<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 16, 1998
REGISTRATION NO. 333-
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
EXODUS COMMUNICATIONS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 4813 77-0403076
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL IDENTIFICATION NO.)
INCORPORATION OR CLASSIFICATION CODE
ORGANIZATION) NUMBER)
----------------
2650 SAN TOMAS EXPRESSWAY
SANTA CLARA, CALIFORNIA 95051
(408) 346-2200
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------
K.B. CHANDRASEKHAR
PRESIDENT AND CHIEF EXECUTIVE OFFICER
2650 SAN TOMAS EXPRESSWAY
SANTA CLARA, CALIFORNIA 95051
(408) 346-2200
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
----------------
COPIES TO:
LAIRD H. SIMONS III, ESQ. LARRY W. SONSINI, ESQ.
FRED M. GREGURAS, ESQ. DAVID C. DRUMMOND, ESQ.
EILEEN DUFFY ROBINETT, ESQ. ROBERT D. SANCHEZ, ESQ.
ROBERT A. FREEDMAN, ESQ. WILSON SONSINI GOODRICH & ROSATI
JAY S. KOMAS, ESQ. PROFESSIONAL CORPORATION
FENWICK & WEST LLP 650 PAGE MILL ROAD
TWO PALO ALTO SQUARE PALO ALTO, CALIFORNIA 94304
PALO ALTO, CALIFORNIA 94306 (650) 493-9300
(650) 494-0600
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_] _________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_] ________
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_] _______
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED OFFERING PRICE(1) REGISTRATION FEE
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<S> <C> <C>
Common Stock, par value $0.001 per share... $46,000,000 $13,570
</TABLE>
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- -------------------------------------------------------------------------------
(1) Estimated pursuant to Rule 457(a) solely for the purpose of calculating
the amount of the registration fee.
----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
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- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED JANUARY 16, 1998
SHARES
EXODUS COMMUNICATIONS, INC.
COMMON STOCK
[LOGO OF EXODUS] (PAR VALUE, $0.001 PER SHARE)
-----------
All of the shares of Common Stock offered hereby are being sold by Exodus
Communications, Inc. Prior to the offering, there has been no public market for
the Common Stock of the Company. It is currently estimated that the initial
public offering price will be between $ and $ per share. For factors to
be considered in determining the initial public offering price, see
"Underwriting".
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" BEGINNING ON PAGE 6.
Application has been made for quotation of the Common Stock on the Nasdaq
National Market under the symbol "EXDS".
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
-----------
<TABLE>
<CAPTION>
INITIAL PUBLIC UNDERWRITING PROCEEDS TO
OFFERING PRICE DISCOUNT (1) COMPANY (2)
-------------- ------------ -----------
<S> <C> <C> <C>
Per Share............................... $ $ $
Total (3)............................... $ $ $
</TABLE>
- -----
(1) The Company and certain of the Company's stockholders (the "Selling
Stockholders") have agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting".
(2) Before deducting estimated expenses of $ payable by the Company.
(3) The Company and the Selling Stockholders have granted the Underwriters an
option for 30 days to purchase up to an additional shares and
shares, respectively, at the initial public offering price per share, less
the underwriting discount, solely to cover over-allotments. The Company
will not receive any proceeds from the sale of shares by the Selling
Stockholders. See "Principal and Selling Stockholders". If such option is
exercised in full, the total initial public offering price, underwriting
discount, proceeds to Company and proceeds to Selling Stockholders will be
$ , $ , $ and $ , respectively. See "Underwriting".
-----------
The shares offered hereby are offered severally by the Underwriters, as
specified herein, subject to receipt and acceptance by them and subject to
their right to reject any order in whole or in part. It is expected that
certificates for the shares will be ready for delivery in New York, New York on
or about , 1998, against payment therefor in immediately available funds.
GOLDMAN, SACHS & CO.
BT ALEX. BROWN
NATIONSBANC MONTGOMERY SECURITIES LLC
-----------
The date of this Prospectus is , 1998.
<PAGE>
[Description of inside front cover: In the background, representative customer
names appear. The following text is superimposed over the background of
customer names: "Exodus Communications, Inc. is a leading provider of Internet
system and network management solutions for enterprises with mission-critical
Internet operations. The Company's tailored solutions are designed to be
seamlessly integrated with existing systems architectures and enable customers
to outsource the monitoring, administration and optimatization of their
overall Internet operations." The Exodus logo appears at the bottom of the
page, above the following legend:
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK OF THE
COMPANY, INCLUDING OVER-ALLOTMENT, STABILIZING AND SHORT-COVERING TRANSACTIONS
IN SUCH SECURITIES, AND THE IMPOSITION OF A PENALTY BID, IN CONNECTION WITH
THE OFFERING. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."]
<PAGE>
[Description of gatefold: At the top appears the Exodus logo and "Internet
System and Network Management Solutions for Enterprises with Mission-Critical
Internet Operations" superimposed over "Exodus." Beneath that are the following
diagrams and textual explanations:
1. A rendering of the interior of an Internet Data Center, including
CyberRacks, CyberCabinets, Virtual Data Centers and CyberVaults and
related equipment and Company personnel. The following text appears
next to the picture:
"An Inside Look at an Exodus Internet Data Center"
"Internet Data Centers are designed for high-availability,
mission-critical operations."
"* 24x7 staffed Network Control Centers
* Multi-level physical site security
* Multiple physical fiber paths into each facility
* Raised-floor, HVAC computing environment
* Uninterruptible power supplies and back-up generators
* FM200 gas-based fire suppression systems"
2. A map of the United States which identifies (i) the Company's
Seattle, San Francisco, Los Angeles, New York and Washington metropolitan area
Internet Data Centers, (ii) the Company's DS-3 backbone ring, (iii) various
private and public peering interconnections and (iv) the public Internet
exchange points. In addition, a map of England is included to show the Company's
expected Internet Data Center to be located there, with a notation "coming in
1998." The maps are accompanied by a legend that identifies the symbols used for
Internet Data Centers, public Internet exchange points, private or public
peering with major carriers, the Exodus DS-3 SONET Ring and Exodus OC-3 ATM
links.
3. A diagram of how the various aspects of the Company's services fit
together, including:
a. Remote users, business users and home users (represented by
computers with captions) connecting to an Internet "cloud," with
the following captions:
"* Intelligent routing technologies direct user requests to
the closest Internet Data Center."
"* End users connect via their local ISPs."
b. Servers at a west coast and east coast Internet Data Center
connected to an Internet "cloud" through Internet exchange
points, with routers at the west coast and east coast Internet
Data Centers connected through the Company's backbone ring
across the United States. The following captions are associated
with this diagram:
"* Internet traffic flows are continuously monitored and
dynamically rerouted to optimize end-user response times."
"* The Company's policy of undersubscribing its network
capacity allows for customer spikes in demand."
"* Content is mirrored across multiple Internet Data Centers
via the Company's private fiber backbone, to maximize
application availability."
<PAGE>
c. Representations of computer screens, which contain a report
that can be generated through the Company's collaborative
management services. One screen is shown at a customer location.
The screens are connected to the Company's west coast and east
coast Internet Data Centers. The following caption is associated
with these depictions:
"* Collaborative management services enable customers and the
Company to manage customers' Internet operations jointly,
proactively and continuously."
d. Additional representations of computer screens containing
data available through the Company's collaborative management
and Internet technology services. The following captions are
associated with these representations.
"Internet system and network management -- Sophisticated
Internet system and network management solutions enable the
Company to identify and begin to resolve problems --
frequently before the customer is even aware that a problem
exists."
"Internet Technology Services -- Internet technology
services, which include security and content distribution,
integrate best of breed technologies with the Company's
expertise to provide customers with scalable, secure and
high performing Internet applications.]
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and Financial Statements and Notes thereto appearing elsewhere in
this Prospectus, including the information under "Risk Factors."
Except where otherwise indicated, all information in this Prospectus (i)
reflects the conversion of all outstanding shares of redeemable convertible
preferred stock of the Company (the "Preferred Stock") into shares of Common
Stock upon the consummation of this offering, (ii) reflects a one-for-three
reverse split of the Company's Common Stock, (iii) assumes the Underwriters'
over-allotment option will not be exercised and (iv) reflects the Company's
reincorporation into Delaware, which is expected to occur prior to the closing
of this offering, and associated changes in the Company's charter documents.
See "Description of Capital Stock" and "Underwriting."
THE COMPANY
Exodus is a leading provider of Internet system and network management
solutions for enterprises with mission-critical Internet operations. The
Company's solutions include server hosting, Internet connectivity,
collaborative management and Internet technology services, which together
provide the high performance, scalability and expertise that enterprises need
to optimize their Internet operations. The Company delivers its services from
geographically distributed, state-of-the-art Internet Data Centers that are
connected through a redundant high performance dedicated backbone ring. The
Company's tailored solutions are designed to be seamlessly integrated with
existing enterprise systems architectures and enable customers to outsource the
monitoring, administration and optimization of their equipment, applications
and overall Internet operations. As of December 31, 1997, the Company had over
180 Internet Data Center customers and managed over 2,000 customer servers. The
Company's customers range from pioneering Internet-based businesses to Fortune
500 enterprises and include companies such as Computer Associates
International, Inc., GeoCities, Hewlett-Packard Company, Hotmail Corporation,
Inktomi Corporation, National Semiconductor Corporation, PC World
Communications, Inc., Software.net and USAToday Information Network.
Use of the Internet, including intranets and extranets, has grown rapidly in
recent years. As this use continues to grow, enterprises are increasing the
breadth and depth of their Internet product and service offerings. These
Internet operations are mission-critical for virtually all Internet-based
businesses and are becoming increasingly mission-critical for many mainstream
enterprises. In order to ensure the quality, reliability, availability and
redundancy of these mission-critical Internet operations, corporate IT
departments must make substantial investments in geographically distributed
state-of-the-art facilities and networks that are monitored and managed 24x7 by
experts in Internet technology, can be upgraded to reflect changing
technologies and can be scaled as the needs of enterprises evolve. However,
such a continuing significant investment of resources is often an inefficient
use of enterprises' overall resources. As a result, corporate IT departments
are increasingly seeking collaborative outsourcing arrangements that can
increase performance, provide continuous operation of their Internet solutions
and reduce Internet operating expenses. Exodus believes a significant
opportunity exists for a highly-focused company to provide a combination of
server hosting, Internet connectivity, collaborative management and Internet
technology services that will enable reliable, high performance of enterprises'
mission-critical Internet operations.
The Company's Internet system and network management solutions are based on a
core set of server hosting and Internet connectivity services, which are
enhanced by a growing number of collaborative management and Internet
technology services. The Company's Internet Data Centers
3
<PAGE>
provide a secure platform for server hosting with uninterruptible power supply
and back-up generators, fire suppression, raised floors, HVAC, separate cooling
zones, seismically braced racks, 24x7 operations and high levels of physical
security. The Company's national backbone ring of multiple high-speed, clear-
channel DS-3 lines and private and public network peering interconnections
provide the foundation for the Company's high performance, scalable Internet
connectivity services. The Company's collaborative management services,
including performance monitoring and site management reports, enable customers
and the Company to manage customers' Internet operations jointly, proactively
and continuously. Finally, the Company's Internet technology services,
including security and content distribution, integrate best-of-breed
technologies of leading vendors with the Company's expertise to provide
customers with scalable, secure and high performing Internet applications. The
Company's portfolio of layered services optimize the development, deployment
and proactive management of enterprises' mission-critical Internet operations.
The Company began offering server hosting services in late 1995, opened its
first dedicated Internet Data Center in August 1996 and introduced its
collaborative management and Internet technology services in 1997. The Company
currently operates six Internet Data Centers, consisting of approximately
90,000 gross square feet, located in five metropolitan areas: Los Angeles, New
York, San Francisco, Seattle and Washington, D.C. The Company intends to expand
domestically and internationally, including the expected addition of an
additional Internet Data Center in the San Francisco metropolitan area and a
new site in the London metropolitan area in the first half of 1998.
The Company's objective is to become the leading provider of Internet system
and network management solutions for enterprises with mission-critical Internet
operations. The key elements of this strategy include (i) extending the
Company's market leadership, (ii) focusing on the development of new
collaborative management services, (iii) expanding domestically and
internationally by adding Internet Data Centers, (iv) leveraging the Company's
significant expertise to address new market opportunities such as e-commerce
and extranets and (v) establishing strategic relationships with leading
technology developers and distribution alliances with content developers,
system integrators, system vendors, consulting companies and ISPs.
The Company is the successor to a Maryland corporation that was formed in
August 1992 and reincorporated in California in May 1995. The Company will
reincorporate in Delaware prior to the closing of this offering. Unless the
context otherwise requires, the term "Company" or "Exodus" refers to Exodus
Communications, Inc. and its California and Maryland predecessors. The
Company's principal executive offices are located at 2650 San Tomas Expressway,
Santa Clara, California 95051. The Company's telephone number is (408) 346-
2200.
Exodus Communications, Exodus, CyberCabinet, CyberRack, CyberVault, HeadsUp
Site Monitor, SystemHealth Monitoring and Virtual Data Center are trade names
and trademarks of the Company. This Prospectus also includes trade names and
trademarks of other companies, including Unicenter(R) and Unicenter(R) TNG(TM),
which are trademarks of Computer Associates International, Inc., and National
Semiconductor(R), which is a trademark of National Semiconductor Corporation.
4
<PAGE>
THE OFFERING
<TABLE>
<C> <S>
Common Stock offered by the Company............. shares
Common Stock to be outstanding after this offer-
ing............................................ shares(1)
Use of proceeds................................. For working capital and
other general corporate
purposes. See "Use of
Proceeds."
Proposed Nasdaq National Market symbol.......... "EXDS"
</TABLE>
SUMMARY FINANCIAL INFORMATION
The following summary financial information should be read in conjunction
with the Company's Financial Statements and Notes thereto and "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
included elsewhere in this Prospectus. The summary financial information for
the years ended December 31, 1995 and 1996 and for the nine months ended
September 30, 1997, and as of September 30, 1997, is derived from financial
statements of the Company that have been audited by KPMG Peat Marwick LLP,
independent auditors. The summary financial information for the nine months
ended September 30, 1996 is derived from unaudited financial statements that
have been prepared by the Company on substantially the same basis as the
audited financial statements and, in the opinion of management, include all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of the results of operations for such period. Historical
results are not necessarily indicative of the results to be expected in the
future and results of interim periods are not necessarily indicative of results
for the entire year.
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
---------------- -------------------
1995 1996 1996 1997
------- ------- -------- ---------
(IN THOUSANDS, EXCEPT PER SHARE
DATA)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenues......................... $ 1,408 $ 3,130 $ 2,020 $ 7,505
Operating loss......................... (1,273) (4,094) (2,048) (14,330)
Net loss............................... (1,311) (4,133) (2,091) (14,572)
Pro forma net loss per share (2)....... $ (0.33) $ (0.99)
Shares used in computing pro forma net
loss per share (2).................... 12,384 14,771
OTHER DATA (UNAUDITED):
EBITDA (3)............................. $(1,208) $(3,633) $ (1,816) $ (12,483)
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
---------------------------------------
ACTUAL PRO FORMA (4) AS ADJUSTED (5)
-------- ------------- ---------------
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............. $ 3,883 $11,383 $
Working capital (deficiency).......... (3,067) 4,808
Total assets.......................... 24,875 32,375
Debt and capital lease obligations,
less current portion................. 6,005 6,005
Redeemable convertible preferred
stock................................ 28,948 --
Total stockholders' (deficit) equity.. (19,320) 17,503
</TABLE>
- --------
(1) Based on shares outstanding as of December 31, 1997. Does not include (i)
1,709,286 shares of Common Stock issuable upon the exercise of stock
options outstanding as of December 31, 1997, with a weighted average per
share exercise price of $0.76, (ii) 649,929 shares of Common Stock
available for future grant as of December 31, 1997 under the Company's 1997
Equity Incentive Plan (the "1997 Plan") and an additional 2,300,000 shares
available for future grant or issuance immediately after the offering under
the Company's 1998 Equity Incentive Plan (the "1998 Plan"), 1998 Directors
Stock Option Plan (the "Directors Plan") and 1998 Employee Stock Purchase
Plan (the "Purchase Plan") or (iii) 950,163 shares of Common Stock issuable
upon the exercise of warrants outstanding as of December 31, 1997 with a
weighted average per share exercise price of $4.29 (of which warrants for
615,454 shares are expected to be exercised on or before the closing of the
offering). See "Capitalization," "Management--Director Compensation,"
"Management--Employee Benefit Plans," "Description of Capital Stock" and
Notes 5 and 8 of Notes to Financial Statements.
(2) See Note 1 of Notes to Financial Statements for an explanation of the
determination of the number of shares used in computing pro forma net loss
per share.
(3) Represents earnings (loss) before net interest expense, income taxes,
depreciation, amortization (including amortization of deferred stock
compensation) and other noncash charges ("EBITDA"). Although EBITDA should
not be used as an alternative to operating income or net cash used for
operating activities, each as measured under generally accepted accounting
principles, and, although EBITDA may not be comparable to other similarly
titled information from other companies, the Company's management believes
that EBITDA is an additional meaningful measure of performance and
liquidity.
(4) Pro forma to reflect the sale by the Company of 877,180 shares of Preferred
Stock at $8.55 per share in December 1997 and the conversion of all
outstanding shares of Preferred Stock into Common Stock upon the closing of
this offering.
(5) As adjusted to reflect the receipt of the net proceeds from the sale of the
shares of Common Stock offered hereby at an assumed initial public
offering price of $ per share and after deducting the estimated
underwriting discount and offering expenses.
5
<PAGE>
RISK FACTORS
This offering involves a high degree of risk. In addition to the other
information set forth in this Prospectus, the following risk factors should be
considered carefully in evaluating the Company and its business before
purchasing any of the shares of Common Stock of the Company. This Prospectus
contains certain forward-looking statements that involve risks and
uncertainties, such as statements of the Company's plans, objectives,
expectations and intentions. The cautionary statements made in this Prospectus
should be read as being applicable to all related forward-looking statements
wherever they appear in this Prospectus. The Company's actual results could
differ materially from those discussed in this Prospectus. Factors that could
cause or contribute to such differences include those discussed below, as well
as those discussed elsewhere in this Prospectus.
LIMITED OPERATING HISTORY; HISTORY OF LOSSES
While the Company began operations in 1992, it did not offer server hosting
services until 1995 and did not open its first dedicated Internet Data Center
until August 1996, at which time it refocused its business strategy on
providing Internet system and network management solutions for enterprises'
mission-critical Internet operations. As a result, the Company's business
model is still in an emerging state. Since it began to offer server hosting
services in 1995, the Company has experienced operating losses and negative
cash flows from operations each quarterly and annual period. As of September
30, 1997, the Company had an accumulated deficit of approximately $20.7
million. The revenue and income potential of the Company's business and market
is unproven, and the Company's limited operating history makes an evaluation
of the Company and its prospects difficult. Currently, the Company anticipates
making significant investments in new Internet Data Centers and product
development and sales and marketing programs and personnel and therefore
believes that it will continue to experience net losses on a quarterly and
annual basis for the foreseeable future. The Company and its prospects must be
considered in light of the risks, expenses and difficulties encountered by
companies in the new and rapidly evolving market for Internet system and
network management solutions. To address these risks, among other things, the
Company must market its brand name effectively, provide scalable, reliable and
cost-effective services, continue to grow its infrastructure to accommodate
new Internet Data Centers and increased bandwidth use of its network, expand
its channels of distribution, retain and motivate qualified personnel and
continue to respond to competitive developments. Failure of the Company's
services to achieve market acceptance would have a material adverse effect on
the Company's business, results of operations and financial condition.
Although the Company has experienced significant growth in revenues in recent
periods, the Company does not believe that this growth rate necessarily is
indicative of future operating results, and there can be no assurance that the
Company will ever achieve profitability on a quarterly or an annual basis or
will sustain profitability if achieved. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
POTENTIAL FLUCTUATIONS IN RESULTS OF OPERATIONS
The Company has experienced significant fluctuations in its results of
operations on a quarterly and an annual basis. The Company expects to continue
to experience significant fluctuations in its future quarterly and annual
results of operations due to a variety of factors, many of which are outside
the Company's control, including: demand for and market acceptance of the
Company's services and enhancements; introductions of services or enhancements
by the Company and its competitors; capacity utilization of its Internet Data
Centers; reliable continuity of service and network availability; the ability
to increase bandwidth as necessary; the timing of customer installations; the
mix of services sold by the Company; customer retention; the timing and
success of marketing efforts and service introductions by the Company; the
timing and magnitude of capital expenditures, including construction costs
relating to the expansion of operations; the timely expansion of existing
Internet Data Centers and completion of new Internet Data Centers; the
introduction by third parties of new Internet and
6
<PAGE>
networking technologies; increased competition in the Company's markets;
changes in the pricing policies of the Company and its competitors;
fluctuations in bandwidth used by customers; the retention of key personnel;
economic conditions specific to the Internet industry; and other general
economic factors. In addition, a relatively large portion of the Company's
expenses are fixed in the short-term, particularly with respect to
telecommunications, depreciation, real estate and interest expenses and
personnel, and therefore the Company's operating results are particularly
sensitive to fluctuations in revenues. Also, if the Company's agreement with
Computer Associates International, Inc. ("Computer Associates") were to
terminate and the Company continued to require Computer Associates' software,
the license fees paid by the Company could increase fixed costs significantly.
Furthermore, if the Company were to become unable to continue leveraging third
party products in the Company's services offerings, the Company's product
development costs could increase significantly. Although the Company has not
encountered significant difficulties in collecting upon accounts receivable in
the past, many of the Company's customers are in an emerging stage, and there
can be no assurance that the Company will be able to collect receivables on a
timely basis. For these and other reasons, in some future quarters, the
Company's results of operations may fall below the expectations of securities
analysts or investors, which could have a material adverse effect on the
market price of the Company's Common Stock. See "--Risks Associated with
Planned Expansion of the Exodus Network" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
RISKS ASSOCIATED WITH PLANNED BUSINESS EXPANSION
A key element of the Company's business strategy is the expansion of the
Company's network through the opening of additional Internet Data Centers in
geographically diverse locations. The Company opened five Internet Data
Centers during 1997 and currently has six sites located in five metropolitan
areas: San Francisco, New York, Los Angeles, Seattle and Washington, D.C. The
Company intends to expand domestically and internationally, including the
expected addition of an additional Internet Data Center in the San Francisco
metropolitan area and a new site in the London metropolitan area in the first
half of 1998. The Company's continued expansion and development of its network
will depend on, among other things, the Company's ability to assess markets,
identify Internet Data Center sites, install facilities and establish local
peering interconnections with ISPs, all in a timely manner at reasonable costs
and on terms and conditions acceptable to the Company. The Company's ability
to manage this expansion effectively will require it to continue to implement
and improve its operational and financial systems and to expand, train and
manage its employee base. The Company's inability to establish additional
Internet Data Centers or manage effectively its expansion would have a
material adverse effect upon the Company's business, results of operations and
financial condition.
The establishment of each additional Internet Data Center will require the
Company to expend substantial resources for leases of real estate, significant
improvements of such facilities, purchase of equipment, implementation of
multiple telecommunications connections and hiring of network, administrative,
customer support and sales and marketing personnel. Moreover, the Company
expects to make significant investments in sales and marketing and the
development of new services as part of its expansion strategy. During the next
12 months, the Company expects to meet its capital and working capital
requirements with existing cash and cash equivalents and short-term
investments, the proceeds of this offering, cash from sales of services and
proceeds from existing and future equipment loans and lease lines and working
capital lines of credit and possibly other borrowings. However, there can be
no assurance that the Company will be successful in generating sufficient cash
from sales of services or raising capital in sufficient amounts on terms
acceptable to it. The failure to generate sufficient cash flows from sales of
services or to raise sufficient funds may require the Company to delay or
abandon some or all of its development and expansion plans or otherwise forego
market opportunities and may make it difficult for the Company to respond to
competitive pressures, any of
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which could have a material adverse effect on the Company's business, results
of operations and financial condition. See "Use of Proceeds" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources."
The Company typically requires at least six months to select the appropriate
location for an Internet Data Center, construct the necessary facilities,
install equipment and telecommunications infrastructure, and hire the
operations and sales personnel needed to conduct business at that site.
Expenditures related to an Internet Data Center commence well before the
Internet Data Center opens, and it takes an extended period to approach break-
even capacity utilization at each site. As a result, the Company expects
individual Internet Data Centers will experience losses for at least one year
from the time they are opened. The Company experiences further losses from
sales personnel hired to test market the Company's services in markets where
there is no, and may never be an, Internet Data Center. As a result, the
Company expects to make investments in expanding the Company's business
rapidly into new geographic regions which, while potentially increasing the
Company's revenues in the long term, will lead to significant losses for the
foreseeable future. There can be no assurance that the Company will be able to
anticipate accurately the customer demand for such additional Internet Data
Centers or that the Company will be able to attract a sufficient number of
customers to such facilities. The Company's inability to attract customers to
new Internet Data Centers in a timely manner, or at all, would have a material
adverse effect on the Company's business, results of operations and financial
condition. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
SUBSTANTIAL LEVERAGE AND DEBT SERVICE
The Company is, and after the offering will continue to be, substantially
leveraged. On December 31, 1997, the Company's total long-term debt and
capital lease obligations was approximately $22.6 million and its borrowing
availability under existing equipment loans and working capital lines of
credit was approximately $15.8 million, subject to the borrowing conditions
contained therein. The Company also expects to obtain additional equipment
loans and lease lines and working capital lines of credit, and possibly other
borrowings, during the next 12 months. The degree to which the Company is
leveraged could have important consequences to the Company's future
operations, including but not limited to: (i) increasing the Company's
vulnerability to general adverse economic and industry conditions; (ii)
limiting the Company's ability to obtain additional financing to fund future
working capital, capital expenditures, acquisitions and other general
corporate requirements; (iii) requiring the dedication of a substantial
portion of the Company's cash flow from operations to the payment of principal
of, and interest on, its indebtedness, thereby reducing the availability of
such cash flow to fund working capital, capital expenditures or other general
corporate requirements; (iv) limiting the Company's flexibility in planning
for, or reacting to, changes in its business and the industry in which it
competes; and (v) placing the Company at a competitive disadvantage vis-a-vis
less leveraged or better capitalized competitors. Certain of the Company's
indebtedness is secured by the Company's assets. A default under such
indebtedness could result in the foreclosure on such collateral, which would
have a material adverse effect on the Company's business, results of
operations and financial condition.
The Company's ability to fund planned capital expenditures and service its
existing and future indebtedness will depend upon its future performance,
which, in turn, is subject to general economic, financial, competitive,
legislative, regulatory and other factors that are beyond its control. If the
Company is unable to generate sufficient cash flow from operations, or
additional equipment loans or equipment and working capital lines of credit,
in the future to service its debt, it may be required to sell assets, reduce
capital expenditures, refinance all or a portion of its existing indebtedness
or obtain other sources of financing. There can be no assurance that any such
refinancing would be available on commercially reasonable terms, or at all, or
that any other financing could be obtained, particularly
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in view of the Company's high level of indebtedness and the fact that
substantially all of the Company's assets have been pledged to secure
obligations under certain existing indebtedness. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and Notes 3 and
6 of Notes to Financial Statements.
COMPETITION
The market served by the Company is highly competitive. 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 principal competitive factors in this market include Internet
system engineering expertise, customer service, network capability,
reliability, quality of service and scalability, broad geographic presence,
brand name, technical expertise and functionality, the variety of services
offered, the ability to maintain and expand distribution channels, customer
support, price, the timing of introductions of new services, network security,
financial resources and conformity with industry standards. There can be no
assurance that the Company will have the resources or expertise to compete
successfully in the future.
The Company's current and potential competitors in the market include: (i)
providers of server hosting services; (ii) national and regional Internet
service providers ("ISPs"); (iii) global, regional and local
telecommunications companies and Regional Bell Operating Companies ("RBOCs");
and (iv) large IT outsourcing firms. The Company's competitors may operate in
one or more of these areas and include companies such as certain subsidiaries
of GTE Corporation and WorldCom, Inc. ("WorldCom"), International Business
Machines Corporation ("IBM") and certain business units of GlobalCenter, Inc.
("GlobalCenter"), which recently announced its proposed acquisition by
Frontier Corporation.
Many of the Company's competitors have substantially greater financial,
technical and marketing resources, larger customer bases, longer operating
histories, greater name recognition and more established relationships in the
industry than the Company. As a result, certain of these competitors may be
able to develop and expand their network infrastructures and service offerings
more quickly, adapt to new or emerging technologies and changes in customer
requirements more quickly, take advantage of acquisition and other
opportunities more readily, devote greater resources to the marketing and sale
of their products and adopt more aggressive pricing policies than can the
Company. In addition, these competitors have entered and will likely continue
to enter into joint ventures or consortiums to provide additional services
competitive with those provided by the Company.
Certain of the Company's competitors may be able to provide customers with
additional benefits in connection with their Internet system and network
management solutions, including reduced communications costs, which could
reduce the overall costs of their services relative to the Company's. There
can be no assurance that the Company will be able to offset the effects of any
such price reductions. In addition, the Company believes that the businesses
in which the Company competes are likely to encounter consolidation in the
near future, which could result in increased price and other competition that
could have a material adverse effect on the Company's business, results of
operations and financial condition. See "Business--Competition."
DEPENDENCE ON NEW MARKET; UNCERTAINTY OF ACCEPTANCE OF SERVICES
The market for Internet system and network management solutions has only
recently begun to develop, is evolving rapidly and likely will be
characterized by an increasing number of market entrants. There is significant
uncertainty regarding whether this market ultimately will prove to be viable
or, if it becomes viable, that it will grow. The Company's future growth, if
any, will be dependent on the willingness of enterprises to outsource the
system and network management of their mission-critical
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Internet operations and the Company's ability to market its services in a
cost-effective manner to a sufficiently large number of customers. There can
be no assurance that the market for the Company's services will develop, that
the Company's services will be adopted or that businesses, organizations or
consumers will use the Internet for commerce and communication. If this market
fails to develop, or develops more slowly than expected, or if the Company's
services do not achieve market acceptance, the Company's business, results of
operations and financial condition would be materially and adversely affected.
In addition, in order to be successful in this emerging market, the Company
must be able to differentiate itself from its competition through its service
offerings, such as its recently introduced collaborative management and
Internet technology services. There can be no assurance that the Company will
be successful in differentiating itself or achieving market acceptance of its
services, or that it will not experience difficulties that could delay or
prevent the successful development, introduction or marketing of these
services. If the Company incurs increased costs or is unable, for technical or
other reasons, to develop and introduce new services or enhancements of
existing services in a timely manner, including certain collaborative
management and Internet technology services scheduled to be available in the
first half of 1998, or if these or other new products or services do not
achieve market acceptance in a timely manner or at all, the Company's
business, results of operations and financial condition could be materially
adversely affected. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
RISK OF SYSTEM FAILURE
The Company's operations are dependent upon its ability to protect its
network infrastructure and customers' equipment against damage from human
error, fire, earthquakes, floods, power loss, telecommunications failures,
sabotage, intentional acts of vandalism and similar events. Despite
precautions taken by, and planned to be taken by the Company, the occurrence
of a natural disaster or other unanticipated problems at one or more of the
Company's Internet Data Centers could result in interruptions in the services
provided by the Company or significant damage to customer equipment. In
addition, failure of any of the Company's telecommunications providers, such
as WorldCom, to provide the data communications capacity required by the
Company, as a result of human error, a natural disaster or other operational
disruption, could result in interruptions in the Company's services. Any
damage to or failure of the systems of the Company or its service providers
could result in reductions in, or terminations of, services supplied to the
Company's customers, which could have a material adverse effect on the
Company's business, results of operations and financial condition. In
addition, the Company's reputation could be materially adversely affected.
Certain of the Company's customer contracts currently provide a limited
service level warranty related to the continuous availability of service on a
24 hours per day, seven days per week ("24x7") basis, except for certain
scheduled maintenance periods. This warranty is generally limited to a credit
consisting of free service for a specified limited period of time for
disruptions in Internet transmission services. Should the Company incur
significant obligations in connection with system downtime, there can be no
assurance that the Company's liability insurance would be adequate to cover
such expenses. The Company's customer contracts provide for liability of the
Company for personal injury or equipment damage in only limited circumstances.
Although these customer contracts typically provide for no recovery with
respect to incidental, punitive, indirect and consequential damages resulting
from damages to equipment or disruption of service, there can be no assurance
that, in the event of such damages, the Company would not be found liable,
and, in such event, that such damages would not exceed the Company's liability
insurance. See "Business--Customers" and "--Network Design."
UNPROVEN NETWORK SCALABILITY
The Company must continue to expand and adapt its network infrastructure as
the number of users and the amount of information they wish to transport
increase and to meet changing customer
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requirements. The expansion and adaptation of the Company's telecommunications
infrastructure will require substantial financial, operational and management
resources as the Company negotiates telecommunications capacity with its
existing and other network infrastructure suppliers. If the Company is
required to expand significantly and rapidly its network due to increased
usage, additional stress will be placed upon the Company's network hardware
and traffic management systems. Due to the limited deployment of the Company's
services to date, the ability of the Company's network to connect and manage a
substantially larger number of customers at high transmission speeds is as yet
unknown, and the Company faces risks related to the network's ability to be
scaled up to its expected customer levels while maintaining superior
performance. As customers' usage of bandwidth increases, the Company will need
to make additional investments in its infrastructure to maintain adequate
downstream data transmission speeds, the availability of which may be limited
or the cost of which may be significant. There can be no assurance that
additional network capacity will be available from third-party suppliers as it
is needed by the Company. As a result, there can be no assurance that the
Company's network will be able to achieve or maintain a sufficiently high
capacity of data transmission, especially if the usage of the Company's
customers increases. The Company's failure to achieve or maintain high
capacity data transmission could significantly reduce consumer demand for its
services and have a material adverse effect on its business, results of
operations and financial condition. In addition, as the Company upgrades its
telecommunications infrastructure to increase bandwidth available to its
customers, it is likely to encounter a certain level of equipment or software
incompatibility which may cause delays in implementation. There can be no
assurance that the Company will be able to expand or adapt its
telecommunications infrastructure to meet additional demand or its customers'
changing requirements, including its planned upgrade to an OC-3c backbone
within the first half of 1998, on a timely basis and at a commercially
reasonable cost, or at all. See "Business--Network Design."
DEPENDENCE UPON NETWORK INFRASTRUCTURE
The Company's success will depend upon the capacity, scalability,
reliability and security of its network infrastructure, including the capacity
leased from its telecommunications network suppliers. In particular, the
Company is dependent on WorldCom and certain other telecommunications
providers for its backbone capacity and is therefore dependent on such
companies to maintain the operational integrity of its backbone. In addition,
the Company relies on a number of public peering interconnections and private
peering interconnections to deliver its services. If the carriers that operate
the Internet exchange points ("IXPs") were to discontinue their support of the
peering points and no alternative providers emerged, or such alternative
providers increased the cost of utilizing the IXPs, the distribution of
content through the IXPs, including content distributed by the Company, would
be significantly constrained. Furthermore, as traffic through the IXPs
increases, if commensurate increases in bandwidth are not added, the Company's
ability to distribute content rapidly and reliably through these networks will
be adversely affected. Many of the operators of the private peering
interconnections are competitors of the Company. Currently, the Company does
not pay a fee for many of these interconnections, and if these organizations
were to begin to charge the Company for utilizing these interconnections, or,
in the cases where the Company currently pays a fee, to increase the pricing
associated with utilizing these networks, the Company may be required to
identify alternative methods through which it can distribute its customers'
content. If the Company were unable to access on a cost-effective basis
alternative networks to distribute its customers' content or pass through any
additional costs of utilizing these networks to its customers, the Company's
business, results of operations and financial condition could be materially
adversely affected. See "Business--Network Design."
DEPENDENCE ON THE INTERNET AND INTERNET INFRASTRUCTURE DEVELOPMENT
The increased use of the Internet for retrieving, sharing and transferring
information among businesses, consumers, suppliers and partners has only
recently begun to develop, and the
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Company's success will depend in large part on continued growth in the use of
the Internet. Critical issues concerning the commercial use of the Internet,
including security, reliability, cost, ease of access, quality of service and
necessary increases in bandwidth availability, remain unresolved and are
likely to affect the development of the market for the Company's services. The
adoption of the Internet for information retrieval and exchange, commerce and
communications, particularly by those enterprises that have historically
relied upon alternative means of commerce and communications, generally will
require the acceptance of a new medium of conducting business and exchanging
information. Demand and market acceptance of the Internet are subject to a
high level of uncertainty and are dependent on a number of factors, including
the growth in consumer access to and acceptance of new interactive
technologies, the development of technologies that facilitate interactive
communication between organizations and targeted audiences and increases in
user bandwidth. If the Internet as a commercial or business medium fails to
develop or develops more slowly than expected, the Company's business, results
of operations and financial condition could be materially adversely affected.
The recent growth in the use of the Internet has caused frequent periods of
performance degradation, requiring the upgrade of routers and switches,
telecommunications links and other components forming the infrastructure of
the Internet by ISPs and other organizations with links to the Internet. Any
perceived degradation in the performance of the Internet as a whole could
undermine the benefits of the Company's services. Potentially increased
performance provided by the services of the Company and others is ultimately
limited by and reliant upon the speed and reliability of networks operated by
third parties. Consequently, the emergence and growth of the market for the
Company's services is dependent on improvements being made to the entire
Internet infrastructure to alleviate overloading and congestion. See
"Business--Network Design."
RAPID TECHNOLOGICAL CHANGE; EVOLVING INDUSTRY STANDARDS
The Company's future success will depend, in part, on its ability to offer
services that incorporate leading technology, address the increasingly
sophisticated and varied needs of its current and prospective customers and
respond to technological advances and emerging industry standards and
practices on a timely and cost-effective basis. The market for the Company's
services is characterized by rapidly changing and unproven technology,
evolving industry standards, changes in customer needs, emerging competition
and frequent new service introductions. There can be no assurance that future
advances in technology will be beneficial to, or compatible with, the
Company's business or that the Company will be able to incorporate such
advances on a cost-effective and timely basis into its business. Moreover,
technological advances may have the effect of encouraging certain of the
Company's current or future customers to rely on in-house personnel and
equipment to furnish the services currently provided by the Company. In
addition, keeping pace with technological advances in the Company's industry
may require substantial expenditures and lead time. For instance, certain
networking hardware may not be immediately compatible with leading edge
telecommunications infrastructure services, such as WorldCom's OC-3c service,
which is not yet widely available and therefore may require the Company to
make significant investments to achieve compatibility.
The Company believes that its ability to compete successfully is also
dependent upon the continued compatibility and interoperability of its
services with products, services and architectures offered by various vendors.
Although the Company often works with various vendors in testing newly
developed products, there can be no assurance that such products will be
compatible with the Company's infrastructure or that such products will
adequately address changing customer needs. Although the Company currently
intends to support emerging standards, there can be no assurance that industry
standards will be established or, that if they become established, the Company
will be able to conform to these new standards in a timely fashion and
maintain a competitive position in the market. The failure of the Company to
conform to the prevailing standard, or the failure of a common standard to
emerge, could have a material adverse effect on the Company's business,
results of operations and financial condition. In addition, there can be no
assurance that products, services or
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technologies developed by others will not render the Company's services
uncompetitive or obsolete. See "Business--Product Development."
SYSTEM SECURITY RISKS
A significant barrier to electronic commerce and communications is the
secure transmission of confidential information over public networks. Certain
of the Company's services rely on encryption and authentication technology
licensed from third parties to provide the security and authentication
necessary to effect secure transmission of confidential information. Despite
the Company's design and implementation of a variety of network security
measures, there can be no assurance that unauthorized access, computer
viruses, accidental or intentional actions and other disruptions will not
occur. The Company's Internet Data Centers have in the past experienced and
may in the future experience delays or interruptions in service as a result of
the accidental or intentional actions of Internet users, current and former
employees or others. Furthermore, such inappropriate use of the network by
third parties could also potentially jeopardize the security of confidential
information, such as credit card and bank account numbers, stored in the
computer systems of the Company and its customers, which could result in
liability to the Company and the loss of existing customers or the deterrence
of potential customers. Although the Company intends to continue to implement
industry-standard security measures, such measures have been circumvented in
the past, and there can be no assurance that any such measures implemented by
the Company will not be circumvented in the future. The costs required to
eliminate computer viruses and alleviate other security problems could be
prohibitively expensive and the efforts to address such problems could result
in interruptions, delays or cessation of service to the Company's customers,
which could have a material adverse effect on the Company's business, results
of operations and financial condition. Concerns over the security of Internet
transactions and the privacy of users may also inhibit the growth of the
Internet, especially as a means of conducting commercial transactions. See
"Business--Network Design."
DEPENDENCE ON THIRD-PARTY SUPPLIERS
The Company is dependent on other companies to supply certain key components
of its telecommunications infrastructure and system and network management
solutions, including telecommunications services and networking equipment
that, in the quantities and quality demanded by the Company, are available
only from sole or limited sources. See "--Dependence Upon Network
Infrastructure." The routers, switches and modems used in the Company's
telecommunications infrastructure are currently supplied primarily by Cisco
Systems Inc. ("Cisco"). The Company purchases these components pursuant to
purchase orders placed from time to time, does not carry significant
inventories of these components and has no guaranteed supply arrangements with
these vendors. Any failure to obtain required products or services on a timely
basis and at an acceptable cost would have a material adverse effect on the
Company's business, results of operations and financial condition. In
addition, any failure of the Company's sole or limited source suppliers to
provide products or components that comply with evolving Internet and
telecommunications standards or that interoperate with other products or
components used by the Company in its communications infrastructure could have
a material adverse effect on the Company's business, results of operations and
financial condition. In addition, the Company expects to be dependent for a
time on third parties to deliver its services from and manage the operations
of its international Internet Data Centers. See "--Risks Associated with
International Operations" and "Business--Network Design."
The Company has also licensed certain software from Computer Associates
which allows the Company to monitor its customers' Internet operations and
assist in resolving performance issues that arise from time to time. Under the
agreement with Computer Associates, to the extent that Computer Associates
offers software that includes functionality that the Company wants to provide
in its service offerings, the Company must generally utilize the software
offered by Computer Associates, as long as such software meets the Company's
requirements. Either party may terminate this agreement upon
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60 days' prior written notice. Should Computer Associates or the Company decide
to terminate this agreement, the Company has the right to continue licensing
software from Computer Associates at a discount for five years. During the term
of the agreement, the Company is obligated to pay Computer Associates a royalty
based on the Company's gross revenues. See "Business--Relationship with
Computer Associates."
MANAGEMENT OF GROWTH
The Company is currently experiencing a period of rapid growth with respect
to the building of its Internet Data Centers and expansion of its customer
base. In addition, from December 31, 1996 to December 31, 1997, the number of
Company employees increased from 55 to 220. This growth has placed, and if it
continues, will place, a significant strain on the Company's financial,
management, operational and other resources. In addition, the Company may be
required to manage multiple relationships with a growing number of third
parties as it seeks to complement its service offerings. There can be no
assurance that the Company's management, personnel, systems, procedures and
controls will be adequate to support the Company's existing and future
operations. The Company's ability to manage its growth effectively will require
it to continue to expand its operating and financial procedures and controls,
to replace or upgrade its operational, financial and management information
systems and to attract, train, motivate, manage and retain key employees. The
Company has recently hired many key employees and officers, and as a result,
the Company's entire management team has worked together for only a brief time.
The Company also has plans to hire additional executive management personnel in
the near future. If the Company's executives are unable to manage growth
effectively, the Company's business, results of operations and financial
condition could be materially adversely affected. See "Management."
GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES
The Company is not currently subject to direct federal, state or local
government regulation, other than regulations applicable to businesses
generally. There is currently only a small body of laws and regulations
directly applicable to access to or commerce on the Internet. However, due to
the increasing popularity and use of the Internet, it is possible that a number
of laws and regulations may be adopted at the federal, state and local levels
with respect to the Internet, covering issues such as user privacy, freedom of
expression, pricing, characteristics and quality of products and services,
taxation, advertising, intellectual property rights, information security and
the convergence of traditional telecommunications services with Internet
communications. Although sections of the Communications Decency Act of 1996
(the "CDA") that, among other things, proposed to impose criminal penalties on
anyone distributing "indecent" material to minors over the Internet, were held
to be unconstitutional by the U.S. Supreme Court, there can be no assurance
that similar laws will not be proposed and adopted. The nature of such similar
legislation and the manner in which it may be interpreted and enforced cannot
be fully determined and, therefore, legislation similar to the CDA could
subject the Company and/or its customers to potential liability, which in turn
could have an adverse effect on the Company's business, results of operations
and financial condition. The adoption of any such laws or regulations might
decrease the growth of the Internet, which in turn could decrease the demand
for the services of the Company or increase the cost of doing business or in
some other manner have a material adverse effect on the Company's business,
results of operations or financial condition. In addition, applicability to the
Internet of existing laws governing issues such as property ownership,
copyrights and other intellectual property issues, taxation, libel, obscenity
and personal privacy is uncertain. The vast majority of such laws were adopted
prior to the advent of the Internet and related technologies and, as a result,
do not contemplate or address the unique issues of the Internet and related
technologies. Changes to such laws intended to address these issues, including
some recently proposed changes, could create uncertainty in the marketplace
which could reduce demand for the services of the Company or increase the cost
of doing business as a result of costs of litigation or increased service
delivery costs, or could in some other manner have a material adverse effect on
the
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Company's business, results of operations and financial condition. In
addition, as the Company's services are available over the Internet in
multiple states and foreign countries, and as the Company facilitates sales by
its customers to end users located in such states and foreign countries, such
jurisdictions may claim that the Company is required to qualify to do business
as a foreign corporation in each such state or foreign country. The Company is
qualified to do business in only a limited number of states, and failure by
the Company to qualify as a foreign corporation in a jurisdiction where it is
required to do so could subject the Company to taxes and penalties for the
failure to qualify and could result in the inability of the Company to enforce
contracts in such jurisdictions. Any such new legislation or regulation, or
the application of laws or regulations from jurisdictions whose laws do not
currently apply to the Company's business, could have a material adverse
effect on the Company's business, results of operations and financial
condition. See "Business--Government Regulation."
RISKS ASSOCIATED WITH INFORMATION DISSEMINATED THROUGH THE COMPANY'S NETWORK
The law relating to the liability of online services companies and Internet
access providers for information carried on or disseminated through their
networks is currently unsettled. It is possible that claims could be made
against online services companies and Internet access providers under both
United States and foreign law for defamation, negligence, copyright or
trademark infringement, or other theories based on the nature and content of
the materials disseminated through their networks. Several private lawsuits
seeking to impose such liability upon online services companies and Internet
access providers are currently pending. In addition, legislation has been
proposed that imposes liability for or prohibits the transmission over the
Internet of certain types of information. The imposition upon the Company and
other Internet network providers of potential liability for information
carried on or disseminated through their systems could require the Company to
implement measures to reduce its exposure to such liability, which may require
the expenditure of substantial resources, or to discontinue certain service or
product offerings. The increased attention focused upon liability issues as a
result of these lawsuits and legislative proposals could impact the growth of
Internet use. While the Company carries professional liability insurance, it
may not be adequate to compensate or may not cover the Company in the event
the Company becomes liable for information carried on or disseminated through
its networks. Any costs not covered by insurance incurred as a result of such
liability or asserted liability could have a material adverse effect on the
Company's business, results of operations and financial condition. Certain
businesses, organizations and individuals have in the past sent unsolicited
commercial e-mails from servers hosted at the Company's facilities to massive
numbers of people, typically to advertise products or services. This practice,
known as "spamming," can lead to complaints against service providers that
enable such activities, particularly where recipients view the materials
received as offensive. In addition, certain ISPs and other online services
companies could deny network access to companies that allow undesired content
or spamming to be transmitted through their networks. The Company has in the
past received, and may in the future receive, letters from recipients of
information transmitted by the Company's customers objecting to such
transmission. Although the Company prohibits its customers by contract from
spamming, there can be no assurance that its customers will not engage in this
practice, which could have a material adverse effect on the Company's
business, results of operations and financial condition. See "Business--
Government Regulation."
RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS
A component of the Company's long-term strategy is to expand into
international markets, and the Company currently plans to open an Internet
Data Center in the London metropolitan area in the first half of 1998. If
revenue generated by any current or future international Internet Data Center
is not adequate to offset the expense of establishing and maintaining any such
international operation, the Company's business, results of operations and
financial condition could be materially adversely affected. There can be no
assurance that the Company will be able to market, sell and deliver
successfully its services outside the United States. The Company generally
intends to outsource the
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initial operation of its international Internet Data Centers. As a result, the
Company will be dependent for a time on third parties to deliver its services
from and manage the operations of such international Internet Data Centers. In
addition to the uncertainty as to the Company's ability to expand into
international markets, there are certain risks inherent in conducting business
internationally, such as unexpected changes in regulatory requirements, export
restrictions, tariffs and other trade barriers, challenges in staffing and
managing foreign operations, differing technology standards, employment laws
and practices in foreign countries, longer payment cycles, problems in
collecting accounts receivable, political instability, fluctuations in
currency exchange rates, imposition of currency exchange controls, seasonal
reductions in business activity and potentially adverse tax consequences, any
of which could adversely affect the Company's international operations.
Furthermore, certain foreign governments, such as Germany, have enforced laws
and regulations related to content distributed over the Internet that are more
strict than those currently in place in the United States. There can be no
assurance that one or more of these factors will not have a material adverse
effect on the Company's current or future international operations and,
consequently, on the Company's business, results of operations and financial
condition. In addition, there can be no assurance that the Company will be
able to obtain the necessary telecommunications infrastructure in a cost-
effective manner or compete effectively in international markets. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
DEPENDENCE ON KEY PERSONNEL
The Company's success depends in significant part upon the continued
services of its key technical, sales and senior management personnel,
including the Company's President, Chief Executive Officer and Chairman of the
Board of Directors, K.B. Chandrasekhar. Although certain of the Company's
executive officers participate in the Company's Executive Employment Policy,
none of the Company's officers is a party to an employment agreement with the
Company. Any officer or employee of the Company can terminate his or her
relationship with the Company at any time. The Company's future success will
also depend on its ability to attract, train, retain and motivate highly
qualified technical, marketing, sales and management personnel. Competition
for such personnel is intense, and there can be no assurance that the Company
will be able to attract and retain key personnel. The loss of the services of
one or more of the Company's key employees or the Company's failure to attract
additional qualified personnel could have a material adverse effect on the
Company's business, results of operations and financial condition. The Company
does not carry key-man life insurance for any of its employees. See
"Business--Employees" and "Management."
RISKS ASSOCIATED WITH LEGAL PROCEEDINGS
On July 30, 1997, Michael Blackman ("Blackman"), a consultant to the Company
from October 1996 through January 1997, filed a complaint against the Company
in the Superior Court for the State of California in and for the County of
Santa Clara alleging damages suffered as a result of the Company's failure to
grant Blackman stock options for the Company's Common Stock as additional
compensation for consulting work he performed for the Company pursuant to an
alleged oral contract between Blackman and another consultant to the Company.
The Company believes that the suit is without merit and intends to contest the
suit vigorously. However, litigation is subject to inherent uncertainties,
and, therefore, there can be no assurance that this lawsuit will be resolved
in the Company's favor. See "Business--Legal Proceedings."
PROTECTION AND ENFORCEMENT OF INTELLECTUAL PROPERTY RIGHTS
The Company relies on a combination of copyright, trademark, service mark
and trade secret laws and contractual restrictions to establish and protect
certain proprietary rights in its products and services. The Company has no
patented technology that would preclude or inhibit competitors from entering
the Company's market. The Company has entered into confidentiality and
invention
16
<PAGE>
assignment agreements with its employees and contractors, and nondisclosure
agreements with its suppliers, distributors and appropriate customers in order
to limit access to and disclosure of its proprietary information. There can be
no assurance that these contractual arrangements or the other steps taken by
the Company to protect its intellectual property will prove sufficient to
prevent misappropriation of the Company's technology or to deter independent
third-party development of similar technologies. The laws of certain foreign
countries may not protect the Company's products, services or intellectual
property rights to the same extent as do the laws of the United States. The
Company also relies on certain technologies that it licenses from third
parties, such as Computer Associates. See "--Dependence on Third-Party
Suppliers." There can be no assurance that these third-party technology
licenses will continue to be available to the Company on commercially
reasonable terms. The loss of such technology could require the Company to
obtain substitute technology of lower quality or performance standards or at
greater cost, which could materially adversely affect the Company's business,
results of operations and financial condition.
To date, the Company has not been notified that the Company's products
infringe the proprietary rights of third parties, but there can be no
assurance that third parties will not claim infringement by the Company with
respect to current or future products. The Company expects that participants
in its markets will be increasingly subject to infringement claims as the
number of products and competitors in the Company's industry segment grows.
Any such claim, whether meritorious or not, could be time- consuming, result
in costly litigation, cause product installation delays or require the Company
to enter into royalty or licensing agreements. Such royalty or licensing
agreements might not be available on terms acceptable to the Company or at
all. As a result, any such claim could have a material adverse effect upon the
Company's business, results of operations and financial condition. See
"Business--Intellectual Property Rights."
YEAR 2000 RISKS
The Company recognizes the need to ensure its operations will not be
adversely impacted by Year 2000 software failures. Software failures due to
processing errors potentially arising from calculations using the year 2000
date are a known risk. The Company has established procedures for evaluating
and managing the risks and costs associated with this problem and estimates
that expenses required to improve computer systems to be Year 2000 compliant
will not be material. However, many of the Company's customers maintain their
Internet operations on UNIX-based servers, which may be impacted by Year 2000
complications. The failure of such servers could have a material adverse
effect on the Company's customers, which in turn could have a material adverse
effect on the Company's business, results of operations and financial
condition. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
POSSIBLE VOLATILITY OF STOCK PRICE
The market price of the shares of Common Stock is likely to be highly
volatile and could be subject to wide fluctuations in response to factors such
as actual or anticipated variations in the Company's results of operations,
announcements of technological innovations or new Internet Data Centers, new
products or services introduced by the Company or its competitors, changes in
financial estimates by securities analysts, conditions and trends in the
Internet, general market conditions and other factors. Further, the stock
markets, and in particular the Nasdaq National Market, have experienced
extreme price and volume fluctuations that have particularly affected the
market prices of equity securities of many technology companies and that often
have been unrelated or disproportionate to the operating performance of such
companies. The trading prices of many technology companies' stocks are at or
near historical highs and reflect price to earnings ratios substantially above
historical levels. There can be no assurance that these trading prices and
price to earnings ratios will be sustained. These broad market factors may
adversely affect the market price of the Company's Common Stock. These market
fluctuations, as well as general economic, political and market conditions
such as recessions, interest
17
<PAGE>
rates or international currency fluctuations, may adversely affect the market
price of the Common Stock. In the past, following periods of volatility in the
market price of a company's securities, securities class action litigation has
often been instituted against such companies. Such litigation, if instituted,
could result in substantial costs and a diversion of management's attention
and resources, which would have a material adverse effect on the Company's
business, results of operations and financial condition.
CONTROL BY PRINCIPAL STOCKHOLDERS, EXECUTIVE OFFICERS AND DIRECTORS
Upon completion of this offering, the Company's executive officers,
directors and existing greater than 5% stockholders (and their affiliates)
will, in the aggregate, own approximately % of the Company's outstanding
Common Stock ( % if the Underwriters' over-allotment option is exercised in
full). As a result, such persons, acting together, will have the ability to
control all matters submitted to stockholders of the Company for approval
(including the election and removal of directors and any merger, consolidation
or sale of all or substantially all of the Company's assets) and to control
the management and affairs of the Company. Accordingly, such concentration of
ownership may have the effect of delaying, deferring or preventing a change in
control of the Company, impede a merger, consolidation, takeover or other
business combination involving the Company or discourage a potential acquirer
from making a tender offer or otherwise attempting to obtain control of the
Company, which in turn could have an adverse effect on the market price of the
Company's Common Stock. See "Management" and "Principal and Selling
Stockholders."
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of the Company's Common Stock (including shares
issued upon the exercise of outstanding options and warrants) in the public
market after this offering could adversely affect the market price of the
Common Stock. Such sales also might make it more difficult for the Company to
sell equity or equity-related securities in the future at a time and price
that the Company deems appropriate. In addition to the shares of Common
Stock offered hereby (assuming no exercise of the Underwriters' over-allotment
option), as of the date of this Prospectus, there will be 13,439,624 shares of
Common Stock outstanding, all of which are restricted shares ("Restricted
Shares") under the Securities Act of 1933, as amended (the "Securities Act").
As of such date, no Restricted Shares will be eligible for sale in the public
market. Following the expiration of 180-day lock-up agreements with the
representatives of the Underwriters, 12,086,491 Restricted Shares will be
available for sale in the public market and the remaining Restricted Shares
will be eligible for sale from time to time thereafter upon expiration of
applicable holding periods under Rule 144 under the Securities Act. In
addition, as of December 31, 1997, there were outstanding 1,709,286 options
and 950,163 warrants to purchase Common Stock (of which warrants for 615,454
shares are expected to be exercised on or before the closing of this offering)
and all of such options and warrants will be subject to lock-up agreements.
Goldman, Sachs & Co. may, in its sole discretion and at any time without
notice, release all or any portion of the securities subject to lock-up
agreements. In addition, the holders of 13,234,880 Restricted Shares and
warrants to purchase 950,163 shares of Common Stock of the Company are
entitled to certain rights with respect to registration of such shares for
sale in the public market. If such holders sell in the public market, such
sales could have a material adverse effect on the market price of the
Company's Common Stock.
Immediately after this offering, the Company intends to register
approximately 4,659,215 shares of Common Stock reserved for issuance under its
stock option and purchase plans. See "Shares Eligible for Future Sale."
18
<PAGE>
BROAD MANAGEMENT DISCRETION IN ALLOCATION OF PROCEEDS
The net proceeds to the Company from the sale of the shares of Common Stock
offered hereby at an assumed initial public offering price of $ per share,
after deducting the estimated underwriting discount and offering expenses, are
estimated to be approximately $ . The primary purposes of this offering are
to obtain additional capital, create a public market for the Common Stock and
facilitate future access to public markets. The Company expects to use the net
proceeds primarily for working capital and other general corporate purposes,
including scheduled payments of principal and interest on outstanding
indebtedness. A portion of the net proceeds also may be used to repay
currently outstanding or future indebtedness, to acquire or invest in
complementary businesses or products or to obtain the right to use
complementary technologies. Accordingly, the Company's management will retain
broad discretion as to the allocation of most of the proceeds of this
offering. The failure of management to apply such funds effectively could have
a material adverse effect on the Company's business, results of operations and
financial condition. See "Use of Proceeds."
ANTI-TAKEOVER EFFECTS OF DELAWARE LAW
Upon completion of this offering, the Company's Board of Directors will have
the authority to issue up to 5,000,000 shares of Preferred Stock and to
determine the price, rights, preferences, privileges and restrictions,
including voting rights, of those shares without any further vote or action by
the stockholders. The rights of the holders of Common Stock will be subject
to, and may be adversely affected by, the rights of the holders of any
Preferred Stock that may be issued in the future. The issuance of Preferred
Stock, while providing flexibility in connection with possible acquisitions
and other corporate purposes, could have the effect of making it more
difficult for a third party to acquire a majority of the outstanding voting
stock of the Company. The Company has no current plans to issue shares of
Preferred Stock. The Company is also subject to certain provisions of Delaware
law which could have the effect of delaying, deterring or preventing a change
in control of the Company, including Section 203 of the Delaware General
Corporation Law, which prohibits a Delaware corporation from engaging in any
business combination with any interested stockholder for a period of three
years from the date the person became an interested stockholder unless certain
conditions are met. In addition, the Company's certificate of incorporation
and bylaws contain certain provisions that, together with the ownership
position of the Company's executive officers and directors and their
affiliates, could discourage potential takeover attempts and make more
difficult attempts by stockholders to change management which could adversely
affect the market price of the Company's Common Stock. See "Description of
Capital Stock."
NO PRIOR MARKET FOR COMMON STOCK
Prior to this offering, there has been no public market for the Company's
Common Stock, and there can be no assurance that an active public market will
develop or be sustained after this offering or that investors will be able to
sell the Common Stock should they desire to do so. The initial public offering
price will be determined by negotiations between the Company and the
representatives of the Underwriters and may bear no relationship to the price
at which the Common Stock will trade upon completion of this offering. See
"Underwriting" for a discussion of the factors to be considered in determining
the initial public offering price.
IMMEDIATE AND SUBSTANTIAL DILUTION
Purchasers of the Common Stock in this offering will suffer immediate and
substantial dilution of $ per share in the net tangible book value of the
Common Stock from the initial public offering price. To the extent that
outstanding options or warrants to purchase the Company's Common Stock are
exercised, there may be further dilution. See "Dilution."
19
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares of Common
Stock offered hereby are estimated to be $ million at an assumed initial
public offering price of $ per share and after deducting the estimated
underwriting discount and offering expenses ($ million if the over-
allotment option is exercised in full). The primary purposes of this offering
are to obtain additional capital, create a public market for the Common Stock
and facilitate future access to public markets. The Company expects to use the
net proceeds primarily for working capital and other general corporate
purposes, including scheduled payments of principal and interest on
outstanding indebtedness. See "Risk Factors--Broad Management Discretion in
Allocation of Proceeds." A portion of the proceeds may also be used to repay
currently outstanding or future indebtedness, to acquire or invest in
complementary businesses or products or to obtain the right to use
complementary technologies. In the ordinary course of business, the Company
evaluates potential acquisitions of such businesses, products or technologies.
However, the Company has no present understandings, commitments or agreements
with respect to any acquisition of businesses, products or technologies.
Pending use of the net proceeds for the above purposes, the Company intends to
invest such funds in short-term, interest-bearing, investment-grade
securities.
DIVIDEND POLICY
The Company has not paid any cash dividends on its capital stock to date.
The Company currently anticipates that it will retain any future earnings for
use in its business and does not anticipate paying any cash dividends for the
foreseeable future.
20
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
September 30, 1997 (i) on an actual basis, (ii) on a pro forma basis to
reflect the sale by the Company of 877,180 shares of Preferred Stock at $8.55
per share in December 1997 and the conversion of all outstanding shares of
Preferred Stock into Common Stock upon the closing of this offering and (iii)
the pro forma capitalization as adjusted to reflect the receipt of the net
proceeds from the sale of the shares of Common Stock offered hereby at an
assumed initial public offering price of $ per share and after deducting
the estimated underwriting discount and offering expenses.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
--------------------------------
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Current portion of debt and capital lease
obligations(1)................................ $ 2,142 $ 2,142 $ 2,142
======== ======== =======
Debt and capital lease obligations, less
current portion(1)............................ $ 6,005 $ 6,005 $ 6,005
Redeemable convertible preferred stock, $0.001
par value: actual--68,496,966 shares
authorized, 31,332,446 shares issued and
outstanding, aggregate liquidation preference
of $31,231,000; pro forma and as adjusted--no
shares authorized, issued or outstanding...... 28,948 -- --
Stockholders' (deficit) equity(2):
Preferred stock, $0.001 par value: actual--no
shares authorized, issued or outstanding; pro
forma and as adjusted--5,000,000 shares
authorized, no shares issued or outstanding . -- -- --
Common stock, $0.001 par value: actual--
46,050,000 shares authorized, 1,898,529
shares issued and outstanding; pro forma--
50,000,000 shares authorized, 13,219,816
shares issued and outstanding; as adjusted--
50,000,000 shares authorized, shares
issued and outstanding....................... 2 13
Additional paid-in capital.................... 2,142 38,954
Notes receivable from stockholders............ (151) (151) (151)
Deferred stock compensation................... (639) (639) (639)
Accumulated deficit........................... (20,674) (20,674) (20,674)
-------- -------- -------
Total stockholders' (deficit) equity.......... (19,320) 17,503
-------- -------- -------
Total capitalization......................... $ 15,633 $ 23,508 $
======== ======== =======
</TABLE>
- --------
(1) See Notes 2, 3, 6 and 8 of Notes to Financial Statements.
(2) Does not include (i) 1,092,103 shares of Common Stock issuable upon the
exercise of stock options outstanding as of September 30, 1997 with a
weighted average per share exercise price of $0.29, (ii) 20,808 shares of
Common Stock available for future grant as of September 30, 1997 under the
1997 Plan, an additional 1,333,334 shares reserved for future grant under
the 1997 Plan in October 1997 and an additional 2,300,000 shares of Common
Stock available for future grant or issuance immediately after the
offering under the 1998 Plan, the Directors Plan and the Purchase Plan or
(iii) 960,677 shares of Common Stock issuable upon the exercise of
warrants outstanding as of September 30, 1997 with a weighted average per
share exercise price of $3.51 (of which warrants for 615,454 shares are
expected to be exercised on or before the closing of the offering) and
124,277 shares of Common Stock issuable upon the exercise of warrants
outstanding that were granted in December 1997 with a weighted average per
share exercise price of $8.55. See "Management--Director Compensation,"
"Management--Employee Benefit Plans," "Description of Capital Stock" and
Notes 5 and 8 of Notes to Financial Statements.
21
<PAGE>
DILUTION
The pro forma net tangible book value of the Company as of September 30,
1997 was $17.5 million, or $1.32 per share of Common Stock, assuming (i) the
sale by the Company of 877,180 shares of Preferred Stock at $8.55 per share in
December 1997 and (ii) the conversion of all outstanding shares of Preferred
Stock into shares of Common Stock. "Pro forma net tangible book value per
share" is determined by dividing the number of outstanding shares of Common
Stock into the net tangible book value of the Company (total tangible assets
less total liabilities). After giving effect to the application of the
estimated net proceeds from the sale by the Company of the shares of
Common Stock offered hereby (based upon an assumed initial public offering
price of $ per share and after deducting the estimated underwriting
discount and offering expenses), the pro forma net tangible book value of the
Company as of September 30, 1997 would have been approximately $ million,
or $ per share. This represents an immediate increase in pro forma net
tangible book value of $ per share to existing stockholders and an
immediate dilution of $ per share to new investors purchasing shares at the
initial public offering price. The following table illustrates the per share
dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share..................... $
Pro forma net tangible book value per share as of September 30,
1997............................................................... $1.32
Increase per share attributable to new investors....................
-----
Pro forma net tangible book value per share after offering..........
----
Dilution per share to new investors................................. $
====
</TABLE>
The following table summarizes as of September 30, 1997, on the pro forma
basis described below, the number of shares of Common Stock purchased from the
Company, the total consideration paid to the Company and the average price per
share paid by the existing stockholders and by the investors purchasing shares
of Common Stock in this offering, based upon an assumed initial public
offering price of $ per share (before deducting the estimated underwriting
discount and offering expenses):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
------------------ ------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders(1)(2).... 13,219,816 % $31,452,000 % $2.38
New investors(2)...............
---------- ----- ----------- -----
Total........................ 100.0% 100.0%
========== ===== =========== =====
</TABLE>
- --------
(1) Includes 877,180 shares of Preferred Stock (which will be converted into
Common Stock upon the closing of the offering) sold by the Company at
$8.55 per share in December 1997.
(2) If the Underwriters' over-allotment is exercised in full, the number of
shares held by existing stockholders will be reduced by shares to ,
or % of the total shares of Common Stock to be outstanding after this
offering, and the number of shares held by new investors will be increased
to , or % of the total shares of Common Stock to be outstanding after
this offering.
As of September 30, 1997, there were options outstanding to purchase a total
of 1,092,103 shares of Common Stock at a weighted average per share exercise
price of $0.29 and warrants outstanding to purchase a total of 960,677 shares
of Common Stock at a weighted average per share exercise price of $3.51. To
the extent that any of these options or warrants is exercised, there will be
further dilution to new investors. See "Capitalization," "Description of
Capital Stock" and Notes 5 and 8 of Notes to Financial Statements.
22
<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with the
Financial Statements and Notes thereto and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included elsewhere
in this Prospectus. The statement of operations data for the years ended
December 31, 1995 and 1996 and for the nine months ended September 30, 1997
and the balance sheet data as of December 31, 1995 and 1996 and as of
September 30, 1997 are derived from financial statements of the Company that
have been audited by KPMG Peat Marwick LLP, independent auditors, and are
included elsewhere in this Prospectus. The statement of operations data for
the nine months ended September 30, 1996 is derived from unaudited financial
statements that are included elsewhere in this Prospectus. The balance sheet
data as of December 31, 1994 is derived from financial statements of the
Company that have been audited by KPMG Peat Marwick LLP and that are not
included herein. The statement of operations data for the years ended December
31, 1993 and 1994 and the three months ended December 31, 1996 and March 31,
June 30 and September 30, 1997, and the balance sheet data as of December 31,
1993, are derived from unaudited financial statements that are not included
herein. The unaudited financial statements have been prepared on substantially
the same basis as the audited financial statements and, in the opinion of
management, include all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of the results of operations
for such periods. Historical results are not necessarily indicative of the
results to be expected in the future and results of interim periods are not
necessarily indicative of results for the entire year.
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30, THREE MONTHS ENDED
---------------- ----------------- ---------------------------------------
DEC. 31, MAR. 31, JUNE 30, SEPT. 30,
1995 1996 1996 1997 1996 1997 1997 1997
------- ------- ------- -------- -------- -------- -------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues:
Service revenues....... $ 1,068 $ 2,454 $ 1,500 $ 7,016 $ 954 $ 1,551 $ 2,205 $ 3,260
Equipment revenues..... 340 676 520 489 156 118 188 183
------- ------- ------- -------- ------- ------- ------- -------
Total revenues....... 1,408 3,130 2,020 7,505 1,110 1,669 2,393 3,443
------- ------- ------- -------- ------- ------- ------- -------
Cost and expenses:
Cost of service
revenues.............. 846 2,538 1,539 9,181 999 1,819 2,859 4,503
Cost of equipment
revenues.............. 282 452 345 361 107 80 140 141
Marketing and sales.... 1,056 2,734 1,490 7,667 1,244 1,630 2,746 3,291
General and
administrative........ 427 1,056 573 3,526 483 916 1,163 1,447
Product development.... 70 444 121 1,100 323 203 385 512
------- ------- ------- -------- ------- ------- ------- -------
Total cost and
expenses............ 2,681 7,224 4,068 21,835 3,156 4,648 7,293 9,894
------- ------- ------- -------- ------- ------- ------- -------
Operating loss....... (1,273) (4,094) (2,048) (14,330) (2,046) (2,979) (4,900) (6,451)
Net interest (income)
expense............... 38 39 43 242 (4) 56 81 105
------- ------- ------- -------- ------- ------- ------- -------
Net loss............. (1,311) (4,133) (2,091) (14,572) (2,042) (3,035) (4,981) (6,556)
Cumulative dividends
and accretion on
redeemable convertible
preferred stock....... -- -- -- (823) -- -- -- (823)
------- ------- ------- -------- ------- ------- ------- -------
Net loss attributable
to common
stockholders.......... $(1,311) $(4,133) $(2,091) $(15,395) $(2,042) $(3,035) $(4,981) $(7,379)
======= ======= ======= ======== ======= ======= ======= =======
Pro forma net loss per
share(1).............. $ (0.33) $ (0.99)
======= ========
Shares used in
computing pro forma
net loss per share(1). 12,384 14,771
======= ========
OTHER DATA (UNAUDITED):
EBITDA(2).............. $(1,208) $(3,633) $(1,816) $(12,483) $(1,817) $(2,629) $(4,288) $(5,566)
</TABLE>
- --------
(1) See Note 1 of Notes to Financial Statements for an explanation of the
determination of the number of shares used in computing pro forma net loss
per share.
(2) Represents earnings (loss) before net interest expense, income taxes,
depreciation, amortization (including amortization of deferred stock
compensation) and other noncash charges ("EBITDA"). Although EBITDA should
not be used as an alternative to operating income or net cash used for
operating activities, each as measured under generally accepted accounting
principles, and, although EBITDA may not be comparable to other similarly
titled information from other companies, the Company's management believes
that EBITDA is an additional meaningful measure of performance and
liquidity.
23
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------
1993 1994
------- -------
(IN THOUSANDS)
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenues................................................ $ 266 $ 977
Operating income.............................................. 19 143
Net income.................................................... 19 144
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------- SEPTEMBER 30,
1993 1994 1995 1996 1997
---- ---- ------- ------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents........... $ 2 $ 1 $ 163 $ 3,715 $ 3,883
Working capital (deficiency)........ (5) 93 (1,170) 1,892 (3,067)
Total assets........................ 32 320 840 8,289 24,875
Debt and capital lease obligations,
less current portion............... -- -- 141 1,449 6,005
Redeemable convertible preferred
stock.............................. -- -- -- 9,609 28,948
Total stockholders' equity
(deficit).......................... 25 169 (1,140) (5,234) (19,320)
</TABLE>
24
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of the financial condition and results of
operations of the Company should be read in conjunction with the Financial
Statements and Notes thereto included elsewhere in this Prospectus. This
discussion contains forward-looking statements that involve risks and
uncertainties. The Company's actual results may differ materially from those
anticipated in these forward-looking statements. Factors that may cause such a
difference include, but are not limited to, those set forth under "Risk
Factors."
OVERVIEW
Exodus is a leading provider of Internet system and network management
solutions for enterprises with mission-critical Internet operations. The
Company's solutions include server hosting, Internet connectivity,
collaborative management and Internet technology services, which together
provide the high performance, scalability and expertise that enterprises need
to optimize Internet operations. The Company delivers its services from
geographically distributed, state-of-the-art Internet Data Centers that are
connected through a redundant high performance Internet backbone ring.
The Company is the successor to a Maryland Corporation that was formed in
August 1992 to provide computer consulting services. The Company began to
offer Internet connectivity services to enterprises in October 1994 and server
hosting services in late 1995. In August 1996, the Company opened its first
dedicated Internet Data Center and refocused its business strategy on
providing Internet system and network management solutions for enterprises
with mission-critical Internet operations. Since refocusing its business
strategy, the Company has derived most of its revenues (and substantially all
of its growth in revenues) from customers for which it provides these
services. Each of the Company's Internet Data Center customers initially
purchases a subset of the Company's service offerings to address specific
departmental or enterprise Internet computing needs, and some of these
customers purchase additional services as the scale and complexity of their
Internet operations increase. The Company sells its services under contracts
that typically have terms of one year. Customers pay monthly fees for the
services utilized, as well as one-time fees for installation and for any
equipment that they choose to purchase from the Company.
The Company opened its first Internet Data Center in the San Francisco
metropolitan area in August 1996. Since that time, the Company has opened five
additional Internet Data Centers in the metropolitan areas of New York (March
1997), San Francisco (second site--August 1997), Seattle (September 1997), Los
Angeles (October 1997) and Washington, D.C. (December 1997). See "Business--
Facilities." These state-of-the-art facilities serve as a base for the array
of solutions offered by the Company, including server hosting, Internet
connectivity, collaborative management and Internet technology services. The
building of these Internet Data Centers has required the Company to obtain
substantial additional equity and debt financing. See "Risk Factors--
Substantial Leverage and Debt Service" and "--Liquidity and Capital Resources"
below.
The Company intends to expand domestically and internationally, including
the expected addition of an additional Internet Data Center in the San
Francisco metropolitan area and a new site in the London metropolitan area in
the first half of 1998. Prior to building an Internet Data Center in a new a
geographic region, the Company employs various means to evaluate the market
opportunity in a given location, including the use of focus groups and market
research on Internet usage statistics, the pre-selling of services into the
proposed market and analysis of specific financial criteria. The Company
typically requires at least six months to select the appropriate location for
an Internet Data Center, construct the necessary facilities, install equipment
and telecommunications infrastructure, and hire the operations and sales
personnel needed to conduct business at that site. Expenditures related to an
Internet Data Center commence well before the Internet Data Center opens, and
it takes an extended
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period to approach break-even capacity utilization at each site. As a result,
the Company expects that individual Internet Data Centers will experience
losses for at least one year from the time they are opened. The Company
experiences further losses from sales personnel hired to test market the
Company's services in markets where there is no, and may never be an, Internet
Data Center. As a result, the Company expects to make investments in expanding
the Company's business rapidly into new geographic regions which, while
potentially increasing the Company's revenues in the long term, will lead to
significant losses for the foreseeable future. The Company also contemplates
that such expansion will lead to substantial needs for further financing. See
"Risk Factors--Risks Associated with Planned Business Expansion."
Since the Company began to offer server hosting services in 1995, it has
experienced operating losses and negative cash flows from operations in each
quarterly and annual period. As of September 30, 1997, the Company had an
accumulated deficit of approximately $20.7 million. The revenue and income
potential of the Company's business and market is unproven, and the Company's
limited operating history makes an evaluation of the Company and its prospects
difficult. Currently, the Company anticipates making significant investments in
new Internet Data Centers, product development and sales and marketing programs
and personnel and therefore believes that it will continue to experience net
losses on a quarterly and annual basis for the foreseeable future. The Company
and its prospects must be considered in light of the risks, expenses and
difficulties encountered by companies in the new and rapidly evolving market
for Internet system and network management solutions. To address these risks,
among other things, the Company must market its brand name effectively, provide
scalable, reliable and cost-effective services, continue to grow its
infrastructure to accommodate new Internet Data Centers and increased bandwidth
use of its networks, expand its channels of distribution, retain and motivate
qualified personnel and continue to respond to competitive developments.
Failure of the Company's services to achieve market acceptance would have a
material adverse effect on the Company's business, results of operations and
financial condition. There can be no assurance that the Company will ever
achieve profitability on a quarterly or an annual basis or will sustain
profitability if achieved. See "Risk Factors--Limited Operating History;
History of Losses."
26
<PAGE>
QUARTERLY RESULTS OF OPERATIONS
The following table sets forth certain consolidated statement of operations
data as a percentage of total revenues for the quarters ended December 31,
1996 and March 31, June 30 and September 30, 1997. This information has been
derived from the Company's unaudited financial statements, which, in
management's opinion, have been prepared on substantially the same basis as
the audited financial statements and include all adjustments, consisting only
of normal recurring adjustments, necessary for a fair presentation of the
financial information for the quarters presented. This information should be
read in conjunction with the Financial Statements and Notes thereto included
elsewhere in this Prospectus. The operating results in any quarter are not
necessarily indicative of the results for any future period.
<TABLE>
<CAPTION>
QUARTER ENDED
-----------------------------------------------
DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30,
1996 1997 1997 1997
------------ --------- -------- -------------
(AS A PERCENTAGE OF TOTAL REVENUES)
<S> <C> <C> <C> <C>
Revenues:
Service revenues................ 85.9% 92.9% 92.1% 94.7%
Equipment revenues.............. 14.1 7.1 7.9 5.3
------ ------ ------ ------
Total revenues................. 100.0 100.0 100.0 100.0
------ ------ ------ ------
Cost and expenses:
Cost of service revenues........ 90.0 109.0 119.5 130.8
Cost of equipment revenues...... 9.6 4.8 5.8 4.1
Marketing and sales............. 112.1 97.7 114.8 95.6
General and administrative...... 43.5 54.9 48.6 42.0
Product development............. 29.1 12.1 16.0 14.8
------ ------ ------ ------
Total cost and expenses........ 284.3 278.5 304.7 287.3
------ ------ ------ ------
Operating loss................. (184.3) (178.5) (204.7) (187.3)
Net interest (income) expense.... (0.3) 3.4 3.4 3.1
------ ------ ------ ------
Net loss....................... (184.0)% (181.9)% (208.1)% (190.4)%
====== ====== ====== ======
</TABLE>
REVENUES
Service revenues consist of monthly fees for server hosting, Internet
connectivity, collaborative management and Internet technology services and
one-time fees for installation. Service revenues (other than installation
fees) are generally billed and recognized ratably over the term of the
contract, generally one year. Installation fees are typically recognized at
the time that installation occurs. Equipment revenues consist of payments from
customers for third-party equipment sold by the Company. Revenues from
equipment sales are recognized at the time the equipment is shipped to the
customer or placed into service at an Internet Data Center.
The Company's revenues increased sequentially each quarter from $1.1 million
to $1.7 million to $2.4 million and to $3.4 million in the quarters ended
December 31, 1996 and March 31, June 30 and September 30, 1997, respectively.
The Company's service revenues also increased sequentially each quarter from
$954,000 to $1.6 million to $2.2 million and to $3.3 million in the quarters
ended December 31, 1996 and March 31, June 30 and September 30, 1997,
respectively. This growth in service revenues resulted primarily from
increases in the number of customers, increases in revenues from existing
customers and the opening of new Internet Data Centers. The Company's service
revenues increased as a percentage of total revenues in 1997 as the Company
increased its average service revenues per customer. The Company anticipates
that service revenues as a percentage of total revenues, although varying from
quarter to quarter, will generally continue to increase in 1998. The Company
sells third-party equipment to its customers as an accommodation to facilitate
their
27
<PAGE>
purchase of services; thus, the Company's equipment revenues have varied from
quarter to quarter depending on particular customer needs.
COST OF REVENUES
The Company's cost of service revenues is comprised primarily of the
Company's costs for its nationwide backbone network and local telco loops,
salaries and benefits for the Company's customer service and operations
personnel (including its network engineers, backbone engineers, network
management and systems personnel and installers), and depreciation, rent,
repairs and utilities related to the Company's Internet Data Centers. Cost of
equipment revenues represents the cost to the Company of third-party equipment
sold to customers.
The Company's cost of service revenues increased sequentially each quarter
from $999,000 to $1.8 million to $2.9 million and to $4.5 million in the
quarters ended December 31, 1996 and March 31, June 30 and September 30, 1997,
respectively. Cost of service revenues as a percentage of service revenues
increased sequentially each quarter from 105% to 117% to 130% and to 138% in
the quarters ended December 31, 1996 and March 31, June 30 and September 30,
1997, respectively. These increases in cost of service revenues in absolute
dollars and as a percentage of service revenues were primarily the result of
the opening of additional Internet Data Centers and the costs associated
therewith. The Company expects that its cost of service revenues as a
percentage of service revenues may remain above 100% through at least 1998.
The cost of equipment revenues varied from quarter to quarter, due primarily
to fluctuations in equipment revenues. Cost of equipment revenues as a
percentage of equipment revenues varied from 68% to 77% based on the
particular mix of equipment purchased by customers in a given quarter.
MARKETING AND SALES
The Company's marketing and sales expenses are comprised primarily of
salaries and benefits for the Company's marketing and sales personnel,
printing and advertising costs, consultants' fees and travel and
entertainment. Marketing and sales expenses have increased as a result of
increased marketing and sales personnel, increased advertising, increased
marketing program expenses and other marketing efforts. Marketing and sales
expenses as a percentage of total revenues fluctuated from quarter to quarter
due to the timing of advertising and other promotional activities. The Company
expects that marketing and sales expenses will continue to increase in
absolute dollars during 1998 but will begin to decline as a percentage of
total revenues as recurring revenues from the existing customers, which tend
to have lower marketing and sales expenses associated with them, become a more
significant percentage of total revenues.
GENERAL AND ADMINISTRATIVE
The Company's general and administrative expenses are comprised primarily of
salaries and benefits for the Company's administrative and management
information systems personnel and fees paid for professional services and
recruiting. General and administrative expenses have increased primarily as a
result of additional personnel, recruiting fees and consulting costs. General
and administrative expenses as a percentage of total revenues increased during
the quarters ended March 31 and June 30, 1997 due to increased professional
services and recruiting fees. The Company expects that general and
administrative expenses will continue to increase in absolute dollars but will
begin to decline as a percentage of total revenues as existing overhead is
spread over more substantial operations.
PRODUCT DEVELOPMENT
The Company's product development expenses are comprised primarily of
salaries and benefits for the Company's product development personnel and fees
paid to consultants, all of whom focus
28
<PAGE>
their efforts primarily on the integration of best-of-breed products and
services developed by leading technology vendors with the Company's services.
With the exception of the quarter ended March 31, 1997, product development
expenses have increased as a result of continuing efforts to integrate best-
of-breed third-party technologies into the Company's service offerings. The
decline in product development expenses in the quarter ended March 31, 1997
reflected a temporary decline in the use of consultants for product
development. Product development expenses as a percentage of total revenues
decreased during 1997 due to a high number of consultants used in product
development during the quarter ended December 31, 1996. The Company expects
that product development expenses will continue to increase in absolute
dollars as the Company makes additional investments in developing its
collaborative management services but will decline as a percentage of total
revenues.
DEFERRED COMPENSATION EXPENSE
In the quarter ended September 30, 1997, the Company recorded deferred stock
compensation of $724,000 in connection with the grant of certain stock options
between April and July 1997, which amount is generally being amortized over
the approximately four year vesting period of such options. This amortization
is being made at a rate of approximately 52% in the first year, 27% in the
second year, 15% in the third year and 6% in the fourth year. The Company
granted additional options in the quarter ended December 31, 1997 and, as a
result, recorded additional deferred stock compensation of approximately $2.8
million in that quarter. Of the total deferred stock compensation,
approximately $85,000 was amortized in the quarter ended September 30, 1997
and an additional $1.0 million will be amortized in the quarter ended
December 31, 1997. The Company expects amortization of approximately $1.3
million during 1998 related to these options. These amortization amounts are
divided among the expense categories discussed above.
YEARS ENDED DECEMBER 31, 1995 AND 1996 AND NINE MONTHS ENDED SEPTEMBER 30,
1996 AND 1997
REVENUES
The Company's revenues increased 122% from $1.4 million in 1995 to $3.1
million in 1996 and increased 272% from $2.0 million in the nine months ended
September 30, 1996 to $7.5 million in the nine months ended September 30,
1997. Service revenues increased 130% from $1.1 million in 1995 to $2.5
million in 1996. The growth in the Company's service revenues from 1995 to
1996 resulted primarily from an increase in the number of customers to which
the Company provided Internet connectivity and to a lesser extent from an
increase in service revenues per Internet connectivity customer. As the
Company began to acquire new customers that purchased services in addition to
Internet connectivity and the Company opened its first Internet Data Center in
August 1996, the increase in average total revenues per customer became a more
significant factor in the Company's revenue growth although increases in the
total number of customers continued to be the more important factor. Service
revenues increased 368% from $1.5 million in the nine months ended September
30, 1996 to $7.0 million in the nine months ended September 30, 1997. This
growth in service revenues was primarily the result of opening the Company's
first two Internet Data Centers in August 1996 and March 1997, increases in
the number of new customers and increases in revenues from existing customers.
The Company sells third-party equipment to its customers as an accommodation
to facilitate their purchase of services. The Company's equipment revenues
increased 99% from $340,000 in 1995 to $676,000 in 1996 and decreased 6% from
$520,000 in the nine months ended September 30, 1996 to $489,000 in the nine
months ended September 30, 1997.
COST OF REVENUES
Cost of service revenues increased from $846,000 in 1995 to $2.5 million in
1996 and increased from $1.5 million in the nine months ended September 30,
1996 to $9.2 million in the nine months
29
<PAGE>
ended September 30, 1997. The Company's cost of service revenues as a
percentage of service revenues increased from 79% in 1995 to 103% in 1996 and
from 103% in the nine months ended September 30, 1996 to 131% in the nine
months ended September 30, 1997. The increases in cost of service revenues in
absolute dollars and as a percentage of service revenues were due to increased
costs associated with the build-out and operation of the Company's increasing
number of Internet Data Centers. Cost of equipment revenues increased from
$282,000 in 1995 to $452,000 in 1996 and from $345,000 in the nine months
ended September 30, 1996 to $361,000 in the nine months ended September 30,
1997. Cost of equipment revenues varies primarily as a result of equipment
revenues and, to a lesser extent, the mix of equipment purchased by customers.
MARKETING AND SALES
The Company's marketing and sales expenses increased from $1.1 million in
1995 to $2.7 million in 1996 and from $1.5 million in the nine months ended
September 30, 1996 to $7.7 million in the nine months ended September 30,
1997. These increases were primarily the result of hiring additional marketing
and sales personnel and expanding marketing programs.
GENERAL AND ADMINISTRATIVE
The Company's general and administrative expenses increased by 147% from
$427,000 in 1995 to $1.1 million in 1996 and from $573,000 in the nine months
ended September 30, 1996 to $3.6 million in the nine months ended September
30, 1997. These increases were primarily the result of increased hiring of
administrative personnel, fees paid for recruiting, costs for consultants and
cost for professional services providers.
PRODUCT DEVELOPMENT
The Company's product development expenses increased from $70,000 in 1995 to
$444,000 in 1996 and from $121,000 in the nine months ended September 30, 1996
to $1.1 million in the nine months ended September 30, 1997. The Company's
product development expenses grew between the comparison periods primarily
because of the addition of product development personnel to support the
Company's expanded service offerings.
NET INTEREST EXPENSE
The Company's net interest expense increased from $38,000 in 1995 to $39,000
in 1996 and from $43,000 in the nine months ended September 30, 1996 to
$242,000 in the nine months ended September 30, 1997. The increases in net
interest expense between the comparison periods were primarily the result of
substantially increased borrowings as the Company entered into equipment loans
and lease agreements to finance the construction of its Internet Data Centers
and working capital lines of credit to finance working capital for its
operations. The Company expects that net interest expense will continue to
grow as the Company enters into additional equipment leases and loans and
obtains additional borrowings for working capital.
DEFERRED COMPENSATION EXPENSE
In the nine months ended September 30, 1997, the Company recorded deferred
stock compensation of $724,000 in connection with the grant of certain stock
options between April and July 1997, which amount is generally being amortized
over the approximately four year vesting period of such options. This
amortization is being made at a rate of approximately 52% in the first year,
27% in the second year, 15% in the third year and 6% in the fourth year. Of
the total deferred stock compensation, $85,000 was amortized in the nine
months ended September 30, 1997. This amount is divided among the expense
categories discussed above.
30
<PAGE>
FACTORS AFFECTING RESULTS OF OPERATIONS
The Company expects to experience significant fluctuations in its future
quarterly and annual results of operations due to a variety of factors, many
of which are outside the Company's control including: demand for and market
acceptance of the Company's services and enhancements; introductions of
services or enhancements by the Company and its competitors; capacity
utilization of its Internet Data Centers; reliable continuity of service and
network availability; the ability to increase bandwidth as necessary; the
timing of customer installations; the mix of services sold by the Company;
customer retention; the timing and success of marketing efforts and service
introductions by the Company; the timing and magnitude of capital
expenditures, including construction costs relating to the expansion of
operations; the timely expansion and existing Internet Data Centers and
completion of new Internet Data Centers; the introduction by third parties of
new Internet and networking technologies; increased competition in the
Company's markets; changes in the pricing policies of the Company and its
competitors; fluctuations in bandwidth used by customers; the retention of key
personnel; economic conditions specific to the Internet industry; and other
general economic factors. In addition, a relatively large portion of the
Company's expenses are fixed in the short-term, particularly with respect to
telecommunications, depreciation, real estate and interest expenses and
personnel, and therefore the Company's results of operations are particularly
sensitive to fluctuations in revenues. Also, if the Company's agreement with
Computer Associates were to terminate and the Company continued to require
Computer Associates' software, the license fees paid by the Company could
increase fixed costs significantly. Furthermore, if the Company were to become
unable to continue leveraging third party products in the Company's services
offerings, the Company's product development costs could increase
significantly. Although the Company has not encountered significant
difficulties in collecting upon accounts receivable in the past, many of the
Company's customers are in an emerging stage, and there can be no assurance
that the Company will be able to collect receivables on a timely basis. For
these and other reasons, in some future quarters, the Company's results of
operations may fall below the expectations of securities analysts or
investors, which could have a material adverse effect on the market price of
the Company's Common Stock.
The market for Internet system and network management solutions has only
recently begun to develop, is evolving rapidly and likely will be
characterized by an increasing number of market entrants. There is significant
uncertainty regarding whether this market ultimately will prove to be viable
or, if it becomes viable, that it will grow. In order to be successful in this
emerging market, the Company must be able to differentiate itself from its
competition through its service offerings, such as its recently introduced
collaborative management and Internet technology services. There can be no
assurance that the Company will be successful in differentiating itself or
achieving market acceptance of its services, or that it will not experience
difficulties that could delay or prevent the successful development,
introduction or marketing of these services. If the Company incurs increased
costs or is unable, for technical or other reasons, to develop and introduce
new services or enhancements of existing services in a timely manner,
including certain collaborative management and Internet technology services
scheduled to be available in the first half of 1998, or if these or other new
products or services do not achieve market acceptance in a timely manner or at
all, the Company's business, results of operations and financial condition
could be materially adversely affected. See "Risk Factors--Dependence on New
Market; Uncertainty of Acceptance of Services."
A component of the Company's long-term strategy is to expand into
international markets, and the Company currently plans to open an Internet
Data Center in the London metropolitan area in the first half of 1998. There
can be no assurance that the Company will be able to market, sell and deliver
successfully its services outside the United States. The Company generally
intends to outsource the initial operation of its international Internet Data
Centers. As a result, the Company will be dependent for a time on third
parties to deliver its services from and manage the operations of such
international Internet Data Centers. In addition to the uncertainty as to the
Company's ability to expand into international markets, there are certain
risks inherent in conducting business internationally, such as
31
<PAGE>
unexpected changes in regulatory requirements, export restrictions, tariffs
and other trade barriers, challenges in staffing and managing foreign
operations, differing technology standards, employment laws and practices in
foreign countries, longer payment cycles, problems in collecting accounts
receivable, political instability, fluctuations in currency exchange rates,
imposition of currency exchange controls, seasonal reductions in business
activity and potentially adverse tax consequences, any of which could
adversely affect the Company's international operations. In addition, there
can be no assurance that the Company will be able to obtain the necessary
telecommunications infrastructure in a cost-effective manner or compete
effectively in international markets. See "Risk Factors--Risks Associated with
International Operations."
The Company recognizes the need to ensure its operations will not be
adversely impacted by Year 2000 software failures. Software failures due to
processing errors potentially arising from calculations using the year 2000
date are a known risk. The Company has established procedures for evaluating
and managing the risks and costs associated with this problem and estimates
that expenses required to improve computer systems to be Year 2000 compliant
will not be material. However, many of the Company's customers maintain their
Internet operations on UNIX-based servers, which may be impacted by Year 2000
complications. The failure of such servers could have a material adverse
effect on the Company's customers, which in turn could have a material adverse
effect on the Company's business, results of operations and financial
condition.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company has financed its operations primarily through
private sales of Preferred Stock and through various types of equipment loans
and lease lines and working capital lines of credit. At September 30, 1997,
the principal source of liquidity for the Company was $3.9 million of cash and
cash equivalents. As of that date, the Company also had equipment loans and
lease lines and working capital lines of credit under which it could borrow up
to an additional aggregate of $8.0 million for purchases of equipment and for
working capital. In the fourth quarter of 1997, the Company closed an
additional Preferred Stock financing with gross proceeds to the Company of
$7.5 million and entered into additional equipment loan agreements and lines
of credit under which the Company could borrow up to an aggregate of $22
million. See Notes 3 and 8 of Notes to Financial Statements for a description
of the Company's available debt facilities.
Since the Company began to offer server hosting services in 1995, the
Company has had significant negative cash flows from operating activities. Net
cash used for operating activities in 1995, 1996 and the nine months ended
September 30, 1997 was $453,000, $3.0 million and $9.6 million, respectively.
Net cash used for operating activities in each of these periods was primarily
the result of net losses, offset in part by increases in accounts payable,
accrued expenses and depreciation and amortization.
Net cash used for investing activities in 1995, 1996 and the nine months
ended September 30, 1997 was $77,000, $3.6 million and $15.0 million,
respectively. Net cash used for investing activities in these periods was
almost entirely the result of capital expenditures for the construction of
Internet Data Centers, leasehold improvements, furniture and fixtures, and
computers and other equipment.
Cash provided by financing activities in 1995, 1996 and the nine months
ended September 30, 1997 was $692,000, $10.2 million and $24.8 million,
respectively. Of this cash, $9.4 million in 1996 and $16.1 million in the nine
months ended September 30, 1997 resulted from the issuance of Preferred Stock,
net of issuance costs and related warrants, and $490,000, $719,000 and $4.7
million in 1995, 1996 and the nine months ended September 30, 1997 resulted
from debt, bank borrowings and sale-leaseback financings offset by payments
thereon and required restricted deposits.
The Company's capital expenditures for the nine months ended September 30,
1997 were approximately $15.6 million and thereafter through 1998 are expected
to be at least $26 million. Such
32
<PAGE>
expenditures are primarily for property and equipment. As of September 30,
1997, the Company also had commitments under capital leases and under
noncancellable operating leases of $2.5 million and $17.4 million,
respectively, through 2007. See Note 6 of Notes to Financial Statements. The
Company expects to meet its working capital and capital expenditure
requirements over the next 12 months with existing cash and cash equivalents
and short-term investments, the net proceeds from this offering, cash from
sales of services and proceeds from existing and future equipment loans and
lease lines and working capital lines of credit and possibly other borrowings.
Thereafter, the Company may also need to raise additional funds through public
or private financing, strategic relationships or other arrangements. There can
be no assurance that the Company will be successful in generating sufficient
cash flows from operations or raising capital in sufficient amounts on terms
acceptable to it. The failure of the Company to raise capital when needed
could have a material adverse effect on the Company's business, results of
operations and financial condition. If additional funds are raised through the
issuance of equity securities, the percentage ownership of its then-current
stockholders would be reduced. Furthermore, such equity securities might have
rights, preferences or privileges senior to those of the Company's Common
Stock. See "Risk Factors--Risks Associated with Planned Expansion of the
Exodus Network."
RECENT ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board ("FASB") recently issued Statement
of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share." SFAS
No. 128 requires the presentation of basic earnings per share ("EPS") and, for
companies with complex capital structures, diluted EPS. SFAS No. 128 is
effective for annual and interim periods ending after December 15, 1997. The
Company expects that, for profitable periods, basic EPS will be higher than
EPS as presented in the accompanying financial statements and diluted EPS will
not differ materially from EPS as presented in the accompanying financial
statements. Computations for loss periods should not change significantly.
The FASB also recently issued SFAS No. 130, "Reporting Comprehensive
Income." SFAS No. 130 establishes standards for reporting and displaying
comprehensive income and its components in financial statements. It does not,
however, require a specific format, but requires the Company to display an
amount representing total comprehensive income for the period in its financial
statements. The Company is in the process of determining its preferred format.
SFAS No. 130 is effective for fiscal years beginning after December 15, 1997.
The FASB also recently issued SFAS No. 131, "Disclosure about Segments of an
Enterprise and Related Information." SFAS No. 131 establishes standards for
the way public business enterprises are to report information about operating
segments in annual financial statements and requires those enterprises to
report selected information about operating segments in interim financial
reports. SFAS No. 131 is effective for financial statements for periods
beginning after December 31, 1997. The Company has determined that it does not
have any separately reportable business segments.
33
<PAGE>
BUSINESS
THE COMPANY
Exodus is a leading provider of Internet system and network management
solutions for enterprises with mission-critical Internet operations. The
Company's solutions include server hosting, Internet connectivity,
collaborative management and Internet technology services, which together
provide the high performance, scalability and expertise that enterprises need
to optimize their Internet operations. The Company delivers its services from
geographically distributed, state-of-the-art Internet Data Centers that are
connected through a redundant high performance dedicated backbone ring. The
Company's tailored solutions are designed to be seamlessly integrated with
existing enterprise systems architectures and enable customers to outsource
the monitoring, administration and optimization of their equipment,
applications and overall Internet operations. As of December 31, 1997, the
Company had over 180 Internet Data Center customers and managed over 2,000
customer servers. The Company's customers range from pioneering Internet-based
businesses to Fortune 500 enterprises and include companies such as Computer
Associates International, Inc., GeoCities, Hewlett-Packard Company, Hotmail
Corporation, Inktomi Corporation, National Semiconductor Corporation, PC World
Communications, Inc., Software.net and USAToday Information Network.
The Company's Internet system and network management solutions are based on
a core set of server hosting and Internet connectivity services, which are
enhanced by a growing number of collaborative management and Internet
technology services. The Company's server hosting and Internet connectivity
services, through its Internet Data Centers, national backbone ring of
multiple high speed clear channel DS-3 lines and public and private network
peering interconnections, provide the foundation for high performance,
availability, scalability and reliability of customers' Internet operations.
The Company's collaborative management services, including performance
monitoring and site management reports, enable customers and the Company to
manage customers' Internet operations jointly, proactively and continuously.
Finally, the Company's Internet technology services, which include security
and content distribution, integrate best-of-breed technologies of leading
vendors with the Company's expertise to provide customers with scalable,
secure and high performing Internet applications. The Company's portfolio of
layered services optimize the development, deployment and proactive management
of enterprises' mission-critical Internet operations.
The Company began offering server hosting services in late 1995, opened its
first dedicated Internet Data Center in August 1996 and introduced its
collaborative management and Internet technology services in 1997. The Company
currently operates six Internet Data Centers, consisting of approximately
90,000 gross square feet, located in five metropolitan areas: Los Angeles, New
York, San Francisco, Seattle and Washington, D.C. The Company intends to
expand domestically and internationally, including the expected addition of an
additional Internet Data Center in the San Francisco metropolitan area and a
new site in the London metropolitan area in the first half of 1998.
INDUSTRY BACKGROUND
Use of the Internet, including intranets and extranets, has grown rapidly in
recent years, driven by a number of factors, including the large and growing
installed base of advanced personal computers, improvements in network
architectures, increasing numbers of network-enabled applications, the
emergence of compelling content and commerce-enabling technologies and easier,
faster and cheaper access. International Data Corporation estimates that by
the end of 1997 the number of World Wide Web users worldwide would be
approximately 50 million and will continue to grow to approximately 129
million by the end of 2000. As a result of this growing use, the Internet has
become an important new
34
<PAGE>
global communications and commerce medium and represents an enormous
opportunity for enterprises to interact in new and different ways with a large
number of customers, employees, suppliers and partners.
Enterprises are responding to this opportunity by rapidly increasing their
investments in Internet sites and services. In the last several years, many
enterprises that focus solely on delivering services over the Internet have
emerged, and, more recently, mainstream businesses have begun to implement
Internet sites and commerce applications. This projected increase in
commercial Internet use should drive rapid growth in revenues from Internet
commerce which, according to International Data Corporation, are expected to
increase from approximately $10 billion in 1997 to approximately $120 billion
in 2000.
As use of the Internet grows, enterprises are increasing the breadth and
depth of their Internet product and service offerings. Pioneering Internet-
based businesses have developed Internet products and services in areas such
as finance, banking, entertainment, education and advertising. In addition,
mainstream businesses have begun to use the Internet for an expanding variety
of applications, ranging from corporate publicity and advertising, to sales,
distribution, customer service, employee training and communication with
business partners. These Internet operations are mission-critical for
virtually all Internet-based businesses and are becoming increasingly mission-
critical for many mainstream enterprises. Loss of the availability of mission-
critical Internet sites often results in losses in revenue and impairment of
customer goodwill. As a result, to ensure the reliability of their mission-
critical Internet operations, enterprises are requiring that these operations
have 24x7 performance, scalability and expert management.
The proliferation of Internet services offered and the growth in mission-
critical Internet applications are driving an increase in the complexity of
commercial Internet sites. In order to ensure the quality, reliability,
availability and redundancy of these Internet operations, corporate IT
departments must make substantial investments in developing Internet expertise
and infrastructure. They need geographically distributed state-of-the-art
facilities and networks that are monitored and managed 24x7 by experts in
Internet technology, can be upgraded to reflect changing technologies and can
be scaled as the needs of enterprises evolve. However, such a continuing
significant investment of resources is often an inefficient use of
enterprises' overall resources. As a result, corporate IT departments are
increasingly seeking collaborative outsourcing arrangements that can increase
performance, provide continuous operation of their Internet solutions and
reduce Internet operating expenses. Forrester Research, Inc. ("Forrester")
estimates that Internet hosting revenues will increase from approximately $200
million in 1997 to almost $8 billion by the year 2000. Furthermore, Forrester
estimates that the broader market for distributed infrastructure services,
which includes Internet hosting as well as wide area network ("WAN")
management, network design and end-user support will grow from approximately
$36 billion in 1997 to approximately $89 billion in 2000.
A variety of companies, such as regional ISPs, national ISPs and large IT
outsourcing firms, offer products and services that attempt to address
enterprises' Internet outsourcing needs. However, the solutions offered by
these companies fail to address certain elements required to ensure that
customers' mission-critical Internet operations are reliable, scalable and
high performing. For example, regional ISPs lack the geographically-
distributed data centers necessary to deliver content using replication or
caching technologies, which are becoming increasingly important as Internet
usage and bandwidth demands increase. National ISPs focus on providing
Internet access and generally have not developed sophisticated and reliable
server management capabilities. In addition, the Company believes that they
often oversubscribe their networks, resulting in poor performance and an
inability to handle effectively customers' sharp increases in bandwidth
demand. The Company believes that neither the regional nor the national ISPs
have developed the systems and application management, monitoring and customer
service capabilities required to support mission-critical Internet operations.
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<PAGE>
Finally, large IT outsourcing firms tend to focus on large enterprises that
want to outsource their entire IT infrastructure, not just their Internet
operations. These vendors often lack the network infrastructure and Internet
expertise required to provide mission-critical Internet system and network
management services. As a result, Exodus believes a significant opportunity
exists for a highly-focused company to provide a combination of server
hosting, Internet connectivity, collaborative management and Internet
technology services that will enable reliable, high performance of
enterprises' mission-critical Internet operations.
THE EXODUS SOLUTION
Exodus is a leading provider of Internet system and network management
solutions for enterprises with mission-critical Internet operations. Its
server hosting, Internet connectivity, collaborative management and Internet
technology services are designed to provide enterprises with the high
performance, scalability and expertise necessary to optimize their Internet
operations. The Company's tailored solutions are designed to be seamlessly
integrated with existing enterprise systems architectures and enable customers
to outsource the monitoring, administration and optimization of their
equipment, applications and overall Internet operations. The Company believes
that its solutions enable customers to deploy and expand Internet operations
rapidly and cost-effectively, especially when compared to in-house solutions.
The Exodus solution provides the following key advantages to its customers:
HIGH PERFORMANCE. The Company supports enterprises' business objectives by
ensuring that their Internet sites perform effectively. The Company's
solutions provide the availability and reliability that customers need to be
able to depend on the Internet for mission-critical operations. The Company's
solutions are designed to maximize performance through features such as
geographically distributed Internet Data Centers, redundant and high speed
network design, content distribution technologies, security and 24x7
monitoring and diagnosis.
SCALABILITY. The Company's solutions are designed to be flexible and
scalable, ensuring customers a consistently high level of performance as their
Internet operations expand. The Company can quickly scale the amount of
hosting space, power, bandwidth or managed services that a customer receives,
all in a way transparent to the end-user. The Company believes that the
scalability of its solutions is a significant advantage over in-house
solutions.
INTERNET SYSTEMS AND NETWORK MANAGEMENT EXPERTISE. By leveraging the
knowledge gained from supporting many leading-edge Internet operations, the
Company has developed a specialized Internet system and network management
expertise that is difficult for any single customer to replicate in-house.
Customers gain access to the Company's experience in network, system,
application and security management.
COLLABORATIVE AND PROACTIVE MANAGEMENT. The Company believes that
enterprises value Internet service relationships that are collaborative and
proactive. Therefore, the Company has developed a collaborative management
approach that provides customers with detailed monitoring, reporting and
management tools that can be accessed through the Internet to control
customers' Internet hardware, network, software and application environments.
This approach focuses on identifying and resolving potential problems before
they impact an Internet site's availability or performance. Through the
Company's system and network management framework, customers are able to
manage both mission-critical Internet operations housed at the Company's
Internet Data Centers and in-house IT applications. The Company believes that
this provides an important advantage to enterprises that seek to outsource a
portion of their Internet operations and to link the management of the
outsourced operations with in-house operations.
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<PAGE>
COST-EFFECTIVE SOLUTION. The Company's customers benefit from leveraging the
significant capital, operating and labor investments that the Company has made
to support distributed, mission-critical Internet operations. Most enterprises
today do not have the infrastructure that mission-critical Internet operations
require, including data centers located adjacent to major Internet connection
points, 24x7 operations and specialized Internet technology expertise. The
Company believes that its solutions to optimize enterprises' Internet
operations are significantly more cost-effective than most in-house solutions.
THE EXODUS STRATEGY
The Company's objective is to become the leading provider of Internet system
and network management solutions for enterprises with mission-critical
Internet operations. To achieve this objective, the Company's strategy
includes the following key elements:
EXTEND MARKET LEADERSHIP. The Company has played a leading role in creating
and defining the market for Internet system and network management solutions
and plans to establish itself as the brand name and leader in this market. The
Company believes that its highly-focused approach to serving this market
provides it with an advantage over competitors that also serve the entry-level
hosting market or the stand-alone Internet access market. The Company plans to
extend its leadership in the market for Internet system and network management
solutions both by aggressively continuing to expand its base of more than 180
Internet Data Center customers and by capitalizing on the growth of its
customers' needs for these solutions.
FOCUS ON COLLABORATIVE MANAGEMENT AND INTERNET TECHNOLOGY SERVICES. The
Company believes that developing new services to manage enterprises' mission-
critical Internet operations jointly, proactively and continuously will offer
a compelling value proposition to its customers. The Company has invested and
is continuing to invest in services that will ensure high availability and
performance of customers' Internet-based applications, including systems
administration, disaster recovery, security and systems and network
management. As part of this strategy, the Company has developed and intends to
continue to develop relationships with providers of leading Internet
technologies in order to enhance its service offerings and meet its customers'
evolving needs.
CONTINUE DOMESTIC EXPANSION AND ESTABLISH GLOBAL PRESENCE. The Company is
continuing to build Internet Data Centers and expand direct sales coverage in
the United States and is also pursuing international opportunities. The
Company believes that having a number of widely distributed and networked
Internet Data Centers improves network performance and enhances overall site
redundancy. In addition, the Company's experience indicates that locating an
Internet Data Center within a geographic region can significantly enhance its
ability to attract new customers in that region. The Company intends to expand
domestically and internationally, including the expected addition of Internet
Data Centers in the London metropolitan area and an additional site in the San
Francisco metropolitan area in the first half of 1998.
LEVERAGE EXPERTISE TO ADDRESS NEW MARKET OPPORTUNITIES. The Company intends
to leverage its significant achievements with pioneering Internet-based
businesses to address broader customer markets, such as e-commerce and
extranets. For example, mainstream corporations are increasingly establishing
extranets with suppliers and customers. However, many of these enterprises
lack the infrastructure and Internet expertise required to operate effectively
mission-critical Internet applications and are looking for collaborative
management assistance. The Company believes that its Internet system and
network management solutions can support the business needs of these
mainstream corporations by enabling them to deploy mission-critical extranet
operations successfully.
ESTABLISH STRATEGIC RELATIONSHIPS FOR TECHNOLOGY AND DISTRIBUTION. The
Company is establishing strategic relationships for technology and
distribution. The Company believes that
37
<PAGE>
establishing relationships with technology developers enables it to leverage
these enterprises' research and development expertise cost-effectively. These
relationships allow the Company to gain more rapid access to new technologies
and to provide value-added integrated solutions for its customers. For
example, the Company has worked closely with Computer Associates to develop
certain of the Company's collaborative management services using Computer
Associates' Unicenter(R) TNG(TM) technology. The Company's product development
personnel will continue to develop vendor relationships and technology-based
relationships, such as those with Raptor Systems, Inc., VeriFone, Inc. and
CheckPoint Software Technologies Limited, to enhance the Company's solutions.
In addition, the Company currently has distribution alliances with a number of
companies including Automatic Data Processing, Inc., Computer Associates, GE
Capital Services, InfoNet Services Corporation and Poppe Tyson, Inc. and
believes it can expand its customer base by establishing additional
distribution relationships with content developers, system integrators, system
vendors, consulting companies and ISPs.
SERVICES
The Company's services are designed to provide enterprises with the high
performance, scalability and expertise they need to optimize their mission-
critical Internet operations. The Company creates tailored solutions for its
customers based on their unique business and technical requirements, modifying
the services as customers' needs evolve. The services are delivered from
geographically distributed, state-of-the-art Internet Data Centers and include
server hosting, Internet connectivity, collaborative management and Internet
technology services. The server hosting and Internet connectivity services
provide the foundation for high performance, availability, scalability and
reliability of customers' Internet operations. The collaborative management
services enable customers and the Company to manage customers' Internet
operations jointly, proactively and continuously. The Internet technology
services integrate best-of-breed technologies of leading vendors with the
Company's expertise to build scalable, secure and high performing Internet
applications. These services can be layered to allow customers to outsource an
increasing portion of the management of their Internet operations. Customers
pay monthly fees for the services utilized, as well as one-time fees for
installation and for any equipment purchased from the Company.
SERVER HOSTING
The Company provides a broad range of server hosting services tailored to
meet the unique demands of sophisticated, multi-vendor mission-critical
Internet operations. The Company supports all leading Internet hardware and
software systems vendor platforms, including those from Compaq Computer
Corporation, Dell Computer Corporation, Hewlett-Packard Company, IBM,
Microsoft Corporation, Silicon Graphics, Inc., Sun Microsystems, Inc. and The
Santa Cruz Operation, Inc. This multi-vendor flexibility enables the customer
to retain complete control over the technical solution and enables its
Internet operations to be integrated into its existing IT technical
architecture. Because mission-critical Internet operations are typically very
dynamic and often require immediate hardware and software upgrades to maintain
targeted service levels, customers have unlimited 24x7 access to the Internet
Data Centers. Additional space and electrical power can be added as needed,
ensuring that the customer always has access to additional server hosting
services.
Customers can select from shared rack facilities, highly secure cabinets or
enclosed cage facilities based upon their business and technical requirements.
Most server hosting facilities include dedicated electrical power circuits to
ensure that each customer's electrical power requirements are met. Each
Internet Data Center is constructed based upon the requirements of high-
availability mission-critical computing with uninterruptible power supply and
back-up generators, fire suppression, raised floors, HVAC, separate cooling
zones, seismically braced racks, 24x7 operations and high levels of physical
security.
38
<PAGE>
The following chart summarizes the key features of the Company's current
server hosting services:
<TABLE>
<CAPTION>
SERVICE SIZE FEATURES
- -------------------------------------------------------------------------------
<S> <C> <C>
CyberRack 19" x 23" quarter, half or . Entry-level service providing
full rack economical solution for customers
that do not need dedicated
environments
. Secured environment that is shared
by multiple customers
- -------------------------------------------------------------------------------
CyberCabinet 19" x 23" full rack . Dedicated, locked cabinet
. Provides a single rack with the
security of a dedicated
environment
. Dedicated power circuits
- -------------------------------------------------------------------------------
Virtual Data 7' x 4' or 7' x 8' cage or . Dedicated, locked cage
Center customized to order .Provides flexibility in designing
and configuring Internet servers,
including space for multiple racks
and other customer computing
products
. Provides ventilation for heat
generating equipment
. Dedicated power circuits
- -------------------------------------------------------------------------------
CyberVault 8' x 8' or 8' x 12' vault . Dedicated, enclosed vault
or customized to order .Provides additional security for
sensitive Internet transactions by
financial institutions and on-line
merchants
. Includes palm reader
identification for entry and exit,
motion and camera detectors, tiles
bolted to the floor, bullet-proof
glass and secured data and
electrical lines
. Separate, dedicated power circuits
</TABLE>
INTERNET CONNECTIVITY
The Company's Internet connectivity services are designed to deliver the
scalability, high availability and performance required by high-volume,
mission-critical Internet operations. Since enterprises' mission-critical
Internet operations often experience network traffic spikes due to promotions
or events, the Company has a policy of under-subscribing its network by
provisioning significant excess capacity. In addition, customers can purchase
spare capacity and pay only for the bandwidth that is used.
To meet customers' requirements of near 100% availability, the Company's
network is designed to minimize the likelihood of any single point of failure.
Each Internet Data Center has multiple physical fiber paths into the
facility. The Company maintains multiple network links from multiple vendors
into each Internet connection point and regularly checks that its fiber
backbone is traversing physically-separated paths. Customers also enhance
their Internet site's availability by physically duplicating their site within
multiple Internet Data Centers and then synchronizing applications and content
via the Company's private fiber backbone network. This network architecture
optimizes the availability of a customer's site, even in the event of a link
failure.
39
<PAGE>
The Company's Internet connectivity services are also designed to
consistently deliver low-latency and peak network performance. The Company's
backbone engineering personnel continuously monitor traffic patterns and
congestion points throughout the Internet and dynamically reroute traffic
flows to optimize end-user response times. The Company also provides peak
network performance by maintaining what it believes is one of the largest
number of direct public and private network peering interconnections in the
industry. The Company's network includes private peering interconnections with
eight national ISPs and public peering interconnections with over 120 ISPs,
including many of the largest providers.
For customers seeking a direct communications link to the site of another
customer that is located at the same Internet Data Center, the Company offers
highly secure, fast and efficient cross-connections.
COLLABORATIVE MANAGEMENT
The Company's collaborative management services support mission-critical
Internet operations by providing the customer with detailed monitoring,
reporting and management tools to control their hardware, network, software
and application environments. Through the Company's system and network
management framework, customers are able to manage both mission-critical
Internet operations housed at the Company's Internet Data Centers and in-house
IT applications. The Company believes that this provides an important
advantage to enterprises that seek to outsource a portion of their Internet
operations and to link the management of the outsourced operations with in-
house operations. The Company's proactive service methodology focuses on
identifying and resolving potential problems before they ever impact an
Internet site's availability or performance. The Company's sophisticated
Internet system and network management solutions enable the Company to
identify and to begin to resolve hardware, software, network and application
problems, frequently before the customer is even aware that a problem exists.
The Company offers the services summarized in the following chart:
<TABLE>
<CAPTION>
SERVICE DESCRIPTION BENEFITS
- ----------------------------------------------------------------------------------------
<S> <C> <C>
SystemHealth Basic . 24x7 proactive monitoring of . Maximizes availability of
Monitoring Service Internet server processes customers' mission-critical
Internet operations by
proactively identifying
potential problems
. Systems administration . Allows customers to leverage
Exodus' systems expertise
. 24x7 rebooting of servers
. Monthly and daily reports
available via the Web
- ----------------------------------------------------------------------------------------
SystemHealth Pro . SystemHealth Basic Monitoring . Includes advantages of
Monitoring Service service plus an Exodus system SystemHealth Basic Monitoring
administrator leads problem Service plus offloads problem
resolution if problem arises resolution to Exodus
- ----------------------------------------------------------------------------------------
DatabaseHealth . 24x7 proactive monitoring of . Maximizes availability of
Basic Monitoring SQL server processes customers' database resources
Service by proactively identifying
potential problems
. Automated customer notification
of database problems
. Monthly and daily reports
available via the Web
- ----------------------------------------------------------------------------------------
DatabaseHealth Pro . DatabaseHealth Basic Monitoring . Includes advantages of
Monitoring Service service plus an Exodus system DatabaseHealth Basic
administrator leads problem Monitoring Service plus
resolution if problem arises offloads problem resolution to
Exodus
. Automated process restarting
</TABLE>
40
<PAGE>
<TABLE>
<CAPTION>
SERVICE DESCRIPTION BENEFITS
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Site Management . Bandwidth usage reports . Assists in capacity planning
and management of network
resources
Reports . System performance, network
trend and third-party reports
. Graphic and tabular statistics
. Information delivered to
customers via the Internet on
an hourly, daily and semi-
monthly basis
- ----------------------------------------------------------------------------------------
Internet Disaster . Tape management services to . Maximizes the availability of
Recovery restore sites after a system customers' applications
failure
. Distributed load balancing . Provides additional redundancy
services to seamlessly re-route in the event of server failure
user traffic to an alternate
site in the event of a failure
- ----------------------------------------------------------------------------------------
Internet Systems . Assigned project manager . Assures a smooth transition to
Integration responsible for developing a an Exodus Internet Data Center
migration plan, managing the
site's installation and
providing ongoing account
support
. Company acts as value-added . Provides for ongoing support
reseller of Cisco products,
primarily routers, hubs and
switching equipment, in
connection with server hosting
services
</TABLE>
In addition, the following chart summarizes the key features of an additional
collaborative management service being developed by the Company and expected to
be available in the first half of 1998:
<TABLE>
<CAPTION>
SERVICE DESCRIPTION BENEFITS
- ----------------------------------------------------------------------------------------
<S> <C> <C>
HeadsUp Site . Will provide an integrated . Will allow customers to view
Monitor platform for delivering key the status of their entire
customer information Internet operations located at
Exodus through the Internet
via a single integrated
console
. Will perform real-time . Will proactively alert
monitoring of URLs, bandwidth, customers with updates on any
server performance and Internet internal or external network
Data Center activities event that might impact their
site
</TABLE>
41
<PAGE>
INTERNET TECHNOLOGY
The Company's Internet technology services are developed by integrating
best-of-breed technologies of leading vendors with its own Internet expertise.
Customers may select any or all of the Company's available Internet technology
services, depending on their needs. The following chart summarizes the key
features of the Internet technology services currently offered by the Company:
<TABLE>
<CAPTION>
SERVICE DESCRIPTION BENEFITS
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Exodus NetSecure . Full-range of perimeter . Enhances site security and
firewall security, encryption, integrity
automated intrusion monitoring,
site security auditing and
consulting services
. Potential intruders identified
and blocked from customer's
site
. Site's security probed and
tested 24x7 and audit reports
generated on potential security
risks
. Proactive agendas developed
before site integrity is
compromised
- ----------------------------------------------------------------------------------------
Exodus NetBalance . Site requests intelligently . Increases availability and
balanced across multiple performance for multi-server
servers located within a single mission-critical Internet
Internet Data Center based on sites
server utilization,
availability and response times
- ----------------------------------------------------------------------------------------
Exodus NetPath . Intelligent routing services . Maximizes availability and
that geographically distribute performance for Internet sites
end-user requests located across multiple
Internet Data Centers
. Traffic routed based upon . Optimizes end-user response
server performance and time
availability, Internet traffic
patterns and the geographic
locations of the requesters
. Provides sophisticated
Internet site redundancy
- ----------------------------------------------------------------------------------------
Exodus NetHost . Turnkey infrastructure services . Cost-effective solution for
for delivering high-performance one-time events such as
cybercast events software releases and concerts
. Includes high-bandwidth
connectivity, high performance
UNIX and NT servers and
specialized systems
administration and management
before and during the event
</TABLE>
The Company is developing certain additional Internet technology services in
the areas of e-commerce, collaborative computing, ad-servers and broadcasting
that it expects to be available in the first half of 1998.
42
<PAGE>
CUSTOMERS
The Company has established a diversified base of customers in a wide range
of industries, including finance, entertainment, high technology, education,
healthcare and publishing. As of December 31, 1997, the Company had over 180
Internet Data Center customers, including the following:
Applied Materials, Hotmail Corporation The Santa Cruz
Inc. Inktomi Corporation Operation, Inc.
BMG Entertainment Internet Profiles Sierra On-Line, Inc.
Computer Associates Corporation ("I/Pro") Software.net
International, Juno Online Services, L.P. Synopsys, Inc.
Inc. Lucas Arts Tripod, Inc.
FocaLink Mpath Interactive, Inc. United Media
GeoCities National Semiconductor USAToday Information
GolfWeb, Inc. Corporation Network
Hearst New Media PC World Communications, Visto (formerly
Hewlett-Packard Inc. RoamPage, Inc.)
Company Poppe Tyson, Inc.
The Company's contracts with its customers generally cover the provision of
services by the Company for a one year period and may contain, among other
things, certain service level guarantees. See "Risk Factors--Risk of System
Failure."
The following examples illustrate how the Company's customers use its server
hosting, Internet connectivity, collaborative management and Internet
technology services.
GEOCITIES
In 1997, GeoCities, a leading provider of free home pages on the Internet,
selected the Company to colocate its Internet servers and administer its
rapidly growing Internet computing requirements. GeoCities is one of the most
frequently visited sites on the Internet measuring over 100 million hits a day
on a peak day, and GeoCities relied heavily upon the Company's advanced
professional services capabilities to plan and manage the successful migration
of the GeoCities site into Exodus' Internet Data Center facilities. This
migration posed unique challenges, including minimizing downtime for GeoCities'
more than one million "homesteaders" (users), physically migrating more than 45
Internet servers and shifting in real-time the network routing of more than 160
Mbps of sustained Internet traffic. The Company currently provides GeoCities
and its users reliable connectivity, scalable bandwidth and 24x7 monitoring,
systems administration and disaster recovery services.
HOTMAIL CORPORATION
In 1996, Hotmail Corporation ("Hotmail"), a leading provider of globally-
accessible, free Web-based electronic mail, engaged the Company to host its
Internet servers to gain access to greater bandwidth to support Hotmail's
growing customer base. Hotmail's primary challenge was to find a company that
could support the significant growth that it was anticipating for its services.
Hotmail selected the Company, based upon the scalability and high performance
of the Company's Internet Data Center and network solutions, as well as on the
Company's reputation for high quality customer service. Within a year of
colocating its Internet site at the Company's Internet Data Center, Hotmail's
subscriber base has grown from 400,000 to over 10 million, the number of
servers required to operate its site has expanded from 16 to 200, and Hotmail's
sustained network traffic has grown from 10 Mbps to 140 Mbps. The Company
currently manages Hotmail's Web site daily and provides it with the flexibility
for expansion, additional technical support and bandwidth capacity that can be
increased to keep pace with Hotmail's growing subscriber base.
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<PAGE>
NATIONAL SEMICONDUCTOR CORPORATION
In 1997, National Semiconductor Corporation ("National"), a global
semiconductor manufacturer, selected the Company for its application
management expertise. National depends on a Java-based e-commerce application
on its Internet site to sell components. This application reduces the time it
takes for customers to determine which components they need, and National
views it as a competitive advantage. Exodus provides the systems
administration, hardware maintenance and tape back-up necessary to manage this
application and to keep it available. National's Internet site serves a broad
array of additional functions, and use of it has grown significantly in the
last 18 months to a few hundred thousand hits per day.
HEARST NEW MEDIA
In 1997, Hearst New Media ("Hearst"), the interactive arm of Hearst
Publishing, decided to colocate in the Company's Internet Data Center located
in the New York metropolitan area its "homearts.com" Website, which is a
leading site for women on the Web. Hearst chose the Company for its 24x7
monitoring services and its array of management services. Hearst's objective
was to improve network performance, monitoring and system management
capabilities, thereby allowing Hearst to focus on further refinement and
expansion of the site. The Company now monitors Hearst's systems through its
Unicenter(R) TNG(TM)-based services and sends Hearst frequent Web-based
reports that track the status of over 40 Hearst Web sites by their domain name
server, reducing possible downtime or poor response time.
SALES, DISTRIBUTION AND MARKETING
The Company's sales, distribution and marketing objective is to achieve
broad market penetration by targeting enterprises that depend upon the
Internet for mission-critical operations. As of December 31, 1997, the Company
had 86 employees engaged in sales, distribution and marketing.
The Company sells its services to enterprises directly through its sales
force and indirectly through its channel partners. The Company is actively
seeking to increase its sales and distribution capabilities and coverage in
the United States and to expand internationally as new Internet Data Centers
are installed outside of the United States. Currently, most of the Company's
sales are derived through the efforts of its sales force. The Company's sales
force is organized into three separate groups, consisting of field sales,
strategic accounts and telesales, each of which is further divided into four
geographical regions within the United States. Sales engineers and client
integration engineers support the Company's sales force, providing pre- and
post-sales support to ensure that customer services are implemented properly
and efficiently.
The Company's sales force is also developing an indirect sales channel for
the Company's products by targeting content developers, system integrators,
system vendors, consulting companies and ISPs. The Company currently has
distribution alliances with a number of companies, including Automatic Data
Processing, Inc., Computer Associates, GE Capital Services, InfoNet Services
Corporation and Poppe Tyson, Inc., and intends to expand its distribution
relationships in the future. The Company's channel partners typically receive
referral fees for bringing customers to the Company.
The Company's marketing organization is responsible for product management,
public relations and marketing communications. Product management includes
defining the product roadmap and bringing to market the portfolio of services
and programs that will enable the Company to meet its business objectives.
These activities include product strategy and definition, pricing, competitive
analysis, product launches, channel program management and product lifecycle
project management. The Company stimulates product demand through a broad
range of marketing communications and public relations activities. Primary
marketing communications vehicles include collateral, advertising, trade
shows, direct response programs, event sponsorship and management of the
Company's Web
44
<PAGE>
site. Public relations focuses on cultivating industry analyst and media
relationships with the goal of securing broad media coverage and public
recognition of the Company's leadership position in the market for Internet
system and network management solutions.
CUSTOMER SERVICE
The Company offers superior customer service by understanding the technical
requirements and business objectives of its customers and fulfilling their
needs proactively on an individual basis. By working closely with its
customers, the Company is able to optimize the performance of its customers'
Internet operations, avoid downtime, resolve quickly any problems that may
arise and make appropriate adjustments in services as customer needs change
over time. As the Company works with its customers over time, it solicits
their feedback to ensure that it is offering the appropriate types and quality
of service. The Company uses advanced software tools to aid in its customer
monitoring and service efforts. Many customer service employees have been
specifically trained and, as appropriate, certified by the vendors of the
Company's software tools, including Sun Microsystems, Inc., Microsoft
Corporation, Oracle Corporation and Computer Associates.
Customer service begins before a sale, when the Company provides technical
support for complex orders. During the installation phase, the Company assigns
a transition team and a project manager, who also retains responsibility for
the account after installation, to assist the new customer with the
installation process. In addition, the Company provides system integration
services between the customer's Web site and legacy systems. After
installation, the primary customer support area is each Internet Data Center's
Network Control Center, which is operated 24x7 by engineers who answer
customer calls, monitor site and network operations and activate teams to
solve problems that arise. To solve complex problems, the Company draws on the
collective expertise at all of its Internet Data Centers, creating a
nationwide engineering pool. The Company's customer service personnel are also
available to assist customers whose operations require specialized procedures.
Finally, the Company employs network engineers who collaborate with a
customer to design and maintain the LAN environment within the Internet Data
Center and integrate the customer's home LAN and WAN with its Internet site.
The network engineers are trained on NT and Solaris and other UNIX platforms
as well as Cisco routers and switches, and they serve as the second level of
support for customer issues that cannot be resolved by the Network Control
Center. The Company also employs a group of backbone engineers who are
responsible for designing the network that connects the Company's Internet
Data Centers. This group constantly monitors the network design and
effectiveness to optimize performance for customers, rerouting and redesigning
traffic as conditions require.
As of December 31, 1997, the Company had 93 employees dedicated to customer
service and network and backbone engineering.
NETWORK DESIGN
The Company's high performance server network is designed to provide the
highest possible availability in order to enable its customers to achieve
reliable Internet operations. It is comprised of the Company's six Internet
Data Centers interconnected by a high-performance network backbone ring and
connected to the Internet through public peering interconnections and private
peering interconnections. Within each Internet Data Center, a virtual LAN
environment provides redundant, high-speed internal connectivity.
The Company's Internet Data Centers are located near most of the major
Internet exchange points ("IXPs") and are connected to their local IXPs by
multiple DS-3 or OC-3c links, provisioned by Teleport Communications Group
Inc., MFS Communications Company, Inc., Brooks Fiber Properties, Inc. and
45
<PAGE>
Regional Bell Operating Companies. These links to the local exchange points,
combined with private exchanges with ISPs, connect the customers' traffic to
the Internet. In order to provide for high redundancy, performance and
capacity, and to perform real-time content replication or caching across its
Internet Data Centers, the Company has multiple clear channel DS-3 links
interconnecting the Internet Data Centers. The Company has engineered its
backbone with a geographically diverse fiber path to provide high
availability, even in the event of a link failure. The Company is planning to
upgrade to an OC-3c backbone in order to accommodate expected traffic growth.
For customers with servers located at multiple Internet Data Centers, the
Company is developing dynamic response time and load balancing technologies
for optimal routing.
Within each Internet Data Center, the Company deploys a virtual LAN
environment to increase reliability and performance and provides customers
with redundant connectivity to the Exodus backbone and the Internet. DS-3 and
OC-3c lines are strategically placed on different routers to avoid any single
points of failure. See "Risk Factors--Dependence on Third-Party Suppliers."
The Company uses a combination of public and private peering interconnections
to achieve fast and reliable delivery of content. It has private peering
interconnections with eight national ISPs, public peering interconnections
with over 120 ISPs, including many of the largest providers, and a presence at
each of the major U.S. IXPs. The Company will continue to work with ISPs to
establish direct private peering interconnections at each of its Internet Data
Centers to provide low latency content delivery. This broad combination of
private and public peering interconnections provides customers with the
reliability and redundancy that they need to ensure their content reaches its
intended destination. The Company has a general policy of keeping significant
unutilized network capacity for every LAN, WAN and public and private peering
link to allow for spikes in demand or line outages. As a result, when the
sustained utilized capacity of the link approaches 50%, the Company begins to
plan for the expansion of its available capacity.
If the carriers that operate the IXPs were to discontinue their support of
the peering points and no alternative providers emerged, or such alternative
providers increased the cost of utilizing the IXPs, the distribution of
content through the IXPs, including content distributed by the Company, would
be significantly constrained. Furthermore, as traffic through the IXPs
increases, if commensurate increases in bandwidth are not added, the Company's
ability to distribute content rapidly and reliably through these networks will
be adversely affected. Many of the operators of the private peering
interconnections are competitors of the Company. Currently, the Company does
not pay a fee for many of these interconnections, and if these organizations
were to begin to charge the Company for utilizing these interconnections, or,
in the cases where the Company currently pays a fee, to increase the pricing
associated with utilizing these interconnections, the Company may be required
to identify alternative methods through which it can distribute its customers'
content. See "Risk Factors--Dependence Upon Network Infrastructure."
The Company must continue to expand and adapt its network infrastructure as
the number of users and the amount of information they wish to transport
increase and to meet changing customer requirements. The expansion and
adaptation of the Company's telecommunications infrastructure will require
substantial financial, operational and management resources as the Company
negotiates telecommunications capacity with its existing and other network
infrastructure suppliers. Due to the limited deployment of the Company's
services to date, the ability of the Company's network to connect and manage a
substantially larger number of customers at high transmission speeds is as yet
unknown, and the Company faces risks related to its ability to scale up the
network to its expected customer levels while maintaining superior
performance. In addition, as the Company upgrades its telecommunications
infrastructure to increase bandwidth available to its customers, it is likely
to encounter a certain level of equipment or software incompatibility which
may cause delays in implementation. See "Risk Factors--Unproven Network
Scalability."
46
<PAGE>
The Company's operations are dependent upon its ability to protect its
network infrastructure and customers' equipment against damage from human
error, fire, earthquakes, floods, power loss, telecommunications failures,
sabotage, intentional acts of vandalism and similar events. Despite
precautions taken by, and planned to be taken by the Company, the occurrence
of a natural disaster or other unanticipated problems at one or more of the
Company's Internet Data Centers could result in interruptions in the services
provided by the Company or significant damage to customer equipment. In
addition, failure of any of the Company's telecommunications providers, such
as WorldCom, to provide the data communications capacity required by the
Company, as a result of human error, a natural disaster or other operational
disruption, could result in interruptions in the Company's services. See "Risk
Factors--Risk of System Failure."
The increased use of the Internet for retrieving, sharing and transferring
information among businesses, consumers, suppliers and partners has only
recently begun to develop, and the Company's success will depend in large part
on continued growth in the use of the Internet. Critical issues concerning the
commercial use of the Internet, including security, reliability, cost, ease of
access, quality of service and necessary increases in bandwidth availability,
remain unresolved and are likely to affect the development of the market for
the Company's services. The recent growth in the use of the Internet has
caused frequent periods of performance degradation, requiring the upgrade of
routers, telecommunications links and other components forming the
infrastructure of the Internet by ISPs and other organizations with links to
the Internet. Any perceived degradation in the performance of the Internet as
a whole could undermine the benefits of the Company's services. Potentially
increased performance provided by the services of the Company and others is
ultimately limited by and reliant upon the speed and reliability of the
networks operated by third parties. Consequently, the emergence and growth of
the market for the Company's services is dependent on improvements being made
to the entire Internet infrastructure to alleviate overloading and congestion.
See "Risk Factors--Dependence on the Internet and Internet Infrastructure
Development."
A significant barrier to electronic commerce and communications is the
secure transmission of confidential information over public networks. Certain
of the Company's services rely on encryption and authentication technology
licensed from third parties to provide the security and authentication
necessary to effect secure transmission of confidential information. Despite
the Company's design and implementation of a variety of network security
measures, there can be no assurance that unauthorized access, computer
viruses, accidental or intentional actions and other disruptions will not
occur. See "Risk Factors--System Security Risks."
PRODUCT DEVELOPMENT
The Company's product development group is primarily responsible for
evaluating and integrating best-of-breed technologies with the Company's
service offerings to support its customers' mission-critical Internet
operations. The Company believes that establishing relationships with
technology enterprises enables it to leverage these enterprises' research and
development expertise. These relationships allow the Company to gain quicker
access to new technologies and to provide value-added integrated solutions for
its customers. For example, the Company has worked very closely with Computer
Associates, including having dedicated Computer Associates engineers located
at the Company, to develop certain of the Company's collaborative management
services using Computer Associates' Unicenter(R) TNG(TM) technology. See "--
Relationship with Computer Associates." The Company's product development
personnel will continue to develop strategic relationships, such as the one
with Computer Associates, and vendor and technology-based relationships, such
as those it has with Raptor Systems, Inc., VeriFone, Inc. and Checkpoint
Software Technologies Limited, to enhance the Company's services through the
integration of leading technologies. To the extent that the Company is unable
to obtain the technology necessary to meet its customers' needs from a third
party, the Company may need to develop the technology itself. As of December
31, 1997, the Company employed 10 persons in product development.
47
<PAGE>
The Company's future success will depend, in part, on its ability to offer
services that incorporate leading technology, address the increasingly
sophisticated and varied needs of its current and prospective customers and
respond to technological advances and emerging industry standards and
practices on a timely and cost-effective basis. The market for the Company's
services is characterized by rapidly changing and unproven technology,
evolving industry standards, changes in customer needs, emerging competition
and frequent new service introductions. There can be no assurance that future
advances in technology will be beneficial to, or compatible with, the
Company's business or that the Company will be able to incorporate such
advances on a cost-effective and timely basis into its business. Moreover,
technological advances may have the effect of encouraging certain of the
Company's current or future customers to rely on in-house personnel and
equipment to furnish the services currently provided by the Company. In
addition, keeping pace with technological advances in the Company's industry
may require substantial expenditures and lead time.
The Company incurred $70,000, $444,000 and $1.1 million in product
development expenses during the years ended December 31, 1995 and 1996 and the
first nine months of 1997.
RELATIONSHIP WITH COMPUTER ASSOCIATES
The Company has a strategic relationship with Computer Associates
encompassing sales, marketing, operations and engineering. Under the terms of
the Company's agreement with Computer Associates, the Company is deploying the
Unicenter(R) TNG(TM) systems, network and application management software
products to manage the Company's customer service operations and to monitor
its customers' Internet solutions. The Unicenter technology is the Company's
primary enterprise management tool and is the technology on which many of the
Company's value-added services are and will be based. To facilitate the
Company's deployment of Unicenter TNG, Computer Associates has located
dedicated software engineers at the Company. By becoming one of the leading
Unicenter TNG implementations, the Company has also become a primary reference
account for Computer Associates' extensive sales force, which has also created
opportunities for the Company to market its services actively into large
enterprises.
Under the agreement with Computer Associates, to the extent that Computer
Associates offers software that includes functionality that the Company wants
to provide in its service offerings, the Company must generally utilize the
software offered by Computer Associates, as long as such software meets the
Company's requirements. Either party may terminate this agreement upon 60
days' prior written notice. Should Computer Associates or the Company decide
to terminate this agreement, the Company has the right to continue licensing
software from Computer Associates at a discount for five years. During the
term of the agreement, the Company is obligated to pay Computer Associates a
royalty based on the Company's gross revenues.
COMPETITION
The market served by the Company is highly competitive. 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 principal competitive factors in this market include Internet
system engineering expertise, customer service, network capability,
reliability, quality of service and scalability, broad geographic presence,
brand name, technical expertise and functionality, the variety of services
offered, the ability to maintain and expand distribution channels, customer
support, price, the timing of introductions of new services, network security,
financial resources and conformity with industry standards. There can be no
assurance that the Company will have the resources or expertise to compete
successfully in the future.
The Company's current and potential competitors in the market include: (i)
providers of server hosting services; (ii) national and regional ISPs; (iii)
global, regional and local telecommunications
48
<PAGE>
companies and RBOCs; and (iv) large IT outsourcing firms. The Company's
competitors may operate in one or more of these areas and include companies
such as certain subsidiaries of GTE Corporation and WorldCom, IBM and certain
business units of GlobalCenter, which recently announced its proposed
acquisition by Frontier Corporation.
Many of the Company's competitors have substantially greater financial,
technical and marketing resources, larger customer bases, longer operating
histories, greater name recognition and more established relationships in the
industry than the Company. As a result, certain of these competitors may be
able to develop and expand their network infrastructures and service offerings
more quickly, adapt to new or emerging technologies and changes in customer
requirements more quickly, take advantage of acquisition and other
opportunities more readily, devote greater resources to the marketing and sale
of their products and adopt more aggressive pricing policies than can the
Company. In addition, these competitors have entered and will likely continue
to enter into joint ventures or consortiums to provide additional services
competitive with those provided by the Company.
Certain of the Company's competitors may be able to provide customers with
additional benefits in connection with the Internet system and network
management solutions, including reduced communications costs, which could
reduce the overall costs of their services relative to the Company's. There
can be no assurance that the Company will be able to offset the effects of any
such price reductions. In addition, the Company believes that the businesses
in which the Company competes are likely to encounter consolidation in the
near future, which could result in increased price and other competition that
could have a material adverse effect on the Company's business, results of
operations and financial condition.
INTELLECTUAL PROPERTY RIGHTS
The Company relies on a combination of copyright, trademark, service mark
and trade secret laws and contractual restrictions to establish and protect
certain proprietary rights in its products and services. The Company has no
patented technology that would preclude or inhibit competitors from entering
the Company's market. The Company has entered into confidentiality and
invention assignment agreements with its employees, and nondisclosure
agreements with its suppliers, distributors and appropriate customers in order
to limit access to and disclosure of its proprietary information. There can be
no assurance that these contractual arrangements or the other steps taken by
the Company to protect its intellectual property will prove sufficient to
prevent misappropriation of the Company's technology or to deter independent
third-party development of similar technologies. The laws of certain foreign
countries may not protect the Company's products, services or intellectual
property rights to the same extent as do the laws of the United States. The
Company also relies on certain technologies that it licenses from third
parties, such as Computer Associates. See "Risk Factors--Dependence on Third-
Party Suppliers." There can be no assurance that these third-party technology
licenses will continue to be available to the Company on commercially
reasonable terms. The loss of such technology could require the Company to
obtain substitute technology of lower quality or performance standards or at
greater cost, which could materially adversely affect the Company's business,
results of operations and financial condition.
To date, the Company has not been notified that the Company's products
infringe the proprietary rights of third parties, but there can be no
assurance that third parties will not claim infringement by the Company with
respect to current or future products. The Company expects that participants
in its markets will be increasingly subject to infringement claims as the
number of products and competitors in the Company's industry segment grows.
Any such claim, whether meritorious or not, could be time consuming, result in
costly litigation, cause product installation delays or require the Company to
enter into royalty or licensing agreements. Such royalty or licensing
agreements might not be available on terms acceptable to the Company or at
all. As a result, any such claim could have a material adverse effect upon the
Company's business, results of operations and financial condition.
