UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

 

(MARK ONE)

FOR THE QUARTERLY PERIOD ENDED March 31, 2019

OR

COMMISSION FILE NUMBER: 000-21433

 

FORRESTER RESEARCH, INC.

(Exact name of registrant as specified in its charter)

 

(617) 613-6000

(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒     No  ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒     No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

If an emerging growth company, indicate by checkmark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

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

Securities registered pursuant to Section 12(b) of the Act:

As of May 6, 2019, 18,437,000 shares of the registrant’s common stock were outstanding.

 

 

 

 

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FORRESTER RESEARCH, INC.

INDEX TO FORM 10-Q

 

 

 

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PART I.

ITEM 1. FINANCIAL STATEMENTS

FORRESTER RESEARCH, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except per share data, unaudited)

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 

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FORRESTER RESEARCH, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data, unaudited)

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 

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FORRESTER RESEARCH, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(In thousands, unaudited)

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 

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FORRESTER RESEARCH, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands, unaudited)

 

 

Non-cash financing activities for the three months ended March 31, 2019 include $3.7 million of debt issuance costs deducted directly from the proceeds of borrowings by the lender. Refer to Note 3 – Debt for further information.

 

Refer to Note 1 – Interim Consolidated Financial Statements for lease right of use assets obtained in exchange for operating lease obligations during the three months ended March 31, 2019.

 

The accompanying notes are an integral part of these consolidated financial statements.

 

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FORRESTER RESEARCH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

 

Note 1 — Interim Consolidated Financial Statements

Basis of Presentation

The accompanying unaudited interim consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for reporting on Form 10-Q. Accordingly, certain information and footnote disclosures required for complete financial statements are not included herein. The year-end balance sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America. It is recommended that these financial statements be read in conjunction with the consolidated financial statements and related notes that appear in the Forrester Research, Inc. (“Forrester”) Annual Report on Form 10-K for the year ended December 31, 2018. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair statement of the financial position, results of operations, comprehensive loss and cash flows as of the dates and for the periods presented have been included. The results of operations for the three months ended March 31, 2019 may not be indicative of the results for the year ending December 31, 2019, or any other period.

Fair Value Measurements

The carrying amounts reflected in the Consolidated Balance Sheets for cash and cash equivalents, accounts receivable, accounts payable, and accrued expenses approximate fair value due to their short-term maturities. The Company believes that the carrying amount of its variable-rate borrowings reasonably approximate their fair values because the rates of interest on those borrowings reflect current market rates of interest. See Note 5 – Fair Value Measurements, for the fair value of the Company’s assets and liabilities.

Presentation of Restricted Cash

The following table summarizes the end-of-period cash and cash equivalents from the Company's Consolidated Balance Sheets and the total cash, cash equivalents and restricted cash as presented in the accompanying Consolidated Statements of Cash Flows (in thousands).

 

 

Adoption of New Accounting Pronouncements

In February 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (“ASU”) No. 2016-02, Leases (Topic 842). The standard requires lessees to recognize the assets and liabilities from leases on the balance sheet and disclose qualitative and quantitative information about the lease arrangements. Lessor accounting is largely unchanged. Leases are classified as either financing or operating, with classification affecting the pattern of expense recognition in the income statement. In July 2018, the FASB issued ASU 2018-11, Leases (Topic 842): Targeted Improvements, which allows for an additional adoption method and for lessors, provides a practical expedient for the separation of lease and non-lease components within a contract.

On January 1, 2019, the Company adopted Topic 842 using the modified retrospective method in which prior periods are not adjusted. Under this method, the cumulative effect of applying the standard is recorded at the date of initial application. Adoption of the

 

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standard did not result in the Company recording a cumulative effect adjustment. The standard resulted in the recognition of operating lease right-of-use assets of $53.3 million, operating lease liabilities of $60.8 million and the elimination of deferred rent of $7.5 million on the adoption date. In addition, the Company recorded $10.4 million of operating lease right-of-use assets and operating lease liabilities on January 3, 2019 as a result of the acquisition of SiriusDecisions (see to Note 2 – Acquisitions). Adoption of the standard did not have a material impact on the Company’s results of operations or cash flows.

The Company elected the package of practical expedients permitted under the new lease standard that allowed the carry forward of the historical lease classification for all leases that existed as of the adoption date. In addition, the Company elected to exempt short term leases from recognition of right of use assets and lease liabilities, and elected not to separate lease and non-lease components within its leases.

The Company determines whether an arrangement is a lease at inception. The Company accounts for a lease when it has the right to control the leased asset for a period of time while obtaining substantially all of the assets’ economic benefits. All of the Company’s leases are operating leases, the majority of which are for office space. Operating lease right-of-use (“ROU”) assets and non-current operating lease liabilities are included as individual line items on the Consolidated Balance Sheets while short term operating lease liabilities are recorded within accrued expenses and other current liabilities.

Operating lease ROU assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. The discount rate used to determine the present value of the lease payments is the Company’s incremental borrowing rate based on the information available at lease inception, as an implicit rate is generally not readily determinable. An operating lease ROU asset includes all lease payments and excludes lease incentives and initial direct costs incurred. Some of the Company’s leases include options to extend or terminate the lease. When determining the lease term, these options are included in the measurement and recognition of the Company’s ROU assets and lease liabilities when it is reasonably certain that the Company will exercise the option. The Company considers several economic factors when making this determination, including but not limited to, the significance of leasehold improvements incurred in the office space, the difficulty in replacing the asset, underlying contractual obligations, or specific characteristics unique to a particular lease.

Lease expense for operating leases is recognized on a straight-line basis over the reasonably assured lease term based on the total lease payments (which include initial direct costs and lease incentives). The expense is included in operating expenses in the Consolidated Statements of Operations.

The Company’s lease agreements generally contain lease and non-lease components. Non-lease components are fixed charges stated in an agreement and primarily include payments for parking at the leased office space. The Company accounts for the lease and fixed payments for non-lease components as a single lease component under Topic 842, which increases the amount of the ROU assets and lease liabilities.

Most of the Company’s lease agreements also contain variable payments, primarily maintenance-related costs, which are expensed as incurred and not included in the measurement of the ROU assets and lease liabilities.

Leases with an initial term of 12 months or less are not recorded on the Consolidated Balance Sheets and are not material.

The components of lease expense were as follows (in thousands):

 

 

Additional information related to leases is summarized in the following table (in thousands, except lease term and discount rate):

 

 

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Future minimum lease payments under non-cancellable leases as of March 31, 2019 are as follows (in thousands):

 

 

Lease balances as of March 31, 2019 are as follows (in thousands):

 

 

The Company’s leases do not contain residual value guarantees, material restrictions or covenants.

 

Note 2 — Acquisitions

The Company accounts for business combinations in accordance with the acquisition method of accounting as prescribed by Accounting Standards Codification (“ASC”) 805, Business Combinations. The acquisition method of accounting requires the Company to record the assets and liabilities acquired based on their estimated fair values as of the acquisition date, with any excess of the consideration transferred over the estimated fair value of the net assets acquired, including identifiable intangible assets, to be recorded to goodwill.

FeedbackNow

On July 6, 2018, Forrester acquired 100% of the issued and outstanding shares of S.NOW SA, a Switzerland-based business that operates as FeedbackNow. FeedbackNow is a maker of physical buttons and monitoring software that companies deploy to measure, analyze, and improve customer experience. The acquisition is part of Forrester's plan to build a real-time CX cloud solution. FeedbackNow provides a high-volume input source for the real-time CX cloud solution. The Company paid $8.4 million on the closing date. An additional $1.5 million is payable during a two-year period from the closing date and is subject to typical indemnity provisions from the seller. The Company also paid additional purchase price based on the acquired working capital of $0.8 million during the three months ended March 31, 2019. In addition, the sellers may earn up to $4.2 million based on the financial performance of FeedbackNow during the two-year period following the closing date, with up to $1.7 million and $2.5 million payable during 2019 and 2020, respectively, if the financial targets are met. The range of undiscounted amounts that could be payable under this arrangement is zero to $4.2 million. The fair value of this contingent consideration arrangement as of the acquisition date was $3.4 million, which was recognized as purchase price.

There were no measurement period adjustments recorded during the three months ended March 31, 2019. The allocation of the purchase price for FeedbackNow is preliminary with respect to income taxes payable. The Company expects to obtain the remainder of the information to complete the allocation of purchase price during the second quarter of 2019.

 

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SiriusDecisions, Inc.

On January 3, 2019, Forrester acquired 100% of the issued and outstanding shares of SiriusDecisions, Inc. (“SiriusDecisions”), a privately-held company based in Wilton, Connecticut with approximately 350 employees globally. Forrester believes that the combination of its expertise in strategy with SiriusDecisions’ focus on operational excellence will create additional market opportunities for the Company, including cross-selling services to the respective client bases, extending SiriusDecisions’ platform, methodologies, data, and best-practices tools into new roles, and accelerating international and industry growth. The acquisition of SiriusDecisions was determined to be an acquisition of a business under the provisions of ASC 805.

Pursuant to the terms of the merger agreement, the Company paid $247.3 million at closing, which is subject to adjustment, and included the purchase price of $245.0 million plus an estimate of cash acquired and reduced by an estimate of certain working capital items. Net cash paid, which accounts for cash acquired of $7.9 million and a subsequent $0.5 million reduction in cash paid for transaction-related expenses, was $238.9 million and is reflected as an investing activity in the Consolidated Statements of Cash Flows. The Company expects to determine the working capital adjustment during the second quarter of 2019. At the time of the merger, each vested SiriusDecisions stock option was converted into the right to receive the excess of the per share merger consideration over the exercise price of such stock option. All unvested SiriusDecisions stock options were cancelled without payment of any consideration.

The following table summarizes the preliminary allocation of the purchase price to the fair value of the assets acquired and liabilities assumed for the acquisition of SiriusDecisions (in thousands):

 

 

The allocation of the purchase price for SiriusDecisions is preliminary with respect to the valuation of acquired intangible assets, working capital and goodwill. The Company expects to obtain the remainder of the information to complete the allocation of purchase price by the end of 2019.

 

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The Company’s financial statements include the operating results of SiriusDecisions beginning on January 3, 2019, the date of the acquisition. SiriusDecision’s operating results and the related goodwill are being reported as its own operating segment (refer to Note 11 – Operating Segments). The goodwill is not deductible for income tax purposes. The acquisition of SiriusDecisions added approximately $15.2 million of additional revenue and $24.9 million of direct expenses including intangible amortization for the three months ended March 31, 2019. Had the Company acquired SiriusDecisions in prior periods, the Company’s operating results would have been materially different, and as a result the following unaudited pro forma financial information is presented as if SiriusDecisions had been acquired by the Company on January 1, 2018 (in thousands, except per share amounts):

 

 

The pro forma results have been prepared in accordance with U.S. GAAP and include the following pro forma adjustments for the three months ended March 31, 2018: (1) an increase in interest expense and amortization of debt issuance costs related to the financing of the SiriusDecisions acquisition (refer to Note 3 – Debt for further information on the Company’s borrowings related to the acquisition); (2) a decrease in revenue as a result of the preliminary purchase price allocation for deferred revenue; (3) an adjustment for depreciation and amortization expenses as a result of the preliminary purchase price allocation for finite-lived intangible assets and property, and equipment; and (4) an increase in operating costs to recognize acquisition costs incurred upon the close of the acquisition.

For the three months ended March 31, 2019, goodwill increased by $157.4 million with $157.8 million of the increase attributable to the acquisition of SiriusDecisions and a $0.4 million decrease due to foreign currency fluctuations.

The Company recognized $1.7 million of acquisition costs in the three months ended March 31, 2019 related to the SiriusDecisions acquisition. The costs primarily consisted of investment banker fees and other professional services costs and are included in acquisition and integration costs within the Consolidated Statements of Operations.

 

Note 3 — Debt

In connection with the acquisition of SiriusDecisions, the Company entered into a $200.0 million Credit Agreement on January 3, 2019 (the “Closing Date”). The Credit Agreement provides for: (1) senior secured term loans in an aggregate principal amount of $125.0 million (the “Term Loans”) and (2) a senior secured revolving credit facility in an aggregate principal amount of $75.0 million (the “Revolving Credit Facility” and, together with the Term Loans, the “Facilities”). On the Closing Date, the full $125.0 million of the Term Loans and $50.0 million of the Revolving Credit Facility were used to finance a portion of the acquisition of SiriusDecisions and to pay certain fees, costs and expenses incurred in connection with the acquisition and the Facilities. The Facilities are scheduled to mature on January 3, 2024.

