rights or take the place of the Overtenant or you, the Undertenant. Examples are an assign, heir, or a legal representative such as an executor of your will or administrator of your estate. Changes: 14. This sublease can be changed only by an agreement in writing signed by the parties to the Sublease. Signatures: OVERTENANT: COMPUTER TELEPHONE CORP. /s/ Philip J. Richer You, the UNDERTENANT: Witness: COMM-TRACT CORP. /s/ Karen G. Dumaine /s/ John F. Polmonari EX-10.4 6 LEXINGTON, MA LEASE EXHIBIT 10.4 This lease made as of the 31 day of January, 1994 by and between Phoenix Home Life Mutual Insurance Company (hereinafter called the "Landlord"), and Computer Telephone Company (hereinafter called the "Tenant"). ARTICLE I DEMISED PREMISES Subject to the provisions of this Lease, Landlord hereby demises and leases to Tenant, and Tenant hereby leases from Landlord, the following described premises (hereinafter referred to as "demised Premises" or Leased premises): that portion of the first floor of the building numbered 110 Hartwell Avenue, Lexington, Massachusetts, (the "Building"), containing an area deemed to be 7,316 rentable square feet all as more particularly shown on plan attached hereto as Exhibit "A." This lease is subject to existing easements and party wall agreements, if any, and to rights and encumbrances of record, and the Landlord excepts and reserves hallways, stairways and shaftways and elevators, if any, serving other parts of said building and the right to maintain use, repair and replace pipe ducts, wires, meters and any other equipment, machinery, apparatus and fixtures serving other parties thereof. Tenant shall have access to the building and their offices on a 24 hour basis, 7 days per week. The demised premises are Leased herewith, together with the right to use, in common with others entitled thereto, the hallways, stairways, and elevator(s), if any, necessary for access to the demised premises, the lavatories nearest thereto, and the parking lot. Landlord's building, in which the demised premises are situated, is numbered 110 Hartwell Avenue in said Lexington and may be referred to herein as "Landlord's Building" or the "Building." Said Building, together with the land on which it is situated, may be referred to herein as " Landlord's Property." Tenant accepts the premise in an "AS IS" condition, except that Landlord will at its sole expense improve the demised premises in accordance with Exhibit "B" attached hereto and made a part hereof by reference. ARTICLE II INITIAL TERM. The term of this Lease shall be for sixty-two (62) months, (the "Term") beginning on the later to occur of (i) the date the Premises are Substantially Complete as defined in Article XXI or (ii) February 1, 1994 (the "Lease Commencement Date"). Landlord and Tenant shall confirm the Lease Commencement Date in writing within ten (10) days after the Premises are Substantially Complete." RENEWAL OPTION. Thereafter, so long as Tenant is not in default hereunder, (following any applicable grace periods) Tenant shall have the right and the option to extend this Lease for one extended term of five (5) years (the Extended Term). Tenant shall exercise its option to extend for the Extended Term by giving written notice to Landlord at least 120 days prior to the end of the Initial term. If Tenant fails to give such notice exercising its option for the Extended Term, this Lease shall automatically expire at the end of the Initial Term, and Lessee shall have no further option to extend the term of the Lease. The Initial Term and the Extended Term hereinafter collectively referred to as the "Term" of this Lease. Basic Annual Rent for Extended Term to be 95% of the then Fair Market Value determined as of ninety (90) days prior to the expiration of the initial term mutually agreed upon based on the effective rents, inclusive of all rental concessions (i.e. free rent) for comparable office space in the Lexington submarket. If a Fair Market Value is not agreed to then it is mutually agreed that both parties will go to arbitration. ARTICLE III RENT 3.1 Tenant agrees to pay Landlord basic annual rent ("Basic Annual Rent") in accordance with the following provisions, payable in equal monthly installments on the first day of each calendar month of the Term (subject to the following sentence), in advance, without deduction or set-off, except as expressly set forth herein. For any portion of a calendar month, at the beginning or end of the Term, Tenant shall pay Basic Annual Rent, at the rate payable for such portion. Tenant shall pay Basic Annual Rent at an annualized rate of ninety-five Thousand One Hundred Eight Dollars and no cents ($95,108.00) for months three through thirty-eight, in advance in equal monthly installments of $7,925.67 on or before the first day of every month; and, ninety-six Thousand Nine Hundred Thirty-Seven Dollars and no cents for months thirty-nine through sixty-two, in advance in equal month installments of $8,078.08 on or before the first day of each month. No rent is due during the first two months of the Term. 3.2 In addition to the Basic Annual Rent, the Tenant will pay to the Landlord, as additional rent, 13.91% of any increase in the real estate taxes (excluding interest and/or penalties) assessed with respect to the land and the buildings of the demised premises are a part, above the taxes for the Fiscal Year 1994 ("Base Taxes"). The Landlord shall notify the Tenant in writing, as to the amount of such an increase, if any, and the amount of Tenant's proportionate share of such increase, enclosing therewith a copy of the applicable tax bill from the Town of Lexington and payment shall be made by Tenant within ten (10) days after receipt of such notice. Reference to "real estate taxes" shall include, without limitation, betterments or other assessments, which may be imposed on or with respect to Landlord's Property and similar or other taxes, which may be subsequently imposed, in lieu of or in addition to real estate taxes as now assessed. Federal, State and Municipal income taxes, gift, estate, succession, inheritance, excess profits and franchise and transfer taxes, if any shall not be considered real estate taxes. In the event of a reduction or abatement in real estate taxes for any year as to which Tenant has made a payment in accordance with the provisions of the Section 3.2, then Tenant shall be entitled to a credit equal to 13.91% of such reduction after deduction of all expenses paid in connection with such reduction or abatement, to be applied to the next rental payments due. Tenant's payment of additional rent under Section 3.2 shall be made on the basis of taxes as assessed with subsequent adjustment on the basis of taxes as finally determined. Landlord may bill Tenant monthly on account of increase in real estate taxes over the base taxes of one-twelfth of estimated real estate taxes increased over said base for the preceding tax year. 3.3 In addition to the Basic Annual Rent, Tenant will also pay to the Landlord, as additional rent 13.91% of any increase in the costs of operating and maintaining, but not replacing any portion of, Landlord's Building above the operating costs for the calendar year ending 1994 (the "Operating Expense Base"). Said expenses will include , but are not limited to electricity, water, other utilities, insurance, maintenance, repairs, security, cleaning and management fees, employment taxes and health benefits of employees, and snow removal. Payment of the amount due shall be made by the Tenant within ten (10) days after demand therefore by Landlord. 2 Not withstanding the foregoing, if with respect to any year during the Term (except for the first year of the Term), Landlord shall determine that the operating costs for Landlord's Building will exceed the Operating Expenses Base, then, upon written notice from Landlord, Tenant shall pay, as additional rent, on the date monthly rental payments are due, estimated monthly escalation payment equal the l/12th of the annualized operating costs for Landlord's Building for the next previous year of the Term. Appropriate additional payments by the Tenant or refunds by the Landlord shall be made in accordance with the next paragraph thereof. Not later than ninety (90) days after the end of each year or fraction thereof during the Term (except for the first year of the Term), Landlord shall render Tenant a statement in reasonable detail prepared in accordance with generally accepted accounting principles consistently applied, certified by representative of Landlord, showing for the preceding calendar year or fraction thereof, as the case may be, the operating costs for Landlord's Building, the operating costs allocable to the demised premises and the Operating Expenses Base. The statement shall also show for the preceding year or fraction thereof, as the case may be, the amounts of operating costs already paid by Tenant as additional rent and the amount of operating costs remaining due from, or overpaid by, Tenant for the year or other period covered by the statement. Within ten (10) days after the date of delivery of such statement, Tenant shall pay to Landlord, or Landlord shall pay to Tenant, as the case may be, the balance of amount , if any, required to be paid, pursuant to the above provisions of this subparagraph, with respect to the preceding year or fraction thereof, except that Landlord may, at its option, credit any amounts due from Tenant to Landlord under this Lease. 3.4 Any amount payable by Tenant on account of tax increase, operating costs or with respect to the year during which this Lease expires, shall be prorated on the basis of the proportion of the year during which the lease term is in effect. 3.5 If any installment of Basic Annual Rent or other charges payable to Landlord pursuant to the terms of this Lease is paid more than ten (10) days after the date the same was due, such unpaid amount(s) shall bear interest from the said due date at the then rate of interest announced by the United States Trust Company (UST) at its main office as its "Best Lending Rate", as such "Best Lending Rate" may be adjusted from time to time. 3.6 All rent and other charges payable to Landlord pursuant to the provisions of this lease shall be sent to Phoenix Home Life Mutual Insurance Company in care of The Codman Company, Inc., 211 Congress Street, Boston, MA 02210, unless otherwise directed, by written notice, to Tenant. 3.7 For purposes of pro-rata share percentage used above, the total Building rentable area is 52,590 square feet. ARTICLE IV BUILDING SERVICES AND UTILITIES Landlord agrees to furnish, at its sole cost and expense to the extent of the Operating Expense Base as defined in Article 3.3, to the Leased premises heat and air conditioning (reserving the right, at any time, to change energy sources) sufficient to maintain the Leased Premises at comfortable temperature (in accordance, however, with applicable governmental guidelines or regulations relating to such temperatures, hours of operation and the like), during such hours of the day and days of the year that the Building is normally open. The Building is open 7:00 A.M. to 6:00 P.M. Monday through Friday and 8:00 A.M. to 12:00 P.M. on Saturday, holidays excepted. Tenant agrees to cooperate with Landlord and to abide by all Building regulations 3 which Landlord may, from time to time, prescribe for the proper functioning and protection of any heating and air conditioning systems and in order to maximize the effect thereof. Notwithstanding anything to the contrary set forth in this Article IV or otherwise in the Lease, Landlord may institute such policies, programs and measures as may be necessary, required or expedient for the conservation or preservation of energy or energy services, or as may be necessary or required to comply with applicable codes, rules, regulations or standards. Landlord agrees to furnish, at its sole cost and expense to the extent of the Operating Expense Base as defined in Article 3.3, to the Leased Premises hot and cold water for ordinary drinking, cleaning, lavatory and toilet facilities. Landlord agrees to cause the Leased Premises to be kept clean, at its sole cost and expense to the extent of the Operating Expense Base as defined in Article 3.3, (provided the same are kept in order and are properly maintained by Tenant) in accordance with the cleaning and janitorial standards for the Building including, at least, nightly cleaning and vacuuming of leased premises, common areas, lavatories and nightly emptying of trash and semi- annually washing windows inside and outside. Landlord, in its sole discretion, will either (i) furnish 120 volt electric current to the Leased Premises for normal business office purposes (exclusive, however, of Tenant's electrical needs for computers and similar equipment having special power or environmental requirements), charging the Tenant's Electricity Charge for such service, such charges to be paid by Tenant in equal monthly installment without set off or deduction (and without reduction in the event Tenant elects to occupy less than the entire Leased Premises or occupies the Leased Premises for shorter periods than the Leased Premises are made available hereunder) in the same day in each month that rental payments are due and payable hereunder (Landlord reserving, however, the right from time to time, and at Landlord's sole discretion, to increase the Tenant's Electricity Charge to reflect the actual costs per square foot from time to time for such electricity), or (ii) may elect to cause electricity furnished to the Leased Premises to be separately metered, in which event all charges for electricity consumed on the Leased Premises will be billed directly to, and paid by, Tenant. Landlord and Tenant agree that the current Tenant's Electricity Charge is equal to $.85 per rentable square foot per year. Said Tenant's electricity charge shall remain fixed for year one of the lease Term and thereafter any increase to be proportionate to other Tenant's increase, if any. Landlord shall furnish and install the bulbs required within the Leased Premises, at its sole cost and expense to the extent of the Operating Expense Base as defined in Article 3.3. Landlord shall be under no responsibility or liability for failure or interruption of any of the above described services, including utilities, repairs or replacements caused by breakage, accident, strikes, repairs, inability to obtain supplies, labor or materials, or for any other causes beyond the reasonable control of the Landlord, nor in any event for any indirect or consequential damages but Landlord acknowledges an affirmative obligation to utilize best efforts to remedy the problem and provide such services; utilities, repairs and replacements and to effect a reasonable remedy within a reasonable period of time; and failure or omission the part of the Landlord to furnish any of same shall not be construed as an eviction of Tenant, actual or constructive, nor entitle Tenant to an abatement of rent, nor render the Landlord liable in damages, nor release Tenant from prompt fulfillment of any of its covenants under this Lease. Landlord reserves the right to temporarily interrupt, curtail, stop or suspend the furnishing of heating, air conditioning, or the operation of such systems, when necessary by reason of unforeseen accident or emergency, or for repairs. 4 ARTICLE V SECURITY DEPOSIT Upon the execution of this Lease, the Tenant shall pay to the Landlord the amount of Seven Thousand Nine Hundred Twenty-Five Dollars and Sixty-Seven cents ($7,925.67), which shall be held by Landlord as security for the Tenant's performance of the terms and conditions of this Lease and refunded to the Tenant at the end of this Lease, subject to the Tenant's satisfactory compliance with the conditions hereof (the "Security Deposit"). ARTICLE VI USE Tenant shall use the leased premises for an office purposes and for no other purposes. ARTICLE VII COMPLIANCE WITH LAWS Tenant agrees that no trade or occupation shall be conducted in the demised premises or use made thereof, which will be unlawful, improper, noisy or offensive, or contrary to any law or any municipal by-law or ordinance in force in the city or town in which the premises are situated. ARTICLE VIII CASUALTY INSURANCE Tenant shall not permit any use of the demised premises which will make void or voidable any insurance on the property of which the demised premises are a part, or on the contents of property, or which shall be contrary to any law ordinance, or contrary to any regulations from time to time established by the New England Fire Insurance Rating Association, or any similar association, and shall reimburse Landlord, and all other tenants, for all extra insurance premiums caused by Tenant's use of the demised premises. Tenant shall also comply with all present and future rules, regulations, recommendations, orders and the like of said Rating Association, any insurer of said property, the Board of Health, or any other public agency having jurisdiction, whether directed to Landlord or Tenant. ARTICLE IX MAINTENANCE OF PREMISES 9.1 The Landlord agrees to maintain the following portions of the Building at its sole cost and expense to the extent of the Operating Expense Base as defined in Article 3.3 of which the demised premises form a part, in good repair and condition: the roof, foundation and exterior walls, and the Building systems, including; the heating, ventilating, air conditioning and electrical servicing the demised premises. There shall be excepted from Landlord's obligations hereunder any maintenance or repairs required because of the negligence or willful. act or omission of Tenant or those for whose conduct the Tenant is responsible. 9.2 Tenant shall, at all times during the Term, and at its own expense, keep and maintain the demised premises in the same order, repair and condition as they are in on the Commencement Date, or may be put during the Term, reasonable wear and tear, damage by fire and other casualty and taking only excepted and whenever necessary to replace plate glass and other glass therein, acknowledging that the demised premises are now in good order and the glass whole. Tenant shall not permit the demised premises to be overloaded, damaged, stripped, or defaced, nor suffer any waste. Tenant shall obtain written consent of Landlord before erecting any sign on the premises. 5 ARTICLE X ALTERATIONS; ADDITIONS Tenant shall not make structural alterations, or additions, to the demised premises, but may make non-structural alterations to the demised premises with the prior written consent thereto of Landlord, which consent shall not be unreasonably withheld or delayed. All such permitted alterations shall be at Tenants' expense, in conformity with all laws, ordinances, and regulations of municipal or other authorities and shall be in quality at least equal to the present construction. Tenant shall not permit any mechanics' liens or similar liens to remain upon the demised premises for labor and material furnished to Tenant or claimed to have been furnished to Tenant in connection with work of any character performed or claimed to have been performed at the direction of Tenant and shall cause any such lien to be released of record forthwith without cost to Landlord. To the extent that they become permanent fixtures, any alterations or improvements, made by Tenant, shall become the property of Landlord at the termination of occupancy, as provided herein. Landlord shall, at its sole cost and expense, provide a listing on the building directory for Tenant. ARTICLE XI ASSIGNMENT; SUBLEASING Tenant shall not assign this Lease, or sublet the whole or any part of the demised premises, without Landlord's prior written consent, which shall not be unreasonably withheld or delayed. Notwithstanding any permitted assignment, or subletting, Tenant shall remain fully and primarily liable to Landlord for the payment of all rent and all other charges, and for the full performance of the covenants and conditions of this Lease, notwithstanding any recognition (by acceptance of rent or otherwise), or indulgence or waiver at any time granted by Landlord to Tenant or any assignee, or sublease; and Tenant, in the case of an assignment, shall be deemed to have waived all defenses otherwise available to Tenant, as guarantor or surety. As an alternative to consenting to any proposed sublease, or assignment, Landlord may elect, by notice to Tenant, within fifteen (15) days after receipt of notice from Tenant, accompanied by a copy of the proposed sublease, or assignment, and a copy of the most recent financial statement for the proposed assignee, or sublease, to terminate this Lease for the period of the proposed sublease, if a sublease; or for the period of this Lease, of an assignment; and make a direct lease with the proposed assignee, or sublease, for Landlord's own account, but only as to the premises which Tenant proposed to sublet, if Tenant proposed a sublease of less than all of the demised premises. In this event, Tenant shall have no obligation for rent or other charges which accrue after the date of termination of this Lease, and thereupon, Tenant shall be released from such obligations, but shall continue to be liable for rent and other obligations which accrue prior to termination, pro rated as of the date of termination. ARTICLE XII RIGHTS OF MORTGAGEE 12.1 LIABILITY. Upon the taking of the title to the Landlord's Property by a Mortgagee by foreclosure or otherwise, such Mortgagee shall have all the rights of Landlord, and shall be liable to perform all the obligations of Landlord arising and accruing after such taking by such Mortgagee. 12.2 RIGHT TO CURE. No act or failure to act on the part of Landlord, which would entitle Tenant under the terms of this Lease,or by law, to be relieved of Tenant's obligations hereunder, or to terminate this Lease, shall result in a release or termination of such obligations, or a termination of this Lease, unless: (i) Tenant shall have first given written notice of Landlord's act or failure to act to the mortgagee, specifying the act or failure to act on the part of Landlord, which could or would give basis to Tenant's rights; and (ii) such Mortgagee, after receipt of such notice, fails or refuses to correct to cure the condition complained of, within a reasonable time thereafter, but nothing contained in this paragraph shall be deemed to impose any obligation on any such Mortgagee to correct or cure any such condition. "Reasonable 6 time," as used above, means and includes a reasonable time to obtain possession of the leased premises, if any such Mortgagee elects to do sos and a reasonable time to correct or cure the condition, if such condition is determined to exist. 12.3 DUTY TO CONSTRUCT. Notwithstanding any other provision to the contrary contained in this Lease, if prior to substantial completion of Landlord's work, pursuant to Article I hereof, any holder of a Mortgage enters and takes possession of Landlord's Property for the purpose of foreclosing such Mortgage, such holder may elect, by written notice given to Tenant and Landlord at any time within ninety (90) days after such entry and taking possession, not to perform Landlord's work hereunder, and, in such event, such holder and all persons claiming under it shall be relieved of all obligations to perform, and all liability for failure to perform, said Landlord's work and Tenant may, without waiver of any rights, which Tenant may have against Landlord, terminate this Lease, and all its obligations hereunder, by written notice to Landlord, and such holder given within thirty (30) days after the day on which such holder shall have given its notice of aforesaid. If Landlord has not delivered Premises sixty (60) days from Lease execution by both Parties then Tenant shall receive a rental abatement on a day to day basis for each day the delivery of the space is prolonged going forward from the occupancy date. If Landlord has not delivered the Premises after ninety (90) days from Lease execution, then Tenant has the option to terminate this Lease. 12.4 PREPAID RENT. No rent or other charge hereunder shall be paid more than sixty (60) days prior to the due dates thereof, and, as to a Mortgagee, payments made in violation of this provision shall (except to the extent that such rents are actually received by such Mortgagee) be a nullity as against such Mortgagee, and Tenant shall be liable for the amount of such payments to such Mortgagee. 12.5 CONTINUING OFFER. The covenants and agreements contained on this Lease, with respect to the rights, powers and benefits of a Mortgagee, constitute a continuing offer to any person, corporation or other entity, which, by accepting or requiring an assignment of this Lease, or by entry or foreclosure, assumes the obligations herein set forth, with respect to such Mortgagee; every such Mortgagee is hereby constituted a party to this Lease, as an oblige hereunder, to the same extent as though its name was written hereon, as such; and such Mortgagee shall be entitled to endorse such provisions in its own name. 12.6 SUBORDINATION. This Lease is subject to and subordinate to any Mortgage on the Property and Tenant agrees, at the request of Landlord or any Mortgagee, to execute and deliver, promptly, any certificate, or other instrument, which Landlord, or such Mortgagee, may request, subordinating this Lease and all rights of Tenant hereunder to any Mortgage, and to all advances made under such Mortgagee, and/or agreeing to attorn to such Mortgage, in the event that it succeeds to Landlord's interest in the Property, provided that the holder of any such Mortgage shall execute and deliver to Tenant a non-disturbance agreement to the effect that, in the event of any foreclosure of such Mortgage, such holder, and its successors, and assigns, will not name Tenant as a party defendant to such foreclosure, nor disturb its possession, nor abrogate its other rights under this Lease. Landlord shall give Tenant a non-disturbance and atonement agreement for Landlord's present and future mortgagees. 12.7 LIMITATIONS ON LIABILITY. Nothing contained in this Article XII, or in any such non-disturbance agreement, or non-disturbance provision, shall however, affect the prior rights of the holder of any Mortgage, with respect to the proceeds of any award in condemnation (except any award specifically reimbursing Tenant for moving or relocation expenses), or of any fire insurance policies affecting the Demised Premises, or impose upon any such 7 holder any liability (i) for the erection or completion of Landlord's Property, or premises by fire or other casualty for any repairs, replacements, rebuilding or restoration, except such repairs, replacements, rebuilding or restoration as can reasonably be accomplished from the net proceeds or insurance actually received by, or made available to, such holder, or (ii) for any default by Landlord under the Lease occurring prior to any date upon which such holder shall obtain title to Landlord's Property, or (iii) for any credits, offsets or claims against the rent under the Lease, as a result of any acts or omissions or Landlord committed, or omitted, prior to such date, or (iv) for return of any security deposit or other funds, unless the same shall have been received by such holder, and any such agreement or provision may so state. ARTICLE XIII LANDLORD'S ACCESS Landlord, and/or its agents, may, at reasonable times, and after notice to Tenant, except in the event of emergency, enter to view the demised premises, and may remove placards and signs not approved and affixed as herein provided, and may show the demised premises to others, and at any time within six (6) months before the expiration of the Term, may affix to any suitable part of the demised premises, a notice for letting, or selling, the demised premises or property, of which the demised premises are a part, and keep the same so affixed, without hindrance, or molestation. In addition, Landlord reserves the right, at its sole election,to make such repairs, alterations, additions, or improvements, to or in the demised premises, or the Building, of which they are a part, as Landlord deems desirable or convenient, and, in connection therewith, to place, replace and maintain in the demised premises such pipes, wires, conduits, fixtures, apparatus and structural parts, as it may elect, provided always that Landlord, upon reasonable notice, shall take reasonable measures not to interfere with Tenant's business activities. ARTICLE XIV INDEMNIFICATION AND LIABILITY (A) TENANT'S INDEMNITY. Tenant agrees to defend, indemnify and save harmless Landlord from and against all claims, loss, liability, costs and damages of whatever nature whenever arising from any default by Tenant under this Lease and the following: (i) from any accident, injury or damage whatsoever to any person, or to the property of any person, in or about the Premises, except those due to the act or omission of Landlord, its agents, employees, invitees and contractors; or (ii) from any accident, injury or damage occurring outside of the Premises but on the Property or in the Building, where such accident, damage or injury results or is claimed to have resulted from an act or omission on the part of Tenant or Tenant's agents, employees, invitees and contractors in either case, occurring at any time from the execution of this Lease through the end of the Term or any extended Term of this Lease. This indemnity and hold harmless agreement shall include indemnity against all reasonable costs, expenses and liabilities incurred in, or in connection with, any such claim or proceeding brought thereon and the defense thereof, including, without limitation, reasonable attorneys' fees at both the trial and appellate levels and shall survive the expiration or sooner termination of the Term of this Lease. This indemnity shall not apply to protect Landlord from acts in breach of this Lease; or (iii) from any loss sustained by Landlord from any violation by Tenant of Articles VI and VIII of this Lease. (B) LANDLORD'S INDEMNITY. Landlord agrees to defend, indemnify and save harmless Tenant from and against all claims, loss, liability, costs and damages of whatever nature whenever arising from any default by Landlord under this lease and the following: (i) from any accident, injury or damage 8 whatsoever to any person, or to the property of any person, in or about the Property or the Building, except those due to the act or omission of Tenant, its agents, employees, invitees and contractors; or (ii) from any accident, injury or damage occurring in or about the Premises where such accident, damage or injury results or is claimed to have resulted from any act or omission on the part of Landlord or Landlord's agents, employees, invitees and contractors in either case, occurring at any time from the execution of this Lease through the end of the Term or any Extended Term of this Lease. This indemnity and hold harmless agreement shall included indemnity against all reasonable costs, expenses and liabilities incurred in, or in connection with, any such claim or proceeding brought thereon and the defense thereof, including, without limitation, reasonable attorneys' fees at both the trial and appellate levels and shall survive the expiration or sooner termination of the Term of this Lease. This indemnity shall not apply to protect Tenant from acts in breach of this Lease. ARTICLE XV TENANT'S LIABILITY INSURANCE Tenant shall maintain with respect to the demised premises, and to the property of which the demised premises are a part, comprehensive public liability insurance in limits of not less than $500,000/500,000, with property damage insurance in limits of not less than $100,000 in responsible companies qualified to do business in Massachusetts, and in good standing therein, insuring against injury to persons or damage to property, as herein provided, and naming Landlord and Tenant as insureds as their interests may appear. Tenant shall deposit with Landlord certificates of each policy of insurance required by this Lease at, or prior to, the commencement of the Term, and thereafter, within thirty (30) days prior written notice to each insured named therein. ARTICLE XVI FIRE, CASUALTY; EMINENT DOMAIN Should the demised premises, or the Building, of which they are a part, be damaged substantially by fire, or other casualty, or be taken in whole, or part, by eminent domain, Lessor or Tenant may elect within thirty (30) days after such casualty, or taking (notwithstanding that Landlord's entire interest may have been divested by any such taking) to terminate this Lease. When such fire, casualty, or taking, renders the demised premises substantially unsuitable for their intended use, a just and proportionate abatement of rent shall be made, according to the nature and extent of the damage, until the demised premises shall be restored by Landlord and Tenant may elect to terminate this Lease, if Landlord fails to restore the demised premises to a condition substantially suitable for their intended use, within one hundred twenty (120) days after said fire, casualty, or taking; provided that Tenant's notice shall be given within fifteen (15) days after said one hundred twenty (120) day period. Landlord's obligation to restore shall be limited to insurance, or taking proceeds recovered, or recoverable, and made available by Landlord's Mortgagees. Landlord reserves, and Tenant hereby grants and assigns to Landlord, all rights, which Tenant may have, for damages or injury to the demised premises, or to the leasehold hereby created for any taking by eminent domain, except for moving expenses, which may be separately awarded to Tenant, by taking the authority. Tenant shall execute and deliver to Landlord such confirmatory instruments of this assignment as Landlord may, from time to time, request. Each policy of insurance maintained by Landlord, or Tenant (whether or not required under the provisions of this Lease), with respect to the demised premises, or with respect to such party's property or improvements therein, shall include provisions by which the insurance carrier(s); (a) waive(s) all 9 rights of subrogation against the other party (and against all those for whom it may be legally responsible), on account of any loss payable under the policy, and (b) agree(s) that the policy will not be invalidated because the insured (in writing, and prior to the occurrence of any loss under the policy) has waived part, or all, of its rights) of recovery against any party on account of any loss or damage covered by the policy. If either party is unable to procure the inclusion of either of the clauses described in the preceding sentence, without additional cost to it, it shall name the other party as an additional insured in the policy, at its election, the other party to pay an additional cost to be so added. ARTICLE XVII TENANT'S DEFAULT AND BANKRUPTCY In the event that: (a) Tenant shall default in the payment of any installment of rent, or other sum herein specified, and such default shall continue for ten (10) days after receipt of written notice; or (b) Tenant shall default in the observance, or performance, of any other Tenant's covenants, agreements, or obligations hereunder and such default shall not be corrected within twenty (20) days after receipt of written notice thereof; or (c) Tenant, or any guarantor of Tenant's obligations here under, shall be declared bankrupt, or insolvent, according to law, or, if any assignment shall be made of Tenant's property for the benefit of creditors, or by other process of law, or if any proceedings for reorganization, or for an arrangement with creditors, shall be commenced under any bankruptcy, or insolvency law, by, or against Tenant, or any such guarantee, or any person or entity occupying the demised premises, through or under Tenant (and as to involuntary proceedings shall remain pending for at least ninety (90) days), then Landlord shall have the right, at its sole election, either (i) without necessity or requirement for making any entry, provide Tenant, which termination shall take effect on the date, prior to the expiration of the Term, specified in Landlord's notice, or (ii) to enter and take possession of the demised premises (or any part thereof in the name of the whole) without demand or notice and repossess the same as of Landlord's former estate, expelling Tenant and those claiming under it, forcibly, if necessary, without being deemed guilty of any manner of trespass, provided that such repossession shall not be construed to effect a termination of this Lease, unless Landlord so declares as part of such entry, or sends Tenant a written notice of termination, as provided above. Any such termination or entry shall be without prejudice to any remedy for arrears of rent or preceding breach of contract. If Landlord shall terminate this Lease, or take possession of the demised premises, as aforesaid, Tenant, and those claiming under Tenant, shall forthwith remove their goods and effects from the demised premises, and Tenant agrees that in case of such termination, it shall, at the election of Landlord (i) indemnify Landlord from, and against, any loss and damage sustained by reason of any termination caused by the default of, or the breach by, Tenant. Landlord's damages hereunder shall include, but shall not be limited to, any loss of rents, reasonable broker's commissions for the re-letting of the demised premises, advertising costs, the reasonable cost incurred in cleaning and repainting the premises, in order to re-let the same; and moving and storage charges incurred by Landlord in moving Tenant's belongings, all of which Tenant agrees Landlord shall have the right to do or incur; and (ii) at any time after such termination forthwith pay to Landlord, upon request, as damages hereunder a sum equal to the present value of the amount by which the rent and other payments called for hereunder for the remainder of the Term, or any extension or renewal thereof. 10 Not more than seven (7) days after receipt of Landlord's bill therefore, Tenant shall pay for Landlord all costs and expenses (including, without limitation, reasonable attorney's fees) incurred by Landlord, at any time, in enforcing tenant's obligations, or Landlord's rights, under this Lease. ARTICLE XVIII NOTICE Any notice from Landlord to Tenant relating to the demised premises, or to the occupancy thereof, shall be deemed duly served, if hand delivered to the demised premises, or mailed to said premises, registered or certified mail, return receipt requested, postage prepaid, addressed to Tenant, or to such other address as may designate from time to time. Any notice from Tenant to Landlord relating to the demised premises shall be deemed duly served, if mailed to Landlord by registered or certified mail, return receipt requested, postage prepaid, and addressed to Landlord at the place where rent is payable hereunder, or to such other address as Landlord may, from time to time, designate in like manner. Any notice, which is mailed in accordance with the provisions of this Article, shall be deemed to have been received on the third business day following the date of mailing. ARTICLE XIX SURRENDER; YIELD UP Tenant shall, at the expiration or other termination of this Lease, remove all of Tenant's goods and effects from the demised premises, (including, without hereby limiting the generality of the foregoing, all signs and lettering affixed or painted by Tenant, either inside or outside the demised premises) and shall leave the same in broom clean condition. Tenant shall deliver to Landlord the demised premises and all keys, locks thereto, and other fixtures connected therewith, and all alterations and additions made to, or upon, the demised premises except those alterations or additions consented to by Landlord, in the same order, repair and condition as they are in on the Commencement Date, or they have been put during the Term hereof, reasonable wear and tear, and damage by fire or other casualty, and taking only excepted. In the event of Tenant's failure to remove any of Tenant's property from the demised premises, Landlord is hereby authorized, without liability to Tenant, for loss or damage thereto, and, at the sole risk of Tenant, to remove and store any of the property at Tenant's expense, or to retain the same under Landlord's control, or to sell, at public or private sale, without notice, any or all of the property not so removed and to apply the net proceeds of such sale to the payment of any sum due hereunder, or to destroy such property. ARTICLE XX BROKERAGE Each party warrants, and represents to the other, that it has not dealt with any broker, other than Lynch, Murphy, Walsh & Partners and The Codman Company, Inc. in connection with the consummation of this Lease, and each party shall save harmless and indemnify the other party on account of loss, cost or damage, which may arise by reason of such party's representation being untrue. Landlord will be solely responsible for any compensation to Lynch, Murphy, Walsh & Partners and The Codman Company in connection with this Lease. ARTICLE XXI LANDLORD IMPROVEMENTS Landlord shall, at its expense, perform the work described in Article I hereof. Landlord agrees to assign to Tenant any guarantees furnished to 11 Landlord by any contractor, or subcontractor, in connection with such work, such assignment to be furnished at the commencement of the Lease Term. Tenant agrees that Landlord may make any changes in such work, which may become reasonably necessary or advisable, other than substantial changes, without the prior approval of Tenant, provided notice thereof is promptly given to Tenant, and Landlord may make substantial changes in such work, with the prior written approval of Tenant. Landlord covenants that (i) the demised premises shall be completed in a good and workmanlike manner in accordance with the plans and specifications referenced in Exhibit B hereto, and (ii) the demised premises and Building and the means of access hereto shall be put in compliance with all applicable laws and regulations, compliance with which is a condition precedent to the Tenant's lawful occupancy of the demised premises. The demised premises shall be deemed to be Substantially Complete when the standards set forth in clauses (i) and (ii) above are met, other than (with respect to clause (i)) completion of items not reasonably necessary for the use of the demised premises for the purpose for which it is leased hereunder, but the Landlord covenants to use diligence to complete such items promptly an din any event no later than thirty (30) days after the Commencement Date. Landlord shall notify Tenant when Landlord's Improvements have advanced sufficiently to permit Tenant to install its equipment and furnishings or to perform any other work to be done by Tenant. Entry by Tenant or its agents for performing any other work shall be permitted by Landlord prior to the commencement date of this Lease. The cost of Landlord's Improvement as described in this section and the plans and specifications attached hereto and marked Exhibit B, including without limitation all labor and materials, electricity during the construction period, building permits, charges of architects and engineers retained by Landlord, and insurance relating to such work shall be paid by the Landlord, or, if the Building is sold during construction, Landlord will provide to its successor in interest to this Lease, funds sufficient to cover the costs of Landlord's Improvements. ARTICLE XXII MISCELLANEOUS PROVISIONS 22.1 OFFSET STATEMENTS. Within five (5) days after receipt of Landlord's written request therefore, Tenant shall execute and deliver to any mortgagee of Landlord, present or future, and to any prospective purchaser of Landlord's property, a statement acknowledging (if such be the case) that Landlord's obligations hereunder have been fully performed to the date of such statement (or, alternatively, specifying those matters as to which Tenant claims Landlord is in default) and stating, also, the date, or dates, to which (or the periods with respect to which) the payments required of Tenant hereunder have been made and the then balance, according to Tenant's records, of any Security Deposit held by Landlord hereunder. 22.2 WAIVER. Tenant's failure to complain of any act or omission on the part of the Landlord, or to complain of any deficiency in any payment or performance tendered, (however long the same may continue), nor the payment or acceptance of all or a part of the rent, nor the performance, either complete or partial, of any other obligation, regardless of an accompanying qualification at the time the payment of performance is tendered shall never be deemed to waive, or to preclude, the exercise of any rights hereunder. No waiver, or any breach of any provision of this Lease, shall be deemed a waiver of a breach of any other provision of this Lease, or a consent to any subsequent occasion. Each right and remedy under this Lease, or by operation 12 of law, shall be distinct and separate from every other right and remedy; all such rights and remedies shall be cumulative, and none of them shall be deemed inconsistent with, or exclusive of, any other, whether or not exercised; and any two or more, or all such, rights and remedies may be exercised at the same time, or successively. 22.3 "TENANT" DEFINED, SUCCESSORS. The Term "Named Tenant", (as well as the term "Tenant") and-the pronouns referring thereto, shall mean the party, or parties, named originally in this Lease as such. The term "Tenant" shall also mean any assignee of the lessee interest in this Lease and party, or parties, succeeding by operation of law to the interest of the Named Tenant and any party, or parties, responsible for Tenant's obligations under this Lease. If there is more than one party named, or responsible, as Tenant, at any time, the covenants of Tenant shall be joint and several obligations of each of the partners and the obligations of the firm. Except as expressly otherwise provided by any provisions of this Lease, the terms and provisions of this Lease shall be binding upon and inure to the benefit of the heirs, devisees, personal representatives, successors and assigns, respectively, of the Landlord and Tenant. 22.4 LIMITATION OF LANDLORD'S LIABILITY. If, at any time during the Term of this Lease, the Landlord's interest hereunder shall be held by anyone acting in a fiduciary capacity, then, notwithstanding any other provision of this Lease, Landlord's obligations hereunder shall not be binding upon such fiduciary individually, or upon any beneficiary or shareholder for whom such fiduciary acts, but only upon such fiduciary in that capacity and upon the trust estate. The covenants of Landlord contained in this Lease shall be binding upon each party holding the lessor interest herein only with respect to breaches occurring during the time of that party's ownership of the Landlord's interest hereunder. In addition, Tenant specifically agrees to look solely to Landlord's interest in the property of which the demised premises are a part for the satisfaction of any claim or judgment against Landlord, it being specifically agreed that neither Landlord, any partner, or other beneficial owner of Landlord, nor anyone claiming under Landlord, shall ever be otherwise liable for any such judgment. In no event shall Landlord be liable for indirect, or consequential, damages. 22.5 RULES AND REGULATIONS. Tenant and its employees shall comply with all rules and regulations promulgated by Landlord for the management of Building, so long as the same shall be generally applicable to all occupants thereof. (Rules and Regulations, attached hereto as Exhibit C). 22.6 PRONOUNS. Any pronoun shall be read in the singular, or plural, number, and in such gender as the context may require. 22.7 HOLDING OVER. If Tenant continues in occupancy of the demised premises after the end of the Term, such occupancy shall be deemed a tenancy at sufferance, terminable at Landlord's election, without notice to Tenant, or anyone claiming under Tenant, whether or not Landlord receives any payments for use and occupancy, after the Term of this Lease ends, shall be calculated at the rate of one hundred-fifty (150%) percent of the monthly rental for the last month of the Leased Term, in addition to any other remedies of Landlord. 22.8 SEVERABILITY. If any term, or provision, of this Lease, or the application thereof to any person, or circumstance, shall, to any extent, be invalid, or unenforceable, the remainder of this Lease, or the application of 13 such term, or provision, to persons, or circumstances, other than those as to which it is held invalid, or unenforceable, shall not be affected thereby, and each term and provision of this Lease shall be valid and be enforced to the fullest extent permitted by law. 22.9 ENTIRE AGREEMENT. The parties acknowledge and agree that, at all times, they have intended that no preliminary agreements (either singly, or in combination), oral statements, or representations, or prior written matter, shall be binding on either party, or have any force, or effect, whatsoever, and that they shall be bound to each other only by a single, formal, comprehensive document containing all of the agreements of the parties, in final form, which has been duly executed by Landlord, and by Tenant. 22.10 SIGNS. Tenant shall not place, or erect, any sign on or about the demised premises, or upon the outside of the Building, or which the demised premises form a part, without the prior written consent of Landlord. Landlord agrees to furnish and install building standard signage on the lobby directory and tenant entry. Landlord shall provide street signage identifying the Building and Landlord may, at its sole discretion, provide Tenant signage on the street directory. 22.11 FORCE MAJEURE. Whenever Landlord or Tenant shall be delayed in the performance of any of its obligations hereunder, by reason of fire, strike, labor difficulty, or other casualty, or other difficulties beyond Landlord's control, the time for the performance of such obligations shall be extended for the period of delay. IN WITNESS WHEREOF, the parties hereto have executed this Lease, as of the date first above written, to take effect as a sealed instrument. LANDLORD: PHOENIX HOME LIFE MUTUAL INSURANCE CO. By: /s/ [its Managing Director] TENANT: COMPUTER TELEPHONE CORPORATION By: /s/ [its Treasurer] (Signature page to Lease dated January, 1994, covering 7,316 Rentable Square Feet on the 1st floor of 110 Hartwell Avenue, Lexington, Massachusetts.) 14 CLERK'S CERTIFICATE The undersigned hereby certifies that he/she is the Clerk of Computer Telephone Corp., a Massachusetts corporation, and that the execution and delivery of the foregoing Lease by Robert Fabbricatore, the Chairman of the Corporation, has been duly authorized by a vote of the directors and shareholders of the Corporation which is in full force and effect as of this day and that Robert Fabbricatore has in fact signed the foregoing Lease. SEAL ATTEST /s/ John D. Pittenger, Clerk Date: January 20, 1994 EXHIBIT A [DRAWING OF GROUND LEVEL FLOOR PLAN 110 Hartwell Ave., Lexington, MA] EXHIBIT B Page 1 of 3 PROPOSED TENANT IMPROVEMENTS FOR COMPUTER TELEPHONE CORP. 110 HARTWELL AVENUE, LEXINGTON 11-4-93 1. New Interior Partitions: 3-5/8" metal studs with 1/2" gypsum wallboard both sides Partitions will extend to just above finish ceilings. 2. New Doors, Frames and Hardware: a. Doors within tenant space will be solid core flush, red oak wood veneer. Widths per plan, height 7'-0", with passage sets and 1-1/2 pair of hinges per door. b. All new frames to be hollow metal with 2" face dimension. c. Existing doors and frames will be reused wherever possible 3. Acoustical Ceilings: Existing tile and grid to remain and be reused wherever possible. Existing damaged tile and grid will be replaced. 4. Light Fixtures: 2' x 4' recessed fluorescent fixtures with acrylic prismatic lenses. Each room to be individually switched. Existing fixtures to remain and be reused wherever possible. 5. Electrical: a. Standard 115v duplex outlets as required for normal business use, dispersed throughout premises. b. 220V receptacle at copy/fax area. c. 8 - 20A circuits and junction boxes at open office areas for Tenant furnished partition systems. d. Dedicated 20A receptacles for communications equipment. EXHIBIT B Page 2 of 3 Computer Telephone Corp. 110 Hartwell Avenue Page 2 11-4-93 6. HVAC: a. Ducted supply air system to spaces through perforated ceiling diffusers with a (above finish ceiling) return air plenum. b. Relocate diffusers as required by new layout. c. System to be as required by the BOCA National Mechanical Code. 7. Window Treatment: Existing window blinds to remain and be repaired as required for proper operation. All exterior windows shall have blinds. 8. Floor Finishes: a. New STRATTON Synergy 28 oz. loop pile carpet vinyl tile at all areas except as noted below. b. Vinyl tile at lunchroom. c. New 4" vinyl base throughout. 9. Paint: a. One primer and two finish coats of an eggshell finish latex paint on all walls throughout premises. Color to match existing. b. One primer and two finish coats of an alkyd semi-gloss paint on all door frames and wood surfaces only. Color to match existing. 10. Sprinklers: Exposed head sprinklers as required by NFPA 13 and Article 10 of the state building code. 11. Casework: New plastic laminate clad counter and base and wall cabinets at lunchroom. 12. Plumbing: a. Hot & cold water and ss sink at lunchroom. 13. Items By Tenant: a. Open office partition systems and furnishings. c. Telephone and computer wiring END EXHIBIT B Page 3 of 3 GUSTAFSON CONSTRUCTION, INC. General Contractors 250 North Street - Suite A6 Danvers, MA 01923 phone 508/774-1234 fax 508/774-1632 November 8, 1993 Leo H. Daley, Jr. The Codman Company, Inc. 211 Congress Street Boston, MA 02110 Re: Computer Telephone 110 Hartwell Ave., Lexington, MA Dear Toby: The following is a budget estimate per drawing and work letter by Walsh/Cochis dated 11/04/93: $6,000 DEMOLITION $2,380 DRYWALL $ 700 DOORS & HARDWARE $10,320 FLOOR COVERINGS $4,800 ACOUSTICAL CEILINGS $3,800 PAINTINGS $1,750 CASEWORK $2,500 SPRINKLER $700 PLUMBING $1,800 HVAC $5,500 ELECTRICAL $4,050 GENERAL CONDITIONS $4,430 10% OH&P $48,730 TOTAL If you have any questions concerning this estimate, please give me a call. Sincerely, GUSTAFSON CONSTRUCTION, INC. /s/ Eric Gufstason, President cc: George Walsh EXHIBIT B-1 GUSTAFSON CONSTRUCTION, INC. General Contractors 250 North Street - Suite A6 Danvers, MA 01923 phone 508/774-1234 fax 508/774-1632 PROJECT SCHEDULE December 28, 1993 Computer Telephone Corp. 110 Hartwell Ave. January 3-7 10-14 17-21 24-28 31-4 7-11 First Floor Permits xxxx Demolition xxxxx Rough Electrical xxx Framing & Drywall xx Acoust. Ceiling xxxx Lighting/HVAC/Sprinkler xxxxx Painting xxxxx Misc. Finishes xxx Carpet xxx Final Cleaning xx Tenant Move-------------------------> 1. Schedule is based upon having a notice to proceed on or before January 3, 1993. 2. Changes made after construction begins will be subject to overtime costs in order to maintain the completion date. EXHIBIT C RULES AND REGULATIONS 1. The sidewalks, entrances, driveways, passages, courts, elevators, vestibules, stairways, corridors or halls shall not be obstructed or used for any purpose other than for ingress to and egress from the demised premises and for delivery of merchandise and equipment in a prompt and efficient manner, using elevators and passageways designated for such delivery by Landlord. There shall not be used in any space, or in public hall of the building, either by any Tenant or by jobbers or others in the delivery or receipt of merchandise, any hand trucks, except those equipped with rubber tires and sideguards. 2. The water and wash closets and plumbing fixtures shall not be used for any purposes other than those for which they were designed o- constructed and no sweepings, rubbish, rags, acids or other substances shall be deposited therein, and the expense of any breakage, stoppage, or damage resulting from the violation of this rule shall be borne by the Tenant who, or whose clerks, agents, employees or visitors, shall have caused it. 3 No carpet, rug or other article shall be hung or shaken out of any window of the building; and no Tenant shall sweep or throw or permit to be swept or thrown from the demised premises any dirt or other substances into any of the corridors or halls, elevators, or out of the doors or windows or stairways of the building, and Tenant shall not use, keep or permit to be used or kept any foul or noxious gas or substance in the demised premises, or permit or suffer the demised premises to be occupied or used in a manner offensive or objectionable to Landlord or other occupants of the building by reason of noise, odors and/or vibrations, or interfere in any way with other tenants or those having business therein, nor shall any animals or birds be kept in or about the building. Smoking or carrying lighted cigars or cigarettes in the elevators of the building is prohibited. 4. No awnings, antennae, or other projections shall be attached to the outside walls of the building. 5. No curtains, blinds, shades, or screens other than those furnished by Landlord shall be attached to, hung in or used in connection with any window or door of the Premises without the prior written consent of Landlord. 6. No advertisement, notice or other lettering shall be exhibited, inscribed, painted or affixed by any Tenant on any part of the outside of the demised premises or the building or on the inside of the demised premises if the same is visible from the outside of the premises without the prior written consent of Landlord, except that the name of Tenant may appear on the entrance door of the premises. In the event of the violation of the foregoing by any Tenant, Landlord may remove same without any liability, and may charge the expense incurred by such removal to Tenant or Tenants violating this rule. Interior signs on doors and directory tablet shall be inscribed, painted or affixed for each Tenant by Landlord at the expense of such Tenant, and shall be of a size, color and style acceptable to Landlord. 7. No Tenant shall mark, paint, drill into, or in any way deface any part of the demised premises or the building of which they form a part. No boring, cutting or stringing of wires shall be permitted, except with the prior written consent of Landlord, and as Landlord may direct. No Tenant shall lay linoleum, or other similar floor covering, so that the same shall come in direct contact with the floor of the demised premises, and, if linoleum or other similar floor covering is desired to be used in interlining of builder's deadening felt shall be first affixed to the floor, by a paste or other material, soluble in water; the use of cement or other similar adhesive material being expressly prohibited. 8. No additional locks or bolts of any kind shall be placed u-con any of the doors or windows by any Tenant, nor shall any changes be made in existing locks or mechanism thereof. Each Tenant must, upon the termination of his tenancy, restore to Landlord all keys of stores, offices and toilet rooms, either furnished to, or otherwise procured by, such Tenant, and in the event of the loss of any keys, so furnished, such Tenant shall pay to Landlord the cost thereof. 9. Freight, furniture, business equipment, safes, merchandise and bulky matter of any description shall be delivered to and removed from the premises only on the freight elevators and through the service entrances and corridors, and only during hours and in a manner approved by Landlord. Landlord reserves the right to inspect all freight to be brought into the building and to exclude from the building all freight which violates any of these Rules and Regulations of the Lease of which these Rules and Regulations are a part. 10. Canvassing, soliciting and peddling in the building is prohibited and each Tenant shall cooperate to prevent the same. 11. Landlord shall have the right to prohibit any advertising by any Tenant which, in Landlord's opinion, tends to impair the reputation of the building or its desirability as building for offices, and upon written notice from Landlord, Tenant shall refrain from or discontinuing such advertising. 12. Tenant shall not bring or permit to be brought or kept in or on the demised premises, any flammable, combustible or explosive fluid, material, chemical of substance or cause or permit any odors of cooking or other processes, or any unusual or other objectionable odors to permeate in or emanate from the demised premises. 13. Tenant shall comply with all security measures from time to time established by Landlord for the Building. 14. Tenant assumes full responsibility for protecting its space from theft, robbery and pilferage, which includes keeping doors locked and any other means of entry to the Premises closed and secured. 15. Tenant shall comply with all applicable federal, state and municipal laws, ordinances and regulations and building rules and shall not, directly or indirectly, make any use of the Premises which may be prohibited by any thereof or which shall be dangerous to person or property or shall increase the cost of insurance or require additional insurance coverage. 16. Tenant: shall not waste electricity, water, heat or air conditioning and agrees to cooperate fully with Landlord to assure the most effective operation of the Building's heating and air conditioning, and shall refrain from attempting to adjust any controls other than room thermostats installed for Tenant's use. 17. Tenant shall not install And operate machinery or any mechanical devices of a nature not directly related to Tenant's ordinary use of the Premises without the written permission of Landlord. 18. No person or contractor not employed or approved by Landlord shall be used to perform window washing, cleaning, repair or other work in the Premises. 19. No vending machines other than those furnished by the Landlord are to be placed in any hallways or building common areas. 20. No parking in front of the main entrance of the buildings is permitted. EX-10.5 7 LEASE - 120 BROADWAY, NYC. EXHIBIT 10.5 BROADPINE REALTY HOLDING COMPANY, INC. LANDLORD AND COMPUTER TELEPHONE CORP. TENANT _____________ L E A S E _____________ Premises: Portion of the 20th Floor 120 Broadway New York, New York TABLE OF CONTENTS Article Page 1. Definitions; Demise of Premises. . . . . . . . . . . . . . 1 2. Commencement of Term; Landlord's Contribution. . . . . . . 3 3. Rent . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 4. Use. . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 5. Alterations; Liens; Tenant's Property. . . . . . . . . . . 7 6. Repairs and Maintenance. . . . . . . . . . . . . . . . . . 11 7. Compliance with Law. . . . . . . . . . . . . . . . . . . . 12 8. Insurance. . . . . . . . . . . . . . . . . . . . . . . . . 14 9. Damage or Casualty . . . . . . . . . . . . . . . . . . . . 16 10. Assignment and Subletting. . . . . . . . . . . . . . . . . 17 11. Non-Liability; Indemnification . . . . . . . . . . . . . . 23 12. Condemnation . . . . . . . . . . . . . . . . . . . . . . . 25 13. Access; Building Name. . . . . . . . . . . . . . . . . . . 26 14. Bankruptcy . . . . . . . . . . . . . . . . . . . . . . . . 27 15. Defaults, Remedies, Damages. . . . . . . . . . . . . . . . 27 16. Curing Tenant's Defaults; Reimbursement. . . . . . . . . . 30 17. Quiet Enjoyment. . . . . . . . . . . . . . . . . . . . . . 31 18. Building Services . . . . . . . . . . . . . . . . . . . . 31 19. Taxes; Operating Expenses. . . . . . . . . . . . . . . . . 33 20. Electricity . . . . . . . . . . . . . . . . . . . . . . . 39 21. Broker . . . . . . . . . . . . . . . . . . . . . . . . . . 43 22. Subordination. . . . . . . . . . . . . . . . . . . . . . . 43 23. Estoppel Certificate . . . . . . . . . . . . . . . . . . . 45 24. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . 45 25. Surrender. . . . . . . . . . . . . . . . . . . . . . . . . 45 26. Rules and Regulations. . . . . . . . . . . . . . . . . . . 47 27. Persons Bound . . . . . . . . . . . . . . . . . . . . . . 47 28. Notices. . . . . . . . . . . . . . . . . . . . . . . . . . 47 29. Partnership Tenant . . . . . . . . . . . . . . . . . . . . 48 30. No Waiver; Entire Agreement. . . . . . . . . . . . . . . . 48 31. Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . 50 32. Inability to Perform; Severability . . . . . . . . . . . . 51 33. Security . . . . . . . . . . . . . . . . . . . . . . . . . 53 34. Renewal Option . . . . . . . . . . . . . . . . . . . . . . 54 35. Tenant's Communication Equipment . . . . . . . . . . . . . 56 EXHIBIT "A" - Floor Plans. . . . . . . . . . . . . . . . . . . . A-1 EXHIBIT "B" - Commencement Date Agreement. . . . . . . . . . . . B-1 EXHIBIT "C" - Landlord's Work. . . . . . . . . . . . . . . . . . C-1 EXHIBIT "D" - Description of Land. . . . . . . . . . . . . . . . D-1 EXHIBIT "E" - Cleaning Specifications. . . . . . . . . . . . . . E-1 EXHIBIT "F" - Rules and Regulations. . . . . . . . . . . . . . . F-1 EXHIBIT "G" - Letter of Credit . . . . . . . . . . . . . . . . . G-1 EXHIBIT "H" - Certificate of Occupancy . . . . . . . . . . . . . H-1 EXHIBIT "I" - Taxpayer Identification Number and Certification . I-1 INDENTURE OF LEASE made as of this ____ day of February, 1996, between BROADPINE REALTY HOLDING COMPANY, INC., a New York corporation having an office c/o J.P. Morgan Investment Management Inc., 522 Fifth Avenue, New York, New York 10036 (hereinafter referred to as "Landlord"), and COMPUTER TELEPHONE CORP., a Massachusetts corporation having an office at 111 Broadway, New York, New York 10006 (hereinafter referred to as "Tenant"). W I T N E S S E T H : ARTICLE 1 DEFINITIONS; DEMISE OF PREMISES Section 1.01. For the purposes of this Lease (including all of the schedules, riders and exhibits, if any, annexed to this Lease), the terms set forth below shall have the definitions which immediately follow such terms, and such definitions are hereby incorporated into this Lease wherever used: Alterations - The term "Alterations" shall mean and include all installations, changes, alterations, restorations, renovations, replacements, additions, improvements and betterments made in or to the Demised Premises or the Building, and shall include Tenant's Initial Work. Authorized Use - The "Authorized Use" shall be for executive, administrative and general business offices, but subject to the provisions of this Lease and the certificate of occupancy for the Building, a copy of which is attached hereto as Exhibit "H." Base Operating Year - The "Base Operating Year" shall mean the calendar year 1996. Base Tax Amount - The "Base Tax Amount" shall mean the amount of Taxes with respect to calendar year 1996. The Base Tax Amount shall be determined by averaging the Taxes with respect to (i) the fiscal year commencing July 1, 1995, and ending June 30, 1996, and (ii) the fiscal year commencing July 1, 1996, and ending June 30, 1997. By way of example only, if the Taxes for the 1995/96 fiscal year were $100,000, and the Taxes for the 1996/97 fiscal year were $120,000, the Base Tax Amount would be equal to $110,000. Building - The "Building" shall mean and include the structure and other improvements constructed or as may in the future be constructed on the Land, known by the address "120 Broadway", New York, New York. Building Systems - The term "Building Systems" shall mean and include such heating, ventilating and air-conditioning systems, and such elevators, water, sewerage, toilet, plumbing, sprinkler, electric, wiring and mechanical systems, now or hereafter installed in the Building, and the fixtures, equipment and appurtenances thereof, and all other mechanical devices, fixtures, equipment, appurtenances and systems installed by Landlord in the Building. Commencement Date - The "Commencement Date" shall mean the date set forth in Subsection 2.01A below. Demised Premises - The "Demised Premises" shall mean that portion of the 20th floor in the Building which is shown on the hatched portion of the plan annexed hereto as Exhibit "A" and made a part hereof. Designated Broker - The "Designated Broker" shall mean Silverstein Properties Inc. and The Galbreath Company. Electricity Abatement Program - The term "Electricity Abatement Program" shall mean Article 2-I of the General City Law of the City of New York. Expiration Date - The "Expiration Date" shall mean the date set forth in Subsection 2.01B below. Fixed Rent - The "Fixed Rent" shall be Two Hundred Eighty-Three Thousand Eight Hundred and 00/100 ($283,800.00) Dollars per annum, to be paid by Tenant in equal monthly installments of $23,650.00 each; Include and Including - The terms "include" and "including" shall each be construed as if followed by the phrase "without being limited to." Insurance Boards - The term "Insurance Boards" shall mean and include the National Board of Fire Underwriters, the New York Board of Fire Underwriters, and any other body having similar jurisdiction, and the New York Fire Insurance Exchange, and any other body establishing insurance premium rates. Land - The "Land" shall mean the real property described in Exhibit "D" annexed hereto. Legal Requirements - The term "Legal Requirements" shall mean and include all laws, orders, ordinances, directions, notices, rules and regulations of the federal government and of any state, county, city, borough and municipality, and of any division, agency, subdivision, bureau, office, commission, board, authority and department thereof, and of any public officer or official and of any quasi-governmental officials and authorities having or asserting jurisdiction over the Land, Building and/or the Demised Premises. Mortgage - The term "Mortgage" shall mean any existing or future mortgage and/or security deed affecting the Land and/or the Building, alone or with other property, as the same may from time to time be amended, modified, renewed, consolidated, substituted, spread, added to, extended and/or replaced. Mortgagee - The term "Mortgagee" shall mean the mortgagee under, and/or the holder of, any Mortgage. Overlandlord - The term "Overlandlord" shall mean the landlord under any Underlying Lease, including the lease referred to in Subsection 22.01(b) below. Persons Within Landlord's Control - The term "Persons Within Landlord's Control" shall mean and include Landlord and Landlord's principals, officers, agents, contractors, servants, employees and licensees, but shall not include any tenants in the Building. Persons Within Tenant's Control - The term "Persons Within Tenant's Control" shall mean and include Tenant, all of Tenant's subtenants and assignees, and all of their respective principals, officers, agents, contractors, servants, employees, licensees, guests and invitees. Rent Abatement Program - The term "Rent Abatement Program" shall mean Section 11-704 of The Administrative Code of the City of New York. Repairs - The term "Repairs" shall mean and include repairs, restorations and replacements. Security Deposit Amount - The "Security Deposit Amount" shall mean $70,950.00. Square Feet of Rentable Area - The term "Square Feet of Rentable Area" in the Demised Premises shall be deemed to be the equivalent of 13,003 square feet, as agreed to by the parties following Tenant's inspection of (or opportunity to inspect) the Demised Premises. This definition shall not be construed as any kind of representation by Landlord as to the size of the Demised Premises or the Building. Tax Abatement Program - The term "Tax Abatement Program" shall mean Title 4 of The New York Real Property Tax Law. Tenant's Initial Work - The term "Tenant's Initial Work" shall mean such work (if any) as shall be performed by Tenant or Persons Within Tenant's Control to prepare the Demised Premises for Tenant's initial occupancy thereof. Tenant's Proportionate Share - The term "Tenant's Proportionate Share" shall mean .82%, so long as Landlord owns the entire Building. If a portion(s) of the Building (but not the entire Building) shall be sold, transferred or conveyed, Tenant's Proportionate Share shall be changed to that percentage which shall be equal to a fraction, the numerator of which shall be the Square Feet of Rentable Area, and the denominator of which shall be the aggregate rentable square feet of office space in that portion of the Building owned by Landlord at such time (and from time to time), as determined by Landlord's architect. In the event of a sale, transfer or conveyance of a portion of the Building, Landlord agrees that Tenant's Operating Expense Payment (as defined in Section 19.04 hereof) and Tenant's Tax Payment (as defined in Section 19.03 hereof) shall not exceed the amount that such Operating Expense Payment or such Tax Payment, as the case may be, would have been had the Building remained a single unit and Tenant's Proportionate Share not been recalculated. Term - The "Term" shall mean the period of years (and/or portions thereof) that this Lease shall be in effect, commencing on the Commencement Date and ending on the Expiration Date, unless sooner terminated as provided in this Lease or by law. Underlying Lease - The term "Underlying Lease" shall mean any present or future ground or overriding or underlying lease and/or grant affecting the Land, the Building and/or the Demised Premises, as the same may from time to time be amended, modified, renewed, extended and/or replaced. Section 1.02. Landlord hereby leases to Tenant, and Tenant hereby hires from Landlord, the Demised Premises, together with the right to use, in common with others, such portions of the lobbies, elevators and other public portions of the Building as may be necessary for access to the Demised Premises, for the Term, and for the Fixed Rent and additional rent herein reserved, and subject to all of the covenants, agreements, terms, conditions, limitations, reservations and provisions hereinafter set forth. -2- ARTICLE 2 COMMENCEMENT OF TERM; LANDLORD'S CONTRIBUTION Section 2.01. A. The term of this Lease shall commence on the date (the "Commencement Date") that Landlord's Work (as such term is defined in Section 2.02 below) shall be substantially completed. B. The term of this Lease shall expire at noon of the last day of the calendar month in which the day immediately preceding the seventh (7th) anniversary of the Commencement Date shall occur on (the "Expiration Date"), or shall end on such earlier date upon which such term may expire or be canceled or terminated pursuant to the provisions of this Lease or by law. C. Promptly following the Commencement Date, Landlord and Tenant shall execute and exchange a supplementary agreement (in the form annexed hereto as Exhibit "B", and pertaining to the matters set forth therein) setting forth the dates of the Commencement Date, the Expiration Date but the failure to so execute or exchange said supplementary agreement shall not in any way reduce Tenant's obligations or Landlord's rights under this Lease. Section 2.02. A. Tenant agrees to accept possession of the Demised Premises in "as is" and "where is" condition on the Commencement Date; provided, however, (i) that Landlord shall deliver the Demised Premises to Tenant vacant and free of all tenants and occupants, (ii) Landlord shall remove from the Demised Premises all construction debris resulting from Landlord's Work and (iii) the Building Systems shall be in working order. Landlord shall not be obligated to perform any work whatsoever to prepare the Demised Premises for Tenant, except as specified in Exhibit "C" which is annexed hereto and made a part hereof ("Landlord's Work"). All materials, work, labor, fixtures and installations required for completion of the Demised Premises and the operation of Tenant's business thereat, other than Landlord's Work, shall (subject to the provisions of Article 5 below) be promptly furnished and performed by Tenant, at Tenant's own cost and expense. B. In the event that Landlord shall not have substantially completed the performance of Landlord's Work by the date that shall occur one hundred eighty (180) days following the date hereof, and such failure to substantially complete the performance of Landlord's Work shall not be caused by or be attributable to (w) any of the reasons set forth in Section 32.01 hereof, (x) any act or omission on the part of Tenant or of Persons Within Tenant's Control, (y) any of the reasons set forth in Paragraph H(2) of Exhibit C, or (z) Tenant's failure to comply with the provisions of Exhibit C, then, for each day beyond said one hundred eightieth (180th) day that Landlord shall fail to substantially complete the performance of Landlord's Work, Tenant shall be entitled to an abatement of Fixed Rent and recurring items of additional rent pursuant to Article 19 hereof ("Recurring Additional Rent"), on a day- for-day basis, for each such day beyond such one hundred eightieth (180th) day that Landlord shall fail to substantially complete the performance of Landlord's Work. C. In the event that Landlord shall not have substantially completed the performance of Landlord's Work by the date that shall occur two hundred seventy (270) days following the date hereof, and such failure to substantially complete the performance of Landlord's Work shall not be caused by or be attributable to (w) any of the reasons set forth in Section 32.01 hereof, (x) any act or omission on the part of Tenant or of Persons Within Tenant's Control, (y) any of the reasons set forth in Paragraph H(2) of Exhibit C, or (z) Tenant's failure to comply with the provisions of Exhibit C, then, for each day beyond said two hundred seventieth (270th) day that Landlord shall fail to substantially complete the performance of Landlord's Work, Tenant shall be entitled to an abatement of Fixed Rent and Recurring Additional Rent at the rate of two days for each such day beyond such two hundred seventieth (270th) day that Landlord shall fail to substantially complete the performance of Landlord's Work. D. In the event that Landlord shall have failed to substantially complete the performance of Landlord's Work by the date (the "Landlord's Work Termination Date") that shall occur on the first (1st) anniversary of the date hereof, and to the extent that such failure shall not have been caused by or be attributable to (w) any of the reasons set forth in Section 32.01 hereof, (x) any act or omission on the part of Tenant or of Persons Within Tenant's Control, (y) any of the reasons set forth in Paragraph H(2) of Exhibit C, or (z) Tenant's failure to comply with the provisions of Exhibit C, then, at Tenant's option and as Tenant's sole and exclusive remedy, Tenant shall have the right to cancel this Lease, which right to cancel shall be exercisable only by Tenant having given written notice thereof to Landlord not later than the date that shall occur thirty (30) days following the Landlord's Work Termination Date, and in the event that Tenant timely exercises such cancellation right, this Lease shall be deemed canceled and terminated as of the date such notice shall be delivered to Landlord (the "Notice Delivery Date"), and neither party shall have any further obligations under this Lease; provided, however, that Landlord shall be obligated to release to Tenant (i) the Security, if any, and (ii) any Fixed Rent (including any Pre-Paid Fixed Rent) and Recurring Additional Rent paid to Landlord by Tenant which shall be due and payable after the Notice Delivery Date. In the event that Tenant shall have failed to timely deliver notice of such cancellation to Landlord, then the provisions of -3- this Lease shall remain in full force and effect, but Tenant shall be entitled to an abatement of Fixed Rent and Recurring Additional Rent in accordance with either Subsection 2.02B or Subsection 2.02C hereof (as the case may be) until the date upon which Landlord shall substantially complete the performance of Landlord's Work. Section 2.03. If Landlord shall be unable to give possession of the Demised Premises on the Commencement Date by reason of the fact that the Demised Premises are not ready for occupancy, or by reason of the failure of a prior tenant or occupant thereof to vacate the same or deliver possession thereof to Landlord, or for any other reason, Landlord shall not be subjected to any liability for the failure to give possession on said date, except as expressly provided in Section 2.02 above. No such failure to give possession on such specific date shall affect the validity of this Lease or the obligations of Tenant hereunder or be deemed to extend the Term, but the rent reserved and covenanted to be paid hereunder shall not commence until possession of the Demised Premises shall be given or shall be made available for occupancy by Tenant, except that if such failure to give possession has been caused by any act or omission on the part of Tenant or of any Person Within Tenant's Control, there shall be no abatement of rent. If repairs, improvements or decorations of the Demised Premises as may be expressly provided in this Lease to be made by Landlord are not completed on or before such date, Landlord shall not be subject to any liability for any delay in such completion (except as provided in Section 2.02 above). Section 2.04. Except as expressly provided in Section 2.02 above, the parties hereto agree that this Article 2 constitutes an express provision as to the time at which Landlord shall deliver possession of the Demised Premises to Tenant, and Tenant hereby waives any rights to rescind this Lease which Tenant might otherwise have pursuant to Section 223-a of the Real Property Law of the State of New York, or pursuant to any other law of like import now or hereafter in force. Section 2.05. Provided that the same shall not interfere with the performance of Landlord's Work, Tenant may, prior to the Commencement Date, have access to the Demised Premises for the purpose of preparing the Demised Premises for Tenant's occupancy (the "License Period"), subject to and in accordance with all of the terms and provisions of this Lease (other than Tenant's obligation to pay Fixed Rent and Recurring Additional Rent, as provided in Article 3 below). Prior to the License Period, Tenant shall provide Landlord with such proof as Landlord may reasonably require that all persons entering upon the Demised Premises with Tenant's consent are covered by the insurance required after the Commencement Date pursuant to Article 8 below. Tenant shall be liable for any and all damages and liability resulting from any act or omission of Tenant and/or any Persons Within Tenant's Control, and Tenant agrees to indemnify and hold Landlord harmless from and against any and all claims, liability, cost and expense (including reasonable attorney's fees and disbursements) arising from or in connection with any acts or omissions of Tenant or any Persons Within Tenant's Control during the License Period. In connection with such indemnity: (i) Landlord shall endeavor to promptly notify Tenant of the relevant claim or action (it being agreed that the timing of said notice shall not be a condition to the effectiveness of the foregoing indemnity), (ii) provided that Tenant gives Landlord prompt notice thereof, Tenant may defend against such claim or action with counsel afforded by the insurer providing the insurance required to be maintained by Tenant pursuant to Section 8.03 hereof or by other counsel reasonably satisfactory to Landlord, (iii) Landlord shall reasonably cooperate with Tenant in Tenant's defense of such claim or action, provided that Landlord shall not incur any cost or expense thereby, (iv) prior to Landlord's settlement of any such claim or action, Landlord shall request Tenant's consent thereto, such consent not to be unreasonably withheld or delayed; provided, however, that if Tenant shall not consent to any such settlement as aforesaid, then, unless such claim or potential recovery is covered in full by Tenant's insurance, Landlord may proceed to settle such claim or action without Tenant's consent if Tenant shall not provide Landlord with adequate security, or reasonably satisfactory evidence of Tenant's having available funds, in an amount sufficient to cover any of Landlord's potential liabilities in connection with such claim or action, and (v) if Tenant shall request that Landlord settle such claim or action, and Tenant shall deliver to Landlord the necessary funds to do so (together with all other amounts due or payable to Landlord in connection with this indemnity), then Landlord shall accede to such request in any case where the only relief being sought by the claimant or plaintiff in any proposed settlement is monetary damages. Section 2.06. Upon execution of this Lease by Tenant, Tenant shall deliver to Landlord a request for Taxpayer Identification Number and Certification in the form annexed hereto as Exhibit "I". ARTICLE 3 RENT Section 3.01. Tenant covenants and agrees that, during the entire Term, Tenant shall pay to Landlord the Fixed Rent at the annual rate set forth in Section 1.01, in equal monthly installments, in advance, on the first day of each calendar month during the Term at the office of Landlord or such other place as Landlord may designate, without any abatement, reduction, setoff, counterclaim, defense or deduction whatsoever, except as otherwise provided herein; it being agreed, however, that if Tenant shall not then be in default (after notice and the expiration of the applicable cure period, if any) of any of Tenant's obligations under this Lease, Landlord hereby conditionally excuses Tenant's obligation to pay Fixed Rent for the first seven (7) full calendar -4- months of the Term. If, at any time during the Term, Tenant shall be in default, beyond the expiration of the applicable cure period, if any, in the performance of any of Tenant's obligations under this Lease, then the total sum of such Fixed Rent so conditionally excused shall become immediately due and payable by Tenant to Landlord. If, as of the Expiration Date, Tenant shall not be in default in the performance of any of Tenant's obligations under the terms of this Lease, Landlord shall waive any payment of all such Fixed Rent so conditionally excused. Notwithstanding the foregoing, if at any time during the first seven (7) full calendar months of the Term, Tenant shall be in default beyond the expiration of the applicable cure period, if any, in the performance of any of Tenant's obligations under this Lease, then Tenant shall be obligated to immediately pay to Landlord the Fixed Rent so conditionally excused for such period of time (the "Section 3.01 Default Period") as such default shall continue. In the event that Tenant shall cure any such default, Tenant shall be entitled to a credit against Fixed Rent in an aggregate amount equal to the Fixed Rent paid by Tenant during the Section 3.01 Default Period, which credit shall be applied against the next installments of Fixed Rent payable by Tenant pursuant to this Lease, provided that Tenant shall not then be in default, beyond the expiration of the applicable cure period, if any, in the performance of Tenant's obligations under this Lease. If, at any time this Lease is terminated due to Tenant's default in the performance of any of Tenant's obligations under this Lease, then Tenant shall be obligated to immediately pay Landlord a portion of such Fixed Rent so conditionally excused in an amount equal to the product of (i) the total amount conditionally excused, and (ii) a fraction, the numerator of which is the number of whole or partial calendar months remaining in the Term from and after the month in which such default occurs and the denominator of which is eighty-four (84) plus interest on the above sum at six (6%) percent per annum for each year or partial year that has elapsed since the Commencement Date. If, as of the Expiration Date or sooner termination of this Lease, Tenant shall not be in default in the performance of any of Tenant's obligations under the terms of this Lease, Landlord shall waive any payment of all such Fixed Rent so conditionally excused. Upon the execution of this Lease, Tenant shall pay to Landlord the installment of Fixed Rent due hereunder for the eighth (8th) full calendar month of the Term (the "Pre- Paid Fixed Rent"). In the event that Tenant's obligation to pay Fixed Rent shall commence on a date which shall be other than the first day of a calendar month, the same shall be prorated at the rental rate applicable during the first year of the Term, and shall be paid by Tenant to Landlord together with the first full monthly installment of Fixed Rent as shall become due hereunder. Section 3.02. All costs, charges, expenses and payments (including the payments required to be made by Tenant pursuant to Article 19 below) which Tenant assumes, agrees or shall be obligated to pay to Landlord or others pursuant to this Lease (other than Fixed Rent) shall be deemed additional rent, and, in the event that Tenant shall fail to timely pay the same, Landlord shall have all of the rights and remedies with respect thereto as are provided for herein or by applicable law in the case of non-payment of rent. Section 3.03. Tenant covenants to pay the Fixed Rent and additional rent as in this Lease provided, when due and without notice or demand, in lawful money of the United States which shall be legal tender in payment of all debts and dues, public and private, at the time of payment. If any installment of Fixed Rent or any additional rent shall not be paid within seven (7) days after such installment of Fixed Rent or additional rent shall have first become due, Tenant shall also pay to Landlord (i) an administrative late charge in the amount of $100.00, and (ii) interest thereon from the due date until such installment of Fixed Rent or additional rent is fully paid at the "Interest Rate" (defined in Article 16 below). Such administrative late charge and interest charge shall be due and payable as additional rent with the next monthly installment of Fixed Rent. If any check delivered to Landlord in full or partial payment of any amounts due to Landlord pursuant to the terms of this Lease shall not be honored by reason of insufficient or uncollected funds or for any other reason, then (x) Tenant shall pay to Landlord a service charge on account thereof in the amount of $100.00, which service charge shall be due and payable as additional rent with the next monthly installment of Fixed Rent, and (y) all subsequent payments of any amounts due to Landlord pursuant to the terms of this Lease for the next six (6) months shall, if Landlord so requests, be made by certified check, official bank or teller's check, or money order. Notwithstanding anything to the contrary contained herein, Tenant shall not be required to pay the administrative late charge or service charge referred to above unless Tenant shall have failed to timely make any payment of Fixed Rent or additional rent, or any check so delivered by Tenant shall have been dishonored, more than one time within any twelve (12) consecutive month period, in which event from and after the second such occurrence, Tenant shall be obligated to pay such administrative charges if required by Landlord. Upon default in payment by Tenant of any of the aforementioned charges, Landlord shall have all the rights and remedies provided for upon default of the Fixed Rent. The foregoing obligations on the part of Tenant shall not preclude the simultaneous or subsequent exercise by Landlord of any and all other rights or remedies provided for in this Lease or now or hereafter existing at law or in equity or by statute or otherwise. No payment by Tenant or receipt by Landlord of a lesser amount than the Fixed Rent or additional rent herein stipulated shall be deemed to be other than on account of the earliest stipulated Fixed Rent or additional rent (unless Landlord, in Landlord's sole and absolute discretion, shall otherwise and in writing so elect), nor shall any endorsement or statement on any check or in any letter accompanying any check or payment, as Fixed Rent or additional rent, be deemed an -5- accord and satisfaction, and Landlord may accept such check or payment without prejudice to Landlord's right to recover the balance of such Fixed Rent and additional rent or pursue any other remedy provided in this Lease, at law or in equity. Section 3.04. A. If all or any part of the Fixed Rent or additional rent shall at any time become uncollectible, reduced or required to be refunded by virtue of any Legal Requirements (including rent control or stabilization laws), except if and to the extent the same shall be as a result of the Incentive Program (as hereinafter defined), then for the period prescribed by said Legal Requirements, Tenant shall pay to Landlord the maximum amounts permitted pursuant to said Legal Requirements, and Tenant shall execute and deliver such agreement(s) and take such other steps as Landlord may reasonably request and as may be legally permissible to permit Landlord to collect the maximum rent which, from time to time during the continuance of such