49
<PAGE>
GOVERNMENT REGULATION
The Company is not currently subject to direct federal, state or local
government regulation, other than regulations applicable to businesses
generally. There is currently only a small body of laws and regulations
directly applicable to access to or commerce on the Internet. However, due to
the increasing popularity and use of the Internet, it is possible that a
number of laws and regulations may be adopted at the federal, state and local
levels with respect to the Internet, covering issues such as user privacy,
freedom of expression, pricing, characteristics and quality of products and
services, taxation, advertising, intellectual property rights, information
security and the convergence of traditional telecommunications services with
Internet communications. The adoption of any such laws or regulations might
decrease the growth of the Internet, which in turn could decrease the demand
for the services of the Company or increase the cost of doing business or in
some other manner have a material adverse effect on the Company's business,
results of operations or financial condition. In addition, applicability to
the Internet of existing laws governing issues such as property ownership,
copyrights and other intellectual property issues, taxation, libel, obscenity
and personal privacy is uncertain. The vast majority of such laws were adopted
prior to the advent of the Internet and related technologies and, as a result,
do not contemplate or address the unique issues of the Internet and related
technologies. In addition, as the Company's services are available over the
Internet in multiple states and foreign countries, and as the Company
facilitates sales by its customers to end users located in such states and
foreign countries, such jurisdictions may claim that the Company is required
to qualify to do business as a foreign corporation in each such state or
foreign country. The Company is qualified to do business in only a limited
number of states, and failure by the Company to qualify as a foreign
corporation in a jurisdiction where it is required to do so could subject the
Company to taxes and penalties for the failure to qualify and could result in
the inability of the Company to enforce contracts in such jurisdictions. See
"Risk Factors--Governmental Regulation."
The law relating to the liability of online services companies and Internet
access providers for information carried on or disseminated through their
networks is currently unsettled. It is possible that claims could be made
against online services companies and Internet access providers under both
United States and foreign law for defamation, negligence, copyright or
trademark infringement, or other theories based on the nature and content of
the materials disseminated through their networks. Several private lawsuits
seeking to impose such liability upon online services companies and Internet
network providers are currently pending. Certain businesses, organizations and
individuals have in the past sent unsolicited commercial e-mails from servers
hosted at the Company's facilities to massive numbers of people, typically to
advertise products or services. This practice, known as "spamming," can lead
to complaints against service providers that enable such activities,
particularly where recipients view the materials received as offensive. In
addition, certain ISPs and other online services companies could deny network
access to companies that allow undesired content or spamming to be transmitted
through their networks. The Company has in the past received, and may in the
future receive, letters from recipients of information transmitted by the
Company's customers objecting to such transmission. Although the Company
prohibits its customers by contract from spamming, there can be no assurance
that its customers will not engage in this practice, which could have a
material adverse effect on the Company's business, results of operations and
financial condition. See "Risk Factors--Risks Associated With Information
Disseminated Through the Company's Network."
EMPLOYEES
As of December 31, 1997, the Company had 220 employees, including 86 people
in sales, distribution and marketing, 10 people in product development, 93
people in customer service and network and backbone engineering and 31 people
in finance and administration. The Company believes that its future success
will depend in part on its continued ability to attract, hire and retain
qualified personnel. The competition for such personnel is intense, and there
can be no assurance that
50
<PAGE>
the Company will be able to identify, attract and retain such personnel in the
future. None of the Company's employees is represented by a labor union, and
management believes that its employee relations are good. See "Risk Factors--
Dependence on Key Personnel" and "--Management of Growth."
FACILITIES
The Company's executive offices are located in Santa Clara, California and
consist of approximately 36,000 square feet that are leased pursuant to an
agreement that expires in 2002. The Company leases the facilities for its
current Internet Data Centers in the following metropolitan areas and specific
cities, which cover an aggregate of approximately 90,000 gross square feet and
expire in the years indicated below:
<TABLE>
<CAPTION>
LEASE
METROPOLITAN AREA CITY AND STATE EXPIRATION
----------------- -------------- ----------
<S> <C> <C>
San Francisco Santa Clara, CA 2001
Santa Clara, CA 2002
New York Jersey City, NJ 2007
Seattle Seattle, WA 2007
Los Angeles Irvine, CA 2007
Washington, D.C. Herndon, VA 2004
</TABLE>
Most of the Company's leases provide for a renewal option upon the
expiration of the initial term. The Company currently maintains sales offices
in unutilized space in its Internet Data Centers. The Company intends to
expand domestically and internationally, including the expected addition of an
additional Internet Data Center in the San Francisco metropolitan area and a
new site in the London metropolitan area in the first half of 1998. The
Company has recently entered into a lease for the space needed for the
additional site in the San Francisco metropolitan area which covers 55,000
square feet and expires in 2009. The Company believes that it will be able to
lease the additional space required for the London facility on commercially
reasonable terms.
LEGAL PROCEEDINGS
On July 30, 1997, Michael Blackman ("Blackman"), a consultant to the Company
from October 1996 through January 1997, filed a complaint against the Company
in the Superior Court for the State of California in and for the County of
Santa Clara alleging damages suffered as a result of the Company's failure to
grant Blackman stock options for the Company's Common Stock as additional
compensation for consulting work he performed for the Company pursuant to an
alleged oral contract between Blackman and another consultant to the Company.
The Company believes that the suit is without merit and intends to contest the
suit vigorously. However, litigation is subject to inherent uncertainties,
and, therefore, there can be no assurance that this lawsuit will be resolved
in the Company's favor.
51
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information regarding the executive
officers and directors of the Company as of December 31, 1997:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
K.B. Chandrasekhar...... 37 President, Chief Executive Officer and
Chairman of the Board of Directors
Richard S. Stoltz....... 53 Chief Operating Officer and Chief Financial Officer
Mark Bonham............. 38 Vice President, Marketing
B.V. Jagadeesh.......... 40 Vice President, Engineering
Sam S. Mohamad.......... 38 Vice President, Worldwide Sales
Robert V. Sanford III... 49 Vice President, Operations
Frederick W.W. 36
Bolander(1)............ Director
John R. Dougery(2)...... 57 Director
Mark Dubovoy(3)......... 51 Director
Peter A. Howley(1)...... 57 Director
Thadeus J. 35
Mocarski(1)(3)......... Director
Kanwal S. Rekhi(2)...... 51 Director
</TABLE>
- --------
(1)Member of the Compensation Committee.
(2)Member of the Audit Committee.
(3)Member of the Finance Committee.
Each director will hold office until the next Annual Meeting of Stockholders
and until his successor is elected and qualified or until his earlier
resignation or removal. Each officer serves at the discretion of the Board of
Directors (the "Board").
K.B. CHANDRASEKHAR has served as President, Chief Executive Officer and
Chairman of the Board of Directors of the Company since its inception in
February 1995. From 1992 to May 1995, he served as President and a director of
Fouress, Inc., a network software design and development firm and the
Company's predecessor, which he co-founded. Mr. Chandrasekhar holds a B.S.
degree in physics from Madras University and a B.Tech. degree in electronics
and communications from the Madras Institute of Technology.
RICHARD S. STOLTZ has served as Chief Operating Officer and Chief Financial
Officer of the Company since October 1995 and was a director of the Company
from January 1996 to October 1996. From February 1994 to September 1995, he
was an independent consultant specializing in financial and management
information system issues. From 1992 to January 1994, Mr. Stoltz served as
Vice President of Finance, Treasurer and Chief Financial Officer of Radius
Inc., a computer hardware company. Mr. Stoltz holds a B.S.B.A. degree in
marketing and an M.B.A. from The American University.
MARK BONHAM has served as Vice President, Marketing of the Company since
January 1997. From June 1995 to January 1997, he served as Group Marketing
Manager of Sun Microsystems, Inc. From March 1994 to June 1995, Mr. Bonham
served as Service Marketing Manager of 3Com, and from 1987 to March 1994, he
served in various positions at Hewlett-Packard Company, most recently as
Marketing Program Manager. Mr. Bonham holds a B.A. degree in political science
from Haverford
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<PAGE>
College and an M.M. degree from the Kellogg Graduate School of Management,
Northwestern University.
B.V. JAGADEESH has served as Vice President, Engineering of the Company
since its inception in February 1995 and was a director of the Company from
February 1995 to February 1996. From February 1994 to May 1995, he served as
Vice President, Engineering and a director of Fouress, Inc., the Company's
predecessor, which he co-founded, and, from January 1992 to January 1994, he
served as a Senior Software Engineer for Novell, Inc. Mr. Jagadeesh holds a
B.S. degree in electrical engineering from Bangalore University and an M.S.
degree in computer science engineering from Bombay University.
SAM S. MOHAMAD has served as Vice President, Worldwide Sales of the Company
since February 1997. From March 1996 to January 1997, he served as Vice
President of Sales and Marketing of Genuity, Inc., a provider of data center
products and services. From 1987 to February 1996, Mr. Mohamad held various
positions at Oracle Corporation, most recently as Vice President of Direct
Sales and Marketing.
ROBERT V. SANFORD III has served as Vice President, Operations of the
Company since April 1997. From February 1994 to April 1997, he was an
independent consultant specializing in management information system issues,
and from October 1992 to February 1994, he served as Director of IS at Radius,
Inc. Mr. Sanford holds a B.A. degree in business administration from
California State University, San Bernardino.
FREDERICK W. W. BOLANDER has served as a director of the Company since
October 1996. He has been associated with Apex Investment Partners, a venture
capital firm, in various capacities since October 1994 and has been a general
partner of the firm since April 1996. From May 1993 to September 1993, Mr.
Bolander was a consultant to the African Communications Group, a venture
capital and project management firm, and from September 1985 to
September 1992, Mr. Bolander held the position of manager for AT&T
Corporation. Mr. Bolander is also a director of Concord Communications, Inc.
Mr. Bolander holds B.S. and M.S. degrees in electrical engineering from the
University of Michigan and an M.B.A. from Harvard University.
JOHN R. DOUGERY has served as a director of the Company since February 1996.
He has been a general partner of Dougery & Wilder, a venture capital firm
since its formation in 1981. Mr. Dougery is also a director of Printronix,
Inc. Mr. Dougery holds an A.B. degree in mathematics from the University of
California, Berkeley and an M.B.A. from Stanford University.
MARK DUBOVOY has served as a director of the Company since October 1996. He
was a founder and has served as a general partner of Information Technology
Ventures since September 1994. Prior to that time, he was a general partner of
Grace/Horn Ventures from 1991 to August 1994. Mr. Dubovoy holds a B.S. degree
in physics from the National University of Mexico and an M.A. degree and Ph.D.
in physics from the University of California, Berkeley.
PETER A. HOWLEY has served as a director of the Company since September
1996. Mr. Howley has been a private consultant since May 1994. From 1985 until
April 1994, he served as Chairman of the Board, Chief Executive Officer and
President of Centex Telemanagement, Inc., a telecommunications management
company, which was acquired. Mr. Howley is also a director of FaxSAV, Inc. and
WorldPort Communications, Inc. Mr. Howley holds a B.I.E. degree and an M.B.A.
from New York University.
THADEUS J. MOCARSKI has served as a director of the Company since June 1997.
Mr. Mocarski has been an officer of various entities affiliated with Fleet
Equity Partners since January 1994. Prior to joining Fleet Equity Partners,
Mr. Mocarski was an attorney with the law firm of Edwards & Angell from
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<PAGE>
1989 to January 1994. Mr. Mocarski is also a director of Dobson Communications
Corporation. Mr. Mocarski holds a B.A. in economics and government from Colby
College and a J.D. degree from the Washington College of Law.
KANWAL S. REKHI has served as a director of the Company since December 1995.
He has been retired since January 1995. He served as Executive Vice President
and a director at Novell Inc. from 1989 to December 1994. Mr. Rekhi is also a
director of Cybermedia Inc., a consumer software company. Mr. Rekhi holds a
B.Tech. degree in electrical engineering from the Indian Institute of
Technology, Bombay and an M.S. degree in electrical engineering from Michigan
Technology Institute.
BOARD COMMITTEES
The Audit Committee of the Board consists of Mr. Dougery and Mr. Rekhi. The
Audit Committee reviews the Company's financial statements and accounting
practices, makes recommendations to the Board regarding the selection of
independent auditors and reviews the results and scope of the audit and other
services provided by the Company's independent auditors. The Compensation
Committee of the Board consists of Mr. Bolander, Mr. Howley and Mr. Mocarski.
The Compensation Committee makes recommendations to the Board concerning
salaries and incentive compensation for the Company's officers and employees
and administers the Company's employee benefit plans. The Finance Committee of
the Board consists of Mr. Dubovoy and Mr. Mocarski. The Finance Committee
reviews, evaluates and makes recommendations regarding future financing
requirements of the Company.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
None of the members of the Compensation Committee of the Board was at any
time since the formation of the Company an officer or employee of the Company.
No executive officer of the Company serves as a member of the board of
directors or compensation committee of any entity that has one or more
executive officers serving on the Company's Board or Compensation Committee.
DIRECTOR COMPENSATION
Directors of the Company do not receive cash compensation for their services
as directors but are reimbursed for their reasonable expenses in attending
meetings of the Board. In December 1995 and October 1996, Mr. Rekhi and Mr.
Howley were granted warrants to acquire 16,666 shares of Common Stock and
19,841 shares of Series B1 Preferred Stock (convertible into shares of Common
Stock at the closing of this offering), respectively, at an exercise price of
$2.40 and $2.52 per share, respectively, in connection with their service on
the Board. In addition, in October 1996, Mr. Howley was granted an option to
purchase 25,000 shares of Common Stock at an exercise price of $0.30 per
share, in connection with his service on the Board. In November 1997, Mr.
Rekhi exercised the Common Stock warrant in full. In October 1997, Mr. Howley
exercised the warrant for Series B1 Preferred Stock in full and exercised the
option for 13,000 shares of Common Stock.
In January 1998, the Board adopted, subject to stockholder approval, the
1998 Directors Stock Option Plan (the "Directors Plan") and reserved a total
of 200,000 shares of the Company's Common Stock for issuance thereunder.
Members of the Board who are not employees of the Company, or any parent or
subsidiary of the Company, are eligible to participate in the Directors Plan.
Each eligible director who first becomes a member of the Board on or after the
public offering ("Effective Date") will initially be granted an option for
20,000 shares (an "Initial Grant") on the later of the Effective Date or the
date such director first becomes a director. At each annual meeting of
stockholders thereafter, each eligible director will automatically be granted
an additional option to purchase 5,000 shares (an "Annual Grant") if such
director has served continuously as a member of the Board since the date of
such director's Initial Grant (or since the Effective Date if such director
did not receive an Initial Grant). Initial Grants will vest as to 33 1/3% of
the total shares on each annual anniversary of the date of grant,
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<PAGE>
provided the optionee continues as a member of the Board or as a consultant to
the Company. Annual Grants will vest as to 25% of the total shares on each
annual anniversary of the date of grant, provided the optionee continues as a
member of the Board or as a consultant to the Company. Options will cease
vesting once the individual ceases to provide services as a director or
consultant. Following the individual's cessation of services to the Company,
he or she will have seven months in which to exercise their options granted
under the Directors Plan, twelve months if the cessation of services resulted
from the individual's death or disability. The exercise price of all options
granted under the Directors Plan will be the fair market value of the Common
Stock on the date of grant.
EXECUTIVE COMPENSATION
The following table sets forth all compensation awarded to, earned by or
paid for services rendered to the Company in all capacities during the year
ended December 31, 1997 by (i) the Company's chief executive officer and (ii)
the four other most highly compensated executive officers other than the chief
executive officer who were serving as executive officers as of December 31,
1997 (collectively, the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
------------------------------------- ---------------------
OTHER ANNUAL SECURITIES
NAME AND PRINCIPAL POSITIONS SALARY($) BONUS($) COMPENSATION($) UNDERLYING OPTIONS(#)
- ---------------------------- --------- -------- --------------- ---------------------
<S> <C> <C> <C> <C>
K.B. Chandrasekhar ..... $160,000 $75,000 $5,373(1) 250,002
President and Chief
Executive Officer
Sam S. Mohamad.......... 273,626(2) 70,000 -- 166,668
Vice President,
Worldwide Sales
Richard S. Stoltz....... 147,500 40,000 -- 58,334
Chief Operating Officer
and Chief Financial
Officer
B.V. Jagadeesh.......... 135,000 40,000 -- 58,334
Vice President,
Engineering
Robert V. Sanford III... 101,250 35,000 -- 91,667
Vice President,
Operations
</TABLE>
- --------
(1) Represents a car allowance.
(2) Includes sales commissions of $130,542.
55
<PAGE>
The following table sets forth further information regarding option grants
to each of the Named Executive Officers during 1997. In accordance with the
rules of the Securities and Exchange Commission, the table sets forth the
hypothetical gains or "option spreads" that would exist for the options at the
end of their respective terms. These gains are based on assumed rates of
annual compound stock price appreciation of 5% and 10% from the date the
option was granted to the end of the option term.
OPTION GRANTS IN 1997
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES
NUMBER OF PERCENTAGE OF OF STOCK PRICE
SECURITIES TOTAL OPTIONS APPRECIATION FOR
UNDERLYING GRANTED TO OPTION TERM (2)
OPTIONS EMPLOYEES EXERCISE PRICE EXPIRATION ---------------------
NAME GRANTED(#)(1) IN 1997 PER SHARE($) DATE 5% 10%
---- ------------- ------------- -------------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
K.B. Chandrasekhar...... 41,667 2.6% $0.30 6/26/07 $ 7,861 $19,922
83,334 5.2 0.75 10/15/07 39,306 99,610
83,334 5.2 0.75 10/15/07 39,306 99,610
41,667 2.6 0.75 10/15/07 19,653 49,805
Sam S. Mohamad.......... 66,667 4.1 0.30 2/17/07 12,578 31,875
8,334 0.5 0.30 6/26/07 1,572 3,985
25,000 1.6 0.75 10/15/07 11,792 29,883
66,667 4.1 0.75 10/15/07 31,445 79,688
Richard S. Stoltz....... 14,584 0.9 0.30 6/26/07 2,751 6,973
43,750 2.7 0.75 10/15/07 20,636 52,295
B.V. Jagadeesh.......... 14,584 0.9 0.30 6/26/07 2,752 6,973
43,750 2.7 0.75 10/15/07 20,636 52,295
Robert V. Sanford III... 75,000 4.7 0.30 2/17/07 14,150 35,859
4,167 0.3 0.30 6/26/07 786 1,992
12,500 0.8 0.75 10/15/07 5,896 14,941
</TABLE>
- --------
(1) These options generally are incentive stock options that were granted at
fair market value and vest over a 50-month period so long as the
individual is employed by the Company. With regard to Mr. Chandrasekhar,
both options for 83,334 shares vest in full on the fifth anniversary of
the date of grant, one of which will accelerate to start vesting at 2% per
month upon the closing of this offering and the other of which will
accelerate to start vesting at 2% per month upon the hiring of certain
additional executive management personnel. These options generally expire
ten years from the date of grant.
(2) The 5% and 10% assumed annual rates of stock price appreciation are
mandated by the rules of the Securities and Exchange Commission and do not
represent the Company's estimate or projection of future Common Stock
prices.
56
<PAGE>
The following table sets forth the number of shares acquired upon the
exercise of stock options during 1997 and the number of shares covered by both
exercisable and unexercisable stock options held by each of the Named
Executive Officers at December 31, 1997. Also reported are values of
unexercised "in-the-money" options, which represent the positive spread
between the respective exercise prices of outstanding stock options and the
fair market value of the Company's Common Stock as of December 31, 1997
($5.25) as determined by the Board.
AGGREGATED OPTION EXERCISES IN 1997 AND YEAR-END VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
SHARES UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
ACQUIRED OPTIONS AT YEAR-END AT YEAR-END
ON VALUE ------------------------- -------------------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
K.B. Chandrasekhar...... -- -- 18,334 231,668 $86,629 $1,056,771
Sam S. Mohamad.......... -- -- 18,668 148,000 90,308 686,450
Richard S. Stoltz....... 10,500 $1,181 2,334 45,500 10,766 209,868
B.V. Jagadeesh.......... -- -- 12,834 45,500 59,196 209,868
Robert V. Sanford III... -- -- 13,333 78,334 65,548 382,579
</TABLE>
EXECUTIVE EMPLOYMENT POLICY. In December 1997, the Board adopted a form of
Executive Employment Policy (the "Policy") to be entered into between the
Company and each of its executive officers and certain other officers of the
Company (together, the "Executives"). Pursuant to the Policy, in the event of
a "Termination" (as defined in the Policy) resulting from a "Change of
Control" (as defined in the Policy) of the Company, each Executive's base
salary and medical benefits would continue as follows: Chief Executive
Officer--18 months; Chief Operating Officer and Chief Financial Officer--12
months; Vice President, Worldwide Sales--12 months; certain other Vice
Presidents--six months; and other Executives--three months. In addition, in
the event of a Change in Control, each Executive's options would become
exercisable with respect to 50% of such Executive's remaining unvested shares
subject to such options. In the event of an Involuntary Termination (as
defined in the Policy), base salary and medical benefits would generally
continue for shorter time periods than those set forth above and the
Executive's options would continue to vest during such period. An Executive
that Voluntarily Terminates (as defined in the Policy) or is terminated for
"Cause" (as defined in the Policy) would generally not receive any
compensation, additional stock option vesting or other benefits after the date
of termination. Pursuant to the Policy, during the term of any payments made
to an Executive after termination, such Executive would not be permitted to
manage, operate, control, participate in the management, operation or control
of or be employed by any other person or entity that is engaged in providing
services that are directly competitive with the services offered by the
Company.
EMPLOYEE BENEFIT PLANS
1997 EQUITY INCENTIVE PLAN. In January 1997, the Board adopted the 1997
Plan. In October 1997, the Board increased the number of Shares of Common
Stock for issuance under the 1997 Plan to a total of 2,200,000. The
Stockholders approved the 1997 Plan and the share increase in October 1997.
The 1997 Plan became effective in January 1997 and serves as the successor to
the 1995 Stock Option Plan (the "1995 Plan"). Options granted under the 1995
Plan before its termination continue to remain outstanding in accordance with
their terms, but no further options may be granted under the 1995 Plan. Shares
that (i) are issuable upon exercise of an option granted pursuant to the 1997
Plan but cease to be subject to such option for any reason other than exercise
of such option, (ii) are subject to an award granted under the 1997 Plan but
are forfeited or are repurchased by the Company at the original issue price or
(iii) are subject to an award granted pursuant to the 1997 Plan that otherwise
terminates without shares being issued, will again be available for grant and
issuance
57
<PAGE>
in connection with future awards under the 1997 Plan. On the effective date of
the initial public offering, the 1997 Plan will terminate. Options granted
under the 1997 Plan before its termination continue to remain outstanding in
accordance with their options.
The 1997 Plan provides for the grant of stock options and the issuance of
restricted stock by the Company to its employees, officers, directors,
consultants, independent contractors and advisers. The 1997 Plan permits the
grant of options that are either incentive stock options (as defined in
Section 422 of the Code) or nonqualified stock options, on terms (including
the exercise price, which may not be less than 85% of the fair market value of
the Company's Common Stock, and the vesting schedule) determined by the Board,
subject to certain statutory and other limitations in the 1997 Plan. In
addition to, or in tandem with, other awards under the 1997 Plan, the Board
may grant participants restricted stock awards to purchase the Company's
Common Stock for not less than 85% of its fair market value at the time of
grant. The other terms of such restricted stock awards may be determined by
the Board. Such stock bonuses may be awarded for the satisfaction of
performance goals established in advance. The 1997 Plan will terminate ten
years from the Effective Date, unless terminated earlier in accordance with
the provisions of the 1997 Plan.
1998 EQUITY INCENTIVE PLAN. In January 1998, the Board adopted, subject to
stockholder approval, the 1998 Equity Incentive Plan (the "1998 Plan") to
provide for the grant of stock options, restricted stock and stock bonuses to
employees, officers, directors, consultants, independent contractors and
advisors of the Company or any parent or subsidiary of the Company. On the
effective date of this offering, the 1998 Plan will become effective as the
successor to the 1997 Plan. Although the 1997 Plan will terminate on the
effective date of this offering, options granted thereunder prior to the
effective date of this offering will remain outstanding according to their
terms. The total number of shares reserved and available for grant and
issuance pursuant to the 1998 Plan is 1,500,000 plus shares that pour over
from the 1997 Plan. The shares that pour over from the 1997 Plan are shares
that (a) remain available for grant under the 1997 Plan on the effective date
of the 1998 Plan, (b) are subject to issuance upon exercise of an option
granted under the 1997 Plan that cease to be subject to such option for any
reason other than exercise of such option and (c) are issued under awards
granted under the 1997 Plan, but are repurchased by the Company at the price
at which the shares were originally issued. Shares that are subject to (x)
issuance upon exercise of an option granted under the 1998 Plan that cease to
be subject to such option for any reason other than exercise, (y) awards
granted under the 1998 Plan that are forfeited or are repurchased by the
Company at the original issue price and (z) awards that otherwise terminate
without shares being issued will again be available for grant and issuance in
connection with future awards under the 1998 Plan.
The 1998 Plan will terminate in January 2008, unless earlier terminated by
the Board. No person will be eligible to receive more than 750,000 shares in
any calendar year pursuant to equity awards under the 1998 Plan, other than a
new employee of the Company who will be eligible to receive no more than
1,250,000 shares in the calendar year in which such employee commences
employment. The 1998 Plan will be administered by the Compensation Committee
of the Board. The Compensation Committee has the authority to construe and
interpret the 1998 Plan and any agreement made thereunder, grant equity awards
and make all other determinations necessary or advisable for the
administration of the 1998 Plan. The 1998 Plan permits the grant of incentive
stock options ("ISOs") that qualify under Section 422 of the Internal Revenue
Code of 1986, as amended (the "Code"), and nonqualified stock options
("NQSOs"). ISOs may be granted only to employees of the Company or of any
parent or subsidiary of the Company. NQSOs, stock bonuses and restricted stock
may be granted to all individuals eligible to receive grants under the 1998
Plan. The exercise price of ISOs must be at least equal to the fair market
value of the Company's Common Stock on the date of grant. The exercise price
of NQSOs must be at least equal to 85% of the fair market value of the
Company's Common Stock on the date of grant. The purchase price of restricted
stock will be determined by the
58
<PAGE>
Compensation Committee. The maximum term of an option is ten years. Options
typically vest over a four-year period. Vesting will stop if the optionee
ceases to provide services to the Company or any parent or subsidiary of the
Company, but options will generally remain exercisable for a period of three
months following the termination of services. If the optionee's termination is
for cause, his or her options will generally terminate immediately. If the
optionee's termination is due to death or disability, the optionee or his or
her estate will generally have twelve months in which to exercise. In the
event of certain changes in control transactions, outstanding equity awards
may be assumed or substituted by the successor corporation, if the successor
corporation does not assume or substitute the awards, the awards will
terminate prior to the effectiveness of the transaction.
1998 EMPLOYEE STOCK PURCHASE PLAN. In January 1998, the Board adopted,
subject to stockholder approval, the 1998 Employee Stock Purchase Plan (the
"1998 Purchase Plan") and reserved a total of 600,000 shares of the Company's
Common Stock for issuance thereunder. The Purchase Plan will become effective
on the first business day on which price quotations for the Company's Common
Stock are available on the Nasdaq National Market. The Purchase Plan permits
eligible employees to acquire shares of the Company's Common Stock through
payroll deductions. The Purchase Plan is intended to qualify as an "employee
stock purchase plan" under Section 423 of the Code. Except for the initial
offering, each offering under the Purchase Plan will be for a period of 24
months (the "Offering Period") commencing on May 1 and November 1 of each year
and ending on October 31 and April 30 of each year. The first Offering Period
will begin on the date on which price quotations for the Company's Common
Stock are first available on the Nasdaq National Market and will end on April
30, 2000, unless otherwise determined by the Board. Except for the first
Offering Period, each Offering Period will consist of four purchase periods,
each six months in length ("Purchase Period"). The Board has the power to
change the duration of Offering Periods or Purchase Periods without
stockholder approval, provided that the change is announced at least 15 days
prior to the scheduled beginning of the first Offering Period or Purchase
Period to be affected. Eligible employees may select a rate of payroll
deduction between 2% and 10% of their base compensation, subject to certain
limits set forth in the Purchase Plan. The purchase price for the Company's
Common Stock purchased under the Purchase Plan is 85% of the lesser of the
fair market value of the Company's Common Stock on the first day of the
applicable Offering Period or on the last day of the respective Purchase
Period.
401(K) PLAN. The Company sponsors the Exodus Communications, Inc. 401(k)
Plan (the "401(k) Plan"). Employees who complete three months of service with
the Company are eligible to participate ("Participants"). Participants may
contribute up to 20% of their current compensation, up to a statutorily
prescribed annual limit, to the 401(k) Plan. Each Participant is fully vested
in his or her salary reduction contributions. Participant contributions are
held in trust as required by law. Individual Participants may direct the
trustee to invest their accounts in authorized investment alternatives. The
Company may make discretionary matching contributions to the 401(k) Plan in an
amount equal to a percentage the Company from time to time may deem advisable
of the Participant's salary reduction contributions. Salary reduction
contributions in excess of 6% of the Participant's compensation are
disregarded for purposes of the match. The Company may also make fully vested
qualified non-elective contributions on behalf of employees who are not
"highly compensated." In addition, the Company may make discretionary
contributions, although it has not done so to date. Discretionary and matching
contributions are subject to a vesting schedule. The 401(k) Plan is intended
to qualify under Section 401(a) of the Internal Revenue Code so that
contributions to the 401(k) Plan, and income earned on such contributions, are
not taxable to Participants until withdrawn or distributed from the 401(k)
Plan.
59
<PAGE>
CERTAIN TRANSACTIONS
Since January 1, 1995, there has not been, nor is there currently proposed,
any transaction or series of similar transactions to which the Company was or
is to be a party in which the amount involved exceeds $60,000 and in which any
director, executive officer or holder of more than 5% of the Common Stock of
the Company had or will have a direct or indirect interest other than (i)
compensation arrangements, which are described where required under
"Management" and (ii) the transactions described below.
For clarity of presentation, share numbers and per share prices for the
transactions described below assume a one-for-three reverse stock split for
the Common and Preferred Stock as each share of Preferred Stock, although not
actually split, will convert into Common Stock on a one-for-three basis upon
the closing of this offering.
Fouress, Inc., a Maryland corporation and the predecessor of the Company
("Fouress"), was incorporated in 1992. In February 1995, the Company was
incorporated in California as a wholly-owned subsidiary of Fouress, and
Fouress purchased 33 shares of the Company Common Stock for $100 in connection
therewith. In May 1995, Fouress merged with and into the Company in order to
reincorporate into California and canceled its 33 shares of Common Stock. In
connection with the reincorporation, K.B. Chandrasekhar, the current President
and Chief Executive Officer of the Company, and B.V. Jagadeesh, the current
Vice President, Engineering of the Company, the sole shareholders of Fouress,
exchanged their shares of Fouress common stock (which had been purchased for
an aggregate of $4,000) for 650,000 and 350,000 shares, respectively, of the
Company's Common Stock. In June 1995, Mr. Chandrasekhar and Mr. Jagadeesh
purchased 216,666 and 116,666 shares, respectively, of the Company's Common
Stock for a purchase price of $52,000 and $28,000, respectively, pursuant to
promissory notes, which remain outstanding.
In October 1995, Richard S. Stoltz, the current Chief Operating Officer and
Chief Financial Officer of the Company, and his wife purchased 250,000 shares
of the Company's Common Stock for a purchase price of $60,000 pursuant to two
promissory notes, of which $56,000 remains outstanding. Also in October 1995,
Fred R. Sibayan, Jr., a former Vice President, Sales of the Company, purchased
150,000 shares of the Company's Common Stock for a purchase price of $36,000
pursuant to a promissory note. 43,334 of such shares were repurchased by the
Company in connection with Mr. Sibayan's resignation in January 1997 and
$3,600 remains outstanding under the note.
In December 1995, Kanwal S. Rekhi, a director of the Company, loaned the
Company $200,000 in exchange for a promissory note. In February 1996, as part
of the financing described in the next paragraph, Mr. Rekhi converted the
promissory note into 161,459 shares of Series A Preferred Stock.
In February and March 1996, the Company sold shares of Series A Preferred
Stock convertible into 2,599,481 shares of Common Stock to a group of entities
and individuals for an aggregate purchase price of $3,219,994, which amount
was paid in cash and the conversion of debt. These transactions included sales
to (i) Productivity Fund II, L.P. and Productivity Fund III, L.P. (the
"Productivity Funds"), partnerships associated with First Analysis Corporation
("First Analysis"), a greater than 5% stockholder of the Company, of shares
convertible into 565,107 shares of Common Stock, (ii) J.F. Shea & Co., Inc., a
greater than 5% stockholder of the Company, of shares convertible into 484,378
shares of Common Stock, (iii) John R. Dougery, a director of the Company, and
his wife and trusts for which Mr. Dougery or his wife is a trustee (the
"Dougery Trusts"), of shares convertible into 201,823 shares of Common Stock,
and (iv) the Rekhi Family Trust dated 12/15/89 (the "Rekhi Family Trust"), for
which Kanwal S. Rekhi is a trustee, of shares convertible into 161,459 shares
of Common Stock.
In March 1996, the Rekhi Family Trust and two other trusts, for which Kanwal
S. Rekhi is a trustee, purchased an aggregate of 94,333 shares of the
Company's Common Stock for an aggregate purchase price of $22,640.
60
<PAGE>
In April 1996, John R. Dougery purchased 40,000 shares of the Company's
Common Stock for a purchase price of $9,600.
In October 1996, the Company sold shares of Series B Preferred Stock
convertible into 2,579,355 shares of Common Stock to a group of entities and
individuals for an aggregate purchase price of $6,500,000, which amount was
paid in cash. This included sales to (i) Apex Investment Fund III, L.P., which
is affiliated with both Frederick W.W. Bolander, a director of the Company,
and First Analysis, of shares convertible into 694,444 shares of Common Stock,
(ii) Information Technology Ventures, L.P. and ITV Affiliates Fund, L.P. (the
"ITV Partnerships"), which are both associated with Mark Dubovoy, a director
of the Company, and which comprise a greater than 5% stockholder group of the
Company, of shares convertible into 694,444 shares of Common Stock, (iii) the
Productivity Funds, of shares convertible into 277,777 shares of Common Stock,
(iv) J.F. Shea & Co., Inc., of shares convertible into 158,730 shares of
Common Stock, (v) John R. Dougery and his wife and the Dougery Trusts of
shares convertible into 39,680 shares of Common Stock and (vi) Peter A.
Howley, a director of the Company, of shares convertible into 39,682 shares of
Common Stock.
In March 1997, the Company obtained bridge loans of $2,473,866 pursuant to
convertible promissory notes due in September 1997 (the "First Bridge Notes")
from a group of entities and individuals, including (i) $517,895 from Apex
Investment Fund III, L.P. and Apex Strategic Partners, L.L.C. (the "Apex
Funds"), which are both associated with Frederick W.W. Bolander and First
Analysis, (ii) $496,000 from J.F. Shea & Co., Inc., as Nominee 1996-II, (iii)
$324,000 from the Productivity Funds, (iv) $268,000 from the ITV Partnerships,
(v) $96,000 from John R. Dougery and his wife and the Dougery Trusts, (vi)
$62,001 from the Rekhi Family Trust and (vii) $49,986 from Peter A. Howley.
The First Bridge Notes were unsecured and provided for automatic conversion
into Preferred Stock upon the closing of the next Preferred Stock financing to
occur prior to the September 1997 maturity date. In connection with obtaining
these bridge loans, the Company also sold to the holders of the First Bridge
Notes, for an aggregate purchase price of $1,039, five-year warrants, which
must be exercised before the closing of this offering, to purchase shares of
Series B Preferred Stock convertible into 41,240 shares of Common Stock at an
exercise price of $2.52 per share, including warrants for shares convertible
into 8,632, 8,267, 5,401, 4,466, 1,603, 1,034, and 833 shares of Common Stock
to the Apex Funds, J.F. Shea & Co., Inc., as Nominee 1996-II, the Productivity
Funds, the ITV Partnerships, John R. Dougery and his wife and the Dougery
Trusts, the Rekhi Family Trust and Peter A. Howley, respectively.
In June 1997, the Company obtained bridge loans of $1,500,000 pursuant to
convertible promissory notes due in September 1997 (the "Second Bridge Notes")
from a group of entities and individuals, including (i) $252,450 from the Apex
Investment Fund III, L.P., (ii) $243,000 from the Productivity Funds, (iii)
$207,463 from J.F. Shea & Co., Inc., as Nominee 1996-II, (iv) $201,000 from
the ITV Partnerships, (v) $163,690 from the Rekhi Family Trust, (vi) $96,000
from John R. Dougery and his wife and the Dougery Trusts, and (vii) $12,000
from Peter A. Howley. The Second Bridge Notes were unsecured and provided for
automatic conversion into Preferred Stock upon the closing of the next
Preferred Stock financing to occur prior to the September 1997 maturity date.
In connection with obtaining this bridge loan, the Company also sold to the
holders of the Second Bridge Notes, for an aggregate purchase price of $630,
five-year warrants, which must be exercised before the closing of this
offering, to purchase shares of Series B Preferred Stock convertible into
25,008 shares of Common Stock at an exercise price of $2.52 per share,
including warrants for shares convertible into 4,208, 4,050, 3,458, 3,348,
2,727, 1,603, and 200 shares of Common Stock, to Apex Investment Fund III,
L.P., the Productivity Funds, J.F. Shea & Co., Inc., as Nominee 1996-II, the
ITV Partnerships, the Rekhi Family Trust, John R. Dougery and his wife and the
Dougery Trusts and Peter A. Howley, respectively.
In June 1997, the Company sold shares of Series C Preferred Stock
convertible into 5,263,270 shares of Common Stock and five-year warrants to
purchase shares of Series C Preferred Stock at an exercise price of $4.0869
per share, and convertible into 526,349 shares of Common Stock, at an
aggregate purchase price of $21,510,574 (including $37 for the warrants),
including $4,010,970 in
61
<PAGE>
principal and interest owed to the holders of the First Bridge Notes and the
Second Bridge Notes. This included issuances to (i) Fleet Resources, Inc.,
Fleet Equity Partners VI, L.P., Chisholm Partners III, L.P. and Kennedy Plaza
Partners, all of which are funds (the "Fleet Funds") associated with Thadeus
J. Mocarski, a director of the Company, and which together comprise a greater
than 5% stockholder group of the Company, of shares convertible into 1,835,120
shares of Common Stock and warrants to purchase shares convertible into
183,515 shares of Common Stock, (ii) Oak Investment Partners VII and Oak VII
Affiliate Fund (the "Oak Partnerships"), a greater than 5% stockholder group
of the Company, of shares convertible into 1,468,100 shares of Common Stock
and warrants to purchase shares convertible into 146,811 shares of Common
Stock, (iii) JK&B Capital L.P. and JK&B Capital II, L.P. (the "JK&B
Partnerships"), a greater than 5% stockholder group of the Company, of shares
convertible into 611,705 shares and warrants to purchase shares convertible
into 61,172 shares of Common Stock, (iv) the Apex Funds of shares convertible
into 190,334 shares of Common Stock and warrants to purchase shares
convertible into 19,035 shares of Common Stock, (v) J.F. Shea & Co., Inc., as
Nominee 1996-II, of shares convertible into 173,884 shares of Common Stock and
warrants to purchase shares convertible into 17,389 shares of Common Stock,
(vi) the Productivity Funds of shares convertible into 139,945 shares of
Common Stock and warrants to purchase shares convertible into 13,995 shares of
Common Stock, (vii) the ITV Partnerships of shares convertible into 115,756
shares of Common Stock and warrants to purchase shares convertible into 11,574
shares of Common Stock, (viii) the Rekhi Family Trust of shares convertible
into 55,521 shares of Common Stock and warrants to purchase shares convertible
into 5,552 shares of Common Stock, (ix) John R. Dougery and his wife and the
Dougery Trusts of shares convertible into 47,367 shares of Common Stock and
warrants to purchase shares convertible into 4,739 shares of Common Stock and
(x) Peter A. Howley of shares convertible into 15,337 shares of Common Stock
and warrants to purchase shares convertible into 1,534 shares of Common Stock.
In October 1997, Peter A. Howley exercised warrants for an aggregate of
2,567 shares of Preferred Stock convertible into Common Stock at an aggregate
purchase price of $8,872.
In November 1997, the Rekhi Family Trust exercised warrants for an aggregate
of 25,979 shares of Common Stock and Preferred Stock convertible into Common
Stock at an aggregate purchase price of $72,171.
In December 1997, the Company sold shares of Series D Preferred Stock
convertible into 877,180 shares of Common Stock at an aggregate purchase price
of $7,500,000 which amount was paid in cash. This included sales to (i) the
Fleet Funds of shares convertible into 175,437 shares of Common Stock, (ii)
the Oak Partnerships of shares convertible into 114,764 shares of Common
Stock, (iii) the Apex Funds of shares convertible into 85,272 shares of Common
Stock, (iv) J.F. Shea & Co., Inc. of shares convertible into 78,710 shares of
Common Stock, (v) the Productivity Funds of shares convertible into 71,512
shares of Common Stock, (vi) the ITV Partnerships of shares convertible into
58,955 shares of Common Stock, (vii) the JK&B Partnerships of shares
convertible into 47,818 shares of Common Stock, (viii) the Rekhi Family Trust
and two other trusts, for which Mr. Rekhi is a trustee, of shares convertible
into 36,221 shares of Common Stock, (ix) Dougery Ventures LLC, of which John
R. Dougery is President, and one of the Dougery Trusts of shares convertible
into 31,331 shares of Common Stock and (x) Peter A. Howley of shares
convertible into 7,203 shares of Common Stock.
In December 1997, the ITV Partnerships exercised warrants for an aggregate
of 19,388 shares of Preferred Stock convertible into Common Stock at an
aggregate purchase price of $67,009.
In January 1998, the Company plans to reincorporate into Delaware. In
connection with the reincorporation, the Company plans to issue shares of
Common Stock, Series A Preferred Stock, Series B Preferred Stock, Series B1
Preferred Stock, Series C Preferred Stock and Series D Preferred Stock and
options and warrants in exchange for like numbers of shares, options and
warrants respectively, in the predecessor California entity. Each of the
individuals and entities listed above will receive the number of shares of
such class or series identified in the preceding paragraphs.
62
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information known to the Company with
respect to beneficial ownership of the Company's Common Stock as of December
31, 1997 by (i) each stockholder known by the Company to be the beneficial
owner of more than 5% of the Company's Common Stock, (ii) each director of the
Company, (iii) each of the Named Executive Officers and (iv) all current
executive officers and directors as a group.
<TABLE>
<CAPTION>
PERCENTAGE OF SHARES
BENEFICIALLY OWNED
NUMBER OF SHARES ---------------------------------
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED(1) BEFORE OFFERING AFTER OFFERING(2)
- ------------------------ --------------------- --------------- -----------------
<S> <C> <C> <C>
Thadeus J. Mocarski
Fleet Funds(3) ........ 2,194,072 16.1%
First Analysis Corpora-
tion(4)................ 2,079,712 15.4
Oak Partnerships(5)..... 1,729,675 12.7
Frederick W.W. Bolander
Apex Funds(6) ......... 1,001,925 7.4
J.F. Shea & Co.,
Inc.(7)................ 924,816 6.9
Mark Dubovoy
ITV Partnerships(8) ... 888,543 6.6
K.B. Chandrasekhar(9)... 848,331 6.3
JK&B Partnerships(10)... 720,695 5.3
B.V. Jagadeesh(11)...... 482,999 3.6
John R. Dougery(12)..... 368,142 2.7
Kanwal S. Rekhi(13)..... 357,765 2.7
Richard S. Stoltz(14)... 249,667 1.9
Peter A. Howley(15)..... 117,503 *
Sam S. Mohamad(16)...... 26,002 *
Robert V. Sanford
III(17)................ 25,666 *
All current executive
officers and directors
as a group (12 per-
sons)(18).............. 6,582,449 47.8
</TABLE>
- --------
*Represents less than 1% of the Company's outstanding Common Stock.
(1) Unless otherwise indicated below, the persons and entities named in the
table have sole voting and sole investment power with respect to all
shares beneficially owned, subject to community property laws where
applicable. Shares of Common Stock subject to options or warrants that are
currently exercisable or exercisable within 60 days of December 31, 1997
are deemed to be outstanding and to be beneficially owned by the person
holding such options or warrants for the purpose of computing the
percentage ownership of such person but are not treated as outstanding for
the purpose of computing the percentage ownership of any other person.
(2) Assumes that the Underwriters' over-allotment option to purchase up to
shares is not exercised. If the Underwriters' over-allotment option is
exercised in full, the Company would sell shares and Mr. Chandrasekhar
and Mr. Jagadeesh would sell shares and shares, respectively, and
would beneficially own % and %, respectively, of the outstanding
Common Stock of the Company after the offering.
(3) Represents 1,105,214 shares and immediately exercisable warrants to
purchase 100,878 shares held by Fleet Venture Resources, Inc.; 473,662
shares and immediately exercisable warrants to purchase 43,234 shares held
by Fleet Equity Partners VI, L.P.; 402,110 shares and immediately
exercisable warrants to purchase 36,703 shares held by Chisholm Partners
III, L.P.; and 29,571 shares and immediately exercisable warrants to
purchase 2,700 shares held by Kennedy Plaza Partners. Mr. Mocarski, a
director of the Company, is a Senior Vice President of each of (i) Fleet
Venture Resources, Inc., (ii) Fleet Growth Resources II, Inc., a general
partner of Fleet Equity Partners VI, L.P. and (iii) Silverado III, Corp.,
the general partner of Silverado III, L.P., the general partner of
Chisholm Partners III, L.P. Mr. Mocarski is also a general partner of
Kennedy Plaza Partners. The address of Mr. Mocarski and the Fleet Funds is
c/o Fleet Equity Partners, Mail Stop: RI MO F12C, 50 Kennedy Plaza,
Providence, Rhode Island 02903.
(4) Represents 753,483 shares and immediately exercisable warrants to
purchase 16,788 shares held by Productivity Fund III, L.P.; 300,858
shares and immediately exercisable warrants to purchase 6,658 shares
63
<PAGE>
held by Productivity Fund II, L.P.; and the shares and warrants held by the
Apex Funds described in footnote (6). First Analysis Corporation ("First
Analysis") is a general partner of the general partner of each of Apex
Investment Fund III, L.P., Productivity Fund II, L.P. and Productivity Fund
III, L.P. In addition, First Analysis is a managing member of Apex
Management III, L.L.C., the manager of Apex Strategic Partners, L.L.C.
First Analysis disclaims beneficial ownership of all shares directly owned
by the funds except to the extent of its proportionate pecuniary interests
therein. The address of First Analysis is 233 Wacker Drive, Suite 9500,
Chicago, Illinois 60606.
(5) Represents 1,544,087 shares and immediately exercisable warrants to
purchase 143,214 shares held by Oak Investment Partners VII; and 38,777
shares and immediately exercisable warrants to purchase 3,597 shares held
by Oak VII Affiliate Fund. Certain individuals are managing members of
the general partners of each of Oak Investment Partner VII and Oak VII
Affiliate Fund. The address of the Oak Partnerships is 525 University
Avenue, Suite 1300, Palo Alto, California 94301.
(6) Represents 928,830 shares and immediately exercisable warrants to
purchase 25,657 shares held by Apex Investment Fund III, L.P.; and 41,220
shares and immediately exercisable warrants to purchase 6,218 shares held
by Apex Strategic Partners, L.L.C. Mr. Bolander, a director of the
Company, is a general partner of the general partner of Apex Investment
Fund III, L.P. and a managing member of Apex Management III, L.L.C., the
manager of Apex Strategic Partners, L.L.C. The address of Mr. Bolander
and the Apex Funds is 233 Wacker Drive, Suite 9500, Chicago, Illinois
60606.
(7) Represents 721,818 shares held by J.F. Shea & Co., Inc.; and 173,884
shares and immediately exercisable warrants to purchase 29,114 shares
held by J.F. Shea & Co., Inc., as Nominee 1996-11. The address of these
entities is 655 Brea Canyon Road, Walnut, California 91788-0489.
(8) Represents 865,954 shares held by Information Technology Ventures, L.P.;
and 22,589 shares held by ITV Affiliates Fund, L.P. Mr. Dubovoy, a
director of the Company, is a principal member of ITV Management, LLC,
the general partner of Information Technology Ventures, L.P. and ITV
Affiliates Fund, L.P. The address of Mr. Dubovoy and the ITV Partnerships
is 3000 Sand Hill Road, Building 1, Suite 280, Menlo Park, California
94025.
(9) Includes 79,998 shares held by Mr. Chandrasekhar and his wife as trustees
for three trusts for their minor children and 23,334 shares subject to
options exercisable within 60 days of December 31, 1997, Mr.
Chandrasekhar is the President, Chief Executive Officer and Chairman of
the Board of Directors of the Company. The address of Mr. Chandrasekhar
is 2650 San Tomas Expressway, Santa Clara, California 95051.
(10) Represents 441,881 shares and immediately exercisable warrants to
purchase 40,985 shares held by JK&B Capital, L.P.; and 217,642 shares and
immediately exercisable warrants to purchase 20,187 shares held by JK&B
Capital II, L.P. JK&B Management L.L.C. is the general partner of JK&B
Capital, L.P. and JK&B Capital II, L.P. The address of the JK&B
Partnerships is 205 North Michigan Avenue, Suite 808, Chicago, Illinois
60601.
(11) Includes 33,332 shares held by Mr. Jagadeesh and his wife as trustees for
two trusts for their minor children and 16,334 shares subject to options
exercisable within 60 days of December 31, 1997. Mr. Jagadeesh is Vice
President, Engineering of the Company.
(12) Represents 214,514 shares and immediately exercisable warrants to
purchase 5,293 shares held by Mr. Dougery and his wife; 109,794 shares
and immediately exercisable warrants to purchase 1,989 shares held by Mr.
Dougery as trustee of three trusts for his children; 25,490 shares and
immediately exercisable warrants to purchase 663 shares held by Mr.
Dougery's wife as trustee for a separate trust; and 10,399 shares held by
Dougery Ventures LLC, of which Mr. Dougery is President. Mr. Dougery is a
director of the Company.
(13) Represents 292,543 shares held by Mr. Rekhi and his wife as trustees for
the Rekhi Family Trust; 11,662 shares held by Mr. Rekhi as custodian for
minor children; and 53,560 shares held by Mr. Rekhi, his wife and one
other individual as trustees for two other trusts. Mr. Rekhi is a
director of the Company.
(14) Represents 243,833 shares held by Mr. Stoltz and his wife and 5,834
shares subject to options exercisable within 60 days of December 31,
1997. Mr. Stoltz is Chief Operating Officer and Chief Financial Officer
of the Company.
(15) Includes 4,000 shares subject to options exercisable within 60 days of
December 31, 1997. Mr. Howley is a director of the Company.
(16) Represents shares subject to options exercisable within 60 days of
December 31, 1997. Mr. Mohamad is Vice President, Worldwide Sales of the
Company.
(17) Includes 17,333 shares subject to options exercisable within 60 days of
December 31, 1997. Mr. Sanford is Vice President, Operations of the
Company.
(18) Includes 21,834 shares subject to options exercisable within 60 days of
December 31, 1997 held by an executive officer not named in this table
and the shares, warrants and options referenced in footnotes (3), (6),
(8), (9) and (11)-(17).
64
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Immediately following the closing of this offering, the authorized capital
stock of the Company will consist of 50,000,000 shares of Common Stock, $0.001
par value per share, and 5,000,000 shares of Preferred Stock, $0.001 par value
per share. As of December 31, 1997, and assuming the conversion of all
outstanding Preferred Stock into Common Stock immediately prior to the closing
of this offering, there were outstanding 13,439,624 shares of Common Stock
held of record by 117 stockholders, warrants to purchase 950,163 shares of
Common Stock and options to purchase 1,709,286 shares of Common Stock.
COMMON STOCK
Subject to preferences that may apply to shares of Preferred Stock
outstanding at the time, the holders of outstanding shares of Common Stock are
entitled to receive dividends out of assets legally available therefor at such
times and in such amounts as the Board may from time to time determine. Each
stockholder is entitled to one vote for each share of Common Stock held on all
matters submitted to a vote of stockholders. Cumulative voting for the
election of directors is not provided for in the Company's Certificate of
Incorporation, which means that the holders of a majority of the shares voted
can elect all of the directors then standing for election. The Common Stock is
not entitled to preemptive rights and is not subject to conversion or
redemption. Upon a liquidation, dissolution or winding-up of the Company, the
assets legally available for distribution to stockholders are distributable
ratably among the holders of the Common Stock and any participating Preferred
Stock outstanding at that time after payment of liquidation preferences, if
any, on any outstanding Preferred Stock and payment of other claims of
creditors. Each outstanding share of Common Stock is, and all shares of Common
Stock to be outstanding upon completion of this offering will be, fully paid
and nonassessable.
PREFERRED STOCK
Upon the closing of this offering, all outstanding shares of Preferred Stock
(the "Convertible Preferred") will be converted into shares of Common Stock.
See Note 5 of Notes to Financial Statements for a description of the
Convertible Preferred. The Board is authorized, subject to limitations
prescribed by Delaware law, to provide for the issuance of additional shares
of Preferred Stock in one or more series, to establish from time to time the
number of shares to be included in each such series, to fix the powers,
designations, preferences and rights of the shares of each wholly unissued
series and designate any qualifications, limitations or restrictions thereon
and to increase or decrease the number of shares of any such series (but not
below the number of shares of such series then outstanding) without any
further vote or action by the stockholders. The issuance of Preferred Stock
with voting or conversion rights could adversely affect the voting power or
other rights of the holders of Common Stock and may have the effect of
delaying, deferring or preventing a change in control of the Company. The
Company has no current plan to issue any shares of Preferred Stock.
WARRANTS
As of December 31, 1997, the Company had outstanding warrants to purchase
950,163 shares of Common Stock at a weighted average per share exercise price
of $4.29 (of which warrants to purchase at least 615,454 shares of Common
Stock are expected to be exercised on or before the closing of the offering).
The warrants that remain outstanding after the offering will expire between
December 2000 and September 2004.
ANTI-TAKEOVER PROVISIONS
DELAWARE LAW
Section 203 ("Section 203") of the Delaware General Corporation Law is
applicable to corporate takeovers of Delaware corporations. Subject to certain
exceptions set forth therein, Section 203
65
<PAGE>
provides that a corporation shall not engage in any business combination with
any "interested stockholder" for a three-year period following the date that
such stockholder becomes an interested stockholder unless (a) prior to such
date, the board of directors of the corporation approved either the business
combination or the transaction that resulted in the stockholder becoming an
interested stockholder, (b) upon consummation of the transaction that resulted
in the stockholder becoming an interested stockholder, the interested
stockholder owned at least 85% of the voting stock of the corporation
outstanding at the time the transaction commenced (excluding certain shares)
or (c) on or subsequent to such date, the business combination is approved by
the board of directors of the corporation and by the affirmative votes of at
least two-thirds of the outstanding voting stock that is not owned by the
interested stockholder. Except as specified in Section 203, an interested
stockholder is generally defined to include any person that is the owner of
15% or more of the outstanding voting stock of the corporation, or is an
affiliate or associate of the corporation and was the owner of 15% or more of
the outstanding voting stock of the corporation, or is an affiliate or
associate of the corporation and was the owner of 15% or more of the
outstanding voting stock of the corporation any time within three years
immediately prior to the relevant date, and the affiliates and associates of
such person. Under certain circumstances, Section 203 makes it more difficult
for an interested stockholder to effect various business combinations with a
corporation for a three-year period, although the stockholders may, by
adopting an amendment to the corporation's certificate of incorporation or
bylaws, elect not to be governed by this section, effective 12 months after
adoption. The Company's certificate of incorporation and the bylaws do not
exclude the Company from the restrictions imposed under Section 203. It is
anticipated that the provisions of Section 203 may encourage companies
interested in acquiring the Company to negotiate in advance with the Board
since the stockholder approval requirement would be avoided if a majority of
the directors then in office approve either the business combination or the
transaction that resulted in the stockholder becoming an interested
stockholder. These provisions may have the effect of deterring hostile
takeovers or delaying changes in control of the Company, which could depress
the market price of the Common Stock and which could deprive the stockholders
of opportunities to realize a premium on shares of the Common Stock held by
them.
CHARTER AND BYLAW PROVISIONS
The Company's Certificate of Incorporation and Bylaws contain certain
provisions that could discourage potential takeover attempts and make more
difficult attempts by stockholders to change management. The Company's
Certificate of Incorporation provides that stockholders may not take action by
written consent but only at a stockholders' meeting, and that special meetings
of the stockholders of the Company may only be called by the Chairman of the
Board or a majority of the Board.
REGISTRATION RIGHTS
Beginning six months after the date of this offering (assuming no exercise
of the Underwriters' over-allotment option), the holders of 13,234,880 shares
of Common Stock and the holders of warrants to purchase 950,163 shares of
Common Stock (collectively, the "Registrable Securities") will have certain
rights with respect to the registration of those shares under the Securities
Act. If requested by at least 30% of the Registrable Securities (or at least
25% of the Registrable Securities issued upon conversion of the Series C
Preferred Stock of the Company) the Company must file a registration statement
to register such securities so long as the aggregate offering price, net of
any underwriting discounts and commissions, is at least $7.5 million. In
addition, if the Company proposes to register any of its shares of Common
Stock under the Securities Act other than in connection with a Company
employee benefit plan or certain corporate acquisitions, mergers or
reorganizations, the holders of the Registrable Securities may require the
Company to include all or a portion of their shares in such registration,
subject to certain rights of the managing underwriter to limit the number of
shares in any such offering.
66
<PAGE>
Further, holders of Registrable Securities holding at least 20% of the
Registrable Securities (or at least 15% of the Registrable Securities issued
upon conversion of the Series C Preferred Stock of the Company) may require
the Company to register all or any portion of their Registrable Securities on
Form S-3 when such form becomes available to the Company, subject to certain
conditions and limitations. The Company may be required to effect up to two
such registrations per year.
All expenses incurred in connection with such registrations (other than
underwriters' discounts and commissions) will be borne by the Company, except
that the holders of the Registrable Securities will bear the expenses of any
Form S-3 registrations after the first such registration. The registration
rights expire seven years after the closing of this offering. In addition, no
holder of Registrable Securities will be entitled to registration rights if
and so long as such holder can sell all of its Registrable Securities in
compliance with Rule 144 of the Securities Act during any 90-day period.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Company's Common Stock is Boston
EquiServe Limited Partnership.
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no market for the Common Stock of the
Company, and there can be no assurance that a significant public market for
the Common Stock will develop or be sustained after this offering. Future
sales of substantial amounts of Common Stock (including shares issued upon
exercise of outstanding options and warrants) in the public market after this
offering could adversely affect market prices prevailing from time to time and
could impair the Company's ability to raise capital through sale of its equity
securities. As described below, no shares currently outstanding will be
available for sale immediately after this offering due to certain contractual
restrictions on resale. Sales of substantial amounts of Common Stock of the
Company in the public market after the restrictions lapse could adversely
affect the prevailing market price and the ability of the Company to raise
equity capital in the future.
Upon completion of this offering, the Company will have outstanding
shares of Common Stock, assuming no exercise of the Underwriters' over-
allotment option and no exercise of outstanding options or warrants that do
not expire upon the closing. Of these shares, the shares sold in this
offering will be freely tradable without restriction under the Securities Act
unless purchased by "affiliates" of the Company as that term is defined in
Rule 144 under the Securities Act. The remaining 13,439,624 shares held by
existing stockholders (the "Restricted Shares") are subject to lock-up
agreements providing that, with certain limited exceptions, the stockholder
will not offer, sell, contract to sell, grant an option to purchase, make a
short sale or otherwise dispose of or engage in any hedging or other
transaction that is designed or reasonably expected to lead to a disposition
of any shares of Common Stock or any option or warrant to purchase shares of
Common Stock or any securities exchangeable for or convertible into shares of
Common Stock for a period of 180 days after the date of this Prospectus
without the prior written consent of the representatives of the Underwriters.
As a result of these lock-up agreements, notwithstanding possible earlier
eligibility for sale under the provisions of Rules 144, 144(k) and 701, none
of these shares will be salable until 181 days after the date of this
Prospectus. Beginning 181 days after the date of this Prospectus, 12,086,491
Restricted Shares will be eligible for sale in the public market, although all
but 3,526,872 shares will be subject to certain volume limitations.
Thereafter, 1,014,367 Restricted Shares will become eligible for sale between
the end of the lock-up period and December 31, 1998 and the remaining 338,766
Restricted Shares will become eligible for sale starting in 1999. In addition,
as of December 31, 1997, there were outstanding 1,709,286 options and 950,163
warrants to purchase Common Stock (of which warrants for 615,454 shares are
expected to be exercised on or before the closing of this offering).
67
<PAGE>
All of such options and warrants will be subject to lock-up agreements.
Goldman, Sachs & Co. may, in its sole discretion and at any time without
notice, release all or any portion of the securities subject to lock-up
agreements.
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this Prospectus, a person (or persons whose shares are aggregated)
who has beneficially owned Restricted Shares for at least one year (including
the holding period of any prior owner except an affiliate) would be entitled
to sell within any three-month period a number of shares that does not exceed
the greater of: (i) 1% of the number of shares of Common Stock then
outstanding (which will equal approximately shares immediately after this
offering); or (ii) the average weekly trading volume of the Common Stock
during the four calendar weeks preceding the filing of a Form 144 with respect
to such sale. Sales under Rule 144 are also subject to certain manner of sale
provisions and notice requirements and to the availability of current public
information about the Company. Under Rule 144(k), a person who is not deemed
to have been an affiliate of the Company at any time during the three months
preceding a sale, and who has beneficially owned the shares proposed to be
sold for at least two years (including the holding period of any prior owner
except an affiliate), is entitled to sell such shares without complying with
the manner of sale, public information, volume limitation or notice provisions
of Rule 144.
Rule 701 permits resales of shares in reliance upon Rule 144 but without
compliance with certain restrictions, including the holding period
requirement, of Rule 144. Any employee, officer or director of or consultant
to the Company who purchased his or her shares pursuant to a written
compensatory plan or contract may be entitled to rely on the resale provisions
of Rule 701. Rule 701 permits affiliates to sell their Rule 701 shares under
Rule 144 without complying with the holding period requirements of Rule 144.
Rule 701 further provides that non-affiliates may sell such shares in reliance
on Rule 144 without having to comply with the holding period, public
information, volume limitation or notice provisions of Rule 144. All holders
of Rule 701 shares are required to wait until 90 days after the date of this
Prospectus before selling such shares. However, all shares issued pursuant to
Rule 701 are subject to lock-up agreements and will only become eligible for
sale at the earlier of the expiration of the 180-day lock-up agreements or no
sooner than 90 days after the offering upon obtaining the prior written
consent of the representatives of the Underwriters.
Immediately after this offering, the Company intends to file a registration
statement under the Securities Act covering shares of Common Stock subject to
outstanding options under the 1995 Plan and the 1997 Plan and reserved for
issuance under the 1998 Plan, the Directors Plan and the Purchase Plan. Based
on the number of shares subject to outstanding options at December 31, 1997
and currently reserved for issuance under all such plans, such registration
statement would cover approximately 4,659,215 shares. Such registration
statement will automatically become effective upon filing. Accordingly, shares
registered under such registration statement will, subject to Rule 144 volume
limitations applicable to affiliates of the Company, be available for sale in
the open market immediately after the 180-day lock-up agreements expire. Also
beginning six months after the date of this offering, holders of 13,234,880
Restricted Shares and warrants to purchase 950,163 shares of Common Stock of
the Company will be entitled to certain rights with respect to registration of
such shares for sale in the public market. See "Description of Capital Stock--
Registration Rights."
LEGAL MATTERS
The validity of the issuance of the shares of Common Stock offered hereby
will be passed upon for the Company by Fenwick & West LLP, Palo Alto,
California. Certain legal matters in connection with this offering will be
passed upon for the Underwriters by Wilson Sonsini Goodrich & Rosati,
Professional Corporation, Palo Alto, California.
68
<PAGE>
EXPERTS
The financial statements of the Company as of December 31, 1995 and 1996 and
September 30, 1997, and for each of the years in the two-year period ended
December 31, 1996 and for the nine months ended September 30, 1997, have been
included in the Registration Statement in reliance on the report of KPMG Peat
Marwick LLP, independent auditors, appearing elsewhere herein, and upon the
authority of said firm as experts in auditing and accounting.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 under the Securities Act
with respect to the shares of Common Stock offered hereby. This Prospectus
does not contain all of the information set forth in the Registration
Statement and the exhibits thereto. For further information with respect to
the Company and the Common Stock offered hereby, reference is made to the
Registration Statement and the exhibits thereto. Statements contained in this
Prospectus regarding the contents of any contract or any other document to
which reference is made are not necessarily complete, and, in each instance,
reference is made to the copy of such contract or other document filed as an
exhibit to the Registration Statement, each such statement being qualified in
all respects by such reference. A copy of the Registration Statement and the
exhibits thereto may be inspected without charge at the offices of the
Commission at Judiciary Plaza, 450 Fifth Street, Washington, D.C. 20549, and
copies of all or any part of the Registration Statement may be obtained from
the Public Reference Section of the Commission, Washington, D.C. 20549 upon
the payment of the fees prescribed by the Commission. The Commission maintains
a Web site (http://www.sec.gov) that contains reports, proxy and information
statements and other information regarding registrants, such as the Company,
that file electronically with the Commission. Information concerning the
Company is also available for inspection at the offices of the Nasdaq National
Market, Reports Section, 1735 K Street, N.W., Washington, D.C. 20006.
The Company intends to furnish to its stockholders annual reports containing
financial statements audited by its independent auditors and to make available
to its stockholders quarterly reports containing unaudited financial data for
the first three quarters of each fiscal year.
69
<PAGE>
EXODUS COMMUNICATIONS, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Form of Report of KPMG Peat Marwick LLP, Independent Auditors............... F-2
Balance Sheets.............................................................. F-3
Statements of Operations.................................................... F-4
Statements of Stockholders' (Deficit) Equity................................ F-5
Statements of Cash Flows.................................................... F-6
Notes to Financial Statements............................................... F-7
</TABLE>
F-1
<PAGE>
FORM OF REPORT OF KPMG PEAT MARWICK LLP, INDEPENDENT AUDITORS
When the reincorporation of the Company in Delaware, as described in Note 8
of the Notes to Financial Statements, has been consummated, we will be in a
position to render the following report.
KPMG PEAT MARWICK LLP
The Board of Directors and Stockholders
Exodus Communications, Inc.:
We have audited the accompanying balance sheets of Exodus Communications,
Inc. as of December 31, 1995 and 1996, and September 30, 1997, and the related
statements of operations, stockholders' (deficit) equity, and cash flows for
each of the years in the two-year period ended December 31, 1996, and for the
nine months ended September 30, 1997. 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 Exodus Communications,
Inc. as of December 31, 1995 and 1996, and September 30, 1997, and the results
of its operations and its cash flows for each of the years in the two-year
period ended December 31, 1996, and for the nine months ended September 30,
1997, in conformity with generally accepted accounting principles.
San Jose, California
December 19, 1997, except as to Note 8
which is as of January 15, 1998
F-2
<PAGE>
EXODUS COMMUNICATIONS, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30, 1997
---------------- ---------------------
1995 1996 ACTUAL PRO FORMA
------- ------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............. $ 163 $ 3,715 $ 3,883 $ 11,383
Accounts receivable................... 256 521 1,751 1,751
Prepaid expenses and other current
assets............................... 50 121 541 541
------- ------- -------- --------
Total current assets.................. 469 4,357 6,175 13,675
Property and equipment, net............ 345 3,410 17,252 17,252
Restricted cash equivalents............ -- 378 1,053 1,053
Other assets........................... 26 144 395 395
------- ------- -------- --------
$ 840 $ 8,289 $ 24,875 $ 32,375
======= ======= ======== ========
LIABILITIES, REDEEMABLE CONVERTIBLE
PREFERRED
STOCK AND STOCKHOLDERS' (DEFICIT) EQ-
UITY
Current liabilities:
Bank borrowings....................... $ 100 $ -- $ -- $ --
Current portion of debt............... 497 296 1,478 1,478
Current portion of capital lease
obligations.......................... 107 224 664 664
Accounts payable...................... 492 1,163 5,226 5,226
Accrued expenses...................... 208 581 1,747 1,372
Deferred revenue...................... 235 201 127 127
------- ------- -------- --------
Total current liabilities............. 1,639 2,465 9,242 8,867
Debt, less current portion............. -- 1,000 4,603 4,603
Capital lease obligations, less current
portion............................... 141 449 1,402 1,402
Note payable to stockholder............ 200 -- -- --
------- ------- -------- --------
Total liabilities..................... 1,980 3,914 15,247 14,872
------- ------- -------- --------
Redeemable convertible preferred stock,
$0.001 par value: actual--32,596,966
and 68,496,966 shares authorized as of
December 31, 1996 and September 30,
1997, respectively; 15,536,578 and
31,332,446 shares issued and
outstanding as of December 31, 1996
and September 30, 1997, respectively;
aggregate liquidation preference of
$9,720 and $31,231 as of December 31,
1996 and September 30, 1997,
respectively; pro forma--no shares
authorized, issued and outstanding.... -- 9,609 28,948 --
------- ------- -------- --------
Stockholders' (deficit) equity:
Preferred Stock, $0.001 par value:
actual--no shares authorized, issued
or outstanding; pro forma--10,000,000
shares authorized, no shares issued
or outstanding....................... -- -- -- --
Common Stock, $0.001 par value:
actual--10,000,000, 41,200,000 and
46,050,000 shares authorized as of
December 31, 1995 and 1996, and
September 30, 1997, respectively;
1,820,666, 1,945,966 and 1,898,529
shares issued and outstanding as of
December 31, 1995 and 1996, and
September 30, 1997, respectively; pro
forma--50,000,000 shares authorized;
13,219,816 shares issued and
outstanding.......................... 2 2 2 13
Additional paid-in capital............ 199 229 2,142 38,954
Notes receivable from stockholders.... (195) (186) (151) (151)
Deferred stock compensation........... -- -- (639) (639)
Accumulated deficit................... (1,146) (5,279) (20,674) (20,674)
------- ------- -------- --------
Total stockholders' (deficit) equity.. (1,140) (5,234) (19,320) 17,503
------- ------- -------- --------
$ 840 $ 8,289 $ 24,875 $ 32,375
======= ======= ======== ========
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
EXODUS COMMUNICATIONS, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
---------------- --------------------
1995 1996 1996 1997
------- ------- ----------- --------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues:
Service revenues..................... $ 1,068 $ 2,454 $ 1,500 $ 7,016
Equipment revenues................... 340 676 520 489
------- ------- ------- --------
Total revenues..................... 1,408 3,130 2,020 7,505
------- ------- ------- --------
Cost and expenses:
Cost of service revenues............. 846 2,538 1,539 9,181
Cost of equipment revenues........... 282 452 345 361
Marketing and sales.................. 1,056 2,734 1,490 7,667
General and administrative........... 427 1,056 573 3,526
Product development.................. 70 444 121 1,100
------- ------- ------- --------
Total cost and expenses............ 2,681 7,224 4,068 21,835
------- ------- ------- --------
Operating loss..................... (1,273) (4,094) (2,048) (14,330)
Net interest expense................... 38 39 43 242
------- ------- ------- --------
Net loss........................... (1,311) (4,133) (2,091) (14,572)
Cumulative dividends and accretion on
redeemable convertible preferred
stock................................. -- -- -- (823)
------- ------- ------- --------
Net loss attributable to common
stockholders.......................... $(1,311) $(4,133) $(2,091) $(15,395)
======= ======= ======= ========
Pro forma net loss per share........... $ (0.33) $ (0.99)
======= ========
Shares used in computing pro forma net
loss per share........................ 12,384 14,771
======= ========
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
EXODUS COMMUNICATIONS, INC.
STATEMENTS OF STOCKHOLDERS' (DEFICIT) EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
NOTES RETAINED TOTAL
COMMON STOCK ADDITIONAL RECEIVABLE EARNINGS STOCKHOLDERS'
-------------- PAID-IN FROM DEFERRED STOCK (ACCUMULATED (DEFICIT)
SHARES AMOUNT CAPITAL STOCKHOLDERS COMPENSATION DEFICIT) EQUITY
------ ------ ---------- ------------ -------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCES AS OF DECEMBER
31, 1994............... 1,000 $ 1 $ 3 $ -- $ -- $ 165 $ 169
Sale of common stock to
officers............... 734 1 175 (176) -- -- --
Issuance of common stock
in connection with
stock purchase plan.... 96 -- 23 (21) -- -- 2
Repurchase of common
stock.................. (9) -- (2) -- -- -- (2)
Repayment of notes
receivable from
stockholders........... -- -- -- 2 -- -- 2
Net loss................ -- -- -- -- -- (1,311) (1,311)
----- --- ------ ----- ----- -------- --------
BALANCES AS OF DECEMBER
31, 1995............... 1,821 2 199 (195) -- (1,146) (1,140)
Issuance of common
stock.................. 134 -- 32 -- -- -- 32
Issuance of common stock
in connection with
stock purchase plan.... 11 -- 3 (3) -- -- --
Issuance of common stock
in connection with
exercise of stock
options................ 5 -- 1 -- -- -- 1
Repurchase of common
stock.................. (25) -- (6) 6 -- -- --
Repayment of notes
receivable from
stockholders........... -- -- -- 6 -- -- 6
Net loss................ -- -- -- -- -- (4,133) (4,133)
----- --- ------ ----- ----- -------- --------
BALANCES AS OF DECEMBER
31, 1996............... 1,946 2 229 (186) -- (5,279) (5,234)
Issuance of common stock
in connection with
exercise of stock
options................ 4 -- 1 -- -- -- 1
Repurchase of common
stock.................. (51) -- (12) 12 -- -- --
Repayment of notes
receivable from
stockholders........... -- -- -- 23 -- -- 23
Deferred stock
compensation related to
stock option grants.... -- -- 724 -- (724) -- --
Amortization of deferred
stock compensation..... -- -- -- -- 85 -- 85
Issuance of warrants in
connection with the
sale of Series C
redeemable convertible
preferred stock ....... -- -- 1,200 -- -- -- 1,200
Accrual of cumulative
dividends on Series C
redeemable convertible
preferred stock........ -- -- -- -- -- (375) (375)
Accretion on Series C
redeemable convertible
preferred stock........ -- -- -- -- -- (448) (448)
Net loss................ -- -- -- -- -- (14,572) (14,572)
----- --- ------ ----- ----- -------- --------
BALANCES AS OF SEPTEMBER
30, 1997............... 1,899 $ 2 $2,142 $(151) $(639) $(20,674) $(19,320)
===== === ====== ===== ===== ======== ========
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
EXODUS COMMUNICATIONS, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
---------------- --------------------
1995 1996 1996 1997
------- ------- ----------- --------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss.............................. $(1,311) $(4,133) $(2,091) $(14,572)
Adjustments to reconcile net loss to
net cash used for operating
activities:
Depreciation and amortization......... 65 461 232 1,762
Amortization of deferred stock
compensation......................... -- -- -- 85
Changes in operating assets and
liabilities:
Accounts receivable.................. (13) (265) (73) (1,230)
Prepaid expenses and other current
assets.............................. (50) (71) (94) (420)
Accounts payable..................... 420 671 195 4,063
Accrued expenses..................... 201 373 327 791
Deferred revenue..................... 235 (34) (7) (74)
------- ------- ------- --------
Net cash used for operating
activities......................... (453) (2,998) (1,511) (9,595)
------- ------- ------- --------
Cash flows from investing activities:
Purchases of property and equipment... (69) (3,499) (1,721) (14,775)
Other assets.......................... (8) (118) (90) (251)
------- ------- ------- --------
Net cash used for investing
activities......................... (77) (3,617) (1,811) (15,026)
------- ------- ------- --------
Cash flows from financing activities:
Proceeds from issuance of redeemable
convertible preferred stock.......... -- 9,409 2,968 14,916
Proceeds from issuance of common
stock................................ -- 32 32 1
Proceeds from issuance of warrants.... -- -- -- 1,200
Proceeds from issuance of bridge
financing convertible notes.......... -- -- -- 3,975
Repayment of notes receivable from
stockholders......................... 2 7 6 23
Bank borrowings, net.................. 100 (100) (100) --
Proceeds from sale-leaseback
transactions......................... -- 552 552 932
Payments on capital leases
obligations.......................... (47) (154) (105) (368)
Proceeds from debt.................... 497 1,296 1,225 5,200
Repayment of debt..................... (60) (497) (504) (415)
Restricted cash....................... -- (378) (138) (675)
Proceeds from note payable to
stockholder.......................... 200 -- -- --
------- ------- ------- --------
Net cash provided by financing
activities......................... 692 10,167 3,936 24,789
------- ------- ------- --------
Net increase in cash and cash
equivalents........................... 162 3,552 614 168
Cash and cash equivalents at beginning
of period............................. 1 163 163 3,715
------- ------- ------- --------
Cash and cash equivalents at end of
period................................ $ 163 $ 3,715 $ 777 $ 3,883
======= ======= ======= ========
Supplemental disclosures of cash flow
information:
Noncash investing and financing
activities:
Assets recorded under capital leases.. $ 283 $ 27 $ 27 $ 829
======= ======= ======= ========
Conversion of notes payable to
preferred stock...................... $ -- $ 200 $ -- $ 3,975
======= ======= ======= ========
Accrual of cumulative dividends on
Series C redeemable convertible
preferred stock...................... $ -- $ -- $ -- $ 375
======= ======= ======= ========
Accretion on Series C redeemable
convertible preferred stock.......... $ -- $ -- $ -- $ 448
======= ======= ======= ========
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE>
EXODUS COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
(1) SUMMARY OF THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES
THE COMPANY
Exodus Communications, Inc. is the successor to a Maryland corporation that
was formed in August 1992 and reincorporated in California in May 1995. Unless
the context otherwise requires, the term "Company" or "Exodus" refers to
Exodus Communications, Inc. and its Maryland predecessor. Exodus is a leading
provider of Internet system and network management solutions for enterprises
with mission-critical Internet operations.
INITIAL PUBLIC OFFERING AND UNAUDITED PRO FORMA BALANCE SHEET
In January 1998, the Board of Directors authorized the filing of a
registration statement with the Securities and Exchange Commission ("SEC")
that would permit the Company and certain stockholders of the Company to sell
shares of the Company's common stock in connection with a proposed initial
public offering ("IPO"). If the offering is consummated under the terms
presently anticipated, all the then outstanding shares of the Company's
redeemable convertible preferred stock will automatically convert into shares
of common stock on a one-for-three basis upon the closing of the proposed IPO.
The sale by the Company of 2,631,579 shares of preferred stock at $2.85 per
share on December 15, 1997 and the conversion of the redeemable convertible
preferred stock have been reflected in the accompanying unaudited pro forma
balance sheet as if they had occurred on September 30, 1997.
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 reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
REVENUE RECOGNITION
Service revenues consist of monthly fees for server hosting, Internet
connectivity, collaborative management and Internet technology services and
one-time fees for installation. Service revenues (other than installation
fees) are generally billed and recognized ratably over the term of the
contract, generally one year. Installation fees are typically recognized at
the time that installation occurs. Equipment revenues consist of payments from
customers for third-party equipment sold by the Company. Revenues from
equipment sales are recognized at the time the equipment is shipped to the
customer or placed into service at the an Internet Data Center.
FINANCIAL INSTRUMENTS AND CONCENTRATION OF CREDIT RISK
The carrying value of the Company's financial instruments, including cash
and cash equivalents and accounts receivable, approximates fair market value.
Financial instruments that potentially expose the Company to a concentration
of credit risk principally consist of cash and cash equivalents and accounts
receivable.
F-7
<PAGE>
EXODUS COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 IS UNAUDITED)
The Company's customer base is primarily composed of businesses throughout
the United States. The Company performs ongoing credit evaluations of its
customers and maintains reserves for potential credit losses. To date, such
losses have not been significant. The balance of the allowance for bad debts
was $22,000, $15,000 and $141,000 as of December 31, 1995 and 1996, and
September 30, 1997, respectively. In 1995, revenues from a single customer
comprised 24% of total revenues.
CASH AND CASH EQUIVALENTS
Cash equivalents consist of highly liquid investments with original
maturities of 90 days or less.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and depreciated on a straight-line
basis over their respective estimated useful lives, which are generally three
years. Equipment recorded under capital leases and leasehold improvements are
amortized using the straight-line method over the shorter of the respective
lease term or estimated useful life of the asset.
SOFTWARE DEVELOPMENT COSTS
The Company capitalizes software development costs incurred to develop
certain of the Company's collaborative management services that are included
in the Company's co-location service in accordance with Statement of Financial
Accounting Standards ("SFAS") No. 86, Accounting for the Costs of Computer
Software to be Sold, Leased, or Otherwise Marketed. Costs are capitalized
after technological feasibility is achieved; generally upon the development of
a working model. To date, software development costs capitalizable under SFAS
No. 86 have not been material.
INCOME TAXES
The Company uses the asset and liability method of accounting for income
taxes. Under this method, deferred tax assets and liabilities are determined
based on the difference between the financial statement and tax bases of
assets and liabilities using enacted tax rates in effect for the year in which
the differences are expected to affect taxable income. Valuation allowances
are established when necessary to reduce deferred tax assets to the amounts
expected to be recovered.
STOCK-BASED COMPENSATION
The Company uses the intrinsic value-based method to account for all of its
employee stock-based compensation plans.
IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF
The Company evaluates its long-lived assets and certain identifiable
intangibles for impairment whenever events or changes in circumstances
indicate that the carrying amount of such assets or intangibles may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows
expected to be generated by the asset. If such assets are considered to be
impaired, the impairment to be recognized is measured by the amount by which
the carrying amount of the assets exceed the fair value of the assets. Assets
to be disposed of are reported at the lower of the carrying amount or fair
value less costs to sell.
F-8
<PAGE>
EXODUS COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 IS UNAUDITED)
UNAUDITED INTERIM FINANCIAL STATEMENTS
The accompanying unaudited interim financial statements for the nine months
ended September 30, 1996 have been prepared on substantially the same basis as
the audited financial statements and include all adjustments, consisting only
of normal recurring adjustments, necessary for a fair presentation of the
financial information set forth therein.
PRO FORMA PER SHARE INFORMATION
Pro forma per share information is computed using net loss and is based on
the weighted-average number of outstanding shares of common stock and
redeemable convertible preferred stock on an "as if converted" basis, and,
when dilutive, common stock equivalent shares from stock options and warrants
outstanding, using the treasury stock method.
Pursuant to certain SEC staff accounting bulletins, common stock,
convertible preferred stock issued for consideration below the assumed IPO
price, and stock options granted and warrants issued with exercise prices
below the assumed IPO price during the 12-month period prior to the date of
the initial filing of the registration statement for the IPO, even when
antidilutive, have been included in the calculation of pro forma net loss per
common share, using the treasury stock method based on the assumed IPO price,
as if they were outstanding for all periods presented. Due to the significant
impact of the conversion of preferred shares into common shares at the closing
of the IPO, historical net loss per common share is not meaningful and
therefore is not presented.
RECENT ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board ("FASB") recently issued SFAS No.
128, Earnings Per Share. SFAS No. 128 requires the presentation of basic
earnings per share ("EPS") and, for companies with complex capital structures,
diluted EPS. SFAS No. 128 is effective for annual and interim periods ending
after December 15, 1997. The Company expects that, for profitable periods,
basic EPS will be higher than EPS as presented in the accompanying financial
statements and diluted EPS will not differ materially from EPS as presented in
the accompanying financial statements. Computations for loss periods should
not change significantly.
The FASB also recently issued SFAS No. 130, "Reporting Comprehensive
Income." SFAS No. 130 establishes standards for reporting and displaying
comprehensive income and its components in financial statements. It does not,
however, require a specific format, but requires the Company to display an
amount representing total comprehensive income for the period in its financial
statements. The Company is in the process of determining its preferred format.
SFAS No. 130 is effective for fiscal years beginning after December 15, 1997.
The FASB also recently issued SFAS No. 131, "Disclosure about Segments of an
Enterprise and Related Information." SFAS No. 131 establishes standards for
the way public business enterprises are to report information about operating
segments in annual financial statements and requires those enterprises to
report selected information about operating segments in interim financial
reports. SFAS No. 131 is effective for financial statements for periods
beginning after December 31, 1997. The Company has determined that it does not
have any separately reportable business segments.
F-9
<PAGE>
EXODUS COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 IS UNAUDITED)
(2) FINANCIAL STATEMENT COMPONENTS
Property and Equipment
Property and equipment consisted of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------- SEPTEMBER 30,
1995 1996 1997
------------- -------------
<S> <C> <C> <C>
Data centers, servers and related equipment...... $ 416 $ 2,559 $10,073
Furniture, fixtures and computer equipment....... -- 381 5,375
Construction in progress......................... -- 974 4,070
Leasehold improvements........................... -- 28 28
----- ------- -------
416 3,942 19,546
Less accumulated depreciation and amortization... 71 532 2,294
----- ------- -------
$ 345 $ 3,410 $17,252
===== ======= =======
</TABLE>
Computer equipment and certain data center infrastructure are recorded under
capital leases that aggregated $281,000, $860,000 and $2,621,000 as of
December 31, 1995 and 1996, and September 30, 1997, respectively. Accumulated
amortization on the leased assets aggregated $34,000, $221,000 and $646,000 as
of December 31, 1995 and 1996, and September 30, 1997, respectively.
Accrued Expenses
Accrued expenses consisted of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------- SEPTEMBER 30,
1995 1996 1997
------ ------ -------------
<S> <C> <C> <C>
Accrued payroll and related expenses............ $ 112 $ 239 $ 899
Accrual of cumulative dividends on Series C
redeemable convertible preferred stock......... -- -- 375
Other........................................... 96 342 473
------ ------ ------
$ 208 $ 581 $1,747
====== ====== ======
</TABLE>
Net Interest Expense
Net interest expense consisted of the following (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
------------- -----------------
1995 1996 1996 1997
------ ------ ----------- -----
(UNAUDITED)
<S> <C> <C> <C> <C>
Interest expense........................... $ 38 $ 107 $ 63 $ 379
Interest income............................ -- (68) (20) (137)
------ ------ ---- -----
$ 38 $ 39 $ 43 $ 242
====== ====== ==== =====
</TABLE>
F-10
<PAGE>
EXODUS COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 IS UNAUDITED)
(3) BANK BORROWINGS AND DEBT
During the nine months ended September 30, 1997, the Company had a
$1,000,000 bank line of credit bearing interest at the bank's prime rate plus
1% and collateralized by accounts receivable. No amount was outstanding under
this line of credit as of September 30, 1997.
As of December 31, 1995, the Company had a bank line of credit for $100,000
from a different financial institution bearing interest at prime plus 1.75%
and collateralized by the Company's assets. As of December 31, 1995, $100,000
had been drawn on the line of credit, which amount was repaid in March 1996.
A summary of debt follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------- SEPTEMBER 30,
1995 1996 1997
------------- -------------
<S> <C> <C> <C>
$850,000 equipment term loan with a financial
institution; prime rate plus 2.5% (11.0% as of
September 30, 1997); principal and interest
due monthly for 36 months..................... $ -- $ 267 $ 200
$1,800,000 equipment line of credit facility;
effective interest rate of approximately
16.4%; principal and interest due April 2000
through September 2000; collateralized by
equipment (see Note 5)........................ -- 1,029 1,485
$3,000,000 equipment line of credit facility--
April 1997; effective interest rate of
approximately 12.9%; principal and interest
due monthly through December 2000;
collateralized by equipment (see Note 5)...... -- -- 2,465
$6,500,000 equipment line of credit facility;
effective interest rate of approximately
15.7%; principal and interest due quarterly
through April 2001; collateralized by
equipment (see Note 5)........................ -- -- 1,931
$3,000,000 equipment line of credit facility--
August 1997; collateralized by equipment (see
Note 5)....................................... -- -- --
$300,000 line of credit facility with interest
payable monthly at prime plus 2.5%;
collaterized by promissory note and Company's
assets; principal due August 1996; $250,000
drawn on line of credit as of December 31,
1995; repaid March 1996....................... 250 -- --
Bank note payable; interest at prime plus 2.5%;
collateralized by Company's assets; repaid
March 1996.................................... 187 -- --
Other notes payable............................ 60 -- --
----- ------- ------
497 1,296 6,081
Less current portion......................... 497 296 1,478
----- ------- ------
Debt, less current portion................... $ -- $ 1,000 $4,603
===== ======= ======
</TABLE>
F-11
<PAGE>
EXODUS COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 IS UNAUDITED)
Aggregate maturities for fiscal 1998, 1999, 2000 and 2001 are $1,870,000,
$1,714,000, $1,852,000 and $645,000, respectively.
(4) NOTE PAYABLE TO STOCKHOLDER
As of December 31, 1995, the Company had a $200,000 note payable to a
stockholder bearing interest at the prime rate plus 2.5%. During 1996, this
note was converted into 484,378 shares of Series A preferred stock.
(5) REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' (DEFICIT) EQUITY
The Company is authorized to issue 46,050,000 shares of common stock,
7,798,483 shares each of Series A and A1, 8,600,000 shares each of Series B
and B1, and 17,850,000 shares each of Series C and C1 redeemable convertible
preferred stock.
Redeemable Convertible Preferred Stock
In February and March 1996, the Company issued 7,798,483 shares of Series A
redeemable convertible preferred stock at $0.413 per share. In October 1996,
the Company issued 7,738,095 shares of Series B redeemable convertible
preferred stock at $0.84 per share. In March and June 1997, the Company
received a total of approximately $3,975,000 in cash in exchange for bridge
financing convertible promissory notes. In June 1997, the Company issued
15,789,868 shares of Series C redeemable convertible preferred stock for
$1.362 per share in exchange for approximately $17,500,000 in cash and the
conversion of the bridge financing notes.
The rights, preferences, privileges and restrictions of the redeemable
convertible preferred stock are as follows:
. Shares of Series A, A1, B, B1, C and C1 preferred stock are convertible
at the option of the holder into an equal number of shares of common
stock subject to certain price-based antidilution adjustments for the
Series A, B and C redeemable convertible preferred stock.
. Conversion is automatic upon either (i) the closing of a public offering
of the Company's common stock at an offering price of not less than
$15.00 per share and aggregate proceeds of at least $30,000,000 (a
"Qualified IPO") or (ii) the election of the majority of the stockholders
of Series A, A1, B, B1, C and C1 redeemable convertible preferred stock
voting as a single class.
. The holders of Series A, A1, B and B1 redeemable convertible preferred
stock are entitled to noncumulative dividends at annual rates of $0.04,
$0.04, $0.084 and $0.084 per share, respectively, when and if declared by
the Board of Directors. The holders of Series C and C1 redeemable
convertible preferred stock are entitled to cumulative dividends at the
annual rate of $0.095 per share. In the event of a Qualified IPO or
conversion, all accrued but unpaid dividends with respect to the Series C
and C1 preferred stock will be forfeited.
. Shares of Series A, A1, B, B1, C and C1 redeemable convertible preferred
stock have liquidation preferences of $0.4129, $0.4129, $0.84, $0.84,
$1.362 and $1.362 per share, respectively, plus all declared but unpaid
dividends.
. After payment has been made to the holders of redeemable convertible
preferred stock of the full preferential amounts, holders of common stock
will receive all remaining assets pro rata based on the number of shares
of common stock held.
F-12
<PAGE>
EXODUS COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 IS UNAUDITED)
. At any time after June 25, 2002, upon notification by not less than a
majority of the holders of Series A, A1, B and B1 redeemable convertible
preferred stock, the Company must redeem up to 50% of the outstanding
shares by paying in cash a sum per share equal to the original issue
price (as adjusted for any stock dividends, combinations or splits with
respect to such shares) plus all declared but unpaid dividends. The
remaining shares of Series A, A1, B and B1 redeemable convertible
preferred stock can be redeemed by the stockholders at any time after
June 25, 2003. At the option of the holders of the Series C redeemable
convertible preferred stock, the Series C redeemable convertible
preferred stock must be redeemed in one-half increments in June 2002 and
June 2003 at a redemption price equal to the greater of $1.362 per share
plus cumulative dividends or the fair market value. As of September 30,
1997, the Company had accreted $448,000 towards the fair market value of
the Series C redeemable convertible preferred stock.
. Each share of Series A, A1, B, B1, C and C1 redeemable convertible
preferred stock has voting rights on an "as if converted" basis.
. In the event the Company proposes to issue additional shares of any
series of preferred stock, the current holders of such shares will have
the right of first refusal to participate on a pro rata basis. In the
event of a dilutive subsequent financing, the holders of Series A, B and
C redeemable convertible preferred stock are provided with antidilution
protection if they purchase their pro rata share of such dilutive
financing. If they do not purchase their pro rata share, their Series A,
B and C redeemable convertible preferred stock will convert to Series A1,
B1 and C1 redeemable convertible preferred stock, respectively, which
will have no such antidilution protection.
Redeemable convertible preferred stock issued and outstanding as of
September 30, 1997 was as follows:
<TABLE>
<CAPTION>
SHARES ISSUED AND CARRYING
SERIES DESIGNATED OUTSTANDING VALUE
------ ---------- ----------- -----------
<S> <C> <C> <C>
A......................................... 7,798,483 7,798,483 $ 3,168,000
A1........................................ 7,798,483 -- --
B......................................... 8,600,000 7,738,095 6,441,000
B1........................................ 8,600,000 6,000 5,000
C......................................... 17,850,000 15,789,868 20,534,000
C1........................................ 17,850,000 -- --
---------- ---------- -----------
68,496,966 31,332,446 $30,148,000
========== ========== ===========
</TABLE>
STOCK PURCHASE PLAN
During 1995, the Company adopted a Stock Purchase Plan under which 366,667
shares of common stock are authorized. Awards totaling 96,334 and 11,034
shares of common stock were granted to individuals in 1995 and 1996,
respectively, at an exercise price of $0.24 per share, the estimated fair
market value of the shares on the date of the award. No awards were granted
during the nine months ended September 30, 1997. Generally, the shares are
subject to a 50-month vesting period. As of September 30, 1997, 36,334 shares
remained unvested. Unvested shares are subject to repurchase, at the Company's
option, at the original purchase price upon a participant's termination. Of
the shares granted, 41,734 had been repurchased by the Company as of September
30, 1997.
F-13
<PAGE>
EXODUS COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 IS UNAUDITED)
STOCK OPTIONS
In January 1997, the Company adopted the 1997 Equity Incentive Plan (the
"1997 Plan"), which serves as the successor to the Company's 1995 Stock Option
Plan (the "1995 Plan"). Options granted under the 1995 Plan before its
termination continue to remain outstanding in accordance with their terms, but
no further options may be granted under the 1995 Plan. Options granted under
the 1995 Plan were granted with exercise prices not less than fair market
value at the date of grant as determined by the Board of Directors, generally
vested 12% after six months from the date of grant and 2% per month
thereafter, and generally are exercisable for a term of ten years after the
date of grant. The Company has reserved for issuance under the 1997 Plan to
employees and consultants 2,200,000 shares of the Company's common stock which
may be granted as either incentive or nonqualified stock options. Options
granted under the 1997 Plan generally vest 12% after six months from the date
of grant and 2% per month thereafter and are generally exercisable for a term
of ten years after the date of grant.
The Company uses the intrinsic value method in accounting for its plans.
Accordingly, no compensation cost has been recognized for any of its stock
options because the exercise price of each option equaled or exceeded the fair
value of the underlying common stock as of the grant date for each stock
option, except for options granted in April, June and July 1997. With respect
to the options granted in April, June and July 1997, the Company has recorded
deferred stock compensation of $724,000 for the difference at the grant date
between the exercise price and the fair value of the common stock underlying
the options. This amount is being amortized in accordance with FASB
Interpretation No. 28 over the vesting period of the individual options,
generally four years. Had compensation cost been determined in accordance with
SFAS No. 123, the Company's 1995 and 1996 net loss would not have been
significantly affected. For the nine months ended September 30, 1997, the
related pro forma net loss would have been $14,750,000 and pro forma net loss
per share would have been $1.00.
The fair value of each option is estimated on the date of grant using the
Black-Scholes method with the following weighted average assumptions:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------------- NINE MONTHS ENDED
1995 1996 SEPTEMBER 30, 1997
---------- ---------- ------------------
<S> <C> <C> <C>
Dividends........................... None None None
Expected life....................... 3.20 years 2.55 years 2.56 years
Risk free interest rates............ 5.71% 6.28% 6.09%
Volatility.......................... 0% 0% 60%
</TABLE>
F-14
<PAGE>
EXODUS COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 IS UNAUDITED)
A summary of the status of the Company's stock option plans is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------
1995 1996 SEPTEMBER 30, 1997
------------------ ------------------ --------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
------- --------- ------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of period.............. -- $ -- 125,083 $0.24 292,033 $ 0.25
Granted............... 131,467 0.24 224,734 0.26 884,800 0.30
Forfeited............. (6,384) 0.24 (52,850) 0.24 (81,090) 0.24
Exercised............. -- -- (4,934) 0.25 (3,640) 0.28
------- ------- ---------
Outstanding at end of
period................. 125,083 0.24 292,033 0.25 1,092,103 0.29
======= ======= =========
Options exercisable at
end of period.......... 35,667 0.24 80,667 0.25 230,387 0.27
======= ======= =========
Weighted-average fair
value of options
granted during the
period at market....... $0.05 $0.04 $ 0.12
===== ===== ======
Weighted-average fair
value of options
granted during the
period at less than
market................. $ -- $ -- $ 1.37
===== ===== ======
</TABLE>
The following table summarizes information about stock options outstanding
as of September 30, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
-----------------------
WEIGHTED-
AVERAGE
NUMBER OF REMAINING
OPTIONS CONTRACTUAL OPTIONS
EXERCISE PRICES OUTSTANDING LIFE EXERCISABLE
--------------- ----------- ----------- -----------
<S> <C> <C> <C>
$0.24.................................. 188,933 8.14 years 130,250
0.30.................................. 903,170 9.31 years 100,137
--------- -------
1,092,103 230,387
========= =======
</TABLE>
WARRANTS
In 1995, in connection with various financing arrangements and the
appointment of a director, the Company issued warrants to purchase an
aggregate of 85,173 shares of the Company's common stock at prices ranging
from $2.40 to $4.50 per share. These warrants expire at various dates through
December 1997.
In 1996, in connection with various financing arrangements, the Company
issued warrants to purchase an aggregate of 17,157 shares of the Company's
common stock at prices ranging from $2.40 to $2.67 per share. These warrants
expire at various dates in 2001. Also in 1996, in connection with various
lease agreements and other matters, the Company issued warrants to purchase
329,167 shares of the Company's Series B1 redeemable convertible preferred
stock at $0.84 per share. These warrants expire at various dates from June
2003 through August 2004.
F-15
<PAGE>
EXODUS COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 IS UNAUDITED)
In March and June 1997, in connection with the bridge financing convertible
promissory notes discussed above, the Company issued warrants to purchase
198,697 shares of the Company's Series B redeemable convertible preferred
stock at $0.84 per share. The warrants expire in 2002 or upon the closing of
an IPO. In April 1997, in connection with the $3,000,000 equipment line of
credit (see Note 3), the Company issued warrants to purchase 196,429 shares of
the Company's Series B1 redeemable convertible preferred stock at $0.84 per
share. These warrants expire in April 2007. In June 1997, in connection with
the issuance of the Company's Series C redeemable convertible preferred stock,
the Company issued warrants to purchase 1,579,011 shares of the Company's
Series C redeemable convertible preferred stock at $1.362 per share. These
warrants expire the earlier of June 2002 or immediately prior to the closing
of a Qualified IPO. In August and September 1997, in connection with the
$3,000,000 equipment line of credit and the $6,500,000 equipment line of
credit (see Note 3), the Company issued warrants to purchase a total of
271,598 shares of the Company's Series C1 redeemable convertible preferred
stock at $1.362 per share. These warrants expire through September 2004.
The fair value of all warrant issuances, calculated using the Black-Scholes
option pricing module, using the following assumptions: dividends--none;
expected life--contractual term; risk free interest rates--5.8% to 6.7%;
volatility--60%, was not material except for the 1,579,011 warrants issued in
connection with the sale of the Series C redeemable convertible preferred
stock. The value of these warrants was determined to be $1,200,000 which was
recorded as a credit to additional paid-in capital as of September 30, 1997.
(6) COMMITMENTS AND CONTINGENCIES
Leases
The Company has entered into a number of operating leases for its
facilities. The leases expire from 1997 through 2007. The Company has
collateralized letters of credit with certificates of deposit aggregating
$1,053,000 for these leases. The Company also leases certain data center
infrastructure and equipment under capital leases (see Note 5). Certain of
these capital leases were entered into as sales-leaseback transactions. No
gain or loss was recorded in any such transaction due to the short holding
period from the time the assets was purchased until the time of the sale-
leaseback. Future minimum lease payments as of September 30, 1997 were as
follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING CAPITAL OPERATING
DECEMBER 31, LEASES LEASES
------------ ------- ---------
<S> <C> <C>
1997 (three months)...................................... $ 229 $ 580
1998..................................................... 881 2,373
1999..................................................... 814 2,394
2000..................................................... 580 2,445
2001..................................................... -- 2,362
Thereafter............................................... -- 7,290
------ -------
Total minimum lease payments............................. 2,504 $17,444
=======
Less amount representing imputed interest................ 438
------
Present value of minimum lease payments.................. 2,066
Less current portion..................................... 664
------
Capital lease obligations, less current portion.......... $1,402
======
</TABLE>
In November and December 1997, the Company entered into additional capital
leases aggregating $1,870,000 for a term of 36 months.
F-16
<PAGE>
EXODUS COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 IS UNAUDITED)
The Company's rent expense was $85,000, $248,000, and $1,099,000 for the
years ended December 31, 1995 and 1996 and for the nine months ended September
30, 1997, respectively.
Telecommunications Agreement
In September 1997, the Company entered into an agreement to obtain
telecommunications services for a period of 60 months with a minimum
commitment of $230,000 per month.
Royalty Agreement
In April 1997, the Company entered into an agreement with a software company
under which the Company licensed certain software for a royalty based on 1% of
the Company's gross revenues. Royalty expenses related to this agreement were
not significant for the nine months ended September 30, 1997.
Contingencies
The Company is engaged in certain legal actions arising in the ordinary
course of business. The Company believes that it has adequate legal defenses
and that the ultimate outcome of these actions will not have a material effect
on the Company's financial position and results of operations.
(7) INCOME TAXES
As of September 30, 1997, the Company had federal and California net
operating loss carryforwards of approximately $19,600,000 and $9,800,000,
respectively, which can be used to offset the Company's future tax
liabilities. The federal and California net operating loss carryforwards will
begin expiring in 2011 and 2001, respectively.
Federal and California tax laws impose significant restrictions on the
utilization of net operating loss carryforwards in the event of a shift in the
ownership of the Company that constitutes an "ownership change" as defined by
Section 382 of the Internal Revenue Code. As stated in Note 5, the Company has
had numerous equity transactions. These transactions most likely have
subjected its net operating loss to the aforementioned restrictions. The
Company plans to compute exact limitations upon realization of taxable
earnings and associated utilization of the net operating loss carryforwards.
The Company has deferred tax assets as of December 31, 1996 and September
30, 1997 of approximately $2,000,000 and $7,600,000, respectively, which have
been fully offset by valuation allowances. The deferred tax assets principally
resulted from the net operating loss carryforwards. The Company has provided a
valuation allowance due to the uncertainty of generating future profits that
would allow for the realization of such deferred tax assets. Accordingly, no
tax benefit was recorded in the accompanying statements of operations.
(8) SUBSEQUENT EVENTS
Reincorporation and Reverse Stock Split
In December 1997, the Board of Directors approved the Company's
reincorporation in the state of Delaware, which will become effective prior to
the effectiveness of the proposed IPO. The Certificate of Incorporation of the
Delaware successor corporation authorizes 50,000,000 shares of common stock,
$0.001 par value per share, and 5,000,000 shares of preferred stock, $0.001
par value per
F-17
<PAGE>
EXODUS COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 IS UNAUDITED)
share. The Board of Directors also approved a one-for-three reverse stock
split of the Company's common stock. The accompanying financial statements
have been retroactively restated to give effect to the reincorporation and
reverse stock split.
Stock Option Grants
In October, November and December 1997, the Company granted options to
purchase 638,334, 50,334 and 38,334 shares, respectively, of the Company's
common stock at exercise prices from $0.75 to $5.25 per share. In conjunction
with such grants, the Company recorded deferred stock compensation of
$2,758,000 for the difference at the grant date between the exercise price and
the fair value of the common stock underlying the options.
Redeemable Convertible Preferred Stock and Stockholders' (Deficit) Equity
In December 1997, the Company amended its Articles of Incorporation to
increase the number of authorized shares of common stock to 53,281,579 and
authorize 3,231,579 shares each of Series D and D1 redeemable convertible
preferred stock. The amended Articles of Incorporation also reduced the
offering price for a Qualified IPO, as defined, for all classes of redeemable
convertible preferred stock from $15.00 to $9.75, if the Qualified IPO occurs
prior to April 30, 1998.
In December 1997, the Company issued 2,631,579 shares of Series D redeemable
convertible preferred stock at $2.85 per share for cash proceeds aggregating
of $7,500,000.
The rights, preferences, privileges and restrictions of the Series D and D1
redeemable convertible preferred stock are the same as the for the Series C
and C1 redeemable convertible preferred stock, respectively, except for the
following:
. The holders of Series D and D1 redeemable convertible preferred stock are
entitled to cumulative dividends at the annual rate of $0.20 per share.
. Shares of Series D and D1 redeemable convertible preferred stock have a
liquidation preference of $2.85 per share, plus all declared but unpaid
dividends.
. At the option of the holders, the Series D redeemable convertible
preferred stock will be redeemable in one-half increments in June 2002
and June 2003 at a redemption price equal to the greater of $2.85 per
share plus cumulative dividends or the fair market value.
. In the event the Company proposes to issue additional shares of any
series of preferred stock, the current holders of Series D redeemable
convertible preferred stock will have the right of first refusal to
participate on a pro rata basis. In the event of a dilutive subsequent
financing, the holders of Series D redeemable convertible preferred stock
are provided with antidilution protection if they purchase their pro rata
share of such dilutive financing. If they do not purchase their pro rata
share, their Series D redeemable convertible preferred stock converts to
Series D1 redeemable convertible preferred stock, which receives no such
antidilutive protection.
Directors Option Plan
In January 1998, the Company adopted the 1998 Directors Stock Option Plan
(the "Directors Plan") and reserved a total of 200,000 shares of the Company's
common stock for issuance thereunder. Each nonemployee director who becomes a
member of the Board of Directors will initially be granted an option for
20,000 shares of the Company's common stock and, thereafter, an option to
purchase an additional 5,000 shares of the Company's common stock annually.
Initial options granted
F-18
<PAGE>
EXODUS COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 IS UNAUDITED)
under the Directors Plan will vest as to 33 1/3% of the shares on each annual
anniversary of the date of grant. Annual grants will vest 25% on each annual
anniversary of the date of grant. The exercise price of the options granted
under the Directors Plan will be at the fair market value of the Company's
common stock on the date of grant.
Employee Stock Purchase Plan
In January 1998, the Company adopted the 1998 Employee Stock Purchase Plan
(the "Purchase Plan") and reserved a total of 600,000 shares of the Company's
common stock for issuance thereunder. The Purchase Plan permits eligible
employees to purchase common stock through payroll deductions at a purchase
price of 85% of the lower of the fair market value of the common stock at the
beginning or end of each offering period.
1998 Equity Incentive Plan
In January 1998, the Company adopted the 1998 Equity Incentive Plan (the
"1998 Plan"). On the effective date of the Company's IPO, the 1998 Plan will
become effective as the successor to the 1997 Plan. The Company has reserved
1,500,000 shares of common stock for issuance under the 1998 Plan in addition
to the shares that remain from the 1997 Plan. The 1998 Plan permits the grant
of either incentive or nonqualified stock options. Options granted under the
1998 Plan will have a maximum term of 10 years and generally will vest over
four years. The 1998 Plan will terminate in January 2008.
Bank Borrowings, Debt and Lease Financing
In October, November and December 1997, the Company drew down the remaining
$4,600,000 under its $6,500,000 equipment line of credit facility.
In December 1997, the Company entered into an agreement for an $8,000,000
line of credit facility, bearing interest at 12.95% and expiring in January
1999. In conjunction with this agreement, the Company issued warrants to
purchase 247,826 shares of the Company's Series D1 redeemable convertible
preferred stock at a price of $2.85 per share, which expire in December 2007.
The fair value of the warrants, calculated using the Black-Scholes option
pricing model, using the assumptions described in Note 5, is approximately
$530,000. This amount will be amortized on a straight line basis through
January 1999.
In November and December 1997, the Company drew down the remaining $444,000
available under its April 1997 $3,000,000 equipment line of credit facility.
In December 1997, the Company's $1,000,000 bank line of credit agreement was
amended to increase the available line to $5,000,000. The Company then drew
down $3,000,000 on this bank line of credit, which was repaid on January 2,
1998. The line of credit expires in December 1998.
In December 1997, the Company entered into an agreement for a 42-month
$4,000,000 equipment lease facility for equipment delivered no later than
March 31, 1998.
In December 1997, the Company entered into an agreement for a 42-month
$5,000,000 equipment line of credit, bearing interest at an effective rate of
14.16%, and has drawn down $3,236,000 to date. In conjunction with this
agreement, the Company issued warrants to purchase 125,000 shares of the
Company's Series D1 redeemable convertible preferred stock at a price of $2.85
per share, which expire in June 2003. The fair value of the warrants,
calculated using the Black-Scholes option pricing model, using the assumptions
described in Note 5, is not material.
F-19
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Company has agreed to sell to each of the Underwriters named below (the
"Underwriters"), and each of such Underwriters, for whom Goldman, Sachs & Co.,
BT Alex. Brown Incorporated and NationsBanc Montgomery Securities LLC are
acting as representatives, has severally agreed to purchase from the Company,
the respective number of shares of Common Stock set forth opposite its name
below:
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF
UNDERWRITER COMMON STOCK
----------- ------------
<S> <C>
Goldman, Sachs & Co. ...........................................
BT Alex. Brown Incorporated.....................................
NationsBanc Montgomery Securities LLC ..........................
----
Total.......................................................
====
</TABLE>
Under the terms and conditions of the Underwriting Agreement, the
Underwriters are committed to take and pay for all of the shares offered
hereby, if any are taken.
The Underwriters propose to offer the shares of Common Stock in part
directly to the public at the initial public offering price set forth on the
cover page of this Prospectus and in part to certain securities dealers at
such price less a concession of $ per share. The Underwriters may allow, and
such dealers may reallow, a concession of not in excess of $ per share to
certain brokers and dealers. After the shares of Common Stock are released for
sale to the public, the offering price and other selling terms may from time
to time be varied by the representatives.
The Company and the Selling Stockholders have granted the Underwriters an
option exercisable for 30 days after the date of this Prospectus to purchase
up to an aggregate of additional shares of Common Stock at the initial
public offering price per share, less the underwriting discount, solely to
cover over-allotments, if any. If the Underwriters exercise their over-
allotment option, the Underwriters have severally agreed, subject to certain
conditions, to purchase approximately the same percentage thereof that the
number of shares to be purchased by each of them, as shown in the foregoing
table, bears to the shares of Common Stock offered hereby.
The Company has agreed that, during the period beginning from the date of
this Prospectus and continuing to and including the date 180 days after the
date of this Prospectus, it will not offer, sell, contract to sell or
otherwise dispose of any securities of the Company (other than pursuant to
employee stock option or stock purchase plans existing, or on the conversion
or exchange of convertible or exchangeable securities outstanding, on the date
of this Prospectus) which are substantially similar to the Common Stock or
which are convertible into or exchangeable for securities which are
substantially similar to the Common Stock without the prior written consent of
the representatives, except for the shares of Common Stock offered in
connection with the offering.
In addition, the Company's officers and directors and all holders of shares
of capital stock and warrants of the Company have agreed that they will not
offer, sell or otherwise dispose of any shares of Common Stock owned of record
or beneficially as of the date of the Prospectus, including securities
convertible into or exercisable or exchangeable for shares of Common Stock as
of said date, as well as any shares of Common Stock later acquired by reason
of the conversion, exercise or exchange of
U-1
<PAGE>
such securities, or enter into any swap or other transaction with respect to
the shares that would transfer the economic consequences of ownership of the
Common Stock to another person, for a period of 180 days following the date of
this Prospectus, except that such persons may dispose of shares of Common
Stock as bona fide gifts if the recipient of any such gift agrees in writing
with the Underwriters to be bound by the terms of this 180-day transfer
restriction.
The representatives of the Underwriters have informed the Company that they
do not expect sales to accounts over which the Underwriters exercise
discretionary authority to exceed 5% of the total number of shares of Common
Stock offered by them.
Prior to the offering, there has been no public market for the shares. The
initial public offering price will be negotiated among the Company, the
representatives of the Underwriters and the representatives of the Selling
Stockholders. Among the factors to be considered in determining the initial
public offering price of the Common Stock, in addition to prevailing market
conditions, will be the Company's historical performance, estimates of the
business potential and earnings prospects of the Company, an assessment of the
Company's management and the consideration of the above factors in relation to
market valuation of companies in related business.
In connection with the offering, the Underwriters may purchase and sell the
Common Stock in the open market. These transactions may include over-allotment
and stabilizing transactions and purchases to cover syndicate short positions
created in connection with the offering. Stabilizing transactions consist of
certain bids or purchases for the purpose of preventing or retarding a decline
in the market price of the Common Stock; and syndicate short positions involve
the sale by the Underwriters of a greater number of shares of Common Stock
than they are required to purchase from the Company in the offering. The
Underwriters also may impose a penalty bid, whereby selling concessions
allowed to syndicate members or other broker-dealers in respect of the
securities sold in the offering for their account may be reclaimed by the
syndicate if such shares of Common Stock are repurchased by the syndicate in
stabilizing or covering transactions. These activities may stabilize, maintain
or otherwise affect the market price of the Common Stock which may be higher
than the price that might otherwise prevail in the open market; and these
activities, if commenced, may be discontinued at any time. These transactions
may be effected on the Nasdaq National Market, in the over-the-counter market
or otherwise.
Application has been made for quotation of the Common Stock on the Nasdaq
National Market under the symbol "EXDS." The Company and, to the extent the
over-allotment option is exercised, the Selling Stockholders have agreed to
indemnify the several Underwriters against certain liabilities, including
liabilities under the Securities Act.
U-2
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO
WHICH IT RELATES OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY
SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 6
Use of Proceeds........................................................... 20
Dividend Policy........................................................... 20
Capitalization............................................................ 21
Dilution.................................................................. 22
Selected Financial Data................................................... 23
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 25
Business.................................................................. 34
Management................................................................ 52
Certain Transactions...................................................... 60
Principal and Selling Stockholders........................................ 63
Description of Capital Stock.............................................. 65
Shares Eligible for Future Sale........................................... 67
Legal Matters............................................................. 68
Experts................................................................... 69
Additional Information.................................................... 69
Index to Financial Statements............................................. F-1
Underwriting.............................................................. U-1
</TABLE>
THROUGH AND INCLUDING , 1998 (THE 25TH DAY AFTER THE DATE OF THIS
PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER
OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A
PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SHARES
EXODUS COMMUNICATIONS, INC.
COMMON STOCK
(PAR VALUE, $0.001 PER SHARE)
----------------
[LOGO OF EXODUS]
----------------
GOLDMAN, SACHS & CO.
BT ALEX. BROWN
NATIONSBANC MONTGOMERY SECURITIES LLC
REPRESENTATIVES OF THE UNDERWRITERS
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the costs and expenses to be paid by the
Company in connection with the sale of the shares of Common Stock being
registered hereby. All amounts are estimates except for the Securities and
Exchange Commission registration fee, the NASD filing fee and the Nasdaq
National Market filing fee.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee................. $13,570
NASD filing fee..................................................... 5,100
Nasdaq National Market filing fee................................... 50,000
Accounting fees and expenses*.......................................
Legal fees and expenses*............................................
Road show expenses*.................................................
Printing and engraving expenses*....................................
Blue sky fees and expenses*.........................................
Transfer agent and registrar fees and expenses*.....................
Custodian fees*.....................................................
Miscellaneous*......................................................
-------
Total*............................................................ $
=======
</TABLE>
- --------
* To be supplied by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
As permitted by Section 145 of the Delaware General Corporation Law, the
Registrant's Certificate of Incorporation includes a provision that eliminates
the personal liability of its directors to the Registrant or its stockholders
for monetary damages for breach of fiduciary duty as a director, except for
liability (i) for any breach of the director's duty of loyalty to the
corporation or its stockholders, (ii) for acts or omissions not in good faith
or that involve intentional misconduct or a knowing violation of law, (iii)
under Section 174 of the Delaware General Corporation Law or (iv) for any
transaction from which the director derived an improper personal benefit. In
addition, as permitted by Section 145 of the Delaware General Corporation Law,
the Bylaws of the Registrant provide that: (i) the Registrant is required to
indemnify its directors and executive officers to the fullest extent permitted
by the Delaware General Corporation Law; (ii) the Registrant may, in its
discretion, indemnify other officers, employees and agents as set forth in the
Delaware General Corporation Law; (iii) upon receipt of an undertaking to
repay such advances if indemnification is determined to be unavailable, the
Registrant is required to advance expenses, as incurred, to its directors and
executive officers to the fullest extent permitted by the Delaware General
Corporation Law in connection with a proceeding (except if a determination is
reasonably and promptly made by the Board of Directors by a majority vote of a
quorum consisting of directors who were not parties to the proceeding or, in
certain circumstances, by independent legal counsel in a written opinion that
the facts known to the decision-making party demonstrate clearly and
convincingly that such person acted in bad faith or in a manner that such
person did not believe to be in, or not opposed to, the best interests of the
corporation); (iv) the rights conferred in the Bylaws are not exclusive and
the Registrant is authorized to enter into indemnification agreements with its
directors, officers and employees and agents; (v) the Registrant may not
retroactively amend the Bylaw provisions relating to indemnity; and (vi) to
the fullest extent permitted by the Delaware General Corporation Law, a
director or executive officer will be deemed to have acted in good faith and
in a manner he or she reasonably believed to be in, or not opposed to, the
best interests of the Registrant and, with respect to any criminal action or
proceeding, to have had no reasonable cause to believe that his or her conduct
was unlawful if his or her action is based on the records or books of account
of the corporation or on information supplied to him or her by officers of the
corporation in the course of
II-1
<PAGE>
their duties or on the advice of legal counsel for the corporation or on
information or records given or reports made to the corporation by independent
certified public accountants or appraisers or other experts.
The Registrant's policy is to enter into indemnification agreements with
each of its directors and executive officers. The indemnification agreements
provide that directors and executive officers will be indemnified and held
harmless to the fullest possible extent permitted by law including against all
expenses (including attorneys' fees), judgments, fines and settlement amounts
paid or reasonably incurred by them in any action, suit or proceeding,
including any derivative action by or in the right of the Registrant, on
account of their services as directors, officers, employees or agents of the
Registrant or as directors, officers, employees or agents of any other company
or enterprise when they are serving in such capacities at the request of the
Registrant. The Registrant will not be obligated pursuant to the agreements to
indemnify or advance expenses to an indemnified party with respect to
proceedings or claims (i) initiated or brought voluntarily by the indemnified
party and not by way of defense, except with respect to a proceeding to
establish or enforce a right to indemnify under the indemnification agreements
or any other agreement or insurance policy or under the Registrant's
Certificate of Incorporation or Bylaws now or hereafter in effect relating to
indemnification, or authorized by the Board of Directors or as otherwise
required under Delaware statute or law, regardless of whether the indemnified
party is ultimately determined to be entitled to such indemnification, (ii)
for expenses and the payment of profits arising from the purchase and sale by
the indemnified party of securities in violation of Section 16(b) of the
Securities Exchange Act of 1934 or any similar successor statute or (iii) if a
final decision by a court having jurisdiction in the matter shall determine
that such indemnification is not lawful.
The indemnification agreement also provides for contribution in certain
situations in which the Registrant and a director or executive officer are
jointly liable but indemnification is unavailable, such contribution to be
based on the relative benefits received and the relative fault of the
Registrant and the director or executive officer. No contribution is allowed
to a person found guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Securities Act of 1933) from any person who was not
found guilty of such fraudulent misrepresentation.
The indemnification agreement requires a director or executive officer to
reimburse the Registrant for all expenses advanced only to the extent it is
ultimately determined that the director or executive officer is not entitled,
under Delaware law, the Bylaws, the indemnification agreement or otherwise, to
be indemnified for such expenses. The form of indemnification agreement
provides that it is not exclusive of any rights a director or executive
officer may have under the Certificate of Incorporation, Bylaws, other
agreements, any majority-in-interest vote of the stockholders or vote of
disinterested directors, Delaware law or otherwise.
The indemnification provision in the Bylaws, and the form of indemnification
agreements entered into between the Registrant and its directors and executive
officers, may be sufficiently broad to permit indemnification of the
Registrant's executive officers and directors for liabilities arising under
the Securities Act of 1933, as amended (the "Securities Act").
As authorized by the Registrant's Bylaws, the Registrant, with approval by
the Board, expects to purchase director and officer liability insurance.
In addition, Mr. Mocarski is indemnified in certain circumstances by Fleet
Financial Group, Inc.
See also the undertakings set out in response to Item 17.
II-2
<PAGE>
Reference is made to the following documents filed as exhibits to this
Registration Statement regarding relevant indemnification provisions described
above and elsewhere herein:
<TABLE>
<CAPTION>
DOCUMENT EXHIBIT NUMBER
-------- --------------
<S> <C>
Underwriting Agreement ..................................... 1.01*
Form of Registrant's Amended and Restated Certificate of
Incorporation to be filed immediately following the
offering................................................... 3.04
Registrant's Bylaws......................................... 3.06
Form of Indemnification Agreement........................... 10.08
</TABLE>
--------
*To be supplied by amendment.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
The following table sets forth information regarding all securities sold by
the Registrant since January 1, 1995.
<TABLE>
<CAPTION>
AGGREGATE
NUMBER OF PURCHASE FORM OF
CLASS OF PURCHASERS DATE OF SALE TITLE OF SECURITIES SHARES PRICE CONSIDERATION
- ------------------- -------------- ------------------- --------- ---------- ------------------------
<S> <C> <C> <C> <C> <C> <C>
Fouress, Inc. (1) February 16, Common Stock 33 $ 100 Cash
1995
K.B. Chandrasekhar May 15, 1995 Common Stock 1,000,000 -- -- (2)
and B.V.
Jagadeesh,
officers/founders
of Registrant
K.B. Chandrasekhar June 20, 1995 Common Stock 333,332 80,000 Notes (3)
and B.V. Jagadeesh
Semi-Custom Logic, August 15, Warrant to purchase N/A -- -- (5)
Inc. 1995 66,666 shares of
Common Stock (4)
Richard S. Stoltz, October 3, Common Stock 400,000 96,000 Notes (3)
an officer of 1995
Registrant, and
Fred R. Sibayan,
Jr.
Prasad Kaipa December 1, Warrant to purchase N/A -- -- (7)
1995 333 shares of
Common Stock (6)
First Portland December 20, Warrant to purchase N/A -- -- (5)
Leasing 1995 1,506 shares of
Corporation Common Stock
Kanwal Rekhi, a December 21, Warrant to purchase N/A -- -- (9)
director of 1995 16,666 shares of
Registrant Common Stock (8)
Patil Suhas February 1, Warrant to purchase N/A -- -- (7)
1996 16,667 shares of
Common Stock
First Portland February 14, Warrant to purchase N/A -- -- (5)
Leasing 1996 490 shares of
Corporation Common Stock
22 investors February 29 Series A Preferred 2,599,481 3,219,994 Cash and con-
and March 15, Stock version of out-
1996 standing notes (3) (10)
3 trusts for which March 30, 1996 Common Stock 94,333 22,640 Cash (3)
Kanwal S. Rekhi is
a trustee
John R. Dougery, a April 29, 1996 Common Stock 40,000 9,600 Cash (3)
director of
Registrant
3 individuals August 30, Warrants to N/A -- -- (5)
1996 purchase 20,834
shares of
Series B1 Preferred
Stock
24 investors October 2, Series B Preferred 2,579,355 6,500,000 Cash (3)
1996 Stock
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
AGGREGATE
NUMBER OF PURCHASE FORM OF
CLASS OF PURCHASERS DATE OF SALE TITLE OF SECURITIES SHARES PRICE CONSIDERATION
- ------------------- -------------- ------------------- --------- ---------- ------------------------------
<S> <C> <C> <C> <C> <C> <C>
Peter A. Howley, a October 2, Warrant to purchase N/A -- -- (9)
director of 1996 19,841 shares
Registrant of Series B1
Preferred Stock
(11)
Venture Lending and October 2, Warrant to purchase N/A -- -- (5)
Leasing 1996 57,143 shares of
Corporation Series B1 Preferred
Stock
3 individuals November 6, Warrants to N/A -- -- (5)
1996 purchase 11,906
shares of Series B1
Preferred Stock
27 investors March 31, 1997 Convertible N/A 2,473,866 -- (3) (12)
Promissory Notes
27 investors March 31, 1997 Warrants to N/A 1,039 Cash (3) (16)
purchase 41,240
shares of Series B
Preferred Stock
(13)(14)(15)
MMC/GATX April 11, 1997 Warrants to N/A -- -- (5)
Partnership No. 1 purchase 65,477
and Silicon shares of Series B1
Valley Bank Preferred Stock
25 investors June 4 and Convertible N/A 1,500,000 -- (3) (17)
June 19, 1997 Promissory Notes
25 investors June 4 and Warrants to N/A 630 -- (3) (21)
June 19, 1997 purchase 25,008
shares of Series B
Preferred Stock
(18)(19)(20)
43 investors June 25, 1997 Series C Preferred 5,263,270 21,510,537 Cash and con-
Stock version of notes (3) (12) (17)
43 investors June 25, 1997 Warrants to N/A 37 Cash (3)
purchase 526,349
shares of Series C
Preferred Stock
(22)(23)(24)
David A. Sabey July 21, 1997 Series B1 Preferred 2,000 5,040 Cash (5)
Stock
Venture Lending and August 31, Warrant to purchase N/A -- -- (5)
Leasing 1997 58,724 shares of
Corporation Series C1 Preferred
Stock
Meier Mitchell & September 30, Warrants to 31,810 -- -- (5)
Company and 1997 purchase 31,810
Transamerica shares of Series C1
Business Credit Preferred Stock
Corporation
Peter A. Howley October 10, Series B1 Preferred 19,841 50,000 Cash (3)
1997 Stock (11)
Peter A. Howley October 10, Series B Preferred 1,033 2,603 Cash (3)
1997 Stock (14)(19)
Peter A. Howley October 10, Series C Preferred 1,534 6,269 Cash (3)
1997 Stock (23)
Rekhi Family Trust November 19, Common Stock (8) 16,666 40,000 Cash (3)
dated 12/15/89, 1997
for which Kanwal
S. Rekhi is
trustee
Rekhi Family Trust November 19, Series B Preferred 3,761 9,479 Cash (3)
dated 12/15/89 1997 Stock (13)(18)
Rekhi Family Trust November 19, Series C Preferred 5,552 22,692 Cash (3)
dated 12/15/89 1997 Stock (22)
40 investors December 17, Series D Preferred 877,180 7,500,000 Cash (3)
1997 Stock
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
AGGREGATE
NUMBER OF PURCHASE FORM OF
CLASS OF PURCHASERS DATE OF SALE TITLE OF SECURITIES SHARES PRICE CONSIDERATION
- ------------------- -------------- ------------------- --------- --------- ------------------
<S> <C> <C> <C> <C> <C> <C>
ITV Partnerships December 23, Series B Preferred 7,814 19,699 Cash (3)
1997 Stock (15)(20)
ITV Partnerships December 23, Series C Preferred 11,574 47,310 Cash (3)
1997 Stock (24)
Prasad Kaipa December 30, Common Stock (6) 333 1,500 Cash
1997
3 individuals December 30, Common Stock (4) 66,666 160,000 Cash
1997
4 entities December 23 Warrants to N/A -- -- (5)
and 31, 1997 purchase 124,277
shares of Series D1
Preferred Stock
13 employee January 1, Common Stock 107,363(25) 25,768 Cash and Notes
participants in 1995--
1995 Employee December 31,
Stock Purchase 1997
Plan
12 employee January 1, Common Stock 93,614 29,298 Cash and Notes
optionees 1995--
December 31,
1997
</TABLE>
In connection with the planned Delaware reincorporation of the Company, the
Company plans to issue shares of Common Stock, Series A Preferred Stock,
Series B Preferred Stock, Series B1 Preferred Stock, Series C Preferred Stock
and Series D Preferred Stock and options and warrants in exchange for a like
number of shares, options and warrants, respectively, in the predecessor
California entity. Each of the individual and entities listed above will
receive the number of shares of such class or series identified above.
- --------
(1) Purchased in connection with the incorporation of the Registrant as a
wholly-owned subsidiary of Fouress, Inc., the predecessor of the
Registrant ("Fouress"). These shares were canceled in May 1995 upon the
closing of the merger of Fouress with and into the Registrant.
(2) Represents shares of the Registrant exchanged for an aggregate of 5,000
shares originally purchased from Fouress for an aggregate purchase price
of $4,000 in connection with the merger of Fouress with and into the
Registrant.
(3) See "Certain Transactions."
(4) The warrant was exercised by the three principals of the leasing company
on December 30, 1997 at an exercise price of $2.40 per share.
(5) Issued as additional consideration for an equipment lease line of
credit.
(6) The warrant was exercised on December 30, 1997 at an exercise price of
$4.50 per share.
(7) The warrant was issued as additional consideration for a loan to the
Registrant.
(8) The warrant was exercised on November 19, 1997 at an exercise price of
$2.40 per share.
(9) The warrant was issued as consideration for serving as a member of the
Board of Directors.
(10) In December 1995, Kanwal S. Rekhi loaned Exodus California $200,000, all
of which was converted into Series A Preferred Stock on February 29,
1996.
(11) The warrant was exercised on October 10, 1997 at an exercise price of
$2.52 per share.
(12) The entities and individuals loaned an aggregate of $2,473,866, all of
which was converted into Series C Preferred Stock on June 25, 1997.
(13) One trust, for which Kanwal S. Rekhi is a trustee, exercised one such
warrant for 1,034 shares of Series B Preferred Stock on November 19, 1997
at an exercise price of $2.52 cents per share.
(14) Peter A. Howley exercised one such warrant for 833 shares of Series B
Preferred Stock on October 10, 1997 at an exercise price of $2.52 per
share.
(15) The ITV Partnerships exercised two such warrants for 4,466 shares of
Series B Preferred Stock on December 23, 1997 at an exercise price of
$2.52 per share.
(16) Issued in connection with the March 31, 1997 bridge financing of
$2,473,866.
(17) The entities and individuals loaned an aggregate of $1,500,000, all of
which was converted into Series C Preferred Stock on June 25, 1997.
(18) One trust, for which Kanwal S. Rekhi is a trustee, exercised two such
warrants for 2,727 shares of Series B Preferred Stock on November 19,
1997 at an exercise price of $2.52 cents per share.
II-5
<PAGE>
(19) Peter A. Howley exercised two such warrants for 200 shares of Series B
Preferred Stock on October 10, 1997 at an exercise price of $2.52 per
share.
(20) The ITV Partnerships exercised four such warrants for 3,348 shares of
Series B Preferred Stock on December 23, 1997 at an exercise price of
$2.52 per share.
(21) Issued in connection with the June 4 and June 19, 1997 bridge financing
of $1,500,000.
(22) One trust, for which Kanwal S. Rekhi is a trustee, exercised one such
warrant for 5,552 shares of Series C Preferred Stock on November 19, 1997
at an exercise price of $4.0869 per share.
(23) Peter A. Howley exercised one such warrant for 1,534 shares of Series C
Preferred Stock on October 10, 1997 at an exercise price of $4.0869 per
share.
(24) The ITV Partnerships exercised six such warrants for 11,574 shares of
Series C Preferred Stock on December 23, 1997 at an exercised price of
$4.0869 per share.
(25) Includes 41,732 shares subsequently repurchased from certain terminated
employees pursuant to the terms of the 1995 Employee Stock Purchase Plan.
- --------
The securities acquired by the Registrant's officers, directors, employees
and consultants were made in reliance on Rule 701 under the Securities Act.
All sales of Preferred Stock, warrants and notes were made in reliance on
Section 4(2) of the Securities Act and/or Regulation D promulgated under the
Securities Act. The securities were sold to a limited number of people with no
general solicitation or advertising.
II-6
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) The following exhibits are filed herewith:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
------- -------------
<C> <S>
1.01 Underwriting Agreement.*
2.01 Agreement and Plan of Merger between Fouress, Inc. and Registrant
dated April 26, 1995.
2.02 Form of Agreement and Plan of Merger by and between Registrant and
Exodus Communications, Inc., a California Corporation.
3.01 Amended and Restated Articles of Incorporation of Exodus
Communications, Inc., a California corporation.
3.02 Registrant's Certificate of Incorporation, as currently in effect.
3.03 Registrant's Certificate of Designation.
3.04 Form of Registrant's Amended and Restated Certificate of Incorporation
to be filed immediately following the offering.
3.05 Bylaws of Exodus Communications, Inc., a California Corporation.
3.06 Registrant's Bylaws.
4.01 Form of Specimen Certificate for Registrant's Common Stock.*
5.01 Opinion of Fenwick & West LLP regarding legality of the securities
being registered.*
10.01 Amended and Restated Investors Rights Agreement, dated as of June 25,
1997 between the Registrant and certain investors, as amended December
15, 1997.
10.02 Registrant's 1995 Stock Option Plan and related forms of agreements.
10.03 Registrant's 1995 Stock Purchase Plan and related forms of agreements.
10.04 Registrant's 1997 Equity Incentive Plan and related forms of
agreements.
10.05 Registrant's 1998 Equity Incentive Plan and related forms of
agreements.
10.06 Registrant's 1998 Directors Stock Option Plan and related forms of
agreements.
10.07 Registrant's 1998 Employee Stock Purchase Plan.
10.08 Form of Indemnification Agreement entered into by Registrant with each
of its directors and executive officers, as amended.
10.09 Facility Lease between Washcop Associates Limited Partnership and the
Registrant dated April 18, 1996.
10.10 Facility Lease between Cal-Harbor II & III Urban Renewal Associates
and Registrant dated December 30, 1996.
10.11 Facility Lease between McCandless-San Tomas N. 2 and Registrant dated
April 18, 1997.
10.12 Facility Lease between Sabey Corporation and Registrant dated April
24, 1997.
10.13 Facility Lease between The Manufacturers Life Insurance Company and
Registrant dated June 27, 1997.
10.14 Facility Lease between JBG/Spring Park Limited Partnership and
Registrant dated June 30, 1997.
10.15 Application for Data Services between WorldCom, Inc. and the
Registrant dated September 18, 1997.
10.16 Software License and Marketing Agreement between Computer Associates
International, Inc. and the Registrant dated April 1997.
10.17 Form of Executive Employment Policy to be entered into between the
Registrant and certain officers.
10.18 Equipment Lease Line of Credit between Transamerica Business Credit
Corporation and Registrant dated August 28, 1997.
10.19 Loan and Security Agreement between Silicon Valley Bank and Registrant
dated June 14, 1996, as amended on March 25, 1997, June 13, 1997,
November 24, 1997 and December 8, 1997.
10.20 Loan and Security Agreement among MMC/GATX Partnership No. 1,
Transamerica Business Credit Corporation and Registrant dated December
31, 1997.
</TABLE>
II-7
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
------- -------------
<C> <S>
10.21 Equipment Lease Line of Credit between Venture Lending & Leasing II,
Inc. and Registrant dated December 23, 1997.
10.22 Equipment Lease Line of Credit Commitment between Finova Technology
Finance, Inc. and Registrant dated December 17, 1997.
10.23 Sublease Agreement dated January 12, 1998 between Amdahl Corporation
and Registrant.*
11.01 Statement regarding computation of pro forma net loss per share.
23.01 Consent of Fenwick & West LLP (included in Exhibit 5.01).*
23.02 Consent of KPMG Peat Marwick LLP, independent accountants.
24.01 Power of Attorney (see Page II-9 of this Registration Statement).
27.01 Financial Data Schedule.
</TABLE>
- --------
* To be supplied by amendment.
(b) Financial statement schedules are omitted because the information called
for is not required or is shown either in the Financial Statements or the
notes thereto.
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described under Item 14 above, or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other
than the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-8
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF SANTA CLARA, STATE OF
CALIFORNIA, ON THE 16TH DAY OF JANUARY, 1998.
Exodus Communications, Inc.
By /s/ K.B. Chandrasekhar
--------------------------------
K.B. CHANDRASEKHAR PRESIDENT,
CHIEF EXECUTIVE OFFICER AND
CHAIRMAN OF THE BOARD OF DIRECTORS
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS that each individual whose signature
appears below constitutes and appoints K.B. Chandrasekhar and Richard S.
Stoltz, and each of them, his true and lawful attorneys-in-fact and agents
with full power of substitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments (including post-
effective amendments) to this Registration Statement, and to sign any
registration statement for the same offering covered by the Registration
Statement that is to be effective upon filing pursuant to Rule 462(b)
promulgated under the Securities Act of 1933, and all post-effective
amendments thereto, and to file the same, with all exhibits thereto and all
documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents or any of them, or his
or their substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
NAME TITLE DATE
PRINCIPAL EXECUTIVE OFFICER:
/s/ K.B. Chandrasekhar President, Chief January 16, 1998
- ------------------------------------- Executive Officer
K.B. CHANDRASEKHAR and Chairman of the
Board of Directors
PRINCIPAL FINANCIAL OFFICER AND PRINCIPAL ACCOUNTING OFFICER:
/s/ Richard S. Stoltz Chief Financial January 16, 1998
- ------------------------------------- Officer and Chief
RICHARD S. STOLTZ Operating Officer
II-9
<PAGE>
NAME TITLE DATE
ADDITIONAL DIRECTORS:
/s/ Kanwal S. Rekhi Director January 16, 1998
- -------------------------------------
KANWAL S. REKHI
/s/ Peter A. Howley Director January 16, 1998
- -------------------------------------
PETER A. HOWLEY
/s/ Thadeus Mocarski Director January 16, 1998
- -------------------------------------
THADEUS MOCARSKI
/s/ John R. Dougery Director January 16, 1998
- -------------------------------------
JOHN R. DOUGERY
/s/ Mark Dubovoy Director January 16, 1998
- -------------------------------------
MARK DUBOVOY
/s/ Frederick W.W. Bolander Director January 16, 1998
- -------------------------------------
FREDERICK W.W. BOLANDER
II-10
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT TITLE
----------- -------------
<C> <S>
1.01 Underwriting Agreement.*
2.01 Agreement and Plan of Merger between Fouress, Inc. and Registrant
dated April 26, 1995.
2.02 Form of Agreement and Plan of Merger by and between Registrant and
Exodus Communications, Inc., a California Corporation.
3.01 Amended and Restated Articles of Incorporation of Exodus
Communications, Inc., a California corporation.
3.02 Registrant's Certificate of Incorporation, as currently in effect.
3.03 Registrant's Certificate of Designation.
3.04 Form of Registrant's Amended and Restated Certificate of
Incorporation to be filed immediately following the offering.
3.05 Bylaws of Exodus Communications, Inc., a California Corporation.
3.06 Registrant's Bylaws.
4.01 Form of Specimen Certificate for Registrant's Common Stock.*
5.01 Opinion of Fenwick & West LLP regarding legality of the securities
being registered.*
10.01 Amended and Restated Investors Rights Agreement, dated as of June
25, 1997 between the Registrant and certain investors, as amended
December 15, 1997.
10.02 Registrant's 1995 Stock Option Plan and related forms of
agreements.
10.03 Registrant's 1995 Stock Purchase Plan and related forms of
agreements.
10.04 Registrant's 1997 Equity Incentive Plan and related forms of
agreements.
10.05 Registrant's 1998 Equity Incentive Plan and related forms of
agreements.
10.06 Registrant's 1998 Directors Stock Option Plan and related forms of
agreements.
10.07 Registrant's 1998 Employee Stock Purchase Plan.
10.08 Form of Indemnification Agreement entered into by Registrant with
each of its directors and executive officers, as amended.
10.09 Facility Lease between Washcop Associates Limited Partnership and
the Registrant dated April 18, 1996.
10.10 Facility Lease between Cal-Harbor II & III Urban Renewal
Associates and Registrant dated December 30, 1996.
10.11 Facility Lease between McCandless-San Tomas N. 2 and Registrant
dated April 18, 1997.
10.12 Facility Lease between Sabey Corporation and Registrant dated
April 24, 1997.
10.13 Facility Lease between The Manufacturers Life Insurance Company
and Registrant dated June 27, 1997.
10.14 Facility Lease between JBG/Spring Park Limited Partnership and
Registrant dated June 30, 1997.
10.15 Application for Data Services between WorldCom, Inc. and the
Registrant dated September 18, 1997.
10.16 Software License and Marketing Agreement between Computer
Associates International, Inc. and the Registrant dated April
1997.
10.17 Form of Executive Employment Policy to be entered into between the
Registrant and certain officers.
10.18 Equipment Lease Line of Credit between Transamerica Business
Credit Corporation and Registrant dated August 28, 1997.
10.19 Loan and Security Agreement between Silicon Valley Bank and
Registrant dated June 14, 1996, as amended on March 25, 1997, June
13, 1997, November 24, 1997 and December 8, 1997.
10.20 Loan and Security Agreement among MMC/GATX Partnership No. 1,
Transamerica Business Credit Corporation and Registrant dated
December 31, 1997.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT TITLE
----------- -------------
<C> <S>
10.21 Equipment Lease Line of Credit between Venture Lending & Leasing
II, Inc. and Registrant dated December 23, 1997.
10.22 Equipment Lease Line of Credit Commitment between Finova
Technology Finance, Inc. and Registrant dated December 17, 1997.
10.23 Sublease Agreement dated January 12, 1998 between Amdahl
Corporation and Registrant.*
11.01 Statement regarding computation of pro forma net loss per share.
23.01 Consent of Fenwick & West LLP (included in Exhibit 5.01).*
23.02 Consent of KPMG Peat Marwick LLP, independent accountants.
24.01 Power of Attorney (see Page II-9 of this Registration Statement).
27.01 Financial Data Schedule.
</TABLE>
- --------
* To be supplied by amendment.
<PAGE>
EXHIBIT 2.01
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER ("Merger Agreement") is made as of April
----------------
26, 1995 by and between Fouress, Inc., a Maryland close corporation ("Fouress"),
-------
and Exodus Communications, a California corporation ("Exodus"). Fouress and
------
Exodus are hereinafter sometimes collectively referred to as the "Constituent
-----------
Corporations."
- ------------
A. Fouress was organized on August 3, 1992, under the General Corporation
Law of Maryland as a close corporation. Its authorized capital stock consists
of 100,000 shares of Common Stock, par value $1.00 per share ("Fouress Common
--------------
Stock"), of which 5,000 shares are issued and outstanding.
- -----
B. Exodus was organized on February 16, 1995 under the General
Corporation Law of California. Its authorized capital stock consists of
10,000,000 shares of Common Stock, no par value ("Exodus Common Stock"), of
-------------------
which 100 shares are issued and outstanding, and 4,000,000 shares of Preferred
Stock, no par value, none of which are issued or outstanding. Fouress owns all
of the issued and outstanding shares of Exodus.
C. The Boards of Directors of Fouress and Exodus deem it advisable and in
the best interests of each of the Constituent Corporations that Fouress merge
with and into Exodus upon the terms and subject to the conditions set forth in
this Merger Agreement for the purpose of effecting a change of the state of
incorporation of Fouress from Maryland to California.