 

The Facilities permit the Company to borrow incremental term loans and/or increase commitments under the Revolving Credit Facility in an aggregate principal amount up to $50.0 million, subject to approval by the administrative agent and certain customary terms and conditions.

 

The Facilities can be repaid early, in part or in whole, at any time and from time to time, without premium or penalty, other than customary breakage reimbursement requirements for LIBOR-based loans. The Term Loans must be prepaid with net cash proceeds of (i) certain debt incurred or issued by Forrester and its restricted subsidiaries and (ii) certain asset sales and condemnation or casualty events, subject to certain reinvestment rights.

 

Amounts borrowed under the Facilities bear interest, at Forrester’s option, at a rate per annum equal to either (i) the London Interbank Offering Rate (“LIBOR”) for the applicable interest period plus a margin that is between 1.75% and 2.50% based on Forrester’s consolidated total leverage ratio or (ii) the alternate base rate plus a margin that is between 0.75% and 1.50% based on Forrester’s consolidated total leverage ratio. In addition, the Company will pay a commitment fee equal to 0.35% per annum on the average daily unused portion of the Revolving Credit Facility, payable quarterly, in arrears. The commitment fee may decrease to 0.30% or 0.25% based on Forrester’s consolidated total leverage ratio.

 

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The Term Loans require repayment of the outstanding principal balance in quarterly installments each year, commencing on March 31, 2019 with the balance repayable on the maturity date, subject to customary exceptions. The amount payable in each year as of March 31, 2019 is set forth in the table below (in thousands):

 

 

The Revolving Credit Facility does not require repayment prior to maturity, subject to customary exceptions. In addition to financing the acquisition, proceeds from the Revolving Credit Facility can also be used towards working capital and general corporate purposes. Up to $5.0 million of the Revolving Credit Facility is available for the issuance of letters of credit, and any drawings under the letters of credit must be reimbursed within one business day.

 

Forrester incurred $1.8 million in costs related to the Revolving Credit Facility which are recorded in other assets on the Consolidated Balance Sheets. These costs are being amortized as interest expense on a straight-line basis over the five-year term of the Revolving Credit Facility. Forrester incurred $2.8 million in costs related to the Term Loans, which are recorded as a reduction to the face value of long-term debt on the Consolidated Balance Sheets. These costs are being amortized as interest expense utilizing the effective interest rate method.

 

Outstanding Borrowings

The following table summarizes the Company’s total outstanding borrowings as of the dates indicated (in thousands):

 

 

 

The Facilities contain certain customary restrictive loan covenants, including among others, financial covenants that apply a maximum leverage ratio and minimum fixed charge coverage ratio. The negative covenants limit, subject to various exceptions, the Company’s ability to incur additional indebtedness, create liens on assets, merge, consolidate, liquidate or dissolve any part of the Company, sell assets, pay dividends or other payments in respect to capital stock, change fiscal year, or enter into certain transactions with affiliates and subsidiaries. The first covenant reporting period was March 31, 2019 and the Company was in full compliance. The Facilities also contain customary events of default, representations, and warranties.

 

All obligations under the Facilities are unconditionally guaranteed by each of the Company’s existing and future, direct and indirect material wholly-owned domestic subsidiaries, other than certain excluded subsidiaries, and are collateralized by a first priority lien on substantially all tangible and intangible assets including intellectual property and all of the capital stock of the Company and its subsidiaries (limited to 65% of the voting equity of certain subsidiaries).

 

 

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Note 4 — Accumulated Other Comprehensive Loss

The components of accumulated other comprehensive loss are as follows (in thousands):

 

 

 

 

Note 5 — Fair Value Measurements

The Company measures certain financial assets at fair value on a recurring basis, including cash equivalents and available-for-sale securities. The fair values of these financial assets have been classified as Level 1, 2 or 3 within the fair value hierarchy as described in the accounting standards for fair value measurements.

Level 1 — Fair value based on quoted prices in active markets for identical assets or liabilities.

Level 2 — Fair value based on inputs other than Level 1 inputs that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 — Fair value based on unobservable inputs that are supported by little or no market activity and such inputs are significant to the fair value of the assets or liabilities.

During the three months ended March 31, 2019 and March 31, 2018, the Company did not transfer assets or liabilities between levels of the fair value hierarchy. The following table represents the Company’s fair value hierarchy for its financial assets and liabilities that are measured at fair value on a recurring basis (in thousands):

 

 

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Level 3 liabilities at March 31, 2019 consist entirely of the contingent purchase price related to the acquisition of FeedbackNow. Changes in the fair value of Level 3 contingent consideration for the three months ended March 31, 2019 were as follows (in thousands):

 

 

Note 6 — Non-Marketable Investments

At March 31, 2019 and December 31, 2018, the carrying value of the Company’s non-marketable investments, which were composed of interests in technology-related private equity funds, was $2.4 million and $2.5 million, respectively, and is included in other assets in the Consolidated Balance Sheets.

The Company’s non-marketable investments at March 31, 2019 are being accounted for using the equity method as the investments are limited partnerships and the Company has an ownership interest in excess of 5% and, accordingly, the Company records its share of the investee’s operating results each period. Losses from non-marketable investments were immaterial during the three months ended March 31, 2019 and March 31, 2018. Losses are included in losses on investments, net in the Consolidated Statements of Operations. During the three months ended March 31, 2019 and March 31, 2018, no distributions were received from the funds.

 

Note 7 – Contract Assets and Liabilities

Accounts Receivable

Accounts receivable includes amounts billed and currently due from customers. Since the only condition for payment of our invoices is the passage of time, the Company records a receivable on the date the invoice is issued. Also included in accounts receivable are unbilled amounts resulting from revenue exceeding the amount billed to the customer, where the right to payment is unconditional. If the right to payment for services performed was conditional on something other than the passage of time, the unbilled amount would be recorded as a separate contract asset. There were no contract assets as of March 31, 2019 or 2018.

The majority of the Company’s contracts are non-cancellable. However, for contracts that are cancellable by the customer, the Company does not record a receivable when it issues an invoice. The Company records accounts receivable on these contracts only up to the amount of revenue earned but not yet collected.

 

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In addition, since the majority of the Company’s contracts are for a duration of one year and payment is expected within one year from the transfer of products and services, the Company does not adjust its receivables or transaction price for the effects of a significant financing component.

Deferred Revenue

The Company refers to contract liabilities as deferred revenue on the Consolidated Balance Sheets. Payment terms in the Company’s customer contracts vary, but generally require payment in advance of fully satisfying the performance obligation(s). Deferred revenue consists of billings in excess of revenue recognized. Similar to accounts receivable, the Company does not record deferred revenue for invoices issued on a cancellable contract.

 

During the three months ended March 31, 2019, the Company recognized approximately $58.1 million of revenue related to its deferred revenue balance at January 1, 2019. During the three months ended March 31, 2018, the Company recognized approximately $58.0 million of revenue related to its deferred revenue balance at January 1, 2018. To determine revenue recognized in the current period from deferred revenue at the beginning of the period, the Company first allocates revenue to the individual deferred revenue balance outstanding at the beginning of the period, until the revenue equals that balance.

 

Approximately $357.9 million of revenue is expected to be recognized during the next 12 to 24 months from remaining performance obligations as of March 31, 2019.

Cost to Obtain Contracts

The Company capitalizes commissions paid to internal sales representatives and related fringe benefits costs that are incremental to obtaining customer contracts. These costs are included in deferred commissions on the Consolidated Balance Sheets. The Company accounts for these costs at a portfolio level as the Company’s contracts are similar in nature and the amortization model used closely matches the amortization expense that would be recognized on a contract-by-contract basis. Costs to obtain a contract are amortized to operations as the related revenue is recognized over the initial contract term. Amortization expense related to deferred commissions was $7.2 million and $7.1 million for the three months ended March 31, 2019 and March 31, 2018, respectively. The Company evaluates the recoverability of deferred commissions at each balance sheet date.

Note 8 — Income Taxes

Forrester provides for income taxes on an interim basis according to management’s estimate of the effective tax rate expected to be applicable for the full fiscal year. Certain items such as changes in tax rates, tax benefits or expense related to settlements of share-based payment awards, and foreign currency gains or losses are treated as discrete items and are recorded in the period in which they arise.

 

Income tax benefit for the three months ended March 31, 2019 was $0.2 million resulting in an effective tax rate of 1.7% for the period. The Company recorded a $0.6 million discrete tax expense during the three months ended March 31, 2019 due to the settlement of a U.S. Competent Authority claim during the period. The Company anticipates that its effective tax rate for the full year 2019 will be approximately 5% due to a projected pretax loss for the year. Income tax benefit for the three months ended March 31, 2018 was $0.7 million resulting in an effective tax rate of 28.7% for the period.

In July 2015, the U.S. Tax Court issued an opinion in Altera Corp. v. Commissioner related to the treatment of stock-based compensation expense in an intercompany cost-sharing arrangement. The opinion invalidated part of a treasury regulation requiring stock-based compensation to be included in any qualified intercompany cost-sharing arrangement. The Company previously recorded a tax benefit based on the opinion in the case. Currently the U.S. Court of Appeals for the Ninth Circuit is reviewing the case and a final decision is yet to be issued. The Company will continue to monitor ongoing developments and potential impacts to its consolidated financial statements.

Note 9 — Net Loss Per Common Share

Basic net loss per common share is computed by dividing net loss by the basic weighted average number of common shares outstanding during the period. Diluted net loss per common share is computed by dividing net loss by the diluted weighted average number of common shares and common equivalent shares outstanding during the period. The weighted average number of common equivalent shares outstanding has been determined in accordance with the treasury-stock method. Common equivalent shares consist of common stock issuable on the exercise of outstanding stock options and the vesting of restricted stock units.

 

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Basic and diluted weighted average common shares are as follows (in thousands):

 

 

 

Note 10 — Stockholders’ Equity

 

The components of stockholders’ equity are as follows (in thousands):

 

 

 

 

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Equity Plans

 

Restricted stock unit activity for the three months ended March 31, 2019 is presented below (in thousands, except per share data):

 

 

Stock option activity for the three months ended March 31, 2019 is presented below (in thousands, except per share data and contractual term):

 

 

Stock-Based Compensation

Forrester recognizes the fair value of stock-based compensation in net income (loss) over the requisite service period of the individual grantee, which generally equals the vesting period. Stock-based compensation was recorded in the following expense categories (in thousands):

 

 

Forrester utilizes the Black-Scholes valuation model for estimating the fair value of shares subject to purchase under the employee stock purchase plan, which were valued using the following assumptions:

 

 

Dividends

As a result of the acquisition of SiriusDecisions on January 3, 2019 and the related debt incurred to fund the acquisition, the Company suspended its dividend program in November 2018. Accordingly, the Company did not declare or pay any dividend in the three months ended March 31, 2019. In the three months ended March 31, 2018, the Company declared and paid dividends of $0.20 per share or $3.6 million in the aggregate.

 

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Treasury Stock

As of March 31, 2019, Forrester’s Board of Directors had authorized an aggregate $535.0 million to purchase common stock under its stock repurchase program. The shares repurchased may be used, among other things, in connection with Forrester’s equity incentive and purchase plans. In the three months ended March 31, 2019, the Company did not repurchase any shares of common stock. In the three months ended March 31, 2018, the Company repurchased approximately 0.1 million shares of common stock at an aggregate cost of approximately $4.4 million. From the inception of the program through March 31, 2019, the Company repurchased 16.3 million shares of common stock at an aggregate cost of $474.9 million.

 

 

Note 11 — Operating Segments

In conjunction with the acquisition of SiriusDecisions in the first quarter of 2019, the Company realigned its management structure into Products, Research and SiriusDecisions.

The Products segment includes the revenues of the Connect, Analytics, and Events products (excluding the revenues from SiriusDecisions products) and the costs of the organizations responsible for developing and delivering these products. In addition, this segment includes Consulting revenues from the project consulting organization that is included in this segment. The project consulting organization delivers a majority of the Company’s project consulting revenue (excluding SiriusDecisions consulting) and certain advisory services primarily related to the Analytics product line. This segment also includes the costs of the product management organization that is responsible for product pricing and packaging and the launch of new products.

