<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10 - KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE
ACT OF 1934
For the fiscal year ended September 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
For the transition period from _____________ to __________________
Commission File No. 1-14168
Globix Corporation
(Name of small business issuer as specified in its charter)
New York 13-3781263
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
295 Lafayette Street, New York, New York 10012
(address of principal executive offices) (Zip Code)
Issuer's Telephone number, including area code: (212) 334-8500
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
Title of Each Class Name of Each Exchange on Which Registered
<S> <C>
Common Stock, $.01 par value Boston Stock Exchange
</TABLE>
Securities registered pursuant to Section 12(g) of the Act:
Check whether issuer (1) filed all reports required to be filed by Section 13 or
15(d) of the Exchange Act during the past 12 months (or for such shorter period
that the Issuer was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
--- ---
Check if disclosure of delinquent filers pursuant to item 405 of Regulation S-B
is not contained herein, and will not be contained, to the best of the
Registrant's knowledge in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [ ]
State issuer's revenues for its most recent fiscal year - $20,594,933
State the aggregate market value of the voting stock held by non-affiliates of
the Issuer: $20,221,181 (based upon the closing price of Issuer's Common Stock,
$.01 par value, as of December 14, 1998.
Indicate the number of shares outstanding of each of the Registrant's classes of
common stock, as of the latest practicable date.
<TABLE>
Common Stock, $.01 Par Value 4,140,116
- ---------------------------- --------------------------
<S> <C>
(Title of Class) (No. of Shares Outstanding
at December 14, 1998)
</TABLE>
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DOCUMENTS INCORPORATED BY REFERENCE: NONE
PART I
Item 1. Business
(a) General Development of Business. The Company was originally
incorporated in the state of New York in 1989 by Marc H. Bell
as NAFT International Ltd. ("NAFT"). In July 1993, Mr. Bell
formed Stellar Graphics Corp. (now called Bluestreak Digital,
Inc.,). In July 1994, the assets and liabilities of NAFT and
Stellar Graphics were acquired by PFM Technologies Corporation
("PFMT") in a tax-free exchange of common stock. In September
1995, the Company was reincorporated by merger into Bell
Technology Group Ltd., a Delaware corporation. On June 1,
1998, the Company changed its name to Globix Corporation.
(b) In July 1994, in a private transaction, the Company received
financing from Harpoon Holdings Ltd. ("Harpoon") a British
Virgin Islands corporation wholly-owned by Tsuyoshi Shiraishi,
a director of the Company, pursuant to which Harpoon became a
principal stockholder of the Company.
(c) In January, 1996, the Company sold, in an initial public
offering, 1,150,000 shares of Common Stock at an initial
offering price of $7.00 per share, and 575,000 Redeemable
Purchase Warrants for $.10 per warrant (the "IPO Warrants").
Each IPO warrant entitled the holder to purchase one share of
the Company's common stock for $7.70 per share. The IPO
warrants were redeemable by the Company at $.10 per IPO
warrant at any time after January 24, 1997 if certain
conditions are met. The net proceeds that the Company received
from the public offering amounted to approximately $6,600,000.
(d) In March 1996, the underwriter of the initial public offering
exercised its over-allotment option to purchase 129,642 common
shares from the Company for $7.00 per share. The net proceeds
amounted to approximately $800,000.
(e) In September 1997, the Company sold 382,609 shares of its
common stock in a private transaction for total consideration
of $2,200,000. A registration statement on Form SB-2 was filed
with the Securities and Exchange Commission with respect to
these shares on November 6, 1997 and became effective on
November 20, 1997. A fee with respect to the sale of these
shares of $100,000 in cash and 17,391 shares of common stock
was paid to the investors and were offset against the proceeds
of the issuance.
(f) In April 1998, the Company successfully completed a private
offering for $160,000,000 consisting of 160,000 units, each
unit consisting of $1,000 principal amount of 13% Senior Notes
due 2005 and one warrant to purchase 3.52 shares of common
stock (total of 563,200 shares of common stock) at a purchase
price of $14.03 per share. The Notes will mature on May 1,
2005. Interest on the notes are payable semi-annually in
arrears on May 1 and November 1 of each year, commencing
November 1, 1998. The Company has deposited with an escrow
agent $57,000,000, that together with the interest received
thereon, will be sufficient to pay, when due, the first six
interest payments. The Notes are collateralized by a first
priority security interest in the escrow account. The Notes
are senior unsecured obligations of the Company and rank pari
passu in right of payment with all existing and future
unsecured and unsubordinated indebtedness and rank senior in
right of payment to any future subordinated indebtedness.
(g) On June 8, 1998, the Company called for redemption the IPO
Warrants. Prior to the redemption date of July 8, 1998,
581,472 of the 592,055 then outstanding IPO Warrants were
exercised at an exercise price of $7.44 per common share. The
remaining 10,483 Warrants were redeemed by the Company at a
price of $.10 per IPO Warrant. The net proceeds recognized by
the Company from the IPO warrant redemption amounted to
approximately $4.3 million.
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(h) Narrative Description of Business
(1) General
Globix is a leading provider of Internet connectivity and sophisticated
Internet-based solutions to large and medium size businesses. Globix
provides its customers with a comprehensive range of value-added products
and services, designed to enable them to take full advantage of the
Internet in order to more effectively carry out their business strategy.
Components of Globix's "end-to-end" solutions include:
- high bandwidth dedicated Internet access
- Internet Data Center facilities for hosting customer web sites on
our servers, (web hosting) and housing customer web servers and
related equipment (co-location)
- Internet-related hardware and software sales and systems and
network integration
- systems administration and web management, including network
security solutions
- e-commerce, streaming media and web development solutions
- instructor-led corporate training
Globix currently maintains a strong local market presence in the New York
metropolitan area, where most of its customers have substantial operations.
Globix markets its products through a locally based direct sales force
consisting of over 42 Internet consultants. Globix supports its sales
effort with system engineers, network technicians, application designers
and customer care professionals, who are able to evaluate the needs of its
customers and quickly respond with outsourcing support and tailored
solutions which are scaleable, flexible, high performance and cost
effective. Globix believes that its ability to offer a broad range of
end-to-end Internet solutions in its local market differentiates Globix
from most other Internet service providers, or ISPs.
As of December 1, 1998, Globix had over 800 large and medium size
business customer accounts for Internet products and services, many of
which are multinational. Globix's customers are in a variety of
data-intensive industries such as advertising, financial services,
publishing, media and retail. Internet customers include Acclaim
Entertainment, the American Red Cross, Bloomingdale's, BPI Communications
(Billboard and Adweek), Dow Jones, General Media International (Penthouse),
Microsoft, the National Hockey League, Nomura Securities, Ogilvy & Mather,
Real Networks, Standard & Poors and Tishman Speyer Properties.
In December 1995, Globix began offering Internet access from its
initial "SuperPOP" facility in New York City. Globix is currently building
new and substantially enhanced SuperPOP facilities in New York City, London
and the San Francisco Bay area. Each new SuperPOP will feature:
- a high performance Internet Data Center featuring multiple,
redundant, high-capacity fiber feeds, uninterruptable power
supplies with back-up generators, dry fire suppression, raised
floor and fault tolerant environmental controls
- a Network Operations Center, which provides 24 hour a day, 7 day a
week (24 x 7) monitoring
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- on-site customer care, sales and marketing, systems administration
and administrative operations
- In October 1998, Globix entered into an agreement with Qwest
Communications giving it the exclusive right to use portions of
Qwest's global fiber network for a 20 year period, including 6,500
route miles of OC-3 capacity fiber coast-to-coast in the United
States and a DS-3 fiber link from the United States to the United
Kingdom. The fiber network will serve as the principal component
of Globix's network backbone.
- In April 1998, Globix completed a $160 million debt financing to
fund the acquisition and build-out of its network backbone and
SuperPOP facilities
- Globix is in the process of establishing both public and private
peering, or interconnection, relationships with major backbone
providers. As part of this ongoing effort, Globix recently entered
into a private peering relationship with America-On-Line ("AOL")
that gives Globix' customers and AOL's customers a direct link to
each other, allowing them to bypass the public Internet
- Globix is establishing Points of Presence, or POPs, in Washington,
D.C., Chicago and Los Angeles, as part of a planned program of
establishing POPs in other major business centers in the United
States and Europe.
INTERNET PRODUCTS AND SERVICES
Globix's products and services include: (i) high bandwidth dedicated
Internet access; (ii) Internet data center facilities for hosting customer
web sites on its servers (web hosting) and housing customer web servers and
related equipment (co-location); (iii) Internet-related hardware and
software sales and systems and network integration; (iv) systems
administration and web site management, including network security
solutions; (v) e-commerce, streaming media and web development solutions;
and (vi) instructor-led corporate training. Each of the Company's new
SuperPOP facilities will offer substantially the same range of products and
services.
HIGH BANDWIDTH DEDICATED INTERNET ACCESS
Globix offers a variety of connectivity solutions, including
dedicated Internet access, hardware and software implementation and system
and security consulting which provide businesses high-speed continuous
access to the Internet. The Company's dedicated Internet access services
are provided to customers at speeds ranging from 56Kpbs to 45Mbps. However,
over 90% of the Company's connectivity customers take 1.5Mbps or higher
levels of service. In addition, the Company provides turnkey configuration
services, including domain name registration, telco line provisioning,
Internet address assignment, router configuration, e-mail configuration,
security planning and management technical consulting services. All of the
Company's customers receive 24 hour per day, seven day per week technical
support and most of the Company's customers have quality of service
guarantees. The Company is currently participating in trials of new access
technologies, such as xDSL, and expects to deploy additional
connectivity-related enhanced services, such as Internet conference
calling, during the first half of calendar 1999. Globix is currently
building a nationwide OC-3 Internet backbone and a DS-3 fiber link from the
United States to the United Kingdom. Globix's Internet backbone will
connect the Company's three planned SuperPOPs in New York City, the San
Francisco Bay area and London, and planned POPs in Washington, D.C.,
Chicago and Los Angeles, enabling the Company to offer superior reliability
and performance to most of the major business centers in the United States.
The network is expected to be completed and operational by June 30, 1999.
<PAGE> 5
WEB HOSTING AND CO-LOCATION
The primary need for Internet access by many of Globix's customers
is to distribute content. Web distribution is usually done via a web site,
from which a customer can serve HTML pages, e-commerce solutions and
streaming media. To this end, Globix offers two distinct services, web
hosting and co-location, for providing the widespread dissemination of
information over the Internet.
Web hosting consists of housing a customer's web page on Globix's
servers, located within its SuperPOP facility. Web hosting is a solution
for customers who want to "publish" web pages on the Internet without
purchasing, configuring, maintaining and administering the necessary
sophisticated hardware and software. Due to economies of scale, Globix can
generally offer far more sophisticated web hosted solutions than customers
can cost-effectively provide for themselves. With its staff of Internet
engineers and system administrators, Globix offers multiple platforms for
web hosting and development, including both Unix and NT operating systems.
File structure directories, domain name service and security privileges are
set up for customers on Globix's hosting servers. Network and systems
administration and maintenance, tape back-ups and security are also
provided by Globix. Globix is continually seeking new and unique approaches
to web hosting solutions for its customers. Web hosting generates recurring
revenue through monthly fees to customers based upon the amount of data
transferred to and from their web site. Data transfer amounts are
associated with the size and complexity of a customer's web site, the
popularity of and traffic to that site and the functionality of a site.
Co-location services, in contrast to web hosting, allow a customer
to establish and operate a web site on the Internet to house its own
dedicated hardware and software within Globix's SuperPOP. Co-location
customers typically are larger enterprises employing more sophisticated
Internet solutions within their day-to-day operations. Globix provides its
co-location customers with physical facilities, including web racks for
housing servers, and high bandwidth dedicated Internet access. Customers
have remote access to their servers to remotely distribute their web site
content over the Internet. Globix's co-location customers have access to
the Globix facility to administer and maintain their own equipment, or they
may engage Globix to provide systems administration and maintenance.
Globix is currently building new and substantially enhanced
SuperPOP facilities in New York City, London and the San Francisco Bay
area. The SuperPOPs under construction include:
- a 160,000 square foot facility located in New York City
containing a 25,000 square foot Internet Data Center
designed for co-location and web hosting;
- a 61,000 square foot facility located in Santa Clara,
California, containing a 24,000 square foot Internet Data
Center; and
- a 35,000 square foot facility, located in London's West
End district, containing a 14,000 square foot Internet
Data Center.
The data centers will be connected by a Tier 1 network backbone, which is
also currently under construction. All three facilities are expected to be
completed and operational by June 30, 1999. Globix believes its ability to
sell additional hosting and co-location services has been limited in the
recent past because its present Internet Data Center, with capacity
totaling 3,000 square feet, is fully utilized. The new and expanded
SuperPOP will increase Globix's Internet Data Center capacity to
approximately 68,000 square feet. This additional space, located at three
geographical distributed facilities in major business centers, is expected
to enable Globix to aggressively pursue more web hosting and co-location
opportunities.
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INTERNET-RELATED HARDWARE AND SOFTWARE SALES AND SYSTEMS AND NETWORK
INTEGRATION
Product resales are an integral part of providing end to end
solutions. Globix consults with its customers to identify the most
appropriate hardware and software components for its customers' information
technology infrastructure. In many cases, Globix sells the hardware and
software to its customers under reseller agreements with major vendors.
Globix is able to deliver the optimal server solution for the customer's
application, including configuration, maintenance and service of that
server. Globix also attempts to leverage product sales into opportunities
to cross-sell its full line of end-to-end Internet solutions, such as
security solutions and web hosting. Globix is authorized to sell servers
from manufacturers such as Sun Microsystems, Compaq, Silicon Graphics and
networking components, including routers and switches, from leading
manufacturers such as Cisco Systems. Globix also provides
application-specific software solutions from a variety of leading
manufacturers, including Microsoft, Netscape and Oracle.
SYSTEMS AND NETWORK INTEGRATION
Globix's philosophy is to offer hardware, software and network
components integrated into complete Internet solutions. Globix's primary
integration activities include local and wide area network configuration,
web and database server integration and application-specific software
solutions. To deliver these solutions, Globix utilizes its expertise and
familiarity with networking hardware, high end web and database servers and
computer software. When requested by the customer, Globix will prepare all
equipment it sells by loading customer programs, connecting equipment of a
network, and servicing the customer's hardware and software. Globix is
authorized to carry out warranty and other repairs on many of the products
it sells. Globix's staff of experienced network consultants work closely
with customers to design, assemble and configure a network architecture
which meets their goals. Globix believes that its ability to provide
value-added system and network integration is a key element of
differentiating its complete Internet solutions in the increasingly
competitive ISP market.
SYSTEMS ADMINISTRATION AND WEB MANAGEMENT, INCLUDING NETWORK SECURITY
SOLUTIONS
Globix's system administration and Web management solutions
support its customers' Internet operations by providing the customer with
detailed monitoring, reporting and management systems to control their
Internet-related hardware, software and network applications. The Company's
solutions can vary in functionality from delivering e-mail to an individual
within a corporate LAN to delivering a sophisticated media-rich web site on
the Internet to millions of viewers. The solutions are often staged to
allow customers to outsource an increasing amount of their Internet
operations. Globix's systems and Web management systems enable Globix and
its customers to jointly manage Internet operations housed at the Company's
Internet Data Center and at its customer's in-house facilities. The
Company's comprehensive system administration and web management solutions
enable it to identify and begin to resolve hardware, software, network and
application problems almost immediately. As a result of its proactive
service focus, Globix can usually identify and resolve a potential problem
before it ever impacts an Internet site's availability or performance.
Security Solutions. The proprietary nature of business Internet traffic
demands protection from unauthorized access. Globix has a dedicated staff
of trained security consultants who focus exclusively on the security needs
of its customers and are certified in all security products Globix offers.
The Globix security team works closely with customers to design and
integrate a customized security solution which ensures network integrity
while enabling users to perform business tasks in a secure, yet unhindered,
environment. Globix's firewall solutions provide users with secure access
to the Internet as well as segregate a customer's public servers (Web
servers, FTP servers and database servers) from its internal network.
Globix's firewalls can also restrict access between departments as well as
track communications to ensure that these communications follow a company's
established security procedures. Globix works with a variety of vendors,
including Checkpoint Software. In addition to firewalls, Globix offers
enhanced security services including virus scanning, active X and Java
screening, content filtering and URL blocking. Globix also offers a Virtual
Private Network, or VPN, solution which offers end-to-end security while
greatly reducing the cost of leased line connectivity to remote offices,
remote users and business partners.
E-COMMERCE, STREAMING MEDIA AND WEB DEVELOPMENT SOLUTIONS
E-Commerce Solutions. Globix's e-commerce services provide a turnkey
solution to create and manage "Virtual Storefronts" and is designed to give
shoppers the ability to make secure purchases using the web. A "shopping
cart" program is available for Globix's web hosting and co-location
customers looking to sell products in an environment similar to a retail
store. Potential purchasers browse through several products and choose to
put some in their "shopping cart" for purchase. This database driven
technology is very flexible, allowing Globix's customers to change products
and prices easily and cost-effectively. Globix also offers credit card
authorization and processing solutions that enable its customers to accept
payment directly over the Internet, through a Cybercash Server maintained
by Globix.
Web Development. Globix provides advanced web site development and
implementation services. Its customers' web sites range from basic
informational sites to complex interactive sites featuring sophisticated
graphics, animation, sound and other multimedia content. Globix's
interactive development capabilities utilize tools such as HTML, VRML,
computer animation, compositing and motion capture. Globix works with
content providers such as marketing firms, end users and production
companies to provide technical, design and production services. Globix
focuses on the design, development and establishment of web sites and is
not typically involved in creating the content of its customer's web sites.
Its dedicated team of expert production, design and management personnel
are available for large-scale web development projects.
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Streaming Media Products. Streaming is a technology that allows the end
user to access a file, such as video or audio, while it is still
downloading, eliminating significant waiting time. Globix is among the
leading providers of streaming media solutions and offers complete,
integrated services, including production, encoding and hosting. Globix's
capacities include producing a video or audio recording of an event, such
as music performance, sports competition or business meeting. Encoding is
converting the recording into a form in which it can be sent over the
Internet and hosting is placing the encoded file on a server where it can
be accessed by Internet users. Globix has produced and hosted streaming
media events for customers from a number of industries including N2K,
SonicNet, CBS, Microsoft, CondeNast, Merck Pharmaceutical and Polygram
Entertainment. The Company encodes data for applications from several
software providers, including Microsoft, Apple, Real Networks, Macromedia,
Liquid Audio and a2b. Besides production and encoding fees, the Company
also earns recurring revenue from the customer when Internet users access
the hosted file. Globix believes that it is the only company which offers
all three phases of the streaming media production process.
CORPORATE TRAINING
Globix provides training services to complement its sophisticated
Internet solutions. The Company's corporate training is conducted at its
facility and ranges from one to five day programs. These customers usually
maintain an on-going relationship with Globix's account managers and
regularly schedule classes during the year. Training rooms are equipped
with state-of-the-art hardware, projectors, computer desks and other
appropriate classroom equipment.
Globix offers instructor-led training on multiple platforms, such
as Windows 98, Windows NT, Mac and Unix. Course materials and training
methodology are customized for each customer's specific needs. Globix's
fees depend upon the size of the class, the complexity of the topic and the
equipment required. Subjects presented range from sophisticated Internet
applications to basic computer skills. Globix markets its training on a
value-added basis, often in conjunction with a sale including Internet
services and hardware/software. Globix also provides off-site training
sessions. Most recently, Globix has leveraged its Internet knowledge and
instructional design expertise to develop web-based interactive training
programs with rich multi-media content for delivery over corporate
Intranets.
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CUSTOMERS
Globix has established a diversified base of Internet customers in
a variety of data-intensive industries, such as advertising, financing
services, publishing, media and retail. Since initiating Internet services
in December 1995, Globix has grown its customer base to over 800 large and
medium size business customer accounts, including Acclaim Entertainment,
the American Red Cross, Bloomingdale's, BPI Communications (Billboard and
Adweek), Dow Jones, General Media International (Penthouse), Microsoft, the
National Hockey League, Nomura Securities, Ogilvy & Mather, Real Networks,
Standard & Poors and Tishman Speyer Properties.
GLOBIX NETWORK & INFRASTRUCTURE
SuperPOP Infrastructure. Globix currently operates a 3,000 square foot
Internet Data Center in its SuperPOP in New York City. This data center
provides a high bandwidth, highly reliable facility connecting Globix's
customers to the Internet and other companies located within the New York
metropolitan area. Isolated from the rest of the Company's facilities and
physically secured, the Internet Data Center is a controlled and regulated
environment suitable for the storage and maintenance of high-end powerful
computer and networking equipment. The entire Internet Data Center is under
video surveillance and is recorded on tape and then archived. In addition
to our 24 x 7 security personnel, the security system controls and monitors
access, and reports breaches. The use of a biometric access system offers
customers the highest level of security. A variety of additional security
services, including access reporting, tamper alarms, and time restricted
access control, are offered to customers.
The Company's current network operates through diverse feeds from
three major Internet backbone providers, UUNet, MCI/Cable & Wireless, and
Sprint. Utilizing these diverse feeds, data enters or exits the Company's
network over the backbone provider best able to deliver that data in the
most timely and efficiently manner. The Company believes that direct
connections to these major backbone providers enable its customers to enjoy
unencumbered "fault tolerant" Internet access even when one of the carriers
suffers delays, congestion or an outage. If such a problem develops, the
customer's traffic is automatically routed over one of the other backbones.
The Company connects to its customers with a similar redundant system.
Connected to Bell Atlantic via redundant OC-3 level fiber optics terminated
on three diverse fiber multiplexers, the Company provides leased line
connectivity to customers via Bell Atlantic's OC-12 Synchronous Optical
Network ("SONET") ring topology. The Company also maintains diverse ISDN
circuits available to customers as a back-up to their leased lines.
Network Operations Center. The Company's SuperPOP contains a Network
Operation Center, staffed 24 x 7 by system engineers, who are responsible
for monitoring the performance of both the Company's core equipment and
customer's equipment. The system engineers continuously monitor the
Internet Data Center support infrastructure, including power systems,
generators, environmental systems, fire suppression systems and leak
detection. In the event of a power outage or support system failure, the
automatic system's seamlessly transfer operations to backup systems.
Security personnel perform surveillance in addition to monitoring and
controlling access to the Internet Data Center.
Global Backbone Network. The Company is currently building a Tier 1 network
backbone which will include private and public peering relationships. Tier
1 ISPs are defined as network providers who maintain their own physical
infrastructure and peering arrangements with other Tier 1 networks, such as
UUNet, MCI/Cable & Wireless, and Sprint. The Company's new backbone will
consist of a 6,500 mile, fiber based network designed with a highly
reliable and secure bi-directional, line switching OC-3 SONET ring
architecture which traverses the continental United States. The
construction of the new network is expected to be completed by June 30,
1999. This network will connect the Company's three new SuperPOPs located
in New York City, Santa Clara, California, and London and the Company's
planned POPs to be located in Chicago, Los Angeles and Washington, D.C. The
network will offer a self-healing system that provides a
<PAGE> 9
high level of security and reliability. To facilitate the Company's
expansion into Europe, a fully redundant DS-3 transatlantic fiber segment
will be used to connect the New York SuperPOP and the London SuperPOP. The
Company's SuperPOPs and POPs will be serviced by wide area switching
equipment manufactured by Cisco Systems with 100% redundancy. These
switches will allow for a high degree of reliability and service.
The Globix SuperPOPs and POPs under construction will give the
Company access to key Network Access Points, or NAPs. A NAP is an exchange
point for Internet traffic. ISPs typically connect their networks to NAPs
for the purpose of exchanging traffic with other ISPs and organizations.
Globix's SuperPOPs and POPs will be geographically located near most major
NAPs, including the four original National Science Foundation NAPs now
operated by PACBell, Ameritech, Sprint and MFS. ISPs and other
organizations located at these NAPs negotiate bilateral agreements or
MultiLateral Peering Agreements with each other. Globix is continuing to
negotiate both public and private peering agreements.
Global Operations Center. The Company is currently constructing a Global
Operations Center located at the new SuperPOP in New York City. The Global
Operations Center will serve as the command, control and communications
center for all of the Company's Network Operations Centers, SuperPOPs and
POPs. The Global Operations Center will be staffed 24 x 7 by distinct teams
of individuals dedicated to maintaining the highest quality of service for
the Company' customers. From the Global Operations Center the network
administrators will monitor Globix's entire Network architecture from the
network backbone to the end user interface. This will allow the Global
Operations Center network administrators to efficiently identify and
correct any network problems either by direct action or by the activation
of the system engineers located at any of the Company's Network Operations
Centers. The customer support facilities within the Global Operations
Center will utilize state-of-the-art equipment and technologies, including
automatic call distribution, automatic number identification and a database
of customer information and history. The Global Operations Center's
advanced network management and monitoring capabilities will enable Globix
to quickly identify and respond to potential problems or service
disruptions.
CUSTOMER SUPPORT
High quality customer service and support is critical to the
Company's objective of retaining and developing its customers. The Company
has made significant investments in customer service personnel and systems
that enhance customer care and service throughout the complete customer
life cycle from order entry and billing to selling of value-added services.
To ensure consistency in the quality and approach to customer care,
customer care associates attend an extensive formal technical training and
certification program. In conjunction with the current upgrading of its
customer support system, the Company will utilize a leading customer
support trouble ticketing and workflow management system from Remedy
Corporation to tract, route and report on customer service issues. A
customer service specialist is assigned to each customer issue, and acts as
a liaison, tracking the customer issue to resolution. Network operations
can remotely service customer connections to the Company's network. In
addition, field service personnel are dispatched in the event of an
equipment failure that cannot be serviced remotely. As part of the
Company's expansion strategy, the Company is developing fully redundant
NOCs at its new SuperPOPs. The Company's high customer retention rate
demonstrates the quality of the Company's services. In connection with its
customer care initiatives, the Company seeks to continuously improve
systems that increase productivity and enhance customer satisfaction.
<PAGE> 10
SALES AND MARKETING
Globix has built a sales and marketing approach in an effort to
respond effectively to the growing opportunities in the business Internet
market. The Company seeks to combine the technical skills and experience of
its direct sales force with the sales and marketing resources available to
it through its strategic alliances with selected hardware and software
manufacturer. As a result, the Company is able to offer Globix services and
products to a broader and more diverse potential customer base in its
targeted markets.
Direct Sales. Globix has a direct sales force consisting of approximately
42 Internet sales consultants. Because they are locally based, these
Internet sales consultants are able to meet face-to-face with prospective
customers to discuss their Internet needs and technical requirements and
develop tailored solutions. Direct marketing tactics used include direct
contacts with potential corporate accounts by the Internet sales
consultants and systems engineers, direct mail, inbound and outbound
telemarketing, seminars and trade show participation. The Company has
developed programs to attract and train high quality, motivated Internet
sales consultants. These programs include technical sales training,
consultative selling technique training, sales compensation plan
development and sales representative recruiting profile identification.
Strategic Alliances. Globix has established a number of strategic alliances
with selected computer hardware and software manufacturers, including
Microsoft, Sun Microsystems and Checkpoint Systems which give the Company
access to potential Internet service customers in the manufacturers'
customer base, while enabling the manufactures to offer their customers an
integrated package of hardware, software and Internet services and
products. The Company believes that these strategic alliances allow
Globix to cost-effectively add new customers. The Company co-markets with
these vendors through direct mail programs, joint seminar development and
joint trade show involvement.
Marketing. Globix's marketing program is intended to build national and
local strength and awareness of the Globix brand. The Company uses radio
and print advertising in targeted markets and publications to enhance
awareness and acquire leads for the Company's direct sales team. The
Company's print advertisements are placed in trade journals, local
technology sections of newspapers and special-interest publications. The
Company attempts to create brand awareness by participating in industry
trade shows such as PC Expo, Internet and Electronic Commerce, and Internet
World. The Company also uses direct mailings, telemarketing programs, web
marketing, co-marketing agreements and joint promotional efforts to reach
new corporate customers. The Company attempts to retain its customers
through active and responsive customer support as well as by continually
offering new value-added services.
(2) Competition
The market served by the Company is intensely competitive, and
such competition is increasing. There are few substantial barriers to
entry, and the Company expects that it will face additional competition
from existing competitors and new market entrants in the future.
The Company believes that a reliable network, a broad range of
quality products and services, a knowledgeable sales force and the quality
of customer care currently are the primary competitive factors in the
Company's targeted market and that price is generally secondary to these
factors. The Company's current and potential competitors in the market
include: (i) national and regional ISPs, (ii) global, regional, and
local telecommunications companies and RBOCs, and (iii) other competitors.
ISPs. The Company's current and potential competitors in the market include
other ISP's with a significant national presence which focus on business
customers, such as UUNET Technologies, Inc., Concentric Network, and
PSINet. Globix also competes with national and regional ISPs which have
facilities in the New York metropolitan area, including Space Lab (which
was recently acquired by Verio), Interport, Genuity (a subsidiary of GTE),
Exodus, Applied Theory, and GlobalCenter (which was acquired by Frontier
Corporation). Many
<PAGE> 11
of these competitors have greater financial, technical, and marketing
resources, larger customer bases, greater name recognition, and more
established relationships in the industry than the Company.
Telecommunications Carriers. Many long distance companies including AT&T,
Cable & Wireless/MCI, Sprint and MCI/Worldcom offer Internet access
services and compete with the Company. Recent reforms in the federal
regulation of the telecommunications industry have created greater
opportunities for ILECs, including RBOCs and other competitive CLECs, to
enter the Internet connectivity market. The Company believes that there is
a move toward vertical integration by ILECs and CLECs through acquisitions
or joint ventures with, and the wholesale purchase of, connectivity from
ISPs to address the Internet connectivity requirements of the business
customers of long distance and local carriers. The recent MCI/Worldcom
merger (and the WorldCom/MFS/UUNet consolidation), GTE's recent acquisition
of BBN, the recent acquisition by ICG Communications, Inc. of Netcom and
the recent acquisition by Frontier Corp. of GlobalCenter, and the pending
acquisition of IBM's Internet service operations by AT&T are indicative of
this trend. Accordingly, the Company expects that it will experience
increased competition from the traditional telecommunications carriers. In
addition to their greater network coverage, market presence, and financial,
technical, and personnel resources, many of these telecommunications
carriers also have large existing commercial customer bases.
Other Competitors. Because the Company offers a broad range of goods and
services, it encounters competition from numerous businesses which provide
one or more similar goods or services. So, for example, Globix encounters
competition from numerous resellers of computer equipment and providers of
video streaming. Globix does not believe that any of the competitors in its
target market offer as broad a range of Internet products and services.
While the Company believes that its ability to attract business
customers and to market value-added services is a key to its future
success, there can be no assurance that its competitors will not introduce
comparable services or products at similar or more attractive prices in the
future or that the Company will not be required to reduce its prices to
match competition. Furthermore, there can be no assurance that more of the
Company's competitors will not shift their focus to attracting business
customers, resulting in even more competition for the Company. There can be
no assurance that the Company will be able to offset the effects of any
such competition or resulting price reductions. Increased competition could
result in erosion of the Company's market share and could have a material
adverse effect on the Company's business, financial condition and results
of operation.
(3) Dependence upon Suppliers
In order to provide Internet access and other on-line services to
its customers, the Company leases long distance fiber optic
telecommunications lines from more than one national telecommunications
services provider. The Company is dependent upon these providers of data
communications facilities.
Certain of the Company's suppliers, including RBOCs and CLECs,
currently are subject to various price constraints, including tariff
controls, which in the future may change. In addition, regulatory proposals
are pending that may affect the prices charged by the RBOCs and CLECs to
the Company. Such regulatory changes could result in increased prices of
products and services, which could have a material adverse effect on the
Company's business, financial condition and results of operations.
The Company relies on other companies to supply certain components
of its computer inventory as well as its network infrastructure (including
telecommunications services and networking equipment) which, in the
quantities and quality required by the Company, is available only from sole
or limited sources. At the present time, Silicon Graphics, Sun
Microsystems, Compaq and Intergraph are the Company's largest suppliers of
products for both its Computer Product Sales and Services Division and its
Internet and Media Development Division. The Company has in the past, and
may from time to time, experience delays in receiving telecommunications
services and shipments of merchandise purchased for resale. There can be no
assurance that the Company will be able to obtain such telecommunication
services and shipments of merchandise on the scale and at the times
required by the Company at an affordable cost or at all. There also can be
no assurance that the Company's suppliers, will not enter into exclusive
arrangements with the Company's competitors or stop selling their products
or components to the Company at commercially reasonable prices, or at all.
Any failure of the Company's sole or limited-source suppliers to provide
products or components that comply with its standards could have a material
adverse effect on the Company's business, financial condition and results
of operations.
(4) Employees
At November 30, 1998, the Company had 187 full time employees
and 17 part-time employees.
Item 2. Properties
On July 1, 1998, the Company through BLP Acquisitions LLC, a
New York limited liability company ("BLP"), over 99% owned by the Company,
purchased the land and building located at 139 Centre Street, New York, New York
from Bank Leumi USA, a New York banking corporation. The nine story building
contains approximately 160,000 square feet of floor space. The Company intends
to house its New York SuperPOP facility and operations in the new premises
beginning April 1999.
In July 1998, the Company signed a 15 year triple net lease
commencing January 15, 1999 to rent approximately 62,000 square feet of office
space at 2807 Mission College Boulevard, Santa Clara, California at an annual
base rent of $1,277,715. The building is currently under construction. The
Company is building a SuperPOP data center in the new building, which will also
provide space for sales and administrative personnel. The Company expects its
Santa Clara SuperPOP to be fully operational by June 30, 1999.
<PAGE> 12
In October 1998, the Company signed a lease with Corston Holdings
Limited (a United Kingdom Corporation) for a 15 year term through September 2014
for the rental of 33,500 square feet at Prospect House, 80 to 110 New Oxford
Street London at an annual base rent of pounds sterling 1,080,000 (approximately
$1,836,000 in U.S. dollars) commencing in October 1999. The Company is building
a SuperPOP data center in the new premises, which will also provide space for
sales and administrative personnel. The Company expects the London SuperPOP to
be fully operational by June 30, 1999.
The Company leases approximately 32,000 square feet of space
at 295 Lafayette Street, New York, New York. The lease expires in 2007. The
facility currently houses the Company's initial New York SuperPOP data center.
The Company considers that, in general, its physical properties are
well maintained, in good operating condition and adequate for its purposes.
Item 3. Legal Proceedings
In January 1997, an action was commenced in the Supreme Court of the
State of New York, County of New York against General Media International Inc.,
the Company and two individuals. The Complaint alleges that the Company
tortiously interfered with the plaintiff's contractual and business relations
with General Media International Inc. On April 15, 1997, counsel for the
plaintiffs advised the Company that the litigation was put on hold. No further
steps have been taken by plaintiffs to pursue their claims against the Company.
In the Company's opinion, plaintiffs' claims against the Company are without
merit.
Item 4. Submission of Matters to a Vote of Security Holders
During the fourth quarter of the Company's fiscal year ended September
30, 1998 there were no matters submitted to a vote of security holders.
<PAGE> 13
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
(a) The Company's Common Stock is traded on the NASDAQ
SmallCap Market System. The following table indicates high and low sales
quotations for the periods indicated based upon information supplied by NASDAQ,
Inc. Such over-the-counter market quotations reflect inter-dealer prices,
without retail mark-up, mark-down or commission and may not necessarily
represent actual transactions.
<TABLE>
<CAPTION>
1997 Low High
---- --- ----
<S> <C> <C>
first quarter $8.875 $ 9.875
second quarter 9.625 13.750
third quarter 9.875 13.875
fourth quarter 5.563 11.375
</TABLE>
<TABLE>
<CAPTION>
1998 Low High
---- --- ----
<S> <C> <C>
first quarter $4.500 $ 8.313
second quarter 4.375 11.750
third quarter 9.250 15.938
fourth quarter 6.250 13.625
</TABLE>
(b) Number of Holders of Common Stock. The number of holders
of record of the Company's Common Stock on December 18, 1998 was 41, which does
not include individual participants in security position listings.
(c) Dividends. There were no dividends or other distributions
made by the Company during the fiscal year ended September 30, 1998. Under the
terms of the Senior Notes discussed above, the Company's ability to pay
dividends is contractually limited. It is anticipated that cash dividends will
not be paid to the holders of the Company's Common Stock in the foreseeable
future.
Item 6. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion and analysis should be read together with the
consolidated financial statements and notes to such statements and notes
appearing elsewhere herein.
OVERVIEW
Globix was founded in 1989 as a value-added reseller, or VAR, primarily
focused on providing custom computer hardware and software solutions for desktop
publishing. By 1995, Globix recognized the growing demand by business for
electronic information delivery and began to re-shape its corporate strategy
with a focus on offering Internet products and services. In December 1995,
Globix began to offer Internet access to business customers and by the end of
1996 had grown its Internet customer base to over 80 large and medium size
business accounts. In 1997, Globix, capitalizing on its expertise in Internet
technologies, began to offer a range of products and services that enable its
customers to more effectively carry out their business strategy using the
Internet. As of December 1, 1998, Globix's customer base for Internet products
and services had grown to over 800 large and medium size business customer
accounts.
Prior to 1996, Globix's revenues consisted almost exclusively of sales of
desktop publishing computer products and services. In 1996, Globix shifted its
primary sales focus from desk-top publishing hardware and software products to
Internet-related servers and software. Since 1996, Globix has broadened its
product offerings to include dedicated Internet access, web hosting, co-location
and value-added Internet services. Commencing with fiscal 1996, Globix began
segment reporting of its results of operations. Globix divides its operations
for segment reporting into two divisions: (i) the "Internet Division," which
provides
<PAGE> 14
high bandwidth dedicated Internet access, web hosting, co-location and
value-added Internet services (such as web development, e-commerce and security
solutions, streaming media products and corporate training); and (ii) the
"Server Sales and Integration Division," which provides Internet-related
hardware and software sales and related systems and network integration. Over
the last three fiscal years, the revenue from the Internet Division has grown
significantly as a percentage of total revenue from 6.2% to 31.3%. Globix
expects that the Internet Division revenues will continue to grow as a
percentage of total revenues.
STATEMENT OF OPERATIONS
Revenues. The Company currently derives a majority of its revenue from sales of
Internet-related hardware and software. Globix intends to continue to offer such
higher-margin workstation, web and database server and software components as a
complement to its sophisticated Internet solutions and as a convenience to its
Internet customers. The Company typically keeps on hand a small amount of server
and software inventory, and typically purchases products from manufacturers only
after receiving a customer order for the items. The second largest component of
Globix's revenues is from Internet access. Most of Globix's Internet access
customers sign one or two-year contracts. Globix derives dedicated Internet
access revenues from initial connection charges and monthly service fees, both
of which vary directly with the bandwidth chosen and utilized. For web hosting
and co-location services, the Company charges monthly fees based on the amount
of data transferred to and from the customer's web site. In addition, for
co-location services the Company charges monthly rental fees for the use of its
facilities. Value-added Internet services are charged on a project (fixed price
or time and materials) or ongoing monthly basis.
The Company's costs include (i) cost of revenues related to direct costs of
hardware and software sold and the cost of leased long distance and local
circuits and certain direct labor costs, (ii) selling, general and
administrative expenses, (iii) interest expense (net of interest income)
primarily associated with the Senior Notes, and (iv) depreciation and
amortization.
Cost of Revenues. Cost of revenues for the Server Sales and Integration Division
consist primarily of acquisition costs of computer and networking hardware and
software.
Cost of revenues for the Internet Division consist primarily of
telecommunications costs for Internet access customers and direct labor costs
for web development and training operations. Telecommunications costs include
the cost of providing local telephone lines into the Company's SuperPOP, costs
related to the use of third party networks pursuant to service agreements, and
costs associated with leased lines connecting the SuperPOP and third-party
network to the Internet backbone. In October 1998, the Company signed an
agreement with Qwest giving the Company exclusive access to high-capacity
bandwidth coast-to-coast in the United States and from the United States to the
United Kingdom. When the network backbone becomes operational in mid 1999, data
transmission costs are expected to increase substantially in the short-term due
to the higher network operating and maintenance charges and depreciation of the
Qwest IRU. As utilization of the network backbone increases in future years, the
Company expects to realize a substantial reduction in per unit data transmission
costs due to the network's scalability and fixed cost structure.
Costs of revenue for web development consist of labor and overhead costs for the
personnel performing the service including the cost of project management,
quality control and project review. Costs of revenue for training consist of
labor and overhead costs for offering the training courses including in-house
and contract instructors and the cost to develop and produce course materials.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses consist primarily of sales and marketing personnel and
related occupancy costs; advertising costs; salaries and occupancy costs for
executive, financial and administrative personnel; and personnel and related
operating expenses associated with network operations, customer support and
field services. The principal increase in the Company's overhead expenses is
related directly to the hiring of new employees to support the Company's
increasing emphasis on Internet-related products and services. The Company is in
the process of hiring a significant number of additional personnel to staff and
market its three new SuperPOP facilities.
The Company expects selling and marketing expenses to continue to increase in
absolute dollars in future years due to increases in the size of its sales
force, advertising and other marketing activities. The Company expects these
additional expenditures to contribute significantly to an increase in losses in
fiscal 1999.
<PAGE> 15
Interest and Financing Expense. Interest expense (net of interest income) is
primarily related to debt service on the Senior Notes partially offset by
interest earned on invested cash, including the cash held in escrow to fund the
first six semi-annual interest payments on the Senior Notes, resulting in an
increase in net interest expense. In addition, the Company is amortizing debt
issuance costs relating to the $160.0 million Senior Notes offering of $6.6
million over seven years.
Depreciation and Amortization. Depreciation and amortization expenses are
expected to increase significantly beginning in fiscal 1999 as the Company
continues to make capital expenditures. The Company has not taken any
depreciation for the year ended September 30, 1998 on its under-construction
SuperPOPs in New York, San Francisco and London, and will commence depreciation
upon their opening, which is scheduled to be by June 30, 1999.
SEGMENT INFORMATION
The Company's activities fall within two main segments: the Internet
Division and the Server Sales and Integration Division. The following table
details segment information for the fiscal years ending September 30, 1996, 1997
and 1998:
<TABLE>
<CAPTION>
Fiscal year ended September 30
1997 1998
------------- -------------
<S> <C> <C>
Sales:
Server sales and integration $ 14,986,417 $ 14,147,429
Internet 2,413,538 6,447,504
------------- -------------
Consolidated 17,399,955 20,594,933
============= =============
Operating income (loss)(1):
Server sales and integration (378,647) 721,125
Internet (84,632) 1,145,068
Consolidated (3,010,234) (4,733,404)
Identifiable assets(2):
Server sales and integration 5,781,580 3,731,505
Internet 2,105,207 7,808,987
Consolidated 11,024,988 182,266,372
</TABLE>
(1) Includes $6,599,597 for the fiscal year ended September 30, 1998 and
$2,546,955 for fiscal year ended September 30, 1997 of unallocated
corporate overhead including executive salaries of $823,662 for fiscal year
ended September 30, 1998 and $616,034 for fiscal year ended September 30,
1998 and $616,034 for fiscal year ended September 30, 1997 and overhead
including rent, payroll charges for administrative staff including
accounting, human resources, MIS and other support personnel and
professional fees.
(2) Including corporate assets not allocable to a particular segment of
$170,725,880 and $3,138,201 for the fiscal years ended
September 30, 1998 and 1997, respectively.
Fiscal Year Ended September 30, 1998 Compared With Fiscal Year Ended
September 30, 1997
Revenues. Consolidated revenues for the fiscal year ended September 30,
1998 increased 18.4% to approximately $20.6 million from approximately
$17.4 million for the fiscal year ended September 30, 1997. Revenues from
the Server Sales and Integration Division for fiscal year ended September
30, 1998 decreased 5.6% to approximately $14.1 million from approximately
$15.0 million for the fiscal year ended September 30, 1997. Revenues from
the Internet division increased 167.1% to $6.4 million for the fiscal year
ended September 30, 1998 from approximately $2.4 million for the fiscal
year ended September 30, 1997. The increase in percentage of Internet
Division revenues as a percentage of total revenues reflects the Company's
shift in product mix toward Internet related sales.
<PAGE> 16
Cost of Revenues. Cost of Revenues for the fiscal year ended September 30,
1998 was $13.3 million or 64.7% as compared to $13.7 million or 78.7% of
total revenues for the fiscal year ended September 30, 1997. The decrease
in cost of revenues directly relates to the increase in higher Internet
sales as a percentage of total sales.
Selling, General and Administrative. Costs for the fiscal year ended
September 30, 1998 were approximately $10.7 million or 51.9% of total
revenues as compared to approximately $6.0 million or 34.7% of total
revenues for the fiscal year ended September 30, 1997.
For the year ended September 30, 1998, total salary expense increased
approximately $2.6 million over the prior fiscal year due to the increase
in personnel costs for sales, marketing, engineering, training and
administration necessitated by the growth in operations. The number of
employees increased from 90 as of September 30, 1997 to approximately 170
as of September 30, 1998. The Company increased expenditures in advertising
from approximately $325,000 for the year ended September 30, 1997 to
approximately $1.3 million for the year ended September 30, 1998. The
Company began a print advertising campaign in June 1998 to establish brand
recognition for Globix. Additional print advertising in Crains New York,
The New York Times and The Wall Street Journal commenced later in the
year to promote sales. In addition, the Company increased its expenditures
for local area trade shows by both appearing in additional shows over the
prior period and increasing its presence at these shows by purchasing
larger display areas.
Interest and Financing Expense and Interest Income. The increase in
interest expense is a direct result of the $160.0 million Senior Notes
offering in April 1998. The increase in interest income reflects the
increased cash position derived from the net proceeds of the Senior Notes
offering. The Company is amortizing debt issuance costs relating to the
$160.0 million Senior Notes offering totaling $6.6 million over seven
years.
Depreciation and Amortization. Depreciation and amortization increased to
$1.3 million for the year ended September 30, 1998 as compared to
approximately $675,000 for the year ended September 30, 1997. The increase
is directly related to the equipment purchased during fiscal 1998.
Net Loss to Common Shareholders and Loss per Share. As a result of the
above, the Company reported a net loss for fiscal 1998 of $11.2 million or
$3.08 per share as opposed to a net loss of $3.1 million or $1.01 per share
for fiscal 1997.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company has satisfied its cash requirements
through a combination of public and private sales of equity, borrowings
from institutional and private lenders, and cash flow from operations. In
January 1996, the Company completed an initial public offering of 1,279,642
shares of its Common Stock and 661,250 redeemable Common Stock purchase
warrants (the "IPO Warrants") to purchase an additional 661,250 shares of
Common Stock. The net proceeds of the initial public offering were
approximately $7 million. In September 1997, the Company completed a
private placement of 400,000 shares of Common Stock through Value
Management and Research GmbH for a total consideration of $2.2 million. In
April 1998, the Company completed a $160.0 million issuance of Senior
Notes, the net proceeds (after an interest escrow of $57.0 million and debt
issuance costs of $6.6 million) of which were approximately $97.0 million.
In July 1998, the Company called the outstanding IPO Warrants for
redemption. Substantially all of the IPO Warrants were exercised and the
net proceeds to the Company were approximately $4.3 million.
At September 30, 1998, the Company had working capital of approximately
$76.0 million, as compared to working capital of approximately $2.0 million
at September 30, 1997. Working capital increased primarily because of the
$160.0 million Senior Notes offering partially offset by the loss from
operations of $11.2 million. Working capital was reduced by $60.2 million
which has been set aside in restricted investments to pay the first six
interest payments on the Senior Notes. In addition, in July 1998 the
Company purchased its new corporate headquarters at 139 Centre Street, New
York, for a cash outlay of approximately $15.3 million ($4.3 million is the
<PAGE> 17
remaining liability for the purchase). Working capital was also reduced by
deductions for depreciation and amortization of $1.7 million. The Company
is in the process of securing a first mortgage on 139 Centre Street for
approximately $19.8 million.
Cash and cash equivalents increased by approximately $59.1 million from
September 30, 1997 primarily as the result of the offering of $160.0
million Senior Notes completed in April 1998 offset by the $60.2 million
placed into long-term restricted cash, $13.0 million invested in
marketable securities and $15.3 million paid for 139 Centre Street.
On April 30, 1998, Globix issued $160 million of Senior Notes, which
consist of 160,000 Units for aggregate gross proceeds of $160.0 million.
Each Unit included $1,000 principal amount at maturity of the Senior Notes
and one Warrant entitling the holder thereof to purchase 3.52 shares of
Common Stock. The maturity date of the Senior Notes is May 1, 2005.
Interest on the Senior Notes accrues at the rate of 13.0% per annum and is
payable semi-annually on May 1 and November 1 of each year. Upon issuance
of the Senior Notes, Globix deposited with an escrow agent an amount of
cash and U.S. government securities (approximately $57.0 million), that,
together with the proceeds from the investment thereof, were estimated to
be sufficient to pay when due the first six interest payments on the Senior
Notes, with any balance to be retained by Globix. The Senior Notes are
collateralized by a first priority security interest in such escrow
account.
The Company maintains a $1.0 million credit line from Cisco Systems
Capital Corporation ("CSC") to lease Cisco System products and associated
peripherals. The terms of this line, which was entered into in December
1997, provided for 180 days of borrowing and a maximum borrowing limit of
$1.0 million. However, CSC has informally permitted the Company to continue
to borrow under this line and to exceed the stated $1.0 million limit.
Amounts borrowed under the line are to be repaid over a 36-month period
with the Company having the option of purchasing the equipment for $1.00 at
the end of the lease term. As of September 30, 1998, approximately $945,000
was outstanding under this credit line.
The Company also has credit facilities to finance certain inventory and
equipment. As of September 30, 1998, the aggregate amount outstanding under
such facilities was approximately $1.3 million.