D. The Board of Directors of each of the Constituent Corporations has
approved this Merger Agreement.
NOW, THEREFORE, the parties do hereby adopt the plan of reorganization
encompassed by this Merger Agreement and do hereby agree that Fouress shall
merge with and into Exodus on the following terms, conditions and other
provisions:
1. Merger and Effective Date. On the Effective Date (as defined below),
-------------------------
Fouress shall be merged with and into Exodus (the "Merger"), and Exodus shall be
------
the surviving corporation (the "Surviving Corporation"). The Merger shall
---------------------
become effective upon the close of business on the date when a duly executed
copy of this Merger Agreement is filed with the Secretary of State of the State
of California, or upon the close of business on the date when a duly executed
Articles of Merger are filed with the State of Maryland, whichever later occurs
(the "Effective Date").
--------------
2. Effect of Merger. On the Effective Date, the separate corporate
----------------
existence of Fouress shall cease; the corporate identity, existence, powers,
rights and immunities of Exodus as the Surviving Corporation shall continue
unimpaired by the Merger; and Exodus shall succeed to and shall possess all the
properties, rights, privileges, powers, franchises, immunities and purposes, and
be subject to all the debts, liabilities, obligations, restrictions,
disabilities, penalties and duties of Fouress, all without further act or deed.
1
<PAGE>
3. Governing Documents. The Articles of Incorporation of Exodus in
-------------------
effect immediately prior to the Effective Date shall be the Articles of
Incorporation of the Surviving Corporation without change or amendment until
thereafter amended in accordance with the provisions thereof and of applicable
law, except that Article I of the Articles of Incorporation of the Surviving
Corporation is hereby amended and restated in its entirety to read as follows:
ARTICLE I
The name of the corporation is Exodus Communications, Inc.
The Bylaws of Exodus in effect immediately prior to the Effective Date
shall be the Bylaws of the Surviving Corporation without change or amendment
until thereafter amended in accordance with the provisions thereof, of the
Articles of Incorporation of the Surviving Corporation and of applicable law.
4. Directors and Officers. On the Effective Date, the directors and
----------------------
officers of Fouress shall be and become the directors and officers, holding the
same titles and positions, of the Surviving Corporation and after the Effective
Date shall serve in accordance with the Bylaws of the Surviving Corporation.
5. Shares of Fouress. On or before the Effective Date, each shareholder
-----------------
of Fouress shall elect to receive by virtue of the Merger, in exchange for each
share of Fouress Common Stock held, (i) six hundred (600) shares of Exodus
Common Stock, (ii) $48, or (iii) a proportionate combination determined by such
shareholder of the shares set forth in clause (i) above and the cash set forth
in clause (ii) above. If each shareholder of Fouress shall have elected to
receive only the shares set forth in clause (i) of the preceding sentence with
respect to each share of Fouress Common Stock held, then, on the Effective Date,
each share of Fouress Common Stock outstanding immediately prior thereto shall
be changed and converted automatically into six hundred (600) fully paid and
nonassessable, issued and outstanding share of Exodus Common Stock. If any
shareholder of Fouress shall have elected to receive the cash or the combination
of shares and cash set forth in clause (i) or (ii) of the first sentence of this
Section with respect to each share of Fouress Common Stock held, then, this
Merger Agreement shall terminate and be of no further force or effect.
6. Shares of Exodus. On the Effective Date, all of the previously issued
----------------
and outstanding shares of Exodus Common Stock shall be retired and cancelled.
7. Stock Certificates. On and after the Effective Date, all of the
------------------
outstanding certificates that prior to that date represented shares of Fouress
Common Stock shall be deemed for all purposes to evidence ownership of and to
represent shares of Exodus Common Stock converted as provided herein. The
registered owner on the books and records of Fouress of any such outstanding
stock certificate shall, until such certificate shall have been surrendered for
transfer or otherwise accounted for to Exodus or its transfer agent, have and be
entitled to exercise any voting and other rights with respect to, and to receive
any dividend and other distributions upon, the shares of Exodus evidenced by
such outstanding certificate as above provided.
2
<PAGE>
8. Further Assurances. From time to time, as and when required by the
------------------
Surviving Corporation or by its successors or assigns, there shall be executed
and delivered on behalf of Fouress such deeds and other instruments, and there
shall be taken or caused to be taken by it all such further action, as shall be
appropriate, advisable or necessary in order to vest, perfect or confirm, of
record or otherwise, in the Surviving Corporation the title to and possession of
all property, interests, assets, rights, privileges, immunities, powers,
franchises and authority of Fouress, and otherwise to carry out the purposes of
this Merger Agreement. The officers and directors of the Surviving Corporation
are fully authorized in the name of and on behalf of Fouress, or otherwise, to
take any and all such action and to execute and deliver any and all such deeds
and other instruments to accomplish the foregoing.
9. Conditions. The consummation of the Merger is subject to the approval
----------
of this Merger Agreement and the Merger contemplated hereby by the shareholders
of Fouress and by the sole shareholder of Exodus, prior to or on the Effective
Date.
10. Abandonment. At any time before the Effective Date, this Merger
-----------
Agreement may be terminated and the Merger abandoned by the Board of Directors
of Fouress or Exodus, notwithstanding approval of this Merger Agreement by the
shareholders of Fouress and the sole shareholder of Exodus. This Merger
Agreement also may terminate in accordance with the terms of the last sentence
of Section 5.
11. Amendment. At any time before the Effective Date, this Merger
---------
Agreement may be amended, modified or supplemented by the Boards of Directors of
the Constituent Corporations, notwithstanding approval of this Merger Agreement
by the shareholders of Fouress and the sole shareholder of Exodus; provided,
however, that no such amendment, modification or supplement not approved by the
shareholders may materially adversely affect the benefits intended under this
Merger Agreement for the shareholders of Fouress or Exodus or make any other
change not permitted by applicable law.
12. Tax-Free Reorganization. This Merger Agreement is intended to be a
-----------------------
tax-free plan of reorganization within the meaning of Section 368(a)(1)(F) of
the Internal Revenue Code of 1986, as amended.
13. Counterparts. In order to facilitate the filing and recording of this
------------
Merger Agreement, it may be executed in any number of counterparts, each of
which shall be deemed to be an original.
3
<PAGE>
IN WITNESS WHEREOF, this Merger Agreement is hereby executed on behalf of
each of the Constituent Corporations and attested by their respective officers
thereunto duly authorized.
FOURESS, INC. EXODUS COMMUNICATIONS
a Maryland corporation a California corporation
By:/s/ K.B.Chandraskhar By:/s/ K.B.Chandraskhar
---------------------- ----------------------------
K.B. Chandrasekhar K.B. Chandrasekhar
President President
ATTEST: ATTEST:
/s/ K.B.Chandraskhar /s/ K.B.Chandraskhar
- ---------------------- -------------------------------
K.B. Chandrasekhar K.B. Chandrasekhar
Secretary Secretary
4
<PAGE>
EXHIBIT 2.02
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Merger Agreement") is made as
----------------
of January __, 1998 by and between Exodus Communications, Inc., a California
corporation ("Exodus California"), and Exodus Communications, Inc., a Delaware
-----------------
corporation ("Exodus Delaware"). Exodus California and Exodus Delaware are
---------------
hereinafter sometimes collectively referred to as the "Constituent
-----------
Corporations."
- ------------
R E C I T A L S
----------------
A. Exodus California was incorporated on February 16, 1995. Its
current authorized capital stock consists of: (1) 53,281,579 shares of Common
Stock, no par value ("Exodus California Common Stock"), of which approximately
------------------------------
[6,201,760] shares are issued and outstanding; and (2) 74,960,124 shares of
Preferred Stock, no par value ("Exodus California Preferred Stock"), of which
---------------------------------
[34,117,371] shares are issued and outstanding (consisting of 7,798,483 shares
of Series A Preferred Stock, [7,775,930] shares of Series B Preferred Stock,
[65,524] shares of Series B1 Preferred Stock, [15,845,855] shares of Series C
Preferred Stock, [no] shares of Series C1 Preferred Stock, [2,631,579] shares of
Series D Preferred Stock and [no] shares of Series D1 Preferred Stock).
[SUBJECT TO REVISION UPON EXERCISE OF WARRANTS.]
B. Exodus Delaware was incorporated on January 6, 1998. Its
authorized capital stock consists of: (1) 100,000,000 shares of Common Stock,
with a par value of $0.001 per share ("Exodus Delaware Common Stock"), 1,000 of
----------------------------
which are issued and outstanding; and (2) 80,000,000 shares of Preferred Stock,
$0.001 par value ("Exodus Delaware Preferred Stock"), none of which are issued
-------------------------------
and outstanding.
C. The respective Boards of Directors of Exodus California and Exodus
Delaware deem it advisable and to the advantage of each of the Constituent
Corporations that Exodus California merge with and into Exodus Delaware upon the
terms and subject to the conditions set forth in this Merger Agreement for the
purpose of effecting a change of the state of incorporation of Exodus California
from California to Delaware.
D. The Boards of Directors of each of the Constituent Corporations
have approved this Merger Agreement.
NOW, THEREFORE, the parties do hereby adopt the plan of reorganization
set forth in this Merger Agreement and do hereby agree that Exodus California
shall merge with and into Exodus Delaware on the following terms, conditions and
other provisions:
1. MERGER AND EFFECTIVE TIME. At the Effective Time (as defined
-------------------------
below), Exodus California shall be merged with and into Exodus Delaware (the
"Merger"), and Exodus Delaware shall be the surviving corporation of the Merger
- -------
(the "Surviving Corporation"). The Merger shall become effective upon the close
---------------------
of business on the date when a duly executed copy of this Merger Agreement,
along with all required officers' certificates, is filed with the Secretary of
State of the State of California, or upon the close of business on the date when
a duly executed copy of this Merger Agreement, along with all required officers'
certificates, is filed with the Secretary of State of the State of Delaware (the
"Effective Time").
--------------
<PAGE>
2. EFFECT OF MERGER. At the Effective Time, the separate corporate
----------------
existence of Exodus California shall cease; the corporate identity, existence,
powers, rights and immunities of Exodus Delaware as the Surviving Corporation
shall continue unimpaired by the Merger; and Exodus Delaware shall succeed to
and shall possess all the assets, properties, rights, privileges, powers,
franchises, immunities and purposes, and be subject to all the debts,
liabilities, obligations, restrictions and duties of Exodus California, all
without further act or deed.
3. GOVERNING DOCUMENTS. At the Effective Time, the Certificate of
-------------------
Incorporation of Exodus Delaware in effect immediately prior to the Effective
Time shall become the Certificate of Incorporation of the Surviving Corporation
and the Bylaws of Exodus Delaware in effect immediately prior to the Effective
Time shall become the Bylaws of the Surviving Corporation.
4. DIRECTORS AND OFFICERS. At the Effective Time, the directors and
----------------------
officers of Exodus Delaware shall be and become directors and officers (holding
the same titles and positions) of the Surviving Corporation and after the
Effective Time shall serve in accordance with the Certificate of Incorporation
and Bylaws of the Surviving Corporation.
5. CONVERSION OF SHARES OF EXODUS CALIFORNIA. Subject to the terms
-----------------------------------------
and conditions of this Agreement, at the Effective Time, (i) [_______] shares of
Exodus California Common Stock outstanding immediately prior thereto shall be
automatically changed and converted into one fully paid and nonassessable,
issued and outstanding share of Exodus Delaware Common Stock, (ii) [______]
shares of Exodus California Series A Preferred Stock outstanding immediately
prior thereto shall be automatically changed and converted into one fully paid
and nonassessable, issued and outstanding share of Exodus Delaware Series A
Preferred Stock; [_________] shares of Exodus California Series A1 Preferred
Stock outstanding immediately prior thereto shall be automatically changed and
converted into one fully paid and nonassessable, issued and outstanding share of
Exodus Delaware Series A1 Preferred Stock; [________] shares of Exodus
California Series B Preferred Stock outstanding immediately prior thereto shall
be automatically changed and converted into one fully paid and nonassessable,
issued and outstanding share of Exodus Delaware Series B Preferred Stock;
[______] shares of Exodus California Series B1 Preferred Stock outstanding
immediately prior thereto shall be automatically changed and converted into one
fully paid and nonassessable, issued and outstanding share of Exodus Delaware
Series B1 Preferred Stock; [________] shares of Exodus California Series C
Preferred Stock outstanding immediately prior thereto shall be automatically
changed and converted into one fully paid and nonassessable, issued and
outstanding share of Exodus Delaware Series C Preferred Stock; [_______] shares
of Exodus California Series C1 Preferred Stock outstanding immediately prior
thereto shall be automatically changed and converted into one fully paid and
nonassessable, issued and outstanding share of Exodus Delaware Series C1
Preferred Stock; [_______] shares of Exodus California Series D Preferred Stock
outstanding immediately prior thereto shall be automatically changed and
converted into one fully paid and nonassessable, issued and outstanding share of
Exodus Delaware Series D Preferred Stock; and [_________] shares of Exodus
California Series D1 Preferred Stock outstanding immediately prior thereto shall
be automatically changed and converted into one fully paid and nonassessable,
issued and outstanding share of Exodus Delaware Series D1 Preferred Stock.
6. CANCELLATION OF SHARES OF EXODUS DELAWARE. At the Effective Time,
-----------------------------------------
all of the previously issued and outstanding shares of Exodus Delaware Common
Stock that were issued and outstanding immediately prior to the Effective Time
shall be automatically retired and canceled.
2
<PAGE>
7. STOCK CERTIFICATES. At and after the Effective Time, all of the
------------------
outstanding certificates that, prior to that date, represented shares of Exodus
California Common Stock shall be deemed for all purposes to evidence ownership
of and to represent the number of shares of Exodus Delaware Common Stock into
which such shares of Exodus California Common Stock are converted as provided
herein. At and after the Effective Time, all of the outstanding certificates
that, prior to that date, represented shares of a series of Exodus California
Preferred Stock shall be deemed for all purposes to evidence ownership of and to
represent the number of shares of the series of Exodus Delaware Preferred Stock
into which such shares of Exodus California Preferred Stock are converted as
provided herein. The registered owner on the books and records of Exodus
California of any such outstanding stock certificate for Exodus California
Common Stock or Exodus California Preferred Stock shall, until such certificate
shall have been surrendered for transfer or otherwise accounted for to Exodus
Delaware or its transfer agent, be entitled to exercise any voting and other
rights with respect to, and to receive any dividend and other distributions
upon, the shares of Exodus Delaware Common Stock or Exodus Delaware Preferred
Stock evidenced by such outstanding certificate as above provided.
8. CONVERSION OF OPTIONS AND WARRANTS. At the Effective Time, all
----------------------------------
outstanding and unexercised options to purchase shares of Exodus California
Common Stock under the Exodus California 1995 Stock Option Plan and the Exodus
California 1997 Equity Incentive Plan shall become options to purchase
_________________ of the number of shares of Exodus Delaware Common Stock at
____________ times the exercise price per share and shall, to the extent
permitted by law and otherwise reasonably practicable, have the same term,
exercisability, vesting schedule, status as an "incentive stock option" under
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), if
----
applicable, and all other material terms and conditions (including but not
limited to the terms and conditions applicable to such options by virtue of each
of the Exodus California 1995 Stock Option Plan and the Exodus California 1997
Equity Incentive Plan). Continuous employment with Exodus California will be
credited to an optionee for purposes of determining the vesting of the number of
shares of Exodus Delaware Common Stock under a converted Exodus California
option at the Effective Time. Additionally, at the Effective Time, Exodus
Delaware shall assume the Exodus California 1997 Equity Incentive Plan. At the
Effective Time, any outstanding and unexercised portions of all warrants to
purchase or acquire Exodus California Common Stock or series of Preferred Stock
shall become warrants to purchase or acquire, on the same terms and conditions,
_______ of the number of shares of Common Stock or series of Preferred Stock, as
applicable, for _______ times the exercise price per share, of Exodus Delaware.
9. FRACTIONAL SHARES. No fractional shares of Exodus Delaware Common
-----------------
Stock or series of Preferred Stock will be issued in connection with the Merger.
In lieu thereof, Exodus Delaware shall pay each shareholder of Exodus California
who would otherwise be entitled to receive a fractional share of Exodus Delaware
Common Stock or series of Preferred Stock (assuming the aggregation of all
shares held by the same holder of more than one stock certificate representing
shares of Exodus California Common Stock or series of Preferred Stock, as the
case may be) a cash amount equal to the applicable fraction multiplied by the
fair market value of a share of Exodus Delaware Common Stock or series of
Preferred Stock, as the case may be, as determined by the Board of Directors of
Exodus Delaware in good faith (the "Fair Market Value Per Share"). Upon
---------------------------
exercise of each assumed option of Exodus California to purchase Exodus Delaware
Common Stock, cash will be paid by Exodus Delaware in lieu of any fractional
share of Exodus Delaware Common Stock issuable upon exercise of such option, and
the amount of cash received for such fractional share shall be the
3
<PAGE>
Fair Market Value Per Share upon exercise thereof multiplied by the applicable
fraction, less the unpaid exercise price per share for such fraction.
10. EMPLOYEE BENEFIT PLANS. At the Effective Time, the obligations
----------------------
of Exodus California under or with respect to every plan, trust, program and
benefit then in effect or administered by Exodus California for the benefit of
the directors, officers and employees of Exodus California or any of its
subsidiaries shall become the lawful obligations of Exodus Delaware and shall be
implemented and administered in the same manner and without interruption until
the same are amended or otherwise lawfully altered or terminated. Effective at
the Effective Time, Exodus Delaware hereby expressly adopts and assumes all
obligations of Exodus California under such employee benefit plans.
11. FURTHER ASSURANCES. From time to time, as and when required by
------------------
the Surviving Corporation or by its successors or assigns, there shall be
executed and delivered on behalf of Exodus California such deeds, assignments
and other instruments, and there shall be taken or caused to be taken by it all
such further action as shall be appropriate, advisable or necessary in order to
vest, perfect or confirm, of record or otherwise, in the Surviving Corporation
the title to and possession of all property, interests, assets, rights,
privileges, immunities, powers, franchises and authority of Exodus California,
and otherwise to carry out the purposes of this Merger Agreement. The officers
and directors of the Surviving Corporation are fully authorized in the name of
and on behalf of Exodus California, or otherwise, to take any and all such
actions and to execute and deliver any and all such deeds and other instruments
as may be necessary or appropriate to accomplish the foregoing.
12. CONDITION. The consummation of the Merger is subject to the
---------
approval of this Merger Agreement and the Merger contemplated hereby by the
shareholders of Exodus California and by the sole stockholder of Exodus
Delaware, prior to or at the Effective Time.
13. ABANDONMENT. At any time before the Effective Time, this Merger
-----------
Agreement may be terminated and the Merger abandoned by the Board of Directors
of Exodus California or Exodus Delaware, notwithstanding approval of this Merger
Agreement by the Boards of Directors and shareholders of Exodus California and
Exodus Delaware.
14. AMENDMENT. At any time before the Effective Time, this Merger
---------
Agreement may be amended, modified or supplemented by the Boards of Directors of
the Constituent Corporations, notwithstanding approval of this Merger Agreement
by the shareholders of Exodus California and Exodus Delaware; provided, however,
-------- -------
that any amendment made subsequent to the adoption of this Agreement by the
shareholders of Exodus California or the sole stockholder of Exodus Delaware
shall not alter or change: (i) the amount or kind of shares, securities, cash,
property and/or rights to be received in exchange for or upon conversion of any
shares of any class or series of Exodus California; (ii) any of the terms of the
Certificate of Incorporation of the Surviving Corporation to be effected by the
Merger; or (iii) any of the terms or conditions of this Merger Agreement, if any
such alteration or change would adversely affect the holders of any shares of
any class or series of Exodus California or Exodus Delaware.
15. TAX-FREE REORGANIZATION. The Merger is intended to be a tax-free
-----------------------
plan of reorganization within the meaning of Section 368(a)(1)(F) of the Code.
4
<PAGE>
16. GOVERNING LAW. This Agreement shall be governed by and construed
-------------
under the internal laws of the State of California as applied to agreements
among California residents entered into and to be performed entirely within
California, without reference to the principles of conflicts of law, except to
the extent that the laws of the State of Delaware would apply in matters
relating to the internal affairs of Exodus Delaware and the Merger.
17. COUNTERPARTS. In order to facilitate the filing and recording of
------------
this Merger Agreement, it may be executed in any number of counterparts, each of
which shall be deemed to be an original.
18. ENTIRE AGREEMENT. This Agreement constitutes the entire
----------------
agreement between the parties with respect to the subject matter hereof and
supersedes any and all prior agreements or understandings, whether oral or
written, with respect to such subject matter.
IN WITNESS WHEREOF, this Merger Agreement is hereby executed on behalf of
each of the Constituent Corporations and attested by their respective officers
hereunto duly authorized.
EXODUS COMMUNICATIONS, INC., EXODUS COMMUNICATIONS, INC.,
a California corporation a Delaware corporation
By:___________________________ By:________________________________
K.B. Chandrasekhar K.B. Chandrasekhar
President and Chief Executive Officer President and Chief Executive
Officer
ATTEST: ATTEST:
- ------ ------
By:___________________________ By:________________________________
Adam W. Wegner Adam W. Wegner
Secretary Secretary
[SIGNATURE PAGE TO AGREEMENT AND PLAN OF MERGER]
5
<PAGE>
EXHIBIT 3.01
AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF EXODUS COMMUNICATIONS, INC.
a California Corporation
The undersigned K. B. Chandrasekhar and Adam W. Wegner hereby certify
that:
ONE: They are the duly elected and acting President/Chief Executive
Officer and Secretary, respectively, of Exodus Communications, Inc.
TWO: The Articles of Incorporation of said corporation shall be
amended and restated to read in full as follows:
ARTICLE I
The name of the corporation is Exodus Communications, Inc.
ARTICLE II
The purpose of the corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of California other than the banking business, the trust company business or
the practice of a profession permitted to be incorporated by the California
Corporations Code.
ARTICLE III
A. Classes of Stock. The corporation is authorized to issue two
----------------
classes of stock to be designated, respectively, "COMMON STOCK" and "PREFERRED
STOCK." The total number of shares which the corporation is authorized to issue
is one hundred twenty-eight million, two hundred forty-one thousand, seven
hundred and three (128,241,703) shares. Fifty-three million, two hundred and
eighty-one thousand, five hundred seventy-nine (53,281,579) shares shall be
Common Stock and seventy-four million, nine hundred and sixty thousand, one
hundred and twenty-four (74,960,124) shares shall be Preferred Stock, of which
seven million, seven hundred and ninety-eight thousand, four hundred and eighty-
three (7,798,483) shares have been designated "SERIES A PREFERRED STOCK," seven
million, seven hundred and ninety-eight thousand, four hundred and eighty-three
(7,798,483) shares have been designated "SERIES A1 PREFERRED STOCK," eight
million, six hundred thousand (8,600,000) shares have been designated "SERIES B
PREFERRED STOCK," eight million, six hundred thousand (8,600,000) shares have
been designated "SERIES B1 PREFERRED STOCK," seventeen million, eight hundred
fifty thousand (17,850,000) shares have been designated "SERIES C PREFERRED
STOCK," seventeen million, eight hundred fifty thousand (17,850,000) shares have
been designated "SERIES C1 PREFERRED STOCK," three million, two hundred thirty-
one thousand, five hundred seventy-nine (3,231,579) shares have been designated
"SERIES D PREFERRED STOCK," and three million, two hundred thirty-one thousand,
five hundred seventy-nine (3,231,579) shares have been designated "SERIES D1
PREFERRED STOCK".
B. Preferred Stock. The Series A Preferred Stock, the Series A1
---------------
Preferred Stock, the Series B Preferred Stock, the Series B1 Preferred Stock,
the Series C Preferred Stock, the Series C1 Preferred Stock, the Series D
Preferred Stock and Series D1 Preferred Stock are
<PAGE>
hereinafter collectively referred to as the "PREFERRED STOCK" and shall have the
rights, preferences and privileges set forth below in Article III (C).
C. Rights, Preferences and Restrictions of Preferred Stock. The
-------------------------------------------------------
Preferred Stock authorized by these Amended and Restated Articles of
Incorporation may be issued from time to time in one or more series. The Board
of Directors is hereby authorized to fix or alter the rights, preferences,
privileges and restrictions granted to or imposed upon additional series of
Preferred Stock, and the number of shares constituting any such series and the
designation thereof, or of any of them. Subject to compliance with applicable
protective voting rights which have been or may be granted to the Preferred
Stock or series thereof in Certificates of Determination or the corporation's
Amended and Restated Articles of Incorporation ("PROTECTIVE PROVISIONS"), the
privileges, preferences and restrictions of any such additional series may be
subordinated to, pari passu with (including, without limitation, inclusion in
---- -----
provisions with respect to liquidation and acquisition preferences, redemption
and/or approval of matters by vote or written consent), or senior to any of
those of any present or future class or series of Preferred or Common Stock;
provided, however that no additional series of Preferred Stock senior to any
existing series of Preferred Stock may be issued without the approval of the
holders of at least a majority of the then outstanding shares of such affected
series of Preferred Stock. Subject to compliance with applicable Protective
Provisions, the Board of Directors is also authorized to increase or decrease
the number of shares of any series (other than the Series A, Series A1, Series
B, Series B1, Series C, Series C1, Series D and Series D1 Preferred Stock),
prior or subsequent to the issue of that series, but not below the number of
shares of such series then outstanding. In case the number of shares of any
series shall be so decreased, the shares constituting such decrease shall resume
the status which they had prior to the adoption of the resolution originally
fixing the number of shares of such series.
1. Dividend Provisions. The holders of shares of Preferred Stock
-------------------
shall be entitled to receive dividends, out of any assets legally available
therefor, prior and in preference to any declaration or payment of any dividend
(payable other than in Common Stock or other securities and rights convertible
into or entitling the holder thereof to receive, directly or indirectly,
additional shares of Common Stock of the corporation, each of such securities to
be hereinafter referred to as a "COMMON STOCK DIVIDEND") on the Common Stock of
the corporation, at the annual rate for each series of Preferred Stock set forth
in the following sentence. The annual dividend rate of the Series A and Series
A1 Preferred Stock shall be $0.04 per share, the annual dividend rate of the
Series B and Series B1 Preferred Stock shall be $0.084 per share, the annual
dividend rate of the Series C and Series C1 Preferred Stock shall be $0.095 per
share and the annual dividend rate of the Series D and Series D1 Preferred Stock
shall be $0.20 per share. Dividends on the Series A, Series A1, Series B and
Series B1 Preferred Stock shall be payable when and if declared by the Board of
Directors and shall not be cumulative. Dividends on the Series C, Series C1,
Series D and Series D1 Preferred Stock shall accrue, and be compounded annually
and be cumulative but shall be payable only (i) in the event and at the time of
a liquidation, dissolution or winding up of the corporation pursuant to Article
III, Section C(2)(a) or (ii) on declaration and payment of any dividends with
respect to any outstanding securities of the corporation (other than a Common
Stock Dividend). No dividends (other than a Common Stock Dividend) shall be paid
with respect to the Common Stock unless dividends in the total amount of the
annual dividend rate for each series of Preferred Stock shall have first been
paid or declared and set apart for payment to the holders of such Preferred
Stock. Payments
2
<PAGE>
of any dividends to the holders of shares of Preferred Stock shall be paid pro
rata, on an equal priority, pari passu basis, according to their respective
---- -----
dividend preferences as set forth herein.
2. Liquidation Preference.
----------------------
(a) In the event of any liquidation, dissolution or winding up of
the corporation, either voluntary or involuntary, the holders of shares of
Preferred Stock shall be entitled to receive, subsequent to payment by the
corporation of any amounts due to any holders of Preferred Stock who have
previously requested redemption pursuant to the terms of section 3 herein, and
prior and in preference to any distribution of any of the assets of the
corporation to the holders of Common Stock by reason of their ownership thereof,
an amount per share equal to the sum of (i) $0.4129 for each outstanding share
of Series A Preferred Stock and Series A1 Preferred Stock (the "ORIGINAL SERIES
A ISSUE PRICE" and "ORIGINAL SERIES A1 ISSUE PRICE," respectively), (ii) $0.84
for each outstanding share of Series B Preferred Stock and Series B1 Preferred
Stock (the "ORIGINAL SERIES B ISSUE PRICE" and "ORIGINAL SERIES B1 ISSUE PRICE,"
respectively), (iii) $1.3623 for each outstanding share of Series C Preferred
Stock and Series C1 Preferred Stock (the "ORIGINAL SERIES C ISSUE PRICE" and
"ORIGINAL SERIES C1 ISSUE PRICE", respectively), (iv) $2.85 for each outstanding
share of Series D Preferred Stock and Series D1 Preferred Stock (the "ORIGINAL
SERIES D ISSUE PRICE" and "ORIGINAL SERIES D1 ISSUE PRICE" and (v) an amount
equal to all declared and/or accrued but unpaid dividends on such shares. If
upon the occurrence of such event, the assets and funds thus distributed among
the holders of the Preferred Stock shall be insufficient to permit the payment
to such holders of the full aforesaid preferential amounts, then, the entire
assets and funds of the corporation legally available for distribution shall be
distributed among the holders of the Preferred Stock pro rata, on an equal
priority, pari passu basis, according to their respective liquidation
---- -----
preferences as set forth herein.
(b) After the distributions described in subsection (a) above have
been paid, the remaining assets of the corporation available for distribution,
if any, to shareholders shall be distributed among the holders of the Common
Stock pro rata based on the number of shares of Common Stock held by each.
(c)(i) For purposes of this Section 2, a liquidation, dissolution or
winding up of the corporation shall be deemed to be occasioned by, or to include
but not be limited to, (A) the acquisition of the corporation by another entity,
(B) the acquisition of greater than 50% of the then outstanding voting
securities of the corporation by persons or entities unrelated to and not
affiliated with the holders thereof in a transaction or series of related
transactions where the corporation is a party; or (C) a sale of all or
substantially all of the assets of the corporation by means of any transaction
or series of related transactions (including, without limitation, any
reorganization, merger or consolidation but, excluding any merger effected
exclusively for the purpose of changing the domicile of the corporation); unless
------
in each case the corporation's shareholders of record as constituted immediately
prior to such acquisition or sale will, immediately after such acquisition or
sale (by virtue of securities issued as consideration for the corporation's
acquisition or sale or otherwise) hold at least 50% of the voting power of the
surviving or acquiring entity.
(ii) In any of such events, if the consideration received by the
corporation is other than cash, its value will be deemed its fair market value.
Any securities shall be valued as follows:
3
<PAGE>
(A) If traded on a securities exchange or through the
Nasdaq National Market, the value shall be deemed to be the average of the
closing prices of the securities on such exchange over the thirty-day period
ending three (3) days prior to the closing;
(B) If actively traded over-the-counter, the value shall be
deemed to be the average of the closing bid or sale prices (whichever is
applicable) over the thirty-day period ending three (3) days prior to the
closing; and
(C) If there is no active public market, the value shall be
the fair market value thereof as determined in this Section 2(c)(ii)(C) ("FAIR
MARKET VALUE"). Fair Market Value shall be initially determined by a majority of
those directors of the corporation who are not affiliated with any of the
holders of such Preferred Stock (the "DISINTERESTED DIRECTORS"). If the holders
of a majority of the Preferred Stock (the "CONTESTING HOLDERS") notify the
Disinterested Directors within five (5) days after receiving notification of the
Disinterested Directors' determination of the Fair Market Value of such
securities that they object to their determination of the Fair Market Value of
the securities received by the corporation, the Disinterested Directors and the
Contesting Holders shall attempt to agree on the Fair Market Value of such
securities. In the event that the Disinterested Directors and the Contesting
Holders fail to agree on the Fair Market Value of such securities within fifteen
(15) days after receipt by the Disinterested Directors of the objection notice
referred to above, the Disinterested Directors and the Contesting Holders shall
select an independent appraiser, who shall be a nationally recognized investment
banking firm, or another entity mutually acceptable to all parties, to conduct
an appraisal of the relevant securities, which appraisal shall determine the
Fair Market Value (without making any discount for lack of transferability or
minority interests) of such securities. If the Disinterested Directors and the
Contesting Holders are unable to agree on the selection of an independent
appraiser within fifteen (15) days after the commencement of such selection
process, then an independent appraiser meeting the specifications described
above shall be selected by the American Arbitration Association in the San
Francisco Bay Area, California. The independent appraiser shall then promptly
conduct an appraisal to determine the Fair Market Value of the relevant
securities. In such case, the Fair Market Value shall be that as is determined
by the appraiser. Such appraisal shall be paid for equally by the corporation
and the Contesting Holders.
(iii) In the event the requirements of this subsection 2(c) are
not complied with, the corporation shall forthwith either:
(A) Cause such closing to be postponed until such time as the
requirements of this Section 2 have been complied with; or
(B) Cancel such transaction, in which event the rights,
preferences and privileges of the holders of the Preferred Stock shall revert to
and be the same as such rights, preferences and privileges existing immediately
prior to the date of the first notice referred to in subsection 2(c)(iv) hereof.
(iv) The corporation shall give each holder of record of
Preferred Stock written notice of such impending transaction not later than
twenty (20) days prior to the shareholders' meeting called to approve such
transaction, or twenty (20) days prior to the closing
4
<PAGE>
of such transaction, whichever is earlier, and shall also notify such holders in
writing of the final approval of such transaction. The first of such notices
shall describe the material terms and conditions of the impending transaction
and the provisions of this Section 2, and the corporation shall thereafter give
such holders prompt notice of any material changes. The transaction shall in no
event take place sooner than twenty (20) days after the corporation has given
the first notice provided for herein or sooner than ten (10) days after the
corporation has given notice of any material changes provided for herein;
provided, however, that such periods may be shortened upon the written consent
of the holders of Preferred Stock that are entitled to such notice rights or
similar notice rights and that represent at least a majority of the voting power
of all then outstanding shares of Preferred Stock.
3. Redemption.
----------
(a) At any time after June 25, 2002 (the "FIRST REDEMPTION DATE"),
but within thirty (30) days after the receipt by the corporation of a written
request from the holders of the then outstanding shares of Series A, Series A1,
Series B and Series B1 Preferred Stock (the "OUTSTANDING A/B PREFERRED"), that a
number equal to up to fifty percent (50%) of the number of shares of Outstanding
A/B Preferred be redeemed, and concurrently with surrender by such holders of
the certificates representing such shares, the corporation shall, to the extent
it may lawfully do so, redeem up to fifty percent (50%) of the Outstanding A/B
Preferred on the First Redemption Date by paying in cash therefor a sum per
share equal to (i) the Original Series A Issue Price per share of Series A
Preferred Stock, (ii) the Original Series A1 Issue Price per share of Series A1
Preferred Stock, (iii) the Original Series B Issue Price per share of Series B
Preferred Stock or (iv) the Original Series B1 Issue Price per share of Series
B1 Preferred Stock, (as adjusted for any stock dividends, combinations or splits
with respect to such shares) plus all declared but unpaid dividends on such
shares (the "SERIES A REDEMPTION PRICE," "SERIES A1 REDEMPTION PRICE," "SERIES B
REDEMPTION PRICE," and "SERIES B1 REDEMPTION PRICE," provided, however, that
--------- -------
the corporation shall not be required to redeem such shares unless and until the
number of shares to be redeemed pursuant to this subsection 3(a) equals or
exceeds twenty percent (20%) of the Outstanding A/B Preferred. Any redemption
effected pursuant to this subsection 3(a) shall be made on a pro rata basis
among the holders of the Outstanding A/B Preferred in proportion to the number
of shares of the Outstanding A/B Preferred for which redemption has been
requested.
(b) At any time after June 25, 2003 (the "SECOND REDEMPTION DATE"),
but within thirty (30) days after the receipt by the corporation of a written
request from the holders of the Outstanding A/B Preferred, that up to all of
such holders' shares be redeemed, and concurrently with surrender by such
holders of the certificates representing such shares, the corporation shall, to
the extent it may lawfully do so, redeem up to all shares held by such holders
on the Second Redemption Date by paying in cash therefor a sum per share equal
to (i) the Series A Redemption Price, (ii) the Series A1 Redemption Price, (iii)
the Series B Redemption Price or (iv) the Series B1 Redemption Price, provided,
--------
however, that the corporation shall not be required to redeem such shares unless
- -------
and until the number of shares to be redeemed pursuant to this subsection 3(b)
equals or exceeds twenty percent (20%) of the Outstanding A/B Preferred. Any
redemption effected pursuant to this subsection 3(b) shall be made on a pro rata
basis among the holders of the Outstanding A/B Preferred in proportion to the
number of shares of Outstanding A/B Preferred for which redemption has been
requested.
5
<PAGE>
(c) At any time after the First Redemption Date but within thirty
(30) days after the receipt by the corporation of a written request from the
holders of the then outstanding shares of Series C, Series C1, Series D and
Series D1 Preferred Stock (the "OUTSTANDING C/D PREFERRED"), that a number equal
to fifty percent (50%) of the number of shares of the Outstanding C/D Preferred
be redeemed, and concurrently with surrender by such holders of the certificates
representing such shares, the corporation shall, to the extent it may lawfully
do so, redeem up to fifty percent (50%) of the Outstanding C/D Preferred on the
First Redemption Date by paying in cash therefor a sum per share equal to(i) the
greater of (a) the Original Series C/D Issue Price (and all accrued but unpaid
dividends on such share) per share of Series C/D Preferred Stock and (b) the
Fair Market Value of the Series C/D Preferred Stock, or (ii) the greater of (a)
the Original Series C1/D1 Issue Price (and all accrued but unpaid dividends on
such share) per share of Series C1/D1 Preferred Stock and (b) the Fair Market
Value of the Series C1/D1 Preferred Stock (as adjusted for any stock dividends,
combinations or splits with respect to such shares) plus all declared but unpaid
dividends on such shares (the "SERIES C REDEMPTION PRICE," "SERIES C1 REDEMPTION
PRICE," "SERIES D REDEMPTION PRICE," and "SERIES D1 REDEMPTION PRICE."),
provided, however, that the corporation shall not be required to redeem such
- --------- -------
shares unless and until the number of shares to be redeemed pursuant to this
subsection 3(c) equals or exceeds twenty percent (20%) of the Outstanding C/D
Preferred. Any redemption effected pursuant to this subsection 3(c) shall be
made on a pro rata basis among the holders of the Outstanding C/D Preferred in
proportion to the number of shares of Outstanding C/D Preferred for which
redemption has been requested.
(d) At any time after the Second Redemption Date but within thirty
(30) days after the receipt by the corporation of a written request from the
holders of the Outstanding C/D Preferred, that up to all of such holders' shares
be redeemed, and concurrently with surrender by such holders of the certificates
representing such shares, the corporation shall, to the extent it may lawfully
do so, redeem up to all shares held by such holders on the Second Redemption
Date by paying in cash therefor the Series C/D Redemption Price or the Series
C1/D1 Redemption Price, provided, however, that the corporation shall not be
--------- -------
required to redeem such shares unless and until the number of shares to be
redeemed pursuant to this subsection 3(d) equals or exceeds twenty percent (20%)
of the Outstanding C/D Preferred. Any redemption effected pursuant to this
subsection 3(d) shall be made on a pro rata basis among the holders of the
Outstanding C/D Preferred in proportion to the number of shares of Outstanding
C/D Preferred for which redemption has been requested.
(e) At least fifteen (15) but no more than thirty (30) days prior to
each Redemption Date, written notice shall be mailed, first class postage
prepaid, to each holder of record (at the close of business on the business day
next preceding the day on which notice is given) of the Preferred Stock to be
redeemed, at the address last shown on the records of the corporation for such
holder, notifying such holder of the redemption to be effected, specifying the
number of shares to be redeemed from such holder, the Redemption Date, the
Redemption Price, the place at which payment may be obtained and calling upon
such holder to surrender to the corporation, in the manner and at the place
designated, his, her or its certificate or certificates representing the shares
to be redeemed (the "REDEMPTION NOTICE"). Except as provided in subsection
(3)(g) on or after the Redemption Date, each holder of Preferred Stock to be
redeemed shall surrender to the corporation the certificate or certificates
representing such shares, in the manner and at the place designated in the
Redemption Notice, and thereupon the Redemption Price of such shares shall be
payable to the order of the person whose name appears on such
6
<PAGE>
certificate or certificates as the owner thereof and each surrendered
certificate shall be canceled, provided that, in the event an appraisal of the
Fair Market Value of the Series C, Series C1, Series D or Series D1 Preferred
Stock is required, the corporation shall not pay the Redemption Price to any
holder of Preferred Stock until such Fair Market Value determination has been
made. In the event less than all the shares represented by any such certificate
are redeemed, a new certificate shall be issued representing the unredeemed
shares.
(f) Upon, but not until, the payment of the Redemption Price in full
with respect to a share of Preferred Stock, the rights of the holder of such
share of Preferred Stock designated for redemption in the Redemption Notice
(except the right to receive the Redemption Price without interest upon
surrender of their certificate or certificates other than as provided in
paragraph (g) below) shall cease with respect to such share, and such share
shall not thereafter be transferred on the books of the corporation or be deemed
to be outstanding for any purpose whatsoever. If the funds of the corporation
legally available for redemption of shares of Preferred Stock on any Redemption
Date are insufficient to redeem the total number of shares of Preferred Stock to
be redeemed on such date, those funds which are legally available will be used
to redeem the maximum possible number of such shares ratably among the holders
of such shares to be redeemed based upon the aggregate Redemption Price to be
received by such holder. The shares of Preferred Stock not redeemed shall remain
outstanding and entitled to all the rights and preferences provided herein. At
any time thereafter when additional funds of the corporation are legally
available for the redemption of shares of Preferred Stock, such funds will
immediately be used to redeem the balance of the shares which the corporation
has become obliged to redeem on any Redemption Date but which it has not
redeemed.
(g) In the event the Series C, Series C1, Series D or Series D1
Redemption Price is not paid in full within 30 days of the applicable Redemption
Date, and such payment is not prohibited by law, interest shall accrue on the
remaining outstanding Series C Redemption Price and the Series D Redemption
Price at the rate of 7% per annum from such 30th day until the Series C, Series
C1, Series D or Series D1 Redemption Price and all interest accrued thereon
shall be paid in full.
(h) In the event that any holder makes a request for redemption
pursuant to any provision of this Section 3, the corporation shall, within five
(5) business days of such redemption request, provide notice of such redemption
request to all other holders entitled at that time to redeem their shares.
(i) For the avoidance of doubt, in the event that the corporation
receives a request for redemption pursuant to this Section 3 and, subsequent
thereto but prior to payment in full of the relevant Redemption Price there is a
liquidation, dissolution or winding up of the corporation, the amount payable
with respect to the unredeemed shares with respect to which redemption has been
requested shall be determined pursuant to this Section 3 and not pursuant to
Section 2.
4. Conversion Rights. The outstanding shares of Preferred Stock
-----------------
shall be convertible into Common Stock as follows (the "CONVERSION RIGHTS"):
(a) Optional Conversion.
-------------------
7
<PAGE>
(i) At the option of the holder thereof, each share of Preferred
Stock shall be convertible, at any time or from time to time prior to the close
of business on the business day before the date of redemption of such share,
into fully paid and nonassessable shares of Common Stock as provided herein.
(ii) Each holder of Preferred Stock who elects to convert the
same into shares of Common Stock shall surrender the certificate or certificates
therefor, duly endorsed, at the office of the corporation or any transfer agent
for the Preferred Stock or Common Stock, and shall give written notice to the
corporation at such office that such holder elects to convert the same and shall
state therein the number of shares of Preferred Stock being converted. Thereupon
the corporation shall promptly issue and deliver at such office to such holder a
certificate or certificates for the number of shares of Common Stock to which
such holder is entitled upon such conversion. In the event that any holder
converts a number of shares less than the number stated on such holder's stock
certificate, the corporation shall deliver to such holder a new certificate
representing the remaining unconverted shares. Such conversion shall be deemed
to have been made immediately prior to the close of business on the date of such
surrender of the certificate or certificates representing the shares of
Preferred Stock to be converted, and the person entitled to receive the shares
of Common Stock issuable upon such conversion shall be treated for all purposes
as the record holder of such shares of Common Stock on such date.
(b) Automatic Conversion. Each share of Preferred Stock shall
--------------------
automatically be converted into fully paid and nonassessable shares of Common
Stock, as provided herein (i) immediately prior to the closing of a firm
commitment public offering underwritten by a nationally recognized investment
bank pursuant to an effective registration statement filed under the Securities
Act of 1933, as amended (the "SECURITIES ACT"), covering the offer and sale of
Common Stock for the account of the corporation in which the aggregate public
offering price (before deduction of underwriters' discounts and commissions)
equals or exceeds $30,000,000 and the public offering price per share of which
equals or exceeds $3.25 per share before deduction of underwriters' discounts
and commissions (such price per share of Common Stock to be appropriately
adjusted to reflect Common Stock Events (as defined below)), provided that such
offering is priced for sale to the general public not later than April 30, 1998
(the public offering price per share will be $5.00 if pricing does not occur by
such date), and such Common Stock shall be listed on the Nasdaq National Market,
the American Stock Exchange, the New York Stock Exchange or other national
securities market or exchange (a "QUALIFIED IPO"); or (ii) the date specified by
written consent or agreement of (a) with respect to the Series A and A1
Preferred Stock, the holders of a majority of the then outstanding shares of
Series A Preferred Stock and Series A1 Preferred Stock, voting as a single
class, (b) with respect to the Series B and B1 Preferred Stock, the holders of a
majority of the then outstanding shares of Series B Preferred Stock and Series
B1 Preferred Stock, voting together as a single class, (c) with respect to the
Series C and C1 Preferred Stock, the holders of two-thirds of the then
outstanding shares of Series C Preferred Stock and Series C1 Preferred Stock,
voting together as a single class and (d) with respect to the Series D and D1
Preferred Stock, the holders of two-thirds of the then outstanding shares of
Series D Preferred Stock and Series D1 Preferred Stock, voting together as a
single class.
(i) Upon the occurrence of any event specified in subparagraph
4(b)(i) or (ii) above, the outstanding shares of Preferred Stock shall be
converted into Common Stock automatically without the need for any further
action by the holders of such shares and whether or not the certificates
representing such shares are surrendered to the corporation or its transfer
8
<PAGE>
agent; provided, however, that the corporation shall not be obligated to issue
--------- -------
certificates evidencing the shares of Common Stock issuable upon such conversion
unless the certificates evidencing such shares of Preferred Stock are either
delivered to the corporation or its transfer agent as provided below, or the
holder notifies the corporation or its transfer agent that such certificates
have been lost, stolen or destroyed and executes an agreement satisfactory to
the corporation to indemnify the corporation from any loss incurred by it in
connection with such certificates. Upon the occurrence of such automatic
conversion of the Preferred Stock, the holders of Preferred Stock shall
surrender the certificates representing such shares at the office of the
corporation or any transfer agent for the Preferred Stock or Common Stock.
Thereupon, there shall be issued and delivered to such holder promptly at such
office and in its name as shown on such surrendered certificate or certificates,
a certificate or certificates for the number of shares of Common Stock into
which the shares of Preferred Stock surrendered were convertible on the date on
which such automatic conversion occurred.
(c) Conversion Price. Each share of Preferred Stock shall be
----------------
convertible in accordance with subsection 4(a) or subsection 4(b) above into the
number of shares of Common Stock which results from dividing the Original Issue
Price for such series of Preferred Stock by the conversion price for such series
of Preferred Stock that is in effect at the time of conversion (the "CONVERSION
PRICE"). The initial Conversion Price for the Series A Preferred Stock shall be
the Original Series A Issue Price, the initial Conversion Price for the Series
A1 Preferred Stock shall be the Original Series A1 Issue Price, the initial
Conversion Price for the Series B Preferred Stock shall be the Original Series B
Issue Price, the initial Conversion Price for the Series B1 Preferred Stock
shall be the Original Series B1 Issue Price, the initial Conversion Price for
the Series C Preferred Stock shall be the Original Series C Issue Price, the
initial Conversion Price for the Series C1 Preferred Stock shall be the Original
Series C1 Issue Price, the initial Conversion Price for the Series D Preferred
Stock shall be the Original Series D Issue Price and the initial Conversion
Price for the Series D1 Preferred Stock shall be the Original D1 Issue Price.
The Conversion Price of each series of Preferred Stock shall be subject to
adjustment from time to time as provided below.
(d) Adjustment Upon Common Stock Event. At any time after such series
----------------------------------
of Preferred Stock was first issued (the "PURCHASE DATE" with respect to such
series) upon the happening of a Common Stock Event (as hereinafter defined), the
Conversion Price of the Series A Preferred Stock, the Conversion Price of the
Series A1 Preferred Stock, the Conversion Price of the Series B Preferred Stock,
the Conversion Price of the Series B1 Preferred Stock, the Conversion Price of
the Series C Preferred Stock, the Conversion Price of the Series C1 Preferred
Stock, the Conversion Price of the Series D Preferred Stock and the Conversion
Price of the Series D1 Preferred Stock shall, simultaneously with the happening
of such Common Stock Event, be adjusted by multiplying the Conversion Price of
such series of Preferred Stock in effect immediately prior to such Common Stock
Event by a fraction, (i) the numerator of which shall be the number of shares of
Common Stock issued and outstanding immediately prior to such Common Stock
Event, and (ii) the denominator of which shall be the number of shares of Common
Stock issued and outstanding immediately after such Common Stock Event, and the
product so obtained shall thereafter be the Conversion Price for such series of
Preferred Stock. The Conversion Price for a series of Preferred Stock shall be
readjusted in the same manner upon the happening of each subsequent Common Stock
Event. As used herein, the term "COMMON STOCK EVENT" shall mean (i) the issue
by the corporation of additional shares of Common Stock as a dividend or other
distribution on outstanding Common Stock, (ii) a subdivision of the outstanding
shares of Common Stock into a greater number of shares of
9
<PAGE>
Common Stock, or (iii) a combination of the outstanding shares of Common Stock
into a smaller number of shares of Common Stock.
(e) Adjustments for Other Dividends and Distributions. If at any time
-------------------------------------------------
or from time to time after the Purchase Date the corporation pays a dividend or
makes another distribution to the holders of the Common Stock payable in
securities of the corporation other than shares of Common Stock, then in each
such event provision shall be made so that the holders of the Series A Preferred
Stock, Series A1 Preferred Stock, Series B Preferred Stock, Series B1 Preferred
Stock, Series C Preferred Stock, Series C1 Preferred Stock, Series D Preferred
Stock and Series D1 Preferred Stock shall receive upon conversion thereof, in
addition to the number of shares of Common Stock receivable upon conversion
thereof, the amount of securities of the corporation which they would have
received had their Preferred Stock been converted into Common Stock on the date
of such event (or such record date, as applicable) and had they thereafter,
during the period from the date of such event (or such record date, as
applicable) to and including the conversion date, retained such securities
receivable by them as aforesaid during such period, subject to all other
adjustments called for during such period under this Section 4 with respect to
the rights of the holders of the Preferred Stock or with respect to such other
securities by their terms.
(f) Adjustment for Reclassification, Exchange and Substitution. If at
----------------------------------------------------------
any time or from time to time after the Original Issue Date the Common Stock
issuable upon the conversion of the Series A Preferred Stock, Series A1
Preferred Stock, Series B Preferred Stock, Series B1 Preferred Stock, Series C
Preferred Stock, Series C1 Preferred Stock, Series D Preferred Stock and Series
D1 Preferred Stock is changed into the same or a different number of shares of
any class or classes of stock, whether by recapitalization, reclassification or
otherwise (other than by a Common Stock Event or a stock dividend,
----- ----
reorganization, merger, consolidation or sale of assets provided for elsewhere
in this Section 4), then in any such event each holder of Series A Preferred
Stock, Series A1 Preferred Stock, Series B Preferred Stock, Series B1 Preferred
Stock, Series C Preferred Stock, Series C1 Preferred Stock, Series D Preferred
Stock and Series D1 Preferred Stock shall have the right thereafter to convert
such stock into the kind and amount of stock and other securities and property
receivable upon such recapitalization, reclassification or other change by
holders of the number of shares of Common Stock into which such shares of Series
A Preferred Stock, Series A1 Preferred Stock, Series B Preferred Stock, Series
B1 Preferred Stock, Series C Preferred Stock, Series C1 Preferred Stock, Series
D Preferred Stock and Series D1 Preferred Stock could have been converted
immediately prior to such recapitalization, reclassification or change, all
subject to further adjustment as provided herein or with respect to such other
securities or property by the terms thereof.
(g) Sale of Shares Below Conversion Price.
-------------------------------------
(i) Adjustment Formula. If at any time or from time to time
------------------
after the Original Issue Date the corporation issues or sells, or is deemed by
the provisions of this subsection 4(g) to have issued or sold, Additional Shares
of Common Stock (as hereinafter defined), otherwise than in connection with a
Common Stock Event as provided in subsection 4(d), a dividend or distribution as
provided in subsection 4(e) or a recapitalization, reclassification or other
change as provided in subsection 4(f), for an Effective Price (as hereinafter
defined) that is less than the Conversion Price for the Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock or Series D Preferred
Stock in effect immediately prior to such issue or sale, then, and in each such
case, the Conversion Price for such series of
10
<PAGE>
Preferred Stock shall be reduced, as of the close of business on the date of
such issue or sale, to the price obtained by multiplying such Conversion Price
by a fraction:
(x) The numerator of which shall be the sum of (A) the
number of Common Stock Equivalents Outstanding (as hereinafter defined)
immediately prior to such issue or sale of Additional Shares of Common Stock
plus (B) the quotient obtained by dividing the Aggregate Consideration Received
(as hereinafter defined) by the corporation for the total number of Additional
Shares of Common Stock so issued or sold (or deemed so issued and sold) by the
Conversion Price for such series of Preferred Stock in effect immediately prior
to such issue or sale; and
(y) The denominator of which shall be the sum of (A) the
number of Common Stock Equivalents Outstanding immediately prior to such issue
or sale plus (B) the number of Additional Shares of Common Stock so issued or
sold (or deemed so issued and sold).
(ii) Certain Definitions. For the purpose of making any
-------------------
adjustment required under this subsection 4(g):
(1) "ADDITIONAL SHARES OF COMMON STOCK" shall mean all
shares of Common Stock issued by the corporation, whether or not subsequently
reacquired or retired by the corporation, other than: (A) shares of Common Stock
issued or issuable upon conversion of Series A Preferred Stock, Series A1
Preferred Stock, Series B Preferred Stock, Series B1 Preferred Stock, Series C
Preferred Stock, Series C1 Preferred Stock, Series D Preferred Stock or Series
D1 Preferred Stock; and (B) a total of 7,438,900 shares of Common Stock (or
options, warrants or rights therefor) issued to employees, officers, or
directors of, or contractors, consultants or advisers to, the corporation or any
Subsidiary pursuant to stock purchase or stock option plans, stock bonuses or
awards, warrants, contracts or other arrangements that are approved by at least
seventy five percent (75%) of the Board (such number of shares to be calculated
net of any repurchases of such shares by the corporation and net of any such
expired or terminated options, warrants or rights and to be proportionally
adjusted to reflect any subsequent Common Stock Event);
(2) The "AGGREGATE CONSIDERATION RECEIVED" by the
corporation for any issue or sale (or deemed issue or sale) of securities shall
(A) to the extent it consists of cash, be computed at the gross amount of cash
received by the corporation before deduction of any underwriting or similar
commissions, compensation or concessions paid or allowed by the corporation in
connection with such issue or sale and without deduction of any expenses payable
by the corporation in connection with any such issuance and sale; (B) to the
extent it consists of property other than cash, be computed at the fair value of
that property as determined in good faith by the unanimous approval of the
Board; and (C) if Additional Shares of Common Stock, Convertible Securities or
Rights or Options to purchase either Additional Shares of Common Stock or
Convertible Securities are issued or sold together with other stock or
securities or other assets of the corporation for a consideration which covers
both, be computed as the portion of the consideration so received that may be
reasonably determined in good faith by the unanimous approval of the Board to be
allocable to such Additional Shares of Common Stock, Convertible Securities or
Rights or Options.
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<PAGE>
(3) "COMMON STOCK EQUIVALENTS OUTSTANDING" shall mean the
number of shares of Common Stock that is equal to the sum of (A) all shares of
Common Stock of the corporation that are outstanding at the time in question,
plus (B) all shares of Common Stock of the corporation issuable upon conversion
of all shares of Preferred Stock or other Convertible Securities that are
outstanding at the time in question, plus (C) all shares of Common Stock of the
corporation that are issuable upon the exercise of Rights or Options that are
outstanding at the time in question assuming the full conversion or exchange
into Common Stock of all such Rights or Options that are Rights or Options to
purchase or acquire Convertible Securities into or for Common Stock.
(4) "CONVERTIBLE SECURITIES" shall mean stock or other
securities convertible into or exchangeable for shares of Common Stock.
(5) The "EFFECTIVE PRICE" of Additional Shares of Common
Stock shall mean the quotient determined by dividing the total number of
Additional Shares of Common Stock issued or sold, or deemed to have been issued
or sold, by the corporation under this subsection 4(g), into the Aggregate
Consideration Received, or deemed to have been received, by the corporation
under this subsection 4(g), for the issue of such Additional Shares of Common
Stock;
(6) "RIGHTS OR OPTIONS" shall mean warrants, options or
other rights to purchase or acquire shares of Common Stock or Convertible
Securities.
(iii) Deemed Issuances. For the purpose of making any adjustment
----------------
to the Conversion Price of the Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock or Series D Preferred Stock required under this
subsection 4(g), if the corporation issues or sells any Rights or Options or
Convertible Securities and if the Effective Price of the shares of Common Stock
issuable upon exercise of such Rights or Options and/or the conversion or
exchange of Convertible Securities (computed without reference to any additional
or similar protective or antidilution clauses) is less than the Conversion Price
then in effect for a series of Preferred Stock, then the corporation shall be
deemed to have issued, at the time of the issuance of such Rights, Options or
Convertible Securities, that number of Additional Shares of Common Stock that is
equal to the maximum number of shares of Common Stock issuable upon exercise or
conversion of such Rights, Options or Convertible Securities upon their issuance
and to have received, as the Aggregate Consideration Received for the issuance
of such shares, an amount equal to the total amount of the consideration, if
any, received by the corporation for the issuance of such Rights or Options or
Convertible Securities, plus, in the case of such Rights or Options, the minimum
amounts of consideration, if any, payable to the corporation upon the exercise
in full of such Rights or Options, plus, in the case of Convertible Securities,
the minimum amounts of consideration, if any, payable to the corporation (other
than by cancellation of liabilities or obligations evidenced by such Convertible
Securities) upon the conversion or exchange thereof; provided that:
-------- ----
(1) if the minimum amounts of such consideration cannot be
ascertained, but are a function of antidilution or similar protective clauses,
then the corporation shall be deemed to have received the amount determined in
good faith by the unanimous approval of the Board;
12
<PAGE>
(2) if the minimum amount of consideration payable to the
corporation upon the exercise of Rights or Options or the conversion or exchange
of Convertible Securities is reduced over time or upon the occurrence or non-
occurrence of specified events other than by reason of antidilution or similar
protective adjustments, then the Effective Price shall be recalculated using the
figure to which such minimum amount of consideration is reduced; and
(3) if the minimum amount of consideration payable to the
corporation upon the exercise of such Rights or Options or the conversion or
exchange of Convertible Securities is subsequently increased, then the Effective
Price shall again be recalculated using the increased minimum amount of
consideration payable to the corporation upon the exercise of such Rights or
Options or the conversion or exchange of such Convertible Securities.
No further adjustment of the Conversion Price, adjusted upon the
issuance of such Rights or Options or Convertible Securities, shall be made as a
result of the actual issuance of shares of Common Stock on the exercise of any
such Rights or Options or the conversion or exchange of any such Convertible
Securities. If any such Rights or Options or the conversion rights represented
by any such Convertible Securities shall expire without having been fully
exercised, then the Conversion Price as adjusted upon the issuance of such
Rights or Options or Convertible Securities shall be readjusted to the
Conversion Price which would have been in effect had an adjustment been made on
the basis that the only shares of Common Stock so issued were the shares of
Common Stock, if any, that were actually issued or sold on the exercise of such
Rights or Options or rights of conversion or exchange of such Convertible
Securities, and such shares of Common Stock, if any, were issued or sold for the
consideration actually received by the corporation upon such exercise, plus the
consideration, if any, actually received by the corporation for the granting of
all such Rights or Options, whether or not exercised, plus the consideration
received for issuing or selling all such Convertible Securities actually
converted or exchanged, plus the consideration, if any, actually received by the
corporation (other than by cancellation of liabilities or obligations evidenced
by such Convertible Securities) on the conversion or exchange of such
Convertible Securities, provided that such readjustment shall not apply to prior
conversions of Preferred Stock.
(h) Certificate of Adjustment. In each case of an adjustment or
-------------------------
readjustment of the Conversion Price for a series of Preferred Stock, the
corporation, at its expense, shall cause its Chief Financial Officer to compute
such adjustment or readjustment in accordance with the provisions hereof and
prepare a certificate showing such adjustment or readjustment, and shall mail
such certificate, by first class mail, postage prepaid, to each registered
holder of the Preferred Stock at the holder's address as shown in the
corporation's books.
(i) Fractional Shares. No fractional shares of Common Stock shall be
-----------------
issued upon any conversion of Preferred Stock. In lieu of any fractional share
to which the holder would otherwise be entitled, the corporation shall pay the
holder cash equal to the product of such fraction multiplied by the Common
Stock's fair market value as determined in good faith by the Board as of the
date of conversion.
(j) Notices. Any notice required by the provisions of this Section 4
-------
to be given to the holders of Preferred Stock shall be deemed given if deposited
in the United States
13
<PAGE>
mail, postage prepaid, and addressed to each holder of record at such holder's
address appearing on the books of the corporation.
(k) Special Mandatory Conversion.
----------------------------
(i) At any time following the Purchase Date of the Series A
Preferred Stock, if (a) the holders of shares of Series A Preferred Stock are
entitled to exercise the right of first offer (the "RIGHT OF FIRST OFFER") set
forth in Section 2.4 of the Second Amended and Restated Investors' Rights
Agreement by and among the corporation and certain shareholders of the
corporation, as amended from time to time (the "RIGHTS AGREEMENT"), with respect
to an equity or convertible debt financing of the corporation pursuant to which
the corporation offers, sells and issues shares of Additional Stock for no
consideration or at a consideration per share less than the Conversion Price for
the Series A Preferred Stock in effect immediately prior to the issuance of such
Additional Stock (the "SERIES A DILUTIVE FINANCING"), (b) the corporation has
complied with its notice obligations, or such obligations have been waived under
the Right of First Offer with respect to such Series A Dilutive Financing and
the corporation thereafter proceeds to consummate the Series A Dilutive
Financing, and (c) such holder (a "NON-PARTICIPATING SERIES A HOLDER") does not
by exercise of such holder's Right of First Offer acquire his, her or its pro
rata share (prior to the right to exercise any over-allotment option) offered in
such Series A Dilutive Financing (a "SERIES A MANDATORY OFFERING"), then
effective upon, subject to and concurrently with, the consummation of the Series
A Mandatory Offering (the "SERIES A MANDATORY OFFERING DATE"), all of such Non-
Participating Series A Holder's shares of Series A Preferred Stock shall
automatically and without further action on the part of such holder be converted
into an equivalent number of shares of Series A1 Preferred Stock; provided,
--------
however, that no such conversion shall occur in connection with a particular
- -------
Series A Dilutive Financing if, pursuant to the written request of the
corporation, such holder agrees in writing to waive his, her or its Right of
First Offer with respect to such Series A Dilutive Financing. Upon conversion
pursuant to this subsection 4(k)(i), the shares of Series A Preferred Stock so
converted shall be canceled and not subject to reissuance.
(ii) At any time following the Purchase Date of the Series B
Preferred Stock, if (a) the holders of shares of Series B Preferred Stock are
entitled to exercise the Right of First Offer set forth in the Rights Agreement,
with respect to an equity or convertible debt financing of the corporation
pursuant to which the corporation offers, sells and issues shares of Additional
Stock for no consideration or at a consideration per share less than the
Conversion Price for the Series B Preferred Stock in effect immediately prior to
the issuance of such Additional Stock (the "SERIES B DILUTIVE FINANCING"), (b)
the corporation has complied with its notice obligations, or such obligations
have been waived, under the Right of First Offer with respect to such Series B
Dilutive Financing and the corporation thereafter proceeds to consummate the
Series B Dilutive Financing, and (c) such holder (a "NON-PARTICIPATING SERIES B
HOLDER") does not by exercise of such holder's Right of First Offer acquire his,
her or its pro rata share (prior to the right to exercise any over-allotment
option) offered in such Series B Dilutive Financing (a "SERIES B MANDATORY
OFFERING"), then effective upon, subject to and concurrently with, the
consummation of the Series B Mandatory Offering (the "SERIES B MANDATORY
OFFERING DATE"), all of such Non-Participating Series B Holder's shares of
Series B Preferred Stock shall automatically and without further action on the
part of such holder be converted into an equivalent number of shares of Series
B1 Preferred Stock; provided, however, that no such conversion shall occur in
--------- -------
connection with a particular Series B Dilutive Financing if, pursuant to
14
<PAGE>
the written request of the corporation, such holder agrees in writing to waive
his, her or its Right of First Offer with respect to such Series B Dilutive
Financing. Upon conversion pursuant to this subsection 4(k)(ii), the shares of
Series B Preferred Stock so converted shall be canceled and not subject to
reissuance.
(iii) At any time following the Purchase Date of the Series C
Preferred Stock, if (a) the holders of shares of Series C Preferred Stock are
entitled to exercise the Right of First Offer set forth in the Rights Agreement,
with respect to an equity or convertible debt financing of the corporation
pursuant to which the corporation offers, sells and issues shares of Additional
Stock for no consideration or at a consideration per share less than the
Conversion Price for the Series C Preferred Stock in effect immediately prior to
the issuance of such Additional Stock (the "SERIES C DILUTIVE FINANCING"), (b)
the corporation has complied with its notice obligations, or such obligations
have been waived, under the Right of First Offer with respect to such Series C
Dilutive Financing and the corporation thereafter proceeds to consummate the
Series C Dilutive Financing, and (c) such holder (a "NON-PARTICIPATING SERIES C
HOLDER") does not by exercise of such holder's Right of First Offer acquire his,
her or its pro rata share (prior to the right to exercise any over-allotment
option) offered in such Series C Dilutive Financing (a "SERIES C MANDATORY
OFFERING"), then effective upon, subject to and concurrently with, the
consummation of the Series C Mandatory Offering (the "SERIES C MANDATORY
OFFERING DATE"), all of such Non-Participating Series C Holder's shares of
Series C Preferred Stock shall automatically and without further action on the
part of such holder be converted into an equivalent number of shares of Series
C1 Preferred Stock; provided, however, that no such conversion shall occur in
-------- -------
connection with a particular Series C Dilutive Financing if, pursuant to the
written request of the corporation, such holder agrees in writing to waive his,
her or its Right of First Offer with respect to such Series C Dilutive
Financing. Upon conversion pursuant to this subsection 4(k)(iii), the shares of
Series C Preferred Stock so converted shall be canceled and not subject to
reissuance.
(iv) At any time following the Purchase Date of the Series D
Preferred Stock, if (a) the holders of shares of Series D Preferred Stock are
entitled to exercise the Right of First Offer set forth in the Rights Amendment,
as amended, with respect to an equity or convertible debt financing of the
corporation pursuant to which the corporation offers, sells and issues shares of
Additional Stock for no consideration or at a consideration per share less than
the Conversion Price for the Series D Preferred Stock in effect immediately
prior to the issuance of such Additional Stock (the "SERIES D DILUTIVE
FINANCING"), (b) the corporation has complied with its notice obligations, or
such obligations have been waived, under the Right of First Offer with respect
to such Series D Dilutive Financing and the corporation thereafter proceeds to
consummate the Series D Dilutive Financing, and (c) such holder (a "NON-
PARTICIPATING SERIES D HOLDER") does not by exercise of such holder's Right of
First Offer acquire his, her or its pro rata share (prior to the right to
exercise any over-allotment option) offered in such Series D Dilutive Financing
(a "SERIES D MANDATORY OFFERING"), then effective upon, subject to and
concurrently with, the consummation of the Series D Mandatory Offering (the
"SERIES D MANDATORY OFFERING DATE"), all of such Non-Participating Series D
Holder's shares of Series D Preferred Stock shall automatically and without
further action on the part of such holder be converted into an equivalent number
of shares of Series D1 Preferred Stock; provided, however, that no such
-------- -------
conversion shall occur in connection with a particular Series D Dilutive
Financing if, pursuant to the written request of the corporation, such holder
agrees in writing to waive his, her or its Right of First Offer with respect to
such Series D Dilutive Financing. Upon conversion
15
<PAGE>
pursuant to this subsection 4(k)(iv), the shares of Series D Preferred Stock so
converted shall be canceled and not subject to reissuance.
(v) The holder of any shares of Series A, Series B, Series C or
Series D Preferred Stock converted pursuant to this subsection 4(k) shall
deliver to the corporation during regular business hours at the office of any
transfer agent of the corporation for each such series of Preferred Stock, or at
such other place as may be designated by the corporation, the certificate or
certificates for the shares so converted, duly endorsed or assigned in blank or
to the corporation. As promptly as practicable thereafter, the corporation shall
issue and deliver to such holder, at the place designated by such holder, a
certificate or certificates for the number of full shares of the Series A1
Preferred Stock, the Series B1 Preferred Stock, the Series C1 Preferred Stock or
the Series D1 Preferred Stock to be issued and such holder shall be deemed to
have become a shareholder of record of Series A1, Series B1, Series C1 or Series
D1 Preferred Stock on either the Series A Mandatory Offering Date, the Series B
Mandatory Offering Date, the Series C Mandatory Offering Date or the Series D
Mandatory Offering Date, as the case may be.
(vi) In the event that any Series A1, Series B1, Series C1 and/or
Series D1 Preferred Stock is issued in connection with the Special Mandatory
Conversion provisions set forth in subsections 4(k)(i) through 4(k)(iv),
concurrently with such issuance, the corporation shall use its best efforts to
take all such action as may be required, including amending its Articles of
Incorporation:
(1) in the case of an issuance of Series A1 Preferred
Stock, (i) to cancel all authorized shares of Series A1 Preferred Stock that
remain unissued after such issuance (other than any such shares reserved for
issuance upon exercise of then outstanding warrants for such shares), and (ii)
to create and reserve for issuance upon Special Mandatory Conversion of any
Series A Preferred Stock a new series of Preferred Stock equal in number to the
number of shares of Series A1 Preferred Stock so canceled and designated Series
A2 Preferred Stock with the designations, powers, preferences and rights and the
qualifications, limitations and restrictions identical to those then applicable
to the Series A1 Preferred Stock, except that the Conversion Price for such
shares of Series A2 Preferred Stock once initially issued shall be the Series A
Conversion Price in effect immediately prior to such issuance;
(2) in the case of an issuance of Series B1 Preferred
Stock, (i) to cancel all authorized shares of Series B1 Preferred Stock that
remain unissued after such issuance (other than any such shares reserved for
issuance upon exercise of outstanding warrants to purchase such shares), and
(ii) to create and reserve for issuance upon Special Mandatory Conversion of any
Series B Preferred Stock a new series of Preferred Stock equal in number to the
number of shares of Series B1 Preferred Stock so canceled and designated Series
B2 Preferred Stock with the designations, powers, preferences and rights and the
qualifications, limitations and restrictions identical to those then applicable
to the Series B1 Preferred Stock, except that the Conversion Price for such
shares of Series B2 Preferred Stock once initially issued shall be the Series B
Conversion Price in effect immediately prior to such issuance;
(3) in the case of an issuance of Series C1 Preferred
Stock, (i) to cancel all authorized shares of Series C1 Preferred Stock that
remain unissued after such issuance (other than any such shares reserved for
issuance upon exercise of outstanding warrants to purchase such shares), and
(ii) to create and reserve for issuance upon Special Mandatory
16
<PAGE>
Conversion of any Series C Preferred Stock a new series of Preferred Stock equal
in number to the number of shares of Series C1 Preferred Stock so canceled and
designated Series C2 Preferred Stock with the designations, powers, preferences
and rights and the qualifications, limitations and restrictions identical to
those then applicable to the Series C1 Preferred Stock, except that the
Conversion Price for such shares of Series C2 Preferred Stock once initially
issued shall be the Series C Conversion Price in effect immediately prior to
such issuance;
(4) in the case of an issuance of Series D1 Preferred
Stock, (i) to cancel all authorized shares of Series D1 Preferred Stock that
remain unissued after such issuance (other than any such shares reserved for
issuance upon exercise of outstanding warrants to purchase such shares), and
(ii) to create and reserve for issuance upon Special Mandatory Conversion of any
Series D Preferred Stock a new series of Preferred Stock equal in number to the
number of shares of Series D1 Preferred Stock so canceled and designated Series
D2 Preferred Stock with the designations, powers, preferences and rights and the
qualifications, limitations and restrictions identical to those then applicable
to the Series D1 Preferred Stock, except that the Conversion Price for such
shares of Series D2 Preferred Stock once initially issued shall be the Series D
Conversion Price in effect immediately prior to such issuance;
(5) to amend the provisions of this subsection 4(k) to
provide that any subsequent Special Mandatory Conversion of the Series A
Preferred Stock, the Series B Preferred Stock, the Series C Preferred Stock
and/or the Series D Preferred Stock will be into shares of Series A2, Series B2,
Series C2 or Series D2 Preferred Stock, respectively, rather than Series A1,
Series B1, Series C1 or Series D1 Preferred Stock.
The corporation shall take the same actions with respect to the
Series A2, Series B2 and Series C2 Preferred Stock and each subsequently
authorized series of Preferred Stock upon initial issuance of shares of the last
such series to be authorized. The right to receive any dividend declared but
unpaid at the time of conversion on any shares of Preferred Stock converted
pursuant to the provisions of this subsection 4(k) shall accrue to the benefit
of the new shares of Preferred Stock issued upon conversion thereof.
5. Voting Rights. The holder of each share of Preferred Stock shall
-------------
have the right to one vote for each share of Common Stock into which such
Preferred Stock could then be converted, and with respect to such vote, such
holder shall have full voting rights and powers equal to the voting rights and
powers of the holders of Common Stock, and shall be entitled, notwithstanding
any provision hereof, to notice of any shareholders' meeting in accordance with
the Bylaws of the corporation, and shall be entitled to vote, together with
holders of Common Stock, with respect to any question upon which holders of
Common Stock have the right to vote. Fractional votes shall not, however, be
permitted and any fractional voting rights available on an as-converted basis
(after aggregating all shares into which shares of Preferred Stock held by each
holder could be converted) shall be rounded to the nearest whole number (with
one-half being rounded upward).
6. Protective Provisions. So long as any shares of any series of
---------------------
Preferred Stock are outstanding, the corporation shall not without first
obtaining the approval (by vote or written consent, as provided by law) of
holders of at least seventy-five percent (75%) of the outstanding shares of
Preferred Stock voting together as a single class, on an as-converted basis
except for subsection (c) hereof which shall require the approval (by vote or
written consent, as
17
<PAGE>
provided by law) of holders of at least sixty-six and two-thirds percent (66
2/3%) of the outstanding shares of Preferred Stock voting together as a single
class, on an as converted basis:
(a) sell, convey, or otherwise dispose of or encumber all or
substantially all of its property or business or merge into or consolidate with
any other corporation (other than a wholly-owned subsidiary corporation) or
effect any transaction or series of related transactions in which more than
fifty percent (50%) of the voting power of the corporation is disposed of;
(b) increase or decrease (other than by redemption or conversion) the
total number of authorized shares of any series of Preferred Stock;
(c) enter into any agreement to voluntarily liquidate, dissolve or
wind up the corporation or take any action intended to effectuate any of the
foregoing;
(d) authorize the issuance of any other equity security, including
any other security convertible into or exercisable for any equity security (i)
having a preference over, or being on a parity with, any series of Preferred
Stock with respect to voting, dividends or upon liquidation, or (ii) having
rights similar to any of the rights of the Preferred Stock under this Section 6;
(e) alter or change the rights, preferences or privileges of the
shares of any series of Preferred Stock so as to affect adversely such shares;
(f) declare or pay any dividends or make other distributions on, or
redeem, purchase or acquire any Common Stock or any other class of capital stock
of the corporation except for redemptions made in accordance with the provisions
of Article III(c)(3) hereof and except for the repurchase of any Common Stock
pursuant to a repurchase right with respect to terminated employees;
(g) enter into any transaction or series of transactions for a value
greater than $50,000 with any affiliated person or entity (other than
transactions which have been approved by a majority of the disinterested
directors and the terms of which are comparable to transactions entered into on
an arm's length basis);
(h) amend the corporation's Articles of Incorporation or Bylaws;
(i) acquire all or substantially all of the assets or capital stock
or securities of, or otherwise combine with any corporation, partnership or
other business entity or form a subsidiary for such purpose; or
(j) do any act or thing which would result in taxation of the holders
of shares of Preferred Stock under Section 305 of the Internal Revenue Code of
1986, as amended (or any comparable provision of the Internal Revenue Code as
hereafter amended from time to time).
7. Status of Converted or Redeemed Stock. In the event any shares of
-------------------------------------
Preferred Stock shall be redeemed or converted pursuant to Section 3 or Section
4 hereof, the shares so converted or redeemed shall be canceled and shall not be
issuable by the corporation.
18
<PAGE>
The Articles of Incorporation of the corporation shall be appropriately amended
to effect the corresponding reduction in the corporation's authorized capital
stock.
8. Repurchase of Shares. In connection with repurchases by the
--------------------
corporation of its Common Stock pursuant to its agreements with certain of the
holders thereof, Sections 502 and 503 of the California General Corporation Law
shall not apply in whole or in part with respect to such repurchases.
D. Common Stock.
------------
1. Dividend Rights. Subject to the prior rights of holders of all
---------------
classes of stock at the time outstanding having prior rights as to dividends,
the holders of the Common Stock shall be entitled to receive, when and as
declared by the Board of Directors, out of any assets of the corporation legally
available therefor, such dividends as may be declared from time to time by the
Board of Directors.
2. Liquidation Rights. Upon the liquidation, dissolution or winding
------------------
up of the corporation, the assets of the corporation shall be distributed as
provided in Article III, Section C(2).
3. Redemption. The Common Stock is not redeemable.
----------
4. Voting Rights. The holder of each share of Common Stock shall
-------------
have the right to one vote, and shall be entitled to notice of any shareholders'
meeting in accordance with the Bylaws of the corporation, and shall be entitled
to vote upon such matters and in such manner as may be provided by law.
ARTICLE IV
Section 1. The liability of the directors of the corporation for
monetary damages shall be eliminated to the fullest extent permissible under
California law.
Section 2. The corporation is authorized to provide indemnification
of agents (as defined in Section 317 of the California Corporations Code)
through bylaw provisions, agreements with the agents, vote of shareholders or
disinterested directors, or otherwise in excess of the indemnification otherwise
permitted by Section 317 of the California Corporations Code, subject only to
applicable limits set forth in Section 204 of the California Corporations Code
with respect to actions for breach of duty to the corporation and its
shareholders.
* * *
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<PAGE>
THREE: The foregoing amendment and restatement has been approved by
the Board of Directors of said corporation.
FOUR: The foregoing amendment and restatement was approved by the
holders of the requisite number of shares of said corporation in accordance with
Sections 902 and 903 of the California General Corporation Law; the total number
of outstanding shares of each class entitled to vote with respect to the
foregoing amendment was 5,697,820 shares of Common Stock, 7,798,483 shares of
Series A Preferred Stock, 7,738,095 shares of Series B Preferred Stock, 6,000
shares of Series B1 Preferred Stock and 15,789,868 shares of Series C Preferred
Stock. The number of shares voting in favor of the foregoing amendment equaled
or exceeded the vote required, such required vote being a majority of the
outstanding shares of Common Stock and at least seventy five percent (75%) of
the outstanding shares of Series A Preferred Stock, Series B Preferred Stock,
Series B1 Preferred Stock and Series C Preferred Stock voting together as a
single class on an as-converted basis.
IN WITNESS WHEREOF, the undersigned have executed this certificate on
December 5, 1997.
/s/ K. B. Chandrasekhar
- -----------------------------------
K. B. Chandrasekhar, President
/s/ Adam W. Wegner
- -----------------------------------
Adam W. Wegner, Secretary
The undersigned certify under penalty of perjury that they have read
the foregoing Amended and Restated Articles of Incorporation and know the
contents thereof, and that the statements therein are true.
Executed at Santa Clara, California, on December 5, 1997.
/s/ K. B. Chandrasekhar
- -----------------------------------
K. B. Chandrasekhar
/s/ Adam W. Wegner
- -----------------------------------
Adam W. Wegner
20
<PAGE>
EXHIBIT 3.02
CERTIFICATE OF INCORPORATION
OF
EXODUS COMMUNICATIONS, INC.
ARTICLE I
The name of the corporation is Exodus Communications, Inc.
ARTICLE II
The address of the registered office of the corporation in the State of
Delaware is 1013 Centre Road, City of Wilmington, 19805, County of New Castle.
The name of its registered agent at that address is Corporation Service Company.
ARTICLE III
The purpose of the corporation is to engage in any lawful act or activity
for which corporations may be organized under the General Corporation Law of the
State of Delaware.
ARTICLE IV
The total number of shares of all classes of stock which the corporation
has authority to issue is one hundred eighty million (180,000,000) shares,
consisting of two classes: one hundred million (100,000,000) shares of Common
Stock, $0.001 par value per share, and eighty million (80,000,000) shares of
Preferred Stock, $0.001 par value per share.
The Board of Directors is authorized, subject to any limitations prescribed
by the law of the State of Delaware, to provide for the issuance of the shares
of Preferred Stock in one or more series, and, by filing a certificate of
designation pursuant to the applicable law of the State of Delaware, to
establish from time to time the number of shares to be included in each such
series, to fix the designation, powers, preferences and rights of the shares of
each such series and any qualifications, limitations or restrictions thereof and
to increase or decrease the number of shares of any such series (but not below
the number of shares of such series then outstanding). Subject to approval by
the Board of Directors, the number of authorized shares of Preferred Stock may
be increased or decreased (but not below the number of shares thereof then
outstanding) by the affirmative vote of the holders of a majority of the stock
of the corporation entitled to vote, unless a vote of any other holders is
required pursuant to a certificate or certificates establishing a series of
Preferred Stock.
Except as expressly provided in any certificate of designation designating
any series of Preferred Stock pursuant to the foregoing provisions of this
Article IV, any new series of Preferred Stock may be designated, fixed and
determined as provided herein by the Board of Directors without approval of the
holders of Common Stock or the holders of Preferred Stock, or any series
thereof, and any such new series may have powers, preferences and rights,
including,
<PAGE>
Exodus Communications, Inc.
Certificate of Incorporation
without limitation, voting rights, dividend rights, liquidation rights,
redemption rights and conversion rights senior to, junior to or pari passu with
the rights of the Common Stock, the Preferred Stock, or any future class or
series of Preferred Stock or Common Stock.
If the certificate of designation creating a series of Preferred Stock so
provides, any shares of a series of Preferred Stock that are acquired by the
corporation, whether by redemption, purchase, conversion or otherwise, so that
such shares are issued but not outstanding, may not be reissued as shares of
such series or as shares of the class of Preferred Stock. Upon the retirement
of any such shares and the filing of a certificate of retirement pursuant to
Sections 103 and 243 of the Delaware General Corporation Law with respect
thereto, the shares of such series shall be eliminated and the number of shares
of Preferred Stock shall be reduced accordingly.
ARTICLE V
The business and affairs of the corporation shall be managed by or under
the direction of the Board of Directors. The number of directors shall be fixed
from time to time exclusively by a resolution of the Board of Directors adopted
by the affirmative vote of a majority of the total number of directors that the
corporation would have if there were no vacancies.
Any vacancy on the Board of Directors, however resulting, and any newly
created directorships resulting from any increase in the authorized number of
directors shall be filled only by the affirmative vote of a majority of the
directors then in office, even if less than a quorum, or by a sole remaining
director, unless the Board of Directors determines that any such vacancies or
newly created directorships shall be filled by the stockholders.
The Board of Directors of the corporation shall have the power to adopt,
amend or repeal Bylaws of the corporation.
ARTICLE VI
Any action required or permitted to be taken by the stockholders of the
corporation may be effected at a duly called annual or special meeting of such
holders or by consent in writing by such holders. Subject to the rights of the
holders of any class or series of Preferred Stock, special meetings of
stockholders of the corporation shall be called only by the Board of Directors
or upon the request of the Chairman of the Board of Directors or the Chief
Executive Officer of the corporation. If a special meeting is requested by the
Chairman of the Board of Directors or the Chief Executive Officer, the Board of
Director shall determine the time and the place of such meeting, which shall be
called for no less than 35 days nor more than 120 days after the receipt by the
Secretary of the corporation of the request for such meeting.
Election of directors need not be by written ballot unless the Bylaws of
the corporation shall so provide.
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Exodus Communications, Inc.
Certificate of Incorporation
ARTICLE VII
To the fullest extent permitted by law, no director of the corporation
shall be personally liable for monetary damages for breach of fiduciary duty as
a director. Without limiting the effect of the preceding sentence, if the
Delaware General Corporation Law is hereafter amended to authorize the further
elimination or limitation of the liability of a director, then the liability of
a director of the corporation shall be eliminated or limited to the fullest
extent permitted by the Delaware General Corporation Law, as so amended.
Neither any amendment nor repeal of this Article VII, nor the adoption of
any provision of this Certificate of Incorporation inconsistent with this
Article VII, shall eliminate, reduce or otherwise adversely affect any
limitation on the personal liability of a director of the corporation existing
at the time of such amendment, repeal or adoption of such an inconsistent
provision.
ARTICLE VIII
Effective immediately after the closing of an underwritten public offering
of shares of the corporation's Common Stock pursuant to a registration statement
filed with and declared effective by the Securities and Exchange Commission,
actions shall be taken by the corporation's stockholders only at annual or
special meetings of stockholders, and the corporation's stockholders shall not
be able to act by written consent.
ARTICLE IX
The name and mailing address of the incorporator is Fred Greguras c/o
Fenwick & West LLP, Two Palo Alto Square, Palo Alto, California 94306.
The undersigned incorporator hereby acknowledges that the foregoing
certificate is his act and deed and that the facts stated herein are true.
Dated: January 6, 1998
/s/ Fred GREGURAS
--------------------------------
Fred Greguras, Incorporator
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<PAGE>
EXHIBIT 3.03
EXODUS COMMUNICATIONS, INC.
CERTIFICATE OF DESIGNATION OF PREFERRED STOCK
Exodus Communications, Inc., a Delaware corporation (the "Company"), does
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hereby certify that pursuant to the authority contained in Article IV of its
Certificate of Incorporation, and in accordance with the provisions of Section
151 of the Delaware General Corporation Law, the Company's Board of Directors
has duly adopted the following resolution creating eight separate series of
Preferred Stock designated as Series A Preferred Stock, Series A1 Preferred
Stock, Series B Preferred stock, Series B1 Preferred Stock, Series C Preferred
Stock, Series C1 Preferred Stock, Series D Preferred Stock and Series D1
Preferred Stock.
RESOLVED, that the Company hereby designates and creates eight separate
series of the authorized Preferred Stock, designated Series A Preferred
Stock, Series A1 Preferred Stock, Series B Preferred Stock, Series B1
Preferred Stock, Series C Preferred Stock, Series C1 Preferred Stock,
Series D Preferred Stock and Series D1 Preferred Stock, respectively, as
follows:
A. Of the eighty million (80,000,000) shares of Preferred Stock, par value
$0.001, authorized to be issues by the Company, seven million, seven hundred
ninety-eight thousand, four hundred and eighty-three (7,798,483) shares are
hereby designated a "Series A Preferred Stock"; seven million, seven hundred
ninety-eight thousand, four hundred and eighty-three (7,798,483) shares are
hereby designated "Series A1 Preferred Stock"; eight million, six hundred
thousand (8,600,000) shares are hereby designated "Series B Preferred Stock";
eight million, six hundred thousand (8,600,000) shares are hereby designated
"Series B1 Preferred Stock"; seventeen million, eight hundred and fifty thousand
(17,850,000) shares are hereby designated "Series C Preferred Stock"; seventeen
million, eight hundred fifty thousand (17,850,000) shares are hereby designated
"Series C1 Preferred Stock"; three million, two hundred thirty-one thousand five
hundred seventy-nine (3,231,579) shares are hereby designated "Series D
Preferred Stock" and three million, two hundred thirty-one thousand five hundred
seventy-nine (3,231,579) shares are hereby designated "Series D1 Preferred
Stock." Any shares of Series A Preferred Stock, Series A1 Preferred Stock,
Series B Preferred Stock, Series B1 Preferred Stock, Series C Preferred Stock,
Series C1 Preferred Stock, Series D Preferred Stock or Series D1 Preferred Stock
that are acquired by the Company, whether by redemption, purchase, conversion or
otherwise, so that such shares are issued but not outstanding, may not be
reissued as shares of any such series or as shares of the class of Preferred
Stock. Upon the retirement of any such shares and the filing of a certificate
of retirement pursuant to Sections 103 and 243 of the Delaware General
Corporation Law with respect thereto, the shares of such series shall be
eliminated and the number of shares of Preferred Stock shall be reduced
accordingly. The rights, preferences, privileges and restrictions granted to
and imposed upon the respective classes and series of the Corporation's capital
stock are set forth below in Article B. Nothing in this Article A shall limit
the Board of Directors' ability to designate and establish the rights,
preferences, privileges and restrictions of the remaining authorized but
unissued Preferred Stock of the Corporation.
B. Rights, Preferences and Restrictions of Preferred Stock. The rights,
-------------------------------------------------------
preferences, restrictions and other matters relating to the Preferred Stock are
as follows:
<PAGE>
1. Definitions. For purposes of this Article B, the following
-----------
definitions shall apply:
1.1 "Board" shall mean the Board of Directors of the Company.
-----
1.2 "Company" shall mean this corporation.
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1.3 "Common Stock" shall mean the Common Stock, $0.001 par value of
------------
the Company.
1.4 "Preferred Stock" shall mean the Preferred Stock, $0.001 par
---------------
value, of the Company, including, without limitation, the Series A Preferred
Stock, the Series A1 Preferred Stock, the Series B Preferred Stock, the Series
B1 Preferred Stock, the Series C Preferred Stock, the Series C1 Preferred Stock,
the Series D Preferred Stock, the Series D1 Preferred Stock and any series of
Preferred Stock created by the Board pursuant to Article IV of the Company's
Certificate of Incorporation.
1.5 "Series A Preferred Stock" shall mean the Series A Preferred
------------------------
Stock, $0.001 par value, of the Company.
1.6 "Series A1 Preferred Stock" shall mean the Series A1 Preferred
-------------------------
Stock, $0.001 par value, of the Company.
1.7 "Series B Preferred Stock" shall mean the Series B Preferred
------------------------
Stock, 0.001 par value, of the Company.
1.8 "Series B1 Preferred Stock" shall mean the Series B1 Preferred
-------------------------
Stock, $0.001 par value, of the Company.
1.9 "Series C Preferred Stock" shall mean the Series C Preferred
------------------------
Stock, $0.001 par value, of the Company.
1.10 "Series C1 Preferred Stock" shall mean the Series C1 Preferred
-------------------------
Stock, $0.001 par value, of the Company.
1.11 "Series D Preferred Stock" shall mean the Series D Preferred
------------------------
Stock, $0.001 par value, of the Company.
1.12 "Series D1 Preferred Stock" shall mean the Series D1 Preferred
-------------------------
Stock, $0.001 par value, of the Company.
2. Dividend Provisions. The holders of shares of Preferred Stock shall
-------------------
be entitled to receive dividens, out of any assets legally available therefor,
prior and in preference to any declaration or payment of any dividend (payable
other than in Common Stock or other securities and rights convertible into or
entitling the holder thereof to receive, directly or indirectly, additional
shares of Common Stock of the corporation, each of such securities to be
hereinafter referred to as a "Common Stock Dividend") on the Common Stock of the
corporation, at the annual rate for each series of Preferred Stock set forth in
the following sentence. The annual dividend rate of the Series A and Series A1
Preferred Stock shall be $0.04 per share, the annual dividend rate of the Series
B and Series B1 Preferred Stock shall be $0.084 per share, the annual dividend
rate of the Series C and Series C1 Preferred Stock shall be $0.095 per share and
the
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<PAGE>
annual dividend rate of the Series D and Series D1 Preferred Stock shall be
$0.20 per share. Dividends on the Series A, Series A1, Series B and Series B1
Preferred Stock shall be payable when and if declared by the Board of Directors
and shall not be cumulative. Dividends on the Series C, Series C1, Series D and
Series D1 Preferred Stock shall accrue, and be compounded annually and be
cumulative but shall be payable only (i) in the event and at the time of a
liquidation, dissolution or winding up of the corporation pursuant to Article
III, Section C(2)(a) or (ii) on declaration and payment of any dividends with
respect to any outstanding securities of the corporation (other than a Common
Stock Dividend). No dividends (other than a Common Stock Dividend) shall be
paid with respect to the Common Stock unless dividends in the total amount of
the annual dividend rate for each series of Preferred Stock shall have first
been paid or declared and set apart for payment to the holders of such Preferred
Stock. Payments of any dividends to the holders of shares of Preferred Stock
shall be paid pro rata, on an equal priority, pari passu basis, according to
---- -----
their respective dividend preferences as set forth herein.
3. Liquidation Preference.
----------------------
(a) In the event of any liquidation, dissolution or winding up of
the corporation, either voluntary or involuntary, the holders of shares of
Preferred Stock shall be entitled to receive, subsequent to payment by the
corporation of any amounts due to any holders of Preferred Stock who have
previously requested redemption pursuant to the terms of section 4 herein, and
prior and in preference to any distribution of any of the assets of the
corporation to the holders of Common Stock by reason of their ownership thereof,
an amount per share equal to the sum of (i) $0.4129 for each outstanding share
of Series A Preferred Stock and Series A1 Preferred Stock (the "Original Series
A Issue Price" and "Original Series A1 Issue Price," respectively), (ii) $0.84
for each outstanding share of Series B Preferred Stock and Series B1 Preferred
Stock (the "Original Series B Issue Price" and "Original Series B1 Issue Price,"
respectively), (iii) $1.3623 for each outstanding share of Series C Preferred
Stock and Series C1 Preferred Stock (the "Original Series C Issue Price" and
"Original Series C1 Issue Price", respectively), (iv) $2.85 for each outstanding
share of Series D Preferred Stock and Series D1 Preferred Stock (the "Original
Series D Issue Price" and "Original Series D1 Issue Price" and (v) an amount
equal to all declared and/or accrued but unpaid dividends on such shares. If
upon the occurrence of such event, the assets and funds thus distributed among
the holders of the Preferred Stock shall be insufficient to permit the payment
to such holders of the full aforesaid preferential amounts, then, the entire
assets and funds of the corporation legally available for distribution shall be
distributed among the holders of the Preferred Stock pro rata, on an equal
priority, pari passu basis, according to their respective liquidation
---- -----
preferences as set forth herein.
(b) After the distributions described in subsection (a) above have
been paid, the remaining assets of the corporation available for distribution,
if any, to shareholders shall be distributed among the holders of the Common
Stock pro rata based on the number of shares of Common Stock held by each.
(c)(i) For purposes of this Section 3, a liquidation, dissolution or
winding up of the corporation shall be deemed to be occasioned by, or to include
but not be limited to, (A) the acquisition of the corporation by another entity,
(B) the acquisition of greater than 50% of the then outstanding voting
securities of the corporation by persons or entities unrelated to and not
affiliated with the holders thereof in a transaction or series of related
transactions where the corporation is a party; or (C) a sale of all or
substantially all of the assets of the corporation by means of any transaction
or series of related transactions (including, without limitation, any
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<PAGE>
reorganization, merger or consolidation but, excluding any merger effected
exclusively for the purpose of changing the domicile of the corporation); unless
------
in each case the corporation's shareholders of record as constituted immediately
prior to such acquisition or sale will, immediately after such acquisition or
sale (by virtue of securities issued as consideration for the corporation's
acquisition or sale or otherwise) hold at least 50% of the voting power of the
surviving or acquiring entity.
(ii) In any of such events, if the consideration received by the
corporation is other than cash, its value will be deemed its fair market value.
Any securities shall be valued as follows:
(A) If traded on a securities exchange or through the
Nasdaq National Market, the value shall be deemed to be the average of the
closing prices of the securities on such exchange over the thirty-day period
ending three (3) days prior to the closing;
(B) If actively traded over-the-counter, the value shall be
deemed to be the average of the closing bid or sale prices (whichever is
applicable) over the thirty-day period ending three (3) days prior to the
closing; and
(C) If there is no active public market, the value shall be
the fair market value thereof as determined in this Section 3(c)(ii)(C) ("Fair
Market Value"). Fair Market Value shall be initially determined by a majority of
those directors of the corporation who are not affiliated with any of the
holders of such Preferred Stock (the "Disinterested Directors"). If the holders
of a majority of the Preferred Stock (the "Contesting Holders") notify the
Disinterested Directors within five (5) days after receiving notification of the
Disinterested Directors' determination of the Fair Market Value of such
securities that they object to their determination of the Fair Market Value of
the securities received by the corporation, the Disinterested Directors and the
Contesting Holders shall attempt to agree on the Fair Market Value of such
securities. In the event that the Disinterested Directors and the Contesting
Holders fail to agree on the Fair Market Value of such securities within fifteen
(15) days after receipt by the Disinterested Directors of the objection notice
referred to above, the Disinterested Directors and the Contesting Holders shall
select an independent appraiser, who shall be a nationally recognized investment
banking firm, or another entity mutually acceptable to all parties, to conduct
an appraisal of the relevant securities, which appraisal shall determine the
Fair Market Value (without making any discount for lack of transferability or
minority interests) of such securities. If the Disinterested Directors and the
Contesting Holders are unable to agree on the selection of an independent
appraiser within fifteen (15) days after the commencement of such selection
process, then an independent appraiser meeting the specifications described
above shall be selected by the American Arbitration Association in the San
Francisco Bay Area, California. The independent appraiser shall then promptly
conduct an appraisal to determine the Fair Market Value of the relevant
securities. In such case, the Fair Market Value shall be that as is determined
by the appraiser. Such appraisal shall be paid for equally by the corporation
and the Contesting Holders.
(iii) In the event the requirements of this subsection 3(c) are
not complied with, the corporation shall forthwith either:
(A) Cause such closing to be postponed until such time as the
requirements of this Section 3 have been complied with; or
4
<PAGE>
(B) Cancel such transaction, in which event the rights,
preferences and privileges of the holders of the Preferred Stock shall revert to
and be the same as such rights, preferences and privileges existing immediately
prior to the date of the first notice referred to in subsection 3 (c)(iv)
hereof.
(iv) The corporation shall give each holder of record of
Preferred Stock written notice of such impending transaction not later than
twenty (20) days prior to the shareholders' meeting called to approve such
transaction, or twenty (20) days prior to the closing of such transaction,
whichever is earlier, and shall also notify such holders in writing of the final
approval of such transaction. The first of such notices shall describe the
material terms and conditions of the impending transaction and the provisions of
this Section 3, and the corporation shall thereafter give such holders prompt
notice of any material changes. The transaction shall in no event take place
sooner than twenty (20) days after the corporation has given the first notice
provided for herein or sooner than ten (10) days after the corporation has given
notice of any material changes provided for herein; provided, however, that such
periods may be shortened upon the written consent of the holders of Preferred
Stock that are entitled to such notice rights or similar notice rights and that
represent at least a majority of the voting power of all then outstanding shares
of Preferred Stock.
4. Redemption.
----------
(a) At any time after June 25, 2002 (the "First Redemption Date"),
but within thirty (30) days after the receipt by the corporation of a written
request from the holders of the then outstanding shares of Series A, Series A1,
Series B and Series B1 Preferred Stock (the "Outstanding A/B Preferred"), that a
number equal to up to fifty percent (50%) of the number of shares of Outstanding
A/B Preferred be redeemed, and concurrently with surrender by such holders of
the certificates representing such shares, the corporation shall, to the extent
it may lawfully do so, redeem up to fifty percent (50%) of the Outstanding A/B
Preferred on the First Redemption Date by paying in cash therefor a sum per
share equal to (i) the Original Series A Issue Price per share of Series A
Preferred Stock, (ii) the Original Series A1 Issue Price per share of Series A1
Preferred Stock, (iii) the Original Series B Issue Price per share of Series B
Preferred Stock or (iv) the Original Series B1 Issue Price per share of Series
B1 Preferred Stock, (as adjusted for any stock dividends, combinations or splits
with respect to such shares) plus all declared but unpaid dividends on such
shares (the "Series A Redemption Price," "Series A1 Redemption Price," "Series B
Redemption Price," and "Series B1 Redemption Price," provided, however, that the
--------- -------
corporation shall not be required to redeem such shares unless and until the
number of shares to be redeemed pursuant to this subsection 4(a) equals or
exceeds twenty percent (20%) of the Outstanding A/B Preferred. Any redemption
effected pursuant to this subsection 4(a) shall be made on a pro rata basis
among the holders of the Outstanding A/B Preferred in proportion to the number
of shares of the Outstanding A/B Preferred for which redemption has been
requested.
(b) At any time after June 25, 2003 (the "Second Redemption Date"),
but within thirty (30) days after the receipt by the corporation of a written
request from the holders of the Outstanding A/B Preferred, that up to all of
such holders' shares be redeemed, and concurrently with surrender by such
holders of the certificates representing such shares, the corporation shall, to
the extent it may lawfully do so, redeem up to all shares held by such holders
on the Second Redemption Date by paying in cash therefor a sum per share equal
to (i) the Series A Redemption Price, (ii) the Series A1 Redemption Price, (iii)
the Series B
5
<PAGE>
Redemption Price or (iv) the Series B1 Redemption Price, provided, however, that
--------- -------
the corporation shall not be required to redeem such shares unless and until the
number of shares to be redeemed pursuant to this subsection 4(b) equals or
exceeds twenty percent (20%) of the Outstanding A/B Preferred. Any redemption
effected pursuant to this subsection 4(b) shall be made on a pro rata basis
among the holders of the Outstanding A/B Preferred in proportion to the number
of shares of Outstanding A/B Preferred for which redemption has been requested.
(c) At any time after the First Redemption Date but within thirty
(30) days after the receipt by the corporation of a written request from the
holders of the then outstanding shares of Series C, Series C1, Series D and
Series D1 Preferred Stock (the "Outstanding C/D Preferred"), that a number equal
to fifty percent (50%) of the number of shares of the Outstanding C/D Preferred
be redeemed, and concurrently with surrender by such holders of the certificates
representing such shares, the corporation shall, to the extent it may lawfully
do so, redeem up to fifty percent (50%) of the Outstanding C/D Preferred on the
First Redemption Date by paying in cash therefor a sum per share equal to(i) the
greater of (a) the Original Series C/D Issue Price (and all accrued but unpaid
dividends on such share) per share of Series C/D Preferred Stock and (b) the
Fair Market Value of the Series C/D Preferred Stock, or (ii) the greater of (a)
the Original Series C1/D1 Issue Price (and all accrued but unpaid dividends on
such share) per share of Series C1/D1 Preferred Stock and (b) the Fair Market
Value of the Series C1/D1 Preferred Stock (as adjusted for any stock dividends,
combinations or splits with respect to such shares) plus all declared but unpaid
dividends on such shares (the "Series C Redemption Price," "Series C1 Redemption
Price," "Series D Redemption Price," and "Series D1 Redemption Price."),
provided, however, that the corporation shall not be required to redeem such
- --------- -------
shares unless and until the number of shares to be redeemed pursuant to this
subsection 4(c) equals or exceeds twenty percent (20%) of the Outstanding C/D
Preferred. Any redemption effected pursuant to this subsection 4(c) shall be
made on a pro rata basis among the holders of the Outstanding C/D Preferred in
proportion to the number of shares of Outstanding C/D Preferred for which
redemption has been requested.
(d) At any time after the Second Redemption Date but within thirty
(30) days after the receipt by the corporation of a written request from the
holders of the Outstanding C/D Preferred, that up to all of such holders' shares
be redeemed, and concurrently with surrender by such holders of the certificates
representing such shares, the corporation shall, to the extent it may lawfully
do so, redeem up to all shares held by such holders on the Second Redemption
Date by paying in cash therefor the Series C/D Redemption Price or the Series
C1/D1 Redemption Price, provided, however, that the corporation shall not be
--------- -------
required to redeem such shares unless and until the number of shares to be
redeemed pursuant to this subsection 4(d) equals or exceeds twenty percent (20%)
of the Outstanding C/D Preferred. Any redemption effected pursuant to this
subsection 4(d) shall be made on a pro rata basis among the holders of the
Outstanding C/D Preferred in proportion to the number of shares of Outstanding
C/D Preferred for which redemption has been requested.
(e) At least fifteen (15) but no more than thirty (30) days prior to
each Redemption Date, written notice shall be mailed, first class postage
prepaid, to each holder of record (at the close of business on the business day
next preceding the day on which notice is given) of the Preferred Stock to be
redeemed, at the address last shown on the records of the corporation for such
holder, notifying such holder of the redemption to be effected, specifying the
number of shares to be redeemed from such holder, the Redemption Date, the
Redemption Price, the place at which payment may be obtained and calling upon
such holder to surrender to
6
<PAGE>
the corporation, in the manner and at the place designated, his, her or its
certificate or certificates representing the shares to be redeemed (the
"Redemption Notice"). Except as provided in subsection (4)(g) on or after the
Redemption Date, each holder of Preferred Stock to be redeemed shall surrender
to the corporation the certificate or certificates representing such shares, in
the manner and at the place designated in the Redemption Notice, and thereupon
the Redemption Price of such shares shall be payable to the order of the person
whose name appears on such certificate or certificates as the owner thereof and
each surrendered certificate shall be canceled, provided that, in the event an
appraisal of the Fair Market Value of the Series C, Series C1, Series D or
Series D1 Preferred Stock is required, the corporation shall not pay the
Redemption Price to any holder of Preferred Stock until such Fair Market Value
determination has been made. In the event less than all the shares represented
by any such certificate are redeemed, a new certificate shall be issued
representing the unredeemed shares.
(f) Upon, but not until, the payment of the Redemption Price in full
with respect to a share of Preferred Stock, the rights of the holder of such
share of Preferred Stock designated for redemption in the Redemption Notice
(except the right to receive the Redemption Price without interest upon
surrender of their certificate or certificates other than as provided in
paragraph (g) below) shall cease with respect to such share, and such share
shall not thereafter be transferred on the books of the corporation or be deemed
to be outstanding for any purpose whatsoever. If the funds of the corporation
legally available for redemption of shares of Preferred Stock on any Redemption
Date are insufficient to redeem the total number of shares of Preferred Stock to
be redeemed on such date, those funds which are legally available will be used
to redeem the maximum possible number of such shares ratably among the holders
of such shares to be redeemed based upon the aggregate Redemption Price to be
received by such holder. The shares of Preferred Stock not redeemed shall remain
outstanding and entitled to all the rights and preferences provided herein. At
any time thereafter when additional funds of the corporation are legally
available for the redemption of shares of Preferred Stock, such funds will
immediately be used to redeem the balance of the shares which the corporation
has become obliged to redeem on any Redemption Date but which it has not
redeemed.
(g) In the event the Series C, Series C1, Series D or Series D1
Redemption Price is not paid in full within 30 days of the applicable Redemption
Date, and such payment is not prohibited by law, interest shall accrue on the
remaining outstanding Series C Redemption Price and the Series D Redemption
Price at the rate of 7% per annum from such 30th day until the Series C, Series
C1, Series D or Series D1 Redemption Price and all interest accrued thereon
shall be paid in full.
(h) In the event that any holder makes a request for redemption
pursuant to any provision of this Section 4, the corporation shall, within five
(5) business days of such redemption request, provide notice of such redemption
request to all other holders entitled at that time to redeem their shares.
(i) For the avoidance of doubt, in the event that the corporation
receives a request for redemption pursuant to this Section 4 and, subsequent
thereto but prior to payment in full of the relevant Redemption Price there is a
liquidation, dissolution or winding up of the corporation, the amount payable
with respect to the unredeemed shares with respect to which redemption has been
requested shall be determined pursuant to this Section 4 and not pursuant to
Section 3.
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<PAGE>
5. Conversion Rights. The outstanding shares of Preferred Stock shall be
-----------------
convertible into Common Stock as follows (the "CONVERSION RIGHTS"):
(a) Optional Conversion.
-------------------
(i) At the option of the holder thereof, each share of
Preferred Stock shall be convertible, at any time or from time to time prior to
the close of business on the business day before the date of redemption of such
share, into fully paid and nonassessable shares of Common Stock as provided
herein.
(ii) Each holder of Preferred Stock who elects to convert the
same into shares of Common Stock shall surrender the certificate or certificates
therefor, duly endorsed, at the office of the corporation or any transfer agent
for the Preferred Stock or Common Stock, and shall give written notice to the
corporation at such office that such holder elects to convert the same and shall
state therein the number of shares of Preferred Stock being converted. Thereupon
the corporation shall promptly issue and deliver at such office to such holder a
certificate or certificates for the number of shares of Common Stock to which
such holder is entitled upon such conversion. In the event that any holder
converts a number of shares less than the number stated on such holder's stock
certificate, the corporation shall deliver to such holder a new certificate
representing the remaining unconverted shares. Such conversion shall be deemed
to have been made immediately prior to the close of business on the date of such
surrender of the certificate or certificates representing the shares of
Preferred Stock to be converted, and the person entitled to receive the shares
of Common Stock issuable upon such conversion shall be treated for all purposes
as the record holder of such shares of Common Stock on such date.
(b) Automatic Conversion. Each share of Preferred Stock shall
--------------------
automatically be converted into fully paid and nonassessable shares of Common
Stock, as provided herein (i) immediately prior to the closing of a firm
commitment public offering underwritten by a nationally recognized investment
bank pursuant to an effective registration statement filed under the Securities
Act of 1933, as amended (the "Securities Act"), covering the offer and sale of
Common Stock for the account of the corporation in which the aggregate public
offering price (before deduction of underwriters' discounts and commissions)
equals or exceeds $30,000,000 and the public offering price per share of which
equals or exceeds $8.55 per share before deduction of underwriters' discounts
and commissions (such price per share of Common Stock to be appropriately
adjusted to reflect Common Stock Events (as defined below)), provided that such
offering is priced for sale to the general public not later than April 30, 1998
(the public offering price per share will be $15.00 if pricing does not occur by
such date), and such Common Stock shall be listed on the Nasdaq National Market,
the American Stock Exchange, the New York Stock Exchange or other national
securities market or exchange (a "Qualified IPO"); or (ii) the date specified by
written consent or agreement of (a) with respect to the Series A and A1
Preferred Stock, the holders of a majority of the then outstanding shares of
Series A Preferred Stock and Series A1 Preferred Stock, voting as a single
class, (b) with respect to the Series B and B1 Preferred Stock, the holders of a
majority of the then outstanding shares of Series B Preferred Stock and Series
B1 Preferred Stock, voting together as a single class, (c) with respect to the
Series C and C1 Preferred Stock, the holders of two-thirds of the then
outstanding shares of Series C Preferred Stock and Series C1 Preferred Stock,
voting together as a single class and (d) with respect to the Series D and D1
Preferred Stock, the holders of two-thirds of the then
8
<PAGE>
outstanding shares of Series D Preferred Stock and Series D1 Preferred Stock,
voting together as a single class.
(i) Upon the occurrence of any event specified in subparagraph
4(b)(i) or (ii) above, the outstanding shares of Preferred Stock shall be
converted into Common Stock automatically without the need for any further
action by the holders of such shares and whether or not the certificates
representing such shares are surrendered to the corporation or its transfer
agent; provided, however, that the corporation shall not be obligated to issue
-------- -------
certificates evidencing the shares of Common Stock issuable upon such conversion
unless the certificates evidencing such shares of Preferred Stock are either
delivered to the corporation or its transfer agent as provided below, or the
holder notifies the corporation or its transfer agent that such certificates
have been lost, stolen or destroyed and executes an agreement satisfactory to
the corporation to indemnify the corporation from any loss incurred by it in
connection with such certificates. Upon the occurrence of such automatic
conversion of the Preferred Stock, the holders of Preferred Stock shall
surrender the certificates representing such shares at the office of the
corporation or any transfer agent for the Preferred Stock or Common Stock.
Thereupon, there shall be issued and delivered to such holder promptly at such
office and in its name as shown on such surrendered certificate or certificates,
a certificate or certificates for the number of shares of Common Stock into
which the shares of Preferred Stock surrendered were convertible on the date on
which such automatic conversion occurred.
(c) Conversion Price. Each share of Preferred Stock shall be
----------------
convertible in accordance with subsection 5(a) or subsection 5(b) above into the
number of shares of Common Stock which results from dividing the Original Issue
Price for such series of Preferred Stock by the conversion price for such series
of Preferred Stock that is in effect at the time of conversion (the "Conversion
Price"). The initial Conversion Price for the Series A Preferred Stock shall be
the Original Series A Issue Price, the initial Conversion Price for the Series
A1 Preferred Stock shall be the Original Series A1 Issue Price, the initial
Conversion Price for the Series B Preferred Stock shall be the Original Series B
Issue Price, the initial Conversion Price for the Series B1 Preferred Stock
shall be the Original Series B1 Issue Price, the initial Conversion Price for
the Series C Preferred Stock shall be the Original Series C Issue Price, the
initial Conversion Price for the Series C1 Preferred Stock shall be the Original
Series C1 Issue Price, the initial Conversion Price for the Series D Preferred
Stock shall be the Original Series D Issue Price and the initial Conversion
Price for the Series D1 Preferred Stock shall be the Original D1 Issue Price.
The Conversion Price of each series of Preferred Stock shall be subject to
adjustment from time to time as provided below.
(d) Adjustment Upon Common Stock Event. At any time after such
----------------------------------
series of Preferred Stock was first issued (the "Purchase Date" with respect to
such series) upon the happening of a Common Stock Event (as hereinafter
defined), the Conversion Price of the Series A Preferred Stock, the Conversion
Price of the Series A1 Preferred Stock, the Conversion Price of the Series B
Preferred Stock, the Conversion Price of the Series B1 Preferred Stock, the
Conversion Price of the Series C Preferred Stock, the Conversion Price of the
Series C1 Preferred Stock, the Conversion Price of the Series D Preferred Stock
and the Conversion Price of the Series D1 Preferred Stock shall, simultaneously
with the happening of such Common Stock Event, be adjusted by multiplying the
Conversion Price of such series of Preferred Stock in effect immediately prior
to such Common Stock Event by a fraction, (i) the numerator of which shall be
the number of shares of Common Stock issued and outstanding immediately prior to
such Common Stock Event, and (ii) the denominator of which shall be the number
of shares of
9
<PAGE>
Common Stock issued and outstanding immediately after such Common Stock Event,
and the product so obtained shall thereafter be the Conversion Price for such
series of Preferred Stock. The Conversion Price for a series of Preferred Stock
shall be readjusted in the same manner upon the happening of each subsequent
Common Stock Event. As used herein, the term "Common Stock Event" shall mean
(i) the issue by the corporation of additional shares of Common Stock as a
dividend or other distribution on outstanding Common Stock, (ii) a subdivision
of the outstanding shares of Common Stock into a greater number of shares of
Common Stock, or (iii) a combination of the outstanding shares of Common Stock
into a smaller number of shares of Common Stock.
(e) Adjustments for Other Dividends and Distributions. If at any
-------------------------------------------------
time or from time to time after the Purchase Date the corporation pays a
dividend or makes another distribution to the holders of the Common Stock
payable in securities of the corporation other than shares of Common Stock, then
in each such event provision shall be made so that the holders of the Series A
Preferred Stock, Series A1 Preferred Stock, Series B Preferred Stock, Series B1
Preferred Stock, Series C Preferred Stock, Series C1 Preferred Stock, Series D
Preferred Stock and Series D1 Preferred Stock shall receive upon conversion
thereof, in addition to the number of shares of Common Stock receivable upon
conversion thereof, the amount of securities of the corporation which they would
have received had their Preferred Stock been converted into Common Stock on the
date of such event (or such record date, as applicable) and had they thereafter,
during the period from the date of such event (or such record date, as
applicable) to and including the conversion date, retained such securities
receivable by them as aforesaid during such period, subject to all other
adjustments called for during such period under this Section 5 with respect to
the rights of the holders of the Preferred Stock or with respect to such other
securities by their terms.
(f) Adjustment for Reclassification, Exchange and Substitution. If
----------------------------------------------------------
at any time or from time to time after the Original Issue Date the Common Stock
issuable upon the conversion of the Series A Preferred Stock, Series A1
Preferred Stock, Series B Preferred Stock, Series B1 Preferred Stock, Series C
Preferred Stock, Series C1 Preferred Stock, Series D Preferred Stock and Series
D1 Preferred Stock is changed into the same or a different number of shares of
any class or classes of stock, whether by recapitalization, reclassification or
otherwise (other than by a Common Stock Event or a stock dividend,
----- ----
reorganization, merger, consolidation or sale of assets provided for elsewhere
in this Section 5), then in any such event each holder of Series A Preferred
Stock, Series A1 Preferred Stock, Series B Preferred Stock, Series B1 Preferred
Stock, Series C Preferred Stock, Series C1 Preferred Stock, Series D Preferred
Stock and Series D1 Preferred Stock shall have the right thereafter to convert
such stock into the kind and amount of stock and other securities and property
receivable upon such recapitalization, reclassification or other change by
holders of the number of shares of Common Stock into which such shares of Series
A Preferred Stock, Series A1 Preferred Stock, Series B Preferred Stock, Series
B1 Preferred Stock, Series C Preferred Stock, Series C1 Preferred Stock, Series
D Preferred Stock and Series D1 Preferred Stock could have been converted
immediately prior to such recapitalization, reclassification or change, all
subject to further adjustment as provided herein or with respect to such other
securities or property by the terms thereof.
(g) Sale of Shares Below Conversion Price.
-------------------------------------
(i) Adjustment Formula. If at any time or from time to time
------------------
after the Original Issue Date the corporation issues or sells, or is deemed by
the provisions of this
10
<PAGE>
subsection 5(g) to have issued or sold, Additional Shares of Common Stock (as
hereinafter defined), otherwise than in connection with a Common Stock Event as
provided in subsection 5(d), a dividend or distribution as provided in
subsection 5(e) or a recapitalization, reclassification or other change as
provided in subsection 5(f), for an Effective Price (as hereinafter defined)
that is less than the Conversion Price for the Series A Preferred Stock, Series
B Preferred Stock, Series C Preferred Stock or Series D Preferred Stock in
effect immediately prior to such issue or sale, then, and in each such case, the
Conversion Price for such series of Preferred Stock shall be reduced, as of the
close of business on the date of such issue or sale, to the price obtained by
multiplying such Conversion Price by a fraction:
(x) The numerator of which shall be the sum of (A) the
number of Common Stock Equivalents Outstanding (as hereinafter defined)
immediately prior to such issue or sale of Additional Shares of Common Stock
plus (B) the quotient obtained by dividing the Aggregate Consideration Received
(as hereinafter defined) by the corporation for the total number of Additional
Shares of Common Stock so issued or sold (or deemed so issued and sold) by the
Conversion Price for such series of Preferred Stock in effect immediately prior
to such issue or sale; and
(y) The denominator of which shall be the sum of (A) the
number of Common Stock Equivalents Outstanding immediately prior to such issue
or sale plus (B) the number of Additional Shares of Common Stock so issued or
sold (or deemed so issued and sold).
(ii) Certain Definitions. For the purpose of making any
-------------------
adjustment required under this subsection 5(g):
(1) "Additional Shares of Common Stock" shall mean all shares of
Common Stock issued by the corporation, whether or not subsequently reacquired
or retired by the corporation, other than: (A) shares of Common Stock issued or
issuable upon conversion of Series A Preferred Stock, Series A1 Preferred Stock,
Series B Preferred Stock, Series B1 Preferred Stock, Series C Preferred Stock,
Series C1 Preferred Stock, Series D Preferred Stock or Series D1 Preferred
Stock; and (B) a total of 7,438,900 shares of Common Stock (or options, warrants
or rights therefor) issued to employees, officers, or directors of, or
contractors, consultants or advisers to, the corporation or any Subsidiary
pursuant to stock purchase or stock option plans, stock bonuses or awards,
warrants, contracts or other arrangements that are approved by at least seventy
five percent (75%) of the Board (such number of shares to be calculated net of
any repurchases of such shares by the corporation and net of any such expired or
terminated options, warrants or rights and to be proportionally adjusted to
reflect any subsequent Common Stock Event);
(2) The "Aggregate Consideration Received" by the corporation for any
issue or sale (or deemed issue or sale) of securities shall (A) to the extent it
consists of cash, be computed at the gross amount of cash received by the
corporation before deduction of any underwriting or similar commissions,
compensation or concessions paid or allowed by the corporation in connection
with such issue or sale and without deduction of any expenses payable by the
corporation in connection with any such issuance and sale; (B) to the extent it
consists of property other than cash, be computed at the fair value of that
property as determined in good faith by the unanimous approval of the Board; and
(C) if Additional Shares of Common Stock, Convertible Securities or Rights or
Options to purchase either Additional Shares of Common
11
<PAGE>
Stock or Convertible Securities are issued or sold together with other stock or
securities or other assets of the corporation for a consideration which covers
both, be computed as the portion of the consideration so received that may be
reasonably determined in good faith by the unanimous approval of the Board to be
allocable to such Additional Shares of Common Stock, Convertible Securities or
Rights or Options.
(3) "Common Stock Equivalents Outstanding" shall mean the number of
shares of Common Stock that is equal to the sum of (A) all shares of Common
Stock of the corporation that are outstanding at the time in question, plus (B)
all shares of Common Stock of the corporation issuable upon conversion of all
shares of Preferred Stock or other Convertible Securities that are outstanding
at the time in question, plus (C) all shares of Common Stock of the corporation
that are issuable upon the exercise of Rights or Options that are outstanding at
the time in question assuming the full conversion or exchange into Common Stock
of all such Rights or Options that are Rights or Options to purchase or acquire
Convertible Securities into or for Common Stock.
(4) "Convertible Securities" shall mean stock or other securities
convertible into or exchangeable for shares of Common Stock.
(5) The "Effective Price" of Additional Shares of Common Stock shall
mean the quotient determined by dividing the total number of Additional Shares
of Common Stock issued or sold, or deemed to have been issued or sold, by the
corporation under this subsection 5(g), into the Aggregate Consideration
Received, or deemed to have been received, by the corporation under this
subsection 5(g), for the issue of such Additional Shares of Common Stock;
(6) "Rights or Options" shall mean warrants, options or other rights
to purchase or acquire shares of Common Stock or Convertible Securities.
(iii) Deemed Issuances. For the purpose of making any adjustment
----------------
to the Conversion Price of the Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock or Series D Preferred Stock required under this
subsection 5(g), if the corporation issues or sells any Rights or Options or
Convertible Securities and if the Effective Price of the shares of Common Stock
issuable upon exercise of such Rights or Options and/or the conversion or
exchange of Convertible Securities (computed without reference to any additional
or similar protective or antidilution clauses) is less than the Conversion Price
then in effect for a series of Preferred Stock, then the corporation shall be
deemed to have issued, at the time of the issuance of such Rights, Options or
Convertible Securities, that number of Additional Shares of Common Stock that is
equal to the maximum number of shares of Common Stock issuable upon exercise or
conversion of such Rights, Options or Convertible Securities upon their issuance
and to have received, as the Aggregate Consideration Received for the issuance
of such shares, an amount equal to the total amount of the consideration, if
any, received by the corporation for the issuance of such Rights or Options or
Convertible Securities, plus, in the case of such Rights or Options, the minimum
amounts of consideration, if any, payable to the corporation upon the exercise
in full of such Rights or Options, plus, in the case of Convertible Securities,
the minimum amounts of consideration, if any, payable to the corporation (other
than by cancellation of liabilities or obligations evidenced by such Convertible
Securities) upon the conversion or exchange thereof; provided that:
-------- ----
12
<PAGE>
(1) if the minimum amounts of such consideration cannot be
ascertained, but are a function of antidilution or similar protective clauses,
then the corporation shall be deemed to have received the amount determined in
good faith by the unanimous approval of the Board;
(2) if the minimum amount of consideration payable to the corporation
upon the exercise of Rights or Options or the conversion or exchange of
Convertible Securities is reduced over time or upon the occurrence or non-
occurrence of specified events other than by reason of antidilution or similar
protective adjustments, then the Effective Price shall be recalculated using the
figure to which such minimum amount of consideration is reduced; and
(3) if the minimum amount of consideration payable to the corporation
upon the exercise of such Rights or Options or the conversion or exchange of
Convertible Securities is subsequently increased, then the Effective Price shall
again be recalculated using the increased minimum amount of consideration
payable to the corporation upon the exercise of such Rights or Options or the
conversion or exchange of such Convertible Securities.
No further adjustment of the Conversion Price, adjusted upon the issuance
of such Rights or Options or Convertible Securities, shall be made as a result
of the actual issuance of shares of Common Stock on the exercise of any such
Rights or Options or the conversion or exchange of any such Convertible
Securities. If any such Rights or Options or the conversion rights represented
by any such Convertible Securities shall expire without having been fully
exercised, then the Conversion Price as adjusted upon the issuance of such
Rights or Options or Convertible Securities shall be readjusted to the
Conversion Price which would have been in effect had an adjustment been made on
the basis that the only shares of Common Stock so issued were the shares of
Common Stock, if any, that were actually issued or sold on the exercise of such
Rights or Options or rights of conversion or exchange of such Convertible
Securities, and such shares of Common Stock, if any, were issued or sold for the
consideration actually received by the corporation upon such exercise, plus the
consideration, if any, actually received by the corporation for the granting of
all such Rights or Options, whether or not exercised, plus the consideration
received for issuing or selling all such Convertible Securities actually
converted or exchanged, plus the consideration, if any, actually received by the
corporation (other than by cancellation of liabilities or obligations evidenced
by such Convertible Securities) on the conversion or exchange of such
Convertible Securities, provided that such readjustment shall not apply to prior
conversions of Preferred Stock.
(h) Certificate of Adjustment. In each case of an adjustment or
-------------------------
readjustment of the Conversion Price for a series of Preferred Stock, the
corporation, at its expense, shall cause its Chief Financial Officer to compute
such adjustment or readjustment in accordance with the provisions hereof and
prepare a certificate showing such adjustment or readjustment, and shall mail
such certificate, by first class mail, postage prepaid, to each registered
holder of the Preferred Stock at the holder's address as shown in the
corporation's books.
(i) Fractional Shares. No fractional shares of Common Stock shall be
-----------------
issued upon any conversion of Preferred Stock. In lieu of any fractional share
to which the holder would otherwise be entitled, the corporation shall pay the
holder cash equal to the product of such fraction multiplied by the Common
Stock's fair market value as determined in good faith by the Board as of the
date of conversion.
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<PAGE>
(j) Notices. Any notice required by the provisions of this Section 5
-------
to be given to the holders of Preferred Stock shall be deemed given if deposited
in the United States mail, postage prepaid, and addressed to each holder of
record at such holder's address appearing on the books of the corporation.
(k) Special Mandatory Conversion.
----------------------------
(i) At any time following the Purchase Date of the Series A Preferred
Stock, if (a) the holders of shares of Series A Preferred Stock are entitled to
exercise the right of first offer (the "Right of First Offer") set forth in
Section 2.4 of the Second Amended and Restated Investors' Rights Agreement by
and among the corporation and certain shareholders of the corporation, as
amended from time to time (the "Rights Agreement"), with respect to an equity or
convertible debt financing of the corporation pursuant to which the corporation
offers, sells and issues shares of Additional Stock for no consideration or at a
consideration per share less than the Conversion Price for the Series A
Preferred Stock in effect immediately prior to the issuance of such Additional
Stock (the "Series A Dilutive Financing"), (b) the corporation has complied with
its notice obligations, or such obligations have been waived under the Right of
First Offer with respect to such Series A Dilutive Financing and the corporation
thereafter proceeds to consummate the Series A Dilutive Financing, and (c) such
holder (a "Non-Participating Series A Holder") does not by exercise of such
holder's Right of First Offer acquire his, her or its pro rata share (prior to
the right to exercise any over-allotment option) offered in such Series A
Dilutive Financing (a "Series A Mandatory Offering"), then effective upon,
subject to and concurrently with, the consummation of the Series A Mandatory
Offering (the "Series A Mandatory Offering Date"), all of such Non-Participating
Series A Holder's shares of Series A Preferred Stock shall automatically and
without further action on the part of such holder be converted into an
equivalent number of shares of Series A1 Preferred Stock; provided, however,
-------- -------
that no such conversion shall occur in connection with a particular Series A
particular Series A Dilutive Financing if, pursuant to the written request of
the corporation, such holder agrees in writing to waive his, her or its Right of
First Offer with respect to such Series A Dilutive Financing. Upon conversion
pursuant to this subsection 5(k)(i), the shares of Series A Preferred Stock so
converted shall be canceled and not subject to reissuance.
(ii) At any time following the Purchase Date of the Series B Preferred
Stock, if (a) the holders of shares of Series B Preferred Stock are entitled to
exercise the Right of First Offer set forth in the Rights Agreement, with
respect to an equity or convertible debt financing of the corporation pursuant
to which the corporation offers, sells and issues shares of Additional Stock for
no consideration or at a consideration per share less than the Conversion Price
for the Series B Preferred Stock in effect immediately prior to the issuance of
such Additional Stock (the "Series B Dilutive Financing"), (b) the corporation
has complied with its notice obligations, or such obligations have been waived,
under the Right of First Offer with respect to such Series B Dilutive Financing
and the corporation thereafter proceeds to consummate the Series B Dilutive
Financing, and (c) such holder (a "Non-Participating Series B Holder") does not
by exercise of such holder's Right of First Offer acquire his, her or its pro
rata share (prior to the right to exercise any over-allotment option) offered in
such Series B Dilutive Financing (a "Series B Mandatory Offering"), then
effective upon, subject to and concurrently with, the consummation of the Series
B Mandatory Offering (the "Series B Mandatory Offering Date"), all of such Non-
Participating Series B Holder's shares of Series B Preferred Stock shall
automatically and without further action on the part of such holder be converted
into an equivalent number of shares of Series B1 Preferred Stock; provided,
--------
however, that no such
- -------
14
<PAGE>
conversion shall occur in connection with a particular Series B Dilutive
Financing if, pursuant to the written request of the corporation, such holder
agrees in writing to waive his, her or its Right of First Offer with respect to
such Series B Dilutive Financing. Upon conversion pursuant to this subsection
5(k)(ii), the shares of Series B Preferred Stock so converted shall be canceled
and not subject to reissuance.
(iii) At any time following the Purchase Date of the Series C
Preferred Stock, if (a) the holders of shares of Series C Preferred Stock are
entitled to exercise the Right of First Offer set forth in the Rights Agreement,
with respect to an equity or convertible debt financing of the corporation
pursuant to which the corporation offers, sells and issues shares of Additional
Stock for no consideration or at a consideration per share less than the
Conversion Price for the Series C Preferred Stock in effect immediately prior to
the issuance of such Additional Stock (the "Series C Dilutive Financing"), (b)
the corporation has complied with its notice obligations, or such obligations
have been waived, under the Right of First Offer with respect to such Series C
Dilutive Financing and the corporation thereafter proceeds to consummate the
Series C Dilutive Financing, and (c) such holder (a "Non-Participating Series C
Holder") does not by exercise of such holder's Right of First Offer acquire his,
her or its pro rata share (prior to the right to exercise any over-allotment
option) offered in such Series C Dilutive Financing (a "Series C Mandatory
Offering"), then effective upon, subject to and concurrently with, the
consummation of the Series C Mandatory Offering (the "Series C Mandatory
Offering Date"), all of such Non-Participating Series C Holder's shares of
Series C Preferred Stock shall automatically and without further action on the
part of such holder be converted into an equivalent number of shares of Series
C1 Preferred Stock; provided, however, that no such conversion shall occur in
-------- -------
connection with a particular Series C Dilutive Financing if, pursuant to the
written request of the corporation, such holder agrees in writing to waive his,
her or its Right of First Offer with respect to such Series C Dilutive
Financing. Upon conversion pursuant to this subsection 5(k)(iii), the shares of
Series C Preferred Stock so converted shall be canceled and not subject to
reissuance.
(iv) At any time following the Purchase Date of the Series D
Preferred Stock, if (a) the holders of shares of Series D Preferred Stock are
entitled to exercise the Right of First Offer set forth in the Rights Amendment,
as amended, with respect to an equity or convertible debt financing of the
corporation pursuant to which the corporation offers, sells and issues shares of
Additional Stock for no consideration or at a consideration per share less than
the Conversion Price for the Series D Preferred Stock in effect immediately
prior to the issuance of such Additional Stock (the "Series D Dilutive
Financing"), (b) the corporation has complied with its notice obligations, or
such obligations have been waived, under the Right of First Offer with respect
to such Series D Dilutive Financing and the corporation thereafter proceeds to
consummate the Series D Dilutive Financing, and (c) such holder (a "Non-
Participating Series D Holder") does not by exercise of such holder's Right of
First Offer acquire his, her or its pro rata share (prior to the right to
exercise any over-allotment option) offered in such Series D Dilutive Financing
(a "Series D Mandatory Offering"), then effective upon, subject to and
concurrently with, the consummation of the Series D Mandatory Offering (the
"Series D Mandatory Offering Date"), all of such Non-Participating Series D
Holder's shares of Series D Preferred Stock shall automatically and without
further action on the part of such holder be converted into an equivalent number
of shares of Series D1 Preferred Stock; provided, however, that no such
-------- -------
conversion shall occur in connection with a particular Series D Dilutive
Financing if, pursuant to the written request of the corporation, such holder
agrees in writing to waive his, her or its Right
15
<PAGE>
of First Offer with respect to such Series D Dilutive Financing. Upon conversion
pursuant to this subsection 5(k)(iv), the shares of Series D Preferred Stock so
converted shall be canceled and not subject to reissuance.
(v) The holder of any shares of Series A, Series B, Series C or
Series D Preferred Stock converted pursuant to this subsection 5(k) shall
deliver to the corporation during regular business hours at the office of any
transfer agent of the corporation for each such series of Preferred Stock, or at
such other place as may be designated by the corporation, the certificate or
certificates for the shares so converted, duly endorsed or assigned in blank or
to the corporation. As promptly as practicable thereafter, the corporation shall
issue and deliver to such holder, at the place designated by such holder, a
certificate or certificates for the number of full shares of the Series A1
Preferred Stock, the Series B1 Preferred Stock, the Series C1 Preferred Stock or
the Series D1 Preferred Stock to be issued and such holder shall be deemed to
have become a shareholder of record of Series A1, Series B1, Series C1 or Series
D1 Preferred Stock on either the Series A Mandatory Offering Date, the Series B
Mandatory Offering Date, the Series C Mandatory Offering Date or the Series D
Mandatory Offering Date, as the case may be.
(vi) In the event that any Series A1, Series B1, Series C1
and/or Series D1 Preferred Stock is issued in connection with the Special
Mandatory Conversion provisions set forth in subsections 5(k)(i) through
5(k)(iv), concurrently with such issuance, the corporation shall use its best
efforts to take all such action as may be required, including amending this
Certificate of Designation:
(1) in the case of an issuance of Series A1 Preferred
Stock, (i) to cancel all authorized shares of Series A1 Preferred Stock that
remain unissued after such issuance (other than any such shares reserved for
issuance upon exercise of then outstanding warrants for such shares), and (ii)
to create and reserve for issuance upon Special Mandatory Conversion of any
Series A Preferred Stock a new series of Preferred Stock equal in number to the
number of shares of Series A1 Preferred Stock so canceled and designated Series
A2 Preferred Stock with the designations, powers, preferences and rights and the
qualifications, limitations and restrictions identical to those then applicable
to the Series A1 Preferred Stock, except that the Conversion Price for such
shares of Series A2 Preferred Stock once initially issued shall be the Series A
Conversion Price in effect immediately prior to such issuance;
(2) in the case of an issuance of Series B1 Preferred
Stock, (i) to cancel all authorized shares of Series B1 Preferred Stock that
remain unissued after such issuance (other than any such shares reserved for
issuance upon exercise of outstanding warrants to purchase such shares), and
(ii) to create and reserve for issuance upon Special Mandatory Conversion of any
Series B Preferred Stock a new series of Preferred Stock equal in number to the
number of shares of Series B1 Preferred Stock so canceled and designated Series
B2 Preferred Stock with the designations, powers, preferences and rights and the
qualifications, limitations and restrictions identical to those then applicable
to the Series B1 Preferred Stock, except that the Conversion Price for such
shares of Series B2 Preferred Stock once initially issued shall be the Series B
Conversion Price in effect immediately prior to such issuance;
(3) in the case of an issuance of Series C1 Preferred
Stock, (i) to cancel all authorized shares of Series C1 Preferred Stock that
remain unissued after such issuance (other than any such shares reserved for
issuance upon exercise of outstanding warrants to purchase such shares), and
(ii) to create and reserve for issuance upon Special Mandatory
16
<PAGE>
Conversion of any Series C Preferred Stock a new series of Preferred Stock equal
in number to the number of shares of Series C1 Preferred Stock so canceled and
designated Series C2 Preferred Stock with the designations, powers, preferences
and rights and the qualifications, limitations and restrictions identical to
those then applicable to the Series C1 Preferred Stock, except that the
Conversion Price for such shares of Series C2 Preferred Stock once initially
issued shall be the Series C Conversion Price in effect immediately prior to
such issuance;
(4) in the case of an issuance of Series D1 Preferred
Stock, (i) to cancel all authorized shares of Series D1 Preferred Stock that
remain unissued after such issuance (other than any such shares reserved for
issuance upon exercise of outstanding warrants to purchase such shares), and
(ii) to create and reserve for issuance upon Special Mandatory Conversion of any
Series D Preferred Stock a new series of Preferred Stock equal in number to the
number of shares of Series D1 Preferred Stock so canceled and designated Series
D2 Preferred Stock with the designations, powers, preferences and rights and the
qualifications, limitations and restrictions identical to those then applicable
to the Series D1 Preferred Stock, except that the Conversion Price for such
shares of Series D2 Preferred Stock once initially issued shall be the Series D
Conversion Price in effect immediately prior to such issuance;
(5) to amend the provisions of this subsection 5(k) to
provide that any subsequent Special Mandatory Conversion of the Series A
Preferred Stock, the Series B Preferred Stock, the Series C Preferred Stock
and/or the Series D Preferred Stock will be into shares of Series A2, Series B2,
Series C2 or Series D2 Preferred Stock, respectively, rather than Series A1,
Series B1, Series C1 or Series D1 Preferred Stock.
The corporation shall take the same actions with respect to the Series A2,
Series B2 and Series C2 Preferred Stock and each subsequently authorized series
of Preferred Stock upon initial issuance of shares of the last such series to be
authorized. The right to receive any dividend declared but unpaid at the time
of conversion on any shares of Preferred Stock converted pursuant to the
provisions of this subsection 5(k) shall accrue to the benefit of the new shares
of Preferred Stock issued upon conversion thereof.
6. Voting Rights. The holder of each share of Preferred Stock shall have
-------------
the right to one vote for each share of Common Stock into which such Preferred
Stock could then be converted, and with respect to such vote, such holder shall
have full voting rights and powers equal to the voting rights and powers of the
holders of Common Stock, and shall be entitled, notwithstanding any provision
hereof, to notice of any shareholders' meeting in accordance with the Bylaws of
the corporation, and shall be entitled to vote, together with holders of Common
Stock, with respect to any question upon which holders of Common Stock have the
right to vote. Fractional votes shall not, however, be permitted and any
fractional voting rights available on an as-converted basis (after aggregating
all shares into which shares of Preferred Stock held by each holder could be
converted) shall be rounded to the nearest whole number (with one-half being
rounded upward).
7. Protective Provisions. So long as any shares of any series of
---------------------
Preferred Stock are outstanding, the corporation shall not without first
obtaining the approval (by vote or written consent, as provided by law) of
holders of at least seventy-five percent (75%) of the outstanding shares of
Preferred Stock voting together as a single class, on an as-converted basis
except for subsection (c) hereof which shall require the approval (by vote or
written consent, as provided by
17
<PAGE>
law) of holders of at least sixty-six and two-thirds percent (66 2/3%) of the
outstanding shares of Preferred Stock voting together as a single class, on an
as converted basis:
(a) sell, convey, or otherwise dispose of or encumber all or
substantially all of its property or business or merge into or consolidate with
any other corporation (other than a wholly-owned subsidiary corporation) or
effect any transaction or series of related transactions in which more than
fifty percent (50%) of the voting power of the corporation is disposed of;
(b) increase or decrease (other than by redemption or conversion) the
total number of authorized shares of any series of Preferred Stock;
(c) enter into any agreement to voluntarily liquidate, dissolve or
wind up the corporation or take any action intended to effectuate any of the
foregoing;
(d) authorize the issuance of any other equity security, including
any other security convertible into or exercisable for any equity security (i)
having a preference over, or being on a parity with, any series of Preferred
Stock with respect to voting, dividends or upon liquidation, or (ii) having
rights similar to any of the rights of the Preferred Stock under this Section 7;
(e) alter or change the rights, preferences or privileges of the
shares of any series of Preferred Stock so as to affect adversely such shares;
(f) declare or pay any dividends or make other distributions on, or
redeem, purchase or acquire any Common Stock or any other class of capital stock
of the corporation except for redemptions made in accordance with the provisions
of Article III(c)(3) hereof and except for the repurchase of any Common Stock
pursuant to a repurchase right with respect to terminated employees;
(g) enter into any transaction or series of transactions for a value
greater than $50,000 with any affiliated person or entity (other than
transactions which have been approved by a majority of the disinterested
directors and the terms of which are comparable to transactions entered into on
an arm's length basis);
(h) amend the corporation's Certificate of Incorporation or Bylaws;
(i) acquire all or substantially all of the assets or capital stock
or securities of, or otherwise combine with any corporation, partnership or
other business entity or form a subsidiary for such purpose; or
(j) do any act or thing which would result in taxation of the holders
of shares of Preferred Stock under Section 305 of the Internal Revenue Code of
1986, as amended (or any comparable provision of the Internal Revenue Code as
hereafter amended from time to time).
7. Repurchase of Shares. In connection with repurchases by the
--------------------
corporation of its Common Stock pursuant to its agreements with certain of the
holders thereof, Sections 502 and 503 of the California General Corporation Law,
to the extent applicable, shall not apply in whole or in part with respect to
such repurchases.
18
<PAGE>
IN WITNESS WHEREOF, this Company has caused this Certificate of Designation
to be signed and attested by its duly authorized officers this ____ day of
January, 1998.
_______________________________________
K.B. Chandrasekhar, President and
Chief Executive Officer
ATTEST:
______________________________
Adam W. Wegner, Secretary
19
<PAGE>
EXHIBIT 3.04
RESTATED CERTIFICATE OF INCORPORATION
OF
EXODUS COMMUNICATIONS, INC.
ARTICLE I
The name of the corporation is Exodus Communications, Inc.
ARTICLE II
The address of the registered office of the corporation in the State of
Delaware is 1013 Centre Road, City of Wilmington, 19805, County of New Castle.
The name of its registered agent at that address is Corporation Service Company.
ARTICLE III
The purpose of the corporation is to engage in any lawful act or activity
for which corporations may be organized under the General Corporation Law of the
State of Delaware.
ARTICLE IV
The total number of shares of all classes of stock which the corporation
has authority to issue is fifty five million (55,000,000) shares, consisting of
two classes: fifty million (50,000,000) shares of Common Stock, $0.001 par value
per share, and five million (5,000,000) shares of Preferred Stock, $0.001 par
value per share.