legal rent restriction, may be legally permissible (and not in excess of the amounts then reserved therefor under this Lease). Upon the expiration or other legal termination of the applicable period of time during which such amounts shall be uncollectible, reduced or refunded: (a) the Fixed Rent and additional rent shall become and shall thereafter be payable in accordance with the amounts reserved herein for the periods following such expiration or termination, and (b) Tenant shall pay to Landlord as additional rent, within thirty (30) days after demand, all uncollected, reduced or refunded amounts that would have been payable for the aforesaid period absent such Legal Requirements if and to the extent legally permissible. The provisions of the immediately preceding sentence shall survive the expiration or sooner termination of this Lease. B. Landlord agrees to take any reasonable action reasonably necessary in order for Tenant to receive the benefits under the Tax Abatement Program, the Rent Abatement Program and the Electricity Abatement Program (collectively, the "Incentive Program"), including the execution of all applications and other documents required by the applicable governmental authorities. Section 499-c of the Tax Abatement Program contains, inter alia, the following provisions, and requires that Tenant be advised that: "(1) an application for abatement of real property taxes pursuant to this title will be made for the premises; (2) the rent, including amounts payable by the tenant for real property taxes, will accurately reflect any abatement of real property taxes granted pursuant to this title for the premises; (3) at least ten dollars per square foot or thirty-five dollars per square foot must be spent on improvements to the premises and the common areas, the amount being dependent upon the length of the lease and whether it is a new or a renewal lease; and (4) all abatements granted with respect to a building pursuant to this title will be revoked if, during the benefit period, real estate taxes or water or sewer charges or other lienable charges are unpaid for more than one year, unless such delinquent amounts are paid as provided in subdivision four of section four hundred ninety-nine-f of this title." C. Landlord shall reduce Tenant's Recurring Additional Rent and/or Fixed Rent by the amount of the abatement permitted pursuant to the Tax Abatement Program (the "Tax Abatement") in a manner mutually agreeable to Landlord and Tenant and permitted by the Tax Abatement Program. D. Tenant shall pay all application fees and other charges imposed pursuant to the Incentive Program in connection with obtaining the abatement and/or other benefits pursuant to the Incentive Program. E. Tenant shall notify Landlord of any vacation or subletting of the Demised Premises or any portion thereof, or any assignment of Tenant's interest in this Lease, which would result in the revocation of any abatement or other benefits, or any portion thereof, granted pursuant to the Incentive Program. Within thirty (30) days following demand therefor, Tenant shall reimburse Landlord for any interest or penalties imposed by any governmental authorities in connection with the revocation of the abatement or other benefits resulting directly from Tenant's failure to so notify Landlord of any such vacation, subletting or assignment. Upon the revocation of any abatement or other benefit, Landlord shall increase Tenant's Recurring Additional Rent and/or Fixed Rent by the amount that such rents were reduced pursuant to Subsection 3.04C hereof. F. If reasonable modification to this Lease shall be required in order to obtain the abatement and/or other benefits permitted pursuant to the Incentive Program, Landlord and Tenant agree to make such reasonable modifications to this Lease as are mutually acceptable to the parties provided that such modifications shall not increase the obligations of either party hereto. Section 3.05. If Landlord shall direct Tenant to pay Fixed Rent or additional rent to a "lockbox" or other depository whereby checks issued in payment of Fixed Rent or additional rent (or both, as the case may be) are initially cashed or deposited by a person or entity other than -6- Landlord (albeit on Landlord's authority), then, for any and all purposes under this Lease: (i) Landlord shall not be deemed to have accepted such payment until ten (10) days after the date on which Landlord shall have actually received such funds, and (ii) Landlord shall be deemed to have accepted such payment if (and only if) within said ten (10) day period, Landlord shall not have refunded (or attempted to refund) such payment to Tenant. Nothing contained in the immediately preceding sentence shall be construed to place Tenant in default of Tenant's obligation to pay rent if and for so long as Tenant shall timely pay the rent to the lockbox on the date required pursuant to this Lease in the manner designated by Landlord. ARTICLE 4 USE Section 4.01. Tenant shall use and occupy the Demised Premises for the Authorized Use (as defined in Section 1.01), and for no other purpose. Section 4.02. Without in any way limiting the restrictions on use contained in Section 4.01, Tenant specifically agrees that Tenant shall not permit any part of the Demised Premises to be used for banking or lending purposes of any kind; or for a safe deposit business or the sale of travelers checks and/or foreign exchange; or as a kitchen, restaurant or cafeteria; or for manufacturing, storage, shipping or receiving (other than that required for the conduct of Tenant's business and subject, however, to the rules and regulations as set forth in Article 26 hereof); or for retail securities brokerage purposes; or for any purpose that would violate restrictive covenants with any tenant of the Building, provided Tenant had notice of such restrictive covenants; or for any retail sales or as a store; or for the sale of any food or beverage; or as a news and cigar stand (or anything similar thereto); or for any sale of merchandise with delivery at or from the Demised Premises; or for the production of samples or workroom; or for any purpose other than the Authorized Use. In addition, the Demised Premises may not be used by (i) an agency, department or bureau of the United States Government, any state or municipality within the United States, or any foreign government, or any political subdivision of any of them, (ii) any charitable, religious, union or other not-for- profit organization, or (iii) any tax exempt entity within the meaning of Section 168(h)(2) of the Internal Revenue Code of 1986, as amended, or any successor or substitute statute, or rule or regulation applicable thereto (as same may be amended). Notwithstanding anything to the contrary contained in this Section 4.02, subject to Tenant's compliance with the certificate of occupancy for the Demised Premises and with all of the other provisions of this Lease, and as an incident to Tenant's use of the Demised Premises for the Authorized Use, Tenant shall be permitted to install and operate a pantry or kitchenette in the Demised Premises. Section 4.03. Tenant expressly acknowledges that irreparable injury will result to Landlord in the event of a breach of any of the covenants made by Tenant in this Article 4, and it is agreed that, in the event of such breach, Landlord shall be entitled, in addition to any other remedies available, to seek an injunction to restrain the violation thereof. Breach of any of Tenant's covenants under this Article shall also constitute an Event of Default pursuant and subject to the provisions of Article 15 hereof. ARTICLE 5 ALTERATIONS; LIENS; TENANT'S PROPERTY Section 5.01. A. Tenant shall make no Alterations in or to the Demised Premises, including removal or installation of partitions, doors, electrical installations, plumbing installations, water cooling towers, heating, ventilating and air conditioning or cooling systems, units or parts thereof or other apparatus of like or other nature, whether structural or non-structural, without Landlord's prior written consent and then only by contractors or mechanics approved in writing by Landlord, which consent, except with respect to any Alterations which (i) are structural, (ii) affect the Building Systems, or (iii) violate, create a condition which violates, or require Landlord to perform any work or incur any expense to ensure compliance with any Legal Requirements (it being agreed that, in any of such instances, Landlord may withhold its consent in Landlord's sole and absolute discretion), shall not be unreasonably withheld or delayed. Notwithstanding anything to the contrary contained herein, subject to Tenant's compliance with all of the terms and provisions of this Article 5, Tenant shall not be required to obtain Landlord's consent to Alterations which are non-structural or purely decorative in nature which Tenant shall desire to make in the Demised Premises, provided that the same: (a) are located entirely within the Demised Premises, (b) are non-structural, (c) do not require the issuance of a building notice or building permit from the New York City Department of Buildings, (d) do not affect the structure, exterior or common areas of the Building or the Building Systems and (e) do not cost in excess of $25,000, in the aggregate, over a twelve (12) month period, but Tenant shall nonetheless be required to give Landlord not less than five (5) Business Days' notice prior to the performance of such Alterations. -7- B. It shall be Tenant's responsibility and obligation to ensure that all Alterations: (i) shall be made at Tenant's own cost and expense and at such times and in such manner as Landlord may from time to time reasonably designate (including rules governing Alterations as Landlord may from time to time reasonably make as provided under the provisions of Article 26 below), (ii) shall comply with all Legal Requirements (including NYC Local Laws No. 5 of 1973, No. 16 of 1984 and No. 58 of 1988, each as amended from time to time, and all Legal Requirements then in effect relating to asbestos and to access for the handicapped or disabled) and all orders, rules and regulations of Insurance Boards, (iii) shall be made promptly and in a good and workmanlike manner using prime quality materials, and (iv) shall not affect the appearance of the Building or be visible from the exterior of the Building, it being Landlord's intention to keep the exterior appearance of the Building reasonably uniform (and, in pursuance thereof, Landlord shall have the right to approve the appearance of all such Alterations, including ceiling heights, blinds, lighting, signs and other decorations). In order to ensure, maintain and control the quality and standards of materials and workmanship in and the effective security of the Building, including the Demised Premises, Tenant acknowledges that it is reasonable to require Tenant, and Tenant hereby covenants and agrees, to use only contractors first approved in writing by Landlord. Landlord expressly reserves the right to exclude from the Building any person, firm or corporation attempting to perform any work or act as construction contractor or manager without Landlord's prior written consent. C. Tenant agrees to pay to Landlord as a supervisory fee an amount equal to ten (10%) percent of the cost of any Alterations (other than Landlord's Work) to be performed by Tenant or by Persons Within Tenant's Control. Such supervisory fee shall be paid by Tenant to Landlord prior to the commencement of any such Alterations, based on the estimated cost of such Alterations, and, upon the completion of such Alterations, Tenant shall pay to Landlord the difference, if any, between (i) 10% of the actual cost of such Alterations and (ii) the amount previously paid as the estimated supervisory fee prior to the commencement of such Alterations. D. The provisions of this Article 5 shall apply to Tenant's Initial Work, as well as to all future Alterations. Section 5.02. A. Prior to commencing the performance of any Alterations, Tenant shall furnish to Landlord: (i) If and to the extent required, plans and specifications (to be prepared by a licensed architect or engineer engaged by Tenant, at the sole cost and expense of Tenant), in sufficient detail to be accepted for filing by the New York City Building Department (or any successor or other governmental agency serving a similar function), of such proposed Alterations, and Tenant shall not commence the performance thereof unless and until Landlord has given written consent to said plans and specifications in accordance with the provisions hereof; (ii) A certificate evidencing that Tenant (or Tenant's contractors) has (have) procured and paid for worker's compensation insurance covering all persons employed in connection with the work who might assert claims for death or bodily injury against Overlandlord, Landlord, Tenant, the Land and/or the Building; (iii) Such additional personal injury and property damage insurance (over and above the insurance required to be carried by Tenant pursuant to the provisions of Section 8.03 below), and builder's risk, fire and other casualty insurance as Landlord may reasonably require in connection with the work to be done for Tenant; (iv) If the work to be undertaken is of such a nature that it requires the approval of Overlandlord or any Mortgagee, such approval shall be obtained by Landlord at Tenant's own cost and expense and if the work requires expenditures by Tenant in excess of an amount equal to three (3) monthly installments of the then prevailing Fixed Rent, a surety company performance bond in form and substance reasonably satisfactory to Landlord (procured at Tenant's own cost and expense), issued by a surety company reasonably acceptable to Landlord, or other security satisfactory to Landlord, in an amount equal to at least 120% of the estimated cost of such Alterations, guaranteeing to Landlord, Overlandlord and any Mortgagee the completion thereof and payment therefor within a reasonable time, free and clear of all liens, encumbrances, chattel mortgages, security interests, conditional bills of sale and other charges, and in accordance with the plans and specifications approved by Landlord; and (v) Such permits, authorizations or consents as may be required by any applicable Legal Requirements (other than those permits, authorizations or consents required in connection with the performance of Landlord's Work), all of which shall be obtained at Tenant's cost and expense; provided, however, that no plans, specifications or applications shall be filed by Tenant with any governmental authority without Tenant first obtaining Landlord's written consent thereto in accordance with the provisions hereof. B. In the event that Landlord shall submit the plans and specifications referred to in clause (i) of Subsection 5.02A above to Landlord's architects and/or engineers for review (other than to "in -8- house" architects and/or engineers), Tenant shall reimburse Landlord as additional rent for Landlord's reasonable out-of-pocket expenses of such review within thirty (30) days after written notice to Tenant of the amount of such expense. C. Tenant shall keep reasonably accurate and complete cost records of all Alterations performed by Tenant or by Persons Within Tenant's Control, and shall furnish to Landlord true copies thereof and/or of all contracts entered into and work orders issued by Tenant in connection therewith within thirty (30) days following Landlord's written request therefor. Landlord's review of, and/or any failure by Landlord to object to, any such contract or work order shall not: (i) be construed as an approval by Landlord of such contract or work order or the contents thereof, (ii) impose any liability on Landlord in connection therewith, or (iii) relieve Tenant of any obligation of Tenant with respect to such Alterations or the Demised Premises as otherwise set forth in this Lease. Section 5.03. A. In no event shall any material or equipment be incorporated in or to the Demised Premises in connection with any Alteration (other than Landlord's Work) which is subject to any lien, encumbrance, chattel mortgage, security interest, charge of any kind whatsoever, or is subject to any conditional sale or other similar or dissimilar title retention agreement. B. Tenant shall not create or permit to be created any lien, encumbrance or charge (levied on account of any taxes or any mechanic's, laborer's or materialman's lien, conditional sale, title retention agreement or otherwise) which might be or become a lien, en- cumbrance or charge upon the Land or Building or any part thereof or the income therefrom, and Tenant shall not suffer any other matter or thing whereby the estate, rights and interest of Landlord in the Land or Building or any part thereof might be impaired. Tenant shall take all steps necessary under local laws to prevent the imposition of such a lien, encumbrance or charge on the Land or Building. C. If any lien, encumbrance or charge referred to in this Section 5.03 shall at any time be filed against the Land or Building or any part thereof, then Tenant, within thirty (30) days after notice of the filing thereof and at Tenant's own cost and expense, shall cause the same to be discharged of record or shall post the required bond, and Tenant shall indemnify Landlord against and defend and hold Landlord harmless from all costs, expenses, liabilities, losses, fines and penalties, including reasonable attorneys' fees and disbursements, resulting therefrom. If Tenant shall fail to cause such lien to be discharged or shall fail to post the required bond within the aforesaid period, then, in addition to any other right or remedy, Landlord may, but shall not be obligated to, discharge the same either by paying the amount claimed to be due or by procuring the discharge of such lien by deposit or by bonding proceedings, and in any such event Landlord shall be entitled, if Landlord so elects, to compel the prosecution of an action for the foreclosure of such lien by the lienor and to pay the amount of the judgment in favor of the lienor with interest, costs and allowances. Any amount so paid by Landlord and all costs and expenses incurred by Landlord in connection therewith, together with interest thereon at the Interest Rate, shall constitute additional rent payable by Tenant under this Lease, which additional rent shall be paid by Tenant to Landlord within twenty (20) days after written notice to Tenant of the amount thereof, which notice shall be accompanied by evidence reasonably substantiating such amount. D. Nothing contained in this Lease shall be deemed or construed in any way as constituting the consent or request of Landlord, express or implied by inference or otherwise, to any contractor, subcontractor, laborer or materialman for the performance of any labor or the furnishing of labor or materials for the specific improvement, alteration to or repair of the Demised Premises or any part thereof, nor as giving Tenant any right, power or authority to contract for or permit the rendering of any services or the furnishing of any materials that would give rise to the filing of any lien against the Land, Building, Demised Premises or any part thereof. Notice is hereby given that, other than for Landlord's Work, Landlord shall not be liable for any work performed or to be performed at the Demised Premises for Tenant or any subtenant, or for any materials furnished or to be furnished at the Demised Premises for Tenant or any subtenant upon credit, and that no mechanic's or other lien for such work or materials shall attach to or affect the estate or interest of Landlord in and to the Land, Building or Demised Premises. Landlord shall have the right to post and keep posted on the Demised Premises any notices which Landlord may be required to post for the protection of Landlord, the Land, Building and/or the Demised Premises from any lien. E. Tenant shall have no power to do any act or make any contract which may create or be the foundation for any lien, mortgage or other encumbrance upon the reversion or other estate of Landlord or of any interest of Landlord in the Demised Premises. Section 5.04. Tenant shall not at any time, either directly or indirectly, use any contractors or labor or materials in the Demised Premises if the use of such contractors or labor or materials would create any work stoppage, picketing, labor disruption or any other difficulty with other contractors or labor engaged by Tenant or Landlord or others in the construction, maintenance or operation of the Building or any part thereof. Tenant shall promptly stop any work or other activity if Landlord shall notify Tenant that continuing such work or activity would violate the provisions of the immediately preceding sentence. -9- Section 5.05. Unless caused by the gross negligence or willful misconduct of Landlord or Persons Within Landlord's Control, Landlord shall not be liable for any failure or diminution of any Building Systems or services, or for any damage to Tenant's property or the property of any other person, caused by Alterations made by Tenant or by Persons Within Tenant's Control, notwithstanding Landlord's consent thereto or to the plans and specifications therefor. Landlord's consent to any such plans or specifications shall not be deemed a representation of any kind that the same conform to the applicable Legal Requirements. Tenant shall promptly correct any faulty or improper Alteration made by Tenant or by Persons Within Tenant's Control, and shall repair any and all damage caused thereby. Upon Tenant's failure to promptly make such corrections and repairs after Tenant's receipt of notice from Landlord of such damage or of the need for such corrections or repairs within such period of time as is appropriate under the circumstances (except in the event of an emergency when no such notice shall be necessary), but in any event not more than fifteen (15) days from Tenant's receipt of such notice, Landlord may make such corrections and repairs and charge Tenant for the actual, reasonable cost thereof. Such charge shall be deemed additional rent, and shall be paid by Tenant to Landlord within twenty (20) days after written notice to Tenant of the amount thereof, which notice shall be accompanied by evidence reasonably substantiating such amount. Section 5.06. A. All movable property, furniture, furnishings, equipment, personal property and trade fixtures furnished by or at the expense of Tenant, other than those affixed to the Demised Premises so that they cannot be removed without damage and other than those replacing an item theretofore furnished and paid for by Landlord or for which Tenant has received a credit or allowance, shall remain the property of Tenant, and may be removed by Tenant from time to time prior to the expiration of the Term. Tenant shall notify Landlord in writing not less than sixty (60) days prior to the expiration of the Term specifying any such items of property which Tenant does not wish to remove. If within thirty (30) days after the service of such notice Landlord shall request Tenant to remove any of said items, Tenant shall, at Tenant's expense, remove said items prior to the expiration of the Term. Without limiting the generality of the provisions of this Subsection 5.06A, Tenant expressly agrees that, at Landlord's request, Tenant shall, at Tenant's own cost and expense and prior to the expiration of the Term, remove any and all vaults located or installed in the Demised Premises. B. All Alterations made by either party (other than Landlord's Work), including all paneling, decorations, partitions, railings, mezzanine floors, galleries and the like, which are affixed to the Demised Premises, shall become the property of Landlord and shall be surrendered with the Demised Premises at the end of the Term. Notwithstanding the foregoing, Landlord may elect to require Tenant to remove such Alterations, at Tenant's expense, by giving written notice to Tenant either prior to, or within thirty (30) days after, the expiration of the Term; except that if Tenant shall submit to Landlord, not earlier than one hundred eighty (180) days prior to the expiration of the Term, a notice (the "Fixtures Notice") stating that Tenant shall not be required to remove specified Alterations on or prior to the Expiration Date unless Landlord shall notify Tenant within sixty (60) days after the receipt of the Fixtures Notice that such Alterations shall be required to be removed by Tenant on or prior to the Expiration Date, then Tenant shall not be required to remove such Alterations made by Tenant with Landlord's prior approval. The Fixtures Notice shall specify the Alterations that Tenant is requesting not to remove and shall bear the following legend typed in bold, capital letters at the top: "IF LANDLORD SHALL FAIL TO NOTIFY TENANT WITH RESPECT TO THE REMOVAL OF THE ALTERATIONS SPECIFIED HEREIN WITHIN SIXTY (60) DAYS FOLLOWING LANDLORD'S RECEIPT OF THIS NOTICE, TENANT SHALL NOT BE REQUIRED TO REMOVE SUCH ALTERATIONS IN ACCORDANCE WITH THE PROVISIONS OF SECTION 5.06 OF THE LEASE." Notwithstanding anything to the contrary contained in this Subsection 5.06B, Tenant shall not be obligated to remove leasehold improvements from the Demised Premises unless such leasehold improvements are not typical of those installed by other tenants in the Building. C. In any case where Tenant removes any property or Alterations in accordance with Subsections A and B above, or otherwise, Tenant shall promptly repair all damage caused by said removal and shall restore the Demised Premises at Tenant's expense to the order and condition existing on the Commencement Date, subject to normal wear and tear, damage from fire or other casualty, condemnation or eminent domain, and repairs which are not the responsibility of Tenant under the terms of this Lease, and if Tenant fails to do so, Landlord may, upon five (5) days written notice, do so at Tenant's cost and Tenant shall reimburse Landlord for the reasonable, out-of-pocket costs and expenses therefor within twenty (20) days after demand therefor, which demand shall be accompanied by evidence reasonably substantiating such costs and expenses. D. Upon failure of Tenant to remove any property or Alterations in accordance with Subsections A and B above, or upon failure of Tenant to notify Landlord of any property it does not wish to remove from the Demised Premises in accordance with Subsection A above, then, as to such property, or upon termination of this Lease pursuant to Article 15 hereof, Landlord may, at Tenant's expense: (i) remove all such property and Alterations which Landlord may require Tenant to remove pursuant to Subsections A and B above, (ii) cause the same to be placed in storage, and (iii) repair any damage caused by said removal and restore the Demised Premises to the order and condition -10- existing on the Commencement Date, subject to normal wear and tear, damage from fire or other casualty, condemnation or eminent domain, and repairs which are not the responsibility of Tenant under the terms of this Lease,. Tenant shall reimburse Landlord for all of the aforesaid reasonable expenses as additional rent and within twenty (20) days after demand therefor which demand shall be accompanied by evidence reasonably substantiating such costs and expenses. E. Notwithstanding anything to the contrary contained in this Section 5.06, any items of property or Alterations not removed by Tenant may, at the election of Landlord, be deemed to have been abandoned by Tenant, and Landlord may retain and dispose of said items without any liability to Tenant and without accounting to Tenant for the proceeds thereof. F. The provisions of this Section 5.06 shall survive the expiration or sooner termination of the Term, whereupon any and all monetary obligations of Tenant pursuant thereto shall be deemed damages recoverable by Landlord. Section 5.07. If Tenant shall fail to comply with any provision of this Article 5, Landlord in addition to any other remedy herein provided, may require Tenant to immediately cease all work being performed in the Building by or on behalf of Tenant upon twenty-four (24) hours written notice (except in the event of emergency when no notice shall be necessary), and Landlord may deny access to the Demised Premises to any person performing work or supplying materials in the Demised Premises. Section 5.08. Notwithstanding anything contained in this Article 5 to the contrary, Landlord shall reasonably cooperate with Tenant's efforts (but shall not be obligated to incur any cost or expense in so doing) to obtain such permits, authorizations or consents as Tenant may be required to obtain pursuant to applicable Legal Requirements and/or the terms of this Lease. ARTICLE 6 REPAIRS AND MAINTENANCE Section 6.01. Tenant shall take good care of the Demised Premises and the fixtures, glass, appurtenances and equipment therein (including all horizontal portions of the Building Systems that are located within and which exclusively serve the Demised Premises, and expressly including any sprinkler loop and distribution pipes and heads, any ventilation and air-conditioning equipment and any private bathrooms (or any plumbing lines or horizontal or vertical fixtures therein) in the Demised Premises), and, at Tenant's sole cost and expense, shall make all Repairs as and when needed to preserve them in working order and condition, whether or not such Repairs are ordinary or extraordinary, or foreseen or unforeseen at this time, and whether or not such Repairs pertain to improvements in the Demised Premises furnished or installed by Landlord, but excluding (i) Repairs necessitated by the gross negligence or willful misconduct of Landlord or Persons Within Landlord's Control, or (ii) Repairs to the rough floor, the rough ceiling, exterior windows, exterior walls or load-bearing columns, unless required under the provisions of following sentence. All damage or injury to the Demised Premises, or to the Building or the Building Systems outside of the Demised Premises, caused by or arising from acts or omissions of Tenant, or of Persons Within Tenant's Control, including those which are structural, extraordinary and unforeseen, shall be promptly repaired, restored or replaced by Tenant, at Tenant's own cost and expense (except if and to the extent that Landlord recovers proceeds from Landlord's insurer with respect to such damage or injury). All Repairs shall be in quality and class equal to or better than the original work or installations, and shall be performed in good and workmanlike manner, using prime quality materials. Section 6.02. Landlord, at Landlord's expense, shall make or cause to be made all Repairs, structural and otherwise, necessary to keep in good order and repair the exterior (including exterior windows) of the Building and the public portions of the Building and Building Systems, other than those required to be made by Tenant as provided in Section 6.01; provided that, with respect to those Repairs to be made within the Demised Premises or to the Building Systems which serve the Demised Premises, Tenant shall have given notice to Landlord of the need for such Repairs. There shall be no allowance to Tenant for a diminution of rental value or interruption of business, and no liability on the part of Landlord, by reason of inconvenience, annoyance or injury to business arising from Landlord, Tenant or others making any Repairs or Alterations in or to any portion of the Building or Building Systems or the Demised Premises, except as otherwise expressly provided herein. Section 6.03. If any Insurance Boards or Legal Requirements shall require or recommend installation of fire extinguishers or of a "sprinkler system" or any other fire protection devices, or any changes, modifications, alterations or additions thereto for any reason attributable to Tenant's manner of use of the Demised Premises (as distinguished from Tenant's mere use of the Demised Premises for the Authorized Use), or if any such installation or equipment becomes necessary to prevent the imposition of a penalty or charge against the full allowance for a sprinkler or fire extinguishing system in the fire insurance rate as fixed by Insurance Boards, or by any fire insurance company, then Tenant, at Tenant's expense, shall promptly make such installation within the Demised Premises and supply such changes, modifications, alterations, additions or other equipment. In the event that (i) Tenant shall fail to perform the work required pursuant to the preceding -11- sentence, and/or (ii) if due to the nature of such work, Landlord requires that such work be performed by Landlord, Landlord shall make any such installation (including sprinklers, stair pressurizers, water towers), or any such change, modification, alteration or additions outside of the Demised Premises (such as, without limitation, in the common area) and Tenant shall reimburse Landlord, as additional rent, an amount equal to Tenant's Proportionate Share of the cost thereof. Such reimbursement shall be made by Tenant within twenty (20) days after written notice to Tenant of such amount, which notice shall be accompanied by evidence reasonably substantiating such amount. Section 6.04. In any case where Tenant shall be required to make Repairs or perform any work pursuant to this Article and such Repairs or work shall affect the Building Systems or areas outside of the Demised Premises, Landlord may, in Landlord's discretion, elect to make such Repairs or to perform such work for and on behalf of Tenant, but at Tenant's reasonable cost and expense. In such event, Tenant shall reimburse Landlord as additional rent for the cost of such Repairs and/or work within twenty (20) days after Landlord shall furnish a statement to Tenant of the amount thereof, which statement shall be accompanied by evidence reasonably substantiating such amount. Section 6.05. Tenant shall maintain the Demised Premises (including any permitted signs or cameras) in a clean and orderly condition that is consistent with the use and appearance of the Building. If Tenant shall fail to so maintain the Demised Premises to the reasonable satisfaction of Landlord, then Landlord shall have the right, on notice to Tenant and at Tenant's sole cost and expense, to enter into the Demised Premises for the express purpose of rectifying the condition thereof and restoring the Demised Premises to the condition and appearance required hereunder. ARTICLE 7 COMPLIANCE WITH LAW Section 7.01. A. Tenant shall not do, and shall not permit Persons Within Tenant's Control to do, any act or thing in or upon the Demised Premises or the Building which will invalidate or be in conflict with the certificate of occupancy for the Demised Premises or the Building, or violate any Legal Requirements. Tenant shall, at Tenant's cost and expense, comply with all Legal Requirements (including Local Laws No. 5 of 1973, No. 16 of 1984 and No. 58 of 1988, each as modified and supplemented from time to time under the Administrative Code as applicable to the Demised Premises, and all Legal Requirements relating to asbestos) which shall with respect to the Demised Premises or with respect to any abatement of nuisance (including the removal, containment, transportation and disposal of asbestos), impose any violation, order or duty upon Landlord or Tenant arising from, or in connection with, the Demised Premises, Tenant's manner of use of the Demised Premises (as distinguished from Tenant's mere use of the Demised Premises for the Authorized Use), or any installations therein, or required by reason of a breach of any of Tenant's covenants or agreements hereunder, whether or not such Legal Requirements shall now be in effect or hereafter enacted or issued, and whether or not any work required shall be ordinary or extraordinary or foreseen or unforeseen at the date hereof. B. Notwithstanding anything to the contrary contained in this Lease, Tenant shall be responsible for the cost of all present and future compliance with The Americans with Disabilities Act of 1990, Public Law 101-336, 42 U.S.C. ' 12101 et seq. (herein called the "Disabilities Act") in respect of the Demised Premises, except that Tenant shall not hereby be under any obligation to comply with the Disabilities Act to the extent that the same shall require Tenant to make any structural alterations within the Demised Premises (i.e., alterations to the slab, support columns and facade) or to make any modifications to Building Systems located within the Demised Premises, unless the necessity for such structural alteration or modification to Building Systems located within the Demised Premises arises from (i) Tenant's particular manner of use of the Demised Premises for other than customary office uses, (ii) the manner of conduct of Tenant's business (as distinguished from Tenant's mere use of the Demised Premises for the Authorized Use), (iii) Tenant's installations, equipment or other property therein or the operation thereof, (iv) any cause or condition created by or at the instance of Tenant (as distinguished from Tenant's mere occupancy of the Demised Premises for the Authorized Use), or (v) the breach of any of Tenant's obligations under this Lease. In addition, Tenant shall be responsible for the cost of all present and future compliance with the Disabilities Act with respect to areas of the Land and Building outside the Demised Premises, but only if and to the extent that compliance with the requirements for such present and future compliance arises from (I) Tenant's manner of use of the Demises Premises (as distinguished from Tenant's mere use of the Demised Premises for the Authorized Use), (II) the manner of conduct of Tenant's business (as distinguished from Tenant's mere conduct of business at the Demised Premises) (III) Tenant's installations, equipment or other property therein or the operation thereof, (IV) any cause or condition created by or at the instance of Tenant (as distinguished from Tenant's mere occupancy of the Demised Premises for the Authorized Use), or (V) the breach of any of Tenant's obligations under this Lease. C. Tenant shall not cause or permit any Hazardous Materials (hereinafter defined) to be used, stored, transported, released, handled, produced or installed in, on or from the Demised Premises or the Building; provided, however, that the foregoing prohibition shall not apply to standard office supplies, materials and equipment in reasonable -12- limited quantities, if and to the extent permitted by Applicable Legal Requirements. The term "Hazardous Materials", as used herein, shall mean any flammables, explosives, radioactive materials, hazardous wastes, hazardous and toxic substances or related materials, asbestos or any material containing asbestos, or any other substance or material included in the definition of "hazardous substances", "hazardous wastes", "hazard materials", "toxic substances", "contaminants" or any other pollutant, or otherwise regulated by any federal, state or local environmental law, ordinance, rule or regulation, including the Comprehensive Environmental Response Compensation and Liability Act of 1980, as amended, the Hazardous Materials Transportation Act, as amended, and the Resource Conservation and Recovery Act, as amended, and in the regulations adopted and publications promulgated pursuant to each of the foregoing Acts. In the event of a violation of any of the foregoing provisions of this Subsection 7.01C, Landlord may, upon twenty-four (24) hours telephonic notice (except in the event of emergency when no notice shall be necessary), take all remedial action deemed necessary by Landlord to correct such condition, and Tenant shall reimburse Landlord for the actual out-of-pocket costs and expenses therefor as additional rent within twenty (20) days after demand therefor which demand shall be accompanied by evidence reasonably substantiating such costs and expenses. D. Tenant may contest, at Tenant's sole cost and expense, by appropriate proceedings prosecuted diligently and in good faith, the validity, or applicability to the Demised Premises, of any Legal Requirements, provided that: (i) Landlord shall not be subject to criminal or civil penalty or to prosecution for a crime nor shall the Demised Premises or any part thereof be subject to being condemned or vacated, by reason of non-compliance or otherwise or by reason of such contest or civil penalty; (ii) Tenant shall defend, indemnify and hold harmless Landlord and the agents, partners, shareholders, directors, officers and employees of Landlord against all claims, damage, loss, liability, costs and expense (including reasonable attorneys' fees) resulting from Tenant's non-compliance or contest; (iii) such non-compliance or contest shall not constitute or result in any violation of any Underlying Lease or Mortgage (of which Tenant has notice), or if such Underlying Lease and/or Mortgage shall permit such non- compliance or contest on condition of the taking of action or furnishing of security by Landlord, such action shall be taken and such security shall be furnished at the sole cost and expense of Tenant; (iv) such non-compliance or contest shall not result in the cancellation of, or shall increase the rate of premium for any of, the Building insurance of which Landlord has given Tenant written notice; (v) such non-compliance or contest shall not result in any hazardous or unsafe condition, as reasonably determined by Landlord, at the Demised Premises or the Building; and (vi) Tenant shall keep Landlord advised as to the status of such proceedings. Without limiting the application of clause (i) above thereto, Landlord shall be deemed subject to prosecution for a crime within the meaning of said cause (i), if Landlord, or any agent, partner, shareholder, director, officer or employee of Landlord individually is charged with a crime of any kind or degree whatever, whether by service of a summons or otherwise, unless such charge is withdrawn before Landlord or such agent, partner, shareholder director, officer or employee, as the case may be, is required to plead or answer thereto. Section 7.02. If Tenant shall receive notice of any violation of any Legal Requirements applicable to the Demised Premises, Tenant shall give prompt notice thereof to Landlord. Landlord shall, during the term of this Lease, comply with those Legal Requirements which are of a nature that, if Landlord did not so comply, such non-compliance would materially impair Tenant's ability to conduct Tenant's business at the Demised Premises. Section 7.03. Tenant shall also be obligated to comply with any Legal Requirements requiring any structural Alteration of the Demised Premises, but only if such Alteration shall be required by reason of a condition which has been created by, or at the instance of, Tenant or Persons Within Tenant's Control, or shall be attributable to the particular use or manner of use to which Tenant or Persons Within Tenant's Control puts the Demised Premises (as distinguished from Tenant's mere use of the Demised Premises for the Authorized Use), or shall be required by reason of a breach of any of Tenant's covenants and agreements hereunder. Section 7.04. 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 or the Building, then Tenant, at Tenant's expense, shall promptly procure and thereafter maintain, submit for inspection by Landlord, and at all times comply with the terms and conditions of, each such license or permit. Section 7.05. If an excavation shall be made upon the land adjacent to or under the Building, or shall be authorized or contemplated to be made, Tenant shall upon prior notice afford to the person causing or authorized to cause such excavation license to enter upon the Demised Premises for the purpose of doing such work as said person shall deem necessary or desirable to preserve the Building from injury or damage and to support the same by proper foundations without any claim for damages or indemnity against Landlord, or diminution or abatement of rent. In connection with such excavation, Landlord shall use commercially reasonable efforts to minimize interference with Tenant's use and occupancy of the Demised Premises. -13- Section 7.06. Tenant shall not clean, or permit, suffer or allow to be cleaned, any windows in the Demised Premises from the outside in violation of Section 202 of the Labor Law or any other Legal Requirements. Section 7.07. Notwithstanding anything contained in this Article 7 to the contrary, Tenant shall not be obligated to cure any violation of Legal Requirements applicable to the Demised Premises which is of record as of the Commencement Date. ARTICLE 8 INSURANCE Section 8.01. Tenant shall not do or permit to be done any act or thing in or upon the Demised Premises which will invalidate or be in conflict with the terms of the New York State standard form of fire insurance with extended coverage, or with rental, liability, boiler, sprinkler, water damage, war risk or other insurance policies covering the Building and the fixtures and property therein (hereinafter referred to as "Building Insurance"); and Tenant, at Tenant's own expense, shall comply with all rules, orders, regulations and requirements of all Insurance Boards, and shall not do or permit anything to be done in or upon the Demised Premises or bring or keep anything therein or use the Demised Premises in a manner which increases the rate of premium for any of the Building Insurance or any property or equipment located therein over the rate in effect at the commencement of the Term. Section 8.02. A. If, by reason of the failure of Tenant to comply with any provision of this Lease, the rate of premium for Building Insurance or other insurance on the property and equipment of Landlord or any other tenant or subtenant in the Building shall be higher than it otherwise would be, Tenant shall reimburse Landlord and/or such other tenants or subtenants in the Building for that part of the insurance premiums thereafter paid by Landlord or by the other tenants or subtenants in the Building which shall have been charged because of such failure by Tenant. Tenant shall make said reimbursement within twenty (20) days following Landlord's submission to Tenant of written demand therefor, which demand shall be accompanied by evidence reasonably substantiating such increase. Tenant shall not be responsible for the payment of any increase in the rate of premium for Building Insurance or other insurance on the property or equipment of Landlord if such increase is imposed solely by reason of Tenant's use of the Demised Premises in accordance with the primary Authorized Use (in contradistinction to use of the Demised Premises for any incidental or ancillary use permitted in connection therewith). B. In any action or proceeding wherein Landlord and Tenant are parties, a schedule or "make-up" of any insurance rate for the Building or Demised Premises issued by any Insurance Board establishing insurance premium rates for the Building shall be prima facie evidence of the facts therein stated and of the several items and charges in the insurance premium rates then applicable to the Building. Section 8.03. A. Tenant shall, at Tenant's own cost and expense, obtain, maintain and keep in force during the entire Term, for the benefit of Landlord, Overlandlord and Tenant, the following insurance coverages: (i) commercial general liability insurance (including premises operation, bodily injury, personal injury, death, independent contractors' liability, owner's protective liability, products and completed operations liability, broad form contractual liability and broad form property damage coverages) in a combined single limit amount of not less than $3,000,000, against all claims, demands or actions with respect to damage, injury or death made by or on behalf of any person or entity, arising from or relating to the conduct and operation of Tenant's business in, on or about the Demised Premises (which shall include Tenant's signs, if any), or arising from or related to any act or omission of Tenant or of Persons Within Tenant's Control; (ii) during the course of construction of any Tenant's Alterations and until completion thereof, Builder's Risk insurance on an "all risk" basis (including collapse) on a completed value (non-reporting) form for full replacement value covering the interests of Landlord and Tenant (and their respective contractors and subcontractors) in all work incorporated into the Building and all materials and equipment located in or about the Demised Premises; (iii) Workers' Compensation Insurance, as required by law; and (iv) if Tenant shall install or maintain one or more boilers or other pressure vessels to serve the Demised Premises or Tenant's operations thereat, Tenant shall, at Tenant's own cost and expense, obtain, maintain and keep in force, for the benefit of Landlord, Overlandlord and Tenant, appropriate insurance coverage thereof in an amount not less than $1,000,000 (it being understood and agreed, however, that the foregoing shall not be deemed a consent by Landlord to the installation and/or maintenance of any boilers or other pressure vessels in the Demised Premises, which installation and/or maintenance shall at all times be subject to the prior written consent of Landlord). All such insurance shall contain only such "deductibles" or "retentions" as Landlord shall reasonably approve. In addition, prior to any entry upon the Demised Premises by Tenant or by any Person Within Tenant's Control, Tenant shall deliver or cause to be delivered to Landlord certificates evidencing that all insurance required hereunder is in full force and effect. Whenever, in Landlord's reasonable judgment, good business practice and changing conditions indicate a need for additional or different types of insurance coverage, taking into account customary insurance coverage and policies for comparable buildings in Manhattan, Tenant shall, upon Landlord's request, promptly obtain such insurance coverage, at Tenant's expense. -14- B. Tenant, at Tenant's own cost and expense, shall maintain insurance protecting and indemnifying Landlord, the managing agent of the Building, Tenant and Overlandlord against any and all damage to or loss of Tenant's Alterations, equipment, furnishings, furniture, fixtures and contents in the Demised Premises or the Building (including all portions of the Building Systems that are located within the Demised Premises, and expressly including any sprinkler loop and distribution pipes and heads, any ventilation and air-conditioning equipment and any private bathrooms in the Demised Premises), and all claims and liabilities relating thereto. C. Landlord and Overlandlord shall be named as insureds in said policies and shall be protected against all liability occasioned by an occurrence insured against. All said policies of insurance shall be: (i) written as "occurrence" policies, (ii) written as primary policy coverage and not contributing with or in excess of any coverage which Landlord or Overlandlord may carry, (iii) written in form and substance reasonably satisfactory to Landlord, and (iv) issued by insurance companies then rated not less than A:XII in Best's Insurance Reports, and which are licensed to do business in the State of New York. Tenant shall, prior to the Commencement Date, deliver to Landlord the policies of insurance or certificates thereof, together with evidence of payment of premiums thereon, and shall thereafter furnish to Landlord, at least thirty (30) days' prior to the expiration of any such policies and any renewal thereof, a new policy or certificate in lieu thereof, with evidence of the payment of premiums thereon. Each of said policies shall also contain a provision whereby the insurer agrees not to cancel, diminish or materially modify said insurance policy(ies) without having given Landlord and Overlandlord at least thirty (30) days' prior written notice thereof, by certified mail, return receipt requested. D. Tenant shall pay all premiums and charges for all of said policies, and, if Tenant shall fail to make any payment when due or carry any such policy, Landlord may, but shall not be obligated to, make such payment or carry such policy upon three (3) Business Days notice to Tenant, and the amount paid by Landlord, with interest thereon at the Interest Rate, shall be repaid to Landlord by Tenant within twenty (20) days after demand therefor, which demand shall be accompanied by evidence reasonably substantiating such amount, and all such amounts so repayable, together with such interest, shall be deemed to constitute additional rent hereunder. Payment by Landlord of any such premium, or the carrying by Landlord of any such policy, shall not be deemed to waive or release the default of Tenant with respect thereto. E. Notwithstanding and without regard to the limits of insurance specified in this Section 8.03, Tenant agrees to defend, protect, indemnify and hold harmless Landlord and Overlandlord, and the agents, partners, shareholders, directors, officers and employees of Landlord and Overlandlord, from and against all claims, damage, loss, liability, cost and expense (including reasonable engineer's, architects' and attorneys' fees and disbursements) resulting from any of the risks referred to in this Section 8.03. The foregoing obligation of Tenant shall be and remain in full force and effect whether or not Tenant has placed and maintained the insurance specified in this Section 8.03, and whether or not proceeds from such insurance (such insurance having been placed and maintained) actually are collectible from one or more of the aforesaid insurance companies; provided, however, that Tenant shall be relieved of its obligation of indemnity herein pro tanto of the amount actually recovered by Landlord from one or more of said insurance companies by reason of injury, damage or loss sustained on the Demised Premises. If any action or proceeding shall be brought against Landlord or any of the other indemnified parties in connection with any matter which is the subject of the foregoing indemnity, Tenant, upon notice from Landlord, shall resist and defend such action or proceeding at Tenant's expense by counsel afforded by the insurer providing the insurance required to be maintained by Tenant pursuant to this Section 8.03 or by other counsel reasonably satisfactory to Landlord, without any disclaimer of liability in connection therewith. Section 8.04. A. Landlord shall cause each policy carried by Landlord insuring the Building against loss, damage, or destruction by fire or other casualty, and Tenant shall cause each insurance policy carried by Tenant and insuring the Demised Premises and Tenant's Alterations, leasehold improvements, equipment, furnishings, fixtures and contents against loss, damage, or destruction by fire or other casualty, to be written in a manner so as to provide that the insurance company waives all rights of recovery by way of subrogation against Landlord or Tenant in connection with any loss or damage covered by any such policy. Neither party shall be liable to the other for the amount of such loss or damage which is in excess of the applicable deductible, if any, caused by fire or any of the risks enumerated in its policies, provided that such waiver was obtainable at the time of such loss or damage. However, if such waiver cannot be obtained, or shall be obtainable only by the payment of an additional premium charge above that which is charged by companies carrying such insurance without such waiver of subrogation, then the party undertaking to obtain such waiver shall notify the other party of such fact, and such other party shall have a period of ten (10) days after the giving of such notice to agree in writing to pay such additional premium if such policy is obtainable at additional cost (in the case of Tenant, pro rata in proportion of Tenant's rentable area to the total rentable area covered by such insurance); and if such other party does not so agree or the waiver shall not be obtainable, then the provisions of this Section 8.04 shall be null and void as to the risks covered by such policy for so long as either such waiver cannot be -15- obtained or the party in whose favor a waiver of subrogation is desired shall refuse to pay the additional premium. If the release of either Landlord or Tenant, as set forth in the second sentence of this Section 8.04, shall contravene any law with respect to exculpatory agreements, the liability of the party in question shall be deemed not released, but no action or rights shall be sought or enforced against such party unless and until all rights and remedies against the other's insurer are exhausted and the other party shall be unable to collect such insurance proceeds. B. The waiver of subrogation referred to in Subsection 8.04A above shall extend to the agents and employees of each party, but only if and to the extent that such waiver can be obtained without additional charge (unless such party shall pay such charge). Nothing contained in this Section 8.04 shall be deemed to relieve either party from any duty imposed elsewhere in this Lease to repair, restore and rebuild. Section 8.05. In the event of any permitted or approved sublease or occupancy (by a person other than Tenant) of all or a portion of the Demised Premises, all of the covenants and obligations on the part of Tenant set forth in this Article 8 shall bind and be fully applicable to the subtenant or occupant (as if such subtenant or occupant were Tenant hereunder) for the benefit of Landlord. ARTICLE 9 DAMAGE OR CASUALTY Section 9.01. If the Demised Premises or any part thereof shall be damaged by fire or other insured casualty and Tenant shall give prompt written notice thereof to Landlord, then Landlord shall, subject to the provisions of Sections 9.02 and 9.03, proceed with reasonable diligence to repair or cause to be repaired such damage at Landlord's expense if and to the extent that such repair is fully paid for with the net proceeds of insurance, if any, recovered with respect to the damage, but in no event greater than the scope of Landlord's construction of the Demised Premises on the commencement of the Term. If the Demised Premises, or any material part thereof, shall be rendered untenantable or inaccessible by reason of such damage and such damage shall not be the result of the gross negligence or willful misconduct of Tenant or of Persons Within Tenant's Control, then the Fixed Rent and Recurring Additional Rent hereunder, or an amount thereof apportioned according to the area of the Demised Premises so rendered untenantable (if less than the entire Demised Premises shall be so rendered untenantable), shall be abated for the period from the date of such damage to date when the damage shall have been repaired as aforesaid. If Landlord, Overlandlord or any Mortgagee shall be unable to collect the rent insurance proceeds applicable to such damage because of some action or inaction on the part of Tenant or of Persons Within Tenant's Control, then there shall be no abatement of Fixed Rent or Recurring Additional Rent. Tenant covenants and agrees to reasonably cooperate with Landlord, Overlandlord and any Mortgagee in their efforts to collect insurance proceeds (including rent insurance proceeds) payable to such parties. Landlord shall not be liable for any delay which may arise by reason of adjustment of insurance on the part of Landlord and/or Tenant, or any cause beyond the control of Landlord or contractors employed by Landlord. Section 9.02. Landlord shall not be liable for any inconvenience or annoyance to Tenant or injury to the business of Tenant resulting in any way from damage from fire or other casualty or the repair thereof. Tenant understands that Landlord, in reliance upon the provisions set forth in Section 8.03, will not carry insurance of any kind on Tenant's furnishings, furniture, contents, fixtures, equipment, Alterations and leasehold improvements (other than Landlord's Work) (including horizontal portions of the Building Systems that are located within and serving the Demised Premises, and expressly including any ventilation and air-conditioning equipment and any private bathrooms in the Demised Premises), and that Landlord shall not be obligated to repair any damage thereto or replace the same. Section 9.03. Notwithstanding anything to the contrary contained in Sections 9.01 and 9.02 above, in the event that: (i) the Building shall be also damaged by such fire or other casualty so that substantial alteration or reconstruction of the Building shall, in Landlord's sole and unfettered opinion, be required (whether or not the Demised Premises shall have been damaged by such fire or other casualty and without regard to the structural integrity of the Building), or (ii) the Demised Premises are totally or substantially damaged or are rendered wholly or substantially untenantable, or (iii) there is any damage to the Demised Premises within the last two (2) years of the Term, and the cost of repair exceeds an amount equal to three (3) monthly installments of Fixed Rent, then Landlord may, in Landlord's sole and absolute discretion, terminate this Lease and the term and estate hereby granted, by notifying Tenant in writing of such termination within ninety (90) days after the date of such damage. In the event that such a notice of termination shall be given, then this Lease and the term and estate hereby granted shall expire as of the date of termination stated in said notice with the same effect as if that were the date hereinbefore set for the expiration of the Term, and the Fixed Rent and additional rent hereunder shall be apportioned as of such date. Section 9.04. Except as may be provided in Section 8.04, nothing herein contained shall relieve Tenant from any liability to -16- Landlord or to Landlord's insurers in connection with any damage to the Demised Premises or the Building by fire or other casualty if Tenant shall be legally liable in such respect. Section 9.05. Tenant shall throughout the Term provide fire wardens and searchers as required under NYC Local Law No. 5 of 1973, as heretofore and/or hereafter amended. Section 9.06. Tenant shall give Landlord notice of the occurrence of any fire, casualty or other accident in the Demised Premises promptly after Tenant becomes aware thereof. Section 9.07. This Lease shall be considered an express agreement governing any case of damage to or destruction of the Building or any part thereof by fire or other casualty, and Section 227 of the Real Property Law of the State of New York (providing for such a contingency in the absence of express agreement), and any other law of like import now or hereafter in force, shall have no application in such case. Section 9.08. Notwithstanding anything to the contrary contained in this Article 9: (i) if the Demised Premises shall be totally or substantially damaged, shall be rendered wholly or substantially untenantable or shall be rendered inaccessible as a result of fire or other casualty during the first six (6) years of the Term hereof, then, within forty- five (45) days following the date on which Tenant shall have given notice to Landlord, in accordance with the provisions of this Article 9, of such damage, untenantability or inaccessibility Landlord shall deliver to Tenant an estimate prepared by a reputable contractor selected by Landlord setting forth such contractor's estimate as to the time reasonably required to repair such damage (the "Contractor's Estimate"). If (A) the period to repair set forth in such Contractor's Estimate shall exceed two hundred seventy (270) days from the date of such fire or other casualty or (B) Landlord fails to complete such repairs or restore access to the Demised Premises within two hundred seventy (270) days from the date of casualty (the "Casualty Repair Period") and Landlord's failure to complete such repairs or restore access to the Demised Premises does not arise from (1) any of the reasons set forth in Section 32.01 hereof, (2) any act or omission on the part of Tenant or Persons Within Tenant's Control, (3) any of the reasons set forth in Paragraph H(2) of Exhibit C, or (4) Tenant's failure to comply with the provisions of Exhibit C, then Tenant may elect to terminate this Lease by notice (the "Casualty Termination Notice") to Landlord given not later than: (x) thirty (30) days following delivery to Tenant of the Contractor's Estimate with respect to clause (A) of this sentence; and (y) five (5) days following the expiration of the Casualty Repair Period with respect to clause (B) of this sentence (time being of the essence with respect to such thirty (30) day and five (5) day periods). If Tenant shall exercise such election, the Term shall terminate upon the thirtieth (30th) day following the date upon which such notice of terminate is given by Tenant to Landlord as if such date was the date hereinabove set forth as the Expiration Date, and the Fixed Rent and additional rent hereunder shall be apportioned as of such date. In the event that Landlord shall have failed to complete such repairs or restore access to the Demised Premises within the Casualty Repair Period and Tenant shall have elected to terminate this Lease pursuant to the provisions of clause (B) of this Section 9.08, then, notwithstanding Tenant's delivery of the Casualty Termination Notice, if Landlord shall have substantially completed the repairs or restored access to the Demised Premises or shall have rendered the Demised Premises to a tenantable condition, and Landlord shall tender to Tenant possession of the Demised Premises within thirty (30) days following Landlord's receipt of the Casualty Termination Notice, then Tenant's Casualty Termination Notice shall be null and void and of no force and effect, or (ii) if the Demised Premises are totally or substantially damaged or are rendered wholly or substantially untenantable during the last year of the Term, then Tenant may terminate this Lease and the Term and estate hereby granted, by notifying Landlord in writing within thirty (30) days after the date of such damage or untenantability (time being of the essence with respect to such notice). In the event that Tenant shall give a notice of termination pursuant to this Section 9.08, then this Lease and the term and estate hereby granted shall expire as of the date of termination stated in said notice with the same effect as if that were the Expiration Date of the Term of this Lease, and the Fixed Rent and additional rent hereunder shall be apportioned as of such date. ARTICLE 10 ASSIGNMENT AND SUBLETTING Section 10.01. A. As a material inducement to Landlord to enter into this Lease, Tenant covenants and agrees, for Tenant and Tenant's heirs, distributees, executors, administrators, legal representatives, successors and assigns, that neither this Lease nor the term and estate hereby granted, nor any part hereof or thereof, will be assigned, or advertised for assignment, mortgaged, pledged, encumbered or otherwise transferred, by operation of law or otherwise, and that neither the Demised Premises, nor any part thereof, will be sublet or occupied by anyone other than Tenant, or for any purpose other than as hereinbefore set forth, without the prior written consent of Landlord (which consent, unless expressly provided to the contrary in this Article 10, may be granted, withheld or conditioned in Landlord's sole and absolute discretion) in every case. -17- B. The direct or indirect transfer of fifty (50%) percent or more (aggregating all multiple and/or prior transfers) of: (i) the shares of a corporate tenant, or (ii) the shares of any corporation of which Tenant is an immediate or remote subsidiary, or (iii) the beneficial or legal interests of a tenant that is a business entity other than a corporation, in each case including transfers by operation of law, and including a related or unrelated series of transactions, shall be deemed an assignment of this Lease for the purposes of this Article 10. For the purposes hereof, "shares" of a corporate tenant or other corporation shall be deemed to include: (x) the issued and outstanding shares of any class of the voting stock of a corporation, and/or (y) the issued and outstanding shares of any class of convertible non-voting stock, debentures or securities of a corporation. Issuance of new corporate shares of a corporation or partnership interests by a partnership, and/or the issuance of a new class of voting stock or convertible non-voting stock or debentures or securities of a corporation which results in a transfer of control of that corporation, or the execution of an agreement affecting the power to vote fifty (50%) percent or more of the issued and outstanding shares of any class of stock or securities of a corporation, shall each be deemed to be a "transfer" for the purposes hereof. In implementation of the foregoing provisions (but subject to the provisions of Subsection 10.02C below), if Tenant shall be a corporation, then, within ten (10) days following Landlord's written request therefor, Tenant shall furnish to Landlord a statement verified by an officer of Tenant setting forth the details of the then present ownership and all prior transfers of the issued and outstanding stock of the corporation, and such other information relating to such stock ownership and transfer of stock or securities as Landlord may request in such notice. Section 10.02. A. Tenant may sublet all or part of the Demised Premises or assign Tenant's interest in this Lease and the leasehold estate hereby created to a corporation or other business entity which controls, is controlled by or is under common control with, Tenant (herein referred to as a "Related Corporation"), provided that: (i) Tenant shall not then be in default with respect to any of Tenant's obligations under this Lease (after notice and the expiration of the applicable cure period, if any), (ii) not less than ten (10) days prior to such subletting or assignment, Tenant shall furnish Landlord with the name of such Related Corporation, together with a certification of Tenant, and such other proof as Landlord may reasonably request, that such subtenant or assignee is a Related Corporation of Tenant, (iii) in the reasonable judgment of Landlord, the proposed subtenant or assignee is of a character which is in keeping with the standards of Landlord for the Building, and (iv) for the entire term of such sublease or assignment, the subtenant or assignee thereunder shall continue to be a Related Corporation of Tenant. In connection with the information to be provided to Landlord pursuant to this Subsection 10.02A, Landlord shall have the right, at any reasonable time and from time to time, to examine such books and records of Tenant as may be reasonably necessary to establish that such subtenant or assignee remains a Related Corporation of Tenant, and that no rent is being paid to Tenant by such Related Corporation. Notwithstanding the foregoing, however, if such Related Corporation is a publicly-held corporation, Landlord shall have no right to examine such books and records; provided, however, that at any reasonable time and from time to time upon Landlord's reasonable request, Tenant shall provide a certification, and such other proof as Landlord may reasonably request, that such subtenant or assignee continues to be a Related Corporation of Tenant. Such subletting or assignment shall not be deemed to vest in any such Related Corporation any right or interest in this Lease or the Demised Premises, nor shall it relieve, release, impair or discharge any of Tenant's obligations hereunder. For the purposes of this Article 10, the term "control" shall be deemed to mean ownership of more than fifty (50%) percent of all of the voting stock of such corporation, or more than fifty (50%) percent of all of the legal and equitable interest in any other business entity. B. Tenant may assign or transfer Tenant's entire interest in this Lease and the leasehold estate hereby created to a "Successor Corporation" of Tenant (as hereinafter defined), provided that: (i) Tenant shall not then be in default with respect to any of Tenant's obligations under this Lease (after notice and the expiration of the applicable cure period, if any), (ii) the proposed occupancy shall not increase the office cleaning requirements (if any) or impose an extra burden upon the Building equipment or Building services, and (iii) the proposed assignee shall not be entitled, directly or indirectly, to diplomatic or sovereign immunity, and shall be subject to the service of process in, and the jurisdiction of the courts of, the State of New York. The term "Successor Corporation" shall mean any of the following: (x) a corporation into which or with which Tenant shall be merged or consolidated, in accordance with applicable statutory provisions for the merger or consolidation of corporations, provided that (whether by operation of law or by effective provisions contained in the instruments of merger or consolidation) the liabilities of the corporations participating in such merger or consolidation are assumed by the corporation surviving such merger or consolidation; or (y) a corporation acquiring this Lease and the term hereof and the estate hereby granted, the goodwill and all or substantially all of the other property and assets of Tenant, and assuming all or substantially all of the liabilities of Tenant, or acquiring substantially all of the then outstanding stock of Tenant; or (z) any corporate successor to a Successor Corporation becoming such by either of the methods described in clauses (x) and (y) above; provided that, in each case: (1) such merger or consolidation, such acquisition and assumption or such stock acquisition, as the case may be, shall be made -18- for a good business purpose other than (and not principally for) the purpose of transferring the leasehold estate created hereby, (2) immediately after giving effect to any such merger or consolidation, such acquisition and assumption or such stock acquisition, as the case may be, the corporation surviving such merger or created by such consolidation or acquiring such assets and assuming such liabilities or acquiring such stock, as the case may be, shall have a net worth, as determined in accordance with generally accepted accounting principles and certified to Landlord by an independent certified public accountant, at least equal to the net worth, similarly determined, of Tenant as of the date of this Lease, and (3) proof reasonably satisfactory to Landlord of such business purpose, and net worth shall have been delivered to Landlord at least ten (10) days prior to the effective date of any such transaction. The acquisition by Tenant of all or substantially all of the assets, together with the assumption of all or substantially all of the obligations and liabilities of any corporation or other business entity, shall be deemed to be a merger for the purposes of this Article 10. C. Notwithstanding anything to the contrary contained herein, the transfer of the outstanding capital stock of any corporate tenant shall not be deemed an assignment of this Lease (and Tenant shall not be required to furnish Landlord with the information described in the last sentence of Subsection 10.01B above) if such transfer shall be effected by the sale of such stock through the "over-the-counter-market" or through any recognized stock exchange, unless such stock shall be sold, transferred or otherwise conveyed by persons deemed "insiders" within the meaning of the Securities Exchange Act of 1934, as amended. D. Supplementing the provisions of this Section 10.02, if at any time Tenant shall be a privately-held corporation, Tenant shall promptly notify Landlord in writing of the names of all owners and/or holders of the issued and outstanding shares of capital stock of Tenant (the "Shareholders"). Notwithstanding anything to the contrary contained in this Article 10, the Shareholders shall have the right, upon notice to Landlord, but without having to obtain the consent of Landlord, and without the same constituting an assignment hereunder, to transfer their stock in the Tenant to any of the following persons or entities (the Shareholder and each of said persons and entities are hereinafter collectively referred to as the "Transferees"): the Shareholders' spouse, siblings, issue or any trust for the benefit of any of such parties, and each of the Transferees shall have the right, upon notice to Landlord but without having to obtain Landlord's consent thereto, and without the same constituting an assignment hereunder, to transfer its stock in the Tenant to any of the other Transferees. E. Notwithstanding anything to the contrary contained in this Article 10, provided that (i) Tenant shall not be in default (after notice and the expiration of the applicable cure period, if any) with respect to any obligation of Tenant under this Lease, and (ii) the proposed occupancy shall not impose an extra burden upon the Building equipment or Building services, Tenant shall have the right, without being required to obtain the consent of Landlord, but upon not less than ten (10) days prior written notice, to permit a portion of the Demised Premises (not to exceed, in the aggregate, 3,250 rentable square feet) to be used under a so-called "desk sharing agreement" by a Related Corporation or a client of, or service provider to, Tenant, but only for the uses permitted under this Lease, and only for such period as such Related Corporation or such client of, or service provider to, Tenant, shall remain a Related Corporation or a client of, or service provider to, Tenant, as the case may be. Any such desk sharing agreement shall not give rise to any rights under this Lease to any such occupant, shall be subject and subordinate to all of the terms, covenants and conditions of this Lease and, notwithstanding such desk sharing agreement, Tenant shall remain fully liable for all of Tenant's obligations under this Lease. Section 10.03. A. Except with respect to assignments or sublets described in Section 10.02 above, if Tenant shall desire to assign this Lease or to sublet all or any portion of the Demised Premises, Tenant shall submit to Landlord a written request for Landlord's consent to such assignment or subletting, which request shall contain or be accompanied by the following information: (i) the name and address of the proposed assignee or subtenant; (ii) a fully executed binding letter of intent containing the proposed terms and conditions of such assignment or sublease (it being agreed that such letter will be delivered by Tenant to Landlord at or prior to the time that Landlord grants its consent to such assignment or sublease); (iii) the nature and character of the business of the proposed assignee or subtenant and its proposed use of the Demised Premises; and (iv) banking, financial and other credit information with respect to the proposed assignee or subtenant reasonably sufficient to enable Landlord to determine the financial responsibility of the proposed assignee or subtenant. Landlord shall then have the following options (the "Recapture Options"), which may be exercised by notice (the "Recapture Notice") given to Tenant within thirty (30) days after Landlord's receipt of Tenant's request for consent: (x) Landlord may require Tenant to surrender the Demised Premises to Landlord and to accept a termination of this Lease as of a date (the "Recapture Date") to be designated by Landlord in the Recapture Notice, which date shall not be less than thirty (30) days nor more than one hundred twenty (120) days following the date of the Recapture Notice; or (y) Landlord may require Tenant to assign this Lease to Landlord (without merger of Landlord's estates) or Landlord's designee, effective as of a date which shall not be less than thirty (30) days nor more than one hundred twenty (120) days following the date of the Recapture Notice. -19- B. If Landlord shall elect to require Tenant to surrender the Demised Premises and accept a termination of this Lease, then this Lease shall expire on the Recapture Date as if that date had been originally fixed as the Expiration Date. Regardless of which Recapture Option Landlord exercises under this Section 10.03 (i.e., whether to terminate this Lease or to take an assignment thereof), Landlord shall be free to, and shall have no liability to Tenant (or to any broker engaged by Tenant) if Landlord shall, lease the Demised Premises to Tenant's prospective assignee or subtenant. Section 10.04. If Landlord shall not exercise either of the Recapture Options within the time period provided in Section 10.03 above, then Landlord shall not unreasonably withhold or delay consent to the proposed assignment of this Lease or a proposed subletting of all or a portion of the Demised Premises, provided that Tenant shall not then be (i) in default with respect to any of Tenant's obligations under this Lease after notice and the applicable grace period, if any or (ii) in receipt of notice of default provided that notice was given prior to Tenant's written request for Landlord's consent pursuant to Section 10.03A hereof and provided further that the following additional conditions (which shall be in addition to, and not in lieu of, the other terms, conditions and requirements set forth elsewhere in this Article 10) shall be satisfied: (i) The proposed assignee or subtenant shall not be: (a) a school of any kind, or an employment or placement agency or governmental or quasi-governmental agency, or a real estate brokerage office or medical office or executive recruitment office, or any bank or retail establishment, or (b) entitled, directly or indirectly, to diplomatic or sovereign immunity, and the proposed assignee or subtenant shall be subject to service of process in, and the jurisdiction of the courts of, the State of New York; (ii) The subletting or assignment shall be to a reputable person, whose occupancy will be in keeping with the dignity and character of the then use and occupancy of the Building, and whose occupancy will not be more objectionable or more hazardous than that of Tenant herein or impose any additional burden upon Landlord in the operation of the Building; (iii) The proposed assignee or subtenant shall have, in the reasonable judgment of Landlord, sufficient financial worth to perform the obligations of Tenant under this Lease; provided, however, that if the sublease with such subtenant is for less than all of the Demised Premises, such subtenant shall have sufficient financial worth to perform the subtenant's obligations under such sublease; (iv) No space shall be or have been advertised or promoted to the general public at a lower rental rate than that being asked by Landlord at the time for similar space in the Building; and (v) The proposed assignee or subtenant (or any person who directly or indirectly controls, is controlled by or is under common control with, either (a) the proposed assignee or subtenant, or (b) any person who controls the proposed assignee or subtenant) shall not be a tenant, subtenant, occupant or assignee of any premises in the Building, or a party who dealt or negotiated with Landlord or Landlord's agent (directly or through a broker) with respect to the leasing of any space in the Building during the twelve (12) months immediately preceding Tenant's request for Landlord's consent. Section 10.05. In the event of each and every permitted assignment of Tenant's interest under this Lease, the following provisions shall apply: (i) The assignee shall assume and agree, in a recordable writing delivered to Landlord on or before the effective date of such assignment, to perform all of the terms, conditions and agreements of this Lease on the part of Tenant to be kept, performed and observed, and to become jointly and severally liable with the assignor (and remote assignors, if any) for the performance thereof. (ii) The assignor shall assign to the assignee all of the assignor's right, title and interest and claim to the security deposited hereunder. (iii) The terms, covenants and conditions of this Lease may be changed, altered or modified in any manner whatsoever by Landlord and the assignee without the consent thereto of any remote or immediate assignor, and no such change, alteration or modification shall release the remote or immediate assignor from the performance and observance by such remote and immediate assignor of any of the terms, covenants and conditions on Tenant's part to be performed under this Lease; provided, however, that if a change, alteration or modification made after the date of an assignment of this Lease shall increase the obligations of Tenant under this Lease, the assignor shall not be liable with respect to such increase. Section 10.06. A. In the event of each and every permitted subletting of all or any part of the Demised Premises, the following provisions shall apply: (i) No subletting shall be for a term ending later than one (1) day prior to the Expiration Date. (ii) The sublease shall provide that it is subject and subordinate to this Lease and to all matters to which this Lease is or shall be subordinate. -20- (iii) The sublease and all of the subtenant's rights thereunder shall be expressly made subject to all of the obligations of Tenant under this Lease, and to the further condition and restriction that the sublease shall not be assigned, encumbered or otherwise transferred, or the subleased premises further sublet by the subtenant in whole or in part, or any part thereof suffered or permitted by the subtenant to be used or occupied by others, without the prior written consent of Landlord (which consent may be granted, withheld or conditioned in Landlord's sole and absolute discretion) in each instance, except as expressly provided in this Article 10. B. If Landlord shall consent to a proposed subletting of all or any portion of the Demised Premises, then the written instrument of consent, which shall also be executed and acknowledged by Tenant and the subtenant, shall contain a provision substantially similar to the following: "The sublandlord [i.e., Tenant under this Lease] and the subtenant hereby agree that, if the subtenant shall be in default of any obligation of the subtenant under the sublease, which default also constitutes a default by the sublandlord under the overlease [i.e., this Lease], then the overlandlord [i.e., Landlord under this Lease] shall be permitted to avail itself of all of the rights and remedies available to the sublandlord in connection therewith. Without limiting the generality of the foregoing, the overlandlord shall be permitted (by assignment of a cause of action or otherwise) to institute an action or proceeding against the subtenant in the name of the sublandlord in order to enforce the sublandlord's rights under the sublease, and shall also be permitted to take all ancillary actions (e.g., serve default notices and demands) in the name of the sublandlord as the overlandlord shall reasonably determine to be necessary. The sublandlord agrees to reasonably cooperate with the overlandlord, and to execute such documents as shall be reasonably necessary, in connection with the implementation of the foregoing rights of the overlandlord. The sublandlord and the subtenant expressly acknowledge and agree that the exercise by the overlandlord of any of the foregoing rights and remedies: (i) shall not constitute an election of remedies, (ii) shall not in any way impair the overlandlord's entitlement to pursue other rights and remedies directly against the sublandlord, and (iii) shall not establish any privity of relationship between the overlandlord and the subtenant, or in any way create a landlord/tenant relationship between the overlandlord and the subtenant." Section 10.07. A. If Landlord shall consent to any assignment of this Lease or to any sublease of all or any part of the Demised Premises, Tenant shall, in consideration therefor, pay to Landlord, as additional rent hereunder, the following amounts (hereinafter being referred to as "Profit"): (i) in the case of an assignment, fifty (50%) percent of the excess, if any, of (x) all amounts and other consideration due or payable to Tenant and/or its designee for or by reason of such assignment (including all amounts due or payable for the sale or rental of Tenant's fixtures, leasehold improvements, equipment, furniture, furnishings or other personal property in excess of the reasonable book value of the same, as determined on the basis of Tenant's federal income tax returns), over (y) any reasonable and customary brokerage fees actually incurred by Tenant in connection with such assignment, the actual reasonable out-of-pocket expense to Tenant for attorneys' fees, any Alterations performed to prepare the Demised Premises for occupancy by the assignee in connection with such assignment and any similar costs (collectively, "Transfer Costs"); and (ii) in the case of a sublease, fifty (50%) percent of the excess, if any, of (x) the sum of (1) all rents, additional rents and other consideration due or payable under the sublease to Tenant by the subtenant, and (2) all other amounts and consideration due or payable to Tenant or its designee for or by reason of such subletting (including all amounts due or payable for the sale or rental of Tenant's fixtures, leasehold improvements, equipment, furniture or other personal property in excess of the reasonable book value of the same, as determined on the basis of Tenant's federal income tax returns), over (y) the sum of (1) that part of the Fixed Rent and additional rent hereunder allocable to the subleased space and accruing for the corresponding period during the term of the sublease, and (2) any Transfer Costs actually incurred by Tenant in connection with such sublease. B. Any amount(s) payable by Tenant pursuant to the provisions of this Section 10.07 shall be paid by Tenant to Landlord as and when amounts on account thereof are paid by or on behalf of any assignee(s) and/or any sublessee(s) to Tenant or Tenant's designee, and Tenant agrees to promptly advise Landlord thereof and furnish such information with regard thereto as Landlord may reasonably request from time to time. C. Tenant shall furnish to Landlord, in the January calendar month immediately following each calendar year during any part of which any such sublease shall be in effect, a reasonably detailed financial statement certified as being correct by an officer (or, if Tenant is not a corporation, a principal) of Tenant, setting forth all sums accruing during the prior calendar year and/or realized by Tenant from such sublease, and a computation of the Profit accruing and/or realized by Tenant during such prior calendar year. Tenant shall remit to Landlord together with such statement any Profit or portion thereof on account of such calendar year not previously remitted to Landlord. -21- Section 10.08. A. Each permitted assignee or transferee of Tenant's interest in this Lease (but not a subtenant) shall assume and be deemed to have assumed this Lease and all of Tenant's obligations under this Lease, and shall be and remain liable jointly and severally with Tenant for the payment of all Fixed Rent, additional rent, other charges and payments due under this Lease, and for the full and timely performance of and compliance with all the terms, covenants, conditions and agreements herein contained on Tenant's part to be performed or complied with for the entire Term. No assignment, sublease or transfer shall be effective or binding on Landlord unless and until such assignee, subtenant or transferee of Tenant shall deliver to Landlord a fully executed and acknowledged duplicate original of the instrument of assignment, sublease or transfer which contains a covenant of assumption (if not a sublease) by an assignee or transferee of all of the obligations aforesaid, and a confirmation (including a sublease) of the covenant under Section 10.01 prior to and preemptive of any similar rights of Tenant or any subtenant, and shall obtain from Landlord the aforesaid written consent prior thereto. In the event of any purported assignment, sublease or transfer in contravention of the provisions of this Lease, Landlord may elect to treat such purported assignee, subtenant or transferee as having assumed this Lease jointly and severally with Tenant, without in any way or to any extent binding Landlord to consent to such purported assignment, sublease or transfer. B. In no event shall any assignee, subtenant or other occupant of the Demised Premises use the Demised Premises for any purpose other than the Authorized Use. Section 10.09. The consent by Landlord to an assignment or subletting shall not relieve Tenant, the assignee or any subtenant from obtaining the express consent in writing of Landlord (which consent, unless expressly provided to the contrary in this Article 10, may be granted, withheld or conditioned in Landlord's sole and absolute discretion) to any other or further assignment or subletting (except for assignments or sublettings made pursuant to Section 10.02 hereof). Section 10.10. A. If this Lease shall be assigned (whether or not in violation of the provisions