As of September 30, 1998, the Company had spent approximately $2.5
million to construct and equip its three new SuperPOP facilities. The
Company estimates that it will spend an additional $47.5 million to
complete the SuperPOPs and $10.0 million to complete the Company's backbone
infrastructure. In addition, the Company has an option from Qwest to
maintain the capacity of its domestic network backbone at OC-3 bandwidth
levels for the balance of the 20 year term of its agreement for an
additional payment of $15.0 million. The Company can exercise this option
at any time prior to December 31, 1999. The Company expects its new
SuperPOP facilities and network backbone to become operational by June 30,
1999.
In the opinion of management, the Company will be able to finance its
business as currently conducted and as currently planned from its current
working capital at least through fiscal 1999.
YEAR 2000 COMPLIANCE
Many currently installed computer systems and software products are
coded to accept or recognize only two digit entries in the date code field.
These systems and software products will need to accept four digit entries
to distinguish 21st century dates from 20th century dates. As a result,
computer systems and/or software used by many companies and governmental
agencies may need to be upgraded to comply with such Year 2000 requirements
or risk system failure or miscalculations causing disruptions of normal
business activities.
State of Readiness. Globix has made a preliminary assessment of the Year
2000 readiness of its information technology ("IT") systems, including the
hardware and software that enable Globix to provide and deliver its
solutions, and its non-IT systems. Globix's assessment plan consists of (i)
<PAGE> 18
quality assurance testing of its internally developed proprietary software
and systems; (ii) contacting third-party vendors and licensors of material
hardware, software and services that are both directly and indirectly
related to the delivery of Globix's solutions to its customers; (iii)
contacting vendors of material non-IT systems; (iv) assessment of repair or
replacement requirements; (v) repair or replacement; (vi) implementation;
and (vii) creation of contingency plans in the event of Year 2000 failures.
Globix plans to perform a Year 2000 simulation on its software during the
second fiscal quarter of 1999 to test system readiness. Based on the
results of its Year 2000 simulation test, Globix intends to revise the code
of its software and systems as necessary to improve the Year 2000
compliance of its software. Globix has been informed by its vendors of
material hardware and software components of its IT systems that the
products used by Globix are currently Year 2000 compliant. Globix is
currently assessing the materiality of its non-IT systems and will seek
assurances of Year 2000 compliance from providers of material non-IT
systems. Until such testing is complete and such vendors and providers are
contacted, Globix will not be able to completely evaluate whether its IT
systems or non-IT systems will need to be revised or replaced. Globix plans
to complete this phase of its Year 2000 evaluation during the first half of
1999.
Costs. To date, Globix has not incurred any material expenditures in
connection with identifying or evaluating Year 2000 compliance issues. Most
of its expenses have related to, and are expected to continue to relate to,
the operating costs associated with time spent by employees in the
evaluation process and Year 2000 compliance matters generally. At this
time, Globix does not possess the information necessary to estimate the
potential costs of revisions to its software and systems should such
revisions be required or the replacement of third party software, hardware
or services that are determined not to be Year 2000 compliant. Although
Globix does not anticipate that such expenses will be material, such
expenses, if higher than anticipated, could have a material adverse effect
on Globix's business, results of operations and financial condition.
Risks. Globix is not currently aware of any Year 2000 compliance problems
relating to its IT or non-IT systems that would have a material adverse
effect on Globix's business, results of operations and financial condition.
There is no assurance that Globix will not discover Year 2000 compliance
problems in its software and systems that will require substantial
revisions. In addition, there is no assurance that third party software,
hardware or services incorporated into Globix's material IT and non-IT
systems will not need to be revised or replaced, all of which could be time
consuming and expensive. The failure of Globix to fix its proprietary
software or to fix or replace third-party software, hardware or services on
a timely basis could result in lost revenues, increased operating costs and
the loss of customers and other business interruptions, any of which could
have a material adverse effect on Globix's business, results of operations
and financial condition. Moreover, the failure to adequately address Year
2000 compliance issues in its IT and non-IT systems could result in claims
of mismanagement, misrepresentation or breach of contract and related
litigation, which could be costly and time-consuming to defend.
In addition, there can be no assurance that governmental agencies,
utility companies, telecommunication companies, other Internet service
providers, third party service providers, hardware and software
manufacturers and others outside Globix's control will be Year 2000
compliant. The failure by such entities to be Year 2000 compliant could
result in a systemic failure beyond the control of Globix, such as a
prolonged Internet, telecommunications or electrical failure, which could
also prevent Globix from delivering its services to its customers, decrease
the use of the Internet or prevent users from accessing the web sites of
its customers. Any of these occurrences could have a material adverse
effect on Globix's business, results of operations and financial condition.
Contingency Plan. As discussed above, Globix is engaged in an ongoing Year
2000 assessment and has not yet developed any contingency plans. The
results of Globix's Year 2000 simulation testing and the responses received
from third-party vendors and service providers will be taken into account
in determining the nature and extent of any contingency plans.
<PAGE> 19
INTRODUCTION OF THE EURO
On January 1, 1999, eleven of the fifteen member countries of the
European Union are scheduled to establish fixed conversion rates between
their existing sovereign currencies and a new currency called the "Euro."
These countries have agreed to adopt the Euro as their common legal
currency on that date. The Euro will then trade on currency exchanges and
be available for non-cash transactions. Thereafter and until January 1,
2002, the existing sovereign currencies will remain legal tender in these
countries. On January 1, 2002, the Euro is scheduled to replace the
sovereign legal currencies of these countries.
The Company will evaluate the impact the implementation of the Euro
will have on its business operations and no assurances can be given that
the implementation of the Euro will not have material adverse affect on the
Company's business, financial condition and results of operations. However,
the Company does not expect the Euro to have a material effect on its
competitive position. In addition, the Company cannot accurately predict
the impact the Euro will have on currency exchange rates or the Company's
currency exchange risk.
FORWARD LOOKING STATEMENTS
The foregoing contains certain forward-looking statements. Due to the
fact that the Company faces intense competition in a business characterized
by rapidly changing technology and high capital requirements, actual
results and outcomes may differ materially from any such forward looking
statements and, in general are difficult to forecast.
Item 7. Financial Statements
Financial Statements Data are attached hereto following page F-2.
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
During fiscal years 1997 and 1998 there were no changes in or
disagreements with the Company's principal independent accountant on accounting
or financial disclosure.
<PAGE> 20
PART III
Item 9. Directors and Executive Officers of the Company
As of December 1, 1998, the Company's directors and executive
officers were as follows:
<TABLE>
<CAPTION>
Position With the Company Held Office
Name and Age and Principal Occupation since
- ------------ ------------------------ -----
<S> <C> <C>
Marc H. Bell, 31 Chairman (Chief Executive 1989
Officer) and Director
Robert B. Bell, 59 Executive Vice President, 1994
Chief Financial Officer, Director
Tsuyoshi Shiraishi, 54 Director 1995
Martin Fox, 62 Director 1995
Dr. Richard Videbeck, 75 Director 1995
Anthony St. John, 41 Director 1997
Sid Paterson, 57 Director 1998
Marc Jaffe, 31 Vice-President 1997
William T. Jahnke, 44 Vice-President 1997
Alan Levy, 36 Treasurer, Chief Accounting Officer 1997
Scott Safran, 42 Vice-President 1997
</TABLE>
Business Experience
Marc H. Bell has been the President and Chief Executive Officer since
he founded the Company in 1989. Since re-focusing the Company on
Internet-related sales, Mr. Bell has appeared on numerous television broadcasts
and has been frequently quoted in numerous national publications regarding
Internet-related topics. Mr. Bell has always been interested in computer
technology. While in high school, Mr. Bell served as a free-lance computer
consultant including instructing the faculty at Fordam University on teaching
computers in the classroom. In 1983, Mr. Bell wrote the second bulletin board
system ("BBS") program available for the Apple II series computer called Camelot
BBS. In addition, Mr. Bell has worked in a variety of fields, including
advertising and publishing, utilizing cutting-edge computer technology. Mr. Bell
has a B.S. degree in accounting from Babson College and an M.S. degree in Real
Estate Finance from New York University.
Robert B. Bell has served as Executive Vice President and Chief
Financial Officer of the Company and its corporate predecessor since 1994. Prior
to joining the Company, Mr. Bell was a practicing attorney in New York City at
the firm of Bell, Kalnick, Beckman, Klee and Green, which Mr. Bell founded in
the early 1970's. Prior to 1994, Mr. Bell for many years was also an Adjunct
Professor at New York University. He is primarily responsible for the
administration of the Company's financial affairs and day to day business
operations. Robert Bell is the father of Marc H. Bell. Mr. Bell has a B.S.
degree from New York University and a J.D. degree from the University of
California at Berkley.
Tsuyoshi Shiraishi has been a director of the Company since July 1,
1994. Mr. Shiraishi has been the Chairman of Century World PTE Ltd., an
investment consulting firm, and the Managing Director of Harpoon since 1992.
Prior to that, Mr. Shiraishi was the Director of Marketing & Investment for
Kajima Overseas Asia PTE Ltd., a subsidiary of Kajima Corporation, an
international construction company, since 1990. In addition, since 1990, Mr.
<PAGE> 21
Shiraishi has been Vice Chairman of Century International Hotels, which operates
and manages 17 hotels in the Pacific Rim. He is the sole shareholder of Harpoon,
which acquired 50% of the capital stock of the Company as of July 1, 1994. Mr.
Shiraishi is a Japanese citizen and a resident of Singapore.
Martin Fox has been a director of the Company since October 1995. Mr.
Fox has been, for more than five years, the President and a director of Initio,
Inc., a publicly owned mail order retailer of consumer products.
Richard Videbeck has been a director of the Company since October 1995.
Since 1983, Dr. Videbeck has been an independent consultant in consumer risk
analysis, particularly for retailers and banks. From 1974 until 1986 Dr.
Videbeck was a professor of sociology at the University of Illinois at Chicago.
From 1974 until 1977, Dr. Videbeck was the Dean of the Doctor of Arts Program of
the Graduate College of the University of Illinois at Chicago.
Anthony St. John, Lord St. John of Bletso is a member of the House of
Lords of the Parliament of the United Kingdom. He also serves as a consultant to
Merrill Lynch and is a Registered Representative of the London Stock Exchange.
Sid Paterson has been President and Chief Executive Officer of Sid
Paterson Advertising Inc., for more than five years.
Marc Jaffe a Vice President, Internet Services, joined the Company in
early 1995 to lead the Company's Internet services business. Prior to joining
the Company, Mr. Jaffe had extensive experience in the use of computers and
telecommunications in the advertising and marketing industry. Mr. Jaffe recently
developed an Internet-focused marketing strategy that won the prestigious
CreaTech Award, presented by Advertising Age magazine, and has spoken at
numerous Internet conferences. Prior to joining the Company, Mr. Jaffe was a
department manager at Sid Paterson Advertising Inc. in New York City since
1989. Mr. Jaffe graduated from Colgate University in 1989, where he received a
Bachelor of Arts Degree.
William T. Jahnke has been a Vice President of the Company since March
1997 and the Director of Corporate Sales of the Company since August 1995. Prior
to joining the Company, Mr. Jahnke was president and chief operating officer of
Vernon Computer Rentals and Leasing from February 1989 to December 1994, where
he pioneered and implemented a nationwide asset management program for Apple
which is used by several thousand U.S. sales representatives. Mr. Jahnke
received a B.S. Degree in Computer Science from Seneca College in 1975.
Alan Levy joined the Company as Treasurer and Chief Accounting Officer
in February 1997. From March 1994, to February 1997, Mr. Levy was the Assistant
to the Vice President of Finance of Del Laboratories, Inc., a manufacturer and
wholesaler of cosmetics and over-the-counter pharmaceuticals. Prior to that, Mr.
Levy was a Technical Manager with the American Institute of Certified Public
Accountants from August 1990 to March 1994. Prior to August 1990, Mr. Levy was a
manager for Ernst & Young. He is a Certified Public Accountant and received his
Bachelor's degree in Public Accounting from Long Island University, C.W. Post
Campus.
Scott Safran has been Vice President - Training and Interactive
Development since June 1997 and the Director of Corporate Training since joining
the Company in March 1996. Prior to joining the Company he was a Senior Account
Executive at IBM Skill Dynamics Corporation from December 1994 to October 1995.
From December 1989 to December 1994 Mr. Safran was in various sales positions
with AT&T Networking Systems. Mr. Safran has a Bachelor of Arts in English
Literature and Master of Business Administration degrees from St. John's
University.
The Securities and Exchange Commission has adopted rules relating to the filing
ownership reports under Section 16 (A) of the Securities Exchange Act of 1934.
One such rule requires disclosure of filings which under the Commission's rules,
are not deemed to be timely. During its' review, the Company discovered that Mr.
Marc H. Bell and Mr. Robert Bell did not file timely each, regarding the
conversion of 50 IPO warrants into common stock and Mr. Jaffe regarding the
conversion of 100 IPO warrants into common stock.
<PAGE> 22
Item 10. Executive Compensation
The following table sets forth compensation paid to executive officers
whose compensation was in excess of $100,000 for any of the three fiscal years
ended September 30, 1998. No other executive officers received total salary and
bonus compensation in excess of $100,000 during any of such fiscal years.
SUMMARY COMPENSATION TABLE
Annual Compensation and Grant of Stock Options
<TABLE>
<CAPTION>
Name and
Principal Position Year Salary Options
- ------------------ ---- ------ -------
<S> <C> <C> <C>
Marc H. Bell 1998 $250,000 211,500
President and Chief 1997 $200,000 --
Executive Officer 1996 $165,000 --
Robert B. Bell 1998 $151,042 30,000
Executive Vice President and 1997 125,000 --
Chief Financial Officer 1996 100,504 90,000
Marc Jaffe 1998 $131,250 50,000
Vice President - Internet Services 1997 89,000 25,000
1996 64,093 5,000
William T. Jahnke 1998 $100,000 10,000
Vice President - Server and 1997 82,800 12,000
Workstation Sales and Service 1996 80,000 6,000
Scott Safran 1998 $107,203 20,000
Vice President - Training and 1997 60,547 5,000
Interactive Development 1996 17,385 --
</TABLE>
Compensation of Directors
Each director of the Company who is not employed by the Company, and
who does not beneficially own more than 5% of the outstanding Common Stock of
the Company, will be entitled to receive annually, options to purchase a total
of 10,000 shares of Common Stock. Such options are immediately exercisable, have
a ten-year term, subject to certain restrictions, and are exercisable at the
fair market value of the Common Stock at the date of the grant. Of the current
board members, only Mr. Fox , Dr. Videbeck, Lord St. John and Mr. Paterson are
entitled to receive such compensation. . In addition, at the discretion of the
Board of Directors, directors may be reimbursed for reasonable travel expenses
in attending Board and committee meetings. In October 1997, Anthony St. John
received options to purchase a total of 10,000 shares of common stock at a price
of $7.25 per share and 10,000 options were granted each to Mr. Fox, Dr. Videbeck
and Mr. Paterson in March 1998 at $6.50 per share (the fair market value of the
underlying shares on the date of grant) in lieu of receiving any cash
compensation.
During the fiscal year ended September 30, 1998, Mr. Fox received
$10,195 in consulting fees from the Company.
Employment Contracts
In October 1995, the Company entered into an employment agreement with
Marc H. Bell for a period of five years. Pursuant to the terms of the agreement,
Mr. Bell received a base salary of $200,000 per year.
Pursuant to his employment agreement, the Company loaned Mr. Bell a
total of $145,408 during fiscal 1997. The loan is due in 2002 and bears interest
at the rate of 8.75% per annum. In the second quarter of fiscal 1998, the
<PAGE> 23
Company granted Mr. Bell options to purchase 142,000 shares of Common Stock at a
purchase price of $6.50 per share and 69,500 shares of Common Stock at a
purchase price of $7.15 per share. 155,900 of such stock options are currently
exercisable. The Company has also purchased a key person life insurance policy
on Mr. Bell in the amount of $1,000,000. The Company is the sole beneficiary of
such policy.
Effective June 1, 1998, the Company terminated Mr. Bell's former
employment agreement and entered into a new employment agreement, which will
terminate on June 30, 2005. The new employment agreement provides for a base
salary of $350,000 per year, increasing annually at the rate of 5% starting
October 1, 1999. In addition, Mr. Bell will receive an annual bonus equal to
10,000 times the increase, if any, of the fair market value per share of the
Company's Common Stock measured during the 12-month period ending on June 30 of
each year of the agreement, commencing with the year beginning July 1, 1998. Mr.
Bell will also be entitled to receive stock options to purchase that number of
shares as shall equal 25% of the increase, if any, in the number of issued and
outstanding shares of Common Stock during the 12-month period ending on
September 30 of each year of the agreement, provided that such increase was
attributable to equity offerings or acquisitions. The new employment agreement
also provides that Mr. Bell may require the Company to lend him a total of
$155,000. Any loan taken thereunder will mature five years after the date made
and bear interest at the rate of 8% per annum. However, the interest accruing
during the first two years is not payable until the end of such two year period.
Mr. Bell borrowed from the Company $155,000 in September, 1998.
<PAGE> 24
Item 11. Security Ownership of Certain Beneficial Owners and Management
(a) The following table sets forth, as at November 30, 1998,
certain information concerning stock ownership of the Company by (i) each person
who is known by the Company to own beneficially more than 5% of the outstanding
common shares of the Company, (ii) each of the companies directors and (iii) all
directors and officers of the Company as a group. Except as otherwise indicated,
all such persons have both sole voting and investment power over the shares
beneficially owned by them.
<TABLE>
<CAPTION>
Percent
Number of Shares of
Name and Address (1) Beneficially Owned Class
- -------------------- ------------------ -----
<S> <C> <C>
Marc H. Bell (2) 1,699,193 39.7%
Tsuyoshi Shiraishi(2)(3)
Harpoon Holdings, Ltd.
2 Handy Road, #11-09 Cathay Building,
Singapore 229233 612,500 14.8%
Robert Bell (4) 120,051 2.8%
Martin Fox (4)
2001 Tonnelle Avenue
North Bergen, NJ 07047 26,000 *
Dr. Richard Videbeck (4)
3249 East Angler's Stream
Avon Park, FL 33825 26,000 *
Anthony St. John
97 Cadogan Gardens
London SW32RE 25,000 *
Sid Paterson
99 Madison Avenue
New York, NY 10016 30,000 *
All executive officers and directors as a
group (11 persons)(5) 1,971,846 43.4%
</TABLE>
* Less than 1%
(1) The address of each of the named individuals, other than Mr. Shiraishi,
Mr. Fox, Dr. Videbeck, Lord St. John and Mr. Paterson is c/o Globix
Corporation, 295 Lafayette Street, New York, NY 10012.
(2) Includes the 612,500 Harpoon Shares which are subject to the October
1995 Irrevocable Proxy entered into between Harpoon and Marc H. Bell,
pursuant to which Harpoon has granted Mr. Bell the sole right to vote
the Harpoon Shares with respect to the election of the Company's
directors. The Irrevocable Proxy terminates in October 2005.
(3) Mr. Shiraishi, a director of the Company, is the sole shareholder of
Harpoon
(4) The named individual has the right to acquire the number of shares
shown pursuant to a currently exercisable stock option.
(5) Includes currently exercisable stock options to purchase 399,499
shares.
<PAGE> 25
(b) In connection with the company's initial public offering, Marc Bell
and Harpoon have each deposited 210,000 shares of the Common Stock owned by them
(the "Deposit Shares") with the Company. The Company will hold such shares
pursuant to a Share Deposit Agreement. The Deposit Shares will be returned to
their respective owners no later than at the end of eight years from the date of
the Prospectus for the initial public offering. However, the Deposit Shares may
be returned prior to such time, if certain levels of profitability are met.
Item 12. Certain Relationships and Related Transactions
See "Employment Contracts" above for a description of certain loans the
Company has made to Marc H. Bell.
Item 13. Exhibits and Reports on Form 8-K
(a) Exhibits. See index of exhibits annexed hereto.
(b) Reports on Form 8-K
(i) Date Filed: 7/16/98* Date of Event: 7/1/98
Subject: Company, through a subsidiary,
purchased the land and building
located at 139 Centre Street, New
York, New York from Bank Leumi USA
at a total acquisition cost of
$17,000,000, including the cost of
purchasing the rights to acquire the
property.
(ii) Date Filed: 8/19/98 Date of Event: 7/23/98
Subject: Company entered into a Securities
Purchase Agreement with Cybernet
Data Systems, Inc. and purchased for
$1,000,000, a 10% Convertible
Subordinated Debenture due 2001
which is convertible into 670,000
shares of Cybernet common stock and
a Warrant to purchase 666,667 shares
of Cybernet common stock at an
exercise price of $1.50 per share
until its expiration on July 23,
1999.
* Amendment No. 1 to Form 8-K filed 9/16/98.
Confidential treatment granted for certain portions
of Exhibits pursuant to Rule 406 promulgated under
the Securities Act.
<PAGE> 26
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the Registrant had duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Date: December 29, 1998 Globix Corporation
By: /s/ Marc H. Bell
------------------------------------
Marc H. Bell, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Date: December 29, 1998 /s/ Marc H. Bell
--------------------------------
Marc H. Bell, President,
Chief Executive Officer
and Director
Date: December 29, 1998 /s/ Robert B. Bell
--------------------------------
Executive Vice President,
Chief Financial Officer and
Director
Date: December 29, 1998 Martin Fox
----------------------------
Martin Fox, Director
Date: December 29, 1998 Tsuyoshi Shiraishi
----------------------------
Tsuyoshi Shiraishi, Director
Date: December 29, 1998 /s/ Richard Videbeck
--------------------------------
Richard Videbeck, Director
Date: December 29, 1998 Anthony St. John
----------------------------
Anthony St. John, Director
Date: December 29, 1998 Sid Paterson
----------------------------
Sid Paterson, Director
Date: December 29, 1998 /s/ Alan Levy
--------------------------------
Alan Levy, Treasurer and
Chief Accounting Officer
<PAGE> 27
Number Description
3.1 Certificate of Incorporation of the Company, as amended.(12)
3.2 By-laws of the Company, as amended.(13)
4.1 Specimen Stock Certificate.(3)
4.2 Form of Underwriter's Warrant.(3)
4.3 Indenture between the Company and Marine Midland Bank, as
Trustee, dated April 30, 1998.(10)
4.4 Form of $160,000,000 13% Senior Note, Series A, due 2005.(10)
4.5 Form of $160,000,000 13% Senior Notes, Series B, due 2005.(12)
4.6 Form of Warrant to purchase Common Stock expiring May 1,
2005.(10)
10.1 Purchase Agreement between the Company and ING Baring (U.S.)
Securities, Inc. (the "Initial Purchaser"), dated April 24,
1998.(10)
10.2 Warrant Agreement between the Company and Marine Midland Bank,
as Warrant Agent, dated as of April 30, 1998.(10)
10.3 Registration Rights Agreement between the Company and the
Initial Purchaser, dated as of April 30, 1998.(10)
10.4 Warrant Registration Rights Agreement between the Company and
the Initial Purchaser, dated as of April 30, 1998.(10)
10.5 Escrow and Security Agreement between Marine Midland Bank, as
Escrow Agent, Marine Midland Bank, as Trustee, and the
Company, dated as of April 30, 1998.(10)
10.6 Sublease for Penthouse Suite 907D between Rhodes Associates,
Rose Associates, Electric Curtain Inc., Graphics and Stellar
Corp., dated as of July 1, 1997. (8) ***
10.7 Bell Technology Group Ltd. 1995 Stock Option Plan, adopted
September 29, 1995.(1)
10.8 Bell Technology Group Ltd. 1998 Stock Option Plan, adopted
April 16, 1998.(11)
10.9 Irrevocable Proxy Agreement between Harpoon Holdings Ltd. and
Marc H. Bell, dated as of October 1, 1995.(1)
10.10 Employment Agreement between Marc H. Bell and the Company,
dated as of April 10, 1998.(*)
10.11 Share Deposit Agreement between Marc H. Bell, Harpoon Holdings
Ltd., the Company, and Rickel & Associates.(3)
10.12 Form of Consulting Agreement between the Company and Rickel &
Associates.(1)
10.13 Agreement of Lease between Bell Technology Group Ltd. and Puck
Associates, dated as of July 23, 1996.(4)
10.14 Security Agreement with NationsCredit Commercial Corporation
of America and NAFT International Ltd., dated October 1996.(4)
10.15 Restated Security Agreement with NationsCredit Distribution
Finance, Inc. and the Company, dated as of February 11,
1998.(12)
10.16 Agreement for Wholesale Financing between NAFT International
Ltd. and NationsCredit, dated as of October 1996.(4)
<PAGE> 28
10.17 Lockbox Service Agreement between NAFT, European American Bank
and NationsCredit, dated as of October 1996.(4)
10.18 Loan and Security Agreement between Finova Capital Corporation
("Finova") and the Company, dated as of May 1, 1997.(6)
10.19 Guaranty by NAFT in favor of Finova, dated as of May 1,
1997.(6)
10.20 Guaranty by NAFT Computer Service Corp. in favor of Finova,
dated as of May 1, 1997.(6)
10.21 Guaranty by Bluestreak Digital, Inc., in favor of Finova,
dated as of May 1, 1997.(6)
10.22 Guaranty by PFM Communications, Inc., in favor of Finova,
dated as of May 1, 1997.(6)
10.23 Promissory Notes to Bell Technology Group Ltd., from Marc H.
Bell, dated April 2, 1997 and June 30, 1997.(8)
10.24 Agreement by and between Bell Technology Group Ltd., and Value
Management & Research GmbH for the sale of an aggregate of
382,609 shares of Common Stock, dated as of September 24,
1997.(7)
10.25 Employment Agreement between William T. Jahnke and NAFT
International Ltd., dated as of November 1, 1995.(2)
10.26 Employment Agreement between Alan Levy and Bell Technology
Group Ltd., dated as of June 1, 1997.(9)
10.27 Amendment to Employment Agreement between Marc H. Bell and the
Company, dated as of January 1, 1996.(4)
10.28 Agreement between Bell Technology Group Ltd., and Cisco
Systems Capital Corporation granting credit approval for
$1,000,000 for leasing transactions, dated as of December 15,
1997.(9)
10.29(+) Purchase Agreement between Hanover Equities, Inc. and the
Company dated as of June 2, 1998.(15)
10.30(+) Purchase Agreement between Young Woo and the Company dated as
of June 2, 1998.(15)
10.31 Lease between Mission Plaza LLC and the Company dated as of
July 24, 1998.(*)
10.32 First Amendment to Lease by and between Mission Plaza LLC and
the Company dated October 8, 1998 and effective as of July 24,
1998.(*)
10.33 Lease by and between Corston Holdings Limited, Globix Limited
and the Company dated October 15, 1998.(*)
10.34 Deed of Guaranty between Bank Leumi (UK) Plc, Corston Holdings
Limited, and Globix Limited dated October 15, 1998.(*)
10.35 IRU Agreement between Qwest Communications Corporation and the
Company dated as of October 5, 1998.(*)
21 List of Subsidiaries.
23 Consent of Arthur Andersen LLP.
27 Financial Data Schedule
(*) Filed herewith.
(+) Confidential treatment granted for certain portions of this Exhibit
pursuant to Rule 406 promulgated under the Securities Act.
(1) Incorporated by reference to Registration Statement on Form SB-2 (File No.
33-98978) (the "Registration Statement") filed November 3, 1995.
(2) Incorporated by reference to Amendment No. 1 to the Registration
Statement, filed December 20, 1995.
<PAGE> 29
(3) Incorporated by reference to Amendment No. 2 to the Registration Statement
filed January 23, 1996, declared effective January 24, 1996.
(4) Incorporated by reference to the Company's Annual Report on Form 10-KSB/A
for the year ended September 30, 1996.
(5) Incorporated by reference to the Company's Registration Statement on Form
SB-2 filed March 13, 1997 (File No. 333-23259).
(6) Incorporated by reference to the Company's Report on Form 8-K/A filed July
18, 1997.
(7) Incorporated by reference to the Company's Report on Form 8-K filed
October 8, 1997.
(8) Incorporated by reference to Amendment No. 4 filed November 6, 1997 to
Registration Statement (File No. 333 23259) filed March 13, 1997.
(9) Incorporated by reference to the Company's Annual Report on Form 10-KSB
for the year ended September 30, 1997.
(10) Incorporated by reference to the Company's Report on Form 8-K filed May
11, 1998.
(11) Incorporated by reference to the Company's Proxy Statement on Schedule 14A
filed on March 16, 1998.
(12) Incorporated by reference to the Company's Registration Statement on Form
S-4 (File No. 333-57993) filed June 29, 1998.
(13) Incorporated by reference to the Company's Registration Statement on Form
S-4/A (File No. 333-57993) filed August 7, 1998.
(14) Incorporated by reference to the Company's Report on Form 8-K filed August
19, 1998.
(15) Incorporated by reference to the Company's Report on Form 8-K/A filed
September 16, 1998.
<PAGE> 30
GLOBIX CORPORATION AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants ........................................................ F-2
Consolidated Balance Sheets - As of September 30, 1998 and September 30, 1997 .................... F-3
Consolidated Statements of Operations - For the years ended September 30, 1998 and September
30, 1997 ........................................................................................ F-4
Consolidated Statements of Changes in Stockholders' Equity - For the years ended September 30,
1998 and September 30, 1997 ..................................................................... F-5
Consolidated Statements of Cash Flows - For the years ended September 30, 1998 and September
30, 1997 ........................................................................................ F-6 - F-7
Notes to Consolidated Financial Statements ....................................................... F-8 - F-19
</TABLE>
F-1
<PAGE> 31
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To: GLOBIX CORPORATION:
We have audited the accompanying consolidated balance sheets of Globix
Corporation (formerly Bell Technology Group, Ltd.) (a Delaware corporation) and
Subsidiaries as of September 30, 1998 and 1997, and the related consolidated
statements of operations, stockholders' equity and cash flows for the years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Globix Corporation and
Subsidiaries as of September 30, 1998 and 1997, and the results of their
operations and their cash flows for the years then ended in conformity with
generally accepted accounting principles.
Arthur Andersen LLP
December 14, 1998
New York, New York
F-2
<PAGE> 32
Globix Corporation and Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
September 30, September 30,
1998 1997
------------- -------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 61,473,285 $ 2,401,446
Marketable securities 14,638,173 --
Accounts receivable, net of allowance for
doubtful accounts of $410,000 and $194,684,
respectively 4,861,219 3,259,548
Inventories 391,848 487,542
Prepaid expenses and other current assets 1,699,117 727,765
Restricted cash 10,316,667 --
------------- -------------
Total current assets 93,380,309 6,876,301
Investments, restricted 50,163,109 325,000
Property and equipment, net 30,871,719 3,548,838
Debt issuance costs, net of accumulated
amortization of $393,321 6,214,473 --
Other assets 1,636,762 274,849
------------- -------------
Total assets $ 182,266,372 $ 11,024,988
============= =============
Liabilities and Stockholders' Equity
Current liabilities:
Short term borrowings $ -- $ 2,001,157
Current portion of notes payable 2,397,777 335,021
Accounts payable 6,185,460 2,010,507
Accrued expenses 192,913 425,852
Accrued interest expense 8,666,667 --
Deferred revenues 78,166 123,046
------------- -------------
Total current liabilities 17,520,983 4,895,583
Long term note payable, net of current portion 1,199,429 923,217
Long-term debt, net of unamortized
discount of $2,107,800 157,892,200 --
Other long term liabilities 2,934,675 191,928
------------- -------------
Total liabilities 179,547,287 6,010,728
------------- -------------
Commitments and contingencies
Stockholders' equity:
Preferred Stock, $.01 par value; 500,000
shares authorized; no shares issued and
outstanding -- --
Common Stock, $.01 par value; 20,000,000
shares authorized; 4,140,116 and 3,448,450
shares issued and outstanding 41,401 34,485
Additional paid-in capital 17,247,354 10,069,474
Unrealized gain on securities available for sale 1,675,907 --
Accumulated deficit (16,245,577) (5,089,699)
------------- -------------
Total stockholders' equity 2,719,085 5,014,260
------------- -------------
Total liabilities and stockholders'
equity $ 182,266,372 $ 11,024,988
============= =============
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-3
<PAGE> 33
Globix Corporation and Subsidiaries
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Year Ended Year Ended
September 30, 1998 September 30, 1997
------------------ ------------------
<S> <C> <C>
Revenues $ 20,594,933 $ 17,399,955
Costs and expenses:
Cost of revenues 13,321,952 13,699,205
Selling, general and administrative 10,696,359 6,036,032
Depreciation and amortization 1,310,026 674,952
------------ ------------
Total costs and expenses 25,328,337 20,410,189
Loss from operations (4,733,404) (3,010,234)
Interest income 1,952,952 72,427
Interest and financing expense (8,375,426) (177,626)
------------ ------------
Loss before taxes (11,155,878) (3,115,433)
Benefit from taxes -- --
------------ ------------
Net loss $(11,155,878) $ (3,115,433)
============ ============
Basic and diluted loss per share ($3.08) ($1.01)
Weighted average common shares outstanding-
basic and diluted 3,625,794 3,075,235
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-4
<PAGE> 34
Globix Corporation and Subsidiaries
Consolidated Statements of Changes in Stockholders' Equity
<TABLE>
<CAPTION>
Unrealized Gain
on Securities
Additional Available Total
Common Stock Paid-in for Accumulated Stockholders'
Shares Amount Capital Sale Deficit Equity
------ ------ ------- ---- ------- ------
<S> <C> <C> <C> <C> <C> <C>
Balance, September 30, 1996 3,083,210 $30,832 $ 8,033,134 $ -- ($ 1,974,266) $ 6,089,700
Proceeds from Private Placement, net 400,000 4,000 1,979,241 -- -- 1,983,241
Proceeds from exercise of stock
options and warrants, net 8,098 81 56,671 -- -- 56,752
Correction of outstanding shares (42,858) (428) 428 -- -- --
Net Loss -- -- -- -- (3,115,433) (3,115,433)
--------- ------- ----------- ---------- ------------ ------------
Balance, September 30, 1997 3,448,450 $34,485 $10,069,474 $ -- $ (5,089,699) $ 5,014,260
Unrealized increase in value of
investments 1,675,907 1,675,907
Warrants issued in connection with
senior note offering 2,252,800 2,252,800
Issuance of common stock upon
exercise of options and warrants,
net 691,666 6,916 4,925,080 -- -- 4,931,996
Net loss -- -- -- (11,155,878) (11,155,878)
--------- ------- ----------- ---------- ------------ ------------
Balance, September 30, 1998 4,140,116 $41,401 $17,247,354 $1,675,907 $(16,245,577) $ 2,719,085
========= ======= =========== ========== ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-5
<PAGE> 35
Globix Corporation and Subsidiaries
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Year Ended Year Ended
September 30, 1998 September 30, 1997
------------------ ------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (11,155,878) $ (3,115,433)
Adjustments to reconcile net loss
to net cash provided by (used in) operating activities
Depreciation and amortization 1,310,026 686,250
Amortization of discount and debt issuance costs 538,321 --
Changes in operating assets and liabilities:
Increase in accounts receivable (1,601,671) (1,411,630)
Decrease in inventories 95,694 270,811
(Increase) decrease in prepaid expenses
and other current assets (1,571,352) 31,348
(Increase) decrease in other assets (206,913) 36,708
Increase in accounts payable 4,174,953 736,310
(Decrease) increase in accrued expenses (232,939) 277,664
Increase in accrued interest expense 8,666,667 --
Decrease in deferred revenues (44,880) (43,571)
Other long term liabilities 142,747 --
------------- -------------
Net cash provided by (used in) operations 114,775 (2,531,543)
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in restricted cash (10,316,667) --
Investment in marketable securities (12,962,266) --
Investment in long-term restricted investments (49,838,109) --
Investment in Cybernet Data Systems (1,000,000) --
Purchases of property and equipment,
net of landlord reimbursement in 1997 (23,269,967) (1,542,431)
------------- -------------
Net cash used in investing activities (97,387,009) (1,542,431)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from senior note offering net of
offering expenses of $6,607,794 153,392,206 --
Net proceeds from (repayments of)
short term borrowings (2,001,157) 2,001,077
Shareholder loan (155,000) (145,408)
Proceeds from notes payable for equipment refinancing -- 873,610
Repayments of notes payable (423,972) (195,887)
Proceeds from private placement 600,000 1,544,031
Proceeds from exercise of stock options and warrants,
net 4,931,996 55,986
------------- -------------
Net cash provided by financing activities 156,344,073 4,133,409
------------- -------------
Net increase in cash and
cash equivalents 59,071,839 59,435
Cash and cash equivalents,
Beginning of period 2,401,446 2,342,011
------------- -------------
Cash and cash equivalents,
Ending of period $ 61,473,285 $ 2,401,446
============= =============
</TABLE>
F-6
<PAGE> 36
<TABLE>
<CAPTION>
Year Ended Year Ended
September 30, 1998 September 30, 1997
------------------ ------------------
<S> <C> <C>
Supplemental disclosure of cash flow information:
Cash paid for interest $ 223,251 $165,540
Cash paid for income taxes 51,220 27,881
Non-cash investing and financing activities:
Equipment acquired under capital lease obligations 1,112,671 539,764
Capital expenditures included in accounts payable,
notes payable and other long term liabilities 6,701,707 --
Proceeds receivable associated with private
placement -- 600,000
Issuance of common stock in connection with
private placement -- 100,000
Warrants issued in connection with
senior note offering 2,252,800 --
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-7
<PAGE> 37
GLOBIX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES:
ORGANIZATION
Globix Corporation and Subsidiaries (the "Company") was originally
incorporated in New York in 1989 as NAFT International Ltd. In July 1994, PFM
Technologies Corporation, a newly formed affiliate of NAFT, acquired NAFT and
its affiliated corporations in a tax-free exchange of common stock. The Company
was reincorporated in Delaware in 1995 under the name Bell Technology Group Ltd.
The Company changed its name to Globix Corporation on June 1, 1998.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements herein include the accounts of
the Company, NAFT International Ltd., PFM Communications Inc., NAFT Computer
Service Inc., GameNet Corp., Bluestreak Digital Inc., BLP Acquisitions LLC
(since July 1998), ATC Merger Corp., BTG Technology Group Ltd and Globix
Limited. All material intercompany accounts and transactions have been
eliminated. In September 1995, the Company changed its fiscal year end from
December 31 to September 30.
OPERATIONS
The Company's activities presently fall into two main segments. One
segment consists of server and workstation sales and service. The second segment
consists of all Internet related activities including high bandwidth dedicated
Internet access, web hosting, co-location and value-added Internet services
(such as web development, e-commerce and security solutions, streaming media
products and corporate training).
In the opinion of management, the Company will be able to finance its
business as currently conducted from its current working capital and from the
proceeds of the $160 million bond offering completed in April 1998 at least
through the fiscal year 1999.
F-8
<PAGE> 38
SEGMENT INFORMATION
The following is a summary of segment information for the fiscal years
ended September 30, 1998 and 1997.
Fiscal year ended September 30, 1998
<TABLE>
<CAPTION>
Server Sales
and Integration Internet Consolidated
<S> <C> <C> <C>
Sales to unaffiliated customers $ 14,147,429 $ 6,447,504 $ 20,594,933
Operating income (loss) 721,125 1,145,068 (4,733,404)*
Identifiable assets 3,731,505 7,808,987 182,266,372**
</TABLE>
Fiscal year ended September 30, 1997
<TABLE>
<CAPTION>
Server Sales
and Integration Internet Consolidated
--------------- -------- ------------
<S> <C> <C> <C>
Sales to unaffiliated customers $14,986,417 $ 2,413,538 $17,399,955
Operating Loss 378,647 84,632 3,010,234*
Identifiable assets 5,781,580 2,105,207 11,024,988**
</TABLE>
* Includes $6,599,597 for the fiscal year ended September 30, 1998 and
$2,546,955 for fiscal year ended September 30, 1997 of unallocated corporate
overhead including executive salaries of $823,662 for fiscal year ended
September 30, 1998 and $616,034 for fiscal year ended September 30, 1997 and
overhead including rent, payroll charges for administrative staff including
accounting, human resources, MIS and other support personnel and professional
fees.
** Including corporate assets not allocable to a particular segment of
$170,725,880 and $3,138,201 for the fiscal years ended September 30, 1998 and
1997.
PER SHARE DATA
During 1997, SFAS No. 128 "Earnings per Share" was issued and became
effective for the Company's September 30, 1998 financial statements. SFAS No.
128 establishes new standards for computing and presenting earnings per share
(EPS). The new standard requires the presentation of basic EPS and diluted EPS.
Basic EPS is calculated by dividing income available to common shareholders by
the weighted average number of shares of common stock outstanding during the
period. Diluted EPS is calculated by dividing income available to common
shareholders by the weighted average number of common shares outstanding
adjusted to reflect potentially dilutive securities. Diluted EPS has not been
presented since the inclusion of outstanding options would be antidilutive.
The Company's September 30, 1997 financial statements have been restated to
reflect this pronouncement.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash and cash equivalents. As of
September 30, 1998 and 1997, cash equivalents consist of $71,789,952
($61,473,285 included in cash and cash equivalents and $10,316,667 included in
restricted cash) and $2,401,446, respectively.
F-9
<PAGE> 39
CONCENTRATIONS OF CREDIT RISK
Financial instruments that potentially subject the Company to
concentrations of credit risk consist primarily of cash, cash equivalents and
accounts receivable. The Company maintains cash and cash equivalents with
various major financial institutions which invest primarily in U.S. Government
instruments, high quality corporate obligations, certificates of deposit and
commercial paper. The Company believes that concentrations of credit risk with
respect to trade accounts receivable are limited due to the large number of
entities comprising the Company's customer base.
SIGNIFICANT VENDOR
One vendor comprises approximately $2,384,000 or 21% of the Company's
inventory purchases during the fiscal year ended September 30, 1998. If such
vendor ceases to supply the Company, management is confident it can procure
comparable services at similar costs elsewhere.
MAJOR CUSTOMER
One customer comprises approximately $2,355,000 or 11% of the Company's
revenues during the fiscal year ended September 30, 1998.
INVENTORIES
Inventory consists of computer hardware and software, parts and related
items. Inventories are carried at the lower of cost or market determined by the
first-in, first-out method.
INVESTMENTS
Marketable equity securities are reported at fair value. Unrealized
gains and losses from those securities which are classified as
available-for-sale are reported as a separate component of shareholders' equity.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost, less accumulated
depreciation or amortization computed on the straight-line method. Building is
depreciated over its estimated useful life of forty years. Furniture and
equipment are depreciated over their estimated useful lives, generally five
years. Leasehold improvements are amortized over the term of the lease or life
of the asset, whichever is shorter.
LONG-LIVED ASSETS
The Company's policy is to record long-lived assets at cost. These
assets are reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amounts of the assets may not be recoverable.
Furthermore, the assets are evaluated for continuing value and proper useful
lives by comparison to expected future cash projections.
REVENUE RECOGNITION
Revenues consist primarily of computer hardware sales, Internet access
fees and network installation charges. Payments received in advance of providing
services are deferred until the period such services are provided. Equipment
sales and installation charges are recognized when installation is completed.
F-10
<PAGE> 40
Monthly subscription service revenue related to Internet access is
recognized over the period services are provided. Subscription service and
equipment installation revenues, which require the use of Company-provided
installation of equipment at a subscriber's location, are recognized at
completion of installation and upon commencement of service. Revenues related to
the Web; interactive development and to 2-D and 3-D animation are recognized as
the project progresses. Projects are generally completed within a three month
period.
COST OF REVENUES
Cost of revenues in the Company's Internet division consists primarily
of local access costs, leased network backbone circuit costs and the cost of
equipment. For the Server Sales and Integration division, the cost of revenues
is the cost of the computer products it sells including parts, internal and
third-party labor costs, and training and certification costs.
STOCK-BASED COMPENSATION
The Company accounts for employee stock options in accordance with
Accounting Principles Board No. 25 ("APB No. 25"), "Accounting for Stock Issued
to Employees." Under APB No. 25, the Company applies the intrinsic value method
of accounting and therefore does not recognize compensation expense for options
granted, because options are only granted at a price equal to market value on
the day of grant.
During 1996, Statement of Financial Accounting Standards No. 123 ("SFAS
No. 123"), "Accounting for Stock Based Compensation," became effective for the
Company. SFAS No. 123 prescribes the recognition of compensation expense based
on the fair value of options determined on the grant date. However, SFAS No. 123
allows companies currently applying APB No. 25 to continue using that method.
The Company has therefore elected to continue applying the intrinsic
value method under APB No. 25. For companies that choose to continue applying
the intrinsic value method, SFAS No. 123 mandates certain pro forma disclosures
as if the fair value method had been utilized. See Note 6 for additional
discussion.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Although these estimates are based on management's knowledge
of current events and actions it may undertake in the future, they may
ultimately differ from actual results.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the FASB issued SFAS No. 130 "Reporting Comprehensive
Income." SFAS No. 130 establishes standards for the reporting and display of
comprehensive income and its components in a full set of financial statements.
The Company's consolidated financial statements will be required to include
comprehensive income disclosures beginning with the first quarter of fiscal year
1999. Restatement of prior period information will be made for comparative
purposes. Comprehensive income for the years ended September 30, 1998 and 1997
amounted to ($9,479,971) and ($3,115,433), respectively.
In June 1997, the FASB issued SFAS No. 131, "Disclosure about Segments
of an Enterprise and Related Information", which changes the way public
companies report information about operating segments. SFAS No. 131, which is
based on the management approach to segment reporting, establishes requirements
to report selected segment information quarterly and to report entity-wide
disclosures about products and services, major customers, and the material
countries in which the entity holds assets and reports revenue. The Company will
adopt SFAS No. 131 in fiscal year 1999. The Company does not believe the
adoption of SFAS No. 131 will have a material effect on results of operation or
financial condition.
F-11
<PAGE> 41
2. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
September 30, September 30,
1998 1997
------------ ------------
<S> <C> <C>
Land $ 1,997,413 $ --
Building 19,075,028 --
Leasehold improvements 3,553,705 686,662
Computer hardware and software
and network equipment 7,906,863 3,724,645
Furniture and delivery equipment 749,219 238,014
Less: Accumulated depreciation and
Amortization (2,410,509) (1,100,483)
------------ ------------
Property and equipment, net $ 30,871,719 $ 3,548,838
============ ============
</TABLE>
Included in property and equipment is $2,526,044 and $1,413,373 of
assets held under capital lease obligations at September 30, 1998 and 1997,
respectively. Included in total property and equipment is $416,667 representing
internally developed software costs as of September 30, 1998 and 1997
respectively. Also, included in property and equipment is $1,098,315 of
capitalized interest as of September 30, 1998 related to the purchase of the
land and building located at 139 Centre Street. In addition, included in
property and equipment is $153,014 related to the implementation of a new MIS
system as of September 30, 1998 and 1997, respectively.
Depreciation and amortization expense for the years ended September 30,
1998 and 1997, was $1,310,026 and $686,250, respectively.
On July 1, 1998, the Company through BLP Acquisitions LLC, a New York
limited liability company ("BLP") and over 99% owned by the Company, purchased
the land and building located at 139 Centre Street, New York, New York from Bank
Leumi USA, a New York banking corporation. The nine story building contains
approximately 160,000 square feet of floor space. The Company intends to house
its New York SuperPOP facility and operations in the new premises beginning
February 1999.
3. OTHER ASSETS
Other assets includes the investment in Cybernet Data Systems, due from
officer, security deposits and other assets.
On July 23, 1998, the Company entered into a Securities Purchase
Agreement with Cybernet Data Systems, Inc., a Delaware Corporation ("Cybernet").
Cybernet is the publisher of the web site "Edgar-Online.com." Under the
Securities Purchase Agreement, the Company purchased for $1,000,000, a 10%
Convertible Subordinated Debenture due 2001 (the "Cybernet Debenture") and a
Warrant to Purchase Common Stock (the "Cybernet Warrant"). The Cybernet
Debenture is non-interest bearing until July 23, 1999. Beginning on July 23,
1999, the Cybernet Debenture will bear interest at a rate of 10% per annum
payable semiannually in advance on July 23 and January 23, in each year until
July 23, 2001, when the Cybernet Debenture is to be redeemed by Cybernet. The
Cybernet Debenture is convertible into 670,000 shares of Cybernet common stock.
The Cybernet Warrant entitles the Company to purchase an additional
F-12
<PAGE> 42
666,667 shares of Cybernet common stock at an exercise price of $1.50 per share
until the Cybernet Warrant's expiration date of July 23, 1999. If the Company
converted the Cybernet Debenture into common stock and exercised its Cybernet
Warrant, the Company would own approximately 20% of the outstanding shares of
Cybernet. In addition, Cybernet has signed a 5 year exclusive contract with the
Company to provide web hosting services.
4. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate
the fair value of each class of financial instruments for which it is
practicable to estimate that value.
LONG AND SHORT-TERM DEBT
The carrying amount of the Company's short-term borrowings approximates
fair value. The fair value of the Company's long-term debt, including current
portions, is determined based on market prices for similar debt instruments or
on the current rates offered to the Company for debt with similar maturities.
As of September 30, 1998, the fair value based upon quotes from
securities dealers and carrying value of the Company's Senior Notes were
$128,000,000 and $157,892,200, respectively.
5. SENIOR NOTE OFFERING
In April 1998, the Company completed a private offering for
$160,000,000 consisting of 160,000 units, each unit consisting of $1,000
principal amount of 13% Senior Notes due 2005 and one warrant to purchase 3.52
shares of common stock (total of 563,200 shares of common stock) at a purchase
price of $14.03 per share. The Notes will mature on May 1, 2005. Interest on the
notes are payable semi-annually in arrears on May 1 and November 1 of each year,
commencing November 1, 1998. The Company has deposited with an escrow agent
$57,000,000, that together with the interest received thereon, will be
sufficient to pay, when due, the first six interest payments. The Notes are
collateralized by a first priority security interest in the escrow account. The
Notes are senior unsecured obligations of the Company and rank pari passu in
right of payment with all existing and future unsecured and unsubordinated
indebtedness and rank senior in right of payment to any future subordinated
indebtedness. In connection with the warrants issued with the Senior Notes, the
Company has assigned an original issue discount of approximately $2.3 million.