The Board of Directors is authorized, subject to any limitations prescribed
by the law of the State of Delaware, to provide for the issuance of the shares
of Preferred Stock in one or more series, and, by filing a certificate of
designation pursuant to the applicable law of the State of Delaware, to
establish from time to time the number of shares to be included in each such
series, to fix the designation, powers, preferences and rights of the shares of
each such series and any qualifications, limitations or restrictions thereof and
to increase or decrease the number of shares of any such series (but not below
the number of shares of such series then outstanding).
The number of authorized shares of Common Stock or Preferred Stock may be
increased or decreased (but not below the number of shares thereof then
outstanding) by the affirmative vote of the holders of a majority of the stock
of the corporation entitled to vote, unless a vote of any other holders is
required pursuant to a certificate or certificates establishing a series of
Preferred Stock.
1
<PAGE>
Exdous Communications, Inc.
Restated Certificate of Incorporation
Except as expressly provided in any certificate of designation designating
any series of Preferred Stock pursuant to the foregoing provisions of this
Article IV, any new series of Preferred Stock may be designated, fixed and
determined as provided herein by the Board of Directors without approval of the
holders of Common Stock or the holders of Preferred Stock, or any series
thereof, and any such new series may have powers, preferences and rights,
including, without limitation, voting rights, dividend rights, liquidation
rights, redemption rights and conversion rights senior to, junior to or pari
passu with the rights of the Common Stock, the Preferred Stock, or any future
class or series of Preferred Stock or Common Stock.
If the certificate of designation creating a series of Preferred Stock so
provides, any shares of a series of Preferred Stock that are acquired by the
corporation, whether by redemption, purchase, conversion or otherwise, so that
such shares are issued but not outstanding, may not be reissued as shares of
such series or as shares of the class of Preferred Stock. Upon the retirement
of any such shares and the filing of a certificate of retirement pursuant to
Sections 103 and 243 of the Delaware General Corporation Law with respect
thereto, the shares of such series shall be eliminated and the number of shares
of Preferred Stock shall be reduced accordingly.
ARTICLE V
The business and affairs of the corporation shall be managed by or under
the direction of the Board of Directors. The number of directors shall be fixed
from time to time exclusively by a resolution of the Board of Directors adopted
by the affirmative vote of a majority of the total number of directors that the
corporation would have if there were no vacancies.
Any vacancy on the Board of Directors, however resulting, and any newly
created directorships resulting from any increase in the authorized number of
directors shall be filled only by the affirmative vote of a majority of the
directors then in office, even if less than a quorum, or by a sole remaining
director, unless the Board of Directors determines that any such vacancies or
newly created directorships shall be filled by the stockholders.
The Board of Directors of the corporation shall have the power to adopt,
amend or repeal Bylaws of the corporation.
ARTICLE VI
Any action required or permitted to be taken by the stockholders of the
corporation may be effected at a duly called annual or special meeting of such
holders and may not be effected by any consent in writing by such holders.
Subject to the rights of the holders of any class or series of Preferred Stock,
special meetings of stockholders of the corporation shall be called only by the
Board of Directors or upon the request of the Chairman of the Board of Directors
or the Chief Executive Officer of the corporation. If a special meeting is
requested by the Chairman of the Board of Directors or the Chief Executive
Officer, the Board of Director shall determine the time and the place of such
meeting, which shall be called for no less than 35 days nor more than 120 days
after the receipt by the Secretary of the corporation of the request for such
meeting.
2
<PAGE>
Exdous Communications, Inc.
Restated Certificate of Incorporation
Election of directors need not be by written ballot unless the Bylaws of
the corporation shall so provide.
ARTICLE VII
To the fullest extent permitted by law, no director of the corporation
shall be personally liable for monetary damages for breach of fiduciary duty as
a director. Without limiting the effect of the preceding sentence, if the
Delaware General Corporation Law is hereafter amended to authorize the further
elimination or limitation of the liability of a director, then the liability of
a director of the corporation shall be eliminated or limited to the fullest
extent permitted by the Delaware General Corporation Law, as so amended.
Neither any amendment nor repeal of this Article VII, nor the adoption of
any provision of this Certificate of Incorporation inconsistent with this
Article VII, shall eliminate, reduce or otherwise adversely affect any
limitation on the personal liability of a director of the corporation existing
at the time of such amendment, repeal or adoption of such an inconsistent
provision.
ARTICLE VIII
Actions shall be taken by the corporation's stockholders only at annual or
special meetings of stockholders, and the corporation's stockholders may not act
by written consent.
3
<PAGE>
EXHIBIT 3.05
BYLAWS
OF
EXODUS COMMUNICATIONS, INC.
(A CALIFORNIA CORPORATION)
<PAGE>
BYLAWS
OF
EXODUS COMMUNICATIONS
A California Corporation
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
ARTICLE I OFFICES............................................... 1
Section 1.1: Principal Office............................... 1
Section 1.2: Other Offices.................................. 1
ARTICLE II DIRECTORS............................................. 1
Section 2.1: Exercise of Corporate Powers................... 1
Section 2.2: Number......................................... 2
Section 2.3: Need Not Be Shareholders....................... 2
Section 2.4: Compensation................................... 2
Section 2.5: Election and Term of Office.................... 2
Section 2.6: Vacancies...................................... 2
Section 2.7: Removal........................................ 3
Section 2.8: Powers and Duties.............................. 3
ARTICLE III MEETINGS OF DIRECTORS................................. 6
Section 3.1: Place of Meetings.............................. 6
Section 3.2: Regular Meetings............................... 6
Section 3.3: Special Meetings............................... 6
</TABLE>
-i-
<PAGE>
<TABLE>
<CAPTION>
PAGE
<S> <C>
Section 3.4: Notice of Special Meetings..................... 6
Section 3.5: Quorum......................................... 7
Section 3.6: Conference Telephone........................... 7
Section 3.7: Waiver of Notice and Consent................... 7
Section 3.8: Action Without a Meeting....................... 7
Section 3.9: Committees..................................... 7
ARTICLE IV COMMITTEES............................................ 7
Section 4.1: Appointment and Procedure...................... 7
Section 4.2: Executive Committee Powers..................... 8
Section 4.3: Powers of Other Committees..................... 8
Section 4.4: Limitations on Powers of Committees............ 8
ARTICLE V OFFICERS.............................................. 9
Section 5.1: Election and Qualifications.................... 9
Section 5.2: Term of Office and Compensation................ 9
Section 5.3: Chief Executive Officer........................ 9
Section 5.4: Chairman of the Board.......................... 10
Section 5.5: President...................................... 10
Section 5.6: President Pro Tem.............................. 10
Section 5.7: Vice President................................. 10
Section 5.8: Secretary...................................... 10
Section 5.9: Chief Financial Officer........................ 11
</TABLE>
-ii-
<PAGE>
<TABLE>
<CAPTION>
PAGE
<S> <C>
Section 5.10: Instruments in Writing......................... 12
ARTICLE VI INDEMNIFICATION OF AGENTS............................. 13
Section 6.1: Indemnification of Directors and Officers...... 13
Section 6.2: Advancement of Expenses........................ 13
Section 6.3: Non-Exclusivity of Rights...................... 13
Section 6.4: Indemnification Contracts...................... 14
Section 6.5: Effect of Amendment............................ 14
ARTICLE VII MEETINGS OF, AND REPORTS TO, SHAREHOLDERS............. 14
Section 7.1: Place of Meetings.............................. 14
Section 7.2: Annual Meetings................................ 14
Section 7.3: Special Meetings............................... 14
Section 7.4: Notice of Meetings............................. 15
Section 7.5: Consent to Shareholders' Meetings.............. 16
Section 7.6: Quorum......................................... 16
Section 7.7: Adjourned Meetings............................. 16
Section 7.8: Voting Rights.................................. 17
Section 7.9: Action by Written Consents..................... 17
Section 7.10: Election of Directors.......................... 18
Section 7.11: Proxies........................................ 18
Section 7.12: Inspectors of Election......................... 19
</TABLE>
-iii-
<PAGE>
<TABLE>
<CAPTION>
PAGE
<S> <C>
Section 7.13: Annual Reports................................. 19
ARTICLE VIII SHARES AND SHARE CERTIFICATES......................... 20
Section 8.1: Shares Held by Company......................... 20
Section 8.2: Certificates for Shares........................ 20
Section 8.3: Lost Certificates.............................. 20
Section 8.4: Restrictions on Transfer of Shares............. 20
ARTICLE IX CONSTRUCTION OF BYLAWS WITH
REFERENCE TO PROVISIONS OF LAW........................ 21
Section 9.1: Bylaw Provisions Construed as Additional and
Supplemental to Provisions..................... 21
Section 9.2: Bylaw Provisions Contrary to or Inconsistent
with Provisions of Law......................... 21
ARTICLE X CERTIFICATION, ADOPTION,
AMENDMENT OR REPEAL OF BYLAWS......................... 22
Section 10.1: By Shareholders................................ 22
Section 10.2: By the Board of Directors...................... 22
Section 10.3: Certification and Inspection of Bylaws......... 22
</TABLE>
-iv-
<PAGE>
BYLAWS
OF
EXODUS COMMUNICATIONS, INC.
(a California corporation)
Adopted February 16, 1995
As Amended February 29, 1996
As Amended October 2, 1996
As Amended June 18, 1997
ARTICLE I
OFFICES
Section 1.1: Principal Office. The principal executive office for the
----------- ----------------
transaction of the business of this corporation (the "Company") shall be located
-------
at such place as the Board of Directors may from time to time decide. The Board
of Directors is hereby granted full power and authority to change the location
of the principal executive office from one location to another.
Section 1.2: Other Offices. One or more branch or other subordinate
----------- -------------
offices may at any time be fixed and located by the Board of Directors at such
place or places within or outside the State of California as it deems
appropriate.
ARTICLE II
DIRECTORS
Section 2.1: Exercise of Corporate Powers. Except as otherwise provided
----------- -----------------------------
by these Bylaws, by the Articles of Incorporation of the Company or by the laws
of the State
<PAGE>
of California now or hereafter in force, the business and affairs of the Company
shall be managed and all corporate powers shall be exercised by or under the
ultimate direction of a board of directors (the "Board of Directors").
------------------
Section 2.2: Number. The authorized number of directors of this
----------- ------
corporation shall be nine (9). Any amendment to these Bylaws reducing the
minumum or fixed number of the authorized directors to a number less than five
(5) cannot be adopted if the votes cast against its adoption at a meeting, or
the shares not consenting in the case of action by written consent, are equal to
more than 16-2/3% of the outstanding shares entitled to vote.
Section 2.3: Need Not Be Shareholders. The directors of the Company need
----------- ------------------------
not be shareholders of this Company.
Section 2.4: Compensation. Directors and members of committees may
----------- ------------
receive such compensation, if any, for their services as may be fixed or
determined by resolution of the Board of Directors. Nothing herein contained
shall be construed to preclude any director from serving the Company in any
other capacity and receiving compensation therefor.
Section 2.5: Election and Term of Office. The directors shall be elected
----------- ---------------------------
annually by the shareholders at the annual meeting of the shareholders. The
term of office of the directors shall begin immediately after their election and
shall continue until the next annual meeting of the shareholders and until their
respective successors are elected. A reduction of the authorized number of
directors shall not shorten the term of any incumbent director or remove any
incumbent director prior to the expiration of such director's term of office.
Section 2.6: Vacancies. A vacancy or vacancies on the Board of Directors
----------- ---------
shall exist:
(a) in the case of the death of any director; or
(b) in the case of the resignation or removal of any director; or
(c) if the authorized number of directors is increased; or
(d) if the shareholders fail, at any annual meeting of shareholders at
which any director is elected, to elect the full authorized number of directors
at that meeting.
2
<PAGE>
The Board of Directors may declare vacant the office of a director if he or she
is declared of unsound mind by an order of court or convicted of a felony or if,
within 60 days after notice of his or her election, he or she does not accept
the office. Any vacancy, except for a vacancy created by removal of a director
as provided in Section 2.7 hereof, may be filled by a person selected by a
majority of the remaining directors then in office, whether or not less than a
quorum, or by a sole remaining director. Vacancies occurring in the Board of
Directors by reason of removal of directors shall be filled only by approval of
shareholders. The shareholders may elect a director at any time to fill any
vacancy not filled by the directors. Any such election by the written consent
of shareholders, other than to fill a vacancy created by removal, requires the
consent of shareholders holding a majority of the outstanding shares entitled to
vote. If, after the filling of any vacancy by the directors, the directors then
in office who have been elected by the shareholders shall constitute less than a
majority of the directors then in office, any holder or holders of an aggregate
of 5% or more of the total number of shares at that time having the right to
vote for such directors may call a special meeting of shareholders to be held to
elect the entire Board of Directors. The term of office of any director then in
office shall terminate upon the election of such director's successor. Any
director may resign effective upon giving written notice to the Chairman of the
Board, if any, the President, the Secretary or the Board of Directors, unless
the notice specifies a later time for the effectiveness of such resignation.
After the notice is given and if the resignation is effective at a future time,
a successor may be elected or appointed to take office when the resignation
becomes effective.
Section 2.7: Removal. The entire Board of Directors or any individual
----------- -------
director may be removed from office without cause by an affirmative vote of
shareholders holding a majority of the outstanding shares entitled to vote. If
the entire Board of Directors is not removed, however, then no individual
director shall be removed if the votes cast against removal of that director,
plus the votes not consenting in writing to such removal, would be sufficient to
elect that director if voted cumulatively in an election at which the following
were true:
(a) the same total number of votes were cast, or, if such action is taken
by written consent, all shares entitled to vote were voted; and
(b) the entire number of directors authorized at the time of the director's
most recent election were then being elected.
If any or all directors are so removed, new directors may be elected at the same
meeting or at a subsequent meeting. If at any time a class or series of shares
is entitled to elect one or more directors under authority granted by the
Articles of Incorporation, the provisions of this Section 2.7 shall apply to the
vote of that class or series and not to the vote of the outstanding shares as a
whole.
Section 2.8: Powers and Duties. Without limiting the generality or extent
----------- -----------------
of the general corporate powers to be exercised by the Board of Directors
pursuant to Section
3
<PAGE>
2.1 of these Bylaws, it is hereby provided that the Board of Directors shall
have full power with respect to the following matters:
(a) To purchase, lease and acquire any and all kinds of property, real,
personal or mixed, and at its discretion to pay therefor in money, in property
and/or in stocks, bonds, debentures or other securities of the Company.
(b) To enter into any and all contracts and agreements which in its
judgment may be beneficial to the interests and purposes of the Company.
(c) To fix and determine and to vary from time to time the amount or
amounts to be set aside or retained as reserve funds or as working capital of
the Company or for maintenance, repairs, replacements or enlargements of its
properties.
(d) To declare and pay dividends in cash, shares and/or property out of any
funds of the Company at the time legally available for the declaration and
payment of dividends on its shares.
(e) To adopt such rules and regulations for the conduct of its meetings and
the management of the affairs of the Company as it may deem proper.
(f) To prescribe the manner in which and the person or persons by whom any
or all of the checks, drafts, notes, bills of exchange, contracts and other
corporate instruments shall be executed.
(g) To accept resignations of directors; to declare vacant the office of a
director as provided in Section 2.6 hereof; and, in case of vacancy in the
office of directors, to fill the same to the extent provided in Section 2.6
hereof.
(h) To create offices in addition to those for which provision is made by
law or these Bylaws; to elect and remove at pleasure all officers of the
Company, fix their terms of office, prescribe their titles, powers and duties,
limit their authority and fix their salaries in any way it may deem advisable
that is not contrary to law or these Bylaws.
(i) To designate one or more persons to perform the duties and exercise the
powers of any officer of the Company during the temporary absence or disability
of such officer.
(j) To appoint or employ and to remove at pleasure such agents and
employees as it may see fit, to prescribe their titles, powers and duties, limit
their authority and fix their salaries in any way it may deem advisable that is
not contrary to law or these Bylaws.
(k) To fix a time in the future, which shall not be more than 60 days nor
less than 10 days prior to the date of the meeting nor more than 60 days prior
to any other
4
<PAGE>
action for which it is fixed, as a record date for the determination of the
shareholders entitled to notice of and to vote at any meeting, or entitled to
receive any payment of any dividend or other distribution, or allotment of any
rights, or entitled to exercise any rights in respect of any other lawful
action; and in such case only shareholders of record on the date so fixed shall
be entitled to notice of and to vote at the meeting or to receive the dividend,
distribution or allotment of rights or to exercise the rights, as the case may
be, notwithstanding any transfer of any shares on the books of the Company after
any record date fixed as aforesaid. The Board of Directors may close the books
of the Company against transfers of shares during the whole or any part of such
period.
(l) To fix and locate from time to time the principal office for the
transaction of the business of the Company and one or more branch or other
subordinate offices of the Company within or without the State of California; to
designate any place within or without the State of California for the holding of
any meeting or meetings of the shareholders or the Board of Directors, as
provided in Sections 3.1 and 7.1 hereof; to adopt, make and use a corporate
seal, and to prescribe the forms of certificates for shares and to alter the
form of such seal and of such certificates from time to time as in its judgment
it may deem best, provided such seal and such certificates shall at all times
comply with the provisions of law now or hereafter in effect.
(m) To authorize the issuance of shares of stock of the Company in
accordance with the laws of the State of California and the Articles of
Incorporation.
(n) Subject to the limitation provided in Section 10.2 hereof, to adopt,
amend or repeal from time to time and at any time these Bylaws and any and all
amendments thereof.
(o) To borrow money, make guarantees of indebtedness or other obligations
of third parties and incur indebtedness on behalf of the Company, including the
power and authority to borrow money from any of the shareholders, directors or
officers of the Company; and to cause to be executed and delivered therefor in
the corporate name promissory notes, bonds, debentures, deeds of trust,
mortgages, pledges (or other transfers of property as security or collateral for
a debt), or other evidences of debt and securities therefor; and the note or
other obligation given for any indebtedness of the Company, signed officially by
any officer or officers thereunto duly authorized by the Board of Directors,
shall be binding on the Company.
(p) To approve a loan of money or property to any officer or director of
the Company or any parent or subsidiary company, guarantee the obligation of any
such officer or director, or approve an employee benefit plan authorizing such a
loan or guaranty to any such officer or director; provided that, on the date of
approval of such loan or guaranty, the Company has outstanding shares held of
record by 100 or more persons. Such approval shall require a determination by
the Board of Directors that the loan or guaranty may reasonably be expected to
benefit the Company and must be by vote sufficient without counting the vote of
any interested director.
5
<PAGE>
(q) Generally to do and perform every act and thing whatsoever that may
pertain to the office of a director or to a board of directors.
ARTICLE III
MEETINGS OF DIRECTORS
Section 3.1: Place of Meetings. Meetings (whether regular, special or
----------- -----------------
adjourned) of the Board of Directors of the Company shall be held at the
principal executive office of the Company or at any other place within or
outside the State of California which may be designated from time to time by
resolution of the Board of Directors or which is designated in the notice of the
meeting.
Section 3.2: Regular Meetings. Regular meetings of the Board of Directors
----------- ----------------
shall be held after the adjournment of each annual meeting of the shareholders
(which regular directors' meeting shall be designated the "Regular Annual
--------------
Meeting") and at such other times as may be designated from time to time by
- -------
resolution of the Board of Directors. Notice of the time and place of all
regular meetings shall be given in the same manner as for special meetings,
except that no such notice need be given if (a) the time and place of such
meetings are fixed by the Board of Directors or (b) the Regular Annual Meeting
is held at the principal executive office of this Corporation and on the date
specified by the Board of Directors.
Section 3.3: Special Meetings. Special meetings of the Board of Directors
----------- ----------------
may be called at any time by the Chairman of the Board, if any, or the
President, or any Vice President, or the Secretary or by any two or more
directors.
Section 3.4: Notice of Special Meetings. Special meetings of the Board of
----------- --------------------------
Directors shall be held upon no less than 4 days' notice by mail or 48 hours'
notice delivered personally or by telephone or telegraph to each director.
Notice need not be given to any director who signs a waiver of notice or a
consent to holding the meeting or an approval of the minutes thereof, whether
before or after the meeting, or who attends the meeting without protesting,
prior thereto or at its commencement, the lack of notice to such director. All
such waivers, consents and approvals shall be filed with the corporate records
or made a part of the minutes of the meeting. Any oral notice given personally
or by telephone may be communicated either to the director or to a person at the
home or office of the director who the person giving the notice has reason to
believe will promptly communicate it to the director. A notice or waiver of
notice need not specify the purpose of any meeting of the Board of Directors.
If the address of a director is not shown on the records of the Company and is
not readily ascertainable, notice shall be addressed to him or her at the city
or place in which meetings of the directors are regularly held. If a meeting is
adjourned for more than 24 hours, notice of any adjournment to another time
6
<PAGE>
or place shall be given prior to the time of the adjourned meeting to all
directors not present at the time of adjournment.
Section 3.5: Quorum. A majority of the authorized number of directors
----------- ------
constitutes a quorum of the Board of Directors for the transaction of business.
Every act or decision done or made by a majority of the directors present at a
meeting duly held at which a quorum is present is the act of the Board of
Directors subject to provisions of law relating to interested directors and
indemnification of agents of the Company. A majority of the directors present,
whether or not a quorum is present, may adjourn any meeting to another time and
place. A meeting at which a quorum is initially present may continue to
transact business notwithstanding the withdrawal of directors, if any action
taken is approved by at least a majority of the required quorum for such
meeting.
Section 3.6: Conference Telephone. Members of the Board of Directors may
----------- --------------------
participate in a meeting through use of conference telephone or similar
communications equipment, so long as all directors participating in such meeting
can hear one another. Participation in a meeting pursuant to this Section
constitutes presence in person at such meeting.
Section 3.7: Waiver of Notice and Consent. The transactions of any
----------- ----------------------------
meeting of the Board of Directors, however called and noticed or wherever held,
shall be as valid as though had at a meeting duly held after regular call and
notice if a quorum is present, and if, either before or after the meeting, each
of the directors not present signs a written waiver of notice, a consent to
holding such meeting or an approval of the minutes thereof. All such waivers,
consents and approvals shall be filed with the corporate records or made a part
of the minutes of the meeting.
Section 3.8: Action Without a Meeting. Any action required or permitted
----------- ------------------------
by law to be taken by the Board of Directors may be taken without a meeting, if
all members of the Board of Directors shall individually or collectively consent
in writing to the taking of such action. Such written consent or consents shall
be filed with the minutes of the proceedings of the Board of Directors. Such
action by written consent shall have the same force and effect as a unanimous
vote of such directors at a duly held meeting.
Section 3.9: Committees. The provisions of this Article apply also to
----------- ----------
committees of the Board of Directors and action by such committees.
ARTICLE IV
COMMITTEES
Section 4.1: Appointment and Procedure. The Board of Directors may, by
----------- -------------------------
resolution adopted by a majority of the authorized number of directors, appoint
from among its members one or more committees, including without limitation an
executive
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committee, an audit committee and a compensation committee, of two or more
directors. Each committee may make its own rules of procedure subject to
Section 3.9 hereof, and shall meet as provided by such rules or by a resolution
adopted by the Board of Directors (which resolution shall take precedence). A
majority of the members of the committee shall constitute a quorum, and in every
case the affirmative vote of a majority of all members of the committee shall be
necessary to the adoption of any resolution.
Section 4.2: Executive Committee Powers. During the intervals between the
----------- --------------------------
meetings of the Board of Directors, the Executive Committee, if any, in all
cases in which specific directions shall not have been given by the Board of
Directors, shall have and may exercise all the powers and authority of the Board
of Directors in the management of the business and affairs of the Company in
such manner as the Executive Committee may deem best for the interests of the
Company.
Section 4.3: Powers of Other Committees. Other committees shall have such
----------- --------------------------
powers as are given them in a resolution of the Board of Directors.
Section 4.4: Limitations on Powers of Committees. No committee shall have
----------- -----------------------------------
the power to act with respect to:
(a) any action for which the laws of the State of California also require
shareholder approval or approval of the outstanding shares;
(b) the filling of vacancies on the Board of Directors or in any committee;
(c) the fixing of compensation of the directors for serving on the Board of
Directors or on any committee;
(d) the amendment or repeal of these Bylaws or the adoption of new Bylaws;
(e) the amendment or repeal of any resolution of the Board of Directors
which by its express terms is not amendable or repealable;
(f) a distribution to the shareholders of the Company, except at a rate or
in a periodic amount or within a price range as set forth in the Articles of
Incorporation or determined by the Board of Directors; and
(g) the appointment of other committees of the Board of Directors or the
members thereof.
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ARTICLE V
OFFICERS
Section 5.1: Election and Qualifications. The officers of the Company
----------- ---------------------------
shall consist of a President and/or a Chief Executive Officer, a Secretary, a
Chief Financial Officer and such other officers, including, but not limited to,
a Chairman of the Board of Directors, one or more Vice Presidents, a Treasurer,
and Assistant Vice Presidents, Assistant Secretaries and Assistant Treasurers,
as the Board of Directors shall deem expedient, who shall be chosen in such
manner and hold their offices for such terms as the Board of Directors may
prescribe. Any number of offices may be held by the same person. Any Vice
President, Assistant Treasurer or Assistant Secretary, respectively, may
exercise any of the powers of the President, the Chief Financial Officer or the
Secretary, respectively, as directed by the Board of Directors, and shall
perform such other duties as are imposed upon him or her by these Bylaws or the
Board of Directors.
Section 5.2: Term of Office and Compensation. The term of office and
----------- -------------------------------
salary of each of said officers and the manner and time of the payment of such
salaries shall be fixed and determined by the Board of Directors and may be
altered by said Board of Directors from time to time at its pleasure, subject to
the rights, if any, of any officer under any contract of employment. Any
officer may resign at any time upon written notice to the Company, without
prejudice to the rights, if any, of the Company under any contract to which the
officer is a party. If any vacancy occurs in any office of the Company, the
Board of Directors may appoint a successor to fill such vacancy.
Section 5.3 Chief Executive Officer. Subject to the control of the Board
----------- -----------------------
of Directors and such supervisory powers, if any, as may be given by the Board
of Directors, the powers and duties of the Chief Executive Officer of the
Company are:
(a) To act as the general manager and, subject to the control of the Board
of Directors, to have general supervision, direction and control of the business
and affairs of the Company.
(b) To preside at all meetings of the shareholders and, in the absence of
the Chairman of the Board of Directors or if there be no Chairman, at all
meetings of the Board of Directors.
(c) To call meetings of the shareholders and meetings of the Board of
Directors to be held at such times and, subject to the limitations prescribed by
law or by these Bylaws, at such places as he or she shall deem proper.
(d) To affix the signature of the Company to all deeds, conveyances,
mortgages, leases, obligations, bonds, certificates and other papers and
instruments in writing which have been authorized by the Board of Directors or
which, in the judgment of the Chief Executive Officer, should be executed on
behalf of the Company; to sign
9
<PAGE>
certificates for shares of stock of the Company; and, subject to the direction
of the Board of Directors, to have general charge of the property of the Company
and to supervise and control all officers, agents and employees of the Company.
The President shall be the Chief Executive Officer of the Company unless the
Board of Directors shall designate the Chairman of the Board or another officer
to be the Chief Executive Officer. If there is no President, then the Chairman
of the Board shall be the Chief Executive Officer.
Section 5.4: Chairman of the Board. The Chairman of the Board
----------- ---------------------
of Directors, if there be one, shall have the power to preside at all meetings
of the Board of Directors and shall have such other powers and shall be subject
to such other duties as the Board of Directors may from time to time prescribe.
Section 5.5 President. Subject to the supervisory powers of the Chief
----------- ---------
Executive Officer, if not the President, and to such supervisory powers as may
be given by the Board of Directors to the Chairman of the Board, if one is
elected, or to any other officer, the President shall have the general powers
and duties of management usually vested in the office of president of a
corporation and shall have such other powers and duties as may be prescribed by
the Board of Directors or these Bylaws.
Section 5.6: President Pro Tem. If neither the Chairman of the Board of
----------- -----------------
Directors, the President, nor any Vice President is present at any meeting of
the Board of Directors, a President pro tem may be chosen by the directors
present at the meeting to preside and act at such meeting. If neither the
President nor any Vice President is present at any meeting of the shareholders,
a President pro tem may be chosen by the shareholders present at the meeting to
preside at such meeting.
Section 5.7: Vice President. The titles, powers and duties of the Vice
----------- --------------
President or Vice Presidents, if any, shall be as prescribed by the Board of
Directors. In case of the resignation, disability or death of the President,
the Vice President, or one of the Vice Presidents, shall exercise all powers and
duties of the President. If there is more than one Vice President, the order in
which the Vice Presidents shall succeed to the powers and duties of the
President shall be as fixed by the Board of Directors.
Section 5.8: Secretary. The powers and duties of the Secretary are:
----------- ---------
(a) To keep a book of minutes at the principal executive office of the
Company, or such other place as the Board of Directors may order, of all
meetings of its directors and shareholders with the time and place of holding of
such meeting, whether regular or special, and, if special, how authorized, the
notice thereof given, the names of those present at directors' meetings, the
number of shares present or represented at shareholders' meetings and the
proceedings thereof.
10
<PAGE>
(b) To keep the seal of the Company and to affix the same to all
instruments which may require it.
(c) To keep or cause to be kept at the principal executive office of the
Company, or at the office of the transfer agent or agents, a record of the
shareholders of the Company, giving the names and addresses of all shareholders
and the number and class of shares held by each, the number and date of
certificates issued for shares and the number and date of cancellation of every
certificate surrendered for cancellation.
(d) To keep a supply of certificates for shares of the Company, to fill in
all certificates issued, and to make a proper record of each such issuance;
provided that, so long as the Company shall have one or more duly appointed and
acting transfer agents of the shares, or any class or series of shares, of the
Company, such duties with respect to such shares shall be performed by such
transfer agent or transfer agents.
(e) To transfer upon the share books of the Company any and all shares of
the Company; provided that, so long as the Company shall have one or more duly
appointed and acting transfer agents of the shares, or any class or series of
shares, of the Company, such duties with respect to such shares shall be
performed by such transfer agent or transfer agents, and the method of transfer
of each certificate shall be subject to the reasonable regulations of the
transfer agent to whom the certificate is presented for transfer and, if the
Company then has one or more duly appointed and acting registrars, subject to
the reasonable regulations of the registrar to which a new certificate is
presented for registration; and, provided further, that no certificate for
shares of stock shall be issued or delivered or, if issued or delivered, shall
have any validity whatsoever until and unless it has been signed or
authenticated in the manner provided in Section 8.2 hereof.
(f) To make service and publication of all notices that may be necessary or
proper in connection with meetings of the Board of Directors of the shareholders
of the Company. In case of the absence, disability, refusal or neglect of the
Secretary to make service or publication of any notices, then such notices may
be served and/or published by the President or a Vice President, or by any
person thereunto authorized by either of them, or by the Board of Directors, or
by the holders of a majority of the outstanding shares of the Company.
(g) Generally to do and perform all such duties as pertain to such office
and as may be required by the Board of Directors.
Section 5.9: Chief Financial Officer. The powers and duties of the Chief
----------- -----------------------
Financial Officer are:
(a) To supervise and control the keeping and maintaining of adequate and
correct accounts of the Company's properties and business transactions,
including accounts of its assets, liabilities, receipts, disbursements, gains,
losses, capital, surplus
11
<PAGE>
and shares. The books of account shall at all reasonable times be open to
inspection by any director.
(b) To have the custody of all funds, securities, evidences of
indebtedness and other valuable documents of the Company and, at his or her
discretion, to cause any or all thereof to be deposited for the account of the
Company with such depository as may be designated from time to time by the Board
of Directors.
(c) To receive or cause to be received, and to give or cause to be given,
receipts and acquittances for monies paid in for the account of the Company.
(d) To disburse, or cause to be disbursed, all funds of the Company as may
be directed by the President or the Board of Directors, taking proper vouchers
for such disbursements.
(e) To render to the President or to the Board of Directors, whenever
either may require, accounts of all transactions as Chief Financial Officer and
of the financial condition of the Company.
(f) Generally to do and perform all such duties as pertain to such office
and as may be required by the Board of Directors.
Section 5.10: Instruments in Writing. All checks, drafts, demands for
------------ ----------------------
money, notes and written contracts of the Company shall be signed by such
officer or officers, agent or agents, as the Board of Directors may from time to
time designate. No officer, agent, or employee of the Company shall have the
power to bind the Company by contract or otherwise unless authorized to do so by
these Bylaws or by the Board of Directors.
12
<PAGE>
ARTICLE VI
INDEMNIFICATION
Section 6.1: Indemnification of Directors and Officers. The Company shall
----------- -----------------------------------------
indemnify each person who was or is a party, or is threatened to be made a
party, to any threatened, pending or completed action or proceeding, whether
civil, criminal, administrative or investigative (a "Proceeding") by reason of
----------
the fact that such person is or was a director or officer of the Company, or is
or was serving at the request of the Company as a director or officer of another
foreign or domestic corporation, partnership, joint venture, trust or other
enterprise, or was a director or officer of a foreign or domestic corporation
which was a predecessor corporation of the Company or of another enterprise at
the request of such predecessor corporation, to the fullest extent permitted by
the California Corporations Code, against all expenses, including, without
limitation, attorneys' fees and any expenses of establishing a right to
indemnification, judgments, fines, settlements and other amounts actually and
reasonably incurred in connection with such Proceeding, and such indemnification
shall continue as to a person who has ceased to be such a director or officer,
and shall inure to the benefit of the heirs, executors and administrators of
such person; provided, however, that the Company shall indemnify any such person
-------- -------
seeking indemnity in connection with a Proceeding (or part thereof) initiated by
such person only if such Proceeding (or part thereof) was authorized by the
Board of Directors of the Company.
Section 6.2: Advancement of Expenses. The Company shall pay all expenses
----------- -----------------------
incurred by such a director or officer in defending any Proceeding as they are
incurred in advance of its final disposition; provided, however, that the
payment of such expenses incurred by a director or officer in advance of the
final disposition of a Proceeding shall be made only upon receipt by the Company
of an agreement by or on behalf of such director or officer to repay such amount
if it shall be determined ultimately that such person is not entitled to be
indemnified under this Article VI or otherwise; and provided further that the
Company shall not be required to advance any expenses to a person against whom
the Company brings an action, alleging that such person committed an act or
omission not in good faith or that involved intentional misconduct or a knowing
violation of law, or that was contrary to the best interest of the Company, or
derived an improper personal benefit from a transaction.
Section 6.3: Non-Exclusivity of Rights. The rights conferred on any
----------- -------------------------
person in this Article VI shall not be deemed exclusive of any other rights that
such person may have or hereafter acquire under any statute, by law, agreement,
vote of shareholders or disinterested directors or otherwise, both as to action
in an official capacity and as to action in another capacity while holding such
office. Additionally, nothing in this Article VI shall limit the ability of the
Company, in its discretion, to indemnify or advance expenses to persons whom the
Company is not obligated to indemnify or advance expenses to pursuant to this
Article VI.
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<PAGE>
Section 6.4: Indemnification Contracts. The Board of Directors is
----------- -------------------------
authorized to cause the Company to enter into a contract with any director,
officer, employee or agent of the Company, or any person serving at the request
of the Company as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, providing for
indemnification rights equivalent to or, if the Board of Directors so
determines, greater than (to the extent permitted by the Company's Articles of
Incorporation and the California Corporations Code) those provided for in this
Article VI.
Section 6.5: Effect of Amendment. Any amendment, repeal or modification
----------- -------------------
of any provision of this Article VI shall be prospective only, and shall not
adversely affect any right or protection conferred on a person pursuant to this
Article VI and existing at the time of such amendment, repeal or modification.
ARTICLE VII
MEETINGS OF, AND REPORTS TO, SHAREHOLDERS
Section 7.1: Place of Meetings. Meetings (whether regular, special or
----------- -----------------
adjourned) of the shareholders of the Company shall be held at the principal
executive office for the transaction of business of the Company, or at any place
within or outside the State of California which may be designated by written
consent of all the shareholders entitled to vote thereat, or which may be
designated by resolution of the Board of Directors. Any meeting shall be valid
wherever held if held by the written consent of all the shareholders entitled to
vote thereat, given either before or after the meeting and filed with the
Secretary of the Company.
Section 7.2: Annual Meetings. The annual meetings of the shareholders
----------- ---------------
shall be held at the place provided pursuant to Section 7.1 hereof and at such
time in a particular year as may be designated by written consent of all the
shareholders entitled to vote thereat or which may be designated by resolution
of the Board of Directors of the Company. Said annual meetings shall be held
for the purpose of the election of directors, for the making of reports of the
affairs of the Company and for the transaction of such other business as may
properly come before the meeting.
Section 7.3: Special Meetings. Special meetings of the shareholders for
----------- ----------------
any purpose or purposes whatsoever may be called at any time by the President,
the Chairman of the Board of Directors or by the Board of Directors, or by two
or more members thereof, or by one or more holders of shares entitled to cast
not less than 10% of the votes at the meeting. Upon request in writing sent by
registered mail to the Chairman of the Board of Directors, President, Vice
President or Secretary, or delivered to any such officer in person, by any
person entitled to call a special meeting of shareholders, it shall be the duty
of such officer forthwith to cause notice to be given to the shareholders
entitled to vote that a meeting will be held at a time requested by the person
or persons calling the meeting, which (except where called by the Board of
Directors) shall be not
14
<PAGE>
less than 35 days nor more than 60 days after the receipt of such request. If
the notice is not given within 20 days after receipt of the request, the person
entitled to call the meeting may give the notice. Notices of meetings called by
the Board of Directors shall be given in accordance with Section 7.4.
Section 7.4: Notice of Meetings. Notice of any meeting of shareholders
----------- ------------------
shall be given in writing not less than 10 (or, if sent by third-class mail, 30)
nor more than 60 days before the date of the meeting to each shareholder
entitled to vote thereat by the Secretary or an Assistant Secretary, or such
other person charged with that duty, or if there be no such officer or person,
or in case of his or her neglect or refusal, by any director or shareholder.
The notice shall state the place, date and hour of the meeting and (a) in the
case of a special meeting, the general nature of the business to be transacted,
and no other business may be transacted, or (b) in the case of the annual
meeting, those matters which the Board of Directors, at the time of the mailing
of the notice, intends to present for action by the shareholders, but any proper
matter may be presented at the meeting for such action, except that notice must
be given or waived in writing of any proposal relating to approval of contracts
between the Company and any director of the Company, amendment of the Articles
of Incorporation, reorganization of the Company or winding up of the affairs of
the Company. The notice of any meeting at which directors are to be elected
shall include the names of nominees intended at the time of the notice to be
presented by the Board of Directors for election. Notice of a shareholders'
meeting or any report shall be given to any shareholder, either (a) personally
or (b) by first-class mail, or, in case the Company has outstanding shares held
of record by 500 or more persons on the record date for the shareholders'
meeting, notice may be sent by third-class mail, or other means of written
communication, charges prepaid, addressed to such shareholder at such
shareholder's address appearing on the books of the Company or given by such
shareholder to the Company for the purpose of notice. If a shareholder gives no
address or no such address appears on the books of the Company, notice shall be
deemed to have been given if sent by mail or other means of written
communication addressed to the place where the principal executive office of the
Company is located, or if published at least once in a newspaper of general
circulation in the county in which such office is located. The notice or report
shall be deemed to have been given at the time when delivered personally or
deposited in the United States mail, postage prepaid, or sent by other means of
written communication and addressed as hereinbefore provided. An affidavit or
declaration of delivery or mailing of any notice or report in accordance with
the provisions of this Section 7.4, executed by the Secretary, Assistant
Secretary or any transfer agent, shall be prima facie evidence of the giving of
the notice or report. If any notice or report addressed to the shareholder at
the address of such shareholder appearing on the books of the Company is
returned to the Company by the United States Postal Service marked to indicate
that the United States Postal Service is unable to deliver the notice or report
to the shareholder at such address, all future notices or reports shall be
deemed to have been duly given without further mailing if the same shall be
available for the shareholder upon written demand of the shareholder at the
principal executive office of the Company for a period of one year from the date
of the giving of the notice or report to all other shareholders.
15
<PAGE>
Section 7.5: Consent to Shareholders' Meetings. The transactions of any
----------- ---------------------------------
meeting of shareholders, however called and noticed, and wherever held, are as
valid as though they had taken place at a meeting duly held after regular call
and notice, if the following conditions are met:
(a) a quorum is present, either in person or by proxy, and
(b) either before or after the meeting, each of the shareholders entitled
to vote, who was not present in person or by proxy, signs a written waiver of
notice or a consent to the holding of such meeting or an approval of the minutes
thereof. All such waivers, consents or approvals shall be filed with the
corporate records or made a part of the minutes of the meeting.
Attendance of a person at a meeting shall constitute both a waiver of notice of
and presence at such meeting, except: (a) when the person objects, at the
beginning of the meeting, to the transaction of any business because the meeting
is not lawfully called or convened; or (b) when the person expressly makes an
objection at some time during the meeting to the consideration of matters
required by law to be included in the notice but not so included.
Neither the business to be transacted at, nor the purpose of, any regular or
special meeting of shareholders need be specified in any written waiver of
notice, consent to the holding of the meeting or approval of the minutes
thereof, except as to approval of contracts between the Company and any of its
directors, amendment of the Articles of Incorporation, reorganization of the
Company or winding up the affairs of the Company.
Section 7.6: Quorum. The presence in person or by proxy of the holders of
----------- ------
a majority of the shares entitled to vote at any meeting of the shareholders
shall constitute a quorum for the transaction of business. Shares shall not be
counted to make up a quorum for a meeting if voting of such shares at the
meeting has been enjoined or for any reason they cannot be lawfully voted at the
meeting. Shareholders present at a duly called or held meeting at which a
quorum is present may continue to transact business until adjournment
notwithstanding the withdrawal of enough shareholders to leave less than a
quorum, if any action taken (other than adjournment) is approved by at least a
majority of the shares required to constitute a quorum. Except as provided
herein, the affirmative vote of a majority of the shares represented and voting
at a duly held meeting at which a quorum is present (which shares voting
affirmatively also constitute at least a majority of the required quorum) shall
be the act of the shareholders, unless the vote of a greater number or voting by
classes is required.
Section 7.7: Adjourned Meetings. Any shareholders' meeting, whether or
----------- ------------------
not a quorum is present, may be adjourned from time to time by the vote of a
majority of the shares, the holders of which are either present in person or
represented by proxy thereat, but, except as provided in Section 7.6 hereof, in
the absence of a quorum, no other
16
<PAGE>
business may be transacted at such meeting. When a meeting is adjourned for
more than 45 days or if after adjournment a new record date is fixed for the
adjourned meeting, a notice of the adjourned meeting shall be given to each
shareholder of record entitled to vote at a meeting. Except as aforesaid, it
shall not be necessary to give any notice of the time and place of the adjourned
meeting or of the business to be transacted thereat other than by announcement
at the meeting at which such adjournment is taken. At any adjourned meeting the
shareholders may transact any business which might have been transacted at the
original meeting.
Section 7.8: Voting Rights. Only persons in whose names shares entitled
----------- -------------
to vote stand on the stock records of the Company at:
(a) the close of business on the business day immediately preceding the
day on which notice is given; or
(b) if notice is waived, at the close of business on the business day
immediately preceding the day on which the meeting is held; or
(c) if some other day be fixed for the determination of shareholders of
record pursuant to Section 2.8(k) hereof, then on such other day, shall be
entitled to vote at such meeting.
The record date for determining shareholders entitled to give consent to
corporate action in writing without a meeting, when no prior action by the Board
of Directors has been taken, shall be the day on which the first written consent
is given. In the absence of any contrary provision in the Articles of
Incorporation or in any applicable statute relating to the election of directors
or to other particular matters, each such person shall be entitled to one vote
for each share.
Section 7.9: Action by Written Consents. Any action which may be taken at
----------- --------------------------
any annual or special meeting of shareholders may be taken without a meeting and
without prior notice, if a consent in writing, setting forth the action so
taken, shall be signed by holders of outstanding shares having not less than the
minimum number of votes that would be necessary to authorize or take such action
at a meeting at which all shares entitled to vote thereon were present and
voted. Unless the consents of all shareholders entitled to vote have been
solicited in writing, the Company shall provide notice of any shareholder
approval obtained without a meeting by less than unanimous written consent to
those shareholders entitled to vote but who have not yet consented in writing at
least 10 days before the consummation of the following actions authorized by
such approval: (a) contracts between the Company and any of its directors; (b)
indemnification of any person; (c) reorganization of the Company; or (d)
distributions to shareholders upon the winding-up of the affairs of the Company.
In addition, the Company shall provide, to those shareholders entitled to vote
who have not consented in writing, prompt notice of the taking of any other
corporate action approved by the shareholders without a meeting by less than
unanimous written consent. All notices
17
<PAGE>
given hereunder shall conform to the requirements of Section 7.4 hereto and
applicable law. When written consents are given with respect to any shares,
they shall be given by and accepted from the persons in whose names such shares
stand on the books of the Company at the time such respective consents are
given, or their proxies. Any shareholder giving a written consent (including
any shareholder's proxy holder, or a transferee of the shares or a personal
representative of the shareholder, or their respective proxy holders) may revoke
the consent by a writing. This writing must be received by the Company prior to
the time that written consents of the number of shares required to authorize the
proposed action have been filed with the Secretary of the Company. Such
revocation is effective upon its receipt by the Secretary of the Company.
Notwithstanding anything herein to the contrary, and subject to Section 305(b)
of the California Corporations Code, directors may not be elected by written
consent except by unanimous written consent of all shares entitled to vote for
the election of directors.
Section 7.10: Election of Directors. Every shareholder entitled to vote
------------ ---------------------
at any election of directors of the Company may cumulate such shareholder's
votes and give one candidate a number of votes equal to the number of directors
to be elected multiplied by the number of votes to which the shareholder's
shares are normally entitled, or distribute the shareholder's votes on the same
principle among as many candidates as such shareholder thinks fit. No
shareholder, however, may cumulate such shareholder's votes for one or more
candidates unless such candidate's or candidates' names have been placed in
nomination prior to the voting and the shareholder has given notice at the
meeting, prior to voting, of such shareholder's intention to cumulate such
shareholder's votes. If any one shareholder has given such notice, all
shareholders may cumulate their votes for candidates in nomination. The
candidates receiving the highest number of affirmative votes of the shares
entitled to be voted for them up to the number of directors to be elected by
such shares shall be declared elected. Votes against the director and votes
withheld shall have no legal effect. Election of directors need not be by
ballot except upon demand made by a shareholder at the meeting and before the
voting begins.
Section 7.11: Proxies. Every person entitled to vote or execute consents
------------ -------
shall have the right to do so either in person or by one or more agents
authorized by a written proxy executed by such person or such person's duly
authorized agent and filed with the Secretary of the Company. No proxy shall be
valid (a) after revocation thereof, unless the proxy is specifically made
irrevocable and otherwise conforms to this Section and applicable law, or (b)
after the expiration of eleven months from the date thereof, unless the person
executing it specifies therein the length of time for which such proxy is to
continue in force. Revocation may be effected by a writing delivered to the
Secretary of the Company stating that the proxy is revoked or by a subsequent
proxy executed by the person executing the prior proxy and presented to the
meeting, or as to any meeting by attendance at the meeting and voting in person
by the person executing the proxy. A proxy is not revoked by the death or
incapacity of the maker unless, before the vote is counted, a written notice of
such death or incapacity is received by the Secretary of the Company. In
addition, a proxy may be revoked, notwithstanding a provision making it
irrevocable, by a transferee of shares without knowledge of the existence of the
provision
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<PAGE>
unless the existence of the proxy and its irrevocability appears on the
certificate representing such shares.
Section 7.12: Inspectors of Election. Before any meeting of shareholders,
------------ ----------------------
the Board of Directors may appoint any persons other than nominees for office as
inspectors of election. This appointment shall be valid at the meeting and at
any subsequent meeting that is a continuation of the meeting at which the
persons were originally appointed to be inspectors. If no inspectors of
election are so appointed, the Chairman of the meeting may, and on the request
of any shareholder or a shareholder's proxy shall, appoint inspectors of
election at the meeting. The number of inspectors shall be either one or three.
If inspectors are appointed at a meeting on the request of one or more
shareholders or proxies, the holders of a majority of shares or their proxies
present at the meeting shall determine whether one or three inspectors are to be
appointed. If any person appointed as inspector fails to appear or fails or
refuses to act, the Chairman of the meeting may, and upon the request of any
shareholder or a shareholder's proxy shall, appoint a person to fill that
vacancy. These inspectors shall:
(a) determine the number of shares outstanding and the voting power of
each, the shares represented at the meeting, the existence of a quorum, and the
authenticity, validity, and effect of proxies;
(b) receive votes, ballots, or consents;
(c) hear and determine all challenges and questions in any way arising in
connection with the right to vote;
(d) count and tabulate all votes or consents;
(e) determine when the polls shall close;
(f) determine the result; and
(g) do any other acts that may be proper to conduct the election or vote
with fairness to all shareholders.
Section 7.13: Annual Reports. Provided that the Company has 100 or fewer
------------ --------------
shareholders, the making of annual reports to the shareholders is dispensed with
and the requirement that such annual reports be made to shareholders is
expressly waived, except as may be directed from time to time by the Board of
Directors or the President.
19
<PAGE>
ARTICLE VIII
SHARES AND SHARE CERTIFICATES
Section 8.1: Shares Held By the Company. Shares in other companies
----------- --------------------------
standing in the name of the Company may be voted or represented and all rights
incident thereto may be exercised on behalf of the Company by any officer of the
Company authorized to do so by resolution of the Board of Directors.
Section 8.2: Certificates for Shares. There shall be issued to every
----------- -----------------------
holder of shares in the Company a certificate or certificates signed in the name
of the Company by the Chairman of the Board, if any, or the President or a Vice
President and by the Chief Financial Officer or an Assistant Chief Financial
Officer or the Secretary or any Assistant Secretary, certifying the number of
shares and the class or series of shares owned by the shareholder. Any or all
of the signatures on the certificate may be facsimile. In case any officer,
transfer agent or registrar who has signed or whose facsimile signature has been
placed upon a certificate shall have ceased to be such officer, transfer agent
or registrar before such certificate is issued, it may be issued by the Company
with the same effect as if such person were an officer, transfer agent or
registrar at the date of issue.
Section 8.3: Lost Certificates. Where the owner of any certificate for
----------- -----------------
shares of the Company claims that the certificate has been lost, stolen or
destroyed, a new certificate shall be issued in place of the original
certificate if the owner (a) so requests before the Company has notice that the
original certificate has been acquired by a bona fide purchaser and (b)
satisfies any reasonable requirements imposed by the Company, including without
limitation the filing with the Company of an indemnity bond or agreement in such
form and in such amount as shall be required by the President or a Vice
President of the Company. The Board of Directors may adopt such other
provisions and restrictions with reference to lost certificates, not
inconsistent with applicable law, as it shall in its discretion deem
appropriate.
Section 8.4: Restrictions on Transfer of Shares.
----------- ----------------------------------
(a) Before any shareholder of the Company may sell, assign, gift, pledge
or otherwise transfer any shares of the Company's capital stock, such
shareholder shall first notify the Company in writing of such transfer and such
transfer may not be effected unless and until legal counsel for the Company has
concluded that such transfer, when effected as proposed by such shareholder (i)
will comply with all applicable provisions of any applicable state and federal
securities laws, including but not limited to the Securities Act of 1933, as
amended, and the California Corporate Securities Law of 1968, as amended, and
(ii) will not jeopardize, terminate or adversely affect the Company's status as
an S Corporation, if applicable, as that term is defined in the Internal Revenue
Code of 1986, as amended. The Company may require that certificates representing
shares of stock of the Company be endorsed with a legend describing the
restrictions set forth in this Section.
20
<PAGE>
(b) If (i) any two or more shareholders of the Company shall enter into
any agreement abridging, limiting or restricting the rights of any one or more
of them to sell, assign, transfer, mortgage, pledge, hypothecate or transfer on
the books of the Company any or all of the shares of the Company held by them,
and if a copy of said agreement shall be filed with the Company, or if (ii)
shareholders entitled to vote shall adopt any Bylaw provision abridging,
limiting or restricting the rights of any shareholders mentioned above, then,
and in either of such events, all certificates of shares of stock subject to
such abridgments, limitations or restrictions shall have a reference thereto
endorsed thereon by an officer of the Company and such certificates shall not
thereafter be transferred on the books of the Company except in accordance with
the terms and provisions of such as the case may be; however, no restriction
shall be binding with respect to shares issued prior to adoption of the
restriction unless the holders of such shares voted in favor of, or consented in
writing to, the restriction.
ARTICLE IX
CONSTRUCTION OF BYLAWS WITH
REFERENCE TO PROVISIONS OF LAW
Section 9.1: Bylaw Provisions Construed as Additional and Supplemental to
----------- ------------------------------------------------------------
Provisions of Law. All restrictions, limitations, requirements and other
- -----------------
provisions of these Bylaws shall be construed, insofar as possible, as
supplemental and additional to all provisions of law applicable to the subject
matter thereof and shall be fully complied with in addition to the said
provisions of law unless such compliance shall be illegal.
Section 9.2: Bylaw Provisions Contrary to or Inconsistent with Provisions
----------- ------------------------------------------------------------
of Law. Any article, section, subsection, subdivision, sentence, clause or
- ------
phrase of these Bylaws which, upon being construed in the manner provided in
Section 9.1 hereof, shall be contrary to or inconsistent with any applicable
provision of law, shall not apply so long as said provisions of law shall remain
in effect, but such result shall not affect the validity or applicability of any
other portion of these Bylaws, it being hereby declared that these Bylaws, and
each article, section, subsection, subdivision, sentence, clause or phrase
thereof, would have been adopted irrespective of the fact that any one or more
articles, sections, subsections, subdivisions, sentences, clauses or phrases is
or are illegal.
21
<PAGE>
ARTICLE X
CERTIFICATION, ADOPTION, AMENDMENT OR REPEAL OF BYLAWS
Section 10.1: By Shareholders. Bylaws may be adopted, amended or repealed
------------ ---------------
by the vote or written consent of holders of a majority of the outstanding
shares entitled to vote. Bylaws specifying or changing a fixed number of
directors or the maximum or minimum number or changing from a fixed to a
variable board or vice versa may be adopted only by the shareholders.
Section 10.2: By the Board of Directors. Subject to the right of
------------ -------------------------
shareholders to adopt, amend or repeal Bylaws, and other than a Bylaw or
amendment thereof specifying or changing a fixed number of directors or the
maximum or minimum number or changing from a fixed to a variable board or vice
versa, these Bylaws may be adopted, amended or repealed by the Board of
Directors. A Bylaw adopted by the shareholders may restrict or eliminate the
power of the Board of Directors to adopt, amend or repeal Bylaws.
Section 10.3: Certification and Inspection of Bylaws. The Company shall
------------ --------------------------------------
keep at its principal executive office the original or a copy of these Bylaws as
amended or otherwise altered to date, which shall be open to inspection by the
shareholders at all reasonable times during office hours.
22
<PAGE>
EXHIBIT 3.06
__________________________________
BYLAWS
OF
EXODUS COMMUNICATIONS, INC.
(a Delaware corporation)
As Adopted January 15, 1998
__________________________________
<PAGE>
BYLAWS
OF
EXODUS COMMUNICATIONS, INC.
(a Delaware corporation)
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE I - STOCKHOLDERS............................................. 1
Section 1.1: Annual Meetings.................................. 1
Section 1.2: Special Meetings................................. 1
Section 1.3: Notice of Meetings............................... 1
Section 1.4: Adjournments..................................... 2
Section 1.5: Quorum........................................... 2
Section 1.6: Organization..................................... 2
Section 1.7: Voting; Proxies.................................. 2
Section 1.8: Fixing Date for Determination of Stockholders
of Record........................................ 3
Section 1.9: List of Stockholders Entitled to Vote............ 4
Section 1.10: Action by Written Consent of Stockholders.... .. 4
Section 1.11: Inspectors of Elections.......................... 5
Section 1.12: Notice of Stockholder Business; Nominations...... 6
ARTICLE II - BOARD OF DIRECTORS...................................... 8
Section 2.1: Number; Qualifications........................... 8
Section 2.2: Election; Resignation; Removal; Vacancies........ 8
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Section 2.3: Regular Meetings................................. 8
Section 2.4: Special Meetings................................. 9
Section 2.5: Telephonic Meetings Permitted.................... 9
Section 2.6: Quorum; Vote Required for Action................. 9
Section 2.7: Organization..................................... 9
Section 2.8: Written Action by Directors...................... 9
Section 2.9: Powers........................................... 9
Section 2.10: Compensation of Directors........................ 9
ARTICLE III - COMMITTEES............................................. 10
Section 3.1: Committees....................................... 10
Section 3.2: Committee Rules.................................. 10
ARTICLE IV - OFFICERS................................................ 10
Section 4.1: Generally........................................ 10
Section 4.2: Chief Executive Officer.......................... 11
Section 4.3: Chairman of the Board............................ 12
Section 4.4: President........................................ 12
Section 4.5: Vice President................................... 12
Section 4.6: Chief Financial Officer.......................... 12
Section 4.7: Treasurer........................................ 12
Section 4.8: Secretary........................................ 12
Section 4.9: Delegation of Authority.......................... 12
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Section 4.10: Removal.......................................... 13
ARTICLE V - STOCK.................................................... 13
Section 5.l: Certificates..................................... 13
Section 5.2: Lost, Stolen or Destroyed Stock Certificates;
Issuance of New Certificate...................... 13
Section 5.3: Other Regulations................................ 13
ARTICLE VI - INDEMNIFICATION......................................... 13
Section 6.1: Indemnification of Officers and Directors........ 13
Section 6.2: Advance of Expenses.............................. 14
Section 6.3: Non-Exclusivity of Rights........................ 14
Section 6.4: Indemnification Contracts........................ 14
Section 6.5: Effect of Amendment.............................. 14
ARTICLE VII - NOTICES................................................ 15
Section 7.l: Notice........................................... 15
Section 7.2: Waiver of Notice................................. 15
ARTICLE VIII - INTERESTED DIRECTORS.................................. 15
Section 8.1: Interested Directors; Quorum..................... 15
ARTICLE IX - MISCELLANEOUS........................................... 16
Section 9.1: Fiscal Year...................................... 16
Section 9.2: Seal............................................. 16
Section 9.3: Form of Records.................................. 16
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Section 9.4: Reliance Upon Books and Records.................. 16
Section 9.5: Certificate of Incorporation Governs............. 16
Section 9.6: Severability..................................... 16
ARTICLE X - AMENDMENT................................................ 17
Section 10.1: Amendments....................................... 17
</TABLE>
<PAGE>
BYLAWS
OF
EXODUS COMMUNICATIONS, INC.
(a Delaware corporation)
As Adopted January 15, 1998
ARTICLE I
STOCKHOLDERS
Section 1.1: Annual Meetings. An annual meeting of stockholders shall be
----------- ---------------
held for the election of directors at such date, time and place, either within
or without the State of Delaware, as the Board of Directors shall each year fix.
Any other proper business may be transacted at the annual meeting.
Section 1.2: Special Meetings. Special meetings of stockholders for any
----------- ----------------
purpose or purposes may be called at any time by the Chairman of the Board, the
Chief Executive Officer or the holders of shares of the Corporation that are
entitled to cast not less than ten percent (10%) of the total number of votes
entitled to be cast by all stockholders at such meeting ("Ten Percent
-----------
Shareholders") or by a majority of the members of the Board of Directors.
- ------------
Special meetings may not be called by any other person or persons. If a special
meeting of stockholders is called by any person or persons other than by a
----- ----
majority of the members of the Board of Directors, then such person or persons
shall call such meeting by delivering a written request to call such meeting to
each member of the Board of Directors, and the Board of Directors shall then
determine the time, date and place of such special meeting, which shall be held
not more than one hundred twenty (120) nor less than thirty-five (35) days after
the written request to call such special meeting was delivered to each member of
the Board of Directors. Effective immediately after the closing of an
underwritten public offering of shares of the Corporation's Common Stock
pursuant to a registration statement filed with and declared effective by the
Securities and Exchange Commission, Ten Percent Shareholders may not call a
Special Meeting of Stockholders.
Section 1.3: Notice of Meetings. Written notice of all meetings of
----------- ------------------
stockholders shall be given stating the place, date and time of the meeting and,
in the case of a special meeting, the purpose or purposes for which the meeting
is called. Unless otherwise required by applicable law or the Certificate of
Incorporation of the Corporation, such notice shall be given not less than ten
(10) nor more than sixty (60) days before the date of the meeting to each
stockholder entitled to vote at such meeting.
<PAGE>
Section 1.4: Adjournments. Any meeting of stockholders may adjourn from
----------- ------------
time to time to reconvene at the same or another place, and notice need not be
given of any such adjourned meeting if the time, date and place thereof are
announced at the meeting at which the adjournment is taken; provided, however,
-------- -------
that if the adjournment is for more than thirty (30) days, or if after the
adjournment, a new record date is fixed for the adjourned meeting, then a notice
of the adjourned meeting shall be given to each stockholder of record entitled
to vote at the meeting. At the adjourned meeting, the Corporation may transact
any business that might have been transacted at the original meeting.
Section 1.5: Quorum. At each meeting of stockholders, the holders of a
------------ ------
majority of the shares of stock entitled to vote at the meeting, present in
person or represented by proxy, shall constitute a quorum for the transaction of
business, except if otherwise required by applicable law. If a quorum shall
------
fail to attend any meeting, the chairman of the meeting or the holders of a
majority of the shares entitled to vote who are present, in person or by proxy,
at the meeting may adjourn the meeting. Shares of the Corporation's stock
belonging to the Corporation (or to another corporation, if a majority of the
shares entitled to vote in the election of directors of such other corporation
are held, directly or indirectly, by the Corporation), shall neither be entitled
to vote nor be counted for quorum purposes; provided, however, that the
-------- -------
foregoing shall not limit the right of the Corporation or any other corporation
to vote any shares of the Corporation's stock held by it in a fiduciary
capacity.
Section 1.6: Organization. Meetings of stockholders shall be presided over
------------ ------------
by such person as the Board of Directors may designate, or, in the absence of
such a person, the Chairman of the Board, or, in the absence of such person, the
President of the Corporation, or, in the absence of such person, such person as
may be chosen by the holders of a majority of the shares entitled to vote who
are present, in person or by proxy, at the meeting. Such person shall be
chairman of the meeting and, subject to Section 1.11 hereof, shall determine the
order of business and the procedure at the meeting, including such regulation of
the manner of voting and the conduct of discussion as seems to him or her to be
in order. The Secretary of the Corporation shall act as secretary of the
meeting, but in his or her absence, the chairman of the meeting may appoint any
person to act as secretary of the meeting.
Section 1.7: Voting; Proxies. Unless otherwise provided by law or the
----------- ---------------
Certificate of Incorporation, and subject to the provisions of Section 1.8 of
these Bylaws, each stockholder shall be entitled to one (1) vote for each share
of stock held by such stockholder. Each stockholder entitled to vote at a
meeting of stockholders, or to express consent or dissent to corporate action in
writing without a meeting, may authorize another person or persons to act for
such stockholder by proxy. Such a proxy may be prepared, transmitted and
delivered in any manner permitted by applicable law. Voting at meetings of
stockholders need not be by written ballot unless such is demanded at the
meeting before voting begins by a stockholder or stockholders holding shares
representing at least one percent (1%) of the votes entitled to vote at such
meeting, or by such stockholder's or stockholders' proxy; provided, however,
-------- -------
that an election of directors shall be by written ballot if demand is so made by
any stockholder at the meeting before voting begins. If a vote is to be taken by
written ballot, then each such ballot shall state the name of the stockholder or
proxy voting and such other information as the
-2-
<PAGE>
chairman of the meeting deems appropriate. Directors shall be elected by a
plurality of the votes of the shares present in person or represented by proxy
at the meeting and entitled to vote on the election of directors. Unless
otherwise provided by applicable law, the Certificate of Incorporation or these
Bylaws, every matter other than the election of directors shall be decided by
the affirmative vote of the holders of a majority of the shares of stock
entitled to vote thereon that are present in person or represented by proxy at
the meeting and are voted for or against the matter.
Section 1.8: Fixing Date for Determination of Stockholders of Record.
----------- -------------------------------------------------------
(a) Generally. In order that the Corporation may determine the
---------
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, or to express consent to corporate action in writing
without a meeting, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the Board of Directors may fix, in advance, a record date,
which shall not precede the date upon which the resolution fixing the record
date is adopted by the Board of Directors and which shall not be more than sixty
(60) nor less than ten (10) days before the date of such meeting, nor more than
sixty (60) days prior to any other action. If no record date is fixed by the
Board of Directors, then the record date shall be as provided by applicable law.
A determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the meeting; provided,
--------
however, that the Board of Directors may fix a new record date for the adjourned
- -------
meeting.
(b) Stockholder Request for Action by Written Consent. For such period of
-------------------------------------------------
time as stockholders are authorized to act by written consent pursuant to the
provisions of the Certificate of Incorporation and Section 1.10 hereof, any
stockholder of record seeking to have the stockholders authorize or take
corporate action by written consent without a meeting shall, by written notice
to the Secretary of the Corporation, request the Board of Directors to fix a
record date for such consent. Such request shall include a brief description of
the action proposed to be taken. The Board of Directors shall, within ten (10)
days after the date on which such a request is received, adopt a resolution
fixing the record date. Such record date shall not precede the date upon which
the resolution fixing the record date is adopted by the Board of Directors, and
shall not be more than ten (10) days after the date upon which the resolution
fixing the record date is adopted by the Board of Directors. If no record date
has been fixed by the Board of Directors within ten (10) days after the date on
which such a request is received, then the record date for determining
stockholders entitled to consent to corporate action in writing without a
meeting, when no prior action by the Board of Directors is required by
applicable law, shall be the first date on which a signed written consent
setting forth the action taken or proposed to be taken is delivered to the
Corporation by delivery to its registered office in the State of Delaware, to
its principal place of business or to any officer or agent of the Corporation
having custody of the book in which proceedings of meetings of stockholders are
recorded. Delivery made to the Corporation's registered office shall be by hand
or by certified or registered mail, return receipt requested. If no record date
has been fixed by the Board of Directors and prior action by the Board of
Directors is required by applicable law, then the record date for determining
-3-
<PAGE>
stockholders entitled to consent to corporate action in writing without a
meeting shall be at the close of business on the date on which the Board of
Directors adopts the resolution taking such prior action.
Section 1.9: List of Stockholders Entitled to Vote. A complete list of
----------- -------------------------------------
stockholders entitled to vote at any meeting of stockholders, arranged in
alphabetical order and showing the address of each stockholder and the number of
shares registered in the name of each stockholder, shall be open to the
examination of any stockholder, for any purpose germane to the meeting, during
ordinary business hours, for a period of at least ten (10) days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof and may be inspected by any stockholder who is present at the meeting.
Section 1.10: Action by Written Consent of Stockholders.
------------ -----------------------------------------
(a) Procedure. Unless otherwise provided by the Certificate of
---------
Incorporation, and except as set forth in Section 1.8(b) above, any action
required or permitted to be taken at any annual or special meeting of the
stockholders may be taken without a meeting, without prior notice and without a
vote, if a consent or consents in writing, setting forth the action so taken,
shall be signed by the holders of outstanding stock having not less than the
number of votes that would be necessary to authorize or take such action at a
meeting at which all shares entitled to vote thereon were present and voted;
Provided, however, that effective immediately after the closing of an
- -------- -------
underwritten public offering of shares of the Corporation's Common Stock
pursuant to a registration statement filed with and declared effective by the
Securities and Exchange Commission, any action required or permitted to be taken
by the Corporation's stockholders shall be taken only at a duly called annual or
special meeting of such stockholders, and the Corporation's stockholders shall
not be able to act by written consent. For such period of time as written
stockholder consents are permitted, such consents shall bear the date of
signature of each stockholder who signs the consent and shall be delivered to
the Corporation by delivery to its registered office in the State of Delaware,
to its principal place of business or to any officer or agent of the Corporation
having custody of the book in which proceedings of meetings of stockholders are
recorded. Delivery made to the Corporation's registered office shall be by hand
or by certified or registered mail, return receipt requested. No written
consent shall be effective to take the action set forth therein unless, within
sixty (60) days of the earliest dated consent delivered to the Corporation in
the manner provided above, written consents signed by a sufficient number of
stockholders to take the action set forth therein are delivered to the
Corporation in the manner provided above.
(b) Notice of Consent. Prompt notice of the taking of corporate action by
-----------------
stockholders without a meeting by less than unanimous written consent of the
stockholders shall be given to those stockholders who have not consented thereto
in writing, and, in the case of a Certificate Action (as defined below), if the
Delaware General Corporation Law so requires, such notice shall be given prior
to filing of the certificate in question. If the action which is consented to
requires the filing of a certificate under the Delaware General Corporation Law
(a
-4-
<PAGE>
"Certificate Action"), then if the Delaware General Corporation Law so requires,
------------------
the certificate so filed shall state that written stockholder consent has been
given in accordance with Section 228 of the Delaware General Corporation Law and
that written notice of the taking of corporate action by stockholders without a
meeting as described herein has been given as provided in such section.
Section 1.11: Inspectors of Elections.
------------ -----------------------
(a) Applicability. Unless otherwise provided in the Corporation's
-------------
Certificate of Incorporation or required by the Delaware General Corporation
Law, the f ollowing provisions of this Section 1.11 shall apply only if and when
the Corporation has a class of voting stock that is: (i) listed on a national
securities exchange; (ii) authorized for quotation on an interdealer quotation
system of a registered national securities association; or (iii) held of record
by more than 2,000 stockholders; in all other cases, observance of the
provisions of this Section 1.11 shall be optional and at the discretion of the
Corporation.
(b) Appointment. The Corporation shall, in advance of any meeting of
-----------
stockholders, appoint one or more inspectors of election to act at the meeting
and make a written report thereof. The Corporation may designate one or more
persons as alternate inspectors to replace any inspector who fails to act. If
no inspector or alternate is able to act at a meeting of stockholders, the
person presiding at the meeting shall appoint one or more inspectors to act at
the meeting.
(c) Inspector's Oath. Each inspector of election, before entering upon the
----------------
discharge of his duties, shall take and sign an oath faithfully to execute the
duties of inspector with strict impartiality and according to the best of his or
her ability.
(d) Duties of Inspectors. At a meeting of stockholders, the inspectors of
--------------------
election shall (i) ascertain the number of shares outstanding and the voting
power of each share, (ii) determine the shares represented at a meeting and the
validity of proxies and ballots, (iii) count all votes and ballots, (iv)
determine and retain for a reasonable period of time a record of the disposition
of any challenges made to any determination by the inspectors and (v) certify
their determination of the number of shares represented at the meeting and their
count of all votes and ballots. The inspectors may appoint or retain other
persons or entities to assist the inspectors in the performance of the duties of
the inspectors.
(e) Opening and Closing of Polls. The date and time of the opening and
----------------------------
the closing of the polls for each matter upon which the stockholders will vote
at a meeting shall be announced by the inspectors at the meeting. No ballot,
proxies or votes, nor any revocations thereof or changes thereto, shall be
accepted by the inspectors after the closing of the polls unless the Court of
Chancery upon application by a stockholder shall determine otherwise.
(f) Determinations. In determining the validity and counting of proxies
--------------
and ballots, the inspectors shall be limited to an examination of the proxies,
any envelopes submitted with those proxies, any information provided in
connection with proxies in accordance with Section
-5-
<PAGE>
212(c)(2) of the Delaware General Corporation Law, the ballots and the regular
books and records of the Corporation, except that the inspectors may consider
------
other reliable information for the limited purpose of reconciling proxies and
ballots submitted by or on behalf of banks, brokers, their nominees or similar
persons that represent more votes than the holder of a proxy is authorized by
the record owner to cast or more votes than the stockholder holds of record. If
the inspectors consider other reliable information for the limited purpose
permitted herein, the inspectors at the time they make their certification of
their determinations pursuant to this Section 1.11 shall specify the precise
information considered by them, including the person or persons from whom they
obtained the information, when the information was obtained, the means by which
the information was obtained and the basis for the inspectors' belief that such
information is accurate and reliable.
Section 1.12: Notice of Stockholder Business; Nominations.
------------ -------------------------------------------
(a) Annual Meeting of Stockholders.
------------------------------
(i) Nominations of persons for election to the Board of Directors
and the proposal of business to be considered by the stockholders shall be made
at an annual meeting of stockholders (A) pursuant to the Corporation's notice of
such meeting, (B) by or at the direction of the Board of Directors or (C) by any
stockholder of the Corporation who was a stockholder of record at the time of
giving of the notice provided for in this Section 1.12, who is entitled to vote
at such meeting and who complies with the notice procedures set forth in this
Section 1.12.
(ii) For nominations or other business to be properly brought before
an annual meeting by a stockholder pursuant to clause (C) of subparagraph (a)(i)
of this Section 1.12, the stockholder must have given timely notice thereof in
writing to the Secretary of the Corporation and such other business must
otherwise be a proper matter for stockholder action. To be timely, a
stockholder's notice must be delivered to the Secretary at the principal
executive offices of the Corporation not later than the close of business on the
sixtieth (60th) day nor earlier than the close of business on the ninetieth
(90th) day prior to the first anniversary of the preceding year's annual
meeting; provided, however, that in the event that the date of the annual
-------- -------
meeting is more than thirty (30) days before or more than sixty (60) days after
such anniversary date, notice by the stockholder, to be timely, must be so
delivered not earlier than the close of business on the ninetieth (90th) day
prior to such annual meeting and not later than the close of business on the
later of the sixtieth (60th) day prior to such annual meeting or the close of
business on the tenth (10th) day following the day on which public announcement
of the date of such meeting is first made by the Corporation. Such
stockholder's notice shall set forth: (a) as to each person whom the stockholder
proposes to nominate for election or reelection as a director all information
relating to such person that is required to be disclosed in solicitations of
proxies for election of directors, or is otherwise required, in each case
pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), including such person's written consent to being named in
------------
the proxy statement as a nominee and to serving as a director if elected; (b) as
to any other business that the stockholder proposes to bring before the meeting,
a brief description of the business desired to be brought before the meeting,
the reasons for conducting such business at the meeting and any material
interest in such business of such
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stockholder and the beneficial owner, if any, on whose behalf the proposal is
made; and (c) as to the stockholder giving the notice and the beneficial owner,
if any, on whose behalf the nomination or proposal is made, (1) the name and
address of such stockholder, as they appear on the Corporation's books, and of
such beneficial owner and (2) the class and number of shares of the Corporation
that are owned beneficially and held of record by such stockholder and such
beneficial owner.
(iii) Notwithstanding anything in the second sentence of
subparagraph (a)(ii) of this Section 1.12 to the contrary, in the event that the
number of directors to be elected to the Board of Directors of the Corporation
is increased and there is no public announcement by the Corporation naming all
of the nominees for director or specifying the size of the increased board of
directors at least seventy (70) days prior to the first anniversary of the
preceding year's annual meeting (or, if the annual meeting is held more than
thirty (30) days before or sixty (60) days after such anniversary date, at least
seventy (70) days prior to such annual meeting), a stockholder's notice required
by this Section 1.12 shall also be considered timely, but only with respect to
nominees for any new positions created by such increase, if it shall be
delivered to the Secretary of the Corporation at the principal executive office
of the Corporation not later than the close of business on the tenth (10th) day
following the day on which such public announcement is first made by the
Corporation.
(b) Special Meetings of Stockholders. Only such business shall be
--------------------------------
conducted at a special meeting of stockholders as shall have been brought before
the meeting pursuant to the Corporation's notice of such meeting. Nominations
of persons for election to the Board of Directors may be made at a special
meeting of stockholders at which directors are to be elected pursuant to the
Corporation's notice of such meeting (i) by or at the direction of the Board of
Directors or (ii) provided that the Board of Directors has determined that
directors shall be elected at such meeting, by any stockholder of the
Corporation who is a stockholder of record at the time of giving of notice of
the special meeting, who shall be entitled to vote at the meeting and who
complies with the notice procedures set forth in this Section 1.12. In the
event the Corporation calls a special meeting of stockholders for the purpose of
electing one or more directors to the Board of Directors, any such stockholder
may nominate a person or persons (as the case may be), for election to such
position(s) as specified in the Corporation's notice of meeting, if the
stockholder's notice required by subparagraph (a)(ii) of this Section 1.12 shall
be delivered to the Secretary of the Corporation at the principal executive
offices of the Corporation not earlier than the ninetieth (90th) day prior to
such special meeting and not later than the close of business on the later of
the sixtieth (60th) day prior to such special meeting or the tenth (10th) day
following the day on which public announcement is first made of the date of the
special meeting and of the nominees proposed by the Board of Directors to be
elected at such meeting.
(c) General.
-------
(i) Only such persons who are nominated in accordance with the
procedures set forth in this Section 1.12 shall be eligible to serve as
directors and only such business shall be conducted at a meeting of stockholders
as shall have been brought before the meeting in accordance with the procedures
set forth in this Section 1.12. Except as otherwise provided by
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<PAGE>
law or these Bylaws, the chairman of the meeting shall have the power and duty
to determine whether a nomination or any business proposed to be brought before
the meeting was made or proposed, as the case may be, in accordance with the
procedures set forth in this Section 1.12 and, if any proposed nomination or
business is not in compliance herewith, to declare that such defective proposal
or nomination shall be disregarded.
(ii) For purposes of this Section 1.12, the term "public announcement"
-------------------
shall mean disclosure in a press release reported by the Dow Jones News Service,
Associated Press or comparable national news service or in a document publicly
filed by the Corporation with the Securities and Exchange Commission pursuant to
sections 13, 14 or 15(d) of the Exchange Act.
(iii) Notwithstanding the foregoing provisions of this Section 1.12, a
stockholder shall also comply with all applicable requirements of the Exchange
Act and the rules and regulations thereunder with respect to the matters set
forth herein. Nothing in this Section 1.12 shall be deemed to affect any rights
of stockholders to request inclusion of proposals in the Corporation's proxy
statement pursuant to Rule 14a-8 under the Exchange Act.
ARTICLE II
BOARD OF DIRECTORS
Section 2.1: Number; Qualifications. The Board of Directors shall consist
----------- ----------------------
of one or more members. The initial number of directors shall be ten (10), and
thereafter shall be fixed from time to time by resolution of the Board of
Directors. No decrease in the authorized number of directors constituting the
Board of Directors shall shorten the term of any incumbent director. Directors
need not be stockholders of the Corporation.
Section 2.2: Election; Resignation; Removal; Vacancies. The Board of
----------- -----------------------------------------
Directors shall initially consist of the person or persons elected by the
incorporator or named in the Corporation's initial Certificate of Incorporation.
Each director shall hold office until the next annual meeting of stockholders
and until his or her successor is elected and qualified, or until his or her
earlier death, resignation or removal. Any director may resign at any time upon
written notice to the Corporation. Subject to the rights of any holders of
Preferred Stock then outstanding: (i) any director or the entire Board of
Directors may be removed, with or without cause, by the holders of a majority of
the shares then entitled to vote at an election of directors; and (ii) any
vacancy occurring in the Board of Directors for any cause, and any newly created
directorship resulting from any increase in the authorized number of directors
to be elected by all stockholders having the right to vote as a single class,
may be filled by the stockholders, by a majority of the directors then in
office, although less than a quorum, or by a sole remaining director.
Section 2.3: Regular Meetings. Regular meetings of the Board of
----------- ----------------
Directors may be held at such places, within or without the State of Delaware,
and at such times as the Board of
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<PAGE>
Directors may from time to time determine. Notice of regular meetings need not
be given if the date, times and places thereof are fixed by resolution of the
Board of Directors.
Section 2.4: Special Meetings. Special meetings of the Board of Directors
----------- ----------------
may be called by the Chairman of the Board, the President or a majority of the
members of the Board of Directors then in office and may be held at any time,
date or place, within or without the State of Delaware, as the person or persons
calling the meeting shall fix. Notice of the time, date and place of such
meeting shall be given, orally or in writing, by the person or persons calling
the meeting to all directors at least four (4) days before the meeting if the
notice is mailed, or at least twenty-four (24) hours before the meeting if such
notice is given by telephone, hand-delivery, telegram, telex, mailgram,
facsimile or similar communication method. Unless otherwise indicated in the
notice, any and all business may be transacted at a special meeting.
Section 2.5: Telephonic Meetings Permitted. Members of the Board of
----------- -----------------------------
Directors, or any committee of the Board, may participate in a meeting of the
Board or such committee by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and participation in a meeting pursuant to
conference telephone or similar communications equipment shall constitute
presence in person at such meeting.
Section 2.6: Quorum; Vote Required for Action. At all meetings of the
----------- --------------------------------
Board of Directors a majority of the total number of authorized directors shall
constitute a quorum for the transaction of business. Except as otherwise
provided herein or in the Certificate of Incorporation, or required by law, the
vote of a majority of the directors present at a meeting at which a quorum is
present shall be the act of the Board of Directors.
Section 2.7: Organization. Meetings of the Board of Directors shall be
----------- ------------
presided over by the Chairman of the Board, or in his or her absence by the
President, or in his or her absence by a chairman chosen at the meeting. The
Secretary shall act as secretary of the meeting, but in his or her absence, the
chairman of the meeting may appoint any person to act as secretary of the
meeting.
Section 2.8: Written Action by Directors. Any action required or permitted
----------- ---------------------------
to be taken at any meeting of the Board of Directors, or of any committee
thereof, may be taken without a meeting if all members of the Board or such
committee, as the case may be, consent thereto in writing and the writing or
writings are filed with the minutes of proceedings of the Board or committee,
respectively.
Section 2.9: Powers. The Board of Directors may, except as otherwise
------------ ------
required by law or the Certificate of Incorporation, exercise all such powers
and do all such acts and things as may be exercised or done by the Corporation.
Section 2.10: Compensation of Directors. Directors, as such, may
------------ -------------------------
receive, pursuant to a resolution of the Board of Directors, fees and other
compensation for their services as directors, including without limitation their
services as members of committees of the Board of Directors.
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<PAGE>
ARTICLE III
COMMITTEES
Section 3.1: Committees. The Board of Directors may, by resolution
----------- ----------
passed by a majority of the whole Board, designate one or more committees, each
committee to consist of one or more of the directors of the Corporation. The
Board may designate one or more directors as alternate members of any committee
who may replace any absent or disqualified member at any meeting of the
committee. In the absence or disqualification of a member of the committee, the
member or members thereof present at any meeting of such committee who are not
disqualified from voting, whether or not he, she or they constitute a quorum,
may unanimously appoint another member of the Board of Directors to act at the
meeting in place of any such absent or disqualified member. Any such committee,
to the extent provided in a resolution of the Board of Directors, shall have and
may exercise all the powers and authority of the Board of Directors in the
management of the business and affairs of the Corporation and may authorize the
seal of the Corporation to be affixed to all papers that may require it; but no
such committee shall have the power or authority in reference to amending the
Certificate of Incorporation (except that a committee may, to the extent
------
authorized in the resolution or resolutions providing for the issuance of shares
of stock adopted by the Board of Directors as provided in subsection (a) of
Section 151 of the Delaware General Corporation Law, fix the designations and
any of the preferences or rights of such shares relating to dividends,
redemption, dissolution, any distribution of assets of the Corporation, or the
conversion into, or the exchange of such shares for, shares of any other class
or classes or any other series of the same or any other class or classes of
stock of the Corporation, or fix the number of shares of any series of stock or
authorize the increase or decrease of the shares of any series), adopting an
agreement of merger or consolidation under Sections 251 or 252 of the Delaware
General Corporation Law, recommending to the stockholders the sale, lease or
exchange of all or substantially all of the Corporation's property and assets,
recommending to the stockholders a dissolution of the Corporation or a
revocation of a dissolution, or amending the Bylaws of the Corporation; and
unless the resolution of the Board of Directors expressly so provides, no such
committee shall have the power or authority to declare a dividend, authorize the
issuance of stock or adopt a certificate of ownership and merger pursuant to
section 253 of the Delaware General Corporation Law.
Section 3.2: Committee Rules. Unless the Board of Directors otherwise
----------- ---------------
provides, each committee designated by the Board may make, alter and repeal
rules for the conduct of its business. In the absence of such rules, each
committee shall conduct its business in the same manner as the Board of
Directors conducts its business pursuant to Article II of these Bylaws.
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<PAGE>
ARTICLE IV
OFFICERS
Section 4.1: Generally. The officers of the Corporation shall consist of a
----------- ---------
Chief Executive Officer and/or a President, one or more Vice Presidents, a
Secretary, a Treasurer and such other officers, including a Chairman of the
Board of Directors and/or Chief Financial Officer, as may from time to time be
appointed by the Board of Directors. All officers shall be elected by the Board
of Directors; provided, however, that the Board of Directors may empower the
-------- -------
Chief Executive Officer of the Corporation to appoint officers other than the
Chairman of the Board, the Chief Executive Officer, the President, the Chief
Financial Officer or the Treasurer. Each officer shall hold office until his or
her successor is elected and qualified or until his or her earlier death,
resignation or removal. Any number of offices may be held by the same person.
Any officer may resign at any time upon written notice to the Corporation. Any
vacancy occurring in any office of the Corporation by death, resignation,
removal or otherwise may be filled by the Board of Directors.
Section 4.2: Chief Executive Officer. Subject to the control of the
----------- -----------------------
Board of Directors and such supervisory powers, if any, as may be given by the
Board of Directors, the powers and duties of the Chief Executive Officer of the
Corporation are:
(a) To act as the general manager and, subject to the control of the Board
of Directors, to have general supervision, direction and control of the business
and affairs of the Corporation;
(b) To preside at all meetings of the stockholders;
(c) To call meetings of the stockholders to be held at such times and,
subject to the limitations prescribed by law or by these Bylaws, at such places
as he or she shall deem proper; and
(d) To affix the signature of the Corporation to all deeds, conveyances,
mortgages, guarantees, leases, obligations, bonds, certificates and other papers
and instruments in writing which have been authorized by the Board of Directors
or which, in the judgment of the Chief Executive Officer, should be executed on
behalf of the Corporation; to sign certificates for shares of stock of the
Corporation; and, subject to the direction of the Board of Directors, to have
general charge of the property of the Corporation and to supervise and control
all officers, agents and employees of the Corporation.
The President shall be the Chief Executive Officer of the Corporation unless the
Board of Directors shall designate another officer to be the Chief Executive
Officer. If there is no President, and the Board of Directors has not
designated any other officer to be the Chief Executive Officer, then the
Chairman of the Board shall be the Chief Executive Officer.
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<PAGE>
Section 4.3: Chairman of the Board. The Chairman of the Board shall have
----------- ---------------------
the power to preside at all meetings of the Board of Directors and shall have
such other powers and duties as provided in these bylaws and as the Board of
Directors may from time to time prescribe.
Section 4.4: President. The President shall be the Chief Executive
----------- ---------
Officer of the Corporation unless the Board of Directors shall have designated
another officer as the Chief Executive Officer of the Corporation. Subject to
the provisions of these Bylaws and to the direction of the Board of Directors,
and subject to the supervisory powers of the Chief Executive Officer (if the
Chief Executive Officer is an officer other than the President), and subject to
such supervisory powers and authority as may be given by the Board of Directors
to the Chairman of the Board and/or to any other officer, the President shall
have the responsibility for the general management and control of the business
and affairs of the Corporation and the general supervision and direction of all
of the officers, employees and agents of the Corporation (other than the Chief
Executive Officer, if the Chief Executive Officer is an officer other than the
President) and shall perform all duties and have all powers that are commonly
incident to the office of president or that are delegated to the President by
the Board of Directors.
Section 4.5: Vice President. Each Vice President shall have all such
----------- --------------
powers and duties as are commonly incident to the office of Vice President or
that are delegated to him or her by the Board of Directors or the Chief
Executive Officer. A Vice President may be designated by the Board to perform
the duties and exercise the powers of the Chief Executive Officer in the event
of the Chief Executive Officer's absence or disability.
Section 4.6: Chief Financial Officer. Subject to the direction of the
----------- -----------------------
Board of Directors and the President, the Chief Financial Officer shall perform
all duties and have all powers that are commonly incident to the office of chief
financial officer.
Section 4.7: Treasurer. The Treasurer shall have custody of all monies and
----------- ---------
securities of the Corporation. The Treasurer shall make such disbursements of
the funds of the Corporation as are authorized and shall render from time to
time an account of all such transactions. The Treasurer shall also perform such
other duties and have such other powers as are commonly incident to the office
of a treasurer or as the Board of Directors or the President may from time to
time prescribe.
Section 4.8: Secretary. The Secretary shall issue or cause to be issued
----------- ---------
all authorized notices for, and shall keep or cause to be kept, minutes of all
meetings of the stockholders and the Board of Directors. The Secretary shall
have charge of the corporate minute books and similar records and shall perform
such other duties and have such other powers as are commonly incident to the
office of secretary or as the Board of Directors or the President may from time
to time prescribe.
Section 4.9: Delegation of Authority. The Board of Directors may from time
----------- -----------------------
to time delegate the powers or duties of any officer to any other officers or
agents, notwithstanding any provision hereof.
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<PAGE>
Section 4.10: Removal. Any officer of the Corporation shall serve at the
------------ -------
pleasure of the Board of Directors and may be removed at any time, with or
without cause, by the Board of Directors. Such removal shall be without
prejudice to the contractual rights of such officer, if any, with the
Corporation.
ARTICLE V
STOCK
Section 5.1: Certificates. Every holder of stock shall be entitled to have
----------- ------------
a certificate signed by or in the name of the Corporation by the Chair man or
Vice-Chairman of the Board of Directors, or the President or a Vice President,
and by the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant
Secretary, of the Corporation, certifying the number of shares owned by such
stockholder in the Corporation. Any or all of the signatures on the certificate
may be a facsimile.
Section 5.2: Lost, Stolen or Destroyed Stock Certificates; Issuance of New
----------- --------------------------------------------
Certificates. The Corporation may issue a new certificate of stock in the place
of any certificate previously issued by it that is alleged to have been lost,
stolen or destroyed, and the Corporation may require the owner of the lost,
stolen or destroyed certificate, or such owner's legal representative, to agree
to indemnify the Corporation and/or to give the Corporation a bond sufficient to
indemnify it against any claim that may be made against it on account of the
alleged loss, theft or destruction of any such certificate or the issuance of
such new certificate.
Section 5.3: Other Regulations. The issue, transfer, conversion and
----------- -----------------
registration of stock certificates shall be governed by such other regulations
as the Board of Directors may establish.
ARTICLE VI
INDEMNIFICATION
Section 6.1: Indemnification of Officers and Directors. Each person who
----------- -----------------------------------------
was or is made a party to, or is threatened to be made a party to, or is
involved in any action, suit or proceeding, whether civil, criminal,
administrative or investigative (a "proceeding"), by reason of the fact that he
----------
or she (or a person of whom he or she is the legal representative) is or was a
director or officer of the Corporation or a Reincorporated Predecessor (as
defined below) or is or was serving at the request of the Corporation or a
Reincorporated Predecessor (as defined below) as a director or officer of
another corporation or of a partnership, joint venture, trust or other
enterprise, including service with respect to employee benefit plans, shall be
indemnified and held harmless by the Corporation to the fullest extent permitted
by the Delaware General Corporation Law against all expenses, liability and loss
(including attorneys' fees, judgments, fines, ERISA excise taxes and penalties
and amounts paid or to be paid in settlement) reasonably incurred or suffered by
such person in connection therewith, and such indemnification shall
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<PAGE>
continue as to a person who has ceased to be a director or officer and shall
inure to the benefit of his or her heirs, executors and administrators;
provided, however, that the Corporation shall indemnify any such person seeking
- -------- -------
indemnity in connection with a proceeding (or part thereof) initiated by such
person only if such proceeding (or part thereof) was authorized by the Board of
Directors of the Corporation; provided, further, that the Corporation shall not
-------- -------
be required to indemnify a person for amounts paid in settlement of a proceeding
unless the Corporation consents in writing to such a settlement (such consent
not to be unreasonably withheld). As used herein, the term "Reincorporated
--------------
Predecessor" means a corporation that is merged with and into the Corporation in
- -----------
a statutory merger where (a) the Corporation is the surviving corporation of
such merger and (b) the primary purpose of such merger is to change the
corporate domicile of the Reincorporated Predecessor, and shall include Exodus
Communications, Inc., a California corporation.
Section 6.2: Advance of Expenses. The Corporation shall pay all expenses
----------- -------------------
(including attorneys' fees) incurred by such a director or officer in defending
any such proceeding as such expenses are incurred in advance of its final
disposition; provided, however, that if the Delaware General Corporation Law
-------- -------
then so requires, the payment of such expenses incurred by such a director or
officer in advance of the final disposition of such proceeding shall be made
only upon delivery to the Corporation of an undertaking, by or on behalf of such
director or officer, to repay all amounts so advanced if it should be determined
ultimately that such director or officer is not entitled to be indemnified under
this Article VI or otherwise; and provided, further, that the Corporation shall
-------- -------
not be required to advance any expenses to a person against whom the Corporation
directly brings a claim, in a proceeding, alleging that such person has breached
his or her duty of loyalty to the Corporation, committed an act or omission not
in good faith or that involves intentional misconduct or a knowing violation of
law, or derived an improper personal benefit from a transaction.
Section 6.3: Non-Exclusivity of Rights. The rights conferred on any
----------- -------------------------
person in this Article VI shall not be exclusive of any other right that such
person may have or hereafter acquire under any statute, provision of the
Certificate of Incorporation, Bylaw, agreement, vote or consent of stockholders
or disinterested directors, or otherwise. Additionally, nothing in this Article
VI shall limit the ability of the Corporation, in its discretion, to indemnify
or advance expenses to persons whom the Corporation is not obligated to
indemnify or advance expenses pursuant to this Article VI.
Section 6.4: Indemnification Contracts. The Board of Directors is
----------- -------------------------
authorized to cause the Corporation to enter into indemnification contracts with
any director, officer, employee or agent of the Corporation, or any person
serving at the request of the Corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, including employee benefit plans, providing indemnification and
related rights to such person. Such rights may be greater than those provided
in this Article VI.
Section 6.5: Effect of Amendment. Any amendment, repeal or modification
----------- -------------------
of any provision of this Article VI shall be prospective only, and shall not
adversely affect any right or
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<PAGE>
protection conferred on a person pursuant to this Article VI and existing at the
time of such amendment, repeal or modification.
ARTICLE VII
NOTICES
Section 7.1: Notice. Except as otherwise specifically provided herein or
----------- ------
required by law, all notices required to be given pursuant to these Bylaws shall
be in writing and may in every instance be effectively given by hand delivery
(including use of a delivery service), by depositing such notice in the mail,
postage prepaid, or by sending such notice by prepaid telegram, telex, overnight
express courier, mailgram or facsimile. Any such notice shall be addressed to
the person to whom notice is to be given at such person's address as it appears
on the records of the Corporation. The notice shall be deemed given (i) in the
case of hand delivery, when received by the person to whom notice is to be given
or by any person accepting such notice on behalf of such person, (ii) in the
case of delivery by mail, upon deposit in the mail, (iii) in the case of
delivery by overnight express courier, on the first business day after such
notice is dispatched, and (iv) in the case of delivery via telegram, telex,
mailgram, or facsimile, when dispatched.
Section 7.2: Waiver of Notice. Whenever notice is required to be given
----------- ----------------
under any provision of these Bylaws, a written waiver of notice, signed by the
person entitled to notice, whether before or after the time stated therein,
shall be deemed equivalent to notice. Attendance of a person at a meeting shall
constitute a waiver of notice of such meeting, except when the person attends a
meeting for the express purpose of objecting at the beginning of the meeting to
the transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the stockholders, directors or members of a
committee of directors need be specified in any written waiver of notice.
ARTICLE VIII
INTERESTED DIRECTORS
Section 8.1: Interested Directors; Quorum. No contract or transaction
----------- ----------------------------
between the Corporation and one or more of its directors or officers, or between
the Corporation and any other corporation, partnership, association or other
organization in which one or more of its directors or officers are directors or
officers, or have a financial interest, shall be void or voidable solely for
this reason, or solely because the director or officer is present at or
participates in the meeting of the Board or committee thereof that authorizes
the contract or transaction, or solely because his, her or their votes are
counted for such purpose, if: (i) the material facts as to his, her or their
relationship or interest and as to the contract or transaction are disclosed or
are known to the Board of Directors or the committee, and the Board or committee
in good faith authorizes the
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<PAGE>
contract or transaction by the affirmative votes of a majority of the
disinterested directors, even though the disinterested directors be less than a
quorum; (ii) the material facts as to his, her or their relationship or interest
and as to the contract or transaction are disclosed or are known to the
stockholders entitled to vote thereon, and the contract or transaction is
specifically approved in good faith by vote of the stockholders; or (iii) the
contract or transaction is fair as to the Corporation as of the time it is
authorized, approved or ratified by the Board of Directors, a committee thereof
or the stockholders. Common or interested directors may be counted in
determining the presence of a quorum at a meeting of the Board of Directors or
of a committee which authorizes the contract or transaction.
ARTICLE IX
MISCELLANEOUS
Section 9.1: Fiscal Year. The fiscal year of the Corporation shall be
----------- -----------
determined by resolution of the Board of Directors.
Section 9.2: Seal. The Board of Directors may provide for a corporate seal,
------------ ----
which shall have the name of the Corporation inscribed thereon and shall
otherwise be in such form as may be approved from time to time by the Board of
Directors.
Section 9.3: Form of Records. Any records maintained by the Corporation in
----------- ---------------
the regular course of its business, including its stock ledger, books of account
and minute books, may be kept on, or be in the form of, magnetic tape,
diskettes, photographs, microphotographs or any other information storage
device, provided that the records so kept can be converted into clearly legible
--------
form within a reasonable time. The Corporation shall so convert any records so
kept upon the request of any person entitled to inspect the same.
Section 9.4: Reliance Upon Books and Records. A member of the Board of
----------- -------------------------------
Directors, or a member of any committee designated by the Board of Directors
shall, in the performance of his or her duties, be fully protected in relying in
good faith upon records of the Corporation and upon such information, opinions,
reports or statements presented to the Corporation by any of the Corporation's
officers or employees, or committees of the Board of Directors, or by any other
person as to matters the member reasonably believes are within such other
person's professional or expert competence and who has been selected with
reasonable care by or on behalf of the Corporation.
Section 9.5: Certificate of Incorporation Governs. In the event of any
----------- ------------------------------------
conflict between the provisions of the Corporation's Certificate of
Incorporation and Bylaws, the provisions of the Certificate of Incorporation
shall govern.
Section 9.6: Severability. If any provision of these Bylaws shall be held
----------- ------------
to be invalid, illegal, unenforceable or in conflict with the provisions of the
Corporation's Certificate of Incorporation, then such provision shall
nonetheless be enforced to the maximum extent possible
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<PAGE>
consistent with such holding and the remaining provisions of these Bylaws
(including, without limitation, all portions of any section of these Bylaws
containing any such provision held to be invalid, illegal, unenforceable or in
conflict with the Certificate of Incorporation that are not themselves invalid,
illegal, unenforceable or in conflict with the Certificate of Incorporation)
shall remain in full force and effect.
ARTICLE X
AMENDMENT
Section 10.1: Amendments. Stockholders of the Corporation holding a
------------ ----------
majority of the Corporation's outstanding voting stock shall have the power to
adopt, amend or repeal Bylaws. To the extent provided in the Corporation's
Certificate of Incorporation, the Board of Directors of the Corporation shall
also have the power to adopt, amend or repeal Bylaws of the Corporation, except
insofar as Bylaws adopted by the stockholders shall otherwise provide.
-17-
<PAGE>
EXHIBIT 10.01
EXODUS COMMUNICATIONS, INC.
SECOND AMENDED AND RESTATED
INVESTORS' RIGHTS AGREEMENT
June 25, 1997
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. REGISTRATION RIGHTS.................................................. 2
1.1 Definitions.................................................... 2
1.2 Request for Registration....................................... 4
1.3 Company Registration........................................... 5
1.4 Obligations of the Company..................................... 6
1.5 Furnish Information............................................ 8
1.6 Expenses of Demand Registration................................ 8
1.7 Expenses of Company Registration............................... 8
1.8 Underwriting Requirements...................................... 9
1.9 Delay of Registration.......................................... 9
1.10 Indemnification................................................ 9
1.11 Reports Under Securities Exchange Act of 1934.................. 12
1.12 Form S-3 Registration.......................................... 12
1.13 Assignment of Registration Rights.............................. 13
1.14 Limitations on Subsequent Registration Rights.................. 13
1.15 "Market Stand-Off" Agreement................................... 14
1.16 Termination of Registration Rights............................. 14
2. COVENANTS OF THE COMPANY............................................. 15
2.1 Delivery of Financial Statements............................... 15
2.2 Inspection..................................................... 16
2.3 Termination of Information and Inspection Covenants............ 16
2.4 Right of First Offer........................................... 16
2.5 Observer Rights................................................ 18
2.6 Termination of Certain Covenants............................... 18
</TABLE>
i
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<TABLE>
<S> <C>
3. COVENANTS OF THE INVESTORS, COMMON SHAREHOLDERS AND THE COMPANY...... 18
3.1 Right of First Offer for Common Shares......................... 19
3.2 Right of First Offer for Investor Shares....................... 20
3.3 Restrictive Legend............................................. 22
4. MISCELLANEOUS........................................................ 22
4.1 Successors and Assigns......................................... 22
4.2 Governing Law.................................................. 22
4.3 Counterparts................................................... 22
4.4 Titles and Subtitles........................................... 22
4.5 Notices........................................................ 23
4.6 Expenses....................................................... 23
4.7 Amendments and Waivers......................................... 23
4.8 Severability................................................... 23
4.9 Aggregation of Stock........................................... 23
4.10 Entire Agreement............................................... 23
4.11 Series B Rights Agreement Superseded........................... 23
4.12 Inclusion of Equipment Warrant Holders; Agreement to be Bound.. 24
</TABLE>
Schedule A List of Investors
Schedule B List of Equipment Warrant Holders
Schedule C List of Common Shareholders
Schedule D List of Significant Common Shareholders
ii
<PAGE>
SECOND AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
-------------------------------------------------------
THIS SECOND AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT (this
"AGREEMENT") is made as of the 25th day of June, 1997, by and among Exodus
Communications, Inc., a California corporation (the "COMPANY"), the investors
listed on Schedule A hereto, each of which is herein referred to as an
----------
"INVESTOR", the holders of warrants to purchase shares of the Company's Series
B-1 Preferred Stock listed on Schedule B hereto (the "EQUIPMENT WARRANT
----------
HOLDERS") and certain holders of the Company's Common Stock listed on Schedule C
----------
hereto, each of which is herein referred to as a "COMMON SHAREHOLDER."
RECITALS
--------
A. Certain of the Investors (the "SERIES A INVESTORS") are holders
of outstanding shares of the Company's Series A Preferred Stock ("SERIES A
STOCK") issued by the Company to such Series A Investors pursuant to a Series A
Preferred Stock Purchase Agreement by and among the Company and the Series A
Investors dated February 29, 1996 (the "SERIES A AGREEMENT"), and originally
were granted certain information and registration rights and rights of first
offer under an Investors' Rights Agreement by and among the Company and the
Series A Investors dated February 29, 1996 (the "SERIES A RIGHTS AGREEMENT").
B. Certain of the Investors (the "SERIES B INVESTORS") are holders
of outstanding shares of the Company's Series B Preferred Stock ("SERIES B
STOCK") issued by the Company to such Series B Investors pursuant to a Series B
Preferred Stock Purchase Agreement by and among the Company and the Series B
Investors dated October 2, 1996 (the "SERIES B AGREEMENT"), and, with the Series
A Investors, have been granted certain information and registration rights and
rights of first offer under an Amended and Restated Investors' Rights Agreement
by and among the Company and the Series A and Series B Investors dated October
2, 1996 (the "SERIES B RIGHTS AGREEMENT").
C. Certain of the Investors (the "LENDERS") are holders of
outstanding warrants to purchase shares of the Company's Series B1 Preferred
Stock (the "SERIES B1 PREFERRED STOCK") issuable by the Company to such Lenders
in the context of equipment lease financings provided to the Company by such
Lenders who were added as Investors to the Series B Rights Agreement except with
regard to rights granted under Section 2.4 thereof in an Amendment dated April
11, 1997.
D. Certain Investors (the "SERIES C INVESTORS") have agreed to
purchase shares of the Company's Series C Preferred Stock ("SERIES C STOCK") and
warrants to purchase Series C Preferred Stock ("THE SERIES C WARRANTS") pursuant
to a certain Series C Preferred Stock and Warrant Purchase Agreement by and
among the Company and such Series C Investors dated of even date herewith (the
"SERIES C AGREEMENT"). The Series C Agreement provides that, as a condition to
the Series C Investors' purchase of Series C Stock thereunder, the Company will
enter into this Agreement and the Series C Investors will be granted the rights
set forth herein.
1
<PAGE>
E. The Company has issued warrants (the "EQUIPMENT WARRANTS") to
the Equipment Warrant Holders in connection with equipment financing agreements
entered into by the Company whereby the Company has agreed to grant the
Equipment Warrant Holders at the time that the Equipment Warrants are exercised
"piggyback" registration rights and certain information rights which are pari
----
passu with the Investors.
- -----
F. It has been agreed that certain Common Shareholders listed on
Schedule D hereto (the "SIGNIFICANT COMMON SHAREHOLDERS") will be granted
- ----------
certain registration rights hereunder.
G. The Company and the undersigned parties hereto desire to enter
into this Agreement in order to amend, restate and replace their rights and
obligations under the Series B Rights Agreement with the rights and obligations
set forth in this Agreement. Section 4.7 of the Series B Rights Agreement
provides that the Series B Rights Agreement may be amended by the written
consent of the Company and the holders of two-thirds of the Registrable
Securities (as defined in Section 1.1 of the Series B Rights Agreement) then
outstanding. The undersigned parties to this Agreement comprise the Company and
the holders of two-thirds of the Registrable Securities currently outstanding.
NOW, THEREFORE, THE PARTIES HEREBY AGREE AS FOLLOWS:
1. Registration Rights. The Company covenants and agrees as
-------------------
follows:
1.1 Definitions. For purposes of this Section 1:
-----------
(a) The term "1933 ACT" means the Securities Act of 1933, as amended.
(b) The term "FORM S-3" means such form under the 1933 Act as in
effect on the date hereof or any registration form under the 1933 Act
subsequently adopted by the SEC which permits inclusion or incorporation of
substantial information by reference to other documents filed by the Company
with the SEC.
(c) The term "HOLDER" means any person owning or having the right to
acquire Registrable Securities, or any assignee thereof in accordance with
Section 1.13 hereof; provided, however, that a holder of Excluded Shares (as
-------- -------
defined in Section 1.1(m)) shall not be a Holder with respect to such Excluded
Shares for the purposes of Section 1.2, 1.4, 1.5(b), 1.6, 1.12 and 1.14 of this
Agreement.
(d) The term "1934 ACT" shall mean the Securities Exchange Act of
1934, as amended.
(e) The term "PREFERRED STOCK" shall mean the Series A Preferred
Stock, any other series of preferred stock of the Company issued upon conversion
of the Series A Preferred Stock, the Series B Preferred Stock, any other series
of preferred stock issued upon conversion of
2
<PAGE>
the Series B Preferred Stock, the Series C Preferred Stock and any other series
of preferred stock issued upon conversion of the Series C Preferred Stock.
(f) The term "SERIES A PREFERRED STOCK" shall mean the Series A
Preferred Stock of the Company.
(g) The term "SERIES A1 PREFERRED STOCK" shall mean the Series A1
Preferred Stock of the Company.
(h) The term "SERIES B PREFERRED STOCK" shall mean the Series B
Preferred Stock of the Company.
(i) The term "SERIES B1 PREFERRED STOCK" shall mean the Series B1
Preferred Stock of the Company.
(j) The term "SERIES C PREFERRED STOCK" shall mean the Series C
Preferred Stock of the Company.
(k) The term "SERIES C1 PREFERRED STOCK" shall mean the Series C1
Preferred Stock of the Company.
(l) The terms "REGISTER", "REGISTERED," and "REGISTRATION" refer to a
registration effected by preparing and filing a registration statement or
similar document in compliance with the 1933 Act, and the declaration or
ordering of effectiveness of such registration statement or document.
(m) The term "REGISTRABLE SECURITIES" means (i) the Common Stock
issuable or issued upon conversion of the Series A Preferred Stock, (ii) the
Common Stock issuable or issued upon conversion of the Series B Preferred Stock,
(iii) the Common Stock issuable or issued upon conversion of the Series C
Preferred Stock and the Series C Warrants, (iv) the Common Stock issuable or
issued upon conversion of any shares of preferred stock issued upon conversion
of either the Series A Preferred Stock, the Series B Preferred Stock or the
Series C Preferred Stock, (v) the shares of Common Stock held by the Significant
Common Shareholders (the "SIGNIFICANT COMMON SHAREHOLDER SHARES"), and (vi) any
Common Stock of the Company issued as (or issuable upon the conversion or
exercise of any warrant, right or other security which is issued as) a dividend
or other distribution with respect to, or in exchange for or in replacement of
the shares referenced in (i) through (v) above, excluding in all cases, however,
any Registrable Securities sold by a person in a transaction in which his rights
under this Section 1 are not assigned, provided, however, that notwithstanding
--------- --------
anything herein to the contrary, the Significant Common Shareholder Shares or
Common Stock issuable upon exercise of the Equipment Warrants and any shares of
Common Stock described in (vi) above that are issued in respect of any
Significant Common Shareholder Shares (collectively, the "EXCLUDED SHARES")
shall not be Registrable Securities for purposes of Sections 1.2 and 1.12 of
this Agreement.
3
<PAGE>
(n) The number of shares of "REGISTRABLE SECURITIES THEN OUTSTANDING"
shall be determined by the number of shares of Common Stock outstanding which
are, and the number of shares of Common Stock issuable pursuant to then
exercisable or convertible securities which are, Registrable Securities.
(o) The term "SEC" shall mean the Securities and Exchange Commission.
1.2 Request for Registration.
------------------------
(a) If the Company shall receive at any time after six (6) months
after the effective date of the first registration statement for a public
offering of securities of the Company (other than a registration statement
relating either to the sale of securities to employees of the Company pursuant
to a stock option, stock purchase or similar plan or a SEC Rule 145
transaction), a written request from the Holders of (x) at least 30% of the
Registrable Securities then outstanding or (y) at least 25% of the Registrable
Securities issued upon conversion of the Series C Preferred Stock or any
securities issued upon conversion of the Series C Preferred Stock that the
Company file a registration statement under the 1933 Act for an aggregate
offering price, net of underwriting discounts and commissions, of at least
$7,500,000, then the Company shall:
(i) within ten (10) days after the Company's receipt
thereof, give written notice of such request to all Holders; and
(ii) effect as soon as practicable, and in any event within
60 days of the receipt of such request, subject to the limitations of subsection
1.2(b), the registration under the 1933 Act of all Registrable Securities which
the Holders request to be registered within twenty (20) days of the mailing of
the notice required by subsection 1.2(a)(i).
(b) If the Holders initiating the registration request hereunder
("INITIATING HOLDERS") intend to distribute the Registrable Securities covered
by their request by means of an underwriting, they shall so advise the Company
as a part of their request made pursuant to subsection 1.2(a) and the Company
shall include such information in the written notice referred to in subsection
1.2(a). The underwriter will be selected by the Company and shall be reasonably
acceptable to a majority in interest of the Initiating Holders. In such event,
the right of any Holder to include his Registrable Securities in such
registration shall be conditioned upon such Holder's participation in such
underwriting and the inclusion of such Holder's Registrable Securities in the
underwriting (unless otherwise mutually agreed by a majority in interest of the
Initiating Holders and such Holder) to the extent provided herein. All Holders
proposing to distribute their securities through such underwriting shall
(together with the Company as provided in subsection 1.4(e)) enter into an
underwriting agreement in customary form with the underwriter or underwriters
selected for such underwriting. Notwithstanding any other provision of this
Section 1.2, if the underwriter advises the Initiating Holders in writing that
marketing factors require a limitation of the number of shares to be
underwritten, then the priority of securities to be included in any registration
effected in accordance with Section 1.2 shall be (i) first, the securities the
Initiating Holders propose to sell on a pro rata basis, based upon the number of
Registrable Securities such Holders desire to include in such registration, (ii)
second,
4
<PAGE>
Registrable Securities (other than Excluded Shares) held by the Holders other
than the Initiating Holders on a pro rata basis, based upon the number of
Registrable Securities such Holders desire to include in such registration and
(iii) third, other securities, if any are requested to be included in such
registration, including Excluded Shares. In the event the Initiating Holders are
unable to include at least 50% of the Registrable Securities requested by them
to be included in a registration, such registration will not count as a
registration for purposes of Section 1.2(d); provided, however, that the
-------- -------
foregoing shall not be applicable in the event the Initiating Holders
nonetheless sell securities with an aggregate value of at least $7.5 million.
(c) Notwithstanding the foregoing, if the Company shall furnish to
the Holders requesting a registration statement pursuant to this Section 1.2, a
certificate signed by the Company (or, in connection with an underwritten
offering, a certificate signed by the Company and its underwriters) stating that
in the good faith judgment of the Board of Directors of the Company, it would be
seriously detrimental to the Company and its shareholders for such registration
statement to be filed and it is therefore essential to defer the filing of such
registration statement, the Company shall have the right to defer taking action
with respect to such filing for a period of not more than 120 days after receipt
of the request of the Initiating Holders; provided, however, that the Company
-------- -------
may not utilize this right more than once in any twelve-month period.
(d) In addition, the Company shall not be obligated to effect, or to
take any action to effect:
(i) Any registration pursuant to clause 1.2(a)(x) after
the Company has effected a total of two registrations pursuant thereto;
(ii) Any registration pursuant to clause 1.2(a)(y) after
the Company has effected a total of two registrations pursuant thereto; and
(iii) Any registration pursuant to this Section 1.2 during
the period starting with the date thirty (30) days prior to the Company's good
faith estimate of the date of filing of, and ending on a date one hundred eighty
(180) days after the effective date of, a registration subject to Section 1.3
hereof; provided that the Company is actively employing in good faith all
reasonable efforts to cause such registration statement to become effective;
provided that the Company must file such registration statement within 60 days
of the estimated filing date or the Company's ability to delay such registration
pursuant to this clause shall not apply.
1.3 Company Registration. If (but without any obligation to do so)
--------------------
the Company proposes to register (including for this purpose a registration
effected by the Company for shareholders other than the Holders) any of its
stock or other securities under the 1933 Act in connection with the public
offering of such securities solely for cash (other than a registration relating
solely to the sale of securities to participants in a Company stock plan, a
registration on any form which does not include substantially the same
information as would be required to be included in a registration statement
covering the sale of the Registrable Securities or a
5
<PAGE>
registration in which the only Common Stock being registered is Common Stock
issuable upon conversion of debt securities which are also being registered),
the Company shall, at such time, promptly give each Holder written notice of
such registration. Upon the written request of each Holder given within twenty
(20) days after mailing of such notice by the Company in accordance with Section
4.5, the Company shall, subject to the provisions of Section 1.8, cause to be
registered under the 1933 Act all of the Registrable Securities that each such
Holder has requested to be registered.
1.4 Obligations of the Company. Whenever required under this Section
--------------------------
1 to effect the registration of any Registrable Securities, the Company shall,
as expeditiously as reasonably possible:
(a) Prepare and file with the SEC as promptly as practicable a
registration statement with respect to such Registrable Securities and use its
best efforts to cause such registration statement to become effective, and, upon
the request of the Holders of a majority of the Registrable Securities
registered thereunder, keep such registration statement effective for a period
of up to one hundred twenty (120) days or until the distribution contemplated in
the Registration Statement has been completed, whichever is less; provided,
--------
however, that (i) such 120-day period shall be extended for a period of time
- -------
equal to the period the Holder refrains from selling any securities included in
such registration at the request of an underwriter of Common Stock (or other
securities) of the Company, and (ii) in the case of any registration of
Registrable Securities on Form S-3 which are intended to be offered on a
continuous or delayed basis, such 120-day period shall be extended, if
necessary, to keep the registration statement effective until all such
Registrable Securities are sold, provided that Rule 415, or any successor rule
under the 1933 Act, permits an offering on a continuous or delayed basis, and
provided further that applicable rules under the 1933 Act governing the
obligation to file a post-effective amendment permit, in lieu of filing a post-
effective amendment which (I) includes any prospectus required by Section
10(a)(3) of the 1933 Act or (II) reflects facts or events representing a
material or fundamental change in the information set forth in the registration
statement, the incorporation by reference of information required to be included
in (I) and (II) above to be contained in periodic reports filed pursuant to
Section 13 or 15(d) of the 1934 Act in the registration statement; provided,
further, that the Company is not obligated to maintain the effectiveness of the
foregoing registration statements beyond such time where the Holders may sell
their respective registered but unsold Registrable Securities for such
registration statement pursuant to Section 1.16(b) hereof, provided, the Company
shall provide to each such Holder at least twenty (20) days' prior written
notice of the termination of effectiveness of such registration statement.
(b) Prepare and file with the SEC such amendments and supplements to
such registration statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the provisions of the
1933 Act with respect to the disposition of all securities covered by such
registration statement.
(c) Furnish to the Holders such numbers of copies of a prospectus,
including a preliminary prospectus, in conformity with the requirements of the
1933 Act, and such other
6
<PAGE>
documents as they may reasonably request in order to facilitate the disposition
of Registrable Securities owned by them.
(d) Use its best efforts to register and qualify the securities
covered by such registration statement under such other securities or Blue Sky
laws of such jurisdictions as shall be reasonably requested by the Holders;
provided that the Company shall not be required in connection therewith or as a
condition thereto to qualify to do business or to file a general consent to
service of process in any such states or jurisdictions, unless the Company is
already subject to service in such jurisdiction and except as may be required by
the 1933 Act.
(e) In the event of any underwritten public offering, enter into and
perform its obligations under an underwriting agreement, in usual and customary
form, with the managing underwriter of such offering. Each Holder participating
in such underwriting shall also enter into and perform its obligations under
such an agreement.
(f) Notify each Holder of Registrable Securities covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the 1933 Act of the happening of any event as a
result of which the prospectus included in such registration statement, as then
in effect, includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then existing.
(g) Cause all such Registrable Securities registered pursuant to this
Agreement to be listed on each securities exchange on which similar securities
issued by the Company are then listed.
(h) Provide a transfer agent and registrar for all Registrable
Securities registered pursuant to this Agreement and a CUSIP number for all such
Registrable Securities, in each case not later than the effective date of such
registration.
(i) In the event of the issuance of a stop order suspending the
effectiveness of a registration statement, or of any order suspending or
preventing the use of any related prospectus or suspending the qualification of
any Common Stock included in such registration statement for sale in any
jurisdiction in the United States, the Company will promptly notify the holders
of Registrable Securities and will use its best efforts to obtain promptly the
withdrawal of such order.
(j) Furnish, at the request of any Holder requesting registration of
Registrable Securities pursuant to this Section 1, on the date that such
Registrable Securities are delivered to the underwriters for sale in connection
with a registration pursuant to this Section 1, if such securities are being
sold through underwriters, or, if such securities are not being sold through
underwriters, on the date that the registration statement with respect to such
securities becomes effective, (i) an opinion, dated such date, of the counsel
representing the Company for the purposes of such registration, in form and
substance as is customarily given to underwriters in an underwritten public
offering, addressed to the underwriters, if any, and to the Holders requesting
7
<PAGE>
registration of Registrable Securities and (ii) a letter dated such date, from
the independent certified public accountants of the Company, in form and
substance as is customarily given by independent certified public accountants to
underwriters in an underwritten public offering, addressed to the underwriters,
if any, and to the Holders requesting registration of Registrable Securities.
1.5 Furnish Information.
-------------------
(a) It shall be a condition precedent to the obligations of the
Company to take any action pursuant to this Section 1 with respect to the
Registrable Securities of any selling Holder that such Holder shall furnish to
the Company such information regarding itself, the Registrable Securities held
by it, and the intended method of disposition of such securities as shall be
required (to comply with applicable laws) to effect the registration of such
Holder's Registrable Securities.
(b) The Company shall have no obligation with respect to any
registration requested pursuant to Section 1.2 or Section 1.12 if, due to the
operation of subsection 1.5(a), the number of shares or the anticipated
aggregate offering price of the Registrable Securities to be included in the
registration does not equal or exceed the number of shares or the anticipated
aggregate offering price required to originally trigger the Company's obligation
to initiate such registration as specified in subsection 1.2(a) or subsection
1.12(b)(2), whichever is applicable.
1.6 Expenses of Demand Registration. All expenses other than
-------------------------------
underwriting discounts and commissions incurred in connection with
registrations, filings or qualifications pursuant to Section 1.2, including
(without limitation) all registration, filing and qualification fees, printers'
and accounting fees, fees and disbursements of counsel for the Company and the
reasonable fees and disbursements of one counsel for the selling Holders
selected by holders of a majority of the Registrable Securities to be included
in such registration and reasonably acceptable to the Company shall be borne by
the Company; provided, however, that the Company shall not be required to pay
-------- -------
for any expenses of any registration proceeding begun pursuant to Section 1.2 if
the registration request is subsequently withdrawn at the request of the
Initiating Holders holding a majority of the Registrable Securities to be
registered (in which case all participating Holders shall bear such expenses),
unless such Holders agree to forfeit their right to one demand registration
pursuant to Section 1.2; provided further, however, that if at the time of such
-------- ------- -------
withdrawal, the Holders have learned of a material adverse change in the
condition, business, or prospects of the Company from that known to the Holders
at the time of their request and have withdrawn the request with reasonable
promptness following disclosure by the Company of such material adverse change,
then the Holders shall not be required to pay any of such expenses and shall
retain their rights pursuant to Section 1.2.
1.7 Expenses of Company Registration. The Company shall bear and pay
--------------------------------
all expenses incurred in connection with any registration, filing or
qualification of Registrable Securities with respect to the registrations
pursuant to Section 1.3 for each Holder (which right may be assigned as provided
in Section 1.13), including (without limitation) all registration, filing, and
qualification fees, printers and accounting fees relating or apportionable
thereto and
8
<PAGE>
the fees and disbursements of counsel for the Company and the reasonable fees
and disbursements of one counsel for the selling Holders selected by holders of
a majority of the Registrable Securities to be included in such registration and
reasonably acceptable to the Company, but excluding underwriting discounts and
commissions relating to Registrable Securities.
1.8 Underwriting Requirements. In connection with any offering
-------------------------
involving an underwriting of shares of the Company's capital stock, the Company
shall not be required under Section 1.3 to include any of the Holders'
securities in such underwriting unless they accept the terms of the underwriting
as agreed upon between the Company and the underwriters selected by it (or by
other persons entitled to select the underwriters) which terms will be customary
for transactions of that type, and then only in such quantity as the
underwriters determine in their sole discretion will not jeopardize the success
of the offering by the Company. If the total amount of securities, including
Registrable Securities, requested by shareholders to be included in such
offering exceeds the amount of securities sold other than by the Company that
the underwriters determine in their sole discretion is compatible with the
success of the offering, then the Company shall be required to include in the
offering only that number of such securities, including Registrable Securities,
which the underwriters determine in their sole discretion will not jeopardize
the success of the offering. The priority of securities to be included in any
registration effected in accordance with Section 1.3 shall be (i) first, the
securities the Company proposes to sell, (ii) second, Registrable Securities
(other than Excluded Shares) pro rata among the holders of Registrable
Securities requesting to include shares in such registration, based upon the
number of Registrable Securities such Holders desire to include in such
registration and (iii) third, other securities, if any are requested to be
included in such registration.
1.9 Delay of Registration. No Holder shall have any right to obtain
---------------------
or seek an injunction restraining or otherwise delaying any such registration as
the result of any controversy that might arise with respect to the
interpretation or implementation of this Section 1.
1.10 Indemnification. In the event any Registrable Securities are
---------------
included in a registration statement under this Section 1:
(a) To the extent permitted by law, the Company will indemnify and
hold harmless each Holder, any underwriter (as defined in the 1933 Act) for such
Holder and each person, if any, who controls such Holder or underwriter within
the meaning of the 1933 Act or the 1934 Act, against any losses, claims,
damages, or liabilities (joint or several) to which they may become subject
under the 1933 Act, the 1934 Act, other federal or state securities laws or any
other applicable federal or state law, insofar as such losses, claims, damages,
or liabilities (or actions in respect thereof) arise out of or are based upon
any of the following statements, omissions or violations (collectively a
"VIOLATION"): (i) any untrue statement or alleged untrue statement of a material
fact contained in such registration statement, including any preliminary
prospectus or final prospectus contained therein or any amendments or
supplements thereto, (ii) the omission or alleged omission to state therein a
material fact required to be stated therein, or necessary to make the statements
therein not misleading, or (iii) any violation or alleged violation by the
Company of the 1933 Act, the 1934 Act, any state securities law or any rule or
regulation
9
<PAGE>
promulgated under the 1933 Act, the 1934 Act or any state securities law; and
the Company will pay to each such Holder, underwriter or controlling person, as
incurred, any legal or other expenses reasonably incurred by them in connection
with investigating or defending any such loss, claim, damage, liability, or
action; provided, however, that the indemnity agreement contained in this
-------- -------
subsection 1.10(a) shall not apply to amounts paid in settlement of any such
loss, claim, damage, liability, or action if such settlement is effected without
the consent of the Company (which consent shall not be unreasonably withheld),
nor shall the Company be liable in any such case for any such loss, claim,
damage, liability, or action to the extent that it arises out of or is based
upon a Violation which occurs in reliance upon and in conformity with written
information furnished expressly for use in connection with such registration by
any such Holder, underwriter or controlling person. The foregoing indemnity
agreements of the Company and Holders are subject to the condition that, insofar
as they relate to any Violation made in a preliminary prospectus but eliminated
or remedied in the amended prospectus on file with the SEC at the time the
registration statement in question becomes effective or the amended prospectus
filed with the SEC pursuant to SEC Rule 424(b) (the "FINAL PROSPECTUS"), such
indemnity agreement shall not inure to the benefit of any person if a copy of
the Final Prospectus was furnished to the indemnified party and was not
furnished to the person asserting the loss, liability, claim or damage at or
prior to the time such action is required by the 1933 Act.)
(b) To the extent permitted by law, each selling Holder, severally
and not jointly, will indemnify and hold harmless the Company, each of its
directors, each of its officers who has signed the registration statement, each
person, if any, who controls the Company within the meaning of the 1933 Act, any
underwriter, any other Holder selling securities in such registration statement
and any controlling person of any such underwriter or other Holder, against any
losses, claims, damages, or liabilities (joint or several) to which any of the
foregoing persons may become subject, under the 1933 Act, the 1934 Act or other
federal or state securities laws, insofar as such losses, claims, damages, or
liabilities (or actions in respect thereto) arise out of or are based upon any
Violation, in each case to the extent (and only to the extent) that such
Violation occurs in reliance upon and in conformity with written information
furnished by such Holder expressly for use in connection with such registration;
and each such Holder will pay any legal or other expenses reasonably incurred by
any person intended to be indemnified pursuant to this subsection 1.10(b), in
connection with investigating or defending any such loss, claim, damage,
liability, or action; provided, however, that the indemnity agreement contained
-------- -------
in this subsection 1.10(b) shall not apply to amounts paid in settlement of any
such loss, claim, damage, liability or action if such settlement is effected
without the consent of the Holder, which consent shall not be unreasonably
withheld; provided, that, in no event shall any indemnity under this subsection
1.10(b) exceed the gross proceeds from the offering received by such Holder.
(c) Promptly after receipt by an indemnified party under this Section
1.10 of notice of the commencement of any action (including any governmental
action), such indemnified party will, if a claim in respect thereof is to be
made against any indemnifying party under this Section 1.10, deliver to the
indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however,
10
<PAGE>
that an indemnified party (together with all other indemnified parties which may
be represented without conflict by one counsel) shall have the right to retain
one separate counsel, with the fees and expenses to be paid by the indemnifying
party, if representation of such indemnified party by the counsel retained by
the indemnifying party would be inappropriate due to actual or potential
differing interests between such indemnified party and any other party
represented by such counsel in such proceeding. The failure to deliver written
notice to the indemnifying party within a reasonable time of the commencement of
any such action, if materially prejudicial to its ability to defend such action,
shall relieve such indemnifying party of any liability to the indemnified party
under this Section 1.10, but the omission so to deliver written notice to the
indemnifying party will not relieve it of any liability that it may have to any
indemnified party otherwise than under this Section 1.10.
(d) If the indemnification provided for in this Section 1.10 is held
by a court of competent jurisdiction to be unavailable to an indemnified party
with respect to any loss, liability, claim, damage, or expense referred to
therein, then the indemnifying party, in lieu of indemnifying such indemnified
party hereunder, shall contribute to the amount paid or payable by such
indemnified party as a result of such loss, liability, claim, damage, or expense
in such proportion as is appropriate to reflect the relative fault of the
indemnifying party on the one hand and of the indemnified party on the other in
connection with the statements or omissions that resulted in such loss,
liability, claim, damage, or expense as well as any other relevant equitable
considerations. The relative fault of the indemnifying party and of the
indemnified party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the
indemnifying party or by the indemnified party and the parties' relative intent,
knowledge, access to information, and opportunity to correct or prevent such
statement or omission. The Company and each Holder agree that it would not be
just and equitable if contribution pursuant to this Section 1.10(d) were
determined by pro rata allocation or by any other method of allocation which
--- ----
does not take into account the equitable considerations referred to above in
this Section 1.10(d). The amount paid or payable by an indemnified party as a
result of the losses, claims, damages or liabilities (or actions in respect
thereof) referred to above in this Section 1.10(d) shall include any legal or
other expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933
Act) shall be entitled to indemnification or contribution from any person who
was not guilty of such fraudulent misrepresentation.
(e) Notwithstanding the foregoing, to the extent that the provisions
on indemnification and contribution contained in the underwriting agreement
entered into in connection with the underwritten public offering are in conflict
with the foregoing provisions, the provisions in the underwriting agreement
shall control.
(f) The obligations of the Company and Holders under this Section
1.10 shall survive the completion of any offering of Registrable Securities in a
registration statement under this Section 1, and otherwise.
11
<PAGE>
1.11 Reports Under Securities Exchange Act of 1934. With a view to
---------------------------------------------
making available to the Holders the benefits of Rule 144 promulgated under the
1933 Act and any other rule or regulation of the SEC that may at any time permit
a Holder to sell securities of the Company to the public without registration or
pursuant to a registration on Form S-3, the Company agrees to:
(a) make and keep public information available, as those terms are
understood and defined in SEC Rule 144, at all times after ninety (90) days
after the effective date of the first registration statement filed by the
Company for the offering of its securities to the general public;
(b) use its best efforts to take such action, including the voluntary
registration of its Common Stock under Section 12 of the 1934 Act, as is
necessary to enable the Holders to utilize Form S-3 for the sale of their
Registrable Securities, such action to be taken as soon as practicable after the
end of the fiscal year in which the first registration statement filed by the
Company for the offering of its securities to the general public is declared
effective;
(c) file with the SEC in a timely manner all reports and other
documents required of the Company under the 1933 Act and the 1934 Act; and
(d) furnish to any Holder, so long as the Holder owns any Registrable
Securities, forthwith upon request (i) a written statement by the Company that
it has complied with the reporting requirements of SEC Rule 144 (at any time
after ninety (90) days after the effective date of the first registration
statement filed by the Company), the 1933 Act and the 1934 Act (at any time
after it has become subject to such reporting requirements), or that it
qualifies as a registrant whose securities may be resold pursuant to Form S-3
(at any time after it so qualifies), (ii) a copy of the most recent annual or
quarterly report of the Company and such other reports and documents so filed by
the Company, and (iii) such other information as may be reasonably requested in
availing any Holder of any rule or regulation of the SEC which permits the
selling of any such securities without registration or pursuant to such form.
1.12 Form S-3 Registration. In case the Company shall receive from
---------------------
any Holder or Holders of (i) at least twenty percent (20%) of the Registrable
Securities then outstanding or (ii) at least 15% of the Registrable Securities
issued upon conversion of the Series C Preferred Stock or any securities issued
upon conversion of the Series C Preferred Stock a written request or requests
that the Company effect a registration on Form S-3 and any related qualification
or compliance with respect to all or a part of the Registrable Securities owned
by such Holder or Holders, the Company will:
(a) promptly give written notice of the proposed registration, and
any related qualification or compliance, to all other Holders; and
(b) as soon as practicable, effect such registration and all such
qualifications and compliances as may be so requested and as would permit or
facilitate the sale and distribution of all or such portion of such Holder's or
Holders' Registrable Securities as are specified in such request, together with
all or such portion of the Registrable Securities of any
12
<PAGE>
other Holder or Holders joining in such request as are specified in a written
request given within 15 days after receipt of such written notice from the
Company; provided, however, that the Company shall not be obligated to effect
-------- -------
any such registration, qualification or compliance, pursuant to this section
1.12: (1) if Form S-3 is not available for such offering by the Holders; (2) if
the Holders, together with the holders of any other securities of the Company
entitled to inclusion in such registration, propose to sell Registrable
Securities and such other securities (if any) at an aggregate price to the
public (net of any underwriters' discounts or commissions) of less than
$500,000; (3) if the Company shall furnish to the Holders a certificate signed
by the President of the Company stating that in the good faith judgment of the
Board of Directors of the Company, it would be seriously detrimental to the
Company and its shareholders for such Form S-3 Registration to be effected at
such time, in which event the Company shall have the right to defer the filing
of the Form S-3 registration statement for a period of not more than 60 days
after receipt of the request of the Holder or Holders under this Section 1.12;
provided, however, that the Company shall not utilize this right more than once
in any twelve month period; (4) if the Company has, within the twelve (12) month
period preceding the date of such request, already effected two registrations on
Form S-3 for the Holders pursuant to this Section 1.12; or (5) in any particular
jurisdiction in which the Company would be required to qualify to do business or
to execute a general consent to service of process in effecting such
registration, qualification or compliance.
(c) Subject to the foregoing, the Company shall file a registration
statement covering the Registrable Securities and other securities so requested
to be registered as soon as practicable after receipt of the request or requests
of the Holders. All expenses incurred in connection with the first registration
requested pursuant to Section 1.12(i) and the first registration requested
pursuant to Section 1.12(ii), including (without limitation) all registration,
filing, qualification, printer's and accounting fees and the reasonable fees and
disbursements of counsel for the selling Holder or Holders and counsel for the
Company, but excluding any underwriters' discounts or commissions, shall be
borne by the Company and thereafter pro rata by the Holder or Holders, provided
that registrations effected pursuant to this Section 1.12 shall not be counted
as demands for registration or registrations effected pursuant to Sections 1.2
or 1.3, respectively.
1.13 Assignment of Registration Rights. The rights to cause the
---------------------------------
Company to register Registrable Securities pursuant to this Section 1 may be
assigned (but only with all related obligations) by a Holder to a transferee or
assignee of such securities, provided: (a) the Company is, within a reasonable
time after such transfer, furnished with written notice of the name and address
of such transferee or assignee and the securities with respect to which such
registration rights are being assigned; (b) such transferee or assignee agrees
in writing to be bound by and subject to the terms and conditions of this
Agreement, including without limitation the provisions of Section 1.15 below;
and (c) such assignment shall be effective only if immediately following such
transfer the further disposition of such securities by the transferee or
assignee is restricted under the 1933 Act.
1.14 Limitations on Subsequent Registration Rights. From and after
---------------------------------------------
the date of this Agreement, the Company shall not, without the prior written
consent of the Holders of at
13
<PAGE>
least two-thirds (2/3) of the then outstanding Registrable Securities, enter
into any agreement with any holder or prospective holder of any securities of
the Company which would allow such holder or prospective holder (a) to include
such securities in any registration filed under Section 1.2 hereof, unless under
the terms of such agreement, such holder or prospective holder may include such
securities in any such registration only to the extent that the inclusion of
such securities will not reduce the amount of the Registrable Securities of the
Holders which is included, or (b) to make a demand registration which could
result in such registration statement being declared effective prior to the
earlier of either of the dates set forth in subsection 1.2(a) or within one
hundred twenty (120) days of the effective date of any registration effected
pursuant to Section 1.2.
1.15 "Market Stand-Off" Agreement. Each Holder hereby agrees that,
----------------------------
during the period of duration specified by the Company and an underwriter of
Common Stock or other securities of the Company, following the effective date of
a registration statement of the Company filed under the 1933 Act, it shall not,
to the extent requested by the Company and such underwriter, directly or
indirectly sell, offer to sell, contract to sell (including, without limitation,
any short sale), grant any option to purchase or otherwise transfer or dispose
of (other than to donees who agree to be similarly bound) any securities of the
Company held by it at any time during such period except common stock included
in such registration; provided, however, that:
(a) such agreement shall be applicable only to the first such
registration statement of the Company which covers common stock (or other
securities) to be sold on its behalf to the public in an underwritten offering;
(b) all officers and directors of the Company and all other persons
with registration rights (whether or not pursuant to this Agreement) enter into
similar agreements; and
(c) such market stand-off time period shall not exceed one hundred
and eighty (180) days.
In order to enforce the foregoing covenant, the Company may impose
stop-transfer instructions with respect to the Registrable Securities of each
Holder (and the shares or securities of every other person subject to the
foregoing restriction) until the end of such period.
Notwithstanding the foregoing, the obligations described in this
Section 1.15 shall not apply to a registration relating solely to employee
benefit plans on Form S-l or Form S-8 or similar forms which may be promulgated
in the future, or a registration relating solely to a Commission Rule 145
transaction on Form S-14 or Form S-15 or similar forms which may be promulgated
in the future.
1.16 Termination of Registration Rights.
----------------------------------
14
<PAGE>
(a) No Holder shall be entitled to exercise any right provided for in
this Section 1 after seven (7) years following the sale of securities pursuant
to a registration statement filed by the Company under the 1933 Act in
connection with the Minimum Offering.
(b) In addition, the right of any Holder to request registration or
inclusion in any registration pursuant to Section 1 shall terminate on the
closing of the first Company-initiated registered public offering of Common
Stock of the Company if all shares of Registrable Securities held or entitled to
be held upon conversion by such Holder may be sold under Rule 144 during any 90-
day period, or on such date after the closing of the first Company-initiated
registered public offering of Common Stock of the Company as all shares of
Registrable Securities held or entitled to be held upon conversion by such
Holder may be sold under Rule 144 during any 90-day period.
2. Covenants of the Company.
------------------------
2.1 Delivery of Financial Statements. As long as an Investor and its
--------------------------------
affiliates owns not less than 400,000 shares of the Company's Preferred Stock
(or an equivalent amount of Common Stock issued upon conversion thereof), the
Company shall deliver to such Investor the following:
(a) as soon as practicable, but in any event within one hundred and
five (105) days after the end of each fiscal year of the Company, an income
statement for such fiscal year and a balance sheet of the Company and statement
of cash flows and of shareholders' equity as of the end of such year, such year-
end financial reports to be in reasonable detail, prepared in accordance with
generally accepted accounting principles ("GAAP"), and audited and certified by
independent public accountants of nationally recognized standing selected by the
Company;
(b) as soon as practicable, but in any event within forty-five (45)
days after the end of each of the first three (3) quarters of each fiscal year
of the Company, an unaudited profit or loss statement, and an unaudited balance
sheet as of the end of such fiscal quarter together with a compilation of the
Company's actual results versus the results projected in the Company's approved
budget;
(c) if requested by an Investor on a month by month basis, within
thirty (30) days of the end of such month, an unaudited income statement and
balance sheet for and as of the end of such month together with a monthly
operating report in a form satisfactory to the Investors and a compilation of
the Company's actual results versus the results projected in the Company's
approved budget, in reasonable detail;
(d) as soon as practicable, but in any event thirty (30) days prior
to the end of each fiscal year, a budget and business plan for the next fiscal
year, prepared on a monthly basis, including balance sheets for such months and,
as soon as prepared, any other budgets or revised budgets prepared by the
Company;
15
<PAGE>
(e) with respect to the financial statements called for in
subsections (b) and (c) of this Section 2.1, an instrument executed by the Chief
Executive Officer and the Chief Financial Officer of the Company certifying that
such financials were prepared in accordance with GAAP consistently applied with
prior practice for earlier periods (with the exception of footnotes that may be
required by GAAP) and fairly present the financial condition of the Company and
its results of operation for the period specified, subject to year-end audit
adjustment; and
(f) such other information relating to the financial condition,
business, prospects or corporate affairs of the Company as the Investor or any
assignee of the Investor may from time to time request, provided, however, that
-------- -------
the Company shall not be obligated under this subsection (f) or any other
subsection of Section 2.1 to provide information which it deems in good faith to
be a trade secret or similar confidential information, unless such Investor or
assignee of such Investor has signed an agreement to keep such information
confidential.
2.2 Inspection. As long as an Investor and its affiliates owns not
----------
less than 400,000 shares of the Company's Preferred Stock (or an equivalent
amount of Common Stock issued upon conversion thereof), the Company shall permit
such Investor, at such Investor's expense, to visit and inspect the Company's
properties, to examine its books of account and records and to discuss the
Company's affairs, finances and accounts with its officers, all at such
reasonable times as may be requested by the Investor; provided, however, that
-------- -------
the Company shall not be obligated pursuant to this Section 2.2 to provide
access to any information which it reasonably considers to be a trade secret or
similar confidential information, unless such Investor has signed an agreement
to keep such information confidential.
2.3 Termination of Information and Inspection Covenants. The
---------------------------------------------------
covenants set forth in subsections 2.1(b), (c), (d) and (f) shall terminate as
to Investors and be of no further force or effect upon the consummation of an
initial public offering of the Company's Common Stock underwritten by a
nationally recognized investment bank pursuant to a registration statement filed
and declared effective under the 1933 Act at a public offering price of at least
$5.00 per share (as adjusted for stock splits, stock dividends and like events)
that results in gross proceeds to the Company of not less than $30 million
(prior to expenses and underwriting commissions) and such Common Stock shall be
listed in the Nasdaq National Market, the American Stock Exhcange or the New
York Stock Exchange or other national securities market or exchange (a
"QUALIFIED IPO"), provided that, in the event the covenants set forth in
subsections 2.1(c), (d) and (f) have not terminated and the Company is complying
with the reporting requirements of the Securities and Exchange Commission for
public companies, the Investors agree to take reasonable steps to maintain the
confidentiality of non-public information. The covenants set forth in Section
2.2 shall terminate as to Investors and be of no further force or effect upon
the consummation of a sale of securities pursuant to a registration statement
filed by the Company under the 1933 Act in connection with an offering of its
securities to the general public.
2.4 Right of First Offer. Subject to the terms and conditions
--------------------
specified in this Section 2.4, the Company hereby grants to each Investor a
right of first offer with respect to
16
<PAGE>
future sales by the Company of its Shares (as hereinafter defined). For purposes
of this Section 2.4, Investor includes any general partners and affiliates of an
Investor. An Investor shall be entitled to apportion the right of first offer
hereby granted it among itself and its partners and affiliates in such
proportions as it deems appropriate.
Each time the Company proposes to offer any shares of, or securities
convertible into or exercisable for any shares of, any class of its capital
stock ("SHARES"), the Company shall first make an offering of such Shares to
each Investor in accordance with the following provisions:
(a) The Company shall deliver a notice ("NOTICE") to the Investors
stating (i) its bona fide intention to offer such Shares, (ii) the number of
such Shares to be offered, and (iii) the price and terms, if any, upon which it
proposes to offer such Shares.