of this Article 10), Landlord may collect from the assignee, and Tenant hereby authorizes and directs the assignee to pay to Landlord, all rent (whether denominated as Fixed Rent or otherwise), additional rent and other charges payable pursuant to the instrument of assignment, with the net amount so collected by Landlord to be applied to the Fixed Rent, additional rent and other charges herein provided, but no such assignment or collection shall be deemed a waiver of the covenant by Tenant under Section 10.01 above, nor shall the same be deemed the acceptance by Landlord of the assignee as a tenant, or a release of Tenant from the further performance of the covenants and agreements on the part of Tenant to be performed as herein contained. Each and every instrument of assignment shall contain the substance of the foregoing provision. B. If all or any portion of the Demised Premises shall be sublet or occupied by anyone other than Tenant (whether or not in violation of the provisions of this Article 10), then, upon demand made by Landlord at any time following the occurrence of an Event of Default, Landlord may collect from the subtenant or occupant, and Tenant hereby authorizes and directs such party to pay to Landlord, all rent (whether denominated as Fixed Rent or otherwise), additional rent and other charges payable pursuant to such instrument, with the net amount so collected by Landlord to be applied to the Fixed Rent, additional rent and other charges herein provided, but no such subletting, occupancy or collection shall be deemed a waiver of the covenant by Tenant under Section 10.01 above, nor shall the same be deemed the acceptance by Landlord of the subtenant or occupant as a tenant, or a release of Tenant from the further performance of the covenants and agreements on the part of Tenant to be performed as herein contained. Each and every instrument of sublease and/or occupancy agreement shall contain the substance of the foregoing provision. C. If Landlord shall for any reason or cause recover or come into possession of the Demised Premises before the Expiration Date hereinbefore fixed for the expiration of the Term, or if an Event of Default shall occur, then Landlord shall have the right (but not the obligation) to take over any and all subleases or sublettings of the Demised Premises or any part or parts thereof made or granted by Tenant and to succeed to all of the rights and privileges of said subleases and sublettings or such of them as Landlord may elect to take over and assume, and Tenant hereby expressly assigns and transfers to Landlord such of the subleases and sublettings as Landlord may elect to take over and assume at the time of such recovery of possession, (or occurrence of an Event of Default), and Tenant shall upon request of Landlord execute, acknowledge and deliver to Landlord such further assignments and transfers as may be necessary, sufficient and proper to vest in Landlord the then existing subleases and sublettings. By its entry into a sublease, each and every subtenant shall be deemed to have thereby agreed that, upon said recovery of possession (or occurrence of an Event of Default) and if Landlord shall so elect, Landlord may, in Landlord's sole and absolute discretion, take over the right, title and interest of Tenant, as sublandlord, under such sublease, in which case such subtenant shall: (i) be deemed to have waived any right to surrender possession of the subleased space or to terminate the sublease, (ii) be bound to Landlord for the balance of the term of such sublease, and (iii) attorn to Landlord, as its landlord, under all of the then executory terms, covenants and conditions of this Lease, except that such subtenant shall be deemed to -22- have expressly agreed that Landlord shall not (1) be liable for any previous act or omission of Tenant under such sublease, (2) be subject to any counterclaim, offset or defense, not expressly provided in such sublease, which theretofore accrued to such subtenant against Tenant, or (3) be bound by any previous modification of such sublease or by any previous prepayment of more than one (1) monthly installment of rent. The provisions of this Subsection 10.10C shall be self-operative, and no further instrument shall be required to give effect thereto. However, within ten (10) days after Landlord shall have notified any subtenant of said election, such subtenant shall execute, acknowledge and deliver to Landlord such instruments as Landlord may reasonably request to evidence and confirm such attornment and the terms thereof. Each and every sublease shall contain the substance of this Subsection 10.10C. Section 10.11. Without limiting the generality of the covenant set forth in Section 10.01 above, Tenant covenants and agrees that Tenant shall not assign Tenant's interest under this Lease or sublet the Demised Premises (or any portion thereof) to any tenant or occupant in the Building. Tenant covenants and agrees not to accept on assignment of any lease or sublease from, or become a subtenant of, any tenant or occupant in the Building. Section 10.12. Tenant shall reimburse Landlord on demand for all reasonable costs (including all reasonable legal fees and disbursements, as well as the costs of making investigations as to the acceptability of a proposed assignee or subtenant) which may be incurred by Landlord in connection with a request by Tenant that Landlord consent to any proposed assignment or sublease. Section 10.13. If Landlord shall decline to consent to any proposed assignment or sublease in accordance with the provisions hereof, or if Landlord shall exercise any of the Recapture Options under Section 10.03 above, Tenant shall indemnify, defend and hold Landlord harmless from and against any and all loss, liability, damages, cost and expense (including reasonable attorneys' fees disbursements), resulting from any claims that may be made against Landlord by the proposed assignee or subtenant or by any brokers or other persons claiming a commission or similar compensation in connection with the proposed assignment or sublease. Section 10.14. Except as expressly provided to the contrary in Section 10.02 hereof, in the event that Tenant shall assign Tenant's interest in, to or under this Lease, or if Tenant shall sublet the Demised Premises or any portion thereof, without having obtained Landlord's prior written consent thereto or in violation of any of the other provisions contained in this Lease, Landlord shall have the right to terminate this Lease at any time thereafter without affording Tenant any grace period or opportunity to cure. The acceptance by Landlord of any Fixed Rent or additional rent paid, or of the performance of any obligation to be performed by Tenant, by a purported assignee or subtenant shall not be deemed (i) a consent by Landlord to the assignment or sublet to such purported assignee or subtenant, (ii) a release by Landlord of Tenant's performance of, or compliance with, any of the obligations to be performed, or covenants or terms to be complied with, by Tenant pursuant to this Lease, or (iii) a waiver of Landlord's right of termination as set forth in the immediately preceding sentence. Section 10.15. The listing of any name other than that of Tenant, whether on the doors of the Demised Premises, on the Building directory, elevators or otherwise, shall not operate to vest any right or interest in this Lease or the Demised Premises, nor shall it be deemed to be the consent of Landlord to any assignment or transfer of this Lease or to any sublease of the Demised Premises or to the use or occupancy thereof by third parties. It is expressly understood that any such listing is a privilege extended by Landlord that is revocable at will by written notice to Tenant. ARTICLE 11 NON-LIABILITY; INDEMNIFICATION Section 11.01. Neither Landlord nor Landlord's agents shall be liable for: (i) any damage to property of Tenant or of others entrusted to employees of Landlord or to Landlord's agents, nor for the loss or damage to any property of Tenant or of Persons Within Tenant's Control by theft or otherwise; (ii) any injury or damage to persons or property resulting from fire, explosion, falling plaster, steam, gas, electricity, water, rain, snow or leaks from any part of the Building or from the pipes, appliances or plumbing works or from the roof, street or sub- surface or from any other place or by dampness or by any other cause of whatsoever nature, unless caused by the negligent act of Landlord or Persons Within Landlord's Control; (iii) 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; or (iv) any latent defect in the Demised Premises or in the Building. Section 11.02. If at any time any windows of the Demised Premises shall be temporarily or permanently closed, darkened or covered for any reason whatsoever, excluding the wrongful acts of Landlord, Landlord shall not be liable for any damage Tenant may sustain thereby, and Tenant shall not be entitled to any compensation therefor nor abatement of rent, nor shall the same release Tenant from Tenant's obligations hereunder or constitute an eviction. Section 11.03. Tenant agrees, irrespective of whether Tenant shall have been negligent in connection therewith, to indemnify, protect, defend and save harmless, Landlord and Landlord's partners, officers, -23- directors, contractors, agents and employees from and against any and all liability (statutory or otherwise), claims, suits, demands, damages (excluding consequential damages), judgments, costs, fines, penalties, interest and expenses (including reasonable counsel and other professional fees and disbursements incurred in any action or proceeding), to which Landlord and/or any such partner, officer, director, contractor, agent or employee may be subject or suffer arising from, or in connection with: (i) any liability or claim for any injury to, or death of, any person or persons, or damage to property (including any loss of use thereof), occurring in the Demised Premises, or (ii) the use and occupancy of the Demised Premises, or from any work, installation or thing whatsoever done or omitted by Tenant (other than by Landlord or Persons Within Landlord's Control) in or about the Demised Premises during the Term and during the period of time, if any, prior to the Commencement Date that Tenant may have been given access to the Demised Premises, or (iii) any default by Tenant in the performance of Tenant's obligations under this Lease, or (iv) any act, omission, carelessness, negligence or misconduct of Tenant or of Persons Within Tenant's Control; provided, however, that if such liability, claims, suits, demands, damages, judgments, costs, fines, penalties, interest and expenses are caused by the gross negligence or willful misconduct of Landlord or any other person indemnified pursuant to this Section 11.03, Tenant shall not be required to indemnify, protect, defend and save harmless Landlord and Landlord's partners, officers, directors, contractors, agents and employees as set forth in this Section 11.03. Section 11.04. Tenant shall reimburse and compensate Landlord, as additional rent within thirty (30) days after rendition of a statement, together with back-up documentation, for all reasonable actual out-of- pocket expenditures, costs, fees, expenses, judgments, penalties, damages and fines sustained or incurred by Landlord (including reasonable counsel and other professional fees and disbursements incurred in connection with any action or proceeding) in connection with any matter set forth in this Article 11, or non-performance or non-compliance with or breach or failure by Tenant to observe any term, covenant, agreement, provision or condition of this Lease, or breach of any warranty or representation by Tenant made in this Lease. If, in any action or proceeding naming both Landlord and Tenant, liability arising out of the negligence of Tenant is established, Tenant shall (i) indemnify Landlord in accordance with the provisions of this Article 11 and (ii) waive any right of contribution against Landlord. Reference in this Article 11 to Landlord shall for all purposes be deemed to include the lessor of any Underlying Lease and each Mortgagee. Section 11.05. A. Tenant agrees that Tenant's sole remedies in any instances where Tenant disputes Landlord's reasonableness in exercising judgment or withholding its consent or approval pursuant to a specific provision of this Lease, shall be those in the nature of an injunction, declaratory judgment or specific performance, the rights to monetary damages or other remedies being hereby specifically and irrevocably waived by Tenant. Without limiting the generality of the foregoing, and unless expressly provided to the contrary in this Lease, Tenant agrees that, in any situation in which Landlord's consent or approval is required pursuant to this Lease, the same may be granted or withheld in Landlord's sole and absolute discretion, and/or be made subject to such reasonable conditions as Landlord, in Landlord's sole and absolute discretion, may deem reasonably appropriate. If Landlord shall withhold consent in any situation in which Landlord's consent or approval is required, and such consent or approval may not be unreasonably withheld, pursuant to this Lease, Landlord shall provide Tenant with a statement setting forth in reasonable detail Landlord's reasons for withholding such consent or approval within thirty (30) days of Tenant's request therefor; provided, however, that Landlord's failure to provide such statement shall not negate or in any way affect Landlord's previous withholding of such consent. B. In any instance where this Lease expressly provides that, in connection with a proposed Alteration, assignment or subletting, Landlord's consent or approval is required and may not unreasonably be withheld, if Tenant shall dispute the reasonableness of Landlord's refusal to grant such consent or approval, Tenant shall have the right to submit said dispute to binding arbitration under the Expedited Procedures provisions (Rules 53 through 57 in the May 1, 1992 edition) of the Commercial Arbitration Rules of the American Arbitration Association ("AAA"). In cases where Tenant shall elect to utilize such arbitration: (i) the parties will have no right to object if the arbitrator so appointed was on the list submitted by the AAA and was not objected to in accordance with Rule 54, (ii) the first hearing shall be held within seven (7) Business Days after the appointment of the arbitrator, (iii) if the arbitrator shall find that Landlord acted unreasonably in withholding a consent or approval, such consent or approval shall be deemed granted, and (iv) the losing party in such arbitration shall pay the arbitration costs charged by AAA and/or the arbitrator as well as the reasonable attorneys' fees incurred by the successful party. Section 11.06. A. Tenant acknowledges receipt of advice from Landlord to the effect that the Demised Premises and other portions of the Building contain (or may contain) asbestos. Tenant expressly agrees that: (i) Landlord shall have no liability whatsoever to Tenant, or to any person or entity claiming by, through or under Tenant, on account of, or in connection with, the presence of asbestos in the Demised Premises or the Building, and (ii) Tenant's obligation to keep, observe and perform all of the terms, provisions, covenants and conditions on the part of Tenant to be kept, observed and performed pursuant to this Lease shall not in any way be diminished or contested on account of the presence of such asbestos. -24- B. Notwithstanding anything to the contrary contained in the foregoing Subsection 11.06A, Landlord represents that Landlord has removed all asbestos-containing material, as defined by applicable Legal Requirements, located in the Demised Premises, except from the Building core and wet columns, in compliance with all applicable Legal Requirements. With respect to any asbestos-containing material which shall remain in the Demised Premises, Landlord represents that the Demised Premises and such asbestos-containing material shall be in compliance with all applicable Legal Requirements. If any Legal Requirements which shall become effective following the date hereof shall require the removal, containment, treatment or encapsulation of any asbestos-containing material which may exist in the Demised Premises, Landlord shall promptly cause the removal, containment, treatment or encapsulation of any such asbestos-containing material, at Landlord's own cost and expense, it being understood and agreed that Landlord's obligation to so treat such asbestos-containing materials is subject to the removal by Tenant, at Tenant's sole cost and expense, of such installations of Tenant as are necessary to remove so that Landlord shall have adequate access for such treatment of asbestos-containing materials. Landlord shall have no obligation for the restoration or repair of such of Tenant's installations. Notwithstanding anything to the contrary contained in this Subsection 11.06B, if the removal, containment, treatment or encapsulation of such asbestos-containing material shall be necessitated by (i) any Alterations (other than Landlord's Work) performed by Tenant in or about the Demised Premises, or (ii) the negligence or willful misconduct of Tenant or Persons Within Tenant's Control, Landlord shall cause such asbestos-containing material to be removed, contained, treated or encapsulated solely at Tenant's cost and expense; provided, however, that Tenant shall cooperate with any such removal, containment, treatment or encapsulation undertaken by Landlord. ARTICLE 12 CONDEMNATION Section 12.01. If the whole of the Demised Premises (or a portion thereof consisting of fifty (50%) percent or more of the rentable square foot area of the Demised Premises) shall be lawfully condemned or taken in any manner for any public or quasi-public use, this Lease and the Term and estate hereby granted shall forthwith cease and terminate as of the date of vesting of title. If only a part of the Demised Premises shall be so condemned or taken, then, effective as of the date of vesting of title, the Fixed Rent and additional rent hereunder shall be abated in an amount thereof apportioned according to the area of the Demised Premises so condemned or taken. If only a part of the Building shall be so condemned or taken (whether or not the Demised Premises be affected), then (i) Landlord may, at Landlord's option, terminate this Lease and the term and estate hereby granted as of the date of such vesting of title by notifying Tenant in writing of such termination within sixty (60) days following the date on which Landlord shall have received notice of vesting of title, and (ii) if such condemnation or taking shall deprive Tenant of access to the Demised Premises and Landlord shall not have provided or undertaken steps to provide other comparable means of access thereto, or if such condemnation or taking shall otherwise materially impair the conduct of Tenant's business at the Demised Premises. Tenant may, at Tenant's option, by delivery of notice in writing to Landlord within sixty (60) days following the date on which Tenant shall have received notice of vesting of title, terminate this Lease and the term and estate hereby granted as of the date of vesting of title. If neither Landlord nor Tenant elects to terminate this Lease as aforesaid, this Lease shall be and remain unaffected by such condemnation or taking, except that the Fixed Rent and additional rent shall be abated to the extent, if any, hereinbefore provided in this Article 12. If only a part of the Demised Premises consisting of less than fifty (50%) percent of the rentable square foot area of the Demised Premises shall be so condemned or taken and this Lease and the term and estate hereby granted are not terminated as hereinbefore provided, Landlord will, with reasonable diligence and at its expense, restore the remaining portion of the Demised Premises as nearly as practicable to the same condition as it was in prior to such condemnation or taking, provided that such restoration shall not exceed the scope of the work done in originally constructing the Building and that the cost thereof shall not exceed the net proceeds of the award received by Landlord for the value of the portion of the Demised Premises so taken, and Tenant shall be entitled to receive no part of such award. Section 12.02. In the event of any condemnation or taking hereinbefore mentioned of all or a part of the Building or the Demised Premises, Landlord shall be entitled to receive the entire award in the condemnation proceeding, including any award made for the value of the estate vested by this Lease in Tenant, and Tenant hereby expressly assigns to Landlord any and all right, title and interest of Tenant now or hereafter arising in or to any such award or any part thereof, and Tenant shall be entitled to receive no part of such award. In any condemnation proceeding, Tenant may submit a separate claim against the condemning authority for moving expenses, the value of Tenant's trade fixtures, equipment and the cost of removal or relocation, if such separate claims are allowable as such and do not reduce the award otherwise payable to Landlord. Section 12.03. If all or any portion of the Demised Premises shall be taken by the exercise of the right of eminent domain for occupancy for a limited period, this Lease shall continue in full force and effect and Tenant shall continue to pay in full the Fixed Rent, additional rent and other charges herein reserved, without reduction or abatement, and Tenant shall be entitled to receive, for itself, so much of any award -25- or payment made for such use as is equal to the aforementioned payments that are actually made by Tenant to Landlord during such temporary taking, except as hereinafter provided, and Landlord shall receive the balance thereof. If such award or payment is made in a lump sum, Landlord shall receive out of such lump sum (and Tenant shall be credited with) an amount equal to the total of the Fixed Rent, additional rent and other charges due to Landlord or to be paid by Tenant under the terms of this Lease for the period of such taking (less any amounts theretofore paid by Tenant to Landlord attributable to the period of such taking), and such amount received by Landlord shall be held by Landlord as a fund which Landlord shall apply from time to time to the payments due to Landlord from Tenant under the terms of this Lease. Out of the balance of such sum, if any, Tenant shall be paid in an amount equal to the amounts, if any, theretofore paid by Tenant to Landlord attributable to the period of such taking, and Landlord shall be paid the remainder of such balance. If such taking is for a period not extending beyond the Term of this Lease, and if such taking results in changes or Alterations in the Demised Premises which would necessitate an expenditure to restore the Demised Premises to its former condition, then Tenant at the termination of such taking shall, at its expense, restore the Demised Premises to its former condition (subject to reasonable wear and tear, damage from fire or other casualty, condemnation or eminent domain, and repairs which are not the responsibility of Tenant under the terms of this Lease), and such portion of the award or payment payable to Landlord, if any, in excess of the Fixed Rent, additional rent and other charges for the period of such taking as is necessary to cover the expenses of such restoration shall be applied to such restoration, and the balance necessary, if any, shall be paid by Tenant. Tenant shall also pay all fees, costs and expenses of every character and kind of Landlord incurred in connection with such limited taking and obtaining the award therefor, and in connection with such restoration. ARTICLE 13 ACCESS; BUILDING NAME Section 13.01. Landlord reserves the right at any time and from time to time (without thereby creating an actual or constructive eviction or incurring any liability to Tenant therefor) to place such structures and to make such relocations, changes, Alterations, additions, improvements, Repairs and replacements on the Land and in or to the Building (including the Demised Premises) and the Building Systems, and the operation of the Building Systems, as well as in or to the street entrances, subway entrances, lobbies, halls, plazas, washrooms, tunnels, elevators, stairways and other parts thereof and to erect, maintain and use pipes, ducts and conduits in and through the Demised Premises, all as Landlord may in its sole discretion deem necessary or desirable; provided, however, that (i) Landlord shall use commercially reasonable efforts (but shall not be obligated to use overtime or premium pay labor) to minimize interference with Tenant's use and occupancy of the Demised Premises arising from the making of such Repairs, Alterations and improvements, (ii) any pipes, conduits or ducts installed in or through the Demised Premises shall be concealed behind interior walls, floors or ceilings, if feasible, or shall be enclosed and "boxed in" adjacent to such walls, floors or ceilings, (iii) when completed, the installation of such pipes, ducts or conduits shall not reduce the useable areas of the Demised Premises more than a de minimis amount, (iv) Landlord shall promptly repair all damage to the Demised Premises caused by such work, (v) all work affecting the Demised Premises shall be subject to the notice requirements set forth in Section 13.03 below, and (vi) upon completion of such Repairs, Alterations and improvements, Tenant shall have commercially reasonable access to the Demised Premises and the Building Systems shall be in working order. Landlord shall also have the right at Landlord's sole cost and expense to install solar control window film on, or otherwise alter for energy savings purpose, any windows of the Demised Premises. Nothing contained in this Article 13 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 Legal Requirements as in this Lease provided. Section 13.02. Neither this Lease nor any use by Tenant shall give Tenant any right or easement in or to the use of any door or hallways, or any passage or any tunnel or any concourse or arcade or plaza or to any connection of the Building with any subway, railroad or any other building or to any public conveniences, and the use of such doors, halls, passages, tunnels, concourses, arcades, plazas, connections and conveniences may upon prior notice to Tenant (which may be given orally), except in the event of an emergency (in which event entry shall be permitted at any time without notice) be reasonably regulated or discontinued at any time and from time to time by Landlord without Landlord incurring any liability to Tenant therefor and without affecting the obligations of Tenant under this Lease. Section 13.03. Landlord, Overlandlord and any Mortgagee, and their representatives, may enter the Demised Premises at all reasonable hours upon prior notice to Tenant (which may be given orally), except in the event of an emergency (in which event entry shall be permitted at any time without notice) and without Tenant being present, for the purpose of inspection or of making Repairs, Alterations, additions, restorations, replacements or improvements in or to the Demised Premises or the Building or Building Systems or of complying with Legal Requirements or the requirements of any Insurance Board, or of exercising any right reserved to Landlord by this Lease (including the right, during the progress of any Repairs or Alterations or while performing work or furnishing materials in connection with compliance with all such Legal Requirements or requirements of any Insurance Board, to keep and store -26- within the Demised Premises all necessary materials, tools and equipment), provided that the foregoing shall not be deemed to impose any obligation on Landlord or Overlandlord or Mortgagee to make any Repairs or Alterations. Landlord shall use reasonable efforts to minimize interference with Tenant's use and occupancy of the Demised Premises while performing the foregoing Alterations, Repairs, improvements, changes and replacements; provided, however, that Landlord shall have no obligation to employ contractors or labor at overtime or premium rates or to incur any other overtime costs or expenses in connection with the performance of such Alterations, Repairs, improvements, changes or replacements. Section 13.04. Landlord may, at reasonable times upon prior notice (which notice may be given orally) and without Tenant being present, show the Demised Premises to any prospective purchaser, lessee, mortgagee, or assignee of the Building and/or the Land, or of Landlord's interest therein, and their representatives. During the twelve (12) month period preceding the Expiration Date, Landlord may similarly show the Demised Premises or any part thereof to any person contemplating the leasing of all or a portion of the same. Section 13.05. Without incurring any liability to Tenant, Landlord may permit access to the Demised Premises and open the same, whether or not Tenant shall be present, upon demand of any receiver, trustee, assignee for the benefit of creditors, sheriff, marshal or court officer entitled to, or 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 by this provision any action by Landlord hereunder shall not be deemed a recognition by Landlord that the person or official permitted to such access has any right to such access or interest in or to this Lease, or in or to the Demised Premises), or upon demand of any representative of the fire, police, building, sanitation or other department of the city, state or federal governments. Section 13.06. Landlord shall have the absolute right at any time, and from time to time, to name and change the name of the Building and to change the designated address of the Building. The Building may be named after any person, or otherwise, whether or not such name shall be, or shall resemble, the name of a tenant of space in the Building. Section 13.07. Any reservation of a right by Landlord to enter upon the Demised Premises and to make or perform any Repairs, Alterations or other work in, to or about the Demised Premises which, in the first instance, is the obligation of Tenant pursuant to this Lease, shall not be deemed to: (i) impose any obligation on Landlord to do so, (ii) render Landlord liable (to Tenant or any third party) for the failure to do so, or (iii) relieve Tenant from any obligation to indemnify Landlord as otherwise provided elsewhere in this Lease. Section 13.08. At any time before or during the Term, Landlord may elect to relocate the Demised Premises to other space of substantially equal size (the "Relocation Space") on the same or a higher or lower floor in the Building; provided, however, that (i) the Relocation Space shall be on or above the fourteenth (14th) floor and (ii) Landlord shall use reasonable efforts to locate the Relocation Space on the "Broadway side" of the Building and, in the event that Landlord is unable to do so, Landlord shall locate the Relocation Space on the "Nassau Street side" of the Building. Landlord may exercise this election by giving Tenant at least ninety (90) days prior written notice thereof. Upon Landlord making such election: (i) the floor plans annexed hereto as Exhibit A shall be replaced with substitute floor plans showing the Relocation Space, (ii) appropriate adjustment shall be made for differences in measurements between the original Demised Premises and the Relocation Space, and (iii) all references in this Lease to the Demised Premises shall thereafter be deemed to refer to the Relocation Space. At the time that Landlord shall exercise said relocation rights, Landlord shall, in Landlord's discretion: (x) to the extent practicable, build out the Relocation Space and all appurtenances used by Tenant in connection therewith (e.g., electric submetering and cabling), or (y) require Tenant to do so and reimburse Tenant for the reasonable cost thereof. ARTICLE 14 BANKRUPTCY Section 14.01. This Lease and the term and estate hereby granted shall be subject to the conditional limitation that, if any one or more of the following events shall occur: (i) Tenant shall (a) have applied for or consented to the appointment of a receiver, trustee, liquidator, or other custodian of Tenant or any of its properties or assets, (b) have made a general assignment for the benefit of creditors, (c) have commenced a voluntary case for relief as a debtor under the United States Bankruptcy Code or filed a petition to take advantage of any bankruptcy, reorganization, insolvency, readjustment of debts, dissolution or liquidation law or statute or an answer admitting the material allegations of a petition filed against it in any proceeding under any such law, or (d) be adjudicated a bankrupt or insolvent, or (ii) without the acquiescence or consent of Tenant, an order, judgment or decree shall have been entered by any court of competent jurisdiction (a) approving as properly filed a petition seeking relief under the United States Bankruptcy Code or any bankruptcy, reorganization, insolvency, readjustment of debts, dissolution or liquidation law or statute with respect to Tenant or all or liquidation law or statute with respect to Tenant or all or a substantial part of its properties or assets, or (b) appointing a receiver, trustee, liquidator or other custodian or all or a substantial part of its properties or assets, and such order, judgment or decree shall have continued -27- unstayed and in effect for any period of ninety (90) days or more, then this Lease may be canceled and terminated by Landlord by the sending of a written notice to Tenant within a reasonable time after Landlord shall be notified of the happening of any of the aforedescribed events. Neither Tenant, nor any person claiming through or under Tenant or by reason of any statute or order of court, shall thereafter be entitled to possession of the Demised Premises, but shall forthwith quit and surrender the Demised Premises. If this Lease shall have been theretofore assigned in accordance with its terms, the provisions of this Article shall be applicable only to the party then owning Tenant's interest in this Lease. Section 14.02. Without limiting any of the foregoing provisions of this Article, if, pursuant to the United States Bankruptcy Code, Tenant shall be permitted to assign this Lease notwithstanding the restrictions contained in this Lease, Tenant agrees that adequate assurance of future performance by an assignee expressly permitted under such Code shall be deemed to mean (a) the deposit of cash security in an amount equal to the sum of three (3) monthly installments of the Fixed Rent plus additional rent under Article 19 of this Lease for the calendar year preceding the year in which such assignment is intended to become effective, which deposit shall be held by Landlord for the balance of the Term, without interest, as security for the full performance of all of the obligations under this Lease on the part of Tenant to be performed, and (b) evidence by financial statement prepared and certified by a certified public accountant that the assignee has a current net worth, after including the assignment and excluding the value of the leasehold, sufficient to meet all of the remaining rental obligations under this Lease. ARTICLE 15 DEFAULTS, REMEDIES, DAMAGES Section 15.01. This Lease and the term and estate hereby granted shall be subject to the conditional limitation that, if any one or more of the following events (collectively, "Events of Default") shall occur: (a) Tenant shall fail to pay to Landlord the full amount of any installment of Fixed Rent or Recurring Additional Rent within ten (10) days after the date upon which the same shall first become due and any other additional rent, or any other charge payable hereunder by Tenant to Landlord, within ten (10) days after notice and demand therefor; or (b) Tenant shall do anything or permit anything to be done, whether by action or inaction, in breach of any covenant, agreement, term, provision or condition of this Lease, or any Exhibit annexed hereto, on the part of Tenant to be kept, observed or performed (other than a breach of the character referred to in clause 15.01(a) above), and such breach shall continue and shall not be fully remedied by Tenant within fifteen (15) days after Landlord shall have given to Tenant a notice specifying the same (except in connection with a breach which cannot be remedied or cured within said fifteen (15) day period, in which event the time of Tenant within which to cure such breach shall be extended for such time as shall be necessary to cure the same, but only if Tenant, within such fifteen (15) day period, shall promptly commence and thereafter proceed diligently and continuously to cure such breach, and provided further that such period of time shall not be so extended as to jeopardize the interest of Landlord in the Land and/or the Building or so as to subject Landlord to any liability, civil or criminal); or (c) Any event shall occur or any contingency shall arise whereby this Lease or the estate hereby granted or the unexpired balance of the Term of this Lease would, by operation of law or otherwise, devolve upon or pass to any person, firm, association or corporation other than Tenant, except as may be expressly authorized herein, then, upon the occurrence of any of said events, Landlord may at any time thereafter give to Tenant a notice of termination of this Lease setting forth a termination date five (5) days from the date of the giving of such notice, and, upon the giving of such notice, this Lease and the term and estate hereby granted (whether or not the Term shall theretofore have commenced) shall expire and terminate upon the expiration of said five (5) days with the same effect as if that day were the Expiration Date, but Tenant shall remain liable for damages as provided in Sec- tion 15.03 below. Section 15.02. A. If an Event of Default shall have occurred, Landlord and/or Landlord's agents and employees, whether or not this Lease shall have been terminated pursuant to Articles 14 or 15, may, without notice to Tenant, immediately or at any time thereafter re-enter into or upon the Demised Premises or any part thereof, either by summary dispossess proceedings or by any suitable action or proceeding at law, to the extent legally permitted, without being liable to indictment, prosecution or damages therefor, and may repossess the same, and may remove any persons or property therefrom, to the end that Landlord may have, hold and enjoy the Demised Premises again as and of its first estate and interest therein. The words "reenter" "re-entry" and "re- entered" as used in this Lease are not restricted to their technical legal meanings. In the event of any termination of this Lease under the provisions of Articles 14 or 15, or in the event that Landlord shall re-- enter the Demised Premises under the provisions of this Article 15, or in the event of the termination of this Lease (or of re-entry) by or under any summary dispossess or other suitable proceeding or action or any provision of law, Tenant shall thereupon pay to Landlord the Fixed Rent, additional rent and any other charges payable hereunder by Tenant to Land- lord up to the time of such termination of this Lease, or of such recovery of possession of the Demised Premises by Landlord, as the case may be, -28- plus the expenses incurred or paid by Landlord in terminating this Lease or of re-entering the Demised Premises and securing possession thereof, including reasonable attorneys' fees and costs of removal and storage of Ten- ant's property, and Tenant shall also pay to Landlord damages as provided in Section 15.03 below. B. In the event of the re-entry into the Demised Premises by Landlord under the provisions of this Section 15.02, and if this Lease shall not be terminated, Landlord may (but shall have absolutely no obligation to do so), not in Landlord's own name, but as agent for Tenant, relet the whole or any part of the Demised Premises for any period equal to or greater or less than the remainder of the original term of this Lease, for any sum which Landlord may deem suitable, including rent concessions, and for any use and purpose which Landlord may deem appropriate. Such reletting may include any improvements, personalty and trade fixtures remaining in the Demised Premises. C. In the event of a breach on the part of Tenant with respect to any of the covenants, agreements, terms, provisions or conditions on the part of or on behalf of Tenant to be kept, observed or performed, Landlord shall also have the right to seek injunctive relief. D. In the event of (i) the termination of this Lease under the provisions of Articles 14 or 15, or (ii) the re-entry of the De- mised Premises by Landlord under the provisions of this Section 15.02, or (iii) the termination of this Lease (or re-entry) by or under any summary dispossess or other suitable proceeding or action or any provision of law by reason of an Event of Default hereunder, Landlord shall be entitled to retain all monies, if any, paid by Tenant to Landlord, whether as advance rent, security deposit or otherwise, but such monies shall be credited by Landlord against any Fixed Rent, additional rent or any other charge due from Tenant at the time of such termination or re- entry or, at Landlord's option, against any damages payable by Tenant under Section 15.03 or pursuant to law. E. The specified remedies to which Landlord may resort under this Lease are cumulative and concurrent, and are not intended to be exclusive of each other or of any other remedies or means of redress to which Landlord may lawfully be entitled at any time, and Landlord may invoke any remedy allowed under this Lease or at law or in equity as if specific remedies were not herein provided for, and the exercise by Landlord of any one or more of the remedies allowed under this Lease or in law or in equity shall not preclude the simultaneous or later exercise by the Landlord of any or all other remedies allowed under this Lease or in law or in equity. Section 15.03. A. In the event of any termination of this Lease under the provisions hereof or under any summary dispossess or other proceeding or action or any provision of law, or in the event that Land- lord shall re-enter the Demised Premises under the provisions of this Lease, Tenant shall pay to Landlord as damages, at the election of Land- lord, either: (i) a sum which at the time of such termination of this Lease or at the time of any such re-entry by Landlord, as the case may be, represents the then value of the excess, if any, of (a) the aggregate of the installments of Fixed Rent and the additional rent (if any) which would have been payable hereunder by Tenant, had this Lease not so terminated, for the period commencing with such earlier termination of this Lease or the date of any such re-entry, as the case may be, and ending with the date hereinbefore set for the expiration of the full Term hereby granted pursuant to Articles 1 and 2, over (b) the aggregate rental value of the Demised Premises for the same period (the amounts of each of clauses (a) and (b) being first discounted to present value at an annual rate of four (4%) percent); or (ii) sums equal to the aggregate of the installments of Fixed Rent and additional rent (if any) which would have been payable by Tenant had this Lease not so terminated, or had Land- lord not so re-entered the Demised Premises, payable upon the due dates therefor specified herein following such termination or such re-entry and until the date herein before set for the expiration of the full Term hereby granted; provided, however, that if Landlord shall relet the Demised Pre- mises during said period, Landlord shall credit Tenant with the net rents received by Landlord from such reletting, such net rents to be determined by first deducting from the gross rents as and when received by Landlord from such reletting the expenses incurred or paid by Landlord in terminating this Lease and of re-entering the Demised Premises and of securing possession thereof, including reasonable attorneys' fees and costs of removal and storage of Tenant's property, as well as the expenses of reletting, including repairing, restoring and improving the Demised Premises for new tenants, reasonable brokers' commissions, reasonable advertising costs, reasonable attorneys' fees and disbursements, and all other similar or dissimilar expenses chargeable against the Demised Premises and the rental therefrom in connection with such reletting, it being understood that such reletting may be for a period equal to or shorter or longer than the remaining Term of this Lease; and provided further, that (a) in no event shall Tenant be entitled to receive any excess of such net rents over the sums payable by Tenant to Land- lord hereunder, (b) in no event shall Tenant be entitled in any suit for the collection of damages pursuant to this Subdivision (ii) to a credit in respect of any net rents from a reletting except to the extent that such net rents are actually received by Landlord prior to the commencement of such suit, and (c) if the Demised Premises or any part thereof should be -29- relet in combination with other space, then proper apportionment on a square foot area basis shall be made of the rent received from such reletting and of the expenses of reletting, or if relet for a period longer than the remaining Term of this Lease, the expenses of reletting shall be apportioned based on the respective periods. B. For the purposes of Subdivision A(i) of this Sec- tion 15.03, the amount of additional rent which would have been payable by Tenant under Article 19 for each year, as therein provided, ending after such termination of this Lease or such re-entry, shall be deemed to be an amount equal to the amount of such additional rent payable by Tenant for the calendar year and Tax Year ending immediately preceding such termination of this Lease or such re-entry. Suit or suits for the recovery of such damages, or any installments thereof, may be brought by Landlord from time to time at Landlord's 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 under the provisions of Articles 14 or 15, or under any provision of law, or had Landlord not re-entered the Demised Pre- mises. Section 15.04. Nothing contained in this Article 15 shall be construed as limiting or precluding the recovery by Landlord against Tenant of any payments or damages (excluding consequential damages) to which, in addition to the damages particularly provided above, Land- lord may lawfully be entitled by reason of any default hereunder on the part of Tenant beyond notice and the expiration of the applicable cure period, if any. The failure or refusal of Landlord to relet the Demised Premises or any part or parts thereof, or the failure of Landlord to collect the rent thereof under such reletting, shall not release or affect Tenant's liability for damages. Section 15.05. Tenant, for Tenant, and on behalf of any and all persons claiming through or under Tenant, including creditors of all kinds, does here by waive and surrender all right and privilege which they or any of them might have under or by reason of any present or future law to redeem the Demised Premises, or to have a continuance of this Lease for the Term hereby demised, after Tenant shall be dis- possessed or ejected therefrom by process of law or under the terms of this Lease or after the expiration or termination of this Lease as herein provided or pursuant to law. Tenant also waives the provisions of any law relating to notice and/or delay in levy of execution in case of an eviction or dispossess of a tenant for non-payment of rent, and of any other law of like import now or hereafter in effect. In the event that Landlord shall commence any summary proceeding for non-payment of rent or for holding over after the expiration or sooner termination of this Lease, Tenant shall not, and hereby expressly waives any right to, inter- pose any counterclaim of whatever nature or description in any such proceeding unless the failure of Tenant to interpose such counterclaim would operate as a forfeiture or Tenant's right to make such a claim separately. Section 15.06. The provisions of this Article 15 shall survive the expiration or sooner termination of this Lease. ARTICLE 16 CURING TENANT'S DEFAULTS; REIMBURSEMENT Section 16.01. If Tenant shall default in the observance or performance of any term, covenant, provision or condition on Tenant's part to be observed or performed under or by virtue of any of the terms or provisions in this Lease beyond notice and the expiration of the applicable cure period, if any, then, unless otherwise provided elsewhere in this Lease, Landlord may immediately or at any time thereafter and upon notice perform the obligation of Tenant thereunder, and if Landlord, in connection therewith or in connection with any default by Tenant in the covenant to pay Fixed Rent or additional rent hereunder, shall make any expenditures or incur any obligations for payment of money, including court costs and reasonable attorneys' fees, in instituting, prosecuting or defending any action or proceeding, then such fees, costs and expenses so paid or obligations incurred shall be additional rent to be paid by Tenant to Landlord, within twenty (20) days after demand therefor (which demand shall be accompanied by evidence reasonably substantiating such amount) with interest thereon at an annual rate (the "Interest Rate") equal to the lesser of: (a) the then prevailing prime rate (which, for the purposes hereof, includes any equivalent or successor interest rate, however denominated) of interest for unsecured ninety- day loans by Citibank, N.A. (or The Chase Manhattan Bank, N.A., if Citibank, N.A. shall not then have an established prime rate; or Chemical Bank, if neither Citibank, N.A. nor The Chase Manhattan Bank, N.A., shall then have an established prime rate; or the prime rate of any major banking institution doing business in New York City, as selected by Landlord, if none of the aforementioned banks shall be in existence or have an established prime rate) plus two (2) percentage points, or (b) the maximum rate allowed by law. Any interest payable by Tenant pursuant to this Lease at the Interest Rate shall be calculated from the day such expenditure is made or obligation is incurred until the date when such payment is finally and completely paid by Tenant to Landlord. Section 16.02. Bills for any property, material, labor or services provided, furnished or rendered, or caused to be provided, furnished or rendered, by Landlord to Tenant (other than that provided, furnished or rendered in connection with Landlord's Work), may be sent by Landlord to Tenant monthly (or immediately, at Landlord's option), and shall be due and payable by Tenant as additional rent within twenty (20) days after the same shall be delivered to Tenant by Landlord. Such bills shall -30- be accompanied by evidence reasonably substantiating amounts shown thereon. If Landlord shall commence a summary proceeding against Tenant for non-payment of rent, Tenant shall reimburse Landlord as additional rent for Landlord's reasonable attorneys' fees and expenses, both if judgment is awarded for Landlord, or if Tenant makes the payment subsequent to service of process but prior to entry of judgment. If Tenant or any subtenant of Tenant shall request Landlord's consent to any matter that requires Landlord's consent under this Lease and if Landlord (in Landlord's sole discretion) shall refer the matter to Landlord's independent attorneys or other professionals or consultants, then, whether or not such consent shall be granted, Tenant shall reimburse Landlord for the reasonable, out-of-pocket fees and disbursements incurred by Landlord in connection therewith as additional rent within twenty (20) days after a bill therefor shall have been rendered, which bill shall be accompanied by evidence reasonably substantiating such amount. Section 16.03. If the Term shall have expired or been terminated after or on the date that Landlord shall have made any of the expenditures, or incurred any of the obligations, set forth in this Article 16, then all such amounts and any interest thereon, as set forth in Section 16.01 above, shall be recoverable by Landlord as damages. The provisions of this Article 16 shall survive the expiration or sooner termination of this Lease. ARTICLE 17 QUIET ENJOYMENT Section 17.01. Landlord covenants that, if and for so long as Tenant shall pay all of the Fixed Rent and additional rent reserved hereunder and shall observe and perform all of the terms, agreements, covenants, provisions and conditions of this Lease on Tenant's part to be observed and performed, Tenant may peaceably and quietly enjoy the Demised Premises, subject nevertheless to the terms and conditions of this Lease, and provided, however, that no eviction of Tenant by reason of paramount title, by reason of the foreclosure of any Mortgage now or hereafter affecting the Demised Premises or by reason of any termination of any Underlying Lease to which this Lease is subject and subordinate, whether such termination is effected by operation of law, by agreement or otherwise, shall be construed as a breach of this covenant nor shall any action by reason thereof be brought against Landlord. This covenant shall be construed as a covenant running with the Land, and is not, nor shall it be construed as, a personal covenant of Landlord, except to the extent of Landlord's interest in this Lease and only for so long as such interest shall continue. Accordingly, this covenant shall bind and be enforceable against Landlord or any successor to Landlord's interest, subject to the terms hereof, only for so long as Landlord or any successor to Landlord's interest, respectively, shall be in possession and shall be collecting rent from Tenant, but not thereafter. ARTICLE 18 BUILDING SERVICES Section 18.01. A. So long as this Lease shall remain in full force and effect, from and after the date that Tenant shall be ready to occupy the Demised Premises for the conduct of Tenant's business therein, Landlord shall provide the following services: (i) Passenger and (on a first come, first served basis) freight elevator service on Business Days, during usual business hours (i.e., 8 A.M. to 6 P.M.), and, subject to the provisions of Section 18.04 below, have one elevator on call at all other times. Tenant agrees that Landlord may, at Landlord's election, install elevators with or without operators and may change the same from time to time; (ii) heat to the Demised Premises when and as required by law, on Business Days from 8 A.M. to 6 P.M.; (iii) water for ordinary lavatory and drinking and office cleaning purposes. If Tenant requires, uses or consumes water for any other purposes or in unusual quantities (as reasonably determined by Landlord), then Landlord may (or, at Landlord's direction, Tenant shall) install a meter or meters or other means to measure Tenant's water consumption, and Tenant agrees to pay for the cost of the meter or meters and the installation thereof, and to pay for the maintenance of said meter equipment and/or to pay Landlord's actual out-of-pocket cost of other means of measuring such water consumption by Tenant. Tenant shall reimburse Landlord for the actual cost of all water consumed as measured by said meter or meters or as otherwise measured, including sewer rents, as additional rent, within ten (10) days after bills therefor are rendered. If Landlord shall elect (or otherwise be required) to furnish hot water to the Demised Premises, Tenant shall reimburse Landlord for the actual cost of generating such hot water, as additional rent, within fifteen (15) days after bills therefor are rendered; and (iv) cleaning of the Demised Premises on Business Days in accordance with the specifications set forth in Exhibit "E" annexed hereto and made a part hereof, provided that the Demised Premises are kept in reasonable order by Tenant (and further subject to the provisions of Section 18.03 below). Tenant shall reimburse Landlord for the actual cost of removal from the Demised Premises and the Building of so much of Tenant's refuse and rubbish (x) as shall exceed that ordinarily accumulated daily in the routine of business office occupancy or (y) resulting from any use of the Demised Premises during hours other than usual business hours (collectively, -31- "Extra Rubbish Removal"). The reimbursement for Extra Rubbish Removal shall be made by Tenant to Landlord, as additional rent, within twenty (20) days after bills therefor are rendered. B. Tenant acknowledges receipt of advice from Landlord to the effect that there is no Building air-conditioning or ventilation system servicing the Demised Premises, and that all air- conditioning and ventilation of the Demised Premises shall be procured by Tenant at Tenant's own cost and expense, except as otherwise set forth on Exhibit C. Tenant agrees that all air-conditioning equipment now or hereafter installed by Tenant in the Demised Premises shall be of the package air-cooled type, window units being expressly prohibited. Tenant covenants and agrees that, at Tenant's own cost and expense, Tenant shall maintain said air-conditioning equipment in working order at all times during the Term, perform all repairs thereto and servicing thereof, and make replacement of all parts, as the same becomes necessary. Tenant shall be required to pay in accordance with Article 20 below for all electric energy necessary or used in connection with air- conditioning and ventilation in the Demised Premises. Said air- conditioning equipment shall at all times be the exclusive property of Landlord, and shall be surrendered to Landlord with the Demised Premises upon the expiration or sooner termination of this Lease. C. If Tenant shall require freight elevator service at any time other than the time periods set forth in Subdivision 18.01A(i) above, Landlord shall furnish the same upon advance written notice from Tenant, provided that such notice shall be given prior to 2:00 P.M. on any Business Day on which Tenant requires such after hours freight elevator service or if Tenant shall desire freight elevator service on a day other than a Business Day, Landlord shall furnish the same upon advance written notice from Tenant given prior to 2:00 P.M. on the last Business Day prior to such non-Business Day. Tenant shall pay to Landlord, as additional rent and within twenty (20) days after being billed therefor (which bill shall be accompanied by evidence reasonably substantiating amounts shown thereon), Landlord's then established hourly rates for such usage with a four (4) hour minimum. Landlord agrees that said hourly rate shall not exceed the cost incurred by Landlord to provide such freight elevator service. D. If Tenant shall require heating service at any time other than the time periods set forth in Subdivision 18.01A(ii) above, Landlord shall furnish the same upon advance written notice from Tenant, given prior to 2:00 P.M. on any Business Day on which Tenant requires such after hours heat or if Tenant shall desire heat on a day other than a Business Day, Landlord shall furnish the same upon advance written notice from Tenant given prior to 2:00 P.M. on the last Business Day prior to such non-Business Day, Tenant shall pay to Landlord, as additional rent and within twenty (20) days after being billed therefor (which bill shall be accompanied by evidence reasonably substantiating amounts shown thereon), Landlord's then established rates for such heating service. Landlord agrees that said rates shall not exceed the costs incurred by Landlord to provide such heating service. If any other tenant whose premises are served by the same heating system as the Demised Premises shall request and receive heat after hours for any of the same hours as Tenant, the charges for such hours of common use shall be equitably allocated among all tenants actually requesting such common heat service from Landlord. Section 18.02. The term "Business Days" shall be deemed to mean all days other than Saturdays, Sundays and Holidays. The term "Holidays" shall be deemed to mean all federal, state, municipal and bank holidays and Building Service Employees and Operating Engineer's Union contract holidays now or hereafter in effect. Section 18.03. A. If Tenant so elects, Tenant may elect to clean the Demised Premises, in which case Landlord shall not be obligated to provide cleaning services, and Tenant shall, at Tenant's own cost and expense, keep the Demised Premises clean and in order, to the reasonable satisfaction of Landlord (including cleaning of the inside and outside of the windows once per month), and for that purpose shall employ a person, who or which shall be subject to the prior written approval of Landlord, which approval shall not be unreasonably withheld or delayed. In order to ensure effective security in the Building, Tenant acknowledges the reasonableness of Landlord's right at its option to designate a party to be so employed by Tenant and to act as maintenance and cleaning contractor for any office cleaning, rubbish removal, waxing, polishing, lamp replacement, cleaning and maintenance work in the Demised Premises, so long as such party is a reputable person that charges no more than the prevailing rates in effect for comparable services in similar type buildings. Landlord expressly reserves the right to exclude from the Building any person attempting to perform any such work or furnish any of such services without Landlord's prior written approval or not so designated by Landlord. B. If Landlord so elects, then, notwithstanding anything to the contrary set forth in Subdivision 18.01A(iv) above, Tenant shall directly procure the cleaning services and removal of refuse and rubbish which Landlord would otherwise be obligated to provide pursuant to said Subdivision 18.01A(iv). Tenant hereby irrevocably designates Landlord as Tenant's attorney-in-fact to arrange for such procurement at any time, and from time to time, during the Term. In the event that Landlord shall make the election described in the first sentence of this Subsection 18.03B, Landlord shall notify Tenant not less than twenty (20) days prior to the effective date thereof, and Landlord, as Tenant's attorney-in-fact, shall then arrange for such procurement at -32- no additional cost or expense to Tenant, except for the cost of Extra Rubbish Removal. Landlord shall have the right, on notice given to Tenant at any time thereafter, to rescind such election. Tenant's designation of Landlord as Tenant's attorney-in-fact shall be limited to the specific purpose set forth in this Subsection 18.03B, and shall in no way be construed to (x) impose any fiduciary obligation upon Landlord with respect to said procurement or any other matter arising from or related to this Lease or Tenant's occupancy of the Demised Premises, (y) create any agency relationship between Tenant and Landlord, or (z) otherwise alter the relationship of the parties from that of tenant and landlord. Section 18.04. Landlord reserves the right to stop the furnishing of the Building services and to stop service of the Building Systems, when necessary, by reason of accident, or emergency, or for Repairs and Alterations in the reasonable judgment of Landlord desirable or necessary to be made, until said Repairs and Alterations shall have been completed; and Landlord shall have no responsibility or liability for failure to supply heat, elevator, plumbing, electric or other services during said period or when prevented from so doing by strikes, lockouts, difficulty of obtaining materials, accidents or by any cause beyond Landlord's reasonable control, or by Legal Requirements or failure of electricity, water, steam, coal, oil or other suitable fuel or power supply, or inability by exercise of reasonable diligence to obtain electricity, water, steam, coal, oil or other suitable fuel or power. In the event that such services shall have been stopped, Landlord agrees to use commercially reasonable efforts to resume such services, but shall not be obligated to use overtime or premium pay labor except when good business practice indicates a need for the use of such overtime or premium labor to minimize interference with Tenant's use and occupancy of the Demised Premises caused by the interruption of the heat, elevator, plumbing, electric or other building services. No diminution or abatement of rent or other compensation shall or will be claimed by Tenant as a result therefrom, nor shall this Lease or any of the obligations of Tenant be affected or reduced by reason of such interruption, curtailment or suspension unless such interruption, curtailment or suspension shall result from the gross negligence or willful misconduct of Landlord or Persons Within Landlord's Control, nor shall the same constitute an actual or constructive eviction. Section 18.05. Tenant shall, at Tenant's own cost and expense, reasonably cooperate with Landlord with respect to any rule or requirement promulgated by Landlord for the proper protection and functioning of the Building Systems and the furnishing of the Building services. Tenant also shall, at Tenant's own cost and expense, reasonably cooperate with Landlord in any conservation effort pursuant to a program or procedure promulgated or recommended by ASHRAE or any Legal Requirements. Section 18.06. Except as may be provided to the contrary in this Lease, Tenant shall have access to the Building and the Demised Premises twenty-four (24) hours each day, seven (7) days each week. ARTICLE 19 TAXES; OPERATING EXPENSES Section 19.01. In addition to the Fixed Rent and additional rent hereinbefore reserved, Tenant covenants and agrees to pay Landlord, as additional rent, all amounts computed in accordance with the provisions set forth in this Article 19. Section 19.02. For the purposes of this Lease: A. The term "Taxes" shall mean (whether represented by one or more bills) the total amount of all real estate taxes, assessments and special assessments (provided, however, that if such assessment shall be payable in installments and Landlord shall actually pay the same in installments, Taxes shall include only the portion of assessment installments due during the Term plus any interest payable by reason of Landlord's election to pay such assessment in installments), water and sewer rents, governmental levies, county taxes or any other governmental charge, general or special, ordinary or extraordinary, unforeseen as well as foreseen, of any and every kind or nature whatsoever, which are or may be levied, confirmed, charged, assessed or imposed upon the Land, the Building and/or Landlord's interest therein, and the sidewalks, plazas, streets and alleys in front of or adjacent thereto, and any rights or interests appurtenant thereto under the laws of the United States, the State of New York or any political subdivision thereof, or by the City of New York or any political subdivision thereof (including any assessments, levies, impositions, charges or taxes arising from the location of the Land or Building within a Business Improvement District or other area or zone which is subject to governmentally authorized or civic related assessments, levies, impositions, charges or taxes not generally applicable to other portions of the Borough of Manhattan or the City of New York). If, due to a future change in the method of taxation or in the taxing authority, a franchise, income, gross receipts, transit, profit or other tax or governmental imposition, however designated (including any tax, excise or fee, measured by or payable with respect to any rents, licenses or other charges received by Landlord and levied against Landlord, Land and/or the Building) shall be levied against Landlord, the Land and/or the Building in substitution (in whole or in part) for, or as an addition to or in lieu of, any Taxes, then such franchise, income, gross receipts, transit, profit or other tax or governmental imposition shall be deemed to be included within the definition of the term "Taxes" for the purposes hereof, excluding any general income, corporate franchise, gains, estate, inheritance, succession, capital stock or transfer tax levied on Landlord. -33- B. The term "Tax Year" shall mean every twelve (12) consecutive month period, all or any part of which shall occur during the Term, commencing each July 1 or such other date as shall be the first day of the fiscal tax year of The City of New York or other governmental agency determined by Landlord to be responsible for the collection of substantially all Taxes. C. The term "Operating Year" shall mean each calendar year, all or any part of which shall occur during the Term, following the Base Operating Year. D. The term "Operating Statement" shall mean a written statement prepared by Landlord or Landlord's agent, setting forth Landlord's computation of the amount payable by Tenant pursuant to Section 19.04 for a specified Operating Year. E. The term "Operating Expenses" shall mean (subject to the provisions of Subsection 19.02G below) all costs and expenses paid or incurred by Landlord or on Landlord's behalf in connection with the ownership, management, repair, maintenance, replacement, restoration or operation of the Building, the Land and any plazas, sidewalks, curbs and appurtenances thereto, including the following items (which items are illustrative of items to be included in Operating Expenses): (i) "Labor Costs" (as such term is defined below) of persons performing services in connection with the operation, repair and maintenance of the Land or the Building; (ii) the cost of (including any rental cost of) materials and supplies used in the operation, cleaning, safety, security, renovation, replacement, repair and maintenance of the Building and its plazas (if any), sidewalks, curbs and appurtenances, and any plant, equipment, facilities and systems designed to supply heat, ventilation, air-conditioning or any other services or utilities, or comprising any portion of the electrical, gas, steam, plumbing, sprinkler, mechanical, communications, alarm, security or fire/life safety systems or equipment, including any sales and other taxes thereon; (iii) the depreciation for, or the rental cost or value (including applicable sales taxes) of, hand tools and other movable equipment used in the operation, cleaning, safety, security, repair or maintenance of the Building and its plazas (if any), sidewalks, curbs and appurtenances; (iv) reasonable legal, accounting and other professional fees incurred in connection with the operation or management of the Land or the Building; (v) amounts incurred by Landlord for services, materials and supplies furnished in connection with the operation, repair and maintenance of any part of the Building and its plazas (if any), sidewalks, curbs and appurtenances, including the heating, air-conditioning, ventilating, plumbing, electrical, elevator, safety and other systems of the Building; (vi) the cost of all charges for window cleaning and other cleaning, janitorial, security and other services, in and about the Building and its plazas (if any), sidewalks, curbs and appurtenances; (vii) premiums paid by Landlord for rent, casualty, boiler, sprinkler, plate-glass, liability and fidelity insurance with respect to the Land or Building and its plazas (if any), sidewalks, curbs and appurtenances, and any other insurance Landlord maintains or is required to maintain with regard to the Land or the Building or the maintenance or operation thereof; (viii) costs (including all applicable taxes) for electricity (as measured by the Building's electric meters, and evaluated under the same rate classification and frequency that Landlord is charged by the public utility furnishing electricity to the Building), steam, telephone, and other utilities for the portions of the Land and the Building not leased and occupied (or available for leasing or occupancy) by tenants in the Building and for utilities and electricity (so measured and evaluated) consumed in connection with the operation of the heating, ventilating and air-conditioning equipment servicing common, public or service areas of the Building; (ix) water charges and sewer rents or charges to the extent not specifically reimbursable by tenants of the Building and not otherwise included in "Taxes"; (x) telephone and stationery costs; (xi) the cost of painting and otherwise decorating any non-tenant areas of the Building, and its plazas (if any) and sidewalks; (xii) the cost of installing, maintaining, repairing and replacing art works (except fine art) as well as holiday decorations, for the lobby and other public portions of the Building, and its plazas (if any) and sidewalks; (xiii) the cost of exterior and interior landscaping of non-tenant areas of the Land, the Building and its plazas (if any) and sidewalks; -34- (xiv) dues and fees paid to civic organizations and associations representing Landlord, or of which Landlord is a member, in the City of New York; (xv) franchise, license and similar fees and charges paid by Landlord to any governmental agency for the privilege of owning, leasing, operating, maintaining or servicing the Building or any of its equipment, property or appurtenances; (xvi) management fees, or, if no managing agent is then employed by Landlord, an amount in lieu thereof which is not in excess of the then prevailing rates for management fees of first-class office buildings in Manhattan; (xvii) the cost of the rental, together with the cost of installation, of any Building security or other system used in connection with life or property protection installed after the Base Operating Year (including the cost, or the cost of the rental, of all machinery, electronic systems and other equipment comprising any part thereof), as well as the cost of the operation and repair of any such system in operation during the Base Operating Year; (xviii) whether or not capitalized under generally accepted accounting principles, costs for Alterations to the Building made after the Base Operating Year by reason of any Legal Requirements or the requirements of any Insurance Boards or Landlord's insurer enacted after the date hereof, provided, however, (i) that if and to the extent such costs are capitalized under generally accepted accounting principles, such costs shall be amortized over the useful life of such improvement, equipment or machinery (determined in accordance with generally accepted accounting principles) with an interest factor calculated using the Interest Rate in effect at the time that any such cost is incurred, and (ii) that the costs of curing violations existing of record against the Building on the Commencement Date or of complying with Legal Requirements in effect on the Commencement Date shall not be included in Operating Expenses; (xix) whether or not capitalized under generally accepted accounting principles, the cost of improvements, equipment or machinery installed for the purpose of reducing energy consumption or reducing other Operating Expenses, provided, however, that if and to the extent such costs are capitalized under generally accepted accounting principles, such costs shall be amortized over the useful life of such improvement, equipment or machinery (determined in accordance with generally accepted accounting principles) with an interest factor calculated using the Interest Rate in effect at the time that any such cost is incurred; and (xx) all other charges allocable to the repair, ownership, management, maintenance, replacement, restoration or operation of the Building in accordance with real estate accounting practices customarily used in Manhattan. F. The term "Labor Costs" shall mean any and all expenses incurred by Landlord or on Landlord's behalf which shall be related to employment of personnel, including amounts incurred for wages, salaries and other compensation for services, payroll, social security, unemployment and other similar taxes, Workers' Compensation insurance, liability benefits, pensions, hospitalization, retirement plans and insurance (including group life and disability), uniforms and working clothes and the cleaning thereof, and expenses imposed on or on behalf of Landlord pursuant to any collective bargaining agreement relating to such employees. With respect to employees who are not employed on a full-time basis with respect to the Building, a pro rata portion of expenses allocable to the time any such employee is employed with respect to the Building shall be included in Labor Costs. G. The term "Operating Expenses" shall not include the following items: (i) Labor Costs in respect of officers and executives of Landlord, unless for work actually performed in or about the Building ordinarily done by a third person, and then only at compensation no higher than that which would have been paid to such third person; (ii) legal fees, leasing commissions, advertising expenses and promotional expenses incurred in leasing or attempting to lease any portion of the Building; (iii) insurance premiums, but only if and to the extent that Landlord is specifically entitled to be reimbursed therefor by Tenant pursuant to this Lease (other than pursuant to this Article) or by any other tenant or other occupant of the Building pursuant to its lease (other than pursuant to an operating expenses escalation clause contained therein); (iv) the cost of any item for which and to the extent that Landlord is reimbursed by insurance or otherwise compensated including reimbursement by any tenant, and any net proceeds of refund or recovery from other sources; (v) the cost of any alterations, additions, changes, replacements and improvements that are made solely in order to prepare space for occupancy by a new tenant; -35- (vi) the cost of capital improvements, other than those (a) which under generally applied real estate practice are deemed expenses or deferred expenses, or (b) described in clauses (xviii) and (xix) of Subsection 19.02E above; (vii) the cost of electricity furnished to the Demised Premises or any other space in the Building leased to tenants, and for which tenants are specifically billed in accordance with the terms of their leases; (viii) such portion of Taxes attributable, in Landlord's judgment, to space in the Building leased to tenants, and for which tenants are specifically billed in accordance with the terms of their leases; (ix) refinancing costs, depreciation and amortization, and payments of mortgage interest and principal; (x) costs to perform work or to provide services for any tenant of the Building, but only if and to the extent that the same is in excess of that which Landlord furnishes generally (with no additional expense) to the tenants of the Building; (xi) any costs incurred for the purpose of effecting a sale of the Building, Land or any Underlying Lease, including any transfer, deed or gains taxes payable by Landlord; (xii) bad debt losses, rent losses or reserves for either; (xiii) ground rent, if any, on any Underlying Lease; (xiv) depreciation of the Building; (xv) any amounts paid by Landlord to any affiliate of Landlord, to the extent such amount is in excess of the amount which would have been paid by Landlord in the absence of such relationship; (xvi) payments of any amounts to any person seeking recovery for negligence or other torts committed by Landlord; (xvii) fines, penalties or interest incurred by Landlord, if due to Landlord's late payment of any of Landlord's financial obligations to third parties or due to violations of any Legal Requirements (unless cure or compliance is the obligation of Tenant or any other tenant under its lease); (xviii) costs of repairs or replacements incurred by reason of fire or other casualty or by eminent domain or condemnation to the extent Landlord is compensated therefor; (xix) legal fees and auditing fees incurred in the enforcement of any leases in the Building or in defending any suits brought by tenants in the Building and other legal and auditing fees (other than legal and auditing fees incurred in connection with (x) the maintenance or operation of the Building or Land, and (y) the preparation of any of Landlord's statements pursuant to this Article 19, both of which shall be included within the definition of Operating Expenses); and (xx) the cost of correcting defects or inadequacies of the original design of the structure of the Building or in the construction of the Building or the Building Systems, except that conditions resulting from ordinary wear and tear shall not be deemed defects for the purpose hereof. H. If, during all or part of any Operating Year (including the Base Operating Year), Landlord shall not furnish any particular item(s) of work or service (which would otherwise constitute an Operating Expense hereunder) to portions of the Building due to the fact that (i) such portions are not occupied or leased, (ii) such item of work or service is not required or desired by the tenant of such portion, (iii) such tenant is itself obtaining and providing such item of work or service, or (iv) for any other reason, then, for the purposes of computing Operating Expenses, the amount for such item and for such period shall be deemed to be increased by an amount equal to the additional costs and expenses of furnishing such item of work or services to such portion of the Building or to such tenant. Section 19.03. A. (i) If, for any reason whatsoever (whether foreseen or unforseen), the Taxes payable for any Tax Year shall be greater than the Taxes, as finally determined, payable for the Base Tax Amount then Tenant shall pay to Landlord as additional rent for each such Tax Year an amount (the "Tax Payment") equal to Tenant's Proportionate Share (as defined in Section 1.01 above) of the amount by which the Taxes payable for such Tax Year exceeds the Taxes payable for the Base Tax Amount. (ii) Within a reasonable time period after the issuance by the governmental authority having jurisdiction thereover of tax bills for Taxes payable for any Tax Year, Landlord shall submit to Tenant a statement (the "Tax Statement") which shall indicate the amount, if any, required to be paid by Tenant as additional rent as in this Section provided together with a copy of such tax bills. -36- (iii) Within twenty (20) days after delivery of the Tax Statement, Tenant shall pay to Landlord the additional rent as set forth on such Tax Statement. B. If, following the delivery of any Tax Statement, Landlord shall receive a refund of Taxes with respect to a Tax Year for which Tenant has paid any additional rent under the provisions of this Section, then Tenant's Proportionate Share of the net proceeds of such refund, after deduction of reasonable legal fees, appraiser's fees and other reasonable expenses incurred in obtaining reductions and refunds and collecting the same (and after deduction of such expenses for previous Tax Years which were not offset by tax refunds for such Tax Years) shall be applied and allocated to the periods for which the refund was obtained and, if Tenant shall not be in default of any of Tenant's obligations under this Lease beyond notice and the expiration of the applicable cure period, if any. Landlord shall refund or credit to Tenant an amount equal to Tenant's Proportionate Share of the net proceeds of such refund. In no event shall any refund or credit due to Tenant here- under exceed the sum paid by Tenant for such particular Tax Year. Only Landlord shall be eligible to institute tax reduction or other proceedings to reduce the assessed valuation of the Landlord or the Building. In no event shall Tenant have the right to seek from the taxing authority any refund or reduction of Taxes. If, prior to the delivery of a Tax Statement to Tenant with respect to a particular Tax Year, Landlord shall obtain a reduction in Taxes for that Tax Year, then Tenant shall pay to Landlord, within twenty (20) days following the issuance to Tenant of a bill therefor, an amount equal to Tenant's Proportionate Share of all reasonable costs and expenses (including reasonable legal, appraisal and other expert fees) incurred by Landlord in obtaining such reduction. C. If there shall be a reduction or refund of Taxes for either of the Tax Years utilized in computing the Base Tax Amount, Landlord shall furnish to Tenant a statement indicating the amount thereof, and all prior and future additional rent payments provided for in this Section 19.03 shall be recalculated accordingly. Any additional payment due for any Tax Year shall be made by Tenant within fifteen (15) days after the furnishing to Tenant of the revised statement. D. If there shall be a reduction of the area of the De- mised Premises either due to a partial taking thereof by eminent domain or due to subsequent agreement of the parties or if the area of the De- mised Premises shall be increased, Tenant's Proportionate Share of increases of Taxes thereafter payable by Tenant under Subsection 19.03A shall, except as may otherwise be expressly agreed in writing by the parties, be increased or decreased on the basis of the ratio between the square feet of rentable area in the Demised Premises before and after said increase or decrease in area. E. Tenant shall pay, before delinquency, all rent and occupancy taxes and all property taxes and assessments on the furniture, fixtures, equipment and other property of Tenant at any time situated on or installed in the Demised Premises, and on additions and improvements in the Demised Premises made or installed by Tenant subsequent to the Commencement Date, if any. If at any time during the Term any of the foregoing are assessed as a part of the real property of which the De- mised Premises are a part, Tenant shall pay to Landlord within twenty (20) days after demand therefor the amount of such additional taxes as may be levied against said real property by reason thereof, which demand shall be accompanied by evidence reasonably substantiating such amount. Section 19.04. A. For each Operating Year, any part of which shall occur during the Term, Tenant shall pay an amount (the "Operating Expense Payment") equal to Tenant's Proportionate Share of the amount, if any, by which Operating Expenses for such Operating Year shall exceed the Operating Expenses for the Base Operating Year; provided, however, that if the Commencement Date shall occur other than on the first day of an Operating Year or if the Term shall expire or be sooner terminated on other than the last day of an Operating Year, then the Operating Expense Payment in respect thereof shall be prorated to correspond to that portion of such Operating Year occurring within the Term. B. At any time during each Operating Year, Landlord may furnish to Tenant a written statement (an "Estimate Statement") setting forth Landlord's estimate of the Operating Expense Payment for such Operating Year (the "Estimated Payment"). Tenant shall pay to Landlord on the first day of each month during each Operating Year an amount equal to one twelfth (1/12th) of the Estimated Payment. If Landlord furnishes an Estimate Statement for an Operating Year subsequent to the commencement thereof, then: (i) until the first day of the month following the month in which the Estimate Statement shall be furnished to Tenant, Tenant shall continue to pay to Landlord on the first day of each month an amount equal to the monthly sum payable by Tenant to Landlord with respect to the most recent Operating Year; (ii) promptly after the Estimate Statement shall be furnished to Tenant, Landlord shall give notice to Tenant stating whether the amount previously paid by Tenant to Landlord for the current Operating Year was greater or less than the installment of the Estimated Payment to be paid for the current Operating Year, and (x) if there shall be a deficiency, Tenant shall pay the amount thereof to Landlord within twenty (20) days after demand therefor, or (y) if there shall have been an overpayment, Landlord shall credit the amount thereof against the next -37- monthly installment of the Fixed Rent and/or additional rent payable under this Lease; and (iii) on the first day of the month following the month in which the Estimate Statement shall be furnished to Tenant, and monthly thereafter throughout the remainder of the Operating Year, Tenant shall pay to Landlord an amount equal to one-twelfth (1/12th) of the Estimated Payment shown on the Estimate Statement. Landlord may during an Operating Year (but not more often than once in any three (3) consecutive month period), furnish to Tenant a revised Estimate Statement, and, if a revised Estimate Statement shall be furnished to Tenant, the Estimated Payment for such Operating Year shall be adjusted in the same manner as provided in the preceding sentence. C. At any time during or after each Operating Year, Landlord shall furnish to Tenant an annual Operating Statement (the "Annual Statement") for such Operating Year. If the Annual Statement shows that the Estimated Payment (or other payments) for such Operating Year exceeds the Operating Expense Payment which should have been paid for such Operating Year, then Landlord shall credit the amount of such excess against the next monthly installment of Fixed Rent and/or additional rent payable under this Lease; if the Annual Statement for such Operating Year shows that the Estimated Payment for such Operating Year was less than the Operating Expense Payment (or other payments) which should have been paid for such Operating Year, Tenant shall pay the amount of such deficiency to Landlord within twenty (20) days after receipt of the Annual Statement. D. Each Annual Statement shall be conclusive and binding upon Tenant unless, within forty-five (45) days after receipt thereof, Tenant shall give Landlord notice (the "Audit Notice") that Tenant disputes the correctness of the Annual Statement and that Tenant requests the right to audit Landlord's books and records. If such Audit Notice shall be timely delivered by Tenant to Landlord, then, provided that Tenant shall pay or have paid to Landlord the amount shown to be due to Landlord on the disputed Annual Statement (without prejudice to Tenant's rights hereunder to contest the same), Tenant and its representatives shall have the right, not later than twenty (20) days after Landlord's receipt of Tenant's Audit Notice, and not earlier than five (5) Business Days after Landlord's receipt of a written request therefor, to examine and, if reasonably required, to photocopy, during regular business hours at a location in Manhattan designated by Landlord, Landlord's relevant books and records with respect to Operating Expenses relating to the Building for the period in question (the "Relevant Records") in order to verify the accuracy of the relevant Annual Statement; provided, however that Tenant and its authorized representatives shall minimize interference to Landlord's business operations during the course of such examination and that only reputable accounting firms hired on a non-contingency fee basis using full time and permanent employees may be used by Tenant to conduct such examinations. Tenant shall not disclose (and shall require all of Tenant's representatives not to disclose) to any third party any information obtained in the course of such examination, except if and to the extent the same shall be required by a court of competent jurisdiction. Tenant recognizes and agrees that Landlord's books and records (and those of Landlord's agents) with respect to the operation of the Land and the Building are confidential, and that, except as provided herein, Tenant shall have no right to inspect the same. If Tenant shall have timely delivered the Audit Notice to Landlord, and the parties shall not be able to resolve such dispute within thirty (30) days after Tenant or its authorized representatives have examined the Relevant Records or the Relevant Records have been made available for examination, as the case may be, then, either party may refer the decision of the issue raised to a reputable independent firm of certified public accountants mutually agreeable to the parties and the decision of such accountants shall be conclusive and binding upon the parties. The fees and expenses involved in such decision shall be borne by the unsuccessful party (and if both parties are partially unsuccessful, the accountants shall apportion the fees and expenses between the parties based on the degree of success of each party). Tenant agrees that, notwithstanding any such dispute (and pending resolution thereof), Tenant shall timely pay to Landlord in full the amount shown to be due to Landlord on the disputed Annual Statement (but without prejudice). If such dispute is resolved in Tenant's favor, Landlord shall either promptly reimburse Tenant for any overpayment or at Tenant's option credit the amount of such overpayment against the next monthly installment of Fixed Rent and Recurring Additional Rent payable under this Lease. Section 19.05. Nothing contained in this Article 19 or any other provision of this Lease concerning the payment of additional rents shall