In addition, the Company incurred costs associated with the offering of
approximately $6.6 million. These amounts are being amortized by the Company
over seven years.
6. STOCKHOLDERS' EQUITY AND STOCK OPTIONS
INITIAL PUBLIC OFFERING
In January 1996, the Company sold, in an initial public offering,
1,150,000 shares of Common Stock at an initial offering price of $7.00 per
share, and 575,000 Redeemable Purchase Warrants for $.10 per warrant. Each
warrant entitles the holder to purchase one share of the Company's common stock
for $7.70 per share. The warrants are redeemable by the Company at $.10 per
warrant at any time after January 24, 1997 if certain conditions are met. The
net proceeds which the Company received from the public offering amounted to
approximately $6,600,000.
In March 1996, the underwriter of the initial public offering exercised
its over-allotment option to purchase 129,642 common shares from the Company for
$7.00 per share. The net proceeds amounted to approximately $800,000.
F-13
<PAGE> 43
PRIVATE PLACEMENT
In September 1997, the Company sold 382,609 shares of its
common stock in a private transaction for a total consideration of $2,200,000.
Form SB-2 was filed with the Securities and Exchange Commission with respect to
these shares on November 6, 1997 and became effective on November 20, 1997. A
fee with respect to the sale of these shares of $100,000 in cash and 17,391
shares of common stock was paid to the investors and were offset against the
proceeds of the issuance. Of the total consideration, $1,600,000 was received by
the Company in September 1997. Included in prepaid expenses and other current
assets as of September 30, 1997 is a receivable of $600,000 which was received
by the Company in October 1997.
STOCK OPTIONS
The Company, with the approval of its stockholders, adopted the 1995
Stock Option Plan ("Option Plan") which reserved 360,000 shares of common stock
for issuance under the Option Plan. Under the Option Plan, the term of the
options issued are determined by the stock option committee and range from 5 to
10 years from the date of the grant. Options issued to directors are immediately
exercisable and options issued to employees are exercisable ratably over a
three-year period. Options issued before the Company's initial public offering
were issued at the fair value of the stock at the date of grant, in the opinion
of management. The exercise price of the options issued subsequent to the
initial public offering (Note 3) is equal to or greater than 100% of the fair
market value of the stock on the date of grant.
In April 1998, the Company's Board of Directors (the "Board") adopted,
and its stockholders approved, the 1998 Stock Option Plan (the " 1998 Plan"),
which provides for the grant of stock options to purchase up to 1,200,000 shares
of common stock to any employee, Non-Employee director, or consultant at the
Board's discretion. Under the 1998 Plan, these options may not be exercised
after ten years from the date of grant. Options issued to employees are
exercisable ratably over a five-year period. Under the 1998 Plan, options shall
be granted each year to Non-Employee directors on the first day of the Company's
fiscal year or on the first day of the term as director at a purchase price
equal to the fair market value on the date of grant. In addition, the
Non-Employee director stock options shall be exercisable in full twelve months
after the date of grant unless determined otherwise by the stock option
committee.
On September 30, 1997, 250,064 options previously issued to employees
and directors with a weighted average exercise price of $8.32 were canceled and
reissued at $6.125, the fair market value of the Company's common stock on the
date reissuance. This revaluation did not alter or amend any other provision of
the optionee's original option agreement, including the vesting period and
option term.
The Company accounts for awards granted to employees and directors
under APB No. 25, under which no compensation cost has been recognized for stock
options granted. Had compensation cost for these stock options been determined
consistent with SFAS No. 123, the Company's net loss and loss per share would
have been increased to the following pro forma amounts:
<TABLE>
<CAPTION>
1998 1997
------------ -----------
<S> <C> <C> <C>
Net loss: As reported $(11,155,878) $(3,115,433)
Pro forma (13,394,255) (3,307,639)
Basic and diluted loss per share: As reported (3.08) (1.01)
Pro forma (3.69) (1.08)
</TABLE>
F-14
<PAGE> 44
The effects of applying SFAS No. 123 in this pro forma disclosure are
not indicative of future amounts as additional awards in future years are
anticipated.
Option activity for the two years ended September 30, 1998 is as
follows:
<TABLE>
<CAPTION>
Weighted Average
Exercise
Number of Shares Price
---------------- -----
<S> <C> <C>
Options outstanding, October 1, 1996 202,730 $7.04
Granted 390,897 $7.41
Canceled (284,065) $8.39
Exercised (7,998) $7.00
--------- -----
Options outstanding, September 30, 1997 301,564 $6.13
Granted 682,375 $6.25
Canceled (62,018) $5.91
Exercised (6,316) $6.13
--------- -----
Options outstanding, September 30, 1998 915,605 $6.39
======== =====
</TABLE>
There were 563,062 options available for future grant at September 30, 1998.
The weighted average fair value of options granted is $5.27 and $3.76 for
the years ended September 30, 1998 and 1997, respectively. The fair value of
each option grant is estimated on the date of grant using the Black-Scholes
option pricing model with the following weighted-average assumptions used for
grants in 1998 and 1997, respectively: risk-free interest rate of 5.56% and
6.17%; expected life of 6.00 and 6.00 years; expected volatility of 110.61% and
42% and expected dividend yield of 0%.
The following table summarized information with respect to stock options
outstanding at September 30, 1998:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
-------------------------------------------------- -------------------------------
Number of Options Weighted Number of Options
Outstanding Average Weighted Exercisable Weighted
at Remaining Average at Average
Range of September 30, Contractual Exercise September 30, Exercise
Exercise Prices 1998 Life Price 1998 Price
--------------- ---- ---- ----- ---- -----
<S> <C> <C> <C> <C> <C>
$5.00 - $7.50 844,230 8.33 $ 5.97 412,153 $ 6.36
$7.50 - $10.75 50,375 9.25 10.73 1,667 10.50
$10.75 - $13.25 21,000 8.86 12.86 4,333 12.63
</TABLE>
DEPOSIT SHARES
In connection with the Company's initial public offering, Marc H. Bell
and Harpoon have each deposited 210,000 shares of the Common Stock owned by them
(the "Deposit Shares") with the Company. The Company will hold such shares
pursuant to a Share Deposit Agreement. The Deposit Shares will be returned to
their respective owners in January 2004.
F-15
<PAGE> 45
7. COMMITMENTS AND CONTINGENCIES
NOTES PAYABLE
In connection with the purchase of the land and building at 139 Centre
Street, New York, New York in July 1998 as described in Footnote 2, the Company
is indebted to an individual for the rights to purchase this property in the
amount of $1,650,000. The $1,650,000 is due on demand and has been recorded in
current portion of notes payable as of September 30, 1998. The Company also
entered into an agreement with the minority partner of BLP Acquisitions LLC,
giving the Company the right to purchase the minority interest at any time for a
purchase price of $2,600,000. Interest at 7% per annum is payable monthly in
arrears. The $2,600,000 is due in July 2005 and has been recorded in other
long-term liabilities as of September 30, 1998.
CAPITAL AND OPERATING LEASES
The Company leases office equipment and office space under various
noncancellable operating leases accounted for on a straight line basis. Rent
expense for the year ended September 30, 1998 and 1997 was $560,105 and
$548,897, respectively.
In February 1996, the Company entered into a lease for its corporate
headquarters effective July 1996. The lease is for eleven years and six months
starting with an initial annual base rental of $309,250 escalating to $563,547
in the final year. Under the lease, the landlord reimbursed the Company $500,000
for leasehold improvements. The Company is required by the terms of the lease to
maintain a security deposit in the form of a letter of credit in the amount of
$325,000. In order to obtain a standby letter of credit, the Company maintains a
restricted certificate of deposit presently in the amount of $325,000. As of
March 1999, this amount is to be reduced to $250,000 if the Company is not in
default under the terms of the lease. Therefore $75,000 of this deposit is
classified as other current assets and $250,000 is included in "Long-term
Restricted Cash" of the Company's consolidated balance sheets as of September
30, 1998.
The Company maintains a $1.0 million credit line from Cisco Systems
Capital Corporation ("CSC") to lease Cisco System products and associated
peripherals. The terms of this line, which was entered into in December 1997,
provided for 180 days of borrowing and a maximum borrowing limit of $1.0
million. However, CSC has informally permitted the Company to continue to borrow
under this line and to exceed the stated $1.0 million limit. Amounts borrowed
under the line are to be repaid over a 36-month period with the Company having
the option of purchasing the equipment for $1.00 at the end of the lease term.
As of September 30, 1998, approximately $945,000 was outstanding under this
credit line.
The Company has entered into leases for various items of its office
furniture and equipment as well as for its telephone system accounted for as
capital leases. The terms on these leases vary from 36 to 60 month terms.
In July 1998, the Company signed a 15 year triple net lease commencing
January 15, 1999 to rent approximately 62,000 square feet of office space in
Santa Clara, California at an annual base rental of approximately $1.3 million.
The building is currently under construction, and completion is scheduled for
December 1998. As per the lease agreement, the Company will be required to pay a
security deposit of $400,000 upon completion of certain construction terms.
The Company has signed an additional long-term agreement with Qwest
Communications and a lease for its London facility as described in the
subsequent events footnote (see footnote 10).
F-16
<PAGE> 46
Future minimum lease and loan payments under these agreements including
payments under the London lease described in Footnote 10 are as follows:
<TABLE>
<CAPTION>
Year Ending
September 30, Operating Capital
- ------------- --------- -------
<S> <C> <C>
1999............................................................ $ 1,381,603 $914,869
2000............................................................ 3,561,077 782,845
2001............................................................ 3,570,025 439,525
2002............................................................ 3,579,151 75,354
2003............................................................ 3,594,793 --
Thereafter ..................................................... 35,586,453 --
Less: Amount representing interest......................... -- (249,744)
----------- -----------
Present value of net minimum lease payments $51,273,102 $ 1,962,849
=========== ===========
</TABLE>
8. INCOME TAXES
Deferred tax assets and liabilities are determined based on differences
between the financial reporting and income tax bases of assets and liabilities
and are measured using the enacted tax rates and laws that will be in effect
when the differences are expected to reverse.
The Company is in an accumulated loss position for both financial
reporting and income tax purposes. The tax benefit recorded by the Company has
been fully reserved against due to the uncertainty of the Company's ability to
realize benefits by generating taxable income in the future. The Company has a
tax loss carryforward of approximately $17 million at September 30, 1998. This
carryforward expires between 2011 and 2013. Pursuant to Section 382 of the
Internal Revenue Code, the usage of these net operating loss carryforwards may
be partially limited due to changes in ownership that have occurred. The
Company has not yet determined the impact that changes in ownership have had on
net operating loss carryforwards, if any.
The provision for income taxes on historical net income for the years
ended September 30, 1998 and 1997 differs from the amount computed by applying
the federal statutory rate due to the following:
<TABLE>
<CAPTION>
Year Ended Year Ended
September September
30, 1998 30, 1997
-------- --------
<S> <C> <C>
Statutory federal income tax rate ................ (34)% (34)%
State and local taxes, net of federal benefit .... (11)% (11)%
Other ............................................ (0)% (0)%
Valuation allowance .............................. 45% 45%
--- ---
Effective income tax rate ........................ (0)% (0)%
=== ===
</TABLE>
F-17
<PAGE> 47
Significant components of the Company's deferred tax assets and
liabilities are as follows:
<TABLE>
<CAPTION>
September 30, 1998 September 30, 1997
------------------ ------------------
<S> <C> <C>
Deferred tax assets (liabilities):
Tax depreciation and amortization in excess of book
depreciation and amortization $ (417,659) $ (264,820)
Capitalized interest (496,658) --
Net operating loss carry forward 7,507,964 1,908,226
Allowance for doubtful accounts 241,927 255,350
Deferred Rent 152,069 80,795
Valuation allowance (6,987,643) (1,979,551)
----------- -----------
Total net deferred tax liabilities -- --
=========== ===========
</TABLE>
9. EMPLOYMENT AGREEMENT
In October 1995, the Company entered into an employment agreement with
Marc H. Bell which extends for a period of five years, terminating on September
30, 2000. Pursuant to the terms of the agreement, Mr. Bell receives a base
salary of $200,000 per year and a bonus equal to 5% of the annual pre-tax net
income of the Company in excess of $1 million (50% of the Bonus Pool) to the
extent, if any, that the Bonus Pool exceeds $100,000.
During the third quarter of fiscal 1997, the Company made loans to Mr.
Bell bearing interest at 8.75% per annum in the total amount of $145,408. These
loans were pursuant to his existing employment agreement. The loans mature in
June 2002.
Effective June 1, 1998, the Company terminated Mr. Bell's former
employment agreement and entered into a new employment agreement, which will
terminate on June 30, 2005. The new employment agreement provides for a base
salary of $350,000 per year, increasing annually at the rate of 5% starting
October 1, 1999. In addition, Mr. Bell will receive an annual bonus equal to
10,000 times the increase, if any, of the fair market value per share of the
Company's Common Stock measured during the 12-month period ending on June 30 of
each year of the agreement, commencing with the year beginning July 1, 1998. Mr.
Bell will also be entitled to receive stock options to purchase that number of
shares as shall equal 25% of the increase, if any, in the number of issued and
outstanding shares of Common Stock during the 12-month period ending on
September 30 of each year of the agreement, provided that such increase was
attributable to equity offerings or acquisitions. The new employment agreement
also provides that Mr. Bell may require the Company to lend him a total of
$155,000. Any loan taken thereunder will mature five years after the date made
and bear interest at the rate of 8% per annum. However, the interest accruing
during the first two years is not payable until the end of such two year period.
Mr. Bell borrowed from the Company $155,000 in September, 1998.
F-18
<PAGE> 48
10. SUBSEQUENT EVENTS
QWEST COMMUNICATIONS
In October 1998, the Company contracted with Qwest Communications
Corporation ("Qwest") with broadband capacity on the nationwide Qwest Macro
Capacity(SM) Fiber Network. Initially, Globix will receive a long-term right to
use OC-3 (155 mbps) capacity to route its Internet and data traffic. The Company
is currently committed to Qwest for a fee of $9,192,176 of which it had paid
$919,218 at contract. The balance is payable by October 1999. In addition, the
Company has the right to increase its capacity on the Qwest Network at the cost
of $1.50 multiplied by the number of DS-0 (64 kbs per second) V&H Miles (length
in miles between the termination points of a Qwest Network Segment using airline
miles and determined based on the vertical and horizontal geographic coordinates
of the locations of the termination points). The Company is also liable for a
monthly operating and maintenance charge of $.0035 per each DS-0 V&H Mile. The
Company will amortize the total contract value over the term of the agreement of
20 years.
LONDON FACILITY
In October 1998, the Company signed a lease with Corston Holdings Limited (a
United Kingdom Corporation) for a 15 year term through September 2014 for the
rental of 33,500 square feet at Prospect House, 80 to 110 New Oxford Street
London at an annual base rent of pound sterling 1,080,000 (approximately
$1,836,000 in U.S. dollars) commencing in October 1999. The Company intends to
build a SuperPOP data center in the new premises, which will also provide space
for sales and administrative personnel.
F-19
<PAGE> 1
EXHIBIT 10.10
EMPLOYMENT AGREEMENT
AGREEMENT made as of the 10th day of April, 1998 between BELL TECHNOLOGY
GROUP LTD. ("Company"), a Delaware corporation having an office at 295 Lafayette
Street, New York, New York 10012 and MARC H. BELL ("Executive"), residing at 39
Mather Road, Stamford, Connecticut 06903.
WHEREAS, Executive was the founder of the Company and has increased its
revenues by 400% over the past three years; and
WHEREAS, Executive has been instrumental in obtaining financing for the
future growth of the Company; and
WHEREAS, Executive has provided extraordinary leadership for the Company
through its formative years; and
WHEREAS, chief executive officers at comparable companies in comparable
positions would have received greater compensation over the past three years;
and
WHEREAS, the Company wishes to reward Executive for his prior activities
and accomplishments on behalf of the Company, and to provide for a fair and
adequate compensation for the future.
NOW, THEREFORE, in consideration of the premises and the covenants and
agreements herein contained, the parties hereto agree as follows:
1. EMPLOYMENT. TERM. Company hereby employs Executive, and Executive
hereby accepts employment with Company with the duties hereinafter set forth,
for a period commencing on June 1, 1998 and ending June 30, 2005 subject,
however, to earlier termination in accordance with the provisions of this
Agreement. At the conclusion of the initial term, this Agreement shall
automatically renew on a month-to-month basis unless terminated by either party
hereto by 30 days' prior written notice to the other.
2. DUTIES. Executive shall be President and Chief Executive Officer of
Company. Executive shall be responsible for setting general business and
financial plans for the long term and day-to-day operations of the Company, the
recruitment and hiring of management personnel, the supervision of existing
management and executive personnel, and the setting of executive and management
terms of employment. Executive shall perform such other duties as the Board of
Directors may designate and which are not inconsistent with this Agreement and
would be generally performed by a chief executive officer. Executive agrees that
during the term of this Agreement, Executive shall work exclusively for the
Company and shall not work as an agent or representative for any other person,
firm or entity, or work as an independent contractor for hire.
<PAGE> 2
3. COMPENSATION AND RELATED MATTERS.
3.01 FIXED SALARY. As compensation for Executive's services Company shall
pay Executive a salary of $350,000 per annum (the "Fixed Salary") in equal
monthly (or more frequent) installments less appropriate payroll deductions as
required by law. Executive's Fixed Salary shall be increased by 5% on the first
day of each fiscal year during the term of this Agreement, provided, however,
that the first such increase shall be on October 1, 1999.
3.02 BONUS. In addition to his Fixed Salary, Executive shall receive a
bonus (the "Bonus") equal to 10,000 times the increase, if any, in the per share
Fair Market Value (as that term is hereinafter defined) of the Company's Common
Stock on the 30th day of each June during the term of this Agreement (or the
next succeeding business day if such date shall not be a business day) over the
higher of (a) the per share Fair Market Value of the Company's Common Stock on
July 1st of the prior year (or the next succeeding business day if such date
shall not be a business day) and (b) the highest per share Fair Market Value of
the Company's Common Stock on any July 1 during the term of this Agreement (or
the next succeeding business day if such date shall not be a business day). Such
Bonus shall be payable no later than the 1st day of August of each twelve (12)
month period. The first year for which such Bonus shall be payable, if due,
shall be the year ended June 30, 1999.
3.03 STOCK OPTIONS.
(a) Executive has been granted an option pursuant to the Company's
1998 Stock Option Plan to purchase 69,500 shares of the Company's Common Stock
at a price of $7.15 per share, which was 110% of the Fair Market Value on the
date of grant, exercisable at the rate of 13,900 shares per year over a period
of five years.
(b) Executive has been granted an additional option pursuant to the
Company's 1998 Stock Option Plan to purchase 142,000 shares of the Company's
Common Stock at a price of $6.50 per share, which was the then Fair Market Value
on the date of grant, exercisable six months after the grant thereof and
conditioned upon the closing of a financing arrangement through Furman Selz LLC
or another source.
(c) On October 1 of each fiscal year during the term of this
Agreement Executive shall be granted an option to purchase that number of shares
of Common Stock as shall equal 25% of the increase, if any, in the number of
shares of Common Stock issued and outstanding on the September 30 immediately
preceding the date of grant of such option over the number of issued and
outstanding shares of Common Stock on the immediately preceding October 1,
provided, however, that (i) for purposes of this calculation, treasury shares
shall not be deemed to be issued and
- 2 -
<PAGE> 3
outstanding and (ii) any increase which is the result of stock splits or stock
dividends, shall not be taken into account. Such stock options shall be either
incentive stock options or non-qualified stock options for purposes of the
Internal Revenue Code of 1986, as amended, at the option of Executive, which
option shall be set forth in a written notice to the Company no later than the
date of grant. The exercise price of such stock options shall be the Fair Market
Value of the Company's Common Stock on the date of grant unless such stock
option shall be an incentive stock option, in which event the exercise price
shall be 110% of such Fair Market Value. Such stock option shall be exercisable
in whole or in part commencing with the 1st day of April next succeeding the
date of grant and shall terminate on the tenth anniversary of the date of grant
unless such stock option shall be an incentive stock option, in which event the
termination date shall be the fifth anniversary of the date of grant. Such stock
option shall be evidenced by an agreement containing such other terms and
conditions as the Company and Executive shall agree. The Company shall take all
such steps as shall be necessary to effectuate the foregoing including, without
limitation, proposing new stock option plans for approval by the Company's
stockholders and reserving a sufficient number of authorized but unissued shares
to permit the purchase of the shares pursuant to the stock options granted
hereunder.
3.04 FAIR MARKET VALUE. For the purpose of any computation under this
Agreement, the Fair Market Value per share of Common Stock at any date shall be
deemed to be the closing price on the last day on which the Company's shares of
Common Stock were traded immediately preceding the date the calculation is to be
made, as reported by Nasdaq, Inc., or such national securities exchange on which
such Common Stock shall then be listed, or if not reported on Nasdaq or such
national securities exchange, the fair market value of such common stock as
determined by the Board of Directors in good faith and based on all relevant
factors.
3.05 EXPENSES. Company shall pay or reimburse Executive for all reasonable
travel (including automobile), hotel, entertainment and other business expenses
incurred in the performance of Executive's duties upon submission of appropriate
vouchers and other supporting data.
3.06 AUTOMOBILE. Company shall provide to Executive an automobile and
shall pay or reimburse Executive for all insurance, gasoline, garage,
maintenance and repair and other expenses incurred in use of an automobile upon
submission of appropriate vouchers, receipts and other supporting data.
3.07 BENEFITS. Executive and his eligible dependents shall be entitled to
(i) participate in all general pension, profit-sharing, life, medical,
disability and other insurance and executive benefit plans at any time in effect
for senior executives of Company, provided, however, that nothing herein shall
- 3 -
<PAGE> 4
obligate Company to establish or maintain any executive benefit plan, whether of
the type referred to in this clause (i) or otherwise, and (ii) four (4) weeks
paid vacation during each twelve-month period of employment at mutually
agreeable times.
3.08 LOAN. In consideration of the execution and delivery of this
Agreement by Executive, Company agrees to lend to Executive (upon demand by
Executive, from time to time during the term of this Agreement) up to an
aggregate of One Hundred Fifty-Five Thousand Dollars ($155,000) (the "Loans").
Each such Loan shall be evidenced by a promissory note and shall (a) bear
interest at the rate of 8% per annum payable quarterly in arrears, provided,
however, that interest shall accrue for the first two years of each such Loan
(b) may be prepaid at any time without penalty, and (c) shall become due and
payable in its entirety on the fifth anniversary of the date such Loan was made.
It is understood and agreed that the currently outstanding Loans made by Company
to Executive will continue to be governed by the promissory notes evidencing
them.
3.09 KEY PERSON INSURANCE. Executive agrees that Company shall have the
right, at any time during this Agreement, to purchase a term insurance policy on
his life in the amount of $1,000,000, or such greater amount as the Company
shall determine. All premiums payable with respect to such policy shall be the
sole obligation of Company. The proceeds therefrom shall be payable to Company.
3.10 DISABILITY INCOME INSURANCE. Company shall pay for a disability
income insurance policy which will pay benefits to Executive in the amount of at
least Six Thousand Dollars ($6,000) per month after a 30-day waiting period.
Ownership of such policy shall be vested in Executive, provided, however, that,
during the term of this Agreement, Executive's compensation under this Agreement
shall be reduced by the amount of disability income insurance proceeds actually
received by Executive from policies paid for by Company.
4. TERMINATION FOR CAUSE; DEATH.
4.01 FOR CAUSE. Company shall have the right to terminate the employment
of Executive hereunder at any time for cause without prior notice (except as
otherwise hereinafter provided). For purposes of the preceding sentence "for
cause" shall mean and include, without limitation, the occurrence of any of the
following acts or events by or relating to Executive: (i) habitual insobriety of
Executive while performing his duties hereunder; (ii) any material breach of any
obligations of Executive under this Agreement which remains uncured for more
than twenty (20) days after written notice thereof by Company to Executive; (ii)
theft or embezzlement from Company or any other material acts of dishonesty;
(iii) repeated insubordination respecting reasonable orders or directions of
Company's Board of Directors; or (iv) conviction of a crime (other than traffic
- 4 -
<PAGE> 5
violations and minor misdemeanors). In the event of termination for cause,
Executive's Fixed Salary shall terminate as of the effective date of termination
of employment after written notice thereof.
4.02 DEATH. In the event of Executive's death, Executive's Fixed Salary
shall continue until the end of the initial term.
4.03 PRO RATION OF BONUS. In the event of termination of this Agreement
under Section 4.01 hereof, Executive's Bonus shall be prorated by multiplying it
by a fraction the numerator of which is equal to the number of days in the year
prior to termination and the denominator of which is 365.
5. MISCELLANEOUS.
5.01 NOTICES. All notices under this Agreement shall be in writing and
shall be deemed to have been duly given if personally delivered against receipt
or if mailed by first class registered or certified mail, return receipt
requested, addressed to Company and to Executive at their respective addresses
set forth on the first page of this Agreement, or to such other person or
address as may be designated by like notice hereunder. Any such notice shall be
deemed to have been given on the day delivered, if personally delivered, or on
the third business day after the date of mailing if mailed.
5.02 PARTIES IN INTEREST. This Agreement shall be binding upon and inure
to the benefit of and be enforceable by the parties hereto and their respective
heirs, legal representatives, successors and, in the case of Company, assigns,
but no other person shall acquire or have any rights under or by virtue of this
Agreement, and the obligations of Executive under this Agreement may not be
assigned or delegated.
5.03 GOVERNING LAW; SEVERABILITY. This Agreement shall be governed by and
construed and enforced in accordance with the laws and decisions of the State of
New York applicable to contracts made and to be performed therein without giving
effect to the principles of conflict of laws. The parties agree that New York,
New York shall be the proper place of jurisdiction for the determination of any
disputes arising from this Agreement and the parties consent to jurisdiction of
the Courts of the State of New York and the Federal Courts located therein. The
invalidity or unenforceability of any provision of this Agreement, or the
application thereof to any person or circumstance, in any jurisdiction shall in
no way impair, affect or prejudice the balance of this Agreement, which shall
remain in full force and effect, or the application thereof to other persons and
circumstances.
5.04 ENTIRE AGREEMENT; MODIFICATION; WAIVER; INTERPRETATION. This
Agreement contains the entire agreement and understanding between the parties
with respect to the subject
- 5 -
<PAGE> 6
matter hereof and supersedes all prior negotiations and oral understandings, if
any. Without limiting the generality of the foregoing, it is agreed that the
Employment Agreement between Company and Executive dated as of October 1, 1995
is hereby terminated on the commencement date of this Agreement. Neither this
Agreement nor any of its provisions may be modified, amended, waived, discharged
or terminated, in whole or in part, except in writing signed by the party to be
charged. No waiver of any such provision or any breach of or default under this
Agreement shall be deemed or shall constitute a waiver of any other provision,
breach or default. All pronouns and words used in this Agreement shall be read
in the appropriate number and gender, the masculine, feminine and neuter shall
be interpreted interchangeably and the singular shall include the plural and
vice versa, as the circumstances may require.
5.05 ATTORNEY'S FEES. If any litigation arises out of the breach by either
party hereto of any term or provision of this Agreement, the prevailing party
shall be liable for all reasonable attorney's fees and expenses incurred in
connection with any action for damages or the enforcement of any provision of
this Agreement brought by the other party.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the date first above written.
BELL TECHNOLOGY GROUP LTD.
By _____________________________________
Robert Bell, Executive Vice President
EXECUTIVE
________________________________________
Marc H. Bell
- 6 -
<PAGE> 1
EXHIBIT 10.31
LEASE
THIS LEASE ("Lease") is made as of July 24, 1998, by and between MISSION
PLAZA LLC, a California limited liability company ("Landlord"), and GLOBIX
CORPORATION, a Delaware corporation, doing business as The California Globix
Corporation ("Tenant").
1. LEASE PREMISES.
1.1 Landlord hereby leases to Tenant and Tenant hereby leases from
Landlord those certain premises ("Premises") consisting of (i) a leasehold
interest in that certain real property ("Real Property") described as Parcel 1
shown on that Parcel Map filed for record in the Office of the Recorder of the
County of Santa Clara, State of California, on May 15, 1998, in Book 702 of
Maps, pages 29, 30, and 31; (ii) the entirety of the building to be constructed
on the Real Property; (iii) all landscaping, drainage, irrigation, lighting,
parking facilities, walkways, driveways and other improvements and appurtenances
related thereto; and (iv) the nonexclusive use of all easements appurtenant to
the Real Property and subject to any easements which burden the Real Property.
2. BASIC LEASE PROVISIONS.
2.1 For convenience of the parties, certain basic provisions of this
Lease are set forth herein. The provisions set forth herein are subject to the
remaining terms and conditions of this Lease and are to be interpreted in light
of such remaining terms and conditions.
2.1.1 Rentable Area of Premises: 61,547 square feet, subject
to adjustment as provided in Section 8.2
2.1.2 Initial Basic Annual Rent: $1,277,715 ($20.76 per square
foot of Rentable Area per year), subject to adjustment
as provided in Sections 6.1 and 8.2
2.1.3 Monthly Installment of Basic Annual Rent: $106,476
($1.73 per square foot of Rentable Area per month),
subject to adjustment as provided in Sections 6.1 and
8.2
2.1.4 (a) Estimated Term Commencement Date: January 15, 1999,
subject to adjustment as provided in Section 4.5
(b) Term Expiration Date: Fifteen (15) years from Term
Commencement Date
2.1.5 Permitted Use: Uses permitted in Sections 10.1
2.1.6 Security Deposit: $400,000 in accordance with Article 9
<PAGE> 2
2.1.7 Address for Rent Payment and Notices to Landlord:
Mission Plaza LLC
c/o Nexus Properties, Inc.
100 Century Center Court, Suite 520
San Jose, California 95112
Address for Notices to Tenant
Globix Corporation
Attn: Marc Bell
295 Lafayette Street, 3rd Floor
New York, New York 10012
With Copies of all Notices to Tenant to:
Arnold Bressler, Esq.
Milberg Weiss Bershad Hynes & Lerach LLP
One Pennsylvania Plaza
New York, New York 10119-0165
2.2 Defined terms indicated with an initial capital letter not
otherwise defined herein shall have the meaning ascribed to them in Article 42
of this Lease.
2.3 The following exhibits are delivered simultaneously herewith and
incorporated herein by this reference (in the event of any inconsistency between
Exhibit AA-5" and the other drawings, Exhibit AA-5" shall control):
Exhibit "A" Plans and Specifications
"A-1" Site Plan
"A-2" List of Permitted Shell Drawings
"A-3" Schematic Showing Shell Upgrades
"A-4" Specifications of Selected Shell Items
"A-5" Floor Plan Showing Tenant's Data Center
Exhibit "B" Acknowledgment of Term Commencement Date
Exhibit "C" Memorandum of Lease
Exhibit "D" Nondisturbance and Attornment Agreements
"D-1" District
"D-2" Ground Lessor
"D-3" Sub Ground Lessor
Exhibit "E" Landlords' Estoppel Certificates
"E-1" District
"E-2" Ground Lessor
"E-3" Sub Ground Lessor
<PAGE> 3
Exhibit "F" Completion Guaranty
Exhibit "G" Lead Items
3. TERM.
3.1 This Lease shall take effect upon the later of the date of
execution by each of the parties hereto or the date of approval by Tenant's
board of directors, and each of the provisions hereof shall be binding upon and
inure to the benefit of Landlord and Tenant from such date.
3.2 The term of this Lease will be that period from the Term
Commencement Date described in Sections 2.1.4(a) and 4.5 through the Term
Expiration Date as set forth in Section 2.1.4(b), subject to earlier termination
of this Lease or extension of the term of this Lease as provided herein.
3.3 Landlord shall use its best efforts to obtain nondisturbance
agreements in the forms attached hereto as Exhibit D@, and estoppel certificates
in the forms attached hereto as Exhibit "D", from the ground lessors under the
underlying leases by which Landlord holds its interest in the Premises,
including (i) the West Valley-Mission Community College District (the
"District"), pursuant to that certain Master Ground Lease Parcel 12 dated as of
October 2, 1997, as amended by that certain undated First Amendment to Master
Ground Lease Parcel 12 (the "Master Ground Lease"), (ii) the Mission-West Valley
Land Corporation ("Ground Lessor"), pursuant to that certain Ground Lease dated
as of October 2, 1997, as amended by that certain First Amendment to Ground
Lease dated April __, 1998 (the "Ground Lease"), and (iii) Nexus Properties,
Inc., Kinetic Systems, Inc., Michael J. Reidy both individually and as trustee
of the Ronald Bonaguidi Irrevocable Trust, and R. Darrell Gary (collectively,
"Ground Tenant"), each pursuant to that certain Sub Ground Lease dated as of
June 1, 1998 (the "Sub Ground Lease").
3.4 Notwithstanding anything in this Lease to the contrary, Tenant
may terminate this Lease if:
(a) Landlord has not on or before August 21, 1998, obtained
and delivered to Tenant a current ALTA survey of the Real Property and satisfied
any other conditions imposed by Tenant or a title company selected by Tenant to
the issuance of a title policy in form and substance satisfactory to Tenant
insuring Tenant's interest in this Lease (including without limitation
guarantees or indemnifications to the title company to enable the title company
to issue a mechanic's lien endorsement acceptable to Tenant), and the title
company has issued such a title policy to Tenant; or
(b) Landlord has not Substantially Completed the Project Work
within one hundred eighty (180) days after the Estimated Term Commencement Date
for any reason other than Tenant-Caused Delays.
In the event any of the foregoing contingencies are not timely
satisfied, Tenant may exercise its termination right by delivering written
notice to Landlord within fifteen (15) days after the expiration date of any
such contingency, whereupon the Lease shall terminate and Landlord shall
promptly return to Tenant all prepaid rent and security deposits made under this
<PAGE> 4
Lease by Tenant. Tenant's termination rights may be exercised in Tenant's sole
discretion and notwithstanding any work that may have been performed or sums
that may have been spent by Landlord at the time of termination.
4. CONSTRUCTION, POSSESSION AND COMMENCEMENT DATE.
4.1 Landlord shall construct the Site Improvements and Building
Shell in accordance with the Site Plans and Building Shell Plans, as such plans
and specifications may be revised and supplemented from time to time with the
mutual consent of Landlord and Tenant. Tenant shall pay $387,908 as Tenant's
sole contribution towards the design, permitting and construction of the Site
Improvements and Building Shell, and Landlord shall pay for the balance thereof.
Tenant shall pay fifty percent (50%) of its contribution upon completion of
fifty percent (50%) of the Site Improvements and Building Shell, as certified by
the Project Architect, and the balance upon Substantial Completion of the Site
Improvements and Building Shell and delivery of same to Tenant. In no event,
however, shall Tenant be required to pay any costs before Landlord obtains the
nondisturbance agreements and estoppel certificates described in Section 3.3, or
before the satisfaction of the conditions described in Section 3.4(a) or the
expiration of Tenant's termination right thereunder; furthermore, Landlord shall
continue the design, permitting and construction of the Site Improvements and
Building Shell, and shall pay or advance all costs thereof, during any such
period. Tenant shall repay Landlord for any advances of its contribution to the
Site Improvements and Building Shell at such time as Landlord obtains the
nondisturbance agreements and estoppel certificates described in Section 3.3 and
either the conditions described in Section 3.4(a) have been satisfied or
Tenant's termination right thereunder has expired.
4.2 Landlord shall construct the Tenant Improvements in accordance
with the Tenant Improvement Plans, as such plans and specifications may be
revised and supplemented from time to time with the mutual consent of Landlord
and Tenant. Tenant shall be responsible for the entire cost of design,
permitting and construction of the Tenant Improvements, the cost of which Tenant
estimates will not be less than not less than $2,500,000, which shall be
disbursed by Tenant in progress payments based upon the percentage of completion
of the Tenant Improvements in a manner reasonably satisfactory to Landlord's
construction lender. In no event, however, shall Tenant be required to pay any
costs of Tenant Improvements before Landlord obtains the nondisturbance
agreements and estoppel certificates described in Section 3.3, or before the
satisfaction of the conditions described in Section 3.4(a) or the expiration of
Tenant's termination right thereunder (except that Tenant shall order and pay
the vendors for Tenant's Removable Property); furthermore, Landlord shall
continue the design, permitting and construction of the Tenant Improvements, and
shall advance all costs thereof during any such period, except for costs owed to
the vendors for Tenant's Removable Property, which Tenant shall continue to pay.
Tenant shall repay Landlord for any agreed advances of the cost of design,
permitting and construction of the Tenant Improvements at such time as Landlord
obtains the nondisturbance agreements and estoppel certificates described in
Section 3.3, and either the conditions described in Section 3.4(a) have been
satisfied or Tenant's termination right thereunder has expired.
<PAGE> 5
4.3 Landlord shall endeavor to tender possession of the Premises
with the Project Work Substantially Completed to Tenant on the Estimated Term
Commencement Date. Tenant agrees that in the event Landlord fails to tender
possession of the Premises with the Project Work Substantially Completed on or
before the Estimated Term Commencement Date, this Lease shall not be void or
voidable, Landlord shall not be liable to Tenant for any loss or damage
resulting therefrom except as set forth in this Section 4.3, and Tenant
expressly waives any right to terminate this Lease because of delays in
completion of construction of the Project Work and Building Shell except as set
forth in Section 3.4. In the event Landlord fails to tender possession of the
Premises with the Project Work Substantially Completed within thirty (30) days
following the Estimated Term Commencement Date, as such date is extended by
Tenant-Caused Delays, Landlord and Tenant agree that Tenant will suffer damages
which would be difficult to ascertain but a reasonable estimate of which would
be $1,000 per day. Therefore, in the event of such delay, Landlord agrees to pay
Tenant liquidated damages of $1,000 per day commencing thirty (30) days after
the Estimated Term Commencement Date, as such date is extended by Tenant-Caused
Delays, until possession of the Premises with the Project Work Substantially
Completed is tendered to Tenant. Landlord shall pay such liquidated damages due
to Tenant for any calendar month by the fifth (5th) day of the following
calendar month.
4.4 Landlord shall deliver to Tenant early possession of that
portion of the Building to be used for the Data Center described on Exhibit
"AA-5" Substantially Completed on or before November 30, 1998, as such date is
extended by Tenant-Caused Delays and Force-Majeure Delays, in a condition
suitable for the installation of Tenant's fixtures and equipment and for the use
and occupancy by Tenant. Tenant agrees that in the event Landlord fails to do
so, this Lease shall not be void or voidable, Landlord shall not be liable to
Tenant for any loss or damage resulting therefrom except as set forth in this
Section 4.4, and Tenant expressly waives any right to terminate this Lease
because of such delay. In the event Landlord fails to tender possession of that
portion of the Building to be used for the Data Center Substantially Completed
on or before November 30, 1998, as such date is extended by Tenant-Caused Delays
and Force-Majeure Delays, and in a conditions suitable for the installation of
Tenant's fixtures and equipment and for the use and occupancy by Tenant,
Landlord and Tenant agree that Tenant will suffer damages which would be
difficult to ascertain but a reasonable estimate of which would be $3,000 per
day. Therefore, in the event of such delay, Landlord agrees to pay Tenant
liquidated damages of $3,000 per day commencing November 30, 1998, as such date
is extended by Tenant-Caused Delays and Force-Majeure Delays, until possession
of the Data Center is so delivered, which liquidated damages are in addition to
those described in the preceding Section 4.3. Landlord shall pay such liquidated
damages due to Tenant for any calendar month by the fifth (5th) day of the
following calendar month.
4.5 The Term Commencement Date shall be the date Landlord tenders
possession of the Premises to Tenant with the Project Work Substantially
Completed. Landlord and Tenant shall execute a written acknowledgment of the
Term Commencement Date and the Term Expiration Date when such are established in
substantially the form attached hereto as Exhibit "B" and attach it to this
Lease as Exhibit "B-1"; however, failure to execute and deliver such
acknowledgment shall not affect Tenant's or Landlord's liability hereunder.
<PAGE> 6
4.6 Tenant shall have the right to enter onto the Premises before
the Term Commencement Date for the purposes of installing fixtures and
equipment, using and occupying the Data Center, and for any other purpose,
provided that Tenant shall first furnish to Landlord evidence satisfactory to
Landlord that insurance coverages required of Tenant under the provisions of
Article 21 are in effect. Entry by Tenant onto the Premises prior to the Term
Commencement Date for such purposes shall be subject to all of the terms and
conditions of this Lease other than the payment of Basic Annual Rent and
Operating Expenses (other than electricity and any other utilities used by
Tenant for the operation of the Data Center and any other equipment), and shall
not materially interfere with the construction of the Project Work. In the event
of entry by Tenant or its agents onto the Premises prior to the Term
Commencement Date, Tenant agrees to indemnify, protect, defend and hold Landlord
harmless from any and all loss or damage to property, completed work, fixtures,
equipment, materials or merchandise, or from liability for death of or injury to
any person arising from Tenant's entry onto the Premises, except to the extent
any such loss or damage is caused by the negligence or willful misconduct of
Landlord or Landlord's Agents (as such term is defined in Section 20.1).
4.7 Landlord and Tenant shall diligently and in good faith cooperate
with one another, and with the Project Architect and Project Contractor, to
insure timely and cost effective design, permitting and construction of the
Project Work, including timely cooperation with regard to preparation of the
Plans and Specifications and shop drawings, and obtaining bids for the Tenant
Improvements, to the end that the Data Center shall be completed and fully
operational no later than November 30, 1998, and the Premises shall be completed
and Tenant shall be fully operational within the Premises no later than January
15, 1999. Landlord shall cooperate with Tenant in securing any additional
easements required by Tenant for its use of the Premises. Landlord shall
immediately cause to be ordered all materials having a lead time of more than
eight (8) weeks, and shall cause all other materials to be ordered in a timely
manner. Tenant shall order in a timely manner that portion of the Tenant
Improvements included within Tenant's Removable Property described in Section
30.3, and shall deliver such property to Landlord or the Project Contractor for
installation. Tenant shall have the right to approve all contracts and other
matters which would affect the cost or design of the Tenant Improvements.
5. RENT.
5.1 Tenant agrees to pay Landlord as Basic Annual Rent for the
Premises the sum set forth in Section 2.1.2, subject to the rental adjustments
provided in Sections 6.1 and 8.2. Basic Annual Rent shall be paid in the equal
monthly installments set forth in Section 2.1.3, subject to the rental
adjustments provided in Sections 6.1 and 8.2, each in advance on the first day
of each and every calendar month during the term of this Lease, except that the
estimated first full monthly installment of Basic Annual Rent in the amount of
$106,476 shall be paid at the earlier of (i) such time as Landlord obtains and
delivers to Tenant the nondisturbance agreements and estoppel certificates
described in Section 3.3, and Landlord has satisfied the conditions described in
Sections 3.4(a) or Tenant's termination right has expired thereunder, or (ii)
the Term Commencement Date. On the Term Commencement Date, the deposit of the
estimated first full monthly installment of Basic Annual Rent shall be credited
to the actual Basic Annual Rent due for the calendar month in which rental
commences and any balance, if any, will be a credit
<PAGE> 7
against the next rental to become due. Prior to the Term Commencement Date, the
deposit of the estimated first monthly installment of Basic Annual Rent shall
constitute additional security for Tenant's obligations hereunder and be treated
in like manner as the Security Deposit described in Section 9.1.
5.2 In addition to Basic Annual Rent, Tenant agrees to pay to
Landlord as additional rent ("Additional Rent"), at the times hereinafter
specified in this Lease, Operating Expenses as provided in Article 7, and all
other amounts that Tenant agrees to pay under the provisions of this Lease,
including without limitation any and all other sums that may become due by
reason of any default of Tenant.
5.3 Basic Annual Rent and Additional Rent shall together be
denominated "Rent". Rent shall be paid to Landlord in lawful money of the United
States of America, at the office of Landlord as set forth in Section 2.1.7 or to
such other person or at such other place as Landlord may from time to time
designate in writing, without notice, demand, abatement, suspension, deduction,
setoff, counterclaim, or defense, except as otherwise provided in this Lease.
5.4 In the event the term of this Lease commences or ends on a day
other than the first day of a calendar month, then the Rent for such fraction of
a month shall be prorated for such period on the basis of a thirty (30) day
month and shall be paid at the then current rate for such fractional month prior
to the commencement of the partial month.
6. RENTAL ADJUSTMENTS.
6.1 Basic Annual Rent then in effect (as increased by previous
adjustments under this Section 6.1) shall be increased on each of the first
through the twelfth annual anniversaries of the Term Commencement Date by three
percent (3%).
7. ADDITIONAL RENT AND EXPENSES.
7.1 As used herein, the term "Operating Expenses" shall include:
(a) Government impositions (collectively, "Taxes") including,
without limitation, property tax costs with respect to the Premises consisting
of real and personal property taxes and assessments including amounts due under
any improvement bond upon the Premises or any part thereof or assessments levied
in lieu thereof imposed by any governmental authority or agency; any tax on or
measured by gross rentals received from the rental of space in the Building or
tax based on the square footage of the Building or the entire Premises as well
as any parking charges, utilities surcharges, or any other costs levied,
assessed or imposed by, or at the direction of, or resulting from statutes or
regulations, or interpretations thereof, promulgated by any federal, state,
regional, municipal or local government authority in connection with the use or
occupancy of the Building or the parking facilities serving the Building; any
tax on this transaction or any document to which Tenant is a party creating or
transferring an interest in the Premises; any fee for a business license to
operate the Building; and any expenses, including the
<PAGE> 8
cost of attorneys or experts, reasonably incurred by Landlord in seeking
reduction by the taxing authority of the applicable taxes (in an amount not to
exceed the amount of the reduction), less tax refunds obtained as a result of an
application for review thereof. Notwithstanding the foregoing, Operating
Expenses shall not include any net income, franchise, capital stock, estate,
inheritance, sales or excise taxes due from Landlord, taxes which are the
personal obligation of or are paid by Tenant, any tax on rental income unless
levied in lieu of a tax customarily considered a real property tax, tax
penalties as a result of Landlord's failure to make payments or file
informational returns when due, any tax occasioned by or relating to Hazardous
Materials on the Premises (except to the extent caused by Tenant's storage, use
or disposal of Hazardous Materials), or any tax or assessment expense or any
increase therein in excess of the amount which would be payable if such tax or
assessment expense were paid in installments over the longest possible term.
(b) All other costs of any kind incurred by Landlord in
connection with the operation, maintenance, repairs, and management of the
Premises, including, by way of examples and not as a limitation upon the
generality of the foregoing, (i) costs of maintenance and repairs to
improvements, fixtures and personal property on the Premises as appropriate to
maintain the Premises in commercially reasonable condition (but excluding costs
incurred for the replacement of the roof and other capital items which are part
of the Site Improvements or Building Shell, for the repair, maintenance and
replacement of the structural components of the roof, footings, foundation,
ground floor slab, and load bearing walls of the Premises [but including
painting and ordinary maintenance and repair of surfaces], and for the
replacement of the roof membrane [unless caused by traffic of Tenant or its
invitees or penetrations made by Tenant])(ii) costs of maintenance and repairs
of equipment utilized for operation and maintenance of the Premises if dedicated
for use solely at the Premises; (iii) costs of exterior trash collection; (iv)
costs of maintenance, repairs and replacements of heating, ventilation, air
conditioning, plumbing, electrical and other systems (but excluding replacements
of components of any such system which are part of the Site Improvements and
Building Shell); (v) costs of maintenance of landscape, grounds, drives and
parking areas, including periodic resurfacing and re-striping; (vi) insurance
premiums; (vii) portions of insured losses attributable to the Tenant
Improvements (but not to the Site Improvements and Building Shell) paid by
Landlord as part of the deductible portion of earthquake and other insurance by
reason of insurance policy terms; (viii) costs of building supplies; (ix) costs
of service contracts and services of independent contractors retained to do work
of a nature before referenced; and (x) costs of compliance with applicable
governmental laws, ordinances, regulations and requirements which become
effective after Substantial Completion (but not those which are effective prior
to Substantial Completion) not required by any act, omission or wrongdoing of
Landlord or its agents or representatives.
(c) Costs of property management services payable monthly in
an amount equal to three percent (3%) of the monthly installment of Basic Annual
Rent then due from Tenant, whether such services are provided by Landlord, or an
affiliate of Landlord, or an independent property management firm, and without
regard to the actual costs incurred by Landlord for such services (in no event,
however, shall any fees for management services payable to a third party be
included in Operating Expenses in addition to the amount set forth in this
subsection 7.1(c)).
<PAGE> 9
(d) Costs payable by Landlord under the Sub Ground Lease
solely to the extent of (i) real property taxes and assessments applicable to
the Premises which would otherwise be payable under Section 7.1(a) (other than
governmental impositions imposed or levied by the District or Ground Lessor),
and (ii) Landlord's pro rata share of the maintenance costs applicable to
Perimeter Road, but in no event to include any traffic mitigation applicable to
Perimeter Road or other costs which may be required of Landlord under the Sub
Ground Lease.