(b) Within 20 calendar days after receipt of the Notice, the Investor
may elect to purchase or obtain, at the price and on the terms specified in the
Notice, up to that portion of such Shares which equals the proportion that the
number of shares of common stock issued and held, or issuable upon conversion of
the Preferred Stock and warrants to purchase Preferred Stock, then held by such
Investor bears to the total number of shares of outstanding common stock of the
Company (assuming conversion of all outstanding securities which are, by their
terms, convertible into or exchangeable for, common stock). The Company shall
promptly, in writing, inform each Investor which purchases all the shares
available to it ("FULLY-EXERCISING INVESTOR") of any other Investor's failure to
do likewise. During the twenty-day period commencing after receipt of such
information, each Fully-Exercising Investor shall be entitled to obtain that
portion of the Shares for which Investors were entitled to subscribe but which
were not subscribed for by the Investors which is equal to the proportion that
the number of shares of common stock issued and held, or issuable upon
conversion of the Preferred Stock and warrants to purchase Preferred Stock then
held, by such Fully-Exercising Investor bears to the total number of shares of
common stock issued and held, or issuable upon conversion of the Preferred Stock
and warrants to purchase Preferred Stock, then held, by all Fully-Exercising
Investors who wish to purchase some of the unsubscribed shares.
(c) If all Shares referred to in the Notice which the Investors are
entitled to purchase are not elected to be obtained as provided in subsection
2.4(b) hereof, the Company may, during the 60-day period following the
expiration of the period provided in subsection 2.4(b) hereof, offer the
remaining unsubscribed portion of such Shares to any person or persons at a
price not less than, and upon terms no more favorable to the offeree than those
specified in the Notice. If the Company does not enter into an agreement for
the sale of the Shares within such period, or if such agreement is not
consummated within 60 days of the execution thereof, the right provided
hereunder shall be deemed to be revived and such Shares shall not be offered
unless first reoffered to the Investors in accordance herewith.
(d) The right of first offer in this Section 2.4 shall not be
applicable (i) to the issuance or sale of up to 3,438,900 shares of common stock
(or options therefor) under the 1995 Stock Option and 1997 Equity Incentive
Plans (the "PLANS") of the Company (in addition to the
17
<PAGE>
number of options granted and exercised to date or canceled hereafter) to
employees, officers and directors for the primary purpose of soliciting or
retaining their employment and/or services, and as such number may be increased
hereafter by affirmative vote of a least 75% of the Board of Directors, (ii) to
or after consummation of a Qualified IPO, (iii) to the issuance of securities
pursuant to the conversion or exercise of convertible or exercisable securities
which were, when originally issued, not subject to the right of first offer
effected by this Section 2.4, (iv) to the issuance of securities in connection
with a bona fide business acquisition of or by the Company, whether by merger,
consolidation, sale of assets, sale or exchange of stock or otherwise, or (v) to
the issuance of stock, warrants or other securities or rights to persons or
entities with which the Company has business relationships provided such
issuances are for other than primarily equity financing purposes and are
approved by the Board of Directors.
(e) The right of first offer set forth in this Section 2.4 may not be
assigned or transferred, except that (i) such right is assignable by each Holder
to any wholly owned subsidiary or parent of, or to any corporation or entity
that is, within the meaning of the 1933 Act, controlling, controlled by or under
common control with (for example, the same investment manager or advisor), any
such Holder, and (ii) such right is assignable between and among any of the
Holders.
2.5 Observer Rights. As long as an Investor and its affiliates owns
---------------
not less than 500,000 shares of the Company's Preferred Stock (or an equivalent
amount of Common Stock issued upon conversion thereof) and does not have a
representative on the Board of Directors of the Company and so long as Fleet
Equity Partners or its affiliates ("FLEET") owns 500,000 shares of Preferred
Stock, the Company shall invite one representative of each of such Investor and
Fleet to attend all meetings of its Board of Directors and any annual strategic
planning sessions in a nonvoting observer capacity and, in this respect, shall
give such representative copies of all notices, minutes, consents, and other
materials that it provides to its directors with respect to such meeting;
provided, however, that such representative shall agree to hold in confidence
- -------- -------
and trust and to act in a fiduciary manner with respect to all information so
provided; and, provided further, that the Company reserves the right to withhold
-------- -------
any information and to exclude such representative from any meeting or portion
thereof if access to such information or attendance at such meeting could
adversely affect the attorney-client privilege between the Company and its
counsel or would result in disclosure of trade secrets to such representative or
if such Investor or its representative is a direct competitor of the Company.
2.6 Termination of Certain Covenants. The covenants set forth in
--------------------------------
Sections 2.4 and 2.5 shall terminate as to Investors and be of no further force
or effect upon a Qualified IPO. In the event that the Company becomes subject
to the reporting requirements of the Securities and Exchange Commission through
some mechanism other than a Qualified IPO, the covenants set forth in Sections
2.4 and 2.5 shall continue in full force and effect provided that the Investors
sign an agreement to maintain the confidentiality of confidential information.
3. Covenants of the Investors, Common Shareholders and the Company.
---------------------------------------------------------------
18
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3.1 Right of First Offer for Common Shares. Subject to the terms and
--------------------------------------
conditions specified in this Section 3.1, each Common Shareholder hereby grants
to the Company and each Investor a right of first offer with respect to future
sales by such Common Shareholder of shares of the Company's Common Stock
registered in their respective names or beneficially now or hereafter owned by
them ("COMMON SHARES"). An Investor shall be entitled to apportion the right of
first offer hereby granted it among itself and its partners and affiliates in
such proportions as it deems appropriate.
Each time a Common Shareholder proposes to offer any Common Shares,
such Common Shareholder shall first make an offering of such Common Shares to
the Company and the Investors in accordance with the following provisions:
(a) The Common Shareholder shall deliver a notice ("COMMON NOTICE") to
the Company stating (i) its bona fide intention to offer such Common Shares,
(ii) the number of such Common Shares to be offered, and (iii) the price and
terms, if any, upon which it proposes to offer such Common Shares.
(b) Within 20 calendar days after receipt of the Common Notice, the
Company may elect to purchase or obtain, at the price and on the terms specified
in the Common Notice, such Common Shares.
(c) If all Common Shares referred to in the Common Notice which the
Company is entitled to purchase are not elected to be obtained as provided in
subsection (b) hereof, the Common Shareholder shall offer the unsubscribed
portion of such Common Shares to the Investors at the price and upon the terms
specified in the Common Notice. Within 20 calendar days after the Company
provides the Common Shareholder and the Investors notice (the "COMPANY NOTICE")
of its intention not to purchase all of the Common Shares, the Investors may
elect to purchase or obtain, at the price and on the terms specified in the
Common Notice, such Common Shares.
(d) The Company Notice shall state (i) the Company's intention not to
purchase all the Common Shares being offered, (ii) the number of such Common
Shares to be offered to the Investors, and (iii) the price and terms, if any,
upon which such Common Shares are being offered. Within 20 calendar days after
receiving the Company Notice, each Investor may elect to purchase or obtain, at
the price and on the terms specified in the Company Notice, up to that portion
of the Common Shares which equals the proportion that the number of shares of
common stock issued and held or issuable upon conversion of the Preferred Stock,
then held by such Investor bears to the total number of shares of outstanding
common stock of the Company (assuming full conversion of all outstanding
securities which are, by their terms, convertible into or exchangeable for,
common stock). The Company shall promptly inform each Investor which purchases
all the shares available to it ("SECTION 3 FULLY-EXERCISING INVESTOR") of any
other Investor's failure to do likewise. During the 10 calendar day period
commencing after giving of such information, each Section 3 Fully-Exercising
Investor shall be entitled to obtain that portion of the Common Shares for which
Investors were entitled to subscribe but which were not subscribed for by the
Investors which is equal to the proportion that the number
19
<PAGE>
of shares of common stock issued and held, or issuable upon conversion of the
Preferred Stock then held, by such Section 3 Fully-Exercising Investor bears to
the total number of shares of common stock issued and held, or issuable upon
conversion of the Preferred Stock, then held, by all Section 3 Fully-Exercising
Investors who wish to purchase some of the unsubscribed shares.
(e) If all Common Shares referred to in the Notice which the Company
and the Investors are entitled to purchase are not elected to be obtained as
provided in subsections (b) and (d) hereof, the Common Shareholder may, during
the 60-day period following the expiration of the period provided in subsection
(d) hereof, offer the remaining unsubscribed portion of such Shares to any
person or persons at a price not less than, and upon terms substantially the
same as those specified in the Common Notice. If the Common Shareholder does
not enter into an agreement for the sale of the Common Shares within such
period, or if such agreement is not consummated within 60 days of the execution
thereof, the right provided hereunder shall be deemed to be revived and such
Common Shares shall not be offered unless first reoffered to the Company and the
Major Investors in accordance herewith.
(f) The right of first offer in this Section 3.1 shall terminate
after consummation of a Qualified IPO.
(g) The right of first offer set forth in this Section 3.1 may not be
assigned or transferred, except that (i) such right is assignable by each Holder
to any wholly owned subsidiary or parent of, or to any corporation or entity
that is, within the meaning of the 1933 Act, controlling, controlled by or under
common control with, any such Holder, (ii) such right is assignable between and
among any of the Holders and (iii) such right is assignable in connection with
the transfer of Investor shares made in accordance with this Agreement.
(h) The right of first offer in this Section 3.1 shall not apply to
any transfers of Common Shares to any affiliates of any Common Shareholder, bona
fide gifts by any Common Shareholder, any distribution in kind to the equity
holders of such Common Shareholder, any disposition by a Common Shareholder in
connection with the liquidation, dissolution or winding up of such Investor or
any transfer pursuant to that certain Contingent Share Transfer Agreement, dated
as of even date herewith, by and among certain holders of Series A Preferred
Stock, Series B Preferred Stock and Common Shares (the "CONTINGENT SHARE
TRANSFER AGREEMENT").
3.2 Right of First Offer for Investor Shares. Subject to the terms
----------------------------------------
and conditions specified in this Section 3.2, each Investor hereby grants to
each other Investor a right of first offer with respect to future sales by such
Investor of shares of the Company's Preferred Stock and Common Stock registered
in their respective names or beneficially now or hereafter owned by them
("INVESTOR SHARES"). An Investor shall be entitled to apportion the right of
first offer hereby granted it among itself and its partners and affiliates in
such proportions as it deems appropriate.
Each time an Investor proposes to offer any Investor Shares, such
Investor shall first make an offering of such Investor Shares to the other
Investors in accordance with the following provisions:
20
<PAGE>
(a) The Investor shall deliver a notice ("INVESTOR NOTICE") to each
Investor stating (i) its bona fide intention to offer such Investor Shares, (ii)
the number of such Investor Shares to be offered, and (iii) the price and terms,
if any, upon which it proposes to offer such Investor Shares.
(b) Within 20 calendar days after receipt of the Investor Notice,
each Investor may elect to purchase or obtain, at the price and on the terms
specified in the Investor Notice, up to that portion of the Investor Shares
which equals the proportion that the number of shares of common stock issued and
held or issuable upon conversion of the Preferred Stock or warrants to purchase
Preferred Stock, then held by such Investor bears to the total number of shares
of outstanding common stock of the Company (assuming full conversion of all
outstanding securities which are, by their terms, convertible into or
exchangeable for common stock. The Company shall promptly, in writing, inform
each Investor which purchases all the shares available to it ("FULLY-EXERCISING
INVESTOR") of any other Investor's failure to do likewise. During the twenty-day
period commencing after receipt of such information, each Fully-Exercising
Investor shall be entitled to obtain that portion of the Shares for which Major
Investors were entitled to subscribe but which were not subscribed for by the
Investors which is equal to the proportion that the number of shares of common
stock issued and held, or issuable upon conversion of the Preferred Stock then
held, by such Fully-Exercising Investor bears to the total number of shares of
common stock issued and held, or issuable upon conversion of the Preferred
Stock, then held, by all Fully-Exercising Investors who wish to purchase some of
the unsubscribed shares.
(c) If all Investor Shares referred to in the Investor Notice which
the Investors are entitled to purchase are not elected to be obtained as
provided in subsection (b) hereof, the Investor may offer the remaining
unsubscribed portion of such Shares to any person or persons at a price not less
than, and upon terms substantially the same as those specified in the Investor
Notice.
(d) The right of first offer in this Section 3.2 shall terminate
after consummation of a Qualified IPO.
(e) The right of first offer set forth in this Section 3.2 may not be
assigned or transferred, except that (i) such right is assignable by each Holder
to any wholly owned subsidiary or parent of, or to any corporation or entity
that is, within the meaning of the 1933 Act, controlling, controlled by or under
common control with, any such Holder, (ii) such right is assignable between and
among any of the Holders and (iii) such right is assignable in connection with
the transfer of Investor Shares made in accordance with this Agreement.
(f) The right of first offer in this Section 3.2 shall not apply to
any transfers of Investors Shares to any affiliates of any Investors, bona fide
gifts by any Investor, any distribution in kind to the equity holders of such
Investor, any disposition by an Investor in connection with the liquidation,
dissolution or winding up of such Investor or any transfer pursuant to the
Contingent Share Transfer Agreement.
21
<PAGE>
3.3 Restrictive Legend. Each certificate representing (i) the
------------------
Shares, (ii) the Conversion Shares, and (iii) any other securities issued in
respect of the securities referenced in clauses (i) and (ii) upon any stock
split, stock dividend, recapitalization, merger, consolidation or similar event,
shall (unless otherwise permitted by the provisions of Section 1.4 below) be
stamped or otherwise imprinted with a legend in the following form (in addition
to any legend required under applicable laws or other agreements between the
Holder of such securities and the Company):
"THE SHARES REPRESENTED BY THIS CERTIFICATE MAY BE TRANSFERRED ONLY IN
ACCORDANCE WITH THE TERMS OF AGREEMENTS BETWEEN THE COMPANY AND THE
STOCKHOLDER, COPIES OF WHICH ARE ON FILE WITH THE SECRETARY OF THE
COMPANY."
Each Investor consents to the Company making a notation on its records
and giving instructions to any transfer agent of the Restricted Securities in
order to implement the restrictions on transfer established in this Section.
4. Miscellaneous.
-------------
4.1 Successors and Assigns. Except as otherwise provided herein, the
----------------------
benefits, terms and conditions of this Agreement shall inure to the benefit of
and be binding upon the respective successors and assigns of the parties
(including transferees of any shares of Registrable Securities). Nothing in
this Agreement, express or implied, is intended to confer upon any party other
than the parties hereto or their respective successors and assigns (including
transferees of any shares of Registrable Securities) any rights, remedies,
obligations, or liabilities under or by reason of this Agreement, except as
expressly provided in this Agreement. The provisions of this Agreement that are
for the benefit of the Investors as the holders of capital stock of the Company
are also for the benefit of, and enforceable by and upon, all subsequent holders
of such capital stock.
4.2 Governing Law. This Agreement shall be governed by and construed
-------------
under the laws of the State of California as applied to agreements among
California residents entered into and to be performed entirely within
California.
4.3 Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
4.4 Titles and Subtitles. The titles and subtitles used in this
--------------------
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
22
<PAGE>
4.5 Notices. Unless otherwise provided, any notice required or
-------
permitted under this Agreement shall be given in writing and shall be deemed
effectively given upon personal delivery to the party to be notified or upon
deposit with Federal Express or other overnight courier or the United States
Post Office, by registered or certified mail, postage prepaid and addressed to
the party to be notified at the address indicated for such party on the
signature page hereof, or at such other address as such party may designate by
ten (10) days' advance written notice to the other parties.
4.6 Expenses. If any action at law or in equity is necessary to
--------
enforce or interpret the terms of this Agreement, the prevailing party shall be
entitled to reasonable attorneys' fees, costs and necessary disbursements in
addition to any other relief to which such party may be entitled.
4.7 Amendments and Waivers. Any term of this Agreement may be
----------------------
amended and the observance of any term of this Agreement may be waived (either
generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and the holders of
two-thirds (2/3) of the Registrable Securities, not including Excluded Shares,
then outstanding provided, however, that the registration rights granted to
-------- -------
Significant Common Shareholders under Section 1 of this Agreement may not be
eliminated or materially and adversely changed without the written consent of
each applicable Significant Investor; and provided, further that the grant to
-------- -------
third parties of registration rights under Section 1.3 hereof on a pari passu
basis with the registration rights of the Significant Common Shareholder Shares
under Section 1.3 shall not be deemed to be a material and adverse change to the
registration rights of the Significant Common Shareholders under this Agreement.
Any amendment or waiver effected in accordance with this paragraph shall be
binding upon each holder of any Registrable Securities then outstanding, each
future holder of all such Registrable Securities, and the Company.
4.8 Severability. If one or more provisions of this Agreement are
------------
held to be unenforceable under applicable law, such provision shall be excluded
from this Agreement and the balance of the Agreement shall be interpreted as if
such provision were so excluded and shall be enforceable in accordance with its
terms.
4.9 Aggregation of Stock. All shares of Registrable Securities held
--------------------
or acquired by affiliated entities or persons shall be aggregated together for
the purpose of determining the availability of any rights under this Agreement.
4.10 Entire Agreement. This Agreement (including the Schedules
----------------
hereto) constitutes the full and entire understanding and agreement between the
parties with regard to the subject matter hereof and thereof and supersedes the
Series B Rights Agreement and any and all prior negotiations, correspondence,
agreements, understandings, duties or obligations between the parties respecting
the subject matter hereof and thereof.
4.11 Series B Rights Agreement Superseded. Pursuant to Section 4.7 of
------------------------------------
the Series B Rights Agreement, the undersigned parties who are parties to such
Series B Rights
23
<PAGE>
Agreement hereby amend and restate the Series B Rights Agreement to read in its
entirety as set forth in this Agreement, all with the intent and effect that the
Series B Rights Agreement shall be hereby terminated and entirely replaced and
superseded by this Agreement.
4.12 Inclusion of Equipment Warrant Holders; Agreement to be Bound.
-------------------------------------------------------------
Upon the partial or full exercise of an Equipment Warrant by an Equipment
Warrant Holder, Schedule A attached hereto shall automatically be amended to
----------
include the name of such Equipment Warrant Holder as an Investor solely for
purposes of the registration rights granted pursuant to Section 1.3 of this
Agreement and all relevant Sections thereto. Upon the partial or full exercise
of an Equipment Warrant by an Equipment Warrant Holder, such Equipment Warrant
Holder hereby assumes the obligations of an Investor under, and agrees to be
bound by the terms of, this Agreement.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
24
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
EXODUS: INVESTORS:
By:_________________________________________ By:_______________________________
Name:_______________________________________ Name:_____________________________
Title :____________________________________ Title :__________________________
Address:____________________________________ Address:__________________________
____________________________________________ __________________________________
COMMON SHAREHOLDERS: EQUIPMENT WARRANT HOLDERS:
By:_________________________________________ By:_______________________________
Name:_______________________________________ Name:_____________________________
Title :____________________________________ Title :__________________________
Address:____________________________________ Address:__________________________
____________________________________________ __________________________________
[SIGNATURE PAGE TO SECOND AMENDED
AND RESTATED INVESTORS' RIGHTS AGREEMENT]
25
<PAGE>
SCHEDULE A
----------
LIST OF INVESTORS
Information Technology Ventures, L.P.
ITV Affiliates Fund, L.P.
Apex Investment Fund III, L.P.
Apex Strategic Partners, L.L.C.
Gerardo Rosenkranz
Ricardo Rosenkranz
Roberto Rosenkranz
Bay Partners SBIC, L.P.
DMG Technology Ventures
Draper Richards, L.P.
Peter A. Howley
Ram Paul Gupta
Ambrish J. Patel
J. F. Shea & Co. as Nominee 1996-11
The Productivity Fund II, LP
The Productivity Fund III, LP
Unterberg Harris Interactive Media, L.P.
Robert C. Harris, Jr.
The Rekhi Family Trust dated 12/15/89
Suhas Patil
Goel Family Partnership
Douglas F. Whitman
Kenneth A. Fox
Stephen J. Getsy Living trust dated 7/29/92
Jules I. Whitman
Robert E. Keith, Jr.
S-C Phoenix Holdings, L.L.C.
Satish K. Gupta Trust
John R. Dougery and Marilyn R. Dougery, Tenants in Common (ID####-##-####)
John R. Dougery, Trustee of Shelly Dougery Trust dated 7/3/93 (ID#94-660733)
John R. Dougery, Trustee of John R. Dougery, Jr. Trust dated 6/12/93 (ID#94-
660097)
<PAGE>
John R. Dougery, Trustee of Kathryn Ann Dougery Trust dated 7/5/93 (ID #95-
6660565)
Marilyn R. Dougery, Trustee of Rolapp Trust (ID #95-6966879)
Fleet Equity Partners VI, L.P.
Fleet Venture Resources, Inc.
JK&B Capital L.P.
JK&B Capital II L.P.
Kennedy Plaza Partners
Oak Investment Partners VII
Oak VII Affiliate Fund
Chisolm Partners III, L.P.
Winston Partners II LDC
Winston Partners II LLC
<PAGE>
SCHEDULE B
----------
LIST OF EQUIPMENT WARRANT HOLDERS
William Kirsch
Glen McLaughlin
David Campbell
Venture Lending and Leasing, Inc.
First Portland Leasing
Semi Custom Logic, Inc.
Kaipa Prasad
Saeed Kazmi
Idris Kothari
Zoaib Rangwala
Meier Mitchell MMC/GATX Partnerhip No. 1
Silicon Valley Bank
Venture Lending & Leasing, Inc.
All paticipants in the Company's two Bridge Financings
<PAGE>
SCHEDULE C
----------
LIST OF COMMON SHAREHOLDERS
HOLDERS OF COMMON STOCK
- -----------------------
K.B. Chandrasekhar
B. V. Jagadeesh
Richard S. and Patricia D. Stoltz, H & W CP
Fred Sibayan, Jr. & Sherrill M. Sibayan, H & W CP
Gordon Meyer
Craig and Jodi Buda H & W CP
Joseph W. Foust
Michael J. Myers
Steven E. Rubin
Christopher Ryall Wallace
Kathryn Weakley
Sam S. Traznik
Robert Bowman
David R. Bartlett and Kathryn H. Bartlett JT
Robert Sanford III
Raghavan Embar
<PAGE>
Kanwal S. Rekhi, Ann H. Rekhi and Navindra Jain
as Trustees of Benjamin Rekhi Trust dated 12/15/89
Kanwal S. Rekhi
Del Vanekelenburg
John R. Dougery, Trustee of
Shelley Dougery Trust dated 7/3/93 (ID#94-660733)
John R. Dougery, Trustee of
John R. Dougery, Jr. Trust dated 6/12/93 (ID#94-660097)
John R. Dougery, Trustee of
Kathryn Ann Dougery Trust dated 7/5/93 (ID#95-6966879)
Daphne Upham
Lori Oshiro
<PAGE>
SCHEDULE D
----------
LIST OF SIGNIFICANT COMMON SHAREHOLDERS
K. B. Chandrasekhar
B. V. Jagadeesh
Richard S. and Patricia D. Stoltz, H & W CP
Fred Sibayan, Jr. & Sherrill M. Sibayan, H & W CP
Kanwal S. Rekhi, Ann H. Rekhi and Navindra Jain
as Trustees of Benjamin Rekhi Trust dated 12/15/89
Kanwal S. Rekhi
John R. Dougery, Trustee of
Shelley Dougery Trust dated 7/3/93 (ID#94-660733)
John R. Dougery, Trustee of
John R. Dougery, Jr. Trust dated 6/12/93 (ID#94-660097)
John R. Dougery, Trustee of
Katherine Ann Dougery Trust dated 7/5/93 (ID#95-6966879)
<PAGE>
AMENDMENT TO THE SECOND AMENDED AND RESTATED
INVESTORS' RIGHTS AGREEMENT
This Amendment, dated as of December 15, 1997 (the "AMENDMENT"), is to the
Second Amended and Restated Investors' Rights Agreement dated as of June 25,
1997 (the "RIGHTS AGREEMENT"), among Exodus Communications, Inc., a California
corporation (the "COMPANY") and certain of the Company's shareholders and
warrant holders ("RIGHTS AGREEMENT PARTIES").
WHEREAS, concurrently with the execution of this Amendment, the Company is
entering into that certain Series D Preferred Stock Purchase Agreement with
certain of the Company's existing shareholders (the "SERIES D INVESTORS").
WHEREAS, the Company and the Rights Agreement Parties desire to amend the
Rights Agreement in connection with the Series D Financing to provide the
holders of Series D Preferred Stock with the same rights, privileges and
obligations granted to the Rights Agreement Parties.
WHEREAS, the parties desire to clarify the rights of certain Warrant
Holders of the Company as set forth in the Rights Agreement.
WHEREAS, the holders of two-thirds (2/3) of the Registrable Securities (as
the term is defined in Section 1.1 of the Rights Agreement) hereby consent to
this Amendment, as required by Section 4.7 of the Rights Agreement.
NOW, THEREFORE, the parties hereby agree as follows:
1. The Rights Agreement is hereby amended as follows:
(a) The first paragraph is hereby amended to read in its entirety as
follows:
THIS SECOND AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
(this "AGREEMENT") is made as of the 25th day of June, 1997, by
and among Exodus Communications, Inc., a California corporation
(the "COMPANY"), the investors listed on Schedule A hereto, each
----------
of which is herein referred to as an "INVESTOR", the holders of
warrants to purchase shares of the Company's stock listed on
Schedule B hereto (THE "EQUIPMENT WARRANT HOLDERS") and certain
----------
holders of the Company's Common Stock listed on Schedule C
----------
hereto, each of which is herein referred to as a "COMMON
SHAREHOLDER."
(b) Recital E is hereby amended to read in its entirety as follows:
E. The Company has issued warrants (the "EQUIPMENT WARRANTS") to
the Equipment Warrant Holders granting such Equipment Warrant
Holders at the time that the Equipment Warrants are exercised
"piggyback"
<PAGE>
registration rights and certain information rights which are pari
----
passu with the Investors.
-----
(c) Section 1.1(e) is hereby amended to read in its entirety as
follows:
The term "PREFERRED STOCK" shall mean the Series A Preferred
Stock, any other series of preferred stock of the Company issued
upon conversion of the Series A Preferred Stock, the Series B
Preferred Stock, any other series of preferred stock of the
Company issued upon conversion of the Series B Preferred Stock,
the Series C Preferred Stock, any other series of preferred stock
of the Company issued upon conversion of the Series C Preferred
Stock, the Series D Preferred Stock and any other series of
preferred stock of the Company issued upon conversion of the
Series D Preferred Stock.
(d) Section 1.1(m) is hereby amended to read as follows:
1.1(m) The term "REGISTRABLE SECURITIES" means (i) the Common
Stock issuable or issued upon conversion of the Series A
Preferred stock, (ii) the Common Stock issuable or issued upon
conversion of the Series B Preferred Stock, (iii) the Common
Stock issuable or issued upon conversion of the Series C
Preferred Stock and the Series C Warrants, (iv) the Common Stock
issuable or issued upon conversion of the Series D Preferred
Stock, (v) the Common Stock issuable or issued upon conversion of
any shares of preferred stock issued upon conversion of either
the Series A Preferred Stock, the Series B Preferred Stock,
Series C Preferred Stock or the Series D Preferred Stock; (vi)
the shares of Common Stock held by the Significant Common
Shareholders (the "Significant Common Shareholder Shares"), (vii)
the Common Stock issuable upon the exercise of the warrants to
purchase Common Stock held by the Equipment Warrant Holders,
(viii) the Common Stock issuable upon the exercise of the
warrants to purchase Series B, Series B1, Series C1 and Series D1
Preferred Stock, as applicable, held by the Equipment Warrant
Holders, (ix) the Common Stock issuable or issued upon conversion
of any shares of Series B Preferred Stock issuable upon
conversion of the Series B Preferred Stock issued upon the
exercise of the warrants to purchase Series B Preferred Stock;
(x) any Common Stock of the Company issued as (or issuable upon
the conversion or exercise of any warrant, right or other
security which is issued as) a dividend or other distribution
with respect to, or in exchange for or in replacement of the
shares referenced in (i) through (ix) above, excluding in all
cases, however, any Registrable Securities sold by a person in a
transaction in which his rights under this Section 1 are not
assigned, provided, however, that notwithstanding anything herein
-------- -------
to the contrary, the Significant Common Shareholder Shares or
Common Stock issuable upon the exercise of the Equipment Warrants
and any shares of Common Stock described in
2
<PAGE>
(vi) - (ix) above that are issued in respect of any Significant
Common Shareholder Shares (collectively, the "EXCLUDED SHARES")
shall not be Registrable Securities for purposes of Sections 1.2
and 1.12 of this Agreement.
(e) Section 1.1(p) is hereby added to read as follows:
The term "SERIES D PREFERRED STOCK" shall mean the Series D
Preferred Stock of the Company.
(f) Section 1.1(q) is hereby added to read as follows:
The term "SERIES D1 PREFERRED STOCK" shall mean the Series D1
Preferred Stock of the Company.
(g) The fourth and fifth lines of Section 1.12 are hereby amended to
read as follows:
C Preferred Stock or Series D Preferred Stock or any securities
issued upon conversion of the Series C Preferred Stock or Series
D Preferred Stock a
(h) The sixth and seventh lines of Section 2.3 are hereby amended to
read as follows:
$3.25 per share (as adjusted for stock splits, stock dividends
and like events), provided that such offering is priced for sale
to the general public not later than April 30, 1998 (the public
offering price per share will be $5.00 if pricing does not occur
by such date), that results in gross proceeds to the Company of
not less than $30 million (prior to expenses and underwriting
(i) Section 2.4(d)(i) is hereby amended to read as follows:
(i) to the issuance or sale of up to 7,438,900 shares of common
stock (or options therefore) under the 1995 Stock Option and 1997
Equity Incentive Plans (the "PLANS"), of the Company (in addition
to the number of options granted and exercised to date or
canceled hereafter) to employees, officers and directors for the
primary purpose of soliciting or retaining their employment
and/or services, and as such number may be increased hereafter by
the affirmative vote of at least 75% of the Board of Directors,
(j) The first line of Section 4.7 is hereby amended to read as
follows:
Amendments and Waivers. Except as provided in Section 4.12,
----------------------
any term of this Agreement may be amended
3
<PAGE>
(k) The eighth line of Section 4.7 is hereby amended to read as
follows:
Common Shareholder; and provided, further that the grant to
-------- -------
third parties of registration rights under Section
4
<PAGE>
(l) Section 4.12 is hereby amended to read as follows:
Inclusion of Additional Equipment Warrant Holders. The Company
-------------------------------------------------
shall have the authority to add as parties to this Rights
Agreement, without the approval of the parties hereto, those
entities who are granted warrants to purchase shares of the
Company's Series D1 Preferred Stock in connection with debt
financings of the Company that are approved by the Company's
Board of Directors.
(m) Schedule B is hereby deleted and replaced with the Schedule B
---------- ----------
attached hereto.
2. The parties hereto agree that the sale by each of Significant Common
Shareholders K.B. Chandrasekhar and B. V. Jagadeesh of up to $400,000 worth of
their Registrable Securities as selling shareholders in the Company's initial
public offering (which is contemplated to be closed no later than June 30, 1998)
will not trigger any rights of any other parties under Sections 1.3, 1.8 or any
other provisions of this Rights Agreement and the other parties hereto hereby
waive all rights under Sections 1.3, 1.8 and any other provisions of this Rights
Agreement with respect to such amount of Registrable Securities being included
in the Company's initial public offering.
3. Except as set forth in this Amendment, all of the provisions, terms
and conditions of the Rights Agreement shall remain in full force and effect.
4. This Amendment may be executed in any number of counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one instrument.
5. This Amendment shall be governed by and construed in accordance with
the laws of the state of California, excluding that body of law known as
conflicts of law.
5
<PAGE>
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
6
<PAGE>
IN WITNESS WHEREOF, this Amendment is executed as of the date first above
written.
THE COMPANY:
- -----------
EXODUS COMMUNICATIONS, INC.
By:___________________________________________
K.B. Chandrasekhar, CEO and President
[SIGNATURE PAGE TO THE AMENDMENT TO THE
SECOND AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT]
7
<PAGE>
THE INVESTORS:
DMG TECHNOLOGY VENTURES
By:_______________________________
Name:_____________________________
Title:____________________________
[Signature Page to Amendment to Second Amended and Restated Investors' Rights
Agreement]
<PAGE>
SCHEDULE B
----------
EQUIPMENT WARRANT HOLDERS
William Kirsch
Glen McLaughlin
David Campbell
Venture Lending and Leasing, Inc.
First Portland Leasing
Kaipa Prasad
Meier Mitchell MMC/GATX Partnership No. 1
Silicon Valley Bank
All participants in the Company's two Bridge Financings
Transamerica Business Credit Corporation
<PAGE>
EXHIBIT 10.02
EXODUS COMMUNICATIONS, INC.
1995 STOCK OPTION PLAN
As Adopted May 19, 1995
1. PURPOSE. This 1995 Stock Option Plan ("Plan") is established as a
------- ----
compensatory plan to attract, retain and provide equity incentives to selected
persons to promote the financial success of Exodus Communications, Inc., a
California corporation (the "Company"). Capitalized terms not previously
-------
defined herein are defined in Section 17 of this Plan.
2. TYPES OF OPTIONS AND SHARES. Options granted under this Plan (the
---------------------------
"Options") may be either (a) incentive stock options ("ISOs") within the meaning
- -------- ----
of Section 422 of the Internal Revenue Code of 1986, as amended (the "Revenue
-------
Code"), or (b) nonqualified stock options ("NQSOs"), as designated at the time
- ---- -----
of grant. The shares of stock that may be purchased upon exercise of Options
granted under this Plan are shares of the common stock of the Company (the
"Shares").
- -------
3. NUMBER OF SHARES. The aggregate number of Shares that may be issued
----------------
pursuant to Options granted under this Plan is 900,000 Shares, subject to
adjustment as provided in this Plan. If any Option expires or is terminated
without being exercised in whole or in part, the unexercised or released Shares
from such Option shall be available for future grant and purchase under this
Plan. At all times during the term of this Plan, the Company shall reserve and
keep available such number of Shares as shall be required to satisfy the
requirements of outstanding Options under this Plan.
4. ELIGIBILITY. Options may be granted to employees, officers, directors,
-----------
consultants and advisers (provided such consultants and advisers render bona
fide services not in connection with the offer and sale of securities in a
capital-raising transaction) of the Company or any Parent, Subsidiary or
Affiliate of the Company. ISOs may be granted only to employees (including
officers and directors who are also employees) of the Company or a Parent or
Subsidiary of the Company. The Committee (as defined in Section 14) in its sole
discretion shall select the recipients of Options ("Optionees"). An Optionee may
---------
be granted more than one Option under this Plan. The Company may also, from time
to time, substitute or assume outstanding options granted by another company,
whether in connection with an acquisition of such other company or otherwise, by
either (a) granting an Option under this Plan in replacement of the option
assumed by the Company, or (b) treating the assumed option as if it had been
granted under this Plan if the terms of such assumed option could be applied to
an Option granted under this Plan. Such substitution or assumption shall be
permissible if the holder of the substituted or assumed option would have been
eligible to be granted an Option hereunder if the other company had applied the
rules of this Plan to such grant.
1
<PAGE>
5. TERMS AND CONDITIONS OF OPTIONS. The Committee shall determine whether
-------------------------------
each Option is to be an ISO or an NQSO, the number of Shares subject to the
Option, the exercise price of the Option, the period during which the Option may
be exercised, and all other terms and conditions of the Option, subject to the
following:
5.1 Form of Option Grant. Each Option granted under this Plan shall
--------------------
be evidenced by a written Stock Option Grant (the "Grant") in such form (which
-----
need not be the same for each Optionee) as the Committee shall from time to time
approve, which Grant shall comply with and be subject to the terms and
conditions of this Plan.
5.2 Date of Grant. The date of grant of an Option shall be the date
-------------
on which the Committee makes the determination to grant such Option unless
otherwise specified by the Committee. The Grant representing the Option will be
delivered to Optionee with a copy of this Plan within a reasonable time after
the granting of the Option.
5.3 Exercise Price. The exercise price of an Option shall be
--------------
determined by the Committee when the Option is granted and may not be less than
100% of the Fair Market Value of the Shares on the date the Option is granted.
The exercise price of any Option granted to a person owning more than 10% of the
total combined voting power of all classes of stock of the Company or any Parent
or Subsidiary of the Company ("Ten Percent Shareholder") shall not be less than
-----------------------
110% of the Fair Market Value of the Shares on the date the Option is granted.
5.4 Exercise Period. Options shall be exercisable within the times or
---------------
upon the events determined by the Committee as set forth in the Grant; provided,
however, that no Option shall be exercisable after the expiration of ten (10)
years from the date the Option is granted, and provided further that no ISO
granted to a Ten Percent Shareholder shall be exercisable after the expiration
of five (5) years from the date the Option is granted.
5.5 Limitations on ISOs. The aggregate Fair Market Value (determined
-------------------
as of the time an Option is granted) of stock with respect to which ISOs are
exercisable for the first time by an Optionee during any calendar year (under
this Plan or under any other incentive stock option plan of the Company or any
Parent or Subsidiary of the Company) shall not exceed $100,000. If the Fair
Market Value of Shares of Shares with respect to which ISOs are exercisable for
the first time by an Optionee during any calendar year exceeds $100,000, the
Options for the first $100,000 worth of Shares to become exercisable in such
year shall be ISOs and the Options for the amount in excess of $100,000 that
becomes exercisable in that year shall be NQSOs. In the event that the Revenue
Code or the regulations promulgated thereunder are amended after the effective
date of this Plan to provide for a different limit on the Fair Market Value of
Shares permitted to be subject to ISOs, such different limit shall be
incorporated herein and shall apply to any Options granted after the effective
date of such amendment.
5.6 Options Non-Transferable. Options granted under this Plan, and
------------------------
any interest therein, shall not be transferable or assignable by Optionee, and
may not be made subject to execution, attachment or similar process, otherwise
than by will or by the laws of descent and distribution or pursuant to a
qualified domestic relations order as defined by the Code or Title I
2
<PAGE>
of the Employee Retirement Income Security Act, or the rules thereunder, and
shall be exercisable during the lifetime of Optionee only by Optionee.
5.7 Assumed Options. In the event the Company assumes an option
---------------
granted by another company, the terms and conditions of such option shall remain
unchanged (except the exercise price and the number and nature of shares
issuable upon exercise, which will be adjusted appropriately pursuant to Section
424(c) of the Revenue Code). In the event the Company elects to grant a new
option rather than assuming an existing option (as specified in Section 4), such
new option need not be granted at Fair Market Value on the date of grant and may
instead be granted with a similarly adjusted exercise price.
6. EXERCISE OF OPTIONS.
-------------------
6.1 Notice. Options may be exercised only by delivery to the Company
------
of a written stock option exercise agreement (the "Exercise Agreement") in a
------------------
form approved by the Committee (which need not be the same for each Optionee),
stating the number of Shares being purchased, the restrictions imposed on the
Shares, if any, and such representations and agreements regarding Optionee's
investment intent and access to information, if any, as may be required by the
Company to comply with applicable securities laws, together with payment in full
of the exercise price for the number of Shares being purchased.
6.2 Payment. Payment for the Shares may be made in cash (by check)
-------
or, where approved by the Committee in its sole discretion and where permitted
by law: (a) by cancellation of indebtedness of the Company to the Optionee; (b)
by surrender of shares of common stock of the Company, free and clear of all
liens, claims, encumbrances and security interests, having a Fair Market Value
equal to the applicable exercise price of the Options that have been owned by
Optionee for more than six (6) months (and which have been paid for within the
meaning of the Securities and Exchange Commission ("SEC") Rule 144 and, if such
---
Shares were purchased from the Company by use of a promissory note, such note
has been fully paid with respect to such shares), or were obtained by Optionee
in the open public market; (c) by waiver of compensation due or accrued to
Optionee for services rendered; (d) provided that a public market for the
Company's stock exists, through a "same day sale" commitment from Optionee and a
broker-dealer that is a member of the National Association of Securities Dealers
(a "NASD Dealer") whereby Optionee irrevocably elects to exercise the Option and
-----------
to sell a portion of the Shares so purchased to pay for the exercise price and
whereby the NASD Dealer irrevocably commits upon receipt of such Shares to
forward the exercise price directly to the Company; (e) provided that a public
market for the Company's stock exists, through a "margin" commitment from
Optionee and a NASD Dealer whereby Optionee irrevocably elects to exercise the
Option and to pledge the Shares so purchased to the NASD Dealer in a margin
account as security for a loan from the NASD Dealer in the amount of the
exercise price, and whereby the NASD Dealer irrevocably commits upon receipt of
such Shares to forward the exercise price directly to the Company; or (f) by any
combination of the foregoing.
6.3 Withholding Taxes. Prior to issuance of the Shares upon exercise
-----------------
of an Option, Optionee shall pay or make adequate provision for any federal or
state withholding obligations of the Company, if applicable. Where approved by
the Committee in its sole
3
<PAGE>
discretion, Optionee may provide for payment of withholding taxes upon exercise
of the Option by requesting that the Company retain Shares with a Fair Market
Value equal to the minimum amount of taxes required to be withheld. In such
case, the Company shall issue the net number of Shares to Optionee by deducting
the Shares retained from the Shares exercised. The Fair Market Value of the
Shares to be withheld shall be determined on the date that the amount of tax to
be withheld is to be determined in accordance with Section 83 of the Revenue
Code (the "Tax Date"). All elections by Optionees to have Shares withheld for
--------
this purpose shall be made in writing in a form acceptable to the Committee and
shall be subject to the following restrictions:
(a) the election must be made on or prior to the applicable Tax Date and, once
made, the election shall be irrevocable as to the particular Shares as to
which the election is made; and
(b) all elections shall be subject to the consent or disapproval of the
Committee.
In addition, if Optionee is an Insider, and if the Company is subject to Section
16(b) of the Exchange Act, the following shall apply:
(c) the election may not be made within six (6) months after the date of grant
of the Option, except as otherwise permitted by Rule 16b-3(e) promulgated
under Section 16 of the Exchange Act;
(d) the election must be made either six (6) months prior to the Tax Date or in
the 10-day period beginning on the third day following the public release
of the Company's quarterly or annual summary statement of operations; and
(e) if the Option is exercised within six (6) months after the date of grant
and the Tax Date is deferred until six (6) months after the date of grant
of the Option because no election is filed under Section 83(b) of the
Revenue Code, Optionee shall receive the full number of Shares with respect
to which the Option is exercised, but Optionee shall be unconditionally
obligated to tender back to the Company the proper number of Shares on the
Tax Date.
6.4 Limitations on Exercise. Notwithstanding the exercise periods set
-----------------------
forth in the Grant, exercise of an Option shall always be subject to the
following:
6.4.1 If Optionee ceases to be employed by the Company or any
Parent, Subsidiary or Affiliate of the Company for any reason except death or
Disability, Optionee may exercise such Optionee's Options to the extent (and
only to the extent) that they would have been exercisable upon the date of
termination, within ninety (90) days after the date of termination (or such
shorter time period as may be specified in the Grant);
6.4.2 If Optionee is an Insider and the Company is subject to
Section 16(b) of the Exchange Act and Optionee ceases to be employed by the
Company, Optionee's Option will remain exercisable, to the extent (and only to
the extent) that it was exercisable on the date of termination, until the later
of (a) the last date such Option would be exercisable under Section 6.4.1 or
6.4.3, as applicable, or (b) the end of the thirty (30) day period commencing on
the date
4
<PAGE>
six (6) months after the grant of such Option, with any extension beyond ninety
(90) days after termination of employment deemed to be as an NQSO, and provided
further that in no event may an Option be exercisable later than the expiration
date of the Option;
6.4.3 If Optionee's employment with the Company or any Parent,
Subsidiary or Affiliate of the Company is terminated because of the death or
Disability of Optionee, Optionee's Options may be exercised to the extent (and
only to the extent) that they would have been exercisable by Optionee on the
date of termination, by Optionee (or Optionee's legal representative) within
twelve (12) months after the date of termination (or such shorter time period of
no less than six (6) months as may be specified in the Grant), but in any event
no later than the expiration date of the Options.
6.4.4 The Committee shall have discretion to determine whether
Optionee has ceased to be employed by the Company or any Parent, Subsidiary or
Affiliate of the Company, whether or not such cessation was due to Disability,
and the effective date on which such employment terminated.
6.4.5 In the case of an Optionee who is a director, consultant
or adviser, the Committee will have the discretion to determine whether Optionee
is "employed by the Company or any Parent, Subsidiary or Affiliate of the
Company" pursuant to the foregoing Sections.
6.4.6 The Committee may specify a reasonable minimum number of
Shares that may be purchased on any exercise of an Option, provided that such
minimum number will not prevent Optionee from exercising the full number of
Shares as to which the Option is then exercisable.
6.4.7 An Option shall not be exercisable unless such exercise is
in compliance with all applicable federal and state securities laws, rules and
regulations of any governmental body and the requirements of any stock exchange
or national market system upon which the Shares may then be listed, as they are
in effect on the date of exercise. The Company shall be under no obligation to
register the Shares with the SEC or to effect compliance with the registration,
qualification or listing requirements of any other securities laws, stock
exchange or national market system, and the Company shall have no liability for
any inability or failure to do so.
7. RESTRICTIONS ON SHARES. At the discretion of the Committee, the
----------------------
Company may reserve to itself and/or its assignee(s) in the Grant (a) a right of
first refusal to purchase all Shares that an Optionee (or a subsequent
transferee) may propose to transfer to a third party and/or (b) a right to
repurchase a portion of or all Shares held by an Optionee upon Optionee's
termination of employment or service with the Company or a Parent, Subsidiary or
Affiliate of the Company, for any reason within a specified time as determined
by the Committee at the time of grant at Optionee's original purchase price, the
Fair Market Value of such Shares or a price determined by a formula or other
provision set forth in the Grant.
8. MODIFICATION, EXTENSION AND RENEWAL OF OPTIONS. The Committee shall
-----------------------------------------------
have the power to modify, extend or renew outstanding Options and to authorize
the grant of new Options
5
<PAGE>
in substitution therefor, provided that any such action may not, without the
written consent of Optionee, impair any rights under any Option previously
granted. Any outstanding ISO that is modified, extended, renewed or otherwise
altered shall be treated in accordance with Section 424(h) of the Revenue Code.
The Committee shall have the power to reduce the exercise price of outstanding
Options without the consent of Optionees by a written notice to the Optionees
affected; provided, however, that the exercise price per Share may not be
reduced below the minimum exercise price that would be permitted under Section
5.3 of this Plan for Options granted on the date the action is taken to reduce
the exercise price; and provided further that the exercise price may not be
reduced below the par value of the Shares.
9. STOCK OWNERSHIP; FINANCIAL STATEMENTS. No Optionee shall have any of
-------------------------------------
the rights of a shareholder with respect to any Shares subject to an Option
until such Option is properly exercised. No adjustment shall be made for
dividends or distributions or other rights for which the record date is prior to
such date, except as provided in this Plan. However, the Company shall provide
to each Optionee, annually during the period for which he has one or more
Options outstanding, copies of the financial statements of the Company,
consisting of, at a minimum, a balance sheet and an income statement, at such
time after the close of each fiscal year of the Company as such statements are
released by the Company to its shareholders. The Company shall not be required
to provide such information to key employees whose duties in connection with the
Company assume their access to equivalent information.
10. NO OBLIGATION TO EMPLOY. Nothing in this Plan or any Option granted
-----------------------
under this Plan shall confer on any Optionee any right to continue in the employ
of, or other relationship with, the Company or any Parent, Subsidiary or
Affiliate of the Company or limit in any way the right of the Company or any
Parent, Subsidiary or Affiliate of the Company to terminate Optionee's
employment or other relationship at any time, with or without cause.
11. ADJUSTMENT OF OPTION SHARES. In the event that the number of
---------------------------
outstanding shares of common stock of the Company is changed by a stock
dividend, stock split, reverse stock split, recapitalization, combination,
reclassification or similar change in the capital structure of the Company
without consideration, or if a substantial portion of the assets of the Company
are distributed, without consideration in a spin-off or similar transaction, to
the share holders of the Company, the number of Shares available under this Plan
and the number of Shares subject to outstanding Options and the exercise price
per Share of such Options shall be proportionately adjusted, subject to any
required action by the Board of Directors (the "Board") or shareholders of the
-----
Company and compliance with applicable securities laws; provided, however, that
a fractional share shall not be issued upon exercise of any Option and any
fractions of a Share that would have resulted shall either be cashed out at Fair
Market Value or the number of Shares issuable under the Option shall be rounded
up to the nearest whole number, as determined by the Committee; and provided
further that the exercise price may not be decreased to below the par value, if
any, for the Shares.
12. ASSUMPTION OF OPTIONS BY SUCCESSORS.
-----------------------------------
12.1 Assumption or Substitution. In the event of (a) a merger or
--------------------------
consolidation in which the Company is not the surviving corporation (other than
a merger or consolidation with a
6
<PAGE>
wholly owned subsidiary, a reincorporation, or other transaction in which there
is no substantial change in the shareholders of the corporation and the Options
granted under this Plan are assumed or replaced by the successor corporation,
which assumption shall be binding on all Optionees), (b) a dissolution or
liquidation of the Company, (c) the sale of substantially all of the assets of
the Company, or (d) any other transaction which qualifies as a "corporate
transaction" under Section 424(a) of the Revenue Code wherein the shareholders
of the Company give up all of their equity interest in the Company (except for
the acquisition, sale or transfer of all or substantially all of the outstanding
shares of the Company), any or all outstanding Options may be assumed or
replaced by the successor corporation, which assumption shall be binding on all
Optionees. In the alternative, the successor corporation may substitute an
equivalent option or provide substantially similar consideration to Optionees as
was provided to shareholders (after taking into account the existing provisions
of Optionee's options, such as the exercise price and the vesting schedule). The
successor corporation may also issue, in place of outstanding shares of the
Company held by Optionee as a result of the exercise of an Option that is
subject to repurchase, substantially similar shares or other property subject to
similar repurchase restrictions no less favorable to Optionee.
12.2 Expiration. In the event such successor corporation, if any,
----------
refuses to assume or substitute Options, as provided above, pursuant to a
transaction described in Sections 12.1 above, or there is no successor
corporation, and if the Company is ceasing to exist as a separate corporate
entity, the Options shall, notwithstanding any contrary terms in the Grant,
expire on (and, in the case of a merger or consolidation described in Subsection
12.1(a) above, if the Company has reserved to itself a right to repurchase
Shares issued on exercise of Options at the original purchase price of such
Shares, such right shall terminate on), a date at least 20 days after the Board
gives written notice to Optionees specifying the terms and conditions of such
termination.
12.3 Additional Provisions. Subject to the foregoing provisions of
---------------------
this Section 12, in the event of the occurrence of any transaction described in
Section 12.1, any outstanding Option shall be treated as provided in the
applicable agreement or plan of merger, consolidation, dissolution, liquidation,
sale of assets or other "corporate transaction".
13. ADOPTION AND SHAREHOLDER APPROVAL. This Plan shall become effective on
---------------------------------
the date that it is adopted by the Board of the Company. This Plan shall be
approved by the shareholders of the Company, in any manner permitted by
applicable corporate law, within twelve months before or after the date this
Plan is adopted by the Board. Upon the effective date of the Plan, the Board may
grant Options pursuant to this Plan; provided that, in the event that
shareholder approval is not obtained within the time period provided herein, all
Options granted hereunder shall terminate. No Option that is issued as a result
of any increase in the number of shares authorized to be issued under this Plan
shall be exercised prior to the time such increase has been approved by the
shareholders of the Company and all such Options granted pursuant to such
increase shall similarly terminate if such shareholder approval is not obtained.
After the Company becomes subject to Section 16(b) of the Exchange Act, the
Company will comply with the requirements of Rule 16b-3 with respect to
shareholder approval.
7
<PAGE>
14. ADMINISTRATION. This Plan may be administered by the Board or a
--------------
committee appointed by the Board (the "Committee"). As used in this Plan,
---------
references to the "Committee" shall mean either the committee appointed by the
Board to administer this Plan or the Board if no committee has been established.
14.1 Composition of the Committee. If, after the Company registers
----------------------------
under the Exchange Act, two or more members of the Board are Outside Directors,
the Committee will be comprised of at least two members of the Board, all of
whom are Outside Directors and Disinterested Persons. The Company will take
appropriate steps to comply with the disinterested administration by the Board
of a Committee consisting of not less than two members of the Board, each of
whom is a Disinterested Person.
14.2 Committee Authority. the Committee is authorized, without
-------------------
limitation, to:
(a) construe and interpret the Plan, any Grant and any other agreement or
document executed pursuant to the Plan;
(b) prescribe, amend and rescind rules and regulations relating to the Plan;
(c) select persons to receive Options;
(d) determine the form and term of Options;
(e) determine the number of Shares subject to Options;
(f) grant waivers of Plan or Option conditions;
(g) determine the vesting and exercisability of Options;
(h) correct any defect, supply any omission, or reconcile any inconsistency in
the Plan or any other agreement or document executed or distributed in
connection with the Plan;
(i) make all other determinations necessary or advisable for the administration
of the Plan.
14.3 Committee Interpretation Binding. Any interpretation or
--------------------------------
determination made by the Committee with respect to any of the provisions of
this Plan or any Option granted under this Plan shall be made in its sole
discretion and shall be final and binding upon the Company and all persons
having an interest in any Option or any Shares purchased pursuant to an Option.
15. TERM OF PLAN. Options may be granted pursuant to this Plan from time
------------
to time within a period of ten (10) years after the date on which this Plan is
adopted by the Board.
16. AMENDMENT OR TERMINATION OF PLAN. The Committee may at any time
--------------------------------
terminate or amend this Plan in any respect including (but not limited to)
amendment of any form of grant, exercise agreement or instrument to be executed
pursuant to this Plan; provided, however, that the Committee shall not, without
the approval of the shareholders of the Company, amend this Plan in any manner
that requires such shareholder approval pursuant to the Revenue Code or the
8
<PAGE>
regulations promulgated thereunder as such provisions apply to ISO plans or
pursuant to the Exchange Act or Rule 16b-3 (or its successor) promulgated
thereunder.
17. CERTAIN DEFINITIONS. As used in this Plan, the following terms shall
-------------------
have the following meanings:
17.1 "Affiliate" means any corporation that directly, or indirectly
---------
through one or more intermediaries, controls or is controlled by, or is under
common control with, another corporation, where "control" (including the terms
"controlled by" and "under common control with") means the possession, direct or
indirect, of the power to cause the direction of the management and policies of
the corporation, whether through the ownership of voting securities, by contract
or otherwise.
17.2 "Disability" shall mean the inability of the Optionee to engage
----------
in employment with the Company by reason of any medically determinable physical
or mental impairment.
17.3 "Disinterested Person" shall have the meaning set forth in Rule
--------------------
16b-3(c)(2) as promulgated by the SEC under Section 16(b) of the Exchange Act,
as such rule is amended from time to time and as interpreted by the SEC.
17.4 "Fair Market Value" shall mean the fair market value of the
-----------------
Shares as determined by the Committee from time to time in good faith. If a
public market exists for the Shares, the Fair Market Value shall be the average
of the last reported bid and asked prices for common stock of the Company on the
last trading day prior to the date of determination (or the average closing
price over the number of consecutive working days preceding the date of
determination as the Committee shall deem appropriate) or, in the event the
common stock of the Company is listed on a stock exchange or on the NASDAQ
National Market System, the Fair Market Value shall be the closing price on such
exchange or quotation system on the last trading day prior to the date of
determination (or the average closing price over the number of consecutive
working days preceding the date of determination as the Committee shall deem
appropriate).
17.5 "Insider" shall mean an Optionee who is not an officer or
-------
director of the Company or other person whose transactions in the Company or
other person whose transactions in the Company's Common Stock are subject to
Section 16(b) of the Exchange Act.
17.6 "Outside Director" shall mean any director who is not (a) a
----------------
current employee of the Company or any Parent, Subsidiary or Affiliate of the
Company, (b) a former employee of the Company or any Parent, Subsidiary or
Affiliate of the Company who is receiving compensation for prior services (other
than benefits under a tax-qualified pension plan), (c) a current or former
officer of the Company or any Parent, Subsidiary or Affiliate of the Company or
(d) a person currently receiving compensation for personal services in any
capacity, other than as a director, from the Company or any Parent, Subsidiary
or Affiliate of the Company; provided, however, that at such time as the term
"Outside Director," as used in Section 162(m) of the Revenue Code is defined in
regulations promulgated under such Section, "Outside Director" shall
9
<PAGE>
have the meaning set forth in such regulations, as amended from time to time and
as interpreted by the Internal Revenue Service.
17.7 "Parent" means any corporation (other than the Company) in an
------
unbroken chain of corporations ending with the Company if, at the time of the
granting of the Option, each of such corporations other than the Company owns
stock possessing 50% or more of the total combined voting power of all classes
of stock in one of the other corporations in such chain.
17.8 "Subsidiary" means any corporation (other than the Company) in
----------
an unbroken chain of corporations beginning with the Company if, at the time of
granting of the Option, each of the corporations other than the last corporation
in the unbroken chain owns stock possessing 50% or more of the total combined
voting power of all classes of stock in one of the other corporations in such
chain.
______________________________
(END OF PLAN)
10
<PAGE>
EXODUS COMMUNICATIONS, INC.
STOCK OPTION GRANT
Optionee: ______________________________________
Address: ______________________________________
______________________________________
Total Shares Subject to Option: ______________________________________
Exercise Price per Share: ______________________________________
Date of Grant: ______________________________________
Vesting Commencement Date: ______________________________________
Expiration Date: ______________________________________
Type of Option: [_] Incentive Stock Option
[_] Nonqualified Stock Option
1. GRANT OF OPTION. Exodus Communications, Inc., a California corporation
---------------
(the "Company"), hereby grants to the optionee named above ("Optionee") an
------- --------
option (this "Option") to purchase the total number of shares of common stock of
------
the Company, no par value, set forth above (the "Shares") at the exercise price
------
per share set forth above (the "Exercise Price"), subject to all of the terms
--------------
and conditions of this Stock Option Grant (this "Grant") and the Company's 1995
-----
Stock Option Plan, as amended to the date hereof (the "Plan"). If designated as
----
an Incentive Stock Option above, this Option is intended to qualify as an
"incentive stock option" ("ISO") within the meaning of Section 422 of the
---
Internal Revenue Code of 1986, as amended (the "Revenue Code"). Unless
------------
otherwise defined herein, capitalized terms used herein shall have the meanings
ascribed to them in the Plan.
2. EXERCISE PERIOD OF OPTION. Subject to the terms and conditions of the
-------------------------
Plan and this Grant, this Option shall become exercisable as to portions of the
Shares as follows: (a) This Option shall not be exercisable with respect to any
of the Shares until the expiration of six (6) months from the Vesting
Commencement Date or ____________________, 199____ (the "First Vesting Date");
------------------
(b) if Optionee has been continuously employed by the Company within the meaning
of Section 4 below at all times during the time period beginning on the Vesting
Commencement Date set forth above and ending on the First Vesting Date, then on
the First Vesting Date this Option shall become exercisable as to Twelve percent
(12%) of the Shares; and (c) thereafter this Option shall become exercisable as
to an additional Two percent (2%) of the Shares upon the
1
<PAGE>
Exodus Communications, Inc.
Stock Option Grant
expiration of each full calendar month for the next succeeding Forty-four (44)
months provided that Optionee has remained continuously employed by the Company
at all times during the relevant month; provided that Optionee shall in no event
--------
be entitled under this Option to purchase a number of shares of the Company's
common stock greater than the "Total Shares Subject to Option" indicated above.
Notwithstanding anything herein to the contrary, this Option shall expire on the
Expiration Date set forth above and must be exercised, if at all, on or before
the Expiration Date; and provided further that this Option must become
exercisable as to at least 20% of the Shares for each full year since the Date
of Grant.
3. RESTRICTION ON EXERCISE. This Option may not be exercised unless such
-----------------------
exercise is in compliance with the Securities Act and all applicable state
securities laws as they are in effect on the date of exercise, and the
requirements of any stock exchange or national market system on which the
Company's common stock may be listed at the time of exercise. Optionee
understands that the Company is under no obligation to register, qualify or list
the Shares with the SEC, any state securities commission or any stock exchange
to effect such compliance.
4. TERMINATION OF OPTION. Except as provided below in this Section, this
---------------------
Option shall terminate and may not be exercised if Optionee ceases to be
employed by the Company or any Parent or Subsidiary of the Company (or, in the
case of a nonqualified stock option, an Affiliate of the Company). Optionee
shall be considered to be employed by the Company for all purposes under Section
2 and this Section 4 if Optionee is an officer, director or full-time employee
of the Company or any Parent or Subsidiary (or, if applicable, Affiliate) of the
Company or if the Committee determines that Optionee is rendering substantial
services as a part-time employee, consultant or adviser to the Company or any
Parent or Subsidiary (or Affiliate) of the Company. The Committee shall have
discretion to determine whether Optionee has ceased to be employed by the
Company or any Parent, Subsidiary (or Affiliate) of the Company and the
effective date on which such employment terminated (the "Termination Date").
----------------
4.1 Termination Generally. If Optionee ceases to be employed by the
---------------------
Company or any Parent, Subsidiary or Affiliate of the Company for any reason
except death or Disability, this Option, to the extent (and only to the extent)
that it would have been exercisable by Optionee on the Termination Date, may be
exercised by Optionee within ninety (90) days after the Termination Date, but in
no event later than the Expiration Date.
4.2 Death or Disability. If Optionee's employment with the Company
-------------------
or any Parent, Subsidiary or Affiliate of the Company is terminated because of
the death or the Disability of Optionee, this Option, to the extent (and only to
the extent) that it would have been exercisable by Optionee on the Termination
Date, may be exercised by Optionee (or Optionee's legal representative) within
twelve (12) months after the Termination Date, but in no event later than the
Expiration Date.
4.3 No Right to Employment. Nothing in the Plan or this Grant shall
----------------------
confer on Optionee any right to continue in the employ of, or other relationship
with, the Company or any Parent, Subsidiary or Affiliate of the Company or limit
in any way the right of the Company
2
<PAGE>
Exodus Communications, Inc.
Stock Option Grant
or any Parent, Subsidiary or Affiliate of the Company to terminate Optionee's
employment or other relationship at any time, with or without cause.
5. MANNER OF EXERCISE.
------------------
5.1 Exercise Agreement. This Option shall be exercisable by delivery
------------------
to the Company of an executed written Stock Option Exercise Agreement in the
form attached hereto as Exhibit A, or in such other form as may be approved by
---------
the Company, which shall set forth Optionee's election to exercise some or all
of this Option, the number of Shares being purchased, any restrictions imposed
on the Shares and such other representations and agreements as may be required
by the Company to comply with applicable securities laws.
5.2 Exercise Price. Such Exercise Agreement shall be accompanied by
--------------
full payment of the Exercise Price for the Shares being purchased. Payment for
the Shares may be made in cash (by check).
5.3 Withholding Taxes. Prior to the issuance of the Shares upon
-----------------
exercise of this Option, Optionee must pay or make adequate provision for any
applicable federal or state withholding obligations of the Company. Optionee
may provide for payment of Optionee's minimum statutory withholding taxes upon
exercise of the Option by requesting that the Company retain Shares with a Fair
Market Value equal to the minimum amount of taxes required to be withheld, all
as set forth in Section 6(c) of the Plan. In such case, the Company shall issue
the net number of Shares to Optionee by deducting the Shares retained from the
Shares exercised.
5.4 Issuance of Shares. Provided that such notice and payment are in
------------------
form and substance satisfactory to counsel for the Company, the Company shall
cause the Shares to be issued in the name of Optionee, Optionee's legal
representative or Optionee's donee.
6. NOTICE OF DISQUALIFYING DISPOSITION OF ISO SHARES. If the Option
-------------------------------------------------
granted to Optionee herein is an ISO, and if Optionee sells or otherwise
disposes of any of the Shares acquired pursuant to the ISO within (a) the date
two years after the Date of Grant, or (b) the date one year after exercise of
the ISO with respect to the Shares to be sold or disposed, Optionee shall
immediately notify the Company in writing of such disposition. Optionee
acknowledges and agrees that Optionee may be subject to income tax withholding
by the Company on the compensation income recognized by Optionee from any such
early disposition by payment in cash (or in Shares, to the extent permissible
under Section 5.3) or out of the current wages or other earnings payable to
Optionee.
7. NONTRANSFERABILITY OF OPTION. If this Option is an ISO, then this
----------------------------
Option may not be transferred in any manner other than by will or by the law of
descent and distribution and may be exercised during the lifetime of Optionee
only by Optionee. Otherwise, this Option may only be transferred pursuant to a
qualified domestic relations order as defined by the Revenue Code or Title I of
the Employee Retirement Income Security Act, or the rules thereunder. The terms
of this Option shall be binding upon the executors, administrators, successors
and assigns of Optionee.
3
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Exodus Communications, Inc.
Stock Option Grant
8. TAX CONSEQUENCES. Set forth below is a brief summary as of the date
----------------
this form of Grant was adopted of some of the federal and California tax
consequences of exercise of this Option and disposition of the Shares. THIS
SUMMARY IS NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT
TO CHANGE. OPTIONEE SHOULD CONSULT A TAX ADVISER BEFORE EXERCISING THIS OPTION
OR DISPOSING OF THE SHARES.
8.1 Exercise of ISO. If this Option qualifies as an ISO, there will
---------------
be no regular federal income tax liability or California income tax liability
upon the exercise of the Option, although the excess, if any, of the Fair Market
Value of the Shares on the date of exercise over the Exercise Price will be
treated as an adjustment to alternative minimum taxable income for federal
income tax purposes and may subject Optionee to an alternative minimum tax
liability in the year of exercise.
8.2 Exercise of ISO on Disability. If this Option qualifies as an
-----------------------------
ISO and has been exercised at any time following three (3) months after a
Termination Date that occurred due to the Disability of the Optionee not meeting
the requirements for total and permanent disability set forth in Section
22(e)(3) of the Revenue Code, then the exercise of this Option will be treated
as the exercise of a nonqualified option ("NQSO") described in Section 8.3
----
below.
8.3 Exercise of Nonqualified Stock Option. If this Option does not
-------------------------------------
qualify as an ISO, there may be a regular federal income tax liability and a
California income tax liability upon the exercise of the Option. Optionee will
be treated as having received compensation income (taxable at ordinary income
tax rates) equal to the excess, if any, of the Fair Market Value of the Shares
on the date of exercise over the Exercise Price. The Company will be required
to withhold from Optionee's compensation or collect from Optionee and pay to the
applicable taxing authorities an amount equal to a percentage of this
compensation income at the time of exercise.
8.4 Disposition of Shares. In the case of an NQSO, if Shares are
---------------------
held for more than one year before disposition, any gain on disposition of the
Shares will be treated as long- term capital gain for federal and California
income tax purposes. In the case of an ISO, if Shares are held for more than
one year after the date of exercise and more than two years after the Date of
Grant, any gain on disposition on the Shares will be treated as long-term
capital gain for federal and California income tax purposes. If Shares acquired
pursuant to an ISO are disposed of within such one year or two year periods (a
"disqualifying disposition"), gain on such disqualifying disposition will be
- --------------------------
treated as compensation income (taxable at ordinary income rates) to the extent
of the excess, if any, of the fair market value of the Shares on the date of
exercise over the Exercise Price (the "Spread"), or, if less, the difference
------
between the amount realized on the sale of such Shares and the Exercise Price.
Any gain in excess of the Spread shall be treated as capital gain.
4
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Exodus Communications, Inc.
Stock Option Grant
9. INTERPRETATION. Any dispute regarding the interpretation of this Grant
--------------
shall be submitted by Optionee or the Company to the Committee for review. The
resolution of such a dispute by the Board or Committee shall be final and
binding on the Company and on Optionee.
10. PRIVILEGES OF STOCK OWNERSHIP. Optionee shall not have any of the
-----------------------------
rights of a shareholder with respect to any Shares until Optionee exercises the
Option and pays the Exercise Price.
11. NOTICES. Any notice required to be given or delivered to the Company
-------
under the terms of this Grant shall be in writing and addressed to the Corporate
Secretary of the Company at its principal corporate offices. Any notice
required to be given or delivered to Optionee shall be in writing and addressed
to Optionee at the address indicated above or to such other address as such
party may hereafter designate in writing from time to time to the Company. All
notices shall be deemed to have been given or delivered upon personal delivery,
three days after deposit in the United States mail by certified or registered
mail (return receipt requested), one business day after deposit with any return
receipt express courier (prepaid), or one business day after transmission by
rapifax or telecopier.
12. SUCCESSORS AND ASSIGNS. The Company may assign any of its rights
----------------------
under this Grant. This Grant shall be binding upon and inure to the benefit of
the successors and assigns of the Company. Subject to the restrictions on
transfer set forth herein, this Grant shall be binding upon Optionee and
Optionee's heirs, executors, administrators, legal representatives, successors
and assigns.
13. ENTIRE AGREEMENT. The Plan and the Stock Option Exercise Agreement
----------------
attached as Exhibit A are incorporated herein by this reference. This Grant,
---------
the Plan and the Stock Option Exercise Agreement constitute the entire agreement
of the parties hereto and supersede all prior undertakings and agreements with
respect to the subject matter hereof.
EXODUS COMMUNICATIONS, INC.
By:____________________________
Name:__________________________
Title:_________________________
ACCEPTANCE
----------
Optionee hereby acknowledges receipt of a copy of the Plan and this Stock
Option Grant, represents that Optionee has read and understands the terms and
provisions thereof, and accepts this Option subject to all the terms and
conditions of the Plan and this Stock Option Grant. Optionee acknowledges that
there may be adverse tax consequences upon exercise of this Option
5
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Exodus Communications, Inc.
Stock Option Grant
or disposition of the Shares and that Optionee should consult a tax adviser
prior to such exercise or disposition.
_______________________________
OPTIONEE
6
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Exodus Communications, Inc.
Stock Option Grant
EXHIBIT A
Form of Stock Option Exercise Agreement
7
<PAGE>
Exhibit A
---------
EXODUS COMMUNICATIONS, INC.
STOCK OPTION EXERCISE AGREEMENT
This Exercise Agreement is made this __________ day of
____________________, 19____ between Exodus Communications, Inc., a California
corporation (the "Company"), and the optionee named below ("Optionee") pursuant
------- --------
to the Company's 1995 Stock Option Plan (the "Plan"). Unless otherwise defined
----
herein capitalized terms used herein shall have the meanings ascribed to them in
the Plan.
Optionee: _________________________________________________
Social Security Number: _________________________________________________
Address: _________________________________________________
_________________________________________________
Number of Shares Purchased: _________________________________________________
Purchase Price per Share: _________________________________________________
Aggregate Purchase Price: _________________________________________________
Date of Option Grant: _________________________________________________
Type of Option: [ ] Incentive Stock Option
[ ] Nonqualified Stock Option
Optionee hereby delivers to the Company the Aggregate Purchase Price in
cash (by check) in the amount of $_______________, receipt of which is
acknowledged by the Company.
The Company and Optionee hereby agree as follows:
1. PURCHASE OF SHARES. On this date and subject to the terms and
------------------
conditions of this Exercise Agreement, Optionee hereby exercises the Option
Grant between the Company and Optionee dated as of the Date of Grant set forth
above, with respect to the Number of Shares Purchased set forth above of the
Company's common stock (the "Shares") at an aggregate purchase price equal to
------
the Aggregate Purchase Price set forth above (the "Aggregate Purchase Price")
------------------------
and the Price per Share set forth above (the "Purchase Price Per Share"). The
------------------------
term "Shares" refers to the Shares purchased under this Exercise Agreement and
includes all securities received (a) in replacement of the Shares, and (b) as a
result of stock dividends or stock splits with respect to the Shares.
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Exodus Communications, Inc.
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2. REPRESENTATIONS AND WARRANTIES OF OPTIONEE. Optionee represents and
------------------------------------------
warrants to the Company as follows:
(a) Optionee has received, read and understood the Plan and the Grant and
agrees to abide by and be bound by their terms and conditions.
(b) Optionee is purchasing the Shares for Optionee's own account for investment
purposes only and not with a view to, or for sale in connection with, a
distribution of the Shares within the meaning of the Securities Act.
(c) Optionee has no present intention of selling or otherwise disposing of all
or any portion of the Shares.
(d) Optionee is fully aware of the highly speculative nature of the investment
in the Shares; the financial hazards involved; and the lack of liquidity of
the Shares and the restrictions on transferability of the Shares (e.g.,
----
that Optionee may not be able to sell or dispose of the Shares or use them
as collateral for loans).
(e) Optionee is capable of evaluating the merits and risks of this investment,
has the ability to protect Optionee's own interests in this transaction and
is financially capable of bearing a total loss of this investment.
3. COMPLIANCE WITH SECURITIES LAWS. Optionee understands and
-------------------------------
acknowledges that the Shares have not been registered under the Securities Act
and that, notwithstanding any other provision of the Grant to the contrary, the
exercise of any rights to purchase any Shares is expressly conditioned upon
compliance with the Securities Act and all applicable state securities laws.
Optionee agrees to cooperate with the Company to ensure compliance with such
laws. The Shares are being issued under the Securities Act pursuant to (the
Company will check the applicable box):
[ ] the exemption provided by Rule 701;
[ ] the exemption provided by Rule 504;
[ ] Section 4(2) of the Securities Act;
[ ] other:____________________________.
4. FEDERAL RESTRICTIONS ON TRANSFER. Optionee understands that the
--------------------------------
Shares must be held indefinitely unless they are registered under the Securities
Act or unless an exemption from such registration is available and that the
certificate(s) representing the Shares will bear a legend to that effect.
Optionee understands that the Company is under no obligation to register the
Shares and that an exemption may not be available or may not permit Optionee to
transfer Shares in the amounts or at the times proposed by Optionee.
4.1 Rule 144. Optionee has been advised that Rule 144 promulgated
--------
under the Securities Act, which permits certain resales of unregistered
securities, is not presently available with respect to the Shares and, in any
event, requires that the Shares be paid for and then held for a minimum of two
years before they may be resold under Rule 144. Prior to an initial public
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Exodus Communications, Inc.
Stock Option Exercise Agreement
offering of the Company's stock, "nonaffiliates" (i.e. persons other than
officers, directors and major shareholders of the Company) may resell only under
Rule 144(k), which requires that the Shares be paid for and held for a minimum
of three years. Rule 144(k) is not available to affiliates.
4.2 Rule 701. If the exemption relied upon for exercise of the
--------
Shares is Rule 701, the Shares will become freely transferable, subject to
limited conditions regarding the method of sale, by nonaffiliates ninety (90)
days after the first sale of common stock of the Company to the general public
pursuant to a registration statement filed with and declared effective by the
SEC, subject to any lengthier market standoff agreement contained in this
Exercise Agreement or entered into by Optionee. Affiliates must comply with the
provisions (other than the holding period requirements) of Rule 144.
5. STATE LAW RESTRICTIONS ON TRANSFER. Optionee understands that
----------------------------------
transfer of the Shares may be restricted by Section 260.141.11 of the Rules of
the California Commissioner of Corporations, a copy of which is attached hereto
as Attachment 1, and that the certificate(s) representing the Shares may bear a
------------
legend to that effect.
6. MARKET STANDOFF AGREEMENT. Optionee agrees in connection with any
-------------------------
registration of the Company's securities that, upon the request of the Company
or the underwriters managing any public offering of the Company's securities,
Optionee will not sell or otherwise dispose of any Shares or any other
securities of the Company without the prior written consent of the Company or
such underwriters, as the case may be, for such period of time (not to exceed
180 days) after the effective date of such registration as the Company or the
underwriters may specify for employee shareholders generally.
7. COMPANY'S RIGHT OF FIRST REFUSAL. Before any Shares held by Optionee
--------------------------------
or any transferee (either being sometimes referred to herein as the "Holder")
------
may be sold or otherwise transferred (including transfer by gift or operation of
law), the Company shall have an assignable right of first refusal to purchase
the Shares on the terms and conditions set forth in this Section (the "Right of
--------
First Refusal").
- -------------
7.1 Notice of Proposed Transfer. The Holder of the Shares shall
---------------------------
deliver to the Company a written notice (the "Notice") stating: (a) the
------
Holder's bona fide intention to sell or otherwise transfer such Shares; (b) the
name of each proposed purchaser or other transferee ("Proposed Transferee"); (c)
-------------------
the number of Shares to be transferred to each Proposed Transferee; and (d) the
bona fide cash price or other consideration for which the Holder proposes to
transfer the Shares (the "Offered Price"); and the Holder shall offer to sell
-------------
the Shares at the Offered Price to the Company.
7.2 Exercise of Right of First Refusal. At any time within thirty
----------------------------------
(30) days after receipt of the Notice, the Company and its assignee may, by
giving written notice to the Holder, elect to purchase all (but not less than
all) of the Shares proposed to be transferred to any one or more of the Proposed
Transferees, at the purchase price determined in accordance with subsection 7.3
below.
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7.3 Purchase Price. The purchase price for the Shares purchased
--------------
under this Section shall be the Offered Price. If the Offered Price includes
consideration other than cash, the cash equivalent value of the non-cash
consideration shall be determined by the Board of Directors of the Company in
good faith.
7.4 Payment. Payment of the purchase price shall be made, at the
-------
option of the Company or its assignee, either (a) in cash (by check), by
cancellation of all or a portion of any outstanding indebtedness of the Holder
to the Company or such assignee, or by any combination thereof within thirty
(30) days after receipt of the Notice or (b) in the manner and at the time(s)
set forth in the Notice.
7.5 Holder's Right to Transfer. If all of the Shares proposed in the
--------------------------
Notice to be transferred to a given Proposed Transferee are not purchased by the
Company and/or its assignee as provided in this Section, then the Holder may
sell or otherwise transfer such Shares to that Proposed Transferee at the
Offered Price or at a higher price, provided that such sale or other transfer is
consummated within one hundred twenty (120) days after the date of the Notice
and provided further that any such sale or other transfer is effected in
accordance with any applicable securities laws and the Proposed Transferee
agrees in writing that the provisions of this Section shall continue to apply to
the Shares in the hands of such Proposed Transferee. If the Shares described in
the Notice are not transferred to the Proposed Transferee within such period, a
new Notice shall be given to the Company, and the Company shall again be offered
the Right of First Refusal, before any Shares held by the Holder may be sold or
otherwise transferred.
7.6 Exception for Certain Family Transfers. Anything to the contrary
--------------------------------------
contained in this Section notwithstanding, the transfer of any or all of the
Shares during Optionee's lifetime or on Optionee's death by will or intestacy to
Optionee's immediate family or a trust for the benefit of Optionee or Optionee's
immediate family shall be exempt from the provisions of this Section; provided
that, as a condition to receiving the Shares, the transferee or other recipient
shall agree in writing to receive and hold the Shares so transferred subject to
the provisions of this Exercise Agreement, and to transfer such Shares no
further except in accordance with the terms of this Exercise Agreement. As used
herein, "immediate family" shall mean spouse, lineal descendant or antecedent,
----------------
brother or sister.
7.7 Termination of Right of First Refusal. The Right of First
-------------------------------------
Refusal shall terminate as to any Shares upon the first sale of common stock of
the Company to the general public pursuant to a registration statement filed
with and declared effective by the SEC (other than a registration statement
solely covering an employee benefit plan or corporate reorganization).
8. COMPLIANCE WITH STATE SECURITIES LAWS. THE SALE OF THE SECURITIES
-------------------------------------
THAT ARE THE SUBJECT OF THIS EXERCISE AGREEMENT, IF NOT YET QUALIFIED WITH THE
CALIFORNIA COMMISSIONER OF CORPORATIONS AND NOT EXEMPT FROM SUCH QUALIFICATION,
IS SUBJECT TO SUCH QUALIFICATION, AND THE ISSUANCE OF SUCH SECURITIES, AND THE
RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR PRIOR TO SUCH QUALIFICATION IS
UNLAWFUL UNLESS THE SALE IS
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Exodus Communications, Inc.
Stock Option Exercise Agreement
EXEMPT. THE RIGHTS OF THE PARTIES TO THIS EXERCISE AGREEMENT ARE EXPRESSLY
CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED OR AN EXEMPTION BEING
AVAILABLE.
9. COMPANY'S REPURCHASE OPTION. The Company, and/or its assignees, shall
---------------------------
have the option to repurchase no less than all of the Shares on the terms and
conditions set forth in this Section (the "Repurchase Option") if Optionee
-----------------
should cease to be employed by the Company for any reason, or no reason,
including, without limitation, Optionee's death, disability, voluntary
resignation or termination by the Company with or without cause.
9.1 Right of Termination Unaffected. Nothing in this Exercise
-------------------------------
Agreement shall be construed to limit or otherwise affect in any manner
whatsoever the right or power of the Company to terminate Optionee's employment
at any time, for any reason or no reason, with or without cause. For purposes
of this Exercise Agreement, Optionee shall be considered to be "employed by the
Company" if Optionee is an officer, director or full-time employee of the
Company or any Parent, Subsidiary or Affiliate of the Company or if the
Committee determines that Optionee is rendering substantial services as a part-
time employee, consultant or adviser to the Company or any Parent, Subsidiary or
Affiliate of the Company. The Committee shall have discretion to determine
whether Optionee has ceased to be employed by the Company or any Parent,
Subsidiary or Affiliate of the Company, whether or not such cessation was due to
a Disability, and determine the Termination Date.
9.2 Exercise of Repurchase Option. At any time within ninety (90)
-----------------------------
days after the later of the Termination Date or the date the Optionee purchased
the Shares, the Company, and/or its assignees, may elect to repurchase no less
than all of the Shares by giving Optionee written notice of exercise of the
Repurchase Option.
9.3 Calculation of Repurchase Price. The Company and/or its
-------------------------------
assignees shall have the option to repurchase from Optionee (or from Optionee's
personal representative as the case may be) no less than all of the Shares at
the higher of Fair Market Value of such Shares on the Termination Date or the
Purchase Price per Share. If the Repurchase Option of the Shares is assigned,
the assignee must pay the Company upon assignment cash equal to the difference
between the Purchase Price per Share and the Fair Market Value of the Shares
where the original Purchase Price is less than the Fair Market Value.
9.4 Payment of Repurchase Price. The repurchase price shall be
---------------------------
payable, at the option of the Company or its assignees, by check or by
cancellation of all or a portion of any outstanding indebtedness of Optionee to
the Company or such assignee, or by any combination thereof. The repurchase
price shall be paid without interest within thirty (30) days after exercise of
the Repurchase Option.
9.5 Termination of Repurchase Option. The Repurchase Option shall
--------------------------------
terminate as to any Shares upon the first sale of common stock of the Company to
the general public pursuant to a registration statement filed with and declared
effective by the SEC (other
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Exodus Communications, Inc.
Stock Option Exercise Agreement
than a registration statement solely covering an employee benefit plan or
corporate reorganization).
10. ESCROW. As security for the faithful performance of this Exercise
------
Agreement, Optionee agrees, immediately upon receipt of the certificate(s)
evidencing the Shares, to deliver such certificate(s), together with a stock
power in the form of Attachment 2 attached hereto, executed by Optionee and by
------------
Optionee's spouse, if any (with the transferee, certificate number, date and
number of Shares left blank), to the Secretary of the Company or its designee
("Escrow Holder"), who is hereby appointed to hold such certificate(s) and stock
- ---------------
power in escrow and to take all such actions and to effectuate all such
transfers and/or releases of such Shares as are in accordance with the terms of
this Exercise Agreement. Optionee and the Company agree that Escrow Holder
shall not be liable to any party to this Exercise Agreement (or to any other
party) for any actions or omissions unless Escrow Holder is grossly negligent
relative thereto. The Escrow Holder may rely upon any letter, notice or other
document executed by any signature purported to be genuine and may rely on
advice of counsel and obey any order of any court with respect to the
transactions contemplated herein. The Shares shall be released from escrow upon
termination of both the Repurchase Option and the Right of First Refusal;
provided, however, that such release shall not affect the rights of the Company
with respect to any pledge of Shares to the Company.
11. LEGENDS. Optionee understands and agrees that the Shares are subject
-------
to a Right of First Refusal and a Repurchase Option held by the Company (or its
assignee) as set forth herein and that the certificate(s) representing the
Shares will bear legends in substantially the following forms:
"THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS ON PUBLIC RESALE AND TRANSFER AND RIGHT OF FIRST
REFUSAL AND REPURCHASE OPTIONS HELD BY THE ISSUER AND/OR ITS
ASSIGNEE(S) AND MAY NOT BE TRANSFERRED EXCEPT AS SET FORTH IN AN
AGREEMENT BETWEEN THE ISSUER AND THE ORIGINAL HOLDER OF THESE
SHARES, A COPY OF WHICH MAY BE OBTAINED AT THE PRINCIPAL OFFICE OF
THE ISSUER. SUCH TRANSFER RESTRICTIONS AND RIGHTS OF FIRST REFUSAL
AND REPURCHASE ARE BINDING ON TRANSFEREES OF THESE SHARES."
"THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER THE
SECURITIES LAWS OF CERTAIN STATES. THESE SECURITIES ARE SUBJECT TO
RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE
TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE ACT AND THE
APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR
EXEMPTION THEREFROM. INVESTORS SHOULD BE AWARE THAT THEY MAY BE
REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN
INDEFINITE PERIOD OF TIME. THE ISSUER OF THESE SECURITIES MAY
REQUIRE AN OPINION
STOCKOPT
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<PAGE>
Exodus Communications, Inc.
Stock Option Exercise Agreement
OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER TO THE
EFFECT THAT THE PROPOSED TRANSFER OR RESALE IS IN COMPLIANCE WITH
THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS."
The California Commissioner of Corporations may require that the following
legend also be placed upon the share certificate(s) evidencing ownership of the
Shares:
"IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY,
OR ANY INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFOR,
WITHOUT THE PRIOR WRITTEN CONSENT OF THE COMMISSIONER OF
CORPORATIONS OF THE STATE OF CALIFORNIA, EXCEPT AS PERMITTED IN THE
COMMISSIONER'S RULES."
If the foregoing legend is required, Optionee acknowledges receipt of a
copy of Section 260.141.11 of the Rules of the California Corporations
Commissioner, attached as Attachment 1.
------------
12. STOP-TRANSFER NOTICES. Optionee understands and agrees that, in order
---------------------
to ensure compliance with the restrictions referred to herein, the Company may
issue appropriate "stop-transfer" instructions to its transfer agent, if any,
and that, if the Company transfers its own securities, it may make appropriate
notations to the same effect in its own records.
13. TAX CONSEQUENCES. OPTIONEE UNDERSTANDS THAT OPTIONEE MAY SUFFER
----------------
ADVERSE TAX CONSEQUENCES AS A RESULT OF OPTIONEE'S PURCHASE OR DISPOSITION OF
THE SHARES. OPTIONEE REPRESENTS THAT OPTIONEE HAS CONSULTED WITH ANY TAX
CONSULTANT(S) OPTIONEE DEEMS ADVISABLE IN CONNECTION WITH THE PURCHASE OR
DISPOSITION OF THE SHARES AND THAT OPTIONEE IS NOT RELYING ON THE COMPANY FOR
ANY TAX ADVICE. IN PARTICULAR, IF THE SHARES ARE SUBJECT TO REPURCHASE BY THE
COMPANY OR IF OPTIONEE IS AN INSIDER SUBJECT TO SECTION 16(b) OF THE EXCHANGE
ACT, OPTIONEE REPRESENTS THAT OPTIONEE HAS CONSULTED WITH OPTIONEE'S TAX
ADVISERS CONCERNING THE ADVISABILITY OF FILING AN 83(b) ELECTION WITH THE
INTERNAL REVENUE SERVICE.
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Exodus Communications, Inc.
Stock Option Exercise Agreement
14. ENTIRE AGREEMENT. The Plan and Grant are incorporated herein by
----------------
reference. This Exercise Agreement, the Plan and the Grant constitute the
entire agreement of the parties and supersede in their entirety all prior
undertakings and agreements of the Company and Optionee with respect to the
subject matter hereof, and is governed by California law except for that body of
law pertaining to conflict of laws.
Submitted by: Accepted by:
OPTIONEE: ________________________ EXODUS COMMUNICATIONS, INC.
(print name)
__________________________________ By:________________________________
(signature)
Its:_______________________________
Dated: ___________________________ Dated:_____________________________
STOCKOPT
18
<PAGE>
ATTACHMENT 1
------------
CALIFORNIA COMMISSIONER RULE 260.141.11
---------------------------------------
(a) The issuer of any security upon which a restriction on transfer has been
imposed pursuant to Sections 260.102.6, 260.141.10 or 260.534 shall cause a
copy of this section to be delivered to each issuee or transferee of such
security at the time the certificate evidencing the security is delivered
to the issuee or transferee.
(b) It is unlawful for the holder of any such security to consummate a sale or
transfer of such security, or any interest therein, without the prior
written consent of the Commissioner (until this condition is removed
pursuant to Section 260.141.12 of these rules), except:
(1) to the issuer;
(2) pursuant to the order or process of any court;
(3) to any person described in Subdivision (i) of Section 25102 of the Code or
Section 260.105.14 of these rules:
(4) to the transferor's ancestors, descendants or spouse, or any custodian or
trustee for the account of the transferor or the transferor's ancestors,
descendants, or spouse; or to a transferee by a trustee or custodian for
the account of the transferee or the transferee's ancestors, descendants or
spouse;
(5) to holders of securities of the same class of the same issuer;
(6) by way of gift or donation intervivos or on death;
(7) by or through a broker-dealer licensed under the Code (either acting as
such or as a finder) to a resident of a foreign state, territory or country
who is neither domiciled in this state to the knowledge of the broker-
dealer, nor actually present in this state if the sale of such securities
is not in violation of any securities law of the foreign state, territory
or country concerned;
(8) to a broker-dealer licensed under the Code in a principal transaction, or
as an underwriter or member of an underwriting syndicate or selling group;
(9) if the interest sold or transferred is a pledge or other lien given by the
purchaser to the seller upon a sale of the security for which the
Commissioner's written consent is obtained or under this rule not required;
(10) by way of a sale qualified under Section 25111, 25112, 25113, or 25121 of
the Code, of the securities to be transferred, provided that no order under
Section 25140 or subdivision (a) of Section 25143 is in effect with respect
to such qualification;
(11) by a corporation to a wholly owned subsidiary of such corporation, or by a
wholly owned subsidiary of a corporation to such corporation;
(12) by way of an exchange qualified under Section 25111, 25112 or 25113 of the
Code, provided that no order under Section 25140 or subdivision (a) of
Section 25143 is in effect with respect to such qualification;
(13) between residents of foreign states, territories or countries who are
neither domiciled nor actually present in this state;
(14) to the State Controller pursuant to the Unclaimed Property Law or the
administrator of the unclaimed property law of another state; or
1 STOCKOPT
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Exodus Communications, Inc.
Stock Option Exercise Agreement
(15) by the State Controller pursuant to the Unclaimed Property Law or by the
administrator of the unclaimed property law of another state if, in either
such case, such person (i) discloses to potential purchasers at the sale
that transfer of the securities is restricted under this rule, (ii)
delivers to each purchaser a copy of this rule, and (iii) advises the
Commissioner of the name of each purchaser;
(16) by a trustee to a successor trustee when such transfer does not involve a
change in the beneficial ownership of the securities;
(17) by way of an offer and sale of outstanding securities in an issuer
transaction that is subject to the qualification requirements of Section
25110 of the Code but exempt from that qualification requirement by
subdivision (f) of Section 25102;
provided that any such transfer is on the condition that any certificate
evidencing the security issued to such transferee shall contain the legend
required by this section.
(c) The certificates representing all such securities subject to such a
restriction on transfer, whether upon initial issuance or upon any transfer
thereof, shall bear on their face a legend, prominently stamped or printed
thereon in capital letters of not less than 10-point size, reading as
follows:
IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY, OR ANY
INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFORE, WITHOUT THE PRIOR
WRITTEN CONSENT OF THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA,
EXCEPT AS PERMITTED IN THE COMMISSIONER'S RULES.
2 STOCKOPT
<PAGE>
Exodus Communications, Inc.
Stock Option Exercise Agreement
ATTACHMENT 2
------------
STOCK POWER AND ASSIGNMENT
SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED and pursuant to that certain Stock Option Exercise
Agreement dated as of __________________, 19___, the undersigned hereby sells,
assigns and transfers unto _________________________, _______________________
shares of the common stock of _______________________, a California corporation,
standing in the undersigned's name on the books of said corporation represented
by Certificate No. _____ delivered herewith, and does hereby irrevocably
constitute the Secretary of said corporation as attorney-in-fact, with full
power of substitution, to transfer said stock on the books of said corporation.
Dated: ________________, 19___
_______________________________________
(Signature)
_______________________________________
(Please Print Name)
_______________________________________
(Spouse's Signature, if any)
______________________________________
(Please Print Name)
1 STOCKOPT
<PAGE>
EXHIBIT 10.03
EXODUS COMMUNICATIONS, INC.
1995 STOCK PURCHASE PLAN
As Adopted May 19, 1995
1. PURPOSE. This 1995 Stock Purchase Plan ("Plan") is established as a
------- ----
compensatory plan to attract, retain and provide equity incentives to selected
persons to promote the financial success of Exodus Communications, Inc., a
California corporation (the "Company"). Capitalized terms not previously
-------
defined herein are defined in Section 18 of this Plan.
2. TYPE OF SHARES. The shares of stock that may be purchased in
--------------
connection with Awards (as defined in Section 5) granted under this Plan are
shares of the common stock of the Company (the "Shares").
------
3. NUMBER OF SHARES. The aggregate number of Shares that may be issued
----------------
pursuant to Awards granted under this Plan is 1,100,000 Shares, subject to
adjustment as provided in this Plan. Shares subject to an Award granted
hereunder but rescinded or repurchased by the Company for any reason shall be
available for future grant and purchase under this Plan.
4. ELIGIBILITY. Awards may be granted to employees, officers, directors,
-----------
consultants and advisers (provided such consultants and advisers render bona
fide services not in connection with the offer and sale of securities in a
capital-raising transaction) of the Company or any Parent, Subsidiary or
Affiliate of the Company. The Committee (as defined in Section 15) in its sole
discretion shall select the recipients of Awards ("Participants"). A
------------
Participant may be granted more than one Award under this Plan.
5. TERMS AND CONDITIONS OF AWARDS. An "Award" is an offer by the Company
------------------------------ -----
to sell to an eligible person Shares that are subject to restrictions
("Restricted Stock"). The Committee shall determine to whom an offer will be
- ------------------
made, the number of Shares the person may purchase, the price to be paid (the
"Purchase Price"), the restrictions to which the Shares shall be subject, and
- ---------------
all other terms and conditions of the Award, subject to the following:
5.1 Form of Award. All purchases under an Award made pursuant to the
-------------
Plan shall be evidenced by a Restricted Stock purchase agreement ("Restricted
----------
Stock Purchase Agreement") that shall be in such form (which need not be the
- ------------------------
same for each Participant) as the Committee shall from time to time approve, and
shall comply with and be subject to the terms and conditions of the Plan. The
offer of Restricted Stock shall be accepted by the Participant's execution and
delivery of the Restricted Stock Purchase Agreement and full payment for the
Shares to the Company within thirty (30) days from the date the Restricted Stock
Purchase Agreement is delivered to the person. If such person does not execute
and deliver the Restricted Stock Purchase Agreement along with full payment for
the Shares to the Company within thirty (30) days, then the offer shall
terminate, unless otherwise determined by the Committee.
5.2 Purchase Price. The Purchase Price of Shares sold pursuant to an
--------------
Award shall be determined by the Committee and shall be 100% of the Fair Market
Value of the Shares on
1
<PAGE>
the date the Award is granted. Payment of the Purchase Price may be made in
accordance with Section 6 of this Plan.
5.3 Awards Non-Transferable. Awards granted under this Plan, and any
-----------------------
interest therein, shall not be transferable or assignable by a Participant, and
may not be made subject to execution, attachment or similar process, otherwise
than by will or by the laws of descent and distribution or pursuant to a
qualified domestic relations order as defined by the Code or Title I of the
Employee Retirement Income Security Act, or the rules thereunder.
6. PAYMENT FOR SHARES.
------------------
6.1 Forms of Payment Payment for the Shares purchased under this Plan
----------------
may be made (a) in cash; (b) by a full recourse, interest-bearing promissory
note executed by the Participant ("Note") where permitted by law and approved by
----
the Committee; (c) by such other legal consideration as the Committee may
approve at the time of purchase; or (d) by any combination of the foregoing;
provided, however, that Participants who are not employees or directors of the
Company shall not be entitled to purchase Shares under this Plan in exchange for
a Note unless the Note is adequately secured by collateral other than the
Shares. The Note shall be in such form and contain such terms as may be
approved from time to time by the Committee in its sole discretion.
6.2 Pledge of Shares. Any Participant who is permitted to execute a
----------------
Note as partial or full consideration for the purchase of Shares under this Plan
shall be required to pledge and deposit with the Company all or part of the
Shares so purchased as collateral to secure the payment of Participant's
obligation to the Company under the Note; provided, however, that the Committee
may in its sole discretion require or accept other or additional forms of
collateral to secure the payment of such obligation and, in any event, the
Company shall have full recourse against the Participant under the Note
notwithstanding any pledge of the Participant's Shares or other collateral. In
connection with any pledge of the Shares, Participant shall be required to
execute and deliver a written pledge agreement in such form as the Committee
shall from time to time approve in its sole discretion. The Shares purchased
with the Note may be released from the pledge on a pro-rata basis as the Note is
paid.
7. RESTRICTIONS ON SHARES. Awards shall be subject to such restrictions
----------------------
as the Committee may impose. At the discretion of the Committee, the Company
may reserve to itself and/or its assignee(s) in the Restricted Stock Purchase
Agreement (a) a right of first refusal to purchase all Shares that a Participant
(or a subsequent transferee) may propose to transfer to a third party and/or (b)
a right to repurchase a portion of or all Shares held by a Participant upon
Participant's termination of employment or service with the Company or a Parent,
Subsidiary or Affiliate of the Company, for any reason within a specified time
as determined by the Committee at the time of grant at Participant's original
purchase price or the Fair Market Value of such Shares. In the case of a
reservation of a right to repurchase Shares under clause (b) above, (i) if the
repurchase price is the higher of the original purchase price or the Fair Market
Value on the date of termination of employment, then the right to repurchase
shall be exercisable within 90 days of termination of employment for cash or
cancellation of purchase money indebtedness for the Shares, and the right shall
terminate when the common stock of the Company become publicly traded; or (ii)
if the repurchase price is the original purchase price, then (A) the right to
2
<PAGE>
repurchase at the original purchase price shall lapse at the rate of at least
20% per year over 5 years from the date the Shares were purchased, which right
shall be exercisable within 90 days of termination of employment for cash or
cancellation of purchase money indebtedness for the Shares, and (B), if the
right is assignable, the assignee must pay the Company upon assignment of the
right cash equal to the difference between the original price and the Fair
Market Value if the original purchase price is less than the Fair Market Value.
The Committee may provide for the lapse of any restrictions in installments and
may accelerate the lapsing of such restrictions, or waive such restrictions, in
whole or part, based on length of service, performance or such other factors or
criteria as the Committee may determine.
8. ESCROW. To enforce any restrictions on a Participant's Shares, the
------
Committee may require the Participant to deposit all certificates representing
Shares, together with stock powers or other instruments of transfer approved by
the Committee, appropriately endorsed in blank, with the Company or an agent
designated by the Company to hold in escrow until such restrictions have lapsed
or terminated, and the Committee may cause a legend or legends referencing such
restrictions to be placed on the certificates.
9. PRIVILEGES OF STOCK OWNERSHIP.
-----------------------------
9.1 Voting and Dividends. No Participant shall have any of the rights
--------------------
of a shareholder with respect to any Shares until the Shares are issued to the
Participant. After Shares are issued to the Participant, the Participant shall
be a shareholder and have all the rights of a shareholder with respect to such
Shares, including the right to vote and receive all dividends or other
distributions made or paid with respect to such Shares; provided, that if such
Shares are Restricted Stock, then any new, additional or different securities
the Participant may become entitled to receive with respect to such Shares by
virtue of a stock dividend, stock split or any other change in the corporate or
capital structure of the Company shall be subject to the same restrictions as
the Restricted Stock; provided, further, that the Participant shall have no
right to retain such stock dividends or stock distributions with respect to
Shares that are repurchased at the Participant's original Purchase Price
pursuant to Section 7.
9.2 Financial Statements. The Company shall provide financial
--------------------
statements to each Participant prior to such Participant's purchase of Shares
under the Plan, and to each Participant annually during the period such
Participant has Awards outstanding; provided, however, the Company shall not be
required to provide such financial statements to Participants whose services in
connection with the Company assure them access to equivalent information.
10. NO OBLIGATION TO EMPLOY. Nothing in this Plan or any Award granted
-----------------------
under this Plan shall confer on any Participant any right to continue in the
employ of, or other relationship with, the Company or any Parent, Subsidiary or
Affiliate of the Company or limit in any way the right of the Company or any
Parent, Subsidiary or Affiliate of the Company to terminate Participant's
employment or other relationship at any time, with or without cause.
11. ADJUSTMENT OF PLAN SHARES. In the event that the number of outstanding
-------------------------
shares of common stock of the Company is changed by a stock dividend, stock
split, reverse stock split, recapitalization, combination, reclassification or
similar change in the capital structure of the Company without consideration, or
if a substantial portion of the assets of the Company are
3
<PAGE>
distributed, without consideration in a spin-off or similar transaction, to the
shareholders of the Company, the number of Shares available under this Plan
shall be proportionately adjusted, subject to any required action by the Board
of Directors (the "Board") or shareholders of the Company and compliance with
-----
applicable securities laws.
12. ASSUMPTION OF PLAN BY SUCCESSORS. In the event of any merger in which
--------------------------------
the Company is not the surviving corporation, a transaction in which 100% of the
then outstanding voting stock is sold or otherwise transferred, or any sale of
substantially all of the assets of the Company, the Company shall use its best
efforts to cause the successor to assume the Company's obligations under this
Plan or to provide a substantially similar plan to the Participants who have
purchased Shares under this Plan and who are employed by the successor.
13. ADOPTION AND SHAREHOLDER APPROVAL. This Plan shall become effective on
---------------------------------
the date that it is adopted by the Board of the Company. This Plan shall be
approved by the shareholders of the Company, in any manner permitted by
applicable corporate law, within twelve months before or after the date this
Plan is adopted by the Board. Upon the effective date of the Plan, the Board
may grant Awards pursuant to this Plan; provided that, in the event that
shareholder approval is not obtained within the time period provided herein, all
Shares issued pursuant to Awards granted hereunder shall be rescinded. Such
Shares shall not be counted in determining whether such approval is obtained.
After the Company becomes subject to Section 16(b) of the Exchange Act, the
Company will comply with the requirements of Rule 16b-3 with respect to
shareholder approval.
14. SECURITIES LAW AND OTHER REGULATORY COMPLIANCE. An Award shall not be
----------------------------------------------
effective unless such Award is in compliance with all applicable federal and
state securities laws, rules and regulations of any governmental body, and the
requirements of any stock exchange or automated quotation system upon which the
Shares may then be listed, as they are in effect on the date of grant of the
Award and also on the date of issuance of Shares. Notwithstanding any other
provision in the Plan, the Company shall have no obligation to issue or deliver
certificates for Shares under the Plan prior to (a) obtaining any approvals from
governmental agencies that the Company determines are necessary or advisable,
and/or (b) completion of any registration or other qualification of such shares
under any state or federal law or ruling of any governmental body that the
Company determines to be necessary or advisable. The Company shall be under no
obligation to register the Shares with the SEC or to effect compliance with the
registration, qualification or listing requirements of any state securities
laws, stock exchange or automated quotation system.
15. ADMINISTRATION. This Plan may be administered by the Board or a
--------------
committee appointed by the Board (the "Committee"). As used in this Plan,
---------
references to the "Committee" shall mean either the committee appointed by the
Board to administer this Plan or the Board if no committee has been established.
15.1 Composition of the Committee. If, after the Company registers
----------------------------
under the Exchange Act, two or more members of the Board are Outside Directors,
the Committee will be comprised of at least two members of the Board, all of
whom are Outside Directors and Disinterested Persons. The Company will take
appropriate steps to comply with the disinterested
4
<PAGE>
administration by the Board of a Committee consisting of not less than two
members of the Board, each of whom is a Disinterested Person.
15.2 Committee Authority. the Committee is authorized, without
-------------------
limitation, to:
(a) construe and interpret the Plan, any Restricted Stock Purchase Agreement
and any other agreement or document executed pursuant to the Plan;
(b) prescribe, amend and rescind rules and regulations relating to the Plan;
(c) select persons to receive Awards;
(d) determine the form and term of Awards;
(e) determine the number of Shares subject to Awards;
(f) grant waivers of Plan or Award conditions;
(g) determine the vesting and payment of Awards;
(h) correct any defect, supply any omission, or reconcile any inconsistency in
the Plan or any other agreement or document executed or distributed in
connection with the Plan;
(i) make all other determinations necessary or advisable for the administration
of the Plan.
15.3 Committee Interpretation Binding. Any interpretation or
--------------------------------
determination made by the Committee with respect to any of the provisions of
this Plan or any Award granted under this Plan shall be made in its sole
discretion and shall be final and binding upon the Company and all persons
having an interest in any Award or any Shares purchased pursuant to an Award.
16. TERM OF PLAN. Awards may be granted pursuant to this Plan from time to
------------
time within a period of ten (10) years after the date on which this Plan is
adopted by the Board.
17. AMENDMENT OR TERMINATION OF PLAN. The Committee may at any time
--------------------------------
terminate or amend this Plan in any respect (including, but not limited to, any
form of agreement or instrument to be executed pursuant to this Plan); provided,
however, that the Committee shall not, without the approval of the shareholders
of the Company, increase the total number of Shares available under this Plan
(except by operation of the provisions of this Plan) or change the class of
persons eligible to purchase Shares under this Plan. In any case, no amendment
of this Plan may adversely affect the rights of any Participant under this Plan
under a Restricted Stock Purchase Agreement previously executed by such
Participant without the written consent of the Participant.
18. CERTAIN DEFINITIONS. As used in this Plan, the following terms shall
-------------------
have the following meanings:
18.1 "Affiliate" means any corporation that directly, or indirectly
---------
through one or more intermediaries, controls or is controlled by, or is under
common control with, another corporation, where "control" (including the terms
"controlled by" and "under common control
5
<PAGE>
with") means the possession, direct or indirect, of the power to cause the
direction of the management and policies of the corporation, whether through the
ownership of voting securities, by contract or otherwise.
18.2 "Disinterested Person" shall have the meaning set forth in Rule
--------------------
16b-3(c)(2) as promulgated by the SEC under Section 16(b) of the Exchange Act,
as such rule is amended from time to time and as interpreted by the SEC.
18.3 "Fair Market Value" shall mean the fair market value of the
-----------------
Shares as determined by the Committee from time to time in good faith. If a
public market exists for the Shares, the Fair Market Value shall be the average
of the last reported bid and asked prices for common stock of the Company on the
last trading day prior to the date of determination (or the average closing
price over the number of consecutive working days preceding the date of
determination as the Committee shall deem appropriate) or, in the event the
common stock of the Company is listed on a stock exchange or on the NASDAQ
National Market System, the Fair Market Value shall be the closing price on such
exchange or quotation system on the last trading day prior to the date of
determination (or the average closing price over the number of consecutive
working days preceding the date of determination as the Committee shall deem
appropriate).
18.4 "Outside Director" shall mean any director who is not (a) a
----------------
current employee of the Company or any Parent, Subsidiary or Affiliate of the
Company, (b) a former employee of the Company or any Parent, Subsidiary or
Affiliate of the Company who is receiving compensation for prior services (other
than benefits under a tax-qualified pension plan), (c) a current or former
officer of the Company or any Parent, Subsidiary or Affiliate of the Company or
(d) a person currently receiving compensation for personal services in any
capacity, other than as a director, from the Company or any Parent, Subsidiary
or Affiliate of the Company; provided, however, that at such time as the term
"Outside Director," as used in Section 162(m) of the Revenue Code is defined in
regulations promulgated under such Section, "Outside Director" shall have the
meaning set forth in such regulations, as amended from time to time and as
interpreted by the Internal Revenue Service.
18.5 "Parent" means any corporation (other than the Company) in an
------
unbroken chain of corporations ending with the Company if, at the time of the
granting of the Award, each of such corporations other than the Company owns
stock possessing 50% or more of the total combined voting power of all classes
of stock in one of the other corporations in such chain.
18.6 "Subsidiary" means any corporation (other than the Company) in an
----------
unbroken chain of corporations beginning with the Company if, at the time of
granting of the Award, each of the corporations other than the last corporation
in the unbroken chain owns stock possessing 50% or more of the total combined
voting power of all classes of stock in one of the other corporations in such
chain.
______________________________
(END OF PLAN)
6
<PAGE>
EXODUS COMMUNICATIONS, INC.
RESTRICTED STOCK PURCHASE AGREEMENT
This Agreement is made and entered into as of _________________________,
199__ (the "Effective Date") between Exodus Communications, Inc. (the
--------------
"Company"), a California corporation, and ______________________________________
-------
("Purchaser"). Capitalized terms not defined herein shall have the meaning
---------
ascribed to them in the Company's 1995 Stock Purchase Plan (the "Plan").
----
1. PURCHASE OF SHARES. On the Effective Date and subject to the terms and
------------------
conditions of this Agreement and the Plan, Purchaser hereby purchases from the
Company, and Company hereby sells to Purchaser, an aggregate of _________ shares
of the Company's common stock (the "Shares") at an aggregate purchase price of
------
$___________ (the "Purchase Price") or $_______ per Share (the "Purchase Price
-------------- --------------
Per Share"). As used in this Agreement, the term "Shares" refers to the Shares
- ---------
purchased under this Agreement and includes all securities received (a) in
replacement of the Shares, (b) as a result of stock dividends or stock splits in
respect of the Shares, and (c) in replacement of the Shares in a
recapitalization, merger, reorganization or the like.
2. PAYMENT OF PURCHASE PRICE; CLOSING.
----------------------------------
(A) DELIVERIES BY PURCHASER. Purchaser hereby delivers to the Company
-----------------------
the full Purchase Price:
[ ] in cash (by check) in the amount of $_______________; or
[ ] by delivery to the Company of a Secured Full Recourse Promissory Note
of Purchaser in the principal amount of $ _______ in the form of
Exhibit 1, duly executed by Purchaser (the "Note").
---------
Purchaser also hereby delivers to the Company: (i) a blank Stock
Power and Assignment Separate from Stock Certificate in the form of Exhibit 2
---------
attached hereto (the "Stock Powers"), executed by Purchaser (and Purchaser's
------------
spouse, if any), (ii) if Purchaser is married, a Consent of Spouse in the form
of Exhibit 3 attached hereto (the "Spouse Consent") duly executed by Purchaser's
--------- --------------
spouse; and (iii) if the Purchase Price is paid with a Note, a Stock Pledge
Agreement in the form of Exhibit 4, duly executed by Purchaser (the "Pledge
--------- ------
Agreement").
- ---------
(B) DELIVERIES BY THE COMPANY. Upon its receipt of the entire
-------------------------
Purchase Price and all the documents to be executed and delivered by Purchaser
to the Company under Section 2(a), the Company will issue a duly executed stock
certificate registered in Purchaser's name in accordance with Section 19, with
such certificate to be placed in escrow as provided in Section 8 until
expiration or termination of both the Company's Repurchase Option and Right of
First Refusal described in Sections 5 and 6, and payment in full to the Company
of all sums due under Note, if any.
1
<PAGE>
Exodus Communications, Inc.
Restricted Stock Purchase Agreement
3. REPRESENTATIONS AND WARRANTIES OF PURCHASER. Purchaser represents and
-------------------------------------------
warrants to the Company that:
(A) PURCHASER AGREES TO TERMS OF THE PLAN AND THIS AGREEMENT.
--------------------------------------------------------
Purchaser has received a copy of the Plan and this Agreement, has read and
understands the terms of the Plan and this Agreement, and agrees to be bound by
their terms and conditions. Purchaser acknowledges that there may be adverse tax
consequences upon purchase and disposition of the shares, and that Purchaser
should consult a tax adviser prior to such purchase or disposition.
(B) PURCHASE FOR OWN ACCOUNT FOR INVESTMENT. Purchaser is purchasing
---------------------------------------
the Shares for Purchaser's own account for investment purposes only and not with
a view to, or for sale in connection with, a distribution of the Shares within
the meaning of the Securities Act of 1933, as amended (the "1933 Act").
--------
Purchaser has no present intention of selling or otherwise disposing of all or
any portion of the Shares and no one other than Purchaser has any beneficial
ownership of any of the Shares.
(C) ACCESS TO INFORMATION. Purchaser has had access to all
---------------------
information regarding the Company and its present and prospective business,
assets, liabilities and financial condition that Purchaser reasonably considers
important in making the decision to purchase the Shares, and Purchaser has had
ample opportunity to ask questions of the Company's representatives concerning
such matters and this investment.
(D) UNDERSTANDING OF RISKS. Purchaser is fully aware of: (i) the
----------------------
highly speculative nature of the investment in the Shares; (ii) the financial
hazards involved; (iii) the lack of liquidity of the Shares and the restrictions
on transferability of the Shares (e.g., that Purchaser may not be able to sell
----
or dispose of the Shares or use them as collateral for loans); (iv) the
qualifications and backgrounds of the management of the Company; and (v) the tax
consequences of investment in the Shares.
(E) NO GENERAL SOLICITATION. At no time was Purchaser presented with
-----------------------
or solicited by any publicly issued or circulated newspaper, mail, radio,
television or other form of general advertising or solicitation in connection
with the offer, sale and purchase of the Shares.
(F) COMPLIANCE WITH SECURITIES LAWS. Purchaser understands and
-------------------------------
acknowledges that, in reliance upon the representations and warranties made by
Purchaser herein, the Shares are not being registered with the Securities and
Exchange Commission ("SEC") under the 1933 Act or being qualified under the
---
California Corporate Securities Law of 1968, as amended (the "Law"), but instead
---
are being issued under an exemption or exemptions from the registration and
qualification requirements of the 1933 Act and the Law which impose certain
restrictions on Purchaser's ability to transfer the Shares.
(G) RESTRICTIONS ON TRANSFER. Purchaser understands that Purchaser
------------------------
may not transfer any Shares unless such Shares are registered under the 1933 Act
or qualified under the Law or unless, in the opinion of counsel to the Company,
exemptions from such registration and qualification requirements are available.
Purchaser understands that only the Company may file a registration statement
with the SEC or the California Commissioner of Corporations and that
2
<PAGE>
Exodus Communications, Inc.
Restricted Stock Purchase Agreement
the Company is under no obligation to do so with respect to the Shares.
Purchaser has also been advised that exemptions from registration and
qualification may not be available or may not permit Purchaser to transfer all
or any of the Shares in the amounts or at the times proposed by Purchaser.
(H) RULE 144. In addition, Purchaser has been advised that SEC Rule
--------
144 promulgated under the 1933 Act, which permits certain limited sales of
unregistered securities, is not presently available with respect to the Shares
and, in any event, requires that the Shares be held for a minimum of two years,
and in certain cases three years, after they have been purchased and paid for
------------
(within the meaning of Rule 144), before they may be resold under Rule 144.
Purchaser understands that Shares paid for with a Note may not be
deemed to be fully "paid for" within the meaning of Rule 144 unless certain
conditions are met and that, accordingly, the Rule 144 holding period of such
Shares may not begin to run until such Shares are fully paid for within the
meaning of Rule 144. Purchaser understands that Rule 144 may indefinitely
restrict transfer of the Shares so long as Purchaser remains an "affiliate" of
the Company and "current public information" about the Company (as defined in
Rule 144) is not publicly available.
4. COMPLIANCE WITH CALIFORNIA SECURITIES LAWS. THE SALE OF THE SECURITIES
------------------------------------------
THAT ARE THE SUBJECT OF THIS AGREEMENT, IF NOT YET QUALIFIED WITH THE CALIFORNIA
COMMISSIONER OF CORPORATIONS AND NOT EXEMPT FROM SUCH QUALIFICATION, IS SUBJECT
TO SUCH QUALIFICATION, AND THE ISSUANCE OF SUCH SECURITIES, AND THE RECEIPT OF
ANY PART OF THE CONSIDERATION THEREFOR PRIOR TO SUCH QUALIFICATION IS UNLAWFUL
UNLESS THE SALE IS EXEMPT. THE RIGHTS OF THE PARTIES TO THIS AGREEMENT ARE
EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED OR AN EXEMPTION
BEING AVAILABLE.
5. COMPANY'S REPURCHASE OPTION. The Company has the option to repurchase
---------------------------
all or a portion of the Shares (as defined below) on the terms and conditions
set forth in this Section (the "Repurchase Option") if Purchaser ceases to be
-----------------
employed by the Company (as defined herein) for any reason, or no reason,
including without limitation Purchaser's death, disability, voluntary
resignation or termination by the Company with or without cause.
(A) DEFINITION OF "EMPLOYED BY THE COMPANY"; "TERMINATION DATE". For
----------------------------------------------------------
purposes of this Agreement, Purchaser will be considered to be "employed by the
---------------
Company" if the Board of Directors of the Company determines that Purchaser is
- -------
rendering substantial services as an officer, director or full-time employee of
the Company or to any parent, subsidiary or affiliate of the Company. In case of
any dispute as to whether Purchaser is employed by the Company, the Board of
Directors of the Company will have discretion to determine whether Purchaser has
ceased to be employed by the Company or any parent, subsidiary or affiliate of
the Company and the effective date on which Purchaser's employment terminated
(the "Termination Date").
----------------
(B) UNVESTED AND VESTED SHARES. Shares that are not Vested Shares (as
--------------------------
defined in this Section) are "Unvested Shares". On ____________, 1995 (the
---------------
"Vesting
3
<PAGE>
Exodus Communications, Inc.
Restricted Stock Purchase Agreement
Commencement Date") all of the Shares were Unvested Shares. If Purchaser has
been continuously employed by the Company at all times during the six (6) months
from the Vesting Commencement Date until _________, 199__ (the "First Vesting
-------------
Date"), then on the First Vesting Date, Twelve percent (12%) of the Shares will
- ----
become Vested Shares; thereafter, for so long (and only for so long) as
Purchaser remains continuously employed by the Company at all times after the
First Vesting Date, an additional Two percent (2%) of the Shares will become
Vested Shares upon the expiration of each full calendar month elapsed from the
First Vesting Date for the next succeeding Forty-four (44) months. No Shares
will become Vested Shares after the Termination Date.
(C) ADJUSTMENTS. The number of Shares that are Vested Shares or
-----------
Unvested Shares will be proportionally adjusted to reflect any stock dividend,
stock split, reverse stock split or recapitalization of the common stock of the
Company occurring after the Effective Date.
(D) EXERCISE OF REPURCHASE OPTION. At any time within thirty (30)
-----------------------------
days after the Termination Date, the Company may elect to repurchase any or all
of the Shares by giving Purchaser written notice of exercise of the Repurchase
Option. The Company and/or its assignee(s) shall have the option to repurchase
from Purchaser (or from Purchaser's personal representative as the case may be)
any or all of the Unvested Shares at the Purchaser's original Purchase Price Per
Share (as adjusted to reflect any stock dividend, stock split, reverse stock
split or recapitalization of the common stock of the Company occurring after the
Effective Date). The Company shall have the right to repurchase Vested Shares at
the higher of the Fair Market Value of the Shares on the Termination Date or the
Purchaser's original Purchase Price Per Share, provided that such right shall
terminate when the common stock of the Company becomes publicly traded.
(E) PAYMENT OF REPURCHASE PRICE. The repurchase price payable to
---------------------------
purchase Shares upon exercise of the Repurchase Option will be payable, at the
option of the Company or its assignee(s), by check or by cancellation of all or
a portion of any outstanding indebtedness of Purchaser to the Company (or to
such assignee) or by any combination thereof. The repurchase price will be paid
without interest within sixty (60) days after the Termination Date.
(F) ASSIGNMENT OF REPURCHASE OPTION. If the Repurchase Option as to
-------------------------------
Unvested Shares is assigned, the assignee must pay the Company upon assignment
cash equal to the difference between the original Purchase Price and the Fair
Market Value of the Shares where the original Purchase Price is less than the
Fair Market Value.
(G) RIGHT OF TERMINATION UNAFFECTED. Nothing in this Agreement will
-------------------------------
be construed to limit or otherwise affect in any manner whatsoever the right or
power of the Company (or any parent, subsidiary or affiliate of the Company) to
terminate Purchaser's employment at any time for any reason or no reason, with
or without cause.
6. RIGHT OF FIRST REFUSAL. Unvested Shares may not be sold or otherwise
----------------------
transferred by Purchaser without the Company's prior written consent. Before
any Vested Shares held by Purchaser or any transferee of such Shares (either
being sometimes referred to herein as the "Holder") may be sold or otherwise
------
transferred (including without limitation a transfer by gift
4
<PAGE>
Exodus Communications, Inc.
Restricted Stock Purchase Agreement
or operation of law), the Company and/or its assignee(s) will have a right of
first refusal to purchase the Shares to be sold or transferred (the "Offered
-------
Shares") on the terms and conditions set forth in this Section (the "Right of
- ------ --------
First Refusal").
- -------------
(A) NOTICE OF PROPOSED TRANSFER. The Holder of the Shares will
---------------------------
deliver to the Company a written notice (the "Notice") stating: (i) the
------
Holder's bona fide intention to sell or otherwise transfer the Offered Shares;
(ii) the name of each proposed purchaser or other transferee ("Proposed
--------
Transferee"); (iii) the number of Offered Shares to be transferred to each
- ----------
Proposed Transferee; (iv) the bona fide cash price or other consideration for
which the Holder proposes to transfer the Offered Shares (the "Offered Price");
-------------
and (v) that the Holder will offer to sell the Offered Shares to the Company
and/or its assignee(s) at the Offered Price as provided in this Section.
(B) EXERCISE OF RIGHT OF FIRST REFUSAL. At any time within thirty
----------------------------------
(30) days after the date of the Notice, the Company and/or its assignee(s) may,
by giving written notice to the Holder, elect to purchase all (but not less than
all) of the Offered Shares proposed to be transferred to any one or more of the
Proposed Transferees named in the Notice, at the purchase price determined in
accordance with subsection (c) below.
(C) PURCHASE PRICE. The purchase price for the Offered Shares
--------------
purchased under this Section will be the Offered Price. If the Offered Price
includes consideration other than cash, then the value of the non-cash
consideration as determined in good faith by the Company's Board of Directors
will conclusively be deemed to be the cash equivalent value of such non-cash
consideration.
(D) PAYMENT. Payment of the purchase price for Offered Shares will be
-------
payable, at the option of the Company and/or its assignee(s) (as applicable), by
check or by cancellation of all or a portion of any outstanding indebtedness of
the Holder to the Company (or to such assignee, in the case of a purchase of
Offered Shares by such assignee) or by any combination thereof. The purchase
price will be paid without interest within sixty (60) days after the Company's
receipt of the Notice, or, at the option of the Company and/or its assignee(s),
in the manner and at the time(s) set forth in the Notice.
(E) HOLDER'S RIGHT TO TRANSFER. If all of the Offered Shares proposed
--------------------------
in the Notice to be transferred to a given Proposed Transferee are not purchased
by the Company and/or its assignee(s) as provided in this Section, then the
Holder may sell or otherwise transfer such Offered Shares to that Proposed
Transferee at the Offered Price or at a higher price, provided that such sale or
--------
other transfer is consummated within 120 days after the date of the Notice, and
provided further, that: (i) any such sale or other transfer is effected in
- -------- -------
compliance with all applicable securities laws; and (ii) the Proposed Transferee
agrees in writing that the provisions of this Section will continue to apply to
the Offered Shares in the hands of such Proposed Transferee. If the Offered
Shares described in the Notice are not transferred to the Proposed Transferee
within such 120 day period, then a new Notice must be given to the Company, and
the Company will again be offered the Right of First Refusal before any Shares
held by the Holder may be sold or otherwise transferred.
5
<PAGE>
Exodus Communications, Inc.
Restricted Stock Purchase Agreement
(F) EXEMPT TRANSFERS. Notwithstanding anything to the contrary in
----------------
this Section, the following transfers of Shares will be exempt from the Right of
First Refusal: (i) the transfer of any or all of the Shares during Purchaser's
lifetime by gift or on Purchaser's death by will or intestacy to Purchaser's
"immediate family" (as defined below) or to a trust for the benefit of Purchaser
or Purchaser's immediate family, provided that each transferee or other
recipient agrees in a writing satisfactory to the Company that the provisions of
this Section will continue to apply to the transferred Shares in the hands of
such transferee or other recipient; (ii) any transfer of Shares made pursuant to
a statutory merger or statutory consolidation of the Company with or into
another corporation or corporations (except that the Right of First Refusal will
continue to apply thereafter to such Shares, in which case the surviving
corporation of such merger or consolidation shall succeed to the rights or the
Company under this Section unless the agreement of merger or consolidation
expressly otherwise provides); or (iii) any transfer of Shares pursuant to the
winding up and dissolution of the Company. As used herein, the term "immediate
---------
family" will mean Purchaser's spouse, lineal descendant or antecedent, father,
- ------
mother, brother or sister, adopted child or grandchild, or the spouse of any
child, adopted child, grandchild or adopted grandchild of Purchaser.
(G) TERMINATION OF RIGHT OF FIRST REFUSAL. The Right of First Refusal
-------------------------------------
will terminate as to all Shares on the effective date of the first sale of
common stock of the Company to the general public pursuant to a registration
statement filed with and declared effective by the SEC under the 1933 Act (other
than a registration statement relating solely to the issuance of common stock
pursuant to a business combination or an employee incentive or benefit plan).
(H) ENCUMBRANCES ON VESTED SHARES. Purchaser may grant a lien or
-----------------------------
security interest in, or pledge, hypothecate or encumber Vested Shares only if
each party to whom such lien or security interest is granted, or to whom such
pledge, hypothecation or other encumbrance is made, agrees in a writing
satisfactory to the Company that: (i) such lien, security interest, pledge,
hypothecation or encumbrance will not apply to such Vested Shares after they are
acquired by the Company and/or its assignees) under this Section; and (ii) the
provisions of this Section will continue to apply to such Vested Shares in the
hands of such party and any transferee of such party. Purchaser may not grant a
lien or security interest in, or pledge, hypothecate or encumber, any Unvested
Shares.
7. RIGHTS AS SHAREHOLDER. Subject to the terms and conditions of this
---------------------
Agreement, Purchaser will have all of the rights of a shareholder of the Company
with respect to the Shares from and after the date that Purchaser delivers
payment of the Purchase Price until such time as Purchaser disposes of the
Shares or the Company and/or its assignee(s) exercise(s) the Repurchase Option
or Right of First Refusal. Upon an exercise of the Repurchase Option or the
Right of First Refusal, Purchaser will have no further rights as a holder of the
Shares so purchased upon such exercise, except the right to receive payment for
the Shares so purchased in accordance with the provisions of this Agreement, and
Purchaser will promptly surrender the stock certificate(s) evidencing the Shares
so purchased to the Company for transfer or cancellation.
8. ESCROW. As security for Purchaser's faithful performance of this
------
Agreement, Purchaser agrees, immediately upon receipt of the stock
certificate(s) evidencing the Shares, to deliver such certificate(s), together
with the Stock Powers executed by Purchaser and by
6
<PAGE>
Exodus Communications, Inc.
Restricted Stock Purchase Agreement
Purchaser's spouse, if any (with the date and number of Shares left blank), to
the Secretary of the Company or other designee of the Company ("Escrow Holder"),
-------------
who is hereby appointed to hold such certificate(s) and Stock Powers in escrow
and to take all such actions and to effectuate all such transfers and/or
releases of such Shares as are in accordance with the terms of this Agreement.
Purchaser and the Company agree that Escrow Holder will not be liable to any
party to this Agreement (or to any other party) for any actions or omissions
unless Escrow Holder is grossly negligent or intentionally fraudulent in
carrying out the duties of Escrow Holder under this Section. Escrow Holder may
rely upon any letter, notice or other document executed by any signature
purported to be genuine and may rely on the advice of counsel and obey any order
of any court with respect to the transactions contemplated by this Agreement.
The Shares will be released from escrow upon termination of both the Repurchase
Option and the Right of First Refusal, provided, however, that the Shares will
-------- -------
be retained in escrow so long as they are subject to a Pledge Agreement.
9. TAX CONSEQUENCES. Purchaser hereby acknowledges that Purchaser has
----------------
been informed that, unless an election is filed by the Purchaser with the
Internal Revenue Service (and, if necessary, the proper state taxing
authorities), within 30 days of the purchase of the Shares, electing pursuant to
--------------
Section 83(b) of the Internal Revenue Code (and similar state tax provisions, if
applicable) to be taxed currently on any difference between the Purchase Price
of the Shares and their fair market value on the date of purchase, there will be
a recognition of taxable income to the Purchaser, measured by the excess, if
any, of the fair market value of the Vested Shares, at the time they cease to be
Unvested Shares, over the purchase price for such Shares. Purchaser represents
that Purchaser has consulted any tax consultant(s) Purchaser deems advisable in
connection with Purchaser's purchase of the Shares and the filing of the
election under Section 83(b) and similar tax provisions. A form of Election
under Section 83(b) is attached hereto as Exhibit 5 for reference. PURCHASER
---------
HEREBY ASSUMES ALL RESPONSIBILITY FOR FILING SUCH ELECTION AND PAYING ANY TAXES
RESULTING FROM SUCH ELECTION OR FOR FAILING TO FILE THE ELECTION AND PAYING
TAXES RESULTING FROM THE LAPSE OF THE REPURCHASE RESTRICTIONS ON THE UNVESTED
SHARES.
10. RESTRICTIVE LEGENDS AND STOP-TRANSFER ORDERS.
--------------------------------------------
(A) LEGENDS. Purchaser understands and agrees that the Company will
-------
place the legends set forth below or similar legends on any stock certificate(s)
evidencing the Shares, together with any other legends that may be required by
state or federal securities laws, the Company's Articles of Incorporation or
Bylaws, any other agreement between Purchaser and the Company or any agreement
between Purchaser and any third party:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT"), OR UNDER THE SECURITIES LAWS OF CERTAIN
STATES. THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON
TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED
OR RESOLD EXCEPT AS PERMITTED UNDER THE ACT
7
<PAGE>
Exodus Communications, Inc.
Restricted Stock Purchase Agreement
AND APPLICABLE STATE SECURITIES LAWS, PURSUANT TO
REGISTRATION OR EXEMPTION THEREFROM. INVESTORS SHOULD
BE AWARE THAT THEY MAY BE REQUIRED TO BEAR THE
FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE
PERIOD OF TIME. THE ISSUER OF THESE SECURITIES MAY
REQUIRE AN OPINION OF COUNSEL IN FORM AND SUBSTANCE
SATISFACTORY TO THE ISSUER TO THE EFFECT THAT ANY
PROPOSED TRANSFER OR RESALE IS IN COMPLIANCE WITH THE
ACT AND ANY APPLICABLE STATE SECURITIES LAWS.
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT
TO CERTAIN RESTRICTIONS ON PUBLIC RESALE, TRANSFER,
RIGHT OF REPURCHASE AND RIGHT OF FIRST REFUSAL OPTIONS
HELD BY THE ISSUER AND/OR ITS ASSIGNEE(S) AS SET FORTH
IN A RESTRICTED STOCK PURCHASE AGREEMENT BETWEEN THE
ISSUER AND THE ORIGINAL HOLDER OF THESE SHARES, A COPY
OF WHICH MAY BE OBTAINED AT THE PRINCIPAL OFFICE OF THE
ISSUER. SUCH PUBLIC SALE AND TRANSFER RESTRICTIONS AND
THE RIGHT OF REPURCHASE AND RIGHT OF FIRST REFUSAL ARE
BINDING ON TRANSFEREES OF THESE SHARES.
(B) STOP-TRANSFER INSTRUCTIONS. Purchaser agrees that, in order to
--------------------------
ensure compliance with the restrictions imposed by this Agreement, the Company
may issue appropriate "stop-transfer" instructions to its transfer agent, if
any, and if the Company transfers its own securities, it may make appropriate
notations to the same effect in its own records.
(C) REFUSAL TO TRANSFER. The Company will not be required (i) to
-------------------
transfer on its books any Shares that have been sold or otherwise transferred in
violation of any of the provisions of this Agreement or (ii) to treat as owner
of such Shares, or to accord the right to vote or pay dividends, to any
purchaser or other transferee to whom such Shares have been so transferred.
11. MARKET STANDOFF AGREEMENT. Purchaser agrees in connection with any
-------------------------
registration of the Company's securities under the 1933 Act that, upon the
request of the Company or the underwriters managing any registered public
offering of the Company's securities, Purchaser will not sell or otherwise
dispose of any Shares without the prior written consent of the Company or such
managing underwriters, as the case may be, for a period of time (not to exceed
180 days) after the effective date of such registration requested by such
managing underwriters and subject to all restrictions as the Company or the
managing underwriters may specify for employee-shareholders generally.
8
<PAGE>
Exodus Communications, Inc.
Restricted Stock Purchase Agreement
12. COMPLIANCE WITH LAWS AND REGULATIONS. The issuance and transfer of the
------------------------------------
Shares will be subject to and conditioned upon compliance by the Company and
Purchaser with all applicable state and federal laws and regulations and with
all applicable requirements of any stock exchange or automated quotation system
on which the Company's common stock may be listed or quoted at the time of such
issuance or transfer.
13. SUCCESSORS AND ASSIGNS. The Company may assign any of its rights under
----------------------
this Agreement, including its rights to repurchase Shares under the Repurchase
Option and the Right of First Refusal. However, if the Company assigns its right
to repurchase Shares under the Repurchase Option to a holder of more than 10% of
the Company's outstanding voting securities, the assignee will pay to the
Company, in addition to the purchase price it pays to Purchaser, the difference
between the cost of the Shares purchased under the Repurchase Option and the
current fair market value of the Shares, as determined by the Company's Board of
Directors. This Agreement will be binding upon and inure to the benefit of the
successors and assigns of the Company. Subject to the restrictions on transfer
herein set forth, this Agreement will be binding upon Purchaser and Purchaser's
heirs, executors, administrators, successors and assigns.
14. GOVERNING LAW; SEVERABILITY. This Agreement will be governed by and
---------------------------
construed in accordance with the internal laws of the State of California
excluding that body of laws pertaining to conflict of laws. If any provision of
this Agreement is determined by a court of law to be illegal or unenforceable,
then such provision will be enforced to the maximum extent possible and the
other provisions will remain fully effective and enforceable.
15. NOTICES. Any notice required or permitted hereunder will be given in
-------
writing and will be deemed effectively given upon personal delivery, three (3)
days after deposit in the United States mail by certified or registered mail
(return receipt requested), one (1) business day after its deposit with any
return receipt express courier (prepaid), or one (1) business day after
transmission by telecopier, addressed to the other party at its address (or
facsimile number, in the case of transmission by telecopier) as shown below its
signature to this Agreement, or to such other address as such party may
designate in writing from time to time to the other party.
16. FURTHER INSTRUMENTS. The parties agree to execute such further
-------------------
instruments and to take such further action as may be reasonably necessary to
carry out the purposes and intent of this Agreement.
17. HEADINGS. The captions and headings of this Agreement are included for
--------
ease of reference only and will be disregarded in interpreting or construing
this Agreement. All references herein to Sections will refer to Sections of
this Agreement.
18. ENTIRE AGREEMENT. The Plan and this Agreement, together with all its
----------------
Exhibits, constitute the entire agreement and understanding of the parties with
respect to the subject matter of this Agreement, and supersede all prior
understandings and agreements, whether oral or written, between the parties
hereto with respect to the specific subject matter hereof.
9
<PAGE>
Exodus Communications, Inc.
Restricted Stock Purchase Agreement
19. TITLE TO SHARES. The exact spelling of the name(s) under which
---------------
Purchaser will take title to the Shares is:
________________________________________________________
________________________________________________________
Purchaser desires to take title to the Shares as follows:
[ ] Individual, as separate property
[ ] Husband and wife, as community property
[ ] Joint Tenants
[ ]Alone or with spouse as trustee(s) of the following trust
(including date): ____________________________________________________
______________________________________________________________________
______________________________________________________________________
[ ] Other; please specify: _______________________________________________
______________________________________________________________________
Purchaser's social security number is: _________________________________________
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed in
duplicate by its duly authorized representative and Purchaser has executed this
Agreement as of the Effective Date.
COMPANY PURCHASER
By: _________________________________ _______________________________________
Name: _______________________________
Title: ______________________________ Name: _________________________________
Address: ____________________________ Address: ______________________________
_____________________________________ _______________________________________
Fax: (____) _________________________ Fax: (____) ___________________________
10
<PAGE>
LIST OF EXHIBITS
----------------
Exhibit 1: Secured Full Recourse Promissory Note
Exhibit 2: Stock Power and Assignment Separate from Stock Certificate
Exhibit 3: Spousal Consent
Exhibit 4: Stock Pledge Agreement
Exhibit 5: Election Under Section 83(b) of the Internal Revenue Code
<PAGE>
EXHIBIT 1
---------
SECURED FULL RECOURSE PROMISSORY NOTE
-------------------------------------
________________, California
$____________ _____________, 199_
1. OBLIGATION; REPAYMENT. In exchange for the issuance to the undersigned
---------------------
("Purchaser") of _________ shares (the "Shares") of the Common Stock of
--------- ------
____________________________, a California corporation (the "Company"), receipt
-------
of which is hereby acknowledged, Purchaser hereby promises to pay to the order
of the Company on or before ___________, 199___ as set forth below, at the
Company's principal place of business at _______________________________,
California __________, or at such other place as the Company may direct, the
principal sum of ____________________________________ Dollars ($________)
together with interest compounded semi-annually on the unpaid principal at the
rate of ________________ percent (____%), which rate is not less than the
minimum rate established pursuant to Section 1274(d) of the Internal Revenue
Code of 1986, as amended, on the earliest date on which there was a binding
contract in writing for the purchase of the Shares; provided, however, that the
-------- -------
rate at which interest will accrue on unpaid principal under this Note will not
exceed the highest rate permitted by applicable law. Repayment of this Note
shall be made in immediately available funds in ____________________ ( ) equal
consecutive semi-monthly installments of $_________________________ each of
principal and accrued interest commencing on _______________________________,
199_____; provided, however, that if the final installment shall not be the
------------------
exact amount necessary to repay in full the unpaid balance of principal and
interest then due under this Note, then such installment shall instead be in the
amount necessary to repay in full the unpaid principal amount and interest
accrued thereon; and provided further that if any installment of this Note
----------------
becomes due and payable on a day other than a business day, then such
installment shall be payable on the next preceding business day. Borrowers agree
that each installment required under this Section 1 may be withheld from
Employee's compensation, as provided in Section 9 of this Note.
2. SECURITY. Payment of this Note is secured by a security interest in
--------
the Shares granted to the Company by Purchaser under a Stock Pledge Agreement
dated of even date herewith between the Company and Purchaser (the "Pledge
------
Agreement"). This Note is being tendered by Purchaser to the Company as the
- ---------
purchase price of the Shares pursuant to that certain Restricted Stock Purchase
Agreement between Purchaser and the Company dated of even date with this Note
(the "Purchase Agreement").
------------------
3. DEFAULT; ACCELERATION OF OBLIGATION. Purchaser will be deemed to be in
-----------------------------------
default under this Note and the principal sum of this Note, together with all
interest accrued thereon, will
1
<PAGE>
immediately become due and payable in full: (a) upon Purchaser's failure to make
any payment when due under this Note; (b) in the event Purchaser ceases to be
employed by the Company (as defined in the Purchase Agreement) for any reason;
(c) upon any transfer of any of the Shares; (d) upon the filing by or against
Purchaser of any voluntary or involuntary petition in bankruptcy or any petition
for relief under the federal bankruptcy code or any other state or federal law
for the relief of debtors; or (e) upon the execution by Purchaser of an
assignment for the benefit of creditors or the appointment of a receiver,
custodian, trustee or similar party to take possession of Purchaser's assets or
property.
4. REMEDIES ON DEFAULT. Upon any default of Purchaser under this Note,
-------------------
the Company will have, in addition to its rights and remedies under this Note
and the Pledge Agreement, full recourse against any real, personal, tangible or
intangible assets of Purchaser, and may pursue any legal or equitable remedies
that are available to it.
5. RULE 144 HOLDING PERIOD. PURCHASER UNDERSTANDS THAT THE HOLDING PERIOD
-----------------------
SPECIFIED UNDER RULE 144(d) OF THE SECURITIES AND EXCHANGE COMMISSION WILL NOT
BEGIN TO RUN WITH RESPECT TO SHARES PURCHASED WITH THIS NOTE UNTIL EITHER (A)
THE PURCHASE PRICE OF SUCH SHARES IS PAID IN FULL IN CASH OR BY OTHER PROPERTY
ACCEPTED BY THE COMPANY, OR (B) THIS NOTE IS SECURED BY COLLATERAL, OTHER THAN
THE SHARES, HAVING A FAIR MARKET VALUE AT LEAST EQUAL TO THE AMOUNT OF
PURCHASER'S THEN OUTSTANDING OBLIGATION UNDER THIS NOTE (INCLUDING ACCRUED
INTEREST).
6. PREPAYMENT. Prepayment of principal and/or interest due under this
----------
Note may be made at any time without penalty. Unless otherwise agreed in writing
by the Company, all payments will be made in lawful tender of the United States
and will be applied first to the payment of accrued interest, and the remaining
balance of such payment, if any, will then be applied to the payment of
principal. If Purchaser prepays all or a portion of the principal amount of this
Note, Purchaser intends that the Shares paid for by the portion of principal so
paid will continue to be held in pledge under the Pledge Agreement to serve as
independent collateral for the outstanding portion of this Note for the purpose
of commencing the holding period under Rule 144(d) of the Securities and
Exchange Commission with respect to other Shares purchased with this Note.
7. GOVERNING LAW; WAIVER. The validity, construction and performance of
---------------------
this Note will be governed by the internal laws of the State of California,
excluding that body of law pertaining to conflicts of law. Purchaser hereby
waives presentment, notice of non-payment, notice of dishonor, protest, demand
and diligence.
8. ATTORNEYS' FEES. If suit is brought for collection of this Note,
---------------
Purchaser agrees to pay all reasonable expenses, including attorneys' fees,
incurred by the holder in connection therewith whether or not such suit is
prosecuted to judgment.
9. WITHHOLDING AGREEMENT. THE PURCHASER HEREBY EXPRESSLY AGREES THAT THE
---------------------
COMPANY MAY WITHHOLD FROM ANY PAYMENTS OF THE
2
<PAGE>
PURCHASER'S SALARY OR ANY BONUS, AWARD OR OTHER COMPENSATION PAID OR PAYABLE BY
THE COMPANY TO THE PURCHASER THE FULL AMOUNT OF ANY SCHEDULED PAYMENT REQUIRED
UNDER SECTION 1 OF THIS NOTE THEN DUE AND PAYABLE.
IN WITNESS WHEREOF, Purchaser has executed this Note as of the date and
year first above written.
______________________________________ _______________________________________
Purchaser's Name [type or print] Purchaser's Signature
[SIGNATURE PAGE TO SECURED FULL RECOURSE PROMISSORY NOTE]
3
<PAGE>
EXHIBIT 2
---------
STOCK POWER AND ASSIGNMENT
SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED and pursuant to that certain [Founder's Restricted Stock
Purchase Agreement] dated as of __________, 199_, (the "Agreement"), the
---------
undersigned hereby sells, assigns and transfers unto _____________________,
__________ shares of the common stock of ________________, a California
corporation (the "Company"), standing in the undersigned's name on the books of
-------
the Company represented by Certificate No(s). ____ delivered herewith, and does
hereby irrevocably constitute and appoint the Secretary of the Company as the
undersigned's attorney-in-fact, with full power of substitution, to transfer
said stock on the books of the Company. THIS ASSIGNMENT MAY ONLY BE USED AS
AUTHORIZED BY THE AGREEMENT AND THE EXHIBITS THERETO.