be construed so as to reduce the Fixed Rent below the amount set forth in Section 1.01, plus any increases therein pursuant to any provision of this Lease. Section 19.06. Any payments due hereunder for any period of less than a full Tax Year or Operating Year at the commencement or end of the Term shall be equitably prorated. In the event of any change in the fiscal period constituting a Tax Year, Taxes levied during any period shall be added to the first subsequent Tax Year for purposes of Section 19.03. Any delay or failure by Landlord to render any statement under the provisions of this Article 19 shall not prejudice Landlord's right here- under to render such statement for prior or subsequent periods. Any delay or failure by Landlord in making any request or demand for any amount payable by Tenant pursuant to the provisions of this Article 19 shall not constitute a waiver of, or in any way diminish, the continuing obligation of Tenant to make such payment. Except as otherwise provided in Subsection 19.04D above, all statements rendered by -38- Landlord pursuant to the provisions of this Article 19 shall be deemed final and conclusive as to Tenant, unless, within forty-five (45) days following rendition of any such statement, Tenant shall, in good faith and with specificity, notify Landlord that such statement contains one or more errors. Tenant agrees that, notwithstanding any dispute as to the correctness of a statement (and pending resolution of such dispute), Tenant shall timely pay to Landlord in full the amount shown to be due to Landlord on the disputed statement; provided, however, that such payment shall be made by Tenant without prejudice. If such dispute is resolved in Tenant's favor, Landlord shall, at Tenant's option, either promptly reimburse Tenant for any overpayment or credit the amount of such overpayment against the next monthly installment of Fixed Rent and/or additional rent payable under this Lease. The obligations of Tenant, with respect to any payment required pursuant to the provisions of this Article 19, and of Landlord, with respect to any adjustments pursuant to the provisions of this Article 19 (if any), shall survive the expiration or sooner termination of the Term for a period of three (3) years from the Expiration Date. ARTICLE 20 ELECTRICITY Section 20.01. Subject to the provisions of this Article 20 and other provisions of this Lease, Landlord shall furnish the electricity that Tenant shall reasonably require in the Demised Premises for normal business office purposes, making available to the Demised Premises a capacity (the "Existing Capacity") equal to twelve (12) watts per rentable square foot in the Demised Premises, inclusive of electricity used by the machinery and equipment of Tenant's air-conditioning unit(s) servicing the Demised Premises. Landlord shall not be liable to Tenant for any loss or damage or expense which Tenant may sustain or incur if either the quantity or character of electric service shall be changed or shall no longer be available or suitable for Tenant's requirements provided the same shall not have been caused solely by Landlord's willful misconduct. At Landlord's election, Landlord shall furnish and install all replacement lighting tubes, lamps, bulbs and ballasts required in the Demised Premises, and Tenant shall pay to Landlord or Landlord's designated contractor within twenty (20) days after demand therefor the then established charges of Landlord or said contractor, as the case may be, which demand shall be accompanied by evidence reasonably substantiating such charges. Section 20.02. A. Subject to the provisions of Section 20.03 below, Tenant's consumption and demand of all electricity made available to the Demised Premises (including the machinery and equipment of Tenant's air-conditioning unit(s) servicing the Demised Premises) or to Tenant elsewhere in the Building (collectively, "Tenant Electricity") shall be measured by one or more submeters (collectively, the "Submeter") to be furnished and installed by Landlord in a location designated by Landlord and approved by Tenant. Landlord shall also, at Tenant's cost and expense, install connections from the risers and/or circuits servicing the Demised Premises to the Submeter, and perform all other work necessary for the furnishing of Tenant Electricity by Landlord in the manner provided for in this Section 20.02. Tenant shall pay all such costs and expenses to Landlord, as additional rent, within ten (10) days after being billed therefor. B. Tenant agrees to purchase Tenant Electricity from Landlord or Landlord's designated agent at terms and rates equal to "Landlord's Electricity Cost" (as such term is defined below), plus five (5%) percent thereof to reimburse Landlord for administrative services in connection with supplying, measuring and billing Tenant Electricity and for transmission and transformer losses. If more than one submeter shall measure Tenant Electricity, then the service rendered through each such submeter shall be aggregated and billed in accordance with the foregoing rate. Landlord may at any time render bills for Tenant Electricity in accordance with the foregoing provisions and Tenant shall pay all amounts shown on said bills to Landlord, as additional rent, within twenty (20) days following the date that such bills shall have been rendered, which bills shall be accompanied by evidence reasonably substantiating such amounts. C. For purposes of this Article 20 and the other provisions of this Lease: (i) The term "Landlord's Electricity Cost", shall mean the cost per kilowatt hour consumption and cost per kilowatt demand, by time of day, if applicable, or other applicable billing method, to Landlord of purchasing electricity for the Building, including fuel adjustment charges (as determined for each month of the relevant period), rate adjustment charges, sales tax, and/or any other factors used by the public utility furnishing electric service to the Building (the "Public Utility") in computing its charges to Landlord, applied to the kilowatt hours of electricity and kilowatts of demand purchased by Landlord during a given period giving effect to any increases or decreases pursuant to Subsection 20.02E below and to any discounts actually received by Landlord during the Term of this Lease attributable to the Demised Premises in connection with the Electricity Abatement Program or any other utility discount plans. (ii) The term "Electricity Additional Rent" shall mean all amounts computed in accordance with Subsection 20.02B above. -39- D. If the Submeter should fail to properly register or operate at any time during the Term for any reason whatsoever, then, unless Landlord shall otherwise elect in accordance with the provisions of Section 20.03 below, Landlord may estimate the Electricity Additional Rent, and when the Submeter shall again become properly operative, an appropriate reconciliation shall be made, by Tenant paying any deficiency to Landlord within twenty (20) days after demand therefor, or by Landlord crediting Tenant with the amount of any overpayment against the next monthly installment of Fixed Rent and/or additional rent, as the case may be. The estimate referred to in the immediately preceding sentence shall be calculated on the basis that Tenant shall be deemed to have used the same amount of electricity per day as Tenant had been using, on the average (i) during the comparable period in the preceding lease year, or (ii) if Tenant shall not have occupied the Demised Premiss for the normal conduct of its business operations during such comparable period in the preceding year, then during the most recent three (3) months for which submeter readings are available. E. If at any time during the Term the electric rate charged by the Public Utility (the "Electric Rate") shall be increased by the Public Utility, or Landlord's Electricity Cost shall be increased for any other reason (other than the gross negligence or willful misconduct of Landlord or Persons Within Landlord's Control), then, effective as of the date of each such increase in the Electric Rate or Landlord's Electricity Cost (as the case may be), the Electricity Additional Rent shall be increased in proportion to such change in the Electric Rate or Landlord's Electricity Cost, as determined by Landlord's electrical consultant ("Landlord's Consultant"), whose determination shall be binding and conclusive upon the parties, subject to the provisions of Subsection 20.03E below. Tenant acknowledges that it is anticipated that electric rates, charges, fees and/or other costs, as well as methods of or rules on billing, may be changed by virtue of time-of-day rates or other methods of billing, and that the references in this Article 20 to changes in the Electric Rate are intended to include any and all such changes. F. Landlord and Tenant agree that the Submeter might be installed or become operational subsequent to the date (the "Initial Occupancy Date") that Tenant or any Person Within Tenant's Control first enters the Demised Premises. In such event, Landlord, in Landlord's sole discretion, may: (i) furnish Tenant Electricity on a "rent inclusion" basis in accordance with the provisions of Section 20.03 below for the period between the Commencement Date and such time as the Submeter shall be installed and operating; or (ii) estimate the Electricity Additional Rent payable by Tenant for the period commencing on the Initial Occupancy Date and ending on the "Occupancy Reading Date" (hereinafter defined), and Tenant shall pay to Landlord, within twenty (20) days after demand therefor, the amount set forth on Landlord's estimate and, after rendition of a subsequent statement, an appropriate reconciliation shall be made for any deficiency owed by Tenant, or any overage paid by Tenant; or (iii) render a statement to Tenant after the first reading of the Submeter shall be made (the date upon which the Submeter shall be first read being herein called the "Occupancy Reading Date"), which shall be on or about the date upon which Tenant shall have commenced the conduct of Tenant's business operations in the Demised Premises, and the amount calculated based on the Submeter reading on the Occupancy Reading Date shall be determined on a per diem basis and then multiplied by the number of days from the Initial Occupancy Date through the Occupancy Reading Date to arrive at the amount due for said period, and Tenant shall pay the Electricity Additional Rent to Landlord on the basis of such Submeter reading within twenty (20) days after rendition of Landlord's statement setting forth such computation. Section 20.03. A. Notwithstanding in the provisions of Section 20.03 above, if at any time during the Term said submeter(s) shall not then be installed or operating, or if Landlord shall be required by any Legal Requirements or by the Public Utility to discontinue furnishing electricity to Tenant on a submetered basis, or if Landlord elects to discontinue furnishing electricity to substantially all of the office tenants of the Building on a submetered basis, then (subject to the provisions of Section 20.05 below) Landlord shall furnish electricity to the Demised Premises in quantity equal to the Existing Capacity on a "rent inclusion" basis, and there shall be no separate charge to Tenant for such electricity. B. For the purposes of this Article 20, and other provisions of this Lease: (i) The term "Base Electric Charge" shall initially mean the amount of $37,058.55 (except during the period which shall begin on the Commencement Date and end on the day immediately preceding the date on which Tenant shall first occupy the Demised Premises for the purpose of conducting Tenant's business operations therein, during which period the term "Base Electric Charge" shall mean the amount of $13,003.00). (ii) The term "Electric Inclusion Factor" shall mean an amount, to be included as a component of Fixed Rent, equal to the sum of the Base Electric Charge plus all increases thereto pursuant to the provisions of this Article 20; it being understood and agreed that at all times the Electric Factor shall not be less than the amount computed by multiplying Landlord's Electricity Cost by Tenant's kilowatt hour consumption and kilowatt demand usage as reasonably determined by the estimate of Landlord's Consultant, plus five (5%) percent of the resulting total. -40- C. Landlord and Tenant agree that, during any period in which electricity shall be furnished to the Demised Premises on a "rent inclusion" basis, the annual Fixed Rent set forth in Section 1.01 above shall be increased by an amount equal to the Base Electric Charge, as the same may be adjusted pursuant to the provisions of this Article 20. Tenant acknowledges and agrees that the Base Electric Charge currently represents the amount initially included in the Electric Inclusion Factor to compensate Landlord for the electrical wiring and other installations necessary for, and for Landlord's obtaining and making available to Tenant, the redistribution of electric energy to the Demised Premises as an additional service, and that such Base Electric Charge component of the Electric Inclusion Factor is subject to adjustment as provided herein based on Tenant's consumption and/or demand of electricity. D. At any time, and from time to time, after Tenant shall have entered into possession of the Demised Premises or any portion thereof, and electricity shall be furnished to the Demised Premises on a "rent inclusion" basis, Landlord and Landlord's agents and consultants upon notice (which notice may be given orally) may survey the electrical fixtures, appliances and equipment located in or servicing the Demised Premises and Tenant's consumption and demand of electricity therein to (i) ascertain whether Tenant is complying with Tenant's obligations under this Article 20, and (ii) determine whether the then Electric Inclusion Factor included in Fixed Rent is less than the Electric Inclusion Factor computed as a result of said survey, and to adjust the Electric Inclusion Factor component of Fixed Rent in accordance with the following computations: (x) In the case of the first electric survey, if the cost or value of Tenant's electric consumption and/or demand shown by the survey shall exceed the initial Electric Inclusion Factor, then the Electric Inclusion Factor component of the Fixed Rent shall be increased by the amount of such excess retroactive to the beginning of the period when electricity shall be furnished to the Demised Premises on a "rent inclusion" basis; and (y) In the event of the second and subsequent surveys, if the cost or value of Tenant's electric consumption and/or demand shown by such survey shall exceed the then Electric Inclusion Factor, then such Electric Inclusion Factor component of Fixed Rent shall be increased by the amount of such excess, effective as of the earlier of (a) the date of such survey or (b) the date on which increases in the connected power load or changes in electric consumption occurred (as determined by Landlord's Consultant). E. The initial amount of each such increase shall be paid by Tenant to Landlord within ten (10) days after Landlord furnishes Tenant with a statement thereof, and thereafter, such increase shall be added to each of the monthly installments of Fixed Rent. The cost of each survey made pursuant to Subsection 20.03D above shall be borne equally by Landlord and Tenant. The determination of Landlord's Consultant as to any increase in the Fixed Rent based on such average monthly electric energy consumption and/or demand shall be conclusive and binding upon the parties from and after the delivery of a copy of such determination to Landlord and Tenant, unless, within thirty (30) days thereafter, Tenant shall dispute such determination by having an independent reputable electrical consultant, selected and paid for by Tenant ("Tenant's Consultant"), consult with Landlord or Landlord's Consultant as to said determination. If the parties or their respective consultants shall agree as to a resolution of said dispute, then such agreement shall be binding upon the parties or if the difference between them shall be five (5%) percent or less of the determination made by Landlord's Consultant, then the determination made by Landlord's Consultant shall be binding upon the parties. If Landlord's Consultant and Tenant's Consultant shall not agree within the said five (5%) percent of each other, then Landlord's Consultant and Tenant's Consultant shall jointly select a third duly qualified independent, reputable electrical consultant who shall determine the matter and whose decision shall be binding upon both parties with the same force and effect as if a non-appealable judgment had been entered by a court of competent jurisdiction. If Landlord's Consultant and Tenant's Consultant shall not agree upon such a third electrical consultant, the matter shall be submitted to the American Arbitration Association in New York City to be determined in accordance with its rules and regulations, and the decision of the arbitrators shall be binding upon the parties with the same force and effect as if a non-appealable judgment had been entered by a court of competent jurisdiction. Any charges of such third consultant or of the American Arbitration Association, and all costs and expenses of either, shall be borne equally by both parties. Notwithstanding the foregoing, until such final determination, Tenant shall pay Fixed Rent to Landlord in accordance with the determination made by Landlord's Consultant; provided, however, that such payments shall be made by Tenant without prejudice. After such final determination, the parties shall promptly make adjustment for any deficiency owed by Tenant or any overage paid by Tenant. F. If at any time during the Term the Electric Rate shall be increased by the Public Utility, then, effective as of the date of each such increase in the Electric Rate, the Electric Inclusion Factor included in the Fixed Rent shall be increased in proportion to such change in the Electric Rate (as determined by Landlord's Consultant, whose determination shall be binding and conclusive upon the parties, subject to the provisions of Subsection 20.03E above). -41- G. At Landlord's request, the parties shall execute, acknowledge and deliver to each other a supplemental agreement in such form as Landlord shall reasonably require to reflect each change in the Fixed Rent under this Article 20, but each and every such change shall be effective as of the effective date described in the provision under which such change is provided for, even if such agreement shall not be executed and delivered. Section 20.04. A. Tenant's use of electricity in the Demised Premises shall not at any time exceed the Existing Capacity. In order to ensure that the Existing Capacity is not exceeded and to avert possible adverse effect upon the Building's distribution of electricity via the Building's electric system, if at any time the total connected load of Tenant's fixtures, appliances and equipment in the Demised Premises shall equal or exceed the Existing Capacity, then Tenant shall not, without Landlord's prior consent in each instance, connect any additional fixtures, appliances or equipment to the Building's electric system, or make any alterations or additions to the electric system of the Demised Premises existing on the Commencement Date. B. In the event that Tenant shall request electric energy in addition to the Existing Capacity, and if and to the extent that Landlord shall reasonably determine that such additional electric energy is available for use by Tenant without (x) resulting in allocation to Tenant of a disproportionate amount of available electric energy and (y) otherwise adversely affecting the Building or any of the other tenancies therein, then Landlord shall connect such additional electric energy to the Demised Premises, and Tenant shall pay to Landlord a charge equal to Landlord's then established connection charge for each additional amp of electric energy or portion thereof so supplied to the Demised Premises, in addition to the actual cost of installing additional risers, switches and related equipment necessary in providing such additional electric energy. Section 20.05. A. Landlord reserves the right to discontinue furnishing electricity to Tenant in the Demised Premises at any time upon not less than forty-five (45) days notice to Tenant if compelled or required by the Public Utility or any Legal Requirements (it being agreed that such compulsion shall include Landlord's inability to legally collect from Tenant all of the costs incurred by Landlord for Tenant Electricity) or if Landlord shall elect to discontinue furnishing electricity to substantially all other tenants in the Building, except that, if Tenant shall promptly commence and diligently pursue to completion arrangements to obtain electricity from the Public Utility upon receipt of Landlord's notice that Landlord intends to discontinue furnishing electricity to the Demised Premises, then Landlord shall postpone such discontinuance for a sufficient amount of time so as to allow Tenant to obtain electricity directly from the Public Utility. If Landlord exercises such right, this Lease shall continue in full force and effect and shall be unaffected thereby, except that, from and after the effective date of such discontinuance, Landlord shall not be obligated to furnish electricity to Tenant (and, if electricity shall, immediately prior to such discontinuance, have been furnished to the Demised Premises on a "rent inclusion" basis, the Fixed Rent payable under this Lease shall be reduced by an amount equal to the Electric Inclusion Factor component of such Fixed Rent). B. If Landlord so discontinues furnishing electricity to Tenant, then Tenant shall, at Tenant's own cost and expense, promptly arrange to obtain electricity directly from the Public Utility. Such electricity may be furnished to Tenant by means of the then existing Building System feeders, risers and wiring, but only if and to the extent that Landlord determines the same to be available, suitable and safe for such purpose. All meters and additional panel boards, feeders, risers, wiring and other conductors and equipment which may be required to obtain electricity directly from such Public Utility shall be: (x) if located entirely within the Demised Premises, installed and connected by Tenant, at Tenant's own cost and expense, but only after having received Landlord's prior written consent thereto,, which consent shall not be unreasonably withheld or delayed and Tenant shall thereafter maintain, repair and replace the same, as necessary, at Tenant's own cost and expense; and (y) if located wholly or in part outside of the Demised Premises, installed, connected and thereafter maintained, repaired and replaced, as necessary, by Landlord, at Tenant's cost and expense. Only rigid conduit will be allowed in connection with any such installation. Section 20.06. If, pursuant to any Legal Requirement (other than the Electricity Abatement Program), the amount which Landlord shall be permitted to charge Tenant for the purchase of electricity pursuant to this Article 20 shall be reduced below that which Landlord would otherwise be entitled to charge Tenant hereunder, then Tenant shall pay the difference between such amounts to Landlord as additional rent within thirty (30) days after being billed therefor by Landlord, as compensation for the use of the Building's electrical distribution system. If any tax shall be imposed on Landlord by any federal, state or municipal authority with respect to electricity furnished to Tenant, then Tenant's applicable share of such taxes shall be reimbursed by Tenant to Landlord as additional rent within thirty (30) days after being billed therefor. Section 20.07. If the Public Utility or any Legal Requirement shall institute or require a change in the manner in which electricity is to -42- be furnished or paid for, and such change reasonably necessitates an appropriate modification of this Article 20, Tenant shall execute and deliver to Landlord an instrument which sets forth such modification; provided, however, that in no event shall the Fixed Rent be reduced to an amount below the amount thereof stated in Section 1.01 above. Tenant agrees to fully and timely comply with all rules and regulations of the Public Utility applicable to Tenant or the Demised Premises. Section 20.08. In the event that, pursuant to any of the provisions of this Article 20, any initial determinations, statements or estimates are made by or on behalf of Landlord (whether such initial determinations, statements or estimates are subject to dispute or not pursuant to the provisions of this Article 20), Tenant shall pay to Landlord the amount(s) set forth on such initial determinations, statements or estimates, as the case may be, (provided that such payment shall be made by Tenant without prejudice) until subsequent determinations, statements or estimates are rendered, at which time the parties shall promptly make adjustment for any deficiency owed by Tenant, or any overage paid by Tenant. Section 20.09. Notwithstanding any provisions of this Article 20 and regardless of the manner of service of electricity to the Demised Premises (whether by rent inclusion or submetering, but excluding a situation in which Tenant shall be obtaining electricity directly from the Public Utility pursuant to the provisions of Section 20.05 above), in no event shall the cost to Tenant for electricity to the Demised Premises be less than one hundred five (105%) percent of Landlord's Electricity Cost. Section 20.10. Any payments due hereunder for less than a calendar year at the commencement or end of the Term shall be equitably prorated. Any delay or failure by Landlord to render any bills or statements under the provisions of this Article 20 shall not prejudice Landlord's right thereunder to render such bills or statements for prior or subsequent periods. Any delay or failure by Landlord in making any request or demand for any amount payable by Tenant pursuant to the provisions of this Article 20 shall not constitute a waiver of, or in any way diminish, the continuing obligation of Tenant to make such payment. The obligations of Tenant, with respect to any payment or increase pursuant to the provisions of this Article 20, and Landlord, with respect to any adjustments pursuant to the provisions of this Article 20, if any, shall survive the expiration or sooner termination of the Term for a period of three (3) years from the Expiration Date. ARTICLE 21 BROKER Section 21.01. Each party represents and warrants to the other that such party has not employed, dealt with or negotiated with any broker in connection with this Lease, and each party shall indemnify, protect, defend and hold the other harmless from and against any and all liability, damage, cost and expense (including reasonable attorneys' fees and disbursements) arising out of a breach of the foregoing representation and warranty. The provisions of this Section 21.01 shall not apply to the Designated Broker, if a Designated Broker is specified in Section 1.01. ARTICLE 22 SUBORDINATION Section 22.01. A. This Lease and all of Tenant's rights hereunder, including Tenant's rights under Section 27.01, are and shall be subject and subordinate to (i) every Underlying Lease, the rights of the Overlandlord or Overlandlords under each Underlying Lease, all mortgages heretofore or hereafter placed on or affecting any Underlying Lease, alone or with other property, and to all advances heretofore or hereafter made under any such leasehold mortgage, and to all renewals, modifications, consolidations, replacements, substitutions, spreaders, additions and extensions of any such leasehold mortgage, and (ii) any condominium plan or declaration now or hereafter affecting the Building, and any other instruments or rules and regulations promulgated in connection therewith, and (iii) any Mortgage now or hereafter affecting the real property of which the Demised Premises form a part or any part or parts of such real property, or such real property and other property, and to each advance made or hereafter to be made under any such Mortgage and to all renewals, modifications, consolidations, replacements, substitutions, spreaders, additions and extensions of any such Underlying Lease or Leases and/or Mortgages. The subordination provisions herein contained shall be self-operative and no further instrument of subordination shall be required. Landlord reserves the right, by written notice to Tenant from Landlord, to provide that the foregoing provisions shall not apply to any or all Mortgages then being and/or thereafter to be made. In confirmation of such subordination, Tenant shall execute and deliver promptly any certificate that Landlord or its successors in interest may request. If Tenant shall not execute and deliver such subordination certificate within ten (10) days after the request of Landlord or Landlord's successors-in-interest, then Tenant shall be deemed to constitute and appoint Landlord or Landlord's successor-in- interest as Tenant's attorney-in-fact to execute and deliver any such certificate or certificates for and on behalf of Tenant. Notwithstanding any provision in this Lease or any separate agreement with Tenant, Tenant covenants and agrees that Tenant shall not do any act, or refrain from doing any act, if doing such act, or refraining from doing such act, would constitute a default or breach of any Underlying Lease or Mortgage to which this Lease is subordinate, and of which Tenant has knowledge or has been given notice. -43- B. Without limiting the generality of the provisions of the foregoing Subsection 22.01A, Tenant acknowledges receipt of advice from Landlord to the effect that this Lease, and all rights of Tenant hereunder, are and shall be subject and subordinate in all respects to the lease dated as of July 15, 1955, between Webb & Knapp, Inc., as landlord, and 13039 Corporation, as tenant, as such lease has been amended, and as assigned by mesne assignments to Landlord with respect to the interest of the tenant thereunder, and to 405 Company, S.K. Realty Company and 715 Realty Company, collectively, with respect to the interest of the landlord thereunder. Section 22.02. This Lease may be conditionally assigned as collateral security by Landlord to a Mortgagee, which collateral assignment may provide that, without Mortgagee's prior written consent, the parties shall not (i) pay or accept the rent or additional rent under the terms of this Lease for more than one (1) month in advance of its due date, or (ii) enter into an agreement to amend or modify this Lease if there is an unexpired Term of more than one (1) year thereunder, or (iii) voluntarily surrender the Demised Premises, terminate this Lease, or accelerate the Term without cause, or (iv) authorize Tenant to assign this Lease or sublet the Demised Premises or any part thereof except in the manner as provided under the terms of this Lease. Any agreement by Landlord to make, perform or furnish any capital improvements or services not related to the possession or use of the Demised Premises by Tenant, shall not be binding on any Mortgagee in the event of foreclosure or in the event that a Mortgagee enters upon the Demised Premises pursuant to any security instrument in connection with the mortgage loan. Any Mortgagee and its successor shall not be responsible for any improvements, covenants, contractual obligations or services which Landlord has agreed to make, furnish or perform for Tenant under the terms of this Lease which do not run with the Land, or for the control, care or management of the Building or any waste committed on the Building by any tenant, or for any dangerous or defective condition of the Building resulting in loss or injury or death to any tenant, licensee or stranger. No security deposited by Tenant has been transferred to any Mortgagee, who will assume no liability for any security so deposited unless it demands the transfer of said security and assumes responsibility therefor. Section 22.03. Tenant agrees that, unless a Mortgagee shall elect otherwise in the case of a foreclosure of such Mortgage, or unless the Overlandlord of an Underlying Lease to which this Lease is subordinate shall elect otherwise in the case of a cancellation or a termination of such Underlying Lease, neither the cancellation nor termination of any Underlying Lease, nor any foreclosure of a Mortgage affecting the Land, Building, an Underlying Lease or the Demised Premises, nor the institution of any suit, action, summary or other proceeding against Landlord herein or any successor landlord, shall by operation of law or otherwise result in cancellation or termination of this Lease or the obligations of Tenant hereunder, and upon the request of the Overlandlord of such Underlying Lease, or the holder of such Mortgage, or the purchaser at a sale in foreclosure of such Mortgage, or other person who shall succeed to the interests of Landlord (which such Overlandlord, holder, purchaser or other person is hereafter in this paragraph referred to as "such successor-in-interest"), Tenant covenants and agrees to attorn to such successor-in-interest and recognize such successor-in-interest as its landlord under this Lease. Tenant agrees to execute an instrument in writing reasonably required by such successor- in-interest whereby Tenant attorns to such successor-in-interest, and hereby appoints such successor-in-interest, irrevocably, as attorney-in- fact of Tenant to execute such instrument for and on behalf of Tenant, if Tenant shall not execute and deliver such instrument within ten (10) days after request therefor by such successor-in-interest. Tenant further waives the provisions of any statute or rule of law now or hereafter in effect which may give or purport to give Tenant any right of election to terminate this Lease or to surrender possession of the Demised Premises in the event any Underlying Lease terminates or any such mortgage is foreclosed or any such proceeding is brought by any Overlandlord or the holder of any such mortgage. Section 22.04. In the event of the occurrence of any act or omission by Landlord which would give Tenant the right to terminate this Lease or claim a partial or total eviction, or make any claim against Landlord for the payment of money, Tenant will not exercise such right until Tenant has given written notice of such occurrence to (i) Landlord and (ii) each Mortgagee and the Overlandlord of any Underlying Lease, as to whom, and to the last address to which Tenant has been instructed to give such notice, and a reasonable period for remedying such act or omission shall have elapsed following the giving of such notices, during which such parties or any of them with reasonable diligence following the giving of such notice, have not commenced and continued to remedy such act or omission or to cause the same to be remedied. Nothing herein contained shall be deemed to create any rights in Tenant not specifically granted in this Lease or under any applicable provision of law, nor to obligate any such Mortgagee or Overlandlord to remedy any such act or omission. Section 22.05. If a Mortgagee or prospective mortgagee shall request modifications to this Lease, Tenant shall not unreasonably withhold, delay or defer Tenant's consent thereto, provided that such modifications shall not materially increase the obligations or materially decrease the rights of Tenant hereunder, or to more than a de minimis degree, decrease the obligations or increase the rights of Landlord hereunder, or materially adversely affect the leasehold interest hereby created. In no event shall a requirement that the consent of any such Mortgagee or prospective mortgagee be given for any modification of -44- this Lease or for any assignment or sublease, be deemed to materially adversely affect the leasehold interest hereby created; provided, however, that the standards for withholding such consent are not more onerous to Tenant than those contained in this Lease. ARTICLE 23 ESTOPPEL CERTIFICATE Section 23.01. Tenant agrees, at any time, and from time to time, within ten (10) days after request by Landlord, to execute, acknowledge and deliver to Landlord, a statement in writing addressed to Landlord and/or to such other party(ies) as Landlord may designate: (i) 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), (ii) stating the dates to which the Fixed Rent, additional rent and other charges have been paid, (iii) stating whether or not, to the best knowledge of the signer of such certificate, there exists any default by either party in the performance of any covenant, agreement, term, provision or condition contained in this Lease, and, if so, specifying each such default of which the signer may have knowledge, (iv) setting forth the names and addresses of the shareholders of Tenant (if Tenant shall be a corporate entity) and their holdings, and (v) setting forth such other information as Landlord may reasonably request concerning this Lease, it being intended that any such statement delivered pursuant hereto may be relied upon by Landlord or a purchaser of Landlord's interest and by any Mortgagee, or prospective mortgagee, of any mortgage affecting the Building or the Land, or both, and by any Overlandlord or prospective Overlandlord under any Underlying Lease affecting the Land or Building, or both, and by any Mortgagee or prospective mortgagee of any Underlying Lease. Failure by Tenant to comply with the provisions of this Article 23 shall constitute a waiver by Tenant of any defaults on Landlord's part under this Lease and a waiver of enforceability by Tenant of any modification of this Lease, as against any person above described entitled to rely upon such statement, but without however limiting any rights and remedies available to Landlord by reason of such failure. Section 23.02. Landlord agrees, in connection with any proposed assignment of this Lease or subletting of the Demised Premises by Tenant, upon not less than twenty (20) days prior notice by Tenant, to execute, acknowledge and deliver to Tenant a statement in writing addressed to Tenant: (i) stating that this Lease is then in full force and effect and has not been modified (or if modified, setting forth all modifications), (ii) setting forth, to the best knowledge of Landlord (but without having made any independent investigation), the date to which the Fixed Rent and Recurring Additional Rent have been paid, and (iii) stating whether or not, to the best knowledge of Landlord (but without having made any independent investigation), Tenant is in default under the Lease, and, if Tenant is in default, identifying such defaults. Notwithstanding the foregoing, Landlord shall not be obligated to furnish Tenant with more than one (1) such statement during any twelve (12) month period. ARTICLE 24 LEGAL PROCEEDINGS Section 24.01. If Tenant or Landlord shall bring any action or suit for any relief against the other, declaratory or otherwise, arising out of this Lease or Tenant's occupancy of the Demised Premises, the parties hereto agree to and hereby waive any right to a trial by jury. Section 24.02. This Lease shall be governed in all respects by the laws of the State of New York. Tenant hereby specifically consents to jurisdiction in the State of New York in any action or proceeding arising out of this Lease and/or the use and occupation of the Demised Premises. If Tenant at any time during the Term shall not be a New York partnership or a New York corporation or a foreign corporation qualified to do business in New York State, Tenant shall designate, in writing, an agent located in New York County (together with such agent's address) for service under the laws of the State of New York for the entry of a personal judgment against Tenant. Tenant, by notice to Landlord, shall have the right to change Tenant's designation of such agent, provided that at all times there shall be an agent in New York County for such service. In the event of any revocation by Tenant of such agency, such revocation shall be void and have no force or effect unless and until a new agent shall have been designated for service and Tenant shall have notified Landlord thereof (together with such new agent's address). If any such agency designation shall require a filing in the office of the Clerk of the County of New York, the same shall be promptly accomplished by Tenant, at Tenant's expense, and a certified copy thereof shall thereupon be transmitted by Tenant to Landlord. ARTICLE 25 SURRENDER Section 25.01. Tenant shall, at the expiration or sooner termination of the Term (either, as applicable, being referred to herein as the "Surrender Date"), quit and surrender to Landlord the Demised Premises, broom clean and in the condition required under this Lease, reasonable wear and tear, damage from fire or other casualty, condemnation or eminent domain and repairs which are not the responsibility of Tenant under the terms of this Lease excepted, and shall surrender all keys for the Demised Premises to Landlord at the place then fixed for the payment of rent, and shall inform Landlord of all combinations of locks, safes and vaults, if any, located (and permitted by Landlord to remain) in the Demised Premises. Except as otherwise expressly provided elsewhere in this Lease, Tenant shall, on the -45- Surrender Date, remove all of Tenant's property from the Demised Premises and shall immediately repair any damage to the Demised Premises caused by the installation and/or removal of such property. Any or all of such property not so removed shall, at Landlord's option, become the exclusive property of Landlord or be disposed of by Landlord, at Tenant's cost and expense, without further notice to or demand upon Tenant, and without any liability to Tenant, in connection therewith, except as may be otherwise provided herein. Section 25.02. A. If the Demised Premises shall not be surrendered as and when aforesaid, Tenant shall pay to Landlord as use and occupancy for each month or fraction thereof during which Tenant continues to occupy the Demised Premises from and after the Surrender Date (the "Continued Occupancy Period") an amount of money (the "Occupancy Payment") equal to one hundred fifty (150%) percent of one twelfth (1/12) of the Fixed Rent and one twelfth (1/12) of Recurring Additional Rent payable by Tenant during the immediately preceding twelve (12) months. Tenant shall make the Occupancy Payment, without notice or previous demand therefor, on the first day of each and every month during the Continued Occupancy Period. B. In addition to making all required Occupancy Payments, Tenant shall, in the event of Tenant's failure to surrender the Demised Premises on the Surrender Date as and in the manner aforesaid, also indemnify and hold Landlord harmless from and against any and all cost, expense, damage, claim, loss or liability resulting from any delay or failure by Tenant in so surrendering the Demised Premises, including any consequential damages suffered by Landlord and any claims made by any succeeding occupant founded on such delay or failure of whose existence Tenant has knowledge or has been given notice, and any and all reasonable attorneys' fees, disbursements and court costs incurred by Landlord in connection with any of the foregoing. C. The receipt and acceptance by Landlord of all or any portion of the Occupancy Payment shall not be deemed a waiver or acceptance by Landlord of Tenant's breach of Tenant's covenants and agreements under this Article 25, or a waiver by Landlord of Landlord's right to institute any summary holdover proceedings against Tenant, or a waiver by Landlord of Landlord's rights to enforce any of Landlord's rights, or pursue any of Landlord's remedies against Tenant in such event as provided for in this Lease or under law. Section 25.03. It is expressly understood and agreed that there can be no extension of the Term unless said extension is reduced to writing and agreed to by Landlord. No verbal statement or unsigned writing shall be deemed to extend the Term, and Tenant hereby agrees that any improvements Tenant shall make to the Demised Premises in reliance upon any extension of the Term given verbally or by an unsigned writing shall be at Tenant's peril. Section 25.04. If the last day of the Term shall fall on a Saturday, Sunday or legal holiday, the Term of this Lease shall expire on the Business Day immediately preceding such date. Section 25.05. Tenant expressly waives, for itself and for any person claiming by, through or under Tenant, any rights which Tenant or any such persons may have under the provisions of Section 2201 of the New York Civil Practice Law and Rules, and of any successor law of like import then in force, in connection with any summary holdover proceedings which Landlord may institute to enforce the provisions of this Article 25. Section 25.06. Each and every one of Tenant's obligations set forth in this Article 25 (including the indemnity) shall survive the expiration or other termination of the Term. ARTICLE 26 RULES AND REGULATIONS Section 26.01. Tenant and all Persons Within Tenant's Control shall faithfully observe and comply with: (i) all of the rules and regulations set forth in Exhibit "F" annexed hereto and made a part hereof, and (ii) such additional rules and regulations as Landlord hereafter at any time or from time to time may reasonably make and communicate in writing to Tenant, which, in the reasonable judgment of Landlord, shall be necessary or desirable for the reputation, safety, care or appearance of the Building and the Building Systems, or the preservation of good order therein, or the operation or maintenance of the Building and Building Systems, 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 rules or 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 provided further that Landlord shall not be liable to Tenant for violation of the same by any other tenant, its servants, employees, agents, visitors, invitees, subtenants or licensees. Notwithstanding anything contained herein to the contrary, Landlord shall not enforce the rules and regulations against Tenant in a discriminatory manner. In the event that Tenant shall dispute the reasonableness of any additional rule or regulation hereafter made or adopted by Landlord or Landlord's agents, the parties hereto agree to submit the question of the reasonableness of such rule or regulation for decision to the Chairman of the Board of Directors of the Management Division of The Real Estate -46- Board of New York, Inc., or to such impartial person or persons as he may designate, whose determination shall be final and conclusive upon the parties hereto. The right to dispute the reasonableness of any additional rule or regulation upon Tenant's part shall be deemed waived unless the same shall be asserted by service of a notice in writing upon Landlord within fifteen (15) days after the giving of notice of the making of the rule or regulation to Tenant. ARTICLE 27 PERSONS BOUND Section 27.01. The covenants, agreements, terms, provisions and conditions of this Lease shall bind and inure to the benefit of the respective heirs, distributees, executors, administrators, successors, assigns and legal representatives 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 10 shall operate to vest any rights in any successor, assignee or legal representative of Tenant, and that the provisions of this Article 27 shall not be construed as modifying the conditions of limitation contained in Articles 14 and 15. The term "Landlord" as used in this Lease shall mean the Landlord at the particular time in question, and it is agreed that the covenants and obligations of Landlord under this Lease shall not be binding upon Landlord herein named or any subsequent landlord with respect to any period subsequent to the transfer of its interest under this Lease by operation of law or otherwise. In the event of any such transfer, the transferee shall be deemed to have assumed (subject to this Article 27) the covenants and obligations of Landlord under this Lease, and Tenant agrees to look solely to the transferee for the performance of the obligations of Landlord hereunder, but only with respect to the period beginning with such transfer and ending with a subsequent transfer of such interest. A lease of Landlord's interest shall be deemed a transfer within the meaning of this Article 27. Section 27.02. Notwithstanding anything to the contrary provided in this Lease, Tenant agrees that there shall be no personal liability on the part of Landlord arising out of any default by Landlord under this Lease, and that Tenant (and any person claiming by, through or under Tenant) shall look solely to the equity interest of Landlord in and to the Land and/or Building or the leasehold estate of Landlord for the enforcement and satisfaction of any defaults by Landlord hereunder, and that Tenant shall not enforce any judgment or other judicial decree requiring the payment of money by Landlord, against any other property or assets of Landlord, and at no time shall any other property or assets of Landlord, or Landlord's principals, partners, members, shareholders, directors or officers, be subject to levy, execution, attachment or other enforcement procedure for the satisfaction of Tenant's (or such person's) remedies under or with respect to this Lease, the relationship of Landlord and Tenant hereunder or Tenant's use or occupancy of the Demised Premises; such exculpation of personal liability to be absolute and without any exception. ARTICLE 28 NOTICES Section 28.01. In order for the same to be effective, each and every notice, request or demand permitted or required to be given by the terms and provisions of this Lease, or by any Legal Requirement, either by Landlord to Tenant or by Tenant to Landlord (any of the foregoing being referred to in this Article 28 as a "Notice"), shall be given in writing, in the manner provided in this Section 28.01, unless expressly provided otherwise elsewhere in this Lease. In the case of Notices given by Landlord to Tenant, any such Notice shall be deemed to have been served and given by Landlord and received by Tenant on the third Business Day following the date on which Landlord shall have deposited such Notice by registered or certified mail, return receipt requested, addressed to Tenant at the Demised Premises (or before Tenant has moved its offices to the Demised Premises, addressed to Tenant at its address as stated on the first page of this Lease), with a copy to Tenant at 360 Second Avenue, Waltham, Massachusetts 02154, Attention: Mr. John D. Pittenger, Chief Financial Officer, and a copy to Cole, Schotz, Meisel, Forman & Leonard, P.A., Court Plaza North, 25 Main Street, P.O. Box 800, Hackensack, New Jersey 07602-0800, Attention: Leonard R. Glass, Esq. In the case of Notices given by Tenant to Landlord, any such Notice shall be deemed to have been served and given by Tenant and received by Landlord on the third Business Day following the date on which Tenant shall have deposited such Notice (and any required copies thereof) by registered or certified mail, return receipt requested, enclosed in securely closed postpaid wrapper in a Post Office addressed to Landlord as follows: Broadpine Realty Holding Company, Inc., c/o J.P. Morgan Investment Management Inc., 522 Fifth Avenue, New York, New York 10036, Attention: Ms. Anne S. Pfeiffer, with a copy to Silverstein Properties, Inc., 120 Broadway, New York, New York 10271, attention: Mr. Edward J. Kulik, Jr., and with an additional copy to: Stroock & Stroock & Lavan, 7 Hanover Square, New York, New York 10004, Attention: Brian Diamond, Esq., and with copies thereof mailed as aforesaid to parties designated in accordance with Section 22.04. Notices may also be given by telegram or telecopy or by overnight courier with receipted delivery, each effective upon receipt, or by hand delivery served in the same manner as a summons in a Supreme Court action is then provided to be made under New York law. Either party may, by notice as aforesaid, designate a different person or persons and/or address or addresses for Notices. Section 28.02. Notices may be given on behalf of Landlord by the managing agent for the Building the name of which shall be supplied to Tenant from time to time, and which currently is Silverstein Properties, Inc. -47- ARTICLE 29 PARTNERSHIP TENANT Section 29.01. If Tenant is a partnership (or is comprised of two (2) or more persons, individually and as co-partners of a partnership) or if Tenant's interest in this Lease shall be assigned to a partnership (or to two (2) or more persons, individually and as co-partners of a partnership) pursuant to Article 10 (any such partnership and such persons being referred to in this Article as "Partnership Tenant"), the following provisions of this Section 29.01 shall apply to such Partnership Tenant: (i) the liability of each of the parties comprising Partnership Tenant shall be joint and several, (ii) each of the parties comprising Partnership Tenant hereby consents in advance to, and agrees to be bound by, any written instrument which may hereafter be executed changing, modifying or discharging this Lease, in whole or in part, or surrendering all or any part of the Demised Premises to Landlord, and by any notices, demands, requests or other communications which may hereafter be given by Partnership Tenant or by any of the parties comprising Partnership Tenant, (iii) any bills, statements, notices, demands, requests or other communications given or rendered to Partnership Tenant or to any of the parties comprising Partnership Tenant shall be binding upon Partnership Tenant and all such parties, (iv) if Partnership Tenant shall admit new partners, all of such new partners shall, by their admission to Partnership Tenant, be deemed to have assumed performance of all of the terms, covenants and conditions of this Lease on Tenant's part to be observed and performed, (v) Partnership Tenant shall give prompt notice to Landlord of the admission of any such new partners, and, upon demand of Landlord, shall cause each such new partner to execute and deliver to Landlord an agreement in form reasonably satisfactory to Landlord, wherein each such new partner shall assume performance of all of the terms, covenants and conditions of this Lease on Tenant's part to be observed and performed (but neither Landlord's failure to request any such agreement nor the failure of any such new partner to execute or deliver any such agreement to Landlord shall vitiate the provisions of clause (iv) of this Section 29.01), and (vi) on each anniversary of the Commencement Date, Partnership Tenant shall deliver to Landlord a list of the names of all partners and their current residential addresses. Section 29.02. If any partner in Tenant is or shall be a professional corporation, Tenant agrees to cause such professional corporation and each individual shareholder thereof to execute such guaranties and other instruments, agreements or documents as Landlord may reasonably request confirming that such individual shareholder shall have the same obligations and liability under this Lease as such shareholder would have had if he, and not such professional corporation, were a partner in Tenant. Section 29.03. If Tenant is a professional corporation or a partnership, Tenant and each of the partners/shareholders of Tenant hereby waive any requirements of law that may require that Landlord first look to the assets of Tenant for recovery of any monies due hereunder, it being the intention of the parties hereto that Landlord may, at Landlord's election, proceed against the assets of Tenant and/or the assets of the individual partners/shareholders of Tenant, whether simultaneously, or in such order of priority as Landlord may determine in Landlord's sole discretion. The provisions of this Section 29.03 are not intended to mean that Landlord shall have limited or waived its rights to any other available remedies hereunder or under applicable law as to Tenant, including the right to look to the assets of Tenant for recovery of any monies due hereunder. Section 29.04. If Tenant is a professional corporation or a partnership, the partners/shareholders of Tenant hereby consent and submit to the jurisdiction of any court of record of New York State located in New York County, or of the United States District Court for the Southern District of New York, and agree that service of process in any action or proceeding brought by Landlord may be made upon any or all of the partners/shareholders of Tenant by mailing a copy of the summons to such partner(s)/shareholder(s) either at their respective addresses or at the Demised Premises, by registered or certified mail, return receipt requested. Notwithstanding the foregoing, the residence of any partner/shareholder of Tenant shall not be a basis for a choice of venue or for a motion by a partner/shareholder of Tenant for transfer of venue or forum non conveniens pursuant to any rule of common law and/or any applicable state of federal provision or statute, and each partner/shareholder of Tenant and Tenant hereby waives the right to choose venue or to move for transfer of venue or forum non conveniens on the grounds that an individual partner/shareholder of the Tenant resides in a particular jurisdiction. ARTICLE 30 NO WAIVER; ENTIRE AGREEMENT Section 30.01. The failure of the Landlord or Tenant to seek redress for violation of, or to insist upon the strict performance of any covenant, agreement, term, provision or condition of this Lease, or any of the rules and regulations, shall not constitute a waiver thereof, and Landlord or (except as otherwise provided in this Lease) Tenant, as the case may be, shall have all remedies provided herein and by applicable law with respect to any subsequent act which would have originally constituted a violation. The receipt by Landlord of Fixed Rent and/or additional rent with knowledge of the breach of any covenant, agreement, term, provision or condition of this Lease shall not be deemed a waiver of such breach. No provision of this Lease shall be deemed to have been waived by Landlord or Tenant, unless such waiver be in writing signed by Landlord or Tenant, as the case may be. Landlord and Tenant each -48- hereby expressly waive any right that Landlord or Tenant might otherwise have to raise or assert either the aforesaid failure of the other party to enforce rights, seek redress or insist upon strict performance, or the aforesaid receipt by Landlord or Tenant of Fixed Rent and/or additional rent, as a basis for any defense or counterclaim in any legal, equitable or other proceeding in which Landlord or Tenant shall seek to enforce any rights, covenants or conditions under this Lease. The remedies provided in this Lease shall be cumulative and shall not in any way abridge, modify or preclude any other rights or remedies to which Landlord or (except as otherwise provided in this Lease) Tenant may be entitled under this Lease, at law or in equity. Without limiting the generality of the foregoing, Tenant expressly agrees that, upon the occurrence of an Event of Default, Landlord shall be entitled to exercise all of the rights set forth in Article 15 above (including the right to terminate this Lease), notwithstanding that this Lease provides that Landlord may cure the default or otherwise perform the obligation of Tenant which gave rise to such Event of Default, and regardless of whether Landlord shall have effected such cure or performed such obligation. The receipt and retention by Landlord of Fixed Rent or additional rent from any person other than Tenant shall not be deemed a waiver by Landlord of any breach by Tenant or any covenant, agreement, term, provision or condition herein contained, or the acceptance of such other person as a tenant, or a release of Tenant from the further performance of the covenants, agreements, terms, provisions and conditions herein contained. Section 30.02. This Lease, with the schedules, riders and exhibits, if any, annexed hereto, contains the entire agreement between Landlord and Tenant, and any agreement heretofore made shall be deemed merged herein. Any agreement hereafter made between Landlord and Tenant shall be ineffective to change, modify, waive, release, discharge, terminate or effect a surrender or abandonment of this Lease, in whole or in part, unless such agreement is in writing and signed by the party against whom enforcement is sought. All of the schedules, riders and exhibits, if any, annexed hereto are incorporated herein and made a part hereof as though fully set forth herein. If Tenant shall have any right to an extension or renewal of the Term, or any right to lease other space from Landlord, Landlord's exercise of Landlord's right to terminate this Lease shall operate, ipso facto, to terminate such renewal, extension or other right, whether or not theretofore exercised by Tenant. Any option on the part of Tenant herein contained for an extension or renewal hereof shall not be deemed to give Tenant any option for a further extension beyond the renewal or extended term. No option or right granted to Tenant under this Lease to terminate, extend, or make any other election, shall be exercisable or valid during such time as Tenant is in default under this Lease beyond the expiration of any applicable notice and cure period. Section 30.03. No act or thing done by Landlord or Landlord's agents during the Term shall be deemed to constitute an eviction by Landlord, or be deemed an acceptance of a surrender of the Demised 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 Demised 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 this Lease or a surrender of the Demised Premises. In the event that Tenant at any time shall desire to have Landlord sublet the Demised Premises for Tenant's account, Landlord or Landlord's agents are authorized to receive said keys for such purposes without releasing Tenant from any of Tenant's obligations under this Lease, and Tenant hereby relieves Landlord of any liability for loss of or damage to any of Tenant's property in connection with such subletting. ARTICLE 31 MISCELLANEOUS Section 31.01. Tenant represents that Tenant has inspected the Demised Premises, and (except as may be otherwise expressly set forth elsewhere in this Lease) agrees to take same in its existing condition "as is" and "where is" at the Commencement Date. The taking of possession of the Demised Premises by Tenant shall be deemed presumptive evidence that Tenant accepts the same "as is" and "where is", and that the Demised Premises and the Building are in good and satisfactory condition (subject to latent defects in the Demised Premises) and except for (i) items noted on a punch list delivered to Landlord within thirty (30) days of the Commencement Date, and (ii) Landlord's Work which is to be performed before or contemporaneously with the Commencement Date which shall be warranted for the period commencing the Commencement Date and terminating on the first anniversary of the Commencement Date. Tenant agrees that neither Landlord, nor any broker, agent, employee or representative of Landlord nor any other party, has made, and Tenant does not rely on, any representations, warranties or promises with respect to the Building, the Land, the Demised Premises or this Lease, except as herein expressly set forth, and no rights, easements or licenses are acquired by Tenant by implication or otherwise, except as expressly set forth in the provisions of this Lease. Landlord makes no representation as to the design, construction, development or use of the Land or Building, except as may be expressly set forth in this Lease. Section 31.02. The Table of Contents and Article headings of this Lease are included for convenience only, and shall not limit or define the meaning or content hereof. All pronouns and any variations thereof shall be deemed to refer to the masculine, feminine, neuter, singular or plural, as the identity of the person or persons may require. -49- The terms "herein," "hereof" and "hereunder," and words of similar import, shall be construed to refer to this Lease as a whole, and not to any particular Article or Section, unless expressly so stated. The term "and/or," when applied to two or more matters or things, shall be construed to apply to any one or more or all thereof as the circumstances warrant at the time in question. The term "person" shall mean any natural person or persons, a partnership, a corporation, and any other form of business or legal association or entity, unless expressly otherwise stated. An "affiliate" of Tenant shall mean any person which controls or is controlled by, or is under common control with, Tenant, with the word "control" (and, correspondingly, "controlled by" and "under common control with"), as used with respect to any person, meaning the possession of the power to direct or cause the direction of the management and policies of such person. The rule of "ejusdem generis" shall not apply in or to the construction of any term of this Lease. Section 31.03. If the term "Tenant", as used in this Lease, refers or shall refer to more than one person, then, as used in this Lease, said term shall be deemed to include all of such persons or any one of them. If any of the obligations of Tenant under this Lease is or shall be guaranteed, the term "Tenant" as used in Article 14 shall be deemed to mean the Tenant and the guarantor, or either of them. If this Lease shall have been assigned, then for purposes of Article 14, the term "Tenant" shall be deemed to mean either assignor or assignee. The term "Tenant" shall mean the Tenant herein named or any assignee or other successor in interest (immediate or remote) of the Tenant herein named, which at the time in question is the owner of the Tenant's estate and interest granted by this Lease; but the foregoing provisions of this Section 31.03 shall not be construed to permit any assignment of this Lease or to relieve the Tenant herein named or any assignee or other successor in interest (whether immediate or remote) of the Tenant herein named from the full and prompt payment, performance and observance of each and every one of the covenants, obligations and conditions to be paid, performed and observed by Tenant under this Lease. Section 31.04. If any portion of the Building shall be sold or transferred by Landlord in a transaction in the nature of a condominium, Landlord may, by notice to Tenant, elect to increase Tenant's Proportionate Share under this Lease by dividing the prior Tenant's Proportionate Share by the percentage that the assessed valuation of the tax lot which includes the Demised Premises for the first year of changed ownership bears to the total of the assessed valuations of all new tax lots which comprised the single tax lot which included the Demised Premises during the preceding Year, and base period amounts shall be reduced by multiplying the amount thereof theretofore in effect by the same percentage, and affected computations under Subsection 19.03A shall be apportioned, but in no event shall Tenant's Tax Payment following such sale or transfer exceed the amount that such Tax Payment would have been had the Building remained as a single unit and Tenant's Tax Share not been recalculated. Section 31.05. Landlord and Tenant, any subtenant, and any guarantor of Tenant's obligations under this Lease, hereby expressly consent to the jurisdiction of the Civil Court of the City of New York, the Supreme Court of the State of New York and, provided the requisite jurisdictional requirements are met, United States District Court for the Southern District of New York with respect to any action or proceeding between Landlord and Tenant or such party with respect to this Lease or any rights or obligations of either party pursuant to this Lease, and each of such subtenant, guarantor, Landlord and Tenant agrees that venue shall lie in New York County. Tenant and any subtenant further waive any and all rights to commence any such action or proceeding against Landlord before any other court. Section 31.06. The submission of this Lease to Tenant shall not be construed as an offer, nor shall Tenant have any rights with respect thereto or the Demised Premises, unless and until Landlord and Tenant shall each have executed a counterpart of this Lease and delivered the same to the other. Until such execution and delivery, any action taken or expense incurred by Tenant in connection with this Lease or the Demised Premises shall be solely at Tenant's own risk and account. Section 31.07. Neither this Lease nor any memorandum thereof shall be recorded. Section 31.08. This Lease shall be governed exclusively by (i) the provisions hereof, without the aid of any canon, custom or rule of law requiring or suggesting construction against the party drafting or causing the drafting of the provision in question, and (ii) the internal laws of the State of New York as the same may from time to time exist, without giving effect to the principles of conflicts of laws. Section 31.09. There shall be no merger of this Lease, or the leasehold estate created by this Lease, with any other estate or interest in the Demised Premises, or any part thereof, by reason of the fact that the same person may acquire or own or hold, directly or indirectly, (i) this Lease or the leasehold estate created by this Lease, or any interest in this Lease or in any such leasehold estate, and (ii) any such other estate or interest in the Demised Premises or any part thereof; and no such merger shall occur unless and until all persons having an interest (including a security interest) in (a) this Lease or the leasehold estate created by this Lease and (b) any such other estate or interest in the Demised Premises, or any part thereof, shall join in a written instrument effecting such merger and shall duly record the same. -50- Section 31.10. If Tenant is a corporation, each person executing this Lease on behalf of Tenant hereby covenants, represents and warrants that Tenant is a duly incorporated or duly qualified (if foreign) corporation and is authorized to do business in the State of New York (a copy of evidence thereof to be supplied to Landlord upon request); and that each person executing this Lease on behalf of Tenant is an officer of Tenant, and that he is duly authorized to execute, acknowledge and deliver this Lease to Landlord (a copy of a resolution to that effect to be supplied to Landlord upon request). Each person executing this Lease on behalf of Landlord hereby covenants, represents and warrants that Landlord is a duly incorporated corporation and is authorized to do business in the State of New York; and that each person executing this Lease on behalf of Landlord is an officer of Landlord, and that such person is duly authorized to execute, acknowledge and deliver this Lease to Tenant. Section 31.11. Except as otherwise expressly provided herein, the terms "Landlord shall have no liability to Tenant," or "the same shall be without liability to Landlord," or "without incurring any liability to Tenant therefor," or words of similar import, shall mean that Tenant shall not be entitled to terminate this Lease, or to claim actual or constructive eviction (partial or total), or to receive any abatement or diminution of rent, or to be relieved in any manner of any of Tenant's other obligations hereunder, or to be compensated for loss or injury suffered, or to enforce any other right or kind of liability whatsoever against Landlord under or with respect to this Lease or with respect to Tenant's use or occupancy of the Demised Premises. Section 31.12. If, under the terms of this Lease, Tenant shall be obligated to pay to Landlord any amount (other than Fixed Rent), and no payment period therefor is specified, Tenant shall pay to Landlord the amount due within twenty (20) days after being billed therefor, which bill shall be accompanied by evidence reasonably substantiating such amount. Section 31.13. Except as otherwise expressly provided herein, all bills, invoices or statements rendered to Tenant pursuant to the terms of this Lease shall be deemed binding and conclusive if, within forty-five (45) days of receipt of the same, Tenant fails to notify Landlord, in writing, of Tenant's intention to dispute such bill, invoice or statement. Section 31.14. Time shall be of the essence with respect to the exercise of any option granted to Tenant pursuant to this Lease. Section 31.15. Notwithstanding anything to the contrary contained in this Lease, during the continuance of any default by Tenant with respect to any of Tenant's obligations under this Lease beyond notice and the expiration of the applicable cure period, if any. Tenant shall not be entitled to exercise any rights or options or to receive any funds or proceeds being held by Landlord under or pursuant to this Lease. Section 31.16. If any sales or other tax shall be due or payable with respect to any cleaning or other service which Tenant obtains or contracts for directly from any third party or parties, Tenant shall file any required tax returns and shall pay any such tax, and Tenant shall indemnify and hold Landlord harmless from and against any loss, damage or liability suffered or incurred by Landlord by reason thereof. Section 31.17. Tenant acknowledges that Tenant has no rights to any development rights, "air rights" or comparable rights appurtenant to the Land and the Building, and consents, without further consideration, to any utilization of such rights by Landlord (provided that Tenant's rights under this Lease and Tenant's use of the Demised Premises are not materially adversely affected thereby), and agrees to promptly execute and deliver any instruments which may be reasonably requested by Landlord, including instruments merging zoning lots, evidencing such acknowledgment and consent. The provisions of this Section 31.17 shall be deemed to be and shall be construed as an express waiver by Tenant of any interest Tenant may have as a "party in interest" (as such quoted term is defined under the definition of "Zoning Lot" in Section 12-10 of the Zoning Resolution of the City of New York) in the Land and/or the Building. Section 31.18. This Lease shall not be deemed or construed to create or establish any relationship of partnership or joint venture or similar relationship or arrangement between Landlord or Tenant. ARTICLE 32 INABILITY TO PERFORM; SEVERABILITY Section 32.01. Except as otherwise expressly provided herein, if for reasons beyond the reasonable control of the Landlord or the Tenant, as the case may be, including, without limiting the generality of the foregoing, strikes, lockouts, labor problems, governmental preemption, or by reason of any Legal Requirements, or by reason of the conditions of supply and demand which have been or shall be affected by war or other emergency (each an "Excusable Delay@ and, collectively, "Excusable Delays@), either the Landlord or the Tenant shall be unable to perform any obligation that such party is obligated to perform, then such party's obligation to perform shall be excused for the duration of such Excusable Delays, and, except as otherwise set forth in this Lease, this Lease and the other party's rights and obligations hereunder shall not -51- be affected, impaired or excused. Notwithstanding anything to the contrary contained in this Section 32.01, a party's failure to timely fulfill an obligation required to be fulfilled by such party under this Lease shall not be excused by reason of what would otherwise be an Excusable Delay if (i) said obligation is an obligation to pay or reimburse money or (ii) said failure shall be the result of such party's lack of funds. Landlord shall use commercially reasonable efforts (but shall not be obligated to use overtime or premium pay labor) to minimize interference with Tenant's use and occupancy of the Demised Premises in connection with any of the foregoing conditions and shall use due diligence to promptly restore Building Services and facilities interrupted as a result of the conditions set forth in this Section 32.01. Section 32.02. If any provision of this Lease or the application thereof to any person or circumstance shall be determined by a court of competent jurisdiction to be invalid or unenforceable, the remaining provisions of this Lease or the application of such provision to persons or circumstances other than those to which it is held invalid or unenforceable shall not be affected thereby, and shall be valid and enforceable to the fullest extent permitted by law. Section 32.03. Each covenant, agreement, obligation and/or other provision of this Lease on Tenant's part to be performed shall be deemed and construed as a separate and independent covenant of Tenant, and not dependent on any other provision of this Lease. ARTICLE 33 SECURITY Section 33.01. Upon the execution of this Lease, Tenant shall deposit with Landlord the Security Deposit Amount, as security for the faithful performance and observance by Tenant of all of the covenants, agreements, terms, provisions and conditions of this Lease. Tenant agrees that, if Tenant shall default in respect of any of the covenants, agreements, terms, provisions and conditions of this Lease (beyond notice and the expiration of the applicable cure period, if any) including the payment of the Fixed Rent and additional rent, Landlord may use, apply or retain the whole or any part of the security being held by Landlord (the "Security") to the extent required for the payment of any Fixed Rent and additional rent, or any other payments as to which Tenant shall be in default or for any monies which Landlord may expend or may be required to expend by reason of Tenant's default in respect of any of the covenants, agreements, terms, provisions and conditions of this Lease, including any damages or deficiency in the reletting of the Demised Premises, whether such damages or deficiency accrued before or after summary proceedings or other re-entry by Landlord. Notwithstanding the foregoing sentence, however, Landlord shall not use, apply or retain the whole or any part of the Security if Tenant's default (i) is non-monetary and (ii) arises from strikes, lock-outs or labor problems, governmental preemption, or by reason of any Legal Requirements, or by reason of the conditions of supply and demand which have been or shall be affected by war or other emergency or general market conditions or otherwise; provided, however, that Tenant shall use its best efforts and diligently pursue to completion the curing of such default. Landlord shall not be required to so use, apply or retain the whole or any part of the Security so deposited, but if the whole or any part thereof shall be so used, applied or retained, then Tenant shall, within ten (10) days after demand therefor deposit with Landlord an amount in cash equal to the amount so used, applied or retained, so that Landlord shall have the entire Security on hand at all times during the Term. In the event that Tenant shall fully and faithfully comply with all of the terms, provisions, covenants, agreements and conditions of this Lease, the Security shall be returned to Tenant within thirty (30) days after the Expiration Date or earlier termination of this Lease as provided herein and delivery of exclusive possession of the Demised Premises to Landlord. In the event of any making or assignment of any Underlying Lease or upon a conveyance of the Building: (i) Landlord shall have the right to transfer the Security to the assignee or lessee or transferee, (ii) Landlord shall thereupon be released by Tenant from all liability for the return of such Security, and (iii) Tenant agrees to look solely to Landlord's successor for the return of said Security provided that Tenant has received notice thereof, it being agreed that the provisions hereof shall apply to every transfer or assignment made of the Security to a new Landlord. Tenant further covenants that Tenant will not assign or encumber or attempt to assign or encumber the monies deposited herein as Security, and that neither Landlord nor Landlord's successors or assigns shall be bound by any such assignment, encumbrance, attempted assignment or attempted encumbrance. Section 33.02. Landlord agrees to place the Security in an interest- bearing account, and, unless disbursed or applied by Landlord as provided in Section 33.01 above, the interest earned thereon (less an amount equal to one (1%) percent of the Security, which may be retained by Landlord each year as compensation for management and administration of said account) shall be disbursed annually to Tenant when Landlord shall generally make such distributions to tenants in the Building, but only if Tenant shall not be in default with respect to any of Tenant's obligations under this Lease beyond notice and the expiration of the applicable cure period, if any. Section 33.03. A. Notwithstanding anything to the contrary contained in Section 33.01 above, in lieu of a cash security deposit, Tenant may deliver to Landlord a clean, irrevocable, transferable and unconditional letter of credit (the "Letter of Credit") issued by and drawn upon a -52- commercial bank (hereinafter referred to as the "Issuing Bank") which shall be a member bank of the New York Clearinghouse Association (or, in the alternative, which shall have offices for banking purposes in the Borough of Manhattan and shall have a net worth of not less than $100,000,000, with reasonably appropriate evidence thereof to be submitted by Tenant), which Letter of Credit shall: (i) have a term of not less than one (1) year, (ii) contain the same substance and be in materially the same form annexed hereto as Exhibit "G," (iii) be for the account of Landlord, (iv) be in the amount of $70,950.00, (v) except as otherwise provided in this Section 33.03, conform and be subject to Uniform Customs and Practice for Documentary Credits, 1993 Revision, ICC Publication No. 500 (or any revision thereof or successor thereto), (vi) be fully transferable by Landlord without any fees or charges therefor (or, if the Letter of Credit shall provide for the payment of any transfer fees or charges, the same shall be paid by Tenant as and when such payment shall be requested by the Issuing Bank), (vii) provide that Landlord shall be entitled to draw upon the Letter of Credit upon presentation to the Issuing Bank of a sight draft accompanied by Landlord's statement that Landlord is then entitled to draw upon the Letter of Credit pursuant to the terms of this Lease, and (viii) provide that the Letter of Credit shall be deemed automatically renewed, without amendment, for consecutive periods of one (1) year each year thereafter during the entire Term of this Lease and for a period of thirty (30) days thereafter, unless the Issuing Bank shall send notice (the "Non-Renewal Notice") to Landlord by certified or registered mail, return receipt requested, not less than forty-five (45) days next preceding the then expiration date of the Letter of Credit that the Issuing Bank elects not to renew such Letter of Credit, in which case Landlord shall have the right, by sight draft on the Issuing Bank, to receive the monies represented by the then existing Letter of Credit, and to hold and/or disburse such proceeds pursuant to the terms of Section 33.01 above as cash security. If Landlord shall fail, for any reason whatsoever, to draw upon the Letter of Credit within said forty-five (45) day period, and the Letter of Credit shall expire prior to the thirtieth (30th) day following the Expiration Date of the Term of this Lease, then Tenant shall within five (5) days after demand therefor deposit with Landlord the Security Deposit Amount in cash or furnish Landlord with a replacement Letter of Credit (which shall comply with all of the conditions set forth in the immediately preceding sentence), so that Landlord shall have the entire Security on hand at all times during the Term and for a period of thirty (30) days thereafter. Tenant acknowledges and agrees that the Letter of Credit shall be delivered to Landlord as security for the faithful performance and observance by Tenant of all of the covenants, agreements, terms, provisions and conditions of this Lease, and that Landlord shall have the right to draw upon the entire Letter of Credit in any instance in which Landlord would have the right to use, apply or retain the whole or any part of any cash security deposited with Landlord pursuant to Section 33.01 above. If Landlord shall draw upon the entire Letter of Credit and such amount shall be greater than that required for the payments referred to in the first sentence of Section 33.01 hereof, the balance of any amounts received by Landlord pursuant to drawing upon such Letter of Credit shall be held by Landlord as a cash security deposit in accordance with the provisions of this Section 33. B. In the event that Tenant shall elect to furnish the Letter of Credit in lieu of cash security: (i) all references to "Security" in Section 33.01 above shall be deemed to refer to the Letter of Credit, or any proceeds thereof as may be drawn upon by Landlord, and (ii) the provisions of Section 33.02 above shall apply only to such Letter of Credit proceeds (if any) as may be drawn and held by Landlord. C. Landlord agrees that, provided that the conditions set forth below shall be satisfied, Tenant shall be permitted to (i) reduce the amount of said Letter of Credit on the third (3rd) anniversary of the Commencement Date to $47,300 (with such anniversary date being referred to as the "Reduction Date", and such reduction being referred to as the "Permitted Reduction"), or (ii) in the event that Landlord shall then be holding cash security in lieu of a Letter of Credit, to receive a refund on or after the third (3rd) anniversary of the Commencement Date, in an amount equal to the difference between the amount of cash security then being held by Landlord and $47,300, if any. Landlord shall have no obligation to refund any portion of the cash security until thirty (30) days following Landlord's receipt of a written notice requesting such refund (the "Security Refund Notice"). Landlord agrees that, if and to the extent Landlord's cooperation shall be required in order to facilitate a Permitted Reduction, Landlord will, at Tenant's request, but at no cost or expense to Landlord, cooperate with Tenant in all reasonable respects to cause such Permitted Reduction to occur. Tenant shall only have the right to reduce the Letter of Credit or to receive such refund as aforesaid provided that on the Reduction Date or the date upon which Landlord shall receive the Security Refund Notice (x) Tenant shall not then be in default (after notice and the expiration of the applicable cure period) with respect to any of Tenant's non-monetary obligations under this Lease (a "Non-Monetary Default") and (y) Tenant shall not be in default with respect to any of Tenant's monetary obligations under this Lease after notice and the expiration of the applicable cure period, if any (a "Monetary Default"); it being agreed, however, that following Tenant's cure of such Non-Monetary Default or Monetary Default, as the case may be, Tenant shall be permitted to reduce the Letter of Credit or receive such refund as aforesaid. -53- ARTICLE 34 RENEWAL OPTION Section 34.01. The initially named Tenant under this Lease, i.e., Computer Telephone Corp., as well as any Related Corporation or Successor Corporation thereof (but no assignee of any such party) (collectively, "CTC") shall have an option (the "Renewal Option") to extend the term of this Lease for a single renewal term of five (5) years (the "Renewal Term"), which shall commence at noon on the Expiration Date and shall expire at noon on the fifth (5th) anniversary of the Expiration Date or such earlier date upon which this Lease may be terminated as herein provided. The Renewal Option may be exercised only by CTC giving Landlord written notice (the "Renewal Notice") of CTC's intention to renew this Lease pursuant to this Article 34 not later than one (1) year prior to the Expiration Date, and not earlier than fifteen (15) months prior to the Expiration Date, and such Renewal Notice shall be deemed properly given only if, on the date that CTC shall exercise the Renewal Option (the "Exercise Date"): (i) this Lease shall not have been previously terminated or cancelled, (ii) CTC shall be in occupancy of at least eighty percent (80%) of the Demised Premises, and (iii) CTC shall not be in breach or default of any of the obligations of Tenant under this Lease after notice and the expiration of the applicable cure period, if any;. Time shall be strictly of the essence with respect to the giving of the Renewal Notice by CTC to Landlord. Notwithstanding anything to the contrary contained in this Section 34.01, if, subsequent to the Exercise Date but prior to the commencement of the Renewal Term: (x) CTC shall not be in occupancy of at least eighty percent (80%) of the Demised Premises, or (y) an Event of Default shall have occurred, then Landlord, in Landlord's sole and absolute discretion, may elect, by written notice to CTC, to void CTC's exercise of the Renewal Option, in which case CTC's exercise of the Renewal Option shall be of no force or effect, and the Term shall end on the Expiration Date of the initial term of this Lease, unless sooner cancelled or terminated pursuant to the provisions of this Lease or by law. Section 34.02. If Tenant shall exercise the Renewal Option in accordance with the provisions of this Article 34, then this Lease shall be extended for the Renewal Term upon all of the terms, covenants and conditions contained in this Lease, except that: (i) during the Renewal Term, the Fixed Rent shall be the fair annual market rental value (the "Market Value Rent") of the Demised Premises on the Expiration Date, determined as provided in Section 34.03 below, but in no event less than the Fixed Rent in effect on the Expiration Date, and with the Base Tax Year and the Base Operating Year equal to the year in which the Renewal Term commences, (ii) from and after the Exercise Date (but subject to the provisions of the last sentence of Section 34.01 above), all references to "Expiration Date" shall be deemed to refer to the last day of the Renewal Term, and all references to "Term" shall be deemed to include the Renewal Term, (iii) Tenant shall have no further right or option to renew this Lease or the term hereof, and (iv) all provisions of this Lease concerning the performance by Landlord of any work, and the grant by Landlord of any monetary contribution, rent abatement or rent credit, in connection with Tenant's initial occupancy of the Demised Premises shall be deemed deleted. Section 34.03. A. The term "Market Value Rent" shall mean the annual fair market rental value of the Demised Premises as of the Determination Date (as hereinafter defined), but in no event less than the Fixed Rent and all additional rent payable pursuant to Article 19 of this Lease ("Recurring Additional Rent") payable by Tenant in the twelve- month period immediately prior to the Expiration Date of the initial term of this Lease. For purposes hereof, the "Determination Date" shall mean the date which shall occur one (1) year prior to the Expiration Date. B. The initial determination of Market Value Rent shall be made by Landlord. Provided that the Renewal Notice shall so request, Landlord shall give notice (the "MVR Notice") to Tenant of Landlord's initial determination of the Market Value Rent within sixty (60) days following the Determination Date. If the Renewal Notice shall not contain a request that Landlord furnish the MVR Notice within sixty (60) days following the Determination Date, Landlord may give Tenant the MVR Notice at any time after the Determination Date. Such initial determination of Market Value Rent shall be final and binding in fixing the Market Value Rent, unless, within thirty (30) days after Landlord shall have given MVR Notice to Tenant, Landlord shall receive a notice from Tenant (the "MVR Objection Notice"): (i) advising Landlord that Tenant disagrees with the initial determination of Market Value Rent set forth in the MVR Notice, and (ii) proposing a specific alternative Market Value Rent, which shall have been determined in good faith by Tenant. If Landlord and Tenant shall fail to agree upon the Market Value Rent within thirty (30) days after Landlord shall have received the MVR Objection Notice, then Landlord and Tenant each shall give notice to the other setting forth the name and address of an arbitrator designated by the party giving such notice. If either party shall fail to give notice of such designation within ten (10) days, then the first arbitrator chosen shall make the determination alone. If two arbitrators shall have been designated, such two arbitrators shall, within thirty (30) days following the designation of the second arbitrator, make their determinations of Market Value Rent in writing and give notice thereof to each other and to Landlord and Tenant. Such two arbitrators shall have twenty (20) days after the receipt of notice