7.2 Notwithstanding the foregoing, Operating Expenses shall not
include, and Tenant shall not be responsible for the payment of, the following
costs and expenses:
(a) costs incurred for the initial construction of the Site
Improvements and Building Shell, except as set forth in Section 4.1;
(b) costs incurred for capital improvements and replacements
to the Site Improvements or Building Shell; for the repair, maintenance and
replacement of the structural components of the roof, footings, foundation,
ground floor slab, and load bearing walls of the Premises (but including in
Operating Expenses painting and ordinary maintenance and repair of surfaces);
and for the replacement of the roof membrane (unless caused by traffic of Tenant
or its invitees or penetrations made by Tenant);
(c) costs incurred to correct any defects in design, materials
or construction of the Project Work to the extent of Landlord's warranties set
forth in Section 14.2;
(d) costs, expenses and penalties (including without
limitation attorneys fees) incurred as a result of the use, storage, removal or
remediation of any toxic or hazardous substances or other environmental
contamination not caused by Tenant or its employees, contractors, agents,
representatives, or invitees;
(e) interest, principal, points and other fees on debt or
amortization of any debt;
(f) costs incurred in connection with the financing,
re-financing, acquisition, sale or disposition of the Premises or any portion
thereof;
(g) costs, expenses, and penalties (including without
limitation attorneys' fees) incurred due to the violation by Landlord or any
other person or entity of any underlying ground lease, deed of trust or mortgage
affecting the Premises or any portion thereof, or to comply with requirements of
applicable covenants, conditions and restrictions, underwriter requirements, or
laws applicable to the Premises;
(h) depreciation, amortization or other expense reserves for
the Premises or any portion thereof, or any equipment or machinery owned by
Landlord;
<PAGE> 10
(i) any costs incurred as a result of the violation or alleged
violation by Landlord or any other person or entity other than Tenant of any
statute, ordinance or other source of applicable law, or breach of contract or
tort liability to any other party, including without limitation, any unrelated
third party, or Landlord's employees, contractors, agents or representatives;
(j) leasing commissions, attorneys' fees and other costs and
expenses incurred in connection with the leasing of the Premises;
(k) advertising, marketing, media and promotional expenditures
regarding the Premises and costs of signs in or on the Building identifying the
owner, lender or any contractor thereof;
(l) any fees or salaries of the principals of Landlord;
(m) costs for which Landlord receives reimbursement from third
parties, and costs reimbursable from third parties but for which Landlord does
not use commercially reasonable efforts to obtain such reimbursement;
(n) rent and any other costs under the Sub Ground Lease,
Ground Lease, Master Lease, and any other recorded document except as provided
in Section 7.1(d);
(o) portions of insured losses paid by Landlord as part of the
deductible portion of earthquake and other insurance attributable to the Site
Improvements and Building Shell by reason of insurance policy terms;
(p) costs of Landlord's employees, costs of bookkeeping,
accounting, administrative, and secretarial services, and all other internal
costs incurred by Landlord, which the parties acknowledge are being compensated
in full by the management fee described in Section 7.1(c);
(q) costs of security services and devices; and
(r) costs of janitorial and other interior cleaning and
maintenance services.
7.3 Tenant shall pay to Landlord on the first day of each calendar
month of the term of this lease, as Additional Rent, Landlord's estimate of
Operating Expenses with respect to the Premises for such month (including
monthly impounds of taxes and insurance premiums), which estimates shall be
contained in an annual operating budget prepared by Landlord and delivered to
Tenant prior to the commencement of each calendar year. Within thirty (30) days
after the conclusion of each calendar year, Landlord shall furnish to Tenant a
statement showing in reasonable detail the actual Operating Expenses for the
previous calendar year. Any additional sum due from Tenant to Landlord shall be
paid by Tenant to Landlord within thirty (30) days after notice from Landlord.
If the amounts paid by Tenant exceeds the Operating Expenses for
<PAGE> 11
the previous calendar year, the difference shall be credited by Landlord against
the Rent next due and owing from Tenant; provided that, if the Lease term has
expired, Landlord shall accompany said statement with payment for the amount of
such difference. Any amount due for any period which is less than a full month
shall be prorated (based on a 30-day month) for such fractional month.
Landlord's estimate of Operating Expenses for the first twelve (12) months
following the Term Commencement Date is $174,842. The estimated Operating
Expenses shall be adjusted from time to time to reflect increases and decreases
in the services provided by Landlord.
7.4 Tenant shall have the right, at Tenant's expense, upon
reasonable notice during reasonable business hours, to inspect the portion of
Landlord's books and records that are relevant to preparation of the statement
delivered pursuant to Section 7.3 provided any request for such review shall be
furnished within one hundred twenty (120) days of Tenant's receipt of such
statement as to the prior year's Operating Expenses.
7.5 Tenant shall not be responsible for Operating Expenses
attributable to the time period prior to the Term Commencement Date. The
responsibility of Tenant for Operating Expenses attributable to the Premises
shall continue to the latest of (i) the date of termination of the Lease, or
(ii) the date Tenant has fully vacated the Premises.
7.6 Operating Expenses for the calendar year in which Tenant's
obligation to pay them commences and in the calendar year in which such
obligation ceases shall be prorated. Expenses such as taxes, assessments and
insurance premiums which are incurred for an extended time period shall be
prorated based upon time periods to which applicable so that the amounts
attributed to the Premises relate in a reasonable manner to the time period
wherein Tenant has an obligation to pay Operating Expenses.
8. RENTABLE AREA.
8.1 The Rentable Area of the Premises as set forth in Section 2.1.1
and as may otherwise be referenced within this Lease, is determined by making
separate calculations of the Rentable Area of each floor within the Building and
totalling the Rentable Area of all floors within the Building (excluding any
parking areas). The Rentable Area of a floor is calculated by measuring to the
outside finished surface of each permanent outer Building wall where it
intersects the floor (or where it would have intersected the floor but for the
inclusion of a second-floor atrium or similar feature). The full area calculated
as set forth above is included as Rentable Area of the Premises without
deduction for (i) columns or projections, (ii) vertical penetrations such as
stairs, elevator shafts, flues, pipe shafts, vertical ducts, and the like, and
their enclosing walls, (iii) corridors, equipment rooms, rest rooms, entrance
ways, elevator lobbies, and the like, and their enclosing walls, or (iv) any
other unusable area of any nature.
8.2 The Rentable Area as set forth in Section 2.1.1 is an estimate
of the area which will upon completion of development of the Building constitute
the Rentable Area of the Premises, which shall be adjusted upon Substantial
Completion of the Building in accordance with a certification of the Rentable
Area from the Project Architect, or, if either Landlord or Tenant elects, in
accordance with field measurements conducted by a mutually agreeable
<PAGE> 12
architect or civil engineer, which measurements shall be conclusive and binding
on Landlord and Tenant. If the Rentable Area as determined hereunder is greater
or less than the Rentable Area set forth in Section 2.1.1, Basic Annual Rent and
monthly installments of Basic Annual Rent shall be adjusted upward or downward,
as the case may be, based on the actual Rentable Area of the Premises. In no
event, however, shall any adjustment be made for an increase in the Rentable
Area in excess of 62,000 square feet.
9. SECURITY DEPOSIT
9.1 At such time as Landlord obtains and delivers to Tenant the
nondisturbance agreements and estoppel certificates described in Section 3.3,
and either Landlord has satisfied the conditions described in Sections 3.4(a) or
Tenant's termination right has expired thereunder, Tenant shall deposit with the
escrow holder described in Section 9.2, in cash, the amount of $400,000
("Security Deposit"), which sum shall be held by Landlord as security for the
faithful performance by Tenant of all of the terms, covenants, and conditions of
this Lease to be kept and performed by Tenant during the term and any extension
term hereof. If Tenant defaults with respect to any provision of this Lease,
including but not limited to any provision relating to the payment of Rent, and
subject to any notice requirements and cure periods for Tenant's benefit set
forth in Article 24, Landlord may (but shall not be required to) use, apply or
retain all or any part of the Security Deposit for the payment of any Rent or
any other sum in default, or to compensate Landlord for any other loss or damage
which Landlord may suffer by reason of Tenant's default. If any portion of the
Security Deposit is so used or applied, Tenant shall, upon demand therefor of
not less than fifteen (15) days, deposit cash with Landlord in an amount
sufficient to restore the Security Deposit to its original amount and Tenant's
failure to do so shall be a material default of this Lease. Landlord shall not
be required to keep the Security Deposit separate from its general fund except
as set forth in Section 9.2.
9.2 Within the time required by Section 9.1, Tenant shall deposit
the Security Deposit in a separate, segregated account with an independent
escrow agent approved by Landlord and Tenant, together with irrevocable
instructions to (i) return fifty percent (50%) of the Security Deposit to
Landlord upon completion of fifty percent (50%) of the Project Work, as
certified by the Project Architect, (ii) return the balance of the Security
Deposit to Landlord upon Substantial Completion of the Project Work and delivery
of the Premises to Tenant, (iii) in any event return that portion of the
Security Deposit required to cure Tenant's default under this Lease to Landlord
in the event of an earlier default by Tenant, and (iv) deliver the Security
Deposit or the balance thereof to Tenant in the event the Lease is terminated
pursuant to Section 3.4. Commencing with the return of any portion of the
Security Deposit to Landlord, Landlord shall pay interest on the portion
returned at the rate of seven percent (7%) per annum from the date of return
until it is (i) used, applied or retained pursuant to the preceding Section 9.1,
or (ii) returned to Tenant at the expiration of the Lease pursuant to Section
9.6, whichever first occurs. Interest shall be payable monthly in arrears at the
same time Basic Annual Rent is payable by Tenant.
9.3 If Tenant is not then in default of any provision of this Lease
to be performed by Tenant, the amount of the Security Deposit shall be reduced
to the amount of
<PAGE> 13
$200,000 (and Landlord shall return to Tenant that portion of the Security
Deposit above such amount) at such time as Tenant has achieved a minimum net
worth of $20,000,000 as reflected on a Form 10Q filed by Tenant with the
Securities and Exchange Commission.
9.4 In the event of bankruptcy or other debtor/creditor proceedings
against Tenant, the Security Deposit shall be deemed to be applied first to the
payment of Rent and other charges due Landlord for all periods prior to the
filing of such proceedings.
9.5 Landlord shall deliver the Security Deposit to any purchaser of
Landlord's interest in the Premises, and thereupon, upon notice to Tenant,
Landlord shall be discharged from any further liability with respect thereto
provided that such purchaser has agreed to assume in writing the obligations of
Landlord hereunder. This provision shall also apply to any subsequent transfers.
9.6 The Security Deposit shall be returned to Tenant within thirty
(30) days following the expiration of this Lease, except for amounts which are
needed by Landlord to cure any default by Tenant.
10. USE.
10.1 Tenant may use the Premises for any lawful purpose consistent
with (i) CP zoning existing as of the Commencement Date under the Ground Lease
or which would be permitted under MP zoning regulations as modified by Exhibit
"I" to the Ground Lease, except for residential or heavy industrial use, or for
use primarily for manufacturing, laboratories, cocktail lounges or outdoor
storage or for use as a service station or warehouse, except that warehouse use
incidental to any other use permitted hereunder shall not violate this Section
10.1; (ii) any other applicable laws, regulations, ordinances, permits and
approvals applicable to the Premises; and (iii) all covenants, conditions and
restrictions recorded against the Real Property as of the date this Lease is
executed, and shall not use the Premises, or permit or suffer the Premises to be
used, for any other purpose without the prior written consent of Landlord.
Landlord warrants that, as of the date this Lease is executed and as of the Term
Commencement Date, Tenant's intended use of the Premises as an internet service
provider and diversified computer sales, services and training company,
including office, administrative, marketing, software development, research
development and other activities related thereto, are permitted uses under the
zoning regulations mentioned above and, to the best of Landlord's knowledge,
under other applicable laws, regulations, ordinances, permits and approvals
applicable to the Premises. Landlord represents and warrants that there are no
covenants, conditions and restrictions on the Real Property which will interfere
with Tenant's intended use of the Premises.
10.2 Tenant shall use the Premises in compliance with all federal,
state, and local laws, regulations, ordinances, requirements, permits and
approvals applicable to the Premises. Tenant shall not use or occupy the
Premises in violation of any law or regulation, or the certificate of occupancy
issued for the Building, and shall, upon five (5) days' written notice from
Landlord, discontinue any such use.
<PAGE> 14
10.3 Tenant shall comply at its expense with any direction of any
governmental authority having jurisdiction which shall, by reason of the nature
of Tenant's use or occupancy of the Premises, impose any duty upon Tenant or
Landlord with respect to the Premises or with respect to the use or occupation
thereof, including any duty to make structural or capital improvements,
alterations, repairs and replacements to the Premises.
10.4 Landlord warrants that the Project Work shall be completed in
compliance with the Americans with Disabilities Act of 1990 ("ADA") at the time
possession is tendered to Tenant with the Project Work Substantially Complete.
Tenant shall comply with the ADA, and the regulations promulgated thereunder, as
amended from time to time. All responsibility for compliance with the ADA
relating to the use of the Premises and the activities conducted by Tenant
within the Premises shall be exclusively that of Tenant and not of Landlord,
including any duty to make structural or capital improvements, alterations,
repairs and replacements to the Premises; however, Landlord shall have the duty
to make such structural or capital improvements, alterations, repairs and
replacements to the Site Improvements and the Building Shell if the duty to do
so under ADA is triggered by something other than a change in Tenant's use or
occupancy of the Premises. Any alterations to the Premises made by Tenant for
the purpose of complying with the ADA or which otherwise require compliance with
the ADA shall be done in accordance with Article 17 of this Lease; provided,
that Landlord's consent to such alterations shall not constitute either
Landlord's assumption, in whole or in part, of Tenant's responsibility for
compliance with the ADA, or representation or confirmation by Landlord that such
alterations comply with the provisions of the ADA. Upon and after occupancy of
the Premises by Tenant, nothing in this Lease shall be construed to require
either Landlord or Tenant to make structural or capital improvements,
alterations, repairs or replacements to comply with ADA unless and until
required to do so by order of any government entity or court of law exercising
proper jurisdiction with regard thereto, subject to any right to appeal or
otherwise contest any such order.
10.5 Tenant may install signage on the Building, and signage on
monument(s) provided by Landlord, to the extent permitted by, and in conformity
with, applicable provisions of any City of Santa Clara sign ordinance, any other
applicable governmental sign regulation, and any covenants, conditions and
restrictions recorded against the Real Property as of the date this Lease is
executed. Tenant acknowledges it is not relying on any representations or
warranty of Landlord regarding the number, size or location of any signage. No
other sign, advertisement, or notice shall be exhibited, painted or affixed by
Tenant on any part of the Premises which is visible from outside the Building,
or any part of the exterior of the Building or elsewhere in the Premises,
without the prior written consent of Landlord, which consent shall not be
unreasonably withheld. The expense of design, permits, purchase and installation
of any signs shall be the responsibility of Tenant and the cost thereof shall be
borne by Tenant. At the termination of the Lease, all signs shall be the
property of Tenant and may be removed from the Premises by Tenant, subject to
the provisions of Article 30.
10.6 No equipment shall be placed at a location within the Building
other than a location designed to carry the load of the equipment. Equipment
weighing in excess of floor loading capacity shall not be placed in the
Building. Landlord represents and warrants to Tenant
<PAGE> 15
that the first floor of the Building will have a minimum live load capacity of
200 lbs per square foot, and that the second floor of the Building will have a
minimum live load capacity of 100 lbs per square foot.
10.7 Tenant shall not use or allow the Premises to be used for any
unlawful purpose.
11. BROKERS.
11.1 Landlord and Tenant represent and warrant one to the other that
there have been no dealings with any real estate broker or agent in connection
with the negotiation of this Lease other than The Commercial Property Services
Company, the fees of which shall be paid by Landlord, and that to the best of
their knowledge, no other real estate broker or agent is or might be entitled to
a commission in connection with this Lease. Each shall indemnify, defend,
protect, and hold harmless the other from any claim of any other broker as a
result of any act or agreement of the indemnitor.
11.2 Landlord and Tenant each represent and warrant to the other
that no broker or agent has made any representation or warranty relied upon by
such party in its decision to enter into this Lease other than as contained in
this Lease.
11.3 The employment of brokers by Landlord is for the purpose of
solicitation of offers of lease from prospective tenants and no authority is
granted to any broker to furnish any representation (written or oral) or
warranty from Landlord unless placed within this Lease. Landlord and Tenant in
executing this Lease do so in reliance upon the other's representations and
warranties contained within Sections 11.1 and 11.2.
12. HOLDING OVER.
12.1 If, with Landlord's consent, Tenant holds possession of all or
any part of the Premises after the expiration or earlier termination of this
Lease, Tenant shall become a tenant from month to month upon the date of such
expiration or earlier termination, and in such case Tenant shall continue to pay
in accordance with Article 5 the Basic Annual Rent as adjusted from the Term
Commencement Date, together with Operating Expenses in accordance with Article 7
and other Additional Rent as may be payable by Tenant, and such month-to-month
tenancy shall be subject to every other term, covenant and condition contained
herein.
12.2 If Tenant remains in possession of all or any portion of the
Premises after the expiration or earlier termination of the term hereof without
the express written consent of Landlord, Tenant shall become a tenant at
sufferance upon the terms of this Lease except that monthly rental shall be
equal to one hundred twenty five percent (125%) of the monthly installment of
Basic Annual Rent in effect during the last twelve (12) months of the Lease
term.
12.3 Acceptance by Landlord of Rent after such expiration or earlier
termination shall not result in a renewal or reinstatement of this Lease.
<PAGE> 16
12.4 The foregoing provisions of this Article 12 are in addition to
and do not affect Landlord's right to re-entry or any other rights of Landlord
under Article 24 or elsewhere in this Lease or as otherwise provided by law.
13. TAXES AND ASSESSMENTS.
13.1 Landlord shall pay and discharge all Taxes (as defined in
Section 7.1(a)) as they become due, promptly and before delinquency, subject to
reimbursement by Tenant as Operating Expenses to the extent required by Article
7. Landlord shall provide to Tenant copies of all tax bills and notices from
taxing authorities relating to the Premises.
13.2 If the right is given to pay either in one sum or in
installments, Landlord shall elect to pay in installments. If by making such
election to pay in installments, any of the installments shall be payable after
the termination of this Lease or any extended term thereof, the unpaid
installments shall be prorated as of the date of termination, and amounts
payable after said date shall be paid by Landlord. All other taxes and charges
payable under this Article 13 shall be prorated as of and payable at the
commencement and expiration of the term of this Lease, as the case may be.
Landlord shall not during the term of this Lease undertake any action to place
any special assessments, levies or charges on the Premises without first
obtaining the prior written approval of Tenant, other than those due to new
construction and those imposed by the City of Santa Clara or other government
entity over which Landlord has no control. If Landlord does undertake such
action without Tenant's approval, Landlord, and not Tenant, shall pay any
special assessments, levies or charges sought by such action.
13.3 Any and all rebates on account of taxes, rates, levies, charges
or assessments required to be paid and paid by Landlord and reimbursed as
Operating Expenses by Tenant under the provisions of this Lease shall belong to
Tenant, and Landlord will, on the request of Tenant, execute any receipts,
assignments, or other acquittances that may be necessary in order to secure the
recovery of the rebates, and will pay over to Tenant any rebates that may be
received by Landlord.
13.4 Tenant shall pay not less than ten (10) days before delinquency
taxes levied against any improvements, fixtures, equipment and personal property
of Tenant in or about the Premises.
13.5 If Tenant shall in good faith desire to contest the validity or
amount of any tax, assessment, levy, or other governmental charge herein agreed
to be paid by Tenant, Tenant shall be permitted to do so, and Landlord shall
defer the payment of said tax or charge, the validity or amount of which Tenant
is so contesting, until final determination of the contest, upon Tenant giving
to Landlord written notice thereof prior to the commencement of any contest,
which shall be at least fifteen (15) days prior to delinquency, and by
protecting Landlord on demand by a good and sufficient surety bond against any
tax, levy, assessment, rate or governmental charge, and from any costs,
penalties, interest, liability, or damage arising out of a contest. Landlord
shall not be required to join in any proceeding or contest brought by Tenant
<PAGE> 17
unless the provisions of any law require that the proceeding or contest be
brought by or in the name of Landlord. In that case, Landlord shall join in the
contest or permit it to be brought in Landlord's name so long as Landlord is not
required to bear more than nominal costs. Landlord will otherwise cooperate with
Tenant in the prosecution of such contest, and shall furnish to Tenant
information and documentation related to the contest reasonably requested by
Tenant. Tenant, on final determination of the contest, shall immediately pay or
discharge any decision or judgment rendered relating to Taxes payable by Tenant
pursuant to Section 7.1, together with all costs, charges, interest and
penalties incidental to the decision or judgment.
13.6 Landlord may from time to time, and at Tenant's request shall,
apply for a re-determination of the assessed value of the Premises for property
tax purposes, in which event Landlord shall engage the services of a commercial
firm in the business of seeking re-determinations of assessed values, and shall
agree to compensate such firm for its services contingent upon the success
achieved. If after prosecuting any such application the resulting property tax
is less than it otherwise would have been, Tenant shall reimburse Landlord for
all customary and reasonable expenses incurred in such protest, including
reasonable attorney's fees and experts' fees, up to an amount equal to but not
to exceed the property tax savings during the remainder of the Lease term.
Tenant agrees to pay all such sums to Landlord within ten (10) days following
notice to Tenant from Landlord stating the amount due.
13.7 Tenant shall pay before delinquency, without reimbursement or
contribution from Landlord, taxes levied against any fixtures, equipment and
personal property in or about the Premises, including any and all personal
property installed as part of the Tenant Improvements.
14. CONDITION OF PREMISES.
14.1 Tenant acknowledges that neither Landlord nor any agent of
Landlord has made any representation or warranty, express or implied, with
respect to the Project Work, or the suitability of the Premises for the conduct
of Tenant's business, except as set forth in this Lease.
14.2 Landlord warrants to Tenant that the Project Work will, upon
Substantial Completion, be in a good and workmanlike manner and in compliance
with the Plans and Specifications and all applicable building code requirements,
laws, rules, orders, ordinances, directions, regulations, permits, approvals,
and requirements of all governmental agencies, offices, departments, bureaus and
boards having jurisdiction, and with the rules, orders, directions, regulations,
and requirements of any applicable fire rating bureau, and shall be free of
patent and latent defects in design, materials and construction. Furthermore,
Landlord warrants to Tenant that all materials and equipment shall be new and of
good quality, and shall have been installed in accordance with vendor and
manufacturer specifications, instructions and requirements. The warranty given
by Landlord in this Section 14.2 shall terminate one (1) year after the Term
Commencement Date, except for any breach claimed by Tenant as long as Tenant has
notified Landlord in writing of such claim of breach (identifying the breach in
reasonable
<PAGE> 18
detail) within such one (1) year period. The warranty given by Landlord shall be
extended to the extent of any warranty given by a design professional,
contractor, materialman, manufacturer, or other responsible party which exceeds
one (1) year after the Term Commencement Date. Promptly after Substantial
Completion, Landlord shall deliver to Tenant copies of all warranties and
related construction documents.
15. PARKING FACILITIES.
15.1 Landlord shall provide as a part of the Site Improvements no
less than 199 parking spaces, all of which shall be located on the Real Property
in the locations designated on the Site Plan referred to in Exhibit "A-1".
15.2 Tenant acknowledges that any exterior areas used for Tenant's
equipment, equipment enclosures, trash enclosures, mechanical systems, and the
like will reduce available parking.
15.3 Tenant shall not place (other than on a temporary basis) any
equipment, storage containers or any other property on the surface parking area
except in accordance with the Plans and Specifications or as otherwise approved
by Landlord, which approval shall not be unreasonably withheld or delayed.
Tenant shall have the right to place standby electrical generation equipment,
air conditioning, satellite and similar equipment on or about the Premises in
accordance with applicable laws.
15.4 Landlord shall not grant rights to any person or entity, or
take any action of any kind, nature or description which will permit any
non-tenant of the Premises, to use any parking spaces on a temporary or
permanent basis, or construct any facilities which will increase the demand on
parking spaces. Landlord and Tenant shall cooperate with one another in an
effort to prevent any unauthorized use of the parking spaces. Tenant shall have
the right to restrict access to all or any portion of the parking spaces.
16. UTILITIES AND SERVICES.
16.1 Tenant shall pay directly to the provider, prior to
delinquency, for all water, gas, electricity, telephone, sewer, and other
utilities which may be furnished to the Premises during the term of this Lease,
together with any taxes thereon. Landlord shall notify Tenant that the Premises
are ready for installation of utilities not less than ten (10) days before the
Premises will be available for such installation. The cost of installing all
utility meters shall be paid by Tenant.
16.2 Landlord shall not be liable for, nor shall any eviction of
Tenant result from, any failure of any such utility or service, except as set
forth in this Section 16.2. In the event of any such failure Tenant shall not be
entitled to any abatement or reduction of Rent, nor be relieved from the
operation of any covenant or agreement of this Lease, and Tenant waives any
right to terminate this Lease on account thereof; however, Landlord shall be
liable to Tenant
<PAGE> 19
for any damages on account thereof to the extent caused by Landlord's negligence
or willful misconduct.
17. ALTERATIONS.
17.1 After the Term Commencement Date, Tenant shall make no
alterations, additions or improvements (hereinafter in this article,
"improvements") in or to the Premises, other than interior non-structural
improvements the cost of which does not exceed $75,000 in any one instance,
without Landlord's prior written consent, which shall not be unreasonably
withheld or delayed. Tenant shall deliver to Landlord final plans and
specifications and working drawings (or other appropriate documentation) for the
improvements to Landlord, and Landlord shall have fifteen (15) days thereafter
to grant or withhold its consent. If Landlord does not notify Tenant of its
decision within the fifteen (15) days, Landlord shall be deemed to have given
its approval. If Landlord withholds its consent, it shall specify the reasons
therefore in a detailed writing to Tenant.
17.2 If a permit is required to construct the improvements, Tenant
shall promptly deliver a completed, signed-off inspection card to Landlord, and
shall promptly thereafter obtain and record a notice of completion and deliver a
copy thereof to Landlord.
17.3 The improvements shall be constructed only by employees of
Tenant or licensed contractors approved by Landlord, which approval shall not be
unreasonably withheld. Any such contractor must have in force a general
liability insurance policy with commercially reasonable limits, which policy of
insurance shall name Landlord as an additional insured. Tenant shall provide
Landlord with a copy of the contract with the contractor prior to the
commencement of construction.
17.4 Tenant agrees that any work by Tenant shall be accomplished in
such a manner as to permit any fire sprinkler system and fire water supply lines
to remain fully operable at all times except when minimally necessary for
building reconfiguration work.
17.5 Tenant covenants and agrees that all work done by Tenant shall
be performed in compliance with all laws, rules, orders, ordinances, directions,
regulations, permits, approvals, and requirements of all governmental agencies,
offices, departments, bureaus and boards having jurisdiction, and in full
compliance with the rules, orders, directions, regulations, and requirements of
any applicable fire rating bureau. For work for which a permit was required,
Tenant shall provide Landlord with "as-built" plans showing any change in the
Premises within thirty (30) days after completion.
17.6 Landlord shall make no improvements in or to the Premises
without Tenant's prior written consent, and the provisions of this article shall
apply to improvements undertaken by Landlord to the same extent as they apply to
improvements undertaken by Tenant.
<PAGE> 20
18. REPAIRS AND MAINTENANCE.
18.1 Landlord shall, at its own cost and expense, and without any
cost or expense to Tenant, promptly (i) repair any defects in the design,
materials or construction of the Project Work pursuant to the extent of its
warranties set forth in Section 14.3, and (ii) make any necessary improvements
to the Premises to comply with requirements of applicable covenants and
restrictions, underwriter requirements, or laws applicable to the Premises as of
the Term Commencement Date.
18.2 Landlord shall, throughout the term of this Lease, subject to
reimbursement from Tenant as Operating Expenses to the extent set forth in
Article 7, keep and maintain in good, sanitary and neat order, condition, and
repair, the Premises and every part thereof other than Tenant's property which
is removable by Tenant at the termination of the Lease pursuant to Section 30.3
("Tenant's Removable Property") (subject to wear and tear consistent with
commercially reasonable maintenance and repair standards applicable to
comparable buildings), and any portion of Tenant's Removable Property as Tenant
may from time to time request. Without in any way limiting the foregoing,
Landlord shall maintain the lines designating the parking spaces in good
condition and paint the same as often as may be necessary, so that they are
easily discernible at all times; resurface the parking areas as necessary to
maintain it in good condition; paint any exterior portions of the Building as
necessary to maintain them in good condition; and maintain the roof in good
condition. The parties hereto contemplate that Landlord's maintenance
responsibilities will for the most part be fulfilled through the use of
third-party service contracts, including service contracts for elevator
maintenance, HVAC maintenance, commercial sweeping, landscape maintenance, pest
control, exterior trash removal, exterior window washing, and certain fire, life
and safety servicing. Tenant reserves the right to require Landlord to change
service providers from time to time if Tenant is dissatisfied with cost or
performance, and Tenant reserves the right to assume any such duties itself.
18.3 Except as otherwise set forth in Section 18.2, Tenant shall,
throughout the term of this Lease, at its own cost and expense and without any
cost or expense to Landlord, keep and maintain that portion of the Tenant
Improvements constituting Tenant's Removable Property in good, sanitary and neat
order, condition, and repair (subject to wear and tear consistent with
commercially reasonable maintenance and repair standards applicable to
comparable buildings), and shall provide its own janitorial and security
services.
18.4 Tenant hereby waives Civil Code Sections 1941 and 1942 relating
to a landlord's duty to maintain the Premises in a tenantable condition, and
under said sections or under any law, statute or ordinance now or hereafter in
effect to make repairs at Landlord's expense.
18.5 There shall be no abatement of Rent and no liability of
Landlord by reason of any injury to or interference with Tenant's business
arising from the making of any repairs, alterations or improvements in or to any
portion of the Premises, or in or to improvements, fixtures, equipment and
personal property therein, provided that (i) such repairs, alterations or
<PAGE> 21
improvements are not occasioned by the negligence or willful and wanton
misconduct of Landlord, and (ii) Landlord makes commercially reasonable efforts
to comply with its repair and replacement obligations under this Article 18 at
such times and in such manner as do not unreasonably interfere with Tenant's use
or occupancy of the Premises. If repairs or replacements become necessary which
by the terms of this Lease are the responsibility of Tenant and Tenant fails to
make the repairs or replacements, Landlord may do so pursuant to the provisions
of Section 24.3 of this Lease.
18.6 Because of security and operational concerns, access to the
interior of the Building by service providers shall be allowed only upon
reasonable advance notice to Tenant, and upon such reasonable conditions as may
be imposed by Tenant.
19. LIENS.
19.1 Tenant shall keep the Premises and every part thereof free from
any liens arising out of work performed, materials furnished or obligations
incurred by Tenant. Tenant further covenants and agrees that any mechanic's lien
filed against the Premises for work claimed to have been done directly for, or
materials claimed to have been furnished to, Tenant, will be discharged by
Tenant, by bond or otherwise, within thirty (30) days after the receipt of
notice of the filing thereof (or within ten (10) days after notice to Tenant of
the filing thereof if requested by Landlord as necessary to facilitate a pending
sale or refinancing), at the cost and expense of Tenant.
19.2 Should Tenant fail to discharge any lien of the nature
described in Section 19.1, Landlord may at Landlord's election pay such claim or
post a bond or otherwise provide security to eliminate the lien as a claim
against title and the cost thereof shall be immediately due from Tenant as
Additional Rent.
19.3 In the event Tenant shall lease or finance the acquisition of
office equipment, furnishings, or other personal property utilized by Tenant in
the operation of Tenant's business, should any holder of a security agreement
executed by Tenant record or place of record a financing statement which appears
to constitute a lien against any interest of Landlord, Tenant shall upon request
of Landlord (i) cause copies of the security agreement or other documents to
which the financing statement pertains to be furnished to Landlord to facilitate
Landlord's being in a position to show such lien is not applicable to any
interest of Landlord, and (ii) cause the holder of the security interest to
amend documents of record so as to clarify that such lien is not applicable to
any interest of Landlord in the Premises. Nothing herein shall be deemed to
imply any security interest in favor of Landlord in any fixtures or personal
property owned by Tenant, or that Tenant may not grant security interests in its
property to others. Upon request of Tenant, Landlord shall execute documents in
form and substance reasonably acceptable to Tenant to evidence Landlord's waiver
of any right, title, lien or interest in any fixtures or personal property owned
by Tenant which Tenant has the right to remove.
<PAGE> 22
20. INDEMNIFICATION AND EXCULPATION.
20.1 Except to the extent of Landlord's indemnity obligations set
forth in this Lease, Tenant agrees to indemnify Landlord, and its partners and
affiliates, and their respective shareholders, directors, officers, agents,
contractors (and their subcontractors) and employees (collectively, "Landlord's
Agents") against, and to protect, defend, and save them harmless from, all
demands, claims, causes of action, liabilities, losses and judgments, and all
reasonable expenses incurred in investigating or resisting the same (including
reasonable attorneys' fees), for death of or injury to person or damage to
property arising out of (i) any occurrence in, upon or about the Premises during
the term of this Lease to the extent of proceeds of insurance required to be
maintained by Tenant under this Lease and applicable deductibles, (ii) Tenant's
use, occupancy, repairs, maintenance, and improvements of the Premises and all
improvements, fixtures, equipment and personal property thereon, and (iii) any
act or omission of Tenant, its shareholders, directors, officers, agents,
employees, servants, contractors (and their subcontractors), invitees and
subtenants. Tenant's obligation under this Section 20.1 shall survive the
expiration or earlier termination of the term of this Lease for a period of one
(1) year.
20.2 Landlord agrees to indemnify Tenant, and its partners and
affiliates, and their respective shareholders, directors, officers, agents,
contractors (and their subcontractors) and employees (collectively, "Tenant's
Agents") against, and to protect, defend, and save them harmless from, all
demands, claims, causes of action, liabilities, losses and judgments, and all
reasonable expenses incurred in investigating or resisting the same (including
reasonable attorneys' fees), for death of or injury to person or damage to
property arising out of (i) any occurrence in, upon or about the Premises during
the term of this Lease to the extent caused by the negligence or willful
misconduct of Landlord or Landlord's Agents, (ii) Landlord's repairs,
maintenance, and improvements of the Premises, and (iii) any act or omission of
Landlord or Landlord's Agents (including servants, contractors and their
subcontractors and invitees). Landlord's obligation under this Section 20.2
shall survive the expiration or earlier termination of the term of this Lease
for a period of one (1) year.
20.3 Notwithstanding any provision of Sections 20.1 and 20.2 to the
contrary, Landlord shall not be liable to Tenant and Tenant assumes all risk of
damage to any fixtures, goods, inventory, merchandise, equipment, records,
research, experiments, computer hardware and software, leasehold improvements,
and other personal property of any nature whatsoever (including any personal
property installed as part of the Tenant Improvements), and Landlord shall not
be liable for injury to Tenant's business or any loss of income therefrom
relative to such damage, unless and to the extent caused by Landlord's or
Landlord's Agents' willful misconduct or active or gross negligence.
20.4 The indemnity obligations of both Landlord and Tenant under
this Section 20 shall be satisfied to the extent of proceeds of applicable
insurance maintained by Tenant to the extent thereof, and thereafter to proceeds
of any applicable insurance maintained by Landlord; Landlord and Tenant shall be
required to satisfy any such obligation only to the extent it is not satisfied
by proceeds of applicable insurance as set forth above.
<PAGE> 23
20.5 Security devices and services, if any, while intended to deter
crime may not in given instances prevent theft or other criminal acts and it is
agreed that Landlord shall not be liable for injuries or losses caused by
criminal acts of third parties and the risk that any security device or service
may malfunction or otherwise be circumvented by a criminal is assumed by Tenant.
Tenant shall at Tenant's cost obtain insurance coverage to the extent Tenant
desires protection against such criminal acts.
21. INSURANCE - WAIVER OF SUBROGATION.
21.1 Commencing prior to Tenant's first entry onto the Premises for
purposes of installing any improvements, fixtures or personal property, but no
later than the Term Commencement Date, and continuing at all times during the
term of this Lease, Tenant shall maintain, at Tenant's expense, commercial
general liability insurance insuring Tenant and Tenant's agents and employees
against all bodily injury, property damage, personal injury and other covered
loss arising out of the use, occupancy, improvement and maintenance of the
Premises and the business operated by Tenant, or any other occupant, on the
Premises. Such insurance shall have a minimum combined single limit of liability
per occurrence of not less than $1,000,000 and a general aggregate limit of
$2,000,000. Such insurance shall: (i) name Landlord, Landlord's lenders (if
required by such lenders), Ground Lessor, Ground Tenant, the District, and any
management company retained to manage the Premises (if requested by Landlord),
as additional insureds; (ii) provide that it is primary coverage and
noncontributing with any insurance maintained by Landlord, Landlord's lenders,
Ground Lessor, Ground Tenant, or the District, which shall be excess insurance
with respect only to losses arising out of Tenant's negligence; (iv) not include
a cross-liability exclusion, so that an act or omission of an insured shall not
reduce or avoid coverage of other insureds; and (v) provide for a deductible of
not more than $25,000 per claim.
21.2 At all times during the term of this Lease, Landlord shall
maintain, subject to reimbursement by Tenant as Operating Expenses under Section
7.1, "all risk" insurance, including, but not limited to, coverage against loss
or damage by earthquake, flood, fire, vandalism, and malicious mischief covering
the Site Improvements, Building Shell (exclusive of excavations, foundations and
footings), and Tenant Improvements (other than Tenant's Removable Property) in
an amount equal to one hundred percent (100%) of the full replacement value
thereof, and including rental income insurance for a period of not less than
twelve (12) months in an amount not less than Basic Annual Rent payable by
Tenant at the time of the loss. Landlord shall also maintain in full force and
effect during the term of this Lease demolition and debris removal insurance. If
any boilers or other pressure vessels or systems are installed on the Premises,
Landlord shall maintain, subject to reimbursement by Tenant as an Operating
Expense, boiler and machinery insurance in an amount equal to one hundred
percent (100%) of the full replacement value thereof. After Substantial
Completion, at all times during the course of any major demolition or
construction permitted hereunder, or any restoration pursuant to Articles 22 or
23, Landlord shall maintain, subject to reimbursement by Tenant as Operating
Expenses, "all risk" builder's risk insurance, including, but not limited to,
coverage against loss or damage by fire, vandalism and malicious mischief,
covering improvements in place and all material and equipment at the job site
furnished under contract, in an amount equal to one hundred percent
<PAGE> 24
(100%) of the full replacement value thereof. The insurance described in this
Section 21.2 shall: (i) insure Landlord, Landlord's lenders (if required by such
lenders), Ground Lessor, Ground Tenant, the District, and Tenant as their
interests may appear; (ii) contain a Lender's Loss Payable Form (Form 438 BFU or
equivalent) in favor of Landlord's lenders and name Landlord, or Landlord's
lender if required by such lender, as the loss payee; (iii) not include a
cross-liability exclusion, so that an act or omission of an insured shall not
reduce or avoid coverage of other insureds; (iv) include a building ordinance
endorsement; (v) provide that it is primary coverage and noncontributing with
any other insurance maintained by Landlord, Landlord's lenders, Ground Lessor,
Ground Tenant, or the District, which shall be excess insurance; (vi) provide
for deductibles of not more than $25,000 per claim without Tenant's consent
(except for earthquake and flood insurance, the deductibles for which may be
higher than $25,000); and (vii) provide that all insurance proceeds attributable
to the Site Improvements and Building Shell shall be adjusted by Ground Lessor
and Ground Tenant. The full replacement value of the Premises and any other
improvements and fixtures insured thereunder shall, for the purpose of
establishing insurance limits and premiums only, be reasonably determined by the
company issuing the insurance policy and shall be reasonably redetermined by
said company within six (6) months after completion of any material alterations
or improvements to the Premises and otherwise at intervals of not more than
three (3) years. The amount of insurance carried pursuant to this Section 21.2
shall be promptly increased to the amount so redetermined. Landlord warrants
that the proceeds of the insurance described in this Section shall be used for
the repair, replacement and restoration of the Premises, including the Site
Improvements, Building Shell, Tenant Improvements and other improvements and
fixtures insured thereunder, as further provided in Article 22; provided,
however, if this Lease is terminated after damage or destruction, the insurance
policy or policies, all rights thereunder and all insurance proceeds shall be
assigned to Landlord, except for that portion attributable to Tenant's Removable
Property, which shall be assigned to Tenant. Landlord and Tenant agree to
cooperate with one another to insure full insurance coverage hereunder without
duplicating coverage or otherwise incurring avoidable premium costs.
21.3 At all times during the term of this Lease, Tenant shall
maintain, at Tenant's expense, "all risk" insurance against Tenant's Removable
Property and all other personal property, including trade fixtures, equipment
and merchandise, of Tenant in an amount equal to the full replacement value
thereof. Any subtenant of Tenant that may be occupying the Premises, or any
portion thereof, from time to time, shall be required to maintain similar
insurance in an amount equal to the full replacement value thereof.
21.4 At all times during the term of this Lease, Tenant shall
maintain workers' compensation insurance in accordance with California law, and
employers' liability insurance with limits typical for companies similar to
Tenant.
21.5 All of the policies of insurance referred to in this Article 21
shall be written by companies rated A, VIII or better in Best's Insurance Guide.
Each insurer referred to in this Article 21 shall agree, by endorsement on the
applicable policy or by independent instrument furnished to Landlord, that it
will give Landlord, and Landlord's lenders if required
<PAGE> 25
by such lenders, at least ten (10) days' prior written notice by registered mail
before the applicable policy shall be cancelled for non-payment of premium.
21.6 Landlord and Tenant may provide the property insurance required
to be carried by each of them under this Article 21 pursuant to a so-called
blanket policy or policies of property insurance; provided, however, that the
amount and type of coverage shall not be reduced or adversely affected from that
which would exist under a separate policy or policies meeting all of the
requirements of this Lease by reason of the use of a blanket policy of property
insurance, and provided further that the requirements of this Article 21 are
otherwise satisfied.
21.7 Landlord and Tenant each hereby waive any and all rights of
recovery against the other or against the officers, directors, partners,
employees, agents, subtenants and representatives of the other, on account of
loss or damage to such waiving party's property or the property of others under
its control, to the extent that such loss or damage is caused by or results from
risks insured against under any insurance policy which insures such waiving
party's property at the time of such loss or damage, which waiver shall continue
in effect as long as the parties' respective insurers permit such waiver under
the terms of their respective insurance policies or otherwise in writing. Any
termination of such waiver shall be by written notice as hereinafter set forth.
Prior to obtaining policies of insurance required or permitted under this Lease,
Landlord and Tenant shall give notice to the insurers that the foregoing mutual
waiver is contained in this Lease, and each party shall use its best efforts to
cause such insurer to approve such waiver in writing and to cause each insurance
policy obtained by it to provide that the insurer waives all right of recovery
by way of subrogation against the other party. If such written approval of such
waiver of subrogation cannot be obtained from any insurer or is obtainable only
upon payment of an additional premium which the party seeking to obtain the
policy reasonably determines to be commercially unreasonable, the party seeking
to obtain such policy shall notify the other thereof, and the latter shall have
twenty (20) days thereafter to either: (i) identify other insurance companies
reasonably satisfactory to the other party that will provide the written
approval and waiver of subrogation; or (ii) agree to pay such additional
premium. If neither (i) nor (ii) are done, the mutual waiver set forth above
shall not be operative as to any policy for which the insurer's waiver cannot be
obtained, and the party seeking to obtain the policy shall be relieved of the
obligation to obtain the insurer's written approval and waiver of subrogation
with respect to such policy during such time as such policy is not obtainable or
is obtainable only upon payment of a commercially unreasonable additional
premium as described above. If such policies shall at any subsequent time be
obtainable or obtainable upon payment of a commercially reasonable additional
premium, neither party shall be subsequently liable for failure to obtain such
insurance until a reasonable time after notification thereof by the other party.
22. DAMAGE OR DESTRUCTION.
22.1 In the event of damage to or destruction of all or any portion
of the Premises or the improvements and fixtures thereon (collectively in this
Article 22, "improvements") arising from a risk covered by the insurance
described in Section 21.2, Landlord and Tenant shall each use commercially
reasonable efforts to obtain the maximum
<PAGE> 26
possible recovery of insurance proceeds from its insurer. Landlord shall, with
the use of proceeds of insurance required to be maintained hereunder, and the
deductibles payable by Tenant pursuant to Article 7, and within a reasonable
time, commence and proceed to diligently to repair, reconstruct and restore
(collectively in this Article 22, "restore" or "restoration") the Premises
(other than Tenant's Removable Property), and Tenant shall commence and
diligently proceed to restore the portion of the Tenant Improvements
constituting Tenant's Removable Property to the extent needed by Tenant to
conduct its business in the Premises, to substantially the same condition as
they were in immediately prior to the casualty, whether or not the insurance
proceeds and deductibles are sufficient to cover the actual cost of restoration,
and this Lease shall continue in full force and effect notwithstanding such
damage or destruction. Landlord shall contribute any amounts necessary to
restore the Site Improvements and Building Shell in excess of the proceeds of
insurance attributable thereto, and Tenant shall contribute any amounts
necessary to restore the Tenant Improvements in excess of the proceeds of
insurance attributable thereto.
22.2 In the event of damage to or destruction of all or any portion
of the improvements arising from a risk which is not covered by the insurance
described in Section 21.2, Landlord shall restore the improvements at its own
expense if the cost thereof is no greater than $250,000, and this Lease shall
continue in full force and effect. In the event of damage to or destruction of
all or any portion of the improvements arising from a risk which is not covered
by the insurance described in Section 21.2, the cost of restoration of which is
greater than $250,000, Landlord may elect to restore the improvements, and this
Lease shall continue in full force and effect. Landlord shall give Tenant
written notice of its election to restore the improvements within sixty (60)
days after the damage or destruction occurs, and shall, at its expense and
within a reasonable period of time thereafter, commence and proceed diligently
to restore the improvements to substantially the same condition as they were in
immediately prior to the casualty. If Landlord does not elect to restore the
improvements within such 60-day period, then this Lease shall terminate unless
Tenant delivers to Landlord written notice of its election to continue this
Lease within thirty (30) days thereafter. If Tenant elects to continue this
Lease, Tenant shall, at its expense and within a reasonable period of time,
commence and proceed diligently to restore the improvements to substantially the
same condition as they were in immediately prior to the casualty, and this Lease
shall continue in full force and effect notwithstanding such damage or
destruction.
22.3 Notwithstanding anything in Section 22.1 or 22.2 to the
contrary, if, in the opinion of an independent architect selected by Landlord
and Tenant within ten (10) days following the damage or destruction (which
opinion is to be rendered within thirty (30) days of selection), the damage or
destruction is so substantial that it cannot be corrected within three (3)
months of the date of damage, Tenant may elect to terminate this Lease by
delivering to Landlord written notice of its election to terminate within thirty
(30) days after the opinion of the architect is so given. Furthermore, if the
damage or destruction is not corrected within five (5) months of the date of
damage, Tenant may elect to terminate this Lease by delivering to Landlord
written notice of its election to terminate within thirty (30) days after the
expiration of such five (5) month period.
<PAGE> 27
22.4 In the event the Lease is terminated in accordance with the
forgoing provisions, (i) Tenant shall surrender possession of the Premises
within a reasonable period of time, (ii) this Lease shall terminate as of the
date possession of the Premises is surrendered, (iii) insurance proceeds shall
be distributed in accordance with the provisions of Section 21.2, (iv) Tenant
shall not be required to pay portion of insurance deductibles attributable to
any insured loss, and (v) the parties shall be released from all obligations
arising under this Lease after such termination date.
22.5 In satisfying any restoration obligations under this Article
22, neither party shall be required to restore improvements with improvements
identical to those which were damaged or destroyed; rather, with the consent of
the other party, which consent will not be unreasonably withheld, the restoring
party may restore the damage or destruction with improvements substantially the
same as those damaged or destroyed, unless commercially unavailable, in which
case the improvements may be reasonably equivalent to those damaged or
destroyed. In no event shall Tenant be required to restore its own trade
fixtures or equipment.
22.6 In the event of damage, destruction and/or restoration as
herein provided, Tenant shall not be entitled to any compensation or damages
occasioned by any such damage, destruction or restoration, except that Rent will
be abated for a period not to exceed twelve (12) months to the extent such
damage, destruction and/or restoration materially interferes with Tenant's
ability to conduct its business from the Premises.
22.7 Notwithstanding anything to the contrary contained in this
Lease, if the damage or destruction occurs during the last six (6) months of the
initial term of this Lease and Tenant has not exercised its option to extend the
term, or occurs during the last year of the extended term, and the cost to
repair such damage will exceed the sum of two (2) monthly installments of Basic
Annual Rent or take longer than two (2) months to complete, then Tenant shall
have the right to terminate this Lease by written notice to Landlord, in which
event this Lease shall terminate on the date Tenant vacates the Premises
following such damage or destruction.
22.8 The provisions of Article 17 shall apply to any restoration
work under this Article as if the restoration was an alteration, addition or
improvement thereunder.
22.9 Tenant waives the provisions of Civil Code Section 1932(2) and
1933(4) or any similar statute now existing or hereafter adopted governing
destruction of the Premises, so that the parties' rights and obligations in the
event of damage or destruction shall be governed by the provisions of this
Lease.
23. EMINENT DOMAIN.
23.1 In the event the whole of the Premises shall be taken for any
public or quasi-public purpose by any lawful power or authority by exercise of
the right of appropriation, condemnation or eminent domain, or sold to prevent
such taking, Tenant or Landlord may terminate this Lease effective as of the
date possession is required to be surrendered to said
<PAGE> 28
authority. The condemnation proceeds allocable to the Real Property, Site
Improvements and Building Shell shall be allocated to Landlord, the proceeds
allocable to the Tenant Improvements shall be allocated to Tenant, and any other
proceeds shall be allocated between Landlord and Tenant as their interests may
appear.