The Research segment includes the revenues of the Research products and the cost of the organizations responsible for developing and delivering the Research products (excluding the costs and revenues from SiriusDecisions products). In addition, this segment includes Consulting revenues primarily from the delivery of advisory services (such as workshops, speeches and advisory days) delivered by the Company’s research analysts.

The SiriusDecisions segment includes the revenues of the legacy SiriusDecisions products and the costs of the organizations responsible for developing and delivering these products. In addition, this segment includes the costs of marketing, technology development and business support departments of the legacy SiriusDecisions business.

The Company evaluates reportable segment performance and allocates resources based on segment revenues and expenses. Segment expenses include the direct expenses of each segment organization and exclude, except as noted above for the SiriusDecisions segment, selling and marketing expenses, general and administrative expenses, stock-based compensation expense, depreciation expense, adjustments to incentive bonus compensation from target amounts, amortization of intangible assets, interest and other expense, and losses on investments. The accounting policies used by the segments are the same as those used in the consolidated financial statements.

The Company is providing disaggregated revenue by product in the segment tables below (in thousands). The 2018 amounts have been reclassified to conform to the current presentation.

 

 

 

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Note 12 — Recent Accounting Pronouncements

 

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments. The new standard amends the current financial instrument impairment model by requiring entities to use a forward-looking approach based on expected losses to estimate credit losses on certain types of financial instruments, including trade receivables.  The new standard will be effective for the Company on January 1, 2020. The adoption of this standard is not expected to have a material impact on the Company’s financial position or results of operations.

 

In January 2017, the FASB issued ASU No. 2017-04, Intangibles-Goodwill and Other: Simplifying the Test for Goodwill Impairment. The new standard simplifies the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test and requires that instead, an entity should perform its goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. The new standard will be effective for the Company on January 1, 2020. The adoption of this standard is not expected to have a material impact on the Company’s financial position or results of operations.

 

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement. The new standard modifies the disclosure requirements on fair value measurements in Topic 820, Fair Value Measurement. The standard includes changes to fair value transfers and Level 3 fair value disclosures. The new standard will be effective for the Company on January 1, 2020. The adoption of this standard is not expected to have a material impact on the Company’s financial position or results of operations.

 

In August 2018, the FASB issued ASU No. 2018-15, Intangibles-Goodwill and Other-Internal-Use Software: Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract. The new standard aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). The new standard will be effective for the Company on January 1, 2020. The Company is currently evaluating the potential impact that this standard may have on its financial position and results of operations.

 

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Words such as “expects,” “believes,” “anticipates,” “intends,” “plans,” “estimates,” or similar expressions are intended to identify these forward-looking statements. Reference is made in particular to our statements about possible acquisitions, future dividends, future share repurchases, future growth rates and operating income, future compliance with financial covenants under our credit facility, anticipated increases in, and productivity of, our sales force and headcount, changes to our customer engagement model, and the adequacy of our cash and cash flows to satisfy our working capital and capital expenditures. These statements are based on our current plans and expectations and involve risks and uncertainties that could cause actual future activities and results of operations to be materially different from those set forth in the forward-looking statements. Important factors that could cause actual future activities and results to differ include, among others, our ability to retain and enrich memberships for our research, connect and analytics services, our ability to fulfill existing or generate new project consulting engagements, our ability to integrate the operations of acquired companies, the impact of our outstanding debt, the impact of our evolving customer engagement model, technology spending, the risks and challenges inherent in international business activities including any impact of Brexit, our ability to offer new products and services, our dependence on key personnel, the ability to attract and retain qualified professional staff, our ability to respond to business and economic conditions and market trends, the possibility of network disruptions and security breaches, competition and industry consolidation, our ability to enforce and protect our intellectual property rights, compliance with privacy laws, possible variations in our quarterly operating results, taxation risks, concentration of our stock ownership and any weakness identified in our system of internal controls. These risks are described more completely in our Annual Report on Form 10-K for the year ended December 31, 2018. We undertake no obligation to update publicly any forward-looking statements, whether as a result of new information, future events, or otherwise.

We derive revenues from memberships of our Research, Connect and Analytics products and services, performing Consulting services and hosting Events. We offer contracts for our Research, Connect and Analytics products that are typically renewable annually and payable in advance. Membership revenues are recognized as revenue ratably over the term of the contract. Accordingly, a substantial portion of our billings are initially recorded as deferred revenue. Clients purchase Consulting services (includes advisory services and consulting projects) independently and/or to supplement their memberships to our subscription-based products. Billings attributable to advisory services and consulting projects are initially recorded as deferred revenue. Advisory services revenues, such as workshops, speeches and advisory days, are recognized when the customer receives the agreed upon deliverable. Consulting project revenues, which generally are short-term in nature and based upon fixed-fee agreements, are recognized as the services are provided. Event billings are also initially recorded as deferred revenue and are recognized as revenue upon completion of each Event.

Our primary operating expenses consist of cost of services and fulfillment, selling and marketing expenses and general and administrative expenses. Cost of services and fulfillment represents the costs associated with the production and delivery of our products and services, including salaries, bonuses, employee benefits and stock-based compensation expense for all personnel that produce and deliver our products and services, including all associated editorial, travel, and support services. Selling and marketing expenses include salaries, sales commissions, bonuses, employee benefits, stock-based compensation expense, travel expenses, promotional costs and other costs incurred in marketing and selling our products and services. General and administrative expenses include the costs of the technology, operations, finance, and human resources groups and our other administrative functions, including salaries, bonuses, employee benefits, and stock-based compensation expense. Overhead costs such as facilities and annual fees for cloud-based information technology systems are allocated to these categories according to the number of employees in each group.

In the first quarter of 2019, we modified our calculation of client retention, dollar retention, and enrichment in conjunction with a project to fully automate the calculations. Client retention has been expanded to include virtually all client relationships (except for clients that only purchase web-based products such as individual reports, workshops and Event tickets) in comparison to the prior calculation that included only clients that purchased membership-based products. Dollar retention and enrichment are now calculated at a client account level in comparison to a contract level in the prior calculation. This results in a broader view of dollar retention and enrichment as it includes virtually all products in the calculations (except for web-based products mentioned above) and captures all enrichment that occurs within the year for an account. We have provided the metrics under the new methodology for each quarter of 2018 in the table below.

 

 

 

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Deferred revenue, agreement value, client retention, dollar retention, enrichment and number of clients are metrics that we believe are important to understanding our business. We believe that the amount of deferred revenue, along with the agreement value of contracts, provide a significant measure of our business activity.

We define these metrics as follows:

Client retention, dollar retention, and enrichment are not necessarily indicative of the rate of future retention of our revenue base. A summary of our key metrics is as follows (dollars in millions):

 

 

Agreement value and number of clients include the effect of SiriusDecisions, but retention and enrichment metrics will not be similarly affected until the first quarter of 2020.

 

Deferred revenue at March 31, 2019 increased 23% compared to the prior year primarily due to the acquisition of SiriusDecisions. Excluding the effect of SiriusDecisions, deferred revenue increased approximately 3% as contract billings exceeded revenue for the period. Agreement value increased 40% at March 31, 2019 compared to the prior year with approximately 28 percentage points of growth due to the acquisition of SiriusDecisions and the remainder due to both an increase in contract bookings and increased bundling of Consulting services with our Research and Connect products in our contracts. Client retention rate increased 1 percentage point compared with both the prior quarter and with the prior year period. Dollar retention rate was flat with both the prior quarter and the prior year period. Enrichment rate decreased 4 percentage points compared to the prior year and 3 percentage points compared to the prior quarter period.

 

Management’s discussion and analysis of financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our policies and estimates, including but not limited to, those related to our revenue recognition, non-marketable investments, goodwill and other intangible assets, and income taxes. Management bases its estimates on historical experience, data available at the time the estimates are made and various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other

 

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sources. Actual results may differ from these estimates under different assumptions or conditions. Our other critical accounting policies and estimates are described in our Annual Report on Form 10-K for the year ended December 31, 2018.

Results of Operations

The following table sets forth our statement of operations as a percentage of total revenues for the periods indicated:

 

 

Three Months Ended March 31, 2019 and 2018

Revenues

 

 

Total revenues increased 29% during the three months ended March 31, 2019 compared to the prior year period, with SiriusDecisions contributing $15.2 million or 19.5% of the increase. Revenues from customers outside the U.S. increased 19% during the three months ended March 31, 2019 compared to the prior year period. The increase in revenues attributable to customers outside of the U.S. during the three months ended March 31, 2019 was due to the acquisition of SiriusDecisions, which added $2.5 million in international revenue, and growth in revenues in Canada and the Asia Pacific region in the legacy Forrester business.

Research services revenues are recognized as revenue primarily on a ratable basis over the term of the contracts, which are generally twelve-month periods. Research services revenues increased 33% during the three months ended March 31, 2019 compared to the prior year period, with SiriusDecisions contributing $13.8 million or 27% of the increase. The remainder of the increase was primarily driven by an increase in demand for the legacy Forrester Research products.

 

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Revenues from advisory services and events increased 23% during the three months ended March 31, 2019 compared to the prior year period, with SiriusDecisions contributing $1.4 million or 5% of the increase. The remainder of the increase was due to strong delivery of legacy Forrester Consulting revenues.

Please refer to the “Segments Results” section below for a discussion of revenues and expenses by segment.

Cost of Services and Fulfillment

 

 

Cost of services and fulfillment expenses increased 32% during the three months ended March 31, 2019 compared to the prior year period. Approximately $8.0 million of the increase was attributable to the acquisition of SiriusDecisions. The $3.0 million increase attributable to legacy Forrester activity was primarily due to (1) a $1.3 million increase in compensation and benefit costs, resulting principally from an increase in employees compared to the prior year period and annual merit increases, (2) a $0.5 million increase in professional services costs primarily due to an increase in outsourcing of services performed on our revenue contracts, (3) a $0.4 million increase in travel and entertainment expenses, and (4) a $0.4 million increase in stock compensation expense.

Selling and Marketing

 

 

Selling and marketing expenses increased 27% during the three months ended March 31, 2019 compared to the prior year period. Approximately $8.4 million of the increase was attributable to the acquisition of SiriusDecisions. The $0.6 million increase attributable to legacy Forrester activity was primarily due to a $0.5 million increase in travel and entertainment expenses.

General and Administrative

 

 

General and administrative expenses increased 23% during the three months ended March 31, 2019 compared to the prior year period. Approximately $2.1 million of the increase was attributable to the acquisition of SiriusDecisions. The $0.4 million increase attributable to legacy Forrester activity was primarily due to multiple small increases including an increase in compensation and benefits costs resulting principally from an increase in employees compared to the prior year period and an increase in professional and subscription services costs.

Depreciation

Depreciation expense remained essentially consistent during the three months ended March 31, 2019 compared to the prior year period.

 

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Amortization of Intangible Assets

Amortization expense increased by $6.0 million during the three months ended March 31, 2019 compared to the prior year period due to our recent acquisitions.

Acquisition and Integration Costs

During the three months ended March 31, 2019, we incurred $3.0 million of acquisition and integration costs. The costs consist of the direct and incremental costs to acquire and integrate the companies as well as certain fair value adjustments related to the acquisitions.  The charges primarily consisted of consulting, severance, accounting and tax professional fees, and valuation services. These charges were partially offset by a $1.1 million decrease due to recording deferred commissions for SiriusDecisions as the result of adopting ASC 606. We expect to incur acquisition and integration costs in a range of $6.5 million to $7.5 million for the year ending December 31, 2019.

Interest Expense

During the three months ended March 31, 2019, we incurred $2.4 million of interest expense. Interest expense consists of interest on our borrowings used to finance the acquisition of SiriusDecisions.

Other Expense, Net

Other expense, net primarily consists of losses on foreign currency partially offset by interest income. The increase in other expense, net of $0.2 million during the three months ended March 31, 2019 compared to the prior year period was primarily due to a decrease in interest income.

Losses on Investments, Net

Losses on investments, net primarily represents our share of equity method investment losses from our technology-related investment funds. Losses on investments, net remained essentially consistent during the three months ended March 31, 2019 compared to the prior year period.

Income Tax Benefit

 

 

Income tax benefit during the three months ended March 31, 2019 includes a discrete tax expense of $0.6 million due to a settlement with U.S. Competent Authority during the period. For the full year 2019, we anticipate that our effective tax rate will be approximately 5% due to a projected pretax loss for the year.