of each other's determinations to confer with each other and to attempt to reach agreement as to the determination of Market Value Rent. The arbitrators shall take into account in any -54- such determination the base years set forth in this Lease, which shall continue throughout the remainder of the Renewal Term. If such two arbitrators shall concur as to the determination of the Market Value Rent, such concurrence shall be final and binding upon Landlord and Tenant. If such two arbitrators shall fail to concur by the end of said twenty (20) day period, then such two arbitrators shall forthwith designate a third arbitrator. If the two arbitrators shall fail to agree upon the designation of such third arbitrator within ten (10) days, then either party may apply to the American Arbitration Association or any successor thereto having jurisdiction for the designation of such arbitrator. All arbitrators shall be real estate appraisers or consultants who shall have had at least fifteen (15) years continuous experience in the business of appraising or managing real estate or acting as real estate agents or brokers in the Borough of Manhattan, City of New York. The third arbitrator shall conduct such hearings and investigations as he may deem appropriate and shall, within thirty (30) days after his designation, choose one of the determinations of the two arbitrators originally selected by the parties, and that choice by the third arbitrator shall be binding upon Landlord and Tenant. Each party shall pay its own counsel fees and expenses, if any, in connection with any arbitration under this Article 34, including the expenses and fees of any arbitrator selected by it in accordance with the provisions of this Article, and the parties shall share equally all other expenses and fees of any such arbitration. The determination rendered in accordance with the provisions of this Section 34.03 shall be final and binding in fixing the Market Value Rent. The arbitrators shall not have the power to add to, modify or change any of the provisions of this Lease. C. If for any reason the Market Value Rent shall not have been determined prior to the commencement of the Renewal Term, then, until the Market Value Rent and, accordingly, the Fixed Rent, shall have been finally determined, the Fixed Rent and all Recurring Additional Rent payable for and during the Renewal Term shall be equal to the Market Value Rent and Recurring Additional Rent proposed by Landlord. Upon final determination of the Market Value Rent, an appropriate adjustment to the Fixed Rent shall be made reflecting such final determination, and Landlord or Tenant, as the case may be, shall refund or pay to the other any overpayment or deficiency, as the case may be, in the payment of Fixed Rent from the commencement of the Renewal Term to the date of such final determination. Section 34.04. The right of renewal granted pursuant to this Article 34 shall be deemed a personal right limited to CTC, and all references in this Article 34 to "Tenant" shall be deemed to refer only to CTC. ARTICLE 35 TENANT'S COMMUNICATION EQUIPMENT Section 35.01. Landlord shall provide to Tenant, upon Tenant's request and if then available, space on the roof of the Building not exceeding one hundred (100) square feet, so as to permit Tenant to install in a location designated by Landlord (the "Communications Area"), and once installed, to maintain and operate, at its sole cost and expense, satellite dish(es), antenna(s) and related telecommunications equipment (hereinafter collectively referred to as the "Communications Equipment"), subject to all of the applicable terms, covenants and provisions of this Lease, and subject to Landlord's prior written approval including, without limitation, approval as to size, weight, location, aesthetics, interference with Building Systems, manner of installation and method of attachment, which approval shall also be required for modifications and additions to the Communications Equipment, and to the removal of same. Notwithstanding the foregoing, Tenant expressly acknowledges and agrees that in no event shall Tenant's Communications Equipment utilize more than Tenant's pro rata share of the number or amount of antennas, satellites, other telecommunications equipment and related equipment permitted to be utilized in or at the Building pursuant to any Legal Requirement ("Tenant's Communications Share"), based on the square footage of the Demised Premises (excluding the square footage of the Communications Area). If, at any time during the Term of this Lease, Tenant's Communications Equipment then installed and maintained in the Communications Area shall exceed Tenant's Communications Share, Tenant shall, within thirty (30) days following receipt of written notice from Landlord, remove such Communications Equipment as shall be in excess of Tenant's Communications Share, solely at Tenant's cost and expense, and repair any damage to the Building caused by such removal. Section 35.02. Throughout the Term of this Lease, Tenant shall, at Tenant's sole cost and expense, maintain the Communications Equipment. Any installation, maintenance, replacement or repair of the Communications Equipment which Landlord shall reasonably determine affects the physical integrity of the Building shall be performed by Landlord at Tenant's sole cost and expense. In connection with the installation, maintenance and operation of the Communications Equipment, Tenant shall comply with all Legal Requirements (including, without limitation, zoning ordinances) and shall procure, maintain and pay for all permits and licenses required therefor, including all renewals thereof. The installation, maintenance, and operation of the Communications Equipment shall be subject to all of the terms, covenants and conditions of Articles 5, 6, 7 and 8 hereof, and to all other applicable provisions of this Lease, as if such installation, maintenance and operation were an Alteration. In addition to the terms, covenants and conditions of Article 8, Tenant shall procure, maintain and pay for such liability and property damage insurance as Landlord shall -55- reasonably require in connection with such installation, maintenance and operation, in form, substance and with limits of liability reasonably designated or reasonably approved, in writing, by Landlord. The parties agree that Tenant's use of the Communications Area shall be on a non- exclusive basis, and that Landlord may permit the use of any other portion of the roof of the Building by any other person, firm or corporation for any use, including the installation of other satellite dishes, antennas, generators and/or communications systems. Landlord shall use its reasonable efforts to ensure that such use does not impair Tenant's data transmission and reception via Tenant's Communications Equipment, and Tenant shall use its reasonable efforts to ensure that its use of the Communications Area does not impair such other person's, firm's or corporation's data transmission and reception via their respective satellite dishes, antennas and support equipment, if any. Landlord makes no representation that the Communications Equipment will be able to receive or transmit communication signals without interference or disturbance, and Tenant agrees that Landlord shall not be liable therefor. Section 35.03. For purposes of this Article 35: A. The term "CPI Index" shall mean the "The Consumer Price Index (All Urban Consumers, New York--Northern New Jersey--Long Island)," issued by the Bureau of Labor Statistics of the United States Department of Labor. In the event that the CPI Index ceases to use the 1982-84=100 as the basis of calculation, or if a substantial change is made in the term or number or items contained in the CPI Index, then the CPI Index shall be adjusted to the figure that would have been arrived at if the change in the manner of computing the CPI Index in effect at the date of this Lease had not been altered. In the event that such CPI Index (or a successor or substitute index) is not available, a reliable governmental or other non-partisan publication evaluating the information theretofore used in determining the CPI Index shall be used; B. The term "Base CPI Index" shall mean the CPI Index as it exists on the last day of the calendar month preceding the month in which occurs the date the Communications Area is made available to Tenant by Landlord (the "Communications Area Availability Date"); C. The term "Communications Lease Year" shall mean the period commencing on the Communications Area Availability Date and ending on the last day of the calendar month preceding the month in which occurs the first anniversary of the Communications Area Availability Date and each period of twelve (12) consecutive calendar months thereafter; and D. The term "Percentage of CPI Increase" shall mean the percentage, if any, by which the CPI Index existing as of the last day of a Communications Lease Year exceeds the Base CPI Index. Section 35.04. A. Tenant shall pay for all electrical service required for Tenant's use of the Communications Equipment in accordance with Article 20 of this Lease. At Landlord's election, Tenant, at Tenant's sole cost and expense, or Landlord, on Tenant's behalf and at Tenant's sole cost and expense, shall connect all of the Communications Equipment to a submeter measuring Tenant's electric usage in connection therewith. Tenant shall pay to Landlord, as additional rent hereunder, all of the actual costs and expenses incurred by Landlord in connection with the Communications Equipment (including, without limitation, any expert and/or consultant fees). B. At all times during the Term of this Lease that any Communications Equipment shall be located in the Communications Area and/or any installations in connection with the Communications Equipment shall be located in the shaftways, conduits and/or risers of the Building, Tenant shall pay to Landlord, as additional rent hereunder (the "Communications Equipment Rent"), the sum of Three Thousand Six Hundred and 00/100 ($3,600.00) Dollars per annum, payable in equal monthly installments of $300.00; and (y) for each Communications Lease Year thereafter, the sum of the Communications Equipment Rent for the immediately preceding Communications Lease Year, plus an amount equal to the product of (1) $3,600.00, multiplied by (2) the Percentage of CPI Increase, which sum shall be payable in equal monthly installments, in the time and manner provided for the payment of Fixed Rent with respect to the Demised Premises. Section 35.05. Tenant, at Tenant's sole cost and expense, shall promptly repair any and all damage to the Communications Area and to any part of the Building caused by or resulting from the installation, maintenance and repair, operation or removal of the Communications Equipment erected or installed by Tenant pursuant to the provisions of this Article 35. Any and all structural alterations, repairs, reinforcements and/or additional structural support which Landlord shall determine to be necessary in connection with the Communications Equipment shall be performed by Landlord at Tenant's sole cost and expense. The creation of any new roof penetrations shall be subject to the prior written approval of Landlord, which approval may be withheld for any reason whatsoever. Tenant covenants and agrees that the installation of the Communications Equipment pursuant to the provisions of this Article 35 shall be at the sole risk of Tenant. Neither Landlord, nor any agent, employee, partner, officer, shareholder or contractor of Landlord, shall be responsible or liable for any injury or damage to, or loss of, the Communications Equipment. Tenant shall indemnify and -56- hold Landlord harmless from and against any and all actions, proceedings, liabilities, obligations, claims, damages, deficiencies, losses, judgments, suits, expenses and costs (including, without limitation, reasonable legal fees and disbursements) arising under or out of, or in connection with or resulting from the installation, maintenance, operation or presence of the Communications Equipment. Tenant further covenants and agrees that the Communications Equipment erected or installed by Tenant pursuant to the provisions of this Article 35 shall be erected, installed, repaired, maintained and operated by Tenant at the sole cost and expense of Tenant and without charge, cost or expense to Landlord. Section 35.06. The Communications Equipment (other than interior wiring) installed by Tenant pursuant to the provisions of this Article 35 shall be Tenant's property. Notwithstanding anything to the contrary contained in this Lease, upon the expiration or sooner termination of this Lease, the Communications Equipment shall be removed by Tenant, at Tenant's sole cost and expense, and Tenant shall repair any damage to the rooftop of the Building or any other portion or portions of the Building caused by or resulting from said removal. Section 35.07. If so required by any Legal Requirements, or if Landlord requires the use of the Communications Area, Landlord reserves the right, at any time and from time to time throughout the Term of this Lease, at its sole cost and expense and upon reasonable prior written notice (or such shorter notice period as may be required by law or public authorities) to Tenant, to remove and/or relocate the Communications Equipment to any other location at the Building designated by Landlord (the "Relocated Area"); provided, however, if any removal or relocation of the Communications Equipment is required by any Legal Requirement, then the cost and expense of such removal and/or relocation shall be paid by Tenant. Tenant covenants and agrees, upon demand by Landlord, to discontinue or abate as necessary the use of the Communications Equipment or any portion thereof if such use is determined to adversely affect the physical health of any individual(s) in or about the Building. Section 35.08. All actual costs and expenses incurred by Landlord in connection with the Communications Equipment and the Communications Area, including, without limitation, the installation, maintenance and operation thereof, shall be paid by Tenant to Landlord, as additional rent, within twenty (20) days after demand therefor, which demand shall be accompanied by evidence reasonably substantiating such costs and expenses. Section 35.09. For the purpose of installing, servicing, repairing or removing the Communications Equipment, Tenant shall have access to the Communications Area or the rooftop of the Building, as the case may be, at reasonable times, upon prior reasonable request of Landlord. IN WITNESS WHEREOF, Landlord and Tenant have duly executed this Lease as of the day and year first above written. BROADPINE REALTY HOLDING COMPANY, INC., Landlord By: /s/ [authorized officer] COMPUTER TELEPHONE CORP., Tenant By: /s/ [authorized officer] Tenant's Federal ID# 04-2731202 -57- STATE OF NEW YORK ) ) ss.: COUNTY OF NEW YORK ) On this ____ day of February, 1996, before me personally came , to me known, who being by me duly sworn, did depose and say that he is the of COMPUTER TELEPHONE CORP., the corporation described in and which executed the foregoing instrument; and that he signed his name thereto by order of the Board of Directors of said corporation. ________________________ Notary Public -58- EXHIBIT "A" FLOOR PLANS The location and dimensions of walls, partitions, columns, stairs and openings are approximate and subject to revisions due to mechanical work, job conditions and requirements of governmental departments and authorities. If the space as actually partitioned shall differ in any respect from this sketch, the actual area as partitioned shall in all events control. No resulting deviation or discrepancy shall affect the rent or Tenant's obligations under this Lease. [drawing of floor plan] A-1 EXHIBIT "B" COMMENCEMENT DATE AGREEMENT AGREEMENT made this day of _______________, 1996, between Broadpine Realty Holding Company, Inc., hereinafter referred to as "Landlord", and Computer Telephone Corp., hereinafter referred to as "Tenant." WITNESSETH: 1. Landlord and Tenant have heretofore entered into a written indenture of Lease dated as of January __, 1996 (hereinafter referred to as the "Lease"), for the leasing by Landlord to Tenant of certain space in the building known as 120 Broadway, New York, NY, all as in said Lease more particularly described. 2. Pursuant to Article 2 of the Lease, Landlord and Tenant agree that the Commencement Date of the term of said Lease is [was] [shall be] ; and that the term thereof shall expire, unless sooner terminated pursuant to the Lease, on ________________________ (the "Expiration Date"). IN WITNESS WHEREOF, Landlord and Tenant have duly executed this Commencement Date Agreement as of the day and year first above written. BROADPINE REALTY HOLDING COMPANY, INC., Landlord By:___________________________ COMPUTER TELEPHONE CORP., Tenant By:____________________________ B-1 EXHIBIT "C" LANDLORD'S WORK A. Landlord, except as otherwise expressly specified in the Lease, will cause its designated contractor to make and complete in and to the Demised Premises the work and installations (the "Landlord's Work") specified in Schedule 1 annexed hereto and made a part hereof. B. Except as provided in this Exhibit C, Landlord shall not be required to spend any money or to do any work to prepare the Demised Premises for Tenant's occupancy. The specification of Landlord's Work represents the limit of Landlord's responsibilities in connection with the preparation of the Demised Premises and, except as so provided, Tenant shall take the Demised Premises "as-is," except as otherwise expressly provided in this Lease. Any other improvements, alterations or additions shall be performed by Tenant, but subject to all of the terms, conditions and covenants of the Lease. C. Landlord has made and makes no representation of the date on which Landlord will complete Landlord's Work, and Landlord shall be under no penalty or liability to Tenant whatsoever by reason of any delay in such performance, except as specifically provided in the Lease, and the provisions of the Lease shall not be affected thereby. D. Landlord shall obtain all permits, licenses and approvals required for the performance of Landlord's Work. Landlord shall perform Landlord's Work in a workmanlike manner and in accordance with all applicable Legal Requirements. Upon final completion of Landlord's Work, Landlord shall assign to Tenant any warranty or guaranty covering materials and/or equipment incorporated into the Demised Premises as part of Landlord's Work (provided that such warranty or guaranty is assignable). E. Notwithstanding anything contained herein to the contrary, Landlord shall perform all Repairs to Landlord's Work which are necessary due to defects in workmanship for a period of one year from the Commencement Date; provided, however that such defects do not arise from the acts or omissions of Tenant or Persons Within Tenant's Control. F. Performance of Landlord's Work or any statement made in this Exhibit C or elsewhere in this Lease shall not constitute an express or implied representation by Landlord that any or all of Landlord's Work is suitable for the particular requirements of Tenant or any specific or general use or purpose of Tenant. G. Subject to the provisions of Article 2 of the Lease, Tenant acknowledges that after the Commencement Date Landlord may perform any remaining components of Landlord's Work, including any items noted on a punch list delivered to Landlord pursuant to Section 31.01 of this Lease, during Tenant's ordinary business hours, and the Lease, and Tenant's obligations thereunder, shall not be affected thereby (except as specifically provided in the Lease), and Tenant shall make no claim against Landlord for any loss, cost or expense incurred by Tenant in connection with the performance of such Landlord's Work. H. In all instances where Tenant is required to supply information or authorization with regard to Landlord's Work, Tenant shall supply the same within three (3) Business Days after written request therefor by Landlord. I. (1) For the purposes of this Exhibit C, Landlord's Work shall be deemed to be substantially completed when all major construction is completed (or when all major construction would have been completed but for Tenant Delays (as hereinafter defined) or otherwise), although "minor items" is not substantially completed. "Minor items" shall mean any uncompleted construction or improvements which do not materially interfere with Tenant's use and occupancy of the Demised Premises. Tenant shall promptly submit to Landlord a "punch-list" of such "minor items," which punch-list items, after approval by Landlord, shall be diligently completed. Tenant shall periodically inspect Landlord's Work and make any objections thereto, if called for, without delay, so as to mitigate changes, delays and costs. (2) Tenant specifically acknowledges and agrees that the cost to Landlord of furnishing and installing Landlord's Work will increase and that there will be delay in completion of Landlord's Work by reason of (i) Tenant's failure or unreasonable delay to consult with Landlord to enable Landlord to review plans or specifications; (ii) unreasonable delay or failure by Tenant in supplying information, approving estimates or giving authorizations; (iii) Tenant's making changes or additions in the plans or specifications or materials originally approved; (iv) interference by Tenant or Tenant's contractors with the performance of Landlord's Work; (v) delay or failure of any special or additional new materials selected by Tenant; or (vi) work, materials, components and other items specified by Tenant which are not "Building standard," and/or are not readily available to Landlord or Landlord's designated contractor, or require special manufacturing, fabrication or C-1 installation, or require additional time to obtain or install thereby delaying the date that Landlord's Work would otherwise be substantially completed, including special wallcoverings, light fixtures, entrance doors, woodwork, glass, stairways, door hardware, floor coverings and security and communications devices (clauses (i)-(vi) are hereby collectively referred to herein as "Tenant Delays"). Landlord shall not be responsible for any Tenant Delays and, in addition, Tenant shall reimburse Landlord, within twenty (20) days of demand therefor (which demand shall be accompanied by evidence reasonably substantiating the amount of such losses, costs and damages) and as additional rent, for any and all losses, costs and damages suffered or incurred by Landlord in connection with or resulting from any such Tenant Delays, including, without limitation, any increase to Landlord in the cost of furnishing and installing Landlord's Work. J. If Tenant shall fail to make timely payment of any sums payable to Landlord pursuant to the terms of this Exhibit C or the Lease, then, in addition to all other rights and remedies afforded Landlord in the event of such non-payment, Landlord may, without notice to Tenant, discontinue the performance of Landlord's Work (or any items thereof) until such time as Tenant makes payment to Landlord of all such past due sums and provides Landlord with adequate assurance of the timely payment of all additional sums which may or shall be payable by Tenant pursuant to the terms of this Exhibit C or the Lease. C-2 SCHEDULE 1 [drawing and description of floor layout and installation work to be done] EXHIBIT "D" LAND DESCRIPTION ALL that certain plot, piece or parcel of land, situate, lying and being in the Borough of Manhattan, County of New York, City and State of New York, bounded and described as follows: BEGINNING at a point formed by the intersection of the northerly side of Pine Street and the westerly side of Nassau Street; RUNNING THENCE northerly along the westerly side of Nassau Street, 152 feet 3 inches to the southerly side of Cedar Street; THENCE westerly along the southerly side of Cedar Street, 312 feet 7 inches to the easterly side of Broadway; THENCE southerly along the easterly side of Broadway, 167 feet 1 inch to the northerly side of Pine Street; THENCE easterly along the northerly side of Pine Street, 304 feet 2 inches to the point or place of BEGINNING. D-1 EXHIBIT "E" CLEANING SPECIFICATIONS General Cleaning Nightly: General Offices including conference rooms: 1. All hardsurfaced flooring to be swept. 2. Carpet sweep all carpets, moving only light furniture (desks, file cabinets, etc. not to be moved). 3. Hand dust and wipe clean all furniture, fixtures and window sills. 4. Empty and clean all ash trays and screen all sand urns. 5. Empty and clean all waste receptacles and remove wastepaper. 6. Dust interiors of all waste disposal cans and baskets. 7. Wash clean all water fountains and coolers. 8. Sweep all private stairways. Building Standard Toilets: 1. Sweep and wash all floors, using proper disinfectants. 2. Wash and polish all mirrors, shelves, bright work and enameled surfaces. 3. Wash and disinfect all basins, bowls and urinals. 4. Wash all toilet seats. 5. Hand dust and clean all partitions, tile walls, dispensers and receptacles in lavatories and restrooms. 6. Empty paper receptacles and remove wastepaper. 7. Fill toilet tissue holders. Multi-tenanted floors only. 8. Empty and clean disposal receptacles. Periodic-as reasonably required 1. Vacuum clean all carpeting and rugs. 2. Dust all doors louvres and other ventilating louvres within a person's reach. 3. Dust all baseboards. 4. Remove all finger marks from vinyl or painted surfaces near light switches, entrance doors, etc. 5. Wash all windows. 6. High dust premises complete including the following: a. Dust all pictures, frames, charts, graphs and similar wall hangings not reached in nightly cleaning. b. Dust clean all vertical surfaces, such as walls, partitions, doors, bucks and other surfaces not reached in nightly cleaning. c. Dust all venetian blinds. E-1 EXHIBIT "F" RULES AND REGULATIONS 1. The rights of tenants with respect to the entrances, corridors, elevators and escalators of the Building are limited to ingress to and egress from the tenants' premises for the tenants and their employees, contractors, licensees and invitees, and no tenant shall use, or permit the use of, the entrances, corridors, escalators or elevators for any other purpose. All deliveries and shipments of goods and packages shall be through the freight elevators, and not the passenger elevators. No tenant shall invite to the tenant's premises, or permit the visit of, persons in such numbers or under such conditions as to interfere with the use and enjoyment of any of the plazas, entrances, corridors, escalators, elevators and other facilities of the Building by other tenants. Fire exits and stairways are for emergency use only, and they shall not be used for any other purpose by the tenants, their employees, licensees or invitees. No tenant shall encumber or obstruct, or permit the encumbrance or obstruction of any of the lobbies, sidewalks, plazas, entrances, corridors, escalators, elevators, fire exits, stairways or other public portions of the Building. No door mat of any kind whatsoever shall be placed or left in any public hall or outside any entry door of any tenant's premises. Landlord reserves the right to control and operate the public portions of the Building and the public facilities, as well as facilities furnished for the common use of the tenants, in such manner as it deems best for the benefit of the tenants generally. 2. Landlord may refuse admission to the Building outside of ordinary business hours to any person not known to the watchman in charge or not having a pass issued by Landlord or not properly identified, and may require all persons admitted to or leaving the Building outside of ordinary business hours to register. Tenant's employees, agents and visitors shall be permitted to enter and leave the Building whenever appropriate arrangements have been previously made between Landlord and Tenant with respect thereto. Each tenant shall be responsible for all persons for whom the tenant requests such permission, and shall be liable to Landlord for all acts of such persons. Any person whose presence in the Building at any time shall, in the reasonable judgment of Landlord, be prejudicial to the safety, character, reputation or interests of the Building or its tenants may be denied access to the Building or may be ejected therefrom. In case of invasion, riot, public excitement or other commotion, Landlord may prevent all access to the Building during the continuance of the same, by closing the doors or otherwise, for the safety of the tenants and protection of property in the Building. All removals, or the carrying in or out of any safes, freight, furniture, packages, boxes, crates or any other object or matter of any description must take place during such hours and in such elevators as Landlord may reasonably determine from time to time. Landlord reserves the right to inspect all objects and matter to be brought into the Building, and to exclude from the Building all objects and matter which violate any of these Rules and Regulations or the lease of which these Rules and Regulations are a part. Landlord may require any person leaving the Building with any package or other object to exhibit a pass from the tenant from whose premises the package or object is being removed, but the establishment and enforcement of such requirement shall not impose any responsibility on Landlord for the protection of any tenant against the removal of property from the premises of the tenant. Landlord shall in no way be liable to any tenant for damages or loss arising from the admission, exclusion or ejection of any person to or from the tenant's premises or the Building under or despite the provisions of this rule. On days and hours other than those during which full elevator service is required to be provided, Landlord may lock all outside Building doors and require use of a night bell to summon a watchman from his other duties in order to gain access. 3. No tenant shall obtain or accept for use in its premises ice, towel, barbering, boot blacking, floor polishing, lighting maintenance, cleaning, messenger service or other similar services from any persons not authorized by Landlord in writing to furnish such services, provided always that the charges for such services by persons authorized by Landlord are competitive. Such services shall be furnished only at such hours, in such places within the tenant's premises and under such regulations as may be reasonably fixed by Landlord. 4. No awnings or other projections over or around the windows shall be installed by any tenant, and only such window blinds or drapes as are supplied or permitted by Landlord shall be used in a tenant's premises. No curtains, blinds, shades or screens shall be attached to or hung in, or used in connection with, any window or door of a tenant's premises, without the prior written consent of Landlord, which consent shall not be unreasonably withheld or delayed. Such curtains, blinds, shades or screens must be of a quality, type, design and color, and attached in the manner, approved by Landlord, which approval shall not be unreasonably withheld or delayed. No tenant shall darken, cover or permanently close any windows in the tenant's premises. 5. There shall not be used in any space, or in the public halls of the Building, either by a tenant or by jobbers or others, in the delivery or receipt of merchandise, any hand trucks, except those equipped with rubber tires, side guards and such other safeguards as Landlord shall require. F-1 6. All entrance doors in each tenant's premises shall be left locked when the tenant's premises are not in use. Entrance doors shall not be left open at any time unless the tenant, at its expense, has connected a special smoke detector system in compliance with all Legal Requirements and approved by Landlord. Each tenant, before closing and leaving its premises at any time, shall use best efforts to ensure that all lights are turned out. All windows in each tenant's premises shall be kept closed at all times, and all blinds and/or drapes therein above the ground floor shall be lowered and kept drawn when and as reasonably required (because of the position of the sun) during the operation of the Building air-conditioning system to cool or ventilate the tenants' premises. The sashes, sash doors, skylights, windows and doors that reflect or admit light and air into the halls, passageways or other public places in the Building shall not be covered or obstructed by any tenant, nor shall any bottles, parcels, or other articles be placed on the windowsills. 7. No noise, including the playing of any musical instruments, radio or television, which, in the judgment of Landlord, might disturb other tenants in the Building shall be made or permitted by any tenant. No tenant shall throw anything out of the doors, windows or skylights or down the passageways. Nothing shall be done or permitted in any tenant's premises, and nothing shall be brought into or kept in any tenant's premises, which would impair or interfere with any of the Building services or the proper and economic heating, cleaning or other servicing of the Building or the premises, or the use or enjoyment by any other tenant of any other premises, nor shall there be installed by any tenant any ventilating, air-conditioning, electrical or other equipment of any kind which, in the reasonable judgment of Landlord, might cause any such impairment or interference. No dangerous, inflammable, combustible or explosive object or material shall be brought into the Building by any tenant or with the permission of any tenant; provided, however, that the foregoing prohibition shall not apply to standard office cleaning supplies or standard office products, in limited quantities, if and to the extent permitted by applicable Legal Requirements. 8. Tenants shall not permit any cooking within their premises (unless consented to in writing by Landlord), and shall not permit any food odors emanating within their premises to seep into other portions of the Building. In the event that Landlord shall consent to any cooking or installation of kitchen equipment in a tenant's premises, such tenant shall operate its dining room and kitchen equipment, if any, in a manner that will prevent odors and smoke from escaping into areas of the Building outside the premises, and shall, at its expense, (i) install and maintain appropriate filters and grease traps to prevent accumulation of grease in any duct, stack or flue used to exhaust fumes and vapors resulting from such food preparation and to prevent stopping up of the sewerage ejecting system of the Building if any of same are necessary or are required by any governmental authority, (ii) keep all range hoods and ducts therefrom, if any, clean and free of grease at all times so as to avoid fire hazard, and (iii) clean out the vertical exhaust flue and duct, if any, at least once a year, or more frequently as conditions require. The discharge of any fumes, vapors and odors, which, by any Legal Requirement, must be discharged into a separate stack or flue, will not be permitted unless such tenant, at its expense, shall provide for such discharge in a proper manner. Notwithstanding the foregoing, Tenant may install vending machines, microwave ovens, coffee makers and similar small electric appliances. 9. No acids, vapors or other materials shall be discharged or permitted to be discharged into the waste lines, vents or flues of the Building which may damage them. The water and wash closets and other plumbing fixtures in or serving any tenant's premises shall not be used for any purpose other than the purpose for which they were designed or constructed, and no sweepings, rubbish, rags, acids or other foreign substances shall be deposited therein. All damages resulting from any misuse of the fixtures shall be borne by the tenant who or whose servants, employees, agents, visitors or licensees, shall have caused the same. 10. No lettering shall be exhibited, inscribed, painted or affixed by a tenant on any part of the outside or inside of its premises or the Building without the prior written consent of Landlord if such lettering shall be visible from outside of its premises or the Building. In the event of the violation of the foregoing by a tenant, Landlord may remove the same without any liability, and may charge the expense incurred by such removal to the tenant or tenants violating this rule. Lettering on doors shall be inscribed, painted or affixed for each tenant by Landlord at the expense of such tenant, and shall be of a size, color and style reasonably acceptable to Landlord. Landlord shall have the right to prohibit any advertising by any tenant which impairs the reputation of the Building or its desirability as a building for offices, and, upon written notice from Landlord, such tenant shall refrain from or discontinue such advertising. 11. No additional locks or bolts of any kind shall be placed upon any of the doors or windows in any tenant's premises, and no lock on any door therein shall be changed or altered in any respect, unless, in each such case, Landlord shall have been furnished with a key thereto (or the same shall be operable by Landlord's master key for the Building). Duplicate keys for a tenant's premises and toilet rooms shall be procured only from the Landlord, which may make a reasonable charge therefor. Upon the termination of a tenant's lease, all keys to the tenant's premises and toilet rooms shall be delivered to the Landlord, and, in the event of the loss of any keys furnished by Landlord, such tenant shall pay to Landlord the actual, out-of-pocket cost thereof. F-2 12. No tenant shall make, paint, drill into, or in any way deface any part of the Building or the premises demised to such tenant, except as may otherwise be expressly provided herein. Nor boring, cutting or stringing of wires shall be permitted, except with the prior written consent of Landlord, and as Landlord may reasonably direct. No tenant shall install any resilient tile or similar floor covering in the premises demised to such tenant, except in a manner approved by Landlord, which approval shall not be unreasonably withheld or delayed. Unless and until Landlord may otherwise direct, no tenant shall lay linoleum, or other similar floor covering, so that the same shall come in direct contact with the floor of its premises, and, if linoleum or other similar floor covering is desired to be used, an interlining of builder's deadening felt shall be first affixed to the floor, by a paste or other material, soluble in water, the use of cement or other similar adhesive material being expressly prohibited. 13. No tenant shall use or occupy, or permit any portion of the premises demised to such tenant to be used or occupied, as an office for a public stenographer or typist, or as a barber or manicure shop or as an employment bureau or for any mail order business. No tenant or occupant shall engage or pay any employees in the Building, except those actually working for such tenant or occupant in the Building, nor advertise for laborers giving an address at the Building. No premises shall be used, or permitted to be used, at any time, as a store for the sale or display of goods, wares or merchandise of any kind, or as a restaurant, shop, booth, bootblack or other stand, or for the conduct of any business or occupation which predominantly involves direct patronage of the general public in the premises demised to such tenant, or for manufacturing or for other similar purposes. 14. The requirements of tenants will be attended to only upon application at the office of the Building. Employees of Landlord shall not perform any work or do anything outside of their regular duties, unless under special instructions from the office of the Landlord. 15. Unless Landlord shall be furnishing electricity to the tenant's premises, each tenant shall, at its expense, provide artificial light and electricity in the premises demised to such tenant for Landlord's agents, contractors and employees while performing janitorial or other cleaning services and making repairs or alterations in said premises. 16. Tenants' employees shall not loiter around the hallways, stairways, elevators, front, roof or any other part of the Building used in common by the occupants thereof. No tenant shall allow its premises to be used for lodging or sleeping, or for any immoral or illegal purposes. No bicycles, vehicles, animals, fish or birds of any kind shall be brought into or kept in or about any tenant's premises. Canvassing, soliciting and peddling in the Building are prohibited, and each tenant shall cooperate to prevent the same. 17. If the premises demised to any tenant become infested with vermin, such tenant, at its own cost and expense, shall cause its premises to be exterminated, from time to time, to the reasonable satisfaction of Landlord, and shall employ such exterminators therefor as shall be reasonably approved by Landlord. Landlord reserves the right to require that the exterminators generally employed in the Building be employed, so long as their charges are competitive. 18. Any cuspidors or similar containers or receptacles used in any tenant's premises shall be cared for and cleaned by and at the expense of the tenant. No showcases or other articles shall be put in front of or affixed to any part of the exterior of the Building, nor placed in the halls, corridors or vestibules. If a tenant's premises shall be an entire floor, the elevator lobby in the premises shall be kept neat, orderly and fresh in appearance to Landlord's reasonable satisfaction. 19. No tenant shall not place a load upon any floor of its premises which exceeds the load per square foot which such floor was designed to carry and which is allowed by law. 20. Business machines and mechanical equipment of any tenant which cause noise, vibration or any other nuisance that may be transmitted to the structure or other portions of the Building or to premises, to such a degree as to be objectionable to Landlord or which interfere with the use or enjoyment by other tenants of their premises or the public portions of the Building, shall be placed and maintained by such tenant at such tenant's own cost and expense, in settings of cork, rubber or spring type vibration eliminators sufficient to eliminate noise or vibration to the reasonable satisfaction of Landlord. 21. Landlord will, at the request of a tenant, maintain up to three (3) listings on the floor directory and up to a proportionate share (based on Tenant's Proportionate Share) of the listings on the Building directory of the name of such tenant (plus permitted or approved subtenants or occupants) and any other person, firm, association or corporation lawfully in possession of the premises or any part thereof. The listing of any name other than that of a tenant, whether on the doors of the premises, on the Building directory, or otherwise, shall not operate to vest any right or interest in such tenant's lease or in the premises or be deemed to be the written consent of Landlord required pursuant to such tenant's lease, it being expressly understood that any such listing is a privilege extended by Landlord revocable at will by written notice to such tenant. F-3 22. No tenant shall move any safe, heavy equipment or bulky matter in or out of the Building without Landlord's written consent, which consent shall not be unreasonably withheld or delayed. If the movement of such items requires special handling, the tenant shall employ only persons holding a Master Rigger's License to do said work, and all such work shall be done in full compliance with the Administra- tive Code of the City of New York and other municipal requirements. All such movements shall be made during hours which will least interfere with the normal operations of the Building, and all damage caused by such movement shall be promptly repaired by such tenant at such tenant's expense. 23. All moving, shipping and receiving of a tenant's property shall be through the freight elevator only, and at such times and in such a manner as Landlord shall designate for the proper operation of the Building. If a tenant's use of such elevator is after regular business hours, or in such a manner that requires the supervision of Landlord's employees (of which fact Landlord shall be the sole judge), such tenant shall pay to Landlord the actual cost of furnishing such after hour service and/or supervision. All bulk deliveries shall be made during non- business hours, at the tenant's cost. 24. Any entrance door or doors leading from a tenant's premises into the public corridor shall be repaired and/or maintained by such tenant, at such tenant's own cost and expense, including, without limitation, repair and maintenance of the enframement and mechanisms of said door(s), whether such repair or maintenance is caused by any damage by such tenant, its employees, workmen or contractors, by ordinary wear and tear or otherwise (except that if such damage is caused by Landlord or by Landlord's agents or contractors, Landlord shall repair such damage). 25. Landlord reserves the right to rescind, alter or waive any rule or regulation at any time prescribed for the Building when Landlord deems it necessary or desirable for the reputation, safety, care of 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. No rescission, alteration or waiver of any rule or regulation in favor of one tenant shall operate as a rescission, alteration or waiver in favor of any other tenant. F-4 EXHIBIT "G" LETTER OF CREDIT NO.___________ Date ____________ Irrevocable Letter of Credit BENEFICIARY Broadpine Realty Holding Company, Inc. c/o J.P. Morgan Investment Management Inc. 522 Fifth Avenue New York, New York 10036 Dear Sir(s), We hereby authorize you to value on ___________________________ New York, NY For account of Broadpine Realty Holding Company, Inc. up to the aggregate amount of $___________________________________. Available by your drafts at sight, accompanied by: Your statement, purportedly signed by one of your authorized officers, partners or agents, that the amount of your drawing represents funds due and payable under a certain lease dated as of ____________________, executed by and between Broadpine Realty Holding Company, Inc., as Landlord and __________________, ______________________________________________, as Tenant. This Letter of Credit may be transferred to any transferee of the interest of the landlord under the lease dated as of ___________________ between Broadpine Realty Holding Company, Inc., as landlord, and _____________________________________________, as tenant. It is a condition of this Letter of Credit that it shall be deemed to be automatically extended for a period of one year from the present or any future expiration date, unless we shall notify you by written notice given by certified mail, return receipt requested at least 45 days prior to such expiration date that we elect not to renew it for such additional period, in which case you shall have the right to draw on us the full amount of this Letter of Credit by your sight draft, accompanied by your signed written statement that you are drawing under Letter of Credit #_______________ because you have received notice of non-renewal from us, and the accountee is still obligated to you under the above-referenced lease. All drafts drawn under this Credit must bear on their face the clause "Drawn under Letter of Credit No. _________________." Except so far as otherwise expressly stated, this credit is subject to the Uniform Customs and Practice for Documentary Credits (1993 Revision) International Chamber of Commerce, Publication No. 500. G-1 EXHIBIT "H" CERTIFICATE OF OCCUPANCY H-1 EXHIBIT "I" TAXPAYER IDENTIFICATION NUMBER AND CERTIFICATION I-1 EX-10.6 8 NYNEX AGREEMENT EXHIBIT 10.6 AGREEMENT FOR SALE OF SERVICES & ACCOUNT MANAGEMENT EFFECTIVE AS OF FEBRUARY 1, 1996 BETWEEN NYNEX AND COMPUTER TELEPHONE CORP. (Agent Name) TABLE OF CONTENTS A. Definitions 1. Account Management 2. Affiliate 3. Business Customers 4. Certification 5. Designated Sales Area 6. Incidental Sales Area 7. Installation 8. NASA Channel Plan 9. Order Issuance Date 10. Quota 11. Registration 12. Services 13. Strategic Business Accounts 14. Subcontract 15. Telemarket 16. Unhook B. Relationship of the Parties C. Contract Term D. Representative's Responsibilities 1. General 2. Account Management Plan E. NYNEX's Responsibilities F. Compensation 1. Commissions 2. Account Management Plan 3. Promotional Compensation 4. Set Off 5. Separation Payment G. Service Ordering Procedures, Credit H. Authorized use of NYNEX Name and Marks I. Confidential Information J. Indemnification K. Non-Discrimination/Conflict of Interest L. Arbitration M. General Provisions 1. Non-Assignability 2. Amendment 3. Waiver 4. Force Majeure 5. Surviving Obligations 6. Choice of Law 7. Successors Bound 8. Agency Orders 9. Severability 10. Headings 11. Notice 12. Entire Agreement APPENDICES A. Commissioned Services B. Commission Schedules C. Non-Discrimination Compliance Agreement D. Conflict of Interest E. Sales Quota PREAMBLE NYNEX and Representative enter this Agreement in mutual recognition of the individual value added competencies that each contribute and the understanding that these collective competencies are valued by customers and essential to marketplace success. The parties agree to share plans and capabilities on an ongoing basis, to jointly explore creative market solutions and to work together toward the profitable growth of both firms. NYNEX and Representative acknowledge and recognize that there will be significant changes in the marketplace and in the competitive environment over the duration of this Agreement, and agree to work together in addressing this dynamic and changing environment in a manner that is supportive of their individual and collective interests. If, during the term of this Agreement, events occur that could compromise either party's interests, financial objectives and/or fiduciary responsibilities, the parties agree to work together in good faith to address and resolve such events or issues to the reasonable satisfaction of the parties. NYNEX and Representative recognize that unilateral action on either of their parts in a number of areas, such as compensation, account management and program implementation could compromise the spirit, goals and financial viability of this Agreement. The parties commit to the ongoing review and sharing of individual direction and plans to ensure positive mutual benefits. The parties further agree that any material changes identified will be negotiated equitably and in good faith, to the reasonable satisfaction of the parties. AGREEMENT FOR SALE OF NYNEX SERVICES This Agreement is made and entered into this 1st day of February, 1996, by and among NEW YORK TELEPHONE COMPANY, NEW ENGlAND TELEPHONE AND TELEGRAPH COMPANY (each referred to herein as "NYNEX") and Computer Telephone Corp. ("Representative"), a corporation with its principal place of business at 360 Second Avenue, Waltham, MA 02154: Each NYNEX party is solely responsible for NYNEX obligations hereunder with respect to its own service territory. For and in consideration of the mutual promises and covenants set forth hereinafter. The parties do mutually agree as follows: A. Definitions 1. Account Management - means the provision of account management functions as specified by NYNEX in the NASA Channel Plan. 2. Affiliate - means any corporation or other business entity which owns or contracts, in whole or in significant part, is under common ownership or control with, or is owned or controlled, in whole or in significant part, by another corporation or business entity. 3. Business Customer - means any customer with a class of service designated as a business service by NYNEX. 4. Certification - means the successful completion by Representative's salesperson of a series of training courses prescribed by NYNEX in the NASA Channel Plan. 5. Designated Sales Area - means the geographic area within which Representative is authorized to sell NYNEX Services, described in Appendix E. 6. Incidental Sales Area - means the geographic area outside Representative's Designated Sales Area within which Representative may make up to 10% of its total sales under this Agreement, described in Appendix E. 7. Installation - means the completion of the placement of equipment and facilities in service as requested and agreed to by the customer and approved by the Public Service Commission or, where the placement of equipment and facilities is not necessary, the completion of the NYNEX service order work necessary to effectuate such Service to the customer. 8. NASA Channel Plan - means the set of policies and procedures governing the NYNEX authorized sales agent program developed and issued by NYNEX annually. 9. Order Issuance Date - means the date on which a customer service order is issued by NYNEX subsequent to Representative placing an accurate and fully negotiated order for service in accordance with the Service Ordering Procedures described in Paragraph G. of this Agreement. 10. Quota - means the revenue, service and sales measurements and/or product units agreed upon by NYNEX and Representative for Representative to meet during the term hereof. Each year, NYNEX and Representative shall agree upon new annual and minimum quotas for Representative. 11. Registration - means that Representative has notified NYNEX, in NYNEX's prescribed format, of-the name of its sales person(s) promoting and/or selling Services. 12. Services - when capitalized, means those NYNEX services which are listed on Appendix A. hereto. 13. Strategic Business Accounts - means those accounts, and their affiliates, subsidiaries and divisions, designated by NYNEX to be exclusively managed by NYNEX Systems Marketing. 14. Subcontract - means the use of third party firms, partnerships, or organizations for the purpose of selling Services. 15. Telemarket - means the outbound selling of Services over the telephone, to new prospective customers, by conducting such activities as quoting charges, advising of cost savings benefits, detailing service features and/or any other similar activities, which provides the prospective customer with sufficient information as to Influence their buying decision either immediately or at a future time. 16. Unhook - means the cancellation of a representative's accurate. fully negotiated order and the subsequent placement of a similar order by another representative. Under the condition of unhooking the initial representative of record retains compensation payment rights. B. Relationship of the Parties 1. NYNEX appoints Representative as a nonexclusive authorized sates agent for the primary purpose of face to face selling of NYNEX Services to Business Customers within the Designated Sales Area. Representatives may also sell NYNEX Services within the Incidental Sales Area, provided that such sales do not exceed 10% of Representatives total sales under this Agreement. Representative is not otherwise authorized to act or represent itself as a NYNEX sales agent without prior written concurrence from NYNEX. 2. The Representative's use of the term "NYNEX Authorized Sales Agent will be as specified in the "Authorized Use of NYNEX Name" section of this Agreement. 3. Neither party hereto is an employee of the other and neither has any right nor any authority to act on behalf of the other beyond that expressly granted herein. Representative shall conduct its business at its own initiative, responsibility and expense. 4. During the term of this Agreement or thereafter, NYNEX reserves the right, without obligation or liability to Representative for payment of compensation or otherwise, to market the Services, whether through NYNEX's own representatives, through other independent representative(s), or otherwise. C. Contract Term 1. This Agreement shall become effective as of February 1, 1996 and shall continue in effect, unless terminated, through December 31, 1998. Notwithstanding the above, the Agreement can be terminated at any time by either party for cause, with thirty (30) days advance written notice to the other party. 2. NYNEX reserves the right to discontinue, supersede, alter or diminish any of the Services subject to this Agreement. Furthermore NYNEX also reserves the right to add Services to, or delete services from, this Agreement, or to modify the Commission schedules contained therein. Such rights may be exercised by NYNEX at any time during the term of this Agreement subject to sixty (60) days' advance written notice to Representative. In the event of additions of new Services, such sixty (60) days notice may be waived and replaced by a letter of notification. NYNEX shall deliver conforming appendices to Representative. 3. NYNEX shall provide to Representative an annual sales quota. Representative shall review the quota and the parties shall reach agreement within thirty (30) days from Representative's receipt of quota. In the event agreement is not reached within 30 days, then either party may terminate this agreement without further obligation. 4. In addition to an annual sales quota, NYNEX shall also provide to Representative a minimum annual sales quota which if Representative fails to meet may result in this Agreement being terminated at the end of the calendar year. Notwithstanding the above, when this Agreement or any renewal thereof expires or if Representative fails to meet its annual and or minimum quotas, NYNEX, in its sole discretion, may renew this Agreement for an additional term. 5. If Representative becomes insolvent, makes an assignment for the benefit of creditors or files a petition for reorganization; if a petition in bankruptcy is filed by or against Representative; if the financial responsibility of Representative becomes impaired or is otherwise unsatisfactory to NYNEX; or if Representative is in breach of this Agreement or is otherwise in default to NYNEX under this or any other agreement, NYNEX may terminate this Agreement immediately upon giving notice to Representative, without prejudice for any claim for damages or any other right of NYNEX under this Agreement at the time of such termination. 6. Representative shall advise NYNEX as soon as possible if a change of ownership of Representative is contemplated or occurs during the term of this Agreement. In the event of an ownership change NYNEX reserves the right to terminate the existing Agreement and at NYNEX's sole discretion enter into a new Agreement with the new ownership. 7. If Representative is otherwise in breach of this Agreement or is otherwise in default, then NYNEX shall give Representative notice of such breach or default and may terminate this agreement if such breach or default is not cured by Representative within a mutually agreed upon period. D. Representative's Responsibilities 1. General: Representative agrees to: a. Develop market plans; negotiate sales; take orders; analyze and design Service proposals; coordinate with NYNEX as appropriate and necessary; jointly develop with NYNEX an annual written program with specific commitments relating to dates, timelines, quotas, promotions, and training of salespersons; manage and monitor NYNEX service levels and measurements; and, except as specified herein, perform any additional functions necessary to the marketing and sale of the Services; b. Permit NYNEX to conduct upon request periodic sales reviews and account reviews with Representative's salespersons or such other persons designated by Representative; c. Establish and maintain a trained and capable field sales force adequate to market the Services. Representative further agrees that such sales force shall be registered with NYNEX and meet all reasonable quality and/or certification standards which may be established by NYNEX from time to time. Representative shall assure that its salespersons complete certification requirements, as specified in the NASA Channel Plan, not later than six (6) months from date the sales person is initially registered, unless otherwise approved by NYNEX. Other training shall be mutually agreed upon by the parties. If Representative, fails to meet the registration or certification requirements of this paragraph, then NYNEX shall not be obligated to pay Representative commissions for any Services sold hereunder; d. Pay a fee of $350 for each day an employee of Representative's fails to attend scheduled training, or fails to participate in or complete such training to NYNEX's satisfaction, unless Representative provides NYNEX notice of cancellation at least fourteen (14) calendar days prior to the start of the course. If the Representative arranged to "live in" during the course and fails to cancel within fourteen (14) days, Representative shall also pay any applicable hotel cancellation charges; e. Market the Services to customers in accordance with the prices, terms and conditions set forth in applicable tariffs filed by NYNEX and from time to time explain applicable tariff provisions; f. Make only such representations concerning the price, tariff terms and conditions, functions, capabilities, characteristics, design, installation date or availability of any Service as have been approved by NYNEX. Any other representations are beyond the authority granted herein; g. Market the Services in a manner consistent with the standards for marketing of such Services which NYNEX shall specify as necessary to protect trademarks or trade names used in connection with the Services. All activities of Representative hereunder shall be in compliance with such sales, service and engineering standards promulgated by NYNEX as are then in effect; h. Act professionally and ethically at all times to provide prompt, courteous and efficient service to customers; advise customers that Representative is a NYNEX Authorized Sales Agent; act in accordance with the highest standards of honesty, integrity and fair dealing in all dealings with customers and NYNEX as well as other NYNEX authorized representatives; and do nothing which would tend to discredit, dishonor, reflect adversely upon or in any manner injure the reputation of NYNEX, its customers, and other NYNEX authorized representatives; i. Explain and demonstrate the Services and advise customers on the use of the Services and the compatibility of the Services with other products and services offered for sale by Representative; Representative assumes primary responsibility for customer training in conjunction with Service installations and shall instruct in the use of such Services to assure that customers know how to use such Services; j. Conduct advertising, as appropriate, to establish and maintain its corporate identity. Unless otherwise agreed, Representative specifically agrees not to conduct any service specific advertising for any of the Services. At Representative's option, Representative may participate in such cooperative advertising and promotional sales ventures as may be proposed by either party from time to time and on such terms and conditions as NYNEX may specify; k. Utilize its best efforts actively and continuously to promote and sell, on NYNEX's behalf, each of the Services; l. Notify NYNEX immediately upon notice to it of any customer canceling any order for Services placed by Representative; m. Take all necessary steps to assure compliance with Representative's obligations under this Agreement by the Representative and any individual acting on its behalf; n. Maintain and provide proof to NYNEX of a minimum of one million dollars in liability insurance, to protect NYNEX from any and all claims, demands, expenses, costs and other liabilities arising out of acts, omissions and/or misrepresentations of the Representative; o. Maintain, in accordance with standard recognized accounting practices, accurate and complete books of account, documents and records ("Records") supporting the sales of Services which are the subject of his Agreement; p. Retain such Records for a period of three (3) years from the date of final payment by NYNEX for services rendered under this Agreement. NYNEX and its authorized agents and representatives shall have access to such records for purposes of audit during normal business hours during the term of this Agreement and for three (3) years from the date of final payment. NYNEX shall notify Representative in writing at least seven (7) days before NYNEX intends to conduct such an audit; q. Cooperate fully in the collection, compilation and maintenance of data required to be reported by NYNEX pursuant to any federal or state statute, regulation or order; r. Obtain, as necessary, from customer(s) an executed agency authorization in a format prescribed by NYNEX; s. Neither represent for sale, refer, promote, negotiate or otherwise market any other network service which displaces, or is in competition with, IntraLATA service offered by NYNEX. Such limitation shall apply to any Affiliate of Representative. Furthermore, for a period of twelve (12) months after the expiration or termination of this Agreement Representative may not sell, represent, or promote any non-NYNEX IntraLATA services to any NYNEX Business Customer for whom Representative was responsible under the AMP program, or to whom Representative sold any NYNEX Service, within 12 months prior to such expiration or termination. It is NYNEX's intent to have Representative exclusively market all Services offered by NYNEX and expects that Representative shall put forth a reasonable best effort to accommodate such expectation; t. Not offer customers any discount, rebate, cash payment or other financial incentive (hereinafter collectively referred to as "Discounts") in connection with the sale of any Service. Discounts shall not be associated with NYNEX prices, and the customers should not be led to believe that NYNEX discounts its prices; u. Assure that any promotional program and/or printed material offered by Representative, which is in any way associated with NYNEX and/or its services, has prior written concurrence from NYNEX before such program or material is offered; v. Neither subcontract nor telemarket the sale of Services without obtaining prior written concurrence or separate contract agreement from NYNEX; w. Not unhook a sales order placed by another NYNEX representative; x. Comply with all applicable Federal, state, local laws, rules, regulations and orders, including but not limited to, the Massachusetts Uniform Procurement Act. y. Establish and maintain an automated order entry capability for the purpose of placing sales orders with NYNEX. NYNEX shall advise Representative of the minimum requirements necessary to establish and maintain such automated access. 2. Account Management Plan (AMP) At Representative's option and subject to NYNEX's approval, Representative may participate in the Account Management Plan ("AMP Program"). The Representative's responsibilities under the AMP Program are detailed in the NASA Channel Plan. E. NYNEX's Responsibilities NYNEX agrees to: 1. Advertise the Services and provide promotional literature to Representative in such quantities as NYNEX deems appropriate. NYNEX further agrees to provide reasonable advance notice to Representative of all planned major advertising campaigns for the Services; 2. Perform all billing and collection functions for the Services sold by Representative under this Agreement; 3. In accordance with NYNEX's applicable tariffs, install, maintain and support the Service(s) sold by Representative pursuant to this Agreement, but NYNEX shall have no responsibility for or liability in connection with any other services or products sold by Representative. NYNEX reserves the right to deal directly with the customer(s) in all matters, including but not limited to those involving the installation, maintenance, repair, support and removal of the Services; 4. Be sufficiently self-insured to protect Representative from any and all claims, demands, expenses, costs and other liabilities arising out of acts, omissions and/or misrepresentations of NYNEX; 5. Act in accordance with the highest standards of honesty, integrity and fair dealing in all dealings with Representative; and; 6. Upon Representative's reasonable request, and in NYNEX's sole discretion, install without charge to Representative, the network facilities necessary for demonstration of the Services sold by Representative hereunder. Representative will not be charged for, or responsible for paying the monthly rates associated with, such network facilities as long as Representative has demonstrated minimum levels of satisfactory sales performance as shall, from time to time, be determined by NYNEX, and so long as such facilities are used solely for demonstration purposes. Such demonstration facilities may be removed at any time upon ten (10) days notice, at the request of Representative or in the discretion of NYNEX. Upon such expiration or termination of this Agreement, demonstration services will be removed by NYNEX at NYNEX's own expense. F. Compensation 1. Commissions a. Except as may otherwise be provided herein, NYNEX will pay Representative a commission ("Commission"), at the rate set forth in Appendix B. hereto, for the sale of Services to Business Customers within the Designated Service Area. Commission will be paid on net sales, which shall be defined in guidelines to be issued by NYNEX from time to time. b. NYNEX shall pay to Representative Commissions for sales of those Services covered by this Agreement and sold by certified sales persons. c. NYNEX, in its sole discretion, may pay a commission for the sale of any individually priced special assembly service offered by NYNEX. The commission will be calculated by NYNEX on an individual case basis and will be presented to Representative with the service's pricing proposal. d. It is NYNEX's intent to pay commissions not later than thirty (30) days following the end of the month during which a fully negotiated and accurate order is issued by NYNEX (Order Issuance Date), provided that the appropriate order issuance tracking system exists, as determined by NYNEX, and that a Commission will not be requested or paid where withdrawal of the Service within ten (10) months of the Order Issuance Date is reasonably foreseeable at the time of sale. Notwithstanding the above, in those cases where an appropriate tracking system does not exist, then NYNEX shall pay commissions not later than thirty (30) days following the end of the month during which the installation of a Service sold by Representative is verified by NYNEX. A statement listing all sales of Services for which Representative is being paid and debited will be provided by NYNEX. e. In the event that NYNEX disconnects or otherwise discontinues any Service, for any reason, within ten (10) months of the completed installation date, NYNEX reserves the right to recover from Representative any commission, paid with respect thereto. In the case of services under contract. NYNEX will recover the commission based on the following schedule: within 10 Months, 100%; 11 - 23 Months, 50%; and 24 - 36 Months, 25%. f. A sale of a Service will be compensated under the Commission schedule in effect at the time NYNEX acknowledges an accurate and fully negotiated order submitted by Representative. However, where as a result of customer action an order is postponed beyond six (6) months from the Order Issuance Date, the Commission in effect when the customer reorders the Service will be the Commission paid. g. Notwithstanding the foregoing, no Commission will be paid to Representative in connection with the sale of any Service: 1. to Representative, Representative's employees or any other NYNEX representative(s) including Affiliates, subsidiaries, parent companies or divisions of either party unless receiving prior written concurrence from NYNEX; 2. to Strategic Business Accounts, unless otherwise specified by NYNEX, or to other NYNEX accounts as designated by NYNEX in its sole discretion; 3. for which an order was placed by Representative prior to the effective date of this Agreement; 4. for which an order, still pending, was previously placed with NYNEX by anyone other than Representative; or 5. for any order made in which Representative has offered to the customer a Discount not authorized by NYNEX in connection with such sale. 6. for any order that has been sold by a party, or subcontractor other than Representative unless otherwise approved by NYNEX; 7. for any order that merely moves the same Service from one tariff to another or shifts the Service from one customer bill to another without, at the same time, placing that Service under a longer than current term contract period, Rate Stability Plan or Service Discount Plan; 8. for any order where misrepresentation or fraudulent activity is uncovered. Furthermore, NYNEX has the right to recover any compensation paid relative to fraudulent activity regardless of when the sales order was placed or the length of time the Service has been installed; 9. for any sale of Services outside the Designated Sales Area, except for qualifying sales made in the Incidental Sales Area or with prior written concurrence from NYNEX; 10. for any order not completed or Service not installed for any reason. 2. Account Management Plan (AMP) Compensation a. As compensation for Representative's participation in the AMP Program NYNEX agrees to pay Representative as set forth in Appendix B. hereto. b. Payment hereunder shall be made monthly during the term of the AMP Program. AMP compensation will be paid not later than thirty (30) days following the end of the month during which an account plan is approved by NYNEX. Notwithstanding the above, NYNEX in its sole discretion may declare a moratorium on accepting for approval new AMP account plans. c. Compensation hereunder with respect to any AMP account plan(s) may be discontinued or reduced should a NYNEX review reveal a lack of performance by Representative in connection with the AMP Program. In addition, NYNEX may recover payments made with respect to any AMP Program in the event that such audit or other similar findings reveal that a substantial lack of performance by Representative has existed. d. All AMP required documentation, such as account plans, customer profiles, progress status reports, and proposals must be provided to NYNEX upon request, and in any event within ten (10) business days after the termination or expiration of this Agreement. After such termination or expiration, Representative may not use information about NYNEX customers which Representative obtained or developed under the AMP program to compete against NYNEX in the provision of intraLATA services, and may not disclose any such information to any third party. e. The AMP Program as specified in the NASA Channel Plan shall be considered an appendix to this Agreement. 3. Promotional Compensation a. From time to time and with the consent and assistance of Representative, NYNEX may offer to eligible employees of Representative awards in connection with promotional sales programs. In addition, NYNEX may offer to Representative bonus compensation for Representative's sales performance during such promotional sales programs. b. NYNEX shall notify Representative in writing of the terms and conditions of such programs and the compensation amounts for which Representative and its employees may be eligible under such programs. Such compensation amounts shall be in effect for only as long as the promotional program is in effect and shall be subject to change with each new promotional sales program. c. No compensation shall be paid hereunder unless Representative shall have submitted to NYNEX prior to the commencement of the promotional sales program a detailed plan as to how it intends to stimulate sales of Services during the promotional period. d. Payment of compensation hereunder to Representative's employees shall not make an employee of the Representative's an employee of NYNEX. e. Any sale credited for cash awards or other compensation must be reported by Representative against the sales person responsible for the sale. 4. Set Off NYNEX shall have the right to set off against any payment due by it hereunder any amounts owed to it by Representative under this Agreement or under any other agreement between the parties. If, for any reason whatsoever (including by reason of termination of this Agreement), at the end of any calendar month any amount is due from Representative to NYNEX, NYNEX, at its option, may demand that such amount be paid to it in cash by Representative within thirty (30) days after the last day of such calendar month. 5. Separation Payment In the event that NYNEX determines to eliminate its third party marketing sales channel, NYNEX, at its option, agrees to: a. either terminate this Agreement only upon twelve (12) months prior written notice, except that, in the event of Representative's substantial lack of performance hereunder (including, but not limited to, Representative's failure to meet its quota), NYNEX may terminate this Agreement by providing Representative with notice pursuant to Section C. of this Agreement, or b. pay to Representative a separation payment based on 50% of the Representative's earned compensation during the twelve (12) months preceding termination. G. Service Ordering Procedures, Credit 1. From time to time, NYNEX shall inform Representative of the terms on which it is willing to accept orders for the Services, including customer payment, standards of customer credit worthiness, standard installation intervals, physical availability of facilities, order format, data requirements and other specifications as to the manner of conducting business. 2. All orders for Services entered by Representative shall conform to the requirements established by NYNEX pursuant to paragraph G.l., above. 3. Representative shall place all customer orders for Services to be sold with NYNEX in such manner or on such forms as NYNEX may require. NYNEX agrees to receive and process customer orders for Services from Representative in accordance with its normal practices. 4. All orders for the Services shall be subject to the availability of suitable facilities, which shall be determined in the sole discretion of NYNEX. All orders for the Services shall be further subject to approval and acceptance by NYNEX. 5. NYNEX reserves the right to require a deposit from any customer in an amount which NYNEX, in its sole discretion, will determine in accordance with applicable tariff provisions. 6. When requested, Representative shall obtain accurate and appropriate credit information as specified by NYNEX. which it shall forward to NYNEX with the order for Services. Representative does not guarantee the credit of any customer. 7. NYNEX reserves the right independently to verify the credit worthiness of any customer. H. Authorized Use of NYNEX Name and Marks 1. Representative may refer to itself during the term of this Agreement as a "NYNEX Authorized Sales Agent" identifying this relationship solely in connection with Services sold by Representative hereunder. 2. Representative shall provide to NYNEX for its review and prior written approval all promotional, advertising, or other material or any other activity using or displaying NYNEX's name or referring to Representative as a NYNEX Authorized Sales Agent. Representative agrees to change or correct, at Representative's expense, any such material or activity which NYNEX, in its sole judgment, determines to be inaccurate, misleading or otherwise objectionable. 3. Upon expiration or termination of this Agreement, Representative shall immediately cease referring to itself as a "NYNEX Authorized Sales Agent." 4. NYNEX grants Representative the non-exclusive, personal and non-transferable right and license to use the mark in the trade name NYNEX or the NYNEX logo collectively referred to as Marks) only in connection with the marketing of Services under this Agreement. 5. Use of the marks NYNEX must be in accordance with the graphic standards and use requirements set forth in Paragraph H.8. Representative shall not use the Marks as part of any corporate or trade name or with any prefix, suffix or other modifying words, terms, designs, symbols, or in any modified form. Nor may Representative use the Marks in connection with any authorized product or service or in any manner not expressly authorized by this Agreement. Any unauthorized use of the Marks by Representative, or any use not in compliance herewith, shall constitute an infringement of the rights of NYNEX and its affiliates in and to the Marks. 6. Representative acknowledges that its right to use the Marks is derived solely from this Agreement and is limited to the identification of Representative as an "NYNEX Authorized Sales Agent." No rights are granted to Representative to use the Marks other than in connection with the marketing of Services under this Agreement. 7. If it becomes advisable at any time in NYNEX's sole discretion for Representative to modify or discontinue use of any Marks or substitute one or more additional trade or service marks to identify its relationship with NYNEX, Representative agrees to comply within a reasonable time after notice by NYNEX. In addition, Representative shall replace, at Representative's expense, obsolete identification signs or identification material with new signs or identification material should NYNEX adopt new Marks replacing one or more Marks identified by NYNEX. 8. Representative shall provide NYNEX samples of all materials using the Marks, including but not limited to stationery, business cards, literature, packages, labels, labeling, and advertising prepared by or for Representative and intended to be used by Representative prior to any public release of same. NYNEX retains the unequivocal right to refuse release of any material in its sole discretion. When using the Marks under this Agreement, Representative shall comply with: a) the graphic standards and other requirements of use set forth in writing by NYNEX as they may be amended from time to time; and b) all laws pertaining to Marks in force from time to time, including, but not limited to, compliance with Marketing requirements. 9. The right and license granted in Paragraph H.4. shall not be transferable without NYNEX's prior written consent. 10. Representative agrees that upon the expiration or termination of this Agreement, Representative shall: a) not use any actual or similar Marks, or any actual or similar trade name, service mark, trademark, logo, insignia, symbols or decorative designs owned by NYNEX or its affiliates specifically in the conduct of its business, in any manner or for any purpose; b) will not utilize for any purpose any actual or similar name, trade or service mark or other commercial symbol that suggests or indicates a connection or association with NYNEX, or directly or indirectly, at any time or, in any manner, identify itself or any business associated with NYNEX or such affiliated company; c) discontinue all use of the Marks and destroy or, if requested by NYNEX, return to NYNEX ail advertising and marketing materials, forms and other materials containing any Mark or otherwise identifying or relating to NYNEX's business. 11. All rights in the Marks other than those specifically licensed herein are reserved by NYNEX. 12. Representative acknowledges the representations of NYNEX and its affiliates that it is the owner of the exclusive right, title and interest in and to the Marks, and Representative will not at anytime do or cause to be done any act or thing anyway impairing or tending to impair any part of such right, title and interest in connections with the use of the Marks. Representative shall not in any manner represent that if has any ownership in the Marks or registration thereof, and Representative acknowledges that use of the Marks shall not create in Representative's favor any right, title or interest in or to the Mark, but all uses of the Marks by Representative shall inure to the benefit of NYNEX and its affiliates. Furthermore, Representative will at no time adopt or use, without NYNEX's written consent, any work or Mark which is likely to be similar to or confusing with the Marks. 13. NYNEX makes no representation or warranty, expressed or implied, with respect to the Marks, including without limitations, any representation or warranty with respect to: a. Validity or enforceability of the Marks or NYNEX's exclusive ownership thereof; b. Whether or not the Marks infringe the rights of third parties; and c Whether or not the Marks have been infringed. Representative shall not be entitled to any compensation from NYNEX for any direct or indirect damages or loss of profits suffered by Representative as the result of Representative's use of the Marks hereunder. 14. NYNEX assumes no liability to Representative or to third parties with respect to the use of the Mark, and Representative indemnifies and holds harmless NYNEX against all losses, damages and expense, including attorney's fees, incurred as a result of or related to claims of third persons involving Representative's use of the Marks. Such indemnity shall survive the termination of this Agreement. 15. Except as permitted under this Agreement, Representative agrees not to issue or release for publication any articles or advertising or publicity matter relating to this Agreement or mentioning or implying the name of NYNEX, or any of their personnel or affiliates, unless prior written consent is granted by NYNEX. 16. Representative agrees to promptly notify NYNEX of any potential infringements of the Marks. 17. Recognizing and acknowledging that any use of the Marks by Representative in a manner inconsistent with the provisions of this Agreement may cause NYNEX irreparable damage for which other remedies may be inadequate, Representative agrees that NYNEX shall have the right to petition for injunctive or other equitable relief from a court of competent jurisdiction as may be necessary and appropriate to prevent any unauthorized use of the marks by Representatives, its employees, or its agents, and Representative shall not oppose such injunction on the grounds that an adequate remedy is available at law. Such remedy be in addition to other remedies available to NYNEX. I. Confidential Information 1. To the extent that the disclosure of confidential information is legally permissible, all information disclosed by either party to the other pursuant to this Agreement, other than such information as may be generally available to the public or the industry, is and will be disclosed to it in confidence solely in accordance with FCC regulations for its use in connection with carrying out the terms and conditions of this Agreement. Each party agrees to keep such information secret and confidential and not to disclose it to any other person or use it during the term of this Agreement or after its termination except in currying out its obligations hereunder or in response to obligations imposed by tariff or order of a court or regulatory body. 2. Each party shall take effective precautions, contractual and otherwise, reasonably calculated to prevent unauthorized disclosure or misuse of such information by any of its employees or by any other person having access to such information. 3. Within thirty (30) days after the expiration of this Agreement or the termination of this Agreement by either party and for any reason, each party shall return to the other any physical or written records containing such confidential information of the other then in its possession, regardless of whether such physical or written records were prepared by Representative or by NYNEX. J. Indemnification 1. Representative agrees to indemnify and hold NYNEX harmless from any and all claims, actions, damages, losses, forfeitures, penalties, expenses and other liabilities, including reasonable attorney's fees and costs of litigation, resulting from Representative's acts or acts by any person or subcontractor supplied by Representative, omissions, misrepresentations, or violations of Federal, state or local laws, including but not limited to, the Massachusetts Uniform Procurement Act, regardless of the form of action. 2. NYNEX agrees to indemnify and hold Representative harmless from any and all claims, actions, damages, expenses and other liabilities, including reasonable attorney's fees and the costs of litigation, resulting from NYNEX's acts, omissions or misrepresentations by NYNEX or by any person or subcontractor supplied by NYNEX, regardless of the form of action, PROVIDED, HOWEVER, THAT NYNEX'S LIABILITIES TO REPRESENTATIVE FOR ANY CLAIM ARISING OUT OF THE PROVISION OF A TARIFFED SERVICE SHALL IN NO EVENT EXCEED ITS LIABILITY TO A CUSTOMER UNDER THE TARIFFS ON FILE WITH THE STATE OR FEDERAL AGENCIES WHICH HAVE REGULATORY AUTHORITY OVER THE SERVICES WHICH ARE THE SUBJECT OF THIS AGREEMENT. 3. In the event that the negligence of both parties or the failure of both parties to perform their obligations under this Agreement contributes to loss or damage giving rise to a claim or suit, the parties agree to bear the responsibility of such claim in proportion to the degree of fault attributable to each party PROVIDED, HOWEVER, THAT NYNEX's LIABILITY SHALL BE LIMITED BY THE APPLICABLE TARIFF(S). In no event shall Representative or NYNEX be liable for any acts or omissions of the other occurring prior to the effective date of this Agreement. K. Non-Discrimination/Conflict of Interest The applicable provisions in Appendix C., entitled "NonDiscrimination Compliance," and Appendix D., entitled "Conflict of Interest Statement," both of which are attached hereto, shall form a part of this Agreement and any amendments hereto. L. Arbitration Upon mutual agreement, any controversy or claim arising out of or relating to this Agreement, or the breach thereof, shall be settled by arbitration in accordance with the Rules of the American Arbitration Association, and judgment upon the award may be entered in any Court having jurisdiction thereof. M. General Provisions 1. Non-Assignability: Representative may not assign or broker this Agreement, in whole or in part, without the prior written consent of NYNEX. Any attempt to assign or broker any of the rights, duties or obligations of this Agreement without such consent shall be void and shall be considered by NYNEX to be grounds for immediate termination of this Agreement without notice to Representative. 2. Amendment: a. Except as otherwise provided herein, this Agreement can be modified only by a written amendment duly signed by, persons authorized to sign agreements on behalf of the Representative and NYNEX and shall not be modified or supplemented by any courses of dealing or trade usage. b. Except as otherwise provided herein, the provisions of the appendices hereto may be renegotiated at the request of either party. Amendments of the appendices shall be evidenced by a signed writing but shall not require re-execution of this Agreement. In the absence of agreement concerning any modification or amendment thereto, this Agreement and the current appendices shall continue in full force and effect. Upon sixty (60) days notice to Representative, NYNEX shall, however, have the authority to amend or effect a change in the appendices without Representative's approval and without a writing signed by the Representative. 3. Waiver No course of dealing or failure of either party to strictly enforce any term, right or condition of this Agreement shall be construed as a waiver of such term, right or condition. 4. Force Majeure: Neither party shall be held liable for any delay or failure in performance of any part of this Agreement because of cause or circumstance beyond its control such as acts of God; acts of civil or military authorities; legislative, executive or judicial acts of any governmental entity; government regulations; embargoes; epidemics; war; terrorist acts; riots; insurrections; fires; explosions; earthquakes, nuclear accidents, floods, or other major environmental disturbances; power blackouts; strikes; or from any other cause of whatsoever kind arising without its actual fault (collectively referred to as "Force Majeure Conditions"). In the event of a Force Majeure Condition affecting either party, both parties shall cooperate as appropriate to perform their obligations under this Agreement. 5. Surviving Obligations: All obligations and duties which by their nature extend beyond the expiration or termination of this Agreement shall survive and remain in effect beyond any expiration or termination. 6. Choice of Law: This Agreement is governed by the laws of the State of New York. 7. Successors Bound: This Agreement shall be binding upon and inure to the benefit of any successors or assigns of the parties. 8. Agency Orders: All obligations under this Agreement shall be subject to legislation and to valid and applicable government agency orders, regulations, tariff provisions, and decisions and orders of courts of competent jurisdiction. 