23.2 In the event of a partial taking of the Premises for any public
or quasi-public purpose by any lawful power or authority by exercise of right of
appropriation, condemnation, or eminent domain, or sold to prevent such taking,
then Tenant may elect to terminate this Lease if such taking is of material
detriment to, and substantially interferes with, Tenant's use and occupancy of,
and conduct of its business from, the Premises, including but not limited to
materially affecting Tenant's parking or Tenant's ingress and egress from the
Premises, unless Landlord provides reasonable alternatives thereto acceptable to
Tenant. In no event shall this Lease be terminated when such a partial taking
does not have a material adverse effect upon Landlord or Tenant or both.
Termination pursuant to this section shall be effective as of the date
possession is required to be surrendered to said authority. In the event of a
partial taking and whether or not Tenant terminates this Lease, Tenant and
Landlord shall be entitled to those condemnation proceeds attributable to those
items for which they are entitled to compensation pursuant to Section 23.1.
23.3 If upon any taking of the nature described in this Article 23
this Lease continues in effect, then Landlord shall promptly proceed to restore
the remaining portion of the Premises, and all improvements and fixtures located
thereon, to substantially their same condition prior to such partial taking.
Landlord shall contribute any amount necessary for restoration of the Site
Improvements and Building Shell in excess of the condemnation proceeds awarded
for such purpose, and Tenant shall contribute any amount necessary for
restoration of the Tenant Improvements (other than Tenant's Removable Property)
in excess of the condemnation proceeds awarded for such purposes. As of the date
possession is taken, monthly Rent shall (i) be reduced in the same proportion
that the floor area of that part of the Building so taken (less any addition
thereto by reason of any reconstruction) bears to the original floor area of the
Building, and (ii) be equitably reduced if any parking spaces or other outside
areas are taken to account for the value of the parking spaces or outside areas
so taken.
23.4 The provisions of Article 17 shall apply to any restoration
work under this Article as if the restoration was an alteration, addition or
improvement thereunder.
24. DEFAULTS AND REMEDIES.
24.1 Late payment by Tenant to Landlord of Rent and other sums due
will cause Landlord to incur costs not contemplated by this Lease, the exact
amount of which will be extremely difficult and impracticable to ascertain. Such
costs include, but are not limited to, processing and accounting charges and
late charges which may be imposed on Landlord by the terms of any mortgage or
trust deed covering the Premises. Therefore, if any installment of Rent due from
Tenant is not received by Landlord within five (5) business days of the later of
the date such payment is due or written notice (including faxed notice) of late
payment is given by Landlord to Tenant, Tenant shall pay to Landlord an
additional sum of five percent (5%) of the
<PAGE> 29
overdue rent as a late charge. The parties agree that this late charge
represents a fair and reasonable estimate of the costs that Landlord will incur
by reason of late payment by Tenant. In addition to the late charge, Rent not
paid within thirty (30) days of the date such payment is due shall bear interest
from thirty (30) days after the date due until paid at the lesser of (i) twelve
and one half percent (12.5%) per annum or (ii) the maximum rate permitted by
law.
24.2 No payment by Tenant or receipt by Landlord of a lesser amount
than the rent payment herein stipulated shall be deemed to be other than on
account of the rent, nor shall any endorsement or statement on any check or any
letter accompanying any check or payment as rent be deemed an accord and
satisfaction, and Landlord may accept such check or payment without prejudice to
Landlord's right to recover the balance of such rent or pursue any other remedy
provided. If at any time a dispute shall arise as to any amount or sum of money
to be paid by Tenant to Landlord, Tenant shall have the right to make payment
"under protest" and such payment shall not be regarded as a voluntary payment,
and there shall survive the right on the part of Tenant to institute suit for
recovery of the payment paid under protest.
24.3 If Tenant is in default of any of its obligations hereunder to
pay any sum of money (other than Basic Annual Rent) or to perform any other act
on its part to be performed hereunder, Landlord may, without waiving or
releasing Tenant from any obligations of Tenant, but shall not be obligated to,
make such payment or perform such act; provided, that such failure by Tenant
continued for fifteen (15) days after written notice from Landlord demanding
performance by Tenant was delivered to Tenant (or forty five (45) days after
such notice if the performance is such that it cannot reasonably be cured within
such 15-day period, and Tenant commenced performance within such 15-day period),
or that such failure by Tenant unreasonably interfered with the use or efficient
operation of the Premises, or resulted or could have resulted in a violation of
law or the cancellation of an insurance policy maintained by Landlord. All sums
so paid or incurred by Landlord, together with interest thereon, from the date
such sums were paid or incurred, at the annual rate equal to twelve and one half
percent (12.5%) per annum or the highest rate permitted by law, whichever is
less, shall be payable to Landlord on demand as Additional Rent.
24.4 The occurrence of any one or more of the following events shall
constitute a "default" hereunder by Tenant:
(a) The failure by Tenant to make any payment of Rent, as and
when due, where such failure shall continue for a period of ten (10) business
days after written notice thereof from Landlord to Tenant. Such notice shall be
in lieu of, and not in addition to, any notice required under California Code of
Civil Procedure Section 1161, so long as the notice complies with the
requirements of said statute;
(b) The material failure by Tenant to observe or perform any
material obligation other than described in Section 24.4(a) to be performed by
Tenant, where such failure shall continue for a period of thirty (30) days after
written notice thereof from Landlord to Tenant; provided, however, that if the
nature of Tenant's default is such that more than thirty (30) days are
reasonably required to cure the default, then Tenant shall not be deemed to be
in
<PAGE> 30
default if Tenant shall commence such cure within said thirty (30) day period
and thereafter diligently prosecute the same to completion. Such notice shall be
in lieu of, and not in addition to, any notice required under California Code of
Civil Procedure Section 1161, so long as the notice complies with the
requirements of said statute;
(c) A receiver, trustee or custodian is appointed to, or does,
take title, possession or control of all, or substantially all, of Tenant's
assets, and is not discharged within ninety (90) days thereafter;
(d) An order for relief is entered against Tenant pursuant to
a voluntary or involuntary proceeding commenced under any chapter of the
Bankruptcy Code which is not dismissed within ninety (90) days after the
commencement thereof;
(e) Any involuntary petition is filed against the Tenant under
any chapter of the Bankruptcy Code and is not dismissed within ninety (90) days;
or
(f) Tenant's interest in this Lease is attached, executed
upon, or otherwise judicially seized and such action is not released within
ninety (90) days of the action.
Notices given under this Section shall specify the alleged default
and shall demand that Tenant perform the provisions of this Lease or pay the
Rent that is in arrears, as the case may be, within the applicable period of
time, or quit the Premises. No such notice shall be deemed a forfeiture or a
termination of this Lease unless Landlord elects otherwise in such notice, and
in no event shall a forfeiture or termination occur without such written notice.
24.5 In the event of a default by Tenant, and at any time thereafter
while such default is continuing, and without limiting Landlord in the exercise
of any right or remedy which Landlord may have, Landlord shall be entitled to
terminate Tenant's right to possession of the Premises by any lawful means, in
which case this Lease shall terminate and Tenant shall immediately surrender
possession of the Premises to Landlord. In such event Landlord shall have the
immediate right to re-enter and remove all persons and property by any lawful
means, and such property may be removed and stored in a public warehouse or
elsewhere at the cost of, and for the account of Tenant, all without service of
notice and without being deemed guilty of trespass, or becoming liable for any
loss or damage which may be occasioned thereby, subject to the rights of
personal property lessors or secured parties with validly granted and duly
perfected ownership or security interests in any such property. In the event
that Landlord shall elect to so terminate this Lease, then Landlord shall be
entitled to recover from Tenant all damages incurred by Landlord by reason of
Tenant's default, including:
(a) The worth at the time of award of any unpaid Rent which
had been earned at the time of such termination; plus
(b) The worth at the time of award of the amount by which the
unpaid Rent which would have been earned after termination until the time of
award exceeds the amount of such rental loss which Tenant proves could have been
reasonably avoided; plus
<PAGE> 31
(c) The worth at the time of award of the amount by which the
unpaid Rent for the balance of the term after the time of award exceeds the
amount of such rental loss which Tenant proves could have been reasonably
avoided; plus
(d) Any other amount necessary to compensate Landlord for all
the detriment proximately caused by Tenant's failure to perform its obligation
under this Lease or which in the ordinary course of things would be likely to
result therefrom; plus
(e) At Landlord's election, such other amounts in addition to
or in lieu of the foregoing as may be permitted from time to time by applicable
law.
As used in Subsections (a), (b) and (c), the "time of award"
shall mean the date upon which the judgment in any action brought by Landlord
against Tenant by reason of such default is entered or such earlier date as the
court may determined. As used in Subsections (a) and (b), the "worth at the time
of award" shall be computed by allowing interest at the rate specified in
Section 24.1. As used in Subsection (c) above, the "worth at the time of award"
shall be computed by taking the present value of such amount using the discount
rate of the Federal Reserve Bank of San Francisco at the time of award plus one
percentage point.
Nothing in this Section 24.5 is intended to increase or
enlarge the damages recoverable by Landlord under Section 1951.2 of the Civil
Code, as same may be amended from time to time.
24.6 If Landlord does not elect to terminate this Lease as provided
in Section 24.5 or otherwise terminate Tenant's right to possession of the
Premises, Landlord shall have the remedy described in Section 1951.4 of the
Civil Code. Landlord may continue the lease in effect for so long as Landlord
does not terminate Tenant's right to possession of the Premises, and may enforce
all of its rights and remedies under the Lease, including the right from time to
time to recover Rent as it becomes due under the Lease. At any time thereafter,
Landlord may elect to terminate this Lease and to recover damages to which
Landlord is entitled.
24.7 Notwithstanding anything herein to the contrary, Landlord's
reentry to perform acts of maintenance or preservation of, or in connection with
efforts to relet, the Premises, or any portion thereof, or the appointment of a
receiver upon Landlord's initiative to protect Landlord's interest under this
Lease, shall not terminate Tenant's right to possession of the Premises or any
portion thereof and, until Landlord does elect to terminate this Lease or
terminates Tenant's right to possession of the Premises, this Lease shall
continue in full force and Landlord may pursue all its remedies hereunder,
including, without limitation, the right to recover from Tenant as they become
due hereunder all Rent and other charges required to be paid by Tenant under the
terms of this Lease.
24.8 All rights, options, and remedies of Landlord contained in this
Lease shall be construed and held to be nonexclusive and cumulative. Landlord
shall have the right to pursue any one or all of such remedies or any other
remedy or relief which may be provided by
<PAGE> 32
law, whether or not stated in this Lease. No waiver of any default of Tenant
hereunder shall be implied from any acceptance by Landlord of any rent or other
payments due hereunder or by any omission by Landlord to take any action on
account of such default if such default persists or is repeated, and no express
waiver shall affect defaults other than as specified in said waiver.
24.9 Termination of this Lease or Tenant's right to possession by
Landlord as a result of a default by Tenant shall not relieve Tenant from any
liability to Landlord which has theretofore accrued or shall arise based upon
events which occurred prior to the last to occur of (i) the date of Lease
termination or (ii) the date possession of Premises is surrendered or taken by
Landlord.
24.10 Landlord shall not be in default unless Landlord fails to
perform obligations required of Landlord within a reasonable time, but in no
event later than ten (10) days for any monetary obligation and thirty (30) days
for any other obligation after written notice by Tenant specifying wherein
Landlord has failed to perform such obligation; provided, however, that if the
nature of Landlord's non-monetary obligation is such that more than thirty (30)
days are required for performance, then Landlord shall not be in default if
Landlord commences performance of such non-monetary obligation within such
thirty (30) day period and thereafter diligently prosecutes the same to
completion. If Landlord is in default hereunder, Tenant may cure such default
and offset the expense thereof against Rent except to the extent the expense
would otherwise be an Operating Expense under Article 7. All sums due to Tenant
from Landlord or expended by Tenant to cure Landlord's default shall bear
interest from the date due from Landlord or expended by Tenant, as applicable,
until paid to Tenant in full, at the annual rate equal to twelve and one half
percent (12.5%) per annum or the highest rate permitted by law, whichever is
less.
24.11 In the event of any default on the part of Landlord, Tenant
will give notice by registered or certified mail to any beneficiary of a deed of
trust or mortgagee of a mortgage covering the Premises whose address shall have
been furnished and shall offer such beneficiary and/or mortgagee a reasonable
opportunity to cure the default.
25. ASSIGNMENT OR SUBLETTING.
25.1 Except as hereinafter provided, Tenant shall not, either
voluntarily or by operation of law, sell, hypothecate or transfer this Lease, or
sublet the Premises or any part thereof, without the prior written consent of
Landlord in each instance, which consent shall not be unreasonably withheld or
delayed.
25.2 If Tenant desires to sublet all or any part of the Premises, or
to assign this Lease, to any entity into which Tenant is merged, with which
Tenant is consolidated, or which acquires all or substantially all of the assets
or shares of Tenant, or to a parent, subsidiary, or other affiliate of Tenant,
provided that the subtenant or assignee first executes, acknowledges and
delivers to Landlord an agreement whereby the subtenant or assignee agrees to be
bound by all of the covenants and agreements in this Lease to the extent
relating to the unexpired term of the
<PAGE> 33
Lease and, in the event of a sublease, the portion of the Premises so sublet,
then the consent of Landlord to the sublease or assignment will not be required.
25.3 In the event Tenant desires to assign, sublease, hypothecate or
otherwise transfer this Lease or sublet the Premises to an assignee or sublessee
other than one set forth in Section 25.2, then at least fifteen (15) days, but
not more than ninety (90) days, prior to the date when Tenant desires the
assignment or sublease to be effective (the "Assignment Date"), Tenant shall
give Landlord a notice (the "Assignment Notice") which shall set forth the name,
address and business of the proposed assignee or sublessee, information
(including references and financial statements) concerning the reputation and
financial ability of the proposed assignee or sublessee, the Assignment Date,
any ownership or commercial relationship between Tenant and the proposed
assignee or sublessee, and the consideration and all other material terms and
conditions of the proposed assignment or sublease.
25.4 Landlord in making its determination as to whether consent
should be given to a proposed assignment or sublease, may give consideration to
the reputation of a proposed successor, the financial strength of such successor
(notwithstanding the assignor remaining liable for Tenant's performance), and
any use which such successor proposes to make of the Premises which would
involve the generation, storage, use, treatment or disposal of Hazardous
Materials. If Landlord fails to deliver written notice of its determination to
Tenant within fifteen (15) days following receipt of the Assignment Notice and
the information required under Section 25.3, Landlord shall be deemed to have
approved the request. In no event shall Landlord be deemed to be unreasonable
for declining to consent to a transfer to a successor of poor reputation,
lacking financial qualification, seeking a change in use which would involve the
generation, storage, use, treatment or disposal of Hazardous Materials in any
manner for a purpose prohibited by any applicable Law, so long as Landlord is
reasonable in making its determination based on such factors. Any refusal to
consent to such assignment or sublease shall be in writing and shall state in
detail the reason for Landlord's failure to approve the assignment or sublease.
As a condition to any assignment or sublease to which Landlord has given
consent, any such assignee or sublessee must execute, acknowledge and deliver to
Landlord an agreement whereby the assignee or sublessee agrees to be bound by
all of the covenants and agreements in this Lease to the extent relating to the
unexpired term of the Lease and, in the event of a sublease, the portion of the
Premises so sublet.
25.5 Notwithstanding the foregoing, Tenant shall have the right to
enter into license or other usage agreements for the use of the Premises by
third parties without Landlord's consent, provided such agreements do not entail
the creation of a separate common corridor for the licensee.
25.6 Any sale, assignment, hypothecation or transfer of this Lease
or subletting of Premises that is not in compliance with the provisions of this
Article 25 shall be void.
25.7 The consent by Landlord to an assignment or subletting shall
not relieve Tenant or any assignee of this Lease or sublessee of the Premises
from obtaining the consent of
<PAGE> 34
Landlord to any further assignment or subletting or as releasing Tenant or any
assignee or sublessee of Tenant from full and primary liability.
25.8 If Tenant shall sublet the Premises or any part thereof Tenant
hereby immediately and irrevocably assigns to Landlord, as security for Tenant's
obligations under this Lease, all rent from any subletting of all or a part of
the Premises and Landlord as assignee, or a receiver for Tenant appointed on
Landlord's application, may collect such rent and apply it toward Tenant's
obligations under this Lease; except that, before the occurrence and after the
subsequent cure of a default in the payment of Basic Annual Rent by Tenant,
Tenant shall have the right to collect such rent.
25.9 Notwithstanding any subletting or assignment, Tenant shall
remain fully and primarily liable for the payment of all Rent and other sums
due, or to become due hereunder, and for the full performance of all other
terms, conditions, and covenants to be kept and performed by Tenant. The
acceptance of rent or any other sum due hereunder, or the acceptance of
performance of any other term, covenant, or condition hereof, from any other
person or entity shall not be deemed to be a waiver of any of the provisions of
this Lease or a consent to any subletting or assignment of the Premises.
Landlord shall not withhold consent to an assignment back to the original Tenant
hereunder from a subsequent assignee.
25.10 Any sublease of the Premises shall be subject and subordinate
to the provisions of this Lease, shall not extend beyond the term of this Lease,
and shall provide that the sublessee shall attorn to Landlord, at Landlord's
sole option, in the event of the termination of this Lease. Landlord and any
lender shall upon Tenant's request provide any subtenant of the entirety of the
Premises with a recognition and nondisturbance agreement in the form set forth
in Article 35 hereof on the condition that the sublessee agrees to attorn to
Landlord on exactly the same terms and conditions as this Lease.
26. ATTORNEY'S FEES.
26.1 If either party commences an arbitration, action or proceeding
against the other party arising out of or in connection with this Lease, the
prevailing party shall be entitled to have and recover from the other party
reasonable attorney's fees, expert witness fees and costs of suit or
arbitration.
27. BANKRUPTCY.
27.1 In the event a debtor or trustee under the Bankruptcy Code, or
other person with similar rights, duties and powers under any other law,
proposes to cure any default under this Lease or to assume or assign this Lease,
and is obliged to provide adequate assurance to Landlord that (i) a default will
be cured, (ii) Landlord will be compensated for its damages arising from any
breach of this Lease, or (iii) future performance under this Lease will occur,
then adequate assurance shall include any or all of the following, as determined
by the Bankruptcy Court:
<PAGE> 35
(a) Those acts specified in the Bankruptcy Code or other law
as included within the meaning of adequate assurance;
(b) A cash payment to compensate Landlord for any monetary
defaults or damages arising from a breach of this Lease;
(c) The credit worthiness and desirability, as a tenant, of
the person assuming this Lease or receiving an assignment of this Lease, at
least equal to Landlord's customary and usual credit worthiness requirements and
desirability standards in effect at the time of the assumption or assignment, as
determined by the Bankruptcy Court; and
(d) The assumption or assignment of all of Tenant's interest
and obligations under this Lease.
28. DEFINITION OF LANDLORD.
28.1 The term "Landlord" as used in this Lease, so far as covenants
or obligations on the part of Landlord are concerned, shall be limited to mean
and include only Landlord or the successor-in-interest of Landlord under this
Lease at the time in question. In the event of any transfer, assignment or
conveyance of Landlord's title or leasehold, the Landlord herein named (and in
case of any subsequent transfers or conveyances, the then grantor and any prior
grantors) shall be automatically freed and relieved from and after the date of
such transfer, assignment or conveyance of all liability for the performance of
any covenants or obligations contained in this Lease thereafter to be performed
by Landlord and, without further agreement, the transferee of such title or
leasehold shall be deemed to have assumed and agreed to observe and perform any
and all obligations of Landlord hereunder, during its ownership of the Premises.
Landlord may transfer its interest in the Premises or this Lease without the
consent of Tenant and such transfer or subsequent transfer shall not be deemed a
violation on the part of Landlord or the then grantor of any of the terms or
conditions of this Lease.
29. ESTOPPEL CERTIFICATE.
29.1 Each party shall, within fifteen (15) days of written notice
from the other party, execute, acknowledge and deliver to the other party a
statement in writing on a form reasonably requested by a proposed lender,
purchaser, assignee or subtenant (i) certifying that this Lease is unmodified
and in full force and effect (or, if modified, stating the nature of such
modification and certifying that this Lease as so modified is in full force and
effect) and the dates to which the rental and other charges are paid in advance,
if any, (ii) acknowledging that there are not, to such party's knowledge, any
uncured defaults on the part of Landlord or Tenant hereunder (or specifying such
defaults if any are claimed) and (iii) setting forth such further information
with respect to this Lease or the Premises as may be reasonably requested
thereon.
<PAGE> 36
30. REMOVAL OF PROPERTY.
30.1 All fixtures and personal property paid for by Tenant,
including telephone switch equipment and the movable office partitions and
systems, shall be and remain the property of Tenant, and, except as otherwise
provided in Sections 30.3 and 30.4, may be removed by Tenant at the expiration
of the term of this Lease, or at any earlier time provided Tenant is not then in
material default hereunder. Landlord agrees to execute within ten (10) days
after request such landlord lien waivers as may reasonably be requested from
time to time for Tenant's Removable Property for the benefit of Tenant's
lenders.
30.2 The Site Improvements and the Building Shell shall be and
remain the property of Landlord, and shall remain upon and be surrendered with
the Premises.
30.3 The Tenant Improvements shall be and remain the property
of Tenant throughout the term of the Lease, but shall become the property of
Landlord upon the expiration or earlier termination of the Lease, and shall
remain upon and be surrendered with the Premises, except for the UPS equipment,
generators and Liebert air conditioning system, the dry fire suppressant system
(FM 200), and the computer floors, all of which shall remain Tenant's property
and may be removed by Tenant upon the expiration or earlier termination of this
Lease. All fixtures, personal property and Tenant Improvements which may be
removed by Tenant at Lease termination are referred to in this Lease as
"Tenant's Removable Property". In any event, all other improvements, additions,
alterations, and decorations constructed or installed in the Premises by Tenant
that are of general utility to the operation of the Building, except for
Tenant's Removable Property, shall become the property of Landlord upon the
expiration or earlier termination of this Lease, and shall remain upon and be
surrendered with the Premises, including, without limiting the generality of the
foregoing, walls, partitions and related coverings; non-computer flooring and
floor coverings; ceilings; insulation; doors, frames and related hardware;
built-in cabinet work and paneling; lighting fixtures; built-in security
systems; "wet" fire sprinkler system; lobbies; rest rooms; mechanical (HVAC)
system, including central plant and controls, and including equipment, screens
and enclosures; environmental control and monitoring systems; telephone,
electrical and other wires and cabling; elevator and related components;
plumbing system and fixtures; and electrical and other utility systems and
components thereof and appurtenances thereto. Tenant shall also have the right
to remove any improvement, addition, alteration, decoration and/or trade fixture
installed or constructed in the Premises by Tenant that are not part of the
Building Shell or Tenant Improvements and are not of general utility to the
operation of the Building and/or that are used in the operation of Tenant's
business so long as any damage caused by such removal is repaired.
30.4 Notwithstanding Sections 30.1 and 30.3 hereof, Tenant may
not remove any property if such removal would cause material damage to the
Premises, unless such damages can be and is repaired by Tenant. Furthermore,
Tenant shall repair any damage to the Premises caused by Tenant's removal of any
such property, and shall, prior to the expiration or earlier termination of this
Lease, restore and return the Premises to the condition they were in when first
occupied by Tenant, excepting reasonable wear and tear, damages caused by
casualty or condemnation, and damages caused by release or emission of Hazardous
Materials (as described
<PAGE> 37
in Article 39) by a person or entity other than Tenant. At a minimum, Tenant
shall leave in place and repair any damage to the interior floors, walls and
ceilings of the Premises. The provisions of Article 17 shall apply to any
restoration work under this Article as if the restoration was an alteration,
addition or improvement thereunder. Should Tenant require any period beyond the
expiration or earlier termination of the Lease to complete such restoration,
Tenant shall be a tenant at sufferance subject to the provisions of Section 12.2
hereof.
30.5 If Tenant shall fail to remove any fixtures or personal
property which it is entitled to remove under this Article 30 from the Premises
prior to termination of this Lease, then Landlord may dispose of the property
under the provisions of Section 1980 et seq. of the California Civil Code, as
such provisions may be modified from time to time, or under any other applicable
provisions of California law.
31. LIMITATION OF LANDLORD'S LIABILITY.
31.1 Except as set forth in Section 31.2, if Landlord is in
default of this Lease, and as a consequence, Tenant recovers a money judgment
against Landlord, the judgment shall be satisfied only out of the proceeds of
sale received on execution of the judgment and levy against the right, title,
and interest of Landlord in the Premises, and out of insurance proceeds, rent or
other income from the Premises receivable by Landlord or out of the
consideration received by Landlord from the sale or other disposition of all or
any part of Landlord's right, title, and interest in the Premises.
31.2 Neither Landlord nor Landlord's Agents shall be
personally liable for any deficiency except to the extent liability is based
upon willful and intentional misconduct. If Landlord is a limited liability
company, the members and manager of such limited liability company shall not be
personally liable and no member or manager of Landlord shall be sued or named as
a party in any suit or action, or service of process be made against any member
or manager of Landlord, except as may be necessary to secure jurisdiction of the
limited liability company or to the extent liability is caused by willful and
intentional misconduct. If Landlord is a partnership or joint venture, the
partners of such partnership shall not be personally liable and no partner of
Landlord shall be sued or named as a party in any suit or action, or service of
process be made against any partner of Landlord, except as may be necessary to
secure jurisdiction of the partnership or joint venture or to the extent
liability is caused by willful and intentional misconduct. If Landlord is a
corporation, the shareholders, directors, officers, employees, and/or agents of
such corporation shall not be personally liable and no shareholder, director,
officer, employee, or agent of Landlord shall be sued or named as a party in any
suit or action, or service of process be made against any shareholder, director,
officer, employee, or agent of Landlord, except as may be necessary to secure
jurisdiction of the corporation or to the extent liability is caused by willful
and intentional misconduct. No partner, shareholder, director, employee, or
agent of Landlord shall be required to answer or otherwise plead to any service
of process and no judgment will be taken or writ of execution levied against any
partner, shareholder, director, employee, or agent of Landlord.
<PAGE> 38
31.3 No officer, director, or shareholder of Tenant shall be
personally liable for any deficiency, and no officer, director, or shareholder
of Tenant shall be sued or named as a party in any suit or action, or service of
process be made against any officer, director or shareholder of Tenant, except
as may be necessary to secure jurisdiction of the corporation.
31.4 Each of the covenants and agreements of this Article 31
shall be applicable to any covenant or agreement either expressly contained in
this Lease or imposed by statute or by common law.
32. [INTENTIONALLY LEFT BLANK]
33. QUIET ENJOYMENT.
33.1 So long as Tenant is not in default, Tenant may peaceably
and quietly have, hold, use, occupy and enjoy the Premises during the term and
any extended term of this Lease.
33.2 Landlord shall keep and perform all obligations required
of it under the Sub Ground Lease, and shall cause the lessees under the Ground
Lease and Master Lease to keep and perform all obligations required of the
lessees under the Ground Lease and Master Lease, in order to protect and
preserve Tenant's estate hereunder.
34. QUITCLAIM DEED.
34.1 Tenant shall execute and deliver to Landlord on the
expiration or termination of this Lease, immediately on Landlord's request, a
quitclaim deed to the Premises or other document in recordable form suitable to
evidence of record termination of this Lease.
35. SUBORDINATION AND ATTORNMENT.
35.1 Unless the mortgagee or beneficiary elects otherwise at
any time prior to or following a default by Tenant, this Lease shall be subject
to and subordinate to the lien of any mortgage or deed of trust now or hereafter
in force against the Premises or any portion thereof, and to all advances made
or hereafter to be made upon the security thereof without the necessity of the
execution and delivery of any further instruments on the part of Tenant to
effectuate such subordination, provided that the lienholder, beneficiary, or
mortgagee executes and delivers to Tenant a nondisturbance, attornment, and
subordination agreement in recordable form in the form the lienholder,
beneficiary, mortgagee or ground lessor may reasonably request, the form and
substance of which is subject to the approval of Tenant, which approval will not
be unreasonably withheld, setting forth that so long as Tenant is not materially
in default of a material provision of this Lease, Landlord's and Tenant's rights
and obligations hereunder (including the use of insurance and condemnation
proceeds as set forth herein) shall remain in force and Tenant's right to
possession shall be upheld. Each nondisturbance agreement shall provide for use
of insurance and condemnation proceeds as set forth in Articles 22 and 23 of
this Lease.
<PAGE> 39
35.2 Notwithstanding the foregoing, Tenant shall within ten
(10) days of request of Landlord promptly execute and deliver such further
instrument or instruments reasonably required by Landlord and reasonably
acceptable to Tenant evidencing such subordination of this Lease to the lien of
any such mortgage or deed of trust as may be required by Landlord, provided that
the lienholder, beneficiary, or mortgagee has previously executed and delivered
to Tenant for recordation a nondisturbance agreement in form and substance
approved by Tenant, which approval shall not be unreasonably withheld. However,
if any such lienholder, beneficiary or mortgagee so elects at any time prior to
or following a default by Tenant, this Lease shall be deemed prior in lien to
any such mortgage or deed of trust regardless of date and Tenant will execute a
statement in writing to such effect at Landlord's request.
35.3 In the event any proceedings are brought for foreclosure,
or in the event of the exercise of the power of sale under any mortgage or deed
of trust made by the Landlord covering the Premises, the Tenant shall at the
election of the purchaser at such foreclosure or sale attorn to the purchaser
upon any such foreclosure or sale and recognize such purchaser as the Landlord
under this Lease in accordance with the terms of the nondisturbance Agreement.
35.4 The rights of Landlord hereunder shall also accrue to the
landlords under the Master Lease, Ground Lease and Sub Ground Lease, and Tenant
shall enter into subordination, nondisturbance and attornment agreements and
shall execute estoppel certificates from time to time in form, scope and
substance reasonably satisfactory to Tenant and to such landlords and their
lenders and assignees.
36. SURRENDER.
36.1 Except as otherwise provided herein, no surrender of
possession of any part of the Premises shall release Tenant from any of its
obligations hereunder unless accepted by Landlord.
36.2 The voluntary or other surrender of this Lease by Tenant
shall not work a merger, unless Landlord consents, and shall, at the option of
Landlord, operate as an assignment to it of any or all subleases or
subtenancies.
37. WAIVER AND MODIFICATION.
37.1 No provision of this Lease may be waived, modified,
amended or added to except by an agreement in writing. The waiver by either
party hereto of any breach of any term, covenant or condition herein contained
shall not be deemed to be a waiver of any subsequent breach of the same or any
other term, covenant or condition herein contained.
38. [INTENTIONALLY LEFT BLANK]
<PAGE> 40
39. HAZARDOUS MATERIAL.
39.1 Tenant shall have the right to use and store Hazardous
Materials in or about the Premises provided that such Hazardous Materials are
reasonably necessary or useful to the business of Tenant and are used, kept and
stored in a manner consistent with and permitted by the zoning and other
governmental restrictions applicable to the Premises, and provided that such use
would be allowed in connection with "Group B Occupancy" under the provisions of
Chapter 7 of the 1991 Uniform Building Code commencing with Section 701. Tenant,
at its sole cost, shall comply with all federal, state and local laws, statutes,
ordinances, codes, regulations and orders relating to Tenant's receiving,
handling, use, storage, accumulation, transportation, generation, spillage,
migration, discharge, release and disposal of Hazardous Material (as hereinafter
defined in Section 39.12 hereof) in or about the Premises. Tenant shall not
cause or permit any Hazardous Material to be brought upon, kept or used in or
about the Premises by Tenant, its agents, employees, contractors, invitees or
subtenants, in a manner or for a purpose prohibited by any federal, state or
local agency or authority. The accumulation of Hazardous Material shall be in
approved containers and removed from the Premises by duly licensed carriers.
39.2 Tenant shall promptly provide Landlord with telephonic
notice, which shall promptly be confirmed by written notice, of any and all
release and emission of Hazardous Material onto or within the Premises of which
Tenant is aware, including the soils and subsurface waters thereof, which by law
must be reported to any federal, state or local agency, and any injuries or
damages resulting directly or indirectly therefrom. Further, Tenant shall
deliver to Landlord each and every notice or order, when said order or notice
identifies a violation which may have the potential to adversely impact the
Premises, received from any federal, state or local agency concerning Hazardous
Material and the possession, use and/or accumulation thereof promptly upon
receipt of each such notice or order by Tenant. Landlord shall have the right,
upon reasonable notice, to inspect and copy each and every notice or order
received from any federal, state or local agency concerning Hazardous Material
and the possession, use and/or accumulation thereof.
39.3 Tenant shall be responsible for and shall indemnify,
protect, defend and hold harmless Landlord and Landlord's Agents from any and
all liability, damages, injuries, causes of action, claims, judgments, costs,
penalties, fines, losses, and expenses which arise during or after the term of
this Lease and which result from Tenant's (or from Tenant's Agents, assignees,
subtenants, employees, agents, contractors, licensees, or invitees) release or
emission of Hazardous Material in, upon or about the Premises, including without
limitation (i) damages for the loss or restriction on use of any portion or
amenity of the Premises, (ii) damages arising from any adverse impact on
marketing of space in the Building, and (iii) reasonable consultant fees, expert
fees, and attorneys' fees. Landlord shall be responsible for and shall
indemnify, protect, defend and hold harmless Tenant on the same basis and to the
same extent as set forth in the preceding sentence for all other claims which
arise from the release, emission or migration of Hazardous Material in, upon, to
or about the Premises.
<PAGE> 41
39.4 The indemnification pursuant to the preceding Section
39.3 includes, without limiting the generality of Section 39.3, reasonable costs
incurred in connection with any investigation of site conditions or any cleanup,
remedial, removal or restoration work required by any federal, state or local
governmental agency or political subdivision because of Hazardous Material
present in the soil, subsoil, ground water, or elsewhere on, under or about the
Premises. Without limiting the foregoing, if the presence of any Hazardous
Material on the Premises results in any contamination of the Premises, or
underlying soil or groundwater, the party responsible therefore under Section
39.3 shall promptly take all actions at its sole expense as are necessary to
return the Premises to the condition existing prior to the introduction of any
such Hazardous Material, provided that the other party's approval of such action
shall first be obtained, which approval shall not be unreasonably withheld so
long as such actions would not potentially have any material adverse long-term
or short-term effect on the Premises, except that the responsible party shall
not be required to obtain the other party's prior approval of any action of an
emergency nature reasonably required or any action mandated by a governmental
authority.
39.5 Landlord acknowledges that it is not the intent of this
Article 39 to prohibit Tenant from operating its business as described in
Article 10 or to unreasonably interfere with the operation of Tenant's business.
Tenant may operate its business according to the custom of the industry so long
as the use or presence of Hazardous Material is strictly and properly monitored
according to all applicable governmental requirements. At Landlord's request,
and at reasonable times, Tenant shall make available to Landlord true and
correct copies of the following documents (hereinafter referred to as the
"Hazardous Material Documents") relating to the handling, storage, disposal,
release and emission of Hazardous Material: permits; approvals; reports and
correspondence; storage and management plans; notice of violations of any laws;
plans relating to the installation of any storage tanks to be installed in or
under the Premises (provided said installation of tanks shall be permitted only
after Landlord has given Tenant its written consent to do so, which consent may
not be unreasonably withheld); and all closure plans or any other documents
required by any and all federal, state and local governmental agencies and
authorities for any storage tanks installed in, on or about the Premises for the
closure of any such tanks. Tenant shall not be required, however, to provide
Landlord with that portion of any document which contains information of a
proprietary nature and which, in and of itself, does not contain a reference to
any Hazardous Material which are not otherwise identified to Landlord in such
documentation, unless any such Hazardous Material Document names Landlord as an
"owner" or "operator" of the facility in which Tenant is conducting its
business. It is not the intent of this subsection to provide Landlord with
information which could be detrimental to Tenant's business should such
information become possessed by Tenant's competitors. Landlord shall treat all
information furnished by Tenant to Landlord pursuant to this Section 39.5 as
confidential and shall not disclose such information to any person or entity
without Tenant's prior written consent, which consent shall not be unreasonably
withheld or delayed, except as required by law.
39.6 Notwithstanding other provisions of this Article 39, it
shall be a default under this Lease, and Landlord shall have the right to
terminate the Lease under Article 24, and/or pursue its other remedies under
Article 24, in the event that (i) Tenant's use of the Premises for the
generation, storage, use, treatment or disposal of Hazardous Material is in a
<PAGE> 42
manner or for a purpose prohibited by applicable law unless Tenant is diligently
pursuing compliance with such law, (ii) Tenant has been required by any
governmental authority to take remedial action in connection with Hazardous
Material contaminating the Premises if the contamination resulted from Tenant's
action or use of the Premises, unless Tenant is diligently pursuing compliance
with such requirement, or (iii) Tenant is subject to an enforcement order issued
by any governmental authority in connection with the use, disposal or storage of
a Hazardous Material on the Premises, unless Tenant is diligently seeking
compliance with such enforcement order.
39.7 Notwithstanding the provisions of Article 25, if any
anticipated use of the Premises by a proposed assignee or subtenant involves the
generation or storage, use, treatment or disposal of Hazardous Material in any
manner or for a purpose prohibited by any applicable law, it shall not be
unreasonable for Landlord to withhold its consent to an assignment or subletting
to such proposed assignee or sublessee.
39.8 Landlord represents that, to the best of its knowledge,
as of the date of this Lease and as of the Term Commencement Date, there is no
Hazardous Material on the Premises, and will deliver to Tenant a certification
to that effect promptly upon the Term Commencement Date. Landlord shall at its
expense provide Tenant with a Phase I Environmental Site Assessment at the time
this Lease is executed and as of the Term Commencement Date. In addition,
Landlord shall at its expense also provide Tenant with a Phase II Environmental
Site Assessment as of the Term Commencement Date if reasonably recommended by
the Phase I Environmental Site Assessment. Should either assessment disclose the
presence of Hazardous Material, Landlord shall remedy the problems to Tenant's
reasonable satisfaction, and shall cause a further update of the Phase I and any
Phase II Environmental Site Assessment to be issued reflecting the remedy
therein. The Phase I and any Phase II Environmental Site Assessments and all
updates thereto are hereinafter referred to as the "Base Line Report."
39.9 At any time prior to the expiration or earlier
termination of the term of the Lease, Landlord shall have the right to enter
upon the Premises at all reasonable times and at reasonable intervals upon not
less than forty-eight (48) hours notice to Tenant (except in the case of
emergency) in order to conduct appropriate tests regarding the presence, use and
storage of Hazardous Material, and to inspect Tenant's records with regard
thereto. Any such entry by Landlord shall comply with all reasonable measures of
Tenant and shall not impair Tenant's operations more than reasonably necessary.
Tenant will pay the reasonable costs of any such test which demonstrates that
contamination in excess of permissible levels has occurred and such
contamination is the responsibility of Tenant under Section 39.3. Tenant shall
correct any deficiencies identified in any such tests in accordance with its
obligations under this Article 39.
39.10 Tenant shall at Landlord's expense cause a Phase I
environmental site assessment of the Premises to be conducted, and a Phase II
environmental site assessment if recommended in the Phase I environmental site
assessment, and reports thereof delivered to Landlord upon the expiration or
earlier termination of the Lease, such reports to be as complete and broad in
scope as the Base Line Report as is necessary to identify any impact on the
Premises Tenant's operations might have had. Should the assessments disclose the
presence of
<PAGE> 43
Hazardous Material, Tenant shall, prior to the expiration of this Lease, remedy
the problems for which it is responsible under Section 39.3 to the extent
required by applicable law, and shall cause a further update of the
environmental site assessments to be issued reflecting the remedy therein. The
assessment and all updates thereto are hereinafter referred to as the "Exit
Report." This Article 39 is the exclusive provision in this Lease regarding
clean-up, repairs or maintenance arising from receiving, handling, use, storage,
accumulation, transportation, generation, spillage, migration, discharge,
release or disposal of Hazardous Material in, upon or about the Premises, and
the provisions of Article 18 (Repairs and Maintenance) shall not apply thereto.
39.11 Landlord's and Tenant's obligations under this Article
39 shall survive the termination of the Lease.
39.12 As used herein, the term "Hazardous Material" means any
hazardous or toxic substance, material or waste which is or becomes regulated by
any local governmental authority, the State of California or the United States
Government. The term "Hazardous Material" includes, without limitation, any
material or substance which is (i) defined as a "hazardous waste," "extremely
hazardous waste" or "restricted hazardous waste" under Sections 25515, 25117 or
25122.7, or listed pursuant to Section 25140, of the California Health and
Safety Code, Division 20, Chapter 6.5 (Hazardous Waste Control Law), (ii)
defined as a "hazardous substance" under Section 25316 of the California Health
and Safety Code, Division 2, Chapter 6.8 (Carpenter-Presly-Tanner Hazardous
Substance Account Act), (iii) defined as a "hazardous material," hazardous
substance" or "hazardous waste" under Section 25501 of the California Health and
Safety Code, Division 20, Chapter 6.95 (Hazardous Substances), (v) petroleum,
(vi) asbestos, (vii) listed under Article 9 and defined as hazardous or
extremely hazardous pursuant to Article 11 of Title 22 of the California
Administrative Code, Division 4, Chapter 20, (viii) designated as a "hazardous
substance" pursuant to Section 311 of the Federal Water Pollution Control Act
(33 U.S.C. Section 1317), (ix) defined as a "hazardous waste" pursuant to
Section 1004 of the Federal Resource Conservation and Recovery Act, 42 U.S.C.
Section 6901, et. seq. (42 U.S.C. Section 6903), or (x) defined as a "hazardous
substance" pursuant to Section 101 of the Comprehensive Environmental Response
Compensation and Liability Act, 42 U.S.C. Section 9601 et. seq. (42 U.S.C.
Section 9601).
40. OPTION TO EXTEND.
40.1 Landlord grants to Tenant one (1) option to extend the
term of this Lease for (5) years under the same terms and conditions existing in
the original Lease except as set forth in this Article 40. Basic Annual Rent
shall be adjusted on the first day of the extension term to an amount equal to
the fair market rental value of the Premises as of the commencement of the
extension term, but in no event less than the Basic Annual Rent payable during
the last year of the initial term. Tenant shall exercise such right to extend
the term of this Lease by written notice to Landlord no later than eight (8)
months prior to the end of the original term.
40.2 If Landlord and Tenant after the use of reasonable, good
faith efforts are unable to agree on the fair market rental value of the
Premises, Landlord shall within sixty (60)
<PAGE> 44
days after the option is exercised obtain at its expense and deliver to Tenant
an independent appraisal of the fair market rental value of the Premises as of
the commencement of the extension term. Tenant may also elect to obtain at its
expense and deliver to Landlord not later than thirty (30) days after receipt of
Landlord's appraisal a second independent appraisal of the fair market rental
value of the Premises as of the commencement of the extension term. If Tenant
elects not to obtain a second appraisal, Landlord's appraisal shall be
conclusive. If Tenant's appraisal is no more than five percent (5%) less than
Landlord's appraisal, the fair market rental value of the Premises shall be the
arithmetic average of the two appraisals. If Tenant's appraisal is more than
five percent (5%) less than Landlord's appraisal, the two appraisers shall
appoint a third appraiser to appraise the fair market rental value of the
Premises as of the commencement of the extension term, and the fair market
rental value of the Premises shall be the arithmetic average of the two
appraisals closest in their determination of fair market rental value. Landlord
and Tenant shall bear equally the expense of the third appraiser. In no event
shall the Basic Annual Rent for the first year of the extension term be less
than that payable during the last year of the initial term. As used herein, the
term "fair market rental value of the Premises" shall be defined to mean the
fair market rental value of the Premises as of the commencement of the extension
term in its then existing condition "as-is" (without allowance from Landlord for
new tenant improvements or refurbishment) but excluding the value of any Tenant
Improvements paid for by Tenant as part of the initial construction or installed
and paid for by Tenant after the Term Commencement Date, taking into
consideration all relevant factors, including length of term, the uses permitted
under the Lease, the quality, size, design, condition, and age of the Premises,
the absence of a tenant improvement allowance, the location of the Premises, the
monthly base rent for premises comparable to the Premises located in the same
general area as the Premises, and the rental adjustments set forth in Section
40.5.
40.3 All appraisers appointed hereunder shall have at least
ten (10) years experience in the appraisal of commercial/industrial real
property in the Santa Clara area and shall be members of professional
organizations such as the American Appraisal Institute with a designation of MAI
or equivalent.
40.4 Any increase or decrease in Basic Annual Rent under this
Article 40 which is not determined until after the effective date of the
increase shall nevertheless be retroactive to the effective date; Tenant shall
pay any such retroactive increase with the installment of Rent next due, and
Landlord shall promptly reimburse Tenant an amount equal to any such retroactive
decrease.
40.5 Basic Annual Rent as of the commencement of the extension
term as determined under this Article 40 (and as increased pursuant to this
Section 40.5) shall be increased on each annual anniversary of the first day of
the extension term (each an "Adjustment Date") by three percent (3%).
40.6 Tenant shall not have the right to exercise this option
to extend, notwithstanding anything set forth above to the contrary:
<PAGE> 45
(a) During the period of time commencing on the date Landlord
gives to Tenant a written notice that Tenant is in material default under any
monetary or material non-monetary obligation of this Lease and continuing until
the default alleged in said notice is cured;
(b) At any time after Landlord has given to Tenant three (3)
or more monthly notices of a default in the payment of Basic Annual Rent during
the last two years of the initial term, whether or not such defaults are cured;
or
(c) After the expiration or earlier termination of this Lease.
The period of time within which the option to extend the term
may be exercised shall not be extended or enlarged by reason of the Tenant's
inability to exercise the option to extend because of the foregoing provisions.
At the election of Landlord, all rights of Tenant under the provisions of this
Article 40 shall terminate and be of no further force or effect even after
Tenant's due and timely exercise of the option to extend, if, after such
exercise, but prior to the commencement of the extended term, (1) Tenant is in
default of a monetary obligation of Tenant for a period of thirty (30) days
after such obligation becomes due, (2) Tenant fails to commence to cure a
non-monetary default within thirty (30) days after the date Landlord gives
notice to Tenant of such default, or (3) Landlord properly give gives to Tenant
three (3) or more notices of a default in the payment of Basic Annual Rent,
whether or not such defaults are cured.
41. AUTOMATIC AMENDMENT OF LEASE.
41.1 AMENDMENTS TO LEASE. Landlord and Tenant agree that, in
the event that either Ground Lease or the Master Lease is terminated, and the
Ground Lessor or the District, as the case may be, recognizes Tenant under the
terms and conditions of this Lease and Tenant attorns to the Ground Lessor or
the District pursuant to a nondisturbance and attornment agreement between
Tenant and either Ground Lessor or the District, the foregoing provisions of
this Lease are amended as follows:
(a) CONSTRUCTION OF IMPROVEMENTS (ARTICLE 4). Neither Ground
Lessor nor the District shall have any obligation to construct or pay for
improvements to the Premises as required by Article 4 of this Lease.
(b) OPERATING EXPENSES (ARTICLE 7). Neither Ground Lessor nor
the District shall have any obligation to pay any costs or expenses under
Article 7 of this Lease; rather, Tenant shall operate, maintain, repair and
manage the Premises, and shall pay all Operating Expenses directly to the
provider of services or other person or entity entitled thereto. Tenant shall be
relieved of any obligation to pay costs of property management services pursuant
to Section 7.1(c) of this Lease.
(c) ADA (SECTION 10.4). Neither Ground Lessor nor the District
shall have any liability for the warranties set forth in Section 10.4 of this
Lease, nor shall either have any obligation to make or pay for any improvements,
alterations, repairs or replacements as set forth therein.
<PAGE> 46
(d) BROKERS (ARTICLE 11). Neither Ground Lessor nor the
District shall have any obligation for the payment of broker commissions under
Article 11 of this Lease, and such obligation shall remain the personal
obligation of the initial Landlord named hereunder.
(e) TAXES AND ASSESSMENTS (ARTICLE 13). Neither Ground Lessor
nor the District shall have any obligation to pay Taxes under Article 13 of this
Lease.
(f) CONDITION OF PREMISES (ARTICLE 14). Neither Ground Lessor
nor the District shall have any liability for or obligations related to the
warranties set forth in Section 14.2 of this Lease, nor any other liability or
obligations under Article 14 of this Lease.
(g) REPAIRS AND MAINTENANCE (ARTICLE 18). Neither Ground
Lessor nor the District shall have any obligation for repairs or maintenance of
the Premises under Article 18 of this Lease.
(h) INSURANCE (ARTICLE 21). Neither Ground Lessor nor the
District shall have any obligation to provide or pay for the insurance required
by Article 21 of this Lease; rather, all such insurance shall be procured and
maintained by Tenant.
(i) DAMAGE OR DESTRUCTION (ARTICLE 22). Neither Ground Lessor
nor the District shall have any obligation to "restore" the Premises or any part
thereof as required by Article 22 of this Lease. If Tenant elects to assume
Landlord's obligations under Article 22 to restore the Premises, all proceeds of
insurance which would otherwise be payable to Landlord shall be paid to Tenant.
If Tenant does not elect to restore the Premises, Tenant may terminate this
Lease.
(j) EMINENT DOMAIN (ARTICLE 23). Neither Ground Lessor nor the
District shall have any obligation to "restore" the Premises or any part thereof
as required by Article 23 of this Lease. If Tenant elects to assume Landlord's
obligations under Article 23 to restore the Premises, all condemnation proceeds
which would otherwise be payable to Landlord shall be paid to Tenant. If Tenant
does not elect to restore the Premises, Tenant may terminate this Lease.
41.2 GROUND LEASE AND MASTER LEASE GOVERN. Notwithstanding the
provisions of this Article 41, neither the District nor Ground Lessor shall be
relieved of any of the obligations described in this Article 41 to the extent
such party has such obligations as lessor pursuant to the Master Ground Lease or
the Ground Lease, as the case may be.