 

In July 2015, the U.S. Tax Court issued an opinion in Altera Corp. v. Commissioner related to the treatment of stock-based compensation expense in an intercompany cost-sharing arrangement. The opinion invalidated part of a treasury regulation requiring stock-based compensation to be included in any qualified intercompany cost-sharing arrangement. We previously recorded a tax benefit based on the opinion in the case. Currently the U.S. Court of Appeals for the Ninth Circuit is reviewing the case and a final decision is yet to be issued. We will continue to monitor ongoing developments and potential impacts to our consolidated financial statements.

Segment Results

In conjunction with the acquisition of SiriusDecisions in the first quarter of 2019, we realigned our management structure into Products, Research and SiriusDecisions. Prior year amounts have been reclassified to conform to the current presentation.

The Products segment includes the revenues of the Connect, Analytics, and Events products (excluding the revenues from SiriusDecisions products) and the costs of the organizations responsible for developing and delivering these products. In addition, this segment includes Consulting revenues from the project consulting organization that is included in this segment. The project consulting organization delivers a majority of our project consulting revenue (excluding SiriusDecisions consulting) and certain advisory services primarily related to the Analytics product line. This segment also includes the costs of the product management organization that is responsible for product pricing and packaging and the launch of new products.

The Research segment includes the revenues of the Research products and the cost of the organizations responsible for developing and delivering the Research products (excluding the costs and revenues from SiriusDecisions products). In addition, this segment includes

 

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Consulting revenues primarily from the delivery of advisory services (such as workshops, speeches and advisory days) delivered by our research analysts.

The SiriusDecisions segment includes the revenues of the legacy SiriusDecisions products and the costs of the organizations responsible for developing and delivering these products. In addition, this segment includes the costs of marketing, technology development and business support departments of the legacy SiriusDecisions business.

We evaluate reportable segment performance and allocate resources based on segment revenues and expenses. Segment expenses include the direct expenses of each segment organization and exclude, except as noted above for the SiriusDecisions segment, selling and marketing expenses, general and administrative expenses, stock-based compensation expense, depreciation expense, adjustments to incentive bonus compensation from target amounts, amortization of intangible assets, interest and other expense, and losses on investments. The accounting policies used by the segments are the same as those used in the consolidated financial statements.

 

 

 

Product segment revenues increased 15% during the three months ended March 31, 2019 compared to the prior year period. Connect revenues increased 4% driven by our new learning product and Analytics revenues grew 17% due primarily to the FeedbackNow product line. Consulting revenues increased 24% driven by healthy backlog entering the quarter and higher utilization of our consultants. Product segment expenses increased 13% during the three months ended March 31, 2019 compared to the prior year period. The increase in expenses was primarily due to a $1.3 million increase in compensation and benefit costs due to an increase in the number of employees as well as a $0.5 million increase in billable expenses and other travel and entertainment.

Research segment revenues increased 6% during the three months ended March 31, 2019 compared to the prior year period. The Research product line increased 5% driven by our reprint product and Consulting revenues increased 10% due to strong delivery of advisory services and project consulting. Research segment expenses increased 5% during the three months ended March 31, 2019 compared to the prior year period. The increase in expenses was primarily due to an increase in compensation and benefit costs, professional services, and travel and entertainment.

 

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Liquidity and Capital Resources

The amounts reported in our earnings release and Form 8-K filed on April 30, 2019 for cash generated from operating activities and cash used for acquisitions of $26.5 million and $(239.4) million, respectively, have been adjusted in this Form 10-Q to $26.0 million and $(238.9) million, respectively.

We have historically financed our operations primarily through funds generated from operations. Research services revenues, which constituted approximately 68% of our revenues during the three months ended March 31, 2019, are generally renewable annually and are typically payable in advance. We generated cash from operating activities of $26.0 million and $7.8 million during the three months ended March 31, 2019 and 2018, respectively. The $18.2 million increase in cash provided from operations for the three months ended March 31, 2019 was attributable to a $33.5 million increase in cash generated from working capital, driven by (a) a $23.2 million increase from accounts receivable in deferred revenue due to strong bookings and collections activity in the current period and due to the prior period having lower than normal cash generation due to system changes implemented in the first quarter of 2018 which delayed client invoicing and (b) $7.6 million of lower cash used for accrued expenses due to an increase of $7.0 million in accrued income taxes in the current period (which partially offset the non-cash deferred tax expense of $10.5 million). These increases were partially offset by a $15.3 million decrease in net loss combined with the effect of non-cash items, which was due to a $10.5 million deferred tax expense recorded in the current period and increased acquisition and integration costs.

During the three months ended March 31, 2019, we used cash in investing activities of $241.7 million, consisting primarily of $238.9 million for the acquisition of SiriusDecisions, net of cash acquired, and $2.8 million in purchases of property and equipment. Property and equipment purchases during 2019 consisted primarily of software and leasehold improvements. During the three months ended March 31, 2018, we used $1.4 million of cash from investing activities, consisting primarily of $1.3 million of purchases of property and equipment and $0.1 million in net purchases of marketable investments. Property and equipment purchases during 2018 consisted primarily of software.

We generated $151.4 million of cash from financing activities during the three months ended March 31, 2019 primarily due to $171.3 million of borrowings, which reflects the face value of debt of $175.0 million less $3.7 million that was netted against the proceeds to pay debt issuance costs. This was partially offset by $21.6 million of repayments of debt during the quarter that consisted of $20.0 million of discretionary payments on our revolving credit facility and $1.6 million of required repayments of our term loan. We used $5.5 million of cash in financing activities during the three months ended March 31, 2018 primarily due to the use of $4.4 million for purchases of our common stock and and the payment of a $3.6 million quarterly dividend, at $0.20 per share, which were partially offset by $2.5 million of proceeds from the exercise of stock options and our employee stock purchase plan. At March 31, 2019, we had $30.0 million outstanding on our revolving credit facility and plan to use excess cash flow, if any, to continue to make discretionary payments on our revolving credit facility. As of March 31, 2019, our remaining stock repurchase authorization was approximately $60.1 million.

In connection with the acquisition of SiriusDecisions, we entered into a $200.0 million credit agreement on January 3, 2019. The credit agreement provides for: (1) senior secured term loans in an aggregate principal amount of $125.0 million (the “Term Loans”) and (2) a senior secured revolving credit facility in an aggregate principal amount of $75.0 million (the “Revolving Credit Facility”). We utilized the full $125.0 million of the Term Loans and $50.0 million of the Revolving Credit Facility to finance a portion of the acquisition of SiriusDecisions and to pay certain fees, costs and expenses incurred in connection with the Term Loans and Revolving Credit Facility. Additional information on this debt is provided in Note 3 – Debt included herein

Borrowings under the credit agreement can be repaid early, in part or in whole, at any time and from time to time, without premium or penalty, other than customary breakage reimbursement requirements for LIBOR-based loans. The Term Loans must be prepaid with net cash proceeds of (i) certain debt incurred or issued by us and our restricted subsidiaries and (ii) certain asset sales and condemnation or casualty events, subject to certain reinvestment rights.

Amounts borrowed under the credit agreement bear interest, at our option, at a rate per annum equal to either (i) the London Interbank Offering Rate (“LIBOR”) for the applicable interest period plus a margin that is between 1.75% and 2.50% based on our consolidated total leverage ratio or (ii) the alternate base rate plus a margin that is between 0.75% and 1.50% based on our consolidated total leverage ratio. In addition, we will pay a commitment fee equal to 0.35% per annum on the average daily unused portion of the Revolving Credit Facility, payable quarterly, in arrears. The commitment fee may decrease to 0.30% or 0.25% based on our consolidated total leverage ratio.

The credit agreement contains certain customary restrictive loan covenants, including among others, financial covenants that apply a maximum leverage ratio and minimum fixed charge coverage ratio. The negative covenants limit, subject to various exceptions, our ability to incur additional indebtedness, create liens on assets, merge, consolidate, liquidate or dissolve any part of Forrester, sell assets, pay dividends or other payments in respect to capital stock, change fiscal year, or enter into certain transactions with affiliates and subsidiaries. The first covenant reporting period was March 31, 2019 and we were in full compliance. The credit agreement also contains customary events of default, representations, and warranties.

As of March 31, 2019, we had cash and cash equivalents of $75.0 million. These balances include $46.0 million held outside of the U.S. If these funds outside of the U.S. are needed for operations in the U.S., we would be required to accrue and pay U.S. state taxes and may be required to pay withholding taxes to foreign jurisdictions to repatriate these funds. We would not expect these additional taxes to be significant. However, our intent is to permanently reinvest these funds outside of the U.S. and our current plans do not

 

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demonstrate a need to repatriate these funds for our U.S. operations. We believe that our current cash balance and cash flows from operations will satisfy working capital, financing activities, and capital expenditure requirements for the next twelve months.

Contractual Obligations

There has been a material change to the contractual obligations table as disclosed in our Annual Report on Form 10-K for the year ended December 31, 2018 due to the acquisition of SiriusDecisions that closed on January 3, 2019. As of March 31, 2019, we have the following new future contractual obligations (in thousands):

 

 

Off-Balance Sheet Arrangements

We do not maintain any off-balance sheet financing arrangements.

Recent Accounting Pronouncements

See Note 1 and Note 12 of the Notes to Consolidated Financial Statements for a full description of recent accounting pronouncements including the expected dates of adoption and effects on results of operations and financial condition.

 

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Except as noted below, there have been no material change in our assessment of our sensitivity to market risk since our presentation set forth in Item 7A, “Quantitative and Qualitative Disclosures About Market Risk,” in our Annual Report on Form 10-K for the year ended December 31, 2018.

INTEREST RATE RISK

As of March 31, 2019, we had $153.4 million in total debt principal outstanding. See Note 3 — Debt herein for additional information regarding our outstanding debt obligations.

All of our debt outstanding as of March 31, 2019 was based on a floating base rate of interest, which potentially exposes us to increases in interest rates. As an indication of our potential exposure to changes in interest rates, a hypothetical 25 basis point increase or decrease in interest rates could change our annual pretax interest expense for the following 12 month period by approximately $0.4 million.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

We maintain “disclosure controls and procedures,” as such term is defined under Securities Exchange Act Rule 13a-15(e), that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosures. In designing and evaluating the disclosure controls and procedures, our management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives and our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Our management, with the participation of our principal executive officer and principal financial officer, has evaluated the effectiveness of our disclosure controls and procedures as of March 31, 2019. Based upon their evaluation and subject to the foregoing, the principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective to provide reasonable assurance as of that date.

The foregoing assessment excludes our acquisition on January 3, 2019 of SiriusDecisions, for which we paid $247.3 million at closing. See Note 2 to the Consolidated Financial Statements for additional information. This exclusion is in accordance with the general guidance issued by the Staff of the SEC that an assessment of a recent business acquisition may be omitted from management’s report on internal control over financial reporting in the first year of consolidation.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the quarter ended March 31, 2019 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting with respect to historical Forrester operations. We are currently in the process of integrating our acquisition of SiriusDecisions, evaluating its internal controls and implementing our internal control structure over its operations, which may lead us to modify certain internal controls in future periods.

 

 

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PART II. OTHER INFORMATION

ITEM 1A. RISK FACTORS

In addition to the other information set forth in this Form 10-Q, you should carefully consider the factors discussed in Part I, “Item 1A: Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2018, which could materially affect our business, financial condition or future results. The risk factors described in our Annual Report on Form 10-K remain applicable to our business. The risks described in our Annual Report on Form 10-K are not the only risks that we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Through March 31, 2019, our Board of Directors authorized an aggregate $535.0 million to purchase common stock under our stock repurchase program. During the quarter ended March 31, 2019, we did not purchase any shares of our common stock under the stock repurchase program.

 

 

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ITEM 6. EXHIBITS

 

 

 

 

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

Date: May 10, 2019

 

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Exhibit 10.1

THIRD AMENDMENT TO OFFICE LEASE

THIS THIRD AMENDMENT TO OFFICE LEASE (this “Amendment”) is made as of March 12, 2019 (the “Effective Date”), by and between SPEAR STREET CORRIDOR LLC, a Delaware limited liability company (“Landlord”), and FORRESTER RESEARCH, INC., a Delaware corporation (“Tenant”).