9. Severability: Both parties expressly agree that it is not the intention of either party to violate public policy or state or federal statutory or common laws and that if any sentence, paragraph, clause, or combination thereof in this Agreement is in violation of the same, such paragraph, clause, or sentence, or combination of the same shall be inoperative and the remainder of this Agreement shall remain binding upon the parties hereto. 10. Headings: The headings in this Agreement are for convenience only and shall not be construed to define or in any way limit any terms herein. 11. Notice: All notices, requests, or other communications, other than orders or related communications placed with NYNEX's vendor services group and/ or Account Team Centers, made under this Agreement shall be made in writing and shall be deemed to have been duly given when delivered in person or deposited in the United States Mail, certified or registered, postage pre-paid and addressed as follows: If NYNEX NYNEX 125 High Street, Room 435 Boston, Massachusetts 02110 Attn: Managing Director - NASA To Representative Attn: or as such addressee or address is changed by written notice to the other party. 12. Entire Agreement: This Agreement together with the appendices attached hereto shall constitute the entire Agreement between the parties. Both parties represent they have read this Agreement, understand it and agree to be bound by all the terms and conditions stated herein. COMPUTER TELEPHONE CORP. NEW YORK TELEPHONE COMPANY NEW ENGLAND TELEPHONE AND TELEGRAPH COMPANY By: /s/ Robert Fabbricatore By: /s/ Jerome P. Lovasco Robert Fabbricatore Jerome P. Lovasco (Typed Name) (Typed Name) Title: Chairman Title: Managing Director Date: 3/14/96 Date: 4/17/96 (Affix Corporate Seal Below) EX-10.7 9 PACIFIC BELL AGREEMENT EXHIBIT 10.7 PACIFIC BELL PROPRIETARY AND CONFIDENTIAL NETWORK SERVICES MARKETING AGREEMENT THIS AGREEMENT is effective as of 5-1-97, by and between PACIFIC BELL, a California corporation ("Pacific Bell"), and CTC Communications Corp., a Massachusetts corporation ("Authorized Sales Representative" or "ASR"). This Agreement replaces any and all previous agreements between Pacific Bell and ASR with respect to the subject matter contained herein, and any and all such agreements are hereby terminated. APPOINTMENT OF ASR 1. Appointment and Responsibility (a) (i) Pacific Bell hereby appoints ASR as an authorized sales representative, to market, promote the sale of, and solicit orders for the Network Services. Pacific Bell reserves the right to appoint other authorized sales representatives. (ii) Pacific Bell reserves the right to add to, alter or subtract from, the Network Services at any time. (b) ASR accepts this appointment and agrees to exert commercially reasonable efforts to promote, on Pacific Bell's behalf, certain of Pacific Bell's Network Services (defined in Exhibit C of this Agreement, "Network Services and Commissions"), to provide sales support activity, to meet the volume expectations established in Exhibit D of this Agreement, "Volume Expectations", and to meet the quality targets established by Pacific Bell. Results will be measured against the volume expectations on a prorated monthly basis and any failure to meet such expectations and/or any failure to make any sales within a consecutive two month period may lead to cancellation of this Agreement under Section 13(b)(i) below. (c) ASR agrees: (i) To act as a single point of contact for customer's Network Services needs; (ii) To employ a sufficient sales and service staff physically located and working in California, in each geographic area being marketed to, in order to provide adequate marketing coverage for new Network Services customers; (iii) To place orders with Pacific Bell's Sales Agency Sales Support Center ("SSC"), or with any other Pacific Bell designated sales support center, in a manner consistent with the then current documented standards, order format, data requirements, method of transmission of orders, procedures and timeframes, set by the applicable sales support center; (iv) To only submit orders for Network Services on behalf of customers who have requested ASR to place orders on their behalf; 1 PROPRIETARY AND CONFIDENTIAL INFORMATION Not for use or disclosure outside Pacific Bell and ASR except under written agreement approved in writing by Pacific Bell. ASR1997_.DOC 3/1/97 PACIFIC BELL PROPRIETARY AND CONFIDENTIAL (v) Before requesting information from Pacific Bell about a customer's account, to provide Pacific Bell with a letter of authorization signed by the customer authorizing such disclosure; (vi) To complete a minimum level of training on the Network Services to be able to fulfill the obligations of this Agreement. This requirement shall apply to the principal and sales personnel of ASR Pacific Bell shall determine what constitutes a minimum level of training. ASR further agrees that if it schedules any training with Pacific Bell, fails to cancel such training at least three business days prior to the scheduled day, and fails to attend such training or send an alternate from ASR's company, Pacific Bell may charge ASR for such training; (vii) Not to use random or sequential dialers or automatic dialing and announcing devices ("ADADS") in placing calls to customers; (viii) To sell Network Services to customers regardless of whether such customers purchase CPE from ASR; (ix) Upon notification from Pacific Bell, to put in place and use designated electronic funds transfer and/or electronic data interchange capability, and to enter into an agreement with Pacific Bell with respect to use of such capabilities; (x) If required by Pacific Bell pursuant to Pacific Bell's internal rules and practices, to submit to Pacific Bell a Minority, Women, and Disabled Veteran Business Enterprise subcontracting plan; and (xi) Upon request from Pacific Bell, to provide Pacific Bell with the Federal Taxpayer Identification Number and/or, as appropriate, the Social Security number, for ASR to be used for tax reporting purposes. (d) If ASR elects to telemarket any of the services listed in Exhibit C, they must first secure written permission from Pacific. The employees engaged in telemarketing must be physically located upon ASR's business premises in California unless authorized in writing in advance by Pacific. (e) All activities of ASR hereunder shall be in compliance with any applicable provisions of Pacific Bell's tariffs, sales and customer service standards. ASR agrees, if ASR provides CPE, it will include in its product line CPE compatible with the Network Services listed in Exhibit C, in accordance with such standards as may be prescribed by Pacific Bell and to employ only such compatible products in connection with the Network Services. If ASR provides CPE, it must coordinate its installation of CPE for all of ASR's Network Services customers with installation of any services to be provided by Pacific Bell, in a manner and within 2 PROPRIETARY AND CONFIDENTIAL INFORMATION Not for use or disclosure outside Pacific Bell and ASR except under written agreement approved in writing by Pacific Bell. ASR1997_.DOC 3/1/97 PACIFIC BELL PROPRIETARY AND CONFIDENTIAL installation intervals acceptable to Pacific Bell, and in conformance with any agreements between ASR and such customers with respect to due date. In addition, ASR will provide Network Services sales support functions including, but not limited to: continuing Network Services consulting; regular personal contacts with ASR's customers; provision to customers of information available regarding technical, functional and other Network Services developments; ongoing training for new and existing Network Services features; handling of requests from its customers for new or changed Network Services; answering customer billing questions regarding ASR's products and Network Services ASR has sold to customer; and resolving issues relating to customer's Pacific Bell Network Services. ASR shall refer all other customer questions on Network Services, including billing questions, to Pacific Bell. Upon request, ASR shall provide their account management plans to Pacific in a format specified by Pacific. ASR will take action as needed to meet customer service requirements and to ensure that its activities are properly coordinated to customers' and Pacific Bell's satisfaction. (f) Any advertising, sales or promotional material of ASR referring to Pacific Bell's Network Services, Pacific Bell, or Pacific Bell's Sales Agency Program must be approved in advance in writing by Pacific Bell. If such approval is not requested or granted before ASR prints items referring to Pacific Bell's Network Services, Pacific Bell, or Pacific Bell's Sales Agency Program, then ASR will be liable for all charges associated with re-printing such items and ASR shall at its expense completely destroy all unauthorized material. ASR agrees that Pacific Bell shall have the right, at no charge, to include in advertising by Pacific Bell unlimited reference to ASR as an Authorized Sales Representative. (g) Each party agrees that during the term of this Agreement it will not solicit any employee of the other party to terminate his/her employment to become an employee of the first party. This provision does not apply to situations in which an employee of one party initiates contact with the other party with regard to possible employment. (h) Pacific Bell reserves the right at its option to market or service any and all Network Services to customers requesting Network Services from Pacific Bell. Pacific Bell reserves the right at any time to provide additional Network Services sales and marketing services with respect to ASR's Network Services customers and will not pay any commission for such services. Pacific Bell reserves the right to market CPE in competition with ASR. (i) ASR agrees at all times to act in a professional and ethical manner and maintain a level of quality of service to its customers satisfactory to Pacific Bell in its sole discretion in accordance with standards established by Pacific Bell and then in effect. Without limiting the generality of the foregoing, ASR agrees it will not offer customers rebates or discounts contingent upon the purchase of Network Services, make misleading statements to customers, give money, gifts or any other consideration to Pacific Bell's employees, do anything that will dishonor, discredit, reflect adversely on, or injure the reputation of Pacific Bell, or create sales that do not provide value to the customer and/or Pacific Bell, or to manipulate the compensation system. ASR further agrees to comply with California Public Utilities Commission Decision 3 PROPRIETARY AND CONFIDENTIAL INFORMATION Not for use or disclosure outside Pacific Bell and ASR except under written agreement approved in writing by Pacific Bell. ASR1997_.DOC 3/1/97 PACIFIC BELL PROPRIETARY AND CONFIDENTIAL Nos. 86-05-072 (1986) and 90-02-043 (1990) by observing the restrictions which apply to Pacific Bell employees marketing similar products to similar customers. ASR will take and permit to be taken by Pacific Bell all actions reasonably requested in order to ensure adequate opportunity for review of ASR's performance by Pacific Bell, including, but not limited to, observation by Pacific Bell of ASR's employees in their performance of the duties and obligations of this Agreement and periodic review and analysis by Pacific Bell of the customer service provided by ASR and to maintain, on its premises, service observation equipment adequate to allow Pacific Bell to assure itself that all of the rules and requirements of the law and this Agreement are being complied with. Pacific Bell may conduct periodic sales reviews and account reviews with ASR's account executives or such other persons designated by ASR to handle accounts for customers and potential customers of ASR. (i) Pacific Bell reserves the right to provide to ASR mutually agreeable scripts to be used in the sale of Network Services, and ASR agrees to use such scripts. (k) Pacific Bell reserves the right to alter or amend ASR's obligations and the commission structure (Exhibit C) hereunder upon sixty days prior written notice; provided, however, that ASR shall have the right within sixty days of receipt of notice of such changes to terminate this Agreement. (l) ASR agrees if Pacific Bell identifies a situation in which ASR's activities are violating this Agreement and customers are being negatively impacted by such activities, Pacific Bell may (1) withhold payment of commission during the investigation of suspect sales or of any other such violation, and (2) require ASR to cease all activities hereunder. Failure to cease the activities hereunder as directed by Pacific is cause for immediate cancellation of this Agreement. ASR shall work with Pacific Bell to resolve the issues causing Pacific Bell to impose such requirement(s), and shall not resume activities hereunder until such issues are resolved. (m) ASR shall specify, in section 22 of this Agreement, whether, it elects to market intraLATA services exclusively on behalf of Pacific Bell or to also market or otherwise promote the intraLATA network services of other providers. Market exclusively on behalf of Pacific Bell means that the ASR agrees it will obtain from Pacific Bell and use Pacific Bell's intraLATA services to meet its intraLATA service requirements, ASR will not use the intraLATA services of another provider, except in those instances where Pacific Bell does not provide a similar functional service in which case ASR may, with Pacific Bell's written consent, and only for so long as Pacific Bell does not have a similar functional service, use the intraLATA service of another provider, and ASR will not take any action, in return for compensation of any type from another provider, which would result in an end user's intraLATA service being provided in any way using the services of any provider other than Pacific Bell. Subsections i. and ii. following describe the characteristics of each alternative. 4 PROPRIETARY AND CONFIDENTIAL INFORMATION Not for use or disclosure outside Pacific Bell and ASR except under written agreement approved in writing by Pacific Bell ASR1997_.DOC 3/1/97 PACIFIC BELL PROPRIETARY AND CONFIDENTIAL (i) If ASR elects to be a non-exclusive ASR, ASR shall receive payment of commissions on a per unit basis, as described in Exhibit C, and ASR shall not be permitted to use Pacific Bell's logo, trademarks, and/or service marks. (ii) If ASR elects to be an exclusive ASR, ASR shall receive payment of commissions on a per unit basis, as described in Exhibit C, and ASR shall be permitted to use Pacific Bell's logo, trademarks, and/or service marks as provided herein. (iii) Pacific Bell may, as Pacific Bell deems appropriate, make available to ASR additional opportunities including, but not limited to: contests, co-operative advertising, lists of leads for sales of Network Services, referrals for sales of Network Services, participation in module management and/or account management programs, and participation in other similar programs which Pacific Bell may from time to time deem appropriate. Such opportunities shall be offered solely at Pacific Bell's discretion and shall be defined by Pacific Bell if and when offered. (iv) During the effective period of this Agreement, an ASR may change from non-exclusive to exclusive. Such change shall be prospective only. This means, but is not limited to, payment of residual commissions will be made for Network Services sold by ASR after the change, but no residual commissions will be paid for ASR's base of Network Services in place at the time the change is made. 2. Information And Material Furnished By Pacific Bell. Pacific Bell shall supply ASR, from time to time, with a reasonable number of brochures, price lists and other material necessary for promoting the sale of Network Services, and with reasonable support for training ASR's personnel. If ASR requires unusual support or excess services, a charge may be applied for such support or services. Any portion of the foregoing material for which ASR has been charged which remains unused at the time Pacific Bell makes changes in any Network Services when such changes make such material unusable, or upon the termination or cancellation of this Agreement, except where such termination or cancellation results from ASR's acts or omissions, may be promptly returned to Pacific Bell for credit. PRICES, TERMS OF SALE, COMMISSIONS 3. Prices. The prices and terms and conditions under which Network Services will be provided by Pacific Bell to customers shall be the prices and terms and conditions authorized by Pacific Bell's tariff Schedules in effect. ASR shall not under any circumstances offer any Network Services at prices or terms and conditions different from those in Pacific Bell's tariff Schedules. Pacific Bell reserves the right at any time to seek regulatory approval to change the specifications of any Network Services as shown in tariffs, to alter or eliminate any Network Services or any aspect thereof, or to change any Network Service rates. 5 PROPRIETARY AND CONFIDENTIAL INFORMATION Not for use or disclosure outside Pacific Bell and ASR except under written agreement approved in writing by Pacific Bell. ASR1997_.DOC 3/1/97 PACIFIC BELL PROPRIETARY AND CONFIDENTIAL 4. (a) Orders and Acceptance. All orders entered by ASR from customers shall be in accordance with subparagraph l(c)(iii). ASR shall determine availability of Network Services on the basis of information received from Pacific Bell. All orders shall be subject to the availability of suitable facilities, which shall be determined in the sole discretion of Pacific Bell. All orders for Network Services shall be further subject to approval and acceptance by Pacific Bell. In the event an order submitted by ASR is rejected, Pacific Bell will supply ASR with a specific and timely reason for such rejection. (b) Credit Information. In the event that Pacific Bell has indicated that it is willing to extend credit to a customer or customers, ASR shall obtain accurate and appropriate credit information as specified by Pacific Bell, which it shall forward to Pacific Bell with the order involving the extension of credit. All extensions of credit must be approved by Pacific Bell, and Pacific Bell reserves the right to deny credit to any customer. Pacific Bell further reserves the right to require a deposit and/or advance payment from any customer in any amount which it, in its sole discretion, will determine in accordance with applicable tariff provisions. ASR does not hereby guarantee the credit of any customer, but does warrant that it will use commercially reasonable efforts to obtain accurate credit information. (c) Billing. Pacific Bell shall have sole responsibility for billing customers for Network Services. 5. Commissions (a) Subject to the restrictions regarding sales of Network Services to the entities specified in 5(b) below, and provided that ASR has fulfilled its obligations under this Agreement, for each Network Service sale made by ASR, Pacific Bell shall pay to ASR the commission provided for in Exhibit C for the particular Network Service ordered. If the customer terminates its Network Services within the time period specified in Exhibit C for the specific Network Services involved, if applicable, any such commission shall be, at Pacific Bell's choice, refunded to Pacific Bell or deducted from later commissions otherwise due ASR. After termination or cancellation of this Agreement, any debit commission balance for ASR shall be paid by ASR to Pacific Bell within thirty days written notice of such debit commission status. Until such debit balance is paid to Pacific Bell, ASR will not be considered for participation in any Pacific Bell channel programs including, but not limited to, Pacific Bell's Value Solutions Program. Commissions for subsequent sales of Network Services shall be separately computed as described in Exhibit C. 6 PROPRIETARY AND Confidential INFORMATION Not for use or disclosure outside Pacific Bell and ASR except under written agreement approved in writing by Pacific Bell. ASR1997_.DOC 3/1/97 PACIFIC BELL PROPRIETARY AND CONFIDENTIAL (b) ASR will receive no commissions or residuals for ASR's sales of Network Services to: (i) ASR or to affiliates of ASR; (ii) A Telemanagement Service Company, whether the Telemanagement Service Company is an ASR, an affiliate of an ASR, or an unrelated entity. Telemanagement Service Companies, include, but are not limited to those companies listed in Exhibit B; (iii) Pacific Bell Value Solutions Program participants; (iv) Resellers of Pacific Bell services, and (v) Pacific Bell or its affiliates. (c) ASR's eligibility for a commission based on a sale of Network Services accrues as of the date of service order completion. Except as provided in subparagraph 13(c), amounts due hereunder shall be paid by Pacific Bell to ASR within thirty working days after ASR's eligibility for such amounts accrues. (d) No commission shall be paid to ASR for any orders for Network Services (i) sold to a customer directly by Pacific Bell, (ii) sold to another ASR by ASR, or (iii) sold to a customer by any other entity, including another authorized sales representative. (e) Pacific Bell shall have the right to set off against any payment due by it to ASR hereunder any amounts owed to it by ASR hereunder, including, but not limited to, customer account adjustments, amounts due for advertising, or amounts due for failure to attend scheduled training or other seminars or workshops. Pacific Bell shall also have the right to require ASR to pay to Pacific Bell any amounts owed to Pacific Bell by ASR. (f) Pacific Bell shall have the right to (1) increase or decrease the commission rates and residual commission rates applicable to sales made after the effective date of the change, and (2) substantially alter the structure of its payment plans, including, but not limited to paying commissions over time. Such changes will be effective as set forth above in Section 1(k). ASR shall have the right within sixty days of receipt of notice of such change to terminate this Agreement. (g) ASR shall have one year from the date of completion of a service order in which to claim payment for such sale of Network Services. Pacific Bell shall have no obligation to make payments beyond such one year period. 7 PROPRIETARY AND CONFIDENTIAL INFORMATION Not for use or disclosure outside Pacific Bell and ASR except under written agreement approved in writing by Pacific Bell. ASR1997_.DOC 3/1/97 PACIFIC BELL PROPRIETARY AND CONFIDENTIAL (h) For Network Services sales for customers using the Education First promotional tariff, ASR will not receive commissions or residuals, if applicable. 6. Confidentiality (a) All information relating to either party's customers and business, including but not limited to the terms and conditions of this Agreement, and all information that is marked confidential or is designated as confidential when disclosed, which is disclosed by either party to the other pursuant to this Agreement, other than such information as may be generally available to the public or the industry, is and will be disclosed in confidence solely for use in the conduct of business hereunder Nothing contained herein shall grant either party any right, title, or interest to any information provided by the other party hereunder. Each party agrees to keep such information secret and confidential and not to disclose it to any other person or use it during the term of this Agreement or after its termination or cancellation except in carrying out its obligations hereunder or in response to obligations imposed by tariff or order of a court or regulatory body. (b) Each party shall take effective precautions,.contractual and otherwise, reasonably calculated to prevent unauthorized disclosure or misuse of such information by any of its employees or by any other person having access to such information. (c) Within ninety days after the termination or cancellation of this Agreement, by either party and for any reason, each party shall notify the other which specific information disclosed by it pursuant to this Agreement is to be returned. Each party agrees promptly to return to the other any physical or written records containing such specifically identified information then in its possession, regardless of whether such physical or written records were prepared by ASR or by Pacific Bell. The duty to keep information confidential shall continue notwithstanding the termination or cancellation of this Agreement. Upon the termination or cancellation of this Agreement, all confidential information in tangible form provided to ASR by Pacific Bell shall be returned to Pacific Bell. (d) or a period of ninety days after the date of termination or cancellation of this Agreement, ASR agrees that it will not market the intraLATA network services of any other provider to any customers- I) to whom they sold a Pacific Bell Network Service; 2) to whom they made a written proposal, or presented a proposal in person, which included a Pacific Bell Network Service, or 3) for which ASR received any customer information or compensation under this Agreement. 8 PROPRIETARY AND CONFIDENTIAL INFORMATION Not for use or disclosure outside Pacific Bell and ASR except under written agreement approved in writing by Pacific Bell. ASR1997_.DOC 3/1/97 PACIFIC BELL PROPRIETARY AND CONFIDENTIAL 7. Trademarks and Trade Names (a) ASR shall not be deemed by anything contained in this Agreement or done pursuant to it to acquire any right, title or interest in or to the use of the name "Bell", the Bell symbol, nor in or to any other trademark or service-mark now or hereafter owned by Pacific Bell or Pacific Telesis Group ("PTG") or any affiliate thereof. ASR shall not use in its business or trade or corporate name the names "Bell", "Telesis" or the Bell or Telesis symbol, nor shall it use any trademark or service-mark owned by Pacific Bell or PTG, or adopt or use any similar mark or symbol without the express written consent of Pacific Bell or PTG, except that, subject to Pacific Bell's right to review and forbid any such use from time to time, ASR may, during the term of this Agreement or until ASR is notified to the contrary by Pacific Bell, use such names, trademarks and service-marks in its advertising, as provided in subparagraph l(f), and in its promotion of Network Services. Any such use of such names, trademarks, and service-marks must be pre-approved in writing by Pacific Bell. Such use of such names, trademarks and service-marks is permitted hereunder solely for purposes of promoting Pacific Bell's Network Services, and such names, trademarks and service-marks may not, in any instance, be used to promote the services of any other provider. ASR agrees that it will comply with any standards for usage of such names, trademarks and service-marks issued or to be issued by Pacific Bell or PTG. Immediately upon termination or cancellation of this Agreement, ASR will destroy or turn over to Pacific Bell any materials using any trademark or service-mark of Pacific Bell or PTG, unless Pacific Bell or PTG has consented to such use pursuant to a separate agreement. (b) Except as otherwise stated in subparagraph 1 (f), Pacific Bell shall not be deemed by anything contained in this Agreement or done pursuant to it to acquire any right, title or interest in or to the use of ASR's name, trademarks and service-marks. Subject to ASR's right to review and forbid any such use from time to time, Pacific Bell may, during the term of this Agreement or until Pacific Bell is notified to the contrary by ASR, use such names, trademarks and service-marks in its advertising. Pacific Bell agrees that it will comply with any standards for usage of such names, trademarks and service-marks issued or to be issued by ASR. Immediately upon termination or cancellation of this Agreement, Pacific Bell will destroy or turn over to ASR any materials using any trademark or service-mark of ASR, unless ASR has consented to such use pursuant to a separate agreement. (c) Pacific Bell may withhold payment of commissions if, and for so long as, ASR fails to comply with this paragraph 7 and standards provided to ASR pursuant thereto, with respect to use of any names, trademarks, or service-marks as specified in this paragraph 7. 8. Invention and Patent Rights. Neither party shall be deemed by anything contained in this Agreement or done pursuant to it to acquire any right, title or interest in or to any design, invention, improvement, process or system now or hereafter embodied in any services or products provided by the other party, whether or not such design, invention, improvement, process or system is patented or patentable under the laws of any country. 9 PROPRIETARY AND CONFIDENTIAL INFORMATION Not for use or disclosure outside Pacific Bell and ASR except under written agreement approved in writing by Pacific Bell. ASR1997_.DOC 3/1/97 PACIFIC BELL PROPRIETARY AND CONFIDENTIAL 9. Relationship of Parties (a) Pacific Bell agrees at all times to act in a professional and ethical manner. Pacific Bell agrees that it will not do anything that will dishonor, discredit, reflect adversely on, or injure the reputation of ASR. (b) The relationship between the parties established by this Agreement is that of independent contractors. Neither is an agent or employee of the other and, neither has any right or any authority to enter into any contract or undertaking in the name of or for the account of the other, or to assume or create any obligation of any kind, express or implied, on behalf of the other, nor shall the acts or omissions of either create any liability for the other. ASR shall conduct its business at its own initiative, responsibility and expense. (c) Notwithstanding the foregoing, when Pacific Bell confirms customer eligibility for Network Services, ASR shall be considered the agent of Pacific Bell for the purposes of receiving and safeguarding such eligibility information. "Receiving" shall mean to take possession of eligibility information. "Safeguarding" shall mean the obligation to take all reasonable steps to ensure against the unauthorized release or use of eligibility information. ASR shall receive and use such eligibility information for the sole purpose of marketing the Network Services. The terms and conditions of Section 6 shall also apply to the provision of this eligibility information. 10. Records and Audits. Each party shall maintain records of all sales made pursuant to this Agreement. All such records and all other records pertaining to its performance under this Agreement shall be retained by each party for a reasonable period of time, for at least three years from the date of final payment by Pacific Bell for services rendered under this Agreement. Each party and its authorized agents and representatives shall have access to such records of the other party for purposes of audit during normal business hours during the term of this Agreement and for three years from the date of final payment. A party shall notify the other party in writing at least seven days before it intends to conduct such an audit. 11. (a) Indemnification. Each party agrees to indemnify and hold the other party harmless from any and all claims, actions, damages, expenses and other liabilities, including reasonable attorneys' fees and costs, resulting from the first party's acts, omissions or misrepresentations, from any defect or failure of any kind in any product or service provided by the first party, or from infringement by the first party of any copyright, trademark, service mark, trade name or similar proprietary rights. (b) Exclusion of Damages. In no event shall either party be liable to the other for consequential, indirect, special or incidental damages resulting from breach of this Agreement even if such party had been advised of the possibility of such potential loss or damage. 10 PROPRIETARY AND CONFIDENTIAL INFORMATION Not for use or disclosure outside Pacific Bell and ASR except under written agreement approved in writing by Pacific Bell. ASR1997_.DOC 3/1/97 PACIFIC BELL PROPRIETARY AND CONFIDENTIAL 12. Insurance. Without limiting the obligation to indemnify undersection 11, each party shall maintain sufficient liability insurance, or provide a certificate of self-insurance, to protect themselves and the other party from any and all claims, demands, expenses, costs and other liabilities arising out of their acts, omissions and/or misrepresentations. ASR shall provide a copy of such insurance to Pacific upon request. TERM AND TERMINATION; CANCELLATION 13. (a) Term and Termination. The term of this Agreement shall commence as of the effective date written above, and shall continue: (i) for ASRs, who have not participated for three full years in Pacific's ASR program, through December 31 of the year in which this Agreement is signed; (ii) for ASRs, who have participated for three full years in Pacific's ASR program, until otherwise terminated or cancelled as provided herein; or (iii) until either party provides written notice of termination. Such notice shall be effective sixty days from the date of mailing. This Agreement may also be terminated or cancelled in accordance with the provisions hereof. (b) Cancellation. This Agreement may be cancelled by one party immediately upon the giving of notice of any of the following events: (i) if the other party fails to perform or to observe, or commits a breach of any section, provision or covenant of this Agreement, including, but not limited to, the volume expectations set forth in Exhibit D, and the quality targets established by Pacific Bell, and fails to cure such breach or failure to perform within thirty days, or such lesser period as Pacific Bell may require because of legal, business, or regulatory restrictions applicable to Pacific Bell, following delivery to such defaulting party of a written notice of the alleged breach; provided, however, that if the breach is a violation by an ASR of any legal or regulatory restriction, policies, rules, orders, or other requirements, such as, but not limited to, placing orders for customers who have not requested service, misrepresentation of Pacific Bell, our Network Services or the Sales Agency program, charging customers for or accepting fees for adjustments to which the customers are entitled, misrepresentation of ASR's relationship with Pacific Bell, actions which dishonor, discredit, reflect adversely on or injure the reputation of Pacific Bell, or is a breach of section l(e), 1 (i) or 7 of this Agreement, Pacific Bell may cancel this Agreement immediately without providing a period to cure such breach. If the cause of a breach or failure to perform is an act of God, fire or other casualty, strike, material shortages or other cause similar or dissimilar to the foregoing that is beyond the control of the defaulting party, the period for remedying such breach or failure to perform shall be extended by the time measured by any such cause of delay and for a reasonable time thereafter, and the defaulting 11 PROPRIETARY AND CONFIDENTIAL INFORMATION Not for use or disclosure outside Pacific Bell and ASR except under written agreement approved in writing by Pacific Bell. ASR1997_.DOC 3/l/97 PACIFIC BELL PROPRIETARY AND CONFIDENTIAL party shall not be liable for damages to the other party to the extent they result from such cause; or (ii) if the other party becomes insolvent or makes an assignment for the benefit of its creditors, or if a committee of creditors or other representative is appointed to represent its business, or if a voluntary or involuntary petition under any section of a bankruptcy or similar act shall be filed by or against such other party and that party fails within thirty days following the appointment of such committee or representative or the filing of any such involuntary petition to cause the discharge of such committee or representative or the dismissal of such involuntary petition. (iii) In accordance with Section 17 below, no delay by either party in sending any notice specified in (i) or (ii) of this subparagraph shall constitute a waiver of its rights to terminate or cancel this Agreement. (iv) Without waiving any of its rights under this Agreement, Pacific Bell may do any of the following short of cancellation if ASR violates any of the terms of this Agreement: at its sole discretion, (1) withhold or cease paying residual commission payments, and (2) prohibit ASR from using Pacific's logos, trademarks, and service marks, and from participation in any additional opportunities including, but not limited to, contests, co-operative advertising, lists of leads for sales of Network Services, referrals for sales of Network Services, participation in module management and/or account management programs, and participation in other similar programs, until such time as the violation(s) of this Agreement are cured. (c) (i) Subject to Pacific Bell's right of counterclaim or setoff, ASR shall be entitled to commissions earned by it under paragraph 5 based only on sales of Network Services, including adds, for which the ASR placed an order with Pacific Bell prior to the termination or cancellation of this Agreement. Any commissions owed and outstanding at the time of termination or cancellation of this Agreement shall be paid to ASR by Pacific Bell within six months following the date of termination or cancellation. No commissions will be due on any Network Services ordered from Pacific Bell after termination or cancellation. (ii) If ASR has earned residual commissions, and if this Agreement is terminated or cancelled by Pacific Bell or is not renewed by Pacific Bell at the end of the term for reasons other than those specified in section 13 (b)(i), Pacific Bell will, subject to the other provisions of this Agreement, pay to ASR the residual commissions earned by ASR prior to termination or cancellation for a period of three months following the termination or cancellation of this Agreement; provided, however, that if ASR represents itself during the three month period as an ASR of Pacific Bell, such residual commissions will cease immediately. (d) In particular, but not by way of limitation, no such termination or cancellation shall affect the post-agreement rights and obligations of the parties contained in paragraphs 5, 6, 7, 9, 10, and 11. 12 PROPRIETARY AND CONFIDENTIAL INFORMATION Not for use or disclosure outside Pacific Bell and ASR except under written agreement approved in writing by Pacific Bell. ASR1997_.DOC 3/1/97 PACIFIC BELL PROPRIETARY AND CONFIDENTIAL (e) The parties agree that any termination or cancellation of this Agreement according to the formalities specified herein shall not constitute an unfair or abusive termination or cancellation or create any liability not set forth in this Agreement. (f) The right of either party to terminate or cancel this Agreement is not an exclusive remedy, and either of them shall be entitled, alternatively or cumulatively, to remedies as determined pursuant to paragraph 18 of this Agreement. (g) Upon termination or cancellation, Pacific Bell may designate, with respect to each of ASR's customers, another of Pacific Bell's Network Services authorized sales representatives or Pacific Bell itself to act as a successor to ASR in providing Network Services to such customer (h) ASR recognizes that volume expectations will generally be negotiated on a calendar year basis, that exceptions to this include but are not limited to additions of products, deletions of products, and changes in the competitive environment, and that new commission structures for subsequent years, and any changes thereto, will become part of this Agreement. 14. Assignment and Subcontracting a) Assignment. ASR acknowledges that it has been specifically selected to participate in Pacific Bell's Sales Agency Program after careful evaluation by Pacific Bell of ASR's financial stability, product line and reputation in the business community, as well as the individual abilities and reputation of ASR's management and sales force. Accordingly, the parties agree that neither this Agreement, nor any right or obligation hereunder is assignable, in whole or in part, whether by operation of law or otherwise, by ASR without the prior written consent of Pacific. Changes of the form in which ASR does business (including but not limited to sole proprietorships, partnerships, LLPs, and corporations, and changes due to mergers or being acquired), shall be considered to be assignments which will require the prior written consent of Pacific and requalification of ASR in its new form under the then existing qualification requirements. Subject to the foregoing, this Agreement shall be binding upon and inure to the benefit of the parties hereto, their successors and assigns. If ASR assigns the Agreement pursuant to this provision, the existing Agreement shall be terminated and a new Agreement shall be entered into with ASR's assignee. b) Subcontracting. ASR agrees that it will not subcontract or attempt to subcontract any of its duties or obligations hereunder without the prior written consent of Pacific Bell. 13 PROPRIETARY AND CONFIDENTIAL INFORMATION Not for use or disclosure outside Pacific Bell and ASR except under written agreement approved in writing by Pacific Bell. ASR1997_.DOC 3/1/97 PACIFIC BELL PROPRIETARY AND CONFIDENTIAL 15. Affiliates. For the purposes of this Agreement, an "affiliate" of any entity shall respectively mean: for Pacific Bell: a) any corporation or business entity in which Pacific Telesis or any subsidiary of Pacific Telesis, any successor corporation to Pacific Telesis or any subsidiary of such successor, or any corporation of which Pacific Telesis becomes a wholly owned subsidiary or any subsidiary of such corporation, has any ownership interest; and for ASR: b) any corporation or business entity in which ASR has any ownership or potential ownership in any form or from which ASR receives or has the option to receive any profits generated by such corporation or business entity. Upon request, each party shall provide the other party with a list of their affiliates. 16. Notices and Other Communications. Every notice, consent, approval or other communication required or contemplated by this Agreement by either party shall be in writing and shall be delivered in person, by postage prepaid mail, by overnight courier service, by facsimile or by electronic messaging addressed to the party for whom intended at the address specified below or at such other address as the intended recipient previously shall have designated by written notice to the other party; provided, however, that any notices with respect to ASR's status as such may not be given by electronic messaging. Where specifically required, notices shall be by certified or registered mail. Unless otherwise provided in this Agreement, notice by mail shall be effective on the date it is officially recorded as delivered by return receipt or equivalent, and, in the absence of such record of delivery, it shall be presumed to have been delivered the fifth day, or next business day thereafter, after it was deposited in the mails. Notice given by overnight courier service shall be effective on the date it is recorded by such courier service as delivered. Notice given by facsimile shall be effective on the date noted on the facsimile log as the date sent. Notice given by electronic messaging shall be effective on the date sent, as indicated by the electronic messaging system. Except for notice given by electronic messaging, notice not given in writing shall be effective only if acknowledged in writing by a duly authorized officer of the party to whom it was given. To: ASR: To: Pacific Bell: 1010 Wilshire Blvd. W420A Los Angeles, CA 90017 Attn: Attn: Sales Director, Sales Agency 17. No Waiver of Rights. Failure of either party at any time to require the other party's performance of any obligation under this Agreement shall not affect the right to require performance of that obligation. Any waiver by either party of any breach of any provision hereof shall not be construed as a waiver of any continuing or succeeding breach of such provision, a 14 PROPRIETARY AND CONFIDENTIAL INFORMATION Not for use or disclosure outside Pacific Bell and ASR except under written agreement approved in writing by Pacific Bell. ASR1997_.DOC 3/1/97 PACIFIC BELL PROPRIETARY AND CONFIDENTIAL waiver or modification of the provision itself, or a waiver or modification of any right under this Agreement. 18. Dispute Resolution (a) If a dispute arises out of or relates to this Agreement, and if such dispute cannot be settled through negotiation, the parties agree first to try in good faith to settle the dispute by mediation under the commercial Mediation Rules of the American Arbitration Association, before resorting to arbitration, litigation, or some other dispute resolution procedure. (b) If the parties cannot resolve the dispute by mediation as discussed in paragraph a. above, any controversy or claim arising out of or relating to this Agreement shall be settled by binding arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration Association, and judgment upon the award rendered by the arbitrator(s) may be entered in any court having jurisdiction thereof. (c) Nothing in paragraphs (a) and (b) above shall prevent the parties from mutually agreeing to use an alternative means to resolve the dispute, such as a "mini-trial" or other procedure, whether or not it is sponsored by the American Arbitration Association. However, if the parties cannot mutually agree to such an alternative procedure, the proceeding paragraphs are binding. (d) If either party institutes suit or arbitration to enforce or interpret this Agreement, the prevailing party in any such proceeding shall be entitled to recover from the losing party its costs, including reasonable attorneys' fees. 19. Governing Law and Regulatory Changes (a) Governing Law. This Agreement will be governed by and construed in accordance with the Laws of California, excluding its rules governing conflict of laws. If any provision of this Agreement is not valid, it will not affect other provisions and the parties agree that, if that invalidity reveals a situation not provided for by this Agreement, they will jointly seek an agreement having a valid legal and economic effect as similar as possible to the ineffective provision and covering the scope of any missing provision in a manner reasonably directed to the purpose of this Agreement. (b) Regulatory Changes. This Agreement shall at all times be subject to such changes or modifications by the Public Utilities Commission of the State of California as said Commission may from time to time direct in the exercise of its jurisdiction. Pacific Bell reserves the right to amend or terminate this Agreement to conform it to any requirement of applicable laws or regulations or to any requirement imposed by the California Public Utilities Commission or the Federal Communications Commission in the exercise of their jurisdiction over Pacific Bell, or to any requirement of the United States Department of Justice or the federal courts in 15 PROPRIETARY AND CONFIDENTIAL INFORMATION Not for use or disclosure outside Pacific Bell and ASR except under written agreement approved in writing by Pacific Bell ASR1997_.DOC 3/1/97 PACIFIC BELL PROPRIETARY AND CONFIDENTIAL connection with that certain consent decree entered in Civil Action No. 82-0192 in the U.S. District Court for the District of Columbia. ASR shall have the right within sixty days of receipt of notice of any amendments made pursuant to this Section 19 to terminate this Agreement. 20. Discontinuance of Program. Pacific Bell reserves the right, on six months' notice to ASR, to discontinue its Sales Agency Program as to all its authorized sales representatives on a prospective basis. 21. Compliance with Laws (a) Each party will comply with any and all applicable tariffs, rules and orders of judicial and regulatory bodies, and local, state, and federal laws, including specifically, but not limited to, laws, rules and orders relating to monitoring of employees' telephone conversations with customers, and shall defend, indemnify and hold the other party harmless from and against any and all loss, cost, damage or liability, including but not limited to reasonable attorneys fees and costs, arising from or in connection with any failure of the first party to so comply. (b) If any work to be performed by ASR under this Agreement is at variance with any law, ordinance, order, regulation, or safety or health standards, ASR shall properly notify Pacific Bell before performance of the work. (c) ASR will be responsible for obtaining, at its own expense, any applicable permits, licenses, bond, or other necessary legal authorization for work it is to perform. (d) ASR expressly agrees not to discriminate against any employee or applicant because of race, color, religion, age, sex, national origin or physical handicap during the performance of this Agreement and to comply with the applicable provisions of Exhibit A (Nondiscrimination Compliance Requirements), incorporated herein and made a part of this Agreement. As used in Exhibit A, "Contractor" shall refer to ASR. ASR agrees to submit to Pacific Bell, on Pacific Bell's request, a statement that it is in compliance with this subsection. 22. ELECTION. ASR ACKNOWLEDGES THAT IT HAS READ AND UNDERSTOOD THE PROVISIONS OF SUBSECTIONS 1.(m)(i) AND (ii) AND HEREBY MAKES AN ELECTION AS REQUIRED IN THOSE SUBSECTIONS BY INDICATING BELOW, WITH INITIALS, ITS CHOICE. (X) EXCLUSIVE ASR. ASR ELECTS TO MARKET OR OTHERWISE PROMOTE EXCLUSIVELY THE INTRALATA NETWORK SERVICES OF PACIFIC BELL, TO OBTAIN FROM PACIFIC BELL AND USE PACIFIC BELL'S INTRALATA SERVICES TO MEET ASR'S INTRALATA SERVICE REQUIREMENTS, AND TO RECEIVE THE 16 PROPRIETARY AND CONFIDENTIAL INFORMATION Not for use or disclosure outside Pacific Bell and ASR except under written agreement approved in writing by Pacific BelL ASR1997_.DOC 3/1/97 PACIFIC BELL PROPRIETARY AND CONFIDENTIAL COMPENSATION AND OPPORTUNITIES DESCRIBED IN SUBSECTION l.(m)(ii) ABOVE. (X) NON-EXCLUSIVE ASR. ASR ELECTS NOT TO MARKET OR OTHERWISE PROMOTE EXCLUSIVITY THE INTRALATA NETWORK SERVICES OF PACIFIC BELL, AND/OR EXCEPT AS PERMITTED HEREUNDER TO USE THE INTRALATA SERVICES OF ANOTHER PROVIDER AND TO RECEIVE THE COMPENSATION DESCRIBED IN SUBSECTION l.(m)(i) ABOVE. 23. Modification. No modification or amendment of this Agreement shall be valid or binding on the parties unless such modification or amendment is made by Pacific Bell in accordance with sections l (k), 5.(g), or 19 hereof or is in writing and duly executed by the authorized representative of each party. 24. Entire Agreement. This Agreement sets forth the entire understanding and supersedes prior agreements between the parties relating to the subject matter contained herein and merges all prior discussions between them. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. PACIFIC BELL CTC COMMUNICATIONS By: /s/ Hilary Nickerson By: /s/ Tom Fabbricatore Hilary Nickerson Tom Fabbricatore _________________________ _________________________ (Print Name) (Print Name) Title: Sales Director Title: Vice President Date Signed: 5-2-97 Date Signed: 4-29-97 ASR Federal Taxpayer ID No.: 04 2731202 17 PROPRIETARY AND CONFIDENTIAL INFORMATION Not for use or disclosure outside Pacific Bell and ASR except under written agreement approved in writing by Pacific Bell. ASR1997_.DOC 3/1/97 PACIFIC BELL PROPRIETARY AND CONFIDENTIAL Exhibit B Telemanagement Service Companies Telemanagement Service Companies, include but are not limited to the following: Access America Telemanagement Integrated Telemanagement Systems Telecom Management Systems, Inc. PROPRIETARY AND CONFIDENTIAL INFORMATION Not for use or disclosure outside Pacific Bell and ASR except under written agreement approved in writing by Pacific Bell. ASR1997_.DOC 3/1/97 EX-10.8 10 SNET AGREEMENT EXHIBIT 10.8 MARKETING AGREEMENT BETWEEN SNET AMERICA, INC. AND COMPUTER TELEPHONE CORPORATION PROPRIETARY INFORMATION 96 SAI/AGCY July 9, 1996 -2- TABLE OF CONTENTS Section Page 1.1 Definitions 4 1.2 Scope; Appointment of Agent 4 1.3 Agent's Responsibilities 5-6 1.4 SNET's Responsibilities 6-7 1.5 Governing Law 7 1.6 Confidentiality and Protection of Information 8-10 1.7 Estimates and Forecasts 10 1.8 Term and Termination 10-13 1.9 Indemnification 13 1.10 Limitation on Liability 14 1.11 Insurance 14 1.12 Limitations Period 14 1.13 Responsibilities of Each Party 15 1.14 Force Majeure 15 1.15 Governmental Compliance 15-16 1.16 Certain State and Local Taxes 16 1.17 Publicity and Filings 16 1.18 Amendments; Waivers 16-17 1.19 Notices 17 1.20 No Rights to Third Parties 17 1.21 Severability 17 1.22 Delegation and Assignment 17-18 1.23 Entire Agreement; Survival of Terms 18 1.24 Executed in Counterparts 18 i.25 Table of Contents and Headings 18 1.26 Audits 19 1.27 Advertising, Promotion, and Use of SNET's Name and Trademarks 19-20 1.28 Agent Reviews 20 1.29 Sales Reports 20 1.30 Compensation; Payment 20-22 1.31 Agent Training, New Sales Personnel 22-23 1.32 Agreement to Terms 23 1.33 Sales Plan 23-24 1.34 Refunds 24 1.35 Customer Information 24 Attachment A - The Services and Fee Schedule Attachment B - Letter of Authorization Attachment C - Non-Agent Accounts Attachment D - Support Services and Applicable Fees Attachment E - Sales Report PROPRIETARY INFORMATION 96 SAI/AGCY July 9, 1996 -3- MARKETING AGREEMENT BETWEEN SNET AMERICA, INC. AND This Agreement (Agreement) is entered as of the 1st day of January, 1996 by and between SNET America, Inc., a Connecticut corporation having its principal place of business at 127 Washington Avenue, North Haven, Connecticut 06473 (SNET), and Computer Telephone Corporation, a Massachusetts corporation having its . principal place of business at 360 Second Avenue, Waltham, MA 02154 (Agent) (collectively referred to herein as the Parties). RECITALS WHEREAS, SNET is in the business of providing domestic and international telecommunications services; and WHEREAS, Agent is engaged in the marketing and sale of telecommunications products and services; and WHEREAS, SNET and Agent agree that it is ln their mutual best interest that Agent market and provide marketing related services for certain of SNET's telecommunications services as more fully set forth herein; NOW THEREFORE, SNET and Agent agree as follows: PROPRIETARY INFORMATION 96 SAI/AGCY July 9, 1996 -4- 1.1 DEFINITIONS The following definitions shall apply for all Articles and Sections of this Agreement: 1.1.1 "Affiliate" means (i) an entity having an ownership interest in a Party of 50% or more; or (ii) an entity in which a Party has an ownership interest of 50% or more; or (iii) an entity having more than 50% ownership interest in an Affiliate as defined in (i) or (ii); or (iv) an entity in which an Affiliate as defined in (i) or (ii) has an ownership interest of 50% or more. 1.1.2 "Customer" means those business customers that purchase the Services from Agent. 1.1.3 "Information" means any writing, drawing, sketch, model, sample, data, computer program, software, recording, customer lists, account plans, market data, or other documentation of any kind. 1.1.4 "Marketing", including the various verb forms thereof, means performing sales functions and related sales support functions, but excludes strategic planning functions and responses to billing inquiries. 1.1.5 "Services", also referred to as SNET Services", means those domestic and international telecommunications services provided by SNET that are listed on Attachment A, "The Services and Fee Schedule", attached hereto and incorporated herein by reference, and any additions thereto. SNET reserves the right to add Services to, or delete Services from, the list on Attachment A, in its sole discretion, on written notice to Agent. 1.2 SCOPE; APPOINTMENT OF AGENT 1.2.1 SNET hereby appoints Agent, and Agent hereby accepts appointment, as an Agent of SNET for Marketing the Services to Customers, upon the terms and subject to the conditions set forth in this Agreement. 1.2.2 Notwithstanding any other provision of this Agreement, it is understood that SNET may appoint any other agent to perform similar services to those undertaken by Agent under this Agreement, and expressly reserves the right to sell directly or through one or more of its Affiliates to customers as it may deem appropriate . 1.2.3 During the term of this agreement the Agent agrees not to market the directly competitive services of any other carrier, reseller, or other business offering such services in lieu of the Services unless such carrier, reseller, or other business is an affiliate of SNET. PROPRIETARY INFORMATION July 11, 1996 -5- 1.3 AGENT'S RESPONSIBILITIES 1.3.1 Agent shall use its best efforts to promote and sell the Services to Customers in accordance with the Sales Plan developed pursuant to Section 1.33 hereof. 1.3.2 Agent's Marketing responsibilities shall include proposing the Services to Customers, making sales presentations and giving demonstrations as appropriate, negotiating sales with Customers consistent with Section 1.32 hereof, negotiating sales orders and placing accurate and complete orders with SNET in accordance with SNET's standard format, responding promptly to any Customer requests or complaints relative to installation and maintenance for such Services, providing any required training for Customers in use of the Services sold, and timely processing of termination of Service orders. Billing questions from Customers shall be referred promptly to designated SNET personnel. In all cases sales proposals shall be developed, with documentation, and made in the best interests of Customers and SNET's positive relationship with Customers. Agent shall use its best efforts at all times to propose the best long term solutions for Customers, and avoid unnecessary Service chum and the associated Customer inconvenience. 1.3.3 Agent shall maintain records of all agreements, orders and transactions for sales, terminations, Customer disputes, and any other transactions hereunder, including without limitation copies of all sales proposals and supporting documentation and any written communications with Customers, for a minimum period of two (2) years after the creation or receipt of such records. Agent shall provide such records to SNET at SNET's request. 1.3.4 Agent shall obtain a Letter of Authorization (LOA) generally in the form set forth in Attachment B "Letter of Authorization", attached hereto and incorporated herein by reference, from each Customer and submit such LOA to SNET at order placement. SNET shall not accept any orders without such LOA. 1.3.5 During the term of this Agreement, Agent shall maintain in good standing Marketing Agreement with The Southern New England Telephone Company for the marketing of The Southern New England Telephone Company's intrastate telecommunications services. SNET reserves the right to terminate this Agreement in the event Agent does not maintain in good standing such Marketing Agreement or in the event such Marketing Agreement is terminated, for any reason, with The Southern New England Telephone Company. 1.3.6 During the term of this Agreement, Agent shall not Market the Services to those entities listed in Attachment C, "Non-Agent Accounts", attached hereto and incorporated herein by reference. 1.3.7 Agent shall identify a management level employee as its point of contact for implementation of this Agreement whose responsibilities shall include, but not be limited to, working with SNET for development and negotiation of the Sales Plan in accordance with PROPRIETARY INFORMATION July 11, 1996 -6- 1.3.6 During the term of this Agreement, Agent shall not Market the Services to those entities listed in Attachment C, "Non-Agent Accounts", attached hereto and incorporated herein by reference 1.3.7 Agent shall identify a management level employee as its point of contact for implementation of this Agreement whose responsibilities shall include, but not be limited to, working with SNET for development and negotiation of the Sales Plan in accordance with Section 1.33 hereof~. participating in Agent Reviews, arranging for training of Agent's employees receiving and distributing product and promotional materials to Agent's sales personnel arranging for support such as network analysis, and other general coordination activities relating to its performance hereunder 1.3.8 Except as man t)e otherwise agreed in writing, Agent shall provide SNET with a list of its employees with assigned responsibility for the sale or support of the Services and notify SNET of any additions, deletions, or other modifications within thirty (30) days after such change. 1.3.9 Agent shall. upon instruction from SNET and at SNET's sole discretion, confirm orders for the Services only via a written authorization form. Such form shall contain the signature of an authorized Customer representative, the name of the Agent salesperson, the date of sale, the applicable rates and charges and such other information as SNET may require. 1.3.10 Agent's personnel with assigned responsibility for Marketing the Services shall successfully complete such training as SNET shall deem necessary prior to Marketing the Services, including but not limited to Initial Training and any Subsequent Training as described in Attachment D "Agent Support Services and Applicable Fees", attached hereto and incorporated herein by reference. 1.4 SNET'S RESPONSIBILITIES 1.4.1 SNET shall provide Agent with order processing, tariff and sales support, and promotional materials and related procedures for the Services. 1.4.2 SNET shall make available to Agent the training specified in Attachment D at the fees set forth therein. Such training shall enable Agent's sales personnel to perform all required Customer training for sales made by Agent under this Agreement. PROPRIETARY INFORMATION 96 SAI/AGCY July 9, 1996 1.4.3 At Agent's request, subject to the availability of equipment and personnel, SNET shall perform network studies and assist in making Customer specific written sales recommendations at no charge to Agent, so long as Agent is meeting or exceeding its sales quotas set forth in the Sales Plan developed pursuant to Section 1.33 hereof. In the event Agent is not meeting or exceeding its sales quotas, SNET reserves the right to charge Agent for such studies and assistance at the rates set forth in Attachment D. 1.4.4 At Agent's request, SNET shall design and price specific networks for individual Customer proposals at no charge to Agent, so long as Agent is meeting or exceeding its sales quotas set forth in the Sales Plan developed pursuant to Section 1 33 hereof. In the event Agent is not meeting or exceeding its sales quotas, SNET reserves the right to charge Agent for such design and pricing at the rates set forth in Attachment D. 1.4.5 SNET shall provide at no charge to Agent a reasonable number of promotional and product specific brochures and other sales materials for Agent's use in Marketing the Services. 1.4.6 SNET, or its subcontractor, shall perform all Customer billing and collection functions according to its standard procedures applicable to such functions, including responses to billing queries from Customers. Agent shall respond promptly to SNET and work cooperatively with SNET to satisfy any Customer questions or concerns. 1.4.7 SNET shall accept and process Agent s orders submitted in standard format, and shall install the Services as ordered and maintain such Services in accordance with its standard intervals applicable to installation and maintenance. Exceptional treatment may be negotiated, at SNET's sole discretion, for individual Customers where business conditions allow. 1.4.8 SNET shall designate a management employee who shall be Agent's point of contact for implementation of this Agreement including, but not limited to, matters relating to the Sales Plan developed pursuant to Section 1.33 hereof, training, ordering, Customer issues, billing questions, and other provisions of support by SNET under this Agreement. 1.4.9 Services to be provided by SNET under the terms of this Agreement shall be provided in accordance with the applicable SNET Tariffs in effect from time to time. PROPRIETARY INFORMATION 96 SAI/AGCY July 9, 1996 -8- 1.5 GOVERNING LAW This Agreement shall bc deemed to be a contract made under the laws of the State of Connecticut, and the construction, interpretation, and performance of this Agreement shall be governed by the laws of such State. PROPRIETARY INFORMATION 96 SAI/AGCY July 9, 1996 -9- 1.6 CONFIDENTIALITY AND PROTECTION OF INFORMATION 1.6.1 Any Information that is furnished, made available, or otherwise disclosed by one Party (Disclosing Party) to the other Party (Receiving Party) in consequence of the existence of this Agreement, shall be deemed and remain the property of the Disclosing Party. 1.6.2 Unless Information was previously known to the Receiving Party free of any obligation to keep it confidential, or has been or is subsequently made public by any act not attributable .o the Receiving Party, or has been agreed by the Disclosing Party in writing not to be regarded as confidential, and if the Information is marked as "confidential" or "proprietary by an appropriate stamp, mark or label thereon, or, if orally disclosed, summarized in writing by the Disclosing Party, stamped or marked as "confidential" or "proprietary' and delivered to the Receiving Party within ten (10) business days after such disclosure, it shall be deemed Proprietary Information of the Disclosing Party and shall be held in confidence by the Receiving Party, and shall be disclosed by the Receiving Party only to those of its employees who have a need for such Proprietary Information to carry out this Agreement; provided, however, that all Customer information, including without limitation, Customer lists, Customer call detail or Customer network information provided by SNET to Agent hereunder shall be deemed Proprietary Information of SNET for all purposes whether or not it is marked as "confidential" or "proprietary". Except as the Parties may otherwise agree in writing, Proprietary Information (a) shall be used only for the purpose of performing under this Agreement; (b) shall not be reproduced or copied, in whole or in part, except as necessary for use as authorized herein; and (c) shall, together with any copies thereof, be returned when no longer needed or upon termination of this Agreement, whichever occurs~first; provided, however, that in lieu of returning Proprietary Information, the Receiving Party may certify in writing to the Disclosing Party that the Proprietary Information, along with any copies thereof, has been destroyed. 1.6.3 Except as other vise provided in Section 1.6.4 hereof, Proprietary Information may be provided to third parties only upon written authorization of the Disclosing Party. p Any third party to whom Proprietary Information is provided pursuant to such authorization of the Disclosing Party must agree in writing (a copy of which writing shall be furnished to the Disclosing Party at its request) to the conditions respecting use of Proprietary Information contained in Sections 1.6.1, 1.6.2, 1.6.4, and 1.6.5 of this Agreement. PROPRIETARY INFORMATION 96 SAI/AGCY July 9, 1996 -10- 1.6.4 The Receiving Party shall give prompt notice to the Disclosing Party of any demand by any third party to provide Proprietary Information under lawful process prior to furnishing Proprietary Information, and shall cooperate in seeking reasonable protective arrangements requested by the Disclosing Party. In addition, the Receiving Party may provide Proprietary Information of the Disclosing Party requested by a government agency having jurisdiction over the Receiving Party, provided prompt notice of such request 's given to the Disclosing Party and that the Receiving Party uses its reasonable best efforts to obtain protective arrangements for any such Information that is filed; provided, however, that SNET may file this Agreement without protective arrangements as it deems appropriate with the Connecticut Department.of Public Utility Control or the Federal Communications Commission. 1.6.5 The Disclosing Party shall have the right to demand, upon unauthorized disclosure of any Proprietary Information by the Receiving Party to a third party, the return of any or all Proprietary Information disclosed to the Receiving Party. Further, the Disclosing Party may require that the Receiving Party use its best efforts to obtain the return from the third party of any or all Proprietary Information improperly disclosed, in addition to any other remedies the Disclosing Party may have. 1.6.6 Except as may be otherwise agreed in writing or in other written agreements between the Parties, Agent agrees that it (i) shall not use Proprietary Information provided by SNET for any other purpose of any kind whatsoever except for Marketing the Services on behalf of SNET, (ii) shall not disclose Proprietary Information ,provided by SNET except to those of its personnel who have a need for such Proprietary Information for Marketing the Services. and (iii) shall take adequate precautions and develop adequate procedures, subject to review by SNET, to ensure that its personnel understand and adhere to the restrictions contained herein. 1.6.7 Notwithstanding any other provision hereof, Agent may disclose a new Service of SNET's to customers on or after the date that a tariff for such new Service is filed with the appropriate regulatory agency, or on the date on which SNET orally advises Agent that disclosure of such Service may be made to customers, whichever is earlier. 1.6.8 The Parties acknowledge that the terms of this Agreement constitute commercially confidential Information that may be considered Proprietary Information by, either or both Parties, and, except as otherwise set forth herein, agree to treat the terms hereof in accordance with the provisions of this Section 1.6. PROPRIETARY INFORMATION 96 SAI/AGCY July 9, 1996 -11- 1.8 TERM AND TERMINATION 1.8.1 Term This Agreement shall be effective as of January 1, 1996 (Effective Date) and shall continue through December 31, 1996 (Initial Term) unless terminated in accordance with the provisions hereof. The compensation rates contained herein shall apply for all sales by Agent for which orders are processed by SNET on or after the Effective Date hereof. This Agreement shall be automatically extended under the terms and conditions contained herein for successive one (1) year periods (Successive Term(s)) unless terminated by either Party on at least two (2) months written notice to the other prior to the end of the Initial Term or any Successive Terms as may apply. 1.8.2 Termination 1.8.2.1 Either Party may terminate this Agreement in the event that the other Party commits a material breach of this Agreement and fails to cure such breach within ten (10) days after receipt of written notice of such breach from the non-breaching Party; provided, however, that in the event that the material breach involves any violation of Section 1.6 or Section 1.32 hereof, no opportunity to cure shall be allowed. In such event the non-breaching Party shall promptly notify the breaching Party in writing of its intent to terminate this Agreement, and such termination shall be effective after a transition period (Transition Period) of seven (7) days after the date of delivery, or if mailed, the date of mailing of the notice of termination by the non-breaching Party; provided, however, that if the material breach involves any violation of Section 1.6, Section 1.27 or a violation of Section 1.32 hereof, the effective date of termination shall be the date of delivery of the notice of material breach. 1.8.2.2 SNET may terminate this Agreement in the event that Agent's performance is unsatisfactory and Agent fails to correct its performance within seven (7) days after receipt of written notice of such unsatisfactory performance from SNET. In the event that performance is not brought up to satisfactory levels during such seven (7) day period, SNET shall notify Agent in writing of its intent to terminate this Agreement and such termination shall be effective after a Transition Period of seven (7) days after the date of delivery, or, if mailed, the date of mailing of such notice. For purposes hereof, any one of the following conditions shall be deemed unsatisfactory performance: (i) poor service quality as indicated by ratings on Customer surveys that are five (5) percentage points or more below the average ratings of SNET's agents similarly situated; (ii) an inordinately high Service cancellation rate, defined as a cancellation rate within six (6) months of installation of Services sold by Agent at five (5) percentage points or more above the average comparable cancellation rate of SNET's agents similarly situated; (iii) PROPRIETARY INFORMATION 96 SAI/AGCY July 19, 1996 -12- the event that performance is not brought up to satisfactory levels during such seven (7) day period, SNET shall notify Agent in writing of its intent to terminate this Agreement and such termination shall be effective after a Transition Period of seven (7) days after the date of delivery, or, if mailed, the date of-mailing of such notice. For purposes hereof, any one of the following conditions shall be deemed unsatisfactory performance: (i) poor service quality as indicated by ratings on Customer surveys that are five (5) percentage points or more below the average ratings of SNET's agents similarly situated; (ii) an inordinately high Service cancellation rate, defined as a cancellation rate within six (6) months of installation of Services sold by Agent at five (5) percentage points or more above the average comparable cancellation rate of SNET's agents similarly situated; (iii) use of sales personnel not trained in accordance with the provisions of Sections 1.3.10, 1.31.1 and Attachment D; (iv) failure to meet objectives as set forth in the Sales Plan developed pursuant to Section 1.33 hereof, including without limitation the failure to meet at least 80 % of objectives; (v) repeated incidents of withheld compensation pursuant to Sections 1.30.9 or 1.30.10 hereof; or (vi) or an excessive (in SNET's sole determination) number of Customer complaints regarding Agent. 1.8.2.3 SNET may terminate this Agreement on thirty (30) days prior written notice to Agent if there occurs any significant change in the ownership or control of Agent, or of its parent company if any, or if Agent merges with or acquires any other company; provided, however, that prior to any such change in ownership or control, Agent may request in writing that SNET waive its right to terminate this Agreement under this Section 1.8.2.4 in writing based on information about the change in ownership or control provided by Agent. 1.8.2.4 It is understood by Agent that, because of its status as an agent for SNET, Agent owes SNET a fiduciary duty to use its best efforts to Market SNET's Services, to enhance SNET's revenues and to optimize SNET's position with Customers. In addition to any other provisions hereof, SNET may, without waiving any other right or remedy, on written notice to Agent, terminate this Agreement or terminate the authorization to Market its Services to any Customer, in the event that Agent fails to use its best efforts to Market the Services. For purposes of this Section 1.8.2.4, it shall be understood .that failure to use best efforts shall include without limitation marketing, by Agent or any Affiliate of Agent, the directly competitive services of any other carrier, reseller or other business offering such services in lieu of the Services unless such other carrier, reseller or other business is an Affiliate of SNET. PROPRIETARY INFORMATION 96 SAI/AGCY July 9, 1996 -13- 1.8.2.5 The Parties shall use their best efforts to ensure that any Transition Period required under this Section 1.8 shall be executed in a timely and orderly fashion and in a manner that is in the Customer's best interest and consistent with any applicable legal requirements. At the end of any such Transition Period, neither Party shall have any obligation to the other under this Agreement, except that, subject to the provisions of Section 1.23.2 hereof, those provisions that by their sense and context are intended to survive the termination hereof shall survive such termination. 1.8.2.6 For a period of three (3) years after the date of termination of this Agreement, whether or not such termination is pursuant to this Section 1.8 (except for any such termination directly resulting from SNET's elimination of the "Agency Program" giving rise hereto, in which case a period of one (1) year rather than a period of three (3) years shall apply), Agent agrees that neither it nor any Affiliate shall market the domestic or international services of any other carrier, reseller or other business offering such services (other than an Affiliate of SNET) to any Customer to which Agent Marketed Services on behalf of SNET under this Agreement, and for which Agent received any compensation from SNET under this Agreement. 1.8.2.7 Without limiting the provisions of Sections 1.8.2.1 or 1.8.2.2 above, in the event Agent commits a material breach of this Agreement, or in the event Agent's performance is unsatisfactory as such term is defined in Section 1.8.2.2 hereof, then SNET may, in lieu of issuing a notice of breach or a notice of unsatisfactory performance, issue a notice of probation. Upon the issuance of such notice, Agent shall, among other things, receive 80% of the compensation otherwise due and owing Agent for the period such probation is in effect, with the remaining 20% of compensation being held by SNET in reserve. Agent shall remain on probation until the condition giving rise to the notice, in SNET's sole judgment, has been cured, except that Agent shall remain on probation for a minimum of thirty (30) days and a maximum of ninety (90) days. If Agent cures the condition giving rise to the notice during such ninety (90) day period, then SNET shall pay Agent the 20% of compensation being held in reserve and remove Agent from probation. If Agent does not cure such condition within such ninety (90) day period, the Agent shall forfeit such 20% of compensation, and SNET may immediately terminate this Agreement. 1.8.2.8 Agent may, on sixty (60) days prior written notice to SNET, terminate this Agreement within sixty (60) days after: (i) notice from SNET of a significant change in the fee schedule set forth on Attachment A pursuant to Section PROPRIETARY INFORMATION 96 SAI/AGCY July 9, 1996 -14- 1.30.4 hereof; or (ii) notice from SNET of significant deletion of Services from Schedule A hereto pursuant to Section 1.1.5 hereof. 1.9 INDEMNIFICATION 1.9.1 To the extent not prohibited by law, Agent shall indemnify and hold SNET harmless against any loss, cost, claim, liability, damage, or expense (including reasonable attorneys' fees) brought by any third party relating to or arising out of the negligence or misconduct, or wrongful acts or omissions of Agent, its employees, agents, Affiliates, or contractors, in the performance of this Agreement, and shall further indemnify and hold SNET harmless against any loss, cost, claim, . liability, damage, or expense (including, reasonable attorneys' fees) arising from any third party claim relating to or in consequence of any provision by SNET to Agent of any Customer Information hereunder, and shall defend any action or suit brought against SNET for any such loss, cost, claim, liability, damage, or expense as set forth herein. 1.9.2 To the extent not prohibited by law or applicable tariff, SNET shall indemnify and hold Agent harmless against any loss, cost, claim, liability, damage, or expense (including reasonable attorneys' fees) brought by any third party relating to or arising out of the negligence or willful misconduct of SNET, its employees, Affiliates, or contractors in the performance of this Agreement, and shall defend any action or suit brought against Agent for any such loss, cost, claim, liability, damage, or expense as set forth herein. 1.9.3 The Indemnified Party shall notify the Indemnifying Party promptly in writing of any written claims, lawsuits, or demands for which the Indemnified Party alleges that the Indemnifying Party is responsible under this Section 1.9. The Indemnified Party shall cooperate in every reasonable manner with the defense or settlement of such claim, demand, or lawsuit. The Indemnifying Party shall not be liable under this Section l.9 for settlement by the Indemnified Party of any claim, demand, or lawsuit unless the Indemnifying Party has approved the settlement in advance or unless the defense of the claim, demand, or lawsuit has been tendered to the Indemnifying Party in writing and the Indemnifying Party has failed promptly to undertake the defense. PROPRIETARY INFORMATION 96 SAI/AGCY July 9, 1996 -15- 1.10 LIMITATION ON LIABILITY Except as otherwise provided in Section 1.9 hereof, the liability, if any, of either Party to the other for any loss, cost, claim, injury, liability, damage, or expense (including reasonable attorneys' fees) arising out of its negligence or misconduct in the performance of this Agreement (loss) shall be limited to the amount of direct damages actually incurred, unless such loss was the result of its gross negligence or willful misconduct; and, except as otherwise provided in Section 1.9 and Section 1.32 hereof and as set forth above, neither Party shall be liable to the other for any indirect, incidental, special, or consequential damages of any kind whatsoever, even if advised of the possibility thereof. 1.11 INSURANCE The Agent agrees that all of its employees used in the performance of this Agreement are covered under its Workers' Compensation insurance. Agent shall also maintain and deliver to SNET at the signing of this Agreement, or anytime thereafter upon SNET's request, satisfactory proof of: (i) Workers' Compensation insurance with statutory benefits and limits that fully comply with all state and federal requirements; (ii) employers' liability insurance with a combined single limit of at least $500,000.00; (iii) comprehensive general liability insurance with SNET named as an additional insured with bodily injury and property damage or combined single limits of not less than $1,000,000.00 per occurrence; (iv) if the use of automobiles is required, comprehensive automobile liability insurance with the limits set forth in (iii) above; and (v) such additional insurance as may be required by applicable law. Notwithstanding the' above, and subject to written approval by SNET, Agent may elect to self-insure; provided, however, that Agent shall provide SNET, at SNET's request, with satisfactory proof of its coverage in all applicable areas. 1.12 LIMITATIONS PERIOD No claim under Section 1.9, or any other claims with respect to this Agreement may be made more than two (2) years after the date of the event giving rise to such claim; and no claim for indemnity under the provisions of Section 1.9 hereof may be made more than two (2) years after the right to recover under such indemnity provisions arises, or is known or reasonably should have been known, to have arisen. PROPRIETARY INFORMATION 96 SAI/AGCY July 9, 1996 -16- 1.13 RESPONSIBILITIES OF EACH PARTY Each Party is an independent contractor, and has and hereby retains the right to exercise full control of and supervision over its own performance of its obligations under this Agreement and retains full control over the employment, direction, compensation, and discharge of all employees assisting in the performance of such obligations. Each Party shall be solely responsible for all matters relating to payment of such employees, including compliance with social security taxes, withholding taxes, and all other regulations governing such matters. Subject to the limitations on liability and except as otherwise provided in this Agreement, each Party shall be responsible for its own acts and those of its own Affiliates, employees, agents, and contractors during the performance of that Party's obligations hereunder. 1.14 FORCE MAJEURE Neither Party shall be liable for any delay or failure in performance of any part of this Agreement caused by a force majeure condition, including fires, strikes, embargoes, explosions, power blackouts, earthquakes, volcanic action, floods, wars, water, the elements, labor disputes, civil disturbances, government requirements, civil or military authorities, acts of God or a public enemy, inability to secure raw materials, inability to secure product of manufacturers or outside vendors, inability to obtain transportation facilities, acts or omissions of transportation common carriers, or other causes beyond its reasonable control whether or not similar to the foregoing conditions. If any force majeure condition occurs, the Party whose performance fails or is delayed because of such force majeure condition shall give prompt notice to the other Party and shall take reasonable steps to cure such force majeure condition. Upon cessation of such force majeure condition, the affected Party shall give like notice and commence performance hereunder as promptly as reasonably practicable. 1.15 GOVERNMENTAL COMPLIANCE 1.15.1 Each Party shall perform this Agreement in compliance with all applicable federal, state, county, and local laws, regulations, government agency orders or decisions, tariffs and codes, and shall obtain permits and certificates where needed. In the event that such permits or certificates cannot be obtained, or in the event that legislative, regulatory, other legal action or changes in laws invalidate a material term or terms of this Agreement or adversely affect a Party's ability to perform a material term(s) of this Agreement, the Parties shall attempt to renegotiate a new term or terms PROPRIETARY INFORMATION 96 SAI/AGCY July 9, 1996 -17- as may be required to allow the Agreement to continue. In the event that such new term(s) cannot be renegotiated, and the ability of one or both Parties to perform the Agreement has been significantly adversely affected, then, to the extent allowable, a three (3) month Transition Period shall commence immediately for termination of this Agreement. 1.15.2 All obligations under this Agreement shall be performed in compliance with those statutes, government agency orders, and regulations prohibiting discrimination against any employee or applicant for employment because of race, color, religion, sex, national origin, age, or handicap. Where required by law, certificates of compliance shall be provided. Each Party shall comply with the provisions of the Fair Labor Standards Act of 1938, as amended, the Federal Occupational Safety and Health Act of 1970, as amended, and with any rules and regulations under such Acts. 1.16 CERTAIN STATE AND LOCAL TAXES Any state or local excise, sales, or use taxes (excluding any taxes on income) resulting from the performance of this Agreement shall be borne by the Party upon which the obligation for payment is imposed under applicable law even if the obligation to collect and remit such taxes is placed upon the other Party. Any such taxes shall be billed as separate items on applicable billing documents between the Parties. To the extent permitted by applicable law, the Party obligated to pay any such taxes may contest the same in good faith and shall be entitled to the benefit of any refund, provided that such Party cannot permit any lien to exist on any assets of the other Party by reason of any such contest. 1.17 PUBLICITY AND FILINGS The Parties shall mutually agree in writing upon the content of any public announcement, press releases, or publicity materials concerning this Agreement or the performance of this Agreement prior to their release. 1.18 AMENDMENTS; WAIVERS Except as otherwise provided in this Agreement, no amendment or waiver of any, provision of this Agreement, and no consent to any default under this Agreement, shall be effective unless the same is in writing and signed by an authorized officer of the Party against whom such amendment, waiver, or consent is claimed. In addition, PROPRIETARY INFORMATION 96 SAI/AGCY July 9, 1996 -18- no course of dealing or failure of a Party strictly to enforce any term, right, or condition of this Agreement shall be construed as a waiver of such term, right, or condition. 1.19 NOTICES All notices, demands, requests, elections, or other communications herein required to be given or which may be given by one Party to the other Party shall be made in writing and, except as otherwise provided herein, shall be signed by an officer or his/her designate. Such notices, demands, requests, elections, or other communications shall be deemed to have been duly given when received, and shall be delivered or mailed, postage prepaid, addressed: (i) in the case of SNET, to: John N. Sievers, President, SNET General Business Group, 1 Science Park, New Haven, CT 06511, (ii) in the case of Computer Telephone Corporation Agent, to: Steve Milton, President, 360 Second Avenue, Waltham, MA 02154 or (iii) in the case of either Party to such other address or other person as such Party may from time to time designate in writing for such purpose. All notices sent hereunder, whether by mail, carrier, or personal delivery, shall be sent return receipt requested. 1.20 NO RIGHTS TO THIRD PARTIES This Agreement shall not be deemed to provide third parties with any remedy, claim, right of action, or other right. 1.21 SEVERABILITY Except as otherwise set forth in Section 1.15.1 hereof, if any term, condition, or provision of this Agreement is, or becomes, invalid or unenforceable for any reason, such validity or unenforceability shall not invalidate or render unenforceable the entire Agreement, but rather the entire Agreement shall be construed, unless such construction would be unreasonable, as if not containing the invalid or unenforceable provision or provisions, and the rights and obligations of each Party shall be construed and enforced accordingly. 1.22 DELEGATION AND ASSIGNMENT 1.22.1 Each Party has entered this Agreement because of its confidence in the, other Party, which confidence is personal in nature . Neither Party may assign, transfer, or sell its rights under this Agreement, or delegate its obligations hereunder, without the prior written consent of the other Party; except that SNET may assign, PROPRIETARY INFORMATION 96 SAI/AGCY July 9, 1996 -19- transfer, or sell its rights under this Agreement or delegate its obligations hereunder to a wholly owned subsidiary, its parent or a wholly owned subsidiary of its parent without such consent. 1.22.2 Subject to the above restrictions, the provisions of this Agreement shall be binding upon and shall inure to the benefit of the Parties and their permitted successors and assigns. 1.23 ENTIRE AGREEMENT; SURVIVAL OF TERMS . 1.23.1 This Agreement constitutes the entire agreement between the Parties concerning the subject matter hereof. Any prior agreements, representations, statements, negotiations, understandings, proposals, and undertakings, oral or written, with respect to the subject matter expressly set forth in this Agreement not heretofore terminated, are hereby terminated. 1.23.2 Any liability or obligation of a Party to the other Party for acts or omissions prior to the cancellation or termination of this Agreement, any obligation of a Party to pay charges accrued hereunder or to make adjustments or to pay adjustments to any charges hereunder, any obligation of a Party under the provisions of Section 1.6 regarding' Information, any provisions regarding limitations on liability, and any provisions of this Agreement which, by their terms, are contemplated to survive (or be performed after) termination of this Agreement, shall, in each case, survive cancellation or termination hereof. 1.24 EXECUTED IN COUNTERPARTS This Agreement may be executed in any number of counterparts, each of which shall be an original; but such counterparts shall together constitute but one and the same instrument. 1.25 TABLE OF CONTENTS AND HEADINGS. The table of contents, titles, and headings of Articles and Sections of this Agreement have been- inserted for convenience of reference only, and are not to be considered a part hereof, and shall in no way define, modify, or restrict the meaning or interpretation of the terms or provisions of this Agreement. PROPRIETARY INFORMATION 96 SAI/AGCY July 9, 1996 -20- 1.26 AUDITS Not more than once annually, each Party shall have the right on not less than thirty (30) days prior written notice to conduct an audit during normal business hours to review records, books and documents relating to the other Party's performance under this Agreement. Unless otherwise specified in writing, any audit conducted pursuant to this Section 1.26 must be conducted by an independent accounting firm acceptable to the Parties. It is understood by the Parties that SNET may require such firm to sign a nondisclosure agreement acceptable to SNET protecting its own information or that of other agents or third parties that may be commingled with the material under review. 