41.3 NO ASSUMPTION OF LANDLORD'S OBLIGATIONS. Notwithstanding
anything expressed or implied to the contrary in this Article 41, Tenant does
not hereby assume any obligations of Landlord under this Lease for which Tenant
would not be responsible for payment as an Operating Expenses. Tenant may elect
to undertake other of Landlord's obligations from time to time, such as repairs
and maintenance for which Landlord is responsible for payment under Article 18
(Repairs and Maintenance), and restoration of the Premises under Article 22
<PAGE> 47
(Damages and Destruction) and Article 23 (Eminent Domain), but if Tenant does
not elect to do so, Tenant may terminate this Lease.
41.4 COMPLETION GUARANTY. In consideration for Tenant's
consent to this Article 41, Landlord shall cause to be executed and delivered to
Tenant concurrently herewith a completion guaranty in the form attached hereto
as Exhibit "F" whereby Nexus Properties, Inc., R. Darrell Gary, and Michael J.
Reidy guarantee completion of the Premises pursuant to Article 4 and other
provisions of this Lease without any expense or obligation of Tenant except as
set forth in Article 4.
41.5 OFFSET OF EXPENSES AGAINST RENT. As additional
consideration for Tenant's consent to this Article 41, in the event that this
Article 41 becomes effective upon the termination of the Ground Lease or the
Master Lease, as the case may be, and the recognition of and attornment by
Tenant as set forth in Section 41.1, notwithstanding anything to the contrary
set forth in Section 5.3 or elsewhere in this Lease, Tenant may offset against
the Rent next due under this Lease any and all costs or expenses which would
otherwise have been the obligation of Landlord under this Lease.
41.6 OFFSET FOR SECURITY DEPOSIT AGAINST RENT. As additional
consideration for Tenant's consent to this Article 41, in the event that this
Article 41 becomes effective upon the termination of the Ground Lease or the
Master Lease, as the case may be, and the recognition of and attornment by
Tenant as set forth in Section 41.1, notwithstanding anything to the contrary
set forth in Section 5.3 or elsewhere in this Lease, Tenant may offset against
the Rent next due under this Lease the amount of the Security Deposit on deposit
with Landlord immediately prior to the effectiveness of this Article 41, and the
obligation of Landlord to return the Security Deposit to Tenant shall be
forgiven in the amount so offset.
42. DEFINITIONS. Capitalized terms not defined elsewhere in this Lease
shall have the meaning set forth below:
42.1 "PREMISES" shall have the meaning ascribed to it in
Section 1.1.
42.2 "REAL PROPERTY" shall have the meaning ascribed to it in
Section 1.1.
42.3 "SITE IMPROVEMENTS". The exterior improvements, to
include surface parking areas, landscaping, drainage, irrigation, gutters,
sidewalks, exterior lighting, walkways, driveways and other improvements and
appurtenances relating to ingress and egress described on the Site Plan, and any
other improvements shown thereon.
42.4 "SITE PLAN". The site plan attached hereto as Exhibit
"A-1".
42.5 "BUILDING". The Building Shell and the Tenant
Improvements.
42.6 "BUILDING SHELL". The shell of the Building, as described
on the plans and specifications attached hereto as Exhibits "A-2" and "A-3",
consisting of a two story concrete
<PAGE> 48
tilt-up structure, footings, foundations, floors, exterior walls, roof, exit
stairs, elevator, rest rooms, fire sprinkler riser and trunk lines, and central
electrical room, with building electrical service, natural gas, telephone,
water, plumbing, and other utilities necessary for the Tenant Improvements
extended from the street and stubbed to the Building, and any other improvements
shown thereon.
42.7 "TENANT IMPROVEMENTS". The initial improvements within
the Building Shell desired by Tenant for initial occupancy and use of the entire
Premises by Tenant (including Tenant's Removable Property).
42.8 "DATA CENTER" shall have the meaning ascribed to it in
Section 4.3.
42.9 "BUILDING SHELL PLANS". The plans and specifications for
the Building Shell.
42.10 "TENANT IMPROVEMENT PLANS". The plans and specification
for the Tenant Improvements, as prepared by Landlord and approved by Tenant.
42.11 "PLANS AND SPECIFICATIONS". The Site Improvement Plans,
Building Shell Plans and Tenant Improvement Plans.
42.12 "PROJECT". The Site Improvements, the Building Shell,
and the Tenant Improvements.
42.13 "PROJECT ARCHITECT". Dennis Kobza Associates, the
architect retained by Landlord for the design of the Site Improvements, Building
Shell and Tenant Improvements.
42.14 "PROJECT CONTRACTOR". Devcon Construction, Inc., the
general contractor retained by Landlord for the construction of the Project
Work.
42.15 "PROJECT SCHEDULE". The time and responsibility schedule
for the design and construction of the Site Improvements, Building Shell, and
Tenant Improvements as approved from time to time by mutual agreement of
Landlord and Tenant; provided, however, that the Project Schedule shall in all
cases be consistent with the delivery dates described in Sections 4.3 and 4.4.
42.16 "PROJECT WORK". Construction of the Site Improvements,
Building Shell, and Tenant Improvements.
42.17 "SUBSTANTIALLY COMPLETE," "SUBSTANTIALLY COMPLETED," and
"SUBSTANTIAL COMPLETION" shall mean the date all of the following shall have
occurred:
(a) Construction of the Project Work (or the Data Center, as
the case may be) is substantially complete in accordance with the Plans and
Specifications, as certified by the Project Architect;
<PAGE> 49
(b) Tenant has received an interim or final right to occupy
(or, in the case of the Data Center, a temporary certificate of occupancy) from
the City of Santa Clara (or check-off of the "approved to occupy" or comparable
line of the inspection card), or such later date as the conditions to the
issuance of a final certificate of occupancy have been satisfied and the only
steps which must be taken by the appropriate governmental agency to issue the
final certificate of occupancy are purely ministerial in nature. "Substantial
Completion" is not dependent upon receipt of a formal certificate of occupancy,
so long as Tenant has the right to occupy and use the Premises without the
issuance of such certificate of occupancy, and provided Landlord obtains a
certificate of occupancy in a timely manner;
(c) The Premises (or the Data Center, as the case may be) are
broom clean and in operating condition, subject to typical punch-list items
which do not materially interfere with Tenant's use or occupancy of the Premises
(or the Data Center, as the case may be) for the purposes for which they are
intended to be used. The term "broom clean and operating condition" shall
include the following: (i) tile floors are wet mopped, waxed and buffed, and
carpets are vacuumed; (ii) walls and partitions are cleaned and major holes are
filled and touched up; (iii) glass is cleaned on both sides; (iv) trash, dirt
and left-over materials are removed from the Premises (or the Data Center, as
the case may be); (v) the air-conditioning, heating and ventilating system is in
operating condition and approximately regulated; (vi) plumbing, electrical and
elevator systems are in operating condition; (vii) all interior walls are
finished and taped, speckled and painted; and (viii) computer floors are
installed and ready for installation of Tenant's equipment; and
(d) All utilities are extended to the Building (and the Data
Center, as the case may be), all utility systems are completed, and all
utilities are available from the provider.
In no event shall "Substantial Completion" be later than the
date Tenant actually commences to fully utilize the Premises (or the Data
Center, as the case may be) for the conduct of its business. Early entry upon
the Premises for the installation by Tenant of its furniture, fixtures,
equipment and systems shall not constitute conduct of its business. In no event
shall Substantial Completion, and subsequent use and occupancy by Tenant, of the
Data Center constitute Substantial Completion of the Premises.
42.18 "TENANT-CAUSED DELAY". Any delay caused solely by
(i) the failure of Tenant or its contractors, agents or employees, to act within
the time limits set forth in the Project Schedule and this Lease; (ii) Tenant's
request for equipment, materials, finishes or installations which are
unavailable or nonstandard and which cannot be obtained by Landlord within a
reasonable period of time because of limited availability; (iii) the untimely
delivery or installation of any of Tenant's equipment through no fault of
Landlord or any of its employees, agents or contractors, including the Project
Architect or Project Contractor; or (iv) physical interference with or damage to
Landlord's construction of the Project Work by Tenant or its contractors, agents
or employees.
<PAGE> 50
42.19 "FORCE-MAJEURE DELAYS". Any delay beyond the control of
Landlord which is attributable to (i) an industry-wide strike or lockout of a
trade in Santa Clara County, (ii) lightning, earthquake, rain, storm, hurricane,
tornado, flood, or similar act of God, and (iii) inability to secure in a timely
manner "lead item" components and equipment which are ordered in a timely manner
pursuant to Exhibit "G".
42.20 "ESTIMATED TERM COMMENCEMENT DATE." The date set forth
in Section 2.1.4(a).
42.21 "TERM COMMENCEMENT DATE" shall have the meaning ascribed
to it in Sections 2.1.4(a) and 4.5.
42.22 "TERM EXPIRATION DATE" shall have the meaning ascribed
to it in Section 2.1.4(b).
42.23 "TENANT'S REMOVABLE PROPERTY" shall have the meaning
ascribed to it in Section 30.3.
43. MISCELLANEOUS.
43.1 TERMS AND HEADINGS. Where applicable in this Lease, the
singular includes the plural and the masculine or neuter includes the masculine,
feminine and neuter. The section headings of this Lease are not a part of this
Lease and shall have no effect upon the construction or interpretation of any
part hereof.
43.2 EXAMINATION OF LEASE. Submission of this instrument for
examination or signature by Tenant does not constitute a reservation of or
option for lease, and it is not effective as a lease or otherwise until
execution by and delivery to both Landlord and Tenant.
43.3 TIME. Time is of the essence with respect to the
performance of every provision of this Lease in which time of performance is a
factor.
43.4 CONSENTS. Whenever consent or approval of either party is
required, that party shall not unreasonably withhold or delay such consent or
approval, except as may be expressly set forth to the contrary.
43.5 ENTIRE AGREEMENT. The terms of this Lease are intended by
the parties as a final expression of their agreement with respect to the terms
as are included herein, and may not be contradicted by evidence of any prior or
contemporaneous agreement.
43.6 SEVERABILITY. Any provision of this Lease which shall
prove to be invalid, void, or illegal in no way affects, impairs or invalidates
any other provision hereof, and such other provisions shall remain in full force
and effect.
<PAGE> 51
43.7 RECORDING. Upon the execution of this Lease, Landlord and
Tenant shall record a short form memorandum hereof in the form attached hereto
as Exhibit "C", subject to the requirement to execute and deliver a quitclaim
deed pursuant to the provisions of Section 34.1 hereof.
43.8 IMPARTIAL CONSTRUCTION. The language in all parts of this
Lease shall be in all cases construed as a whole according to its fair meaning
and not strictly for or against either Landlord or Tenant.
43.9 INUREMENT. Each of the covenants, conditions, and
agreements herein contained shall inure to the benefit of and shall apply to and
be binding upon the parties hereto and their respective heirs, legatees,
devisees, executors, administrators, successors, assigns, sublessees, or any
person who may come into possession of said Premises or any part thereof in any
manner whatsoever. Nothing in this section shall in any way alter the provisions
against assignment or subletting in this Lease provided.
43.10 NOTICES. Any notice, consent, demand, bill, statement,
or other communication required or permitted to be given hereunder must be in
writing and given by personal delivery or by certified mail, return receipt
requested, and if given by personal delivery shall be deemed given on the date
of delivery, and if given by mail shall be deemed given on the date of delivery
or refusal of delivery, to Landlord or Tenant at the addresses shown in Section
2.1.7 hereof, or to such other address as either party may specify by notice to
the other given pursuant to this Section. Notwithstanding the foregoing, notices
by facsimile transmission shall be effective as set forth in Section 24.1.
43.11 AUTHORITY TO EXECUTE LEASE. Landlord and Tenant each
acknowledge that it has all necessary right, title and authority to enter into
and perform its obligations under this Lease, that this Lease is a binding
obligation of such party and has been authorized by all requisite action under
the party's governing instruments, that the individuals executing this Lease on
behalf of such party are duly authorized and designated to do so, and that no
other signatories are required to bind such party, except that Tenant's
representations under this Section shall be effective only upon approval of
Tenant's board of directors following Lease execution.
43.12 EDUCATIONAL ENHANCEMENT. Pursuant to the Sub Ground
Lease, Landlord has agreed to cooperate with Ground Lessor to implement and
coordinate a program desired by Ground Lessor pursuant to which Landlord and its
tenants are encouraged to provide job training, seminars and research
opportunities for students of Mission Community College (the "College"). Tenant
acknowledges the existence and purpose of such program and the mutual benefit
which could arise from the successful implementation of such program. Tenant
further acknowledges that (i) the College is a source of education and training
for employees of Tenant; (ii) the College is a source of in-service training and
joint training programs; (iii) the College is a source of trained employees;
(iv) the College is a source of cultural activities; (v) the College is a
potential partner in joint seminars, conferences and research, and (vi) the
College is a source of part-time employees.
<PAGE> 52
43.13 LANDLORD'S COVENANTS.
(a) To the extent that the Sub Ground Lease gives Landlord any
right to terminate the Sub Ground Lease, Landlord shall not cancel or terminate
the Sub Ground Lease without the prior written consent of Tenant, which may be
withheld in Tenant's sole discretion, nor shall Landlord or the Ground Tenants
amend or modify the Sub Ground Lease in any way without the prior written
consent of Tenant, which may not be unreasonably withheld or delayed, provided
such amendments or modifications do not increase Tenant's obligations or
decrease Tenant's rights under this Lease.
(b) If the Ground Tenants seek to terminate the Sub Ground
Lease because of a default or alleged default by Landlord under the Sub Ground
Lease, Landlord shall use its best efforts to maintain the Sub Ground Lease in
full force and effect for the benefit of Tenant and Landlord, and Landlord shall
take all action required to reinstate the Sub Ground Lease and/or to claim and
pursue any right of redemption or relief from forfeiture of the Sub Ground Lease
(and as a consequence thereof any forfeiture of this Lease) to which Landlord
may be entitled at law or in equity (including, without limitation, any such
rights under California Code of Civil Procedure Sections 1174 and 1179).
Additionally, Landlord shall immediately provide Tenant with a copy of any
notice of default given by Ground Tenants to Landlord under the Sub Ground
Lease.
43.15 LANDLORD'S REPRESENTATIONS AND WARRANTIES. To the best
of Landlord's knowledge, and in addition to Landlord's other representations and
warranties set forth in this Lease, Landlord represents and warrants with
respect to the Premises that:
(a) The Master Lease, Ground Lease and Sub Ground Lease are
each in full force and effect, and there exists under the Master Lease, Ground
Lease and Sub Ground Lease no default or event of default by any party thereto,
nor has there occurred any event which, with the giving of notice or the passage
of time or both, could constitute such a default or event of default.
(b) There are no pending or threatened actions, suits or
proceedings before any court or administrative agency against Landlord or
against any party to either the Master Lease, Ground Lease or Sub Ground Lease
or third parties which could, in the aggregate, adversely affect the Premises or
any part thereof or the ability of the Ground Tenants or Landlord to perform
their respective obligations under the Sub Ground Lease or of Landlord to
perform its obligations under this Lease, and Landlord is not aware of any facts
which might result in any such actions, suits or proceedings.
(c) There is not pending or threatened condemnation or similar
proceedings affecting the Premises or any portion thereof, and Landlord has no
knowledge that any such action currently is contemplated.
<PAGE> 53
43.16 ASSIGNMENT OF RENT.
TENANT ACKNOWLEDGES THAT LANDLORD HAS ASSIGNED ITS RIGHTS TO
RENT HEREUNDER TO THE LANDLORD UNDER THE SUB GROUND LEASE, AND
THAT THE LANDLORD UNDER THE SUB GROUND LEASE HAS ASSIGNED ITS
RIGHTS TO RENT HEREUNDER TO THE LANDLORD UNDER THE GROUND
LEASE, AND THAT, EXCEPT TO THE EXTENT SUCH RENTAL PAYMENTS ARE
FROM TIME TO TIME BEING MADE TO A LEASEHOLD MORTGAGEE OF
LANDLORD OR THE LANDLORD UNDER THE SUB GROUND LEASE, TENANT
SHALL MAKE RENTAL PAYMENTS DIRECTLY TO THE LANDLORD UNDER THE
GROUND LEASE UPON RECEIVING ANY REQUEST THEREFOR FROM THE
LANDLORD UNDER THE GROUND LEASE.
There shall be no prejudice to Tenant, nor liability incurred
by Tenant, on account of Tenant making rental payments directly to a party
purporting to be the landlord under the Ground Lease as set forth above, and
Landlord shall release Tenant of any such obligation to Landlord to the extent
Rent is so paid.
IN WITNESS WHEREOF, the parties hereto have executed this
Lease as of the date first above written.
LANDLORD:
MISSION PLAZA LLC
a California limited liability company
By Nexus Properties, Inc.
A California Corporation
Its Manager
By: /s/ R. Darrell Gary
---------------------
R. Darrell Gary
President
TENANT:
GLOBIX CORPORATION
a Delaware corporation
By: /s/ Robert Bell
---------------------
Robert Bell
Executive Vice President and Chief Financial Officer
<PAGE> 1
Exhibit 10.32
FIRST AMENDMENT TO LEASE
THIS FIRST AMENDMENT TO LEASE (this "Amendment") is effective as of July
24, 1998, by and between MISSION PLAZA LLC, a California limited liability
company, and GLOBIX CORPORATION, a Delaware corporation doing business as The
California Globix Corporation, "Landlord" and "Tenant", respectively, under
that certain Lease (the "Lease") dated as of July 24, 1998, for the Premises
described in Section 1.1 of the Lease, consisting in part of real property
described as Parcel 1 shown on that Parcel Map filed for record in the Office
of the Recorder of the County of Santa Clara, State of California, on May 15,
1998, in Book 702 of Maps, pages 29, 30 and 31.
The Lease is hereby amended as set forth herein.
The following sentence shall be added to Section 10.1 of the Lease:
Without the prior written consent of Landlord, Ground Lessor and the
District, Tenant shall maintain no more than two classrooms on the
Premises, and shall conduct training for no more than thirty (30)
persons at any one time on the Premises (other than in-house Tenant
employee training); shall confine its training operations on the
Premises to computer hardware, software and related technology used
for systems installed by Tenant or Tenant's corporate clients and
necessary to and in support of Tenant's primary website/internet
service business; shall not advertise its training to the general
public; and shall not solicit or accept individuals for training who
are not affiliated with Tenant's corporate clients. These restrictions
apply only to the Premises at 2807 Mission College Boulevard, Santa
Clara, California, and do not restrict Tenant's activities at any
other location at which Tenant conducts business.
The following Subsection 41.1(k) is added to the Lease:
(k) PARKING (SECTION 15.1). Neither Ground Lessor nor the District
shall have any obligation to construct or provide parking spaces and
related improvements, but shall not withdraw any parking spaces which
are otherwise available for Tenant's use.
In all other respects, the Lease shall remain in full force and effect as
originally written.
-1-
<PAGE> 2
IN WITNESS WHEREOF, the parties hereto have executed this First Amendment
to Lease as of the date of the first above written, having been executed on the
date set forth below.
LANDLORD:
MISSION PLAZA LLC
A California limited liability company
By Nexus Properties, Inc.
A California corporation
Manager
Dated: Oct. 8, 1998
----------------------------
By: /S/ R. Darreil Gary
----------------------------
R. Darreil Gary
President
TENANT:
GLOBIX CORPORATION
A Delaware corporation
Doing business as The California Globix Corporation
Dated: Oct. 8, 1998
----------------------------
By: /S/ Robert Bell
----------------------------
Robert Bell
Executive Vice President and Chief Financial Officer
<PAGE> 1
DATED 15th OCTOBER 1998
CORSTON HOLDINGS LIMITED
- and -
GLOBIX LIMITED
- and -
GLOBIX CORPORATION
LEASE
OF
PART GROUND FLOOR AND THE WHOLE OF
THE FIRST AND SECOND FLOORS OF 80 TO
110 (EVEN) NEW OXFORD STREET LONDON WC1
TOGETHER WITH 4 BASEMENT CAR PARKING SPACES AND
BASEMENT AND SUB-BASEMENT STORES
AT PROSPECT HOUSE
LINKLATERS & PAINES
One Silk Street
London EC2Y 8HQ
TEL: (+44) 171 456 2000
Ref: JSB
LEASE PARTICULARS
November 11, 1998
<PAGE> 2
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
<S> <C> <C>
1 DATE : FIFTEENTH OCTOBER 1998
- -------------------------------------------------------------------------------
2 PARTIES
2.1 LANDLORD : CORSTON HOLDINGS LIMITED (Jersey Company
number: 53933) whose registered office is at
44 Esplanade St Helier Jersey Channel Islands
- --------------------------------------------------------------------------------
2.2 TENANT : GLOBIX LIMITED (Company number 3616569)
whose registered office is at Apollo House,
56 New Bond Street, London W1Y 0SX
- --------------------------------------------------------------------------------
: GLOBIX CORPORATION whose registered office
2.3 GUARANTOR is at 295 Lafayette Street, New York,
10012, USA
- --------------------------------------------------------------------------------
3 BUILDING : The land and buildings known as Prospect
House 80 to 110 New Oxford Street London WC1
as registered at H M Land Registry under
Title Number NGL441887
- --------------------------------------------------------------------------------
4 PREMISES : Part of the ground floor and the whole of
the first and second floors of the Building
shown for identification only edged red on
the floor plans annexed together with the
area in the basement shown for
identification only edged green and hatched
mauve on the basement plan annexed and the
basement and sub-basement store areas shown
edged green hatched yellow and shown edged
green on the basement and sub-basement plans
annexed
- --------------------------------------------------------------------------------
5 BASEMENT SPACE : the areas (being part of the Premises)
located in the basement and the sub-basement
of the Building
- --------------------------------------------------------------------------------
: the term of years from and including the
date of this Lease up to and including 28
6 CONTRACTUAL TERM September 2014
- --------------------------------------------------------------------------------
7 PRINCIPAL RENT : For the period from the date hereof up to
and including the day immediately prior to
the Rent Commencement Date one peppercorn
(if demanded) and thereafter One million and
eighty thousand pounds ( pound sterling
1,080,000) per annum subject to increase in
accordance with the Second Schedule
- --------------------------------------------------------------------------------
: 14 October 1999
8 RENT COMMENCEMENT
DATE
- --------------------------------------------------------------------------------
</TABLE>
November 11, 1998
<PAGE> 3
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
<S> <C> <C>
9 REVIEW DATES : 29 September in each of the years 2004 and
2009
- --------------------------------------------------------------------------------
10 PERMITTED USE : a) for that part of the Premises on the
ground floor offices within Class A2/B1 of
the 1987 Order
b) for those parts of the Premises on the
first and second floors offices within Class
B1 of the 1987 Order
c) for the Basement Space a plant room
and/or store
- --------------------------------------------------------------------------------
</TABLE>
November 11, 1998
<PAGE> 4
THIS LEASE made on the date and between the parties specified in the
Particulars WITNESSES as follows:
1 DEFINITIONS
In this Lease unless the context otherwise requires:
ADJOINING PROPERTY means any adjoining or neighbouring premises in which
the Landlord or a Group Company of the Landlord holds or shall at any time
during the Term hold a freehold or leasehold interest;
ARBITRATION means arbitration in accordance with Clause 7.4;
BASE RATE means the base rate from time to time of Barclays Bank PLC, or
(if not available) such comparable rate of interest as the Landlord shall
reasonably require;
BUILDING means the building described in the Particulars, and includes any
part of it and any alteration or addition to it or replacement of it;
CAR LIFTS - the car lifts shown for identification purposes edged brown on
the basement plan annexed hereto;
COMMON PARTS means the accesses, lifts (including without limitation the
Car Lifts), car parks and other areas of the Building from time to time
designated by the Landlord for common use by the tenants and occupiers of
the Building and those properly authorised or permitted by them to do so
but excludes any such areas as may be within the Premises or any other
premises within the Building which are let or intended to be let;
CONDUIT means any existing or future media for the passage of substances
or energy and any ancillary apparatus attached to them and any enclosures
for them;
CONTRACTUAL TERM means the term specified in the Particulars;
ENCUMBRANCES means the obligations and encumbrances contained or referred
to in the documents specified in Part III of the First Schedule;
GROUP COMPANY means a company which is a member of the same group of
companies within the meaning of Section 42 of the Landlord and Tenant Act
1954;
GUARANTOR means the person so named in the Particulars;
INSURED RISKS means fire, lightning, earthquake, explosion, aircraft
(other than hostile aircraft) and other aerial devices or articles dropped
therefrom, riot, civil commotion, malicious damage, storm or tempest,
bursting or overflowing of water tanks apparatus or pipes, flood and
impact by road vehicles (to the extent that insurance against such risks
may ordinarily be arranged with an insurer of good repute) and such other
risks or insurance as may from time to time be required by the Landlord
(subject in all cases to such exclusions and limitations as may be imposed
by the insurers), and INSURED RISK means any one of them;
LANDLORD means the person so named in the Particulars and includes any
other person entitled to the immediate reversion to this Lease;
LANDLORD'S SURVEYOR means the Landlord's surveyor or managing agent (who
may be an employee of the Landlord);
November 11, 1998
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THIS LEASE means this lease and any document supplemental to it or entered
into pursuant to it;
LETTABLE UNIT means a part of the Building which is let, or constructed or
adapted for letting, from time to time;
OUTSIDE SERVICE HOURS CHARGE means the proper cost to the Landlord of
providing any of the Services at the Tenant's request outside the Service
Hours (or a fair proportion of such cost if requested or used by another
tenant also);
PARTICULARS means the descriptions and terms on the page headed Lease
Particulars which form part of this Lease;
PERMITTED PART means:
(1) the whole of the first floor and/or the whole of the second floor of
the Premises;
(2) the whole of the ground floor of the Premises (provided that the
area in which the Tenant's generator is located can be excluded);
(3) a part of either the first floor and/or the second floor of the
Premises where all of the following conditions are satisfied:
(a) the extent of the part intended to be sublet shall first have
been approved by the Landlord (such approval not to be
unreasonably withheld or delayed);
(b) no more than two separate occupations (including the
occupation of the Tenant itself if relevant) shall subsist at
any time in respect of any such floor;
(4) the whole or part of the area in the Basement Space shown edged
green and hatched mauve on the basement plan annexed hereto;
(5) the whole of the oil storage area in the Basement Space shown edged
green and hatched yellow on the basement plan annexed hereto;
(6) the whole or part of the storage area in the sub-basement edged
green on the sub-basement plan annexed hereto;
PROVIDED THAT in respect of any or all of the Basement Space a subletting
shall only be effected to any person who shall at the date of the
subletting be a tenant or subtenant of any part of the Building.
AND PROVIDED FURTHER THAT before any Permitted Part is sublet the Tenant
shall have obtained (and produced to the Landlord) a valid Order of the
Court (together with the form of underlease to which such Order refers)
excluding in respect of such proposed sub-demise the provisions of
Sections 24 to 28 inclusive of the Landlord and Tenant Act 1954.
PLANNING ACTS means the Town and Country Planning Act 1990, the Planning
(Listed Buildings and Conservation Areas) Act 1990, the Planning
(Hazardous Substances) Act 1990 and the Planning (Consequential
Provisions) Act 1990;
November 11, 1998
<PAGE> 6
PREMISES means the premises described in the Particulars and any part of
them and includes:
(1) the floorboards, screed, plaster and other finishes on the floors,
walls, columns and ceilings, and all carpets;
(2) the raised floors and false ceilings (including light fittings), and
the voids between the ceilings and false ceilings and between the
floor slab and the raised floors;
(3) non-load-bearing walls and columns wholly within the Premises and
one half of the thickness of such walls dividing the Premises from
other parts of the Building;
(4) all doors and internal windows of the Premises and their frames,
glass and fitments;
(5) all Conduits, plant and machinery within and solely serving the
Premises;
(6) all Landlord's fixtures and fittings in the Premises;
(7) all alterations and additions made to the Premises;
but excludes:
(1) all structural and external parts of the Building;
(2) load bearing framework, roof, foundations and joists;
(3) all Conduits, plant and machinery serving other parts of the
Building;
PRINCIPAL RENT means the rent stated in the Particulars;
QUARTER DAYS means 25 March, 24 June, 29 September and 25 December in
every year and Quarter Day means any of them;
SERVICE CHARGE means the service charge as specified in the Fourth
Schedule;
SERVICE HOURS means 8 a.m. to 8 p.m. on Monday to Friday and 8 a.m. to 2
p.m. on Saturday, excluding all public holidays;
SERVICES means the services set out in Parts II(A) and II(B) of the Fourth
Schedule;
TENANT means the person so named in the Particulars, and includes its
successors in title;
TERM means the Contractual Term together with any continuation of the term
or the tenancy (whether by statute, common law, holding over or
otherwise);
VAT means Value Added Tax and any similar tax substituted for it or levied
in addition to it;
1987 ORDER means the Town and Country Planning (Use Classes) Order 1987
(as originally made);
1995 ACT means the Landlord and Tenant (Covenants) Act 1995.
2 INTERPRETATION
In this Lease unless the context otherwise requires:
November 11, 1998
<PAGE> 7
2.1 If the Tenant or the Guarantor is more than one person then their
covenants are joint and several;
2.2 Any reference to a statute includes any modification, extension or
re-enactment of it and any orders, regulations, directions, schemes and
rules made under it;
2.3 Any covenant by the Tenant not to do any act or thing includes an
obligation not to permit or suffer such act or thing to be done;
2.4 If the Landlord reserves rights of access or other rights over or in
relation to the Premises then those rights extend to persons authorised by
it;
2.5 References to the act or default of the tenant include acts or default or
negligence of any undertenant, or of anyone at the Premises with the
Tenant's or any undertenant's permission or sufferance;
2.6 The Clause headings in this Lease are for ease of reference only;
2.7 References to the last year of the Term shall mean the twelve months
ending on the expiration or earlier termination of the Term;
2.8 The perpetuity period applicable to this Lease shall be the Term or 80
years from the commencement of the Term (whichever is the shorter);
2.9 References to costs include all liabilities, claims, demands, proceedings,
damages, losses and proper costs and expenses.
3 DEMISE AND RENTS
The Landlord DEMISES the Premises to the Tenant for the Contractual Term,
TOGETHER WITH the rights set out in Part I of the First Schedule, EXCEPT
AND RESERVING as mentioned in Part II of the First Schedule, subject to
all rights enjoyed by the owners or occupiers of any neighbouring property
over the Premises and subject to the Encumbrances, the Tenant paying by
way of rent during the Term without any deduction, counterclaim or set
off:
3.1 the Principal Rent and any VAT thereon by equal quarterly payments in
advance on the Quarter Days, to be paid by Banker's Standing Order if the
Landlord so requires, the first payment for the period from and including
the Rent Commencement Date to (but excluding) the next Quarter Day to be
made on the Rent Commencement Date;
3.2 the Service Charge and any VAT thereon at the times and in the manner set
out in the Fourth Schedule, and the Outside Service Hours Charge and any
VAT thereon on written demand;
3.3 the following amounts and any VAT thereon:
3.3.1 the sums specified in Clauses 4.2 (interest) and 4.5 (utilities);
3.3.2 the sums specified in Clause 6.2.1 (insurance);
3.3.3 all Costs incurred by the Landlord as a result of any breach of the
Tenant's covenants in this Lease.
4 TENANT'S COVENANTS
November 11, 1998
<PAGE> 8
The Tenant covenants with the Landlord throughout the Term, or until
released pursuant to the 1995 Act, as follows:
4.1 RENTS
To pay the rents reserved by this Lease on the due dates;
4.2 INTEREST
If the Landlord does not receive the Principal Rent within seven days of
the due date or any other sum due to it within 14 days of the due date, to
pay on demand interest on such sum at 4 per cent above Base Rate
(compounded on the Quarter Days) from the due date until payment (both
before and after any judgment), provided this Clause shall not prejudice
any other right or remedy for the recovery of such sum;
4.3 OUTGOINGS
To pay all existing and future rates, taxes, charges, assessments and
outgoings in respect of the Premises (whether assessed or imposed on the
owner or the occupier), except any tax (other than VAT) arising as a
result of the receipt by the Landlord of the rents reserved by this Lease
and any tax (including VAT) arising on any dealing or disposition by the
Landlord with its reversion to this Lease;
4.4 VAT
4.4.1 Any payment or other consideration to be provided to the Landlord is
exclusive of VAT, and the Tenant shall in addition pay any VAT
chargeable on the date the payment or other consideration is due;
4.4.2 Any obligation to reimburse or pay the Landlord's expenditure
extends to irrecoverable VAT on that expenditure, and the Tenant
shall also reimburse or pay such VAT;
4.5 UTILITIES
To pay for all gas, electricity, water, telephone and other utilities used
on the Premises, and all charges for meters and all standing charges, and
a fair proportion of any joint charges as determined properly and
reasonably by the Landlord's Surveyor;
4.6 REPAIR
4.6.1 To keep and maintain the Premises (excluding air conditioning,
ventilation and fire systems) and any Conduits, plant and equipment
serving only the Premises in good and substantial repair and
condition (damage by the Insured Risks excepted save to the extent
that insurance moneys are irrecoverable as a result of the act or
default of the Tenant);
4.6.2 To commence to make good any disrepair for which the Tenant is
liable within 2 months after the date of written notice from the
Landlord (or sooner if the Landlord reasonably requires) and
diligently proceed to complete the work;
4.6.3 If the Tenant fails to comply with any such notice the Landlord may
enter and carry out the work, and the cost shall be reimbursed by
the Tenant on demand as a debt;
November 11, 1998
<PAGE> 9
4.6.4 To enter into maintenance contracts with reputable contractors for
the regular servicing of all plant and equipment serving only the
Premises and to provide to the Landlord on request copies of such
contracts;
4.7 DECORATION
4.7.1 To clean, prepare and paint or treat and generally redecorate all
internal parts of the Premises which at the date of this Lease
require to be painted or treated or decorated in every fifth year
and in the last year of the Term (provided that the covenant
relating to the last year of the Term is not to apply where and to
the extent that the Tenant has redecorated the Premises less than
twelve months before the end of the Term) and PROVIDED FURTHER THAT
except in the last year of the term the Tenant shall not be obliged
to repaper the walls of the premises at second floor level but shall
paint such walls in a manner which shall first be approved by the
Landlord (such approval not to be unreasonably withheld);
4.7.2 The work described in Clause 4.7.1 is to be carried out:
(i) in a good and workmanlike manner to the Landlord"s reasonable
satisfaction; and
(ii) in colours which (if different from the existing colour) are
first approved in writing by the Landlord (approval not to be
unreasonably withheld or delayed provided that such consent
shall be deemed to have been given by the Landlord if it does
not signify the contrary to the Tenant within 21 days of
receipt of full details of the Tenant"s proposals);
4.8 CLEANING
4.8.1 To keep the Premises clean, tidy and free from rubbish;
4.8.2 To clean the inside of windows and any washable surfaces at the
Premises as often as reasonably necessary;
4.9 OVERLOADING
Not to overload the floors or ceilings of the Premises in excess of the
floor loadings shown on drawing numbered 984096.03 annexed hereto, or the
structure of the Building, or any plant, machinery or electrical
installation serving the Premises or the Building nor to do anything which
interferes with the heating, air conditioning or ventilation of the
Building;
4.10 CONDUITS
To keep the Conduits in or exclusively serving the Premises clear and free
from any noxious, harmful or deleterious substance, and to remove any
obstruction and repair any damage to such Conduits as soon as reasonably
practicable to the Landlord"s reasonable satisfaction;
4.11 PROHIBITED USES
Not to use the Premises:
4.11.1 for any purpose which is noisy, offensive, dangerous, illegal,
immoral or a nuisance or causes damage or disturbance to the
Landlord or its other tenants
November 11, 1998
<PAGE> 10
of the Building, or to owners or occupiers of any neighbouring
property, or which involves any substance which may be harmful,
polluting or contaminating;
4.11.2 for residential purposes;
4.11.3 for any auction, public or political meeting, public exhibition or
show, or as a betting office or for gaming or playing amusement
machines, or as a sex shop (as defined in the Local Government
(Miscellaneous Provisions) Act 1982), or for the business of an
undertaker, or for the business of a staff agency, employment
agency or Government Department at which the general public call
without appointment;
4.12 PERMITTED USE
Not to use the Premises otherwise than for the Permitted Use specified in
the Particulars;
4.13 SIGNS
Without prejudice to paragraph 5 of the First Schedule not to erect any
sign, notice or advertisement which is visible outside the Premises
without the Landlord's prior written consent;
4.14 ALTERATIONS
4.14.1 Not to make any alterations or additions which:
(i) affect the structure of the Building (including without
limitation the roofs and foundations and the principal or
load-bearing walls, floors, beams and columns);
(ii) subject to clause 4.14.2 divide the Premises or merge the
Premises with any adjoining premises; (iii) affect the
external appearance of the Premises;
(iv) affect the heating, air conditioning or ventilation systems at
the Building;
(v) would diminish the lettable floor area of the Premises;
4.14.2 Not to make any other alterations or additions to the Premises or
any Conduits, plant or equipment serving only the Premises without
the Landlord's written consent (not to be unreasonably withheld or
delayed); but no such consent shall be required for the
construction alteration and removal of non structural demountable
partitions if the plans of such works are immediately deposited
with the Landlord;
4.15 PRESERVATION OF EASEMENTS
4.15.1 Not to prejudice the acquisition of any right of light for the
benefit of the Premises by obstructing any window or opening, or
giving any acknowledgment that the right is enjoyed by consent or
any other act or default of the Tenant;
4.15.2 To preserve all rights of light and other easements enjoyed by the
Premises, and not to permit or suffer anyone to acquire any right
of light or other easement or right over the Premises;
November 11, 1998
<PAGE> 11
4.15.3 To give the Landlord immediate notice if any easement enjoyed by
the Premises is obstructed, or any new easement affecting the
Premises is made or attempted;
4.16 ALIENATION
4.16.1 Not to:
(i) (save as herein permitted) assign, charge, underlet or part
with possession of part only of the Premises nor to agree to
do so;
(ii) part with the possession of the whole of the Premises except
by an assignment or underletting permitted by this Clause
4.16;
(iii) (save as herein permitted) share the possession or occupation
of the whole or any part of the Premises;
4.16.2 Not to assign the whole of the Premises without the Landlord's
written consent (not to be unreasonably withheld or delayed),
provided that:
(i) the Landlord may withhold consent in circumstances where:
(a) the proposed assignee is a Group Company of the Tenant
unless the Group Company (when considered in conjunction
with any guarantor being offered to the Landlord) is in
the Landlord's reasonable opinion of equal or better
financial standing (by reference to the Principal Rent
and other sums payable under this Lease at the date of
the proposed assignment) than the outgoing tenant
together with any guarantor at the date the Lease was
granted or assigned to it; and/or
(b) in the reasonable opinion of the Landlord the proposed
assignee (when considered in conjunction with any
guarantor being offered to the Landlord) is not of
sufficient financial standing to enable it to comply
with the Tenant's covenants in this Lease;
(ii) the Landlord's consent shall in every case be subject to
conditions (unless expressly excluded) requiring that:
(a) the assignee covenants with the Landlord to pay the
rents and observe and perform the Tenant's covenants in
this Lease during the residue of the Term, or if earlier
until released pursuant to the 1995 Act;
(b) the Tenant enters into an authorised guarantee agreement
guaranteeing the performance of the Tenant's covenants
in this Lease by the assignee including the provisions
set out in the Third Schedule (but omitting paragraph
1.2);
(c) if reasonably so required by the Landlord such other
persons as the Landlord reasonably requires act as
guarantors for the assignee and enter into direct
covenants with the Landlord including the provisions set
out in the Third Schedule (but referring in paragraph
1.2 to the assignee);
(d) all rent and other payments then due under this Lease
are paid before completion of the assignment;
November 11, 1998
<PAGE> 12
4.16.3 The provisos to Clause 4.16.2 shall not prejudice the Landlord's
right to withhold consent in other circumstances, or to impose other
conditions, where it would be reasonable to do so;
4.16.4 Not to underlet or agree to underlet the whole of the Premises or
any Permitted Part unless:
(i) the rent payable under the underlease is:
(a) not less than the best rent reasonably obtainable in the
open market for the Premises or Permitted Part without
fine or premium;
(b) payable no more than one quarter in advance;
(c) to be subject to upward only reviews to coincide with
the rent reviews under this Lease;
(ii) the undertenant covenants with the Landlord and in the
underlease:
(a) to observe and perform the Tenant's covenants in this
Lease (except for payment of the rents) during the term
of the underlease or until released pursuant to the 1995
Act;
(b) not to underlet, nor except in accordance with the
provisions of clause 4.16.4(ii)(c) share or part with
possession or occupation of the whole or any part of the
underlet premises, nor to assign or charge part only of
the underlet premises;
(c) not to assign the whole of the underlet premises without
the Landlord's prior written consent (which shall not be
unreasonably withheld or delayed);
(iii) all rents and other payments then due under this Lease are
paid before completion of the underletting;
4.16.5 Without prejudice to Clause 4.16.4, not to underlet the whole of
the Premises nor vary the terms of any underlease without the
Landlord's written consent (not to be unreasonably withheld or
delayed);
4.16.6 To take all necessary steps and proceedings to remedy any breach of
the covenants of the undertenant under the underlease, and not to
permit any reduction of the rent payable by any undertenant;
4.16.7 Notwithstanding Clause 4.16.1 the Tenant may
(i) share occupation of the whole or any part of the Premises with
a Group Company; and
(ii) grant third parties the right to instal and operate computer
equipment together with rights of access thereto and suitable
security
PROVIDED THAT
(a) the relationship of landlord and tenant is not created;
and
(b) occupation by any Group Company shall cease upon it
ceasing to be a Group Company; and
November 11, 1998
<PAGE> 13
(c) the overall impression of the Premises is that of a
single unit in one occupation;
4.17 REGISTRATION
Within 21 days to give to the Landlord"s solicitors (or as the Landlord
may direct) written notice of any assignment, charge, underlease or other
devolution of the Premises together with a certified copy of the relevant
document and a proper and reasonable registration fee of not less than
(pound) 30;
4.18 STATUTORY REQUIREMENTS
To comply promptly with all notices served by any public, local or
statutory authority, and with the requirements of any present or future
statute or European Union law, regulation or directive (whether imposed on
the owner or occupier), which affects the Premises or their use;
4.19 PLANNING
4.19.1 To comply with the Planning Acts;
4.19.2 Not to apply for or implement any planning permission affecting the
Premises without first obtaining the Landlord's written consent such
consent not to be unreasonably withheld or delayed when such
application or planning permission relates to a use or works which
are permitted under the terms of this Lease;
4.19.3 If a planning permission is implemented the Tenant shall complete
all the works permitted and comply with all the conditions imposed
by the permission before the determination of the Term (including
any works stipulated to be carried out by a date after the
determination of the Term unless the Landlord requires otherwise);
4.19.4 If the Landlord reasonably so requires, to produce evidence to the
Landlord that the provisions of this Clause 4.19 have been complied
with;
4.20 NOTICES
4.20.1 To supply the Landlord with a copy of any notice, order or
certificate or proposal for any notice, order or certificate
affecting or capable of affecting the Premises as soon as it is
received by or comes to the notice of the Tenant;
4.20.2 At the request of the Landlord, but at the cost of the Landlord to
make or join the Landlord in making such objections or
representations against or in respect of any such notice, order or
certificate as the Landlord may reasonably require;
4.21 CONTAMINANTS AND DEFECTS
4.21.1 To give the Landlord immediate written notice of the existence of
any contaminant, pollutant or harmful substance on or any defect in
the Premises as soon as the same comes to the notice of the Tenant;
4.21.2 If so requested by the Landlord, to remove from the Premises or
remedy to the Landlord's reasonable satisfaction any such
contaminant, pollutant or harmful substance which is in the Premises
as a result of any act or default of the Tenant;
4.22 ENTRY BY LANDLORD
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<PAGE> 14
To permit the Landlord at all reasonable times and on reasonable written
notice (except in emergency) to enter the Premises in order to:
4.22.1 inspect and record the condition of the Premises or any other parts
of the Building or the Adjoining Property;
4.22.2 remedy any breach of the Tenant's obligations under this Lease;
4.22.3 repair, maintain, clean or replace, add to or connect up to any
Conduits which serve the Building or the Adjoining Property;
4.22.4 repair, maintain or rebuild any part of the Building;
4.22.5 comply with any of its obligations under this Lease;
Provided That the Landlord shall exercise such rights in a reasonable
manner and cause as little inconvenience as reasonably practicable in the
exercise of such rights, and shall promptly make good all damage to the
Premises caused by such entry;
4.23 LANDLORD'S COSTS
To pay to the Landlord on demand amounts equal to such reasonable and
proper Costs as it may incur:
4.23.1 in connection with any application made by the Tenant for consent
made necessary by this Lease (including where consent is lawfully
refused or the application is withdrawn);
4.23.2 incidental to or in reasonable contemplation of the preparation and
service of a schedule of dilapidations (whether before or within six
months after the expiry of the Term) or a notice or proceedings
under Section 146 or Section 147 of the Law of Property Act 1925
(even if forfeiture is avoided other than by relief granted by the
Court);
4.23.3 in connection with the enforcement or remedying of any breach of
the covenants in this Lease on the part of the Tenant and any
Guarantor;
4.23.4 incidental to or in reasonable contemplation of the preparation and
service of any notice under Section 17 of the 1995 Act;
4.24 INDEMNITY
To indemnify the Landlord against all Costs arising directly or indirectly
from the use or occupation or condition of the Premises during the Term,
or any breach of the Tenant's obligations under this Lease, or any act or
default of the Tenant in relation to the Premises, or the exercise of the
rights set out in Part I of the First Schedule;
4.25 RELETTING NOTICES
To allow a letting or sale board to be displayed on the Premises (but not
so that it restricts or interferes unreasonably with the light enjoyed by
the Premises), and to allow prospective tenants or purchasers to view the
Premises on reasonable notice; Provided That no such letting board shall
be erected where the Tenant has made a valid court application under
Section 24 of the Landlord and Tenant Act 1954 or is otherwise entitled to
remain in occupation or to a new tenancy of the Premises;
4.26 YIELDING UP
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<PAGE> 15
4.26.1 At the end of the Term:
(i) to give up the Premises repaired and decorated and otherwise
in accordance with the Tenant's covenants in this Lease;
(ii) if the Landlord so requires, to remove all alterations made
during the Term or any preceding period of occupation by the
Tenant and reinstate the Premises as the Landlord shall
reasonably direct and to its reasonable satisfaction;
(iii) if the Landlord so requires, to remove all signs, tenant's
fixtures and fittings and other goods from the Premises, and
make good any damage caused thereby to the Landlord's
reasonable satisfaction;
(iv) to replace any damaged or missing Landlord's fixtures with
ones of no less quality and value;
(v) to pay to the Landlord a sum equal to any rating relief which
the Landlord will be unable to claim because the Premises
shall be unoccupied for any period immediately before the end
of the Term;
4.26.2 If the Tenant fails to comply with Clause 4.26.1 to pay to the
Landlord on demand as liquidated damages:
(i) any Costs incurred by the Landlord in remedying the breach;
and
(ii) a sum equivalent to the Principal Rent payable immediately
before the end of the Term for the period reasonably required
to remedy the breach;
4.27 ENCUMBRANCES
To perform and observe the Encumbrances so far as they relate to the
Premises;
4.28 REGULATIONS
4.28.1 To observe all reasonable rules and regulations relating to the
Building from time to time made by the Landlord and notified to the
Tenant but in the event of any conflict between such rules and
regulations and the provisions of this Lease then the latter shall
prevail;
4.28.2 Not to cause any obstruction to the Common Parts, nor to park, load
or unload vehicles otherwise than in the areas designated for such
purpose from time to time.
5 LANDLORD'S COVENANTS
The Landlord covenants with the Tenant while the reversion immediately
expectant on the Term is vested in it as follows:
5.1 QUIET ENJOYMENT
That, subject to the Tenant paying the rents reserved by and complying
with the terms of this Lease, the Tenant may peaceably enjoy the Premises
during the Term without any interruption by the Landlord or any person
lawfully claiming under or in trust for it;
5.2 PROVISION OF SERVICES
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<PAGE> 16
That, subject to the Tenant paying the Service Charge at the times and in
the manner specified in this Lease, the Landlord will provide the
Services, Provided that:
5.2.1 subject to Clause 5.3 the Services need only be provided during the
Service Hours unless the Tenant requests other hours and pays the
Outside Service Hours Charge for such additional hours;
5.2.2 the Landlord will not be in breach of this Clause as a result of any
failure or interruption of any of the Services:
(i) resulting from circumstances beyond the Landlord's reasonable
control, so long as the Landlord uses its reasonable
endeavours to remedy the same as soon as reasonably
practicable after becoming aware of such circumstances; or
(ii) to the extent that the Services (or any of them) cannot
reasonably be provided as a result of works of inspection,
maintenance and repair or other works being carried out at the
Building provided that where practicable the Landlord shall
use all reasonable endeavours to procure that reasonably
acceptable alternative services are provided for the duration
of any such temporary interruption;
5.3 To provide heating and hot water air conditioning and operating chillers
and security staff to the Premises at all times during the Term provided
that the Tenant pays Outside Service Hours Charge for such services
excluding the provision of security staff to the extent that they are
provided by the Landlord outside Service Hours;
5.4 Not (save as may be permitted by any lease of the Building in existence at
the date hereof) to use or permit to be used any part of the Building for
any of the uses prohibited by Clause 4.11 of this Lease;
5.5 To indemnify the Tenant against the proper and reasonable Costs incurred
by the Tenant in connection with the enforcement or remedying of any
breach of the Landlord's covenants contained herein.