W I T N E S S E T H:

Recitals

Landlord (as successor-by-assignment to 150 Spear Street, LLC, a Delaware limited liability company) and Tenant are parties to that certain Office Lease dated November 24, 2010 (the “Original Lease”),  as amended by that certain First Amendment to Office Lease dated August __, 2012, and by that certain Second Amendment to Office Lease dated September 25, 2015 (the “Second Amendment”, and collectively, the “Lease”), for certain space in the building located at 150 Spear Street in San Francisco, California containing approximately 264,492 rentable square feet (the “Building”), and more particularly described in the Lease as approximately 19,036 rentable square feet of space consisting of 3,476 rentable square feet located on the tenth (10^th) floor of the Building and commonly known as Suite 1050 and 15,560 rentable square feet located on the eleventh (11^th) floor of the Building and commonly known as Suite 1100 (the “Existing Premises”).  

The parties now desire to amend the Lease to expand the Existing Premises, extend the Lease Term and otherwise to modify the Lease on the terms set forth herein.  

Amendment

NOW, THEREFORE, in consideration of the mutual promises contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Landlord and Tenant agree as follows, all to be effective as of the Effective Date of this Amendment:

1.Defined Terms.  Unless otherwise indicated herein, all capitalized terms used herein shall have the meaning set forth in the Lease.

2.Premises Expansion. Landlord hereby leases to Tenant and Tenant hereby leases from Landlord the Expansion Premises, as hereinafter defined, on the terms and conditions set forth in the Lease, as amended by this Amendment, effective as of the earlier of (i) seven (7) months following the date the Expansion Premises is delivered to Tenant (the Expansion Premises shall be delivered to Tenant upon execution of this Amendment) or (ii) the date upon which Tenant commences business operations in the Expansion Premises (the “Expansion Effective Date”).  Commencing on the Expansion Effective Date, (i) the Premises shall consist of the Existing Premises plus an additional 12,085 rentable square feet located on the tenth (10^th) floor of the Building, known as Suite 1000 (the “Expansion Premises”), as shown on the plan attached hereto as Exhibit A and made a part hereof, for a total of  31,121 rentable square feet, and (ii) any reference to the term “Premises” in the Lease, as hereby amended, shall mean the Existing Premises together with the Expansion Premises.  

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3.Lease Term.  Landlord and Tenant acknowledge and agree that the term of the Lease with respect to the Expansion Premises shall be the time period commencing on the Expansion Effective Date and expiring on June 30, 2027 (the “Expansion Term”).  The term of the Lease with respect to the Existing Premises is hereby extended to expire simultaneously with the Expansion Term.  

a.Commencing on the Expansion Effective Date, Tenant shall pay Base Rent for the Expansion Premises in accordance with the Lease in the amounts set forth below:

 

 

This rent schedule does not include any operating expense pass-through adjustments or other additional rent to be computed and collected in accordance with the Lease.

* Notwithstanding the foregoing, Base Rent shall be abated for the first three and one half (3.5) calendar months of the Expansion Term for the Expansion Premises only; provided, however, if the Lease or Tenant’s right to possess the Premises is terminated as a result of an Event of Default by Tenant, Landlord shall be entitled to recover from Tenant, in addition to all other rights and remedies available to Landlord, all unamortized (amortization shall be on a straight-line basis over the Expansion Term) abated Base Rent.

b.Prior to July 1, 2022, Tenant shall continue to pay Base Rent for the Existing Premises in accordance with the terms and conditions of the Lease. Commencing on July 1, 2022, Tenant shall pay Base Rent for the Existing Premises at the rate per Rentable Square Foot then applicable to the Expansion Premises (so, by way of example, if July 1, 2022 falls during the thirty-third (33^rd) month of the Expansion Premises Term, the Base Rent for the Existing Premises from July 1, 2022 until the last day of the thirty-sixth (36^th) month of the Expansion Term would be $90.18 per Rentable Square Foot of the Existing Premises and would increase to $92.88 per Rentable Square Foot of the Existing Premises on the first day of the thirty-seventh (37^th) month of the Expansion Term. Promptly following the Expansion Effective Date, Landlord and Tenant shall execute a Confirmation of the Expansion Effective Date and the Base Rent for the Existing Premises substantially in the form attached hereto as Exhibit E.

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a.Tenant shall construct improvements to the Premises (the “Tenant Improvements”) in substantial conformity with the plans and outline specifications of the plan to be prepared pursuant to the provisions of the Work Letter (the “Work Letter”) attached hereto as Exhibit B. Landlord shall provide Tenant with a one-time tenant improvement allowance in the amount of $100.00 per rentable square foot of the Expansion Premises (i.e. $1,208,500.00) (the “Expansion Premises Allowance”) and $30.00 per rentable square foot of the Existing Premises (i.e. $571,080) (the “Existing Premises Allowance” and, together with the Expansion Premises Allowance, the “Tenant Improvement Allowance”) for the costs relating to the Tenant Improvements. The Expansion Premises Allowance shall only be used for the costs relating to the Tenant Improvements in the Expansion Premises. The Existing Premises Allowance may be used for the costs relating to the Tenant Improvements in the Existing Premises and/or the Expansion Premises, in Tenant’s sole discretion.  In no event shall Landlord be obligated to contribute toward the cost of the Tenant Improvements which are not agreed upon by Landlord or a total amount which exceeds the Tenant Improvement Allowance. Any portion of the Tenant Improvement Allowance which has not been expended and requested from Landlord pursuant to the terms of Section 2 of the Work Letter by April 30, 2020 shall be forfeited. Subject to Section 5(b) below, Tenant shall be responsible for any costs incurred to make the Existing Premises compliant under any applicable codes or Applicable Laws, as a result of the Tenant Improvements and Landlord shall be responsible for any costs incurred to make the Building (except for the Existing Premises) compliant under any applicable codes or Applicable Laws, as a result of the Tenant Improvements.

b.Landlord, at its sole cost and expense, shall renovate the restrooms and Common Areas on the tenth (10^th) and eleventh (11^th) floors of the Building (the “Landlord Work”), in substantial conformity with the new Building standard and the renovations performed on the eighteenth (18^th) floor of the Building and in compliance with all applicable ADA Requirements. Landlord shall perform the Landlord Work within twenty-four (24) months of the Effective Date; provided, however, if, as the result of the Tenant Improvements or in order to comply with the applicable ADA Requirements, additional work is required to make the restrooms or Common Areas compliant under any applicable codes or Applicable Laws, Landlord shall perform such work promptly following the date upon which such additional work becomes necessary or as required by such ADA Requirement.

c.Subject to Section 5(a) and 5(b) above, Tenant acknowledges and agrees that Landlord shall have no obligation to make or pay for any improvements to the Premises in connection with this Amendment and Tenant accepts the Premises in its “AS IS” condition. To Landlord’s actual knowledge, there are no defects in the Expansion Premises that would render the space unusable for the Permitted Use. As used herein, “Landlord’s actual knowledge” shall only refer to the actual knowledge of James Osburn and shall not be construed, by imputation or otherwise, to refer to the knowledge of any other officer, agent, representative or employee of Landlord.

d.Landlord hereby agrees that Landlord shall notify Tenant in writing at the time Tenant submits to Landlord for Landlord’s approval its Construction Drawings (as defined in the Work Letter) if Tenant shall be required to remove any portion of the Tenant Improvements upon the expiration or any earlier termination of the Lease.  If Landlord does not so notify Tenant, notwithstanding anything to the contrary contained in the Lease, Tenant shall not be required to remove any portion of the Tenant Improvements upon the expiration or any earlier termination of the Lease.

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“Notwithstanding any provisions herein to the contrary, if any utility services necessary for Tenant’s operation of its business in the Premises are not available to Tenant, not due to any act or omission by Tenant or Tenant’s Agents, beyond the greater of (i) five (5) business days, or (ii) the time period during which Tenant is reimbursed by its insurance company under its business interruption insurance policy, then Tenant shall have the right to abate the payment of Base Rent until such services are restored.”

“Tenant waives and releases Landlord from and against all claims for recovery for any loss or damage to Tenant’s property arising out of earthquakes or floods, regardless of whether Tenant has insurance covering such loss or damage.”

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a.Provided that there then exists no Event of Default by Tenant under the Lease nor any event that with the giving of notice and/or the passage of time would constitute an Event of Default, and that Tenant or any Transferee pursuant to a Permitted Transfer is the sole occupant of the

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Premises, Tenant shall have the option to renew this Lease for one (1) additional term of five (5) years (the “Renewal Term”).  The Renewal Term shall be subject to all of the terms and conditions of the Lease except (i) the Base Rent payable during the first year of the Renewal Term shall be equal to the Fair Market Rent (as such term is hereinafter defined), (ii) the Base Rent payable during each subsequent year of the Renewal Term shall be equal to one hundred three percent (103%) of the Base Rent payable during the immediately preceding year, (iii) the Base Years shall adjust to the calendar year 2027, (iv) Landlord shall have no obligations with respect to improvements to the Premises with respect to the Renewal Term and (v) Tenant shall have no further option to extend the Term.  If Tenant chooses to exercise such option, it shall give written notice to Landlord of its exercise of the option at least nine (9) months, but no more than twelve (12) months, prior to the expiration of the then-current Term.

b.For purposes of this Lease, “Fair Market Rent” shall mean the base rent, for comparable space, net of all free or reduced rent periods, work letters, cash allowances, fit-out periods and other tenant inducement concessions however denominated, as mutually agreed by Landlord and Tenant after Landlord’s receipt of Tenant’s notice of intent to renew.  Landlord shall notify Tenant of the applicable Fair Market Rent as determined by Landlord within fifteen (15) days after receipt of Tenant’s notice of intent to renew.  In determining the Fair Market Rent, Landlord shall take into account applicable measurement and the loss factors, applicable lengths of lease term, differences in size of the space demised, the location of the Building and comparable buildings, amenities in the Building and comparable buildings, the ages of the Building and comparable buildings, differences in operating expenses and tax escalations, the creditworthiness of Tenant and other factors normally taken into account in determining Fair Market Rent.  The Fair Market Rent shall reflect the level of improvement to be made by Landlord to the Premises and the services provided under this Lease.

c.Landlord shall notify Tenant of the applicable Fair Market Rent as determined by Landlord within fifteen (15) days after receipt of Tenant’s notice of intent to renew. Tenant shall have thirty (30) days in which to give written notice to Landlord that Tenant (a) disagrees with Landlord’s proposed Fair Market Rent, or (b) accepts Landlord’s proposed Fair Market Rent.  If Tenant fails to notify Landlord that it either accepts Landlord’s proposed Fair Market Rent or disagrees with Landlord’s proposed Fair Market Rent within the thirty (30) days described in the immediately preceding sentence, Tenant shall be deemed to have accepted Landlord’s proposed Fair Market Rent for the applicable extended Lease Term. If Tenant disagrees with Landlord’s proposed Fair Market Rent, then Landlord and Tenant shall endeavor in good faith to agree upon the Fair Market Rent within the next thirty (30) days (the “Negotiation Period”).  If Landlord and Tenant are unable to agree upon the Fair Market Rent within such Negotiation Period, then the Fair Market Rent shall be determined by the arbitration procedure set forth below.

d.Within ten (10) days following the expiration of the Negotiation Period, Tenant and Landlord shall each notify the other, in writing, of their respective selections of a commercial real estate broker or salesperson to determine the Fair Market Rent (respectively, “Landlord’s Arbitrator” and “Tenant’s Arbitrator”). If a party does not appoint such a broker or salesperson within such ten (10) day period, the single broker or salesperson appointed shall be the sole broker and shall set the Fair Market Rent.  The cost of such sole broker shall be borne equally by the parties.  If two brokers are appointed by the parties as provided in this paragraph, Landlord’s Arbitrator and Tenant’s Arbitrator shall then jointly select a third broker meeting the qualifications stated above (the “Third Arbitrator”) within fifteen (15) days of their appointment. The three arbitrators shall determine the Fair Market Rent in accordance with the requirements and criteria set forth in the preceding paragraph above, employing the method commonly

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known as Baseball Arbitration, whereby Landlord’s Arbitrator and Tenant’s Arbitrator each sets forth its determination of the Fair Market Rent as defined above and the Third Arbitrator must select one or the other (it being understood that the Third Arbitrator shall be expressly prohibited from selecting a compromise figure).  Landlord’s Arbitrator and Tenant’s Arbitrator shall deliver their determinations of the Fair Market Rent to the Third Arbitrator within five (5) days of the appointment of the Third Arbitrator and the Third Arbitrator shall render his or her decision within ten (10) days after receipt of both of the other two determinations of the Fair Market Rent.  The Third Arbitrator’s decision shall be binding on both Landlord and Tenant.  Each party shall bear the cost of its own arbitrator and shall share equally in the cost of the Third Arbitrator.  