1.27 ADVERTISING, PROMOTION, AND USE OF SNET'S NAME AND TRADEMARKS 1.27.1 SNET shall conduct such advertising with respect to the Services as SNET deems appropriate in its sole discretion, and SNET shall endeavor to provide to Agent prior notice and copies of such product literature and promotional materials. Agent may, at its own expense, undertake promotions and advertising featuring the Services, subject to prior written approval by SNET. In order to avoid customer confusion, Agent shall not advertise any Services in connection with, or in the same advertisement with, the telecommunications services or other products or services of Agent, its Affiliates or of any third party, unless authorized in writing by SNET. SNET agrees to respond promptly, with approval, suggested changes or otherwise, to advertising submitted by Agent. Any written material or presentations whether oral or written, developed by Agent in which Agent refers to its relationship with SNET under this Agreement other than in the words "is an authorized sales agent for SNET America's domestic and international long distance business" must receive prior written approval from SNET. In no event shall Agent's employees represent themselves as employees of SNET America, Inc. 1.27.2 Agent is hereby granted a personal, nonexclusive and nontransferable license to use such trademarks, service marks, trade names, insignia, and symbols as are associated with the Services (hereinafter MARKS) to be Marketed hereunder, only in conjunction with the Marketing of the Services by Agent as SNET's representative hereunder, or as otherwise agreed in writing, or in any other written agreements between SNET and Agent. Agent acknowledges that its right to use the above MARKS arises solely from this Agreement and any other written agreements between it and SNET, and Agent agrees to comply with all applicable rules and PROPRIETARY INFORMATION 96 SAI/AGCY July 9, 1996 -21- procedures pertaining to the use of the MARKS prescribed by SNET. Agent acknowledges that all usage of the MARKS by Agent and any good shall establish thereby shall inure to the benefit of SNET. The license granted by SNET under this section can be terminated at anytime. 1.28 AGENT REVIEWS SNET and Agent shall participate in Agent Reviews held quarterly by SNET at Agent's principal Connecticut location unless otherwise agreed to by the Parties to review Agent's performance under this Agreement. As a part of the Agent Reviews, the Parties shall (i) determine coincident with the execution of this Agreement an appropriate Sales Plan, generally in the form set forth on Attachment E, "Agent Sales Plan", attached hereto and incorporated herein by reference, as more fully set forth in Section 1.33 hereof, (ii) discuss and resolve any operational interface problems that may occur; (iii) review Agent's sales proposal documentation, logs and other customer records, to ensure record keeping satisfactory to SNET; (iv) evaluate overall performance and performance against the Sales Plan in order to improve results; and (v) review the results of SNET's periodic customer surveys in order to develop plans to correct any deficiencies. 1.29 SALES REPORTS 1.29.1 Agent shall submit to SNET not later than Wednesday of each week for the previous week, a Sales Report, in the format set forth on Attachment F, "Sales Report", attached hereto and incorporated herein by reference, that shows on a Service-by-Service basis the quantity sold during that week. At SNET's request, Agent shall provide to SNET monthly results, including, but not limited to, revenues by individual Customers as may be mutually agreed, and such other information as the Parties may agree. 1.30 COMPENSATION; PAYMENT 1.30.1 Compensation for Agent's completed sales made pursuant to this Agreement shall be calculated pursuant to the schedule set forth on Attachment A. Compensation . is paid pursuant to this Agreement only for completed sales to Customers. PROPRIETARY INFORMATION 96 SAI/AGCY July 9, 1996 -22- 1.30.2 A sale to a Customer shall be completed, for purposes of compensation under this Agreement, upon completion of installation. Installation shall be deemed completed at the time at which the Service is activated, or upon completion of acceptance testing where applicable. 1.30.3 SNET shall remit payment to Agent monthly, as calculated pursuant to the provisions of Section 1.30.1 and Attachment A. Any undisputed payments shall be made by SNET to Agent not later than forty-five (45) days after the last day of the month to which the payment applies. SNET shall determine Agent's payment using its own tracking, systems for completed installations, and shall work cooperatively with Agent to resolve any disputes that may arise. 1.30.4 SNET expressly reserves the right to make reasonable changes, not more than three times annually, to the fees and adjustment factors set forth on Attachment A; except that SNET may exceed such three times annual limitation if the change is related to the introduction of New Services that are cross-elastic with Existing Services; and except that SNET may also exceed, not more than three times annually, such limitation if the change is solely related to the fees and adjustment factors for the sale of Services to Major Accounts, provided, however, that SNET shall give Agent a minimum of thirty (30) days' prior written notice of any such change; provided further that the foregoing shall not be deemed to preclude SNET from adding services or deleting services from the Services set forth on Attachment A at SNET's sole discretion on written notice. Such additions or deletions shall not effect any Monthly Residual Compensation being paid to Agent for sales of any such added or deleted services. SNET's written notice of such change to Agent shall be sent to Agent pursuant to Section 1.19 hereof and shall constitute an automatic amendment to this Agreement. Any such changes shall apply prospectively only. Any orders-placed by Agent that are processed prior to the effective date of any such changes shall be paid at the rates in effect at that time, rather than the rates in effect at the time of installation. 1.30.5 During the term of this Agreement SNET has the right to offer to Agent special sales incentives upon notice to Agent. Such notice shall inform Agent of the details of such incentive, including the duration of such incentive, the Services to be included in and the compensation to be received by Agent for sales of such Services. 1.30.6. During the term of this Agreement SNET has the right to offer Customer promotions. It is understood by the Parties that in the event any Customer promotion provides Customers with free monthly usage Agent's Customer Acquisition Fee shall not be negatively impacted. PROPRIETARY INFORMATION 96 SAI/AGCY July 9, 1996 -23- 1.30.7 Except as otherwise set forth herein, Agent shall receive no compensation under this Agreement for sales of Services made by SNET, any other of SNET's agents or for sales by Agent to a Customer for which Agent did not make the initial sale. 1.30.8 Upon termination of this Agreement for a material breach or unsatisfactory performance, SNET's obligation to compensate Agent shall cease effective with the termination date of this Agreement. 1.30.9 SNET reserves the right to withhold compensation for any sale in which SNET determines, in its sole judgment, that Agent in making such sale engaged in unprofessional conduct, sold a Service that was not in the Customer's best interest, unnecessarily replaced an existing Service causing unwarranted churn, acted in a manner that might adversely affect SNET's relationship with the Customer, or otherwise failed to use its best efforts on SNET's behalf as required by Section 1.8.2.4 hereof. 1.30.10 The Compensation for Services that are (i) removed from service within six (6) months of completion of installation (except where such removals are associated with seasonal or special campaigns approved by SNET), or (ii) that are withheld pursuant to Section 1.30.9 above, may be subtracted from the next due payment or payments. In the event of a removal after 6 months but within the Customer'.s original contract term, SNET reserves the right to subtract from future compensation payable to the Agent such amounts as SNET shall deem appropriate in view of the remaining length of the term. 1.30.11 In the event SNET terminates this Agreement pursuant to Sections 1.8.1 or Section 1.8.2 above, SNET reserves the right, without limiting other rights, to hold in escrow for up to eight (8) months compensation payments attributable to the period beginning with the issuance of a notice of termination pursuant to Section 1.8.1 or Section 1.8.2.1 hereof, or a notice of i) material breach, ii) unsatisfactory performance, or iii) probation pursuant to Section 1.8.2 hereof, and ending on the date of termination. SNET may hold such payments in escrow pending a final true-up, including any adjustments under Section 1.30.10 above for Services removed within six (6) months completion of installation. 1.31 AGENT, TRAINING, NEW SALES PERSONNEL 1.31.1 SNET shall have the right on a case by case basis to determine, in its sole judgment, whether Agent's new sales personnel may represent SNET hereunder. In the event SNET determines that such sales personnel may Market SNET services, PROPRIETARY INFORMATION 96 SAI/AGCY July 9, 1996 -24- such personnel shall have the independent duty to attend Initial Training and any Subsequent Training that may be required prior to Marketing SNET Services. 1.32 AGREEMENT TO TERMS Agent agrees (i) that all sales shall be in accordance with SNET's tariffed rates and terms and conditions, and, for those Services not covered by tariff, SNET's standard price lists and terms and conditions, and SNET's standard practices and procedures relative to, inter alia, credit requirements and service intervals; (ii) that all applicable rates, for both tariffed and non-tariffed Services, shall be quoted by Agent to Customers in any oral or written communication with Customers with respect to pricing; (iii) that it shall represent SNET's Services and all applicable tariffs and procedures accurately to Customers; (iv) that it shall engage in no waiving, discounting or rebating of nonrecurring charges or rates of any kind whatsoever either directly or through third parties; (v) that it shall make no variation or exception to such tariffs and no variation or exception to such procedures except as specifically approved in writing by SNET; and (vi) that it shall engage in no fee splitting with third parties or payments to third parties for referrals or sales leads or any other Marketing function hereunder, all of which functions must be performed by Agent's own employees unless otherwise agreed in writing by SNET. SNET is entitled to request, and Agent shall be required to provide, if requested, adequate proof that its obligations with this Agreement are being performed by its own employees and not by subcontractors or any other third party. In the event of any violation of this Section 1.32, Agent shall bear the complete responsibility for resolving any resulting problems to SNET's and Customer's satisfaction. Violation of this Section 1.32 shall constitute a material breach for purposes of Section 1.8.2.1 hereof. 1.33 SALES PLAN For each Term of this Agreement (whether Initial or Successive Term, as applicable), coincident with the execution of this Agreement, Agent shall incorporate into the Sales Plan covered under the Marketing Agreement with The Southern New England Telephone Company its plans for attainment of the objectives set forth in the Sales Plan. PROPRIETARY INFORMATION 96 SAI/AGCY July 9, 1996 -25- 1.34 REFUNDS In the event SNET issues a refund to a Customer resulting from or arising out of i) Agent's error or mistake, ii) Agent's violation of the terms of Section 1.32 hereof, or iii) Agent's participation in conduct for which compensation may be withheld pursuant to Section 1.30.9 hereof, then SNET shall have the right to bill Agent for such refund. Any such bill shall be due and payable upon receipt. 1.35 CUSTOMER INFORMATION 1.35.1 After establishment of a Customer account, SNET shall provide Customer information to Agent which shall include call summary, toll summary and management reports. Agent shall receive such Customer information for only those Customers to which Agent has Marketed and sold the Services. IN WITNESS WHEREOF, the Parties have executed this Agreement through their authorized representatives this day of , 1993. SNET AMERICA, INC. AGENT /s/ /s/ Steven Milton _________________________ _________________________ Signature Signature Steven Milton _________________________ _________________________ Printed Name Printed Name President _________________________ _________________________ Title Title 9-3-96 _________________________ _________________________ Date Date PROPRIETARY INFORMATION 096 SAI/AGCY July 9, 1996 ATTACHMENT A PAGE 1 OF 1 THE SERVICES AND FEE SCHEDULE Agent shall receive compensation for the services listed as follows: Agent shall receive a flat fee based on the Schedule below. This fee will be paid on the third Friday of the month following the installation of the Service. In addition, the Agent will also receive Commission of 4% of the term plan value based of the 4th month's net interstate billing (number of months X 4th. month billing X 4%) payable forty-five (45) days following the 4th. billing month. Digital Private Line Services will be compensated based on 4% of the 4th, month's Interexchange billing times the number of months in the term. FLAT FEES UNIFIED TERM PLAN LENGTH OF TERM <$200 PER MONTH >200 PER MONTH INTERSTATE INTERSTATE 1 YEAR $ 62.50 $125 2 YEAR $ 87.50 $175 3 YEAR $125.00 $250 4 YEAR $137.50 $275 5 YEAR $162.50 $325 DIGITAL PRIVATE LINE DDS $ 50 T1 $200 SIMPLE SOLUTIONS ($50 PER MONTH MINIMUM) $50 BONUSES QUOTA BONUS - Upon attainment of 120% of quota, the Commission rate will be raised form 4% to 5% for all term plan revenue. UNIFIED TERM PLAN BONUS - A year-end bonus will be paid based on 100% attainment of the Term Plans quota. A bonus of 1% of term plan revenue will be paid when 60% of the plans sold are Unified (both intrastate and interstate) and 2% for attaintment of 75%. PROPRIETARY INFORMATION 96 SAI/AGCY July 11, 1996 ATTACHMENT B PAGE 1 OF 2 SNET AMERICA LETTER OF AUTHORIZATION I HEREBY AUTHORIZE THE UNDERSIGNED AGENCY REPRESENTATIVE TO ORDER AND HAVE INSTALLED THE FOLLOWING: [ ] SNET AMERICA DISTANCE SERVICE [ ] SNET AMERICA DISTANCE PLUS [ ] P I C CHANGE (OUTBOUND CALLING) [ } SIMPLE SOLUTIONS [ ] CALLING CARD [ ] UNIFIED SELECT TERM PLAN [ ] 800 SERVICE [ ] SELECT TERMS (INTERSTATE ONLY) [ ] SELECT STATES CUSTOMER NAME___________________________ AGENCY ________________________ AUTHORIZED ACCOUNT SIGNATURE _____________________ EXECUTIVE _____________________ TITLE _________________________ DATE __________________________ DATE __________________________ PROPRIETARY INFORMATION 96 SAI/AGCY July 11, 1996 ATTACHMENT B PAGE 2 OF 2 SNET AMERICA P I C CHANGE REQUEST BILLED TELEPHONE NUMBER: CUSTOMER NAME _____________________________ _________________________ CONTACT NAME ______________________________ ADDRESS ___________________________________ CITY _________________________________ STATE ________ ZIP _________ [ ] P I C ALL LINES PLEASE LIST ALL TELEPHONE NUMBERS TO BE CHANGED TO SNET AMERICA. Attach a signed list if more space is required. 1. _________________________ 2. _________________________ 3. _________________________ 4. _________________________ 5. _________________________ With this signature l authorize SNET America to provide my long distance service and I authorize SNET America to notify my local telephone company of this choice for the telephone numbers listed on this form. I understand that I may choose only one long distance company for each number. I also understand that the local telephone company may charge a fee for this and any later change. Signature DATE PROPRIETARY INFORMATION 96 SAI/AGCY July 11, 1996 ATTACHMENT C PAGE 1 OF 2 NON-AGENT ACCOUNTS Non-Agent Accounts are accounts to which Agent is not authorized to market on SNET's behalf under this Agreement. No compensation is paid to the Agent for orders placed with SNET for the Accounts as listed below: A. TELECOMMUNICATIONS CARRIERS - any customers that are in the business of providing telecommunications services to third parties either through their own facilities or through facilities purchased from others, and includes such providers as resellers, aggregators, alternate operator services providers, and telemanagement companies. These include, but are not limited to: Except (with Prior Approval from SNET) the sale of services required to conduct their own Business as opposed to the Service Required to provide their own Services to their Customers. - AT&T - Centex Telemanagement, Inc. - MCI - Metromobile - SNET - Sprint B. GOVERNMENT 1) GOVERNMENT ACCOUNTS - All government accounts due to security, public safety and welfare concerns associated with government communications. These include, but are not limited to: - Federal Government - State of Connecticut - All departments and locations. - Municipalities 2) CANDIDATES FOR ELECTED GOVERNMENT OFFICES - All candidates for elected government offices because of security, collection and other procedural concerns associated with running a campaign for elected office. These include, but are not limited to: PROPRIETARY INFORMATION 96 SAI/AGCY July 11, 1996 ATTACHMENT C PAGE 2 OF 2 C-2 - Federal Government - President, Vice-President, etc. - State of Connecticut - Governor, Secretary of State, Lt. Governor, Treasurer, Comptroller, Attorney General, etc. - Municipalities - Mayor, Selectman, etc. C. TELEPHONE ANSWERING SERVICES - any Account that provides remote answering services to the general public. Services (such as private lines) used by individual customers to reach telephone answering services are excluded from compensation. Except (with Prior Approval from SNET) the sale of services required to conduct their own Business as opposed to the Services Required to provide their own services to their customers D. ALARM AND SECURITY' SERVICES - any Account that provides remote monitoring of such conditions as fire, theft, intrusion, vandalism, medical emergencies, and utility meters. Services (such as private lines) used by individual customers to reach alarm and security services are excluded from compensation. Except (with Prior Approval from SNET) the sale of services required to conduct their own Business as opposed to the services Required to provide their own services to their customers E. CUSTOM BUSINESS GROUP ACCOUNTS - all Accounts identified by SNET as Custom Business Group Accounts in information provided electronically to the Agent. PROPRIETARY INFORMATION 96 SAI/AGCY July 11, 1996 ATTACHMENT D PAGE 1 OF 1 AGENT SUPPORT SERVICES AND APPLICABLE FEES This Attachment D sets forth the support services available to the Agent and the fees applicable to such services. SNET reserves the right to charge or change the fees contained herein, on a prospective basis on thirty (30) days prior written notice to Agent. In such event, SNET's notice shall be pursuant to Section 1.18 and shall constitute an automatic amendment to this Attachment D. I. TRAINING A. Training is designed to accommodate the minimum requirements of the Agent's personnel Marketing the Services. B. Initial Training shall be available upon execution of this Agreement at no charge to Agent and is required by all Agent personnel with assigned responsibility for Marketing the Services. Agent shall be responsible for scheduling its personnel for Initial Training. Initial Training shall be held at a location(s) to be determined by SNET. C. Training in any new service(s) (Subsequent Training) shall be made available at introduction of the new service(s) and is required by all Agent personnel with assigned responsibility for Marketing the Services. SNET shall provide Agent with proper notification of Subsequent Training. Subsequent Training shall be provided at no charge and shall be provided to all of Agent's sales personnel who have satisfactorily completed Initial Training. II. TECHNICAL SUPPORT Service Provided Routine Non-Routine - - Toll Analysis $100.00 $40.00/hour - - Network Studies $250.00 $40.00/hour - - Special Networks ------- $60.00/hour - - Engineering Support ------- $100.00/hour PROPRIETARY INFORMATION 96 SAI/AGCY July 11, 1996 ATTACHMENT 3 PAGE 1 OF 1 SNET AMERICA, INC. AUTHORIZED SALES AGENT SALES REPORT UNIFIED TERM PLANS SOLD - WEEKLY SUMMARY WEEK ENDING _______________ AGENT NAME _______________________________ INTRASTATE INTERSTATE CUSTOMER NAME BTN AE NAME 1 2 3 4 5 MO. BILLING MO. BILLING ______________________________________________________________________________ ______________________________________________________________________________ TOTALS _______________________________________________ PROPRIETARY INFORMATION 96 SAI/AGCY July 11, 1996 EX-10.9 11 IXC AGREEMENT, AS AMENDED EXHIBIT 10.9 AMENDMENT NO. 2 TO TELECOMMUNICATIONS SERVICE AGREEMENT This Amendment No. 2 to Telecommunications Service Agreement (this "Agreement") is made as of August 23, 1996 (the "Amendment Effective Date") by and between IXC Long Distance, Inc., a Delaware corporation ("Supplier"), and Computer Telephone Corp., a Massachusetts corporation ("Customer"). Background This Amendment is made with reference to the following facts: A. Customer and Supplier are parties to that certain Telecommunications Service Agreement dated as of June 23, 1995 (the "Agreement"). B. The parties desire to amend the Agreement pursuant to the terms set forth below. Terms of Amendment Accordingly, in consideration of the mutual promises set forth below, the parties hereto hereby agreed as follows: 1. The following is hereby added to the Agreement as Paragraph C of Section 2. Customer Responsibilities and shall read in its entirety as follows: C. Customer shall use Services from Supplier to service ANI's representing at least seventy-five percent (75%) of its new business each month (measured in minutes of traffic) and shall keep such ANI's on Supplier's system until one (1) year after the Amendment Effective Date. An officer of Customer shall deliver to Supplier each quarter an officer's certificate certifying that Customer has satisfied the requirement of the preceding sentence. Customer shall allow Supplier, upon request, access to such of its books and records as necessary to satisfy Supplier as to the compliance with this paragraph. 2. Section 8. Term of the Agreement is hereby amended to read in its entirety as follows: This Agreement is effective as of the Amendment Effective Date and shall remain in force and effect until for a period of three (3) years unless earlier terminated pursuant to its terms. This Agreement shall be automatically extended at the expiration of the initial and any subsequent term for an additional term of one year unless: (i) earlier terminated; or (ii) written notice is given by any party at least ninety (90) days before such expiration that such party does not consent to such extension. 3. Paragraph (B) of Section 9 Charges, Payment and Security Interest of the Agreement is hereby amended to read in its entirety as follows: B. Volume Rates. Subject to the terms and conditions herein, Customer shall pay for any Services hereunder at the rates reflected in Exhibits A-1 through A-7. Customer shall be billed only for actual usage of minutes and shall not be required to meet a minimum monthly commitment level. Notwithstanding the foregoing, Customer shall be obligated to give to Supplier a percentage of its new business as set forth in Section 2, Paragraph C, herein. 4. The following is hereby added to the Agreement as Paragraph H of Section 9. Charges, Payment and Security Interest and shall read in its entirety as follows: G. Debit Cards. Supplier shall use its best efforts to provision debit cards (each, a "Debit Card," and collectively, the "Debit Cards") to Customer at the rates set forth in Exhibits A-2, A-4, A-5 and A-7 for distribution by Customer to its End-Users. Customer understands and agrees that each End-User may purchase ("Recharge") additional minutes to add to its Debit Card by charging such purchase to a credit card of its choice which amount, less any applicable service or financing fees, shall automatically be payable to Supplier (each, an "IXC Received Amount"). Supplier shall credit Customer with 100% of each IXC Received Amount during the second month following the month in which Supplier actually receives such IXC Received Amount. 5. The following is hereby added to the Agreement as Section 23. Termination Service and shall read in its entirety as follows: 23. Termination Service. A. Service Interconnection. In order to utilize Termination Service, one or more full time dedicated connection between Customer's network and the Supplier network at one or more Supplier designated locations ("Supplier HUB") must be established ("Service Interconnection(s)"). Each Service interconnection shall be comprised of one or more DS- 1 circuit. B. Customer Responsibilities. Customer shall be solely responsible for establishing and maintaining each Service Interconnection subject to Supplier's approval in accordance with the terms of this Agreement. If a Service Interconnection is proposed to be made using a LEC, Supplier may require Customer to utilize Supplier's entrance facilities or local service arrangement ("LSA") with the relevant LEC, and Customer shall be subject to a non-discriminatory charge therefor from Supplier. The monthly recurring charge relevant to Customer's use of LSA capacity shall be subject to upward adjustment by Supplier from time to time. Such adjustment, if any, shall not exceed the rate that otherwise would be charged for the equivalent service from the LEC pursuant to its published rates for such service. C. Cancellation. Once ordered, and unless otherwise provided for in this Agreement, Service Interconnections and the circuits comprising each Service Interconnection may only be canceled by Customer upon at least thirty (30) days prior written notice to Supplier, or if longer, the length of the cancellation period of the underlying carrier. D. Certification. Customer shall provide Supplier with a written certification (the "Certification") of the percentage of interstate (including international) and intrastate minutes of use relevant to the minutes of traffic to be terminated in the same state in which the Supplier HUB is located to which the Service Interconnection is made. This Certification is attached as Exhibit H and shall be provided by Customer prior to commencement of Service for any Service Interconnection and may be modified from time to time by Customer and subject to recertification upon the request of Supplier which requests shall not be made unilaterally by Supplier more than once each calendar quarter. Any such modification(s) or Certification(s) shall be effective as of the first day of any calendar month and following at least forty-five (45) days notice from Customer. In the event Customer fails to make such Certification, the relevant minutes of use will be deemed to be subject to the Intrastate Rates provided for in the pricing exhibit. In the event Supplier or any other third party requires an audit of Supplier's interstate/intrastate minutes of traffic, Customer agrees to cooperate in such audit at its expense and make its call detail records, billing systems and other necessary information reasonable available to Supplier or any third party solely for the purpose of verifying Customer's interstate/intrastate minutes of traffic. Customer agrees to indemnify Supplier for any liability Supplier incurs in the event Customer's Certification is different than that determined by the audit. 6. Exhibit A-7 of the Agreement, IXC Standard Interstate Switched and Dedicated 1+ and 1-800 Rates is hereby amended and restated in the form attached to this Amendment as Exhibit A-7 and Exhibit A-5 of the Agreement, IXC Xclusive Card Services is hereby amended and restated in the form attached to this Amendment as Exhibit A-5. 7. The additional Exhibits A-8 through A-10 and Exhibits F, G and H to this Amendment shall be deemed to be attached to, and made a part of, the Agreement. 8. This Amendment is effective as of the date hereof. 9. All other terms and conditions of the Agreement not specifically amended herein shall remain in full force and effect. IN WITNESS WHEREOF, the parties have executed this Amendment. IXC LONG DISTANCE, INC. COMPUTER TELEPHONE CORP. /s/John Fleming /s/David E. Mahan By: ____________________ By: ____________________ Name: John Fleming Name: David E. Mahan Title: Executive V.P. Title: Vice President Date: 8/23/96 Date: 8/23/96 AMENDMENT NO.1 TO TELECOMMUNICATION SERVICE AGREEMENT This Amendment No.1 to Telecommunications Service Agreement (this "Agreement") is made as of January 15, 1996 by and between IXC Long Distance, Inc., a Delaware corporation ("Supplier") and Computer Telephone Corp., a Massachusetts corporation ("Customer"). Background This Amendment is made with reference to the following facts: A. Customer and Supplier are parties to that certain Telecommunications Service Agreement dated as of June 23, 1995 (the "Agreement"). B. The parties desire to amend the Agreement pursuant to the terms set forth below. Terms of Amendment Accordingly, in consideration of the mutual promises set forth below, the parties hereto hereby agreed as follows: 1. Section 8. Term of the Agreement is hereby amended to be in force and effect until May 31, 2000. 2. Paragraph (B) of Section 9. Charges. Payments and Security Interest of the Agreement is hereby amended to read in its entirety as follows: B. Customer represents to Supplier that it expects to purchase Services hereunder in at least the following amounts (the "Commitment"): (i) $350,000.00 each month, commencing June 1, 1996 and ending November 30, 1996; (ii) $750,000.00 each month, commencing December 1, 1996 and ending May 31, 1997; and (iii) $ 1,000,000.00 each month, commencing June 1, 1997 and ending May 31, 2000. The rates Supplier shall charge Customer for Services are dependent on the aggregate amount of Services (the "Volume") per month provided hereunder to Customer. The initial rates were based on Customer's commitment to purchase the Services at the $1,000,000.00 level. Supplier shall review the rates charged to Customer six months from the date the first order is placed, and every six months thereafter for the term of this Agreement. In the event Customer has failed to purchase the Commitment level on average for each designated six-month period, then Customer's rates shall not have been consistent with the rate the parties have agreed is appropriate for such Service level (in accordance with Standard Rates in Exhibit A) and Customer's rates shall be adjusted. The rate adjustment for any such six month period shall be made in the amount equal to the difference between the actual charges for the Volume purchased over such six month period and the applicable rate for the shortfall between the purchased Volume and the Commitment level. Customer shall, immediately upon the receipt of Supplier's invoice therefor, pay to Supplier the amount of such rate adjustment. 3. Section 10. Calculation of Call Duration of the Agreement is hereby amended to read in its entirety as follows: Supplier will calculate call duration for Call Detail Records ("CDR's") which will be sent to Customer by Supplier for Customer to rebill Customer's End-Users, based upon the IXC On-line software specifications defined in the User Guide. Customer may request CDR's from Supplier and Supplier shall provide CDR's within five business days from the end of the month in which service is rendered. Customer shall specify one of the following formats for CDR's: (i) electronically transmitted, or (ii) CD Rom. CDR's shall be made available for up to a year from the date of service. The information format of the CDR's included in the User Guide. 4. Exhibit A-2. IXC Private Line Addendum is hereby amended and restated in the form attached to this Amendment as Exhibit "A." 5. Exhibit C. IXC On-Line Software Agreement Requirements is hereby amended and restated in the form attached to this Amendment as Exhibit "B." 6. Exhibit A-4. Xclusive International is hereby amended to included rates set forth and attached to this Amendment as Exhibit "C." 7. This Amendment is effective as of the date hereof. 8. All other terms and conditions of the Agreement not specifically amended herein shall remain in full force and effect. IN WITNESS WHEREOF, the parties have executed this Amendment. IXC LONG DISTANCE, INC. COMPUTER TELEPHONE CORP. By: /s/ John R. Fleming By: /s/ David E. Mahan Name: John R. Fleming Name: David E. Mahan Executive Vice President Title: and Chief Operating Officer Title: Vice President Date: 1-15-96 Date: 1/10/96 Exhibit List Exhibit A IXC Private Line Addendum Exhibit B IXC On-Line Software Agreement Exhibit C IXC Xclusive International Rates Exhibit A Private Line Addendum This Private Line Addendum is attached to and made a part of that certain Telecommunications Service Agreement entered into by and between IXC Long Distance, Inc. ("Supplier") and Computer Telephone Corp., ("Customer") with a service commencement date of June 23, 1995. 1. Definitions. For the purposes of this Agreement: (A) "Available" shall mean, with respect to any Circuit, that all necessary equipment with respect to such Circuit has been installed, connected, tested and confirmed by Supplier to be operating in accordance with the required specifications. (B) "Activation Date" shall mean, with respect to any Circuit, the date such Circuit is first made available to Customer's end user for completion of calls. (C) "Circuit" shall mean a DS-0, DS-1 or DS-3. (D) "Circuit Lease Term" shall mean, with respect to any Circuit, the period from the Activation Date of such Circuit to the later of (i) one year from the Activation Date, or (ii) the date, if any, specified in the Dedicated Access Order Form. (E) "Circuit Mileage" shall mean, with respect to any Circuit, the length of such Circuit in airline miles computed according to industry standard V&H coordinates, as specified in the Dedicated Access Order Form pursuant to which such Circuit is ordered. (F) "City Pair" shall mean, with respect to any Circuit, the two cities in which such Circuit terminates, as specified in the Dedicated Access Order Form pursuant to which such Circuit is ordered. (G) "Dedicated Access Order Form" shall mean Supplier's form to be utilized by Customer in placing orders for Service hereunder as set forth as Exhibit E attached hereto, and as such form may hereafter be amended or modified by Supplier. (H) "DS-0 Circuit Mile Rate" shall mean, with respect to any Circuit, the rate, if any, so designated in Exhibit A attached hereto with respect to such Circuit in the Dedicated Access Order Form pursuant to which such Circuit is order. (I) "DS-0" shall mean a Circuit complying with all applicable Bellcore standards in accordance with TR-TSY-000333 "Switched and Special Access Services - Transmission Parameter Limits and Interface Combinations" Issue 1, July 1990. (J) "DS-1 " shall mean a Circuit meeting the specifications set forth in AT&T Technical Reference Pub. 62411, December 1990 and Bellcore TR-MWT-000488, Issue 4, November 1991, Revision 1, April 1992. (K) "DS-3" shall mean a Circuit meeting the specifications set forth in AT&T Technical Reference Pub. 63914 Addendum 3, March, 1990 and Bellcore TB-NWT-608488, Issue 4, November 1991, Revision 1, April 1992. (L) "Monthly Lease Rate" shall mean, with respect to any Circuit, the amount designated in Exhibit A attached hereto, or if different, in the Dedicated Access Order Form accepted by Supplier pursuant to which such Circuit is ordered. In the event no such amount is so designated, such term shall mean (1) with respect to any DS-1, the product of (i) 24, (ii) the DS-0 Circuit Mile Rate for such DS-1, and (iii) the Circuit Mileage for such DS-1, and (2) with respect to any DS-3, the product of (i) 672, (ii) the DS-0 Circuit Mile Rate for such DS-3 and (iii) the Circuit Mileage for such DS-3. On-net DS-0, DS-1, DS-3 and Ancillary Pricing is set forth in Exhibit B attached hereto. (M) "On-net Service" shall be service between any of the cities identified in Exhibit C-1 (DS-0) and Exhibit C-2 (DS-1 and DS-3) attached hereto. "On-net City" shall mean any such city. "On-net DS-0," "On-net DS-1" or "On-net DS-3" shall mean a DS-0, DS-1 or DS-3, respectively, between two On-net Cities. "Off-net Service" cities are set forth on Exhibit D attached hereto. (N) "Requested Service Commencement Date" shall mean, with respect to any Circuit, the date Service on such Circuit is requested by Customer to commence as specified in the Dedicated Access Order Form pursuant to which such Circuit is ordered. 2. Scope and Lease Rates. Supplier shall provide Service to Customer upon the terms and conditions set forth below: (A) Service shall be provided with respect to each Circuit set forth in each Dedicated Access Order Form between Supplier's locations in each city of the City Pair specified in such Dedicated Access Order Form with respect to such Circuit at the applicable Monthly Lease Rate. (B) Supplier shall provide maintenance for all of Supplier's digital transmission equipment installed between the Supplier's demarcation point in one city location to the Supplier's demarcation point in the other city location associated with the City Pair specified in the Dedicated Access Order Form. (C) Supplier shall use its best efforts consistent with its obligations to its other customers to provide Service on each Circuit commencing on the Requested Service Commencement Date specified with respect to each Circuit. (D) Supplier shall provide Service to each Circuit ordered hereunder from the Activation Date of such Circuit for the Circuit Lease Term for such Circuit. (E) Customer may, at its option and upon 30 days' notice to Supplier, reconfigure On-net Circuits originating in a particular city by canceling such Circuits and simultaneously ordering new C)n-net Circuits originating in such city from Supplier's unused capacity, but only if all the following conditions are met (i) such Circuits to be canceled have been in service at the time of such reconfiguration for at least 90 days; (ii) Service capacity on each such new Circuit is available from Supplier (Supplier shall not be obligated to construct new Circuit capacity to fill any Dedicated Access Order Form); (iii) Customer shall pay for such reconfiguration all applicable charges set forth in Exhibit B hereto; and (h) the aggregate monthly invoicing hereunder for the new Circuits involved in such reconfiguration must be equal to, or greater than, the aggregate monthly invoicing for the canceled Circuits. 3. Termination. (A) Customer may terminate Service with respect to (i) any On-net Circuit upon forty-five (45) days prior written notice thereof to Supplier and (ii) any Off-net Circuit upon ninety (90) days prior written notice thereof to Supplier, and, in either case, payment of all termination charges set forth below. Such termination charges shall include: (i) In the event such termination occurs prior to the Activation Date specified with respect to such Circuit, all nonrecoverable costs of the implementation of, and expenditures or liabilities reasonably incurred and directly connected with, the provision of Service, including but not limited to, all professional, consulting and other costs incurred by Supplier in furtherance of implementing such Service; and (ii) In the event such termination occurs at or after the Activation Date specified with respect to such Circuit, Customer shall pay all charges hereunder for the period during which Service is rendered on such Circuit. If Service on a Circuit is terminated prior to the expiration of the Circuit Lease Term, Supplier shall make its best effort to lease Service on such Circuit at no less than the Monthly Lease Rate for such Circuit. In the event Supplier cannot lease Service on such Circuit on the same or substantially similar terms and conditions as set forth herein, Customer shall be liable for payment (1) for the total amount due through the end of the Circuit Lease Term for such Circuit less (2) the total amount collected by Supplier from any other lessee with respect to such Circuit. (B) Customer shall give written notice to Supplier of any material breach in performance hereunder. Supplier shall have forty-five (45) days after such notice to cure such breach. If after such 45-day period, Supplier fails to cure such breach, including, but not limited to, compliance with the material technical and operational specifications applicable to a Circuit, Customer may terminate Service on the such affected Circuit. In the event of any such termination, Customer's liability with respect to such Circuits shall be limited to the Monthly Lease Rate for the affected Service which was properly rendered prior to the effective date of such termination. (C) In the event Supplier fails to provide the Service within six months (6) of the Requested Service Commencement Date for such Circuit, then Customer, at its option may terminate that Service on the affected Circuit without any liability whatsoever. Such right to terminate shall be Customer's sole remedy for such failure to provide Service. 4. Allowance for Service Outage Periods. (A) A Circuit shall be deemed to be in an outage condition under this Agreement if, while Customer is using or attempting to use such Circuit, such Circuit loses continuity and fails to comply with the applicable specifications for such Circuit. An outage period begins when a report is received by Supplier's Customer Service Group from Customer by telephone that Service has been interrupted and that such Circuit is released for repair. An outage period ends when Supplier notifies Customer by telephone that Service has been restored. (B) A credit for each outage period shall be allowed and calculated as follows: (i) No credit shall be allowed for an outage period of seventy-two (72) hours or less in the case of a Catastrophic Outage (as defined below), or one (1) hour or less in the case of a Non-Catastrophic Outage (as defined below). Customer shall be credited for an outage period to the extent such outage period exceeds seventy-two (72) hours or one (1) hour, as the case may be, at the rate of 1/1440 of the monthly rate or charge applicable to the Circuits which are subject to the outage period for each half-hour or major fraction thereof that an outage period continues beyond seventy-two (72) hours or one (1) hour, as the case may be. For purposes of the foregoing, "Catastrophic Outage" includes outages caused by a cable cut or radio failure, an equipment enclosure fire, an explosion, or any other circumstances of an extraordinary and catastrophic nature and a Non- Catastrophic Outage" includes all other outages. (ii) No credit shall be allowed with respect to any period during which Customer fails to afford access to any facilities provided by Supplier for the purpose of investigating and correcting an interruption of Service. (iii) The Monthly Lease Rates used to determine any credit hereunder shall be the then current Monthly Lease Rates being assessed. (iv) The seventy-two (72) hour and One (1) hour periods set forth above shall be extended by the period during which Supplier is unable to restore Service due to an event or circumstance described in Paragraph 18 of the Switched Minute Service Agreement. (v) In no event shall any credit be allowed hereunder (1) in excess of the then current Monthly Lease Rate for the applicable Circuit or (2) with respect to any Circuit for which Customer (i) fails to make or (ii) is excused from making any payment because of operation of law or any other reason. (C) Calculations of credits shall be based upon Supplier's Customer Service Group Log maintained in Supplier's Network Status Center. (D) No credit allowances will be made for outage periods: (i) caused by Customer and/or Customer's end user; (ii) caused by the failure of equipment or systems provided by Customer and/or Customer's end user or persons other than Supplier, including any provider of local access service to Supplier, (iii) occurring with respect to a Circuit released by Customer to Supplier to perform scheduled maintenance, to make rearrangements, or to implement an order for a change in the Circuit; or (iv) occurring with respect to a Circuit which Customer elects not to release for testing or repair and continues to use on an impaired basis; (E) The credit provided for hereunder shall be Supplier's sole liability and Customer's sole remedy in the event of any outage periods or interruption of Service. (F) In the event Supplier determines it is necessary to interrupt Service on a Circuit for maintenance, Supplier shall use its best efforts to give Customer notice thereof by telephone 48 hours prior to such Service interruption. Supplier will use its best efforts to schedule such Service interruptions on weekends between midnight and 3:00 am Credits will not be allowed with respect to such Service interruptions. To confirm their agreement to be bound hereby, the parties hereto have executed this addendum below: SUPPLIER: CUSTOMER: IXC Long Distance, Inc. Computer Telephone Corp. By: /s/ John R. Fleming By: /s/ David E. Mahan Executive Vice President Its: and Chief Operating Officer Its: Vice President TELECOMMUNICATIONS SERVICE AGREEMENT This Agreement is made as of June 23, 1995, between IXC Long Distance, Inc. ("Supplier"), and Computer Telephone Corp., a Massachusetts corporation ("Customer"). 1. Scope. Supplier is authorized: (i) to use its best efforts (considering the needs of its other customers) to start provisioning of telecommunications services (such services, together with the use of the IXC Online Software, are referred to as the "Services") to Customer on the Service Commencement Date, July 1, 1995; and (ii) to act as Customer's agent in placing orders with other carriers in order to provide telecommunications services, if requested. Usage charges ("Usage Charges") hereunder shall be based on: (i) the rates for Service set forth in Exhibit A-1 through A-7, as applicable; and (ii) actual usage of Supplier's network from establishment of a connection between the calling telephone and the called telephone to termination, as determined by Supplier. 2. Customer Responsibilities. A. Customer shall use its best efforts to solicit and market the Services in accordance herewith and with applicable law. Customer shall at all times conduct its efforts in a commercially reasonable and ethical manner. Customer shall pay all its expenses in connection with its business and its performance hereunder. Customer shall provide its own billing and customer service to its customers ("End-Users"). Customer shall obtain a letter of agency ("LOA") from each End-User in compliance with applicable Federal Communications Commission ("FCC") and state regulations, however, Customer must obtain a signed LOA from each End-User utilizing 800 service. Customer shall retain the signed LOA's and promptly make originals available upon request of Supplier, any local exchange carrier ("LEC") or any regulatory agency. Customer shall be responsible for LEC Primary Interexchange Carrier change charges ("PIC Charges") that may be imposed on Supplier as a result of End-Users moving onto or off of the Supplier network. In the event of a disputed transfer to the Supplier network, including, but not limited to those resulting from Customer's inability or refusal to provide original End-User LOA's when requested, Customer shall pay Supplier such PIC Charges, and any other expenses or damages suffered by Supplier relating to any such transfer. To the extent Customer makes any statements or representations to third parties (including End-Users) with regard to Supplier, the Services, or the terms here, such statements or representations shall be true and not misleading. When applicable, Customer will be responsible for notifying each End-User, in writing (or by any other means approved by the FCC that: (i) a transfer charge will be reflected on such End-User's LEC bill for effecting a change in their primary interexchange carrier, (ii) the entity name under which such End-User's interstate, intrastate and/or operator services will be billed (if different from Customer), and (iii) the "primary" telephone number(s) to be used for maintenance and questions concerning such End-User's long distance service and/or billing. Customer agrees to send Supplier a copy of the documentation Customer uses to satisfy the above requirements promptly upon request. Supplier may change the foregoing requirements at any time in order to conform with applicable FCC and state regulations. Notwithstanding the foregoing, however, Customer shall be solely responsible for ensuring that the transfer of End-Users to the Supplier network conforms with applicable FCC and state regulations, including, without limitation, the regulations established by the FCC with respect to verification of orders for long distance service generated by telemarketing. B. Prior to the Service Commencement Date and by the end of each quarter thereafter, Customer shall provide Supplier with forecasts covering a good faith estimate of the monthly traffic volume and distribution for the ordered Services for the next three calendar months. The forecasts are to be in the format attached hereto as Exhibit B. 3. Excluded ANIs. Supplier has the right to reject any automatic number identifier ("ANI") supplied by Customer for any of the following reasons: (i) Supplier is not authorized to provide or does not provide long distance services in the particular jurisdiction in which the ANI is located; (ii) a particular ANI submitted by Customer is not in proper form; (iii) Customer is not certified to provide long distance services in the jurisdiction in which the ANI is located; (iv) Customer is in default of this Agreement; (v) Customer fails to cooperate with Supplier in implementing reasonable verification processes determined by Supplier to be necessary or appropriate in the conduct of business; or (vi) any other circumstance reasonably determined by Supplier which could adversely affect Supplier's performance under this Agreement or Supplier's general ability to transfer its other customers or other End-Users to the Supplier network, including without limitation, Supplier's ability to electronically effect PIC change with the LEC's. However, whether or not Supplier is not electronically connected to the LEC's, Supplier shall issue PIC orders on behalf of Customer. In the event Supplier rejects an ANI, Supplier will notify Customer within forty-eight (48) hours of its decision specifically describing the rejected ANI and the reason(s) for rejecting that ANI. Further, any ANI requested by Customer for Service may be deactivated by Supplier after five-days' written notice to Customer if no Service billings relevant thereto have been generated in any prior period of three consecutive calendar months. Supplier will be under no obligation to accept ANIs within the three-month period preceding the scheduled expiration of the term hereof. 4. Records. Customer will maintain documents and records ("Records") supporting Customer's re-sale of Service, including, but not limited to, appropriate and valid LOAs from End-Users for a period of not less than twelve (12) months or such other longer period as may be required by applicable law, rule or regulation. Customer shall indemnify Supplier for any costs, charges or expenses incurred by Supplier arising from disputed PIC selections involving Service to be provided to Customer for which Customer cannot produce an appropriate LOA relevant to the ANI and PIC Charge in question, or when Supplier is not reasonably satisfied that the validity of a disputed LOA has been resolved. 5. Fraudulent Calls. Customer shall indemnify and hold Supplier harmless from all costs, expenses, claims or actions arising from fraudulent calls of any nature which may comprise a portion of the Service to the extent that the party claiming the call(s) in question to be fraudulent is (or had been at the time of the call) an End-User of the Service through Customer or an End-User of the Service through Customer's distribution channels. Customer shall not be excused from paying Supplier for Service provided to Customer or any portion thereof on the basis that fraudulent calls comprised a corresponding portion of the Service. In the event Supplier discovers fraudulent calls being made (or reasonably believes fraudulent calls are being made), nothing contained herein shall prohibit Supplier from taking immediate action (without notice to Customer) that is reasonably necessary to prevent such fraudulent calls from taking place, including without limitation, denying Service to particular ANI's or terminating Service to or from specific locations. 6. SubCIC Option. Supplier shall, at the request of Customer, arrange under Supplier's carrier identification code ("CIC") for a SubCIC for Customer. Customer shall pay all incremental associated charges and expenses incurred by Supplier in connection therewith, on a pass-through basis, without markup by Supplier. 7. Authorized Use of Supplier Name. Without Supplier's prior written consent, Customer shall not: (i) refer to itself as an authorized representative of Supplier in promotional, advertising or other materials; or (ii) use Supplier's logos, trade marks, service marks, or any variations thereof in any of its promotional, advertising or other materials or in any activity using or displaying Supplier's name or the Services to be provided by Supplier. Customer agrees to change or correct, at Customer's expense, any such material or activity which Supplier, in its sole judgment, determines to be inaccurate, misleading or otherwise objectionable. Customer is explicitly authorized to only use the following statements in its sales literature: (i) "Customer utilizes the Supplier network"; (ii) "Customer utilizes Supplier's facilities; (iii) "Supplier provides only the network facilities"; and (iv) "Supplier is our network services provider". 8. Term. This Agreement is effective as of the date hereof and shall remain in force and effect until December 31, 1999, unless earlier terminated pursuant to its terms. This Agreement shall be automatically extended at the expiration of the initial and any subsequent term for an additional term of one year unless: (i) earlier terminated; or (ii) written notice is given by any party at least ninety (90) days before such expiration that such party does not consent to such extension. 9. Charges. Payment and Security Interest. A. All Usage Charges shall be due and payable by Customer to Supplier within 60 days of the date of invoice, without demand or set off by Customer; provided, however, that to the extent Customer disputes a portion of an invoice because it has received what it considers in good faith to be materially incorrect CDR's (as such term is defined in Section 10), the due date for such disputed portion shall be delayed for as long as Customer cooperates in good faith to resolve such dispute. Usage Charges are billed and payable following the period in which actual usage has been incurred. All Usage Charges contained in this Agreement are calculated according to the rates set forth in Exhibit A attached hereto. If any invoice is not paid when due: (i) a late charge shall accrue equal to 1-1/2% (or the maximum legal rate, if less) of the unpaid balance per month; (ii) Supplier may suspend or terminate the Service; or (iii) Supplier may require additional deposits or a lock-box arrangement acceptable to Supplier. Notwithstanding the foregoing, Customer may elect to make payment within 15 days of the date of invoice, for which it shall be allowed a 1% early payment discount; provided, however that once such election is made, the 1% discount remains in effective only as long as such payments are made within such 15 day period and upon the failure of Customer to make such payments within such 15 day period, the 1% discount shall terminate and the Customer may not elect to receive the 1% discount on any future payments. B. Customer represents to Supplier that it expects to purchase Services hereunder in at least the following amounts (the "Commitment"): (i) $350,000.00 each month, commencing January 1, 1996 and ending June 30, 1996;(ii) $750,000.00 each month, commencing July 1, 1996 and ending December 31, 1996; and (iii) $1,000,000.00 each month, commencing January 1 , 1 997 and ending December 31 , 1999. The rates Supplier shall charge Customer for Services are dependent on the aggregate amount of Services (the "Volume") per month provided hereunder to Customer. The initial rates were based on Customer's commitment to purchase the Services at the $1,000,000.00 level. Supplier shall review the rates charged to Customer six months from the Service Commencement Date and every six months thereafter for the term of this Agreement. In the event Customer has failed to purchase the Commitment level on average for each designated six month period, then Customer's rates shall not have been consistent with the rate parties have agreed is appropriate for such Service level (in accordance with Standard Rates in Exhibit A) and Customer's rates shall be adjusted. The rate adjustment for any such six month period shall be made in the amount of the difference between the actual charges for the Volume purchased over such six month period and the applicable rate for the shortfall between the purchased Volume and the Commitment level. Customer shall immediately upon the receipt of Supplier's invoice therefor, pay to Supplier the amount of such rate adjustment. C. Prior to service activation, but in no event later than thirty (30) days after the end of each fiscal quarter, Customer shall provide Supplier with a consolidated balance sheet of Customer as of the end of such quarter and consolidated statements of income and retained earnings for such quarter and the fiscal year to date through such quarter, all in reasonable detail and certified by Customer's chief financial officer as having been prepared in accordance with generally accepted accounting principals, consistently applied. D. In the event Customer's monthly invoicing hereunder reaches Two Million and No/100 Dollars ($2,000,000.00) per month (or any greater multiple of $1,000,000.00), Supplier shall meet with Customer and negotiate in good faith with Customer to agree to mutually agreeable rates appropriate for the applicable monthly billing level customer has achieved; provided, however that: (i) no such new rates shall be in effect prior to July I, 1996; and (ii) no failure to reach agreement on such new rates shall effect the validity or enforceability of this Agreement or any part hereof, including, without limitation, the Commitment set forth above. E. Concurrently herewith, Customer has deposited with Supplier an irrevocable, standby letter of credit for the benefit of Supplier, in form and substance reasonably satisfactory to Supplier from a lender reasonably satisfactory to Supplier in the amount of $100,000.00 (the "Security Deposit"), which amount is agreed to between Supplier and Customer hereunder as security for the full and faithful performance of Customer of the terms, conditions and covenants of this Agreement. If at any time during the term of the Agreement, Customer defaults in the payment of any Usage Charges, or any other amounts payable by Customer to Supplier hereunder, then Supplier may appropriate and apply any portion of the Security Deposit reasonably necessary to remedy any such default. If during the term of the Agreement, Supplier so applies all or any portion of the Security Deposit, then Customer shall restore the amount of the Security Deposit so applied by Supplier on or before the next due payment of Usage Charges under this Agreement. If, however, invoices for Services during any month provided by Supplier exceed one half of the Security Deposit, at the request of Supplier, Customer shall within five (5) days (i) provide an additional cash deposit; or (ii) other form of security satisfactory to Supplier which in either case, shall be in an amount equal to the amount by which the invoice for such month exceeds one-half of the amount of the Security Deposit held by Supplier. In addition, if at any time during the term of this Agreement there is a material and adverse change in Customer's financial condition or business prospects, which shall be determined by Supplier in its sole and absolute discretion, then Supplier may demand that Customer increase the amount of the Security Deposit; provided, however, that in no event shall the amount of the Security Deposit ever exceed two months' estimated Usage Charges and other amounts payable by Customer to Supplier hereunder. F. Notwithstanding anything to the contrary in Section 9.E, above, at any time during the term of the Agreement, Supplier shall release the Security Deposit to Customer, in consideration of Customer's undertaking of any of the following actions: (i) Obtaining for the benefit of Supplier an irrevocable, standby letter of credit, in form and substance reasonably satisfactory to Supplier, from a lender reasonably satisfactory to Supplier, securing the prompt payment, when due, of the estimated Usage Charges and other amounts due and payable by Customer to Supplier hereunder during any given two-month period; (ii) (a) granting to Supplier a continuing, floating, first priority security interest and lien in and to the Collateral (as defined below) on the terms and subject to the conditions of a security agreement in form and substance reasonably satisfactory to Supplier, and (b) depositing with Supplier a Security Deposit in the amount of one months' estimated Usage Charges and other amounts due and payable by Customer to Supplier hereunder; (iii) directing all of Customer's End-Users to deposit any money owed by such End-Users to Customer directly into a lock box account for the benefit of Supplier, and authorize Customer's bank to make automatic clearing house fund transfers from such lock box account to the account of Supplier in amounts initially agreed to by Customer and Supplier, on the terms and subject to the conditions of an escrow agreement in form and substance reasonably satisfactory to Supplier. Customer shall execute from time to time such additional instruments as may be reasonably required by Supplier to preserve and perfect any security interest created hereunder. For purposes of this subparagraph (ii), the term "Collateral" shall mean all of the following assets of Customer, now or hereafter existing, wherever located, and all additions, substitutions, proceeds, products, offsprings, rents and profits thereof; all accounts receivable, all customer lists, mailing lists, customer information and customer data bases, including, without limitation, any and all tangible assets embodying any or all of the foregoing information, and any and all computer software or printouts embodying any or all of the foregoing information. 10. Calculation of Call Duration. Supplier will calculate call duration for Call Detail Records ("CDR's") which will be sent to Customer by Supplier for Customer to rebill Customer's End-Users, based upon the IXC On-line software specifications defined in Exhibit C. Customer may request CDR's from Supplier and Supplier shall provide CDR's within five business days from the end of the month in which service is rendered. Customer shall specify one of the following formats for CDR's: (i) electronically transmitted, (ii) floppy disk, or (iii) hard copy. CDR's shall be made available for up to a year from the date of service. The information format of the CDR's is attached hereto as Exhibit D. 11. Failure of Performance. A. Customer shall immediately notify Supplier of any problems or End-User complaints associated with the Service, including, but not limited to, excess noise, echo or loss of Service. The liability of Supplier for damages for mistakes, omissions, interruptions, delays, errors or defects in transmission (herein called a "Failure of Performance") occurring in the furnishing of Services hereunder shall be limited to not charging Customer for any Services which Supplier failed to provide. In the event of a Failure of Performance, Supplier shall use its reasonable efforts to correct such failure as soon as reasonably practicable after Supplier is notified of such failure. Except in the case of an event described in Section 18. Force Majeure, in the event (i) Supplier notifies Customer that Supplier cannot correct a Failure of Performance; or (ii) of a failure by Supplier to deliver Services meeting industry standards of performance, which failure is not cured within five (5) days of written notice thereof by Customer to Supplier; each of Supplier and Customer, in its sole discretion, shall have the right to cancel the affected Service(s). In the event all, or any portion of, the Services are terminated pursuant to this paragraph, Customer shall remain liable for the Usage Charges for the affected Services which were rendered prior to the effective date of termination. 12. Limitation of Liability. Supplier's liability arising out of delays in restoration of the Services to be provided under this Agreement or out of mistakes, accidents, omissions, interruptions, or errors or defects in transmission in the provision of Services or any other telecommunications services, shall be subject to the limitations set forth above and in the applicable Tariff. IN NO EVENT SHALL SUPPLIER BE LIABLE TO CUSTOMER OR ANY OF THE CUSTOMER'S OWN CUSTOMERS OR ANY OTHER THIRD PARTY IN ANY RESPECT, INCLUDING, WITHOUT LIMITATION, FOR ANY DAMAGES, EITHER DIRECT, INDIRECT, CONSEQUENTIAL, SPECIAL INCIDENTAL, ACTUAL, PUNITIVE, OR ANY OTHER DAMAGES, OR FOR ANY LOST PROFITS OF ANY KIND OR NATURE WHATSOEVER, ARISING OUT OF MISTAKES, ACCIDENTS, ERRORS, OMISSIONS, INTERRUPTIONS, OR DEFECTS IN TRANSMISSION, OR DELAYS, INCLUDING THOSE WHICH MAY BE CAUSED BY REGULATORY OR JUDICIAL AUTHORITIES, ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE OBLIGATIONS OF SUPPLIER PURSUANT TO THIS AGREEMENT. SUPPLIER MAKES NO WARRANTY TO CUSTOMER OR ANY OTHER PERSON OR ENTITY, WHETHER EXPRESS, IMPLIED, OR STATUTORY, AS TO THE DESCRIPTION, QUALITY, MERCHANTABILITY, COMPLETENESS OR FITNESS FOR ANY PURPOSE OF ANY SERVICE PROVIDED HEREUNDER OR DESCRIBED HEREIN, OR AS TO ANY OTHER MATTER, ALL OF WHICH WARRANTIES BY SUPPLIER ARE HEREBY EXCLUDED AND DISCLAIMED. For purposes of this Section, the term "Supplier" shall be deemed to include Supplier, its shareholders, directors, officers and employees, and any, person or entity assisting Supplier in its performance pursuant to this Agreement. 13. Suspension of Service: Termination of Agreement. In the event of a "Customer Default", Supplier may, upon notice to Customer (in addition to such other rights or remedies as Supplier may have under this Agreement, at law or in equity): (i) suspend Services to Customer until such time as such circumstance is corrected (provided Supplier shall not be prohibited from terminating this Agreement after suspending Services); or (ii) terminate this Agreement. "Customer Default" shall mean Customer: (i) breaches any material provision of this Agreement, including, but not limited to, the provisions regarding payment, and does not cure such breach within thirty (30) days (five days with respect to the first three payment breaches and no notice period with respect to any further payment breach) of notice thereof by Supplier; or (ii) files or initiates proceedings or has proceedings filed or initiated against it, relating to its liquidation, insolvency, reorganization or other relief (such as the appointment of a trustee, receiver, liquidator, custodian or other official) under any bankruptcy, insolvency or other similar law or makes an assignment for the benefit of its creditors or enters into an agreement for the composition, extension or readjustment of its obligation in connection with the foregoing. Supplier shall have the right to review Customer's credit at any time during the Term of this Agreement, and to require an additional cash deposit, or other security satisfactory to Supplier. If Customer uses the Services for any unlawful purpose or in any unlawful manner, Supplier shall have the right to suspend any or all services hereunder to Customer until the unlawful use ceases. Notwithstanding anything herein to the contrary, no termination shall affect or reduce Customer's obligation to make the "take or pay commitment" payments required by Section 9. 14. System Maintenance. In the event Supplier determines to interrupt Services for the performance of routine system maintenance, Supplier will use reasonable efforts to notify Customer prior to the interruption and to conduct such maintenance during non-peak hours. In no event shall interruption for system maintenance constitute a Failure of Performance. 15. Subject to Laws. Customer hereby represents and warrants that it is certified to do business in all jurisdictions in which it conducts business and is in good standing in all such jurisdictions. Customer further represents and warrants that it is certified by the proper regulatory agencies to provide interstate, intrastate and international long distance services to End-Users in those jurisdictions where such services are to be provided by Customer. This Agreement is subject to, and Customer agrees to comply with, all applicable federal, state and local laws, and regulations, rulings and orders of governmental agencies, including, but not limited to, the Communications Act of 1934, as amended, the Rules and Regulations of the FCC and state public utility or service commissions ("PSC"), tariffs and the obtaining and continuance of any required certification, permit, license, approval or authorization of the FCC and PSC or any governmental body, including, but not limited to regulations applying to feature group termination and letters of agency. 16. Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, and when taken together shall constitute one document. 17. Confidential Information and Nonsolicitation. A. "Confidential Information" shall mean all information disclosed orally or in writing by one party to the other party and which is clearly identified by the disclosing party at the time of disclosure as confidential information of the disclosing party. With respect to information orally disclosed by one party to the other party, the disclosing party must provide the recipient with a written summary of such information, designating such information as confidential, within one week after the oral disclosure was made in order for such information to be considered Confidential Information. Each party shall safeguard Confidential Information utilizing the same degree of care it utilizes in protecting its own confidential information. The obligations of the recipient of Confidential Information set forth in this Section shall not apply to the extent that: (i) such Confidential Information becomes generally available to the public other than as a result of unauthorized disclosure by the recipient or persons to whom the recipient has made the information available; (ii) such Confidential Information has been released without restriction by the disclosing party to another person or entity, or (iii) such Confidential Information was received by the recipient on a non-confidential basis, prior to receipt from such party from a third party lawfully possessing and lawfully entitled to disclose such information. Further, the recipient may disclose Confidential Information pursuant to any judicial or governmental request, requirement or order. The recipient, however, shall take reasonable steps to give the disclosing party sufficient prior notice to contest such request, requirement or order. Confidential Information shall remain the property of the disclosing party, and shall be returned to the disclosing party or destroyed upon request of the disclosing party. B. All information concerning the Customer's traffic volume/distribution and the identity of the Customer's customers given to Supplier by Customer or learned in connection with this Agreement or any other transaction between Supplier and Customer is hereby acknowledged by Supplier to be Confidential Information regardless of whether it is so identified by Customer. C. All information concerning Supplier traffic volume/distribution and the identity of Supplier's customers given to Customer by Supplier or learned in connection with this Agreement or any other transaction between Supplier and Customer is hereby acknowledged by the Customer to be Confidential Information regardless of whether it is so identified by Customer. D. Accordingly, in the event of a breach or threatened breach of the foregoing provisions, Supplier shall be entitled to an injunction or restraining order, in addition to such other rights or remedies as may be available under this Agreement, at law or in equity, including but limited to money damages. 18. Force Majeure. Except for Customer's right to terminate the Agreement pursuant to Section 8, Supplier shall not be liable for any failure of performance hereunder due to causes beyond its reasonable control, including, but not limited to: acts of God, fire, explosion, vandalism, cable cut, storm or other similar catastrophes; any law, order, regulation, direction, action or request of the United States government, or of any other government, including state and local governments having jurisdiction over either of the parties, or of any department, agency, commission, court, bureau, corporation or other instrumentality of any one or more of said governments, or of any civil or military authority, national emergencies, insurrections; riots; wars; or strikes, lock outs, work stoppages or other labor difficulties. 19. Survival. The covenants and agreements of Customer contained in this Agreement with respect to payment of amounts due and indemnification shall survive any termination of this Agreement. The rights and obligations under this Agreement shall survive any merger or sale of either party and shall be binding upon the successors and permitted assigns of each party. 20. Notices. All notices required under this Agreement shall be given in writing and delivered by a nationally recognized overnight courier, postage prepaid, to the addresses set forth below: If to Supplier: IXC Long Distance Inc. 5000 Plaza on the Lake, Suite 200 Austin, Texas 78746 Attention: Executive Vice President and Chief Operating Officer If to Customer: Computer Telephone Corp. ____________________ ____________________ ____________________ 21. Taxes. (i) Customer is responsible for payment of, or reimbursement to Supplier for, Universal Service Fund and Lifeline Assistance Charges (Presubscribed line charges) set forth in the National Exchange Carrier Association (NECA) Tariff FCC #5, sections 8.5.1, 8.5.2 and 17.1.4 (A) & (B), as the same may be amended from time to time, or any successor tariffs or sections, with respect to any Customer ANI's subscribed to Supplier. In addition, with respect to the Services, Customer is responsible for payment of, or reimbursement to Supplier for, (i) telecommunication relay service charges required by the Americans with Disabilities Act or otherwise (both federal and state), (ii) Interexchange carrier fees payable to the FCC under the Omnibus Budget Reconciliation Act of 1993 or otherwise, and (iii) universal service fund charges, intraLATA compensation charges and other federal or state fees or charges imposed on Supplier. (ii) Within 10 business days after the date hereof, Customer shall each furnish to Supplier, and keep current during the term of this Agreement, valid and appropriate tax exemption certificates attached hereto as Exhibit E, for all applicable jurisdictions (Federal, state and local) in which it performs customer billing. Customer is responsible for properly charging tax to its subscribers and for the proper and timely reporting and payment of applicable taxes to the taxing authorities and shall defend and indemnify Supplier from payment and reporting of all applicable federal, state and local taxes, including, but not limited to, gross receipts taxes, surcharges, franchise fees, occupational, excise and other taxes (and penalties and interest thereon), relating to the Services. Such indemnification, includes costs and expenses (including reasonable attorney's fees) incurred by Supplier in settling, defending or appealing any claims or actions brought against it relating to said taxes. If Customer fails to provided and maintain the required certificates, Supplier may charge Customer and Customer shall pay such applicable taxes. 22. General Terms. This Agreement shall be construed under the laws of the state of Texas. The waiver of a breach hereof shall not be construed to be a waiver of any subsequent breach. Supplier may terminate this Agreement without liability if Customer becomes bankrupt or insolvent. Any dispute relating hereto shall be resolved by binding arbitration in Austin, Texas under the rules of the American Arbitration Association. If any term hereof is held to be invalid or unenforceable, this Agreement shall be construed without such invalid or unenforceable term. This Agreement is the entire agreement between the parties pertaining to the Service. This Agreement may only be modified by an instrument in writing executed by each party. Neither party may assign this Agreement without the written consent of the other party; provided, however, that a security interest in this Agreement may be granted by Supplier to its lenders. The rates hereunder do not include any sales, use or utility taxes. Customer shall pay to Supplier any such taxes that Supplier may be required to collect or pay. To confirm their agreement to be bound hereby, the parties have executed this agreement below: IXC LONG DISTANCE, INC.: COMPUTER TELEPHONE CORP.: /s/ /s/ By: ______________________ By: _________________________ Its: EVP & COO Its: Vice Chairman Exhibit List Exhibit A-l IXC Interstate Switched and Dedicated 1+ and 1-800 Rates and Xclusive Intrastate 1+ and 1-800 Switched, Dedicated and Switched Travel Card Rates Exhibit A-2 IXC Private Line Addendum Exhibit A-3 IXC Xclusive Extended State Rates Exhibit A-4 IXC International Rates Exhibit A-5 IXC Xclusive Card Services Exhibit A-6 IXC Other Service Charges Exhibit A-7 IXC Standard Interstate Switched and Dedicated 1+ and 1800 Rates Exhibit B IXC Forecast Form Exhibit C IXC On-Line Software Agreement Requirements Exhibit D IXC CDR Format Exhibit E Tax Certificate (to be attached) Exhibit A-2 Private Line Addendum This Private Line Addendum is attached to and made a part of that certain Telecommunications Service Agreement entered into by and between IXC Long Distance, Inc. and Computer Telephone Corp. with a service commencement date of July 1, 1995. 1. Definitions. For the purposes of this :Agreement (A) "Available" shall mean, with respect to any Circuit, that all necessary equipment with respect to such Circuit has been installed, connected, tested and confirmed by Supplier to be operating in accordance with the required specifications. (B) "Activation Date" shall mean, with respect to any Circuit, the date such Circuit is first made available to Customer. (C) "Circuit" shall mean a DS-0, DS-1 or DS-3. (D) "Circuit Lease Term" shall mean, with respect to any Circuit, the period from the Activation Date of such Circuit to the end of the term of this Agreement. (E) "Circuit Mileage" shall mean, with respect to any Circuit, the length of such Circuit in airline miles computed according to industry standard V&H coordinates, as specified in the purchase order pursuant to which such Circuit is ordered. (F) "City Pair" shall mean, with respect to any Circuit, the two cities in which such Circuit terminates, as specified in the purchase order pursuant to which such Circuit is ordered. (G) "DS-0" Circuit Mile Rate" shall mean, with respect to any Circuit, the rate, if any, so designated with respect to such Circuit in the purchase order pursuant to which such Circuit is ordered. (H) "DS-0" shall mean a Circuit complying with all applicable Bellcore standards in accordance with TR-TSY 000333 "Switched and Special Access Services - Transmission Parameter Limits and Interface Combinations" Issue 1, July 1990. (I) "DS-1" shall mean a Circuit meeting the specifications set forth in AT&T Technical Reference Pub. 62411, December 1990 and Bellcore TR-MWT-000488, Issue 4, November 1991, Revision 1, April 1992. (J) "DS-3" shall mean a Circuit meeting the specifications set forth in AT&T Technical Reference Pub. 63914 Addendum 3, March, 1990 and Bellcore TB-NWT-608488, Issue 4, November 1991, Revision 1, April 1992. (K) "Monthly Lease Rate" shall mean, with respect to any Circuit, the amount designated in Exhibit A hereto, or if different, in the purchase order accepted by Supplier pursuant to which such Circuit is ordered. In the event no such amount is so designated, such term shall mean (1) with respect to any DS-1, the product of (i) 24, (ii) the DS-0 Circuit Mile Rate for such DS-1, and (iii) the Circuit Mileage for such DS-I, and (2) with respect to any DS-3, the product of (i) 672, (ii) the DS-0 Circuit Mile Rate for such DS-3 and (iii) the Circuit Mileage for such DS-3. On-net DS-0 Ancillary Pricing is set forth in Exhibit B attached hereto. (L) "On-net Service" shall be service between any of the cities contained in Exhibit C attached hereto. "On-net City" shall mean any such city. "On-net DS-0," "On-net DS-I" or "On-net DS-3" shall mean a DS-0, DS-I or DS-3, respectively, between two On-net Cities. "Off-net Service" cities are set forth on Exhibit D attached hereto and made a part hereof. (M) "Requested Service Commencement Date" shall mean, with respect to any Circuit, the date Service on such Circuit is requested by Customer to commence as specified in the purchase order pursuant to which such Circuit is ordered. 2. Scope and Lease Rates. Supplier shall provide Service to Customer upon the terms and conditions set forth below: (A) Service shall be provided with respect to each Circuit set forth in each purchase order between Supplier's locations in each city of the City Pair specified in such purchase order with respect to such Circuit. (B) Supplier shall provide maintenance for all digital transmission equipment used in connection herewith (C) Supplier shall use its best efforts consistent with its obligations to its other customers to provide Service on each Circuit commencing on the Requested Service Commencement Date specified with respect to each Circuit. (D) SuppLier shall provide Service to each Circuit ordered hereunder from the Activation Date of such Circuit for the Circuit Lease Term for such Circuit. (E) Customer may, at its option and upon 30 days' notice to Supplier, reconfigure On-net Circuits originating in a particular city by canceling such Circuits and simultaneously ordering new On-net Circuits originating in such city from Supplier's unused capacity, but only if all the following conditions are met (i) such Circuits to be canceled have been in service at the time of such reconfiguration for at least 90 days; (ii) Service capacity on each such new Circuit is available from Supplier (Supplier shall not be obligated to construct new Circuit capacity to fill any purchase order); (iii) Customer shall pay for such reconfiguration all applicable charges; and (iv) the aggregate monthly invoicing hereunder for the new Circuits involved in such reconfiguration must be equal to, or greater than, the aggregate monthly invoicing for the canceled Circuits. 3. Termination. (A) Customer may terminate Service with respect to any Circuit upon ninety (90) days prior written notice thereof to Supplier and payment of all termination charges set forth below. Such termination charges shall include: (i) In the event such termination occurs prior to the Activation Date specified with respect to such Circuit, all nonrecoverable costs of the implementation of, and expenditures or liabilities reasonably incurred and directly connected with, the provision of Service, including but not limited to, all professional, consulting and other costs incurred by Supplier in furtherance of implementing such Service; and (ii) In the event each termination occurs at or after the Activation Date specified with respect to such Circuit, Customer shall pay all charges hereunder for the period during which Service is rendered on such Circuit. If Service on a Circuit is terminated prior to the expiration of this Agreement, Supplier shall make its best efforts to lease Service on such Circuit at no less than the Monthly Lease Rate for such Circuit. In the event Supplier cannot lease Service on such Circuit on the same or substantially similar terms and conditions as set forth herein, Customer shall be liable for payment (1) for the total amount due through the end of the term of this Agreement with respect to such Circuit less (2) the total amount collected by Supplier from any other lessee with respect to such Circuit (B) Customer shall give written notice to Supplier of any material breach in performance hereunder. Supplier shall have forty-five (45) days after such notice to cure such breach If after such 45-day period, Supplier fails to cure such breach, including, but not limited to, compliance with the material technical and operational specifications applicable to a Circuit. Customer may terminate Service on the such affected Circuit In the event of such termination, Customer's liability with respect to such Circuits shall be limited to the Monthly Lease Rate for the affected Service which was properly rendered prior to the effective date of such termination. (C) In the event Supplier fails to provide the Service within six months of the Requested Service Commencement Date for such Circuit, then Customer, at its option, may terminate that Service on the affected Circuit without any liability whatsoever. Such right to terminate shall be Customer's sole remedy for such failure to provide Service. 4. Allowance for Service Outage Periods. (A) A Circuit shall be deemed to be in an outage condition under this Agreement if, while Customer is using or attempting to use such Circuit, such Circuit loses continuity and fails to comply with the applicable specifications for such Circuit An outage period begins when a report is received by Supplier's Customer Service Group from Customer by telephone that Service has been interrupted and that such Circuit is released for repair. An outage period ends when Supplier notifies Customer by telephone that Service has been restored. (B) A credit for each outage period shall be allowed and calculated as follows: (i) No credit shall be allowed for an outage period of seventy-two (74 hours or less in the case of a Catastrophic Outage (as defined below), or one (1) hour or less in the case~ of a Non-Catastrophic Outage (as defined below). Customer shall be credited for an outage period to the extent such outage period exceeds seventy-two (72) hours or one (1) hour; as the case may be, at the rate of 1/1440 of the monthly rate or charge applicable to the Circuits which are subject to the outage period for each half-hour or major fraction thereof that an outage period continues beyond seventy-two (72) hours or one (1) hour, as the case may be. For purposes of the foregoing, "Catastrophic Outage" includes outages caused by a cable cut or radio failure, an equipment enclosure fire, an explosion, or any other circumstances of an extraordinary and catastrophic nature and "Non-Catastrophic Outage" includes all other outages. (ii) No credit shall be allowed with respect to any period during which Customer fails to afford access to any facilities provided by Supplier for the purpose of investigating and correcting an interruption of Service. (iii) The Monthly Lease Rates used to determine any credit hereunder shall be the then current Monthly Lease Rates being assessed. (iv) The seventy-two (72) hour and One (1) hour periods set forth above shall be extended by the period during which Supplier is unable to restore Service due to an event or circumstance described in Paragraph 19 of the Switched Minute Service Agreement (v) In no event shall any credit be allowed hereunder (1) in excess of the then current Monthly Lease Rate for the applicable Circuit or (@ with respect to any Circuit for which Customer (i) fails to make or (ii) is excused from making any payment because of operation of law or any other reason (C) Calculations of credits shall be based upon Supplier's Customer Service Group Log maintained in Supplier's Network Status Center. (D) No credit allowances will be made for outage periods: (i) caused by Customer; (ii) caused by the failure of equipment or systems provided by Customer or persons other than Supplier, including any provider of local access service to Supplier, (iii) occurring with respect to a Circuit released by Customer to Supplier to perform maintenance, to make rearrangements, or to implement an order for a change in the Circuit; or (iv) occurring with respect to a Circuit which Customer elects not to release for testing or repair and continues to use on an impaired basis; (E) The credit provided for hereunder shall be Supplier's sole liability and Customer's sole remedy in the event of any outage periods or interruption of Service. (F) In the event Lesser determines it is necessary to interrupt Service on a Circuit for maintenance, Supplier shall use its best efforts to give Customer notice thereof by telephone. Supplier will use its best efforts to schedule such Service interruptions on weekends between midnight and 3:00 am. Credits will not be allowed with respect to such Service interruptions. To confirm their agreement to be bound hereby, the parties have executed this agreement below: IXC Long Distance, Inc. Computer Telephone Corp. By: ____________________ By: ____________________ Its: ____________________ Its: ____________________ EX-10.10 12 INNOVATIVE AGREEMENT EXHIBIT 10.10 SERVICE AGREEMENT THIS AGREEMENT is made this 19th day of August, 1996 by and between Innovative Telecom Corporation, a Delaware corporation having its principal office at 2 Harrison Street, Nashua, New Hampshire 03060 (hereinafter "Innovative") and Computer Telephone Corporation, a Massachusetts corporation having its principal office at 360 Second Avenue, Waltham, Massachusetts 02154 (hereafter "Client"). WHEREAS, Client desires to purchase certain telecommunications services from Innovative as described herein; NOW, THEREFORE, in consideration of the foregoing, and other good and valuable consideration, the receipt and sufficiency of which both parties acknowledge, the parties agree as follows: 1. SERVICES During the term of this Agreement Innovative shall provide the following services (the "Services") to and for the benefit of Client: A. In General. Innovative shall provide prepaid transaction services (the "Services") for Client, at Innovative's facilities located in New York, New York. Services are described herein, and in detail in Exhibit A, attached hereto and made a part hereof. The Services involve receiving local, long distance or international calls from Client's customers via Client's carrier facilities, performing prepaid transaction processing services on those calls, and presenting those calls for completion via Client's designated local, long distance or international carriers. Optional International Termination Service. Client may enter into an agreement with any carrier or carriers of its choosing for the provision of international telecommunications services. Innovative shall provide Services with respect to Client's international calls using such carrier or carriers in the same manner and for the same rates for domestic calls as specified in Exhibit A. In the event that Client chooses to use Innovative as a carrier for international telecommunications services, the-parties shall enter into a separate agreement governing the rates, terms and conditions of such service. Intellectual Property. All services and systems provided by INNOVATIVE, including Services provided pursuant to Work Orders as described herein, shall be proprietary to INNOVATIVE, and INNOVATIVE shall retain total intellectual property rights in all Services provided in connection with this Agreement. B. Responsibilities of the Parties. This Agreement contains exclusivity and non-compete provisions (see Section 2). 1. Innovative. Innovative's switching services will be available 7 days per week, 24 hours per day, 365 days per year. Innovative shall meet the quality standards described in Exhibit A, and shall provide all services as further describe in Exhibit A. Services shall be provided in a good and workmanlike manner. Carrier Management. The parties shall cooperate to facilitate Innovative's provision of Carrier management, as more fully described in Exhibit A. Call Records. INNOVATIVE will capture Call Detail Records hereinafter "CDR" for each of Client's calls entering and exiting INNOVATIVE's equipment. CDR will be stored at the switching location and transferred to a location designated by Client. 