Dated: ______________, 199__
PURCHASER
_______________________________________
(Signature)
_______________________________________
(Please Print Name)
_______________________________________
(Spouse's Signature, if any)
_______________________________________
(Please Print Spouse's Name)
INSTRUCTION: Please do not fill in any blanks other than the signature line.
- ----------- ---
<PAGE>
EXHIBIT 3
---------
CONSENT OF SPOUSE
-----------------
I, the undersigned, am the spouse of ______________________________
("Purchaser"). I have read and hereby consent to and approve all the terms and
- -----------
conditions of: the Restricted Stock Purchase Agreement (the "Agreement") dated
---------
______________, 19__ between Purchaser and _________________________________, a
California corporation (the "Company"), pursuant to which Purchaser has
-------
purchased ________ shares of the Company's common stock (the "Shares") and that
------
certain Secured Full Recourse Promissory Note (the "Note") and Stock Pledge
----
Agreement ("Pledge Agreement") executed by Purchaser in connection with the
----------------
Agreement.
In consideration of the Company granting my spouse the right to purchase
the Shares under the Agreement, I hereby agree to be irrevocably bound by all
the terms and conditions of the Agreement (including but not limited to the
Company's Repurchase Option, the Right of First Refusal and the market standoff
agreements contained therein) and of the Note and the Pledge Agreement, and
further agree that any community property interest I may have in the Shares will
be similarly bound by the Agreement, the Note and the Pledge Agreement.
I hereby appoint Purchaser as my attorney-in-fact, to act in my name, place
and stead with respect to any amendment of the Agreement , the Note and the
Pledge Agreement, and with respect to the making and filing of an election under
Internal Revenue Code Section 83(b) in connection with the purchase of the
Shares.
Dated: _________________, 19__
______________________________________
Signature of Spouse [Sign Here]
______________________________________
Name of Spouse [Please Print]
<PAGE>
EXHIBIT 4
---------
STOCK PLEDGE AGREEMENT
----------------------
This Agreement is made and entered into as of _____________, 199__ between
_________________________________, a California corporation (the "Company"), and
-------
___________________________________________ ("Pledgor").
-------
R E C I T A L S
- - - - - - - -
A. In exchange for Pledgor's Secured Full Recourse Promissory Note to the
Company of even date herewith (the "Note"), the Company has issued and sold to
----
Pledgor ___________ shares of its common stock (the "Shares") pursuant to the
------
terms and conditions of that certain Founder's Restricted Stock Purchase
Agreement between the Company and Pledgor of even date herewith (the "Purchase
--------
Agreement").
- ---------
B. Pledgor has agreed that repayment of the Note will be secured by the
pledge of the Shares pursuant to this Agreement.
NOW, THEREFORE, the parties agree as follows:
1. CREATION OF SECURITY INTEREST. Pursuant to the provisions of the
-----------------------------
California Commercial Code, Pledgor hereby grants to the Company, and the
Company hereby accepts, a first and present security interest in the Shares as
collateral to secure the payment of Pledgor's obligation to the Company under
the Note. Pledgor herewith delivers to the Company common stock certificate(s)
No(s). ________, representing all the Shares, together with one stock power for
each certificate in the form attached as an Exhibit to the Purchase Agreement,
duly executed (with the date and number of shares left blank) by Pledgor and
Pledgor's spouse, if any. For purposes of this Agreement, the Shares pledged to
the Company hereby, together with any additional collateral pledged pursuant to
Section 5 hereof, will hereinafter be collectively referred to as the
"Collateral." Pledgor agrees that the Collateral pledged to the Company will be
----------
deposited with and held by the Escrow Holder (as defined in the Purchase
Agreement) and that, notwithstanding anything to the contrary in the Purchase
Agreement, for purposes of carrying out the provisions of this Agreement, Escrow
Holder will act solely for the Company as its agent.
2. REPRESENTATIONS AND WARRANTIES. Pledgor hereby represents and
------------------------------
warrants to the Company that Pledgor has good title (both record and beneficial)
to the Collateral, free and clear of all claims, pledges, security interests,
liens or encumbrances of every nature whatsoever, and that Pledgor has the right
to pledge and grant the Company the security interest in the Collateral granted
under this Agreement. Pledgor further agrees that, until the entire principal
sum and all accrued interest due under the Note has been paid in full, Purchaser
will not, without the Company's prior written consent, (i) sell, assign or
transfer, or attempt to sell, assign or transfer, any of the Collateral, or (ii)
grant or create, or attempt to grant or create,
1
<PAGE>
any security interest, lien, pledge, claim or other encumbrance with respect to
any of the Collateral.
3. RIGHTS ON DEFAULT. In the event of default (as defined in the
-----------------
Note) by Pledgor under the Note, the Company will have full power to sell,
assign and deliver the whole or any part of the Collateral at any broker's
exchange or elsewhere, at public or private sale, at the option of the Company,
in order to satisfy any part of the obligations of Pledgor now existing or
hereinafter arising under the Note. On any such sale, the Company or its assigns
may purchase all or any part of the Collateral. In addition, at its sole option,
the Company may elect to retain all the Collateral in full satisfaction of
Pledgor's obligation under the Note, in accordance with the provisions and
procedures set forth in the California Commercial Code.
4. ADDITIONAL REMEDIES. The rights and remedies granted to the
-------------------
Company herein upon default under the Note will be in addition to all the
rights, powers and remedies of the Company under the California Commercial Code
and applicable law and such rights, powers and remedies will be exercisable by
the Company with respect to all of the Collateral. Pledgor agrees that the
Company's reasonable expenses of holding the Collateral, preparing it for resale
or other disposition, and selling or otherwise disposing of the Collateral,
including attorneys' fees and other legal expenses, will be deducted from the
proceeds of any sale or other disposition and will be included in the amounts
Pledgor must tender to redeem the Collateral. All rights, powers and remedies of
the Company will be cumulative and not alternative. Any forbearance or failure
or delay by the Company in exercising any right, power or remedy hereunder will
not be deemed to be a waiver of any such right, power or remedy and any single
or partial exercise of any such right, power or remedy hereunder will not
preclude the further exercise thereof.
5. DIVIDENDS; VOTING. All dividends hereinafter declared on or
-----------------
payable with respect to the Collateral during the term of this pledge (excluding
only ordinary cash dividends, which will be payable to Pledgor so long as
Pledgor is not in default under the Note) will be immediately delivered to the
Company to be held in pledge under this Agreement. Notwithstanding this
Agreement, so long as Pledgor owns the Shares and is not in default under the
Note, Pledgor will be entitled to vote any shares comprising the Collateral,
subject to any proxies granted by Pledgor.
6. ADJUSTMENTS. In the event that during the term of this pledge,
-----------
any stock dividend, reclassification, readjustment, stock split or other change
is declared or made with respect to the Collateral, or if warrants or any other
rights, options or securities are issued in respect of the Collateral, then all
new, substituted and/or additional shares or other securities issued by reason
of such change or by reason of the exercise of such warrants, rights, options or
securities, will be immediately pledged to the Company to be held under the
terms of this Agreement in the same manner as the Collateral is held hereunder.
7. RIGHTS UNDER PURCHASE AGREEMENT. Pledgor understands and agrees
-------------------------------
that the Company's rights to repurchase the Collateral under the Purchase
Agreement will continue for the periods and on the terms and conditions
specified in the Purchase Agreement, whether or not the Note has been paid
during such period of time, and that to the extent that the Note is not
2
<PAGE>
paid during such period of time, the repurchase by the Company of the Collateral
may be made by way of cancellation of all or any part of Pledgor's indebtedness
under the Note.
8. REDELIVERY OF COLLATERAL. Upon payment in full of the entire
------------------------
principal sum and all accrued interest due under the Note, and subject to the
terms and conditions of the Purchase Agreement, the Company will immediately
redeliver the Collateral to Pledgor and this Agreement will terminate; provided,
--------
however, that all rights of the Company to retain possession of the Shares
- -------
pursuant to the Purchase Agreement will survive termination of this Agreement.
9. SUCCESSORS AND ASSIGNS. This Agreement will inure to the benefit
----------------------
of the respective heirs, personal representatives, successors and assigns of the
parties hereto.
10. GOVERNING LAW; SEVERABILITY. This Agreement will be governed by
---------------------------
and construed in accordance with the internal laws of the State of California,
excluding that body of law relating to conflicts of law. Should one or more of
the provisions of this Agreement be determined by a court of law to be illegal
or unenforceable, the other provisions nevertheless will remain effective and
will be enforceable.
11. MODIFICATION; ENTIRE AGREEMENT. This Agreement will not be
------------------------------
amended without the written consent of both parties hereto. This Agreement,
Purchase Agreement and the Plan constitute the entire agreement of the parties
hereto with respect to the subject matter hereof and supersede all prior
agreements and understandings related to such subject matter.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date and year first above written.
COMPANY PLEDGOR
By: ________________________________ ________________________________________
[Signature]
Name: ______________________________ ________________________________________
[Please Print Name]
Its: _______________________________
3
<PAGE>
EXHIBIT 5
---------
ELECTION UNDER SECTION 83(B) OF THE
INTERNAL REVENUE CODE
The undersigned Taxpayer hereby elects, pursuant to Section 83(b) of the
Internal Revenue Code, to include in gross income for the Taxpayer's current
taxable year the excess, if any, of the fair market value of the property
described below at the time of transfer over the amount paid for such property,
as compensation for services.
1. TAXPAYER'S NAME: ________________________________________
TAXPAYER'S ADDRESS: ________________________________________
________________________________________
SOCIAL SECURITY NUMBER: ________________________________________
2. The property with respect to which the election is made is described as
follows: ________ shares of Common Stock of Exodus Communications, Inc. a
California corporation (the "Company"), which is Taxpayer's employer or the
-------
corporation for whom the Taxpayer performs services.
3. The date on which the shares were transferred was _____________, 199__ and
this election is made for calendar year 199__.
4. The shares are subject to the following restrictions: The Company may
repurchase all or a portion of the shares at the Taxpayer's original
purchase price under certain conditions at the time of Taxpayer's
termination of employment or services.
5. The fair market value of the shares (without regard to restrictions other
than restrictions which by their terms will never lapse) was $______ per
share at the time of transfer.
6. The amount paid for such shares was $______ per share.
7. The Taxpayer has submitted a copy of this statement to the Company.
THIS ELECTION MUST BE FILED WITH THE INTERNAL REVENUE SERVICE ("IRS"), AT THE
---
OFFICE WHERE THE TAXPAYER FILES ANNUAL INCOME TAX RETURNS, WITHIN 30 DAYS AFTER
--------------
THE DATE OF TRANSFER OF THE PROPERTY, AND MUST ALSO BE FILED WITH THE TAXPAYER'S
INCOME TAX RETURNS FOR THE CALENDAR YEAR. THE ELECTION CANNOT BE REVOKED WITHOUT
THE CONSENT OF THE IRS.
Dated: _______________, 199__ ________________________________________
Taxpayer's Signature
<PAGE>
EXHIBIT 10.04
Equity Communications, Inc.
1997 Equity Incentive Plan
EXODUS COMMUNICATIONS, INC.
1997 EQUITY INCENTIVE PLAN
AS ADOPTED JANUARY 31, 1997
AS AMENDED OCTOBER 8, 1997
1. PURPOSE. The purpose of this Plan is to provide incentives to attract,
-------
retain and motivate eligible persons whose present and potential contributions
are important to the success of the Company, its Parent and Subsidiaries, by
offering them an opportunity to participate in the Company's future performance
through awards of Options and Restricted Stock. Capitalized terms not defined
in the text are defined in Section 22. This Plan is intended to be a written
compensatory benefit plan within the meaning of Rule 701 promulgated under the
Securities Act.
2. SHARES SUBJECT TO THE PLAN.
--------------------------
2.1 Number of Shares Available. Subject to Sections 2.2 and 17, the
--------------------------
total number of Shares reserved and available for grant and issuance pursuant to
this Plan will be 6,600,000 Shares or such lesser number of Shares as permitted
under Section 260.140.45 of Title 10 of the California Code of Regulations.
Subject to Sections 2.2 and 17, Shares will again be available for grant and
issuance in connection with future Awards under this Plan that: (a) are subject
to issuance upon exercise of an Option but cease to be subject to such Option
for any reason other than exercise of such Option or (b) are subject to an Award
that otherwise terminates without Shares being issued. At all times the Company
will reserve and keep available a sufficient number of Shares as will be
required to satisfy the requirements of all Awards granted under this Plan.
2.2 Adjustment of Shares. In the event that the number of
--------------------
outstanding Shares is changed by a stock dividend, recapitalization, stock
split, reverse stock split, subdivision, combination, reclassification or
similar change in the capital structure of the Company without consideration,
then (a) the number of Shares reserved for issuance under this Plan, (b) the
Exercise Prices of and number of Shares subject to outstanding Options, and (c)
the number of Shares subject to other outstanding Awards will be proportionately
adjusted, subject to any required action by the Board or the shareholders of the
Company and compliance with applicable securities laws; provided, however, that
-------- -------
fractions of a Share will not be issued but will either be paid in cash at Fair
Market Value of such fraction of a Share or will be rounded up to the nearest
whole Share, as determined by the Committee.
3. ELIGIBILITY. ISOs (as defined in Section 5 below) may be granted only
-----------
to employees (including officers and directors who are also employees) of the
Company or of a Parent or Subsidiary of the Company. All other Awards may be
granted to employees, officers, directors and consultants of the Company or any
Parent or Subsidiary of the Company; provided such consultants render bona fide
services not in connection with the offer and sale of securities in a capital-
raising transaction. A person may be granted more than one Award under this
Plan.
4. ADMINISTRATION.
--------------
<PAGE>
Equity Communications, Inc.
1997 Equity Incentive Plan
4.1 Committee Authority. This Plan will be administered by the
-------------------
Committee or the Board acting as the Committee. Subject to the general
purposes, terms and conditions of this Plan, and to the direction of the Board,
the Committee will have full power to implement and carry out this Plan.
Without limitation, the Committee will have the authority to:
(a) construe and interpret this Plan, any Award Agreement and
any other agreement or document executed pursuant to this
Plan;
(b) prescribe, amend and rescind rules and regulations relating
to this Plan;
(c) select persons to receive Awards,
(d) determine the form and terms of Awards;
(e) determine the number of Shares or other consideration
subject to Awards;
(f) determine whether Awards will be granted singly, in
combination with, in tandem with, in replacement of, or as
alternatives to, other Awards under this Plan or any other
incentive or compensation plan of the Company or any Parent
or Subsidiary of the Company;
(g) grant waivers of Plan or Award conditions;
(h) determine the vesting, exercisability and payment of Awards;
(i) correct any defect, supply any omission, or reconcile any
inconsistency in this Plan, any Award, any Award Agreement,
any Exercise Agreement or any Restricted Stock Purchase
Agreement;
(j) determine whether an Award has been earned; and
(k) make all other determinations necessary or advisable for the
administration of this Plan.
4.2 Committee Discretion. Any determination made by the Committee
--------------------
with respect to any Award will be made in its sole discretion at the time of
grant of the Award or, unless in contravention of any express term of this Plan
or Award, at any later time, and such determination will be final and binding on
the Company and on all persons having an interest in any Award under this Plan.
The Committee may delegate to one or more officers of the Company the authority
to grant an Award under this Plan to Participants who are not Insiders of the
Company.
2
<PAGE>
Equity Communications, Inc.
1997 Equity Incentive Plan
5. OPTIONS. The Committee may grant Options to eligible persons and will
-------
determine whether such Options will be Incentive Stock Options within the
meaning of the Code ("ISOS") or Nonqualified Stock Options ("NQSOS"), the number
of Shares subject to the Option, the Exercise Price of the Option, the period
during which the Option may be exercised, and all other terms and conditions of
the Option, subject to the following:
5.1 Form of Option Grant. Each Option granted under this Plan will
--------------------
be evidenced by an Award Agreement which will expressly identify the Option as
an ISO or an NQSO ("STOCK OPTION AGREEMENT"), and will be in such form and
contain such provisions (which need not be the same for each Participant) as the
Committee may from time to time approve, and which will comply with and be
subject to the terms and conditions of this Plan.
5.2 Date of Grant. The date of grant of an Option will be the date
-------------
on which the Committee makes the determination to grant such Option, unless
otherwise specified by the Committee. The Stock Option Agreement and a copy of
this Plan will be delivered to the Participant within a reasonable time after
the granting of the Option.
5.3 Exercise Period. Options may be exercisable immediately (subject
---------------
to repurchase pursuant to Section 11 of this Plan) or may be exercisable within
the times or upon the events determined by the Committee as set forth in the
Stock Option Agreement governing such Option; provided, however, that no Option
-------- -------
will be exercisable after the expiration of ten (10) years from the date the
Option is granted; and provided further that no ISO granted to a person who
directly or by attribution owns more than ten percent (10%) of the total
combined voting power of all classes of stock of the Company or of any Parent or
Subsidiary of the Company ("TEN PERCENT SHAREHOLDER") will be exercisable after
the expiration of five (5) years from the date the ISO is granted. The
Committee also may provide for Options to become exercisable at one time or from
time to time, periodically or otherwise, in such number of Shares or percentage
of Shares as the Committee determines. Subject to earlier termination of the
Option as provided herein, Participant's other than officers, directors or
consultants of the Company or of a Parent or Subsidiary of the Company shall
have the right to exercise an Option granted hereunder at the rate of at least
twenty percent (20%) per year over five (5) years from the date such Option is
granted.
5.4 Exercise Price. The Exercise Price of an Option will be
--------------
determined by the Committee when the Option is granted and may not be less than
85% of the Fair Market Value of the Shares on the date of grant; provided that
(i) the Exercise Price of an ISO will not be less than 100% of the Fair Market
Value of the Shares on the date of grant and (ii) the Exercise Price of any
Option granted to a Ten Percent Shareholder will not be less than 110% of the
Fair Market Value of the Shares on the date of grant. Payment for the Shares
purchased must be made in accordance with Section 7 of this Plan.
5.5 Method of Exercise. Options may be exercised only by delivery to
------------------
the Company of a written stock option exercise agreement (the "EXERCISE
AGREEMENT") in a form approved by the Committee (which need not be the same for
each Participant), stating the number of Shares being purchased, the
restrictions imposed on the Shares purchased under such Exercise Agreement, if
any, and such representations and agreements regarding Participant's
3
<PAGE>
Equity Communications, Inc.
1997 Equity Incentive Plan
investment intent and access to information and other matters, if any, as may be
required or desirable by the Company to comply with applicable securities laws,
together with payment in full of the Exercise Price, and any applicable taxes,
for the number of Shares being purchased.
5.6 Termination. Subject to earlier termination pursuant to
-----------
Subsection 17.1 and notwithstanding the exercise periods set forth in the Stock
Option Agreement, exercise of an Option will always be subject to the following:
(a) If the Participant is Terminated for any reason except
death, Disability or for Cause then the Participant may
exercise such Participant's Options only to the extent that
such Options would have been exercisable upon the
Termination Date no later than three (3) months after the
Termination Date (or such shorter time period, not less than
thirty (30) days, as may be specified in the Stock Option
Agreement) or such longer time period not exceeding five (5)
years after the Termination Date as may be determined by the
Committee, with any exercise beyond three (3) months after
the Termination Date deemed to be an NQSO, but in any event,
no later than the expiration date of the Options.
(b) If the Participant is Terminated because of Participant's
death or Disability (or the Participant dies within three
(3) months after a Termination other than because of
Participant's death or Disability or Cause), then
Participant's Options may be exercised only to the extent
that such Options would have been exercisable by Participant
on the Termination Date and must be exercised by Participant
(or Participant's legal representative or authorized
assignee) no later than twelve (12) months after the
Termination Date (or such shorter time period, not less than
six (6) months, as may be specified in the Stock Option
Agreement) or such longer time period not exceeding five (5)
years after the Termination Date as may be determined by the
Committee, with any exercise beyond (a) three (3) months
after the Termination Date when the Termination is for any
reason other than the Participant's death or disability,
within the meaning of Section 22(e)(3) of the Code, or (b)
twelve (12) months after the Termination Date when the
Termination is for Participant's death or disability, within
the meaning of Section 22(e)(3) of the Code, deemed to be an
NQSO, but in any event no later than the expiration date of
the Options.
(c) If the Participant is terminated for Cause, then
Participant's options shall expire on such Participant's
Termination Date, or at such later time and on such
conditions as determined by the Committee.
5.7 Limitations on Exercise. The Committee may specify a reasonable
-----------------------
minimum number of Shares that may be purchased on any exercise of an Option,
provided that
4
<PAGE>
Equity Communications, Inc.
1997 Equity Incentive Plan
such minimum number will not prevent Participant from exercising the Option for
the full number of Shares for which it is then exercisable.
5.8 Limitations on ISOs. The aggregate Fair Market Value (determined
-------------------
as of the date of grant) of Shares with respect to which ISOs are exercisable
for the first time by a Participant during any calendar year (under this Plan or
under any other incentive stock option plan of the Company or any Parent or
Subsidiary of the Company) will not exceed $100,000. If the Fair Market Value
of Shares on the date of grant with respect to which ISOs are exercisable for
the first time by a Participant during any calendar year exceeds $100,000, then
the Options for the first $100,000 worth of Shares to become exercisable in such
calendar year will be ISOs and the Options for the amount in excess of $100,000
that become exercisable in that calendar year will be NQSOs. In the event that
the Code or the regulations promulgated thereunder are amended after the
Effective Date (as defined in Section 18 below) of this Plan to provide for a
different limit on the Fair Market Value of Shares permitted to be subject to
ISOs, then such different limit will be automatically incorporated herein and
will apply to any Options granted after the effective date of such amendment.
5.9 Modification, Extension or Renewal. The Committee may modify,
----------------------------------
extend or renew outstanding Options and authorize the grant of new Options in
substitution therefor, provided that any such action may not, without the
written consent of a Participant, impair any of such Participant's rights under
any Option previously granted. Any outstanding ISO that is modified, extended,
renewed or otherwise altered will be treated in accordance with Section 424(h)
of the Code. The Committee may reduce the Exercise Price of outstanding Options
without the consent of Participants affected by a written notice to them;
provided, however, that the Exercise Price may not be reduced below the minimum
- -------- --------
Exercise Price that would be permitted under Section 5.4 of this Plan for
Options granted on the date the action is taken to reduce the Exercise Price.
5.10 No Disqualification. Notwithstanding any other provision in
-------------------
this Plan, no term of this Plan relating to ISOs will be interpreted, amended or
altered, nor will any discretion or authority granted under this Plan be
exercised, so as to disqualify this Plan under Section 422 of the Code or,
without the consent of the Participant affected, to disqualify any ISO under
Section 422 of the Code.
6. RESTRICTED STOCK. A Restricted Stock Award is an offer by the Company
----------------
to sell to an eligible person Shares that are subject to restrictions. The
Committee will determine to whom an offer will be made, the number of Shares the
person may purchase, the Purchase Price, the restrictions to which the Shares
will be subject, and all other terms and conditions of the Restricted Stock
Award, subject to the following:
6.1 Form of Restricted Stock Award. All purchases under a Restricted
------------------------------
Stock Award made pursuant to this Plan will be evidenced by an Award Agreement
("RESTRICTED STOCK PURCHASE AGREEMENT") that will be in such form (which need
not be the same for each Participant) as the Committee will from time to time
approve, and will comply with and be subject to the terms and conditions of this
Plan. The offer of Restricted Stock will be accepted by the Participant's
execution and delivery of the Restricted Stock Purchase Agreement and full
5
<PAGE>
Equity Communications, Inc.
1997 Equity Incentive Plan
payment for the Shares to the Company within thirty (30) days from the date the
Restricted Stock Purchase Agreement is delivered to the person. If such person
does not execute and deliver the Restricted Stock Purchase Agreement along with
full payment for the Shares to the Company within thirty (30) days, then the
offer will terminate, unless otherwise determined by the Committee.
6.2 Purchase Price. The Purchase Price of Shares sold pursuant to a
--------------
Restricted Stock Award will be determined by the Committee and will be at least
85% of the Fair Market Value of the Shares on the date the Restricted Stock
Award is granted or at the time the purchase is consummated, except in the case
of a sale to a Ten Percent Shareholder, in which case the Purchase Price will be
100% of the Fair Market Value on the date the Restricted Stock Award is granted
or at the time the purchase is consummated. Payment of the Purchase Price may
be made in accordance with Section 7 of this Plan.
6.3 Restrictions. Restricted Stock Awards may be subject to the
------------
restrictions set forth in Section 11 of this Plan or such other restrictions not
inconsistent with Section 25102(o) of the California Corporations Code.
7. PAYMENT FOR SHARE PURCHASES.
---------------------------
7.1 Payment. Payment for Shares purchased pursuant to this Plan may
-------
be made in cash (by check) or, where expressly approved for the Participant by
the Committee and where permitted by law:
(a) by cancellation of indebtedness of the Company to the
Participant;
(b) by surrender of shares that either: (I) have been owned by
Participant for more than six (6) months and have been paid
for within the meaning of SEC Rule 144 (and, if such shares
were purchased from the Company by use of a promissory note,
such note has been fully paid with respect to such shares);
or (2) were obtained by Participant in the public market;
(c) by tender of a full recourse promissory note having such
terms as may be approved by the Committee and bearing
interest at a rate sufficient to avoid imputation of income
under Sections 483 and 1274 of the Code; provided, however,
-------- -------
that Participants who are not employees or directors of the
Company will not be entitled to purchase Shares with a
promissory note unless the note is adequately secured by
collateral other than the Shares;
(d) by waiver of compensation due or accrued to the Participant
for services rendered;
(e) with respect only to purchases upon exercise of an Option,
and provided that a public market for the Company's stock
exists:
6
<PAGE>
Equity Communications, Inc.
1997 Equity Incentive Plan
(1) through a "same day sale" commitment from the
Participant and a broker-dealer that is a member of the
National Association of Securities Dealers (an "NASD
DEALER") whereby the Participant irrevocably elects to
exercise the Option and to sell a portion of the Shares
so purchased to pay for the Exercise Price, and whereby
the NASD Dealer irrevocably commits upon receipt of
such Shares to forward the Exercise Price directly to
the Company; or
(2) through a "margin" commitment from the Participant and
an NASD Dealer whereby the Participant irrevocably
elects to exercise the Option and to pledge the Shares
so purchased to the NASD Dealer in a margin account as
security for a loan from the NASD Dealer in the amount
of the Exercise Price, and whereby the NASD Dealer
irrevocably commits upon receipt of such Shares to
forward the Exercise Price directly to the Company; or
(f) by any combination of the foregoing.
7.2 Loan Guarantees. The Committee may help the Participant pay for
---------------
Shares purchased under this Plan by authorizing a guarantee by the Company of a
third-party loan to the Participant.
8. WITHHOLDING TAXES.
-----------------
8.1 Withholding Generally. Whenever Shares are to be issued in
---------------------
satisfaction of Awards granted under this Plan, the Company may require the
Participant to remit to the Company an amount sufficient to satisfy federal,
state and local withholding tax requirements prior to the delivery of any
certificate or certificates for such Shares. Whenever, under this Plan,
payments in satisfaction of Awards are to be made in cash, such payment will be
net of an amount sufficient to satisfy federal, state, and local withholding tax
requirements.
8.2 Stock Withholding. When, under applicable tax laws, a
-----------------
Participant incurs tax liability in connection with the exercise or vesting of
any Award that is subject to tax withholding and the Participant is obligated to
pay the Company the amount required to be withheld, the Committee may in its
sole discretion allow the Participant to satisfy the minimum withholding tax
obligation by electing to have the Company withhold from the Shares to be issued
that number of Shares having a Fair Market Value equal to the minimum amount
required to be withheld, determined on the date that the amount of tax to be
withheld is to be determined. All elections by a Participant to have Shares
withheld for this purpose will be made in accordance with the requirements
established by the Committee for such elections and be in writing in a form
acceptable to the Committee.
9. PRIVILEGES OF STOCK OWNERSHIP.
-----------------------------
7
<PAGE>
Equity Communications, Inc.
1997 Equity Incentive Plan
9.1 Voting and Dividends. No Participant will have any of the rights
--------------------
of a shareholder with respect to any Shares until the Shares are issued to the
Participant. After Shares are issued to the Participant, the Participant will
be a shareholder and have all the rights of a shareholder with respect to such
Shares, including the right to vote and receive all dividends or other
distributions made or paid with respect to such Shares; provided, that if such
--------
Shares are Restricted Stock, then any new, additional or different securities
the Participant may become entitled to receive with respect to such Shares by
virtue of a stock dividend, stock split or any other change in the corporate or
capital structure of the Company will be subject to the same restrictions as the
Restricted Stock; provided, further, that the Participant will have no right to
retain such stock dividends or stock distributions with respect to Unvested
Shares that are repurchased pursuant to Section 11. The Company will comply
with Section 260.140.1 of the California Corporations Code with respect to the
voting rights of Common Stock.
9.2 Financial Statements. The Company will provide financial
--------------------
statements to each Participant prior to such Participant's purchase of Shares
under this Plan, and to each Participant annually during the period such
Participant has Awards outstanding, or as otherwise required or permitted under
Section 260.140.46 of Title 10 of the California Code of Regulations.
Notwithstanding the foregoing, the Company will not be required to provide such
financial statements to Participants whose services in connection with the
Company assure them access to equivalent information.
10. TRANSFERABILITY. Awards granted under this Plan, and any interest
---------------
therein, will not be transferable or assignable by Participant, and may not be
made subject to execution, attachment or similar process, otherwise than by will
or by the laws of descent and distribution. During the lifetime of the
Participant an Award will be exercisable only by the Participant, and any
elections with respect to an Award, may be made only by the Participant.
11. RESTRICTIONS ON SHARES. At the discretion of the Committee, the
----------------------
Company may reserve to itself and/or its assignee(s) in the Award Agreement (a)
a right of first refusal to purchase all Shares that a Participant (or a
subsequent transferee) may propose to transfer to a third party, unless
otherwise not permitted by Section 25102(o) of the California Corporations Code,
provided, that such right of first refusal terminates when the Company's
- --------
securities become publicly traded and/or (b) a right to repurchase Shares held
by a Participant following such Participant's Termination at any time within
ninety (90) days after Participant's Termination Date (or, in the case of
securities issued upon exercise of an Option after the Participant's Termination
Date, within 90 days after the date of such exercise) for cash and/or
cancellation of purchase money indebtedness, at: (A) with respect to Vested
Shares, the Fair Market Value of such Shares on Participant's Termination Date,
provided, that such right of repurchase terminates when the Company's securities
- --------
become publicly traded; or (B) with respect to Unvested Shares, the
Participant's Exercise Price or Purchase Price, as the case may be, provided,
--------
that to the extent the Participant is not an officer, director or consultant of
the Company or of a Parent or Subsidiary of the Company, such right of
repurchase at the Exercise Price or Purchase Price, as the case may be, lapses
at the rate of at least twenty percent (20%) per year over five (5) years from:
(i) the date of grant of the Option or (ii) in the case of Restricted Stock, the
date the Participant purchases the Shares.
8
<PAGE>
Equity Communications, Inc.
1997 Equity Incentive Plan
12. CERTIFICATES. All certificates for Shares or other securities
------------
delivered under this Plan will be subject to such stock transfer orders, legends
and other restrictions as the Committee may deem necessary or advisable,
including restrictions under any applicable federal, state or foreign securities
law, or any rules, regulations and other requirements of the SEC or any stock
exchange or automated quotation system upon which the Shares may be listed or
quoted.
13. ESCROW; PLEDGE OF SHARES. To enforce any restrictions on a
------------------------
Participant's Shares, the Committee may require the Participant to deposit all
certificates representing Shares, together with stock powers or other
instruments of transfer approved by the Committee, appropriately endorsed in
blank, with the Company or an agent designated by the Company to hold in escrow
until such restrictions have lapsed or terminated, and the Committee may cause a
legend or legends referencing such restrictions to be placed on the
certificates. Any Participant who is permitted to execute a promissory note as
partial or full consideration for the purchase of Shares under this Plan will be
required to pledge and deposit with the Company all or part of the Shares so
purchased as collateral to secure the payment of Participant's obligation to the
Company under the promissory note; provided, however, that the Committee may
-------- -------
require or accept other or additional forms of collateral to secure the payment
of such obligation and, in any event, the Company will have full recourse
against the Participant under the promissory note notwithstanding any pledge of
the Participant's Shares or other collateral. In connection with any pledge of
the Shares, Participant will be required to execute and deliver a written pledge
agreement in such form as the Committee will from time to time approve. The
Shares purchased with the promissory note may be released from the pledge on a
pro rata basis as the promissory note is paid.
14. EXCHANGE AND BUYOUT OF AWARDS. The Committee may, at any time or from
-----------------------------
time to time, authorize the Company, with the consent of the respective
Participants, to issue new Awards in exchange for the surrender and cancellation
of any or all outstanding Awards. The Committee may at any time buy from a
Participant an Award previously granted with payment in cash, Shares (including
Restricted Stock) or other consideration, based on such terms and conditions as
the Committee and the Participant may agree.
15. SECURITIES LAW AND OTHER REGULATORY COMPLIANCE. This Plan is intended
----------------------------------------------
to comply with Section 25102(o) of the California Corporations Code. Any
provision of the Plan which is inconsistent with Section 25102(o) shall, without
further act or amendment by the Company or the Board, be reformed to comply with
the requirements of Section 25102(o). An Award will not be effective unless
such Award is in compliance with all applicable federal and state securities
laws, rules and regulations of any governmental body, and the requirements of
any stock exchange or automated quotation system upon which the Shares may then
be listed or quoted, as they are in effect on the date of grant of the Award and
also on the date of exercise or other issuance. Notwithstanding any other
provision in this Plan, the Company will have no obligation to issue or deliver
certificates for Shares under this Plan prior to (a) obtaining any approvals
from governmental agencies that the Company determines are necessary or
advisable, and or (b) compliance with any exemption, completion of any
registration or other qualification of such Shares under any state or federal
law or ruling of any governmental body that the Company determines to be
necessary or advisable. The Company will be under no obligation to register the
Shares with the SEC or to effect compliance with the exemption,
9
<PAGE>
Equity Communications, Inc.
1997 Equity Incentive Plan
registration, qualification or listing requirements of any state securities
laws, stock exchange or automated quotation system, and the Company will have no
liability for any inability or failure to do so.
16. NO OBLIGATION TO EMPLOY. Nothing in this Plan or any Award granted
-----------------------
under this Plan will confer or be deemed to confer on any Participant any right
to continue in the employ of, or to continue any other relationship with, the
Company or any Parent or Subsidiary of the Company or limit in any way the right
of the Company or any Parent or Subsidiary of the Company to terminate
Participant's employment or other relationship at any time, with or without
cause.
17. CORPORATE TRANSACTIONS.
----------------------
17.1 Assumption or Replacement of Awards by Successor. In the event
------------------------------------------------
of (a) a dissolution or liquidation of the Company, (b) a merger or
consolidation in which the Company is not the surviving corporation (other than
----- ----
a merger or consolidation with a wholly-owned subsidiary, a reincorporation of
the Company in a different jurisdiction, or other transaction in which there is
no substantial change in the shareholders of the Company or their relative stock
holdings and the Awards granted under this Plan are assumed, converted or
replaced by the successor corporation, which assumption will be binding on all
Participants), (c) a merger in which the Company is the surviving corporation
but after which the shareholders of the Company immediately prior to such merger
(other than any shareholder which merges, or which owns or controls another
corporation which merges, with the Company in such merger) cease to own their
shares or other equity interests in the Company, or (d) the sale of
substantially all of the assets of the Company, any or all outstanding Awards
may be assumed, converted or replaced by the successor corporation (if any),
which assumption, conversion or replacement will be binding on all Participants.
In the alternative, the successor corporation may substitute equivalent Awards
or provide substantially similar consideration to Participants as was provided
to shareholders (after taking into account the existing provisions of the
Awards). The successor corporation may also issue, in place of outstanding
Shares of the Company held by the Participant, substantially similar shares or
other property subject to repurchase restrictions and other provisions no less
favorable to the Participant than those which applied to such outstanding Shares
immediately prior to such transaction described in this Subsection 16.1. In the
event such successor corporation (if any) refuses to assume or substitute
Awards, as provided above, pursuant to a transaction described in this
Subsection 16.1, then notwithstanding any other provision in this Plan to the
contrary, such Awards will expire on such transaction at such time and on such
conditions as the Board will determine.
17.2 Other Treatment of Awards. Subject to any greater rights
-------------------------
granted to Participants under the foregoing provisions of this Section 17, in
the event of the occurrence of any transaction described in Section 17.1, any
outstanding Awards will be treated as provided in the applicable agreement or
plan of merger, consolidation, dissolution, liquidation or sale of assets.
17.3 Assumption of Awards by the Company. The Company, from time to
-----------------------------------
time, also may substitute or assume outstanding awards granted by another
company, whether in
10
<PAGE>
Equity Communications, Inc.
1997 Equity Incentive Plan
connection with an acquisition of such other company or otherwise, by either (a)
granting an Award under this Plan in substitution of such other company's award
or (b) assuming such award as if it had been granted under this Plan if the
terms of such assumed award could be applied to an Award granted under this
Plan. Such substitution or assumption will be permissible if the holder of the
substituted or assumed award would have been eligible to be granted an Award
under this Plan if the other company had applied the rules of this Plan to such
grant. In the event the Company assumes an award granted by another company,
the terms and conditions of such award will remain unchanged (except that the
------
exercise price and the number and nature of shares issuable upon exercise of any
such option will be adjusted appropriately pursuant to Section 424(a) of the
Code). In the event the Company elects to grant a new Option rather than
assuming an existing option, such new Option may be granted with a similarly
adjusted Exercise Price.
18. ADOPTION AND SHAREHOLDER APPROVAL. This Plan will become effective on
---------------------------------
the date that it is adopted by the Board (the "EFFECTIVE DATE"). This Plan will
be approved by the shareholders of the Company (excluding Shares issued pursuant
to this Plan), consistent with applicable laws, within twelve (12) months before
or after the Effective Date. Upon the Effective Date, the Board may grant
Awards pursuant to this Plan; provided, however, that no Option may be exercised
-------- --------
prior to shareholder approval of this Plan. In the event that shareholder
approval is not obtained within twelve (12) months before or after the date this
Plan is adopted by the Board, all Awards granted hereunder will be canceled, any
Shares issued pursuant to any Award will be canceled and any purchase of Shares
hereunder will be rescinded.
19. TERM OF PLAN/GOVERNING LAW. Unless earlier terminated as provided
--------------------------
herein, this Plan will terminate ten (10) years from the Effective Date or, if
earlier, the date of shareholder approval. This Plan and all agreements
hereunder shall be governed by and construed in accordance with the laws of the
State of California.
20. AMENDMENT OR TERMINATION OF PLAN. The Board may at any time terminate
--------------------------------
or amend this Plan in any respect, including without limitation amendment of any
form of Award Agreement or instrument to be executed pursuant to this Plan;
provided, however, that the Board will not, without the approval of the
- -------- -------
shareholders of the Company, amend this Plan in any manner that requires such
shareholder approval pursuant to the Code or the regulations promulgated
thereunder as such provisions apply to ISO plans.
21. NONEXCLUSIVITY OF THE PLAN. Neither the adoption of this Plan by the
--------------------------
Board, the submission of this Plan to the shareholders of the Company for
approval, nor any provision of this Plan will be construed as creating any
limitations on the power of the Board to adopt such additional compensation
arrangements as it may deem desirable, including, without limitation, the
granting of stock options otherwise than under this Plan, and such arrangements
may be either generally applicable or applicable only in specific cases.
22. DEFINITIONS. As used in this Plan, the following terms will have the
-----------
following meanings:
"AWARD" means any award under this Plan, including any Option or
Restricted Stock Award.
11
<PAGE>
Equity Communications, Inc.
1997 Equity Incentive Plan
"AWARD AGREEMENT" means, with respect to each Award, the signed
written agreement between the Company and the Participant setting forth the
terms and conditions of the Award.
"BOARD" means the Board of Directors of the Company.
"CAUSE" means Termination because of (i) any willful material
violation by the Participant of any law or regulation applicable to the business
of the Company or a Parent or Subsidiary of the Company, the Participant's
conviction for, or guilty plea to, a felony or a crime involving moral
turpitude, any willful perpetration by the Participant of a common law fraud or
any unlawful use by the Participant of drugs or other controlled substances,
(ii) the Participant's commission of an act of personal dishonesty which
involves personal profit in connection with the Company or any other entity
having a business relationship with the Company, (iii) any material breach by
the Participant of any provision of any agreement or understanding between the
Company and the Participant regarding the terms of the Participant's service as
an employee, director, consultant, independent contractor or adviser to the
Company or a Parent or Subsidiary of the Company, including without limitation,
the willful and continued failure or refusal of the Participant to perform the
material duties required of such Participant as an employee, director,
consultant, independent contractor or adviser of the Company or a Parent or
Subsidiary of the Company, other than as a result of having a Disability, or a
breach of any applicable invention assignment and confidentiality agreement or
similar agreement between the Company and the Participant, (iv) Participant's
disregard of the policies of the Company so as to cause loss, damage or injury
to the property, reputation or employees of the Company or a Parent or
Subsidiary of the Company, or (v) any other misconduct by the Participant which
is materially injurious to the financial condition or business reputation of or
is otherwise materially injurious to, the Company or a Parent or Subsidiary of
the Company.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMMITTEE" means the committee appointed by the Board to administer
this Plan, or if no committee is appointed, the Board.
"COMPANY" means Exodus Communications, Inc., or any successor
corporation.
"DISABILITY" means a disability, whether temporary or permanent,
partial or total, as determined by the Committee.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"EXERCISE PRICE" means the price at which a holder of an Option may
purchase the Shares issuable upon exercise of the Option.
"FAIR MARKET VALUE" means, as of any date, the value of a share of the
Company's Common Stock determined as follows:
(a) if such Common Stock is then quoted on the Nasdaq National
Market, its closing price on the Nasdaq National Market on the
date of determination
12
<PAGE>
Equity Communications, Inc.
1997 Equity Incentive Plan
as reported in The Wall Street Journal;
-----------------------
(b) if such Common Stock is publicly traded and is then listed on a
national securities exchange, its closing price on the date of
determination on the principal national securities exchange on
which the Common Stock is listed or admitted to trading as
reported in The Wall Street Journal;
-----------------------
(c) if such Common Stock is publicly traded but is not quoted on the
Nasdaq National Market nor listed or admitted to trading on a
national securities exchange, the average of the closing bid and
asked prices on the date of determination as reported by The Wall
--------
Street Journal (or, if not so reported, as otherwise reported by
--------------
any newspaper or other source as the Board may determine); or
(d) if none of the foregoing is applicable, by the Committee in good
faith.
"INSIDER" means an officer or director of the Company or any other
person whose transactions in the Company's Common Stock are subject to Section
16 of the Exchange Act.
"OPTION" means an award of an option to purchase Shares pursuant to
Section 5.
"PARENT" means any corporation (other than the Company) in an unbroken
chain of corporations ending with the Company if each of such corporations other
than the Company owns stock possessing 50% or more of the total combined voting
power of all classes of stock in one of the other corporations in such chain.
"PARTICIPANT" means a person who receives an Award under this Plan.
"PLAN" means this Exodus Communications, Inc. 1997 Equity Incentive
Plan, as amended from time to time.
"PURCHASE PRICE" the price at which a Participant may purchase
Restricted Stock.
"RESTRICTED STOCK AWARD" means an award of Shares pursuant to Section
6.
"SEC" means the Securities and Exchange Commission.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SHARES" means shares of the Company's Common Stock reserved for
issuance under this Plan, as adjusted pursuant to Sections 2 and 17, and any
successor security.
"SUBSIDIARY" means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company if each of the
corporations other than the last corporation in the unbroken chain owns stock
possessing 50% or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain.
"TERMINATION" or "TERMINATED" means, for purposes of this Plan with
respect to a
13
<PAGE>
Equity Communications, Inc.
1997 Equity Incentive Plan
Participant, that the Participant has for any reason ceased to provide services
as an employee, officer, director or consultant to the Company or a Parent or
Subsidiary of the Company. An employee will not be deemed to have ceased to
provide services in the case of (i) sick leave, (ii) military leave, or (iii)
any other leave of absence approved by the Committee, provided that such leave
is for a period of not more than 90 days unless reemployment upon the expiration
of such leave is guaranteed by contract or statute, or unless provided otherwise
pursuant to formal policy adopted from time to time by the Company and issued
and promulgated to employees in writing. In the case of any employee on an
approved leave of absence, the Committee may make such provisions respecting
suspension of vesting of the Award while on leave from the employ of the Company
or a Subsidiary as it may deem appropriate, except that in no event may an
Option be exercised after the expiration of the term set forth in the Stock
Option Agreement. The Committee will have sole discretion to determine whether
a Participant has ceased to provide services and the effective date on which the
Participant ceased to provide services (the "TERMINATION DATE").
"UNVESTED SHARES" means "Unvested Shares" as defined in the Award
Agreement.
"VESTED SHARES" means "Vested Shares" as defined in the Award
Agreement.
14
<PAGE>
EXODUS COMMUNICATIONS, INC.
1997 EQUITY INCENTIVE PLAN
STOCK OPTION AGREEMENT
This Stock Option Agreement ("AGREEMENT") is made and entered into as
of the date of grant set forth below (the "DATE OF GRANT") by and between Exodus
Communications, Inc., a California corporation (the "COMPANY"), and the
participant named below ("PARTICIPANT"). Capitalized terms not defined herein
shall have the meaning ascribed to them in the Company's 1997 Equity Incentive
Plan (the "PLAN").
PARTICIPANT: _________________________________________________
SOCIAL SECURITY NUMBER: _________________________________________________
ADDRESS: _________________________________________________
_________________________________________________
TOTAL OPTION SHARES: _________________________________________________
EXERCISE PRICE PER SHARE: _________________________________________________
DATE OF GRANT: _________________________________________________
FIRST VESTING DATE: _________________________________________________
EXPIRATION DATE: _________________________________________________
(unless earlier terminated under Section 3 below)
TYPE OF STOCK OPTION
(CHECK ONE): [_] INCENTIVE STOCK OPTION
[_] NONQUALIFIED STOCK OPTION
1. GRANT OF OPTION. The Company hereby grants to Participant an
---------------
option (the "OPTION") to purchase the total number of shares of Common Stock of
the Company set forth above (the "SHARES") at the Exercise Price Per Share set
forth above (the "EXERCISE PRICE"), subject to all of the terms and conditions
of this Agreement and the Plan. If designated as an Incentive Stock Option
above, the Option is intended to qualify as an "incentive stock option" ("ISO")
within the meaning of Section 422 of the Internal Revenue Code of 1986, as
amended (the "CODE").
2. EXERCISE PERIOD.
---------------
2.1 Exercise Period of Option. Subject to the terms and
-------------------------
conditions of the Plan and this Grant, this Option shall become exercisable as
to portions of the Shares as follows: (a) This Option shall not be exercisable
with respect to any of the Shares until the expiration of six (6) months from
the Vesting Commencement Date or ________, 199__ (the "First Vesting Date"); (b)
------------------
if Participant has been continuously employed by the Company within the meaning
of Section 3 below at all times during the time period beginning on the Vesting
Commencement Date set forth above and ending on the First Vesting Date, then on
the First Vesting Date this Option shall become exercisable as to Twelve percent
(12%) of the Shares; and (c) thereafter this Option shall become exercisable as
to an additional Two percent (2%) of the Shares upon the expiration of each full
calendar month for the next succeeding Forty-four (44) months provided that
Participant has remained continuously employed by the Company at all times
during the relevant month; provided that Participant shall in no event be
--------
entitled under this Option to purchase a number of shares of the Company's
common stock greater than the "Total Option Shares"
<PAGE>
indicated above. Notwithstanding anything herein to the contrary, this Option
shall expire on the Expiration Date set forth above and must be exercised, if at
all, on or before the Expiration Date; and provided further that this Option
must become exercisable as to at least 20% of the Shares for each full year
since the Date of Grant.
2.2 Vesting of Options. Shares that are vested pursuant to
------------------
the schedule set forth in Section 2.1 are "VESTED SHARES." Shares that are not
vested pursuant to the schedule set forth in Section 2.1 are "UNVESTED SHARES."
Unvested Shares may not be sold or otherwise transferred by Participant without
the Company's prior written consent.
2.3 Expiration. The Option shall expire on the Expiration
----------
Date set forth above or earlier as provided in Section 3 below.
3. TERMINATION.
-----------
3.1 Termination for Any Reason Except Death, Disability or
------------------------------------------------------
Cause. If Participant is Terminated for any reason, except death, Disability or
- -----
Cause, the Option, to the extent (and only to the extent) that it would have
been exercisable by Participant on the Termination Date, may be exercised by
Participant no later than three (3) months after the Termination Date, but in
any event no later than the Expiration Date.
3.2 Termination Because of Death or Disability. If
------------------------------------------
Participant is Terminated because of death or Disability of Participant (or
Participant dies within three (3) months of Termination other than for Cause or
because of Participant's death or Disability), the Option, to the extent that it
is exercisable by Participant on the Termination Date, may be exercised by
Participant (or Participant's legal representative) no later than twelve (12)
months after the Termination Date, but in any event no later than the Expiration
Date. Any exercise beyond (a) three (3) months after the Termination Date when
the Termination is for any reason other than the Participant's death or
disability, within the meaning of Section 22(e)(3) of the Code; or (b) twelve
(12) months after the Termination Date when the termination is for Participant's
death or disability, within the meaning of Section 22(e)(3) of the Code, is
deemed to be an NQSO.
3.3 Termination for Cause. If Participant is terminated for
---------------------
Cause, then the Option will expire on Participant's Termination Date, or at such
later time and on such conditions as determined by the Committee.
3.4 No Obligation to Employ. Nothing in the Plan or this
-----------------------
Agreement shall confer on Participant any right to continue in the employ of, or
other relationship with, the Company or any Parent or Subsidiary of the Company,
or limit in any way the right of the Company or any Parent or Subsidiary of the
Company to terminate Participant's employment or other relationship at any time,
with or without Cause.
4. MANNER OF EXERCISE.
------------------
4.1 Stock Option Exercise Agreement. To exercise this Option,
-------------------------------
Participant (or in the case of exercise after Participant's death or incapacity,
Participant's executor, administrator, heir or legatee, as the case may be) must
deliver to the Company an executed stock option exercise agreement in the form
attached hereto as Exhibit A, or in such other form as may be approved by the
---------
Company from time to time (the "EXERCISE AGREEMENT"), which shall set forth,
inter alia, Participant's election to exercise the Option, the number of Shares
- ----- ----
being purchased, any restrictions imposed on the Shares and any representations,
warranties and agreements regarding Participant's investment intent and access
to information as may be required by the Company to comply with applicable
securities laws. If someone other than Participant exercises the Option, then
such person must submit documentation reasonably acceptable to the Company that
such person has the right to exercise the Option.
4.2 Limitations on Exercise. The Option may not be exercised
-----------------------
unless such exercise is in compliance with all applicable federal and state
securities laws, as they are in effect on the date of exercise. The Option may
not be exercised as to fewer than one hundred (100) Shares unless it is
exercised as to all Shares as to which the Option is then exercisable.
2
<PAGE>
4.3 Payment. The Exercise Agreement shall be accompanied by
-------
full payment of the Exercise Price for the shares being purchased in cash (by
check), or where permitted by law:
(a) by cancellation of indebtedness of the Company to the
Participant;
(b) by surrender of shares of the Company's Common Stock that either:
(1) have been owned by Participant for more than six (6) months
and have been paid for within the meaning of SEC Rule 144 (and,
if such shares were purchased from the Company by use of a
promissory note, such note has been fully paid with respect to
such shares); or (2) were obtained by Participant in the open
public market; and (3) are clear of all liens, claims,
encumbrances or security interests;
(c) by waiver of compensation due or accrued to Participant for
services rendered;
(d) provided that a public market for the Company's stock exists, (1)
through a "same day sale" commitment from Participant and a
broker-dealer that is a member of the National Association of
Securities Dealers (an "NASD DEALER") whereby Participant
irrevocably elects to exercise the Option and to sell a portion
of the Shares so purchased to pay for the Exercise Price and
whereby the NASD Dealer irrevocably commits upon receipt of such
Shares to forward the Exercise Price directly to the Company, or
--
(2) through a "margin" commitment from Participant and an NASD
Dealer whereby Participant irrevocably elects to exercise the
Option and to pledge the Shares so purchased to the NASD Dealer
in a margin account as security for a loan from the NASD Dealer
in the amount of the Exercise Price, and whereby the NASD Dealer
irrevocably commits upon receipt of such Shares to forward the
Exercise Price directly to the Company; or
(e) by any combination of the foregoing.
4.4 Tax Withholding. Prior to the issuance of the Shares upon
---------------
exercise of the Option, Participant must pay or provide for any applicable
federal, state and local withholding obligations of the Company. If the
Committee permits, Participant may provide for payment of withholding taxes upon
exercise of the Option by requesting that the Company retain Shares with a Fair
Market Value equal to the minimum amount of taxes required to be withheld. In
such case, the Company shall issue the net number of Shares to the Participant
by deducting the Shares retained from the Shares issuable upon exercise.
4.5 Issuance of Shares. Provided that the Exercise Agreement
------------------
and payment are in form and substance satisfactory to counsel for the Company,
the Company shall issue the Shares registered in the name of Participant,
Participant's authorized assignee, or Participant's legal representative, and
shall deliver certificates representing the Shares with the appropriate legends
affixed thereto.
5. NOTICE OF DISQUALIFYING DISPOSITION OF ISO SHARES. If the Option
-------------------------------------------------
is an ISO, and if Participant sells or otherwise disposes of any of the Shares
acquired pursuant to the ISO on or before the later of (a) the date two (2)
years after the Date of Grant, and (b) the date one (1) year after transfer of
such Shares to Participant upon exercise of the Option, Participant shall
immediately notify the Company in writing of such disposition. Participant
agrees that Participant may be subject to income tax withholding by the Company
on the compensation income recognized by Participant from the early disposition
by payment in cash or out of the current wages or other compensation payable to
Participant.
6. COMPLIANCE WITH LAWS AND REGULATIONS. The Plan and this
------------------------------------
Agreement are intended to comply with Section 25102(o) of the California
Corporations Code. Any provision of this Agreement which is inconsistent with
Section 25102(o) shall, without further act or amendment by the Company or the
Board, be reformed to comply with the requirements of Section 25102(o). The
exercise of the Option and the issuance and transfer of Shares shall be subject
to compliance by the Company and Participant with all applicable requirements of
3
<PAGE>
federal and state securities laws and with all applicable requirements of any
stock exchange on which the Company's Common Stock may be listed at the time of
such issuance or transfer. Participant understands that the Company is under no
obligation to register or qualify the Shares with the Securities and Exchange
Commission, any state securities commission or any stock exchange to effect such
compliance.
7. NONTRANSFERABILITY OF OPTION. The Option may not be transferred
----------------------------
in any manner other than by will or by the laws of descent and distribution and
may be exercised during the lifetime of Participant only by Participant. The
terms of the Option shall be binding upon the executors, administrators,
successors and assigns of Participant.
8. INTENTIONALLY OMITTED.
---------------------
9. COMPANY'S RIGHT OF FIRST REFUSAL. Unvested Shares may not be
--------------------------------
sold or otherwise transferred by Participant without the Company's prior written
consent. Before any Vested Shares held by Participant or any transferee of such
Vested Shares (either being sometimes referred to herein as the "Holder") may be
------
sold or otherwise transferred (including without limitation a transfer by gift
or operation of law), the Company and/or its assignee(s) shall have an
assignable right of first refusal to purchase the Vested Shares to be sold or
transferred (the "Offered Shares") on the terms and conditions set forth in this
--------------
Section (the "Right of First Refusal").
----------------------
9.1 Notice of Proposed Transfer. The Holder of the Offered
---------------------------
Shares shall deliver to the Company a written notice (the "Notice") stating:
------
(i) the Holder's bona fide intention to sell or otherwise transfer the Offered
Shares; (ii) the name of each proposed bona fide purchaser or other transferee
("Proposed Transferee"); (iii) the number of Offered Shares to be transferred to
-------------------
each Proposed Transferee; (iv) the bona fide cash price or other consideration
for which the Holder proposes to transfer the Offered Shares (the "Offered
-------
Price"); and (v) that the Holder will offer to sell the Offered Shares to the
- -----
Company and/or its assignee(s) at the Offered Price as provided in this Section.
9.2 Exercise of Right of First Refusal. At any time within
----------------------------------
thirty (30) days after the date of the Notice, the Company and/or its
assignee(s) may, by giving written notice to the Holder, elect to purchase the
Offered Shares proposed to be transferred to any one or more of the Proposed
Transferees named in the Notice, at the purchase price determined as specified
below.
9.3 Purchase Price. The purchase price for the Offered Shares
--------------
purchased under this Section will be the Offered Price. If the Offered Price
includes consideration other than cash, then the cash equivalent value of the
non-cash consideration shall conclusively be deemed to be the value of such non-
cash consideration as determined in good faith by the Company's Board of
Directors.
9.4 Payment. Payment of the purchase price for Offered Shares
-------
will be payable, at the option of the Company and/or its assignee(s) (as
applicable), by check or by cancellation of all or a portion of any outstanding
indebtedness of the Holder to the Company (or to such assignee, in the case of a
purchase of Offered Shares by such assignee) or by any combination thereof. The
purchase price will be paid without interest within sixty (60) days after the
Company's receipt of the Notice, or, at the option of the Company and/or its
assignee(s), in the manner and at the time(s) set forth in the Notice.
9.5 Holder's Right to Transfer. If all of the Offered Shares
--------------------------
proposed in the Notice to be transferred to a given Proposed Transferee are not
purchased by the Company and/or its assignee(s) as provided in this Section,
then the Holder may sell or otherwise transfer such Offered Shares to that
Proposed Transferee at the Offered Price or at a higher price, provided that
--------
such sale or other transfer is consummated within 120 days after the date of the
Notice, and provided further, that (i) any such sale or other transfer is
-------- -------
effected in compliance with all applicable securities laws and (ii) the Proposed
Transferee agrees in writing that the provisions of this Section will continue
to apply to the Offered Shares in the hands of such Proposed Transferee. If the
Offered Shares described in the Notice are not transferred to the Proposed
Transferee within such 120 day period, then a new Notice must be given to the
Company, and the Company will again be offered the Right of First Refusal before
any Shares held by the Holder may be sold or otherwise transferred.
4
<PAGE>
9.6 Exempt Transfers. Notwithstanding anything to the
----------------
contrary in this Section, the following transfers of Vested Shares will be
exempt from the Right of First Refusal: (i) the transfer of any or all of the
Vested Shares during Participant's lifetime by gift or on Participant's death by
will or intestacy to Participant's "immediate family" (as defined below) or to a
trust for the benefit of Participant or Participant's immediate family, provided
that each transferee or other recipient agrees in a writing satisfactory to the
Company that the provisions of this Section will continue to apply to the
transferred Vested Shares in the hands of such transferee or other recipient;
(ii) any transfer of Vested Shares made pursuant to a statutory merger or
statutory consolidation of the Company with or into another corporation or
corporations (except that the Right of First Refusal and Repurchase Option will
continue to apply thereafter to such Vested Shares, in which case the surviving
corporation of such merger or consolidation shall succeed to the rights of the
Company under this Section unless the agreement of merger or consolidation
expressly otherwise provides); or (iii) any transfer of Vested Shares pursuant
to the winding up and dissolution of the Company. As used herein, the term
"immediate family" will mean Participant's spouse, the lineal descendant or
----------------
antecedent, father, mother, brother or sister, adopted child or grandchild of
the Participant or the Participant's spouse, or the spouse of any child, adopted
child, grandchild or adopted grandchild of Participant or the Participant's
spouse.
9.7 Termination of Right of First Refusal. The Company's
-------------------------------------
Right of First Refusal will terminate when the Company's securities become
publicly traded.
10. TAX CONSEQUENCES. Set forth below is a brief summary as of the
----------------
Effective Date of the Plan of some of the federal and California tax
consequences of exercise of the Option and disposition of the Shares. THIS
SUMMARY IS NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT
TO CHANGE. PARTICIPANT SHOULD CONSULT A TAX ADVISER BEFORE EXERCISING THE
OPTION OR DISPOSING OF THE SHARES.
10.1 Exercise of ISO. If the Option qualifies as an ISO, there
---------------
will be no regular federal or California income tax liability upon the exercise
of the Option, although the excess, if any, of the Fair Market Value of the
Shares on the date of exercise over the Exercise Price will be treated as a tax
preference item for federal income tax purposes and may subject the Participant
to the alternative minimum tax in the year of exercise.
10.2 Exercise of Nonqualified Stock Option. If the Option does
-------------------------------------
not qualify as an ISO, there may be a regular federal and California income tax
liability upon the exercise of the Option. Participant will be treated as
having received compensation income (taxable at ordinary income tax rates) equal
to the excess, if any, of the Fair Market Value of the Shares on the date of
exercise over the Exercise Price. If Participant is or was an employee of the
Company, the Company will be required to withhold from Participant's
compensation or collect from Participant and pay to the applicable taxing
authorities an amount equal to a percentage of this compensation income at the
time of exercise.
10.3 Disposition of Shares. If the Shares are held for more
---------------------
than twelve (12) months after the date of the transfer of the Shares pursuant to
the exercise of the Option for Vested Shares and, in the case of an ISO, are
disposed of more than two years after the Date of Grant, any gain realized on
disposition of the Shares will be treated as long term capital gain for federal
and California income tax purposes. If Shares purchased under an ISO are
disposed of within the applicable one year or two year period, any gain realized
on such disposition will be treated as compensation income (taxable at ordinary
income rates) to the extent of the excess, if any, of the Fair Market Value of
the Shares on the date of exercise over the Exercise Price. The Company may be
required to withhold from Participant's compensation or collect from Participant
and pay to the applicable taxing authorities an amount equal to a percentage of
this compensation income at the time of exercise.
11. PRIVILEGES OF STOCK OWNERSHIP. Participant shall not have any of
-----------------------------
the rights of a shareholder with respect to any Shares until the Shares are
issued to Participant.
5
<PAGE>
12. INTERPRETATION. Any dispute regarding the interpretation of this
--------------
Agreement shall be submitted by Participant or the Company to the Committee for
review. The resolution of such a dispute by the Committee shall be final and
binding on the Company and Participant.
13. ENTIRE AGREEMENT. The Plan is incorporated herein by reference.
----------------
This Agreement and the Plan constitute the entire agreement of the parties and
supersede all prior undertakings and agreements with respect to the subject
matter hereof.
14. NOTICES. Any notice required to be given or delivered to the
-------
Company under the terms of this Agreement shall be in writing and addressed to
the Corporate Secretary of the Company at its principal corporate offices. Any
notice required to be given or delivered to Participant shall be in writing and
addressed to Participant at the address indicated above or to such other address
as such party may designate in writing from time to time to the Company. All
notices shall be deemed to have been given or delivered upon: personal
delivery; three (3) days after deposit in the United States mail by certified or
registered mail (return receipt requested); one (1) business day after deposit
with any return receipt express courier (prepaid); or one (1) business day after
transmission by facsimile, rapifax or telecopier.
15. SUCCESSORS AND ASSIGNS. The Company may assign any of its rights
----------------------
under this Agreement including its rights to repurchase Shares under the
Repurchase Option and the Right of First Refusal. This Agreement shall be
binding upon and inure to the benefit of the successors and assigns of the
Company. Subject to the restrictions on transfer set forth herein, this
Agreement shall be binding upon Participant and Participant's heirs, executors,
administrators, legal representatives, successors and assigns.
16. GOVERNING LAW. This Agreement shall be governed by and construed
-------------
in accordance with the laws of the State of California as such laws are applied
to agreements between California residents entered into and to be performed
entirely within California. If any provision of this Agreement is determined by
a court of law to be illegal or unenforceable, then such provision will be
enforced to the maximum extent possible and the other provisions will remain
fully effective and enforceable.
17. ACCEPTANCE. Participant hereby acknowledges receipt of a copy of
----------
the Plan and this Agreement. Participant has read and understands the terms and
provisions thereof, and accepts the Option subject to all the terms and
conditions of the Plan and this Agreement. Participant acknowledges that there
may be adverse tax consequences upon exercise of the Option or disposition of
the Shares and that Participant should consult a tax adviser prior to such
exercise or disposition.
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed
in duplicate by its duly authorized representative and Participant has executed
this Agreement in duplicate as of the Date of Grant.
EXODUS COMMUNICATIONS, INC. PARTICIPANT
By:_________________________________ ___________________________________
(Signature)
____________________________________ ___________________________________
(Please print name) (Please print name)
____________________________________
(Please print title)
6
<PAGE>
EXHIBIT A
---------
STOCK OPTION EXERCISE AGREEMENT
<PAGE>
EXODUS COMMUNICATIONS, INC.
1997 EQUITY INCENTIVE PLAN
STOCK OPTION EXERCISE AGREEMENT
This Exercise Agreement is made and entered into as of ______________,
19___ (the "Effective Date") by and between Exodus Communications, Inc., a
--------------
California corporation (the "Company"), and the purchaser named below (the
-------
"Purchaser"). Capitalized terms not defined herein shall have the meaning
---------
ascribed to them in the Company's 1997 Equity Incentive Plan (the "Plan").
----
PURCHASER: _______________________________________
SOCIAL SECURITY NUMBER: _______________________________________
ADDRESS: _______________________________________
_______________________________________
TOTAL NUMBER OF SHARES: _______________________________________
EXERCISE PRICE PER SHARE: _______________________________________
TOTAL EXERCISE PRICE: _______________________________________
OPTION NO. ___ DATE OF GRANT: _______________________________________
TYPE OF OPTION: [_] INCENTIVE STOCK OPTION
[_] NONQUALIFIED STOCK OPTION
1. EXERCISE OF OPTION.
------------------
1.1 Exercise. Pursuant to exercise of that certain option
--------
("Option") granted to Purchaser under the Plan and subject to the terms and
- --------
conditions of this Agreement, Purchaser hereby purchases from the Company, and
the Company hereby sells to Purchaser, the Total Number of Shares set forth
above ("Shares") of the Company's Common Stock at the Exercise Price Per Share
------
set forth above ("Exercise Price"). As used in this Agreement, the term
--------------
"Shares" refers to the Shares purchased under this Exercise Agreement and
------
includes all securities received (a) in replacement of the Shares, (b) as a
result of stock dividends or stock splits with respect to the Shares, and (c)
all securities received in replacement of the Shares in a merger,
recapitalization, reorganization or similar corporate transaction.
1.2 Title to Shares. The exact spelling of the name(s) under
---------------
which Purchaser will take title to the Shares is:
_________________________________________________________________
_________________________________________________________________
Purchaser desires to take title to the Shares as follows:
[_] Individual, as separate property
<PAGE>
Exodus Communications, Inc.
Stock Option Exercise Agreement
[_] Husband and wife, as community property
[_] Joint Tenants
[_] Alone or with spouse as trustee(s) of the
following trust (including date):
__________________________________________________________
__________________________________________________________
[_] Other; please specify:_______________________________________
__________________________________________________________
1.3 Payment. Purchaser hereby delivers payment of the
-------
Exercise Price in the manner permitted in the Stock Option Agreement as follows
(check and complete as appropriate):
[_] in cash in the amount of $____________, receipt of which is
acknowledged by the Company;
[_] by cancellation of indebtedness of the Company to Purchaser in
the amount of $__________;
[_] by delivery of _________ fully-paid, nonassessable and vested
shares of the Common Stock of the Company owned by Purchaser
for at least six (6) months prior to the date hereof which have
been paid for within the meaning of SEC Rule 144, (if purchased
by use of a promissory note, such note has been fully paid with
respect to such vested shares), or obtained by Purchaser in the
open public market, and owned free and clear of all liens,
claims, encumbrances or security interests, valued at the
current Fair Market Value of $___________ per share;
[_] by the waiver hereby of compensation due or accrued for
services rendered in the amount of $_________.
2. DELIVERY.
--------
2.1 Deliveries by Purchaser. Purchaser hereby delivers to
-----------------------
the Company (i) this Exercise Agreement, (ii) two (2) copies of a blank Stock
Power and Assignment Separate from Stock Certificate in the form of Exhibit 1
---------
attached hereto (the "Stock Powers"), both executed by Purchaser (and
------------
Purchaser's spouse, if any), (iii) if Purchaser is married, a Consent of Spouse
in the form of Exhibit 2 attached hereto (the "Spouse Consent") executed by
--------- --------------
Purchaser's spouse, and (iv) the Exercise Price.
2.2 Deliveries by the Company. Upon its receipt of the
-------------------------
Exercise Price and all the documents to be executed and delivered by Purchaser
to the Company under Section 2.1, the Company will issue a duly executed stock
certificate evidencing the Shares in the name of Purchaser to be placed in
escrow as provided in Section 11 until expiration or termination of the
Company's Repurchase Option and Right of First Refusal described in Sections 8
and 9.
3. REPRESENTATIONS AND WARRANTIES OF PURCHASER. Purchaser
-------------------------------------------
represents and warrants to the Company that:
3.1 Agrees to Terms of the Plan. Purchaser has received a
---------------------------
copy of the Plan and the Stock Option Agreement, has read and understands the
terms of the Plan, the Stock Option Agreement and this Exercise Agreement, and
agrees to be bound by their terms and conditions. Purchaser acknowledges that
there may be adverse tax consequences upon exercise of the Option or disposition
of the Shares, and that Purchaser should consult a tax adviser prior to such
exercise or disposition.
3.2 Purchase for Own Account for Investment. Purchaser is
---------------------------------------
purchasing the Shares for Purchaser's own account for investment purposes only
and not with a view to, or for sale in connection with, a distribution of the
Shares within the meaning of the Securities Act of 1933, as amended (the
2
<PAGE>
Exodus Communications, Inc.
Stock Option Exercise Agreement
"Securities Act"). Purchaser has no present intention of selling or otherwise
- ---------------
disposing of all or any portion of the Shares and no one other than Purchaser
has any beneficial ownership of any of the Shares.
3.3 Access to Information. Purchaser has had access to all
---------------------
information regarding the Company and its present and prospective business,
assets, liabilities and financial condition that Purchaser reasonably considers
important in making the decision to purchase the Shares, and Purchaser has had
ample opportunity to ask questions of the Company's representatives concerning
such matters and this investment.
3.4 Understanding of Risks. Purchaser is fully aware of: (i)
----------------------
the highly speculative nature of the investment in the Shares; (ii) the
financial hazards involved; (iii) the lack of liquidity of the Shares and the
restrictions on transferability of the Shares (e.g., that Purchaser may not be
----
able to sell or dispose of the Shares or use them as collateral for loans); (iv)
the qualifications and backgrounds of the management of the Company; and (v) the
tax consequences of investment in the Shares. Purchaser is capable of
evaluating the merits and risks of this investment, has the ability to protect
Purchaser's own interests in this transaction and is financially capable of
bearing a total loss of this investment.
3.5 No General Solicitation. At no time was Purchaser presented
-----------------------
with or solicited by any publicly issued or circulated newspaper, mail, radio,
television or other form of general advertising or solicitation in connection
with the offer, sale and purchase of the Shares.
4. COMPLIANCE WITH SECURITIES LAWS.
-------------------------------
4.1 Compliance with Federal Securities Laws. Purchaser
---------------------------------------
understands and acknowledges that the Shares have not been registered with the
Securities and Exchange Commission ("SEC") under the Securities Act and that,
---
notwithstanding any other provision of the Stock Option Agreement to the
contrary, the exercise of any rights to purchase any Shares is expressly
conditioned upon compliance with the Securities Act and all applicable state
securities laws. Purchaser agrees to cooperate with the Company to ensure
compliance with such laws. The Shares are being issued under the Securities Act
pursuant to the exemption provided by SEC Rule 701.
4.2 Compliance with California Securities Laws. THE PLAN, THE
------------------------------------------
STOCK OPTION AGREEMENT, AND THIS AGREEMENT ARE INTENDED TO COMPLY WITH SECTION
25102(o) OF THE CALIFORNIA CORPORATIONS CODE. ANY PROVISION OF THIS AGREEMENT
WHICH IS INCONSISTENT WITH SECTION 25102(o) SHALL, WITHOUT FURTHER ACT OR
AMENDMENT BY THE COMPANY OR THE BOARD, BE REFORMED TO COMPLY WITH THE
REQUIREMENTS OF SECTION 25102(o). THE SALE OF THE SECURITIES THAT ARE THE
SUBJECT OF THIS EXERCISE AGREEMENT, IF NOT YET QUALIFIED WITH THE CALIFORNIA
COMMISSIONER OF CORPORATIONS AND NOT EXEMPT FROM SUCH QUALIFICATION, IS SUBJECT
TO SUCH QUALIFICATION, AND THE ISSUANCE OF SUCH SECURITIES, AND THE RECEIPT OF
ANY PART OF THE CONSIDERATION THEREFOR PRIOR TO SUCH QUALIFICATION IS UNLAWFUL
UNLESS THE SALE IS EXEMPT. THE RIGHTS OF THE PARTIES TO THIS EXERCISE AGREEMENT
ARE EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED OR AN EXEMPTION
BEING AVAILABLE.
5. RESTRICTED SECURITIES.
---------------------
5.1 No Transfer Unless Registered or Exempt. Purchaser
---------------------------------------
understands that Purchaser may not transfer any Shares unless such Shares are
registered under the Securities Act or qualified under applicable state
securities laws or unless, in the opinion of counsel to the Company, exemptions
from such registration and qualification requirements are available. Purchaser
understands that only the Company may file a registration statement with the SEC
and that the Company is under no obligation to do so with respect to the Shares.
Purchaser has also been advised that exemptions from registration and
qualification may not be available or may not permit Purchaser to transfer all
or any of the Shares in the amounts or at the times proposed by Purchaser.
3
<PAGE>
Exodus Communications, Inc.
Stock Option Exercise Agreement
5.2 SEC Rule 144. In addition, Purchaser has been advised that
------------
SEC Rule 144 promulgated under the Securities Act, which permits certain limited
sales of unregistered securities, is not presently available with respect to the
Shares and, in any event, requires that the Shares be held for a minimum of two
years, and in certain cases three years, after they have been purchased and paid
--------
for (within the meaning of Rule 144). Purchaser understands that Rule 144 may
- ---
indefinitely restrict transfer of the Shares so long as Purchaser remains an
"affiliate" of the Company or if "current public information" about the Company
(as defined in Rule 144) is not publicly available.
5.3 SEC Rule 701. The Shares are issued pursuant to SEC Rule
------------
701 promulgated under the Securities Act and may become freely tradeable by non-
affiliates (under limited conditions regarding the method of sale) 90 days after
the first sale of Common Stock of the Company to the general public pursuant to
a registration statement filed with and declared effective by the SEC, subject
to the lengthier market standoff agreement contained in Section 7 of this
Exercise Agreement or any other agreement entered into by Purchaser. Affiliates
must comply with the provisions (other than the holding period requirements) of
Rule 144.
6. RESTRICTIONS ON TRANSFERS.
-------------------------
6.1 Disposition of Shares. Purchaser hereby agrees that
---------------------
Purchaser shall make no disposition of the Shares (other than as permitted by
this Agreement) unless and until:
(a) Purchaser shall have notified the Company of the
proposed disposition and provided a written summary of the terms and conditions
of the proposed disposition;
(b) Purchaser shall have complied with all requirements of
this Exercise Agreement applicable to the disposition of the Shares;
(c) Purchaser shall have provided the Company with written
assurances, in form and substance satisfactory to counsel for the Company, that
(i) the proposed disposition does not require registration of the Shares under
the Securities Act or (ii) all appropriate action necessary for compliance with
the registration requirements of the Securities Act or of any exemption from
registration available under the Securities Act (including Rule 144) has been
taken; and
(d) Purchaser shall have provided the Company with written
assurances, in form and substance satisfactory to the Company, that the proposed
disposition will not result in the contravention of any transfer restrictions
applicable to the Shares pursuant to the provisions of the Commissioner Rules
identified in Section 4.2.
6.2 Restriction on Transfer. Purchaser shall not transfer,
-----------------------
assign, grant a lien or security interest in, pledge, hypothecate, encumber or
otherwise dispose of any of the Shares which are subject to the Company's
Repurchase Option or the Company's Right of First Refusal, except as permitted
by this Agreement.
6.3 Transferee Obligations. Each person (other than the
----------------------
Company) to whom the Shares are transferred by means of one of the permitted
transfers specified in this Agreement must, as a condition precedent to the
validity of such transfer, acknowledge in writing to the Company that such
person is bound by the provisions of this Exercise Agreement and that the
transferred Shares are subject to (i) both the Company's Repurchase Option and
the Company's Right of First Refusal granted hereunder and (ii) the market
stand-off provisions of Section 7, to the same extent such Shares would be so
subject if retained by the Purchaser.
7. MARKET STANDOFF AGREEMENT. Purchaser agrees in connection with
-------------------------
any registration of the Company's securities that, upon the request of the
Company or the underwriters managing any public offering of the Company's
securities, Purchaser will not sell or otherwise dispose of any Shares without
the prior written consent of the Company or such underwriters, as the case may
be, for such period of time (not to
4
<PAGE>
Exodus Communications, Inc.
Stock Option Exercise Agreement
exceed 180 days) after the effective date of such registration requested by such
managing underwriters and subject to all restrictions as the Company or the
underwriters may specify.
8. INTENTIONALLY OMITTED.
---------------------
9. COMPANY'S RIGHT OF FIRST REFUSAL. Unvested Shares may not be sold
--------------------------------
or otherwise transferred by Purchaser without the Company's prior written
consent. Before any Vested Shares held by Purchaser or any transferee of such
Vested Shares (either being sometimes referred to herein as the "Holder") may be
------
sold or otherwise transferred (including without limitation a transfer by gift
or operation of law), the Company and/or its assignee(s) shall have an
assignable right of first refusal to purchase the Vested Shares to be sold or
transferred (the "Offered Shares") on the terms and conditions set forth in this
--------------
Section (the "Right of First Refusal").
----------------------
9.1 Notice of Proposed Transfer. The Holder of the Offered
---------------------------
Shares shall deliver to the Company a written notice (the "Notice") stating:
------
(i) the Holder's bona fide intention to sell or otherwise transfer the Offered
Shares; (ii) the name of each proposed bona fide purchaser or other transferee
("Proposed Transferee"); (iii) the number of Offered Shares to be transferred to
-------------------
each Proposed Transferee; (iv) the bona fide cash price or other consideration
for which the Holder proposes to transfer the Offered Shares (the "Offered
-------
Price"); and (v) that the Holder will offer to sell the Offered Shares to the
Company and/or its assignee(s) at the Offered Price as provided in this Section.
9.2 Exercise of Right of First Refusal. At any time within
----------------------------------
thirty (30) days after the date of the Notice, the Company and/or its
assignee(s) may, by giving written notice to the Holder, elect to purchase the
Offered Shares proposed to be transferred to any one or more of the Proposed
Transferees named in the Notice, at the purchase price determined as specified
below.
9.3 Purchase Price. The purchase price for the Offered Shares
--------------
purchased under this Section will be the Offered Price. If the Offered Price
includes consideration other than cash, then the cash equivalent value of the
non-cash consideration shall conclusively be deemed to be the value of such non-
cash consideration as determined in good faith by the Company's Board of
Directors.
9.4 Payment. Payment of the purchase price for Offered Shares
-------
will be payable, at the option of the Company and/or its assignee(s) (as
applicable), by check or by cancellation of all or a portion of any outstanding
indebtedness of the Holder to the Company (or to such assignee, in the case of a
purchase of Offered Shares by such assignee) or by any combination thereof. The
purchase price will be paid without interest within sixty (60) days after the
Company's receipt of the Notice, or, at the option of the Company and/or its
assignee(s), in the manner and at the time(s) set forth in the Notice.
9.5 Holder's Right to Transfer. If all of the Offered Shares
--------------------------
proposed in the Notice to be transferred to a given Proposed Transferee are not
purchased by the Company and/or its assignee(s) as provided in this Section,
then the Holder may sell or otherwise transfer such Offered Shares to that
Proposed Transferee at the Offered Price or at a higher price, provided that
--------
such sale or other transfer is consummated within 120 days after the date of the
Notice, and provided further, that (i) any such sale or other transfer is
-------- -------
effected in compliance with all applicable securities laws and (ii) the Proposed
Transferee agrees in writing that the provisions of this Section will continue
to apply to the Offered Shares in the hands of such Proposed Transferee. If the
Offered Shares described in the Notice are not transferred to the Proposed
Transferee within such 120 day period, then a new Notice must be given to the
Company, and the Company will again be offered the Right of First Refusal before
any Shares held by the Holder may be sold or otherwise transferred.
9.6 Exempt Transfers. Notwithstanding anything to the contrary
----------------
in this Section, the following transfers of Vested Shares will be exempt from
the Right of First Refusal: (i) the transfer of any or all of the Vested Shares
during Purchaser's lifetime by gift or on Purchaser's death by will or intestacy
to Purchaser's "immediate family" (as defined below) or to a trust for the
benefit of Purchaser or Purchaser's immediate family, provided that each
transferee or other recipient agrees in a writing satisfactory to the Company
that the provisions of this Section will continue to apply to the transferred
Vested Shares in the
5
<PAGE>
Exodus Communications, Inc.
Stock Option Exercise Agreement
hands of such transferee or other recipient; (ii) any transfer of Vested Shares
made pursuant to a statutory merger or statutory consolidation of the Company
with or into another corporation or corporations (except that the Right of First
Refusal and Repurchase Option will continue to apply thereafter to such Vested
Shares, in which case the surviving corporation of such merger or consolidation
shall succeed to the rights of the Company under this Section unless the
agreement of merger or consolidation expressly otherwise provides); or (iii) any
transfer of Vested Shares pursuant to the winding up and dissolution of the
Company. As used herein, the term "immediate family" will mean Purchaser's
----------------
spouse, the lineal descendant or antecedent, father, mother, brother or sister,
adopted child or grandchild of the Purchaser or the Purchaser's spouse, or the
spouse of any child, adopted child, grandchild or adopted grandchild of
Purchaser or the Purchaser's spouse.
9.7 Termination of Right of First Refusal. The Company's Right
-------------------------------------
of First Refusal will terminate when the Company's securities become publicly
traded.
10. RIGHTS AS SHAREHOLDER. Subject to the terms and conditions of
---------------------
this Exercise Agreement, Purchaser will have all of the rights of a shareholder
of the Company with respect to the Shares from and after the date that Shares
are issued to Purchaser until such time as Purchaser disposes of the Shares or
the Company and/or its assignee(s) exercise(s) the Repurchase Option or Right of
First Refusal. Upon an exercise of the Repurchase Option or the Right of First
Refusal, Purchaser will have no further rights as a holder of the Shares so
purchased upon such exercise, except the right to receive payment for the Shares
so purchased in accordance with the provisions of this Exercise Agreement, and
Purchaser will promptly surrender the stock certificate(s) evidencing the Shares
so purchased to the Company for transfer or cancellation.
11. ESCROW. As security for Purchaser's faithful performance of this
------
Agreement, Purchaser agrees, immediately upon receipt of the stock
certificate(s) evidencing the Shares, to deliver such certificate(s), together
with the Stock Powers executed by Purchaser and by Purchaser's spouse, if any
(with the date and number of Shares left blank), to the Secretary of the Company
or other designee of the Company ("Escrow Holder"), who is hereby appointed to
-------------
hold such certificate(s) and Stock Powers in escrow and to take all such actions
and to effectuate all such transfers and/or releases of such Shares as are in
accordance with the terms of this Agreement. Purchaser and the Company agree
that Escrow Holder will not be liable to any party to this Exercise Agreement
(or to any other party) for any actions or omissions unless Escrow Holder is
grossly negligent or intentionally fraudulent in carrying out the duties of
Escrow Holder under this Exercise Agreement. Escrow Holder may rely upon any
letter, notice or other document executed by any signature purported to be
genuine and may rely on the advice of counsel and obey any order of any court
with respect to the transactions contemplated by this Agreement. The Shares
will be released from escrow upon termination of both the Repurchase Option and
the Right of First Refusal.
12. RESTRICTIVE LEGENDS AND STOP-TRANSFER ORDERS.
--------------------------------------------
12.1 Legends. Purchaser understands and agrees that the Company
-------
will place the legends set forth below or similar legends on any stock
certificate(s) evidencing the Shares, together with any other legends that may
be required by state or federal securities laws, the Company's Articles of
Incorporation or Bylaws, any other agreement between Purchaser and the Company
or any agreement between Purchaser and any third party:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR UNDER
--------------
THE SECURITIES LAWS OF CERTAIN STATES. THESE SECURITIES ARE SUBJECT TO
RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED
OR RESOLD EXCEPT AS PERMITTED UNDER THE SECURITIES ACT AND APPLICABLE
STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION
THEREFROM. INVESTORS SHOULD BE AWARE THAT THEY MAY BE REQUIRED TO BEAR
THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF
TIME. THE ISSUER OF THESE SECURITIES MAY REQUIRE AN OPINION OF COUNSEL
IN FORM AND SUBSTANCE SATISFACTORY
6
<PAGE>
Exodus Communications, Inc.
Stock Option Exercise Agreement
TO THE ISSUER TO THE EFFECT THAT ANY PROPOSED TRANSFER OR RESALE IS IN
COMPLIANCE WITH THE SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES
LAWS. THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
CERTAIN RESTRICTIONS ON PUBLIC RESALE AND TRANSFER, RIGHT OF
REPURCHASE AND RIGHT OF FIRST REFUSAL OPTIONS HELD BY THE ISSUER
AND/OR ITS ASSIGNEE(S) AS SET FORTH IN A STOCK OPTION EXERCISE
AGREEMENT BETWEEN THE ISSUER AND THE ORIGINAL HOLDER OF THESE SHARES,
A COPY OF WHICH MAY BE OBTAINED AT THE PRINCIPAL OFFICE OF THE ISSUER.
SUCH PUBLIC SALE AND TRANSFER RESTRICTIONS AND THE RIGHT OF REPURCHASE
AND RIGHT OF FIRST REFUSAL ARE BINDING ON TRANSFEREES OF THESE SHARES.
The California Commissioner of Corporations may require that the
following legend also be placed upon the share certificate(s) evidencing
ownership of the Shares:
IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY, OR
ANY INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFOR,
WITHOUT THE PRIOR WRITTEN CONSENT OF THE COMMISSIONER OF CORPORATIONS
OF THE STATE OF CALIFORNIA, EXCEPT AS PERMITTED IN THE COMMISSIONER'S
RULES.
12.2 Stop-Transfer Instructions. Purchaser agrees that, to
--------------------------
ensure compliance with the restrictions imposed by this Agreement, the Company
may issue appropriate "stop-transfer" instructions to its transfer agent, if
any, and if the Company transfers its own securities, it may make appropriate
notations to the same effect in its own records.
12.3 Refusal to Transfer. The Company will not be required (i)
-------------------
to transfer on its books any Shares that have been sold or otherwise transferred
in violation of any of the provisions of this Agreement or (ii) to treat as
owner of such Shares, or to accord the right to vote or pay dividends to any
purchaser or other transferee to whom such Shares have been so transferred.
13. TAX CONSEQUENCES. PURCHASER UNDERSTANDS THAT PURCHASER MAY
----------------
SUFFER ADVERSE TAX CONSEQUENCES AS A RESULT OF PURCHASER'S PURCHASE OR
DISPOSITION OF THE SHARES. PURCHASER REPRESENTS THAT PURCHASER HAS CONSULTED
WITH ANY TAX ADVISER PURCHASER DEEMS ADVISABLE IN CONNECTION WITH THE PURCHASE
OR DISPOSITION OF THE SHARES AND THAT PURCHASER IS NOT RELYING ON THE COMPANY
FOR ANY TAX ADVICE. IN PARTICULAR, IF UNVESTED SHARES ARE SUBJECT TO REPURCHASE
BY THE COMPANY, PURCHASER REPRESENTS THAT PURCHASER HAS CONSULTED WITH
PURCHASER'S TAX ADVISER CONCERNING THE ADVISABILITY OF FILING AN 83(b) ELECTION
WITH THE INTERNAL REVENUE SERVICE. Set forth below is a brief summary as of the
date the Plan was adopted by the Board of some of the federal and California tax
consequences of exercise of the Option and disposition of the Shares. THIS
SUMMARY IS NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT
TO CHANGE. PURCHASER SHOULD CONSULT A TAX ADVISER BEFORE EXECUTING THIS OPTION
OR DISPOSING OF THE SHARES.
13.1 Exercise of Incentive Stock Option. If the Option qualifies
----------------------------------
as an incentive stock option, there will be no regular federal income tax
liability or California income tax liability upon the exercise of the Option,
although the excess, if any, of the Fair Market Value of the Shares on the date
of exercise over the Exercise Price will be treated as a tax preference item for
federal income tax purposes and may subject Purchaser to the alternative minimum
tax in the year of exercise.
13.2 Exercise of Nonqualified Stock Option. If the Option does
-------------------------------------
not qualify as an incentive stock option, there may be a regular federal income
tax liability and a California income tax liability upon the exercise of the
Option. Purchaser will be treated as having received compensation income
(taxable at
7
<PAGE>
Exodus Communications, Inc.
Stock Option Exercise Agreement
ordinary income tax rates) equal to the excess, if any, of the Fair Market Value
of the Shares on the date of exercise over the Exercise Price. If Purchaser is
or was an employee of the Company, the Company will be required to withhold from
Purchaser's compensation or collect from Purchaser and pay to the applicable
taxing authorities an amount equal to a percentage of this compensation income
at the time of exercise.
13.3 Disposition of Shares. If the Shares are held for more than
---------------------
twelve (12) months after the date of the acquisition of the Shares pursuant to
the exercise of the Option for Vested Shares and, in the case of an ISO, are
disposed of more than two years after the Date of Grant, any gain realized on
disposition of the Shares will be treated as long term capital gain for federal
and California income tax purposes. If Shares purchased under an ISO are
disposed of within the applicable one year or two year period, any gain realized
on such disposition will be treated as compensation income (taxable at ordinary
income rates) to the extent of the excess, if any, of the Fair Market Value of
the Shares on the date of exercise over the Exercise Price. The Company may be
required to withhold from Purchaser's compensation or collect from Purchaser and
pay to the applicable taxing authorities an amount equal to a percentage of this
compensation income at the time of exercise.
14. COMPLIANCE WITH LAWS AND REGULATIONS. The issuance and transfer
------------------------------------
of the Shares will be subject to and conditioned upon compliance by the Company
and Purchaser with all applicable state and federal laws and regulations and
with all applicable requirements of any stock exchange or automated quotation
system on which the Company's Common Stock may be listed or quoted at the time
of such issuance or transfer.
15. SUCCESSORS AND ASSIGNS. The Company may assign any of its rights
----------------------
under this Agreement, including its rights to repurchase Shares under the
Repurchase Option and the Right of First Refusal. This Agreement shall be
binding upon and inure to the benefit of the successors and assigns of the
Company. Subject to the restrictions on transfer herein set forth, this
Agreement will be binding upon Purchaser and Purchaser's heirs, executors,
administrators, legal representatives, successors and assigns.
16. GOVERNING LAW; SEVERABILITY. This Agreement shall be governed by
---------------------------
and construed in accordance with the internal laws of the State of California as
such laws are applied to agreements between California residents entered into
and to be performed entirely within California. If any provision of this
Agreement is determined by a court of law to be illegal or unenforceable, then
such provision will be enforced to the maximum extent possible and the other
provisions will remain fully effective and enforceable.
17. NOTICES. Any notice required to be given or delivered to the
-------
Company shall be in writing and addressed to the Corporate Secretary of the
Company at its principal corporate offices. Any notice required to be given or
delivered to Purchaser shall be in writing and addressed to Purchaser at the
address indicated above or to such other address as Purchaser may designate in
writing from time to time to the Company. All notices shall be deemed
effectively given upon personal delivery, three (3) days after deposit in the
United States mail by certified or registered mail (return receipt requested),
one (1) business day after its deposit with any return receipt express courier
(prepaid), or one (1) business day after transmission by rapifax or telecopier.
18. FURTHER INSTRUMENTS. The parties agree to execute such further
-------------------
instruments and to take such further action as may be reasonably necessary to
carry out the purposes and intent of this Agreement.
19. HEADINGS. The captions and headings of this Agreement are
--------
included for ease of reference only and will be disregarded in interpreting or
construing this Agreement. All references herein to Sections will refer to
Sections of this Agreement.
20. ENTIRE AGREEMENT. The Plan, the Stock Option Agreement and this
----------------
Exercise Agreement, together with all its Exhibits, constitute the entire
agreement and understanding of the parties with respect to the subject matter of
this Agreement, and supersede all prior understandings and agreements, whether
oral or written, between the parties hereto with respect to the specific subject
matter hereof.
8
<PAGE>
Exodus Communications, Inc.
Stock Option Exercise Agreement
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed in duplicate by its duly authorized representative and Purchaser has
executed this Agreement in duplicate as of the Effective Date.
PURCHASER
By:____________________________ _________________________________
(Signature)
_______________________________
(Please print Name) _________________________________
(Please print name)
_______________________________ _________________________________
(Please print title)
9
<PAGE>
LIST OF EXHIBITS
----------------
Exhibit 1: Stock Power and Assignment Separate from Stock Certificate
Exhibit 2: Spouse Consent
Exhibit 3: Copy of Purchaser's Check
<PAGE>
EXHIBIT 1
---------
STOCK POWER AND ASSIGNMENT
--------------------------
SEPARATE FROM STOCK CERTIFICATE
-------------------------------
<PAGE>
STOCK POWER AND ASSIGNMENT
--------------------------
SEPARATE FROM STOCK CERTIFICATE
-------------------------------
FOR VALUE RECEIVED and pursuant to that certain Stock Option Exercise
Agreement No. ___ dated as of _______________, 19___, (the "Agreement"), the
---------
undersigned hereby sells, assigns and transfers unto
_______________________________, shares of the Common Stock of Exodus
Communications, Inc., a California corporation (the "Company"), standing in the
-------
undersigned's name on the books of the Company represented by Certificate No(s).
______ delivered herewith, and does hereby irrevocably constitute and appoint
the Secretary of the Company as the undersigned's attorney-in-fact, with full
power of substitution, to transfer said stock on the books of the Company. THIS
ASSIGNMENT MAY ONLY BE USED AS AUTHORIZED BY THE AGREEMENT AND ANY EXHIBITS
THERETO.
Dated: _______________, 19____
PURCHASER
__________________________________
(Signature)
__________________________________
(Please Print Name)
__________________________________
(Spouse's Signature, if any)
__________________________________
(Please Print Spouse's Name)
INSTRUCTIONS: Please do not fill in any blanks other than the signature line.
- ------------
The purpose of this Stock Power and Assignment is to enable the Company to
acquire the shares upon exercise of its "Repurchase Option" and/or "Right of
First Refusal" set forth in the Agreement without requiring additional
signatures on the part of the Purchaser or Purchaser's Spouse.
<PAGE>
EXHIBIT 2
---------
SPOUSE CONSENT
--------------
<PAGE>
SPOUSE CONSENT
--------------
The undersigned spouse of Purchaser has read, understands, and hereby
approves the Stock Option Exercise Agreement between Purchaser and the Company
(the "Agreement"). In consideration of the Company's granting my spouse the
---------
right to purchase the Shares as set forth in the Agreement, the undersigned
hereby agrees to be irrevocably bound by the Agreement and further agrees that
any community property interest shall similarly be bound by the Agreement. The
undersigned hereby appoints Purchaser as my attorney-in-fact with respect to any
amendment or exercise of any rights under the Agreement.
Date:_______________________ __________________________________
Signature of Purchaser's Spouse
Address: __________________________________
__________________________________
<PAGE>
EXHIBIT 3
---------
COPY OF PURCHASER'S CHECK
-------------------------
<PAGE>
EXHIBIT 10.05
EXODUS COMMUNICATIONS, INC.
1998 EQUITY INCENTIVE PLAN
As Adopted January 15, 1998
1. PURPOSE. The purpose of this Plan is to provide incentives to
-------
attract, retain and motivate eligible persons whose present and potential
contributions are important to the success of the Company, its Parent and
Subsidiaries, by offering them an opportunity to participate in the Company's
future performance through awards of Options, Restricted Stock and Stock
Bonuses. Capitalized terms not defined in the text are defined in Section 23.
2. SHARES SUBJECT TO THE PLAN.
--------------------------
2.1 Number of Shares Available. Subject to Sections 2.2 and 18,
--------------------------
the total number of Shares reserved and available for grant and issuance
pursuant to this Plan will be 1,500,000. Shares plus (a) any authorized shares
not issued or subject to outstanding grants under the Company's 1997 Equity
Incentive Plan the ("PRIOR PLAN") on the Effective Date (as defined in Section
19 below); (b) shares that are subject to issuance upon exercise of an option
granted under the Prior Plan but cease to be subject to such option for any
reason other than exercise of such option; and (c) shares that were issued under
the Prior Plan which are repurchased by the Company at the original issue price
or forfeited. Subject to Sections 2.2 and 18, Shares that are subject to: (x)
issuance upon exercise of an Option but cease to be subject to such Option for
any reason other than exercise of such Option; (y) an Award granted hereunder
but are forfeited or are repurchased by the Company at the original issue price;
and (z) an Award that otherwise terminates without Shares being issued, will
again be available for grant and issuance in connection with future Awards under
this Plan. At all times the Company shall reserve and keep available a
sufficient number of Shares as shall be required to satisfy the requirements of
all outstanding Options granted under this Plan and all other outstanding but
unvested Awards granted under this Plan.
2.2 Adjustment of Shares. In the event that the number of
--------------------
outstanding shares is changed by a stock dividend, recapitalization, stock
split, reverse stock split, subdivision, combination, reclassification or
similar change in the capital structure of the Company without consideration,
then (a) the number of Shares reserved for issuance under this Plan, (b) the
Exercise Prices of and number of Shares subject to outstanding Options, and (c)
the number of Shares subject to other outstanding Awards will be proportionately
adjusted, subject to any required action by the Board or the stockholders of the
Company and compliance with applicable securities laws; provided, however, that
-------- -------
fractions of a Share will not be issued but will either be replaced by a cash
payment equal to the Fair Market Value of such fraction of a Share or will be
rounded up to the nearest whole Share, as determined by the Committee.
3. ELIGIBILITY. ISOs (as defined in Section 5 below) may be granted
-----------
only to employees (including officers and directors who are also employees) of
the Company or of a Parent or Subsidiary of the Company. All other Awards may
be granted to employees, officers, directors, consultants, independent
contractors and advisors of the Company or any Parent or Subsidiary of the
Company; provided such consultants, contractors and advisors render bona fide
--------
services not in connection with the offer and sale of securities in a capital-
raising transaction. No person will be eligible to receive more than 750,000
Shares in any calendar year under this Plan pursuant to the grant of Awards
hereunder, other than new employees of the Company or of a Parent or Subsidiary
of the Company (including new employees who are also officers and directors of
the Company or any Parent or Subsidiary of the Company), who are eligible to
receive up to a maximum of 1,250,000 Shares in the calendar year in which they
commence their employment. A person may be granted more than one Award under
this Plan.
4. ADMINISTRATION.
--------------
<PAGE>
Exodus Communications, Inc.
1998 Equity Incentive Plan
4.1 Committee Authority. This Plan will be administered by the
-------------------
Committee or by the Board acting as the Committee. Subject to the general
purposes, terms and conditions of this Plan, and to the direction of the Board,
the Committee will have full power to implement and carry out this Plan. Without
limitation, the Committee will have the authority to:
(a) construe and interpret this Plan, any Award Agreement and any
other agreement or document executed pursuant to this Plan;
(b) prescribe, amend and rescind rules and regulations relating to
this Plan or any Award;
(c) select persons to receive Awards;
(d) determine the form and terms of Awards;
(e) determine the number of Shares or other consideration subject to
Awards;
(f) determine whether Awards will be granted singly, in combination
with, in tandem with, in replacement of, or as alternatives to,
other Awards under this Plan or any other incentive or
compensation plan of the Company or any Parent or Subsidiary of
the Company;
(g) grant waivers of Plan or Award conditions;
(h) determine the vesting, exercisability and payment of Awards;
(i) correct any defect, supply any omission or reconcile any
inconsistency in this Plan, any Award or any Award Agreement;
(j) determine whether an Award has been earned; and
(k) make all other determinations necessary or advisable for the
administration of this Plan.
4.2 Committee Discretion. Any determination made by the
--------------------
Committee with respect to any Award will be made in its sole discretion at the
time of grant of the Award or, unless in contravention of any express term of
this Plan or Award, at any later time, and such determination will be final and
binding on the Company and on all persons having an interest in any Award under
this Plan. The Committee may delegate to one or more officers of the Company
the authority to grant an Award under this Plan to Participants who are not
Insiders of the Company.
5. OPTIONS. The Committee may grant Options to eligible persons and
-------
will determine whether such Options will be Incentive Stock Options within the
meaning of the Code ("ISO") or Nonqualified Stock Options ("NQSOS"), the number
of Shares subject to the Option, the Exercise Price of the Option, the period
during which the Option may be exercised, and all other terms and conditions of
the Option, subject to the following:
5.1 Form of Option Grant. Each Option granted under this Plan
--------------------
will be evidenced by an Award Agreement which will expressly identify the Option
as an ISO or an NQSO ("STOCK OPTION AGREEMENT"), and will be in such form and
contain such provisions (which need not be the same for each Participant) as the
Committee may from time to time approve, and which will comply with and be
subject to the terms and conditions of this Plan.
5.2 Date of Grant. The date of grant of an Option will be the
-------------
date on which the Committee makes the determination to grant such Option, unless
otherwise specified by the Committee. The Stock Option Agreement and a copy of
this Plan will be delivered to the Participant within a reasonable time after
the
-2-
<PAGE>
Exodus Communications, Inc.
1998 Equity Incentive Plan
granting of the Option.
5.3 Exercise Period. Options may be exercisable within the times
---------------
or upon the events determined by the Committee as set forth in the Stock Option
Agreement governing such Option; provided, however, that no Option will be
-------- -------
exercisable after the expiration of ten (10) years from the date the Option is
granted; and provided further that no ISO granted to a person who directly or by
-------- -------
attribution owns more than ten percent (10%) of the total combined voting power
of all classes of stock of the Company or of any Parent or Subsidiary of the
Company ("TEN PERCENT STOCKHOLDER") will be exercisable after the expiration of
five (5) years from the date the ISO is granted. The Committee also may provide
for Options to become exercisable at one time or from time to time, periodically
or otherwise, in such number of Shares or percentage of Shares as the Committee
determines.
5.4 Exercise Price. The Exercise Price of an Option will be
--------------
determined by the Committee when the Option is granted and may be not less than
85% of the Fair Market Value of the Shares on the date of grant; provided that:
(i) the Exercise Price of an ISO will be not less than 100% of the Fair Market
Value of the Shares on the date of grant; and (ii) the Exercise Price of any ISO
granted to a Ten Percent Stockholder will not be less than 110% of the Fair
Market Value of the Shares on the date of grant. Payment for the Shares
purchased may be made in accordance with Section 8 of this Plan.
5.5 Method of Exercise. Options may be exercised only by
------------------
delivery to the Company of a written stock option exercise agreement (the
"EXERCISE AGREEMENT") in a form approved by the Committee (which need not be the
same for each Participant), stating the number of Shares being purchased, the
restrictions imposed on the Shares purchased under such Exercise Agreement, if
any, and such representations and agreements regarding Participant's investment
intent and access to information and other matters, if any, as may be required
or desirable by the Company to comply with applicable securities laws, together
with payment in full of the Exercise Price for the number of Shares being
purchased.
5.6 Termination. Notwithstanding the exercise periods set forth
-----------
in the Stock Option Agreement, exercise of an Option will always be subject to
the following:
(a) If the Participant is Terminated for any reason except death or
Disability, then the Participant may exercise such Participant's
Options only to the extent that such Options would have been
exercisable upon the Termination Date no later than three (3)
months after the Termination Date (or such shorter or longer time
period not exceeding five (5) years as may be determined by the
Committee, with any exercise beyond three (3) months after the
Termination Date deemed to be an NQSO), but in any event, no later
than the expiration date of the Options.
(b) If the Participant is Terminated because of Participant's death or
Disability (or the Participant dies within three (3) months after
a Termination other than for Cause or because of Participant's
Disability), then Participant's Options may be exercised only to
the extent that such Options would have been exercisable by
Participant on the Termination Date and must be exercised by
Participant (or Participant's legal representative or authorized
assignee) no later than twelve (12) months after the Termination
Date (or such shorter or longer time period not exceeding five (5)
years as may be determined by the Committee, with any such
exercise beyond (a) three (3) months after the Termination Date
when the Termination is for any reason other than the
Participant's death or Disability, or (b) twelve (12) months after
the Termination Date when the Termination is for Participant's
death or
-3-
<PAGE>
Exodus Communications, Inc.
1998 Equity Incentive Plan
Disability, deemed to be an NQSO), but in any event no later than
the expiration date of the Options.
(c) Notwithstanding the provisions in paragraph 5.6(a) above, if a
Participant is terminated for Cause, neither the Participant, the
Participant's estate nor such other person who may then hold the
Option shall be entitled to exercise any Option with respect to
any Shares whatsoever, after termination of service, whether or
not after termination of service the Participant may receive
payment from the Company or Subsidiary for vacation pay, for
services rendered prior to termination, for services rendered for
the day on which termination occurs, for salary in lieu of notice,
or for any other benefits. In making such determination, the
Board shall give the Participant an opportunity to present to the
Board evidence on his behalf. For the purpose of this paragraph,
termination of service shall be deemed to occur on the date when
the Company dispatches notice or advice to the Participant that
his service is terminated.
5.7 Limitations on Exercise. The Committee may specify a
-----------------------
reasonable minimum number of Shares that may be purchased on any exercise of an
Option, provided that such minimum number will not prevent Participant from
exercising the Option for the full number of Shares for which it is then
exercisable.
5.8 Limitations on ISO. The aggregate Fair Market Value
------------------
(determined as of the date of grant) of Shares with respect to which ISO are
exercisable for the first time by a Participant during any calendar year (under
this Plan or under any other incentive stock option plan of the Company, Parent
or Subsidiary of the Company) will not exceed $100,000. If the Fair Market
Value of Shares on the date of grant with respect to which ISO are exercisable
for the first time by a Participant during any calendar year exceeds $100,000,
then the Options for the first $100,000 worth of Shares to become exercisable in
such calendar year will be ISO and the Options for the amount in excess of
$100,000 that become exercisable in that calendar year will be NQSOs. In the
event that the Code or the regulations promulgated thereunder are amended after
the Effective Date of this Plan to provide for a different limit on the Fair
Market Value of Shares permitted to be subject to ISO, such different limit will
be automatically incorporated herein and will apply to any Options granted after
the effective date of such amendment.
5.9 Modification, Extension or Renewal. The Committee may
----------------------------------
modify, extend or renew outstanding Options and authorize the grant of new
Options in substitution therefor, provided that any such action may not, without
the written consent of a Participant, impair any of such Participant's rights
under any Option previously granted. Any outstanding ISO that is modified,
extended, renewed or otherwise altered will be treated in accordance with
Section 424(h) of the Code. The Committee may reduce the Exercise Price of
outstanding Options without the consent of Participants affected by a written
notice to them; provided, however, that the Exercise Price may not be reduced
-------- -------
below the minimum Exercise Price that would be permitted under Section 5.4 of
this Plan for Options granted on the date the action is taken to reduce the
Exercise Price.
5.10 No Disqualification. Notwithstanding any other provision in
-------------------
this Plan, no term of this Plan relating to ISO will be interpreted, amended or
altered, nor will any discretion or authority granted under this Plan be
exercised, so as to disqualify this Plan under Section 422 of the Code or,
without the consent of the Participant affected, to disqualify any ISO under
Section 422 of the Code.
6. RESTRICTED STOCK. A Restricted Stock Award is an offer by the
----------------
Company to sell to an eligible person Shares that are subject to restrictions.
The Committee will determine to whom an offer will be made, the number of Shares
the person may purchase, the price to be paid (the "PURCHASE PRICE"), the
restrictions to which the Shares will be subject, and all other terms and
conditions of the Restricted Stock Award, subject to the following:
6.1 Form of Restricted Stock Award. All purchases under a
------------------------------
Restricted Stock Award made pursuant to this Plan will be evidenced by an Award
Agreement ("RESTRICTED STOCK PURCHASE AGREEMENT")
-4-
<PAGE>
Exodus Communications, Inc.
1998 Equity Incentive Plan
that will be in such form (which need not be the same for each Participant) as
the Committee will from time to time approve, and will comply with and be
subject to the terms and conditions of this Plan. The offer of Restricted Stock
will be accepted by the Participant's execution and delivery of the Restricted
Stock Purchase Agreement and full payment for the Shares to the Company within
thirty (30) days from the date the Restricted Stock Purchase Agreement is
delivered to the person. If such person does not execute and deliver the
Restricted Stock Purchase Agreement along with full payment for the Shares to
the Company within thirty (30) days, then the offer will terminate, unless
otherwise determined by the Committee.
6.2 Purchase Price. The Purchase Price of Shares sold pursuant
--------------
to a Restricted Stock Award will be determined by the Committee on the date the
Restricted Stock Award is granted, except in the case of a sale to a Ten Percent
Stockholder, in which case the Purchase Price will be 100% of the Fair Market
Value. Payment of the Purchase Price may be made in accordance with Section 8
of this Plan.
6.3 Terms of Restricted Stock Awards. Restricted Stock Awards
--------------------------------
shall be subject to such restrictions as the Committee may impose. These
restrictions may be based upon completion of a specified number of years of
service with the Company or upon completion of the performance goals as set out
in advance in the Participant's individual Restricted Stock Purchase Agreement.
Restricted Stock Awards may vary from Participant to Participant and between
groups of Participants. Prior to the grant of a Restricted Stock Award, the
Committee shall: (a) determine the nature, length and starting date of any
Performance Period for the Restricted Stock Award; (b) select from among the
Performance Factors to be used to measure performance goals, if any; and (c)
determine the number of Shares that may be awarded to the Participant. Prior to
the payment of any Restricted Stock Award, the Committee shall determine the
extent to which such Restricted Stock Award has been earned. Performance
Periods may overlap and Participants may participate simultaneously with respect
to Restricted Stock Awards that are subject to different Performance Periods and
having different performance goals and other criteria.
6.4 Termination During Performance Period. If a Participant is
-------------------------------------
Terminated during a Performance Period for any reason, then such Participant
will be entitled to payment (whether in Shares, cash or otherwise) with respect
to the Restricted Stock Award only to the extent earned as of the date of
Termination in accordance with the Restricted Stock Purchase Agreement, unless
the Committee will determine otherwise.
7. STOCK BONUSES.
-------------
7.1 Awards of Stock Bonuses. A Stock Bonus is an award of Shares
-----------------------
(which may consist of Restricted Stock) for services rendered to the Company or
any Parent or Subsidiary of the Company. A Stock Bonus may be awarded for past
services already rendered to the Company, or any Parent or Subsidiary of the
Company pursuant to an Award Agreement (the "STOCK BONUS AGREEMENT") that will
be in such form (which need not be the same for each Participant) as the
Committee will from time to time approve, and will comply with and be subject to
the terms and conditions of this Plan. A Stock Bonus may be awarded upon
satisfaction of such performance goals as are set out in advance in the
Participant's individual Award Agreement (the "PERFORMANCE STOCK BONUS
AGREEMENT") that will be in such form (which need not be the same for each
Participant) as the Committee will from time to time approve, and will comply
with and be subject to the terms and conditions of this Plan. Stock Bonuses may
vary from Participant to Participant and between groups of Participants, and may
be based upon the achievement of the Company, Parent or Subsidiary and/or
individual performance factors or upon such other criteria as the Committee may
determine.
7.2 Terms of Stock Bonuses. The Committee will determine the
----------------------
number of Shares to be awarded to the Participant. If the Stock Bonus is being
earned upon the satisfaction of performance goals pursuant to a Performance
Stock Bonus Agreement, then the Committee will: (a) determine the nature,
length and starting date of any Performance Period for each Stock Bonus; (b)
select from among the Performance Factors to be used to measure the performance,
if any; and (c) determine the number of Shares that may be awarded to the
Participant. Prior to the payment of any Stock Bonus, the Committee shall
determine the extent to which such Stock Bonuses have been earned. Performance
Periods may overlap and Participants may participate simultaneously with respect
to
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Exodus Communications, Inc.
1998 Equity Incentive Plan
Stock Bonuses that are subject to different Performance Periods and different
performance goals and other criteria. The number of Shares may be fixed or may
vary in accordance with such performance goals and criteria as may be determined
by the Committee. The Committee may adjust the performance goals applicable to
the Stock Bonuses to take into account changes in law and accounting or tax
rules and to make such adjustments as the Committee deems necessary or
appropriate to reflect the impact of extraordinary or unusual items, events or
circumstances to avoid windfalls or hardships.
7.3 Form of Payment. The earned portion of a Stock Bonus may be
---------------
paid currently or on a deferred basis with such interest or dividend equivalent,
if any, as the Committee may determine. Payment may be made in the form of cash
or whole Shares or a combination thereof, either in a lump sum payment or in
installments, all as the Committee will determine.
8. PAYMENT FOR SHARE PURCHASES.
---------------------------
8.1 Payment. Payment for Shares purchased pursuant to this
-------
Plan may be made in cash (by check) or, where expressly approved for the
Participant by the Committee and where permitted by law:
(a) by cancellation of indebtedness of the Company to the Participant;
(b) by surrender of shares that either: (1) have been owned by
Participant for more than six (6) months and have been paid for
within the meaning of SEC Rule 144 (and, if such shares were
purchased from the Company by use of a promissory note, such note
has been fully paid with respect to such shares); or (2) were
obtained by Participant in the public market;
(c) by tender of a full recourse promissory note having such terms as
may be approved by the Committee and bearing interest at a rate
sufficient to avoid imputation of income under Sections 483 and
1274 of the Code; provided, however, that Participants who are not
-------- -------
employees or directors of the Company will not be entitled to
purchase Shares with a promissory note unless the note is
adequately secured by collateral other than the Shares;
(d) by waiver of compensation due or accrued to the Participant for
services rendered;
(e) with respect only to purchases upon exercise of an Option, and
provided that a public market for the Company's stock exists:
(1) through a "same day sale" commitment from the Participant and
a broker-dealer that is a member of the National Association
of Securities Dealers (an "NASD DEALER") whereby the
Participant irrevocably elects to exercise the Option and to
sell a portion of the Shares so purchased to pay for the
Exercise Price, and whereby the NASD Dealer irrevocably
commits upon receipt of such Shares to forward the Exercise
Price directly to the Company; or
(2) through a "margin" commitment from the Participant and a NASD
Dealer whereby the Participant irrevocably elects to exercise
the Option and to pledge the Shares so purchased to the NASD
Dealer in a margin account as security for a loan from the
NASD Dealer in the amount of the Exercise Price, and whereby
the NASD Dealer irrevocably commits upon receipt of such
Shares to forward the Exercise Price directly to the Company;
or
(f) by any combination of the foregoing.
8.2 Loan Guarantees. The Committee may help the Participant pay
---------------
for Shares pur-
-6-
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Exodus Communications, Inc.
1998 Equity Incentive Plan
chased under this Plan by authorizing a guarantee by the Company of a third-
party loan to the Participant.
9. WITHHOLDING TAXES.
-----------------
9.1 Withholding Generally. Whenever Shares are to be issued in
---------------------
satisfaction of Awards granted under this Plan, the Company may require the
Participant to remit to the Company an amount sufficient to satisfy federal,
state and local withholding tax requirements prior to the delivery of any
certificate or certificates for such Shares. Whenever, under this Plan,
payments in satisfaction of Awards are to be made in cash, such payment will be
net of an amount sufficient to satisfy federal, state, and local withholding tax
requirements.
9.2 Stock Withholding. When, under applicable tax laws, a
-----------------
Participant incurs tax liability in connection with the exercise or vesting of
any Award that is subject to tax withholding and the Participant is obligated to
pay the Company the amount required to be withheld, the Committee may in its
sole discretion allow the Participant to satisfy the minimum withholding tax
obligation by electing to have the Company withhold from the Shares to be issued
that number of Shares having a Fair Market Value equal to the minimum amount
required to be withheld, determined on the date that the amount of tax to be
withheld is to be determined. All elections by a Participant to have Shares
withheld for this purpose will be made in accordance with the requirements
established by the Committee and be in writing in a form acceptable to the
Committee
10. PRIVILEGES OF STOCK OWNERSHIP.
-----------------------------
10.1 Voting and Dividends. No Participant will have any of the
--------------------
rights of a stockholder with respect to any Shares until the Shares are issued
to the Participant. After Shares are issued to the Participant, the Participant
will be a stockholder and have all the rights of a stockholder with respect to
such Shares, including the right to vote and receive all dividends or other
distributions made or paid with respect to such Shares; provided, that if such
--------
Shares are Restricted Stock, then any new, additional or different securities
the Participant may become entitled to receive with respect to such Shares by
virtue of a stock dividend, stock split or any other change in the corporate or
capital structure of the Company will be subject to the same restrictions as the
Restricted Stock; provided, further, that the Participant will have no right to
-------- -------
retain such stock dividends or stock distributions with respect to Shares that
are repurchased at the Participant's Purchase Price or Exercise Price pursuant
to Section 12.
10.2 Financial Statements. The Company will provide financial
--------------------
statements to each Participant prior to such Participant's purchase of Shares
under this Plan, and to each Participant annually during the period such
Participant has Awards outstanding; provided, however, the Company will not be
-------- -------
required to provide such financial statements to Participants whose services in
connection with the Company assure them access to equivalent information.
11. TRANSFERABILITY. Awards granted under this Plan, and any interest
---------------
therein, will not be transferable or assignable by Participant, and may not be
made subject to execution, attachment or similar process, otherwise than by will
or by the laws of descent and distribution or as determined by the Committee and
set forth in the Award Agreement with respect to Awards that are not ISOs.
During the lifetime of the Participant an Award will be exercisable only by the
Participant, and any elections with respect to an Award may be made only by the
Participant unless otherwise determined by the Committee and set forth in the
Award Agreement with respect to Awards that are not ISOs.
12. RESTRICTIONS ON SHARES. At the discretion of the Committee, the
----------------------
Company may reserve to itself and/or its assignee(s) in the Award Agreement a
right to repurchase a portion of or all Unvested Shares held by a Participant
following such Participant's Termination at any time within ninety (90) days
after the later of Participant's Termination Date and the date Participant
purchases Shares under this Plan, for cash and/or
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<PAGE>
Exodus Communications, Inc.
1998 Equity Incentive Plan
cancellation of purchase money indebtedness, at the Participant's Exercise Price
or Purchase Price, as the case may be.
13. CERTIFICATES. All certificates for Shares or other securities
------------
delivered under this Plan will be subject to such stock transfer orders, legends
and other restrictions as the Committee may deem necessary or advisable,
including restrictions under any applicable federal, state or foreign securities
law, or any rules, regulations and other requirements of the SEC or any stock
exchange or automated quotation system upon which the Shares may be listed or
quoted.
14. ESCROW; PLEDGE OF SHARES. To enforce any restrictions on a
------------------------
Participant's Shares, the Committee may require the Participant to deposit all
certificates representing Shares, together with stock powers or other
instruments of transfer approved by the Committee, appropriately endorsed in
blank, with the Company or an agent designated by the Company to hold in escrow
until such restrictions have lapsed or terminated, and the Committee may cause a
legend or legends referencing such restrictions to be placed on the
certificates. Any Participant who is permitted to execute a promissory note as
partial or full consideration for the purchase of Shares under this Plan will be
required to pledge and deposit with the Company all or part of the Shares so
purchased as collateral to secure the payment of Participant's obligation to the
Company under the promissory note; provided, however, that the Committee may
-------- -------
require or accept other or additional forms of collateral to secure the payment
of such obligation and, in any event, the Company will have full recourse
against the Participant under the promissory note notwithstanding any pledge of
the Participant's Shares or other collateral. In connection with any pledge of
the Shares, Participant will be required to execute and deliver a written pledge
agreement in such form as the Committee will from time to time approve. The
Shares purchased with the promissory note may be released from the pledge on a
pro rata basis as the promissory note is paid.
15. EXCHANGE AND BUYOUT OF AWARDS. The Committee may, at any time or
-----------------------------
from time to time, authorize the Company, with the consent of the respective
Participants, to issue new Awards in exchange for the surrender and cancellation
of any or all outstanding Awards. The Committee may at any time buy from a
Participant an Award previously granted with payment in cash, Shares (including
Restricted Stock) or other consideration, based on such terms and conditions as
the Committee and the Participant may agree.
16. SECURITIES LAW AND OTHER REGULATORY COMPLIANCE. An Award will not
----------------------------------------------
be effective unless such Award is in compliance with all applicable federal and
state securities laws, rules and regulations of any governmental body, and the
requirements of any stock exchange or automated quotation system upon which the
Shares may then be listed or quoted, as they are in effect on the date of grant
of the Award and also on the date of exercise or other issuance.
Notwithstanding any other provision in this Plan, the Company will have no
obligation to issue or deliver certificates for Shares under this Plan prior to:
(a) obtaining any approvals from governmental agencies that the Company
determines are necessary or advisable; and/or (b) completion of any registration
or other qualification of such Shares under any state or federal law or ruling
of any governmental body that the Company determines to be necessary or
advisable. The Company will be under no obligation to register the Shares with
the SEC or to effect compliance with the registration, qualification or listing
requirements of any state securities laws, stock exchange or automated quotation
system, and the Company will have no liability for any inability or failure to
do so.
17. NO OBLIGATION TO EMPLOY. Nothing in this Plan or any Award
-----------------------
granted under this Plan will confer or be deemed to confer on any Participant
any right to continue in the employ of, or to continue any other relationship
with, the Company or any Parent or Subsidiary of the Company or limit in any way
the right of the Company or any Parent or Subsidiary of the Company to terminate
Participant's employment or other relationship at any time, with or without
cause.
-8-
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Exodus Communications, Inc.
1998 Equity Incentive Plan
18. CORPORATE TRANSACTIONS.
----------------------
18.1 Assumption or Replacement of Awards by Successor. In the
------------------------------------------------
event of (a) a dissolution or liquidation of the Company, (b) a merger or
consolidation in which the Company is not the surviving corporation (other than
a merger or consolidation with a wholly-owned subsidiary, a reincorporation of
the Company in a different jurisdiction, or other transaction in which there is
no substantial change in the stockholders of the Company or their relative stock
holdings and the Awards granted under this Plan are assumed, converted or
replaced by the successor corporation, which assumption will be binding on all
Participants), (c) a merger in which the Company is the surviving corporation
but after which the stockholders of the Company immediately prior to such merger
(other than any stockholder that merges, or which owns or controls another
corporation that merges, with the Company in such merger) cease to own their
shares or other equity interest in the Company, (d) the sale of substantially
all of the assets of the Company, or (e) the acquisition, sale, or transfer of
more than 50% of the outstanding shares of the Company by tender offer or
similar transaction, any or all outstanding Awards may be assumed, converted or
replaced by the successor corporation (if any), which assumption, conversion or
replacement will be binding on all Participants. In the alternative, the
successor corporation may substitute equivalent Awards or provide substantially
similar consideration to Participants as was provided to stockholders (after
taking into account the existing provisions of the Awards). The successor
corporation may also issue, in place of outstanding Shares of the Company held
by the Participant, substantially similar shares or other property subject to
repurchase restrictions no less favorable to the Participant. In the event such
successor corporation (if any) refuses to assume or substitute Awards, as
provided above, pursuant to a transaction described in this Subsection 18.1,
such Awards will expire on such transaction at such time and on such conditions
as the Committee will determine; provided, however, that the Committee may, in
-------- -------
its sole discretion, provide that the vesting of any or all Awards granted
pursuant to this Plan will accelerate. If the Committee exercises such
discretion with respect to Options, such Options will become exercisable in full
prior to the consummation of such event at such time and on such conditions as
the Committee determines, and if such Options are not exercised prior to the
consummation of the corporate transaction, they shall terminate at such time as
determined by the Committee.
18.2 Other Treatment of Awards. Subject to any greater rights
-------------------------
granted to Participants under the foregoing provisions of this Section 18, in
the event of the occurrence of any transaction described in Section 18.1, any
outstanding Awards will be treated as provided in the applicable agreement or
plan of merger, consolidation, dissolution, liquidation, or sale of assets.
18.3 Assumption of Awards by the Company. The Company, from time
-----------------------------------
to time, also may substitute or assume outstanding awards granted by another
company, whether in connection with an acquisition of such other company or
otherwise, by either; (a) granting an Award under this Plan in substitution of
such other company's award; or (b) assuming such award as if it had been granted
under this Plan if the terms of such assumed award could be applied to an Award
granted under this Plan. Such substitution or assumption will be permissible if
the holder of the substituted or assumed award would have been eligible to be
granted an Award under this Plan if the other company had applied the rules of
this Plan to such grant. In the event the Company assumes an award granted by
another company, the terms and conditions of such award will remain unchanged
(except that the exercise price and the number and nature of Shares issuable
- -------
upon exercise of any such option will be adjusted appropriately pursuant to
Section 424(a) of the Code). In the event the Company elects to grant a new
Option rather than assuming an existing option, such new Option may be granted
with a similarly adjusted Exercise Price.
19. ADOPTION AND STOCKHOLDER APPROVAL. This Plan will become
---------------------------------
effective on the date on which the registration statement filed by the Company
with the SEC under the Securities Act registering the initial public offering of
the Company's Common Stock is declared effective by the SEC (the "EFFECTIVE
DATE"). This Plan shall be approved by the stockholders of the Company
(excluding Shares issued pursuant to this Plan), consistent with applicable
laws, within twelve (12) months before or after the date this Plan is adopted by
the Board. Upon the Effective Date, the Committee may grant Awards pursuant to
this Plan; provided, however, that: (a) no Option may be exercised prior to
-------- -------
initial stockholder approval of this Plan; (b) no Option granted pursuant to an
increase in the number of Shares subject to this Plan approved by the Board will
be exercised prior to the time such
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<PAGE>
Exodus Communications, Inc.
1998 Equity Incentive Plan
increase has been approved by the stockholders of the Company; and (c) in the
event that stockholder approval of such increase is not obtained within the time
period provided herein, all Awards granted pursuant to such increase will be
canceled, any Shares issued pursuant to any Award granted pursuant to such
increase will be canceled, and any purchase of Shares pursuant to such increase
will be rescinded.
20. TERM OF PLAN/GOVERNING LAW. Unless earlier terminated as
--------------------------
provided herein, this Plan will terminate ten (10) years from the date this Plan
is adopted by the Board or, if earlier, the date of stockholder approval. This
Plan and all agreements thereunder shall be governed by and construed in
accordance with the laws of the State of California.
21. AMENDMENT OR TERMINATION OF PLAN. The Board may at any time
--------------------------------
terminate or amend this Plan in any respect, including without limitation
amendment of any form of Award Agreement or instrument to be executed pursuant
to this Plan; provided, however, that the Board will not, without the approval
-------- -------
of the stockholders of the Company, amend this Plan in any manner that requires
such stockholder approval.
22. NONEXCLUSIVITY OF THE PLAN. Neither the adoption of this Plan by
--------------------------
the Board, the submission of this Plan to the stockholders of the Company for
approval, nor any provision of this Plan will be construed as creating any
limitations on the power of the Board to adopt such additional compensation
arrangements as it may deem desirable, including, without limitation, the
granting of stock options and bonuses otherwise than under this Plan, and such
arrangements may be either generally applicable or applicable only in specific
cases.
23. DEFINITIONS. As used in this Plan, the following terms will have
-----------
the following meanings:
"AWARD" means any award under this Plan, including any Option,
Restricted Stock or Stock Bonus.
"AWARD AGREEMENT" means, with respect to each Award, the signed
written agreement between the Company and the Participant setting forth the
terms and conditions of the Award.
"BOARD" means the Board of Directors of the Company.
"CAUSE" means the commission of an act of theft, embezzlement,
fraud, dishonesty or a breach of fiduciary duty to the Company or a Parent or
Subsidiary of the Company.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMMITTEE" means the Compensation Committee of the Board.
"COMPANY" means Exodus Communications, Inc. or any successor
corporation.
"DISABILITY" means a disability, whether temporary or permanent,
partial or total, as determined by the Committee.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
"EXERCISE PRICE" means the price at which a holder of an Option
may purchase the Shares issuable upon exercise of the Option.
"FAIR MARKET VALUE" means, as of any date, the value of a share
of the Company's Common Stock determined as follows:
-10-
<PAGE>
Exodus Communications, Inc.
1998 Equity Incentive Plan
(a) if such Common Stock is then quoted on the Nasdaq National Market,
its closing price on the Nasdaq National Market on the date of
determination as reported in The Wall Street Journal;
-----------------------
(b) if such Common Stock is publicly traded and is then listed on a
national securities exchange, its closing price on the date of
determination on the principal national securities exchange on
which the Common Stock is listed or admitted to trading as
reported in The Wall Street Journal;
-----------------------
(c) if such Common Stock is publicly traded but is not quoted on the
Nasdaq National Market nor listed or admitted to trading on a
national securities exchange, the average of the closing bid and
asked prices on the date of determination as reported in The Wall
--------
Street Journal;
--------------
(d) in the case of an Award made on the Effective Date, the price per
share at which shares of the Company's Common Stock are initially
offered for sale to the public by the Company's underwriters in
the initial public offering of the Company's Common Stock pursuant
to a registration statement filed with the SEC under the
Securities Act; or
(d) if none of the foregoing is applicable, by the Committee in good
faith.
"INSIDER" means an officer or director of the Company or any other
person whose transactions in the Company's Common Stock are subject to Section
16 of the Exchange Act.
"OPTION" means an award of an option to purchase Shares pursuant
to Section 5.
"PARENT" means any corporation (other than the Company) in an
unbroken chain of corporations ending with the Company if each of such
corporations other than the Company owns stock possessing 50% or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain.
"PARTICIPANT" means a person who receives an Award under this
Plan.
"PERFORMANCE FACTORS" means the factors selected by the Committee
from among the following measures to determine whether the performance goals
established by the Committee and applicable to Awards have been satisfied:
(a) Net revenue and/or net revenue growth;
(b) Earnings before income taxes and amortization and/or earnings
before income taxes and amortization growth;
(c) Operating income and/or operating income growth;
(d) Net income and/or net income growth;
(e) Earnings per share and/or earnings per share growth;
(f) Total shareholder return and/or total shareholder return
growth;
(g) Return on equity;
(h) Operating cash flow return on income;
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<PAGE>
Exodus Communications, Inc.
1998 Equity Incentive Plan
(i) Adjusted operating cash flow return on income;
(j) Economic value added; and
(k) Individual confidential business objectives.
"PERFORMANCE PERIOD" means the period of service determined by the
Committee, not to exceed five years, during which years of service or
performance is to be measured for Restricted Stock Awards or Stock Bonuses.
"PLAN" means this Exodus Communications, Inc. 1998 Equity
Incentive Plan, as amended from time to time.
"RESTRICTED STOCK AWARD" means an award of Shares pursuant to
Section 6.
"SEC" means the Securities and Exchange Commission.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SHARES" means shares of the Company's Common Stock reserved for
issuance under this Plan, as adjusted pursuant to Sections 2 and 18, and any
successor security.
"STOCK BONUS" means an award of Shares, or cash in lieu of Shares,
pursuant to Section 7.
"SUBSIDIARY" means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company if each of the
corporations other than the last corporation in the unbroken chain owns stock
possessing 50% or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain.
"TERMINATION" or "TERMINATED" means, for purposes of this Plan
with respect to a Participant, that the Participant has for any reason ceased to
provide services as an employee, officer, director, consultant, independent
contractor, or advisor to the Company or a Parent or Subsidiary of the Company.
An employee will not be deemed to have ceased to provide services in the case of
(i) sick leave, (ii) military leave, or (iii) any other leave of absence
approved by the Committee, provided, that such leave is for a period of not more
than 90 days, unless reemployment upon the expiration of such leave is
guaranteed by contract or statute or unless provided otherwise pursuant to
formal policy adopted from time to time by the Company and issued and
promulgated to employees in writing. In the case of any employee on an approved
leave of absence, the Committee may make such provisions respecting suspension
of vesting of the Award while on leave from the employ of the Company or a
Subsidiary as it may deem appropriate, except that in no event may an Option be
exercised after the expiration of the term set forth in the Option agreement.
The Committee will have sole discretion to determine whether a Participant has
ceased to provide services and the effective date on which the Participant
ceased to provide services (the "TERMINATION DATE").
"UNVESTED SHARES" means "Unvested Shares" as defined in the Award
Agreement.
"VESTED SHARES" means "Vested Shares" as defined in the Award
Agreement.
-12-
<PAGE>
NO. ______
EXODUS COMMUNICATIONS, INC.
1998 EQUITY INCENTIVE PLAN
STOCK OPTION AGREEMENT
----------------------
This Stock Option Agreement (this "AGREEMENT") is made and entered
into as of the Date of Grant set forth below (the "DATE OF GRANT") by and
between Exodus Communications, Inc., a Delaware corporation (the "COMPANY"), and
the Optionee named below ("OPTIONEE"). Capitalized terms not defined herein
shall have the meanings ascribed to them in the Company's 1998 Equity Incentive
Plan (the "PLAN").
OPTIONEE: ____________________________________________
SOCIAL SECURITY NUMBER: ____________________________________________
OPTIONEE'S ADDRESS: ____________________________________________
____________________________________________
TOTAL OPTION SHARES: ____________________________________________
EXERCISE PRICE PER SHARE: ____________________________________________
DATE OF GRANT: ____________________________________________
VESTING START DATE: ____________________________________________
EXPIRATION DATE: ____________________________________________
(unless earlier terminated under Section 3 hereof)
TYPE OF STOCK OPTION
(CHECK ONE): [_] INCENTIVE STOCK OPTION
[_] NONQUALIFIED STOCK OPTION
1. GRANT OF OPTION. The Company hereby grants to Optionee an option
---------------
(this "OPTION") to purchase up to the total number of shares of Common Stock of
the Company set forth above as Total Option Shares (collectively, the "SHARES")
at the Exercise Price Per Share set forth above (the "EXERCISE PRICE"), subject
to all of the terms and conditions of this Agreement and the Plan. If
designated as an Incentive Stock Option above, this Option is intended to
qualify as an "incentive stock option" ("ISO") within the meaning of Section 422
of the Internal Revenue Code of 1986, as amended (the "CODE"), to the extent
permitted under Code Section 422.
2. VESTING; EXERCISE PERIOD.
------------------------
2.1 Vesting of Shares. This Option shall exercisable as it
-----------------
vests. Subject to the terms and conditions of the Plan and this Agreement, this
Option shall vest with respect to [ ] of the Shares on the [ ]
following the Date of Grant, provided the
<PAGE>
Exodus Communications, Inc.
Stock Option Agreement
Optionee has not been Terminated as of such date and has continuously provided
services to the Company or a Parent or Subsidiary of the Company.
2.2 Vesting of Options. Shares that are vested pursuant to the
------------------
schedule set forth in Section 2.1 hereof are "VESTED SHARES." Shares that are
not vested pursuant to the schedule set forth in Section 2.1 hereof are
"UNVESTED SHARES."
2.3 Expiration. This Option shall expire on the Expiration Date
----------
set forth above and must be exercised, if at all, on or before the earlier of
the Expiration Date or the date on which this Option is earlier terminated in
accordance with the provisions of Section 3 hereof.
3. TERMINATION.
-----------
3.1 Termination for Any Reason Except Death, Disability or
------------------------------------------------------
Cause. If Optionee is Terminated for any reason except Optionee's death,
- -----
Disability or Cause, then this Option, to the extent (and only to the extent)
that it is vested in accordance with the schedule set forth in Section 2.1
hereof on the Termination Date, may be exercised by Optionee no later than three
(3) months after the Termination Date, but in any event no later than the
Expiration Date.
3.2 Termination Because of Death or Disability. If Optionee is
------------------------------------------
Terminated because of death or Disability of Optionee (or the Optionee dies
within three (3) months after Termination other than for Cause or because of
Disability), then this Option, to the extent that it is vested in accordance
with the schedule set forth in Section 2.1 hereof on the Termination Date, may
be exercised by Optionee (or Optionee's legal representative or authorized
assignee) no later than twelve (12) months after the Termination Date, but in
any event no later than the Expiration Date. Any exercise after three months
after the Termination Date when the Termination is for any reason other than
Optionee's death or disability, within the meaning of Code Section 22(e)(3),
shall be deemed to be the exercise of a nonqualified stock option.
3.3 Termination for Cause. If Optionee is Terminated for Cause,
---------------------
this Option will expire on the Optionee's date of Termination.
3.4 No Obligation to Employ. Nothing in the Plan or this
-----------------------
Agreement shall confer on Optionee any right to continue in the employ of, or
other relationship with, the Company or any Parent or Subsidiary of the Company,
or limit in any way the right of the Company or any Parent or Subsidiary of the
Company to terminate Optionee's employment or other relationship at any time,
with or without Cause.
4. MANNER OF EXERCISE.
------------------
4.1 Stock Option Exercise Agreement. To exercise this Option,
-------------------------------
Optionee (or in the case of exercise after Optionee's death, Optionee's
executor, administrator, heir or legatee, as the case may be) must deliver to
the Company an executed stock option
-2-
<PAGE>
Exodus Communications, Inc.
Stock Option Agreement
exercise agreement in the form attached hereto as Exhibit A, or in such other
---------
form as may be approved by the Company from time to time (the "EXERCISE
AGREEMENT"), which shall set forth, inter alia, Optionee's election to exercise
----- ----
this Option, the number of shares being purchased, any restrictions imposed on
the Shares and any representations, warranties and agreements regarding
Optionee's investment intent and access to information as may be required by the
Company to comply with applicable securities laws. If someone other than
Optionee exercises this Option, then such person must submit documentation
reasonably acceptable to the Company that such person has the right to exercise
this Option.
4.2 Limitations on Exercise. This Option may not be exercised
-----------------------
unless such exercise is in compliance with all applicable federal and state
securities laws, as they are in effect on the date of exercise. This Option may
not be exercised as to fewer than 100 Shares unless it is exercised as to all
Shares as to which this Option is then exercisable.
4.3 Payment. The Exercise Agreement shall be accompanied by full
-------
payment of the Exercise Price for the Shares being purchased in cash (by check),
or where permitted by law:
(a) by cancellation of indebtedness of the Company to the Optionee;
(b) by surrender of shares of the Company's Common Stock that either: (1)
have been owned by Optionee for more than six (6) months and have been
paid for within the meaning of SEC Rule 144 (and, if such shares were
purchased from the Company by use of a promissory note, such note has
been fully paid with respect to such shares); or (2) were obtained by
Optionee in the open public market; and (3) are clear of all liens,
---
claims, encumbrances or security interests;
[(C) IF PERMITTED BY THE COMMITTEE, BY TENDER OF A FULL RECOURSE PROMISSORY
NOTE HAVING SUCH TERMS AS MAY BE APPROVED BY THE COMMITTEE AND BEARING
INTEREST AT A RATE SUFFICIENT TO AVOID IMPUTATION OF INCOME UNDER
SECTIONS 483 AND 1274 OF THE CODE; PROVIDED, HOWEVER, THAT OPTIONEES
-------- -------
WHO ARE NOT EMPLOYEES OR DIRECTORS OF THE COMPANY SHALL NOT BE
ENTITLED TO PURCHASE SHARES WITH A PROMISSORY NOTE UNLESS THE NOTE IS
ADEQUATELY SECURED BY COLLATERAL OTHER THAN THE SHARES;]
(d) by waiver of compensation due or accrued to Optionee for services
rendered;
(e) provided that a public market for the Company's stock exists: (1)
through a "same day sale" commitment from Optionee and a broker-dealer
that is a member of the National Association of Securities Dealers (an
"NASD DEALER") whereby Optionee irrevocably elects to exercise this
Option and to sell a portion of the Shares so purchased to pay for the
Exercise Price and whereby the NASD Dealer irrevocably commits upon
receipt of such Shares to forward the exercise price directly to the
Company; or (2) through a "margin" commitment from Optionee and an
--
NASD
-3-
<PAGE>
Exodus Communications, Inc.
Stock Option Agreement
Dealer whereby Optionee irrevocably elects to exercise this Option and
to pledge the Shares so purchased to the NASD Dealer in a margin
account as security for a loan from the NASD Dealer in the amount of
the Exercise Price, and whereby the NASD Dealer irrevocably commits
upon receipt of such Shares to forward the Exercise Price directly to
the Company; or
(f) by any combination of the foregoing.
4.4 Tax Withholding. Prior to the issuance of the Shares upon
---------------
exercise of this Option, Optionee must pay or provide for any applicable federal
or state withholding obligations of the Company. If the Committee permits,
Optionee may provide for payment of withholding taxes upon exercise of this
Option by requesting that the Company retain Shares with a Fair Market Value
equal to the minimum amount of taxes required to be withheld. In such case, the
Company shall issue the net number of Shares to the Optionee by deducting the
Shares retained from the Shares issuable upon exercise.
4.5 Issuance of Shares. Provided that the Exercise Agreement and
------------------
payment are in form and substance satisfactory to counsel for the Company, the
Company shall issue the Shares registered in the name of Optionee, Optionee's
authorized assignee, or Optionee's legal representative, and shall deliver
certificates representing the Shares with the appropriate legends affixed
thereto.
5. NOTICE OF DISQUALIFYING DISPOSITION OF ISO SHARES. To the extent
-------------------------------------------------
this Option is an ISO, if Optionee sells or otherwise disposes of any of the
Shares acquired pursuant to the ISO on or before the later of (a) the date two
(2) years after the Date of Grant, and (b) the date one (1) year after transfer
of such Shares to Optionee upon exercise of this Option, then Optionee shall
immediately notify the Company in writing of such disposition.
6. COMPLIANCE WITH LAWS AND REGULATIONS. The exercise of this Option
------------------------------------
and the issuance and transfer of Shares shall be subject to compliance by the
Company and Optionee with all applicable requirements of federal and state
securities laws and with all applicable requirements of any stock exchange on
which the Company's Common Stock may be listed at the time of such issuance or
transfer. Optionee understands that the Company is under no obligation to
register or qualify the Shares with the SEC, any state securities commission or
any stock exchange to effect such compliance.
7. NONTRANSFERABILITY OF OPTION. This Option may not be transferred
----------------------------
in any manner other than by will or by the laws of descent and distribution and
may be exercised during the lifetime of Optionee only by Optionee. The terms of
this Option shall be binding upon the executors, administrators, successors and
assigns of Optionee.
8. TAX CONSEQUENCES. Set forth below is a brief summary as of the
----------------
date the Board adopted the Plan of some of the federal and California tax
consequences of exercise of this Option and disposition of the Shares. THIS
SUMMARY IS NECESSARILY INCOMPLETE,
-4-
<PAGE>
Exodus Communications, Inc.
Stock Option Agreement
AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. OPTIONEE SHOULD CONSULT
A TAX ADVISOR BEFORE EXERCISING THIS OPTION OR DISPOSING OF THE SHARES.
8.1 Exercise of Incentive Stock Option. To the extent this
----------------------------------
Option qualifies as an ISO, there will be no regular federal or California
income tax liability upon the exercise of this Option, although the excess, if
any, of the fair market value of the Shares on the date of exercise over the
Exercise Price will be treated as a tax preference item for federal income tax
purposes and may subject the Optionee to the alternative minimum tax in the year
of exercise.
8.2 Exercise of Nonqualified Stock Option. To the extent this
-------------------------------------
Option does not qualify as an ISO, there may be a regular federal and California
income tax liability upon the exercise of this Option. Optionee will be treated
as having received compensation income (taxable at ordinary income tax rates)
equal to the excess, if any, of the fair market value of the Shares on the date
of exercise over the Exercise Price. The Company may be required to withhold
from Optionee's compensation or collect from Optionee and pay to the applicable
taxing authorities an amount equal to a percentage of this compensation income
at the time of exercise.