“A CASp can inspect the subject Premises and determine whether the Premises comply with all of the applicable construction-related accessibility standards under state law.  Although state law does not require a CASp inspection of the Premises, Landlord may not prohibit Tenant from obtaining a CASp inspection of the Premises for the occupancy or potential occupancy of Tenant, if requested by Tenant.  The parties shall mutually agree on the arrangements for the time and manner of the CASp inspection, and the cost of making any repairs necessary to correct violations of construction-related accessibility standards within the Premises; provided, however, that nothing in this section shall alter or modify the terms of the Lease or Landlord’s or Tenant’s obligations thereunder.  Tenant acknowledges receipt of: (i) a Disabilities Access Obligations Notice (attached hereto as Exhibit C) required under the terms of the San Francisco Administrative Code, and agrees to sign and deliver such Notice to Landlord concurrently with the execution and delivery of this Amendment, and (ii) a copy of the Small Business Commission’s Access Information Notice in English (and Landlord shall provide such Access Information, upon request, in Tenant’s requested language).”

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[SIGNATURE PAGE FOLLOWS]

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IN WITNESS WHEREOF, Landlord and Tenant have executed this Amendment pursuant to due authority as of the day and year first above written.

 

 

 

 

 

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EXHIBIT A

EXPANSION PREMISES

 

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EXHIBIT B

WORK LETTER

This Work Letter (this “Work Letter”) is attached to and made a part of that certain Lease (the “Lease”), between SPEAR STREET CORRIDOR (“Landlord”), and FORRESTER RESEARCH, INC. (“Tenant”).  The terms used in this Work Letter that are defined in the Lease shall have the same meanings as provided in the Lease.

SECTION 1.

AS-IS CONDITION

Tenant hereby accepts the base, shell and core (i) of the Premises and (ii) of the floor(s) of the Building on which the Premises are located (collectively, the “Base, Shell and Core”), in its current “AS-IS” condition existing as of the date of the Third Amendment to Office Lease by and between Landlord and Tenant (the “Amendment”).  Except for the Tenant Improvement Allowance set forth below, and except as provided for in the Lease, Landlord shall not be obligated to make or pay for any alterations or improvements to the Premises, the Building or the Complex.  Upon execution of the Amendment, Landlord shall provide Tenant (or its Architect, as defined below) with Landlord’s most recently prepared wet-stamped path of travel drawings for the Building and CAD drawings for the Expansion Space.

SECTION 2.

TENANT IMPROVEMENTS

2.1Tenant Improvement Allowance.  Tenant shall be entitled to a one-time tenant improvement allowance in the amount of up to, but not exceeding One Hundred Dollars ($100.00) per rentable square foot of the Expansion Premises (the “Expansion Premises Allowance”) and Thirty Dollars ($30.00) per rentable square foot of the Existing Premises (together with the Expansion Premises Allowance, the “Tenant Improvement Allowance”). The Tenant Improvement Allowance shall be used for the costs relating to the design, permitting and construction of Tenant’s improvements which are permanently affixed to the Premises (the “Tenant Improvements”); provided, however, that Landlord shall have no obligation to disburse all or any portion of the Tenant Improvement Allowance to Tenant unless Tenant makes a request for disbursement pursuant to the terms and conditions of Section 2.2 below prior to April 30, 2020.  The Expansion Premises Allowance shall only be used for the costs relating to the Tenant Improvements in the Expansion Premises. The Existing Premises Allowance may be used for the costs relating to the Tenant Improvements in the Existing Premises and/or the Expansion Premises, in Tenant’s sole discretion. In no event shall Landlord be obligated to make disbursements pursuant to this Work Letter in a total amount which exceeds the Tenant Improvement Allowance.  Tenant shall not be entitled to receive any cash payment or credit against Rent or otherwise for any unused portion of the Tenant Improvement Allowance which is not used to pay for the Tenant Improvement Allowance Items (as such term is defined below).  

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2.2.1Tenant Improvement Allowance Items.  Except as otherwise set forth in this Work Letter, the Tenant Improvement Allowance shall be disbursed by Landlord only for the following items and costs (collectively, the “Tenant Improvement Allowance Items”):

2.2.1.1payment of the fees of the “Architect” and the “Engineers”, as those terms are defined in Section 3.1 of this Work Letter and the fees of Tenant’s project manager and its consultants;

2.2.1.2the payment of plan check, permit and license fees relating to construction of the Tenant Improvements;

2.2.1.3the cost of construction of the Tenant Improvements, including, without limitation, construction materials, contractors’ and subcontractors’ fees and general conditions, costs of construction materials and parts, testing and inspection costs, costs of trash removal, parking and hoists, costs of leased equipment;

2.2.1.4the cost of any changes in the Base, Shell and Core work when such changes are required by the Construction Drawings, such cost to include all direct architectural and/or engineering fees and expenses incurred in connection therewith;

2.2.1.5the cost of any changes to the Construction Drawings or Tenant Improvements required by Applicable Laws;

2.2.1.6sales and use taxes and Title 24 fees;

2.2.1.7the “Coordination Fee”, as that term is defined in Section 4.2.2.2 of this Work Letter; and

2.2.1.8all other costs, up to, but not exceeding Twenty Thousand Dollars ($20,000), to be reasonably expended by Landlord in connection with the construction of the Tenant Improvements if requested by Tenant or required by Applicable Laws or otherwise incurred by Landlord hereunder, except to the extent Landlord is required pursuant to the terms hereof to incur such costs on its own behalf.  

2.2.2Disbursement of Tenant Improvement Allowance.  Subject to Section 2.1 above, during the construction of the Tenant Improvements, Landlord shall make disbursements of the Tenant Improvement Allowance for Tenant Improvement Allowance Items for the benefit of Tenant and shall authorize the release of monies for the benefit of Tenant as follows:

2.2.2.1Disbursements.  From time to time during the construction of the Tenant Improvements (but no more frequently than monthly), Tenant shall deliver to Landlord: (i) a request for payment of the “Contractor”, as that term is defined in Section 4.1 below, approved by Tenant, showing the schedule, by trade, of percentage of completion of the Tenant Improvements in the Premises, detailing the portion of the work completed and the portion not completed, and demonstrating that the relationship between the cost of the work completed and the cost of the work to be completed complies with the terms of the “Construction Budget”, as that term is defined in Section 4.2.1 below; (ii) invoices from all of “Tenant’s Agents”, as that term is defined in Section 4.1.2 below, for labor rendered and materials delivered to the Premises; (iii) executed mechanic’s lien releases from Contractor and all subcontractors which shall comply with the appropriate provisions, as reasonably determined by Landlord, of California

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Civil Code Sections 8132-8138; and (iv) each of the general disbursement items referenced in Section 2.2.2.3 below, and all other information reasonably requested by Landlord with respect to such disbursement.  Tenant’s request for payment shall be deemed Tenant’s acceptance and approval of the work furnished and/or the materials supplied as set forth in Tenant’s payment request, except for any unknown defects.  Within thirty (30) days following Landlord’s receipt of a completed disbursement request submission, Landlord shall deliver a check to Tenant in payment of the lesser of (A) the amounts so requested by Tenant, as set forth in this Section 2.2.2.1, above, less a ten percent (10%) retention (the aggregate amount of such retentions to be known as the “Final Retention”) and (B) the balance of any remaining available portion of the Tenant Improvement Allowance (not including the Final Retention), provided that Landlord does not reasonably dispute any request for payment based on noncompliance of any work with the “Approved Working Drawings”, as that term is defined in Section 3.4 below, or due to any substandard work.  Landlord’s payment of such amounts shall not be deemed Landlord’s approval or acceptance of the work furnished or materials supplied as set forth in Tenant’s payment request.  

2.2.2.2Final Retention.  Subject to the provisions of this Work Letter, a check for the Final Retention payable to Tenant shall be delivered by Landlord to Tenant within thirty (30) days following the completion of construction of the Premises, provided that (i) Tenant delivers to Landlord properly executed and fully unconditional mechanics lien releases in compliance with both California Civil Code Section 8134 and either Section 8136 or Section 8138, and (ii) Landlord has determined that no substandard work exists which materially and adversely affects the mechanical, electrical, plumbing, heating, ventilating and air conditioning, life-safety or other systems of the Building, the curtain wall of the Building, the structure or exterior appearance of the Building, or any other tenant’s use of such other tenant’s leased premises in the Building, (iii) Tenant has delivered to Landlord a certificate of occupancy or permit cards signed off by the City with respect to the Premises; (iv) Tenant has delivered to the Office of the Building as-built plans and City-permitted plans for the Tenant Improvements; (v) Tenant has delivered to the Office of the Building operation manuals and warranties for equipment included within the Tenant Improvements, if applicable (electronic copies are acceptable), and (vi) Tenant has delivered to Landlord each of the general disbursement items referenced in Section 2.2.2.3 below.

2.2.2.3General Disbursement Requirements.  In addition to the disbursement requirements referenced above, Tenant acknowledges and agrees that the following items are required as a condition to any disbursement of the Tenant Improvement Allowance:

2.2.2.4Other Terms.  Landlord shall only be obligated to make disbursements from the Tenant Improvement Allowance to the extent costs are incurred by Tenant for Tenant Improvement Allowance Items.

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SECTION 3.

SECTION 4.CONSTRUCTION DRAWINGS

4.1Selection of Architect/Construction Drawings.  Tenant shall retain an architect/space planner reasonably approved by Landlord (the “Architect”), to prepare the Construction Drawings.  Tenant shall retain the engineering consultants reasonably designated by Landlord (the “Engineers”) to prepare all plans and engineering working drawings relating to the structural, mechanical, electrical, plumbing, HVAC, life safety, and sprinkler work in the Premises (and Landlord hereby acknowledges that Tenant shall have the right, but not the obligation, to use MSA as the Architect).  The plans and drawings to be prepared by Architect and the Engineers hereunder shall be known collectively as the “Construction Drawings”. All Construction Drawings shall comply with the drawing format and specifications reasonably determined by Landlord, and shall be subject to Landlord’s approval, which approval shall not be unreasonably withheld or conditioned, and shall be granted or denied within ten (10) business days after the submission of the Construction Drawings to Landlord for approval.  Any disapproval by Landlord shall specify in reasonable detail the reason for such disapproval.  Following any disapproval by Landlord as provided herein, Tenant shall revise the applicable Construction Drawings in response to Landlord’s disapproval, following which Landlord shall again grant or deny its consent within five (5) business days.  The foregoing process shall be repeated until final Construction Drawings are approved.  Tenant and Architect shall verify, in the field, the dimensions and conditions as shown on the relevant portions of the base building plans, and Tenant and Architect shall be solely responsible for the same, and Landlord shall have no responsibility in connection therewith.  Landlord’s review of the Construction Drawings as set forth in this Section 3, shall be for its sole purpose and shall not imply Landlord’s review of the same, or obligate Landlord to review the same, for quality, design, Code compliance or other like matters.  Accordingly, notwithstanding that any Construction Drawings are reviewed by Landlord or its space planner, architect, engineers and consultants, and notwithstanding any advice or assistance which may be rendered to Tenant by Landlord or Landlord’s space planner, architect, engineers, and consultants, Landlord shall have no liability whatsoever in connection therewith and shall not be responsible for any omissions or errors contained in the Construction Drawings.

4.2Final Space Plan.  Tenant shall supply Landlord with four (4) copies signed by Tenant of its final space plan for the Premises before any architectural working drawings or engineering drawings have been commenced.  The final space plan (the “Final Space Plan”) shall include a layout and designation of all offices, rooms and other partitioning and their intended use.  Landlord may request clarification or more specific drawings for special use items not included in the Final Space Plan.  Landlord shall advise Tenant within five (5) business days after Landlord’s receipt of the Final Space Plan for the Premises if the same is unsatisfactory or incomplete in any respect.  If Tenant is so advised, Tenant shall promptly (i) cause the Final Space Plan to be revised to correct any deficiencies or other matters Landlord may reasonably require, and (ii) deliver such revised Final Space Plan to Landlord.  The foregoing process shall be repeated until the Final Space Plan is approved.