2. Client. Except as provided in Exhibit A, Section 4, all circuit connections to and from Innovative's equipment are the responsibility of Client. Long distance access in sufficient capacity according to Client's quarterly forecasts will be provided by Client to at Client's expense, in consultation with Innovative. Client must provide a single point of contact with adequate technical qualifications to communication with Innovative's technical support personnel. Tariffs, Taxes. As further defined in Section 3E, Client is responsible for all state, federal and any required foreign tariffing requirements, and for payment of all telecommunications, sales and use taxes in connection with the Services. Except as described in Exhibit A, Section 4, Client is also responsible for all data-lines and carrier access transport, local carrier connections, and for providing the unique 800 access number for the prepaid services. CDR. Client will provide data line connection to Client's location and computer equipment to capture the CDR from INNOVATIVE's switch. B. Pricing. Client shall be billed for prepaid transaction services, and live operator services if needed, and for Service Enhancements under this Agreement. C. Statements. Innovative shall provide billing statements to Client including total billable minutes, for each category of the Services described in Exhibit A. Each billing statement shall describe activity for the previous billing period. D. Service Enhancements. Enhancements to Innovative's services are described in Work Orders which signed by both parties, specifying the required enhancements to Innovative's base platform. Such Work orders, if needed to provide the Services, are appended to Exhibit A, and are a part thereof. In the future, further Service Enhancements shall take the form of additional Page 2 Work Orders. Terms of payment pertaining to the changes specified in such Work Order are defined in each such Work Order. Prices for underlying Services may be changed in the future if changes or enhancements increase the cost of providing Services. No patent, copyright or other proprietary or intellectual property rights will be transferred to Client for any work done hereunder, including under Work Orders. Additional Enhancements. Client agrees to purchase Services under Statements of Work for the implementation of standard post-paid telephone calling card, or standard 1+ long distance "MTS" services, or other enhancements as agreed by the parties. Client agrees to make advance payments against completion of such Statements of Work, payable upon the signing of such Statements of Work by both parties, and as further described in Exhibit A. Any carrier functions provided by Innovative shall be dealt with under a separate agreement. 2. TERM, TERMINATION, EXCLUSIVITY, NON-COMPETITION, RIGHT OF REFUSAL A. Term. This Agreement shall be effective on the date shown above for a Term of 42 months. B. Termination. Client may terminate at any time on sixty (60) days written notice, subject to the provisions of C and D below. In addition, Client may terminate this Agreement free of those provisions, on 60 days written notice to Innovative, in the event Innovative raises its prices under Section 3G, such that aggregate billing to Client is increased by more than 158 in any 12 month period, if all increases during the period were applied to the last month of the period. C. Exclusivity, Non-Competition. For a period of 18 months following the effective date of this Agreement (the "Exclusivity and Non-compete Period"), Client hereby agrees to purchase prepaid calling services through Innovative exclusively if at all, and directly or indirectly through no other. The parties agree that this provision is a material inducement to Innovative's entering into this Agreement, and is consideration for Innovative's substantial initial investment required to serve Client, which.investment is not wholly covered by the initial set-up fees quoted herein. The sole exceptions to this duty of exclusivity-and non-competition shall be (i) in the event of termination following Innovative's uncured material Default, or (ii) in the event of allowed termination following price changes as described above. For purposes of this Section and Section D below, prepaid calling card services are defined as any performance of the real-time debit function. D. Right of First Refusal. For the period beginning with the end of the Exclusivity and Non-compete Period defined in Section C above, and ending 42 months after the effective date of this Agreement, Client shall offer Page 3 Innovative a right of first refusal on any purchase of prepaid calling services from third parties, on the same terms as that offered to such third parties. The sole exceptions to this right of first refusal shall be the exceptions number (i) and (ii) described in C above. 3 PRICE AND PAYMENT A. Invoices. Innovative shall invoice Client in accordance with the prices set forth in Exhibit A. B. Timing. Innovative shall invoice Client according to the schedule appearing in Exhibit A. Client shall pay each invoice within the time frames set forth. Innovative shall notify Client of all invoices not paid within such time, and Client shall have five (5) days after receipt of such notice to pay such invoices ("Grace Period"). C. Disputes. If any dispute exists with respect to the amount, Client shall pay the undisputed amount to Innovative, and provide Innovative with a written memorandum specifying the disputed portion of the invoiced amount and the basis for such dispute. Client and Innovative each agree that they shall discuss in good faith and resolve any such disputes if possible within ten (10) days of receipt by of the written memorandum. D. Definition of Late Payments. Payments of any invoiced amount received after the five (5) day Grace Period shall be considered late payments, and interest shall begin accruing as of the sixth day following the receipt of notice. Failure to pay such amounts during the Grace Period, in addition to triggering the accrual of interest, shall be an Event of Default under this Agreement. E. Taxes. Except as otherwise provided herein, the prices which shall be paid by Client under this Agreement do not include any state or local sales taxes. It is the responsibility of Client or Client's agents to collect such taxes as may be required, except as explicitly provided herein, and Client shall reimburse Innovative for applicable sales or use taxes. Client shall be responsible for all telecommunications taxes. F. Interest. Payments are deemed paid when received by Innovative. Past due amounts shall bear interest at the rate of 1.5% per month or the maximum allowed by applicable law, whichever is less. Client shall pay all costs of collection. G. Price Changes. Innovative may change its prices after 12 months, on 90 days' written notice to Client. Such price changes may affect Client's right to terminate this Agreement as described in Section 2. Page 4 4. WARRANTY A. Innovative hereby represents, warrants and agrees as follows: 1. Innovative warrants that it owns or has rights to systems and equipment adequate to provide Services as specified herein, and that it shall provide services without substantial and material deviation from those described herein. 2. Because regulation of telecommunications services changes rapidly, Innovative makes no warranty that its Services will be deemed in conformity with state or federal laws or regulations. In the event that filings or other actions are required by agencies to continue the Services, Innovative will make all reasonable efforts to promptly conform to such requests. 3. This Agreement is a legal, valid and binding obligation of Innovative and is and shall remain enforceable against Innovative in accordance with its terms. Innovative is a corporation duly organized and validly existing in good standing under the laws of Delaware. B. EXCEPT AS EXPRESSLY PROVIDED IN THIS AGREEMENT, Innovative MAKES NO REPRESENTATIONS OR WARRANTIES, EXPRESS OR IMPLIED, TO CLIENT, ANY CONSUMER OR OTHER PERSON RELATING TO MATTERS ADDRESSED IN THIS AGREEMENT, INCLUDING WITHOUT LIMITATION, ANY WARRANTIES REGARDING THE MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE OF THE SERVICES. C. Limitations of Warranty. This Warranty shall not apply, and Innovative shall have no liability for any harm to Client in the event that a failure is the result of Client's negligence, or misuse or abuse of the Services. Client shall notify its customers of the limitations of Innovative's liability as set forth in this Agreement. Client shall hold Innovative harmless against any expense, judgment or loss as a result of Client's failure to notify its customers of Innovative's limited liability or as a result of any other act or omission of Client. This warranty shall terminate upon termination of this Agreement or the cessation of the provision of Services by Innovative to Client. 5. DEFAULT A. Event of Default Defined. It shall constitute an "Event of Default" hereunder upon the occurrence of any one or more of the following: 1. Client. With respect to Client, upon Client's failure to pay any invoiced amount during the Grace Period as defined above, or any other material breach of this Agreement which remains uncured for 30 days following Page 5 receipt of notice of the breach by the other party. 2. Innovative. With respect to Innovative, if Service is interrupted for forty-eight (48) continuous hours after written notice by Client to Innovative of the interruption (a "Material Interruption"), or any other material breach of this Agreement which remains uncured for 30 days following receipt of notice of the breach by the other party. 3. Either Party. With respect to either party, if such party either (i) files a petition under the United States Bankruptcy Code or is adjudicated a bankrupt, or (ii) a petition in bankruptcy is filed against such party and not discharged within thirty (30) days of such filing, or (iii) such party becomes insolvent or makes an assignment for the benefit of its creditors or any arrangement pursuant to any bankruptcy law, or (iv) such party discontinues its business or a receiver is appointed for it or its business, or (v) such party takes steps to liquidate, reorganize or otherwise dissolve. B. Remedies. Upon the occurrence of any Event of Default hereunder, then, as to the party who was not in breach (the "Aggrieved Party"), the following constitute the Aggrieved Party's exclusive remedies: 1. Termination. The Aggrieved Party may terminate this Agreement, and all of its unaccrued obligations hereunder. 2. Damages, etc. The Aggrieved Party may proceed by alternative dispute resolution to enforce performance or to recover damages; 3. Right of Cure. In all cases involving termination for breach, a breaching party may avoid termination and liability for damages by curing such default within the time frames specified in 5.A. above. In all cases, the time periods shall be measured from the breaching Party's receipt of the notice of breach from the Aggrieved Party. In the case of breaches allowing a 30 day cute period, the breaching party shall provide, within 5 days of - -receipt of the Aggrieved Party's notice, a written motion to cure describing the steps to be taken to cure the breach. 4 Additional Limitation as to Certain Interruptions. Except for Innovative's gross negligence or wilful misconduct, Client's right to terminate shall be its exclusive remedy. Innovative shall not be responsible for costs associated with obtaining substitute services. 6. INDEMNIFICATION, LIMITATION OF LIABILITY A. Indemnification. Except as otherwise stated in Section 5, DEFAULT, each party to this Agreement hereby agrees to Page 6 indemnify, defend and otherwise hold the other harmless from and against all suits, claims and any other losses (any of the foregoing, a "Loss"), including but not limited to attorneys' fees, that arise from or are in any way related to the Services or this Agreement, but only to the extent that such loss results directly from the negligence, willful misconduct or Event of Default of or by the party obligated to indemnify, and does not result proximately from the negligence or willful misconduct or Event of Default of or by the party seeking indemnification. In the event a party receives notice of any action or event which would give rise to the indemnification obligations contained herein, such party shall within twenty (20) days of receipt of such notice, notify the other of the occurrence of such action or event, as the case may be; provided, however, that the indemnitor's failure to receive such notice shall not relieve it of its obligation to provide such indemnity except to the extent such failure prejudices the indemnitor's ability to avoid liability under this Section 6. Upon receipt of such notice, the indemnifying party shall immediately take all actions necessary to protect the indemnitee's interests and to defend, settle or otherwise resolve such Loss. B. Limitation on Liability. All other provisions in this Agreement notwithstanding, liability of Innovative under this Agreement shall be limited to the greater of the total amount billed by Innovative for Services to Client in the one (1) month prior to an Event of Default, or the total amount of disputed invoices. Client must notify Innovative within 60 days of receipt of any invoice, for purposes of including the invoice amount under this section B. 7. COMPETITION, NONDISCLOSURE A. ComPetition. Either party may provide or procure similar services to or from any third party or parties except as provided under Section 2. B. Nondisclosure. Neither party shall directly or indirectly divulge or communicate, to any other entity, any information concerning any matters affecting or relating to the business of the other party. This nondisclosure section applies but is not limited to customer lists, credit classifications, records, statistics, the identity of any of the customers of the party, pricing, methods of operation, or other data. The parties hereto stipulate that as between them, this information is important, material and confidential and gravely affects the success of the business of the parties. Any breach of the terms of this non disclosure section shall be a material breach of this Agreement. This non-disclosure section shall survive the termination of the business relationship between the parties for any reason. C. Promotion. The parties may disclose the existence and general nature of Page 7 this contractual relationship for marketing purposes. The disclosing party shall, prior to such disclosure, provide the other party with a copy, and obtain written permission to make such disclosure. Such permission shall not be unreasonably delayed or withheld. 8. ASSIGNMENT This Agreement and the Services provided hereunder may not be assigned by either Party, unless the express written consent of the other party has been obtained prior to any assignment, and such consent shall not be unreasonably delayed or withheld. 9. NOTICES Any notice hereunder shall be in writing to the addresses first shown above, and shall be effective when received by the Parties hereto, or on the business day following postmark for delivery via United States Postal Service Express Mail, return receipt requested at the time designated by the Postal Service for delivery, whichever occurs first. 10. CUMULATIVE RIGHTS The rights and remedies reserved to the parties herein are cumulative and in addition to any further rights and remedies available at law or in equity. 11. GOVERNING LAWS AND ALTERNATIVE DISPUTE RESOLUTION This Agreement shall be deemed to have been entered into in the state of New Hampshire and shall be governed by, construed and interpreted in accordance with the laws of the State of New Hampshire. If a dispute arises between the parties about the performance of this Agreement, Innovative and Client shall attempt in good faith to resolve or cure the dispute by mutual - -agreement before initiating legal action to enforce any rights or remedies hereunder. If the parties cannot resolve the matter by discussion, they will engage in nonbinding mediation within ten (10) working days. If the matter cannot be resolved by mediation within 30 days, the parties will select one (1) arbitrator, in accordance with the then-existing expedited commercial dispute resolution procedures of the American Arbitration Association. The binding arbitration shall be held in Boston, Massachusetts. The arbitrators shall render their decision in less than thirty (30) days after their selection in a ruling that sets forth the specific factual findings and, if applicable, legal conditions on which the decision is based. Page 8 12. MERGER This Agreement, together with any exhibits or attachments hereto, and any subsequent amendments hereto, and nondisclosure agreements entered into between the parties, contains the entire agreement between the parties hereto with respect to the subject matter hereof, and supersedes all prior negotiations and representations by or between them, whether oral or written, and all prior or contemporaneous agreements, whether oral or written. This Agreement may be amended from time to time by mutual written agreement of both parties. The headings used in this Agreement are for the convenience of the parties and are not deemed to be part of this Agreement. 13.SEVERABILITY If any portion of this Agreement is found to be invalid or unenforceable, the parties agree that the remaining portions shall remain in effect. If one portion limiting liability is found unenforceable, remaining portions limiting liability shall remain in effect. The parties further agree that in the event such invalid or unenforceable portion is an essential part of this Agreement, it shall be replaced with one which most nearly reflects the intentions of the parties as expressed in the portion. 14 WAIVER No delay or omission to exercise any right or remedy accruing to Innovative or Client hereunder upon any breach or breaches or event of default or defaults by Innovative or Client shall impair any right or remedy on subsequent breach or default. 15.SCOPE Nothing contained herein shall be construed to constitute the parties hereto as partners, joint venturers or as agents of each other, but the relationship shall be one of independent contractors with Innovative providing the Services described hereunder to Client for the considerations set forth in this Agreement and any attachments hereto. 16. BENEFIT This Agreement and the Services to be rendered hereunder are solely for the benefit of the parties hereto, their successors and assigns. No third person shall acquire any rights or claims, by reason of or under this Agreement, except as both parties hereto shall agree in writing, or in cases where substantially all of the assets of a party are purchased by another party. Page 9 17. FORCE MAJEURE No default in performance of any obligation hereunder shall constitute an event of default or a breach of this Agreement, to the extent that such failure to perform, delay or default arises out of a cause that is beyond the reasonable control and without negligence of the party otherwise chargeable with such default, including, but not limited to acts of God, interruption of power, utility, transportation or communications services, action of civil or military authority, sabotage, national emergencies or catastrophe. Either party desiring to rely upon any of the foregoing as an excuse for default shall give to the other party prompt written notice of the facts which constitute such excuse, and when such excuse ceases to exist, prompt notice thereof to the other party. This Section shall in no way limit the right of either party to make any claim against any third party for any damages suffered due to said causes. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective executive officers being hereunto duly authorized. Innovative: Client: By: /s/ Mark A. Tubinis By: /s/ Steven P. Milton Name: Mark A. Tubinis Name: Steven P. Milton Title: President Title: President Date: 8/20/96 Date: 8/20/96 Page 10 Exhibit A - Description and Pricing of Services Invoices are payable within 15 days from receipt. Facsimile transmission shall be acceptable. Invoices shall be issued twice monthly. The period between invoices shall be referred to as the "Billing Cycle." Service shall be available within 60 days of contract signing. 1. Transaction Processing. Innovative will install switches as required for Client's long distance and prepaid card services. Features. Features include standard prepaid phone card call flow (attached), English and Spanish prompts and operators, switching and database transaction processing, branded product announcement (if desired), value remaining messages balance transfer, language selection, repeat calling, barge-in, time-out or zero-out live to operator, balance announcements, and call rating announcements. Quality Standards; Network. Innovative shall engineer the network in conjunction with input from Client to adhere to a P.01 grade of service level, to meet Client's volume forecasts. Innovative shall provide data to Client such that both parties may analyze incoming and outgoing traffic patterns, and make facilities procurement decisions to work towards a non-blocking configuration, based on Client's terminating location-specific monthly traffic forecasts. This data shall be included as part of the Reports selected by Client. Client and Innovative recognize the importance of traffic monitoring and the inherent difficulties in achieving efficient network configurations to accommodate changing traffic usage and destination patterns. Quality Standards; Platform. The platform(s) shall be available to process all presented and fully entered transactions to a standard of 99.0% operability as measured over each month. Pricing. Prepaid Transaction Processing Services shall be performed.for a price of $0.0095 per answered minute billed to consumers, one minute minimum, each call rounded up to the nearest full minute. If Client does not incur billing for at least 25,000,000 minutes in total through January 31, 1998, this pricing shall be replaced by the revised stepped pricing schedule below, as of February 1, 1998: Monthly Billed Minutes Per Minute Rate 0 - 5,000,000 $0.0200 5,000,001 - 10,000,000 $0.0150 10,000,001 and over $0.0095 2. Customer Care. Innovative will provide 24 hour, 7 day per week live customer care, at a price of $0.75 per live operator call minute, one minute minimum, each subsequent minute rounded up to the next higher 0.10 minute (six second) increment. 3. Number Generation, PIN Expiration Activation Deposit. Innovative will provide Client with unique PIN numbers and load these numbers into the Client-allocated prepaid calling card centralized database maintained by Innovative. PIN Lifetime. Innovative will generate PIN numbers in batches as requested by Client and will maintain these numbers on the database until card expiration, or 24 months following PIN loading, whichever occurs first. The price for this service is per PIN loaded for immediate or later activation. Order Frequency. Client must notify Innovative in writing 7 days in advance of requested delivery time for PINs. ExPiration. PINs shall expire on a date certain; all cards or other materials shall disclose this date. Expired PINs may be deleted from Innovative's records. Price Per PIN Order. PIN orders equal to or in excess of 250,000 PINs will be billed at $0.010 per PIN. All other PIN orders shall be billed at $0.020 per PIN with a minimum order of $250.00. 4. Call Flow, Reports, Carrier Management Technical Support Innovative will manage Client's carrier relations and local loop requirements as part of their services to Client, as well as provide technical support for Client's carriers, carrier connections and clients. Call Flow. Innovative will provide its standard call flow (attached) as modified with Client's customized greetings. Other changes to the standard call flow or rate structure besides Client's initial customized greetings shall be pursuant to Work Orders. Additional Lunacies. For additional languages beyond Spanish and English, Work Orders may include costs of operator services procurement and training. RePorts. Innovative will provide up to 10 standard reports, including a liability report, and a facilities occupancy report, at no extra charge. Additional or modified reports will be pursuant to Work Order and additional monthly charges as quoted. Additionally, CDR shall be provided every three months on diskette or via modem. CDR. Alternatively, Innovative shall provide raw Call Detail Records (CDR) as a data feed to Client's equipment. Client will be responsible for data line connections from Innovative to Client in order to transfer CDR, and shall provide its own equipment to receive the transfers of CDR from Innovative. Innovative's work to make Client's systems compatible with Innovative's shall be performed under a Work Order, if needed. Innovative shall retain archives of CDR for 3 months after providing same. In addition, Innovative shall provide CDR on demand, by the end of the second business day following a request, for an additional charge of $125.00 per request. Carrier Management. Innovative will manage Client's carrier connections to and from its switching facilities. Services will include configuring and wiring of new facilities, moves, adds, and changes, routine testing, carrier trouble shooting and emergency service for up to 40 hours per month, provided during weekdays (except holidays). For services over 40 hours per month, or for services performed during evenings, weekends or holidays, a surcharge of 575.00 per hour shall apply. Innovative shall provide Reports to Client to facilitate the making of decisions as to configuration, timing and quantity issues, for Client's installation of carrier facilities to be connected to Innovative's switching platform. Client shall provide required assistance in the form of quarterly traffic forecasts. The parties desire both efficient use of switch trucking capacity, and the ability to utilize multiple carriers each with varying traffic and destination patterns. As of the date of this Amendment, the parties have agreed upon a platform and network configuration designed to best and most efficiently accommodate these two desires. Client acknowledges that successful implementation also requires ongoing cooperation and joint efforts to apply Client's accurate destination-specific traffic forecasts to issues of carrier trucking allocation, installation and configuration. Technical SupPort. In case of an emergency service call for Client's carriers, Innovative's will respond within 4 hours of notification by Client or its representatives. Innovative will provide 24 hour technical support and system back up-and rerouting support. Innovative will also provide activation support and card printing support. Least cost routing may be provided at Client's option pursuant to a Work Order. Innovative shall have the authority to respond to all subpoena's and similar orders issued by local, state, federal and government agency officials. Each request will be filled for a $125.00 fee per request. Price: $50.00 per DS1 connected to Innovative's platform for all services described in this Section 4. A minimum monthly charge of $3,000 ("take or pay") will apply until this Agreement expires or is otherwise terminated. 5. Initial DePosit; SetuP Fee, PrePaid Software Engineering. Client shall pay, upon contract signing, a deposit of $50,000, which shall be applied to all billing under 1 through 4 above, as incurred. Client shall also pay, upon contract signing, a non-refundable setup fee of $80,000 partially offsetting Innovative's startup expenses associated with establishment of the prepaid program for Client. If Client is billed for 25,000,000 minutes or more in total during the first 18 months of this Agreement, Innovative, shall issue Client, with the next monthly invoice, a credit for $20,000, applicable to any and all future billing from that point forward. Upon contract signing Client shall also pre-pay $20,000 representing a non-refundable initial prepayment against Work Orders (as described in Section 6), for custom software development involving standard-billed calling card services, or the implementation of standard measured toll service "MTS" for Client, or other services. These Work orders will be performed within the first 12 months of this Agreement, covering these contemplated expedited enhancements to the Services. 6. Statements of Work. For custom alterations beyond capabilities described herein, Client will submit a Work Order, to be separately negotiated and signed by both parties. Changes to Services not within the scope of this Agreement, and other non-routine items shall require a Work Order. Price: Work Orders will be carried out at the following hourly rates: Senior Level Management Support $145.00 Engineering Development (Software) $135.00 Technical Support, Installation Support $120.00 Program Management and Marketing Support $100.00 Innovative will invoice Client upon completion of the Service described in the Statement of Work, unless progress payments or other terms are specified therein. 7. Quarterly Capacity Forecast, Addition of Additional Capacity Innovative and Client will both monitor network traffic levels. Client will submit a written forecast, broken out by region, to Innovative 45 days prior to each calendar quarter, applicable to the upcoming calendar quarter. Innovative will add additional switching capacity, and work with Client to determine needed carrier facilities, as required in connection with Client's forecasted volume levels. Client recognizes that capacity upgrades may require up to 90 days from receipt of the Forecast. Client must provide 90 days advance notice of initiation of programs, promotions or other events which impact volume levels. Client will provide copies of all applicable publicity, and examples of all printed materials seen by end users. 8. Fulfillment Upon request, Innovative will provide fulfillment as per the attached Fulfillment Services description. Point of Sale activation and inventory system shall be made available under a Statement of Work. FULFILLMENT SERVICES Innovative will provide, at CTC's option, the following Telecard and point of sale material fulfillment services: 1. General Description of Fulfillment Services a) Fulfillment System. Innovative will maintain a computerized fulfillment system to process card and POS materials fulfillment orders, generate invoices and packing slips to CTC's distributors, monitor perpetual inventory and monitor account balances due from customers. b) Warehousing and Inventory. Innovative will warehouse up to 2,000,000 cards and provide up to 500 square feet of rack storage space for point of sale materials. c) CTC's Responsibility. CTC shall be responsible for providing Innovative with its credit policies in writing, providing bank accounts into which Innovative may make direct deposits, and shall bear all financial responsibility for returns, customers credits, and bad debt. CTC shall also provide Master Card/Visa merchant account for fulfillment, the 800 line for fulfillment order taking, fax machines and blank invoices, paper, packaging materials, cards and point of sale material. 2. Fulfillment Order Entry Innovative will enter fulfillment orders received by telephone or fax for established accounts, and Master Card/VISA. Innovative shall have the right to issue credits and refunds. Price. $2.75 per order. 3. Fulfillment Innovative will fill orders within 72 hours of receipt via UPS. Price. $3.25 per order plus postage (UPS) for orders up to 100 cards or POS pieces. Quantities of over 100 cards will be billed at $3.00, plus an additional $0.03 per card. 4. Billing and Collection - Innovative will invoice customers for all shipped orders within 72 hours from shipment. - Innovative will provide weekly sales reports and monthly perpetual inventory reports. - Innovative will establish accounts on the fulfillment system for wholesale customers. - Innovative will perform credit checking functions, shall call customers requesting payments due, and utilize other escalation procedures, all in accordance with CTC's credit policies. Price. Credit Application Processing - $50.00 per account, plus any out of pocket credit reference-related expenses (Dun & Bradstreet, etc.) Billing - $2.00 per invoice, plus postage. Collection Services - $3.00 per call made or letter written, plus postage. 5. Activation (other than Batch Activations) Card activation shall be done via touch tone system to be created under a Work Order. CTC shall provide the 800 line. Price. $0.02 per card activated. 6. Minimum Billing The services described above shall amount to at least $2,500 per month, excluding postage. CTC shall be billed for any shortfall occurring in any month (no carry-forward). EX-10.11 13 FRONTIER AGREEMENT, AS AMENDED EXHIBIT 10.11 FRONTIER AMENDMENT #3 TO AGREEMENT CTC Communications Corp. November 4, 1996 This is Amendment #3 to the Agreement Terms and Conditions between Frontier Communications International, Inc., f/k/a/ RCI Long Distance, Inc. ("frontier") and CTC Communications Corp., f/k/a Computer Telephone Corp. ("Purchaser"), dated October 20, 1994, as amended (the "Agreement"). 1. Purchaser's Directory Assistance Rates for all switched and dedicated outbound traffic shall reflect the postalized rate of $ per call. These rates shall become effective no later than thirty (30) days from the date of execution by Frontier. 2. The balance of the Agreement and any amendments, addenda or other written modifications thereto not modified by this Amendment remain in full force and effect. Except as otherwise stated, capitalized terms used herein have the same meaning as set forth in the Agreement. Frontier Communications CTC Communications Corp. International, Inc /s/ /s/ By: _________________________By: _________________________ Brian Fitzpatrick, Steven P.Milton, Vice President President Date: December 12, 1996 Date: 11/18/96 AMENDMENT #2 TO AGREEMENT This is Amendment #2 to the Agreement Terms and Conditions between Frontier Communications International Inc. f/k/a RCI Long Distance, Inc. ("Frontier") and CTC Communications Corp. f/k/a Computer Telephone Corp. ("CTC" or "Purchaser") dated 10/20/94, as amended (the "Agreement"). 1. Except as otherwise stated, capitalized terms used herein have the same meaning as set forth in the Agreement. The terms of this Amendment apply to the National Origination Services (NOS) serviced by Frontier's Michigan platform. If there is a conflict between the terms of this Amendment and the terms of the Agreement with respect to such services, the terms of this Amendment control. 2. The interstate (48 contiguous United States) rates for the switched NOS under the Agreement are replaced with the following: $ per minute for inbound and outbound traffic. The new interstate rate for dedicated NOS inbound and outbound traffic is $ per minute. 3. The NOS international rates under the Agreement are replaced with the international rates set out in the attached pricing schedules. 4. The last paragraph of Section 8.1 of the Agreement dealing with CTC's monthly minimum billing obligations is deleted. 5. The term of the Agreement is extended for a period of 5 years from the effective date of this Amendment. Over such extension period, CTC shall be liable for a minimum aggregate usage commitment for the Services of $25,000,000. CTC shall be liable for any shortfall if it fails to meet the minimum by the end of the extension period. 6. CTC commits to the following usage schedule for the remaining term of the Agreement. For any month in which CTC falls below an applicable threshold level, the rates in paragraph 2. above will be increased to $ and $ per minute, respectively. Monthly Usage Time Period Threshold Effective date of this Amendment thru 9/97$ 400,000 10/97 through 9/98 600,000 10/98 through 9/99 800,000 10/99 through 9/2000 1,000,000 10/2000 through end of Agreement term 1,200,000 7. This Amendment and the Agreement shall be binding on the permitted assigns and any successor-in-interest of the parties. 8. The balance of the Agreement and any amendments, addenda or other written modifications thereto not modified by this Amendment remain in full force and effect. The parties agree that signed facsimile copies of this Amendment may serve as originals and are binding on the parties. This Amendment is effective as of the date signed by Frontier as set forth below. Frontier Communications CTC Communications Corp. International, Inc. By: /s/ Anthony J. Cassara By: /s/ Steven P. Milton Title: President Frontier Carrier Svcs Title: President Printed Name: Anthony J. Cassara Printed Name: Steven P. Milton Date:10/11/96 Date:10/3/96 10/1/96 AMENDMENT #1 TO AGREEMENT This is Amendment #1 to the Agreement Terms and Conditions between Frontier Communications International Inc. f/k/a RCI Long Distance, Inc. ("Frontier") and Computer Telephone Corp. ("CTC" or "Purchaser") dated 10/20/94 (the "Agreement"). PURPOSE Frontier is making additional transport services available to CTC for CTC's switched traffic originating and terminating on Frontier's network and serviced on Frontier's Michigan platform (such services hereafter defined as the "National Origination Services") 1. Except as otherwise stated in Exhibit A attached hereto and made a part hereof capitalized terms used herein have the same meaning as set forth in the Agreement. The terms of this Amendment apply to all services provided to CTC via Frontier's Michigan Platform. If there is a conflict between the terms of this Amendment and the terms of the Agreement with respect to such services, the terms of this Amendment control. 2. Exhibit C attached hereto is made a part of this Amendment. 3. CTC shall be subject to the applicable charges under the Ancillary Fee Schedule attached hereto as Exhibit B and made a part hereof. 4. The services are expanded to include the National Origination Services at the applicable rates set out in the attached Switched Outbound Services Schedule. 5. The balance of the Agreement and any amendments, addenda or other written modification thereto not modified by this Amendment remain in full force and effect. The parties agree that signed facsimile copies of this Amendment may serve as originals and are binding on the parties. This Amendment is effective as of the date signed by Frontier as set forth below. Frontier Communications Computer Telephone Corp. International Inc. /s/ /s/ Robert Fabbricatore By: _________________________ By: __________________________ Chairman Title: _____________________ Title: _______________________ Printed Name: _______________ Printed Name: ________________ Date: _______________________ Date: ________________________ EXHIBIT A GENERAL DEFINITIONS for National Origination Services (not otherwise defined in the body of the Agreement or its attachments) 1. Frontier 800 Numbers are 800/888 telephone numbers ordered onto the Frontier network by Purchaser and for which Frontier has either (i) been appointed the RespOrg, or (il) reserved and issued the 800 telephone number to Purchaser, Frontier shall be deemed to be the RespOrg for all 800/888 telephone numbers reserved and issued by it under (ii) above. 2. ANI is a telephone number. 3 ANI Information is the adds, moves and terminations of End-User ANIs. 4. Billing Cycle is the Frontier billing cycle to which Purchaser's account hereunder is assigned by Frontier (a full billing cycle equals approximately 30 days of Services usage). 5. Business Day is Monday through Friday, 8:30 am to 5:30 pm Detroit, MI, local time, excluding nationally recognized holidays. Unless otherwise stated, "days" refers to calendar days. 6. Prescribed means that (i) an End-User has had its ANIs placed on Frontier's CIC, or (ii) an End-User's ANIs have been placed on Purchaser's CIC and such CIC has been directed or translated to the Frontier network. For example, if Purchaser has ordered an End-User onto Frontier's network directly, or if an End-User has selected Purchaser as its primary carrier and Purchaser has directed its CIC to Frontier, such End-Users are deemed to be Presubscribed to Frontier. 7. Carrier 800 Numbers are 800/888 telephone numbers ordered onto the Frontier network by Purchaser for which a party other than Frontier or Purchaser has been appointed the RespOrg. 8. CDR means call detail records and CDR Tape is a magnetic tape containing CDR. 9. Purchaser 800 Numbers are 800/888 telephone numbers ordered onto the Frontier network by Purchaser for which Purchaser has been appointed the RespOrg. 10. End users are customers of Purchaser for which Purchaser has submitted an order that has been accepted by Frontier during the term of this Agreement. To the extent that Purchaser subscribes to the Services for its own use, Purchaser is deemed to be an End-User. 11. 800 Numbers collectively refers to the Frontier 800 Numbers, Carrier 800 Numbers and Purchaser 800 Numbers. 12. Guidelines refer to the telecommunications industry's general rules with respect to 800/888 number portability, including but not limited to, (i) the Federal Communications Commission's ("FCC") 800/888 number portability policies and rules, (ii) the SMS 800 requirements set forth in the Bell Operating companies' Tariff FCC No. 1, and (iii) the CLC 800 DataBase Ad-Hoc Committee's Guidelines for 800 DataBase, as all of the foregoing may be replaced or modified from time to time. 13 RespOrg is a responsible organization as defined in the Guidelines. A RespOrg is the entity that is responsible for managing and administering the account records in the 800 Service Management System DataBase. SERVICE DEFINITIONS (for National Origination Services) 1. Directory Assistance Service consists of calls made by End-Users to directory providers for assistance in locating a non-800 Number. "800 Directory Assistance" consists of calls made to directory providers for assistance in locating a Frontier 800 Number. 2. Inbound Services refers to inbound traffic under the Switched Services. 3. International Services consist of international traffic generated via the Switched Services. 4 Switched Services consist of switched inbound and outbound long distance traffic generated by End-Users that originates and terminates on the Frontier network. EXHIBIT C CALL DETAIL RECORDS ORDER PROCESSING REQUIREMENTS (for National Origination Services) I. Call Detail Records: 1. Purchaser has the option of receiving call detail records for usage of the Services ("CDR") on (i) a monthly basis, (ii) a daily pre-bill run basis, or (iii) no CDR at all. Purchaser may also elect both options (i) and (ii), as further detailed below. Regardless of the option selected, Purchaser shall upon its execution of this Agreement, pay Frontier the non-refundable account set up fee set out in Exhibit B. Provided Purchaser is not in default under this Agreement, the account set up fee will be credited to the Invoice following the Billing Cycle in which Purchaser's Minimum Charge first becomes effective and is met or paid. 2. If Purchaser elects option 1. (i), then on or about the fifth Business Day following the end of a Billing Cycle. Frontier will deposit with an overnight delivery service for delivery to Purchaser a CDR Tape in the format established by Frontier. CDR Tapes rate the Services at the standard Frontier rates in effect at the time the Services were provided and must be re-rated by Purchaser at its tariffed rates. Purchaser shall pay the monthly recurring charge set out in Exhibit B. Software modifications to the CDR Tape format requested by Purchaser are subject to Frontier approval and will be invoiced to Purchaser at the charges set out in Exhibit B. 3. If Purchaser elects option 1. (ii), then Frontier will provide CDR on a pre-bill basis once a day, Monday through Saturday, excluding nationally recognized holidays, for the prior period's traffic. For each pre-bill computer run performed by Frontier (during Frontier established time periods), Frontier will deliver CDR by electronic data exchange ("Electronic Exchange") to either (i) Purchaser's designated mainframe computer via the IBM Information Network ("IIN") via Network Data Mover ("IIN"), or (ii) dedicated personal computer via Procomm+ software. Purchaser is liable for all transmission charges together with the cost of hardware and software necessary at its location for use of IIN, NDM or Procomm+, which hardware and software must comply with the formats and technical specifications that Frontier from time to time may promulgate. Frontier will archive CDR for 8 Business Days and redeliver CDR to Purchaser upon request. 4. Purchaser may cancel an option at any time on 30 days written notice. Purchaser may exchange an existing option or select a new option at any time upon written notice and payment to Frontier of any then current set up charge for such option. Changes or new selections are effective in the second Billing Cycle following receipt of the request and any required set up charge. II. Order Processing Procedures: 1. Orders for the Services are transmitted in a format designated by Frontier via the CDR transmission media selected by Purchaser. Ar the time Purchaser submits an order for Service, Purchaser shall furnish Frontier with the name, billing and service addressed and ANI of each presubscribed End-user (the "End-User Information"). The End-User Information is required for LEC account set-up, normal call processing and handling NXX level customer service. The End-User Information is deemed to be Purchaser's proprietary information under the Agreement. 2. If the traffic is such that Frontier determines in its sole discretion that a delay in processing orders is required, Frontier may delay order processing for such period of time as Frontier deems necessary in its reasonable business judgment. Any such delays will not, however, adversely impact Purchaser for the purpose of determining whether Purchaser has met any minimum usage requirements under the Agreement; Frontier agrees to adjust the requirements to reflect such delay. 3. End-User ANIs: A. Purchaser understands and agrees that activation of End-User ANIs is contingent on the End-User Information associated with such ANIs complying with LEC established criteria. Assuming receipt of properly formatted End-User Information that complies with the LEC established criteria, ANIs will generally be activated within 10 Business Days of receipt by Frontier of the End-user Information. If the End-User Information does not comply with LEC criteria, Frontier will return the same to Purchaser for Purchaser's correction and resubmission. B. Once each calendar month Frontier will provide Purchaser with a written report of ANI Information. If Purchaser has elected to receive CDR via Electronic Exchange, then the ANI Information will be transmitted via Electronic Exchange, rather than by a written report. If 10% or more of the aggregate End-User Information submitted by Purchaser in any calendar month must be returned to Purchaser for corrections and resubmission, Frontier may at its discretion either cease providing the ANI Information or charge Purchaser for continuing to provide the same. 4. 800 Numbers: Notwithstanding the order transmission media selected under the agreement, until such time as Frontier determines in its sole discretion that Electronic Exchange and/or magnetic tape processing is available for the reservation or ordering of 800 Numbers (and informs Purchaser of such availability), orders for activation or reservation of 800 Numbers will be by facsimile and subject to the following. A. Subject to (i) the Guidelines and (ii) delays attributable to third parties, 800 Numbers will generally be activated and confirmed by Frontier within 2 Business Days of receipt by Frontier of a proper order in accordance with the order processing requirements set forth below. (a) Orders must be submitted to Frontier via facsimile using the forms supplied by Frontier, and must include (x) a letter of authorization in the format attached hereto as Attachment 4.A.(a)(x) and made a part hereof, if Frontier is being appointed the RespOrg, and (y) the End-User Information for each 800 Number, including the ANI translation for each 800 Number. (b) At such time as Frontier may make Frontier 800 Numbers available to Purchaser, Purchaser may request reservation of a specific Frontier 800 Number from the SMS 800 DataBase via facsimile using the forms supplied by Frontier. Charges for requests will be invoiced to Purchaser at the cost set out in Exhibit B. Frontier will either confirm reservation or indicate unavailability via facsimile generally within 2 Business Days of its receipt of the request. Verbal requests for, and verbal confirmations of, reservations will not be honored by Frontier. Allnet reserves the right at any time to limit the quantity or discontinue the availability of Frontier 800 Numbers. (c) If Frontier has reserved a Frontier 800 Number for Purchaser and Purchaser does not order activation of the reserved number in accordance with item (a) above within 10 Business Days from the date of Frontier confirmation of the reservation, the reserved number will be assigned to the Frontier pool of 800 numbers and be available to Frontier for its own business purposes. Purchaser understands and agrees that it is responsible for all damages and claims if Purchaser assigns a reserved Frontier 800 Number to an End-User without having timely ordered activation of such 800 Number with Frontier and such 800 Number is assigned by Frontier to a third party. Purchaser agrees to defend and indemnify Frontier from any claims and costs (including reasonable attorney fees) relating to Purchaser's assignment of 800 Numbers. B. The Frontier facsimile numbers and contacts to be used for 800 Number reservations are 1-800-875-HELP(4357), Attention: Special Services, and for 800 Number Orders 1-800-433-5132, Attention: Network Services/Order Fulfillment. The Purchaser facsimile number and contacts to be used for said purposes are 6174661263, Attention: CTCLD Group. Either party may change its respective facsimile number or contact upon prior written notice to the other party. 5. If the End-User information or other order information submitted by Purchaser is incomplete or inaccurate, Frontier will return the same to Purchaser for correction and resubmission. 6. Service Cancellation: Upon Purchaser's request, Frontier will to the extent possible, block or cancel service to End-Users. Frontier shall not be liable to Purchaser or End-Users for any damages, costs or charges with respect to Frontier's compliance with Purchaser's request; and Purchaser shall be solely responsible for and shall defend and indemnify Frontier against any claims and costs (including attorney fees) by End-users or other third parties related to the blocking or cancellation of an End-User's service at the request of Purchaser. III. Letter of Agency Requirements. 1. Purchaser is responsible for obtaining valid letters of agency from prospective End-Users to be Presubscribed in accordance with the following: A. Frontier acknowledges that at times Purchaser may obtain prospective End-Users through telemarketing and tape recorded third party verifications in accordance with FCC Guideline Subpart K section 64.1100 (c) as the same may be amended, interpreted or clarified ("Verbal LOA"). Purchaser understands that some LECs will not accept Verbal LOAs as valid authorization for a change of long distance carriers and agrees that for prospective End-users located in such LECs' jurisdictions it will use Written LOAs. If Purchaser elects to use, or is required to use,written letters of agency ("Written LOAs") for prospective End-Users it shall use a format that complies with FCC Guideline Subpart K section 64.1150 as the same may be amended, interpreted or clarified. Purchaser shall retain all Verbal LOAs tapes and transcripts and Written LOAs used and promptly make the originals available upon the request of Frontier, a LEC or any regulatory agency. B. Purchaser agrees that a Verbal LOA may be used to presubscribe a prospective End-User to Frontier, but that the Verbal LOA will not be accepted by Frontier as documentation in any PIC or "slamming" claims. Frontier is not obligated to "work" disputes with respect to "slamming" or similar claims from End-Users or prospective End-Users. Frontier will refer LEC inquiries,and pass ;through any LEC charges imposed on Frontier for such claims, directly to Purchaser, including without limitation, Primary Interexchange Carrier charges or any other charges and penalties imposed by a LEC or regulatory agency (collectively, PIC Charges") with respect to such claims. PIC Charges will be billed to Purchaser periodically on an Invoice. Verbal LOAs and Written LOAs are collectively referred to as "LOAs". Purchaser shall defend and indemnify Frontier against any and all claims, including without limitation, any End-User,LEC or regulatory agency claims,arising from or related to purchaser's failure to use or provide valid LOAs. 2. Purchaser shall not transfer a Presubscribed End-User to another carrier (other than Purchaser's own network), except wi[h a valid LOA. Notwithstanding the foregoing, if Frontier is in breach of this Agreement and fails to cure the breach in accordance with the terms hereof, then Purchaser may transfer End-Users to another carrier. SWITCHED OUTBOUND SERVICES SCHEDULE (NATIONAL ORIGINATION SERVICE) The rates and discount credits described in this Schedule and any attachments hereto are in lieu of any standard volume discounts and any promotional rates or discounts that may from time to time be offered by Frontier for the Services. Domestic means the 48 contiguous United States. Any discount credits are applied against Purchaser's monthly interstate usage charges. Unless otherwise stated, domestic switched calls are measured in 6 second increments after an 18 second minimum and international calls are measured in 6 second increments after a 30 second minimum. 1. For outbound traffic, Purchaser shall pay the rates set out in the existing contract and to the extent not specifically listed in the existing contract, then at the applicable rates set out in the attached pricing schedule. In any given month, a minimum of 85% of Presubscribed End-User ANIs must be located in Regional Bell Operating Company (RBOC) or GTE serviced areas and be subject to RBOC/GTE tariffed rates. If Purchaser falls below the minimum in any month, Frontier will notify Purchaser and allow Purchaser 30 days to correct; if Purchaser fails to correct, Frontier may apply a $0.04 per minute surcharge to all of Purchaser's domestic outbound Switched Services usage from non RBOC or GTE service areas in that month. Upon Purchaser returning to 85% criteria, other penalty shall be removed. 2. Upon purchaser's request, Frontier may make available to Purchaser: (i) an available 700 number (1-700-555-XXXX) and a recorded message that identifies purchaser to Presubscribed End-Users as their carrier, (ii) 2,3, and 4 digit non-validated accounting codes, and (iii) 3 digit Select 50 and 4 digit Select 200 validated accounting codes. Frontier will make the 700 number available for Purchaser's use within 15 Business Days after receipt of the request. Two digit non-validated accounting codes are not available with the Dedicated Services; no accounting codes are available for the Inbound Services. Purchaser shall pay any installation and monthly recurring charges for the 700 number and the accounting codes as set out in Exhibit B of the Agreement. Purchaser shall be liable for all charges associates with Service usage generated by accounting codes issued by Frontier under this Agreement. AGREEMENT TERMS AND CONDITIONS by and between RCI LONG DISTANCE, INC. AND COMPUTER TELEPHONE CORP. DATED: OCTOBER 20, 1994 TABLE OF CONTENTS 1. Service Provided 2. Connection Facilities 3. Charges 4. Cancellation of Service 5. Liability of RCI 6. Liability of CTC 7. CTC's Obligation 8. Term, Condition, Payment and Deposit 9. Independent Contractors 10. Force Majeure 11. Assignment 12. Notice 13. Confidentiality 14. Indemnification 15. General EXHIBITS EXHIBIT A : RCI Domestic Switched Rates EXHIBIT B : RCI Canadian and International Switched Rates EXHIBIT C : RCI Switched 800 Rates EXHIBIT D : RCI Directory Assistance Rates EXHIBIT E : Other Charges TERMS AND CONDITIONS 1. SERVICES PROVIDED RCI Long Distance Inc., a Delaware Corporation with offices at 180 South Clinton Avenue, Rochester, New York 14646 t"RCI"), will provide Computer Telephone Corp., a Massachusetts Corporation with offices at 360 Second Avenue, Waltham, Massachusetts 02154 ("CTC") with interstate, international and, if permitted by applicable regulations in CTC's state, intrastate transmission and switching facilities needed to transmit and terminate CTC's traffic to all points specified within the Exhibits attached hereto. The parties contemplate that CTC may order service to/from additional points from time to time during the term of this Agreement. These new services shall be governed by the terms and conditions of this Agreement, and will be described within Addenda which will be made part hereof. The services contemplated under this Agreement are non-exclusive and shall include switched services, private line services as well as other dedicated facilities necessary to permit the transmission of CTC's communication over the RCI Network. 2. CONNECTION FACILITIES CTC's customers will originate on either dedicated access facilities to RCI's point-of-presence (P.O.P.) or on RCI's switched network, utilizing CTC's CIC code where sub-CIC billing is offered by the applicable local telephone company. 3. CHARGES 3.1 CTC shall pay the charges for the services and the equipment, any, provided hereunder as specified in any Exhibit or addendum to this Agreement. The charges shown in each Exhibit or Addendum are fixed for the term of this Agreement and/or when term of a specific service is stated in an Exhibit or Addendum attached hereto, for the term specified therein, unless the action of any governmental authority having jurisdiction over RCI's service increases RCI's costs in providing such service, in which case, RCI may increase the charges set forth in the affected section. Should the increased rates be determined to be detrimental to CTC, then CTC shall have the right to terminate this Agreement with thirty (30) days written notice. Should CTC not request termination of the rate based on a rate modification within thirty (30) days of the effective date of the modification, CTC shall forfeit the right to terminate the Agreement based on the effected rate modification. 3.2 For Switched Minutes of Use (MOU) terminating in the domestic U.S., RCI will bill CTC in six (6) second increments. Call duration will be measured by RCI from time of answer (Time Point 6) to time of disconnect (Time Point 7). Hardware answer supervision will be used whenever possible and will be passed to CTC upon request. Rating periods for domestic traffic are as follows: Daytime- Monday through Friday, 8:00 AM to 5:00 PM; Evening- Monday through Friday and Sunday, 5:00 PM to 11:00 PM; Night/Weekend- Sunday through Friday 11:00 PM to 8:00 AM, Friday 11:00 PM to Sunday 5:00 PM. Time Zones for billing of domestic traffic will be determined by point of interconnection with the RCI network. For MOU terminating outside the U.S., RCI will bill CTC for the initial thirty (30) second increment and six (6) second increments thereafter for the remainder of each call. Call duration will be measured by RCI from time of answer (Time Point 6) to time of disconnect (Time Point 7). Hardware answer supervision will be used whenever possible and will be passed to CTC upon request. 4. CANCELLATION OF SERVICE Where CTC cancels service prior to RCI's incurring any charges, or starting any internal processing of CTC's orders there shall be no termination charge. Where the order process has begun, the installation of facilities and/or equipment has been started prior to the cancellation of service, a termination charge of $500.00 per Access Service Request (ASR) will apply plus any/all charges incurred by RCI, as agent or otherwise, will apply. The prices contained in this Agreement or any Addenda are based on the expectation that CTC will continue to subscribe to each of RCI's services described in this Agreement or Addenda for the entire term of this Agreement. 5. LIABILITY OF RCI RCI's sole liability under this Agreement for interruption of service or failure of equipment shall be limited to the amount of actual RCI charges incurred by CTC during a period of such interruption, provided that such interruption was caused solely by RCI's willful act or omission or negligence. RCI shall not be liable for any interruption caused by the negligence or any act or omission of CTC or any third party furnishing any portion of the service. RCI MAKES NO WARRANTIES, EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO, ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE. IN NO EVENT SHALL RCI BE LIABLE TO CTC OR ANY OTHER PERSON OR ENTITY FOR INDIRECT, CONSEQUENTIAL OR SPECIAL DAMAGES, INCLUDING BUT NOT LIMITED TO LOST REVENUES OR PROFITS, EVEN IF RCI HAS BEEN ADVISED OF THE POSSIBILITY THEREOF. 6. LIABILITY OF CTC CTC shall be liable to RCI for any loss or theft of or damage to any of RCI's equipment located on CTC's premises, however caused. CTC assumes all liability associated with any/all fraudulent traffic and unauthorized PIC "slamming", however caused CTC shall indemnify and defend RCI from any cost or expense due -to claims for libel, slander, infringement of copyright, trademark, trade name or trade secret arising out of the contents of CTC's transmissions using RCI's service and equipment and claims for patent infringements arising from the combination or connection of the equipment to any property of CTC. CTC shall not use RCI's service or the equipment for any unlawful purpose. 7. CTC's OBLIGATION 7.1 CTC shall conform to all regulatory requirements required by any local, state or federal agency having jurisdiction over the provision of long distance service. 7.2 CTC shall notify RCI of a variance to CTC's original forecast of call volume exceeding plus or minus twenty percent (+/-208). CTC will notify RCI ten (10) business days in advance of such occurrence. In addition, CTC will notify RCI of any new sales offices and sales efforts, so that RCI can maintain a properly trunked network. 8. TERM, CONDITION, PAYMENT AND DEPOSIT 8.1 The term of this Agreement and, unless otherwise specified therein, each Addenda made a part hereof shall be three (3) years from the first full month of service ("Effective Date"). This Agreement will automatically renew for consecutive one (1) year periods until either party provides the other with written notification of their intent of non-renewal. Such notification must be provided at least ninety (90) days prior to the termination date. In the event of non-renewal, CTC must remove all lines ("ANI's") PIC'd to RCI's feature groups by the termination date. Any ANI not removed from RCI's feature group by such time will be deleted from RCI's switch. CTC agrees to maintain a monthly minimum billing obligation as defined below: Month Amount Month Amount 1 $ 0 19 $325,000 2 $ 5,000 20 $350,000 3 $ 10,000 21 $350,000 4 $ 20,000 22 $350,000 5 $ 35,000 23 $350,000 6 $ 50,000 24 $350,000 7 $ 65,000 25 $350,000 8 $ 80,000 26 $350,000 9 $100,000 27 $350,000 10 $115,000 28 $350,000 11 $125,000 29 $350,000 12 $150,000 30 $350,000 13 $175,000 31 $350,000 14 $200,000 32 $350,000 15 $225,000 33 $350,000 16 $250,000 34 $350,000 17 $275,000 35 $350,000 18 $300,000 36 $350,000 CTC agrees to maintain a minimum monthly billing obligation for services commencing upon the first full month service during the ramp-up period of twenty (20) months as set forth above, and to maintain a three hundred and fifty thousand($350,000) per month billing obligation thereafter for the term of the Agreement. For the purpose of calculating CTC's total billing, RCI will aggregate all domestic, international, Canadian and directory assistance traffic originating on RCI's sub-CIC product. CTC agrees that RCI has the right to terminate this Agreement if CTC is not billing a minimum of seventy five thousand dollars ($75,000) per month by month twelve (12) through thirty six (36) of this Agreement. 8.2 RCI shall bill CTC monthly and CTC shall pay such bills on or before the due date specified therein. The cue date shall be Thirty (30) days from the date of such bill ("Due Date"). If CTC's payment is not received by such Due Date, RCI shall have the right to immediately terminate this Agreement and/or deny service until payment is rendered, and/or impose a late charge of one and one-half (1.5%) per month or the highest legal rate, whichever is lower. If payment is not received within forty-five (45) days of the bill date and/or payment is not received within thirty (30) days on three or more occasions under this Agreement, RCI shall have the right to demand and receive a security deposit or Letter of Credit equal to two full months billing. Additionally, if at any time there is a material adverse change in CTC's credit worthiness, RCI shall have the right to immediately terminate this Agreement and/or deny service until payment is rendered and/or request a security deposit or retain the deposit rendered prior to turn up if applicable, and/or impose a late charge of one and one-half percent (1.5%) per month or the highest legal rate, whichever is lower. If there is a dispute with any section of the bill, CTC shall pay the undisputed portion of such bill when due, and CTC will notify RCI in writing of the disputed section ten (10) days prior to the due date. If the dispute is resolved in RCI's favor, CTC will pay the once-disputed amount, plus finance charges calculated from the original due date of the disputed amount in the next billing after resolution. If the dispute is resolved in the CTC's favor, RCI will credit the disputed amount on CTC's bill. CTC shall pay RCI for any costs or expenses, including reasonable attorney fees, incurred by RCI in collection of CTC's unpaid bills. RCI shall not be obligated to consider any CTC notice of billing discrepancies which are received by RCI more than sixty (60) days following the Due Date of the invoice in question. Any deposit required of CTC may be applied to CTC's overdue bills and any other expenses for which CTC becomes liable to RCI under this Agreement. Such deposit shall not bear interest unless required by law. CTC acknowledges and understands that RCI computes all charges herein exclusive of any applicable federal, state or local use, excise, gross receipts, sales and privilege taxes, duties, fees or similar liabilities (other than general income or property taxes), whether charges to or against RCI or CTC because of the service furnished to CTC ("Additional Charges"). CTC shall pay such Additional Charges in addition to all other charges provided for herein. 8.3 For the purpose of this Agreement, CTC and RCI agree to the following algorithm to determine adjustments, in the event that there is a discrepancy between RCI and telco billing data. (a) If the total RCI terminating billing data (all minutes of use ("MOU's") terminated by RCI, originated by telco), is between 91.5%, +/- 2.5% of the total telco invoice to RCI pertaining to CTC sub-CIC MOU, then the telco invoice shall be allocated between RCI and CTC as follows: (i) If the portion of the RCI invoice allocated to CTC's sub-CIC MOU's ("CTC Portion") is equal to 91.5%, +/- 2.5% of telco's originating billing data, then no adjustment shall be applied. (ii) If the CTC Portion is greater than 91.5%, +/- 2.5% of the RCI sub-CIC invoice, then CTC will receive a corresponding debit on the RCI invoice. (iii) If the CTC Portion is less than 91.5%, +/- 2.5% of the RCI sub-CIC invoice, then CTC will receive a corresponding credit on its RCI invoice. (b) If the total RCI terminating billing data is greater or less than 91.5%, +/- 2.5% of the total telco invoice to RCI, each party shall pay its respective portion of the telco invoice. For the purposes of the adjustment, when the percentage is greater than 94% or less than 89%, the adjustment calculation will be back to 91.5%. RCI reserves the right to review and modify the 91.5% calculation on a quarterly basis, basing the percentage on a three month running average. Notwithstanding the foregoing, in all events, CTC shall be responsible for paying its portion of the telco invoice directly to telco and will receive appropriate adjustment, as set forth above, on its RCI invoice. RCI agrees to provide CTC a copy of the summary pages pertaining to CTC's local telephone bill within forty eight (48) hours of receipt. In addition, if CTC's payment to the local telephone company is not received when due, RCI shall have the right to immediately terminate this Agreement and/or deny service until payment is rendered and/or request an additional security deposit or retain the deposit rendered prior-to turn up. RCI will hold CTC liable for any unpaid balances appearing on RCI's local telephone bill relating to the provision of service for CTC. 8.4 CTC must have available a signed Letter of Agency (LOA) for RCI from every customer for each line ("ANI") PIC'd to RCI's feature groups. LOA format and language must be pre-approved by RCI [or with any other means approved by the Federal Communications Commission ("FCC") ] . A signed LOA must be available for review by RCI and/or telco within forty eight (48) hours notice from RCI. In the event that LOA is not made available within forty eight (48) hours, a ten dollar ($10) surcharge for each missing LOA will be applied to the next RCI invoice as well as any/all telco charges applied to RCI because of CTC. CTC will provide ANI's via the IBM Information Network (IIN) or other automated means acceptable to RCI. 8.5 In the event, RCI notices an excessive amount of internal order rejects (i.e. inaccurate information), RCI will pass through any additional administrative charges to CTC to recover costs. For the purpose of this Agreement, excessive will be defined as five (5) percent. 8.6 RCI and CTC agree that RCI will allow CTC to transition their customers from switchless resale to sub-CIC. This will only be applicable where the local telephone supports such a billing and service arrangement and where RCI has feature groups to originate 1+ traffic. 8.7 The 1+ and 800 rates under this Agreement are based upon RCI's projected network cost utilizing an assumed traffic distribution. RCI agrees to review CTC's 1+ and 800 rates after a period of six full months billing. If RCI's actual network cost for carrying CTC's 1+ and 800 traffic varies from RCI's network cost projection over such six month period, RCI will adjust such rates in accordance with the variance for the remainder of the term of this Agreement. 9. INDEPENDENT CONTRACTORS Each party agrees that it shall perform its obligations hereunder as an independent contractor and not as the agent, employee or servant of the other party. Neither party nor any personnel furnished by such party shall be deemed an employee or agent of the other party nor be entitled to any benefits available under any plans for such other party's employees. Each party has and hereby retains the right to exercise full control of supervision over its own performance of its obligations under this Agreement and retains full control over the employment, direction, compensation and discharge of all employees assisting the performance of such obligations. Each party will be solely responsible for all matters relating to payment of its employees including compliance with social security taxes, withholding taxes, worker's compensation, disability and unemployment insurance, and all other regulations governing such matters; and each party will be responsible for its own acts and those of its own employees, agents, and subcontractors during the performance of that party's obligations hereunder. 10. FORCE MAJEURE 10.1 RCI shall not be liable for any delay or failure in performance of any part of this Agreement from any cause beyond its control and without its fault or negligence, including but not limited to, acts of God, acts of civil or military authority, government regulations, embargoes, epidemics, war, terrorist acts, riots, insurrections, fires, explosions, earthquakes, nuclear accidents, floods, strikes, power blackouts, volcanic action, other major environmental disturbances, unusually severe weather conditions, acts of third parties, or acts or omissions of common carriers (collectively referred to as "Force Majeure Conditions"). 10.2 RCI shall also not be liable for any delay or performance failure caused by CTC's failure to perform any of its obligations. 11. ASSIGNMENT CTC may not assign any right, obligation or duty, in whole or in part, or any other interest hereunder, except to a successor by merger or sale of all or substantially all CTC's assets, without the prior written consent of RCI, which shall not be unreasonably withheld or delayed. Any such proposed assignee must at a minimum meet all RCI credit standards then in place. RCI may assign any right, obligation or duty, in whole or in part, or any other interest hereunder, to any of its affiliates without permission from CTC, upon thirty (30) days notification to CTC. 12. NOTICE All notices required under this Agreement shall be given in writing and delivered by a nationally recognized overnight courier, postage prepaid, to the addresses set forth below and on the next page: To RCI: RCI Long Distance, Inc. Rochester Tel Center 180 South Clinton Avenue Rochester, New York 14646-0500 Attention: Vice President-Network Systems & Services To CTC: Computer Telephone Corp. 360 Second Avenue Waltham, Massachusetts 02154 Attention: President 13 . CONFIDENTIALITY Any and all information pertaining to the business relationship between RCI and CTC shall be considered confidential and proprietary in all cases for the entire term of this Agreement. Both parties agree to not disclose any of same to any other person, firm or entity (except a governmental or regulatory body which shall issue a formal subpoena) and shall use same only to further the purpose of this Agreement. This confidentiality obligation shall not apply to any information (i) independently developed by a party, or (ii) generally available to the public other than by a party's breach of this Agreement, or (iii) already known by a party at time of disclosure, or (iv) rightfully received from a third party. Both parties hereby designate the terms, conditions, appendices, exhibits and schedules of this Agreement to be confidential. The parties agree that the confidential and proprietary information received pursuant to this Agreement shall be disclosed only to those employees and other persons who have a need for its use under this Agreement. 14. INDEMNIFICATION Each party shall indemnify, defend and hold the other party harmless from any and all liability, loss, claim, damage or cost (including attorney's fees) and expenses arising out of claims against such other party by any entity as a result of any failure of the indemnifying party to perform its obligations hereunder. Additionally each party shall indemnify the other party against injuries and claims of any kind, arising out of the acts or failures to act of the indemnifying party, its directors, officers, agents, employees, representatives or subcontractors, including without limitation injury or damage to the person or property of CTC, its agents, employees, representatives or subcontractors. 15. GENERAL This Agreement constitutes the entire understanding between RCI and CTC and supersedes any and all oral and/or written statements and representations made by either party to the other. All parts, sections, Exhibits, and Addendum to this Agreement shall be considered confidential in all cases for the life of this Agreement. Any assignment or other transfer by CTC of its rights under this Agreement without RCI's prior written consent all entitle RCI to immediately terminate this agreement. Failure on the part of RCI to enforce any provision of this Agreement in any one instance shall not be construed as a general waiver or relinquishment of the right to enforce such provision. If any provision of this Agreement shall be held to be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall in no way be affected thereby. This Agreement may be executed in counterparts, each of which when so executed and delivered shall be an original, but all such counterparts shall together constitute but one and the same instrument. This Agreement shall be construed in accordance with the laws of the State of New York. IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by their duly authorized representatives. Dated : RCI LONG DISTANCE, INC. COMPUTER TELEPHONE CORP. /s/ Jeffrey A. Gold /s/ Philip Richer _________________________ __________________________ (Signature) (Signature) JEFFREY A. GOLD PHILIP RICHER _________________________ __________________________ (Print Name) (Print Name) VICE CHAIRMAN __________________________ _________________________ (Title) (Title) EX-10.12 14 INTERMEDIA AGREEMENT EXHIBIT 10.12 Intermedia Communications Inc. Frame Relay Service Reseller Agreement THIS AGREEMENT is made and entered into as of this 21 day of January, 1997 by and between Intermedia Communications Inc., a Delaware corporation, having its principal place of business at 3625 Queen Palm Drive, Tampa, Florida 33619 ("ICI") and CTC Communications Corp., a Massachusetts corporation having its principal place of business at 360 Second Avenue, Waltham, Massachusetts 02154 ("Reseller"). WITNESSETH: WHEREAS, ICI is a common carrier which owns and operates telecommunications facilities and is in the business of providing telecommunications services. WHEREAS, ICI desires Reseller to market ICI's Frame Relay Service Offering (the "Service"). WHEREAS, Reseller desires to market the Service and is capable of properly marketing such Service according to the terms hereof. NOW THEREFORE, in consideration of the mutual covenants, terms and conditions herein contained, the parties hereto agree as follows: 1. Grant: ICI hereby grants to Reseller the non-exclusive right to market the Service pursuant to the rates, terms and conditions of this agreement and any addendum referenced herein. ICI reserves the right, without obligation or liability to Reseller for payment of a commission, compensation or otherwise, to market the Service through its own employees or Resellers, through other Resellers or otherwise. 2. Status of Reseller: The relationship between Reseller and ICI shall be that of buyer and seller. Reseller shall conduct its business at its own initiative, responsibility and expense. No employee of either party shall be deemed to be in the employ of the other and neither party has any right or authority to act on behalf of the other beyond that expressly granted herein. No provision of this Agreement shall be construed to create a joint venture or partnership between ICI and Reseller. 3. Duties of Reseller: CTC shall use its best efforts to market the Services. "Best efforts" for this purpose will include the following: conducting an active search to find customers whose profile of telecommunications and/or data communications requirements is such that use of ICI Services may be beneficial; educating those qualifying customers as to the benefits and advantages of engaging ICI Services; introducing ICI sales staff as required to qualifying customers; obtaining commitments and orders to procure ICI Services; providing response on customer service issues relating to account status and rudimentary technical issues. CTC also agrees to brand Intermedia Frame Relay Services on CTC customer bills and charge no less than ICI tariff pricing in billing CTC customers. 4. Duties of ICI: ICI shall furnish the Services. ICI activities will include: providing pre and post sales technical support of CTC sales efforts; coordinating the pricing, ordering, maintenance, and billing for all Local Exchange Carrier services where CTC has no agency agreement in place with the Local Exchange Carrier serving the location; providing single point of contact management, maintenance and technical support in the operation of the service to the customer. 5. Tariff: ICI and Reseller agree that the provision of the Service shall be controlled by and subject to all applicable tariffs as set forth in EXHIBIT A - - INTERMEDIA FRAME RELAY PRICING. 6. Ordering: Reseller shall order services for their customers from ICI. The Service will be billed by ICI directly to Reseller. ICI and Reseller shall establish a mutually agreed upon service commitment date ( Service Date") and reference number ("Reference Number") when services are ordered by Reseller from ICI. ICI shall coordinate the pricing, ordering, maintenance, and billing for all necessary Local Exchange Carrier, Access, and or Interexchange Carrier services as required. 7. Billing: ICI shall invoice Reseller monthly for services ordered and installed based on the final and agreed upon Service Date. The ICI invoice shall contain a listing of detailed charges for ICI services, Local Exchange Carrier services and Access services. CTC agrees to pay ICI 100% of the monthly billed LEC services and 85% of the monthly billed ICI services. Reseller shall have responsibility of invoicing and collecting payments from its customers. Non-payment by Reseller's customer shall not constitute grounds for non-payment by Reseller to ICI for services. 8. Confidential Treatment: The terms and conditions of this Agreement and materials provided by ICI to Reseller or Reseller to ICI, including but not limited to, customer lists, price sheets, price quotes, marketing and business plans and projections, pursuant to this Agreement are disclosed in confidence, solely for use in connection with carrying out the terms and conditions of this Agreement. Both parties shall keep such information secret and confidential and shall not release or disclose any of it to any third party during the term of this agreement or for a period of 6 months following its termination except in carrying out its obligations hereunder or on a need-to-know basis Both parties shall take appropriate precautions, contractual and otherwise, to prevent the unauthorized disclosure or misuse of this confidential information by any of its employees or by any other person having access to such information. At the expiration or sooner termination of this Agreement, both parties shall return to the originator all confidential or proprietary information received hereunder The foregoing obligations of confidential treatment shall not apply, or shall terminate, with respect to any particular portion of the confidential information which: i.) is known to the receiving party at the time of disclosure to it; ii.) becomes publicly known or available other than as a result of any disclosure hereunder; iii.) is rightfully received from a third party; or, iv.) is independently developed. 9. Limitation of Liability: ICI shall not be liable to Reseller or any customers of Reseller in any way for any losses, including but not limited to, loss of commissions, loss of or harm to Reseller's business, including, but not limited to lost revenues, lost savings or lost profits, or incidental, special or consequential damages due to mistakes, omissions, interruptions, delays, errors, defects or otherwise occurring in the course of furnishing the service. Nothing herein shall require ICI to accept responsibility for any service provided by Reseller to its customers during this agreement or after any termination hereof. 10. Indemnification: The Parties shall indemnify each other against, and hold each other harmless from all liabilities, claims, demands, costs and judgments (including reasonable attorneys' fees and causes of action arising; out of or in connection with this Agreement caused by the failure to abide by the terms and conditions of this Agreement or by the negligence or willful misconduct of the Parties or of the Parties employees, Resellers or invitees. 11. Term and Termination: This agreement shall be effective as of the first date written above and shall continue for a period of two (2) years ("Initial Term") unless terminated in accordance with the provisions hereof. This agreement can be terminated by either party upon (60) days written notice to the other party. Any customer contracts entered into during the term of this Agreement shall be subject to the terms of this Agreement and honored for the committed contract terms by each party. (a) Either party may terminate this Agreement in the event that the other party commits a material breach of this Agreement and fails to cure such breach within sixty (60) days after receipt of written notice of such breach from the non-breaching party; provided, however, that in the event that the material breach involves any violation of Section 8 (Confidential Treatment) hereof, no opportunity to cure shall be allowed. In such event the non-breaching party shall promptly notify the breaching party in writing of it's intent to terminate this Agreement, and such termination shall be effective after a transition period (~Transition Period-) of seven (7) days after the date of delivery, or if mailed, the date of the mailing of the notice of termination by the non-breaching party; provided, however, that if the material breach involves any violation of Section 8 (Confidential Treatment) hereof, the effective date of the termination shall be the date of delivery of the notice of material breach. (b) Bankruptcy - Either party may terminate this Agreement and any or all outstanding customer arrangements placed hereunder by notice in writing, in the event that the other makes an assignment for the benefit of creditors, or admits in writing inability to pay debts as they mature; or a trustee or receiver of the other, or of any substantial part of the other's assets is appointed by any court; or a proceeding is instituted under any provision of the Federal Bankruptcy Act by the other, or against the other and is acquiesced in or is not dismissed within sixty (60) days or results in an adjudication in bankruptcy. (c} Both parties shall use their best efforts to ensure that any Transition Period required under this Section 11 shall be executed in a timely and orderly fashion and in a manner that is in the Customer's best interest and consistent with any applicable legal requirements. At the end of such Transition Period, neither Party shall have any obligation to the other under this Agreement, except that, subject to the provisions of Section 21 (Entire Agreement), hereof, those provisions that by their sense and context are intended to survive the termination hereof shall survive such termination. (d) Early Termination: In the event Reseller cancels or terminates all or any portion of the services prior to the agreed expiration date, Reseller agrees to pay to ICI a termination charge (as liquidated damages and not as a penalty), as follows: (1) All non-recurring charges specified in the Service Order, including those initially waived, plus (2) disconnection, early cancellation or termination charges reasonably incurred by ICI on Resellers behalf, plus (3) if cancellation occurs within the first year of the term of the applicable Service Order, then the cancellation charge shall be the full amount of the remaining recurring charges for Service due for the first year plus fifty percent (50%) of the recurring charges for the second year of the term plus twenty five (25%) of the remaining monthly charges for the remainder of the term of the Service Order. If cancellation occurs after the first year of the term, then the cancellation charge shall be fifty percent (50%) of the remaining monthly charges for service due for the second year of the term plus twenty five percent (25%) for the remainder of the term of the Service Order. 12. Force Majeure: Neither party shall be liable for delays in performing, or failure to perform, this Agreement or any obligations hereunder, which are directly attributable to causes beyond the reasonable control of the party so delayed or failing to perform, including but not limited to, acts of God, fires, strikes, war, failure of a common carrier, equipment or suppliers or acts or intervention by any governmental authority. However, the party whose performance is so delayed shall use good faith efforts to minimize the effects of such delay. 13. Notices: All notices or other communications permitted or required hereunder shall be in writing and mailed by certified mail, return receipt requested, or sent by receipted overnight courier to the party at the address first appearing above, to the attention of the signatories below. Notices shall be deemed given three (3) days after deposit in the U.S. mail postage prepaid, if sent by certified mail or when received or receipt is refused if sent by receipted overnight courier. 14. Assignment: Either Party may not assign its rights or obligations under this Agreement to any party without the prior written consent of the other Party. 15. Governing Law: This Agreement shall be deemed to have been executed and delivered in the State of Florida and it shall be governed by and construed in accordance with the laws of the State of Florida. 16. Headings: The paragraph headings used in this Agreement are for purposes of convenience only and shall not be deemed a part of this Agreement for purposes of construction or interpretation. 17. No Inference: Neither this Agreement in its entirety nor any provision herein shall be construed against either party as the drafter or originator thereof. 18. Severability: In the event that any term or provision of this Agreement shall be deemed or rendered void or unenforceable, the remainder of this Agreement shall remain in full force and effect and such term or provision shall be deemed stricken. 19. Waiver: No failure or delay by any party in exercising any right hereof shall operate as a waiver. 20. Amendment: This Agreement may not be amended or modified except by in writing, signed by both parties. 21. Entire Agreement: This Agreement and all attachments hereto, embody the entire agreement and understanding between the parties and supersede all prior oral and written, and contemporaneous oral, agreements and understandings relating to the subject matter hereof. No representation, promise, inducement or statement or intention has been made by either party which is not embodied here in. IN WITNESS WHEREOF, the parties hereto have set their hands as of the date first written above CTC Communications Corp. Intermedia Communications, Inc. EX-11 15 COMPUTATION OF EPS EXHIBIT 11 STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS CTC COMMUNICATIONS CORP. (In Thousands Except Per Share Data) Year ended March 31 1997 1996 1995 ---------------------------------- Primary: Average shares outstanding 9,600 9,446 7,830 Net effect of stock options, if dilutive, based on the treasury stock method using the average market price 1,174 1,266 935 ---------------------------------- Total 10,774 10,712 8,765 ================================== Net income $4,683 $4,094 $1,472 ================================== Net income per share $ .43 $ .38 $ .17 ================================== Fully diluted: Average shares outstanding 9,600 9,446 7,830 Net effect of stock options, if dilutive, based on the treasury stock method using the year-end market price 1,190 1,282 1,531 ---------------------------------- Total 10,790 10,728 9,361 ================================== Net income $4,683 $4,094 $1,472 ================================== Net income per share $ .43 $ .38 $ .16 ================================== EX-23.1 16 CONSENT OF INDEPENDENT AUDITORS Exhibit 23.1 Consent of Independent Auditors We consent to the incorporation by reference in the Registration Statement (Form S-8 No. 33-44337) pertaining to the Employee Stock Purchase Plan of CTC Communications Corp. and the Registration Statement (Form S-8 No. 333-17613) pertaining to the 1996 Stock Option Plan of CTC Communications Corp. of our report dated May 12, 1997, with respect to the financial statements and schedule of CTC Communications Corp. included in the Annual Report (Form 10-K) for the year ended March 31, 1997. /s/ ERNST & YOUNG LLP ERNST & YOUNG LLP Boston, Massachusetts June 20, 1997 EX-27 17 FDS FOR Y.E. 3/31/97
5 1,000 12-MOS MAR-31-1997 MAR-31-1997 6,406 0 10,905 377 0 17,804 7,268 5,566 20,186 5,895 0 0 0 96 14,195 20,186 40,290 40,507 8,709 32,529 0 0 18 7,960 3,277 4,683 0 0 0 4,683 0.43 0.43
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