6 INSURANCE
6.1 LANDLORD'S INSURANCE COVENANTS
The Landlord covenants with the Tenant while the reversion immediately
expectant on the Term is vested in it as follows:
6.1.1 To insure the Building (other than tenant's and trade fixtures and
fittings) on usual and reasonable commercial terms unless the
insurance is invalidated in whole or in part by any act or default
of the Tenant:
(i) with an insurance office or underwriters of repute;
(ii) against loss or damage by the Insured Risks and damage caused
by terrorist activity for so long as such cover remains
ordinarily available in the market on usual and reasonable
commercial terms;
(iii) subject to such excesses as may be imposed by the insurers;
November 11, 1998
<PAGE> 17
(iv) in the full cost of reinstatement of the Building (in modern
form if appropriate) including shoring up, demolition and site
clearance, professional fees, VAT and allowance for building
cost increases;
6.1.2 To insure against loss of the Principal Rent and the Service Charge
and VAT thereon payable or reasonably estimated by the Landlord to
be payable under this Lease arising from damage to the Premises by
the Insured Risks for four years or such shorter period as the
Landlord may reasonably require having regard to the likely period
for reinstating the Premises;
6.1.3 At the request and cost of the Tenant, to produce evidence of the
terms of the insurance under this Clause 6.1 and of payment of the
current premium;
6.1.4 The Landlord will as soon as reasonably practicable notify the
Tenant of any changes in its insurance cover or of the terms on
which cover has been effected;
6.1.5 If any part of the Building is destroyed or damaged by an Insured
Risk, then, unless payment of the insurance moneys is refused in
whole or part because of the act or default of the Tenant, and
subject to obtaining all necessary planning and other consents,
which the Landlord will use reasonable endeavours to obtain as
quickly as reasonably practicable, to use the insurance proceeds
(except those relating to loss of rent and fees) and any uninsured
excess paid by the Tenant under Clause 6.2.4(ii) in reinstating the
same (other than tenant's and trade fixtures and fittings) as
quickly as reasonably practicable, in modern form if appropriate but
not necessarily identical in layout and (in relation to the
Premises) substantially as they were before the destruction or
damage and the Landlord will make good any deficiency in the
proceeds of the insurance out of its own resources and shall use all
reasonable endeavours to procure that either the Tenant's interest
is noted on its insurance policy or that such interest is otherwise
protected by means of an "Any Other Interests" provision in such
policy;
6.2 TENANT'S INSURANCE COVENANTS
The Tenant covenants with the Landlord throughout the Term or until
released pursuant to the 1995 Act as follows:
6.2.1 To pay to the Landlord on written demand sums equal to:
(i) a fair and proper proportion (reasonably determined by the
Landlord's Surveyors) of the amount which the Landlord spends
on insurance pursuant to Clause 6.1.1;
(ii) the whole of the amount which the Landlord spends on insurance
pursuant to Clause 6.1.2;
6.2.2 To give the Landlord immediate written notice on becoming aware of
any event or circumstance which might affect or lead to an insurance
claim;
6.2.3 Not to do anything at the Premises which would or might prejudice or
invalidate the insurance of the Building or the Adjoining Property
or cause any premium for their insurance to be increased;
6.2.4 To pay to the Landlord on written demand:
November 11, 1998
<PAGE> 18
(i) any increased premium and any Costs incurred by the Landlord
as a result of a breach of Clause 6.2.3;
(ii) the whole of the irrecoverable proportion of the insurance
moneys if the Building or any part is destroyed or damaged by
an Insured Risk but the insurance moneys are irrecoverable in
whole or part due to the act or default of the Tenant;
6.2.5 To comply with the requirements and reasonable recommendations of
the insurers;
6.2.6 To notify the Landlord of the full reinstatement cost of any
fixtures and fittings installed at the Premises at the cost of the
Tenant which become Landlord's fixtures and fittings;
6.2.7 Not to effect any insurance of the Premises against an Insured Risk,
but if the Tenant effects or has the benefit of any such insurance
the Tenant shall hold any insurance moneys upon trust for the
Landlord and pay the same to the Landlord as soon as practicable;
6.3 SUSPENSION OF RENT
6.3.1 If the Premises or any part thereof (or access thereto) are unfit
for occupation and use because of damage or destruction by an
Insured Risk then (save to the extent that payment of the loss of
rent insurance moneys is refused due to the act or default of the
Tenant) the Principal Rent and the Service Charge (or a fair
proportion according to the nature and extent of the damage) shall
be suspended until the earlier of:
(i) the date on which the Premises are again fit for occupation
and use; and
(ii) the expiry of the loss of rent insurance period;
PROVIDED THAT if the Premises or the appropriate part thereof (or
access thereto) has not been reinstated in accordance with the
Landlord's obligation contained in Clause 6.1.5 of this Lease so as
to render the same fit for occupation and use within four years
after the date of the damage or destruction or if earlier by the
date on which the said cesser of rent shall determine ("the Relevant
Date") then either party may determine this Lease by serving one
month's written notice on the other (such notice to expire within
two months of the Relevant Date) whereupon this Lease shall cease
and determine but without prejudice to any antecedent claims and all
insurance monies received by the Landlord shall belong to it
absolutely:
6.3.2 If the Premises or any part thereof (or the access thereto) have
been damaged or destroyed by an Insured Risk so as to render the
Premises incapable of beneficial use, then the Landlord will procure
that the Landlord's architect will produce to the Landlord and the
Tenant a report (the "Report") as soon as reasonably practicable and
in any event within 90 days of the date of the damage or destruction
which shall confirm whether or not the Premises can in the
Landlord's architect's reasonable opinion be reinstated within four
years from the date of the damage or destruction, so as to render
the Premises again capable of beneficial use. If the Report does not
state that in the Landlord's architect's reasonable opinion the
Premises can be reinstated as expressed above, then either the
Landlord or the Tenant may within two weeks from
November 11, 1998
<PAGE> 19
receipt of the Report terminate this Lease by giving two weeks'
written notice thereafter following receipt of the Report.
6.3.3 Time shall be of the essence for the purpose of Clause 6.3.2.
Termination of this Lease pursuant to Clause 6.3.2 shall be without
prejudice to the rights of either party against the other in respect
of any antecedent breach of covenant.
6.3.4 Any dispute relating to this Clause 6.3 shall be referred to
Arbitration.
7 PROVISOS
7.1 FORFEITURE
If any of the following events occurs:
7.1.1 the Tenant fails to pay any of the rents payable under this Lease
within 21 days of the due date (whether or not formally demanded);
or
7.1.2 the Tenant or Guarantor breaches any of its obligations in this
Lease; or
7.1.3 execution or distress is levied on the Tenant's goods in the
Premises; or
7.1.4 the Tenant or Guarantor being a company incorporated within the
United Kingdom:
(i) has an Administration Order made in respect of it; or
(ii) passes a resolution, or the Court makes an Order, for the
winding up of the Tenant or the Guarantor, otherwise than a
member's voluntary winding up of a solvent company for the
purpose of amalgamation or reconstruction previously consented
to by the Landlord (consent not to be unreasonably withheld or
delayed); or
(iii) has a receiver or administrative receiver or receiver and
manager appointed over the whole or any part of its assets or
undertaking; or
(iv) is struck off the Register of Companies; or
(v) is deemed unable to pay its debts within the meaning of
Section 123 of the Insolvency Act 1986; or
7.1.5 proceedings or events analogous to those described in Clause 7.1.4
shall be instituted or shall occur where the Tenant or Guarantor is
a company incorporated outside the United Kingdom; or
7.1.6 the Tenant or Guarantor being an individual:
(i) has a bankruptcy order made against him; or
(ii) appears to be unable to pay his debts within the meaning of
Section 268 of the Insolvency Act 1986;
then the Landlord may re-enter the Premises or any part of the Premises in
the name of the whole and forfeit this Lease and the Term created by this
Lease shall immediately end, but without prejudice to the rights of the
Landlord or the Tenant in respect of any breach of the obligations
contained in this Lease;
November 11, 1998
<PAGE> 20
PR0VIDED THAT the Landlord's right of re-entry shall not apply if any of
the events contained in clause 7.1 shall occur in relation to the
Guarantor after the Guarantor ceases to be liable under Clause 8 of and
the Third Schedule to this Lease and FURTHER PROVIDED THAT the Landlord
shall not exercise the right of re-entry without giving at least
twenty-one days" prior written notice of its intention to do so to all
mortgagees or other chargees who have registered a notice of charge with
the Landlord;
7.2 NO COMPENSATION
Any right for the Tenant to claim compensation from the Landlord on
vacating the Premises or otherwise is excluded to the extent permitted by
law;
7.3 NOTICES
Section 196 of the Law of Property Act 1925 shall apply to any notice
which may be served under this Lease and as if the final words of Section
196(4) "and that service... be delivered" were deleted and replaced by
"and that service shall be deemed to be made on the fourth working day
after posting";
7.4 ARBITRATION
7.4.1 Where this Lease provides for reference to Arbitration then
reference shall be made in accordance with the Arbitration Act 1996
to a single arbitrator of not less than ten years' qualification
experienced in the valuation and/or letting of property similar to
and in the locality of the Premises agreed between the Landlord and
the Tenant, or in the absence of agreement nominated on the
application of either party by the President for the time being of
the Royal Institution of Chartered Surveyors;
7.4.2 In the absence of a determination by the arbitrator as to his fees
they shall be borne equally by the Landlord and the Tenant;
7.4.3 If the arbitrator is ready to make his award, but is unwilling to do
so due to the Tenant's failure to pay its share of the costs in
connection with the award, the Landlord may serve on the Tenant a
notice requiring the Tenant to pay such costs within 14 days, and if
the Tenant fails to comply with such notice the Landlord may pay to
the arbitrator the Tenant's costs and any amount so paid shall be a
debt due forthwith from the Tenant to the Landlord;
7.5 NO IMPLIED EASEMENTS
The grant of this Lease does not confer any rights over the Building or
the Adjoining Property or any other property except those mentioned in
Part I of the First Schedule, and Section 62 of the Law of Property Act
1925 is excluded from this Lease, nor shall this Lease impose any
restriction on the use of any property not comprised in this Lease;
7.6 PLANNING ACTS
The Landlord does not warrant that the Permitted Use complies with the
Planning Acts.
8 GUARANTEE
The Guarantor covenants with the Landlord in the terms set out in the
Third Schedule.
November 11, 1998
<PAGE> 21
9 JURISDICTION
9.1 The parties to this Lease
9.1.1 irrevocably submit to the non-exclusive jurisdiction of the Courts
of England and Wales to settle any disputes arising out of this
Lease; and
9.1.2 waive any objection to any legal action or proceedings in such court
on the grounds of venue or that it is an inconvenient or
inappropriate forum;
9.2 The bringing of any legal action or proceedings in any jurisdiction shall
not preclude the person bringing such action from bringing any such legal
action or proceedings in any other jurisdiction.
EXECUTED by the parties as a DEED the day and year first before written.
The First Schedule
Part I - Easements and Other Rights granted
There are granted to the Tenant (in common with others authorised by the
Landlord):
1 The right to use the relevant Common Parts for access to and from and for
the delivery of goods to and from the Premises and for the purposes for
which they are designated;
2 Free and uninterrupted use of all existing and future Conduits which are
in the Building and serve the Premises, subject to the Landlord's rights
to re-route the same PROVIDED THAT any new route shall not materially and
adversely affect the Tenant's use and occupation of the Premises;
3 The right to support and protection from the remainder of the Building;
4 The right to enter the Building excluding the Lettable Units as necessary
(with or without workmen and equipment) to perform Clause 4.6 (repair) on
reasonable prior written notice to the Landlord (except in the case of
emergency when subject to the rights of the occupiers thereof no notice
need be given), subject to causing as little inconvenience as practicable
and complying with conditions reasonably imposed by the Landlord and
making good all damage caused;
5
5.1 The right to maintain a sign giving the name of the Tenant or other
permitted occupier and its location within the Building on the name board
in the entrance lobby of the Building;
5.2 The right to erect and maintain a sign in keeping with the style of the
Building (of a size and design first approved by the Landlord such
approval not to be unreasonably withheld or delayed) giving the name of
the Tenant or other permitted occupiers of the Premises in or adjacent to
the entrance to the Premises;
6 The right to use such areas of the Building as the Landlord from time to
time designates for plant and equipment serving only the Premises (subject
to approval under Clause 4.14.2);
November 11, 1998
<PAGE> 22
7 The right to park two motor cars in spaces in the basement car park of the
Building as may from time to time be designated by the Landlord and the
right to use the Car Lifts for the purposes of access to and egress from
such car park subject to reasonable conditions made from time to time by
the Landlord as to such use and it is agreed that initially spaces
numbered 5 and 6 in the car park shall be designated for use by the
Tenant;
8 The right to install and use plant and equipment (including chillers and
an aerial) together with ancillary conducting media on the roof of the
Building in connection with the use of the Premises in accordance with the
provisions of this Lease Provided that the approval of the Landlord shall
be required for the (i) design (ii) manner of affixation and (iii)
position of the plant and equipment (such approval not to be unreasonably
withheld or delayed) and the Tenant's right shall be exercised subject to
such other reasonable requirements as the Landlord shall reasonably
require. Provided further that the Tenant shall exercise such right in a
reasonable manner and cause as little inconvenience as reasonably
practicable and shall promptly make good all damage caused by such
exercise;
9 The right to enter upon the roof of the Building for the purpose of
maintaining repairing renewing and removing the said plant and equipment
Provided that the Tenant shall exercise such right in a reasonable manner
and cause as little inconvenience as reasonably practicable and shall
promptly make good all damage caused by such exercise;
PART II - EXCEPTIONS AND RESERVATIONS
There are excepted and reserved to the Landlord and to others authorised
by the Landlord:
1 The right to carry out any building, rebuilding, alteration or other works
to the Building and the Adjoining Property (including the erection of
scaffolding) provided that there is no unreasonable interference with
light and air enjoyed by the Premises; Provided That access to and egress
from the Premises shall be available at all times Provided Further that
the Landlord shall cause (and procure that those exercising the right on
its behalf cause) as little damage and interference as is reasonably
practicable to the Premises and the business carried on at the Premises
and as soon as reasonably practicable make good any damage to the Premises
that may be caused
2 Free and uninterrupted use of and access to all existing and future
Conduits and meters which are in the Premises and serve the Building or
the Adjoining Property;
3 Rights to enter on the Premises for the purposes referred to in Clause
4.22;
4 The right of support and protection for other parts of the Building;
5 Access to windows of the Premises for the purpose of carrying out external
cleaning of the glass and frames thereof;
6 The right (in case of fire or other emergency only but including
evacuation drills) to use any fire corridor constructed in the
sub-basement in the approximate position shown by the letters "X" and "Y"
on the sub-basement plan annexed hereto.
PART III - ENCUMBRANCES
Any and all matters contained and referred to in the registers of Title
Number NGL441887
November 11, 1998
<PAGE> 23
THE SECOND SCHEDULE
RENT REVIEW
1 In this Schedule:
1.1 REVIEW DATE means each of the Rent Review Dates mentioned in the
Particulars, and RELEVANT REVIEW DATE shall be interpreted accordingly;
1.2 RACK RENTAL VALUE means the annual rent (exclusive of VAT) at which the
Premises might reasonably be expected to be let in the open market at the
Relevant Review Date
ASSUMING
1.2.1 the letting is on the same terms as those contained in this Lease
but subject to the following qualifications:
(i) the term shall commence on the Relevant Review Date and be the
residue of the Contractual Term remaining at the Relevant
Review Date or 10 years (whichever is the longer);
(ii) the amount of the Principal Rent shall be disregarded, but it
shall be assumed that the Principal Rent is subject to review
on the terms of and at the same intervals as the Principal
Rent under this Lease;
1.2.2 the Premises are available to let as a whole, with vacant
possession, by a willing landlord to a willing tenant, without a
premium;
1.2.3 the Premises are ready, fit and available for immediate occupation
and use for the Permitted Use;
1.2.4 all the obligations on the part of the Landlord and the Tenant
contained in this Lease have been fully performed and observed;
1.2.5 no work has been carried out to the Premises which has reduced the
rental value of the Premises (except for work carried out as a
result of compliance with clause 4.18);
1.2.6 if the whole or any part of the Premises or the Building or its
services has been destroyed or damaged it has been fully reinstated;
1.2.7 the Landlord's Works as defined in a Licence to Alter of even date
made between the parties to this Lease were carried out by and at
the expense of the Landlord;
1.2.8 that part of the Basement Space shown edged green hatched mauve on
the annexed basement plan shall be capable of use as either (a) four
motor vehicle parking spaces or (b) as storage and/or plant rooms
whichever shall produce the higher annual rental value;
BUT DISREGARDING
1.2.9 any goodwill attached to the Premises by reason of any business
carried on there;
1.2.10 any effect on rent of the fact that any Tenant and any undertenant
is or has been in occupation of the Premises;
November 11, 1998
<PAGE> 24
1.2.11 any effect on rent of any improvements at the Premises made with
the Landlord's written consent by the Tenant or any undertenant,
except improvements carried out pursuant to an obligation to the
Landlord or at the expense of the Landlord;
1.2.12 the Tenant's Works as defined in the Licence to Alter referred to
in paragraph 1.2.7;
PROVIDED THAT the Rack Rental Value shall be that which would be payable
after the expiry of any rent free period or concessionary rent period for
fitting out (or the receipt of any contribution to fitting out works or
other inducement in lieu thereof) which might be given on a letting of the
Premises, so that no discount reduction or allowance is made to reflect
(or compensate the tenant for the absence of) any such rent free or
concessionary rent period or contribution or other inducement;
1.3 REVISED RENT means the new Principal Rent following each Rent Review Date
pursuant to paragraph 2 of the Second Schedule.
2 The Principal Rent shall be reviewed on each Review Date to the higher of:
2.1 the Principal Rent payable immediately before the Relevant Review Date
(disregarding any suspension or abatement of the Principal Rent); and
2.2 the Rack Rental Value on the Relevant Review Date agreed or determined in
accordance with this Lease.
3 The Rack Rental Value at any Review Date shall be:
3.1 agreed in writing between the Landlord and the Tenant; or
3.2 determined by Arbitration on the application of either Landlord or Tenant
at any time after the Relevant Review Date;
4 If a Revised Rent is not agreed or determined by the Relevant Review Date:
4.1 the Principal Rent payable immediately before the Relevant Review Date
shall continue to be payable until the Revised Rent is ascertained;
4.2 when the Revised Rent is ascertained:
4.2.1 the Tenant shall pay within 14 days of ascertainment:
(i) any difference between the Principal Rent payable immediately
before the Relevant Review Date and the Principal Rent which
would have been payable had the Revised Rent been ascertained
on the Relevant Review Date ("the Balancing Payment"); and
(ii) interest on the Balancing Payment or the relevant part or
parts thereof at Base Rate from the date or dates when the
Balancing Payment or the relevant part or parts would have
been payable had the Revised Rent been ascertained on the
Relevant Review Date;
4.2.2 the Landlord and Tenant shall sign and exchange a memorandum
recording the agreed amount of the Revised Rent.
5 If at any Relevant Review Date the operation of the rent review provisions
in this Lease, or the normal collection and retention by the Landlord of
any increase in the rent is prohibited or modified, the Landlord may elect
within six months of the relaxation of such
November 11, 1998
<PAGE> 25
prohibition or modification that the day after the date on which any such
prohibition or modification is relaxed shall be substituted for the
Relevant Review Date.
6 Time shall not be of the essence for the purposes of this Schedule except
in respect of paragraph 5.
THE THIRD SCHEDULE
GUARANTEE
1 The Guarantor covenants with the Landlord as principal debtor that:
1.1 for a period of three years from and including the date of this Lease or
(if earlier) until the Tenant is released from its covenants pursuant to
the 1995 Act:
1.1.1 The Tenant will pay the rents reserved by and perform its
obligations contained in this Lease;
1.1.2 The Guarantor will indemnify the Landlord on demand against all
Costs arising from any default of the Tenant in paying the rents and
performing its obligations under this Lease;
1.2 the Tenant will perform its obligations under any authorised guarantee
agreement that it gives with respect to the performance of any of the
covenants and conditions in this Lease.
2 The liability of the Guarantor shall not be affected by:
2.1 Any time given to the Tenant or any failure by the Landlord to enforce
compliance with the Tenant's covenants and obligations;
2.2 The Landlord's refusal to accept rent at a time when it would or might
have been entitled to re-enter the Premises;
2.3 Any variation of the terms of this Lease;
2.4 Any change in the constitution, structure or powers of the Guarantor the
Tenant or the Landlord or the administration, liquidation or bankruptcy of
the Tenant or Guarantor;
2.5 Any act which is beyond the powers of the Tenant;
2.6 The surrender of part of the Premises;
2.7 The transfer of the reversion expectant on the Term;
2.8 Any other act or thing by which (but for this provision) the Guarantor
would have been released apart from an express deed of release.
3 Where two or more persons have guaranteed obligations of the Tenant the
release of one or more of them shall not release the others.
4 The Guarantor shall not be entitled to participate in any security held by
the Landlord in respect of the Tenant"s obligations or stand in the
Landlord's place in respect of such security.
5 If this Lease is disclaimed, and if the Landlord within 6 months of the
disclaimer requires in writing, the Guarantor will enter into a new lease
of the Premises at the cost of the Guarantor on the terms of this Lease
(but as if this Lease had continued and so that any outstanding matters
relating to rent review or otherwise shall be determined as between
November 11, 1998
<PAGE> 26
the Landlord and the Guarantor) for the residue of the Contractual Term
from and with effect from the date of the disclaimer.
6 If this Lease is forfeited and if the Landlord within 6 months of the
forfeiture requires in writing the Guarantor will (at the option of the
Landlord):
6.1 enter into a new lease as in paragraph 5 above with effect from the date
of the forfeiture; or
6.2 pay to the Landlord on demand an amount equal to the moneys which would
otherwise have been payable under this Lease until the earlier of 6 months
after the forfeiture and the date on which the Premises are fully relet.
THE FOURTH SCHEDULE
SERVICE CHARGE
PART I - CALCULATION AND PAYMENT OF THE SERVICE CHARGE
1 In this Schedule unless the context otherwise requires:
1.1 ACCOUNTING DATE means 25 March in each year or such other date as the
Landlord notifies in writing to the Tenant from time to time;
1.2 ACCOUNTING YEAR means the period from but excluding one Accounting Date to
and including the next Accounting Date;
1.3 ESTIMATED SERVICE CHARGE means the Landlord's Surveyor's reasonable and
proper estimate of the Service Charge for the Accounting Year notified in
writing to the Tenant from time to time;
1.4 SERVICE COST means all proper costs of the services and expenses set out
in Part II of this Schedule relating to the Building (including a fair
proportion of any costs incurred in relation to the Building) (including
irrecoverable VAT);
1.5 TENANT'S SHARE means the percentages shown in Part (II)(c) of this
Schedule or such other reasonable and proper percentages as shall be
notified to the Tenant from time to time by the Landlord.
2 The Service Charge shall be the Tenant's Share of the Service Cost in
respect of each Accounting Year, and if only part of an Accounting Year
falls within the Term the Service Charge shall be the Tenant's Share of
the Service Cost in respect of the relevant Accounting Period divided by
365 and multiplied by the number of days of the Accounting Year within the
Term.
3 The Landlord shall have the right (acting in the interest of good estate
management) to adjust the Tenant's Share to make reasonable allowances for
differences in the services provided to or enjoyable by the Lettable
Units.
4 The Tenant shall pay the Estimated Service Charge for each Accounting Year
to the Landlord in advance by equal instalments on the Quarter Days, (the
first payment for the period from and including the date of this Lease to
(but excluding) the next Quarter Day to be made on the date of this Lease;
and
4.1 If the Landlord's Surveyor does not notify an estimate of the Service
Charge for any Accounting Year the Estimated Service Charge for the
preceding Accounting Year shall apply; and
November 11, 1998
<PAGE> 27
4.2 Any adjustment to the Estimated Service Charge after the start of an
Accounting Year shall adjust the payments on the following Quarter Days
equally.
5 As soon as practicable after the end of each Accounting Year the Landlord
shall serve on the Tenant a summary of the Service Cost and a statement of
the Service Charge certified by the Landlord's Surveyor, which shall be
conclusive (save in the case of manifest error).
6 The difference between the Service Charge and the Estimated Service Charge
for any Accounting Year (or part) shall be paid by the Tenant to the
Landlord within fourteen days of the date of receipt by the Tenant of the
statement for the Accounting Year, or allowed against the next Estimated
Service Charge payment, or after the expiry of the Term refunded to the
Tenant as soon as reasonably practicable thereafter.
7 The Tenant shall be entitled by appointment to inspect the accounts
relating to the Service Cost and supporting vouchers and receipts at such
location as the Landlord reasonably directs and at the Tenant's expense
take copies of them.
PART II(A) ALL TENANTS SERVICES
1 REPAIR TO THE BUILDING (INCLUDING CONDUITS)
Repair, renewal, decoration, clearing and maintenance of:
1.1 the foundations, roof, exterior and structure of the Building;
1.2 Conduits plant and equipment (which are not the responsibility of any
tenants of the Building) but excluding the lifts.
2 WATER SERVICES
2.1 Procuring water and sewerage services.
3 INSURANCES
3.1 Insurance against property owners' employers' and third party liability.
3.2 Professional Valuations for insurance purposes (but not more than once in
any three year period).
3.3 Any uninsured excesses to which the Landlord's insurance may be subject.
4 STATUTORY REQUIREMENTS
4.1 All existing and future rates, taxes, charges, assessments and outgoings
payable to any competent authority or for utilities except in respect of
the Lettable Units and those car parking spaces in the Building not
demised by this Lease or capable of being used by the Tenant pursuant to
this Lease.
4.2 Complying with or making representations against or contesting the effect
of any legislation order or statutory requirements.
November 11, 1998
<PAGE> 28
5 FEES AND MANAGEMENT CHARGES
5.1 Managing agents' fees and disbursements (not exceeding 10% of the Service
Cost (excluding this paragraph)) or if the Landlord itself manages the
Building a fee of 10% of the Service Cost (excluding this paragraph) but
for the purposes of this paragraph 5.1. Service Cost shall be limited to
the Services set out in this Part II(A) of the Fourth Schedule.
5.2 Reasonable fees and disbursements of accountants, surveyors, engineers,
solicitors and others in connection with the provision of the Services as
set out in this Part II(A) of route the Fourth Schedule and the
administration of the Service Charge as set out in this Part II(A) of the
Fourth Schedule.
6 MISCELLANEOUS ITEMS
6.1 Leasing or hiring any machinery and equipment used in connection with the
provision of the Services.
6.2 Providing any other Services which the Landlord reasonably deems
appropriate in accordance with good estate management.
PART II(B) OFFICE TENANTS
1 REPAIRS TO THE LIFTS IN THE BUILDING
Repair renewal, decoration, cleaning and maintenance of the lifts and all
lift machinery in the Building.
2 COMMON PARTS
2.1 Repair, renewal, decoration, cleaning, maintenance and lighting of and the
provision of electricity to the Common Parts;
2.2 Furnishing, carpeting and equipping the Common Parts but for the avoidance
of doubt excluding the cost of initial provision of furnishing carpeting
and equipment;
2.3 Cleaning the outside of all external windows;
2.4 Providing and maintaining reasonable numbers of plants or floral displays
in the Common Parts;
2.5 Providing refuse bins and operating a refuse storage and collection
service;
2.6 Providing signs, nameboards and other notices within the Common Parts;
2.7 Procuring of a maintenance contract for the revolving doors at the
entrance to the Building.
3 HEATING ETC SERVICES
3.1 Providing heating, air conditioning and ventilation other than to the
Lettable Units to such standards and between such hours as the Landlord
reasonably decides;
3.2 Maintaining and repairing of the air conditioning and ventilation plant
and machinery;
4 FIRE FIGHTING AND SECURITY
November 11, 1998
<PAGE> 29
4.1 Provision, operation, repair, renewal, cleaning and maintenance of:
4.1.1 fire alarms, sprinkler systems, fire prevention and fire fighting
equipment and ancillary apparatus except in the Lettable Units;
4.1.2 security alarms, apparatus and systems as the Landlord reasonably
considers appropriate.
5 INSURANCES
5.1 Engineering insurances for all Landlord's plant and machinery.
6 FEES AND MANAGEMENT CHARGES
6.1 Managing agents' fees and disbursements (not exceeding 10% of the Service
Cost excluding this paragraph)) or if the Landlord itself manages the
Building a fee of 10% of the Service Cost (excluding this paragraph) but
for the purposes of this paragraph 6.1 Service Cost shall be limited to
the Services set out in this Part II (B) of the Fourth Schedule;
6.2 Reasonable fees and disbursements of accountants, surveyors, engineers,
solicitors and others in connection with the provision of the Services set
out in this Part II(B) of the Fourth Schedule and the administration of
the Service Charge as set out in this Part II(B) of the Fourth Schedule.
7 STAFF
Providing staff (which shall for the avoidance of doubt include but not be
limited to the provision of a Building manager) in connection with the
Services and the general management, operation and security of the
Building and all other incidental expenditure including but not limited
to:
7.1 salaries, National Health Insurance, pension and other payments
contributions and benefits;
7.2 uniforms, special clothing, tools and other materials for the proper
performance of the duties of any such staff;
7.3 providing furnished and equipped premises and accommodation within the
Building and other reasonable facilities for staff.
8 OTHER SERVICES
Providing any other services which the Landlord reasonably deems
appropriate in accordance with good estate management.
9 RESERVES
Establishing and maintaining reserves to meet the future costs (as from
time to time reasonably estimated by the Landlord's Surveyor) of providing
the Landlord's plant and machinery ("the Sinking Fund") after the initial
letting of all of the ground and upper floors of the Building by the
Landlord and all of the initial tenants in the office accommodation in the
Building have agreed to contribute to the Sinking Fund.
10 MISCELLANEOUS
November 11, 1998
<PAGE> 30
10.1 PROVIDED always that the service charge payable by the Tenant pursuant to
the provisions of this Lease shall specifically exclude the following
items:
10.1.1 Sums properly recoverable only from other tenants in the building
by way of service charge;
10.1.2 Any expenditure in respect of any part of the Building for which
any other tenant shall be wholly responsible or relating to any part
of the Building which is intended to be let and is unlet;
10.1.3 Any fees and expenses attributable to the collection of principal
rent or the cost relating to the recovery of unpaid service charge
from the Tenant or other occupiers of the Building;
10.1.4 The cost of the review of principal rent and the letting and
re-letting of any parts of the Building;
10.1.5 The cost and expenses of repairing or making good any damage caused
by an Insured Risk except for any irrecoverable excess or except
where such damage is caused by any act or default of the Tenant.
PART II(C) - SERVICES CHARGE PERCENTAGES
33.51% in respect of the Services set out in Part II(A)
37.98% in respect of the Services set out in Part II(B)
THE COMMON SEAL of ) L S
CORSTON HOLDINGS ) Corston Holdings Limited
LIMITED was hereunto )
affixed to this Deed in the )
presence of: )
Director
Secretary
November 11, 1998
<PAGE> 1
DATED 15TH OCTOBER 1998
BANK LEUMI (UK) PLC (1)
CORSTON HOLDINGS LIMITED (2)
GLOBIX LIMITED (3)
DEED OF GUARANTEE
RELATING TO
A LEASE OF PART GROUND FLOOR AND THE WHOLE
OF THE FIRST AND SECOND FLOORS OF
80 TO 110 (EVEN) NEW OXFORD STREET LONDON WC1
TOGETHER WITH 4 BASEMENT CAR PARKING SPACES
AND BASEMENT AND SUB-BASEMENT STORES
AT PROSPECT HOUSE
LINKLATERS & PAINES
One Silk Street
London EC2Y 8HQ
TEL: (+44) 171 456 2000
Ref: JSB/ALAG
<PAGE> 2
THIS DEED OF GUARANTEE is made the 15th day of October One Thousand Nine Hundred
and ninety-eight BETWEEN BANK LEUMI (UK) PLC whose registered office is at 4 - 7
Woodstock Street, London W1A 2AF (hereinafter called "the BANK") of the first
part CORSTON HOLDINGS LIMITED whose registered office is at 44 Esplanade, St
Helier, Jersey, Channel Islands (hereinafter called "the LANDLORD") of the
second part and GLOBIX LIMITED (Company Number 3616569) whose registered office
is at Apollo House, 56 New Bond Street, London W1Y 0SX (hereinafter called "the
TENANT") of the third part WHEREAS:-
(A) By a lease (hereinafter called the "LEASE") of even date herewith and made
between the Landlord (1) the Tenant (2) and Globix Corporation (3) the
Landlord has demised to the Tenant the premises known as part ground floor
and the whole of the first and second floors of 80 to 110 (Even) New
Oxford Street London WC1 together with 4 basement parking spaces and
basement and sub-basement stores at Prospect House as more particularly
shown on the plans annexed thereto.
(B) The Bank at the request of the Tenant has agreed to provide a guarantee to
the Landlord upon the terms set out below.
NOW THIS DEED WITNESSETH as follows:- 1 Definitions
In this Deed the following expressions shall have the following meanings:-
1.1 "the PROPERTY" means the property demised by the Lease;
1.2 "INSTALMENT" means a sum equivalent to any quarterly instalment of all
sums reserved as rent (including any Value Added Tax payable thereon) due under
the Lease;
1.3 "DUE DATE" means the quarter day upon which an Instalment becomes due
for payment to the Landlord under the Lease;
1.4 "TERM OF THE GUARANTEE" means the earlier to occur of:-
1.4.1 28 September 2014; and
1.4.2 the date on which the Tenant is able to demonstrate to the
Landlord's reasonable satisfaction that the Tenant's audited
yearly pre-tax profits for each of three consecutive periods
of twelve consecutive months comprised in the thirty six month
period referred to below have exceeded an amount being three
times the Principal Rent (as defined in the Lease) reserved
from time to time under the Lease for a period of thirty six
consecutive months immediately prior thereto.
2 MATTERS GIVING RISE TO LIABILITY
If at any time during the term of the Guarantee:-
2.1 the Tenant does not pay any Instalment on the Due Date; and
2.2 not less than fourteen days have elapsed since the Due Date for that
Instalment; and
2.3 the Landlord's solicitors certify by letter to the Bank (with a copy
of such letter for information purposes only by fax to Globix
Corporation, 139 Centre Street, New York 10012
1
11 November 1998
<PAGE> 3
USA marked for the attention of Marc Bell PROVIDED THAT the giving or
receipt of such copy by fax shall not be necessary for the validity of the
letter to the Bank) in the manner provided in Clause 4 that the Instalment
has been due and outstanding for a period of fourteen days from the Due
Date and request the Bank to pay it;
THEN the Bank shall forthwith upon receipt of the said certificate of the
Landlord's managing agents pay to the Landlord a sum equal to the unpaid
Instalment so certified as aforesaid together with any interest thereon
due under the terms of the Lease notwithstanding any counterclaim or other
claim which the Bank or the Tenant may have against the Landlord or the
Tenant as the case may be PROVIDED THAT the maximum liability of the Bank
under this Deed shall not exceed pound sterling 1,269,000 inclusive of
Value Added Tax and interest (except for any sums charged by the Landlord
as interest pursuant to clause 4.2 hereof) ("Maximum Liability") and the
Maximum Liability shall be reduced by any sum paid by the Bank to the
Landlord in accordance with this Deed.
3 ADDRESSES FOR SERVICE
3.1 The address of the parties for service of any notice in connection with
this Deed are (in the case of the Bank subject to the provisions of Clause
9 hereof) as follows:-
The Bank 4 - 7 Woodstock Street, London W1A 2AF
The Landlord c/o Hackwood Secretaries Limited, One Silk Street,
London EC2Y 8HQ
The Tenant Apollo House, 56 New Bond Street, London W1Y 0SX
with a copy of the notice for information purposes
to Globix Corporation as aforesaid marked for the
attention of Marc Bell (subject to the Proviso to
clause 2 hereof).
3.2 Any party may change its address for service by written notice to the
other parties hereto but no such change shall be effective as against any
party to whom such notice is addressed unless and until such notice is
actually received by such party.
4 CONTENTS OF THE LANDLORD'S CLAIM
4.1 Any claim under this Deed must be made in writing addressed to the Bank's
office at 4 - 7 Woodstock Street, London W1A 2AF and must consist of a
notice signed by the Landlord's solicitors and containing a statement
certifying that the Tenant has failed to pay one or (as the case may be)
more Instalments on its or their Due Date(s) and that the amount of the
Instalment(s) is accordingly due for payment in accordance with this Deed
by the Bank and specifying the sum outstanding together with the amount of
interest thereon;
4.2 If the Landlord does not receive the due amount from the Bank on the due
date which is the expiry of two working days from and including the date
on which such amount is payable pursuant to this Guarantee the Bank will
pay to the Landlord in addition and on demand interest on such amount at 4
per cent above the Base Rate of National Westminster Bank plc
2
11 November 1998
<PAGE> 4
from the due date until payment (both before and after any judgment)
provided this Clause shall not prejudice any other right or remedy for the
recovery of such amount.
5 DISPUTE
It is hereby agreed that in the event of dispute between the Tenant and
the Landlord either as to whether the Tenant has failed to perform any
covenant or condition in the Lease or as to the extent of the loss damage
costs or expenses which the Landlord has suffered then prior to any claim
being made on the Bank under this Guarantee the matter shall be referred
to an independent chartered surveyor for determination whose decision
shall be final and binding and who shall act as an expert and not an
arbitrator and (for the avoidance of doubt) the parties hereto hereby
acknowledge that the Bank may pay the amount of any claim made in the
manner specified in Clause 4 without enquiry or obligation to enquire as
to the existence or not of any dispute contemplated hereunder.
6 LANDLORD'S RIGHT TO FORFEITURE UNAFFECTED
It is hereby agreed and declared and acknowledged that in the event of the
Tenant not paying to the Landlord any Instalment any payment by the Bank
hereunder will not affect any right of the Landlord to forfeit the Lease
under the terms thereof. Assignment
7 ASSIGNMENT
7.1 The benefit of this Deed may be assigned by the Landlord to any person or
company to whom the reversion of the Lease is assigned provided always
that the Landlord or the said assignee gives to the other parties hereto
notice in writing of such assignment.
7.2 Neither the Tenant nor the Bank may assign the benefits and burdens
created by this Deed unless specifically permitted by the Landlord in
writing.
8 BANK'S RELEASE
Upon a permitted assignment of the Lease by the Tenant or upon voluntary
surrender of the Lease before the expiration of the term of the Guarantee
the Bank's liability under the terms and conditions of this Deed will
immediately thereafter cease and determine as from the date of such
assignment or surrender provided that any liability arising in accordance
with Clause 2 of this Deed in relation to a default of the Tenant
occurring prior to such assignment or surrender and notified to the Bank
in accordance with Clause 4 will remain binding on the Bank PROVIDED for
the avoidance of doubt that nothing herein contained shall in any way
release the Bank from its obligations under this Deed in the event of the
liquidation of the Tenant or the Tenant going into receivership or the
appointment of an Administrative Receiver in respect of the Tenant's
undertaking and assets or the disclaimer of the Lease by a liquidator or
receiver or Administrative Receiver save and except by way of voluntary
release by deed given by the Landlord.
9 JURISDICTION AND SERVICE
3
11 November 1998
<PAGE> 5
9.1 The Bank irrevocably submits to the non-exclusive jurisdiction of the
Courts of England to settle any disputes which may arise out of or in
connection with this Deed and waives any objection to any legal action or
proceedings in any such court on the grounds of venue or on the grounds
that the action or proceedings have been brought in an inconvenient or
inappropriate forum.
9.2 The bringing of any legal action or proceedings in this or any other
jurisdiction shall not preclude the Landlord and/or the Tenant from
bringing any such legal action or proceedings in any other jurisdiction.
9.3 Such proceedings if posted shall be deemed to be duly served on the Bank
two days after the date of posting.
10 As between the Landlord and the Bank the Bank shall be deemed to be a
principal debtor.
11 LIABILITY OF THE BANK, PARTICIPATION IN SECURITY
11.1 The liability of the Bank shall not be affected by:
11.1.1 Any time given to the Tenant or any failure by the Landlord to
enforce compliance with the Tenant's covenants and obligations
pursuant to the Lease;
11.1.2 The Landlord's refusal to accept rent reserved by the Lease at a
time when it would or might have been entitled to re-enter the
Property;
11.1.3 Any variation of the terms of the Lease;
11.1.4 Any change in the constitution, structure or powers of the Bank
the Tenant or the Landlord or the administration, liquidation or
bankruptcy of the Tenant or the Bank;
11.1.5 Any act which is beyond the powers of the Tenant;
11.1.6 The surrender of part of the Property;
11.1.7 The transfer of the reversion expectant on the term demised by the
Lease;
11.1.8 Any other act or thing by which (but for this provision) the Bank
would have been released apart from an express deed of release.
11.2 The Bank shall not be entitled to participate in any security held by the
Landlord in respect of the Tenant's obligations or stand in the Landlord's
place in respect of such security.
IN WITNESS whereof this document has been executed as a Deed the day and
year first above written
4
11 November 1998
<PAGE> 6
L S
Bank Leumi (UK) plc
{ THE COMMON SEAL of BANK LEUMI (UK)
{ PLC was hereunto affixed in the
{ presence of:
Director
Secretary
D R Judah
5
11 November 1998
<PAGE> 7
{ SIGNED AS A DEED by GLOBIX
{ CORPORATION through its duly
{ authorised attorney David Raymond
{ Judah acting under a Power of
Attorney dated 2 October 1998 in the
presence of:-
Vanessa Jacobs
8 Dowman Close
Wimbledon SW19 2XU
occupation: Secretary
D R Judah
{ SIGNED AS A DEED by GLOBIX LIMITED
{ through its duly authorised attorney
{ David Raymond Judah acting under a
{ Power of Attorney dated 2 October
1998 in the presence of:-
Vanessa Jacobs
8 Dowman Close
Wimbledon SW19 2XU
occupation: Secretary
6
11 November 1998
<PAGE> 1
Exhibit 10.35
------------------------------------------------------------------------------
IRU AGREEMENT
DATED AS OF October 5, 1998
BY AND BETWEEN
QWEST COMMUNICATIONS CORPORATION ("Qwest")
AND
GLOBIX CORPORATION ("Globix")
------------------------------------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. DEFINITIONS.............................................................................................. 1
2. GRANT OF IRU IN QWEST NETWORK............................................................................ 2
3. CONSIDERATION FOR GRANT OF IRU........................................................................... 4
4. DELIVERY, ACCEPTANCE AND TESTING OF SEGMENTS............................................................. 4
5. TERM..................................................................................................... 5
6. NETWORK ACCESS AND CAPACITY CONFIGURATION................................................................ 5
7. OPERATIONS............................................................................................... 6
8. MAINTENANCE AND RESTORATION OF QWEST CAPACITY............................................................ 7
9. ACCESS TO QWEST POPS..................................................................................... 8
10. USE OF QWEST CAPACITY.................................................................................... 8
11. INDEMNIFICATION.......................................................................................... 9
12. LIMITATION OF LIABILITY; DISCLAIMER OF WARRANTEE......................................................... 10
13. INSURANCE................................................................................................ 11
14. LATE PAYMENTS AND PERFORMANCES........................................................................... 11
15. LIMITATION ON IRU GRANT.................................................................................. 11
16. TAXES, FEES AND OTHER GOVERNMENTAL IMPOSITIONS........................................................... 11
17. NOTICE................................................................................................... 11
18. CONFIDENTIALITY.......................................................................................... 12
19. DEFAULT.................................................................................................. 13
20. TERMINATION.............................................................................................. 14
21. FORCE MAJEURE............................................................................................ 14
22. WAIVER................................................................................................... 14
23. GOVERNING LAW............................................................................................ 15
24. RULES OF CONSTRUCTION.................................................................................... 15
</TABLE>
ii
<PAGE> 3
<TABLE>
<S> <C>
25. REPRESENTATIONS AND WARRANTIES........................................................................... 15
26. PUBLICITY................................................................................................ 16
27. ASSIGNMENT............................................................................................... 16
28. NO PERSONAL LIABILITY.................................................................................... 16
29. RELATIONSHIP OF THE PARTIES.............................................................................. 16
30. SEVERABILITY............................................................................................. 17
31. COUNTERPARTS............................................................................................. 17
32. ENTIRE AGREEMENT; AMENDMENT.............................................................................. 17
</TABLE>
EXHIBITS
EXHIBIT A: QWEST CAPACITY DESCRIPTION
EXHIBIT B: QWEST CAPACITY SPECIFICATIONS AND ACCEPTANCE TESTING
EXHIBIT C: QWEST ESCALATION AND CONTACT LIST
EXHIBIT D: QWEST CAPACITY TECHNOLOGY UPGRADE
iii
<PAGE> 4
GLOBIX IRU AGREEMENT
THIS IRU AGREEMENT (this "Agreement") is made and entered into as of
the _____ day of ___________, 1998 ("Effective Date"), by and between QWEST
COMMUNICATIONS CORPORATION, a Delaware corporation ("Qwest"), and GLOBIX
CORPORATION, a Delaware corporation ("Globix").
RECITALS
WHEREAS, Qwest desires to hereby grant and Globix desires to be granted
the right to use Capacity in Qwest's Network as more fully set forth herein.
NOW THEREFORE, in consideration of the mutual promises set forth below,
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereby agree as follows:
1. DEFINITIONS
1.1 The following terms shall have the stated definitions in this
Agreement.
"Affiliate" means any person (i) which directly or indirectly controls
or is controlled by, or is under common control with, a party hereto or (ii) 10%
of which is held beneficially or of record by a party hereto or one of its
subsidiaries.
"Capacity" means the dedicated digital transmission capability of a
given portion of the Qwest Network designed to transmit digital signals at a
stated rate and otherwise perform in accordance with the specifications
applicable to the portion of the Qwest Network utilized to provide the Capacity.
All Capacity shall be provided by network facilities inclusive of all
electronics and other equipment necessary for the intended operation of the
Capacity; provided, however, that interruptions, outages, or degradations in the
actual transmission capability of the Capacity may occur from time to time.
"DS-0" means a quantity of Capacity capable of a data rate of
approximately 64 kbs per second.
"DS-0 V&H Miles" means the quantity of DS-0 times the V&H Miles for
each Qwest Network segment, including, without limitation, the V&H Miles for the
respective city pairs set forth in Exhibit A hereto.
"DS-3" means a quantity of Capacity capable of a data rate of
approximately 45 Mbs per second.
"Impositions" means all taxes, fees, levies, imposts, duties, charges
or withholdings of any nature (including, without limitation, gross receipts
taxes and franchise, license and permit fees), together with any penalties,
fines or interest thereon arising out of the transactions contemplated by this
Agreement and/or imposed upon the Qwest Network by any federal, state or local
government or other public taxing authority.
1
<PAGE> 5
"Indefeasible Right of Use" or "IRU" means an exclusive,
non-cancelable, indefeasible right of use "as is and where is," for the purposes
described herein, in the stated amount of Capacity on a Qwest Network Segment;
provided, that the IRUs granted hereunder do not provide Globix with any
ownership interest in or other rights to physical access to, control of,
modification of, encumbrance in any manner of, or other use of the Qwest Network
except as expressly set forth herein.
"OC-3" means a quantity of Capacity capable of a data rate of
approximately 155.520 Mbs per second.
"OC-12" means a quantity of Capacity capable of a data rate of
approximately 622.080 Mbs per second.
"OC-48" means a quantity of Capacity capable of a data rate of
approximately 2488.32 Mbs per second.
"POP" means the point of presence where the Capacity is delivered to
Globix.
"Qwest Network" means the fiber optic network operated by Qwest.
"Qwest Network Segment" means the portions of the Qwest Network between
the points set forth in Exhibit A hereto, as such network may be expanded or
modified during the term of this Agreement, and including any fiber optic
transmission capacity which Qwest may obtain from another service provider and
make available to Globix hereunder.
"Upgrade Deadline Date" is December 31, 1999.
"V&H Miles" is a measurement of the length in miles between the
termination points of a Qwest Network Segment using airline miles and determined
based on the vertical and horizontal geographic coordinates of the locations of
the termination points.
2. GRANT OF IRU IN QWEST NETWORK
2.1 Qwest hereby grants to Globix an Indefeasible Right of Use, for the
purposes described herein, in 6,537 DS-3 V&H Miles of Capacity (the "Total IRU
DS-3 V&H Miles") in the Qwest Network, for the Term defined in Section 5.1, all
on the terms and subject to the conditions set forth herein (the "Domestic
IRU"). As Qwest's schedule for making Capacity available permits, 5,647 DS-3 V&H
Miles of Capacity between the city pairs identified under Domestic City Pairs
Phase 1 in Exhibit A hereto shall be made available to Globix. When 2,107 DS-3
V&H Miles of Capacity between the city pairs of Houston-Miami, Miami-Atlanta,
and Atlanta-Washintgon, D.C., the city pairs under Domestic City Pairs Phase 2
in Exhibit A hereto, becomes available to Globix (the "Phase 2 Availability
Date"), the 1,217 DS-3 V&H Miles of Capacity provided between Houston and
Washington, D.C. under Domestic City Pairs Phase 1 in Exhibit A hereto shall be
terminated. After the Phase 2 Availability Date, the total quantity of DS-3 V&H
Miles of Capacity made available to Globix pursuant to this Agreement shall be
6,537 DS-3 V&H Miles of Capacity between the domestic city pairs identified in
Exhibit A hereto but not including the city pair of Houston-Washington, D.C. For
the year ending on the
2
<PAGE> 6
Upgrade Deadline Date (the "First Year"), subject to section 2.4, any
capacity provided during the First Year under the Domestic IRU shall be
configured at an OC-3 level.
2.2 Except as expressly set forth in the following sub-paragraphs, all
Capacity comprising a portion of the Globix IRU shall be delivered to Globix at
a cross-connect panel located in the Qwest POP in each designated city as set
forth in Exhibit A hereto. Unless Globix has separately arranged for co-location
space in any such Qwest facility, it shall be the responsibility of Globix to
obtain any required transiting facilities or local distribution facilities to
interconnect with the Qwest Capacity.