4.3Final Working Drawings.  After the Final Space Plan has been approved by Landlord and Tenant, Tenant shall promptly cause the Architect and the Engineers to complete the architectural and engineering drawings for the Premises, and cause the Architect to compile a fully coordinated set of architectural, structural, mechanical, electrical and plumbing working drawings in a form which is complete to allow subcontractors to bid on the work and to obtain all applicable permits for the Tenant Improvements (collectively, the “Final Working Drawings”), and shall submit the same to

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Landlord for Landlord’s approval.  Tenant shall supply Landlord with four (4) copies signed by Tenant of such Final Working Drawings. Landlord shall have the right to have its building architect and engineers review the Final Working Drawings. Landlord shall advise Tenant within five (5) business days after Landlord’s receipt of the Final Working Drawings for the Premises if, in Landlord’s reasonable determination, the same is unsatisfactory or incomplete in any respect.  Landlord shall not disapprove the Final Working Drawings if the same are consistent with the Construction Drawings. If Tenant is so advised, Tenant shall promptly (i) revise the Final Working Drawings in accordance with such review and any reasonable disapproval of Landlord in connection therewith, and (ii) deliver such revised Final Working Drawings to Landlord.  The foregoing process shall be repeated until the Final Working Drawings are approved.

4.4Approved Working Drawings.  The Final Working Drawings shall be approved by Landlord (the “Approved Working Drawings”) prior to the commencement of construction of the Premises by Tenant.  After approval by Landlord of the Final Working Drawings, Tenant shall promptly submit the same to the appropriate governmental authorities for all applicable building permits.  Tenant hereby agrees that neither Landlord nor Landlord’s consultants shall be responsible for obtaining any building permit for the Tenant Improvements or certificate of occupancy for the Premises and that obtaining the same shall be Tenant’s responsibility; provided, however, that Landlord shall cooperate with Tenant in executing permit applications and performing other ministerial acts reasonably necessary to enable Tenant to obtain any such permit or certificate of occupancy.  No changes, modifications or alterations in the Approved Working Drawings, other than minor changes that are necessary to account for existing conditions in the Building or are otherwise non-material, may be made without the prior written consent of Landlord, which consent shall not be unreasonably withheld or conditioned and shall be granted or reasonably denied within five (5) business days following request.

4.5Non Standard Tenant Improvements.  “Non Standard Tenant Improvements” shall mean (a) any part of the Tenant Improvements which do not constitute Building standard tenant improvements, including, but not limited to, plumbing and millwork; and (b) a configuration of the Tenant Improvements which is not usual and customary for normal occupancy.  Provided Landlord notifies Tenant in writing of such requirement at the time Landlord approves the Working Drawings, Tenant shall be required to remove such Non Standard Tenant Improvements designated by Landlord for removal at the expiration or earlier termination of the Lease and repair any damage caused thereby. At the time the Tenant submits plans for Landlord approval, Landlord will notify Tenant which, if any, Tenant Improvements in the Expansion Premises will be required to be removed by Tenant at the expiration or any earlier termination of the Lease. In no event shall Tenant be required to remove any Tenant Improvements which are not Non Standard Improvements.

SECTION 5.

CONSTRUCTION OF THE TENANT IMPROVEMENTS

5.1.1The Contractor.  Tenant shall select and retain a general contractor (“Contractor”) to construct the Tenant Improvements.  Such Contractor shall be subject to Landlord’s approval, which approval shall not be unreasonably withheld or conditioned, and shall be given or

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reasonably denied within three (3) business days following Tenant’s request for approval.  Landlord hereby approves TCB Builders, Inc. as the Contractor.

5.1.2Tenant’s Agents.  All subcontractors, laborers, materialmen, and suppliers used by Tenant in connection with the Tenant Improvements and the Contractor shall be known collectively as “Tenant’s Agents”.  All subcontractors shall be approved in writing by Landlord, which approval shall not be unreasonably withheld or conditioned and shall be given or reasonably denied within three (3) business days following Tenant’s request for approval; provided that, in any event, Tenant must contract with Landlord’s base building subcontractors to review any life safety work in the Premises, if Tenant does not retain Landlord’s contractors for such life safety work.  If requested by Landlord, Tenant’s Agents shall all be union labor in compliance with the master labor agreements existing between trade unions and the local chapter of the Associated General Contractors of America, except for Tenant’s Agents for specialty work for which qualified union labor is not available.

5.2.1Construction Contract; Cost Budget.  Tenant shall submit to Landlord a copy of the construction contract and general conditions with Contractor (the “Contract”) for Landlord’s records.  Prior to the commencement of the construction of the Tenant Improvements, Tenant shall provide Landlord with a written detailed cost breakdown (the “Final Costs Statement”), by trade, of the final costs to be incurred, or which have been incurred, as set forth more particularly in Section 2.2.1.1 through 2.2.1.8 above, in connection with the design and construction of the Tenant Improvements to be performed by or at the direction of Tenant or the Contractor (which costs form a basis for the amount of the Contract, if any (the “Final Costs”).  To the extent the Final Costs exceed the Tenant Improvement Allowance (less any portion thereof already disbursed by Landlord, or in the process of being disbursed by Landlord, on or before the commencement of construction of the Tenant Improvements), Tenant shall make payments for such additional costs (the “Over-Allowance Amount”) out of its own funds, but Tenant shall provide Landlord with the documents described in Sections 2.2.2.1(i), (ii), and (iii) above prior to Tenant paying such costs.

5.2.2.1Landlord’s General Conditions for Tenant’s Agents and Tenant Improvement Work.  Tenant’s and Tenant’s Agents’ construction of the Tenant Improvements shall comply with the following: (i) the Tenant Improvements shall be constructed in strict accordance with the Approved Working Drawings; (ii) Tenant and Tenant’s Agents shall not, in any way, interfere with, obstruct, or delay, the work of Landlord’s base building contractor and subcontractors with respect to any work in the Building; (iii) Tenant’s Agents shall submit schedules of all work relating to the Tenant’s Improvements to Contractor and Contractor shall, within five (5) business days of receipt thereof, inform Tenant’s Agents of any changes which are necessary thereto, and Tenant’s Agents shall adhere to such corrected schedule; and (iv) Tenant shall abide by all uniform rules applicable to all tenants and made by Landlord’s Building contractor or Landlord’s Building manager and provided to Tenant with respect to the use of freight, loading dock and service elevators, storage of materials, coordination of work with the contractors of other tenants, and any other matter in connection with this Work Letter, including, without limitation, the construction of the Tenant Improvemaents.

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5.2.2.2Coordination Fee.  Tenant shall pay a logistical coordination fee (the “Coordination Fee”) to Landlord in an amount equal to one hundred fifty dollars ($150.00) per hour (capped at $20,000.00) for time actually expended and documented by Landlord in connection with the design and construction of the Tenant Improvements, which Coordination Fee shall be for services relating to the coordination of the construction of the Tenant Improvements and for the review of Tenant’s plans and drawings as referenced in Section 3 above, which amount shall be charged against the Tenant Improvement Allowance.

5.2.2.3Indemnity.  Tenant’s indemnity of Landlord as set forth in the Lease shall also apply with respect to any and all costs, losses, damages, injuries and liabilities related in any way to any act or omission of Tenant or Tenant’s Agents, or anyone directly or indirectly employed by any of them, or in connection with Tenant’s nonpayment of any amount arising out of the Tenant Improvements and/or Tenant’s disapproval of all or any portion of any request for payment.  Such indemnity by Tenant, as set forth in the Lease, shall also apply with respect to any and all costs, losses, damages, injuries and liabilities related in any way to Landlord’s performance of any ministerial acts reasonably necessary (i) to permit Tenant to complete the Tenant Improvements, and (ii) to enable Tenant to obtain any building permit or certificate of occupancy for the Premises.

5.2.2.4Insurance Requirements.

5.2.2.4.1General Coverages.  All of Tenant’s Agents shall carry worker’s compensation insurance covering all of their respective employees, and shall also carry public liability insurance, including property damage, all with limits, in form and with companies as are required to be carried by Tenant as set forth in the Lease.

5.2.2.4.2Special Coverages.  Tenant shall cause the Contractor to carry “Builder’s All Risk” insurance in an amount approved by Landlord covering the construction of the Tenant Improvements, and such other insurance as Landlord may reasonably require, it being understood and agreed that the Tenant Improvements shall be insured by Tenant pursuant to the Lease immediately upon completion thereof.  Such insurance shall be in amounts and shall include such extended coverage endorsements as may be reasonably required by Landlord, and in form and with companies as are required to be carried by Tenant as set forth in the Lease.

5.2.2.4.3General Terms.  Certificates for all insurance carried pursuant to this Section 4.2.2.4 shall be delivered to Landlord before the commencement of construction of the Tenant Improvements and before the Contractor’s equipment is moved onto the site.  In the event that the Tenant Improvements are damaged by any cause during the course of the construction thereof, Tenant shall immediately repair the same at Tenant’s sole cost and expense.  All policies carried under this Section 4.2.2.4 shall insure Landlord and Tenant, as their interests may appear, as well as Contractor and Tenant’s Agents, and shall name as additional insureds Landlord’s property manager, Landlord’s asset manager, and all mortgagees and ground lessors of the Building.  All insurance, except Workers’ Compensation, maintained by Tenant’s Agents shall preclude subrogation claims by the insurer against anyone insured thereunder.  Such insurance shall provide that it is primary insurance as respects the owner and that any other insurance maintained by owner is excess and noncontributing with the insurance required hereunder.  The requirements for the foregoing insurance shall not derogate from the provisions for indemnification of Landlord by Tenant under Section 4.2.2.3 of this Work Letter.

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5.3Notice of Completion; Copy of “As Built” Plans.  Within ten (10) days after completion of construction of the Tenant Improvements, Tenant shall cause a Notice of Completion to be recorded in the office of the Recorder of the County in which the Building is located in accordance with Section 8182 of the Civil Code of the State of California or any successor statute, and shall furnish a copy thereof to Landlord upon such recordation.  If Tenant fails to do so, Landlord may execute and file the same on behalf of Tenant as Tenant’s agent for such purpose, at Tenant’s sole cost and expense.  At the conclusion of construction, (i) Tenant shall cause the Architect and Contractor (A) to update the Approved

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Working Drawings as necessary to reflect all changes made to the Approved Working Drawings during the course of construction, (B) to certify to the best of their knowledge that the “record-set” of as-built drawings are true and correct, which certification shall survive the expiration or termination of the Lease, (C) to deliver to Landlord two (2) sets of sepias of such as-built drawings within ninety (90) days following issuance of a certificate of occupancy for the Premises, and (D) to deliver to Landlord a computer disk containing the Approved Working Drawings in AutoCAD format, and (ii) Tenant shall deliver to Landlord a copy of all warranties, guaranties, and operating manuals and information relating to the improvements, equipment, and systems in the Premises.

5.4Coordination by Tenant’s Agents with Landlord.  Within fifteen (15) days of Tenant’s delivery of the Contract to Landlord under Section 4.2.1 of this Work Letter, Tenant shall furnish Landlord with a schedule setting forth the projected date of the completion of the Tenant Improvements and showing the critical time deadlines for each phase, item or trade relating to the construction of the Tenant Improvements.

SECTION 6.

SECTION 7.MISCELLANEOUS

7.1Tenant’s Representative.  Tenant has designated Jean Douglas as its sole representative with respect to the matters set forth in this Work Letter, who, until further notice to Landlord, shall have full authority and responsibility to act on behalf of the Tenant as required in this Work Letter.

7.2Landlord’s Representative.  Landlord has designated Jim Osburn as its sole representative with respect to the matters set forth in this Work Letter, who, until further notice to Tenant, shall have full authority and responsibility to act on behalf of the Landlord as required in this Work Letter.

7.3Time of the Essence in This Work Letter.  Unless otherwise indicated, all references herein to a “number of days” shall mean and refer to calendar days.  If any item requiring approval is timely disapproved by Landlord, the procedure for preparation of the document and approval thereof shall be repeated until the document is approved by Landlord.