8.3 Disposition of Shares. The following tax consequences may
---------------------
apply upon disposition of the Shares.
a. Incentive Stock Options. If the Shares are held for
-----------------------
more than twelve (12) months after the date of the transfer of the Shares
pursuant to the exercise of an ISO and are disposed of more than two (2) years
after the Date of Grant, any gain realized on disposition of the Shares will be
treated as capital gain for federal and California income tax purposes. The
maximum federal capital gain tax rates are twenty eight percent (28%) for Shares
held more than twelve (12) months, but not more than eighteen (18) months ("MID-
TERM CAPITAL GAIN"), and twenty percent (20%) for Shares held for more than
eighteen (18) months ("LONG-TERM CAPITAL GAIN"). If Shares purchased under an
ISO are disposed of within the applicable one (1) year or two (2) year period,
any gain realized on such disposition will be treated as compensation income
(taxable at ordinary income rates) to the extent of the excess, if any, of the
fair market value of the Shares on the date of exercise over the Exercise Price.
b. Nonqualified Stock Options. If the Shares are held for
--------------------------
more than twelve (12) months after the date of the transfer of the Shares
pursuant to the exercise of an NQSO, any gain realized on disposition of the
Shares will be treated as Mid-Term Capital Gain or Long-Term Capital Gain, as
the case may be.
c. Withholding. The Company may be required to withhold
-----------
from Participant's compensation or collect from the Participant and pay to the
applicable taxing authorities an amount equal to a percentage of this
compensation income.
-5-
<PAGE>
Exodus Communications, Inc.
Stock Option Agreement
9. PRIVILEGES OF STOCK OWNERSHIP. Optionee shall not have any of the
-----------------------------
rights of a stockholder with respect to any Shares until the Shares are issued
to Optionee.
10. INTERPRETATION. Any dispute regarding the interpretation of this
--------------
Agreement shall be submitted by Optionee or the Company to the Committee for
review. The resolution of such a dispute by the Committee shall be final and
binding on the Company and Optionee.
11. ENTIRE AGREEMENT. The Plan is incorporated herein by reference.
----------------
This Agreement and the Plan and the Exercise Agreement constitute the entire
agreement and understanding of the parties hereto with respect to the subject
matter hereof and supersede all prior understandings and agreements with respect
to such subject matter.
12. NOTICES. Any notice required to be given or delivered to the
-------
Company under the terms of this Agreement shall be in writing and addressed to
the Corporate Secretary of the Company at its principal corporate offices. Any
notice required to be given or delivered to Optionee shall be in writing and
addressed to Optionee at the address indicated above or to such other address as
such party may designate in writing from time to time to the Company. All
notices shall be deemed to have been given or delivered upon: personal
delivery; three (3) days after deposit in the United States mail by certified or
registered mail (return receipt requested); one (1) business day after deposit
with any return receipt express courier (prepaid); or one (1) business day after
transmission by facsimile.
13. SUCCESSORS AND ASSIGNS. The Company may assign any of its rights
----------------------
under this Agreement. This Agreement shall be binding upon and inure to the
benefit of the successors and assigns of the Company. Subject to the
restrictions on transfer set forth herein, this Agreement shall be binding upon
Optionee and Optionee's heirs, executors, administrators, legal representatives,
successors and assigns.
14. GOVERNING LAW. This Agreement shall be governed by and construed
-------------
in accordance with the internal laws of the State of California, without regard
to that body of law pertaining to choice of law or conflict of law.
15. ACCEPTANCE. Optionee hereby acknowledges receipt of a copy of the
----------
Plan and this Agreement. Optionee has read and understands the terms and
provisions thereof, and accepts this Option subject to all the terms and
conditions of the Plan and this Agreement. Optionee acknowledges that there may
be adverse tax consequences upon exercise of this Option or disposition of the
Shares and that the Company has advised Optionee to consult a tax advisor prior
to such exercise or disposition.
-6-
<PAGE>
Exodus Communications, Inc.
Stock Option Agreement
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed
in duplicate by its duly authorized representative and Optionee has executed
this Agreement in duplicate as of the Date of Grant.
EXODUS COMMUNICATIONS, INC. OPTIONEE
By:___________________________ ____________________________
(Signature)
______________________________ ____________________________
(Please print name) (Please print name)
______________________________
(Please print title)
-7-
<PAGE>
EXHIBIT A
---------
STOCK OPTION EXERCISE AGREEMENT
<PAGE>
EXHIBIT A
---------
EXODUS COMMUNICATIONS, INC.
1998 EQUITY INCENTIVE PLAN (THE "PLAN")
STOCK OPTION EXERCISE AGREEMENT
-------------------------------
I hereby elect to purchase the number of shares of Common Stock of EXODUS
COMMUNICATIONS, INC. (the "company") as set forth below:
<TABLE>
<CAPTION>
<S> <C>
Optionee_____________________________________________ Number of Shares Purchased:______________________________
Social Security Number:______________________________ Purchase Price per Share:________________________________
Address:_____________________________________________ Aggregate Purchase Price:________________________________
___________________________________________ Date of Option Agreement:________________________________
___________________________________________
Type of Option: [_] Incentive Stock Option Exact Name of Title to Shares:___________________________
[_] Nonqualified Stock Option _________________________________________________________
</TABLE>
1. DELIVERY OF PURCHASE PRICE. Optionee hereby delivers to the Company the
Aggregate Purchase Price, to the extent permitted in the Option Agreement (the
"Option Agreement") as follows (check as applicable and complete):
[_] in cash (by check) in the amount of $_____________________, receipt of
which is acknowledged by the Company;
IF THE COMMITTEE ALLOWS PAYMENT BY OTHER MEANS IN THE STOCK OPTION AGREEMENT,
ADD ONE OR MORE OF THE FOLLOWING, AS APPLICABLE:
[_] by cancellation of indebtedness of the Company to Optionee in the amount of
$___________________________________;
[_] by delivery of ______________________________ fully-paid, nonassessable
and vested shares of the Common Stock of the Company owned by Optionee for
at least six (6) months prior to the date hereof (and which have been paid
for within the meaning of sec rule 144), or obtained by Optionee in the
open public market, and owned free and clear of all liens, claims,
encumbrances or security interests, valued at the current Fair Market Value
of $____________________ per share;
[_] by the waiver hereby of compensation due or accrued to Optionee for
services rendered in the amount of $____________________________________ ;
[_] by tender of a full recourse promissory note in the principal amount of
$__________________________, secured by a Pledge Agreement of even date
herewith (the par value of the Shares is tendered in cash (by check)
receipt of which is acknowledged by the Company);
[_] through a "same-day-sale" commitment, delivered herewith, from Optionee
and the NASD Dealer named therein, in the amount of
$_______________________________; or
[_] through a "margin" commitment, delivered herewith from Optionee and the
NASD Dealer named therein, in the amount of
$_________________________________________.
2. MARKET STANDOFF AGREEMENT. Optionee, if requested by the Company and an
underwriter of Common Stock (or other securities) of the Company, agrees not to
sell or otherwise transfer or dispose of any Common Stock (or other securities)
of the Company held by Optionee during the period requested by the managing
underwriter following the effective date of a registration statement of the
Company filed under the Securities Act, provided that all officers and directors
of the Company are required to enter into similar agreements. Such agreement
shall be in writing in a form satisfactory to the Company and such underwriter.
The Company may impose stop-transfer instructions with respect to the shares (or
other securities) subject to the foregoing restriction until the end of such
period.
3. TAX CONSEQUENCES. OPTIONEE UNDERSTANDS THAT OPTIONEE MAY SUFFER ADVERSE
TAX CONSEQUENCES AS A RESULT OF OPTIONEE'S PURCHASE OR DISPOSITION OF THE
SHARES. OPTIONEE REPRESENTS THAT OPTIONEE HAS CONSULTED WITH ANY TAX
CONSULTANT(S) OPTIONEE DEEMS ADVISABLE IN CONNECTION WITH THE PURCHASE OR
DISPOSITION OF THE SHARES AND THAT OPTIONEE IS NOT RELYING ON THE COMPANY FOR
ANY TAX ADVICE.
4. ENTIRE AGREEMENT. The Plan and Option Agreement are incorporated herein by
reference. This Exercise Agreement, the Plan and the Option Agreement
constitute the entire agreement and understanding of the parties and supersede
in their entirety all prior understandings and agreements of the Company and
Optionee with respect to the subject matter hereof, and are governed by
California law except for that body of law pertaining to choice of law or
conflict of law.
DATE:______________________________ _____________________________________
SIGNATURE OF OPTIONEE
<PAGE>
SPOUSAL CONSENT
I acknowledge that I have read the foregoing Stock Option Exercise
Agreement (the "Agreement") and that I know its contents. I hereby consent to
and approve all of the provisions of the Agreement, and agree that the shares of
the Common Stock of Exodus Communications, Inc. purchased thereunder (the
"Shares") and any interest I may have in such Shares are subject to all the
provisions of the Agreement. I will take no action at any time to hinder
operation of the Agreement on these Shares or any interest I may have in or to
them.
Date:__________________
___________________________________
SIGNATURE OF OPTIONEE'S SPOUSE
___________________________________
SPOUSE'S NAME - TYPED OR PRINTED
___________________________________
OPTIONEE'S NAME - TYPED OR PRINTED
<PAGE>
EXHIBIT 10.06
EXODUS COMMUNICATIONS, INC.
1998 DIRECTORS STOCK OPTION PLAN
As Adopted January 15, 1998
1. PURPOSE. This 1998 Directors Stock Option Plan (this "PLAN") is
established to provide equity incentives for certain nonemployee members of the
Board of Directors of Exodus Communications, Inc. (the "COMPANY"), who are
described in Section 6.1 below, by granting such persons options to purchase
shares of stock of the Company.
2. ADOPTION AND STOCKHOLDER APPROVAL. After this Plan is adopted by the
Board of Directors of the Company (the "BOARD"), this Plan will become effective
on the time and date (the "EFFECTIVE DATE") on which the registration statement
filed by the Company with the Securities and Exchange Commission ("SEC") under
the Securities Act of 1933, as amended (the "SECURITIES ACT"), to register the
initial public offering of the Company's Common Stock is declared effective by
the SEC. This Plan shall be approved by the stockholders of the Company,
consistent with applicable laws, within twelve (12) months after the date this
Plan is adopted by the Board.
3. TYPES OF OPTIONS AND SHARES. Options granted under this Plan shall be
non-qualified stock options ("NQSOS"). The shares of stock that may be
purchased upon exercise of Options granted under this Plan (the "SHARES") are
shares of the Common Stock of the Company.
4. NUMBER OF SHARES. The maximum number of Shares that may be issued
pursuant to Options granted under this Plan (the "MAXIMUM NUMBER") is 200,000
Shares, subject to adjustment as provided in this Plan. If any Option is
terminated for any reason without being exercised in whole or in part, the
Shares thereby released from such Option shall be available for purchase under
other Options subsequently granted under this Plan. At all times during the term
of this Plan, the Company shall reserve and keep available such number of Shares
as shall be required to satisfy the requirements of outstanding Options granted
under this Plan; provided, however that if the aggregate number of Shares
subject to outstanding Options granted under this Plan plus the aggregate number
of Shares previously issued by the Company pursuant to the exercise of Options
granted under this Plan equals or exceeds the Maximum Number, then
notwithstanding anything herein to the contrary, no further Options may be
granted under this Plan until the Maximum Number is increased or the aggregate
number of Shares subject to outstanding Options granted under this Plan plus the
aggregate number of Shares previously issued by the Company pursuant to the
exercise of Options granted under this Plan is less than the Maximum Number.
5. ADMINISTRATION. This Plan shall be administered by the Board or
by a committee of not less than two members of the Board appointed to administer
this Plan (the "COMMITTEE"). As used in this Plan, references to the Committee
shall mean either such Committee or the Board if no Committee has been
established. The interpretation by the Committee of any of the provisions of
this Plan or any Option granted under this Plan shall be final and binding upon
the Company and all persons having an interest in any Option or any Shares
purchased pursuant to an Option.
6. ELIGIBILITY AND AWARD FORMULA.
6.1 Eligibility. Options shall be granted only to directors of the
-----------
Company who are not employees of the Company or any Parent, Subsidiary or
Affiliate of the Company, as those terms are defined in Section 18 below (each
such person referred to as an "OPTIONEE").
6.2 Initial Grant. Each Optionee who on or after the Effective Date
-------------
first becomes a member of the Board will automatically be granted an Option for
20,000 Shares (an "INITIAL GRANT") on the date such Optionee becomes a member of
the Board.
<PAGE>
Exodus Communications, Inc.
1998 Directors Stock Option Plan
6.3 Succeeding Grants. On the date of each Annual Meeting of
-----------------
Stockholders following an Optionee's Initial Grant (or previous grant from the
Company outside this Plan if such Optionee was ineligible to receive an Initial
Grant) provided the Optionee is a member of the Board on such date and has
served continuously as a member of the Board since the date of such Optionee's
Initial Grant or previous grant, as the case may be, the Optionee will
automatically be granted an Option for 5,000 Shares (a "SUCCEEDING GRANT").
7. TERMS AND CONDITIONS OF OPTIONS. Subject to the following and to
Section 6 above:
7.1 Form of Option Grant. Each Option granted under this Plan shall
--------------------
be evidenced by a written Stock Option Grant ("GRANT") in such form (which need
not be the same for each Optionee) as the Committee shall from time to time
approve, which Grant shall comply with and be subject to the terms and
conditions of this Plan.
7.2 Vesting. The date an Optionee receives an Initial Grant or a
-------
Succeeding Grant is referred to in this Plan as the "START DATE" for such
Option.
(a) Initial Grants. Each Initial Grant will vest as to thirty
--------------
three and one-third percent (33.33%) of the Shares at the end of each annual
anniversary of the Start Date for such Initial Grant, so long as the Optionee
continuously remains a director or a consultant of the Company.
(b) Succeeding Grants. Each Succeeding Grant will vest as to
-----------------
twenty-five percent (25%) of the Shares at the end of each annual anniversary of
the Start Date for such Succeeding Grant, so long as the Optionee continuously
remains a director or a consultant of the Company.
7.3 Exercise Price. The exercise price of an Option shall be the
--------------
Fair Market Value (as defined in Section 18.4) of the Shares, at the time that
the Option is granted.
7.4 Termination of Option. Except as provided below in this Section,
---------------------
each Option shall expire ten (10) years after its Start Date (the "EXPIRATION
DATE"). The Option shall cease to vest when the Optionee ceases to be a member
of the Board or a consultant of the Company. The date on which the Optionee
ceases to be a member of the Board or a consultant of the Company shall be
referred to as the "TERMINATION DATE". An Option may be exercised after the
Termination Date only as set forth below:
(a) Termination Generally. If the Optionee ceases to be a member
---------------------
of the Board or a consultant of the Company for any reason except death of the
Optionee or disability of the Optionee (whether temporary or permanent, partial
or total, as determined by the Committee), then each Option then held by such
Optionee, to the extent (and only to the extent) that it would have been
exercisable by the Optionee on the Termination Date, may be exercised by the
Optionee no later than seven (7) months after the Termination Date, but in no
event later than the Expiration Date.
(b) Death or Disability. If the Optionee ceases to be a member
-------------------
of the Board or a consultant of the Company because of the death of the Optionee
or the disability of the Optionee (whether temporary or permanent, partial or
total, as determined by the Committee), then each Option then held by such
Optionee to the extent (and only to the extent) that it would have been
exercisable by the Optionee on the Termination Date, may be exercised by the
Optionee (or the Optionee's legal representative) no later than twelve (12)
months after the Termination Date, but in no event later than the Expiration
Date.
8. EXERCISE OF OPTIONS.
8.1 Exercise Period. Subject to the provisions of Section 8.5 below,
---------------
Options shall be exercisable as they vest.
8.2 Notice. Options may be exercised only by delivery to the Company
------
of an exercise agreement in a form approved by the Committee stating the number
of Shares being purchased, the restrictions
-2-
<PAGE>
Exodus Communications, Inc.
1998 Directors Stock Option Plan
imposed on the Shares and such representations and agreements regarding the
Optionee's investment intent and access to information as may be required by the
Company to comply with applicable securities laws, together with payment in full
of the exercise price for the number of Shares being purchased.
8.3 Payment. Payment for the Shares purchased upon exercise of an
-------
Option may be made (a) in cash or by check; (b) by surrender of shares of Common
Stock of the Company that have been owned by the Optionee for more than six (6)
months (and which have been paid for within the meaning of SEC Rule 144 and, if
such shares were purchased from the Company by use of a promissory note, such
note has been fully paid with respect to such shares) or were obtained by the
Optionee in the open public market, having a Fair Market Value equal to the
exercise price of the Option; (c) by waiver of compensation due or accrued to
the Optionee for services rendered; (d) provided that a public market for the
Company's stock exists, through a "same day sale" commitment from the Optionee
and a broker-dealer that is a member of the National Association of Securities
Dealers (an "NASD DEALER") whereby the Optionee irrevocably elects to exercise
the Option and to sell a portion of the Shares so purchased to pay for the
exercise price and whereby the NASD Dealer irrevocably commits upon receipt of
such Shares to forward the exercise price directly to the Company; (e) provided
that a public market for the Company's stock exists, through a "margin"
commitment from the Optionee and an NASD Dealer whereby the Optionee irrevocably
elects to exercise the Option and to pledge the Shares so purchased to the NASD
Dealer in a margin account as security for a loan from the NASD Dealer in the
amount of the exercise price, and whereby the NASD Dealer irrevocably commits
upon receipt of such Shares to forward the exercise price directly to the
Company; or (f) by any combination of the foregoing.
8.4 Withholding Taxes. Prior to issuance of the Shares upon exercise
-----------------
of an Option, the Optionee shall pay or make adequate provision for any federal
or state withholding obligations of the Company, if applicable.
8.5 Limitations on Exercise. Notwithstanding the exercise periods
-----------------------
set forth in the Grant, exercise of an Option shall always be subject to the
following limitations:
(a) An Option shall not be exercisable unless such exercise is
in compliance with the Securities Act and all applicable state securities laws,
as they are in effect on the date of exercise.
(b) The Committee may specify a reasonable minimum number of
Shares that may be purchased upon any exercise of an Option, provided that such
minimum number will not prevent the Optionee from exercising the full number of
Shares as to which the Option is then exercisable.
9. NONTRANSFERABILITY OF OPTIONS. During the lifetime of the Optionee, an
Option shall be exercisable only by the Optionee or by the Optionee's guardian
or legal representative, unless otherwise determined by the Committee. No Option
may be sold, pledged, assigned, hypothecated, transferred or disposed of in any
manner other than by will or by the laws of descent and distribution, unless
otherwise determined by the Committee.
10. PRIVILEGES OF STOCK OWNERSHIP. No Optionee shall have any of the
rights of a stockholder with respect to any Shares subject to an Option until
the Option has been validly exercised. No adjustment shall be made for
dividends or distributions or other rights for which the record date is prior to
the date of exercise, except as provided in this Plan. The Company shall
provide to each Optionee a copy of the annual financial statements of the
Company at such time after the close of each fiscal year of the Company as they
are released by the Company to its stockholders.
11. ADJUSTMENT OF OPTION SHARES. In the event that the number of
outstanding shares of Common Stock of the Company is changed by a stock
dividend, stock split, reverse stock split, combination, reclassification or
similar change in the capital structure of the Company without consideration,
the number of Shares available under this Plan and the number of Shares subject
to outstanding Options and the exercise price per share of such outstanding
Options shall be proportionately adjusted, subject to any required action by the
Board or stockholders of the Company and compliance with applicable securities
laws; provided, however, that no fractional shares shall be
-3-
<PAGE>
Exodus Communications, Inc.
1998 Directors Stock Option Plan
issued upon exercise of any Option and any resulting fractions of a Share shall
be rounded up to the nearest whole Share.
12. NO OBLIGATION TO CONTINUE AS DIRECTOR. Nothing in this Plan or any
Option granted under this Plan shall confer on any Optionee any right to
continue as a director of the Company.
13. COMPLIANCE WITH LAWS. The grant of Options and the issuance of
Shares upon exercise of any Options shall be subject to and conditioned upon
compliance with all applicable requirements of law, including without limitation
compliance with the Securities Act, compliance with all other applicable state
securities laws and compliance with the requirements of any stock exchange or
national market system on which the Shares may be listed. The Company shall be
under no obligation to register the Shares with the SEC or to effect compliance
with the registration or qualification requirement of any state securities laws,
stock exchange or national market system.
14. ACCELERATION OF OPTIONS ON CERTAIN CORPORATE TRANSACTIONS. In the
event of (a) a dissolution or liquidation of the Company, (b) a merger or
consolidation in which the Company is not the surviving corporation (other than
a merger or consolidation with a wholly-owned subsidiary, a reincorporation of
the Company in a different jurisdiction, or other transaction in which there is
no substantial change in the stockholders of the Company or their relative stock
holdings and the Options granted under this Plan are assumed, converted or
replaced by the successor corporation, which assumption, conversion or
replacement will be binding on all Optionees), (c) a merger in which the Company
is the surviving corporation but after which the stockholders of the Company
(other than any stockholder which merges (or which owns or controls another
corporation which merges) with the Company in such merger) cease to own their
shares or other equity interests in the Company, (d) the sale of substantially
all of the assets of the Company, or (e) the acquisition, sale or transfer of
more than 50% of the outstanding shares of the Company by tender offer or
similar transaction, the vesting of all options granted pursuant to this Plan
will accelerate and the options will become exercisable in full prior to the
consummation of such event at such times and on such conditions as the Committee
determines, and must be exercised, if at all, within six months of the
consummation of said event. Any options not exercised within such six-month
period shall expire.
15. AMENDMENT OR TERMINATION OF PLAN. The Board may at any time terminate
or amend this Plan or any outstanding option, provided that the Board may not
terminate or amend the terms of any outstanding option without the consent of
the Optionee. In any case, no amendment of this Plan may adversely affect any
then outstanding Options or any unexercised portions thereof without the written
consent of the Optionee.
16. TERM OF PLAN. Options may be granted pursuant to this Plan from time
to time within a period of ten (10) years from the Effective Date.
17. CERTAIN DEFINITIONS. As used in this Plan, the following terms shall
have the following meanings:
17.1 "PARENT" means any corporation (other than the Company) in an
unbroken chain of corporations ending with the Company if each of such
corporations other than the Company owns stock possessing 50% or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain.
17.2 "SUBSIDIARY" means any corporation (other than the Company) in
an unbroken chain of corporations beginning with the Company if each of the
corporations other than the last corporation in the unbroken chain owns stock
possessing 50% or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain.
17.3 "AFFILIATE" means any corporation that directly, or indirectly
through one or more intermediaries, controls or is controlled by, or is under
common control with, another corporation, where "control" (including the terms
"controlled by" and "under common control with") means the possession, direct or
indirect, of the power to cause the direction of the management and policies of
the corporation, whether through the ownership of voting securities, by contract
or otherwise.
-4-
<PAGE>
Exodus Communications, Inc.
1998 Directors Stock Option Plan
17.4 "FAIR MARKET VALUE" means, as of any date, the value of a share
of the Company's Common Stock determined as follows:
(a) if such Common Stock is then quoted on the Nasdaq National
Market, its closing price on the Nasdaq National Market on the
date of determination as reported in The Wall Street Journal;
-----------------------
[ROBERT: WILL YOU BE LOOKING TO THE WALL STREET JOURNAL OR
SOMETHING ELSE TO DETERMINE THE CLOSING PRICE OF EXODUS STOCK ON
ANY GIVEN DATE?]
(b) if such Common Stock is publicly traded and is then listed on a
national securities exchange, its closing price on the date of
determination on the principal national securities exchange on
which the Common Stock is listed or admitted to trading as
reported in The Wall Street Journal;
-----------------------
(c) if such Common Stock is publicly traded but is not quoted on the
Nasdaq National Market nor listed or admitted to trading on a
national securities exchange, the average of the closing bid and
asked prices on the date of determination as reported in The
---
Wall Street Journal;
-------------------
(d) in the case of an Option granted on the Effective Date, the
price per share at which shares of the Company's Common Stock
are initially offered for sale to the public by the Company's
underwriters in the initial public offering of the Company's
Common Stock pursuant to a registration statement filed with the
SEC under the Securities Act; or
(e) if none of the foregoing is applicable, by the Committee in good
faith.
-5-
<PAGE>
INITIAL GRANT
- -------------
EXODUS COMMUNICATIONS, INC.
1998 DIRECTORS STOCK OPTION PLAN
DIRECTORS NONQUALIFIED INITIAL STOCK OPTION GRANT
-------------------------------------------------
This Stock Option Grant (this "GRANT") is made and entered into as of the
Date of Grant set forth below (the "DATE OF GRANT") by and between Exodus
Communications, Inc., a Delaware corporation (the "COMPANY"), and the Optionee
named below ("OPTIONEE"). Capitalized terms not defined herein shall have the
meanings ascribed to them in the Company's 1998 Director's Stock Option Plan
(the "PLAN").
Optionee: ___________________________________
Optionee's Address: ___________________________________
___________________________________
Total Shares Subject to Option: 20,000
___________________________________
Exercise Price Per Share: ___________________________________
Date of Grant: ___________________________________
Expiration Date: ___________________________________
(unless earlier terminated under Section 4 hereof)
1. GRANT OF OPTION. The Company hereby grants to Optionee an option (this
---------------
"OPTION") to purchase up to the total number of shares of Common Stock of the
Company set forth above as Total Shares Subject to Option (collectively, the
"SHARES") at the Exercise Price Per Share set forth above (the "EXERCISE
PRICE"), subject to all of the terms and conditions of this Grant and the Plan.
2. EXERCISE AND VESTING OF OPTION. Subject to the terms and conditions of
------------------------------
the Plan and this Grant, this Option shall be exercisable as it vests. Subject
to the terms and conditions of the Plan and this Grant, this Option shall vest
as to thirty three and one-thirds percent (33.33%) of the Shares on each annual
anniversary of the Date of Grant so long as the Optionee continuously remains a
member of the Board of Directors (a "BOARD MEMBER") or a consultant of the
Company.
3. RESTRICTION ON EXERCISE. This Option may not be exercised unless such
-----------------------
exercise is in compliance with the Securities Act, and all applicable state
securities laws, as they are in effect on the date of exercise, and the
requirements of any stock exchange or national market system on which the
Company's Common Stock may be listed at the time of exercise. Optionee
understands that the Company is under no obligation to register, qualify or list
the Shares with the SEC, any state securities commission or any stock exchange
or national market system to effect such compliance.
<PAGE>
Exodus Communications, Inc.
Directors Stock Option Grant - Initial Grant
4. TERMINATION OF OPTION. Except as provided below in this Section, this
---------------------
Option shall terminate and may not be exercised if Optionee ceases to be a Board
Member or consultant of the Company. The date on which Optionee ceases to be a
Board Member or consultant of the Company shall be referred to as the
"TERMINATION DATE".
4.1 Termination Generally. If Optionee ceases to be a Board Member or
---------------------
consultant of the Company for any reason except death or disability, then this
Option, to the extent that it has vested as of the Termination Date, may be
exercised by Optionee no later than seven (7) months after the Termination Date,
but in no event later than the Expiration Date.
4.2 Death or Disability. If Optionee ceases to be a Board Member or
-------------------
consultant of the Company because of the death of Optionee or the disability of
Optionee (whether temporary or permanent, partial or total, as determined by the
Committee) then this Option, to the extent that it has vested as of the
Termination Date, may be exercised by Optionee (or Optionee's legal
representative) no later than twelve (12) months after the Termination Date, but
in no event later than the Expiration Date.
5. MANNER OF EXERCISE.
------------------
5.1 Exercise Agreement. This Option shall be exercisable by delivery
------------------
to the Company of an executed written Directors Stock Option Exercise Agreement
in the form attached hereto as Exhibit A, or in such other form as may be
---------
approved by the Committee, which shall set forth Optionee's election to exercise
some or all of this Option, the number of Shares being purchased, any
restrictions imposed on the Shares and such other representations and agreements
as may be required by the Company to comply with applicable securities laws.
5.2 Payment. Payment for the Shares purchased upon exercise of this
-------
Option may be made (a) in cash or by check; (b) by surrender of shares of Common
Stock of the Company that have been owned by Optionee for more than six (6)
months (and which have been paid for within the meaning of SEC Rule 144 and, if
such shares were purchased from the Company by use of a promissory note, such
note has been fully paid with respect to such shares) or were obtained by the
Optionee in the open public market, having a Fair Market Value equal to the
Exercise Price of the Option; (c) by waiver of compensation due or accrued to
Optionee for services rendered; (d) provided that a public market for the
Company's stock exists, through a "same day sale" commitment from the Optionee
and a broker-dealer that is a member of the National Association of Securities
Dealers (an "NASD DEALER") whereby the Optionee irrevocably elects to exercise
the Option and to sell a portion of the Shares so purchased to pay for the
Exercise Price and whereby the NASD Dealer irrevocably commits upon receipt of
such Shares to forward the Exercise Price directly to the Company; (e) provided
that a public market for the Company's stock exists, through a "margin"
commitment from the Optionee and an NASD Dealer whereby the Optionee irrevocably
elects to exercise the Option and to pledge the Shares so purchased to the NASD
Dealer in a margin account as security for a loan from the NASD Dealer in the
amount of the Exercise Price, and whereby the NASD Dealer irrevocably commits
upon receipt of such Shares to forward the Exercise Price directly to the
Company; or (f) by any combination of the foregoing.
-2-
<PAGE>
Exodus Communications, Inc.
Directors Stock Option Grant - Initial Grant
5.3 Withholding Taxes. Prior to the issuance of the Shares upon
-----------------
exercise of this Option, Optionee shall pay or make adequate provision for any
applicable federal or state withholding obligations of the Company.
5.4 Issuance of Shares. Provided that such notice and payment are in
------------------
form and substance satisfactory to counsel for the Company, the Company shall
cause the Shares to be issued in the name of Optionee or Optionee's legal
representative. To enforce any restrictions on Optionee's Shares, the Committee
may require Optionee to deposit all certificates, together with stock powers or
other instruments of transfer approved by the Committee appropriately endorsed
in blank, with the Company or an agent designated by the Company to hold in
escrow until such restrictions have lapsed or terminated, and the Committee may
cause a legend or legends referencing such restrictions to be placed on the
certificates.
6. NONTRANSFERABILITY OF OPTION. During the lifetime of the Optionee,
----------------------------
this Option shall be exercisable only by Optionee or by Optionee's guardian or
legal representative, unless otherwise permitted by the Committee. This Option
may not be sold, pledged, assigned, hypothecated, transferred or disposed of in
any manner other than by will or by the laws of descent and distribution.
7. INTERPRETATION. Any dispute regarding the interpretation of this Grant
--------------
shall be submitted by Optionee or the Company to the Committee that administers
the Plan, which shall review such dispute at its next regular meeting. The
resolution of such a dispute by the Committee shall be final and binding on the
Company and on Optionee. Nothing in the Plan or this Grant shall confer on
Optionee any right to continue as a Board Member or to provide services to the
Company as a consultant.
8. ENTIRE AGREEMENT. The Plan and the Directors Stock Option Exercise
----------------
Agreement in the form attached hereto as Exhibit A, and the terms and conditions
---------
thereof, are incorporated herein by reference. This Grant, the Plan and the
Directors Stock Option Exercise Agreement constitute the entire agreement and
understanding of the parties hereto with respect to the subject matter hereof
and supersede all prior understandings and agreements with respect to such
subject matter.
EXODUS COMMUNICATIONS, INC.
By:___________________________________
Name:_________________________________
Title:________________________________
-3-
<PAGE>
Exodus Communications, Inc.
Directors Stock Option Grant - Initial Grant
ACCEPTANCE OF STOCK OPTION GRANT
--------------------------------
Optionee hereby acknowledges receipt of a copy of the Plan, represents that
Optionee has read and understands the terms and provisions thereof, and accepts
this Option subject to all of the terms and conditions of the Plan and this
Grant. Optionee acknowledges that there may be adverse tax consequences upon
exercise of this Option or disposition of the Shares and that Optionee has been
advised by the Company that Optionee should consult a qualified tax advisor
prior to such exercise or disposition.
_________________________________
________________________, Optionee
[ACCEPTANCE SIGNATURE PAGE TO DIRECTORS NONQUALIFIED INITIAL STOCK OPTION GRANT]
-4-
<PAGE>
SUCCEEDING GRANT
- ----------------
EXODUS COMMUNICATIONS, INC.
1998 DIRECTORS STOCK OPTION PLAN
DIRECTORS NONQUALIFIED SUCCEEDING STOCK OPTION GRANT
----------------------------------------------------
This Stock Option Grant (this "GRANT") is made and entered into as of the
Date of Grant set forth below (the "DATE OF GRANT") by and between Exodus
Communications, Inc., a Delaware corporation (the "COMPANY"), and the Optionee
named below ("OPTIONEE"). Capitalized terms not defined herein shall have the
meanings ascribed to them in the Company's 1998 Directors Stock Option Plan (the
"PLAN").
Optionee: ____________________________________
Optionee's Address: ____________________________________
____________________________________
Total Shares Subject to Option: 5,000
____________________________________
Exercise Price Per Share: ____________________________________
Date of Grant: ____________________________________
Expiration Date: ____________________________________
(unless earlier terminated under Section 4 hereof)
1. GRANT OF OPTION. The Company hereby grants to Optionee an option (this
---------------
"OPTION") to purchase up to the total number of shares of Common Stock of the
Company set forth above as Total Shares Subject to Option (collectively, the
"SHARES") at the Exercise Price Per Share set forth above (the "EXERCISE
PRICE"), subject to all of the terms and conditions of this Grant and the Plan.
2. EXERCISE AND VESTING OF OPTION. Subject to the terms and conditions of
------------------------------
the Plan and this Grant, this Option shall be exercisable as it vests. Subject
to the terms and conditions of the Plan and this Grant, this Option shall vest
as to twenty-five percent (25%) of the Shares on each annual anniversary of the
Date of Grant so long as the Optionee continuously remains a member of the Board
of Directors (a "BOARD MEMBER") or a consultant of the Company.
3. RESTRICTION ON EXERCISE. This Option may not be exercised unless such
-----------------------
exercise is in compliance with the Securities Act, and all applicable state
securities laws, as they are in effect on the date of exercise, and the
requirements of any stock exchange or national market system on which the
Company's Common Stock may be listed at the time of exercise. Optionee
understands that the Company is under no obligation to register, qualify or list
the Shares with the SEC, any state securities commission or any stock exchange
or national market system to effect such compliance.
<PAGE>
Exodus Communications, Inc.
Directors Stock Option Grant - Succeeding Grant
4. TERMINATION OF OPTION. Except as provided below in this Section, this
---------------------
Option shall terminate and may not be exercised if Optionee ceases to be a Board
Member or consultant of the Company. The date on which Optionee ceases to be a
Board Member or consultant of the Company shall be referred to as the
"TERMINATION DATE".
4.1 Termination Generally. If Optionee ceases to be a Board Member or
---------------------
consultant of the Company for any reason except death or disability, then this
Option, to the extent that it has vested as of the Termination Date, may be
exercised by Optionee no later than seven (7) months after the Termination Date,
but in no event later than the Expiration Date.
4.2 Death or Disability. If Optionee ceases to be a Board Member or
-------------------
consultant of the Company because of the death of Optionee or the disability of
Optionee (whether temporary or permanent, partial or total, as determined by the
Committee) then this Option, to the extent that it has vested as of the
Termination Date, may be exercised by Optionee (or Optionee's legal
representative) no later than twelve (12) months after the Termination Date, but
in no event later than the Expiration Date.
5. MANNER OF EXERCISE.
------------------
5.1 Exercise Agreement. This Option shall be exercisable by delivery
------------------
to the Company of an executed written Directors Stock Option Exercise Agreement
in the form attached hereto as Exhibit A, or in such other form as may be
---------
approved by the Committee, which shall set forth Optionee's election to exercise
some or all of this Option, the number of Shares being purchased, any
restrictions imposed on the Shares and such other representations and agreements
as may be required by the Company to comply with applicable securities laws.
5.2 Payment. Payment for the Shares purchased upon exercise of this
-------
Option may be made (a) in cash or by check; (b) by surrender of shares of Common
Stock of the Company that have been owned by Optionee for more than six (6)
months (and which have been paid for within the meaning of SEC Rule 144 and, if
such shares were purchased from the Company by use of a promissory note, such
note has been fully paid with respect to such shares) or were obtained by the
Optionee in the open public market, having a Fair Market Value equal to the
Exercise Price of the Option; (c) by waiver of compensation due or accrued to
Optionee for services rendered; (d) provided that a public market for the
Company's stock exists, through a "same day sale" commitment from the Optionee
and a broker-dealer that is a member of the National Association of Securities
Dealers (an "NASD DEALER") whereby the Optionee irrevocably elects to exercise
the Option and to sell a portion of the Shares so purchased to pay for the
Exercise Price and whereby the NASD Dealer irrevocably commits upon receipt of
such Shares to forward the Exercise Price directly to the Company; (e) provided
that a public market for the Company's stock exists, through a "margin"
commitment from the Optionee and an NASD Dealer whereby the Optionee irrevocably
elects to exercise the Option and to pledge the Shares so purchased to the NASD
Dealer in a margin account as security for a loan from the NASD Dealer in the
amount of the Exercise Price, and whereby the NASD Dealer irrevocably commits
upon receipt of such Shares to forward the Exercise Price directly to the
Company; or (f) by any combination of the foregoing.
-2-
<PAGE>
Exodus Communications, Inc.
Directors Stock Option Grant - Succeeding Grant
5.3 Withholding Taxes. Prior to the issuance of the Shares upon
-----------------
exercise of this Option, Optionee shall pay or make adequate provision for any
applicable federal or state withholding obligations of the Company.
5.4 Issuance of Shares. Provided that such notice and payment are in
------------------
form and substance satisfactory to counsel for the Company, the Company shall
cause the Shares to be issued in the name of Optionee or Optionee's legal
representative. To enforce any restrictions on Optionee's Shares, the Committee
may require Optionee to deposit all certificates, together with stock powers or
other instruments of transfer approved by the Committee appropriately endorsed
in blank, with the Company or an agent designated by the Company to hold in
escrow until such restrictions have lapsed or terminated, and the Committee may
cause a legend or legends referencing such restrictions to be placed on the
certificates.
6. NONTRANSFERABILITY OF OPTION. During the lifetime of the Optionee,
----------------------------
this Option shall be exercisable only by Optionee or by Optionee's guardian or
legal representative, unless otherwise permitted by the Committee. This Option
may not be sold, pledged, assigned, hypothecated, transferred or disposed of in
any manner other than by will or by the laws of descent and distribution.
7. INTERPRETATION. Any dispute regarding the interpretation of this Grant
--------------
shall be submitted by Optionee or the Company to the Committee that administers
the Plan, which shall review such dispute at its next regular meeting. The
resolution of such a dispute by the Committee shall be final and binding on the
Company and on Optionee. Nothing in the Plan or this Grant shall confer on
Optionee any right to continue as a Board Member or to provide services to the
Company as a consultant.
8. ENTIRE AGREEMENT. The Plan and the Directors Stock Option Exercise
----------------
Agreement in the form attached hereto as Exhibit A, and the terms and conditions
---------
thereof, are incorporated herein by this reference. This Grant, the Plan and
the Directors Stock Option Exercise Agreement constitute the entire agreement
and understanding of the parties hereto with respect to the subject matter
hereof and supersede all prior understandings and agreements with respect to
such subject matter.
EXODUS COMMUNICATIONS, INC.
By:___________________________________
Name:_________________________________
Title:________________________________
-3-
<PAGE>
Exodus Communications, Inc.
Directors Stock Option Grant - Succeeding Grant
ACCEPTANCE OF STOCK OPTION GRANT
--------------------------------
Optionee hereby acknowledges receipt of a copy of the Plan, represents that
Optionee has read and understands the terms and provisions thereof, and accepts
this Option subject to all of the terms and conditions of the Plan and this
Grant. Optionee acknowledges that there may be adverse tax consequences upon
exercise of this Option or disposition of the Shares and that Optionee has been
advised by the Company that Optionee should consult a qualified tax advisor
prior to such exercise or disposition.
_________________________________
________________________, Optionee
[ACCEPTANCE SIGNATURE PAGE TO DIRECTORS NONQUALIFIED SUCCEEDING STOCK OPTION
GRANT]
-4-
<PAGE>
EXHIBIT A
---------
DIRECTORS STOCK OPTION EXERCISE AGREEMENT
-----------------------------------------
<PAGE>
Exhibit A
EXODUS COMMUNICATIONS, INC.
1998 DIRECTORS STOCK OPTION PLAN (THE "PLAN")
DIRECTORS STOCK OPTION EXERCISE AGREEMENT
-----------------------------------------
I hereby elect to purchase the number of share of Common Stock of EXODUS
COMMUNICATIONS, INC. (the "COMPANY") as set forth below:
<TABLE>
<CAPTION>
<S> <C>
Optionee :____________________________________ Number of Shares Purchased:_____________
Social Security Number:_______________________ Purchase Price Per Share:______________
Address:______________________________________ Aggregate Purchase Price:_______________
______________________________________________ Date of Stock Option Grant:_____________
Type of Stock Option: Nonqualified Stock Option Exact Name of Title to Shares:__________
________________________________________
</TABLE>
1. DELIVERY OF PURCHASE PRICE. Optionee hereby delivers to the Company the
Aggregate Purchase Price, to the extent permitted in the Directors Nonqualified
Stock Option Grant referred to above (the "GRANT") as follows (check as
applicable and complete):
[ ] in cash or by check in the amount of $___________________________,
receipt of which is acknowledged by the Company;
[ ] by delivery of _______________________ fully-paid, nonassessable and
vested shares of the Common Stock of the Company owned by Optionee for
at least six (6) months prior to the date hereof (and which have been
paid for within the meaning of SEC Rule 144), or obtained by Optionee
in the open public market, and owned free and clear of all liens and
claims, encumbrances or security interests, valued at the current Fair
Market Value of $__________________ per share;
[ ] by the waiver hereby of compensation due or accrued to optionee for
services rendered in the amount of $_______________________________;
[ ] through a "same-day-sale" commitment, delivered herewith, from
optionee and the NASD Dealer named therein, in the amount of
$____________________; or
[ ] through a "margin" commitment, delivered herewith from Optionee and
the NASD Dealer named therein, in the amount of $____________________.
2. MARKET STANDOFF AGREEMENT. Optionee, if requested by the Company and an
underwriter of Common Stock (or other securities) of the Company, agrees not to
sell or otherwise transfer or dispose of any Common Stock (or other securities)
of the Company held by Optionee during the period requested by the managing
underwriter following the effective date of a registration statement of the
Company filed under the securities act, provided that all officers and directors
of the Company are required to enter into similar agreements. Such agreement
shall be in writing in a form satisfactory to the Company and such underwriter.
The Company may impose stop-transfer instructions with respect to the shares (or
other securities) subject to the foregoing restriction until the end of such
period.
3. TAX CONSEQUENCES. OPTIONEE UNDERSTANDS THAT OPTIONEE MAY SUFFER ADVERSE TAX
CONSEQUENCES AS A RESULT OF OPTIONEE'S PURCHASE OR DISPOSITION OF THE SHARES.
OPTIONEE REPRESENTS THAT OPTIONEE HAS CONSULTED WITH ANY TAX CONSULTANT(S)
OPTIONEE DEEMS ADVISABLE IN CONNECTION WITH THE PURCHASE OR DISPOSITION OF THE
SHARES AND THAT OPTIONEE IS NOT RELYING ON THE COMPANY FOR ANY TAX ADVICE.
4. ENTIRE AGREEMENT. The Plan and the Grant are incorporated herein by
reference. This Agreement, the Plan and the Grant constitute the entire
agreements of the parties and supersede in their entirety all prior
understandings and agreements of the Company and Optionee with respect to the
subject matter hereof, and are governed by California law except for that body
of law pertaining to conflict of laws.
Date:______________________________ ______________________________
SIGNATURE OF OPTIONEE
<PAGE>
EXODUS COMMUNICATIONS, INC.
1998 DIRECTORS STOCK OPTION PLAN
SPOUSE'S CONSENT
I acknowledge that I have read the foregoing Directors Stock Option
Exercise Agreement (the "AGREEMENT") and that I know its contents. I hereby
consent to and approve all of the provisions of the Agreement and agree that the
shares of the Common Stock of Exodus Communications, Inc. purchased thereunder
(the "SHARES") and any interest I may have in such Shares are subject to all the
provisions of the Agreement. I will take no action at any time to hinder
operation of the Agreement on these Shares or any interest I may have on them.
____________________________________ Date:________________________________
SIGNATURE OF OPTIONEE'S SPOUSE
___________________________________
SPOUSE'S NAME - TYPED OR PRINTED
OPTIONEE'S NAME - TYPED OR PRINTED
<PAGE>
EXHIBIT 10.07
EXODUS COMMUNICATIONS, INC.
1998 EMPLOYEE STOCK PURCHASE PLAN
As Adopted January 15, 1998
1. ESTABLISHMENT OF PLAN. Exodus Communications, Inc. (the "COMPANY")
proposes to grant options for purchase of the Company's Common Stock to eligible
employees of the Company and its Participating Subsidiaries (as hereinafter
defined) pursuant to this Employee Stock Purchase Plan (this "PLAN"). For
purposes of this Plan, "PARENT CORPORATION" and "SUBSIDIARY" (collectively,
"PARTICIPATING SUBSIDIARIES") shall have the same meanings as "parent
corporation" and "subsidiary corporation" in Sections 424(e) and 424(f),
respectively, of the Internal Revenue Code of 1986, as amended (the "CODE").
"PARTICIPATING SUBSIDIARIES" are Parent Corporations or Subsidiaries that the
Board of Directors of the Company (the "BOARD") designates from time to time as
corporations that shall participate in this Plan. The Company intends this Plan
to qualify as an "employee stock purchase plan" under Section 423 of the Code
(including any amendments to or replacements of such Section), and this Plan
shall be so construed. Any term not expressly defined in this Plan but defined
for purposes of Section 423 of the Code shall have the same definition herein. A
total of 600,000 shares of the Company's Common Stock is reserved for issuance
under this Plan. Such number shall be subject to adjustments effected in
accordance with Section 14 of this Plan.
2. PURPOSE. The purpose of this Plan is to provide eligible employees of
the Company and Participating Subsidiaries with a convenient means of acquiring
an equity interest in the Company through payroll deductions, to enhance such
employees' sense of participation in the affairs of the Company and
Participating Subsidiaries, and to provide an incentive for continued
employment.
3. ADMINISTRATION. This Plan shall be administered by the Compensation
Committee of the Board (the "COMMITTEE"). Subject to the provisions of this Plan
and the limitations of Section 423 of the Code or any successor provision in the
Code, all questions of interpretation or application of this Plan shall be
determined by the Committee and its decisions shall be final and binding upon
all participants. Members of the Committee shall receive no compensation for
their services in connection with the administration of this Plan, other than
standard fees as established from time to time by the Board for services
rendered by Board members serving on Board committees. All expenses incurred in
connection with the administration of this Plan shall be paid by the Company.
4. ELIGIBILITY. Any employee of the Company or the Participating
Subsidiaries is eligible to participate in an Offering Period (as hereinafter
defined) under this Plan except the following:
(a) employees who are customarily employed for twenty (20) hours or
less per week;
(b) employees who are customarily employed for five (5) months or
less in a calendar year;
(c) employees who, together with any other person whose stock would
be attributed to such employee pursuant to Section 424(d) of the Code, own stock
or hold options to purchase stock possessing five percent (5%) or more of the
total combined voting power or value of all classes of stock of the Company or
any of its Participating Subsidiaries or who, as a result of being granted an
option under this Plan with respect to such Offering Period, would own stock or
hold options to purchase stock possessing five percent (5%) or more of the total
combined voting power or value of all classes of stock of the Company or any of
its Participating Subsidiaries; and
(d) individuals who provide services to the Company or any of its
Participating Subsidiaries as independent contractors who are reclassified as
common law employees for any reason except for federal income and employment tax
------ ---
purposes.
5. Offering Dates. The offering periods of this Plan (each, an "OFFERING
PERIOD") shall be of twenty-four (24) months duration commencing on May 1 and
November 1 of each year and ending on April 30 and October 31 of each year;
provided, however, that notwithstanding the foregoing, the first such Offering
- -------- -------
Period shall commence
-1-
<PAGE>
Exodus Communications, Inc.
1998 Employee Stock Purchase Plan
on the first business day on which price quotations for the Company's Common
Stock are available on the Nasdaq National Market (the "FIRST OFFERING DATE")
and shall end on April 30, 2000. Each Offering Period shall consist of four (4)
six month purchase periods (individually, a "PURCHASE PERIOD") during which
payroll deductions of the participants are accumulated under this Plan. The
first Offering Period shall consist of no more than five and no fewer than three
Purchase Periods, any of which may be greater or less than six months as
determined by the Committee. The first business day of each Offering Period is
referred to as the "OFFERING DATE". The last business day of each Purchase
Period is referred to as the "PURCHASE DATE". The Committee shall have the power
to change the duration of Offering Periods with respect to offerings without
stockholder approval if such change is announced at least fifteen (15) days
prior to the scheduled beginning of the first Offering Period to be affected.
6. PARTICIPATION IN THIS PLAN. Eligible employees may become participants
in an Offering Period under this Plan on the first Offering Date after
satisfying the eligibility requirements by delivering a subscription agreement
to the Company's treasury department (the "TREASURY DEPARTMENT") not later than
five (5) days before such Offering Date. Notwithstanding the foregoing, the
Committee may set a later time for filing the subscription agreement authorizing
payroll deductions for all eligible employees with respect to a given Offering
Period. An eligible employee who does not deliver a subscription agreement to
the Treasury Department by such date after becoming eligible to participate in
such Offering Period shall not participate in that Offering Period or any
subsequent Offering Period unless such employee enrolls in this Plan by filing a
subscription agreement with the Treasury Department not later than five (5) days
preceding a subsequent Offering Date. Once an employee becomes a participant in
an Offering Period, such employee will automatically participate in the Offering
Period commencing immediately following the last day of the prior Offering
Period unless the employee withdraws or is deemed to withdraw from this Plan or
terminates further participation in the Offering Period as set forth in Section
11 below. Such participant is not required to file any additional subscription
agreement in order to continue participation in this Plan.
7. GRANT OF OPTION ON ENROLLMENT. Enrollment by an eligible employee in
this Plan with respect to an Offering Period will constitute the grant (as of
the Offering Date) by the Company to such employee of an option to purchase on
the Purchase Date up to that number of shares of Common Stock of the Company
determined by dividing (a) the amount accumulated in such employee's payroll
deduction account during such Purchase Period by (b) the lower of (i) eighty-
five percent (85%) of the fair market value of a share of the Company's Common
Stock on the Offering Date (but in no event less than the par value of a share
of the Company's Common Stock), or (ii) eighty-five percent (85%) of the fair
market value of a share of the Company's Common Stock on the Purchase Date (but
in no event less than the par value of a share of the Company's Common Stock),
provided, however, that the number of shares of the Company's Common Stock
- -------- -------
subject to any option granted pursuant to this Plan shall not exceed the lesser
of (x) the maximum number of shares set by the Committee pursuant to Section
10(c) below with respect to the applicable Purchase Date, or (y) the maximum
number of shares which may be purchased pursuant to Section 10(b) below with
respect to the applicable Purchase Date. The fair market value of a share of the
Company's Common Stock shall be determined as provided in Section 8 below.
8. PURCHASE PRICE. The purchase price per share at which a share of
Common Stock will be sold in any Offering Period shall be eighty-five percent
(85%) of the lesser of:
(a) The fair market value on the Offering Date; or
(b) The fair market value on the Purchase Date.
For purposes of this Plan, the term "FAIR MARKET VALUE" means, as of
any date, the value of a share of the Company's Common Stock determined as
follows:
(a) if such Common Stock is then quoted on the Nasdaq National
Market, its closing price on the Nasdaq National Market on
the date of determination as reported in The Wall Street
---------------
Journal;
-------
(b) if such Common Stock is publicly traded and is then listed
on a national securities exchange, its closing price on the
date of determination on the principal national securities
-2-
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Exodus Communications, Inc.
1998 Employee Stock Purchase Plan
exchange on which the Common Stock is listed or admitted to
trading as reported in The Wall Street Journal;
-----------------------
(c) if such Common Stock is publicly traded but is not quoted on
the Nasdaq National Market nor listed or admitted to trading
on a national securities exchange, the average of the
closing bid and asked prices on the date of determination as
reported in The Wall Street Journal; or
-----------------------
(d) if none of the foregoing is applicable, by the Board in good
faith, which in the case of the First Offering Date will be
the price per share at which shares of the Company's Common
Stock are initially offered for sale to the public by the
Company's underwriters in the initial public offering of the
Company's Common Stock pursuant to a registration statement
filed with the Securities and Exchange Commission (the
"SEC") under the Securities Act of 1933, as amended (the
"SECURITIES ACT").
9. PAYMENT OF PURCHASE PRICE; CHANGES IN PAYROLL DEDUCTIONS; ISSUANCE OF
SHARES.
(a) The purchase price of the shares is accumulated by regular
payroll deductions made during each Offering Period. The deductions are made as
a percentage of the participant's compensation in one percent (1%) increments
not less than two percent (2%), nor greater than ten percent (10%) or such lower
limit set by the Committee. Compensation shall mean base salary not to exceed
$250,000 per calendar year, provided however, that for purposes of determining a
participant's compensation, any election by such participant to reduce his or
her regular cash remuneration under Sections 125 or 401(k) of the Code shall be
treated as if the participant did not make such election. Payroll deductions
shall commence on the first payday of the Offering Period and shall continue to
the end of the Offering Period unless sooner altered or terminated as provided
in this Plan.
(b) A participant may decrease or increase the rate of payroll
deductions during an Offering Period by filing with the Treasury Department a
new authorization for payroll deductions, in which case the new rate shall
become effective for the next payroll period commencing more than fifteen (15)
days after the Treasury Department's receipt of the authorization and shall
continue for the remainder of the Offering Period unless changed as described
below. Such change in the rate of payroll deductions may be made at any time
during an Offering Period, but not more than one (1) change may be made
effective during any Offering Period. A participant may increase or decrease the
rate of payroll deductions for any subsequent Offering Period by filing with the
Treasury Department a new authorization for payroll deductions not later than
fifteen (15) days before the beginning of such Offering Period.
(c) All payroll deductions made for a participant are credited to his
or her account under this Plan and are deposited with the general funds of the
Company. No interest accrues on the payroll deductions. All payroll deductions
received or held by the Company may be used by the Company for any corporate
purpose, and the Company shall not be obligated to segregate such payroll
deductions.
(d) On each Purchase Date, so long as this Plan remains in effect and
provided that the participant has not submitted a signed and completed
withdrawal form before that date which notifies the Company that the participant
wishes to withdraw from that Offering Period under this Plan and have all
payroll deductions accumulated in the account maintained on behalf of the
participant as of that date returned to the participant, the Company shall apply
the funds then in the participant's account to the purchase of whole shares of
Common Stock reserved under the option granted to such participant with respect
to the Offering Period to the extent that such option is exercisable on the
Purchase Date. The purchase price per share shall be as specified in Section 8
of this Plan. Any cash remaining in a participant's account after such purchase
of shares shall be refunded to such participant in cash, without interest;
provided, however that any amount remaining in such participant's account on a
Purchase Date which is less than the amount necessary to purchase a full share
of Common Stock of the Company shall be carried forward, without interest, into
the next Purchase Period or Offering Period, as the case may be. In the event
that this Plan has been oversubscribed, all funds not used to purchase shares on
the Purchase Date shall be returned to the participant, without interest. No
Common Stock shall be purchased on a Purchase Date on behalf of any employee
whose participation in this Plan has terminated prior to such Purchase Date.
-3-
<PAGE>
Exodus Communications, Inc.
1998 Employee Stock Purchase Plan
(e) As promptly as practicable after the Purchase Date, the Company
shall issue shares for the participant's benefit representing the shares
purchased upon exercise of his or her option.
(f) During a participant's lifetime, his or her option to purchase
shares hereunder is exercisable only by him or her. The participant will have no
interest or voting right in shares covered by his or her option until such
option has been exercised.
10. LIMITATIONS ON SHARES TO BE PURCHASED.
(a) No participant shall be entitled to purchase stock under this
Plan at a rate which, when aggregated with his or her rights to purchase stock
under all other employee stock purchase plans of the Company or any Subsidiary,
exceeds $25,000 in fair market value, determined as of the Offering Date (or
such other limit as may be imposed by the Code) for each calendar year in which
the employee participates in this Plan. The Company shall automatically suspend
the payroll deductions of any participant as necessary to enforce such limit
provided that when the Company automatically resumes such payroll deductions,
the Company must apply the rate in effect immediately prior to such suspension.
(b) No more than two hundred percent (200%) of the number of shares
determined by using eighty-five percent (85%) of the fair market value of a
share of the Company's Common Stock on the Offering Date as the denominator may
be purchased by a participant on any single Purchase Date.
(c) No participant shall be entitled to purchase more than the
Maximum Share Amount (as defined below) on any single Purchase Date. The maximum
number of shares which may be purchased by any employee at any single Purchase
Date (hereinafter the "MAXIMUM SHARE AMOUNT") shall be 1,000, until otherwise
determined by the Committee not less than thirty (30) days prior to the
commencement of any Offering Period. In no event shall the Maximum Share Amount
exceed the amounts permitted under Section 10(b) above. If a new Maximum Share
Amount is set, then all participants must be notified of such Maximum Share
Amount prior to the commencement of the next Offering Period. The Maximum Share
Amount shall continue to apply with respect to all succeeding Purchase Dates and
Offering Periods unless revised by the Committee as set forth above.
(d) If the number of shares to be purchased on a Purchase Date by all
employees participating in this Plan exceeds the number of shares then available
for issuance under this Plan, then the Company will make a pro rata allocation
of the remaining shares in as uniform a manner as shall be reasonably
practicable and as the Committee shall determine to be equitable. In such event,
the Company shall give written notice of such reduction of the number of shares
to be purchased under a participant's option to each participant affected.
(e) Any payroll deductions accumulated in a participant's account
which are not used to purchase stock due to the limitations in this Section 10
shall be returned to the participant as soon as practicable after the end of the
applicable Purchase Period, without interest.
11. WITHDRAWAL.
(a) Each participant may withdraw from an Offering Period under this
Plan by signing and delivering to the Treasury Department a written notice to
that effect on a form provided for such purpose. Such withdrawal may be elected
at any time at least fifteen (15) days prior to the end of an Offering Period.
(b) Upon withdrawal from this Plan, the accumulated payroll
deductions shall be returned to the withdrawn participant, without interest, and
his or her interest in this Plan shall terminate. In the event a participant
voluntarily elects to withdraw from this Plan, he or she may not resume his or
her participation in this Plan during the same Offering Period, but he or she
may participate in any Offering Period under this Plan which commences on a date
subsequent to such withdrawal by filing a new authorization for payroll
deductions in the same manner as set forth in Section 6 above for initial
participation in this Plan.
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Exodus Communications, Inc.
1998 Employee Stock Purchase Plan
(c) If the Fair Market Value on the first day of the current Offering
Period in which a participant is enrolled is higher than the Fair Market Value
on the first day of any subsequent Offering Period, the Company will
automatically enroll such participant in the subsequent Offering Period. Except
with respect to the first Offering Period, any funds accumulated in a
participant's account prior to the first day of such subsequent Offering Period
will be applied to the purchase of shares on the Purchase Date immediately prior
to the first day of such subsequent Offering Period. In the event that the Fair
Market Value on the First Offering Date is higher than the Fair Market Value on
the first day of the second Offering Period, any funds accumulated in a
participant's account prior to the first day of the second Offering Period will
be applied to the purchase of shares on the Purchase Date next following the
first day of such second Offering Period. A participant does not need to file
any forms with the Company to automatically be enrolled in the subsequent
Offering Period.
12. TERMINATION OF EMPLOYMENT. Termination of a participant's employment
for any reason, including retirement, death or the failure of a participant to
remain an eligible employee of the Company or of a Participating Subsidiary,
immediately terminates his or her participation in this Plan. In such event, the
payroll deductions credited to the participant's account will be returned to him
or her or, in the case of his or her death, to his or her legal representative,
without interest. For purposes of this Section 12, an employee will not be
deemed to have terminated employment or failed to remain in the continuous
employ of the Company or of a Participating Subsidiary in the case of sick
leave, military leave, or any other leave of absence approved by the Board;
provided that such leave is for a period of not more than ninety (90) days or
- --------
reemployment upon the expiration of such leave is guaranteed by contract or
statute.
13. RETURN OF PAYROLL DEDUCTIONS. In the event a participant's interest
in this Plan is terminated by withdrawal, termination of employment or
otherwise, or in the event this Plan is terminated by the Board, the Company
shall deliver to the participant all payroll deductions credited to such
participant's account. No interest shall accrue on the payroll deductions of a
participant in this Plan.
14. CAPITAL CHANGES. Subject to any required action by the stockholders
of the Company, the number of shares of Common Stock covered by each option
under this Plan which has not yet been exercised and the number of shares of
Common Stock which have been authorized for issuance under this Plan but have
not yet been placed under option (collectively, the "RESERVES"), as well as the
price per share of Common Stock covered by each option under this Plan which has
not yet been exercised, shall be proportionately adjusted for any increase or
decrease in the number of issued and outstanding shares of Common Stock of the
Company resulting from a stock split or the payment of a stock dividend (but
only on the Common Stock) or any other increase or decrease in the number of
issued and outstanding shares of Common Stock effected without receipt of any
consideration by the Company; provided, however, that conversion of any
-------- -------
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration". Such adjustment shall be made by the
Committee, whose determination shall be final, binding and conclusive. Except as
expressly provided herein, no issue by the Company of shares of stock of any
class, or securities convertible into shares of stock of any class, shall
affect, and no adjustment by reason thereof shall be made with respect to, the
number or price of shares of Common Stock subject to an option.
In the event of the proposed dissolution or liquidation of the Company, the
Offering Period will terminate immediately prior to the consummation of such
proposed action, unless otherwise provided by the Committee. The Committee may,
in the exercise of its sole discretion in such instances, declare that this Plan
shall terminate as of a date fixed by the Committee and give each participant
the right to purchase shares under this Plan prior to such termination. In the
event of (i) a merger or consolidation in which the Company is not the surviving
corporation (other than a merger or consolidation with a wholly-owned
subsidiary, a reincorporation of the Company in a different jurisdiction, or
other transaction in which there is no substantial change in the stockholders of
the Company or their relative stock holdings and the options under this Plan are
assumed, converted or replaced by the successor corporation, which assumption
will be binding on all participants), (ii) a merger in which the Company is the
surviving corporation but after which the stockholders of the Company
immediately prior to such merger (other than any stockholder that merges, or
which owns or controls another corporation that merges, with the Company in such
merger) cease to own their shares or other equity interest in the Company, (iii)
the sale of all or substantially all of the assets of the Company or (iv) the
acquisition, sale, or transfer of more than 50% of the outstanding shares of the
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<PAGE>
Exodus Communications, Inc.
1998 Employee Stock Purchase Plan
Company by tender offer or similar transaction, the Plan will terminate
immediately prior to the consummation of such transaction, unless otherwise
provided by the Committee.
The Committee may, if it so determines in the exercise of its sole
discretion, also make provision for adjusting the Reserves, as well as the price
per share of Common Stock covered by each outstanding option, in the event that
the Company effects one or more reorganizations, recapitalizations, rights
offerings or other increases or reductions of shares of its outstanding Common
Stock, or in the event of the Company being consolidated with or merged into any
other corporation.
15. NONASSIGNABILITY. Neither payroll deductions credited to a
participant's account nor any rights with regard to the exercise of an option or
to receive shares under this Plan may be assigned, transferred, pledged or
otherwise disposed of in any way (other than by will, the laws of descent and
distribution or as provided in Section 22 below) by the participant. Any such
attempt at assignment, transfer, pledge or other disposition shall be void and
without effect.
16. REPORTS. Individual accounts will be maintained for each participant
in this Plan. Each participant shall receive promptly after the end of each
Purchase Period a report of his or her account setting forth the total payroll
deductions accumulated, the number of shares purchased, the per share price
thereof and the remaining cash balance, if any, carried forward to the next
Purchase Period or Offering Period, as the case may be.
17. NOTICE OF DISPOSITION. Each participant shall notify the Company in
writing if the participant disposes of any of the shares purchased in any
Offering Period pursuant to this Plan if such disposition occurs within two (2)
years from the Offering Date or within one (1) year from the Purchase Date on
which such shares were purchased (the "NOTICE PERIOD"). The Company may, at any
time during the Notice Period, place a legend or legends on any certificate
representing shares acquired pursuant to this Plan requesting the Company's
transfer agent to notify the Company of any transfer of the shares. The
obligation of the participant to provide such notice shall continue
notwithstanding the placement of any such legend on the certificates.
18. NO RIGHTS TO CONTINUED EMPLOYMENT. Neither this Plan nor the grant of
any option hereunder shall confer any right on any employee to remain in the
employ of the Company or any Participating Subsidiary, or restrict the right of
the Company or any Participating Subsidiary to terminate such employee's
employment.
19. EQUAL RIGHTS AND PRIVILEGES. All eligible employees shall have equal
rights and privileges with respect to this Plan so that this Plan qualifies as
an "employee stock purchase plan" within the meaning of Section 423 or any
successor provision of the Code and the related regulations. Any provision of
this Plan which is inconsistent with Section 423 or any successor provision of
the Code shall, without further act or amendment by the Company, the Committee
or the Board, be reformed to comply with the requirements of Section 423. This
Section 19 shall take precedence over all other provisions in this Plan.
20. NOTICES. All notices or other communications by a participant to the
Company under or in connection with this Plan shall be deemed to have been duly
given when received in the form specified by the Company at the location, or by
the person, designated by the Company for the receipt thereof.
21. TERM; STOCKHOLDER APPROVAL. After this Plan is adopted by the Board,
this Plan will become effective on the First Offering Date (as defined above).
This Plan shall be approved by the stockholders of the Company, in any manner
permitted by applicable corporate law, within twelve (12) months before or after
the date this Plan is adopted by the Board. No purchase of shares pursuant to
this Plan shall occur prior to such stockholder approval. This Plan shall
continue until the earlier to occur of (a) termination of this Plan by the Board
(which termination may be effected by the Board at any time), (b) issuance of
all of the shares of Common Stock reserved for issuance under this Plan, or (c)
ten (10) years from the adoption of this Plan by the Board.
22. DESIGNATION OF BENEFICIARY.
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<PAGE>
Exodus Communications, Inc.
1998 Employee Stock Purchase Plan
(a) A participant may file a written designation of a beneficiary who
is to receive any shares and cash, if any, from the participant's account under
this Plan in the event of such participant's death subsequent to the end of an
Purchase Period but prior to delivery to him of such shares and cash. In
addition, a participant may file a written designation of a beneficiary who is
to receive any cash from the participant's account under this Plan in the event
of such participant's death prior to a Purchase Date.
(b) Such designation of beneficiary may be changed by the participant
at any time by written notice. In the event of the death of a participant and in
the absence of a beneficiary validly designated under this Plan who is living at
the time of such participant's death, the Company shall deliver such shares or
cash to the executor or administrator of the estate of the participant, or if no
such executor or administrator has been appointed (to the knowledge of the
Company), the Company, in its discretion, may deliver such shares or cash to the
spouse or to any one or more dependents or relatives of the participant, or if
no spouse, dependent or relative is known to the Company, then to such other
person as the Company may designate.
23. CONDITIONS UPON ISSUANCE OF SHARES; LIMITATION ON SALE OF SHARES.
Shares shall not be issued with respect to an option unless the exercise of such
option and the issuance and delivery of such shares pursuant thereto shall
comply with all applicable provisions of law, domestic or foreign, including,
without limitation, the Securities Act, the Securities Exchange Act of 1934, as
amended, the rules and regulations promulgated thereunder, and the requirements
of any stock exchange or automated quotation system upon which the shares may
then be listed, and shall be further subject to the approval of counsel for the
Company with respect to such compliance.
24. APPLICABLE LAW. The Plan shall be governed by the substantive laws
(excluding the conflict of laws rules) of the State of California.
25. AMENDMENT OR TERMINATION OF THIS PLAN. The Board may at any time
amend, terminate or extend the term of this Plan, except that any such
termination cannot affect options previously granted under this Plan, nor may
any amendment make any change in an option previously granted which would
adversely affect the right of any participant, nor may any amendment be made
without approval of the stockholders of the Company obtained in accordance with
Section 21 above within twelve (12) months of the adoption of such amendment (or
earlier if required by Section 21) if such amendment would:
(a) increase the number of shares that may be issued under this Plan;
or
(b) change the designation of the employees (or class of employees)
eligible for participation in this Plan.
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<PAGE>
EXHIBIT 10.08
INDEMNIFICATION AGREEMENT
THIS INDEMNIFICATION AGREEMENT (this "Agreement") is entered into as
of September ___, 1997, by and among Exodus Communications, Inc., a California
corporation (the "Company") and each indemnitee ("Indemnitee") executing this
Agreement.
RECITALS
A. The Company and Indemnitee recognize the continued difficulty in
obtaining liability insurance for its directors, officers, employees,
shareholders, controlling persons, agents and fiduciaries, the significant
increases in the cost of such insurance and the general reductions in the
coverage of such insurance.
B. The Company and Indemnitee further recognize the substantial increase
in corporate litigation in general, subjecting directors, officers, employees,
controlling persons, shareholders, agents and fiduciaries to expensive
litigation risks at the same time as the availability and coverage of liability
insurance has been severely limited.
C. Indemnitee does not regard the current protection available as
adequate under the present circumstances, and Indemnitee and other directors,
officers, employees, shareholders, controlling persons, agents and fiduciaries
of the Company may not be willing to serve in such capacities without additional
protection.
D. The Company (i) desires to attract and retain the involvement of
highly qualified individuals and entities, such as Indemnitee, to serve the
Company and, in part, in order to induce each Indemnitee to be involved with the
Company and (ii) wishes to provide for the indemnification and advancing of
expenses to each Indemnitee to the maximum extent permitted by law.
E. In view of the considerations set forth above, the Company desires
that each Indemnitee be indemnified by the Company as set forth herein.
NOW, THEREFORE, the Company and each Indemnitee hereby agrees as
follows:
1. Indemnification.
---------------
a. Indemnification of Expenses. The Company shall indemnify
---------------------------
and hold harmless each Indemnitee (including its respective directors, officers,
partners, employees, agents and spouses) and each person who controls any of
them or who may be liable within the meaning of Section 15 of the Securities Act
of 1933, as amended (the "Securities Act"), or Section 20 of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), to the
<PAGE>
fullest extent permitted by law if such Indemnitee was or is or becomes a party
to or witness or other participant in, or is threatened to be made a party to or
witness or other participant in, any threatened, pending or completed action,
suit, proceeding or alternative dispute resolution mechanism, or any hearing,
inquiry or investigation that such Indemnitee believes might lead to the
institution of any such action, suit, proceeding or alternative dispute
resolution mechanism, whether civil, criminal, administrative, investigative or
other (hereinafter a "Claim") by reason of (or arising in part or in whole out
of) any event or occurrence related to the fact that Indemnitee is or was or may
be deemed a director, officer, shareholder, employee, controlling person, agent
or fiduciary of the Company, or any subsidiary of the Company, or is or was or
may be deemed to be serving at the request of the Company as a director,
officer, shareholder, employee, controlling person, agent or fiduciary of
another corporation, partnership, limited liability company, joint venture,
trust or other enterprise, or by reason of any action or inaction on the part of
such Indemnitee while serving in such capacity, including, without limitation,
any and all losses, claims, damages, expenses and liabilities, joint or several
(including any investigation, legal and other expenses incurred in connection
with, and any amount paid in settlement of, any action, suit, proceeding or any
claim asserted) under the Securities Act, the Exchange Act or other federal or
state statutory law or regulation, at common law or otherwise or which relate
directly or indirectly to the registration, purchase, sale or ownership of any
securities of the Company or to any fiduciary obligation owed with respect
thereto or as a direct or indirect result of any Claim made by any shareholder
of the Company against an Indemnitee and arising out of or related to any round
of financing of the Company (including but not limited to Claims regarding non-
participation, or non-pro rata participation, in such round by such
shareholder), or made by a third party against an Indemnitee based on any
misstatement or omission of a material fact by the Company in violation of any
duty of disclosure imposed on the Company by Federal or state securities or
common laws (hereinafter an "Indemnification Event") against any and all
expenses (including attorneys' fees and all other costs, expenses and
obligations incurred in connection with investigating, defending a witness in or
participating in (including on appeal), or preparing to defend, be a witness in
or participate in, any such action, suit, proceeding, alternative dispute
resolution mechanism, hearing, inquiry or investigation), judgments, fines,
penalties and amounts paid in settlement (if, and only if, such settlement is
approved in advance by the Company, which approval shall not be unreasonably
withheld) of such Claim and any federal, state, local or foreign taxes imposed
on Indemnitee as a result of the actual or deemed receipt of any payments under
this Agreement (collectively, hereinafter "Expenses"), including all interest,
assessments and other charges paid or payable in connection with or in respect
of such Expenses. Such payment of Expenses shall be made by the Company as soon
as practicable but in any event no later than ten (10) days after written demand
by the Indemnitee therefor is presented to the Company.
b. Reviewing Party. Notwithstanding the foregoing, (i) the
---------------
obligations of the Company under Section 1(a) shall be subject to the condition
that the Reviewing Party (as described in Section 10(e) hereof) shall not have
determined (in a written opinion, in any case in which the Independent Legal
Counsel referred to in Section 1(e) hereof is involved) that Indemnitee would
not be permitted to be indemnified under applicable law, and
2
<PAGE>
(ii) and each Indemnitee acknowledges and agrees that the obligation of the
Company to make an advance payment of Expenses to Indemnitee pursuant to Section
2(a) (an "Expense Advance") shall be subject to the condition that, if, when and
to the extent that the Reviewing Party determines that Indemnitee would not be
permitted to be so indemnified under applicable law, the Company shall be
entitled to be reimbursed by Indemnitee (who hereby agrees to reimburse the
Company) for all such amounts theretofore paid; provided, however, that if
Indemnitee has commenced or thereafter commences legal proceedings in a court of
competent jurisdiction to secure a determination that Indemnitee should be
indemnified under applicable law, any determination made by the Reviewing Party
that Indemnitee would not be permitted to be indemnified under applicable law
shall not be binding and Indemnitee shall not be required to reimburse the
Company for any Expense Advance until a final judicial determination is made
with respect thereto (as to which all rights of appeal therefrom have been
exhausted or lapsed). Indemnitee's obligation to reimburse the Company for any
Expense Advance shall be unsecured and no interest shall be charged thereon. If
there has not been a Change in Control (as defined in Section 10(c) hereof), the
Reviewing Party shall be selected by the Board of Directors, and if there has
been such a Change in Control (other than a Change in Control which has been
approved by a majority of the Company's Board of Directors who were directors
immediately prior to such Change in Control), the Reviewing Party shall be the
Independent Legal Counsel referred to in Section 1(e) hereof. If there has been
no determination by the Reviewing Party or if the Reviewing Party determines
that Indemnitee substantively would not be permitted to be indemnified in whole
or in part under applicable law, Indemnitee shall have the right to commence
litigation seeking an initial determination by the court or challenging any such
determination by the Reviewing Party or any aspect thereof, including the legal
or factual bases therefor, and the Company hereby consents to service of process
and to appear in any such proceeding. Any determination by the Reviewing Party
otherwise shall be conclusive and binding on the Company and Indemnitee.
c. Contribution. If the indemnification provided for in
------------
Section 1(a) above for any reason is held by a court of competent jurisdiction
to be unavailable to an Indemnitee in respect of any losses, claims, damages,
expenses or liabilities referred to therein, then the Company, in lieu of
indemnifying such Indemnitee thereunder, shall contribute to the amount paid or
payable by such Indemnitee as a result of such losses, claims, damages, expenses
or liabilities (i) in such proportion as is appropriate to reflect the relative
benefits received by the Company and the Indemnitee, or (ii) if the allocation
provided by clause (i) above is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits referred
to in clause (i) above but also the relative fault of the Company and the
Indemnitee in connection with the action or inaction which resulted in such
losses, claims, damages, expenses or liabilities, as well as any other relevant
equitable considerations. In connection with the registration of the Company's
securities, the relative benefits received by the Company and the Indemnitee
shall be deemed to be in the same respective proportions that the net proceeds
from the offering (before deducting expenses) received by the Company and the
Indemnitee, in each case as set forth in the table on the cover page of the
applicable prospectus, bear to the aggregate public offering price of the
securities so offered. The relative fault of the
3
<PAGE>
Company and the Indemnitee shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company or the Indemnitee and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission.
The Company and the Indemnitee agree that it would not be just and
equitable if contribution pursuant to this Section 1(c) were determined by pro
rata or per capita allocation or by any other method of allocation which does
not take account of the equitable considerations referred to in the immediately
preceding paragraph. In connection with the registration of the Company's
securities, in no event shall Indemnitee be required to contribute any amount
under this Section 1(c) in excess of the lesser of (i) that proportion of the
total of such losses, claims, damages or liabilities indemnified against equal
to the proportion of the total securities sold under such registration statement
which is being sold by such Indemnitee or (ii) the proceeds received by such
Indemnitee from its sale of securities under such registration statement. No
person found guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Securities Act) shall be entitled to contribution from any
person who was not found guilty of such fraudulent misrepresentation.
d. Survival Regardless of Investigation. The indemnification
------------------------------------
and contribution provided for in this Section 1 will remain in full force and
effect regardless of any investigation made by or on behalf of the Indemnitee or
any officer, director, employee, agent or controlling person of the Indemnitee.
e. Change in Control. The Company agrees that if there is a
-----------------
Change in Control of the Company (other than a Change in Control which has been
approved by a majority of the Company's Board of Directors who were directors
immediately prior to such Change in Control) then, with respect to all matters
thereafter arising concerning the rights of Indemnitee to payments of Expenses
under this Agreement or any other agreement or under the Company's Amended and
Restated Articles of Incorporation (the "Restated Articles") or Restated Bylaws
as now or hereafter in effect, Independent Legal Counsel (as defined in Section
10(d) hereof) shall be selected by the Indemnitee and approved by the Company
(which approval shall not be unreasonably withheld). Such counsel, among other
things, shall render its written opinion to the Company and Indemnitee as to
whether and to what extent Indemnitee would be permitted to be indemnified under
applicable law. The Company agrees to abide by such opinion and to pay the
reasonable fees of the Independent Legal Counsel referred to above and to fully
indemnify such counsel against any and all expenses (including attorneys' fees),
claims, liabilities and damages arising out of or relating to this Agreement or
its engagement pursuant hereto.
f. Mandatory Payment of Expenses. Notwithstanding any other
-----------------------------
provision of this Agreement, to the extent that Indemnitee has been successful
on the merits or otherwise, including, without limitation, the dismissal of an
action without prejudice, in the defense of any action, suit, proceeding,
inquiry or investigation referred to in Section 1(a) hereof
4
<PAGE>
or in the defense of any claim, issue or matter therein, each Indemnitee shall
be indemnified against all Expenses incurred by such Indemnitee in connection
herewith.
2. Expenses; Indemnification Procedure.
-----------------------------------
a. Advancement of Expenses. The Company shall advance all
-----------------------
Expenses incurred by Indemnitee. The advances to be made hereunder shall be paid
by the Company to Indemnitee as soon as practicable but in any event no later
than fifteen (15) days after written demand by such Indemnitee therefor to the
Company.
b. Notice/Cooperation by Indemnitee. Indemnitee shall give the
--------------------------------
Company notice as soon as practicable of any Claim made against Indemnitee for
which indemnification will or could be sought under this Agreement. Notice to
the Company shall be directed to the Chief Executive Officer of the Company at
the address shown on the signature page of this Agreement (or such other address
as the Company shall designate in writing to Indemnitee).
c. No Presumptions; Burden of Proof. For purposes of this
--------------------------------
Agreement, the termination of any Claim by judgment, order, settlement (whether
with or without court approval) or conviction, or upon a plea of nolo
----
contendere, or its equivalent, shall not create a presumption that Indemnitee
- ----------
did not meet any particular standard of conduct or have any particular belief or
that a court has determined that indemnification is not permitted by applicable
law. In addition, neither the failure of the Reviewing Party to have made a
determination as to whether Indemnitee has met any particular standard of
conduct or had any particular belief, nor an actual determination by the
Reviewing Party that Indemnitee has not met such standard of conduct or did not
have such belief, prior to the commencement of legal proceedings by Indemnitee
to secure a judicial determination that Indemnitee should be indemnified under
applicable law, shall be a defense to Indemnitee's claim or create a presumption
that Indemnitee has not met any particular standard of conduct or did not have
any particular belief. In connection with any determination by the Reviewing
Party or otherwise as to whether Indemnitee is entitled to be indemnified
hereunder, the burden of proof shall be on the Company to establish that
Indemnitee is not so entitled.
d. Notice to Insurers. If, at the time of the receipt by the
------------------
Company of a notice of a Claim pursuant to Section 2(b) hereof, the Company has
liability insurance in effect which may cover such Claim, the Company shall give
prompt written notice of the commencement of such Claim to the insurers in
accordance with the procedures set forth in each of the policies. The Company
shall thereafter take all necessary or desirable action to cause such insurers
to pay, on behalf of Indemnitee, all amounts payable as a result of such action,
suit, proceeding, inquiry or investigation in accordance with the terms of such
policies.
e. Selection of Counsel. In the event the Company shall be
--------------------
obligated hereunder to pay the Expenses of any Claim, the Company shall be
entitled to assume the defense
5
<PAGE>
of such Claim, with counsel reasonably approved by the applicable Indemnitee,
upon the delivery to such Indemnitee of written notice of its election to do so.
After delivery of such notice, approval of such counsel by the Indemnitee and
the retention of such counsel by the Company, the Company will not be liable to
such Indemnitee under this Agreement for any fees of counsel subsequently
incurred by such Indemnitee with respect to the same Claim; provided that, (i)
-------------
the Indemnitee shall have the right to employ such Indemnitee's counsel in any
such Claim at the Indemnitee's expense; (ii) the Indemnitee shall have the right
to employ his own counsel in connection with any such proceeding, at the expense
of the Company, if such counsel serves in a review, observer, advice and
counseling capacity and does not otherwise materially control or participate in
the defense of such proceeding; and (iii) if (A) the employment of counsel by
the Indemnitee has been previously authorized by the Company, (B) such
Indemnitee shall have reasonably concluded that there is a conflict of interest
between the Company and such Indemnitee in the conduct of any such defense, or
(C) the Company shall not continue to retain such counsel to defend such Claim,
then the fees and expenses of the Indemnitee's counsel shall be at the expense
of the Company.
3. Additional Indemnification Rights; Nonexclusivity.
-------------------------------------------------
a. Scope. The Company hereby agrees to indemnify Indemnitee
-----
to the fullest extent permitted by law, even if such indemnification is not
specifically authorized by the other provisions of this Agreement or any other
agreement, the Company's Articles of Incorporation, the Company's Bylaws or by
statute. In the event of any change after the date of this Agreement in any
applicable law, statute or rule which expands the right of a California
corporation to indemnify a member of its Board of Directors or an officer,
shareholder, employee, controlling person, agent or fiduciary, it is the intent
of the parties hereto that Indemnitee shall enjoy by this Agreement the greater
benefits afforded by such change. In the event of any change in any applicable
law, statute or rule which narrows the right of a California corporation to
indemnify a member of its Board of Directors or an officer, employee, agent or
fiduciary, such change, to the extent not otherwise required by such law,
statute or rule to be applied to this Agreement, shall have no effect on this
Agreement or the parties' rights and obligations hereunder except as set forth
in Section 8(a) hereof.
b. Nonexclusivity. The indemnification provided by this
--------------
Agreement shall be in addition to any rights to which Indemnitee may be entitled
under the Company's Articles of Incorporation, its Bylaws, any agreement, any
vote of shareholders or disinterested directors, the laws of the State of
California, or otherwise. The indemnification provided under this Agreement
shall continue as to each Indemnitee for any action such Indemnitee took or did
not take while serving in an indemnified capacity even though the Indemnitee may
have ceased to serve in such capacity and such indemnification shall inure to
the benefit of each Indemnitee from and after Indemnitee's first day of service
as a director with the Company or affiliation with a Director from and after the
date such Director commences services as a director with the Company.
4. No Duplication of Payments. The Company shall not be liable
--------------------------
under this
6
<PAGE>
Agreement to make any payment in connection with any Claim made against any
Indemnitee to the extent such Indemnitee has otherwise actually received payment
(under any insurance policy, Articles, Bylaws or otherwise) of the amounts
otherwise indemnifiable hereunder.
5. Partial Indemnification. If any Indemnitee is entitled under any
-----------------------
provision of this Agreement to indemnification by the Company for any portion of
Expenses incurred in connection with any Claim, but not, however, for all of the
total amount thereof, the Company shall nevertheless indemnify Indemnitee for
the portion of such Expenses to which such Indemnitee is entitled.
6. Mutual Acknowledgement. The Company and each Indemnitee
----------------------
acknowledge that in certain instances, Federal law or applicable public policy
may prohibit the Company from indemnifying its directors, officers, employees,
controlling persons, agents or fiduciaries under this Agreement or otherwise.
7. Liability Insurance. Upon the approval of the Board of Directors
-------------------
of the Company, to the extent the Company maintains liability insurance
applicable to directors, officers, employees, control persons, agents or
fiduciaries, each Indemnitee shall be covered by such policies in such a manner
as to provide Indemnitee the same rights and benefits as are accorded to the
most favorably insured of the Company's directors, if such Indemnitee is a
director, or of the Company's officers, if such Indemnitee is not a director of
the Company but is an officer; or of the Company's key employees, controlling
persons, agents or fiduciaries, if such Indemnitee is not an officer or director
but is a key employee, agent, control person, or fiduciary.
8. Exceptions. Any other provision herein to the contrary
----------
notwithstanding, the Company shall not be obligated pursuant to the terms of
this Agreement:
a. Claims Initiated by Indemnitee. To indemnify or advance
------------------------------
expenses to any Indemnitee with respect to Claims initiated or brought
voluntarily by such Indemnitee and not by way of defense, except (i) with
respect to actions or proceedings to establish or enforce a right to indemnify
under this Agreement or any other agreement or insurance policy or under the
Company's Articles or Bylaws now or hereafter in effect relating to Claims for
Indemnifiable Events, (ii) in specific cases if the Board of Directors has
approved the initiation or bringing of such Claim, or (iii) as otherwise
required under California statute or law, regardless of whether such Indemnitee
ultimately is determined to be entitled to such indemnification, advance expense
payment or insurance recovery, as the case may be; or
b. Claims Under Section 16(b). To indemnify any Indemnitee
--------------------------
for expenses and the payment of profits arising from the purchase and sale by
such Indemnitee of securities in violation of Section 16(b) of the Exchange Act
or any similar successor statute; or
7
<PAGE>
c. Unlawful Indemnification. To indemnify an Indemnitee if a
------------------------
final decision by a court having jurisdiction in the matter shall determine that
such indemnification is not lawful.
9. Period of Limitations. No legal action shall be brought and no
---------------------
cause of action shall be asserted by or in the right of the Company against any
Indemnitee, any Indemnitee's estate, spouse, heirs, executors or personal or
legal representatives after the expiration of five (5) years from the date of
accrual of such cause of action, and any claim or cause of action of the Company
shall be extinguished and deemed released unless asserted by the timely filing
of a legal action within such five (5) year period; provided, however, that if
-------- -------
any shorter period of limitations is otherwise applicable to any such cause of
action, such shorter period shall govern.
10. Construction of Certain Phrases.
-------------------------------
a. For purposes of this Agreement, references to the "Company"
shall include, in addition to the resulting corporation, any constituent
corporation (including any constituent of a constituent) absorbed in a
consolidation or merger which, if its separate existence had continued, would
have had power and authority to indemnify its directors, officers, employees,
agents or fiduciaries, so that if Indemnitee is or was or may be deemed a
director, officer, employee, agent, control person, or fiduciary of such
constituent corporation, or is or was or may be deemed to be serving at the
request of such constituent corporation as a director, officer, employee,
control person, agent or fiduciary of another corporation, partnership, joint
venture, employee benefit plan, trust or other enterprise, each Indemnitee shall
stand in the same position under the provisions of this Agreement with respect
to the resulting or surviving corporation as each Indemnitee would have with
respect to such constituent corporation if its separate existence had continued.
b. For purposes of this Agreement, references to "other
enterprises" shall include employee benefit plans; references to "fines" shall
include any excise taxes assessed on any Indemnitee with respect to an employee
benefit plan; and references to "serving at the request of the Company" shall
include any service as a director, officer, employee, agent or fiduciary of the
Company which imposes duties on, or involves services by, such director,
officer, employee, agent or fiduciary with respect to an employee benefit plan,
its participants or its beneficiaries; and if any Indemnitee acted in good faith
and in a manner such Indemnitee reasonably believed to be in the interest of the
participants and beneficiaries of an employee benefit plan, such Indemnitee
shall be deemed to have acted in a manner "not opposed to the best interests of
the Company" as referred to in this Agreement.
c. For purposes of this Agreement a "Change in Control" shall
be deemed to have occurred if (i) any "person" (as such term is used in Sections
13(d)(3) and 14(d)(2) of the Exchange Act), other than a trustee or other
fiduciary holding securities under an employee benefit plan of the Company or a
corporation owned directly or indirectly by the
8
<PAGE>
shareholders of the Company in substantially the same proportions as their
ownership of stock of the Company, (A) who is or becomes the beneficial owner,
directly or indirectly, of securities of the Company representing 20% or more of
the combined voting power of the Company's then outstanding Voting Securities,
increases his beneficial ownership of such securities by 5% or more over the
percentage so owned by such person, or (B) becomes the "beneficial owner" (as
defined in Rule 13d-3 under said Exchange Act), directly or indirectly, of
securities of the Company representing more than 30% of the total voting power
represented by the Company's then outstanding Voting Securities, (ii) during any
period of two consecutive years, individuals who at the beginning of such period
constitute the Board of Directors of the Company and any new director whose
election by the Board of Directors or nomination for election by the Company's
shareholders was approved by a vote of at least two-thirds (2/3) of the
directors then still in office who either were directors at the beginning of the
period or whose election or nomination for election was previously so approved,
cease for any reason to constitute a majority thereof, or (iii) the shareholders
of the Company approve a merger or consolidation of the Company with any other
corporation other than a merger or consolidation which would result in the
Voting Securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted
into Voting Securities of the surviving entity) at least two-thirds (2/3) of the
total voting power represented by the Voting Securities of the Company or such
surviving entity outstanding immediately after such merger or consolidation, or
the shareholders of the Company approve a plan of complete liquidation of the
Company or an agreement for the sale or disposition by the Company of (in one
transaction or a series of transactions) all or substantially all of the
Company's assets.
d. For purposes of this Agreement, "Independent Legal Counsel"
shall mean an attorney or firm of attorneys, selected in accordance with the
provisions of Section 1(e) hereof, who shall not have otherwise performed
services for the Company or any Indemnitee within the last three (3) years
(other than with respect to matters concerning the right of any Indemnitee under
this Agreement, or of other indemnitees under similar indemnity agreements).
e. For purposes of this Agreement, a "Reviewing Party" shall
mean any appropriate person or body consisting of a member or members of the
Company's Board of Directors or any other person or body appointed by the Board
of Directors who is not a party to the particular Claim for which Indemnitee is
seeking indemnification, or Independent Legal Counsel.
f. For purposes of this Agreement, "Voting Securities" shall
mean any securities of the Company that vote generally in the election of
directors.
11. Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall constitute an original.
12. Binding Effect; Successors and Assigns. This Agreement shall be
--------------------------------------
binding
9
<PAGE>
upon and inure to the benefit of and be enforceable by the parties hereto and
their respective successors, assigns, including any direct or indirect successor
by purchase, merger, consolidation or otherwise to all or substantially all of
the business and/or assets of the Company, spouses, heirs, and personal and
legal representatives. The Company shall require and cause any successor
(whether direct or indirect by purchase, merger, consolidation or otherwise) to
all, substantially all, or a substantial part, of the business and/or assets of
the Company, by written agreement in form and substance satisfactory to each
Indemnitee, expressly to assume and agree to perform this Agreement in the same
manner and to the same extent that the Company would be required to perform if
no such succession had taken place. This Agreement shall continue in effect with
respect to Claims relating to Indemnifiable Events regardless of whether any
Indemnitee continues to serve as a director, officer, employee, agent,
controlling person, or fiduciary of the Company or of any other enterprise,
including subsidiaries of the Company, at the Company's request.
13. Attorneys' Fees. In the event that any action is instituted by an
---------------
Indemnitee under this Agreement or under any liability insurance policies
maintained by the Company to enforce or interpret any of the terms hereof or
thereof, any Indemnitee shall be entitled to be paid all Expenses incurred by
such Indemnitee with respect to such action, regardless of whether such
Indemnitee is ultimately successful in such action, and shall be entitled to the
advancement of Expenses with respect to such action, unless, as a part of such
action, a court of competent jurisdiction over such action determines that each
of the material assertions made by such Indemnitee as a basis for such action
was not made in good faith or was frivolous. In the event of an action
instituted by or in the name of the Company under this Agreement to enforce or
interpret any of the terms of this Agreement, the Indemnitee shall be entitled
to be paid all Expenses incurred by such Indemnitee in defense of such action
(including costs and expenses incurred with respect to Indemnitee counterclaims
and cross-claims made in such action), and shall be entitled to the advancement
of Expenses with respect to such action.
14. Notice. All notices and other communications required or
------
permitted hereunder shall be in writing, shall be effective when given, and
shall in any event be deemed to be given (a) five (5) days after deposit with
the U.S. Postal Service or other applicable postal service, if delivered by
first class mail, postage prepaid, (b) upon delivery, if delivered by hand, (c)
one business day after the business day of deposit with Federal Express or
similar overnight courier, freight prepaid, or (d) one day after the business
day of delivery by facsimile transmission, if deliverable by facsimile
transmission, with copy by first class mail, postage prepaid, and shall be
addressed if to Indemnitee, at each Indemnitee's address as set forth beneath
the Indemnitee' signatures to this Agreement and if to the Company at the
address of its principal corporate offices (attention: Secretary) or at such
other address as such party may designate by ten (10) days' advance written
notice to the other party hereto.
15. Consent to Jurisdiction. The Company and each Indemnitee each
-----------------------
hereby irrevocably consent to the jurisdiction and venue of the courts of the
State of California for all purposes in connection with any action or proceeding
which arises out of or relates to this
10
<PAGE>
Agreement and agree that any action instituted under this Agreement shall be
commenced, prosecuted and continued only in the courts of the State of
California.
16. Severability. The provisions of this Agreement shall be
------------
severable in the event that any of the provisions hereof (including any
provision within a single section, paragraph or sentence) are held by a court of
competent jurisdiction to be invalid, void or otherwise unenforceable, and the
remaining provisions shall remain enforceable to the fullest extent permitted by
law. Furthermore, to the fullest extent possible, the provisions of this
Agreement (including, without limitations, each portion of this Agreement
containing any provision held to be invalid, void or otherwise unenforceable,
that is not itself invalid, void or unenforceable) shall be construed so as to
give effect to the intent manifested by the provision held invalid, illegal or
unenforceable.
17. Choice of Law. This Agreement shall be governed by and its
-------------
provisions construed and enforced in accordance with the laws of the State of
California, as applied to contracts between California residents, entered into
and to be performed entirely within the State of California, without regard to
the conflict of laws principles thereof.
18. Subrogation. In the event of payment under this Agreement, the
-----------
Company shall be subrogated to the extent of such payment to all of the rights
of recovery of Indemnitee who shall execute all documents required and shall do
all acts that may be necessary to secure such rights and to enable the Company
effectively to bring suit to enforce such rights.
19. Amendment and Termination. No amendment, modification,
-------------------------
termination or cancellation of this Agreement shall be effective unless it is in
writing signed by the parties to be bound thereby. Notice of same shall be
provided to all parties hereto. No waiver of any of the provisions of this
Agreement shall be deemed or shall constitute a waiver of any other provisions
hereof (whether or not similar) nor shall such waiver constitute a continuing
waiver.
20. Integration and Entire Agreement. This Agreement supersedes any
--------------------------------
prior director and officer indemnification agreement between the Company and any
Indemnitee.
21. No Construction as Employment Agreement. Nothing contained in
---------------------------------------
this Agreement shall be construed as giving any Indemnitee any right to be
retained in the employ of the Company or any of its subsidiaries.
22. Corporate Authority. The Board of Directors of the Company and
-------------------
its shareholders in accordance with California law have approved the terms of
this Agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
11
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
and as of the day and year first above written.
EXODUS COMMUNICATIONS, INC.
a California corporation
By:_____________________________________
K.B. Chandrasekhar
President and CEO
Address: 2650 San Tomas Expressway
Santa Clara, CA 95051
INDEMNITEE:
________________________________________
By:_____________________________________
Name:___________________________________
Title:__________________________________
Address:________________________________
________________________________________
________________________________________
12
<PAGE>
AMENDMENT
This Amendment, dated as of _______________, 1998, is to that certain
Indemnification Agreement between Exodus Communications, Inc., a California
corporation ("Exodus California") and _____________________ ("Indemnitee"),
dated as of ______________ (the "Indemnification Agreement").
RECITALS
A. Indemnitee and Exodus California, the predecessor of Exodus
Communications, Inc., a Delaware corporation (the "Company") previously entered
into the Indemnification Agreement.
B. In connection with the reincorporation of the Company in Delaware (the
"Reincorporation"), the Company has assumed all the obligations and contracts of
Exodus California, including the Indemnification Agreement.
C. The Indemnification Agreement currently is governed by California law
and the parties desire to amend said agreement to be governed by Delaware law
upon the Reincorporation.
NOW, THEREFORE, the Company and Indemnitee hereby agree as follows:
1. All references to "Exodus Communications, Inc., a California
corporation are hereby amended to refer to "Exodus Communications, Inc., a
Delaware corporation".
2. All references to California in paragraphs 3, 8, 15, 17 and 22 of the
Indemnification Agreement are hereby amended to refer to Delaware.
3. All references to the Company's Articles of Incorporation are hereby
amended to refer to the Company's Certificate of Incorporation.
4. This Amendment shall take effect as of the date of the Reincorporation.
5. Except as expressly set forth herein, all of the provisions, terms and
conditions of the Indemnification Agreement shall remain in full force and
effect.
6. This Amendment may be executed in two counterparts, each of which shall
be deemed an original, but all of which together shall constitute one
instrument.
7. This Amendment shall be governed by and construed in accordance with
the laws of the state of Delaware, excluding that body of law known as conflicts
of law.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
and as of the day and year first above written.
EXODUS COMMUNICATIONS, INC.
a Delaware corporation
By: ______________________________________
K.B. Chandrasekhar
President and Chief Executive Officer
Address: 2650 San Tomas Expressway
Santa Clara, CA 95051
INDEMNITEE:
____________________________________________
By: ______________________________________
Name: ______________________________________
Title:______________________________________
Address:____________________________________
____________________________________________
____________________________________________
<PAGE>
EXHIBIT 10.09
MISSION PARK
MULTI-TENANT SINGLE-BUILDING PROJECT
MODIFIED-NET LEASE
by and between
WASHCOP ASSOCIATES LIMITED PARTNERSHIP
("Landlord")
and
EXODUS COMMUNICATIONS, INC.
("Tenant")
For the 14,280 SF Premises at
1605 Wyatt Drive, Santa Clara, CA 95054
<PAGE>
LEASE SUMMARY
Lease Date: April 18, 1996
Landlord: Washcop Associates Limited Partnership
Address of Landlord: c/o Koll Management Services, Inc.
2041 Mission College Blvd., Suite 100
Santa Clara, CA 95054
Tenant: Exodus Communications, Inc.
Address of Tenant: 948 Benicia Avenue
Sunnyvale, CA 94086
Contact: Dick Stoltz Telephone: (408) 522-8450
Premises: Approximately 14,280 square feet
Premises Address: 1605 Wyatt Drive
Santa Clara, CA 95054
Building Address: 1605 and 1615 Wyatt Drive
Santa Clara, CA 95054
Building Square Footage: Approximately 23,400 square feet
Anticipated Commencement Date: May 1, 1996
Term: Five (5) years
Monthly Rent: $15,708.00/month
Estimated Operating Expenses: $2,999.00/month
Cash Security Deposit: $15,708.00
Letter of Credit Security Deposit: $138,000.00
Tenant's Percentage 61.03%
(This Lease Summary is for information only and is not part of the Lease. The
Lease will control in case of any conflicts or inconsistencies.)
<PAGE>
LEASE
-----
(MULTI-TENANT BUILDING ON SINGLE-BUILDING PROJECT)
Table of Contents
-----------------
<TABLE>
<S> <C>
1. PARTIES
2. PREMISES
3. DEFINITIONS
4. LEASE TERM
5. RENT
6. LATE PAYMENT CHARGES
7. SECURITY DEPOSIT
8. HOLDING OVER
9. TENANT IMPROVEMENTS
10. CONDITION OF PREMISES
11. USE OF THE PREMISES
12. QUIET ENJOYMENT
13. ALTERATIONS
14. SURRENDER OF THE PREMISES
15. PERSONAL PROPERTY TAXES
16. UTILITIES AND SERVICES
17. REPAIR AND MAINTENANCE
18. LIENS
19. LANDLORD'S RIGHT TO ENTER THE PREMISES
20. SIGNS
21. INSURANCE
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
22. DAMAGE OR DESTRUCTION
23. CONDEMNATION
24. ASSIGNMENT AND SUBLETTING
25. DEFAULT
26. SUBORDINATION
27. NOTICES
28. ATTORNEYS' FEES
29. ESTOPPEL CERTIFICATES; FINANCIAL STATEMENTS
30. TRANSFER OF THE BUILDING OR PROJECT BY LANDLORD
31. LANDLORD'S RIGHT TO PERFORM TENANT'S COVENANTS
32. LIMITATION OF LIABILITY
33. MORTGAGEE PROTECTION
34. BROKERS
35. ACCEPTANCE
36. MODIFICATION FOR LENDER
37. PARKING
38. CONDITION
39. GENERAL
</TABLE>
ii
<PAGE>
TABLE OF EXHIBITS
-----------------
EXHIBIT A The Premises
EXHIBIT B The Project
EXHIBIT C Hazardous Materials Questionnaire
EXHIBIT D Sign Criteria
iii
<PAGE>
LEASE
-----
(MULTI-TENANT BUILDING ON SINGLE-BUILDING PROJECT)
1. PARTIES. This Lease ("Lease"), dated April 18, 1996, is entered into
by and between Washcop Associates Limited Partnership, a Delaware limited
partnership ("Landlord"), whose address is c/o Koll Management Services, Inc.,
2041 Mission College Blvd., Suite 100, Santa Clara, California 95054 and Exodus
Communications, Inc., a California corporation ("Tenant"), whose address is 948
Benicia Avenue, Sunnyvale, California 94086.
2. PREMISES. Landlord hereby leases to Tenant and Tenant hereby leases
from Landlord the premises, consisting of approximately fourteen thousand two
hundred eighty (14,280) square feet, shown in EXHIBIT A, having an address of
---------
1605 Wyatt Drive, Santa Clara, California ("Premises"), and located in the
building commonly known as 1605 and 1615 Wyatt Drive ("Building"), as further
defined in Paragraph 3.B., in the City of Santa Clara ("City"), County of Santa
Clara ("County"), California, together with a right in common with other tenants
of the Project to use the Outside Area, as defined in Paragraph 3.I.
3. DEFINITIONS. The following terms shall have the following meanings in
this Lease:
A. ALTERATIONS. Any alterations, additions or improvements made in,
-----------
on or about the Building or the Premises after the Commencement Date, including,
but not limited to, lighting, heating, ventilating, air conditioning,
electrical, partitioning, drapery and carpentry installations.
B. BUILDING. The building described in Paragraph 2 consisting of
--------
approximately twenty-three thousand four hundred (23,400) square feet.
C. CC&RS. Those certain covenants, conditions and restrictions
-----
recorded in Book E671, Page 414, Official Records of Santa Clara County, on July
26, 1979, as amended.
D. COMMENCEMENT DATE. The Commencement Date of this Lease shall be
-----------------
the first day of the Term determined in accordance with Paragraph 4.A.
E. HVAC. Heating, ventilating and air conditioning.
----
F. INTEREST RATE. Twelve percent (12%) per annum, however, in no
-------------
event to exceed the maximum rate of interest permitted by applicable law.
G. LANDLORD'S AGENTS. Landlord's authorized agents, partners,
-----------------
subsidiaries, directors, officers, and employees.
H. MONTHLY RENT. The rent payable pursuant to Paragraph 5.A, as
------------
adjusted from time to time pursuant to the terms of this Lease.
1
<PAGE>
I. OUTSIDE AREA. All areas and facilities within the Project,
------------
exclusive of the interior of the Building, provided and designated by Landlord
for the general use and convenience of Tenant and other tenants and occupants of
the Project, including perimeter roads, sidewalks, landscaped areas, service
areas, and trash disposal facilities, subject to the reasonable rules and
regulations and changes therein from time to time promulgated by Landlord
governing the use of the Outside Area.
J. PROJECT. The real property shown on EXHIBIT B consisting of
------- ---------
approximately 1.8 acres, upon which is located the Building. Landlord reserves
the right to construct additional buildings within the Project, in which event
the area of such buildings shall be added to the area of the existing buildings
to determine the total building area of the Project. Landlord further reserves
the right to incorporate into the Project any real property adjacent to the
Project and on which one or more buildings have been constructed.
K. REAL PROPERTY TAXES. Any form of assessment, license, fee, rent
-------------------
tax, levy, penalty (if a result of Tenant's delinquency), or tax (other than net
income, estate, succession, inheritance transfer or franchise taxes), imposed by
any authority having the direct or indirect power to tax, or by any city,
county, state or federal government or any improvement or other district or
division thereof, whether such tax is: (i) determined by the area of the
Project or any part thereof or the rent and other sums payable hereunder by
Tenant or by other tenants, including, but not limited to, any gross income or
excise tax levied by any of the foregoing authorities with respect to receipt
off such rent or other sums due under this Lease; (ii) imposed upon any legal or
equitable interest of Landlord in the Project or the Premises or any part
thereof; (iii) imposed upon this transaction or any document to which Tenant is
a party creating or transferring any interest in the Project; (iv) levied or
assessed in lieu of, in substitution for, or in addition to, existing or
additional taxes against the Project whether or not now customary or within the
contemplation of the parties; (v) imposed as a special assessment for such
purposes as fire protection, street, sidewalk, road, utility construction and
maintenance, refuse removal and for other governmental services; or (vi) imposed
as a result of any transfer of any interest in the Project by Landlord, or the
construction of any improvements thereon or thereto.
L. RENT. Monthly Rent plus Additional Rent defined in Paragraph 5.B.
----
M. SECURITY DEPOSIT. The Cash Security Deposit (hereafter defined in
----------------
Paragraph 7 below) and the Letter of Credit Security Deposit (hereafter defined
in Paragraph 7 below).
N. SUBLET. Any transfer, sublet, assignment, license or concession
------
agreement, change of ownership, mortgage, or hypothecation of this Lease or the
Tenant's interest in the Lease or in and to all or a portion of the Premises.
O. SUBRENT. Any consideration of any kind received, or to be
-------
received, by Tenant from a subtenant if such sums are related to Tenant's
interest in this Lease or in the Premises.
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P. SUBTENANT. The person or entity with whom a Sublet agreement is
---------
proposed to be or is made.
Q. TENANT'S PERCENTAGE. The percentage of the area of the Premises
-------------------
to the area of the Building. Tenant's Percentage is agreed to be sixty-one and
three one-hundredths percent (61.03%) for the purpose of this Lease, until such
time as additional buildings are made a part of the Project and such percentage
is adjusted.
R. TENANT'S PERSONAL PROPERTY. Tenant's trade fixtures, furniture,
--------------------------
equipment and other personal property in the Premises.
S. TERM. The term of this Lease, set forth in Paragraph 4.A, as it
----
may be extended by written agreement between Landlord and Tenant.
4. LEASE TERM.
A. TERM. The term of this Lease shall be fore five (5) years (or
----
sixty (60) months) commencing on May 1, 1996 ("Commencement Date") and expiring
on April 30, 2001. Except as otherwise provided in Paragraph 4.C. below, if for
any reason whatsoever, Landlord cannot deliver possession of the Premises to
Tenant on the Commencement Date, this Lease shall not be void or voidable, nor
shall Landlord, or Landlord's agents, be liable to Tenant for any loss or damage
resulting therefrom. Tenant shall not be liable for Rent until Landlord
delivers possession of the Premises to Tenant and, notwithstanding the foregoing
to the contrary, the date that Landlord delivers possession of the Premises to
Tenant shall be the Commencement Date. The expiration date of the Term as set
forth in this Paragraph 4.A. shall be extended by the same number of days that
Landlord's delivery of the Premises to Tenant was delayed.
B. EARLY ENTRY. If Tenant is permitted to occupy the Premises prior
-----------
to the Commencement Date for the purpose of fixturing or any other purpose
permitted by Landlord, such early entry shall be at Tenant's sole risk and
subject to all the terms and provisions hereof, except for the payment of
Monthly Rent which shall commence on the Commencement Date. Landlord shall have
the right to impose such additional conditions on Tenant's early entry as
Landlord shall deem appropriate, and shall further have the right to require
that Tenant execute an early entry agreement containing such conditions prior to
Tenant's early entry.
C. DELAY IN DELIVERING POSSESSION. In the event that for reasons
------------------------------
other than a delay resulting from a force majeure (hereafter defined in
Paragraph 39.N. below) ("Force Majeure Delay") or a delay resulting from any act
or failure to act by Tenant, Tenant's employees, agents, architects, independent
contractors, and/or consultants ("Tenant Delay"), Landlord has not delivered the
Premises to Tenant by June 1, 1996, then Tenant may elect to terminate the
Lease. The occurrence of a Force Majeure Delay or Tenant Delay shall extend the
June 1, 1996 date for a period equal to the duration of the Force Majeure Delay
or the Tenant Delay. Termination of the Lease as provided for herein shall be
the sole and exclusive remedy of Tenant for Landlord's failure to deliver the
Premises. Tenant shall exercise the right to terminate provided for herein by
giving Landlord written notice of its intent to so terminate ("Termination
Notice"). The Termination Notice shall be given, if at all, on or before the
tenth (10th) day after
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June 1, 1996, or the date to which this date has been extended as provided for
herein. If the Termination Notice is not given as and when required hereunder,
then Tenant shall not be entitled to terminate the Lease. Termination of the
Lease shall be effective on the date of Landlord's receipt of the Termination
Notice.
5. RENT.
A. MONTHLY RENT. Tenant shall pay to Landlord, in lawful money of
------------
the United States, for each calendar month of the Term, net Monthly Rent as
shown below, in advance, on the first day of each calendar month, without
abatement, deduction, claim, offset, prior notice or demand:
Months of Term Net Monthly Rent
-------------- ----------------
01 - 60 $15,708.00
B. ADDITIONAL RENT. Additionally, Tenant shall pay, as and with the
---------------
net Monthly Rent, Tenant's Percentage of the estimated monthly Operating
Expenses, as adjusted from time to time, and as more specifically set forth in
Paragraph 17.C. Tenant shall deposit with Landlord upon execution of this Lease
the following amounts to be applied toward Rent due for the first month of the
Term:
Monthly Rent (net) $15,708.00/month
Tenant's Percentage of
Operating Expenses $ 2,999.00/month
TOTAL $18,707.00/month
All monies (except Monthly Rent) required to be paid by Tenant under this Lease,
including, without limitation, Operating Expenses, shall be deemed Additional
Rent.
C. PRORATIONS. If the Commencement Date is not the first (1st) day
----------
of a month, or if the expiration date of this Lease is not the last day of a
month, a prorated installment of Rent based on a thirty (30) day month shall be
paid for the fractional month during which the Lease commences or expires.
6. LATE PAYMENT CHARGES. Tenant acknowledges that late payment by Tenant
to Landlord of Rent and other charges provided for under this Lease will cause
Landlord to incur costs not contemplated by this Lease, the exact amount of such
costs being extremely difficult or impracticable to fix. Therefore, if any
installment of Rent or any other charge due from Tenant is not received by
Landlord within five (5) days after the date due, Tenant shall pay to Landlord
an additional sum equal to five percent (5%) of the amount overdue as a late
charge for every month or portion thereof that the Rent or other charges remain
unpaid. The parties
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agree that this late charge represents a fair and reasonable estimate of the
costs that Landlord will incur by reason of the late payment by Tenant.
Initials:
_________________________ _________________________
Landlord Tenant
7. SECURITY DEPOSIT. Tenant shall deposit with Landlord upon execution of
this Lease Fifteen Thousand Seven Hundred Eight and no/100ths Dollars
($15,708.00( (the "Cash Security Deposit") and a Letter of Credit in the amount
of One Hundred Thirty-Eight Thousand and no/100ths Dollars ($138,000.00)
("Letter of Credit Security Deposit"), both as security for the full and
faithful performance of every provision of this Lease to be performed by Tenant.
The Letter of Credit Security Deposit shall be (i) issued by a commercial bank
satisfactory to Landlord ("Issuer"), (ii) be a stand-by, at-sight, irrevocable
letter of credit, (iii) be payable to Landlord, (iv) require that any draw on
the letter of credit shall be made only upon receipt by the Issuer of a written
certification from Landlord certifying that Landlord is entitled pursuant to the
terms of this Lease to draw on the letter of credit, (v) not expire prior to one
year or longer after the date of its issuance, and (vi) provide that it is
governed by the Uniform Customs and Practice for Documentary Credits,
International Chamber of Commerce Publication No. 400. If Tenant defaults with
respect to any provision of this Lease, Landlord may apply all or any part of
the Cash Security Deposit for the payment of any Rent or other sum in default,
the repair of such damage to the Premises or the payment of any other amount
which Landlord may spend or become obligated to spend by reason of Tenant's
default or to compensate Landlord for any other loss or damage which Landlord
may suffer by reason of Tenant's default to the full extent permitted by law.
Without limiting the generality of the foregoing, Tenant hereby acknowledges
that the following shall constitute loss or damage incurred by Landlord by
reason of a default by Tenant hereunder and Landlord shall be entitled to draw
on the Letter of Credit Security Deposit to reimburse Landlord for the following
costs incurred by Landlord: leasing fees and/or commissions paid in connection
with entering into this Lease, reasonable attorneys' fees and costs incurred in
connection with entering into this Lease, and all other costs incurred in
connection with entering into this Lease and delivering the Premises to
Landlord. If any portion of the Cash Security Deposit is applied as permitted
hereunder, Tenant shall, within ten (10) days after written demand therefor,
deposit cash with Landlord in an amount sufficient to restore the Cash Security
Deposit to its original amount. In the event that Landlord draws on the Letter
of Credit Security Deposit as permitted hereunder, Tenant shall cause a
replacement letter of credit to be deposited in the original amount of the
Letter of Credit Security Deposit. Within thirty (30) days prior to expiration
of the existing Letter of Credit Security Deposit, Tenant shall cause the Issuer
to issue and deliver to Landlord a replacement letter of credit. In the event
that Landlord assigns its rights under the Lease then Tenant shall cause a
replacement Letter to Credit Security Deposit to be issued in the name of the
assignee. If Tenant is not otherwise in default, the Cash Security Deposit or
any balance thereof and the Letter of Credit Security Deposit shall be returned
to Tenant within thirty (30) days after the expiration of the Term.
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8. HOLDING OVER. If Tenant remains in possession of all or any part of
the Premises after the expiration of the Term, with the express or implied
consent of Landlord, such tenancy shall be month-to-month only and shall not
constitute a renewal or extension for any further term. If Tenant remains in
possession either with or without Landlord's consent, Monthly Rent shall be
increased to an amount equal to one hundred fifty percent (150%) of the Monthly
Rent payable during the last month of the Term, and any other sums due under
this Lease shall be payable in the amount and at the times specified in this
Lease. Such month-to-month tenancy shall be subject to every other term,
condition, and covenant contained herein. If Tenant remains in possession
without Landlord's consent, Tenant shall indemnify, defend and hold Landlord
harmless from all claims, costs and liabilities including attorneys' fees and
costs, arising from or in connection with Tenant remaining in possession.
9. TENANT IMPROVEMENTS. Intentionally Omitted.
10. CONDITION OF PREMISES. Tenant shall deliver possession of the
Premises in its "AS IS" condition existing on the date that the existing tenant
of the Premises vacates the Premises. By taking possession of the Premises,
Tenant shall be deemed to have accepted the Premises in the condition required
hereunder, subject to all applicable laws, codes and ordinances. And damage to
the Premises caused by Tenant's move-in shall be repaired or corrected by
Tenant, at its expense. Tenant acknowledges that neither Landlord nor its
Agents have made any representations or warranties as to the suitability or
fitness of the Premises for the conduct of Tenant's business, nor has Landlord
or its Agents agreed to undertake any Alterations or construct any tenant
improvements to the Premises prior to the Commencement Date.
11. USE OF THE PREMISES.
A. TENANT'S USE. Tenant shall use the Premises solely for (i)
------------
providing internet and network services, and (ii) marketing, sales, research and
development, and general office uses in connection with the uses described in
item (i) of this sentence. Tenant shall not use the Premises for any purpose
other than the purposes set forth in the immediately preceding sentence without
obtaining the prior written consent of Landlord. Tenant agrees that the Project
is subject and this Lease is subordinate to the CC&Rs. Tenant acknowledges
receipt of a copy of the CC&Rs and further acknowledges that it has read the
CC&Rs and knows the contents thereof. Throughout the Term, Tenant shall
faithfully and timely perform and comply with the CC&Rs and any modification or
amendments thereof.
B. COMPLIANCE WITH LAWS. Tenant shall not use the Premises or suffer
--------------------
or permit anything to be done in or about the Premises or the Project which will
in any way conflict with any law, statute, zoning restriction, ordinance or
governmental law, rule, regulation or requirement of public authorities now in
force or which may hereafter be in force, relating to or affecting the
condition, use or occupancy of the Premises or the Project. Tenant shall not
commit any public or private nuisance or any other act or thing which might or
would disturb the quiet enjoyment of any other tenant of the Project or any
occupant of nearby property. Tenant shall place no loads upon the floors, walls
or ceilings in excess of the maximum designed load determined by Landlord or
which endanger the structure, nor place any harmful liquids in the drainage
systems; nor dump or store waste materials or refuse or allow such to remain
outside the
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Building proper, except in the enclosed trash areas provided. Tenant shall not
store or permit to be stored or otherwise placed any other material of any
nature whatsoever outside the Building.
C. EMISSIONS. Tenant shall not during the Term of this Lease:
---------
(i) Permit any vehicle on the Project to emit exhaust which is
in violation of any governmental law, rule, regulation or requirement;
(ii) Discharge, emit or permit to be discharged or emitted, any
liquid, solid or gaseous matter, or any combination thereof, into the
atmosphere, the ground or any body of water, which matter, as reasonably
determined by Landlord or any governmental entity with jurisdiction, does or may
pollute or contaminate the same, or is or may become radioactive, or may
adversely affect (1) the health or safety of persons, whether on the Premises,
the Project, or elsewhere, (2) the condition, use or enjoyment of the Premises
or the Project or any other real or personal property located on the Project or
elsewhere, or (3) the Project or any of the improvements constructed thereon,
including buildings, foundations, pipes, utility lines, landscaping or parking
areas;
(iii) Produce, or permit to be produced, any intense glare,
light or heat except within an enclosed or screened area, and then only in such
manner that the glare, light or heat shall not be discernible from outside the
Premises;
(iv) Create, or permit to be created, any sound pressure level
which will interfere with the quiet enjoyment of any real property outside the
Project, or which will create a nuisance or violate any governmental law, rule,
regulation or requirement;
(v) Create or permit to be created any ground vibration that
is discernible outside the Premises; or
(vi) Transmit, receive or permit to be transmitted or received,
any electromagnetic, microwave or other radiation which is harmful or hazardous
to any person or property in, on or about the Project or elsewhere.
D. HAZARDOUS MATERIALS.
-------------------
(i) Tenant agrees to complete prior to Lease execution the
questionnaire attached to the Lease as EXHIBIT E (the "Hazardous Materials
---------
Questionnaire"). Tenant represents and warrants that the information completed
by Tenant in the Hazardous Materials Questionnaire is true and complete. Tenant
agrees to immediately inform Landlord in writing if any of the information
contained in the Hazardous Materials Questionnaire becomes untrue, inaccurate or
incomplete.
(ii) Any handling, transportation, storage, treatment, disposal
or use of Hazardous Materials by Tenant and Tenant's employees, contractors,
subcontractors, invitees and sublessees (collectively "Tenant's Agents") in or
about the Premises, shall strictly comply with all applicable Hazardous
Materials Laws. Tenant shall indemnify, defend upon demand with counsel
reasonably acceptable to Landlord, and hold harmless Landlord and Landlord's
partners,
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agents, employees, contractors, and invitees (collectively "Landlord's Agents")
from and against any and all liabilities, losses, claims, damages, lost profits,
consequential damages, interest, penalties, fines, monetary sanctions,
attorneys' fees, experts' fees, court costs, remediation costs, investigation
costs, and other expenses which result from or arise in any manner whatsoever
out of the use, storage, treatment, transportation, release, or disposal of
Hazardous Materials on or about the Premises or the Project by Tenant or
Tenant's Agents.
(iii) If the presence of Hazardous Materials in, on, or about
the Premises or the Project caused or permitted by Tenant or Tenant's Agents
results in contamination or deterioration of water or soil resulting in a level
of contamination greater than the levels established as acceptable by any
governmental agency having jurisdiction over such contamination, then Tenant
shall promptly take any and all action necessary to investigate and remediate
such contamination if required by Law or as a condition to the issuance or
continuing effectiveness of any governmental approval which relates to the use
of the Premises or any part thereof. Tenant shall further be solely responsible
for, and shall defend, indemnify, and hold Landlord and Landlord's Agents
harmless from and against, all claims, costs and liabilities, including
attorney's fees and costs, arising out of or in connection with any
investigation and remediation required hereunder to return the Premises to its
condition existing prior to the appearance of such Hazardous Materials.
(iv) Landlord and Tenant shall each give written notice to the
other as soon as reasonably practicable of (i) any Hazardous Materials which
relates to the Premises, and (ii) any contamination of the Premises or the
Project by Hazardous Materials which constitutes a violation of any Hazardous
Materials Law. Tenant and Tenant's Agents shall not bring Hazardous Materials of
types or quantities differing from those set forth in the Hazardous Materials
Questionnaire without first obtaining the written permission of the Landlord. At
any time during the Lease term, Tenant shall, within five (5) days after written
request therefor received from Landlord, disclose in writing all Hazardous
Materials that are being used by Tenant or Tenant's Agents on the Premises, the
nature of such use, and the manner of storage and disposal.
(v) Landlord may cause testing wells to be installed on or
about the Outside Area of the Project, and may cause the ground water to be
tested to detect the presence of Hazardous Materials by the use of such tests as
are then customarily used for such purposes, provided that Landlord shall use
diligent efforts to minimize any inconvenience or disruption to Tenant's
business in connection with such installation. If Tenant so requests, Landlord
shall supply Tenant with copies of such test results. The cost of such tests and
of the installation, maintenance, repair and replacement of such wells shall be
paid by Tenant if such tests disclose the existence of facts which give rise to
liability of Tenant pursuant to its indemnity given in Paragraph 11.D(ii) or
(iii).
(vi) 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,
petroleum products, asbestos, PCB's, and any material or substance which is (i)
defined as hazardous or extremely hazardous pursuant to
8
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Section 66160 of Title 26 of the California Code of Regulations, Division 22,
(ii) 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 (iii) 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. 6901). As used herein
the term "Hazardous Material Law" shall mean any statute, law, ordinance, or
regulation of any governmental body or agency (including the U.S. Environmental
Protection Agency, the California Regional Water Quality Control Board and the
California Department of Health Services) which regulates the use, storage,
release or disposal of any Hazardous Material.
(vii) The obligations of Landlord and Tenant under this
Paragraph 11.D shall survive the expiration or earlier termination of the Lease
term. The rights and obligations of Landlord and Tenant with respect to issues
relating to Hazardous Materials are exclusively established by this Paragraph
11.D. In the event of any inconsistency between any other part of the Lease and
this Paragraph 11.D, the terms of this Paragraph 11.D. shall control.
12. QUIET ENJOYMENT. Landlord covenants that Tenant, upon performing the
terms, conditions and covenants of this Lease, shall have quiet and peaceful
possession of the Premises as against any person claiming the same by, through
or under Landlord.
13. ALTERATIONS. Tenant shall not make or permit any Alterations in, on
or about the Premises, except for nonstructural Alterations not exceeding Five
Thousand Dollars ($5,000.00) in cost per calendar year, without the prior
written consent of Landlord, and according to plans and specifications approved
in writing by Landlord, which consent shall not be unreasonably withheld. With
regard to Alterations not requiring Landlord's consent, Tenant shall provide
Landlord copies of all plans and specifications therefor prior to the
construction thereof. Notwithstanding the foregoing Tenant shall not, without
the prior written consent of Landlord, make any: (i) Alterations to the
structure or exterior of the Building; (ii) Alterations to and penetrations of
the roof of the Building; and (iii) Alterations visible from outside the
Premises, to which Landlord may withhold Landlord's consent on wholly aesthetic
grounds. All Alterations shall be installed at Tenant's sole expense, in
compliance with all applicable laws and the CC&Rs, by a licensed contractor,
shall be done in a good and workmanlike manner conforming in quality and design
with the Premises existing as of the Commencement Date, and shall not diminish
the value of either the Building or the Premises. All Alterations made by
Tenant shall be and become the property of Landlord upon installation and shall
not be deemed Tenant's Personal Property; provided, however, that Landlord shall
at the time consent for the Alterations is requested, notify Tenant, whether
Tenant must at the expiration or earlier termination of the Term, remove, at
Tenant's expense, any or all Alterations installed by Tenant and return the
Premises to their condition prior to the installation of such Alterations,
normal wear and tear excepted. Notwithstanding any other provision of this
Lease, Tenant shall be solely responsible for the maintenance and repair of any
and all Alterations made by it to the Premises. Tenant shall give Landlord
written notice of Tenant's intention to perform work on the Premises, whether or
not Landlord's consent is required, at least twenty (20) days prior to the
commencement of such work to enable Landlord to post and record a Notice of
Nonresponsibility or other notice deemed proper before the commencement of any
such work.
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Landlord, at Landlord's option at the expiration or earlier termination of the
Term, may require Tenant to remove some or all of any Alterations installed
without Landlord's consent.
14. SURRENDER OF THE PREMISES. Upon the expiration or earlier termination
of the Term, Tenant shall surrender the Premises to Landlord in its condition
existing as of the Commencement Date, normal wear and tear and fire or other
casualty and approved Alterations which Landlord has indicated shall remain upon
the Premises upon the expiration of the Term excepted, with all interior walls
repaired and repainted if marked or damaged, all carpets shampooed and cleaned,
all broken, marred or nonconforming acoustical ceiling tiles replaced, all
windows washed, the plumbing and electrical systems and lighting in good order
and repair, including replacement of any burned out or broken light bulb or
ballasts, the HVAC equipment serviced and repaired by a reputable and licensed
service firm, and all floors cleaned and waxed, all to the reasonable
satisfaction of Landlord. Tenant shall remove from the Premises all of Tenant's
Alterations required to be removed pursuant to Paragraph 13 and all Tenant's
Personal Property, and repair any damage and perform any restoration work caused
by such removal. If Tenant fails to remove such Alterations and Tenant's
Personal Property, and such failure continues after the termination of this
Lease, Landlord may retain such property and all rights of Tenant with respect
to it shall cease, or Landlord may place all or any portion of such property in
public storage for Tenant's account. Tenant shall be liable to Landlord for
costs of removal of any such Alterations and Tenant's Personal Property and
storage and transportation costs of same, and the cost of repairing and
restoring the Premises, together with interest at the Interest Rate from the
date of expenditure by Landlord. If the Premises are not so surrendered at the
expiration or earlier termination of this Lease, Tenant shall indemnify, defend
and hold Landlord and its Agents harmless against all claims, costs and
liabilities, including attorneys' fees and costs, resulting from Tenant's delay
in so surrendering the Premises.
15. PERSONAL PROPERTY TAXES. Tenant shall pay prior to delinquency all
taxes assessed or levied against Tenant's Personal Property in, on or about the
Premises or elsewhere. When possible, Tenant shall cause its Personal Property
to be assessed and billed separately from the real or personal property of
Landlord.
16. UTILITIES AND SERVICES. Tenant shall be responsible for and shall pay
promptly all charges for water, gas, electricity, telephone, refuse pickup,
janitorial service and all other utilities, materials and services furnished
directly to or used by Tenant in, on or about the Premises during the Term,
together with any taxes thereon. If such utilities are not separately metered
to the Premises, Landlord shall bill Tenant for Tenant's pro rata share based on
Tenant's Percentage or other equitable basis as determined by Landlord.
Landlord shall not be liable in damages or otherwise for any failure or
interruption of any utility service or other service furnished to the Premises,
except that resulting from the willful misconduct or gross negligence of
Landlord.
17. REPAIR AND MAINTENANCE.
A. LANDLORD'S OBLIGATIONS. Landlord shall maintain in good order,
----------------------
condition and repair the structural parts of the Building, including the
foundation and subflooring of the Building, the roof (including the roof
membrane), exterior walls and interior bearing or
10
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structural walls (excluding, however, interior wall surfaces), except for any
damage thereto caused by the negligence or willful acts or omissions of Tenant
or of Tenant's agents, employees or invitees, or by reason of the failure of
Tenant to perform or comply with any terms of this Lease, or caused by
Alterations made by Tenant or by Tenant's agents, employees or contractors.
Landlord also shall maintain the Outside Area in good order, condition and
repair. Landlord shall at all times have exclusive control of the Outside Area,
including the right to grant easements or other rights of access to third
parties, and may at any time temporarily close any part thereof, exclude and
restrain anyone from any part thereof, except the bona fide customers, employees
and invitees of Tenant who use the Outside Area in accordance with the rules and
regulations as Landlord may from time to time promulgate, and may change the
configuration of the Outside Area. In exercising any such rights, Landlord shall
make a reasonable effort to minimize any disruption of Tenant's business. It is
an express condition precedent to all obligations of Landlord to repair that
Tenant shall have notified Landlord of the need for such repairs. Tenant waives
the provisions of Sections 1941 and 1942 of the California Civil Code and any
similar or successor law regarding Tenant's right to make repairs and deduct the
expenses of such repairs from the Rent due under this Lease.
B. TENANT'S OBLIGATIONS. Tenant shall at all times and at its own
--------------------
expense clean, keep and maintain in good order, condition and repair every part
of the Premises which is not within Landlord's obligation pursuant to Paragraph
17.A. Tenant's repair and maintenance obligations shall include all plumbing and
sewage facilities within the Premises, fixtures, interior walls and ceiling,
floors, windows, doors, entrances, plateglass, showcases, skylights, all
electrical facilities and equipment, including lighting fixtures, lamps, fans
and any exhaust equipment and systems, any automatic fire extinguisher equipment
within the Premises, electrical motors and all other appliances and equipment of
every kind and nature located in, upon or about the Premises. Tenant shall also
be responsible for all pest control within the Premises. Tenant shall obtain
HVAC systems preventive maintenance contracts with quarterly service (or such
other periodic service as Landlord shall designate) in accordance with
manufacturer recommendations, which shall be subject to the reasonable approval
of Landlord and paid for by Tenant, and which shall provide for and include
replacement of filters, oiling and lubricating of machinery, parts replacement,
adjustment of drive belts, oil changes and other preventive maintenance,
including annual maintenance of duct work, interior unit drains and caulking of
sheet metal, and recaulking of jacks and vents on an annual basis. Tenant shall
have the benefit of all warranties available to Landlord regarding the equipment
in such HVAC systems. Tenant shall provide Landlord with copies of all HVAC
maintenance reports on a quarterly basis, including copies of contractor
recommendations for repairs and/or replacements. If any repairs and/or
replacements are recommended by the contractor, Tenant shall perform such
repairs and/or replacements and shall provide Landlord with evidence that such
repairs and/or replacements have been completed in accordance with the
contractor's recommendations. Landlord may, at Landlord's election, have the
HVAC systems inspected by Landlord's contractor on a semiannual basis to confirm
whether Tenant has maintained the HVAC systems as required herein. The cost of
any such semi-annual inspections shall be included in Building Maintenance
Expenses and paid for by Tenant as provided in Paragraph 17.C. Notwithstanding
the foregoing to the contrary, Landlord shall have the right at any time during
the term of this Lease to assume Tenant's obligations to maintain and repair the
HVAC systems, as those
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obligations as specified above in this Paragraph 17.B., upon written notice to
Tenant and, if Landlord elects to do so, the cost of such maintenance and
repair, including any service contracts maintained by Landlord for such purpose,
shall be included in Building Maintenance Expenses and paid by Tenant as
provided in Paragraph 17.C.
C. REIMBURSEMENT BY TENANT.
-----------------------
(i) Tenant to Pay Operating Expenses. Tenant shall pay Landlord
--------------------------------
monthly, as Additional Rent, Tenant's Percentage of Operating Expenses.
(ii) Operating Expenses. As used herein, the term "Operating
------------------
Expenses" shall mean all expenses incurred by Landlord for the repair and
maintenance of the Outside Area and the Building, including, without limitation
the following: annual roof inspections; wages and salaries of all employees
engaged in the operation, maintenance and security of the Building, including
taxes, insurance and benefits relating thereto; the rental cost and overhead of
any office and storage space used to provide such services; cost of all
supplies, materials and labor used in the operation, repair, replacement and
maintenance of the Building and the Outside Area; cost of repairs and general
maintenance of the Building and the Outside Area (excluding repairs and general
maintenance paid for by proceeds of insurance or by Tenant or other third
parties); resurfacing and restriping of the parking area; painting, sweeping,
maintenance and repair of sidewalks, fountains, curbs and signs, landscape
sprinkler systems, planting and landscaping; lighting and other utilities;
directional signs and other markers and bumpers; maintenance and repair of any
fire protection systems, lighting systems, storm drainage systems, and any other
utility system; personnel to implement such services, including, if Landlord
deems necessary, the cost of security guards; garbage, trash, rubbish and waste
removal; all costs and respect to repairs and maintenance of utility facilities
(including pipes and conduits) serving more than one tenant; depreciation on
maintenance and operating machinery and equipment (if owned) and rental paid for
such machinery and equipment (if rented); premiums for commercial liability
insurance covering the Project; premiums for all risk or causes of loss-special
form insurance and, at Landlord's option, earthquake insurance on the Building;
premiums for insurance against loss of rents for a period of twelve (12) months
from the date of the loss; Real Property Taxes; a reasonable management fee for
the manager of the Building; and any capital improvements made to the Building
or the Outside Area to reduce operating costs, to comply with governmental rules
and regulations enacted after completion of the Building, to replace the roof
(including the roof membrane) or the HVAC system for the Building, or to
resurface the parking areas. The cost of any capital improvements shall be
amortized over the useful life of the improvement and only the annual amortized
cost of such item shall be included in Operating Expenses annually.
(iii) Exclusions From Operating Expenses. Notwithstanding
----------------------------------
anything to the contrary contained in this Lease, Operating Expenses shall not
include the following: (a) costs expended in the original construction of the
Building and the Project; (b) costs of alterations or improvements made to the
Premises or the premises of other tenants of the Project; (c) depreciation,
interest and principal payments on mortgages, ground rents, and other debt
costs, if any; (d) expenses resulting from the sole negligence of Landlord or
its Agents; (e) legal fees, leasing commissions, advertising expenses and other
expenses incurred in connection with
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the leasing of the Project; (f) costs for which Landlord is reimbursed by
insurance; (g) services provided to other tenants in the Building or the Project
which are not provided to Tenant; (h) fines, penalties, and interest; and (i)
costs incurred by Landlord to correct defects in the construction of the
Building or the Project.
(iv) Monthly Payments. From and after the Commencement Date,
----------------
Tenant shall pay to Landlord on the first day of each calendar month of the Term
Tenant's Percentage of the estimated monthly Operating Expenses incurred by
Landlord. The foregoing estimated monthly charges may be adjusted by Landlord at
the end of any calendar quarter on the basis of Landlord's experience and
reasonably anticipated costs. Any such adjustment shall be effective as of the
calendar month next succeeding receipt by Tenant of written notice of such
adjustment. Within one hundred twenty (120) days following the end of each
calendar year Landlord shall furnish Tenant a statement of such actual expenses
("Actual Expenses") for the calendar year and the payments made by Tenant with
respect to such period. If Tenant's payments for the Operating Expenses do not
equal the amount of the Actual Expenses, Tenant shall pay Landlord the
deficiency within thirty (30) days after receipt of such statement. If Tenant's
payments exceed the Actual Expenses, Landlord shall offset the excess against
the Operating Expenses thereafter becoming due to Landlord. There shall be
appropriate adjustments of the Operating Expenses as of the Commencement Date
and expiration of the Term.
D. COMPLIANCE WITH GOVERNMENTAL REGULATIONS. Tenant shall, at
----------------------------------------
its cost, comply with, including the making by Tenant of any Alteration to the
Premises, all present and future regulations, rules, laws, ordinances, and
requirements of all governmental authorities (including, without limitation,
state, municipal, County and federal governments and their departments, bureaus,
boards and officials) arising from Tenant's use or occupancy of the Premises.
18. LIENS. Tenant shall keep the Building and the Project free from any
liens arising out of any work performed, materials furnished or obligations
incurred by or on behalf of Tenant and shall indemnify, defend and hold Landlord
and its Agents harmless from all claims, costs and liabilities, including
attorneys' fees and costs, in connection with or arising out of any such lien or
claim of lien. Tenant shall cause any such lien imposed to be released of
record by payment or posting of a proper bond acceptable to Landlord within ten
(10) days after receipt by Tenant of written request by Landlord. Tenant shall
give Landlord written notice of Tenant's intention to perform work on the
Premises which might result in any claim of lien at least ten (10) days prior to
the commencement of such work to enable Landlord to post and record a Notice of
Nonresponsibility. If Tenant fails to so remove any such lien within the
prescribed ten (10) day period, then Landlord may do so at Tenant's expense and
Tenant shall reimburse Landlord for such amounts upon demand. Such
reimbursement shall include all costs incurred by Landlord including Landlord's
reasonable attorneys' fees with interest thereon at the Interest Rate.
19. LANDLORD'S RIGHT TO ENTER THE PREMISES. Tenant shall permit Landlord
and its Agents to enter the Premises at all reasonable times with reasonable
notice, except for emergencies in which case no notice shall be required, to
inspect the same, to post Notices of Nonresponsibility and similar notices, to
show the Premises to interested parties such
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as prospective lenders, to make necessary repairs, to discharge Tenant's
obligations hereunder when Tenant has failed to do so within a reasonable time
after written notice from Landlord, and at any reasonable time within one
hundred and eighty (180) days prior to the expiration or earlier termination of
the Term, to place upon the Building and the Outside Area ordinary "For Lease"
signs and to show the Premises to prospective tenants. The above rights are
subject to reasonable security regulations of Tenant, and to the requirement
that Landlord shall at all times act in a manner to cause the least possible
physical interference with Tenant's business.
20. SIGNS. The location, size, design, color and other physical aspects
of Tenant's identification signage shall comply with the sign criteria for the
Project attached as EXHIBIT F and shall be subject to the Landlord's written
---------
approval prior to installation (which shall not be unreasonably withheld), the
CC&Rs, and any appropriate municipal or other governmental approvals. The cost
of the sign, its installation, maintenance and removal expense shall be Tenant's
sole expense. If Tenant fails to maintain its sign, or, if Tenant fails to
remove its sign upon termination of this Lease, Landlord may do so at Tenant's
expense and Tenant's reimbursement to Landlord for such amounts shall be deemed
Additional Rent.
21. INSURANCE.
A. INDEMNIFICATION. Tenant hereby agrees to defend, indemnify and
---------------
hold harmless Landlord an its Agents from and against any and all claims,
damage, loss, liability or expense including attorneys' fees and legal costs
suffered directly or by reason of any claim, suit or judgment brought by or in
favor of any person or persons for damage, loss or expense due to, but not
limited to, bodily injury and property damage sustained by such person or
persons which arises out of, is occasioned by or in any way attributable to the
use or occupancy of the Premises or the Project or any part thereof and adjacent
areas by Tenant, the acts or omissions of the Tenant, its agents, employees or
any contractors brought onto the Premises or the Project by Tenant, except to
the extent caused by the negligence or willful misconduct of Landlord or its
Agents. Tenant agrees that the obligations assumed herein shall survive the
termination or expiration of this Lease. The foregoing indemnity shall not
apply, however, to any claims, damage, loss, liability or expense arising out of
or in connection with the presence of any Hazardous Materials in, on or about
the Project, which indemnity shall be governed solely by the provisions of
Paragraph 11.D.
B. TENANT'S INSURANCE. Tenant agrees to maintain in full force and
------------------
effect at all times during the Term, at its own expense, for the protection of
Tenant and Landlord, as their interests may appear, policies of insurance issued
by a responsible carrier or carriers acceptable to Landlord which afford the
following coverages:
(i) Commercial general liability insurance in an amount not less
than Five Million and no/100ths Dollars ($5,000,000.00) combined single limit
for both bodily injury and property damage which includes blanket contractual
liability broad form property damage, personal injury, completed operations and
products liability, naming Landlord and its Agents as additional insureds.
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(ii) "Special Form" property insurance (including, without
limitation, vandalism, malicious mischief, inflation endorsement, and sprinkler
leakage endorsement) on Tenant's Personal Property located on or in the
Premises. Such insurance shall be in the full amount of the replacement cost, as
the same may from time to time increase as a result of inflation or otherwise,
and shall be in a form providing coverage comparable to the coverage provided in
the standard ISO "Special Form" form. As long as this Lease is in effect, the
proceeds of such policy shall be used for the repair and replacement of such
items so insured. Landlord shall have no interest in the insurance proceeds on
Tenant's Personal Property.
C. PREMISES INSURANCE. During the Term Landlord shall maintain
------------------
"Special Form" property insurance (including inflation endorsement, sprinkler
leakage endorsement and, at Landlord's option, boiler and machinery insurance,
earthquake and flood coverage) on the Building, excluding coverage of all
Tenant's Personal Property located on or in the Premises. Such insurance shall
also include insurance against loss of rents on a "Special Form" basis,
including, at Landlord's option, earthquake and flood, in an amount equal to the
Monthly Rent and Additional Rent, and any other sums payable under the Lease,
for a period of at least twelve (12) months commencing on the date of loss.
Such insurance shall name Landlord and its Agents as named insureds and include
a lender's loss payable endorsement in favor of Landlord's lender (Form 438 BFU
Endorsement). If the Project insurance premiums are increased after the
Commencement Date, due to an increase in the value of the Building or its
replacement cost, Tenant shall pay Tenant's Percentage of such increase within
ten (10) days of notice of such increase. If such insurance premiums are
increased due to Tenant's use of the Premises, improvements installed by Tenant,
or any other cause solely attributable to Tenant, Tenant shall pay the full
amount of the increase.