2.3 Qwest hereby grants to Globix an Indefeasible Right of Use, for the
purposes described herein, in DS-3 configured Capacity on Qwest's Gemini
submarine cable system between the international city pair identified in Exhibit
A hereto, for the Term defined in Section 5.1, all on the terms and subject to
the conditions set forth herein (the "International IRU"). The Domestic IRU and
the International IRU are hereinafter referred to as the "Globix IRU."
2.4 Qwest hereby grants Globix an option (the "Upgrade Option") to
maintain the Capacity of the Domestic IRU up to an OC-3 level after the Upgrade
Deadline Date. In the event Globix fails to exercise the Upgrade Option any and
all capacity provided under the Domestic IRU shall be reduced to a DS-3 level.
The Upgrade Option shall be exercised on or before the Upgrade Deadline Date by
delivery to Qwest of a valid written notice of exercise accompanied by the
payment (the "Increase Payment") required pursuant to section 3.5 below.
2.5 If, at Qwest's discretion, Qwest plans to upgrade the Qwest Network
subject to the Globix IRU to either sixteen (16) or thirty two (32) lambda
technology as defined in Exhibit D, Qwest shall provide to Globix ninety (90)
days prior written notice of the planned upgrade (the "Upgrade Notification
Date"). Upon notification of the upgrade, Globix shall have the option (the
"Technology Option") to increase all and no less than all of Globix's Capacity
acquired pursuant to this Agreement, provided (i) Qwest upgrades the Qwest
Network in which Globix is granted the Globix IRU, (ii) Globix is not in default
under this Agreement, and (iii) Globix pays the cost for the increased Capacity
pursuant to Section 3.2 and Exhibit D. In the event Globix wishes to exercise
the Technology Option, the capacity increase acquired pursuant to the Technology
Option shall be proportional to Globix's share of the same fibers on which the
Capacity of the Globix IRU is provided. Payment by Globix to Qwest for increased
capacity acquired pursuant to exercise of the Technology Option shall be made in
accordance with Section 3 below. Qwest's current network Capacity, the capacity
increase permitted by the Technology Option, and the costs involved in
calculating payment for such capacity increase are described in Exhibit D
hereto. For each upgrade, Globix shall exercise the Technology Option once by
delivery to Qwest of a single valid written notice of exercise accompanied by
any payment required pursuant to Section 3. The Technology Option shall be
exercised on a date (the "Upgrade Exercise Date") on or before ninety (90) days
from the Upgrade Notification Date.
3
<PAGE> 7
3. CONSIDERATION FOR GRANT OF IRU
3.1 In consideration of the grant of the Globix IRU described in
Article 2 above by Qwest to Globix, Globix agrees to pay to Qwest an IRU fee of
Nine Million One Hundred Ninety Two Thousand One Hundred Seventy Six U.S.
Dollars (US$9,192,176.00) (the "IRU Fee").
TABLE 3.1--COST PER DS-0 V&H MILE
<TABLE>
<S> <C>
DS-3 to OC-48 Capacity Configuration Cost Per DS-0 V&H Mile
US $ 1.50
Monthly O&M Charges for 20 years US $.0035
</TABLE>
3.2 Globix shall pay to Qwest ten percent (10%) of the IRU Fee upon
execution of this Agreement. From the Effective Date to the first anniversary of
the Effective Date, as Capacity is accepted by Globix, the amount due and
payable is calculated by multiplying ninety percent (90%) of the IRU Fee
("Balance") by the quantity of DS-3 V&H Miles of Capacity being accepted by
Globix and dividing by the quantity of DS-3 V&H Miles described in section 2.1
above. On the first anniversary of the Effective Date of this Agreement, any
Balance amount that has not yet been paid to Qwest is due and payable regardless
of whether Globix has accepted any or all of the Capacity subject to Qwest
making such Capacity available to Globix.
3.3 In the event that the quantity of Qwest Capacity acquired by Globix
as set forth in Exhibit A of this Agreement is greater than the quantity of DS-3
V&H miles described in section 2.1 above, Globix shall pay to Qwest an amount
equal to US$1.50 multiplied by the number of DS-0 V&H Miles of such difference
in quantity of Capacity.
3.4 Globix shall pay the maintenance charges set forth in Article 8.
3.5 The Increase Payment shall be Eleven Million Three Hundred Eighty
Four Thousand Three Hundred Fifty Two U.S. Dollars (US$11,384,352.00).
4. DELIVERY, ACCEPTANCE AND TESTING OF SEGMENTS
4.1 Capacity will be made available to Globix by Qwest as Qwest's
schedule for building capacity permits. Capacity provided pursuant to the
International IRU may be accepted sometime between October 1, 1998 and December
31, 1998.
4.2 At delivery the Qwest Capacity shall comply with the specifications
set forth in Exhibit B hereto (Qwest Capacity Specifications and Acceptance
Testing). Qwest shall test the Qwest Capacity in accordance with the procedures
specified in Exhibit B to verify that the Qwest Capacity is operating in
accordance with the applicable specifications described in Exhibit B. Qwest
shall provide Globix with reasonable advance notice of the date and time of each
Qwest Capacity
4
<PAGE> 8
acceptance test (each of which shall take place during normal business hours)
such that Globix shall have the right, but not the obligation, to have a person
or persons present to observe the tests.
4.3. In the event the results of any Qwest Capacity acceptance test
show that the Qwest Capacity is not operating within the parameters of the
applicable specifications set forth in Exhibit B, Qwest shall expeditiously take
such action as shall be reasonably necessary, with respect to such portion of
the Qwest Capacity as does not operate within the parameters of the applicable
specifications, to bring the operating standards of such portion of the Qwest
Capacity within such parameters.
4.4 If and when Qwest notifies Globix that the test results of the
Qwest Capacity acceptance test are within the parameters of the specifications
in Exhibit B with respect to the tested Qwest Capacity, Globix shall provide
Qwest with a written notice accepting such Qwest Capacity. If Globix fails to
notify Qwest of its acceptance or rejection of the final test results with
respect to the Qwest Capacity within ten (10) business days after its receipt of
notice of such test results, Globix shall be deemed to have accepted such Qwest
Capacity. The date of such notice of acceptance (or deemed acceptance) of the
Qwest Capacity shall be the "Acceptance Date" for that Qwest Capacity.
5. TERM
5.1 The term of this Agreement (the "Term") shall begin on the
Effective Date (provided that the grant of the IRU hereunder with respect to any
Capacity shall not become effective until the Acceptance Date for that
Capacity); and, subject to the provisions of Section 5.2, shall continue until
the earlier of:
(a) 20 years from the last Acceptance Date of Capacity
provided hereunder (provided that the grant of IRU hereunder
with respect to any Capacity shall not be longer than 20 years
from the Acceptance Date for that Capacity pursuant to Article
4); or
(b) the date on which Globix notifies Qwest in writing that
the Capacity subject to this Agreement has, in Globix's view,
reached the end of its economically useful life and that
Globix desires to not retain the Globix IRU in such Capacity.
5.2 Upon the expiration of the Term hereof all of Globix's rights to
the use of the Capacity subject to this agreement shall revert to Qwest without
reimbursement of any fees or other payments previously made with respect
thereto, and from and after such time Globix shall have no further rights or
obligations with respect thereto.
6. NETWORK ACCESS AND CAPACITY CONFIGURATION
6.1 Qwest will provide Globix with access to the Capacity at designated
POPs at the city pairs described in Exhibit A hereto.
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6.2 In the event that Globix desires to reconfigure the location or
quantity of Capacity it acquires hereunder so as to be different than the
configuration set forth on Exhibit A hereto, Globix shall notify Qwest of its
desired reconfiguration.
(a) Subject to availability, Qwest will implement the
reconfiguration of the Capacity as requested by Globix,
subject to the following conditions: Subject to the terms set
forth in Section 2.5 of this Agreement, Qwest shall have the
sole and exclusive discretion to determine whether Globix may
have Capacity in excess of OC-48 on any Qwest Network Segment.
(b) Subsequent to the initial configuration, a Non-Recurring
Charge ("NRC") equal to US$5,000.00 shall be applicable to
each reconfiguration which requires the physical rerouting of
a circuit on which Capacity is provided. As an example and
without limiting the generality of the above, if Capacity is
being provided between New York and Los Angeles via Denver,
and a new drop and insert point is desired in Denver, no NRC
would apply; however, if a new drop and insert point in
Chicago were requested, the NRC would apply.
(c) Qwest shall recompute the V&H Miles utilized by the
reconfigured Capacity. If the quantity of V&H Miles utilized
by the reconfigured Capacity is less than the quantity of V&H
Miles before the reconfiguration, Qwest shall not pay Globix
for any part of the difference. In the event the quantity of
V&H Miles utilized by the reconfigured Capacity is greater
than the quantity of V&H Miles before the reconfiguration,
Globix shall pay to Qwest for the difference: at the rate of
US$1.50 per DS-0 V&H Mile for a configured segment.
7. OPERATIONS
7.1 Except as may be expressly set forth in this Agreement, the grant
of any IRU under this Agreement shall not provide the recipient of the IRU any
authority to control any network and service configuration or designs, routing
configurations, regrooming, rearrangement or consolidation of channels or
circuits or any related functions with regard to the Qwest Network.
7.2 At any time during the term of this Agreement, by not less than 120
days written notice to Globix, Qwest, with Globix's prior written approval
(which approval shall not be unreasonably delayed or withheld) may substitute
for the Capacity being provided on any Qwest Network Segment, an equal amount of
Capacity along an alternative route; provided that in any such event, such
substitution (i) shall be without unreasonable interruption of service and use,
(ii) shall be at the sole cost of Qwest including, without limitation, all
disconnect and reconnect costs, fees and expenses, (iii) shall be in accordance
with the specifications set forth in Exhibit B, and (iv) shall not result in an
adverse change to the operations, performance, or connection points of Globix's
business or network.
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8. MAINTENANCE AND RESTORATION OF QWEST CAPACITY
8.1 Qwest will provide or cause to be provided maintenance for the
Qwest Capacity using its standard maintenance procedures, which procedures shall
be consistent with telecommunications industry standards. The monthly charge for
maintenance of the Qwest Capacity between all the domestic city pairs identified
in Exhibit A hereto excluding the Houston-Washington, D.C. city pair shall be
Thirteen Thousand Two Hundred Eighty Two U.S. Dollars (US $13,282.00) (the
"Domestic Maintenance Fee"). In the event that Globix exercises the Upgrade
Option, the Domestic Maintenance Fee shall thereafter be U.S. Dollars (US
$39,845.00). The monthly charge for maintenance of the Qwest Capacity between
the international city pair identified in Exhibit A hereto (the "International
Maintenance Fee") shall be Ten Thousand U.S. Dollars (US $10,000.00). From the
Effective Date to the first anniversary of the Effective date, the monthly
charge that Globix shall pay to Qwest for maintenance of the Qwest Capacity
shall be the sum of (i) the Domestic Maintenance Fee multiplied by the quantity
of DS-3 V&H Miles of Capacity that Globix has accepted and divided by the Total
IRU DS-3 V&H Miles and (ii) the International Maintenance Fee. Beginning on the
first anniversary of the Effective Date, the monthly charge for maintenance
shall be the greater of (i) the sum of the International Maintenance Fee and the
Domestic Maintenance Fee (the "Minimum Maintenance Fee") or (ii) the sum of (a)
the International Maintenance Fee and (b) the number of DS-0 V&H Miles of
Capacity between domestic city pairs made available to Globix hereunder
multipled by US$0.0035 (the "Monthly Maintenance Rate"). The Minimum Maintenance
Fee and the Monthly Maintenance Rate shall be subject to an annual CPI
adjustment, beginning on the first anniversary of the Effective Date based on
increases in the United States Bureau of Labor Statistics, CPI-U All Services
Index; provided that the annual adjustment shall not exceed 3%.
8.2 Qwest will use reasonable commercial efforts to provide the
maintenance services described in this Article. Such maintenance does not ensure
the continuous operation of the Qwest Capacity in accordance with the
specifications set forth in Exhibit B at all times during the Term. Globix
acknowledges that service interruptions, outages, or degradations may occur, and
agrees that any such event shall not constitute a default by Qwest under this
Agreement.
8.3 GLOBIX ACKNOWLEDGES THE POSSIBILITY OF AN UNSCHEDULED, CONTINUOUS
AND/OR INTERRUPTED PERIOD OF TIME WHEN ANY OR ALL CAPACITY PROVIDED HEREUNDER IS
"UNAVAILABLE" (AS DEFINED IN THE SPECIFICATIONS SET FORTH IN EXHIBIT B)
(HEREAFTER AN "OUTAGE"). IN THE EVENT OF AN OUTAGE, GLOBIX SHALL BE ENTITLED TO
A CREDIT (THE "OUTAGE CREDIT") DETERMINED ACCORDING TO THE FOLLOWING: $45 PER
HOUR FOR AN OUTAGE FOR A DS-3; $137 PER HOUR FOR AN OUTAGE FOR AN OC-3; AND $550
PER HOUR FOR AN OUTAGE FOR AN OC-12; $2,200 PER HOUR FOR AN OUTAGE FOR AN OC-48.
CAPACITY SHALL BE "unavailable" for at least two consecutive hours before an
Outage Credit shall apply. The Outage Credit shall apply to the monthly
Maintenance Fee or, at Globix's discretion, toward any future purchase of
Capacity under separate terms and conditions. The length of each Outage shall be
calculated in hours and shall include fractional portions thereof. An Outage
shall be deemed to have commenced upon verifiable notification thereof by Globix
to Qwest, or, when indicated by network control information actually known to
Qwest network personnel, whichever is earlier. Each Outage shall be deemed to
terminate upon restoration of the affected Globix IRU as evidenced by
appropriate network tests by Qwest. Qwest shall give notice to Globix of any
scheduled outage as early as is practicable, and a
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scheduled outage shall under no circumstance be viewed as an Outage hereunder.
Outage Credits shall not be granted if the malfunction of any end-to end circuit
is due to an Outage or other defect occurring in Globix's interconnection with
the Qwest Network. Following receipt of Globix's request for credit and at
Globix's discretion, all Outage Credits shall either be a credit towards (1) the
Monthly Maintenance Fee on the next monthly invoice for the affected Capacity,
or (2) future purchases of Capacity under separate terms and conditions . The
total of all Outage Credits applicable to or accruing in any given month shall
not exceed the amount payable by Globix to Qwest for that same month for such
Capacity. The Outage Credit described in this Section shall be the sole and
exclusive remedy of Globix in the event of any Outage, and under no circumstance
shall an outage be deemed a default under this Agreement.
8.4 Globix shall notify Qwest to report an Outage by using the contact
numbers on the "Escalation and Contact List" appended hereto as Exhibit C.
Globix shall call the 24 Hours Response "Hot-Line" (First Level Escalation) and
send a facsimile to the Ring Operations Center to report an Outage.
8.5 Qwest shall use commercially reasonable efforts to ensure and
certify that all vendor software and/or hardware used in connection with the
Services provided hereunder are fully Year 2000 compliant.
9. ACCESS TO QWEST POPS
9.1 Globix and its designees (such as local telecommunications
providers) shall have access, according to standards reasonable in the
telecommunications industry, to the Qwest POPs at the endpoints of each Qwest
Network Segment and shall have the right to interconnect with Qwest's Capacity
according to the standards and procedures regularly established by Qwest.
10. USE OF QWEST CAPACITY
10.1 Globix warrants that its use of the Qwest Capacity shall comply
with all applicable government codes, ordinances, laws, rules, regulations
and/or restrictions.
10.2 Globix agrees and acknowledges that this Agreement grants no right
to use any element of the Qwest Network other than the Capacity granted herein.
Globix shall keep any and all of the Qwest Network, other than the Capacity,
free from any liens, rights or claims of any third party attributable to Globix
that materially, adversely affect or impair Qwest's exclusive use of the Qwest
Network.
10.3 Globix shall be responsible for its own configuration and use of
the Qwest Capacity; including the provision of all interconnection facilities,
network equipment, testing equipment and procedures, maintenance, and other
facilities or actions necessary to utilize the Qwest Capacity. Globix shall
conduct all such operations and use of the Qwest Capacity in manner which does
not interfere with the operations of the Qwest Network or the use thereof by any
other customer of Qwest. Globix shall comply at all times with the operating
procedures and interconnection requirements of Qwest.
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10.4 Globix shall include in each Globix agreement or tariff covering
any service provided to any third party through use of the Qwest Capacity a
provision which has the legal consequence of limiting the liability of Globix
thereunder for interruptions, failures, or degradation of service to the charges
received by Globix for such service.
10.5 Globix and Qwest each agree to cooperate with and support the
other in complying with any requirements applicable to their respective rights
and obligations hereunder by any governmental or regulatory agency or authority.
11. INDEMNIFICATION
11.1 Subject to the provisions of Article 12, Qwest hereby releases and
agrees to indemnify, defend, protect and hold harmless Globix, its employees,
officers, directors, agents, shareholders and affiliates, from and against, and
assumes liability for:
(a) Any injury, loss or damage to any person, tangible property or
facilities of any person or entity (including reasonable
attorneys' fees and costs) to the extent arising out of or
resulting from the acts or omissions, negligent or otherwise,
of Qwest, its officers, employees, servants, affiliates,
agents, contractors, licensees, invitees or vendors arising
out of or in connection with a default by Qwest in the
performance of its obligations under this Agreement;
(b) Any claims, liabilities or damages arising out of any
violation by Qwest of any regulation, rule, statute or court
order of any local, state or federal governmental agency,
court or body in connection with the performance of its
obligations under this Agreement; and
(c) Any claims, liabilities or damages arising out of any
interference with or infringement of the rights of any third
party as a result of Globix's use of the IRU and the Capacity
in accordance with the provisions of this Agreement.
11.2 Subject to the provisions of Article 12, Globix hereby releases
and agrees to indemnify, defend, protect and hold harmless Qwest, its employees,
officers, directors, agents, shareholders and affiliates, from and against, and
assumes liability for:
(a) Any injury, loss or damage to any person, tangible property or
facilities of any person or entity (including reasonable
attorneys' fees and costs) to the extent arising out of or
resulting from the acts or omissions, negligent or otherwise,
of Globix, its officers, employees, servants, affiliates,
agents, contractors, licensees, invitees or vendors arising
out of or in connection with a default by Globix in the
performance of its obligations under this Agreement;
(b) Any claims, liabilities or damages arising out of any
violation by Globix of any regulation, rule, statute or court
order of any local, state or federal governmental agency,
court or body in connection with its use of the IRU and/or the
Capacity hereunder; and
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(c) Any claims, liabilities or damages arising out of any
interference with or infringement of the rights of any third
party as a result of Globix's use of the IRU and/or the
Capacity not in accordance with the provisions of this
Agreement.
11.3 The parties hereby expressly recognize and agree that each party's
said obligation to indemnify, defend, protect and save the other harmless is not
a material obligation to the continuing performance of the parties' other
obligations, if any, hereunder. In the event that a party shall fail for any
reason to so indemnify, defend, protect and save the other harmless, the injured
party hereby expressly recognizes that its sole remedy in such event shall be
the right to bring an arbitration proceeding pursuant to the terms of this
Agreement against the other party for its damages as a result of the other
party's said failure to indemnify, defend, protect and save harmless. These
obligations shall survive the expiration or termination of this Agreement.
11.4 Nothing contained herein shall operate as a limitation on the
right of either party hereto to bring an action for damages against any third
party, including indirect, special or consequential damages, based on any acts
or omissions of such third party as such acts or omissions may affect the
construction, operation or use of the Capacity or the Qwest Network; provided,
however, that each party hereto shall assign such rights or claims, execute such
documents and do whatever else may be reasonably necessary to enable the other
party to pursue any such action against such third party.
12. LIMITATION OF LIABILITY; DISCLAIMER OF WARRANTEE
12.1 Qwest warrants that the Capacity shall operate in accordance with
the standards established by Qwest for the Qwest Network generally (hereinafter
the "Technical Standards"). If Qwest determines that the Capacity is not being
provided in accordance with the Technical Standards, Qwest shall use reasonable
efforts under the circumstances to conform the Capacity to the Technical
Standards.
12.2 THE WARRANTIES CONTAINED IN SECTION 12.1 OF THIS AGREEMENT ARE
EXCLUSIVE AND IN LIEU OF ALL OTHER WARRANTIES, WHETHER EXPRESS, IMPLIED OR
STATUTORY, INCLUDING WITHOUT LIMITATION IMPLIED WARRANTIES OF MERCHANTABILITY OR
FITNESS FOR A PARTICULAR PURPOSE. QWEST HEREBY SPECIFICALLY DISCLAIMS ANY
LIABILITY TO GLOBIX FOR INTERRUPTIONS AFFECTING THE CAPACITY FURNISHED HEREUNDER
WHICH ARE ATTRIBUTABLE TO GLOBIX'S INTERCONNECTION FACILITIES OR TO GLOBIX'S
EQUIPMENT FAILURES, OR TO GLOBIX'S BREACH OF THIS AGREEMENT.
12.3 Notwithstanding any provision of this Agreement to the contrary,
in no event shall Qwest or any of its Affiliates be liable to Globix or any of
its Affiliates or employees or to any third party for: (a) any loss of profit or
revenue, or for any indirect, consequential, incidental, punitive or similar or
additional damages, whether incurred or suffered as a result of unavailability
of facilities or Capacity, performance, non-performance, termination, breach, or
other action or inaction under this agreement, or for any other reason, even if
Globix advises
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Qwest of the possibility of such loss or damage; or (b) for any outage or
incorrect or defective transmissions, or any direct or indirect consequences
thereof.
13. INSURANCE
13.1 During the term of this Agreement, Globix shall obtain and
maintain, at its expense, an appropriate insurance policy with terms and
coverage thresholds equal to or greater than the industry standard for major
global telecommunications carriers for protection against all risks associated
with the Capacity as reasonably deemed necessary by Globix acting reasonably.
14. LATE PAYMENTS AND PERFORMANCES
14.1 In the event a party shall fail to make any payment under this
Agreement when due, such amounts shall accrue interest, from the date such
payment is due until paid, including accrued interest, at an annual rate equal
to one hundred fifty percent (150%) of the prime rate of interest published by
The Wall Street Journal as the base rate on corporate loans posted by a
percentage of the nation's largest banks on the date any such payment is due or,
if lower, the highest percentage allowed by law.
15. LIMITATION ON IRU GRANT
15.1 Although the IRU permits non-cancelable use thereof, the IRU
granted in this Agreement does not provide Globix with any ownership or other
posessory interests in any real property, conduit, fiber, or equipment in or on
the Qwest Network or along the routes of the Qwest Network.
16. TAXES, FEES AND OTHER GOVERNMENTAL IMPOSITIONS
16.1 Each party shall be independently responsible for any Impositions
properly payable with respect to the Capacity acquired by said party pursuant to
the IRU Agreement entered into hereunder. Further, the parties agree that they
will cooperate with each other and coordinate their mutual efforts concerning
audits, or other such inquiries, filings, reports, etc., as may relate solely to
the activities or transactions arising from or under this Agreement, which may
be required or initiated from or by any duly authorized governmental tax
authority.
17. NOTICE
17.1 Unless otherwise provided herein, all notices and communications
concerning this Agreement shall be addressed to the other party as follows:
If to Qwest: Qwest Communications Corporation
ATTENTION: President
555 Seventeenth Street
Denver, Colorado 80202
Telephone No.: (303) 291-1400
Facsimile No.: (303) 291-1724
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with a copy to: Qwest Communications Corporation
ATTENTION: General Counsel
555 Seventeenth Street
Denver, Colorado 80202
Telephone No.: (303) 291-1400
Facsimile No.: (303) 291-1724
If to Globix: Globix Corporation
ATTENTION: Marc Bell
139 Center Street
New York, New York
Telephone No.: 212-334-8500
Facsimile No.: 212-334-8507
with a copy to: Arnold N. Bressler, Esq.
Millberg Weiss Bershad Hynes & Lerach LLP
One Pennsylvania plaza
New York, New York 10119
Telephone No.: 212-594-5300
Facsimile No.: 212-868-1229
or at such other address as either party may designated from time to time in
writing to the other party.
17.2 Unless otherwise provided herein, notices shall be hand delivered,
sent by registered or certified U.S. mail, postage prepaid, or by commercial
overnight delivery service, or transmitted by facsimile, and shall be deemed
served or delivered to the addressee or its office when received at the address
for notice specified above when hand delivered, upon confirmation of sending
when sent by fax, on the day after being sent when sent by overnight delivery
service, or three (3) days after deposit in the mail when sent by U.S. mail.
18. CONFIDENTIALITY
18.1 Qwest and Globix hereby agree that if either party provides
confidential or proprietary information to the other party ("Proprietary
Information"), such Proprietary Information shall be held in confidence, and the
receiving party shall afford such Proprietary Information the same care and
protection as it affords generally to its own confidential and proprietary
information (which in any case shall be not less than reasonable care) in order
to avoid disclosure to or unauthorized use by any third party. This Agreement,
including all of the terms, conditions and provisions hereof, constitutes
Proprietary Information, and all information disclosed by either party to the
other in connection with or pursuant to this Agreement shall be deemed to be
Proprietary Information, provided that written information is clearly marked in
a conspicuous place as confidential or proprietary, and verbal information is
indicated as being confidential or proprietary when given or promptly confirmed
in writing as such thereafter. All Proprietary Information, unless otherwise
specified in writing, shall remain the property of the disclosing party, shall
be used by the receiving party only for the intended purpose, and such written
Proprietary Information, including
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all copies thereof, shall be returned to the disclosing party or destroyed after
the receiving party's need for it has expired or upon the request of the
disclosing party. Proprietary Information shall not be reproduced except to the
extent necessary to accomplish the purposes and intent of this Agreement, or as
otherwise may be permitted in writing by the disclosing party.
18.2 The foregoing provisions of Section 18.1 shall not apply to any
Proprietary Information which (i) becomes publicly available other than through
the recipient; (ii) is required to be disclosed by a governmental or judicial
law, order, rule or regulation; (iii) is independently developed by the
disclosing party; or (iv) becomes available to the disclosing party without
restriction from a third party. If any Proprietary Information is required to be
disclosed pursuant to the foregoing clause (ii), the party required to make such
disclosure shall promptly inform the other party of the requirements of such
disclosure.
18.3 Notwithstanding Sections 18.1 and 18.2 of this Article, either
party may disclose Proprietary Information to its employees, agents, and legal,
financial, and accounting advisors and providers (including its lenders and
other financiers) to the extent necessary or appropriate in connection with the
negotiation and/or performance of this Agreement or its obtaining of financing,
provided that each such party is notified of the confidential and proprietary
nature of such Proprietary Information and is subject to or agrees to be bound
by similar restrictions on its use and disclosure.
18.4 The provisions of this Article 18 shall survive expiration or
termination of this Agreement.
19. DEFAULT
19.1 A party shall be in default under this Agreement sixty (60) days
after the non-defaulting party shall have given written notice of such default
unless the defaulting party shall have cured such default or such default is
otherwise waived by the non-defaulting party within such sixty (60) days;
provided, however, that where any such default other than the payment of money
cannot reasonably be cured within such 60-day period, if the defaulting party
shall proceed promptly to cure the same and prosecute such cure with due
diligence, the time for curing such default shall be extended for such period of
time not to exceed one hundred twenty (120) days as may be necessary to complete
such cure.
19.2 An event of default for Globix also shall include, but not be
limited to, failure to make any payment when due hereunder. Events of default
for Qwest include breach of any material provision hereof, the making of a
general assignment for the benefit of its creditors, the filing of a voluntary
petition in bankruptcy or the filing of a petition in bankruptcy or other
insolvency protection against either party which is not dismissed within ninety
(90) days thereafter, or the filing by either party of any petition or answer
seeking, consenting to, or acquiescing in reorganization, arrangement,
adjustment, composition, liquidation, dissolution, or similar relief.
19.3 In addition to the specific remedies provided hereunder, upon any
payment or other default by a party, after notice thereof the non-defaulting
party may (i) take such action as it determines, in its sole discretion, to be
necessary to correct the default, and/or (ii) pursue any legal
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remedies it may have under applicable law or principles of equity relating to
such default, including, without limitation, the termination of any applicable
IRU Agreement provided that appropriate notice has been given under this section
and any such IRU Agreement. Notwithstanding the above, if the defaulting party
certifies in good faith to the non-defaulting party in writing that a default
has been cured, such default shall be deemed to be cured unless the
non-defaulting party otherwise notifies the defaulting party in writing within
fifteen (15) days of receipt of such notice.
20. TERMINATION
20.1 Either party may terminate this Agreement upon the failure of the
other party to cure an event of default as required by Article 19. In the event
of a termination of this Agreement by Globix due to Qwest's failure to cure a
default, Qwest shall refund to Globix a pro rata share of the IRU Fee in
accordance with the following formula: Remaining time on the term of Capacity
accepted hereunder multiplied by the amount already paid for such Capacity
divided by 240 months. The period of time remaining on the term of each Capacity
accepted hereunder shall be calculated in months and shall include fractional
portions thereof.
20.2 Notwithstanding the foregoing, no termination or expiration of
this Agreement shall affect the rights or obligations of any party hereto with
respect to any then existing defaults or the obligation to make any payment
hereunder for services rendered prior to the date of termination or expiration.
21. FORCE MAJEURE
21.1 Neither party shall be in default under this Agreement if and to
the extent that any delay in such party's performance of one or more of its
obligations hereunder is caused by any of the following conditions, and such
party's performance of such obligation or obligations shall be excused and
extended for and during the period of any such delay: act of God; fire; flood;
fiber, material shortages or unavailability or other delay in delivery not
resulting from the responsible party's failure to timely place orders therefor;
lack of or delay in transportation; government codes, ordinances, laws, rules,
regulations or restrictions (collectively, "Regulations"); war or civil
disorder; failure of a third party to grant a required right-of-way permit,
easement, or other required authorization for use of the intended right-of-way,
or any other cause beyond the commercially reasonable control of such party. The
party claiming relief under this Article shall notify the other in writing of
the existence of the event relied on and the cessation or termination of said
event.
22. WAIVER
22.1 The failure of either party hereto to enforce any of the
provisions of this Agreement, or the waiver thereof in any instance, shall not
be construed as a general waiver or relinquishment on its part of any such
provision, but the same shall nevertheless be and remain in full force and
effect.
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23. GOVERNING LAW
23.1 This Agreement shall be governed by and construed in accordance
with the domestic laws of the State of Colorado, without reference to to any
provision thereof which would cause the application of the laws of another
jurisdiction to this agreement.
24. RULES OF CONSTRUCTION
24.1 The captions or headings in this Agreement are strictly for
convenience and shall not be considered in interpreting this Agreement or as
amplifying or limiting any of its content. Words in this Agreement which import
the singular connotation shall be interpreted as plural, and words which import
the plural connotation shall be interpreted as singular, as the identity of the
parties or objects referred to may require.
24.2 Unless expressly defined herein, words having well known technical
or trade meanings shall be so construed. All listing of items shall not be taken
to be exclusive, but shall include other items, whether similar or dissimilar to
those listed, as the context reasonably requires.
24.3 Except as set forth to the contrary herein, any right or remedy of
Globix or Qwest shall be cumulative and without prejudice to any other right or
remedy, whether contained herein or not.
24.4 This Agreement has been fully negotiated between and jointly
drafted by the parties.
24.5 In the event of a conflict between the provisions of this
Agreement and those of any Exhibit, the provisions of this Agreement shall
prevail and such Exhibit shall be corrected accordingly.
24.6 All actions, activities, consents, approvals and other
undertakings of the parties in this Agreement shall be performed in a reasonable
and timely manner, it being expressly acknowledged and understood that time is
of the essence in the performance of obligations required to be performed by a
date expressly specified herein. Except as specifically set forth herein, for
the purpose of this Article the normal standards of performance within the
telecommunications industry in the relevant market shall be the measure of
whether a party's performance is reasonable and timely.
25. REPRESENTATIONS AND WARRANTIES
25.1 Each party represents and warrants that:
It has the full right and authority to enter into, execute, deliver and
perform its obligations under this Agreement;
It has taken all requisite corporate action to approve the execution,
delivery and performance of this Agreement;
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This Agreement constitutes a legal, valid and binding obligation
enforceable against such party in accordance with its terms, subject to
bankruptcy, insolvency, creditors' rights and general equitable principles; and
Its execution of and performance under this Agreement shall not violate
any applicable existing regulations, rules, statutes or court orders of any
local, state or federal government agency, court or body of any country or any
contract or other agreement the party is subject to.
26. PUBLICITY
26.1 The parties shall cooperate in developing the content and timing
of all press releases and all other publicity related to the subject matter of
this Agreement.
27. ASSIGNMENT
27.1 Each party may assign its rights and obligations under this
Agreement to any of its Affiliates, successors through merger, or acquirers of
substantially all of its assets without the consent of the other party. All the
rights and benefits of this Agreement shall inure to any successor and assign of
either party hereunder.
27.2 Any attempted assignment except an assignment permitted by Section
27.1 above shall be of no force or effect, and shall be null and void, without
the prior written consent of the other party, which consent shall not be
unreasonably withheld.
28. NO PERSONAL LIABILITY
28.1 Each action or claim against any party arising under or relating
to this Agreement shall be made only against such party as a corporation, and
any liability relating thereto shall be enforceable only against the corporate
assets of such party. No party shall seek to pierce the corporate veil or
otherwise seek to impose any liability relating to, or arising from, this
Agreement against any shareholder, employee, officer or director of the other
party. Each of such persons is an intended beneficiary of the mutual promises
set forth in this Article and shall be entitled to enforce the obligations of
this Article.
29. RELATIONSHIP OF THE PARTIES
29.1 The relationship between Globix and Qwest shall not be that of
partners, agents, or joint venturers for one another, and nothing contained in
this Agreement shall be deemed to constitute a partnership or agency agreement
between them for any purposes, including but not limited to federal income tax
purposes. Globix and Qwest, in performing any of their obligations hereunder,
shall be independent contractors or independent parties and shall discharge
their contractual obligations at their own risk.
16
<PAGE> 20
30. SEVERABILITY
30.1 If any term, covenant or condition contained herein shall, to any
extent, be invalid or unenforceable in any respect under the laws governing this
Agreement, the remainder of this Agreement shall not be affected thereby, and
each term, covenant or condition of this Agreement shall be valid and
enforceable to the fullest extent permitted by law.
31. COUNTERPARTS
31.2 This Agreement may be executed in one or more counterparts, all of
which taken together shall constitute one and the same instrument.
32. ENTIRE AGREEMENT; AMENDMENT
32.3 This Agreement constitutes the entire and final agreement and
understanding between the parties with respect to the subject matter hereof and
supersedes all prior agreements relating to the subject matter hereof, which are
of no further force or effect. The Exhibits referred to herein are integral
parts hereof and are hereby made a part of this Agreement. This Agreement may
only be modified or supplemented by an instrument in writing executed by a duly
authorized representative of each party.
17
<PAGE> 21
In confirmation of their consent and agreement to the terms and
conditions contained in this IRU Agreement and intending to be legally bound
hereby, the parties have executed this IRU Agreement as of the date first above
written.
"Qwest":
QWEST COMMUNICATIONS CORPORATION,
a Delaware corporation
By: /s/
---------------------------------------
Name: Gregory M. Casey
-------------------------------------
Title: Sr. V.P., Carrier Markets
-------------------------------------
"Globix":
GLOBIX CORPORATION,
a Delaware corporation
By: /s/ Marc H. Bell
----------------------------------------
Name: Marc H. Bell
Title: President
18
<PAGE> 22
EXHIBIT A: QWEST CAPACITY DESCRIPTION
<TABLE>
<CAPTION>
- ------------------------------------------------------------------
DOMESTIC CITY PAIRS PHASE 1 V&H Miles
- ------------------------------------------------------------------
<S> <C>
New York Chicago 709
- ------------------------------------------------------------------
Chicago San Jose 1836
- ------------------------------------------------------------------
San Jose LAX 307
- ------------------------------------------------------------------
LAX Houston 1375
- ------------------------------------------------------------------
Houston Washington, DC 1217
- ------------------------------------------------------------------
Washington, DC New York 203
- ------------------------------------------------------------------
TOTAL: 5,647
- ------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------
DOMESTIC CITY PAIRS PHASE 2 V&H Miles
- ------------------------------------------------------------------
<S> <C>
Houston Miami 967
- ------------------------------------------------------------------
Miami Atlanta 599
- ------------------------------------------------------------------
Atlanta Washington, DC 541
- ------------------------------------------------------------------
TOTAL: 2,107
- ------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------
INTERNATIONAL CITY PAIRS
- ------------------------------------------------------------------
<S> <C>
New York -London
- ------------------------------------------------------------------
</TABLE>
19
<PAGE> 23
EXHIBIT B: QWEST CAPACITY SPECIFICATIONS AND ACCEPTANCE TESTING
1. INTERCONNECT SPECIFICATIONS:
1.1 The customer interconnection point of DS-1 & DS-3 signals at the Qwest
(SPT) location will be at an industry standard (DSX-1) & (DSX-3) digital
cross-connect panels and will be referred to as Qwest Network Interface in
this document.
1.2 The DS-1 & DS-3 signals terminating at the Qwest digital cross-connect
panels will meet the electrical specifications as defined in AT&T
Compatibility Bulletin (CB) No. 119, Issue 3, October, 1979.
1.3 The Qwest Digital Network will be compatible with the Bell System
hierarchical clock synchronization methods and stratum levels as described
in Bellcore Technical Advisory (GR436-Core).
1.4 Customer equipment must also meet the interconnect specifications listed
above and shall comply with jitter requirements of AT&T Technical Reference
PUB 63411.
2. PERFORMANCE OBJECTIVES:
2.1 DS1, DS3, OC-3, OC-12, OC-48, OC-3c, OC-12c, and OC-48c circuit performance
will be measured using two parameters: Availability and Error-Free Seconds.
The following assumptions apply to the derived data:
- The circuits originate and terminate on the SONET OC-48 backbone
- High speed protection switching: 1 for N, where N=2
- MTTR for SONET equipment: 2 hours
- MTTR for fiber optic cable: 12 hours (Bellcore Standard)
- Cable cut rate: 4.39/year/1,000 sheath miles (Bellcore Standard)
The system includes three (3) DCS in Los Angeles, Sacramento, and
San Jose (although not all circuits are routed through the DCS,
they are included in all the calculations)
2.2 Availability is a measure of the relative amount of time during which the
circuit is available for use. According to CCITT and ANSI definitions,
unavailability begins when the Bit Error Ratio (BER) in each second is
worse than 1.0 E-3 for a period of 10 consecutive seconds.
INTER OFFICE CHANNEL (IOC) : An Inter Office Channel refers to the Qwest
Communications network between the points of presence (POP).
20
<PAGE> 24
OPTICAL CARRIER LEVEL 1 (OC-1) : The optical signal that results from an
optical conversion of an electrical STS-1 signal (51.840 Mb/s). This signal
forms the basis of the interface.
OC-3: Optical Carrier level 3 signal operating at 155.520 Mb/s.
OC-12: Optical Carrier level 12 signal transmitting at 622.080 Mb/s.
OC-48: Optical Carrier level 48 signal transmitting at 2488.32 Mb/s.
POINT OF PRESENCE (POP) : A physical location where a long distance carrier
terminates lines before connecting to the local exchange carrier, another
carrier, or directly to a customer.
2.3 The availability objective for all circuits between Qwest Network Interface
points specified above is to provide performance levels over a 12 month
period as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
V&H MILES DS1, DS3, OC-3, OC-12, OC-48, OC-3c, OC-12c, and OC-48c
- ---------------------------------------------------------------------------------------
<S> <C>
0-2500 99.999%
- ---------------------------------------------------------------------------------------
2501-4000 99.998%
- ---------------------------------------------------------------------------------------
</TABLE>
This excludes any customer provided access links to the Qwest digital
network.
2.4 Outages attributable to incidental damage to or severage of outside fiber
optic cable plant, or scheduled maintenance is excluded from the
performance objective stated above.
2.5 Error-Free Seconds (EFS) and Error Seconds (ES) are the primary measure of
error performance. An Error-Free Second is defined as any second in which
no bit errors are received. Conversely, an Error Second is any second in
which one or more bit errors are received.
3. SONET: Synchronous Optical Network is a family of optical transmission
rates and interface standards allowing internetworking of products from
different vendors. Base optical rate is 51.840 Mb/s. Higher rates are
direct multiples.
SONET TRANSPORT: Facilities associated with carrying OC-1 or higher level
signals.
SYNCHRONOUS TRANSPORT SIGNAL LEVEL 1 (STS-1): The basic logical building
block electrical signal with a rate of 51.840 Mb/s.
SYNCHRONOUS TRANSPORT SIGNAL LEVEL N (STS-N): This electrical signal is
obtained by byte interleaving N STS-1 signals together. The rate of the
STS-N is N times 51.840 Mb/s.
21
<PAGE> 25
TERMINATING MULTIPLEX (TM) : Provides the multiplex functions for
multiplexing and demultiplexing between the DS1 or higher signal level and
the SONET OC-N level.
ACCEPTANCE CRITERIA. The acceptance criteria for DS1, DS3, OC-3, OC-12,
OC-48, OC-3c, OC-12c, and OC-48c circuits between Qwest Network Interface
points is to provide the performance levels shown below during a 60 minute
test period. If no errors are observed during the first 15 minutes of the
test, the facility may be considered acceptable. Access connections to
customer location will be tested in accordance with Bell Publication 62508.
- The tables below are based on QCC owned fiber optic network only
and on the Bellcore Specifications of the SONET delivery of DS1,
DS3, OC-3, OC-12, OC-48, OC-3c, OC-12c, and OC-48c directly off
the SONET Backbone.
- If the DS1, DS3, OC-3, OC-12, OC-48, OC-3c, OC-12c, and OC-48c
service is delivered at the STS1 level then the general
performance objectives fall into the industry standard.
DS1, DS3 The table below defines the general performance objectives for DS1
service operating at 1.544 Mb/s, and the general performance objectives for
DS3 service operating at 45 Mb/s.
<TABLE>
<CAPTION>
-----------------------------------------------------------------
V&H MILES EFS BER
-----------------------------------------------------------------
<S> <C> <C>
0 - 250 99.988% 10(-15)
-----------------------------------------------------------------
251 - 500 99.983% 10(-15)
-----------------------------------------------------------------
501 - 1000 99.971% 10(-15)
-----------------------------------------------------------------
1001 - 1500 99.959% 10(-15)
-----------------------------------------------------------------
1501 - 2000 99.948% 10(-15)
-----------------------------------------------------------------
2001 - 2500 99.936% 10(-15)
-----------------------------------------------------------------
2501 - 3000 99.925% 10(-15)
-----------------------------------------------------------------
3001 - 3500 99.913% 10(-15)
-----------------------------------------------------------------
3501 - 4000 99.902% 10(-15)
-----------------------------------------------------------------
</TABLE>
OC-3, 12, 48; OC-3c, 12c, 48c
22
<PAGE> 26
The table below defines the general performance objectives for OC-3, OC-12,
OC-48, OC-3c, OC-12c, and OC-48c.
<TABLE>
<CAPTION>
-----------------------------------------------------------------
V&H MILES EFS BER
-----------------------------------------------------------------
<S> <C> <C>
0 - 250 99.989% 10(-15)
-----------------------------------------------------------------
251 - 500 99.984% 10(-15)
-----------------------------------------------------------------
501 - 1000 99.974% 10(-15)
-----------------------------------------------------------------
1001 - 1500 99.964% 10(-15)
-----------------------------------------------------------------
1501 - 2000 99.954% 10(-15)
-----------------------------------------------------------------
2001 - 2500 99.944% 10(-15)
-----------------------------------------------------------------
2501 - 3000 99.933% 10(-15)
-----------------------------------------------------------------
3000 - 3500 99.923% 10(-15)
-----------------------------------------------------------------
3501 - 4000 99.913% 10(-15)
-----------------------------------------------------------------
</TABLE>
23
<PAGE> 27
EXHIBIT C: QWEST ESCALATION AND CONTACT LIST
ESCALATION AND CONTACT LIST
24 Hours Response "Hot-Line" 800-776-7372
Specialist on Duty Direct Line 303-992-1631
Ring Operations Center Facsimile 303-992-1762
1st Level Escalation
On Duty Supervisor
800-776-7372
Ring Operations Center
2nd Level Escalation
Lance Antieau
Manager, Ring Operations Center
OFF# 303-992-1603
PGR# 888-665-8690
E-Mail [email protected]
3rd Level Escalation
Kimberly Hicks
Acting Director - Ring Operations Center
OFF# 303-992-1582
PGR# 888-417-4334
CELL# 303-907-0330
E-Mail [email protected]
ESCALATION TO VP OPS/ROC......THROUGH MANAGER OR DIRECTOR
4th Level Escalation
Mike Henigar
Vice President - Network Services
OFF# 303-992-5708
PGR# 888-284-1741
E-Mail [email protected]
ESCALATION BEYOND 4TH LEVEL......THROUGH V.P. OPS/ROC
24
<PAGE> 28
EXHIBIT D: QWEST CAPACITY TECHNOLOGY UPGRADE
1. Qwest's current network technology consists of Nortel's four-fiber
bi-directional SONET ring architecture on two fiber strands. It is 8 lambda
technology (4 lambdas in each direction per fiber). For purposes of this
Agreement, an "upgrade" to this system shall mean an improvement on this
technology to, for example, 16 or 32 lambda technology allowing Qwest to derive
more capacity from the same fibers as those carrying Globix's IRU.
2. Proportional share of capacity shall be determined as follows: For example,
assuming Globix has purchased an OC3 on a segment where Qwest is using 8 lambda
technology. Globix's proportional share is 3/(4*192), or 0.39%. If Qwest
upgrades to 16 lambda technology, Globix shall be eligible to purchase one (1)
additional OC3 (0.39% of total system capacity) on the portion upgraded. If
Qwest upgrades to 32 lambda technology, Globix shall be eligible to purchase an
additional three (3) OC3's (1.17% of total system capacity).
3. Proportional cost shall be determined as follows: If Globix were eligible to
purchase an additional OC3 because of Qwest's upgrade to 16 lambda technology,
Globix shall pay to Qwest 0.39% of Qwest's total cost of such upgrade. Total
equipment and installation costs for such upgrade shall include without
limitation transport gear and terminal equipment (optronics), tributary cards
associated with Globix's bandwidth requirements, incremental land & buildings
required to house the upgraded equipment, installation required for the upgrade,
and other miscellaneous costs associated with and required to install the
upgrade without mark-up. Engineering and other overhead costs shall also be
included when computing the total cost to Globix.
4. Once complete, Qwest's network will be SONET ring-protected. In the event of
a Qwest upgrade, Qwest must install upgraded SONET ring equipment in all sites
on a particular ring, not just on a particular segment. The capacity purchased
by Globix is ring-protected, as such, Globix's proportional share of the total
costs shall be based on Qwest's total cost to upgrade the ring or rings. The
proportion is still determined based on Note 3, but the total cost will include
costs to upgrade the entire ring.
25
<PAGE> 1
EXHIBIT 21
GLOBIX CORPORATION
LIST OF SUBSIDIARIES
The following is a list of all of the subsidiaries of Globix
Corporation, and the jurisdictions of incorporation of such subsidiaries. All of
the listed subsidiaries do business under the names presented below:
1. NAFT International Ltd.
295 Lafayette Street, 3rd Floor
New York, NY 10012
New York
(state of incorporation)
2. NAFT Computer Service Corp.
295 Lafayette Street, 3rd Floor
New York, NY 10012
New York
(state of incorporation)
3. PFM Communications Inc.
295 Lafayette Street, 3rd Floor
New York, NY 10012
New York
(state of incorporation)
4. Bluestreak Digital, Inc.
295 Lafayette Street, 3rd Floor
New York, NY 10012
New York
(state of incorporation)
5. Gamenet Corp.
295 Lafayette Street, 3rd Floor
New York, NY 10012
New York
(state of incorporation)
6. BLP Acquisitions LLC
295 Lafayette Street, 3rd Floor
New York, NY 10012
New York
(state of incorporation)
<PAGE> 2
7. ATC Merger Corp.
295 Lafayette Street, 3rd Floor
New York, NY 10012
New York
(state of incorporation)
8. BTG Technology Group Ltd.
295 Lafayette Street, 3rd Floor
New York, NY 10012
New York
(state of incorporation)
9. Globix Limited
5 Deanery Street
London W1Y 5LH
United Kingdom
(jurisdiction of organization)
<PAGE> 1
Exhibit 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants of Globix Corporation, we hereby consent to
the incorporation of our report included in this Form 10-K, into the Company's
previously filed Registration File No. 333-57619.
ARTHUR ANDERSEN LLP
New York, New York
December 14, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> SEP-30-1998
<CASH> 61,473,285
<SECURITIES> 14,638,173
<RECEIVABLES> 5,271,219
<ALLOWANCES> 410,000
<INVENTORY> 391,848
<CURRENT-ASSETS> 12,015,784
<PP&E> 33,282,228
<DEPRECIATION> 2,410,509
<TOTAL-ASSETS> 182,266,372
<CURRENT-LIABILITIES> 17,520,983
<BONDS> 157,892,200
0
0
<COMMON> 41,401
<OTHER-SE> 2,677,684
<TOTAL-LIABILITY-AND-EQUITY> 182,266,372
<SALES> 20,594,933
<TOTAL-REVENUES> 20,594,933
<CGS> 13,321,952
<TOTAL-COSTS> 12,006,385
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,375,426
<INCOME-PRETAX> (11,155,878)
<INCOME-TAX> 0
<INCOME-CONTINUING> (11,155,878)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (11,155,878)
<EPS-PRIMARY> (3.08)
<EPS-DILUTED> (3.08)
</TABLE>