7.4Tenant’s Lease Default.  Notwithstanding any provision to the contrary contained in the Lease, if an event of default by Tenant of this Work Letter (which, for purposes hereof, shall include, without limitation, the delivery by Tenant to Landlord of any oral or written notice that Tenant does not intend to occupy the Premises, and/or any other anticipatory breach of the Lease) or the Lease has occurred at any time on or before the substantial completion of the Premises, then (i) in addition to all other rights and remedies granted to Landlord pursuant to the Lease, at law and/or in equity, Landlord shall have the right to withhold payment of all or any portion of the Tenant Improvement Allowance and/or Landlord may cause Contractor to cease the construction of the Premises (in which case, Tenant shall be responsible for any delay in the substantial completion of the Premises caused by such work stoppage), and (ii) all other obligations of Landlord under the terms of this Work Letter shall be forgiven until such time as such default is cured pursuant to the terms of the Lease (in which case, Tenant shall be responsible for any delay in the substantial completion of the Premises caused by such inaction by Landlord).  In addition, if the Lease is terminated prior to the Lease Commencement Date for any reason due to a default by Tenant as described in Article 22 of the Lease or under this Work Letter (including, without limitation, any

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anticipatory breach described above in this Section 5.4), then (A) Tenant shall be liable to Landlord for all damages available to Landlord pursuant to the Lease and otherwise available to Landlord at law and/or in equity by reason of a default by Tenant under the Lease or this Work Letter (including, without limitation, the remedies available to Landlord pursuant to California Civil Code Section 1951.2), and (B) Tenant shall pay to Landlord, as Additional Rent under the Lease, within five (5) days of receipt of a statement therefor, any and all costs (if any) incurred by Landlord (including any portion of the Tenant Improvement Allowance disbursed by Landlord; provided, however, that if Landlord does not demolish but instead retains the Tenant Improvements constructed with such disbursed portion of the Tenant Improvement Allowance, then Tenant shall not be liable for such disbursement) and not reimbursed or otherwise paid by Tenant through the date of such termination in connection with the Tenant Improvements to the extent planned, installed and/or constructed as of such date of termination, including, but not limited to, any costs related to the removal of all or any portion of the Tenant Improvements and restoration costs related thereto.

7.5Miscellaneous Charges.  Neither Tenant nor Tenant’s Agents shall be charged for Building services, such as freight elevator usage, or utilities, in connection with construction of the Tenant Improvements.

7.6Deemed Approval.  Notwithstanding anything to the contrary contained in this Work Letter, in the event that Landlord fails to timely respond to any matter in this Work Letter requiring Landlord’s consent or approval, Tenant shall deliver a second written request to Landlord and if Landlord fails to respond to such second written request within two (2) business days after receipt, then Tenant’s request shall be deemed approved.

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EXHIBIT C

DISABILITY ACCESS OBLIGATIONS UNDER

SAN FRANCISCO ADMINISTRATIVE CODE CHAPTER 38

 

 

[SIGNATURES ON FOLLOWING PAGE]

 

 

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By signing below, I confirm that I have read and understood this Disability Access Obligations Notice.

 

 

 

 

 

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EXHIBIT D

BUILDING RULES¹

1.Any sidewalks, lobbies, passages, elevators and stairways shall not be obstructed or used by Tenant for any purpose other than ingress and egress from and to the Premises.  Landlord shall in all cases retain the right to control or prevent access by all persons whose presence, in the judgment of Landlord, shall be prejudicial to the safety, peace or character of the Property.

2.The toilet rooms, toilets, urinals, sinks, faucets, plumbing or other service apparatus of any kind shall not be used for any purposes other than those for which they were installed, and no sweepings, rubbish, rags, ashes, chemicals or other refuse or injurious substances shall be placed therein or used in connection therewith or left in any lobbies, passages, elevators or stairways.  In addition to all other remedies under the Lease, Landlord may charge Tenant $100.00 for each violation of this subsection 2.

3.Tenant shall not impair in any way the fire safety system and shall comply with all security, safety, fire protection and evacuation procedures and regulations established by Landlord or any governmental agency.  No person shall go on the roof without Landlord’s prior written permission and Tenant shall have no right to place any microwave, satellite or other type of antenna on the roof or exterior of the Building without the prior written consent of Landlord which may be withheld or conditioned in Landlord’s sole and absolute discretion and which may be conditioned upon payment of fees for any such use.

4.Skylights, windows, doors and transoms shall not be covered or obstructed by Tenant, and Tenant shall not install any window covering which would affect the exterior appearance of the Building, except as approved in writing by Landlord.  Tenant shall not remove, without Landlord’s prior written consent, any shades, blinds or curtains in the Premises.

5.Without Landlord’s prior written consent, Tenant shall not hang, install, mount, suspend or attach anything from or to any sprinkler, plumbing, utility or other lines.  If Tenant hangs, installs, mounts, suspends or attaches anything from or to any doors, windows, walls, floors or ceilings, Tenant shall spackle and sand all holes and repair any damage caused thereby or by the removal thereof at or prior to the expiration or termination of the Lease.

6.Tenant shall not change any locks nor place additional locks upon any doors.

7.Tenant shall not use nor keep in the Building any matter having an offensive odor, nor explosive or highly flammable material.

 

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8.Tenant shall not bring or keep in the Building any animals other than bona fide state-certified service dogs. Tenant shall be responsible for immediately removing any service dog waste and for any additional cleaning or damage costs which may arise from the service dogs’ presence in the Building or Premises.  Exclusive of additional cleaning or damage costs, Landlord may charge Tenant $100.00 for each violation of this subsection 8.

9.In the event Tenant’s operations in the Premises result in the transmission of excessive or dangerous currents of electricity or annoyances into or through the Building or the Premises, Landlord shall have the right to require that Tenant change the wiring connections or layout at Tenant’s expense to correct such conditions, to the extent that Landlord reasonably may deem necessary, and further to require compliance with such reasonable rules as Landlord may establish relating thereto. So long as excessive or dangerous currents are determined by Landlord to not be an immediate danger to the Building or operations of the Building and/or other tenants (in which event Landlord would have the right to cut wiring or to do what it considers necessary immediately),  Tenant shall take all necessary steps as soon as reasonably possible and no later than three (3) business days following notice from Landlord of such condition to correct the same.  If Tenant fails so to correct such condition within such three (3) business day period, Landlord shall have the right to cut wiring or to do what it considers necessary to remove the danger, annoyance or electrical interference with apparatus in any part of the Building.  All wires installed by Tenant must be clearly tagged at the distributing boards and junction boxes and elsewhere where required by Landlord, with the number of the office to which said wires lead, and the purpose for which the wires respectively are used, together with the name of the concern, if any, operating same.  No machinery of any kind other than customary small business machines shall be allowed in the Premises.  Tenant shall not use any method of heating, air conditioning or air cooling other than that provided by Landlord (provided, however, that Tenant shall have the right, in accordance with the terms and conditions of the Lease, to install supplemental cooling for its IT server room).

10.Tenant shall not place weights anywhere beyond the safe carrying capacity of the Building which is designed to normal office Building standards for floor loading capacity.  Landlord shall have the right to exclude from the Building heavy furniture, safes and other articles which may be hazardous or to require them to be located at designated places in the Premises.

11.The use of rooms as sleeping quarters is strictly prohibited at all times.  In addition to all other remedies under this Lease, Landlord may charge Tenant $100.00 for each violation of this subsection 11.

12.Bicycles and other vehicles are not permitted inside or on the walkways or other Common Areas outside the Building, except in areas specifically designated by Landlord for such purposes and except as may be needed or used by a physically handicapped person.  In addition to all other remedies under this Lease, Landlord may charge Tenant $100.00 for each violation of this subsection 12.

13.Tenant and its Agents shall not smoke in the Building or within 20 feet of the Building entrances and exits. In addition to all other remedies under this Lease, Landlord may charge Tenant $100.00 for each violation of this subsection 13.

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14.Tenant shall provide Landlord with a written identification of any vendors engaged by Tenant to perform services for Tenant at the Premises (examples: security guards/monitors, telecommunications installers/maintenance), and all vendors shall be subject to Landlord’s reasonable approval.  All labor hired by the vendors or Tenant must be union labor.  No mechanics shall be allowed to work on the Building or Building Systems other than those engaged by Landlord.  Tenant shall permit Landlord’s employees and contractors and no one else to clean the Premises unless Landlord consents in writing.  Tenant assumes all responsibility for protecting its Premises from theft and vandalism and Tenant shall see each day before leaving the Premises that all lights are turned out and that the windows and the doors are closed and securely locked.

15.Tenant shall comply with any move-in/move-out rules provided by Landlord and with any rules provided by Landlord governing access to the Building outside of Normal Business Hours.  Throughout the Term, no furniture, packages, equipment, supplies or merchandise of Tenant will be received in the Building, or carried up or down in the elevators or stairways, except during such hours as shall be designated by Landlord, and Landlord in all cases shall also have the exclusive right to prescribe the method and manner in which the same shall be brought in or taken out of the Building.

16.Tenant shall not place oversized cartons, crates or boxes in any area for trash pickup without Landlord’s prior approval.  Landlord shall be responsible for trash pickup of normal office refuse placed in ordinary office trash receptacles only.  Excessive amounts of trash or other out-of-the-ordinary refuse loads will be removed by Landlord upon request at Tenant’s expense.

17.Tenant shall cause all of Tenant’s Agents to comply with these Building Rules.

18.Landlord reserves the right to rescind, suspend or modify any rules or regulations and to make such other rules and regulations as, in Landlord’s reasonable judgment, may from time to time be needed for the safety, care, maintenance, operation and cleanliness of the Property.  Notice of any action by Landlord referred to in this section, given to Tenant, shall have the same force and effect as if originally made a part of the foregoing Lease.  New rules or regulations will not, however, be unreasonably inconsistent with the proper and rightful enjoyment of the Premises by Tenant under the Lease.

19.These Building Rules are not intended to give Tenant any rights or claims in the event that Landlord does not enforce any of them against any other tenants or if Landlord does not have the right to enforce them against any other tenants and such nonenforcement will not constitute a waiver as to Tenant.

20.All requests for heating and air conditioning services outside of Normal Business Hours shall be submitted in writing to Landlord’s property manager by noon on the day desired for weekday services, by noon Friday for weekend services and by noon the preceding day for holiday services.

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Exhibit E

 

FORM OF CONFIRMATION OF EXPANSION EFFECTIVE DATE AND EXISTING PREMISES BASE RENT

 

Confirmation of the Expansion Effective Date and Existing Premises Base Rent

____________________ , 2019

____________________

____________________

____________________

Attn:  _______________

Ladies and Gentlemen:

Landlord and Tenant hereby agree as follows:

1.Expansion Effective Date.  The Expansion Effective Date is ___________, 2019.

2.Commencing on July 1, 2022, Tenant shall pay Base Rent for the Existing Premises in accordance with the Lease in the amounts set forth below:

 

 

This rent schedule does not include any operating expense pass-through adjustments or other additional rent to be computed and collected in accordance with the Lease.

3.Binding Effect; Governing Law.  Except as modified hereby, the Lease shall remain in full effect and this letter shall be binding upon Landlord and Tenant and their respective successors and assigns.  If any inconsistency exists or arises between the terms of this letter and the terms of the Lease, the terms of this letter shall prevail.  This letter shall be governed by the laws of the State of California.

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Please indicate your agreement to the above matters by signing this letter in the space indicated below and returning an executed original to us.

 

 

 

 

 

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Exhibit 31.1

CERTIFICATION OF THE PRINCIPAL EXECUTIVE OFFICER

I, George F. Colony, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Forrester Research, Inc.;

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

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

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

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

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

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

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

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

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

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

 

 

Date: May 10, 2019

Exhibit 31.2

CERTIFICATION OF THE PRINCIPAL FINANCIAL OFFICER

I, Michael A. Doyle, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Forrester Research, Inc.;

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

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

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

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

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

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

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

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

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

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

 

 

Date: May 10, 2019

Exhibit 32.1

CERTIFICATION PURSUANT TO

SECTION 1350, CHAPTER 63 OF TITLE 18, UNITED STATES CODE,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

Pursuant to Section 1350, Chapter 63 of Title 18, United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned, as Chief Executive Officer of Forrester Research, Inc. (the “Company”), does hereby certify that to the undersigned’s knowledge:

 

 

Dated: May 10, 2019

Exhibit 32.2

CERTIFICATION PURSUANT TO

SECTION 1350, CHAPTER 63 OF TITLE 18, UNITED STATES CODE,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

Pursuant to Section 1350, Chapter 63 of Title 18, United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned, as Chief Financial Officer of Forrester Research, Inc. (the “Company”), does hereby certify that to the undersigned’s knowledge:

 

 

Dated: May 10, 2019