D. WAIVER OF SUBROGATION. Landlord and Tenant each hereby waive all
---------------------
rights of recovery against the other on account of loss or damage occasioned to
such waiving party for its property or the property of others under its control
to the extent that such loss or damage is insured against under any insurance
policies which may be in force at the time of such loss or damage. Tenant and
Landlord shall, upon obtaining policies of insurance required hereunder, give
notice to the insurance carrier that the foregoing mutual waiver of subrogation
is contained in this Lease and Tenant and Landlord shall cause each insurance
policy obtained by such party to provide that the insurance company waives all
right of recovery by way of subrogation against either Landlord or Tenant in
connection with any damage covered by such policy.
E. INCREASED COVERAGE. Upon demand, Tenant shall provide Landlord,
------------------
at Tenant's expense, with such increased amount of existing insurance, and such
other insurance as Landlord or Landlord's lender may reasonably require to
afford Landlord and Landlord's lender adequate protection.
F. CO-INSURER. If, on account of the failure of Tenant to comply
----------
with the foregoing provisions, Landlord is adjusted a co-insurer by its
insurance carrier, then, any loss or damage Landlord shall sustain by reason
thereof, including attorneys' fees and costs, shall be borne by Tenant and shall
be immediately paid by Tenant upon receipt of a bill therefor and evidence of
such loss.
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G. INSURANCE REQUIREMENTS. All insurance shall be in a form
----------------------
satisfactory to Landlord and shall be carried with companies that have a general
policy holder's rating of not less than "A" and a financial rating of not less
than Class "X" in the most current edition of Best's Insurance Reports; shall
------------------------
provide that such policies shall not be subject to material alteration or
cancellation except after at least thirty (30) days' prior written notice to
Landlord; and shall be primary as to Landlord. The policy or policies, or duly
executed certificates for them, together with satisfactory evidence of payment
of the premium thereon shall be deposited with Landlord prior to the
Commencement Date, and upon renewal of such policies, not less than thirty (30)
days prior to the expiration of the term of such coverage. If Tenant fails to
procure and maintain the insurance required hereunder, Landlord may, but shall
not be required to, order such insurance at Tenant's expense and Tenant shall
reimburse Landlord. Such reimbursement shall include all costs incurred by
Landlord including Landlord's reasonable attorneys' fees, with interest thereon
at the Interest Rate.
H. LANDLORD'S DISCLAIMER. Landlord and its Agents shall not be
---------------------
liable for any loss or damage to persons or property resulting from fire,
explosion, falling plaster, glass, tile or sheetrock, steam, gas, electricity,
water or rain which may leak from any part of the Building or from the pipes,
appliances or plumbing works therein or from the roof, street or subsurface, or
any other cause whatsoever, unless caused by or due to the sole negligence or
willful acts of Landlord. Tenant shall give prompt written notice to Landlord
to case of a casualty, accident or repair needed in the Premises.
22. DAMAGE OR DESTRUCTION.
A. LANDLORD'S OBLIGATION TO REBUILD. If the Premises or the Building
--------------------------------
is damaged or destroyed, Landlord shall promptly and diligently repair the same
unless either Landlord or Tenant has the right to terminate this Lease as
provided herein and either party has elected to so terminate.
B. RIGHT TO TERMINATE. Landlord shall have the right to terminate
------------------
this Lease in the event any of the following events occurs:
(i) Insurance proceeds are not available to pay one hundred
percent (100%) of the cost of such repair, excluding the deductible for which
Tenant shall be responsible ;
(ii) The Premises cannot, with reasonable diligence, be fully
repaired by Landlord within one hundred twenty (120) days after the date of the
damage or destruction; or
(iii) The Premises cannot be safety repaired because of the
presence of hazardous factors, including, but not limited to, earthquake faults,
radiation, chemical waste and other similar dangers.
If Landlord elects to terminate this Lease, Landlord shall give Tenant
written notice of its election to terminate within thirty (30) days after such
damage or destruction, and this Lease shall terminate fifteen (15) days after
the date Tenant receives such notice. If Landlord elects not to terminate the
Lease, subject to Tenant's termination right set forth below, Landlord
16
<PAGE>
shall promptly commence the process of obtaining necessary permits and approvals
and repair of the Premises or the Building as soon as practicable, and this
Lease will continue in full force and effect. All insurance proceeds from
insurance under Paragraph 21, excluding proceeds for Tenant's Personal Property,
shall be disbursed and paid to Landlord. Tenant shall be required to pay to
Landlord the amount of any deductibles payable in connection with any insured
casualties, unless the casualty was caused by the sole negligence or willful
misconduct of Landlord.
Tenant shall have the right to terminate this Lease, if the Premises
cannot, with reasonable diligence and subject to Tenant delays, be fully
repaired within one hundred eighty (180) days from the date of damage or
destruction. The determination of the estimated repair period shall be made by
Landlord in its good faith business judgment within thirty (30) days after such
damage or destruction. Landlord shall deliver written notice of the repair
period to Tenant after such determination has been made and Tenant shall
exercise its right to terminate this Lease, if at all, within ten (10) days of
receipt of such notice from Landlord. If this Lease is terminated by either
party as permitted herein, Landlord shall refund to Tenant any prepaid Rent
allocable to the period following the date of the casualty.
C. LIMITED OBLIGATION TO REPAIR. Landlord's obligation, should it
----------------------------
elect or be obligated to repair or rebuild, shall be limited to the Premises or
the Building, as the case may be, as any or all of the same existed immediately
prior to the casualty, excluding, however, any additional alterations or
improvements made by Tenant.
D. ABATEMENT OF RENT. Rent shall be temporarily abated
-----------------
proportionately during any period when, by reason of such damage or destruction,
Landlord and Tenant reasonably determine that there is substantial interference
with Tenant's use of the Premises, having regard to the extent to which Tenant
may be required to discontinue Tenant's use of the Premises. Such abatement
shall commence upon such damage or destruction and end upon substantial
completion by Landlord of the repair or reconstruction which Landlord is
obligated or undertakes to do. Tenant shall not be entitled to any other
compensation or damages from Landlord for loss of the use of the Premises,
damage to Tenant's Personal Property or any inconvenience occasioned by such
damage, repair or restoration. Tenant hereby waives the provisions of Section
1932, Subdivision 2, and Section 1933, Subdivision 4, of the California Civil
Code and the provisions of any similar law hereinafter enacted.
E. DAMAGE NEAR END OF TERM. Anything herein to the contrary
-----------------------
notwithstanding, if there is any significant destruction of or damage to the
Premises or the Building during the last twelve (12) months of the Term, then
Landlord or Tenant may, at its option, cancel and terminate this Lease as of the
date of the occurrence of such damage. If neither Landlord nor Tenant elects to
so terminate this Lease, the repair of such damage shall be governed by
Paragraphs 22.A. and 22.B. For purposes of this Paragraph 22.E., "significant"
destruction or damage shall mean destruction or damage which cannot reasonably
be repaired within sixty (60) days after the date the destruction or damage
occurs.
23. CONDEMNATION. If title to all of the Premises or Building or so much
thereof is taken for any public or quasi-public use under any statute or by
right of eminent domain so that reconstruction of the Premises or Building will
not, in Landlord's and Tenant's
17
<PAGE>
mutual opinion, result in the Premises being reasonably suitable for Tenant's
continued occupancy for the uses and purposes permitted by this Lease, this
Lease shall terminate as of the date that possession of the Premises or Building
or part thereof be taken, and Landlord shall refund to Tenant any prepaid Rent
allocable to the period following the date of the taking. A sale by Landlord to
any authority having the power of eminent domain, either under threat of
condemnation or while condemnation proceedings are pending, shall be deemed a
taking under the power of eminent domain for all purposes of this paragraph.
If any part of the Premises or Building is taken and the remaining
part is reasonably suitable for Tenant's continued occupancy for the purposes
and uses permitted by this Lease, this Lease shall, as to the part so taken,
terminate as of the date that possession of such part of the Premises or
Building is taken. The Rent and other sums payable hereunder shall be reduced in
the same proportion that Tenant's use and occupancy of the Premises is reduced.
If any portion of the Outside Area is taken, Tenant's Rent shall be reduced only
if such taking materially interferes with Tenant's use of the Outside Area and
then only to the extent that the fair market rental value of the Premises is
diminished by such partial taking. If the parties disagree as to the amount of
Rent reduction, the matter shall be resolved by arbitration and such arbitration
shall comply with and be governed by the California Arbitration Act, Sections
1280 through 1294.2 of the California Code of Civil Procedure. Each party hereby
waives the provisions of Section 1265.130 of the California Code of Civil
Procedure allowing either party to petition the Superior Court to terminate this
Lease in the event of a partial taking of the Project or Premises.
No award for any partial or entire taking shall be apportioned. Tenant
assigns to Landlord its interest in any award which may be made in such taking
or condemnation, together with any and all rights of Tenant arising in or to the
same or any part thereof. Nothing contained herein shall be deemed to give
Landlord any interest in or require Tenant to assign to Landlord any separate
award made to Tenant for the taking of Tenant's Personal Property, for the
interruption of Tenant's business, its moving costs, or costs associated with
obtaining new premises to conduct the business being conducted in the Premises.
24. ASSIGNMENT AND SUBLETTING.
A. LANDLORD'S CONSENT. Tenant shall not enter into a Sublet without
------------------
Landlord's prior written consent, which consent shall not be unreasonably
withheld. Any attempted or purported Sublet without Landlord's prior written
consent shall be void and confer no rights upon and third person and, at
Landlord's election, shall terminate this Lease. Each Subtenant shall agree in
writing, for the benefit of Landlord, to assume, to be bound by, and to perform
the terms, conditions and covenants of this Lease to be performed by Tenant.
Notwithstanding anything contained herein, Tenant shall not be released from
liability for the performance of each term, condition and covenant of this Lease
by reason of Landlord's consent to a Sublet unless Landlord specifically grants
such release in writing.
B. INFORMATION TO BE FURNISHED. If Tenant desires at any time to
---------------------------
Sublet the Premises or any portion thereof, it shall first notify Landlord of
its desire to do so and shall submit in writing to Landlord: (i) the name and
identity of the proposed Subtenant; (ii) the nature
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of the proposed Subtenant's business to be carried on in the Premises; (iii) the
terms and provisions of the proposed Sublet and a copy of the proposed Sublet
form containing a description of the subject premises; and (iv) such financial
information, including financial statements, as Landlord may reasonable request
concerning the proposed Subtenant.
C. LANDLORD'S ALTERNATIVES. Within thirty (30) days after Landlord's
-----------------------
receipt of the information specified in Paragraph 24.B., Landlord shall, by
written notice to Tenant, elect: (i) terminate this Lease as of the commencement
date stated in the proposed Sublet; (ii) acquire from Tenant the interest, or
any portion thereof, in this Lease and/or the Premises which is the subject of
the proposed Sublet, on the same terms and conditions as stated in the proposed
Sublet: (iii) to consent to the Sublet by Tenant; or (iv) to reasonably withhold
its consent to the Sublet. If Landlord proceeds under Paragraph 24.C.(iii) and
consents to the Sublet, Tenant may thereafter enter into a valid Sublet of the
Premises or portion thereof, upon the terms and conditions and with the proposed
Subtenant set forth in the information furnished by Tenant to Landlord pursuant
to Paragraph 24.B., subject, however, at Landlord's election, to the condition
that any excess of the Subrent over the Rent required to be paid by Tenant under
this Lease less reasonable attorneys' fees and leasing commissions paid by
Tenant on the Sublease, shall be paid to Landlord.
D. PRORATION. For the purposes of determining the excess Subrent
---------
payable to Landlord pursuant to Paragraph 24.C, if a portion of the Premises is
Sublet, the pro rata share of the Rent attributable to such partial area of the
Premises shall be determined by Landlord by dividing the Rent payable by Tenant
hereunder by the total square footage of the Premises and multiplying the
resulting quotient (the per square foot rent) by the number of square feet of
the Premises which are Sublet.
E. EXEMPT SUBLETS. Notwithstanding the above, Landlord's prior
--------------
written consent shall not be required for an assignment of this Lease to a
subsidiary, affiliate or parent corporation of Tenant, or a corporation into
which Tenant merges or consolidates, if Tenant gives Landlord prior written
notice of the name of any such assignee, and if the assignee assumes, in
writing, for the benefit of Landlord all of Tenant's obligations under the
Lease. An assignment or other transfer of this Lease to a purchaser of all or
substantially all of the assets of Tenant shall be deemed a Sublet requiring
Landlord's prior written consent.
25. DEFAULT.
A. TENANT'S DEFAULT. A default under this Lease by Tenant shall
----------------
exist if any of the following occurs:
(i) If Tenant fails to pay Rent or any other sum required to be
paid hereunder when due; or
(ii) If Tenant fails to perform any term, covenant or condition
of this Lease except those requiring the payment of money, and Tenant fails to
cure such breach within fifteen (15) days after written notice from Landlord
where such breach could reasonably be cured within such fifteen (15) day period;
provided, however, that where such failure could not
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reasonably be cured within the fifteen (15) day period, that Tenant shall not be
in default if it commences such cure within the fifteen (15) day period and
thereafter diligently prosecutes same to completion. which completion shall
occur not later than sixty (60) days from the date of receipt of written notice
from Landlord; or
(iii) If Tenant assigns its assets for the benefit of its
creditors; or
(iv) If the sequestration or attachment of or execution on any
material part of Tenant's Personal Property essential to the conduct of Tenant's
business occurs, and Tenant fails to obtain a return or release of such Personal
Property within thirty (30) days thereafter, or prior to sale pursuant to such
sequestration, attachment or levy, whichever is earlier; or
(v) If Tenant abandons or vacates the Premises; provided,
however, Tenant's vacation of the Premises with prior written notice to Landlord
shall not be deemed to be a default hereunder as long as during such vacation
Tenant pays all Rent due under this Lease and performs all other obligations
required to be performed by Tenant under this Lease; or
(vi) If a court of competent jurisdiction makes or enters any
decree or order other than under the bankruptcy laws of the United States
adjudging Tenant to be insolvent; or approving as properly filed a petition
seeking reorganization of Tenant; or directing the winding up or liquidation of
Tenant and such decree or order shall have continued for a period of thirty (30)
days.
B. REMEDIES. Upon a default, Landlord shall have the following
--------
remedies, in addition to all other rights and remedies provided by law or
otherwise provided in this Lease, to which Landlord may resort cumulatively or
in the alternative:
(i) Landlord may continue this Lease in full force and effect,
and this Lease shall continue in full force and effect as long as Landlord does
not terminate this Lease, and Landlord shall have the right to collect Rent when
due.
(ii) Landlord may terminate Tenant's right to possession of the
Premises at any time by giving written notice to that effect, and relet the
Premises or any part thereof. Tenant shall be liable immediately to Landlord for
all costs Landlord incurs in reletting the Premises or any part thereof,
including, without limitation, broker's commissions, expenses of cleaning and
redecorating the Premises required by the reletting and like costs. Reletting
may be for a period shorter or longer than the remaining term of this Lease. No
act by Landlord other than giving written notice to Tenant shall terminate this
Lease. Acts of maintenance, efforts to relet the Premises or the appointment of
a receiver on Landlord's initiative to protect Landlord's interest under this
Lease shall not constitute a termination of Tenant's right to possession. On
termination, Landlord has the right to remove all Tenant's Personal Property and
store the same at Tenant's cost and to recover from Tenant as damages:
(a) The worth at the time of award of unpaid Rent and other sums
due and payable which had been earned at the time of termination; plus
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(b) The worth at the time of award of the amount by which the
unpaid Rent and other sums due and payable which would have been payable after
termination until the time of award exceeds the amount of such Rent loss that
Tenant prove could have been reasonably avoided; plus
(c) The worth at the time of award of the amount by which the
unpaid Rent and other sums due and payable for the balance of the Term after the
time of award exceeds the amount of such Rent loss that Tenant proves could be
reasonably avoided; plus
(d) Any other amount necessary to compensate Landlord for all
the detriment proximately caused by Tenant's failure to perform Tenant's
obligations under this Lease, or which, in the ordinary course of things, would
be likely to result therefrom, including, without limitation, any costs or
expenses incurred by Landlord: (i) in retaking possession of the Premises; (ii)
in maintaining, repairing, preserving, restoring, replacing, cleaning, altering
or rehabilitating the Premises or any portion thereof, including such acts for
reletting to a new tenant or tenants; (iii) for leasing commissions; or (iv) for
any other costs necessary or appropriate to relet the Premises; 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 the laws of
the State of California.
The "worth at the time of award" of the amounts referred to in
Paragraphs 25.B.(ii)(a) and 25.B.(ii)(b) is computed by allowing interest at the
Interest Rate on the unpaid rent and other sums due and payable from the
termination date through the date of award. The "worth at the time of award" of
the amount referred to in Paragraph 25.B.(ii)(c) is computed by discounting such
amount at the discount rate of the Federal Reserve Bank of San Francisco at the
time of award plus one percent (1%). Tenant waives redemption or relief from
forfeiture under California Code of Civil Procedure Sections 1174 and 1179, or
under any other present or future law, in the event Tenant is evicted or
Landlord takes possession of the Premises by reason of any default of Tenant
hereunder.
(iii) Landlord may, with or without terminating this Lease, re-
enter the Premises and remove all persons and property from the Premises; such
property may be removed and stored in a public warehouse or elsewhere at the
cost of and for the account of Tenant. No reentry or taking possession of the
Premises by Landlord pursuant to this paragraph shall be construed as an
election to terminate this Lease unless a written notice of such intention is
given to Tenant.
C. BANKRUPTCY.
----------
(i) The commencement of a bankruptcy action or liquidation
action or reorganization action or insolvency action or an assignment of or by
Tenant for the benefit of creditors, or any similar action undertaken by Tenant,
or the insolvency of Tenant, shall, at Landlord's option, constitute a breach of
this Lease by Tenant. If the trustee or receiver appointed to serve during a
bankruptcy, liquidation, reorganization, insolvency or similar action elects to
reject Tenant's unexpired Lease, the trustee or receiver shall notify Landlord
in writing of its
21
<PAGE>
election within thirty (30) days after an order for relief in a liquidation
action or within thirty (30) days after the commencement of any action.
(ii) Within thirty (30) days after court approval of the
assumption of this Lease, the trustee or receiver shall cure (or provide
adequate assurance to the reasonable satisfaction of Landlord that the trustee
or receiver shall cure) any and all previous defaults under the unexpired Lease
and shall compensate Landlord for all actual pecuniary loss resulting from
Tenant's breach of this Lease, including any attorneys' fees and costs incurred
by Landlord as a result of such breach and/or the bankruptcy proceedings
instituted by or against Tenant, and shall provide adequate assurance of future
performance under the Lease to the reasonable satisfaction of Landlord. Adequate
assurance of future performance, as used herein, includes, but shall not be
limited to: (i) assurance of source and payment of Rent, and other consideration
due under this Lease; (ii) assurance that the assumption or assignment of this
Lease will not breach any provision, such as radius, location, use, or
exclusivity provision, in any other lease of space within the Complex.
(iii) Nothing contained in this section shall affect the right of
Landlord to refuse to accept an assignment upon commencement of or in connection
with a bankruptcy, liquidation, reorganization or insolvency action or an
assignment of Tenant for the benefit of creditors or other similar act. Nothing
contained in this Lease shall be construed as giving or granting or creating an
equity in the Premises to Tenant. In no event shall the leasehold estate under
this Lease, or any interest therein, be assigned by voluntary or involuntary
bankruptcy proceeding without the prior written consent of Landlord. In no event
shall this Lease or any rights or privileges hereunder be an asset of Tenant
under any bankruptcy, insolvency or reorganization proceedings.
D. LANDLORD'S DEFAULT. Landlord shall not be deemed to be in
------------------
default in the performance of any obligation required to be performed by it
hereunder unless and until it has failed to perform such obligation within
thirty (30) days after receipt of written notice by Tenant to Landlord
specifying the nature of such default; provided, however, that if the nature of
Landlord's obligation is such that more than thirty (30) days are required for
its performance, then Landlord shall not be deemed to be in default if it shall
commence such performance within such thirty (30) day period and thereafter
diligently prosecute the same to completion.
26. SUBORDINATION. This Lease is subject and subordinate to mortgages
and deeds of trust (collectively "Encumbrances") which may now affect the
Building or the Project, to the CC&Rs and to all renewals, modifications,
consolidations, replacements and extensions thereof; provided, however, if the
holder or holders of any such Encumbrance ("Holder") shall require that this
Lease be prior and superior thereto, Tenant shall, within seven (7) days after
written request from Landlord, execute, have acknowledged and deliver any and
all reasonable documents or instruments, which Landlord or Holder deems
necessary or desirable for such purposes. Landlord shall have the right to cause
this Lease to be and become and remain subject and subordinate to any and all
Encumbrances which are now or may hereafter be executed covering the Building or
the Project or any renewals, modifications, consolidations, replacements or
extensions thereof, for the full amount of all advances made or to be made
thereunder and without regard to the time or character of such advances,
together with interest thereon and
22
<PAGE>
subject to all the terms and provisions thereof; provided only, that in the
event of termination of any such lease or upon the foreclosure of any such
mortgage or deed of trust, so long as Tenant is not in default, Holder agrees to
recognize Tenant's rights under this Lease as long as Tenant shall pay the Rent
and observe and perform all the provisions of this Lease to be observed and
performed by Tenant. Within ten (10) days after Landlord's written request,
Tenant shall execute any and all documents required by Landlord or the Holder to
make this Lease subordinate to any lien of the Encumbrance. If Tenant fails to
do so, it shall be deemed that this Lease is subordinated. Notwithstanding
anything to the contrary set forth in this paragraph, Tenant hereby attorns and
agrees to attorn to any entity purchasing or otherwise acquiring the Building or
the Project at any sale or other proceeding or pursuant to the exercise of any
other rights, powers or remedies under such Encumbrance.
27. NOTICES. Any notice or demand required or desired to be given under
this Lease shall be in writing and shall be personally served or in lieu of
personal service may be given by mail. If given by mail, such notice shall be
deemed to have been given when seventy-two (72) hours have elapsed from the time
when such notice was deposited in the United States mail, registered or
certified, and postage prepaid, addressed to the party to be served. At the date
of execution of this Lease, the addresses of Landlord and Tenant are as set
forth in Paragraph 1. After the Commencement Date, the address of Tenant shall
be the address of the Premises. Either party may change its address by giving
notice of same in accordance with this paragraph.
28. ATTORNEYS' FEES. If either party brings any action or legal proceeding
for damages for an alleged breach of any provision of this Lease, to recover
rent, or other sums due, to terminate the tenancy of the Premises or to enforce,
protect or establish any term, condition or covenant of this Lease or right of
either party, the prevailing party shall be entitled to recover as a part of
such action or proceedings, or in a separate action brought for that purpose,
reasonable attorneys' fees and costs.
29. ESTOPPEL CERTIFICATES; FINANCIAL STATEMENTS. Tenant shall within ten
(10) days following written request by Landlord:
(i) Execute and deliver to Landlord any documents, including estoppel
certificates, in the form prepared by Landlord (a) 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 date to which the Rent and other charges are paid in
advance, if any, and (b) acknowledging that there are not, to Tenant's
knowledge, any uncured defaults on the part of Landlord, or, if there are
uncured defaults on the part of the Landlord, stating the nature of such uncured
defaults, and (c) evidencing the status of the Lease as may be required either
by a lender making a loan to Landlord to be secured by deed of trust or mortgage
covering the Building or the Project or a purchaser of the Building or the
Project from Landlord. Tenant's failure to deliver an estoppel certificate
within seven (7) days after delivery of Landlord's written request therefor
shall be conclusive upon Tenant (a) that this Lease is in full force and effect,
without modification except as may be represented by Landlord, (b) that there
are now no uncured defaults in Landlord's performance and (c) that no Rent has
been paid in advance. If Tenant fails to so deliver a requested estoppel
certificate within the
23
<PAGE>
prescribed time it shall be conclusively presumed that the Lease is unmodified
and in full force and effect except as represented by Landlord.
(ii) Deliver to Landlord the current financial statements of Tenant
and financial statements of the two (2) years prior to the current financial
statements year, to the extent that such financial statements exist, certified
by an officer of the Tenant, including, if they exist, a balance sheet and
profit and loss statement for the most recent prior year, all prepared in
accordance with generally accepted accounting principles consistently applied.
30. TRANSFER OF THE BUILDING OR PROJECT BY LANDLORD. In the event of any
conveyance of the Building or the Project and assignment by Landlord of this
Lease, Landlord shall be and is hereby entirely released from all liability
under any and all of its covenants and obligations contained in or derived from
this Lease occurring after the date of such conveyance and assignment and Tenant
agrees to attorn to such transferee provided such transferee assumes Landlord's
obligations under this Lease.
31. LANDLORD'S RIGHT TO PERFORM TENANT'S COVENANTS. If Tenant shall at
any time fail to make any payment or perform any other act on its part to be
made or performed under this Lease, Landlord may, but shall not be obligated to
and without waiving or releasing Tenant from any obligation of Tenant under this
Lease, upon written notice to Tenant, make such payment or perform such other
act to the extent Landlord may deem desirable, and in connection therewith, pay
expenses and employ counsel. All sums so paid by Landlord and all penalties,
interest and costs in connection therewith shall be due and payable by Tenant on
the next day after any such payment by Landlord, together with interest thereon
at the Interest Rate from such date to the date of payment by Tenant to
Landlord, plus collection costs and attorneys' fees. Landlord shall have the
same rights and remedies for the nonpayment thereof as in the case of default in
the payment of Rent.
32. LIMITATION OF LIABILITY. In consideration of the benefits accruing
hereunder, Tenant and all successors and assigns covenant and agree that, in the
event of any actual or alleged failure, breach or default hereunder by Landlord:
(i) The sole and exclusive remedy shall be against the Landlord's
interest in the Project, including the Building;
(ii) No partner of Landlord shall be sued or named as a party in any
suit or action (except as may be necessary to secure jurisdiction of the
partnership);
(iii) No service of process shall be made against any partner of
Landlord (except as may be necessary to secure jurisdiction of the partnership);
(iv) No partner of Landlord shall be required to answer or otherwise
plead to any service of process;
(v) No judgment will be taken against any partner of Landlord;
24
<PAGE>
(vi) Any judgment taken against any partner of Landlord may be
vacated and set aside at any time nunc pro tunc;
(vi) No writ of execution will ever be levied against the assets of
any partner of Landlord;
(viii) These covenants and agreements are enforceable both by
Landlord and also by any partner of Landlord.
33. MORTGAGEE PROTECTION. If Landlord defaults under this Lease, Tenant
will notify any beneficiary of a deed of trust or mortgagee of a mortgage
covering the Building or the Project for which Landlord has provided Tenant with
a name and address, and offer such beneficiary or mortgagee a reasonable
opportunity to cure the default, including time to obtain possession of the
Building or the Project by power of sale or a judicial foreclosure, if such
should prove necessary to effect a cure.
34. BROKERS. Landlord and Tenant warrant and represent each to the other
that it has had no dealings with any real estate broker or agent in connection
with the negotiation of this Lease, except for Cornish & Carey Commercial and BT
Commercial whose commissions shall be payable by Landlord, and that it knows of
no other real estate broker or agent who is or might be entitled to a commission
in connection with this Lease. Landlord and Tenant agree to indemnify, defend
and hold each other and their respective agents harmless from and against any
and all liabilities or expenses, including attorneys' fees and costs, arising
out of or in connection with claims made by any broker or individual for
commissions or fees resulting from the execution of this Lease.
35. ACCEPTANCE. This Lease shall only become effective and binding upon
full execution hereof by Landlord and delivery of a signed copy to Tenant.
Neither party shall record this Lease nor a short form memorandum thereof.
36. MODIFICATION FOR LENDER. If in connection with obtaining financing
for the Building or the Project or any portion thereof, Landlord's lender shall
request reasonable modification to this Lease as a condition to such financing,
Tenant shall not unreasonably withhold, delay or defer its consent thereto,
provided such modifications do not materially adversely affect Tenant's rights
hereunder.
37. PARKING. Tenant shall have the right to use up to fifty-seven (57)
unreserved parking spaces in the Project's parking facilities in common with
other tenants of the Project upon terms and conditions, as may from time to time
be established by Landlord. Tenant agrees not to overburden the parking
facilities and agrees to cooperate with Landlord and other tenants in the use of
the parking facilities. Landlord reserves the right in its discretion to
determine whether the parking facilities are becoming crowded and to allocate
and assign parking spaces among Tenant and the other tenants. Tenant shall not
park cars, trucks, trailers or other vehicles, or parts thereof, overnight on
the Project.
25
<PAGE>
38. CONDITION. The effectiveness of this Lease and the rights and
obligations of Landlord and Tenant hereunder shall be conditioned upon Landlord
and the existing tenant of the Premises entering into a written lease
termination agreement on terms and in form satisfactory to Landlord in its sole
and absolute discretion. This condition shall be satisfied, if at all, by April
30, 1996. In the event the condition is not satisfied as and when required, then
this Lease shall not be effective and Landlord and Tenant shall have no rights
or obligations hereunder.
39. GENERAL.
A. CAPTIONS. The captions and headings used in this Lease are for
--------
the purpose of convenience only and shall not be construed to limit or extend
the meaning of any part of this Lease.
B. EXECUTED COPY. Any fully executed copy of this Lease shall be
-------------
deemed an original for all purposes.
C. TIME. Time is of the essence for the performance of each term,
----
condition and covenant of this Lease.
D . SEPARABILITY. If one or more of the provisions contained herein,
------------
except for the payment of Rent, is for any reason held invalid, illegal or
unenforceable in any respect, such invalidity, illegality, or unenforceability
shall not affect any other provision of this Lease, but this Lease shall be
construed as if such invalid, illegal or unenforceable provision had not been
contained herein.
E. CHOICE OF LAW. This Lease shall be construed and enforced in
-------------
accordance with the substantive laws of the State of California. The language in
all parts of this Lease shall in all cases be construed as a whole according to
its fair meaning and not strictly for or against either Landlord or Tenant.
F. GENDER: SINGULAR, PLURAL. When the context of this Lease
------------------------
requires, the neuter gender includes the masculine, the feminine, a partnership
or corporation or joint venture, and the singular includes the plural.
G. BINDING EFFECT. The covenants and agreement contained in this
--------------
Lease shall be binding on the parties hereto and on their respective heirs,
successors and assigns to the extent this Lease is assignable.
H. WAIVER. The waiver by Landlord or Tenant of any breach of any
------
term, condition or covenant, of this Lease by the other shall not be deemed to
be a waiver of such provision or any subsequent breach of the same or any other
term, condition or covenant of this Lease. The subsequent acceptance of Rent
hereunder by Landlord shall not be deemed to be a waiver of any preceding breach
at the time of acceptance of such payment. No covenant, term or condition of
this Lease shall be deemed to have been waived by Landlord or Tenant unless such
waiver is in writing signed by the waiving party.
26
<PAGE>
I. ENTIRE AGREEMENT. This Lease is the entire agreement between the
----------------
parties, and there are no agreements or representations between the parties
except as expressed herein. Except as otherwise provided herein, no subsequent
change or addition to this Lease shall be binding unless in writing and signed
by the parties hereto.
J. AUTHORITY. If Tenant is a corporation or a partnership, each
---------
individual executing this Lease on behalf of said corporation or partnership, as
the case may be, represents and warrants that he is duly authorized to execute
and deliver this Lease on behalf of said entity in accordance with its corporate
bylaws, statement of partnership or certificate of limited partnership, as the
case may be, and that this Lease is binding upon said entity in accordance with
its terms. Landlord, at its option, may require a copy of such written
authorization to enter into this Lease.
K. EXHIBITS. All exhibits, amendments, riders and addendums
--------
attached hereto are hereby incorporated herein and made a part hereof.
L. RULES AND REGULATIONS. Landlord shall have the right to
---------------------
establish from time to time such rules and regulations as Landlord shall deem
reasonable and appropriate for the protection of the Project.
M. DAYS OF WEEK. If the date upon which any act is to be performed
------------
or notice is to be delivered under this Lease shall fall upon a Saturday, Sunday
or legal holiday, such act or notice shall be timely if performed or delivered
on the next business day.
N. FORCE MAJEURE. The performance of any obligation to be performed
-------------
by Landlord and Tenant under this Lease, excluding, however, the obligation to
pay Rent or any other sum payable to Landlord by Tenant, shall be excused for
any period during which either party is prevented from performing such
obligation due to causes beyond such party's control, including without
limitation, strikes, lockouts or other labor disturbance or labor dispute,
governmental regulation, moratorium or other governmental action, civil
disturbance, war, war-like operations invasions, rebellion, hostilities,
sabotage, fires or other casualty, rain, flooding, hailstorms, lightning,
earthquake, or other acts of God (collectively, "force majeure"). Landlord and
Tenant each agree to (i) provide written notice to the other if Landlord or
Tenant is unable to perform any obligation imposed upon such party hereunder
within the time period required, if such inability to perform is due to force
majeure. and (ii) use reasonable efforts to mitigate the effects of force
majeure on the timely performance of such obligation.
This Lease is effective as of the date the last signatory necessary to
execute the Lease shall have executed this Lease.
TENANT LANDLORD
- ------ --------
EXODUS COMMUNICATIONS, INC., WASHCOP ASSOCIATES LIMITED
a California corporation PARTNERSHIP, a Delaware limited
partnership
27
<PAGE>
By /s/ K. B. Chandrasekhar By: Koll Management Services, Inc.,
-------------------------------
a Delaware corporation,
Its President its managing, agent
-------------------------------
By /s/ Richard S. Stoltz By /s/ William M. Harris
------------------------------- ---------------------------
Its COO/CFO VP Finance Its Regional President
------------------------------- ---------------------------
28
<PAGE>
THE PREMISES
------------
EXHIBIT A
---------
[Diagram of Premises]
1605 Wyatt Drive, Santa Clara
<PAGE>
THE PROJECT
-----------
EXHIBIT B
---------
[Diagram of Premises]
<PAGE>
TENANT ENVIRONMENTAL RISK ASSESSMENT QUESTIONNAIRE
GENERAL INFORMATION
-------------------
Name of Responding Company:_____________________________________________________
Mailing Address:________________________________________________________________
Signature:______________________________________________________________________
Date:____________ Age of Facility:_____________ Length of Occupancy:____________
Major products manufactured and or activities conducted on the property:________
________________________________________________________________________________
________________________________________________________________________________
Type of Business Activity(ies): Hazardous Materials Activities:
- ----------------------------- ------------------------------
(check all that apply) (check all that apply)
________ machine shop ___________ degreasing
________ light assembly ___________ chemical/etching/milling
________ research and development ___________ wastewater treatment
________ product service or repair ___________ painting
________ photo processing ___________ striping
________ automotive service and repair ___________ cleaning
________ manufacturing ___________ printing
________ warehouse ___________ analytical lab
________ integrated/printed circuit ___________ plating
________ chemical/pharmaceutical product ___________ chemical/missing/synthesis
___________ silkscreen
___________ lathe/mill machining
___________ deionizer water product
___________ photo masking
___________ wave solder
___________ metal finishing
HAZARDOUS MATERIALS/WASTE HANDLING AND STORAGE
----------------------------------------------
A. Are hazardous materials handled on any of your shipping and receiving docks
in container quantities greater than one gallon? ________ yes no
EXHIBIT C
---------
Page 1 of 4
<PAGE>
B. If hazardous materials or waste are stored on the premises, please check
off the nature of the storage and type(s) of materials below:
Type of storage container Type of hazardous materials
------------------------- ---------------------------
(list above-ground storage only) and/or waste stored
-------------------
______ 1 gallon or 3 liter bottles/cans _______ acid
______ to 30 gallon carboys _______ phenol
______ 55 gallon drums _______ caustic/alkalinecleaner
______ tanks _______ cyanide
_______ photo resist stripper
_______ paint
_______ flammable solvent
_______ gasoline/diesel/fuel
_______ nonflammable/chlorinated
_______ solvent
_______ oil/cutting fluid
C. Do you accumulate hazardous waste onsite? ________ yes _______ no
If yes, how is it being handled?
________ onsite treatment or recovery
________ discharged to sewer
________ hauled offsite
________ incineration
D. Indicate your hazardous waste storage status with DHS:
________ generator
________ interim status facility
________ permitted TSDF
________ none of the above
WASTEWATER TREATMENT/DISCHARGE
------------------------------
A. Do you discharge industrial wastewater to:
________ sewer
________ storm drain
________ surface water
________ no industrial discharge
B. Is your industrial wastewater treated before discharge? _____ yes _____ no
If yes, what type of treatment is being conducted?
________ neutralization
________ metal hydroxi deformation
________ closed loop treatment
________ cyanide destruct
________ HF treatment
________ other
SUBSURFACE CONTAINMENT OF HAZARDOUS MATERIALS/WASTES
----------------------------------------------------
EXHIBIT C
---------
Page 2 of 4
<PAGE>
A. Are buried tanks/sumps being used for any of the following:
___________ hazardous waste storage
___________ chemical storage
___________ gasoline/diesel fuel storage
___________ waste treatment wastewater neutralization
___________ wastewater neutralization
___________ industrial
___________ wastewater treatment
___________ none of the above
B. If buried tanks are located onsite, indicate their construction:
___________ steel ___________ fiberglass __________ concrete
___________ inside open vault ___________ double walled
C. Are hazardous materials or untreated industrial watewater transported via
buried piping to tanks, process areas or treatment areas?
__________ yes ________ no
D. Do you have wet floors in your process areas? ______ yes no
If yes, name processes:___________________________________________
E. Are abandoned underground tanks or sumps located on the property?
__________ yes ________ no
HAZARDOUS MATERIALS SPILLS
--------------------------
A. Have hazardous materials ever spilled to:
_________ the sewer
_________ the storm drain
_________ onto the property
_________ no spills have occurred
B. Have you experienced any leaking underground tanks or sumps?
__________ yes ________ no
C. If spills have occurred, were they reported? _______ yes ______ no
Check off the government agencies that you contacted regarding the
spill(s):
_________ Department of Health Services
_________ epartment of Fish and Game
_________ EPS, Region 9, San Francisco
_________ S.F. Regional Water Quality Control Board (RWQCB)
_________ Fire Department
EXHIBIT C
---------
Page 3 of 4
<PAGE>
D. Have you been contacted by a government agency regarding soil or
groundwater contamination on your site?
________ yes ________ no
WELLS
-----
Do you have exploratory wells onsite? _______ yes ______ no
If yes, indicate the following:
Number of wells: __________ Approximate depth of wells: ________
Well Diameters: __________
PLEASE ATTACH ENVIRONMENTAL REGULATORY PERMITS AND AGENCY REPORTS
THAT APPLY TO YOUR OPERATION
Check off those enclosed:
- ------------------------
___________ Hazardous Materials Inventory Statement HMIS
___________ Hazardous Materials Management Plan, HMMP
___________ Department of Health Services, Generatory Inspection Report
___________ Underground Tank Registrations
___________ Industrial Wastewater Discharge Permit
EXHIBIT C
---------
Page 4 of 4
<PAGE>
MISSION PARK SIGN CRITERIA
--------------------------
BUSINESS IDENTIFICATION SIGNS
1. Each tenant shall be permitted to use only those business identification
signs provided by Landlord. No other business identification signs shall be
permitted to be erected or attached to exterior building surfaces, planter
walls 4r other on-site or off-site improvements.
2. No alterations of any sort shall be permitted to be made to business
identification signs other than those described below.
3. All tenant signing shall require specific approval by Landlord.
4. All lettering surfaces shall be provided with and shall remain a uniform
black finish on a metal face. Business identification signing shall be by
either of the following methods:
(a) Painted on or die-cut-vinyl letter affixed to the lettering surface;
or
(b) Lettering cut out of metal lettering surface backed by translucent
acrylic material, and internally illuminated. Internally illuminated
signs shall require specific approval of Landlord. Costs of adapting
sign to internal illumination shall be borne by the tenant. Upon
termination of tenancy, all lettering surfaces shall be returned to
their original non-illumination configuration.
5. Lettering may be of any lettering style but shall be white in color; no
other colors will be permitted. Logos consisting of symbols or letters not
spelling an entire word may be permitted to be a single color other than
white provided that a narrow white background surrounds the logo. No logo
shall exceed 25% of the designated lettering surface.
6. The lettering area, defined as the rectangular area which fully encloses
all letters or symbols, that identifies the tenant business shall not
exceed 80% of the designated lettering surface.
7. Signing shall be limited to the display of the name and/or symbol of the
tenant business. No messages or advertising of any kind including, but not
limited to, advertising of products, services or job openings shall be
permitted
INFORMATIONAL AND VEHICULAR CONTROL SIGNS
1. All informational and vehicular control signs shall be of uniform design
using Matthews Architectural Division's Post & Panel Assembly I System or
sign system of equal design which is specifically approved in writing by
Landlord. Both posts and panels shall have a durable black finish. All
lettering shall be Helvetica Medium white in color. Red and yellow may be
used for stop and yield signs respectively.
2. No informational or vehicular control signs shall have a panel which
exceeds 5 square feet in area per side.
3. No business name, symbol or advertising of any sort shall be permitted on
any informational or vehicular control sign.
4. No informational or vehicular control sign shall exceed a height of 4 feet
above the underlying grade.
5. No informational or vehicular control sign shall be located so as to reduce
the flow of vehicles or pedestrians.
6. No informational or vehicular control signs shall be internally illuminated
or illuminated from the ground.
EXHIBIT D
---------
<PAGE>
EXHIBIT 10.10
OFFICE LEASE
THE HARBORSIDE FINANCIAL CENTER
JERSEY CITY, NEW JERSEY
-----------------------
AGREEMENT 0F LEASE
between
CAL - HARBOR II & III URBAN RENEWAL ASSOCIATES L.P., Landlord
and
EXODUS COMMUNICATIONS. Tenant
Dated: December 30, 1996
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE 1 RENT............................................................ 1
ARTICLE 2 TERM............................................................ 2
ARTICLE 3 ADDITIONAL RENT................................................. 3
ARTICLE 4 ELECTRICITY..................................................... 21
ARTICLE 5 USE............................................................. 22
ARTICLE 6 ALTERATIONS AND INSTALLATIONS................................... 22
ARTICLE 7 REPAIRS......................................................... 27
ARTICLE 8 REQUIREMENTS OF LAW............................................. 29
ARTICLE 9 INSURANCE, LOSS, REIMBURSEMENT, LIABILITY....................... 30
ARTICLE 10 DAMAGE BY FIRE OR OTHER CAUSE.................................. 32
ARTICLE 11 ASSIGNMENT, MORTGAGING, SUBLETTING, ETC........................ 34
ARTICLE 12 CERTIFICATE OF OCCUPANCY....................................... 41
ARTICLE 13 ADJACENT EXCAVATION - SHORING.................................. 41
ARTICLE 14 CONDEMNATION................................................... 41
ARTICLE 15 ACCESS TO DEMISED PREMISES; CHANGES............................ 43
ARTICLE 16 CONDITIONS OF LIMITATION....................................... 44
ARTICLE 17 RE-ENTRY BY LANDLORD, INJUNCTION............................... 46
ARTICLE 18 DAMAGES........................................................ 46
ARTICLE 19 LANDLORD'S RIGHT TO PERFORM TENANT'S OBLIGATIONS............... 48
ARTICLE 20 QUIET ENJOYMENT................................................ 48
ARTICLE 21 SERVICES AND EQUIPMENT......................................... 49
ARTICLE 22 DEFINITIONS.................................................... 51
ARTICLE 23 INVALIDITY OF ANY PROVISION.................................... 52
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
ARTICLE 24 BROKERAGE...................................................... 53
ARTICLE 25 SUBORDINATION.................................................. 53
ARTICLE 26 CERTIFICATE OF TENANT.......................................... 55
ARTICLE 27 LEGAL PROCEEDINGS, WAIVER OF JURY TRIAL, WAIVER OF
TERMINATION RIGHTS............................................. 56
ARTICLE 28 SURRENDER OF PREMISES.......................................... 56
ARTICLE 29 RULES AND REGULATIONS.......................................... 57
ARTICLE 30 CONSENTS AND APPROVALS......................................... 57
ARTICLE 31 NOTICES........................................................ 58
ARTICLE 32 NO WAIVER...................................................... 58
ARTICLE 33 CAPTIONS....................................................... 59
ARTICLE 34 INABILITY TO PERFORM........................................... 59
ARTICLE 35 NO REPRESENTATIONS BY LANDLORD................................. 60
ARTICLE 36 NAME OF COMPLEX/BUILDING....................................... 60
ARTICLE 37 PARKING........................................................ 60
ARTICLE 38 INDEMNITY...................................................... 61
ARTICLE 39 MEMORANDUM OF LEASE............................................ 62
ARTICLE 40 SECURITY....................................................... 62
ARTICLE 41 MISCELLANEOUS.................................................. 63
ARTICLE 42 INTENTIONALLY OMITTED.......................................... 65
ARTICLE 43 ARBITRATION.................................................... 65
ARTICLE 44 OPTION TO RENEW................................................ 66
ARTICLE 45 RIGHT OF FIRST OFFER........................................... 68
ARTICLE 46 ROOF EQUIPMENT................................................. 72
ARTICLE 47 FUEL TANK SPACE................................................ 74
SCHEDULES
</TABLE>
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TABLE OF CONTENTS
A - I 4th Floor Plan
A - II 8th Floor Plan
B - Description of Land
C - Landlord's Work
D - Arcade Area and Second Floor Space
E - Cleaning and Janitorial Services
F - Form of Estoppel Certificate
G - Rules and Regulations
H - Form of Letter of Credit
I - PR Newswire Space Plan
J - Roof Plan
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AGREEMENT OF LEASE made as of the 30th day of December, 1996, between Cal-Harbor
II and III Urban Renewal Associates L.P., a New Jersey limited partnership
having an address at c/o Institutional Realty Management, LLC, Plaza III,
Harborside Financial Center, Jersey City, New Jersey 0731l ("Landlord") and,
Exodus Communications, Inc., a _________ corporation having an address at
______________________ ("Tenant").
W I T N E S S E T H
- - - - - - - - - -
Landlord hereby leases to Tenant and Tenant hereby rents from Landlord
(a) the portion of the fourth (4th) floor shown hatched on the plans annexed
hereto as Schedule A-I in the building known as Plaza II (the "Fourth Floor
Space"), and (b) the portion of the eighth (8th) floor shown hatched on the
plans annexed hereto as Schedule A-II in the building known as Plaza III (the
"Eighth Floor Space," the Fourth Floor Space and the Eighth Floor Space are
collectively the "Demised Premises"), in the office complex (the "Complex")
known as Harborside Financial Center consisting as of the date hereof of Plazas
I, II and III and the parking areas and other common areas serving same located
in Jersey City, New Jersey on the land (the "Land") described in Schedule B
annexed hereto (the Land together with all of the improvements now or hereafter
located thereon being hereinafter referred to as the "Property"), for a term
(the "Term'') of approximately 10 years commencing on the "Commencement Date"
and ending on the "Expiration Date" (as said terms are defined in Article 2
hereof), unless the Term shall sooner cease and terminate as hereinafter
provided. Unless otherwise specified herein, Plazas II and III are collectively
called the ''Building.''
The parties hereby covenant and agree as follows:
ARTICLE 1
RENT
1.01. (a) Tenant hereby agrees to pay to Landlord a basic annual
rent (the "Basic Annual Rent") at an annual rate equal to (i) for the period
(the "First Period") commencing on the Rent Commencement Date (as such term is
defined in Article 2 hereof) and ending on the day immediately preceding the
fifth (5th) anniversary of the Rent Commencement Date, the product of (x) Twenty
and 50/100 Dollars ($20.50) multiplied by (y) the number of rentable square feet
contained in the Demised Premises, and (ii) for the period commencing on the day
after the First Period and ending on the Expiration Date, the product of (x)
Twenty-three and 00/100 Dollars ($23.00) multiplied by (y) the number of
rentable square feet contained in the Demised Premises. Basic Annual Rent shall
be paid by Tenant in equal monthly installments in advance on the first day of
each calendar month during the Term from and after the Rent Commencement Date
(as said term is defined in Article 2 hereof), at the office of Landlord or such
other place as Landlord may designate, without any set off or deduction
whatsoever, except such deductions as are specifically referred to herein. The
first full month's installment of Basic Annual Rent and the security deposit
described in Article 40 hereof shall be paid by Tenant to
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Landlord upon the execution of this Lease. Should the Rent Commencement Date
fall on any day other than the first day of a month, then the Basic Annual Rent
for such month shall be prorated on a per diem basis, and Tenant agrees to pay
the amount thereof for such partial month on the Rent Commencement Date.
(b) The parties hereby acknowledge that for all purposes of
this Lease the Fourth Floor Space shall be deemed to contain 2,900 rentable
square feet, the Eighth Floor Space shall be deemed to contain 8,661 rentable
square feet and the Demised Premises shall be deemed to contain 11,561 rentable
square feet.
1.02. Tenant shall pay the Basic Annual Rent and all additional rent
payable hereunder in lawful money of the United States by check (subject to
collection) drawn to Landlord's order on a bank which is a member of the New
York Clearinghouse Association or a successor thereto or a New Jersey bank. All
sums, other than Basic Annual Rent, payable by Tenant hereunder shall be deemed
additional rent and shall be payable on demand unless other payment dates are
hereinafter provided. Landlord shall have the same right and remedies
(including, without limitation, the right to commence a summary dispossess
proceeding) for a default in the payment of additional rent as for a default in
the payment of Basic Annual Rent notwithstanding the fact that Tenant may not
then also be in default in the payment of Basic Annual Rent.
1.03. (a) If Tenant shall fail to pay when due any installment of
Basic Annual Rent or any payment of additional rent and any such failure shall
continue for 5 business days, then Tenant shall pay Landlord, as additional
rent, a late charge equal to three (3%) percent of such installment or payment
as compensation for Landlord's additional administrative expenses relating to
such late payment.
(b) If Tenant shall fail to pay when due any installment of
Basic Annual Rent or any payment of additional rent and such failure shall
continue beyond the 5 business day period specified in paragraph (a) above,
Tenant shall pay in addition to the late charge provided in said paragraph (a)
interest on all such amounts (including the late charge) at the Interest Rate
(as said term is defined in Article 22 hereof), from the date when such
installment or payment shall have become due to the date of payment thereof, and
such interest shall be deemed additional rent.
(c) The provisions of this Section 1.03 are in addition to all
other remedies available to Landlord for nonpayment of Basic Annual Rent or
additional rent.
ARTICLE 2
TERM
2.01. (a) Subject to the provisions of paragraph (b) below, the
"Commencement Date" of the Term shall be (i) the date of this Lease with respect
to the Eighth Floor Space and
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(ii) the date that Landlord's Agent (hereinafter defined) vacates the Fourth
Floor Space in accordance with Section 2.01(b) below in the case of the Fourth
Floor Space.
(b) Tenant accepts the Demised Premises in its "as is"
condition as of the Commencement Date and Landlord shall have no obligation to
perform any work or make any contribution to prepare the Demised Premises for
occupancy by Tenant. Tenant acknowledges that the Fourth Floor Space is
currently occupied by landlord's agent and its employees (collectively
"Landlord's Agent"). Landlord's Agent shall vacate the Fourth Floor Space within
fourteen (14) days after the date of this Lease.
(c) The "Rent Commencement Date" shall be April 1, 1997.
(d) The "Expiration Date" of the Term shall be March 31, 2007,
as the same may be extended by reason of the exercise of any extension or
renewal option contained in this Lease.
2.02. Except for Landlord's Work (as defined below), all
installations, materials and work which may be undertaken by Tenant to prepare,
equip, decorate and furnish the Demised Premises for Tenant's occupancy
(collectively, "Tenant's Work") shall be performed by Tenant at Tenant's expense
in accordance with Article 6 and the other applicable provisions of this Lease.
2.03. Landlord shall diligently perform (or cause to be performed)
the work described on Schedule C attached hereto ("Landlord's Work").
ARTICLE 3
ADDITIONAL RENT
3.01. A. Forpurposes hereof, the following definitions shall apply:
(a) The term "Tax Year" shall mean each period of twelve
months which includes any part of the period commencing on the date hereof and
ending upon the expiration of the Term which now or hereafter is or may be duly
adopted as the fiscal year for real estate tax purposes for Jersey City, New
Jersey. The term "Base Tax Year" shall mean the calendar year commencing January
1, 1997.
(b) The term "Taxes" shall mean (i) all real estate taxes,
assessments and special assessments, payments in lieu of any such taxes,
assessments or special assessments (including, without limitation, any payments
or charges of any kind or nature whatsoever imposed pursuant to N.J.S.A. (S)
40:55C-40 et seq. (West 1967 & Supp. 1987), as the same may be amended or
supplemented (collectively "Fox Lance Charges")), and any other governmental
levy, tax, charge or imposition (including any interest imposed thereon by
reason of Landlord's election to pay same in installments), general or special,
ordinary or extraordinary, unforeseen as well as foreseen, of any kind or nature
whatsoever, which are or may be assessed, levied or imposed by any Governmental
Authority (as defined in Section 22.04) upon, or become a lien or
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due and payable in respect of, a particular portion of the Property as
hereinafter provided, or the sidewalks, plazas and streets adjacent thereto, and
(ii) any customary expenses incurred by Landlord, including payments to
attorneys, accountants and appraisers, in contesting any of the items set forth
in clause (i) of this sentence or the assessed valuations of such portion of the
Property or in achieving any tax abatement for such portion of the Property.
Except for any Fox Lance Charges which are based in whole or in part on income
(which shall be included in Taxes) and except as provided in the following
sentence with respect to changes in the method of taxation or in the taxing
authority, the term "Taxes" shall not include any income, franchise, transfer,
inheritance, capital stock, estate, profit or succession tax levied against
Landlord. If due to a future change in the method of taxation or in the taxing
authority, (x) a new or additional real estate tax or (y) a new income,
franchise, transfer, inheritance, capital stock, estate, profit or succession
tax or other tax or governmental imposition, however designated, shall be levied
against Landlord and/or the Property, in addition to or in substitution in whole
or in part for any tax which would constitute Taxes, or in lieu of additional
Taxes, such tax or imposition shall be deemed for the purposes hereof to be
included within the term "Taxes." In no event, shall Tenant be liable or
responsible for any Taxes, for any period prior to the Commencement Date.
(c) The term "Existing Building Taxes" shall mean the Taxes on
Plaza II and Plaza III (for purposes of this Article III, sometimes referred to
as the "Ancillary Building") and the land on which such buildings are located
including all sidewalks, plazas, streets and land adjacent to such buildings,
and all replacements thereof, and constituting a part of the same tax lot or
lots (i.e., tax lot A 14 and any replacement tax lot or lots). There shall also
be included in Existing Building Taxes any Taxes allocable to the so-called
"Arcade Area" and the "Second Floor Space" located in Plaza I as more
particularly shown on Schedule D annexed hereto (collectively, the "Retained
Premises") pursuant to such agreements as may be in effect from time to time
covering the payment of such Taxes by Landlord between Landlord (or any
Affiliated Entity (as defined in paragraph (i) below)) and the owner or net
lessee of Plaza I, as the case may be (collectively, the "Retained Premises
Agreements").
(d) The term "Plaza I Taxes" shall mean the Taxes on Plaza I and
the land on which such building is located including all sidewalks, plazas,
streets and land adjacent to such building, and all replacements thereof, and
constituting a part of the same tax lots (i.e., tax lots B 1, A13, and S-1, and
any replacement tax lot or tax lots), excluding, however, those Taxes allocable
to the Retained Premises pursuant to the Retained Premises Agreement and which
are included in Existing Building Taxes pursuant to paragraph (c) above.
(e) The term "Common Area Taxes" shall mean (x) the Common Area
Tax Share (as defined in paragraph (f) below) of all Taxes allocable to the
Property plus (y) any appraisal fees incurred and paid by Landlord pursuant to
any agreements as may be in effect from time to time affecting all or part of
the Property and relating in whole or in part to the payment of Common Area
Taxes and/or Common Area Expenses (as defined in Section 3.02(A)(c))
(collectively, "Reciprocal Agreements") or pursuant to this Lease, excluding,
however, the following items of Taxes:
(i) all Taxes included in Existing Building Taxes and in Plaza I
Taxes;
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(ii) all Taxes payable with respect to any portion of the Property
that is hereafter conveyed to a third party (other than to an
Affiliated Entity), except, however, that if any portion of the
Property so conveyed constitutes a parking structure, and if Landlord
both retains the right to use all or a portion of the parking spaces
within such structure for tenants of the Complex and pays all or a
portion of the Taxes allocable to such conveyed parking structure,
then such Taxes so payable by Landlord with respect to such conveyed
parking structure shall be included in Common Area Taxes;
(iii) all Taxes imposed or assessed (a) against any buildings or
structures constructed on either of the two piers (the "Piers") now
forming a part of the Property, against the portion of the Land on
which such buildings or structures are located, and against such areas
of the Property adjacent thereto which become unavailable for the
general use of the tenants of the Complex during the construction of
such buildings or structures by reason of such construction (such
exclusion to become effective from and after the time, if any, after
the date hereof, of "Commencement of Construction" (as hereinafter
defined) of such buildings or structures) and (b) against any
buildings or structures constructed on any portion of the Complex
other than Plaza I, Plaza II, Plaza III and the Piers, against the
portion of the Land on which such buildings or structures are located,
and against such areas of the Property adjacent thereto which become
unavailable for the general use of the tenants of the Complex during
the construction of such buildings or structures by reason of such
construction (such exclusion to become effective from and after the
time, if any, after the date hereof, of Commencement of Construction
of such buildings or structures), it being understood, however, that
if any such buildings or structures shall be parking structures, all
Taxes with respect to same and the land underlying same shall be
included within Common Area Taxes, provided that if such buildings or
structures are used for both parking and other uses, only the Taxes
allocable to the portion of such structures used for parking (and an
equitable allocation of the underlying land) shall be included in
Common Area Taxes, such allocation to be made on the basis set forth
in the balance of this paragraph (e). For purposes of this Lease,
"Commencement of Construction" shall mean the date on which, with
respect to a certain portion of the Property, significant excavation
commences in preparation for the installation of foundations and
footings, and in the case of the Piers, the date on which installation
of new pilings commences in contemplation of supporting a new building
or structure. At such time during or following construction of any
such building or structure when a portion of the Land (and/or any
buildings or structures constructed thereon), the Taxes allocable to
which had been excluded from Common Area Taxes as of the Commencement
of Construction, again becomes available for the general use of all
tenants of the Complex (or to a certain tenant or tenants of the
Complex for use as a so-called "Limited Common Area" (a Common Area
subject to certain additional restrictions as to use imposed by
Landlord, but which restrictions do not generally prohibit the use
thereof by other tenants of the Complex, and which for purposes of
this Article 3 shall nonetheless
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be deemed to be "available for the general use of all tenants of the
Complex"), the Taxes allocable to such portion of the Land (and to any
improvements thereon similarly available for the general use of all
tenants of the Complex) shall again be included in Common Area Taxes;
and
(iv) all Taxes imposed or assessed against the common areas on the
Piers developed in conjunction with the development of any buildings
or structures constructed on the Piers, provided (x) such buildings or
structures are utilized predominantly as hotel or residential space
and the residents and employees thereof have sufficient parking
located on the Pier on which such development was constructed (or on
the other Pier) so that, in the aggregate, they park predominantly on
such Pier (or on the other Pier) (such development being hereinafter
referred to as a "Self-Contained Pier Development"), and (y) the gross
area of such Self-Contained Pier Development shall not be included in
the denominator of the fraction used in computing Common Area Tax
Share.
If any item of Taxes (or allocable portion thereof) which pursuant to
this paragraph (e) is to be included in, or excluded from, Common Area Taxes is
not wholly within a separate tax lot, then the amount of such item of Taxes (or
allocable portion thereof) to be so included in or excluded from Common Area
Taxes shall be (x) with respect to the land, in the same proportion which the
square footage of the land to be so included or excluded bears to the square
footage of the entire tax lot in which such land is located, and (y) with
respect to buildings or structures, be included or excluded, as applicable, in
the same proportion which the current appraised value of the buildings or
structures to be so included or excluded bears to the current appraised value of
all of the buildings or structures included within the tax lot of which the
footprint of land in question is a part. If any item of Taxes (or allocable
portion thereof) which pursuant to this paragraph (e) is to be included in
Common Area Taxes because it is allocable to land which is improved with a
parking structure shall also be improved with buildings or structures used for
purposes other than parking, then the amount of such item of Taxes (or allocable
portion thereof) to be so included in Common Area Taxes shall be in the same
proportion which the current appraised value of the parking structure on such
land bears to the current appraised value of all of the buildings or structures
on such land. All appraisals hereunder shall be determined by an appraiser
selected and paid for by Landlord, who shall be a member in good standing of the
American Institute of Real Estate Appraisers and shall have at least ten (10)
years experience appraising major office buildings in northern New Jersey and/or
in the Borough of Manhattan, City, County and State of New York. The fees and
expenses of any such appraiser shall be deemed a part of Common Area Taxes.
(f) The Term "Common Area Tax Share" shall mean the share of
Common Area Taxes allocated to Plaza II, Plaza III and the Retained Premises, as
such share is determined from time to time as hereinafter set forth. The Common
Area Tax Share shall be determined as of the first day of each calendar year
(each, a "Tax Share Determination Date") and shall be equal to a fraction
(expressed as a percentage), the numerator of which shall be the aggregate gross
square footage contained in Plaza II, the Retained Premises and Plaza III, as of
the applicable Tax Share Determination Date, and the denominator of which shall
be the aggregate gross square footage contained in Plaza I, Plaza II and Plaza
III as of the applicable Tax Share Determination Date. If, at any time
hereafter, there is constructed (1) on any portion of the Land other than on the
Piers, any new buildings, or (2) on the Piers, any new building other than a
Self-Contained Pier Development, and in any of such cases, the tenants or
occupants thereof are permitted generally by Landlord to use the Common Areas
(as defined in Section 22.06 below), then the Common Area Tax Share shall be
modified to include in the denominator thereof, in addition to the aggregate
gross square footage contained in each of Plaza I, Plaza II and Plaza III as of
the applicable
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Tax Share Determination Date, that portion of the gross square footage contained
in each such new building which either (i) on the applicable Tax Share
Determination Date is subject to a lease (other than a so-called "master lease"
to an Affiliated Entity in which event the terms hereof shall apply to any
subtenant of such master lessee) and the lessee under such lease is occupying
the Demised Premises thereunder and has begun making payments of base rent
thereunder, or (ii) at any time prior to the applicable Tax Share Determination
Date was subject to a lease described in clause (i) above, or (iii) in the case
of a residential condominium development, was sold for the first time to an
owner-occupier which is not an Affiliated Entity. Without limiting the
provisions of clause (ii) above, in no event shall the denominator of the Common
Area Tax Share ever be reduced by reason that any space which was subject to a
lease described in clause (i) above is no longer subject to such a lease. If at
any time hereafter any building located on the Land, the gross square footage of
which is then included in the denominator of the Common Area Tax Share, shall be
conveyed to a third party (other than to an Affiliated Entity), and if after
such conveyance the tenants or occupants of such building are no longer
permitted generally to use the Common Areas, then from and after the next
succeeding Tax Share Determination Date, the Common Area Tax Share shall be
modified by excluding from the denominator thereof the gross square footage
contained in such conveyed building. Landlord and Tenant agree that as of the
date of this Lease, Plaza I (exclusive of the Retained Premises) contains
385,000 gross square feet, the Retained Premises contain 23,922 gross square
feet, Plaza II contains 726,078 gross square feet and Plaza III contains 750,000
gross square feet, and based upon such amounts, the Common Area Tax Share is
79.58%. The gross square footage of any other building located on the Land shall
be determined hereinafter in the same manner as the determination of gross
square footage reflected in the immediately preceding sentence.
(g) The term "Tenant's Tax Share" shall mean .77% constituting
the percentage resulting from dividing the number of rentable square feet from
time to time included in the Demised Premises and with respect to which Tenant
is obligated to make Tenant's Tax Payments pursuant to Section 3.01 (b) by the
number of rentable square feet in Plaza II, Plaza III and the Retained Premises,
which the parties agree is 1,500,000 rentable square feet as of the date of this
Lease. If at any time after the date hereof rentable square footage of office,
retail or other commercial space (exclusive of storage space that is an adjunct
to such space) shall be added to or subtracted from Plaza II, the Retained
Premises and/or Plaza III, Tenant's Tax Share shall be equitably adjusted so
that Tenant pays its proportionate share of Existing Building Taxes in the same
proportion which the rentable square feet from time to time included in the
Demised Premises as set forth herein bears to the total rentable area of office,
retail or other commercial space (exclusive of such storage space) in the
improvements as to which such Existing Building Taxes relate, using the same
standard of measurement to compute the rentable area of the new or additional
space or the subtracted space as that used to compute the rentable area of the
Demised
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Premises for purposes of this Lease. In the event of such adjustment,
Landlord and Tenant shall, at either party's request, execute an instrument
confirming such adjustment and making the appropriate change in Tenant's Tax
Share, but no such instrument shall be necessary to make the same effective.
(h) Tenant acknowledges that Landlord may transfer legal
ownership of portions of the Property to entities affiliated with Landlord for
purposes of obtaining tax abatements for the Property, for income tax planning
purposes or otherwise, and neither the definition of Common Area Taxes, nor of
Common Area Tax Share, nor of Existing Building Taxes nor of Tenant's Tax Share
shall be affected by reason of any such transfers to affiliated entities; all of
which shall be deemed for purposes hereof to continue to be owned by Landlord.
For purposes hereof an "Affiliated Entity" shall mean any entity which controls,
is under common control with, or is under the control of, Landlord and the term
"control" shall mean the direct or indirect ownership of 50% or more of the
outstanding voting stock in a corporation or equivalent ownership interest in a
non-corporate entity .
(i) If Landlord (or any Affiliated Entity) shall acquire any
additional land in the immediate vicinity of the Complex (each, an "Additional
Parcel"), then, at Landlord's election, exercisable by written notice to Tenant,
(a) the Taxes allocable to such Additional Parcel (or the portion thereof to be
used as Common Areas) shall be included in Common Area Taxes in accordance with
paragraph (e) above to the extent applicable, (b) the gross square footage of
any buildings then or thereafter constructed on such Additional Parcel, the
tenants or occupants of which are permitted generally to use the Common Areas,
shall, as of the applicable Tax Share Determination Date, be added to the
denominator of the Common Area Tax Share for purposes of calculating the Common
Area Tax Share in accordance with paragraph (f) above, using the same standard
of measurement to compute the rentable area of the new or additional buildings
as that used to compute the rentable area of the Demised Premises for purposes
of this Lease, and (c) such Additional Parcel shall thereafter be deemed a part
of the Land for all purposes of this Lease.
(j) In the event Tenant objects to any adjustment which may be
required under this Section 3.01 (a) with respect to Existing Building Taxes,
Common Area Taxes, Common Area Tax Share or Tenant's Tax Share, such objection
must be made in writing by Tenant within thirty (30) days after receipt of
Landlord's determination of such adjustment, specifying in detail the nature of
such objection, and failing such notice Landlord's determination shall be
conclusive. If Tenant does so object, either party may submit such dispute to
arbitration in accordance with the provisions of Article 43, but pending the
resolution of such dispute, Landlord's determination of Existing Building Taxes,
Common Area Taxes, Common Area Tax Share and Tenant's Tax Share shall control
and Tenant shall pay Tenant's Tax Payment (as defined in Section 3.01 (B)) in
accordance with such determination as a condition precedent to its right to
invoke the arbitration process herein provided without prejudice to Tenant's
position. In the event of the resolution of such dispute so that there shall
have been an overpayment of Tenant's Tax Payment, Landlord shall permit Tenant
to credit the amount of such overpayment against the next subsequent rental
payments under this Lease. After the termination of this Lease and the payment
to Landlord of the balance, if any, of all Basic Annual Rent and additional rent
due hereunder, Landlord shall pay to Tenant the amount of any credit not
previously applied by
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Tenant. In the event any such dispute shall involve more than one Tenant of the
Property, all of such disputes shall, at Landlord's election, be resolved in one
arbitration proceeding designated by Landlord.
(k) The term "Escalation Statement" shall mean a statement
setting forth the amount payable by Tenant for a specified Tax Year or Operating
Year (as defined in Section 3.02), as the case may be, or for some portion
thereof pursuant to this Article 3.
B. Tenant shall pay to Landlord as additional rent for each Tax Year
or partial Tax Year commencing from and after January 1, 1997, an amount equal
to Tenant's Tax Share of the excess of the Existing Building Taxes for such Tax
Year over the Existing Building Taxes for the Base Tax Year and Tenant's Tax
Share of the excess of the Common Area Taxes for such Tax Year over the Common
Area Taxes for the Base Tax Year (collectively, "Tenant's Tax Payment").
Landlord shall furnish Tenant an annual Escalation Statement (subject to
revision as hereinafter provided) for each Tax Year setting forth Tenant's Tax
Payment (or, if Landlord has not yet received bills evidencing the full amount
of Taxes payable during such Tax Year, Landlord's good faith estimate of
Tenant's Tax Payment, which shall for all purposes hereof be deemed to be the
Taxes for such Tax Year payable hereunder until such Taxes are finally
determined) for such Tax Year. Tenant's Tax Payment (determined as above
provided) shall be payable in the same number of installments as Landlord pays
(or is deemed to have paid, as hereinafter set forth) Taxes, each such
installment to be in such amount and due at such time (but not more frequently
than monthly) such that Landlord shall have received Tenant's Tax Share of (i)
all installments of Existing Building Taxes and (ii) all installments of Common
Area Taxes payable, in either case, to a Governmental Authority, or to any
designated party under any applicable Reciprocal Agreements (a "Responsible
Party"), or as tax escrow payments to any superior ground lessor or mortgagee,
not less than thirty (30) days prior to the date such installment of Existing
Building Taxes or Common Area Taxes is payable to such Governmental Authority,
Responsible Party or superior ground lessor or mortgagee, as applicable. If an
annual Escalation Statement is furnished to Tenant after the commencement of the
Tax Year to which it relates, then (i) until such Escalation Statement is
rendered, Tenant shall pay Tenant's Tax Payment for such Tax Year in
installments based upon the last Escalation Statement rendered to Tenant with
respect to Existing Building Taxes and Common Area Taxes, (ii) Tenant shall,
within ten (10) days after such annual Escalation Statement is furnished to
Tenant, pay to Landlord an amount equal to any underpayment of the installments
of Tenant's Tax Payment theretofore paid by Tenant for such Tax Year and (iii)
thereafter Tenant shall pay Tenant's Tax Payment in installments based on such
annual Escalation Statement. In the event of an overpayment by Tenant, Landlord
shall permit Tenant to credit the amount of such overpayment against the next
subsequent rental payments under this Lease. After the termination of this Lease
and the payment to Landlord of the balance, if any, of all Basic Annual Rent and
additional rent due hereunder, Landlord shall pay to Tenant the amount of any
credit not previously applied by Tenant. If there shall be any increase or
decrease in Existing Building Taxes or Common Area Taxes for any Tax Year,
whether during or after such Tax Year, Landlord shall furnish a revised
Escalation Statement for such Tax Year to Tenant, and Tenant's Tax Payment for
such Tax Year shall be adjusted and paid or credited, as appropriate, in the
same manner as hereinabove provided.
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C. If Landlord shall receive a refund of Existing Building
Taxes or Common Area Taxes for any Tax Year, Landlord shall promptly notify
Tenant and shall permit Tenant to credit against subsequent rental payments
under this Lease, Tenant's Tax Share of the refund, but not in excess of
Tenant's Tax Payment paid for such Tax Year. After the termination of this Lease
and the payment to Landlord of the balance, if any, of all Basic Annual Rent and
additional rent due hereunder, Landlord shall pay Tenant the amount of any
credit not previously applied by Tenant.
3.02. A. For purposes hereof the following definitions shall apply:
(a) The term "Operating Year" shall mean each calendar year
which includes any part of the period commencing on January 1, 1997 and ending
upon the expiration of the Term. The term "Base Operating Year" shall mean the
calendar year commencing January 1, 1997.
(b) The term "Tenant's Expense Share" shall mean .81%
constituting the percentage resulting from dividing the number of rentable
square feet from time to time included in the Demised Premises and with respect
to which Tenant is obligated to make Tenant's Expense Payments pursuant to
Section 3.02(b) by the number of rentable square feet in the Retained Premises,
Plaza II, Plaza III and the Retained Premises, exclusive of space leased to
retail tenants, which the parties agree is 1,430,000 rentable square feet as of
the date of this Lease. If at any time after the date hereof additional rentable
square footage of office space (exclusive of storage space that is an adjunct to
such space) shall be added to or subtracted from the Retained Premises, Plaza II
and/or Plaza III, Tenant's Expense Share shall be equitably adjusted so that
Tenant pays its proportionate share of Operating Expenses in the same proportion
which the rentable square feet from time to time included in the Demised
Premises as set forth herein bears to the total rentable area of office space
(exclusive of such storage space) in the improvements as to which such Operating
Expenses relate, using the same standard of measurement to compute the rentable
area of the new or additional space or subtracted space as that used to compute
the rentable area of the Demised Premises for purposes of this Lease. In the
event of such adjustment, Landlord and Tenant shall, at either party's request,
execute an instrument confirming such adjustment and making the appropriate
change in Tenant's Expense Share, but no such instrument shall be necessary to
make the same effective.
(c) The term "Common Area Expense Share" shall mean the share
of Common Area Operating Expenses allocated to Plaza II, Plaza III and the
Retained Premises, as such share is determined from time to time as hereinafter
set forth. The Common Area Expense Share shall be determined as of the first day
of each calendar year (each, an "Expense Share Determination Date") and shall be
equal to a fraction (expressed as a percentage), the numerator of which shall be
the aggregate gross square footage contained in Plaza II, the Retained Premises
and Plaza III, as of the applicable Expense Share Determination Date, and the
denominator of which shall be the aggregate gross square footage contained in
Plaza I, Plaza II and Plaza III as of the applicable Expense Share Determination
Date (the "Expense Share Fraction"). If, at any time hereafter, there is
constructed (1) on any portion of the Land other than on the Piers any new
buildings, or (2) on the Piers, any new building other than a Self-Contained
Pier Development, and in any of such cases, the tenants or occupants thereof are
permitted by Landlord generally to
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use the Common Areas, then the Expense Share Fraction shall be modified to
include in the denominator thereof, in addition to the aggregate of the gross
square footage contained in each of Plaza I, Plaza II and Plaza III as of the
applicable Expense Share Determination Date, the gross square footage contained
in that portion of each such new building which either (i) on the applicable
Expense Share Determination Date is subject to a lease (other than a so-called
"master lease" to an Affiliated Entity in which event the terms hereof shall
apply to any subtenant of such master lessee) and the lessee under such lease is
either occupying the Demised Premises thereunder, or has begun making payments
of base rent thereunder or (ii) at any time prior to the applicable Expense
Share Determination Date was subject to a lease described in clause (i) above,
or (iii) in the case of a residential condominium development, was sold for the
first time to an owner-occupier which is not an Affiliated Entity. Without
limiting the provisions of clause (ii) above, in no event shall the denominator
of the Expense Share Fraction ever be reduced by reason that any space which was
subject to a lease described in clause (i) above is no longer subject to such a
lease. If at any time hereafter any building located on the Land, the gross
square footage of which is then included in the denominator of the Expense Share
Fraction, shall be conveyed to a third party (other than to an Affiliated
Entity), and if after such conveyance the tenants or occupants of such building
are no longer permitted generally to use the Common Areas, then from and after
the next succeeding Expense Share Determination Date, the Expense Share Fraction
shall be modified by excluding from the denominator thereof the gross square
footage contained in such conveyed building. Landlord and Tenant agree that as
of the date of this Lease Plaza I (exclusive of the Retained Premises) contains
385,000 gross square feet, the Retained Premises contains 23,922 gross square
feet, Plaza II contains 726,078 gross square feet and Plaza III contains 750,000
gross square feet, and based upon such amounts, the Common Area Expense Share is
79.58%. The gross square footage of any other building located on the Land shall
be determined hereinafter in the same manner as the determination of gross
square footage reflected in the immediately preceding sentence.
(d) The term "Common Area Operating Expenses" shall mean the
Common Area Expense Share of the total of all unreimbursed (other than pursuant
to this Article 3) costs and expenses (including taxes thereon, if any),
computed on an accrual basis, incurred by Landlord in connection with operating,
maintaining, repairing and replacing the Common Areas (as defined in Section
22.05), including, without limitation, the cost and expense of the following
items to the extent they relate solely to or are reasonably allocable to the
Common Areas (Tenant hereby acknowledging that it is not possible to make such
allocation with mathematical certainty and that any such good faith allocation
made by Landlord shall be binding upon Tenant): gardening, landscaping,
planting, replanting, and replacing flowers and shrubbery; public liability,
property damage and fire insurance with such extended coverage and vandalism
endorsements required by the holder of any mortgage covering all or any portion
of the Common Areas or customarily carried with respect to mixed use office and
retail projects similar to the Complex in northern New Jersey; repairs; painting
and decorating; striping; the cost of electricity for lighting and maintenance
and replacements of lighting fixtures, tubes and bulbs; regulating automobile
and pedestrian traffic; sanitary control; removal of rubbish, garbage and other
refuse; removal of snow and ice, and sanding and salting; security, which shall
include special security undertakings for the common use and enjoyment of all
tenants and owners of all or a portion of the Complex; actions to prevent
unauthorized use of certain of the Common Areas; supplies used
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in the operation and maintenance of the Common Areas (including the cost of
inspection thereof); drainage; music program services and loud speaker systems,
including electricity therefor; heating, ventilating and air-conditioning
enclosed sidewalks, if any; cleaning all enclosed sidewalks, if any, including
carpeting or other floor covering; maintenance of decorations, if any; cost of
personnel to implement all of the aforementioned (including worker's
compensation insurance covering such personnel); all administrative and overhead
costs, excluding executive salaries above the grade of building manager; all
water and sewer charges; outside contractor snow removal costs; and any other
fees and expenses related solely to or which are reasonably allocable to the
operation, maintenance and repair of the Common Areas; provided, however, that
the foregoing costs and expenses shall exclude or have deducted from them, or
shall include in the specific circumstances hereinafter provided, as the case
may be, the following:
(i) Taxes;
(ii) interest, principal and refinancing and other charges on or
with respect to indebtedness;
(iii) amounts received by Landlord through proceeds of insurance to
the extent they are compensation for sums previously included in
Common Area Operating Expenses hereunder;
(iv) costs of repairs incurred by reason of fire or other casualty
or condemnation to the extent Landlord is compensated therefor by
insurance proceeds or condemnation award;
(v) advertising and promotional expenses;
(vi) leasing commissions and similar fees;
(vii) rent under any ground lease;
(viii) depreciation, except that if any equipment is purchased for
maintenance and operation of the Common Areas which is not ordinarily
expensed, then such equipment shall be depreciated on a straight-line
basis over the lesser of (i) the useful life of such equipment or (ii)
ten (10) years, and there shall be included in Common Area Operating
Expenses in each Operating Year the amount of such depreciation
attributable to such Operating Year, provided, however, that all
amounts thereof included in Common Area Operating Expenses in
Operating Years subsequent to the year paid shall have added thereto
interest at the Prime Rate (as defined in Section 22.03) (determined
as of the date on which such expense was incurred) plus one percent
(1%) from the date each such expense was incurred by Landlord;
(ix) as to salaries and other compensation and professional fees of
persons employed or retained at or for the Common Areas and at
additional locations other than the Common Areas, only a pro rata
allocation (based on an equitable time
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allocation) of the foregoing expenses incurred on behalf of the Common
Areas shall be included in Common Area Operating Expenses;
(x) costs and expenses payable to any Affiliated Entity or its
partners or stockholders to the extent that such costs and expenses
exceed, in any material respect, competitive costs and expenses
generally charged for materials or services rendered by persons or
entities (other than any Affiliated Entity or its partners or
stockholders) of similar skill, competence and experience;
(xi) all costs and expenses included in Operating Expenses;
(xii) all costs and expenses allocable to any portion of the Common
Areas that is hereafter conveyed to a third party (other than to an
Affiliated Entity), except, however, that if any portion of the Common
Areas so conveyed constitutes a parking structure, and if Landlord
both retains the right to use all or a portion of the parking spaces
within such structure for tenants of the Complex and pays all or a
portion of the costs and expenses allocable to such conveyed parking
structure then such costs and expenses payable by Landlord with
respect to such conveyed parking structure shall be included in Common
Area Operating Expenses;
(xiii) all costs and expenses allocable to (a) any buildings or
structures constructed on either of the Piers, or allocable to any
portions of the Common Areas adjacent thereto which become unavailable
for the general use of the tenants of the Complex during the
construction of such buildings or structures by reason of such
construction (such exclusion to become effective from and after the
time, if any, of Commencement of Construction (of such buildings or
structures) and (b) any buildings or structures constructed on any
portion of the Complex other than Plaza I, Plaza II, Plaza III and the
Piers, or allocable to any portions of the Common Areas adjacent
thereto which become unavailable for the general use of the tenants of
the Complex during the construction of such buildings or structures by
reason of such construction (such exclusion to become effective from
and after the time, if any, after the date hereof, of Commencement of
Construction of such buildings or structures). During construction of
any such building or structure, as and when any portion of the land
(and any improvements constructed thereon), the costs and expenses
allocable to which had been excluded from Common Area Operating
Expenses as of the Commencement of Construction, again becomes
available for the general use of all tenants of the Complex, the costs
and expenses allocable to such land (and to any improvements thereon
similarly available for the general use of all tenants of the Complex
including, without limitation, parking structures) shall again be
included in Common Area Operating Expenses; and
(xiv) all costs and expenses allocable to the common areas of a Self-
Contained Pier Development.
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If any of the costs and expenses which, pursuant to the terms of this
paragraph (d) are to be included in or excluded from Common Area Operating
Expenses depending upon the portion of the Property to which they relate, are
incurred with respect to both such included and excluded portions of the
Property, then Landlord shall make a good faith estimate of the amount of such
cost or expense allocable to such included or excluded portion of the Property,
and only the pro rata allocation (based on Landlord's estimate) of such cost or
expense incurred on behalf of the included portion of the Property shall be
included in Common Area Operating Expenses. Such allocation shall be binding on
Landlord and Tenant unless Tenant shall dispute same in accordance with Section
3.07 within thirty (30) days after Landlord gives Tenant notice of such
allocation. Tenant shall only be able to challenge such allocation if Tenant
can establish in arbitration in accordance with the provisions of this Lease
that such allocation was arbitrary and made in bad faith, giving due
consideration to the fact that it is not possible to make such allocation with
mathematical certainty. Pending such arbitration, Landlord's allocation shall
control and Tenant shall make Tenant's Expense Payments based thereon.
(e) The term "Operating Expenses" shall mean, subject to the
provisions of paragraphs (f) and (g) below, the total of all costs and expenses
(including taxes thereon, if any), computed on an accrual basis, incurred by
Landlord in connection with operating, repairing and maintaining Plaza II, Plaza
III and the Retained Premises (the "Existing Buildings") in a manner customary
for mixed use office/retail complexes in northern New Jersey similar to the
Complex including, without limitation, the costs and expenses with respect to:
steam, gas and any other fuel or utilities; water rates (including without
limitation, for public drinking facilities and bathrooms), water charges and
sewer rents; operation of the heating, ventilation and cooling systems;
electricity and other utilities for areas other than those leased or available
for lease to individual tenants as indicated by meter, or if there be no meter,
as determined by Landlord's electrical consultant (as defined in Section 4.08);
elevators and escalators; metal, elevator cab, lobby, interior mall and other
interior public area maintenance and cleaning; painting and decoration of non
tenant areas; window cleaning; sanitary control; security; maintenance and
replacement of lighting fixtures, tubes and bulbs in non tenant areas; music
program services and loud speaker system; depreciation of hand tools and other
movable equipment used in the operation or maintenance of the Existing
Buildings; maintenance of conduits in the Existing Buildings as necessary for
shared tenant systems; flood, fire, extended coverage, boiler and machinery,
sprinkler apparatus, public liability and property damage, loss of rental,
fidelity and plate glass insurance and any other insurance required by the
holder of any mortgage or ground lease covering all or any portion of the
Existing Buildings or customarily carried with respect to mixed use
office/retail complexes in northern New Jersey similar to the Property; wages,
salaries, bonuses, disability benefits, hospitalization, medical, surgical,
dental, optical, psychiatric, legal, union and general welfare benefits
(including group life insurance), any pension, retirement or life insurance plan
and other benefit or similar expense respecting employees of Landlord (or its
agents) up to and including the building manager, provided that to the extent
that Landlord employs the services of any such persons at the Existing Buildings
and at additional locations other than the Existing Buildings, then only a pro
rata allocation (based on an equitable time allocation) of the foregoing
expenses incurred on behalf of the Existing Buildings shall be included in
Operating Expenses; uniforms and working clothes for such employees and the
cleaning and replacement thereof; expenses imposed on Landlord pursuant to law
or to any
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collective bargaining agreement with respect to such employees; workmen's
compensation insurance, payroll, social security, unemployment and other similar
taxes with respect to such employees; salaries of bookkeepers and accountants,
provided that to the extent that Landlord employs the services of any such
persons at the Existing Buildings and at additional locations other than the
Existing Buildings, then only a pro rata allocation (based on an equitable time
allocation) of the foregoing expenses incurred on behalf of the Existing
Buildings shall be included in Operating Expenses; professional and consulting
fees, including legal and accounting fees; charges for independent contractors
performing work included within the definition of Operating Expenses;
association fees or dues; telephone and stationery; directory; building
telephone; repairs, replacements and improvements of the electrical, mechanical,
plumbing and HVAC systems and other systems and portions of the Existing
Buildings, which are necessary or appropriate for the continued operation of the
Existing Buildings in a manner customary for mixed use office/retail complexes
in northern New Jersey similar to the Complex or are otherwise imposed upon
Landlord by any Governmental Authority; and management fees for the management
of the Existing Buildings, or if no managing agent is employed by Landlord, a
sum in lieu thereof which is not in excess of the then prevailing rates for
management fees in northern New Jersey for mixed use office/retail complexes
similar to the Property. There shall also be included in Operating Expenses (but
only to the extent the same are not otherwise included therein) any items
described in the definition of Common Area Operating Expenses which are
performed to the exterior of Plaza II and Plaza III, but which, by reason of
their relating to areas adjacent to Plaza II and Plaza III, are not included in
Common Area Operating Expenses and are performed and paid for directly by the
owner of Plaza II and Plaza III. If any of the costs and expenses includible in
Operating Expenses are incurred by Landlord with respect to both the Existing
Buildings and other portions of the Property, then Landlord shall make a good
faith estimate of the amount of such cost or expense allocable to the Existing
Buildings and the amount thereof allocable to such other portions of the
Property, and only the pro rata allocation (based on Landlord's estimate) of
such cost or expense incurred on behalf of the Existing Buildings shall be
included in Operating Expenses. Such allocation shall be binding on Landlord and
Tenant unless Tenant shall dispute same in accordance with Section 3.07 within
thirty (30) days after Landlord gives Tenant notice of such allocation. Tenant
shall only be able to challenge such allocation if Tenant can establish in
arbitration in accordance with the provisions of this Lease that such allocation
was arbitrary and made in bad faith, giving due consideration to the fact `that
it is not possible to make such allocation with mathematical certainty. Pending
such arbitration, Landlord's allocation shall control and Tenant shall make
Tenant's Expense Payments based thereon. It is understood and agreed that
Landlord shall not be permitted to include the same item of expense in both
Operating Expenses and Common Area Expenses except to the extent such item of
expense is allocated between them as expressly contemplated hereby.
(f) If any repair, replacement or improvement within the
definition of Operating Expenses must be capitalized under generally accepted
accounting principles as determined by the accountants who prepare the accounts
with respect to the Existing Buildings, then, unless same is necessary to comply
with a Legal Requirement (in which case the same shall be included within
Operating Expenses in the year incurred) or except as otherwise provided in
paragraph (g) below, the cost thereof shall be amortized on a straight line
basis over the lesser of (i) the useful life of such repair, replacement or
improvement or (ii) a period of ten (10) years,
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and there shall be included in Operating Expenses in each Operating Year for
such portion of the amortization period which occurs during the Term, the amount
so amortized attributable to such Operating Year, provided, however, that all
amounts thereof included in Operating Expenses in Operating Years subsequent to
the year paid shall have added thereto interest at the Prime Rate plus one
percent (1%) from the date Landlord incurred such cost.
(g) The following shall be excluded or deducted from, or, in
the specific circumstances hereinafter provided, included in, as appropriate,
the costs and expenses otherwise included in Operating Expenses:
(i) the cost of electricity and other utilities furnished to the
Demised Premises and other space leased or available for lease to
tenants as measured by meters, or if there be no meters, as determined
by Landlord's electrical consultant (as defined in Section 4.08);
(ii) leasing commissions and similar fees;
(iii) salaries, fringe benefits and other compensation for Landlord's
executives above the grade of building manager;
(iv) amounts received by Landlord through proceeds of insurance to
the extent the proceeds are compensation for expenses which were
previously included in Operating Expenses;
(v) cost of repairs or replacements incurred by reason of fire or
other casualty or condemnation to the extent Landlord is compensated
therefor by insurance proceeds or a condemnation award;
(vi) advertising and promotional expenditures;
(vii) Taxes;
(viii) costs for performing tenant installations for any individual
tenant or for performing work or furnishing services to or for
individual tenants at such tenant's expense and any other contribution
by Landlord to the cost of tenant improvements;
(ix) capital expenditures incurred for the initial renovation of the
improvements constituting the Existing Buildings (e.g., the erection
of a new facade, new windows and a new elevator core);
(x) rent under any ground leases;
(xi) financing and refinancing costs and mortgage debt service;
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(xii) costs of furnishing services to other tenants or occupants to
the extent such services are materially in excess of services Landlord
offers to all tenants at Landlord's expense;
(xiii) amounts otherwise includible in Operating Expenses but
reimbursed directly by Tenant or other tenants to Landlord other than
by escalation provisions similar to this Article 3;
(xiv) costs and expenses payable to any Affiliated Entity, to the
extent that such costs and expenses exceed in any material respect
competitive costs and expenses for materials and services by unrelated
persons or entities (other than and Affiliated Entity or its partners
or stockholders) of similar skill, competence and experience;
(xv) franchise, income, inheritance or estate taxes (but not sales
and use taxes) imposed on Landlord;
(xvi) all amounts included in Common Area Operating Expenses; and
(xvii) depreciation, except that if any equipment is purchased for
maintenance and operation of the Existing Buildings which is not
ordinarily expensed, then such equipment shall be depreciated on a
straight-line basis over the lesser of (i) the useful life of such
equipment or (ii) ten (10) years, and there shall be included in
Operating Expenses in each Operating Year the amount of such
depreciation attributable to such Operating Year, provided, however,
that all amounts thereof included in Operating Expenses in Operating
Years subsequent to the year paid shall have added thereto interest at
the Prime Rate (as defined in Section 22.03) (determined as of the
date on which such expense was incurred) plus one percent (1 %) from
the date each such expense was incurred by Landlord.
(h) If during all or part of any Operating Year, Landlord
shall not furnish any particular item(s) of work or service (which would
constitute an Operating Expense) to portions of the Existing Buildings, due to
the fact such portions are not occupied or leased, or because such item of work
or service is not required or desired by the tenant of such portion, or such
tenant is itself obtaining and providing such item of work or service, then, for
the purpose of computing the additional rent payable hereunder, the amount of
Operating Expenses for such item for such period shall be increased by an amount
equal to the actual incremental cost which would reasonably have been incurred
during such period by Landlord if it had at its own expense furnished such item
of work or services to such portion of the Existing Buildings.
(i) Tenant acknowledges that Landlord may transfer legal
ownership of portions of the Property to an Affiliated Entity for purposes of
obtaining tax abatements for the Property, for tax planning purposes or
otherwise, and neither the definition of Operating Expenses nor of Tenant's
Expense Share nor of Common Area Expenses, nor of Common Area Expense Share
shall be affected by reason of any such transfers to Affiliated Entities; all of
which shall be deemed for purposes hereof to continue to be owned by Landlord.
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(j) If Landlord (or any Affiliated Entity) shall acquire an
Additional Parcel, then, at Landlord's election, exercisable by written notice
to Tenant (a) the Common Area Operating Expenses allocable to such Additional
Parcel (or the portion thereof to be used as Common Areas) shall be included in
Common Area Operating Expenses in accordance with paragraph (d) above to the
extent applicable, (b) the gross square footage of any improvements then or
thereafter constructed on such Additional Parcel, the tenants or occupants of
which are permitted generally to use the Common Areas, shall, as of the
applicable Expense Share Determination Date, be added to the denominator of the
Expense Share Fraction for purposes of calculating the Common Area Expense Share
in accordance with paragraph (c) above, and (c) such Additional Parcel shall
thereafter be deemed a part of the Land for all purposes of this Lease.
(k) In the event Tenant objects to any adjustment which may be
required under this Section 3.02(a) with respect to Operating Expenses, Common
Area Operating Expenses, Tenant's Expense Share or Common Area Expense Share,
such objection must be made in writing by Tenant within thirty (30) days after
receipt of Landlord's determination of such adjustment, specifying in detail the
nature of such objection, and failing such notice Landlord's determination shall
be conclusive. If Tenant does so object, either party may submit such dispute
to arbitration in accordance with the provisions of Article 43, but pending the
resolution of such dispute, Landlord's determination of Operating Expenses,
Common Area Operating Expenses, Tenant's Expense Share and Common Area Expense
Share shall control and Tenant shall pay Tenant's Expense Payment (as defined in
Section 3.02(b) below) in accordance with such determination as a condition
precedent to its right to invoke such arbitration process without prejudice to
Tenant's position. In the event of the resolution of such dispute so that there
shall have been an overpayment of any of Tenant's Expense Payment, Landlord
shall permit Tenant to credit the amount of such overpayment against the next
subsequent rental payments under this Lease. After the termination of this
Lease and the payment to Landlord of the balance, if any, of all Basic Annual
Rent and additional rent due hereunder, Landlord shall pay Tenant the amount of
any credit not previously applied by Tenant. In the event any such dispute
shall involve more than one tenant of the Property, all of such disputes shall,
at Landlord's election, be resolved in one arbitration proceeding designated by
Landlord.
B. Tenant shall pay to Landlord as additional rent for each
Operating Year an amount equal to Tenant's Expense Share of the excess of the
Operating Expenses for such Operating Year over the Operating Expenses for the
Base Operating Year and Tenant's Expense Share of the excess of the Common Area
Operating Expenses for such Operating Year over the Common Area Operating
Expenses for the Base Operating Year (collectively, "Tenant's Expense Payment").
C. Landlord shall furnish to Tenant for each Operating Year an
Escalation Statement (subject to revision as hereinafter provided) setting forth
Landlord's estimate of Tenant's Expense Payment for such Operating Year. Tenant
shall pay to Landlord on the first day of each month during such Operating Year
an amount equal to one-twelfth (1/12) of Landlord's estimate of Tenant's Expense
Payment for such Operating Year. If Landlord shall furnish such estimate for an
Operating Year after the commencement thereof, then (i) until the first day of
the month following the month in which such estimate is furnished to Tenant,
Tenant
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shall pay to Landlord on the first day of each month an amount equal to the
monthly sum payable by Tenant to Landlord under this paragraph (c) for the last
month of the preceding Operating Year; (ii) on the first day of the month
following the month in which such estimate is furnished to Tenant and monthly
thereafter for the balance of such Operating Year, Tenant shall pay to Landlord
an amount equal to one-twelfth (1/12) of Tenant's Expense Payment as shown on
such estimate; and (iii) Landlord shall notify Tenant in the Escalation
Statement containing such estimate whether the installments of Tenant's Expense
Payment previously paid for such Operating Year were more or less than the
installments which should have been paid for such Operating Year pursuant to
such estimate. If there shall be an underpayment, Tenant shall pay the amount
thereof within ten (10) days after being furnished with such Escalation
Statement or (ii) if there shall be an overpayment, Tenant shall be entitled to
a credit in the amount thereof against the next subsequent rental payments under
this Lease. After the termination of this Lease and the payment to Landlord of
the balance, if any, of all Basic Annual Rent and additional rent due hereunder,
Landlord shall pay Tenant the amount of any credit not previously applied by
Tenant. Landlord may at any time and from time to time (but not more often than
three times in any Operating Year) furnish to Tenant an Escalation Statement
setting forth Landlord's revised estimate of Tenant's Expense Payment for a
particular Operating Year and Tenant's Expense Payment for such Operating Year
shall be adjusted and paid or credited, as applicable, in the same manner as
provided in the preceding sentence.
D. After the end of each Operating Year Landlord shall submit to
Tenant an annual Escalation Statement prepared by Landlord or its agent setting
forth the Operating Expenses and Common Area Operating Expenses for the
preceding Operating Year and the balance of Tenant's Expense Payment, if any,
due to Landlord from Tenant for such Operating Year. If such annual Escalation
Statement shall show that the sums paid by Tenant under Section 3.02(c) exceeded
Tenant's Expense Payment for such Operating Year, Tenant shall be entitled to a
credit in the amount of such excess against the next subsequent rental payments
under this Lease. After the termination of the Lease and the payment to
Landlord of the balance, if any, of all Basic Annual Rent and additional rent
due hereunder, Landlord shall pay Tenant the amount of any credit not previously
applied by Tenant. If an annual Escalation Statement shall show that the sums
so paid by Tenant were less than Tenant's Expense Payment for such Operating
Year, Tenant shall pay the amount of such deficiency to Landlord within ten (10)
days after being furnished with such annual Escalation Statement.
E. The annual Escalation Statements with respect to Operating
Expenses and Common Area Operating Expenses to be furnished by Landlord or its
agent as provided above may be unaudited but shall be in reasonable detail.
Landlord and its agent may rely on Landlord's operating cost allocations and
estimates if such allocations or estimates are required for this Section 3.02.
F. Upon Tenant's written request, Landlord shall permit Tenant
or its representatives to inspect the books and records relating to the
operation of the Property for the Operating Year to which an Escalation
Statement relates at the office of Landlord's managing agent at such time or
times during normal business hours as Landlord shall reasonably designate.
Tenant shall have the right to obtain copies or make such abstracts thereof as
it may reasonably require in order to verify any Escalation Statement. If, based
upon Tenant's inspection, it is
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determined (either by agreement of the parties or by a final unappealable
arbitration award) that Landlord's annual Escalation Statement for Operating
Expenses for a particular Operating Year was overstated by more than 5%, then
Landlord will reimburse Tenant for the reasonable costs it incurred to outside,
independent auditors to conduct such inspection within ten (10) days after
demand based upon reasonable substantiation by Tenant of such costs.
3.03. Tenant shall pay to the appropriate Governmental Authority on
or before the due date thereof all taxes, assessments and other charges which
are or may be assessed, levied or imposed by any Governmental Authority upon, or
become a lien or due and payable in respect of, any leasehold interest of
Tenant, any investment of Tenant in the Demised Premises, any right of Tenant to
occupy the Demised Premises or any personal property of any kind owned,
installed or used by Tenant at or in connection with the operation of the
Demised Premises or in connection with Tenant's business conducted at the
Demised Premises and, at Landlord's request, furnish Landlord with reasonable
evidence, within ten (10) days after demand, that the same have been paid.
3.04. If the Commencement Date shall be other than the first day of a
Tax Year or an Operating Year or if the Expiration Date shall be a day other
than the last day of a Tax Year or an Operating Year, then Tenant's Tax Payment
and/or Tenant's Expense Payment for such partial year shall be equitably
adjusted taking into consideration the portion of such Tax Year or Operating
Year falling within the Term. Landlord shall, as soon as reasonably practicable,
cause an Escalation Statement with respect to Existing Building Taxes and Common
Area Taxes for the Tax Year and/or Operating Expenses and Common Area Operating
Expenses for the Operating Year in which the Term expires to be prepared and
furnished to Tenant. Such Escalation Statement shall be prepared as of the
Expiration Date of the Term if such date is December 31, and if not, as of the
first to occur of June 30 or December 31 after the Expiration Date of the Term.
Landlord and Tenant shall thereupon make appropriate adjustments of amounts then
owing.
3.05. In no event shall the Basic Annual Rent ever be reduced by
operation of this Article 3. The rights and obligations of Landlord and Tenant
under the provisions of this Article 3 shall survive the termination of this
Lease, and payments shall be made pursuant to this Article 3 notwithstanding the
fact that an Escalation Statement is furnished to Tenant after the expiration or
other termination of the Term.
3.06. Landlord's failure to render an Escalation Statement with
respect to any Tax Year or Operating Year shall not prejudice Landlord's right
to thereafter render an Escalation Statement with respect thereto or with
respect to any subsequent Tax Year or Operating Year.
3.07. Each Escalation Statement shall be conclusive and binding upon
Tenant unless within thirty (30) days after receipt of such Escalation Statement
Tenant shall notify Landlord that it disputes the correctness of such Escalation
Statement, specifying the particular respects in which such Escalation Statement
is claimed to be incorrect. Any such dispute may be submitted to arbitration in
accordance with Article 43 by either party, but pending the resolution of such
dispute, and as a condition precedent to Tenant's right to invoke such
arbitration process, Tenant shall make its payments in accordance with such
Escalation Statement without prejudice
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to Tenant's position. In the event of the resolution of such dispute so that
there shall have been an overpayment of any of Tenant's Tax Payment and/or
Tenant's Expense Payment, Landlord shall permit Tenant to credit the amount of
such overpayment against the next subsequent rental payments under this Lease.
After the termination of this Lease and the payment to Landlord of the balance,
if any, of all Basic Annual Rent and additional rent due hereunder, Landlord
shall pay to Tenant the amount of any credit not previously applied by Tenant.
Tenant agrees, at Landlord's request, to be a party to any arbitration between
Landlord and any other tenant of the Property concerning the interpretation of
any provision similar to a provision in this Article 3 in such other tenant's
lease. Tenant shall not be responsible for the cost of any such arbitration,
except that Tenant shall bear the cost of its own counsel, experts and
presentation of proof, if any.
3.08. Tenant will cooperate with Landlord in all reasonable respects
in obtaining and retaining any tax abatement or exemption for which the Property
may be eligible. Tenant will execute and file within ten (10) days after demand
any and all documents and instruments reasonably necessary to obtain and retain
such abatement or exemption.
ARTICLE 4
ELECTRICITY
4.01. Landlord agrees that prior to the Commencement Date risers,
feeders and wiring will be installed in the Building by Landlord to furnish
electrical service to the Demised Premises in accordance with work required
pursuant to No. 1 of Schedule C. After the Commencement Date any additional
risers, feeders or other equipment or service proper or necessary to supply
Tenant's electrical requirements, upon written request of Tenant, will be
installed by Landlord at the sole cost and expense of Tenant, if in Landlord's
sole judgment the same are available and necessary for Tenant's use and will not
cause permanent damage or injury to the Property or the Demised Premises or
cause or create a dangerous or hazardous condition or entail excessive or
unreasonable alterations, repairs or expense or interfere with or disturb other
tenants or occupants.
4.02. Tenant covenants and agrees to pay directly to the utility
company supplying electricity to the Demised Premises the amounts due for
electric current consumed by Tenant as indicated by meters measuring Tenant's
consumption thereof.
4.03. Tenant's use of electric current in the Demised Premises shall
not at any time exceed the capacity of any of the electrical conductors and
equipment in or otherwise serving the Demised Premises. The electrical
conductor's and equipment for the Fourth Floor Space have a capacity of six (6)
watts per square foot, exclusive of heating, ventilation and air conditioning
equipment. Tenant shall not make or perform or permit the making or performing
of, any alterations to wiring, installations or other electrical facilities in
or serving the Demised Premises without the prior consent of Landlord in each
instance, and then only in accordance with the provisions of Article 6.
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4.04. Landlord shall not be liable in any way to Tenant for any
failure or defect in the supply or character of electric energy furnished to the
Demised Premises by reason of any requirement, act or omission of the public
utility providing the Building with electricity or for any other reason
whatsoever (other than Landlord's gross negligence or willful misconduct).
Without limiting the foregoing, in no event shall Landlord be liable to Tenant
for any consequential damages arising from any such failure or defect.
4.05. At Landlord's option, Tenant shall purchase from Landlord,
Landlord's agent or Landlord's cleaning contractor all lighting tubes, lamps,
bulbs and ballasts used in the Demised Premises and Tenant shall pay Landlord's
reasonable charges (not to exceed the standard rate generally charged to other
tenants at the Building) for providing and installing same on demand as
additional rent.
ARTICLE 5
USE
5.01. The Demised Premises shall be used solely as and for executive
and general offices, including as a data center, and for no other purpose.
5.02. Tenant shall not use or permit the use of the Demised Premises
or any part thereof in any way which would violate any of the covenants,
agreements, terms, provisions and conditions of this Lease or for any unlawful
purposes or in any unlawful manner or in violation of the certificate of
occupancy for the Demised Premises or the Building, and Tenant shall not permit
the Demised Premises or any part thereof to be used in any manner or anything to
be done, brought into or kept therein which, in Landlord's good faith judgment
shall impair or interfere with (i) the character, reputation or appearance of
the Building as a first class office building, (ii) any of the Property services
or the proper and economic heating, cleaning, air conditioning or other
servicing of the Property or the Demised Premises, or (iii) the use of any of
the other areas of the Property by, or occasion discomfort, inconvenience or
annoyance to, any of the other tenants or occupants of the Property. Tenant
shall not install any electrical or other equipment of any kind which, in the
judgment of Landlord, might cause any such impairment, interference, discomfort,
inconvenience or annoyance or which might overload the risers or feeders
servicing the Demised Premises or other portions of the Building.
ARTICLE 6
ALTERATIONS AND INSTALLATIONS
6.01. Tenant shall make no alterations, installations, additions or
improvements in or to the Demised Premises without Landlord's prior written
consent and then only by contractors or mechanics who are approved by Landlord
beforehand or who are on the list of approved contractors for the Complex
prepared by Landlord and furnished to Tenant upon request. Landlord hereby
approves Nova Interiors, Nead Electric and Aztec Corporation to
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perform Tenant's Work with respect to the initially Demised Premises. All such
work, alterations, installations, additions and improvements shall be done at
Tenant's sole expense and at such times and in such manner as Landlord may from
time to time reasonably designate.
Any work in the Demised Premises shall be done solely in accordance
with plans and specifications (prepared by a licensed engineer) first approved
in writing by Landlord. Landlord shall have five (5) days to approve such plans;
provided, that in the event such plans are submitted to third party consultants
for their review, then Landlord shall have ten (10) days to approve such plans,
provided, that in either case, Landlord may extend the time period, as
applicable, by five (5) days by giving notice of same to Tenant by the end of
the original time period, as applicable, provided above. Tenant shall reimburse
Landlord promptly upon demand for any reasonable costs and expenses incurred by
Landlord in connection with Landlord's review of such Tenant's plans and
specifications. Landlord will not unreasonably withhold or delay its consent to
requests for non structural alterations, additions and improvements (provided
they will not interfere with the operation of the Complex nor affect the outside
of the Complex nor adversely affect its structure, electrical, HVAC, plumbing or
mechanical systems).
Any such approved alterations and improvements shall be performed in
accordance with the foregoing and the following provisions of this Article 6:
1. All work shall be done in a good and workmanlike manner.
2. (a) Any contractor employed by Tenant to perform any work
permitted by this Lease, and all of its subcontractors, shall agree to
employ only such labor as will not result in jurisdictional disputes
or strikes or cause disharmony with other workers employed at the
Property. Tenant will inform Landlord in writing of the names of any
contractor or subcontractors Tenant proposes to use in the Demised
Premises at least ten (10) days prior to the beginning of work by such
contractor or subcontractors.
(b) Tenant covenants and agrees to pay to the contractor,
as the work progresses, the entire cost of supplying the materials and
performing the work shown on Tenant's approved plans and
specifications less only customary retentions.
3. All work shall be performed in compliance with all Legal
Requirements.
4. All work shall be performed in accordance with the general
tenant guidelines for the Property regarding such work, which
guidelines Tenant acknowledges are available for its reference and use
in the Property manager's office.
5. Tenant shall keep the Property and the Demised Premises free
and clear of all liens for any work or material claimed to have been
furnished to Tenant or to the Demised Premises on Tenant's behalf, and
all work to be
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performed by Tenant shall be done in a manner which will not
unreasonably interfere with or disturb other tenants or occupants of
the Property.
6. During the progress of the work to be done by Tenant, said
work shall be subject to inspection by representatives of Landlord who
shall be permitted access and the opportunity to inspect, at all
reasonable times, but this provision shall not in any way whatsoever
create any obligation on Landlord to conduct such an inspection.
7. With respect to alteration or improvement work costing more
than $50,000, Tenant agrees to pay to Landlord, as additional rent,
promptly upon being billed therefor, a sum equal to five thousand and
00/100 Dollars ($5,000) together with all reasonable out of pocket
expenses, including but not limited to electrical and structural
engineering costs but excluding attorneys fees and disbursements, for
Landlord's indirect costs, field inspection and coordination in
connection with such work (including, without limitation, to review
Tenant's plans and specifications or to inspect or monitor such
alteration or improvement work).
8. Prior to commencement of any work, Tenant shall furnish to
Landlord certificates of insurance evidencing the existence of:
(a) worker's compensation insurance covering all persons
employed for such work with statutory required limits;
(b) employer's liability coverage including bodily injury
caused by disease with limits of not less than $100,000 per employee;
and
(c) commercial general liability insurance including, but
not limited to, completed operations coverage, products liability
coverage, contractual coverage, broad form property damage,
independent contractor's coverage and personal injury coverage naming
Landlord as well as such representatives and consultants of Landlord
as Landlord shall reasonably specify (collectively "Landlord's
Consultants"), including, without limitation, as of the date hereof,
Institutional Realty Management LLC and Jones Lang Wootton Realty
Advisors, as well as Tenant, as additional insureds, with coverage of
not less than $3,000,000 combined single limit coverage (or such
higher limits as Landlord may from time to time impose in its
reasonable judgment).
Such insurance shall be placed with solvent and responsible companies
reasonably satisfactory to the Landlord and licensed or authorized to
do business in the State of New Jersey, and the policies shall provide
that they may not be canceled without thirty (30) days' prior notice
in writing to Landlord.
9. Tenant shall require all contractors engaged or employed by
Tenant to indemnify and hold Tenant, Landlord, and Landlord's
Consultants,
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including, but not limited to, as of the date hereof Institutional
Realty Management LLC and Jones Lang Wootton Realty Advisors, harmless
in accordance with the following clauses (with such modifications
therein as may be required from time to time by reason of a change in
the parties constituting Landlord's Consultants):
"The contractor hereby agrees to the fullest extent permitted by law
to assume the entire responsibility and liability for and defense of
and to pay and indemnify Landlord, Tenant and Landlord's Consultants,
against any loss, cost, expense, liability or damage and will hold
each of them harmless from and pay any loss, cost, expense, liability
or damage (including, without limitation, judgments, attorneys' fees,
court costs, and the cost of appellate proceedings), which Landlord
and/or Tenant and/or Landlord's Consultants, incurs because of injury
to or death of any person or on account of damage to property,
including loss of use thereof, or any other claim arising out of, in
connection with, or as a consequence of the performance of the work by
the contractor and/or any acts or omissions of the contractor or any
of its officers, directors, employees, agents sub-contractors or
anyone directly or indirectly employed by the contractor or anyone for
whose acts the contractor may be liable as it relates to the scope of
this contract, except to the extent with respect to any of the persons
or entities indemnified hereunder, such injuries to person or damage
to property are alleged to be due and are held by a final unappealable
order of a court of competent jurisdiction to be due to the negligence
of the such person or entity seeking to be so indemnified."
The contractor's insurance shall specifically insure the foregoing
hold harmless provision verbatim or such other hold harmless provision
as is acceptable to Landlord.
10. Tenant, to the extent permitted by law, shall make
application for all building permits in its own name. Tenant shall
obtain any temporary certificate of occupancy or addendum to the
permanent certificate of occupancy required as a result of Tenant's
alterations and improvements. Landlord shall join in any and all
applications for permits, licenses or other authorizations if required
by any Governmental Authority, and may, in any event, so join in. If
Landlord is required to join in any such application Tenant shall
reimburse Landlord as additional rent for all documented out-of-pocket
expenses (including without limitation reasonable legal fees and
expenses) incurred by Landlord in connection with such application.
11. Within ninety (90) days after completion of any work Tenant
shall, at its sole cost and expense, furnish Landlord with one mylar
set of "as built" plans, drawings and specifications, which plans,
drawings and specifications and all rights therein, to the extent same
does not constitute intellectual property of Tenant and Tenant
notifies Landlord thereof, shall become the property of Landlord. The
transfer of all such rights as to the plans shall be confirmed in
writing by Tenant's architect. If any of the foregoing plans
constitute
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intellectual property of Tenant and Tenant notifies Landlord thereof,
Landlord agrees to keep same confidential, subject to delivery to
Landlord's agents, employees, attorneys and transactional advisors,
provided such parties agree to keep any plans delivered to them
confidential.
12. With respect to alteration or improvement work (excluding
the purchase and maintenance of equipment used exclusively for the
operation of a data processing center) costing more than $100,000,
prior to commencing same Tenant shall provide Landlord with a letter
of credit in the amount of 125% of the reasonable estimated cost of
such work and otherwise in form and substance reasonably satisfactory
to Landlord, as security for the full and faithful performance and
completion of all such work. Such letter of credit shall be returned
after such work has been 100% completed and Landlord shall have been
furnished with payment receipts, lien waivers and such other documents
as Landlord may reasonably request to assure that such work has been
completed lien free.
6.02. Notice is hereby given that Landlord shall not be liable for
any labor or materials furnished or to be furnished to Tenant upon credit, and
that no mechanic's or other lien for any such labor or materials shall attach to
or affect the reversion or other estate or interest of Landlord in and to the
Demised Premises. Any mechanic's lien filed against the Demised Premises or the
Property for work claimed to have been done for or materials claimed to have
been furnished to Tenant shall be discharged by Tenant at its expense within
thirty (30) days after Tenant receives notice of such filing, by payment, filing
of the bond required by law or otherwise.
6.03. All alterations, installations, additions and improvements made
and installed by Landlord, including without limitation all work referred to in
Article 2 hereof and in Schedule C, shall be the property of Landlord and shall
remain upon and be surrendered with the Demised Premises as a part thereof at
the end of the Term.
6.04. All alterations, installations, additions and improvements made
and installed by Tenant, or at Tenant's expense, upon or in the Demised Premises
which are of a permanent nature and which cannot be removed without damage to
the Demised Premises or the Property shall become and be the property of
Landlord, and shall remain upon and be surrendered with the Demised Premises as
a part thereof at the end of the Term, except that Landlord shall have the right
at any time up to six months prior to the expiration of the Term to serve notice
upon Tenant that any of such alterations, installations, additions and
improvements shall be removed and, in the event of service of such notice,
Tenant will, at Tenant's own cost and expense, remove the same in accordance
with such request, and restore the Demised Premises to its original condition,
ordinary wear and tear and casualty excepted. Notwith-standing the foregoing,
Tenant shall have the right to remove any and all equipment used exclusively for
the operation of a data processing center, provided Tenant repairs any and all
damage to the Demised Premises or the Property in connection with such removal,
if any, such that Tenant restores the Demised Premises and the Property to the
same condition in which it existed immediately prior to the aforementioned
removal.
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6.05. Where furnished by or at the expense of Tenant all furniture,
furnishings and trade fixtures, including without limitation, murals, business
machines and equipment, counters, screens, grille work, special paneled doors,
cages, partitions, metal railings, closets, paneling, free standing lighting
fixtures and equipment, drinking fountains, refrigeration equipment, and any
other movable property (exclusive of supplementary air conditioning equipment
and raised flooring which shall become the property of Landlord) shall remain
the property of Tenant which may at its option remove all or any part thereof at
any time prior to the expiration of the Term. In case Tenant shall decide not to
remove any part of such property, Tenant shall notify Landlord in writing not
less than three (3) months prior to the expiration of the Term, specifying the
items of property which it has decided not to remove. If, within thirty (30)
days after the service of such notice, Landlord shall request Tenant to remove
any of the said property, Tenant shall at its expense remove the same. As to
such property which Landlord does not request Tenant to remove, the same shall
be, if left by Tenant, deemed abandoned by Tenant and thereupon the same shall
become the property of Landlord.
6.06. If any alterations, installations, additions, improvements or
other property which Tenant shall have the right to remove or be requested by
Landlord to remove as provided in Sections 6.04 and 6.05 hereof (herein in this
Section 6.06 called the "Tenant's Property") are not removed on or prior to the
expiration of the Term, Landlord shall have the right to remove the Tenant's
Property and to dispose of the same without accountability to Tenant and at the
sole cost and expense of Tenant. In case of any damage to the Demised Premises
or the Property resulting from the removal of the Tenant's Property, Tenant
shall repair such damage or, in default thereof, shall reimburse Landlord for
Landlord's cost in repairing such damage. This obligation shall survive any
termination of this Lease.
6.07. Tenant shall keep records of Tenant's alterations,
installations, additions and improvements costing in excess of $50,000, and of
the cost thereof. Tenant shall, within forty-five (45) days after demand by
Landlord, furnish to Landlord copies of such records if Landlord shall require
same in connection with any proceeding to reduce the assessed valuation of the
Property, or in connection with any proceeding instituted pursuant to Article 14
hereof.
ARTICLE 7
REPAIRS
7.01. Tenant shall, at its sole cost and expense, be responsible for
the maintenance and repair of the Demised Premises (including all bathrooms and
other sanitary facilities located therein), and keep same in good order and
condition, including all necessary painting and decorating, and make such
repairs to the Demised Premises and the fixtures and appurtenances therein as
and when needed to preserve them in good working order and condition (except
that as to structural repairs Landlord shall be obligated to make same unless
they are necessitated by any act, omission, occupancy or negligence of Tenant or
by the use of the Demised Premises in a manner contrary to the purposes for
which same are leased to Tenant, in which case Tenant shall be so obligated).
Tenant shall keep all glass, including windows, doors and skylights, clean and
in good condition and repair and Tenant shall replace any glass that may
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be damaged with glass of the same kind and quality. All damage or injury to the
Property caused by Tenant moving property in or out of the Building or by
installation or removal of furniture, fixtures or other property, shall be
repaired, restored or replaced promptly by Tenant at its sole cost and expense,
which repairs, restorations and replacements shall be in quality and class equal
to the original work or installations. Tenant shall promptly make all repairs in
or to the Demised Premises or the Property for which Tenant is responsible,
provided that any repairs required to be made to the mechanical, electrical,
sanitary, heating, ventilating, air-conditioning or other Building systems shall
be performed only by Landlord. If Tenant fails to make such repairs, restoration
or replacements, same may be made by Landlord at the expense of Tenant and such
expense shall be collectible as additional rent and shall be paid by Tenant
within ten (10) days after rendition of a bill therefor.
7.02. If the Demised Premises includes loading docks, and or related
facilities, Tenant shall keep the loading docks and areas adjacent thereto and
the driveways and streets within the Property leading to said loading docks free
of all dirt, rubbish and other obstructions arising from Tenant's use or
occupancy of any such facilities or the use of such facilities by Tenant's
officers, agents, employees, suppliers or invitees including independent
contractors making deliveries or pick-ups from such loading docks.
7.03. Tenant shall not place a load upon any floor of the Demised
Premises exceeding the floor load per square foot area which such floor was
designed to carry and which is allowed by law. The floor of the Demised Premises
will carry 150 pounds live load per square foot of floor space.
7.04. Business machines and mechanical equipment used by Tenant which
cause vibration, noise, cold or heat that may be transmitted to the Building
structure or to any leased space to such a degree as to be objectionable to
Landlord or to any other tenant at the Property shall be placed and maintained
by Tenant at its expense in settings of cork, rubber or spring type vibration
eliminators sufficient to absorb and prevent such vibration or noise, or prevent
transmission of such cold or heat. The parties hereto recognize that the
operation of elevators, air conditioning and heating equipment will cause some
vibration, noise, heat or cold which may be transmitted to other parts of the
Building and Demised Premises. Landlord shall be under no obligation to endeavor
to reduce such vibration, noise, heat or cold beyond what is customary in
current good building practice for buildings of the same type as the Building.
7.05. Except as otherwise specifically provided in this Lease, there
shall be no allowance to Tenant for a diminution of rental value and no
liability on the part of Landlord by reason of inconvenience, annoyance or
injury to business arising from the making of any repairs, alterations,
additions or improvements in or to any portion of the Building or the Demised-
Premises or in or to fixtures, appurtenances or equipment thereof. Landlord
shall exercise reasonable diligence so as to minimize any interference with
Tenant's business operations, but shall not be required to perform the same on
an overtime or premium pay basis.
7.06. If Tenant shall install a supplemental air-conditioning system
subject to and in accordance with the requirements of this Lease, Tenant shall
maintain same in good order and condition, shall enter into a contract for the
maintenance thereof with a heating, ventilating
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and air-conditioning contractor reasonably acceptable to Landlord and shall
deliver to Landlord a copy of such contracts and all amendments thereto promptly
after execution thereof.
ARTICLE 8
REQUIREMENTS OF LAW
8.01. Tenant shall, at Tenant's expense, comply with all Legal
Requirements which shall impose any violation, order or duty upon Landlord or
Tenant with respect to the Demised Premises, or the use or occupation thereof,
whether or not such compliance involves structural repairs or changes, provided
that Tenant shall not be liable for any such compliance relating to
environmental matters, whereby such compliance is required as a direct result of
any act or omission relating to the Demised Premises, which took place prior to
the Commencement Date.
8.02. Notwithstanding the provisions of Section 8.01 hereof, Tenant,
at its own cost and expense, in its name and/or (whenever necessary) Landlord's
name, may contest, in any manner permitted by law (including appeals to a court,
or governmental department or authority having jurisdiction in the matter), the
validity or the enforcement of any Legal Requirements with which Tenant is
required to comply pursuant to this Lease, and may defer compliance therewith
provided that:
(a) such non-compliance shall not subject Landlord to criminal
prosecution or subject the Property to lien or sale;
(b) such non-compliance shall not be in violation of any
mortgage, or of any ground or underlying lease or any mortgage thereon;
(c) Tenant shall first deliver to Landlord a surety bond
issued by a surety company of recognized responsibility, or other security
satisfactory to Landlord, indemnifying and protecting Landlord against any loss
or injury by reason of such non-compliance; and
(d) Tenant shall promptly, diligently and continuously
prosecute such contest. Landlord, without expense or liability to it, shall
cooperate with Tenant and execute any documents or pleadings required for such
purpose, provided that Landlord shall reasonably be satisfied that the facts set
forth in any such documents or pleadings are accurate.
8.03. All work performed pursuant to this Article by Tenant shall be
performed in accordance with the provisions of Article 6 hereof relating to
Alterations.
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ARTICLE 9
INSURANCE, LOSS, REIMBURSEMENT, LIABILITY
9.01. Tenant shall not do or permit to be done any act or thing upon
the Demised Premises which will invalidate or be in conflict with New Jersey
standard fire insurance policies covering the Property, and fixtures and
property therein, or which would increase the rate of fire insurance applicable
to the Property to an amount higher than it otherwise would be; and Tenant shall
neither do nor permit to be done any act or thing upon the Demised Premises
which shall or might subject Landlord to any liability or responsibility for
injury to any person or persons or to property by reason of any business or
operation being carried on within the Demised Premises.
9.02. If, as a result of any act or omission by Tenant or violation
of this Lease, the rate of fire insurance applicable to the Property shall be
increased to an amount higher than it otherwise would be, Tenant shall reimburse
Landlord for all increases of Landlord's fire insurance premiums so caused; such
reimbursement to be additional rent payable within five (5) days after demand
therefor by Landlord. In any action or proceeding wherein Landlord and Tenant
are parties, a schedule or "make-up" of rates for the Property or Demised
Premises issued by the body making fire insurance rates for the Demised Premises
shall be presumptive evidence of the facts stated therein including the items
and charges taken into consideration in fixing the fire insurance rate then
applicable to the Demised Premises.
9.03. Landlord or its agents shall not be liable for any injury or
damage to persons or property resulting from fire, explosion, falling plaster,
steam, gas, electricity, water, rain or snow or leaks from any part of the
Building, or from the pipes, appliances or plumbing works or from the roof,
street or subsurface or from any other place or by dampness or by any other
cause of whatsoever nature, unless any of the foregoing shall be caused by or
due to the gross negligence of Landlord, its agents, servants and/or employees.
9.04. Landlord or its agents shall not be liable for any damage which
Tenant may sustain if any window of the Demised Premises is broken, or
temporarily or permanently closed, darkened or bricked upon for any reason
whatsoever, except only Landlord's arbitrary acts if the result is permanent or
not remedied within a reasonable time, and Tenant shall not be entitled to any
compensation therefor or abatement of rent or to any release from any of
Tenant's obligations under this Lease, nor shall the same constitute an eviction
or constructive eviction.
9.05. Tenant shall reimburse Landlord for all expenses, damages or
fines incurred or suffered by Landlord by reason of any breach, violation or
non-performance by Tenant, or its agents, servants or employees, of any covenant
or provision of this Lease, or by reason of damage to persons or property caused
by moving property of or for Tenant in or out of the Building, or by the
installation or removal of furniture or other property of or for Tenant, or by
reason of or arising out of the carelessness, negligence or improper conduct of
Tenant, or its agents, servants or employees, in the use or occupancy of the
Demised Premises. Subject to compliance with the provisions of Section 8.02
hereof, where applicable, Tenant shall have the right, at Tenant's own cost and
expense, to participate in the defense of any action or proceeding
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brought against Landlord, and in negotiations for settlement thereof if,
pursuant to this Section 9.05, Tenant would be obligated to reimburse Landlord
for reasonable expenses, damages or fines incurred or suffered by Landlord.
9.06. Tenant shall give Landlord written notice in case of fire or
accidents in the Demised Premises promptly after Tenant is aware of such event.
9.07. Tenant agrees to look solely to Landlord's interest in the
Property for the satisfaction of any right or remedy of Tenant for the
collection of a judgment (or other judicial process) requiring the payment of
money by Landlord, its partners, officers or shareholders, in the event of any
liability by Landlord, and no other property or assets of Landlord, its
partners, officers or shareholders shall be subject to levy, execution,
attachment, or other enforcement procedure for the satisfaction of Tenant's
remedies under or with respect to this Lease, the relationship of Landlord, its
partners, officers or shareholders and Tenant hereunder, or Tenant's use and
occupancy of the Demised Premises, or any other liability of Landlord, its
partners, officers or shareholders to Tenant.
9.08. (a) Notwithstanding anything to the contrary contained in this
Lease, Tenant agrees that it will, at its sole cost and expense, include in its
property insurance policies appropriate clauses pursuant to which the insurance
companies (i) waive all right of subrogation against Landlord and any tenant of
space in the Property with respect to losses payable under such policies and
(ii) agree that such policies shall not be invalidated should the insured waive
in writing prior to a loss any or all right of recovery against any party for
losses covered by such policies. Tenant shall furnish Landlord upon demand
evidence satisfactory to Landlord evidencing the inclusion of said clauses in
Tenant's insurance policies.
(b) Provided that Landlord's right of full recovery under its
fire insurance policies is not adversely affected or prejudiced thereby,
Landlord hereby waives any and all right of recovery which it might otherwise
have against Tenant, its servants, agents and employees, for loss or damage
occurring to the Property and the fixtures, appurtenances and equipment therein,
to the extent the same is covered by Landlord's insurance, notwithstanding that
such loss or damage may result from the negligence or fault of Tenant, its
servants, agents or employees. Provided that Tenant's right of full recovery
under its fire insurance policies is not adversely affected or prejudiced
thereby, Tenant hereby waives any and all right of recovery which it might
otherwise have against Landlord, its servants, and employees, and against every
other tenant at the Property who shall have executed a similar waiver as set
forth in this Section 9.08(b) for loss or damage to Tenant's furniture,
furnishings, fixtures and other property removable by Tenant under the
provisions hereof to the extent that same is covered by Tenant's insurance,
notwithstanding that such loss or damage may result from the negligence or fault
of Landlord, its servants, agents or employees, or such other tenant and the
servants, agents or employees thereof.
9.09. Tenant covenants and agrees to provide, at its expense, on or
before the Commencement Date and to keep in force during the Term, naming
Landlord, its agents (which as of the date hereof are Institutional Realty
Management LLC and Jones Lang Wootton Realty Advisors), and Tenant as insured
parties, (a) a commercial general liability insurance policy written on an
occurrence form (hereinafter referred to as a "Liability Policy"), including,
without
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limitation, blanket contractual liability coverage, premises-operation,
products/completed operations hazard, broad form property damage, independent
contractor's coverage and personal injury coverage protecting Landlord, its
agents, Institutional Realty Management LLC and Jones Lang Wootton Realty
Advisors, and Tenant against any liability whatsoever, occasioned by any
occurrence on or about the Demised Premises or any appurtenances thereto, (b) a
fire and other casualty policy (a "Fire Policy") insuring the full replacement
value of Tenant's Extra Work and all of the furniture, trade fixtures and other
personal property of Tenant located in the Demised Premises against loss or
damage by fire, theft, sprinkler leakage, boiler and machinery and such other
risks or hazards as are insurable under present and future forms of "All Risk"
insurance policies, (c) plate glass insurance, (d) business interruption
insurance and (e) workers compensation and employees liability insurance. Such
policies are to be written by good and solvent insurance companies licensed or
authorized to do business in the State of New Jersey satisfactory to Landlord
with a minimum A.M. Best's rating of A-VI, and shall be in such limits as
Landlord may reasonably require. Landlord reserves the right to increase limits
and adjust coverages as industry standards change. As of the date of this Lease
Landlord reasonably requires limits of liability under (i) the Liability Policy
of not less than $5,000,000 combined single limit per occurrence for bodily or
personal injury (including death) and property damage and (ii) the Fire Policy
equal to the full replacement cost of Tenant's Extra Work, Tenant's Finish Work,
if any, and furniture, trade fixtures and other personal property of Tenant
located at the Property with a deductible of no more than $1,000. Tenant will
furnish Landlord with such information as Landlord may reasonably request from
time to time as to the value of the items specified in clause (ii) above within
ten (10) days after request therefor. Such insurance may be carried (x) under a
blanket policy covering the Demised Premises and other locations of Tenant, if
any, provided that each such policy shall in all respects comply with this
Article and shall specify that the portion of the total coverage of such policy
that is allocated to the Demised Premises is in the amounts required pursuant to
this Section 9.09 and (y) under a primary liability policy of not less than
$1,000,000 and the balance under an umbrella policy. Prior to the time such
insurance is first required to be carried by Tenant and thereafter, at least
fifteen (15) days prior to the effective date of any such policy Tenant shall
deliver to Landlord a certificate evidencing such insurance. Said certificate
shall contain an endorsement that such insurance may not be canceled except upon
thirty (30) days' prior notice to Landlord. All insurance policies carried by
Tenant shall be written as primary policies, not contributing with or secondary
to coverage which Landlord carries. Tenant's failure to provide and keep in
force the aforementioned insurance shall be regarded as a material default
hereunder entitling Landlord to exercise any or all of the remedies provided in
this Lease in the event of Tenant's default. Notwithstanding anything to the
contrary contained in this Lease, the carrying of insurance by Tenant in
compliance with this Section 9.09 shall not modify, reduce, limit or impair
Tenant's obligations and liability under Article 38 hereof.
ARTICLE 10
DAMAGE BY FIRE OR OTHER CAUSE
10.01. If Plaza II or Plaza III or the Demised Premises shall be
partially or totally damaged or destroyed by fire or other cause (and if this
Lease shall not have been terminated as
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in this Article 10 hereinafter provided), Landlord shall repair the damage and
restore and rebuild the Building and/or the Demised Premises, except for
Tenant's Work and Tenant's personal property, at its expense with reasonable
dispatch after notice to it of the damage or destruction and the collection of
the insurance proceeds attributable to such damage.
10.02. If Plaza II or Plaza III or the Demised Premises shall be
damaged or destroyed by fire or other cause, then unless such fire or damage
shall have resulted from the negligence of Tenant or its employees, agents or
contractors, the rents payable hereunder shall be abated to the extent that the
Demised Premises shall have been rendered untenantable for the period from the
date of such damage or destruction to the date the damage shall be repaired or
restored, such abatement to be granted on a pro rata basis if only a portion of
the Demised Premises is rendered untenantable; provided, however, that should
Tenant reoccupy a portion of the Demised Premises as to which the abatement is
in effect during the period the restoration work is taking place and prior to
the date that the whole of said Demised Premises are made tenantable, Basic
Annual Rent and additional rent allocable to such portion shall be payable by
Tenant from the date of such occupancy.
10.03. If Plaza II or Plaza III shall be so damaged or destroyed by
fire or other cause (whether or not the Demised Premises are damaged or
destroyed) as to require a reasonably estimated expenditure made by Landlord or
a reputable contractor designated by Landlord of more than twenty percent (20%)
of the full insurable value of the Building immediately prior to the casualty
(or ten percent (10%) if such casualty occurs during the last two years of the
Term) then Landlord may terminate this Lease by giving Tenant notice to such
effect within one hundred eighty (180) days after the date of the casualty and
upon such notice this Lease and the estate hereby granted, whether or not the
Term shall have theretofore commenced, shall terminate as if that date was the
Expiration Date. In case of any damage or destruction mentioned in this Article
10 which Landlord is required to repair and restore, Tenant may terminate this
Lease by notice to Landlord if Landlord has not completed the making of the
required repairs and restorations within eighteen (18) months after the date of
such damage or destruction, or within such period after such date (not exceeding
six (6) months) as shall equal the aggregate period Landlord may have been
delayed in doing so by Force Majeure Causes (as defined in Article 34).
10.04. No damages, compensation or claim shall be payable by
Landlord for inconvenience, loss of business or annoyance arising from any
repair or restoration of any portion of the Demised Premises or of Plaza II or
Plaza 1972 III or of the Complex arising from damage or destruction caused by
fire or other casualty and Landlord shall not be required to do any such repair
or restoration except on Business Days from 9:00 A.M. to 5:00 P.M. Landlord
agrees to use reasonable efforts to perform any such work at such times (between
9:00 A.M. and 5:00 P.M.) and in such a manner as to minimize disturbance to
Tenant's business.
10.05. Notwithstanding any of the foregoing provisions of this
Article 10, if Landlord or the lessor of any superior lease or the holder of any
superior mortgage shall be unable to collect all of the insurance proceeds
(including rent insurance proceeds) applicable to damage or destruction of the
Demised Premises or the Property by fire or other cause by reason of some action
or inaction on the part of Tenant or any of its officers, partners, directors,
employees, agents or contractors, then, without prejudice to any other remedies
which may be
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available against Tenant, there shall be no abatement of Tenant's rent, but the
total amount of such rent not abated (which would otherwise have been abated)
shall not exceed the amount of uncollected insurance proceeds.
10.06. Landlord will not carry separate insurance of any kind on
Tenant's property (including, without limitation, any property of Tenant's which
shall become the property of Landlord as provided in Article 6), and, except as
provided by law or otherwise expressly provided herein, shall not be obligated
to repair any damage thereto or replace or clean the same, or any decorations,
installations, equipment or fixtures installed by or for Tenant at Tenant's
expense.
10.07. The provisions of this Article 10 shall be considered an
express agreement governing any cause of damage or destruction of the Demised
Premises by fire or other casualty and any law providing for such a contingency
now or hereinafter erected shall have no application in such case.
ARTICLE 11
ASSIGNMENT, MORTGAGING, SUBLETTING, ETC.
11.01. Except as otherwise expressly provided in this Article 11,
Tenant shall not, whether voluntarily, involuntarily or by operation of law,
without in each instance obtaining the prior consent of Landlord, (a) assign or
otherwise transfer this Lease or the term and estate hereby granted, (b) sublet
all or part of the Demised Premises or allow the same to be used or occupied by
anyone other than Tenant, or (c) mortgage, pledge or encumber this Lease or all
or part of the Demised Premises in any manner by reason of any act or omission
on the part of Tenant. For purposes of this Article 11, (i) the transfer,
directly or indirectly, of a majority of any class of the issued and outstanding
capital stock of any corporate tenant or subtenant, or the transfer of a
majority of the total interest in any other entity (partnership or otherwise)
which is a tenant or subtenant, however accomplished, whether in a single
transaction or in a series of related or unrelated transactions (including,
without limitation, and by way of example only, the transfer of a majority of
the outstanding capital stock of a company which company owns 100% of a second
tier company, which in turn owns more than 50% of the outstanding capital stock
of a corporate tenant hereunder), shall be deemed an assignment of this Lease,
or of such sublease, as the case may be, (ii) a so-called "takeover" agreement
(i.e. an agreement where another entity agrees to become responsible for all or
a portion of Tenant's obligations under this Lease without actually entering
into an assignment or sublease) shall be deemed a transfer of this Lease, (iii)
any person or legal representative of Tenant, to whom Tenant's interest under
this Lease passes by operation of law, or otherwise, shall be bound by the
provisions of this Article 11, and (iv) a modification, amendment or extension
without Landlord's prior written consent of a sublease previously consented to
by Landlord shall be deemed a new sublease. Tenant agrees to furnish to Landlord
upon demand at any time and from time to time such information and assurances as
Landlord may reasonably request that neither Tenant, nor any subtenant, is in
violation of the provisions of this Section 11.01.
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11.02. (a) The provisions of clauses (a) and (b) of Section 11.01
hereof shall not apply to transactions entered into by Tenant with (i) an
"affiliate" (as hereinafter defined) or (ii) a corporation into or with which
Tenant is merged or consolidated or with an entity to which substantially all of
Tenant's assets are transferred, provided (a) such merger, consolidation or
transfer of assets is for a good business purpose and not principally for the
purpose of transferring the leasehold estate created hereby, and (b) the
assignee or successor entity (upon consummation of such transaction) has a net
worth at least equal to or in excess of the net worth of Tenant either (i)
immediately prior to such merger, consolidation or transfer or (ii) as of the
date hereof, whichever is greater.
(b) For purposes of this Article 11, an affiliate means (i)
a corporation controlled by, controlling or under common control with Tenant (an
"affiliated corporation") or (ii) a partnership or joint venture in which Tenant
or an affiliated corporation owns more than 50% of the general partnership or
joint venture interest therein. Without limiting the generality of the
foregoing, a corporation shall not be deemed controlled by another entity unless
more than 50% of each class of its outstanding capital stock is owned, both
beneficially and of record, by such entity.
(c) The provisions regarding the transfer of the capital
stock of a corporate tenant set forth in Section 11.01 shall not apply to any
corporation where all of its outstanding capital stock is listed on a national
securities exchange (as defined in the Securities Exchange Act of 1934, as
amended) or is traded in the "over the counter" market with quotations reported
by the National Association of Securities Dealers.
11.03. Any assignment or transfer, whether made with Landlord's
consent as required by Section 11.01 or without Landlord's consent pursuant to
Section 11.02, shall not be effective unless and until (a) the assignee shall
execute, acknowledge and deliver to Landlord a recordable agreement, in form and
substance reasonably satisfactory to Landlord, whereby the assignee shall (i)
assume the obligations and performance of this Lease and agree to be personally
bound by all of the covenants, agreements, terms, provisions and conditions
hereof on the part of Tenant to be performed or observed on and after the
effective date of any such assignment and (ii) agree that the provisions of this
Article 11 shall, notwithstanding such assignment or transfer, continue to be
binding upon it in the future, and (b) in the case of an assignment or transfer
pursuant to Section 11.02, Tenant or its successor shall have delivered to
Landlord financial statements certified by a reputable firm of certified public
accountants evidencing satisfaction of the net worth requirements referred to in
Section 11.02. Tenant covenants that, notwithstanding any assignment or
transfer, whether or not in violation of the provisions of this Lease, and
notwithstanding the acceptance of Basic Annual Rent by Landlord from an assignee
or transferee or any other party, Tenant shall remain fully and primarily and
jointly and severally liable for the payment of the Basic Annual Rent and all
additional rent due and to become due under this Lease and for the performance
and observance of all of the covenants, agreements, terms, provisions and
conditions of this Lease on the part of Tenant to be performed or observed.
11.04. The liability of Tenant, and the due performance by Tenant of
the obligations on its part to be performed under this Lease, shall not be
discharged, released or
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impaired in any respect by an agreement or stipulation made by Landlord or any
grantee or assignee of Landlord in connection with a mortgage or any other
agreement with a third party extending the time of or modifying any of the
obligations contained in this Lease, or by any waiver or failure of Landlord to
enforce any of the obligations on Tenant's part to be performed under this
Lease, and Tenant shall continue liable hereunder. If any such agreement or
modification operates to increase the obligations of Tenant under this Lease,
the liability under this Section 11.04 of the tenant named in the Lease or any
of its successors in interest (unless such party shall have expressly consented
in writing to such agreement or modification) shall continue to be no greater
than if such agreement or modification had not been made.
11.05. (a) If Tenant desires to assign or sublet all or part of the
Demised Premises, other than as provided in Section 11.02, it shall notify
Landlord in writing of its intention to do so specifying in such notice whether
it wishes to assign or sublet and if to sublet whether it is for all or part of
the Demised Premises and if for only a part thereof specifying on a plan such
portion thereof ("Notice of Intent"). Landlord shall have the right, but not the
obligation, (i) with respect to a proposed assignment of this Lease or
subletting of the entire Demised Premises, to terminate this Lease as of the
"Termination Date" (as hereinafter defined) as to all of the Demised Premises,
(ii) with respect to a proposed subletting of only a portion of the Demised
Premises for substantially the balance of the Term, to terminate this Lease with
respect to such portion of the Demised Premises as of the Termination Date and
(iii) with respect to a proposed subletting of only a portion of the Demised
Premises for less than substantially the balance of the Term, accept a sublease
from Tenant of such portion as of the Termination Date. Within thirty (30) days
after Landlord receives Tenant's Notice of Intent, Landlord shall notify Tenant
whether it elects to terminate this Lease as to all or the applicable portion of
the Demised Premises or sublease a portion of the Demised Premises, as the case
may be ("Response Notice"). If Landlord elects to so terminate this Lease or
sublease a portion of the Demised Premises, the Response Notice shall set forth
the date (the "Termination Date") as of which this Lease shall so terminate or
such sublease shall be effective, which date shall not be earlier than six
months nor later than one year after the date Landlord delivers the Response
Notice. For purposes hereof a sublease shall be deemed to be for substantially
the balance of the Term if the term thereof, together with any renewal terms to
which the subtenant is entitled in the event it exercises all options granted to
it by Tenant, shall be for substantially the balance of the Term of this Lease.
(b) (i) If in the Response Notice Landlord elects to
terminate this Lease with respect to the entire Demised Premises, Tenant shall
promptly execute and deliver to Landlord an instrument in form satisfactory to
Landlord modifying this Lease so that the Term shall expire as of the
Termination Date.
(ii) If in the Response Notice Landlord elects to terminate this
Lease with respect to only a portion of the Demised Premises, (x)
Tenant shall promptly execute and deliver to Landlord an appropriate
modification of this Lease (including the adjustment of Basic Annual
Rent and the additional rent payable pursuant to Article 3 in
proportion to that portion of the Demised Premises affected by such
termination) in form satisfactory to Landlord providing for such
termination as of the Termination Date and (y) Landlord shall, at
Tenant's sole cost and expense,
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perform all work, including the erection of demising walls, necessary
to physically separate the portion of the Demised Premises so released
from the Lease from the remainder of the Demised Premises. In
addition, if the portion of the Demised Premises so released from the
Lease does not have direct access to a public corridor in the Building
Landlord shall construct, at Tenant's sole cost and expense, such a
means of access. All amounts payable to Landlord hereunder shall be
paid simultaneously with the execution of any instrument confirming
the termination of the Lease as to all or part of the Demised Premises
contemplated hereby.
(iii) If in the Response Notice Landlord elects to sublease a portion
of the Demised Premises, Tenant shall promptly execute and deliver to
Landlord a sublease with Landlord or Landlord's designee in form
reasonably satisfactory to Landlord's and Tenant's counsel and on all
the terms contained in this Lease, except that:
(A) the rental terms shall be those specified in this
Lease on a per rentable square foot basis;
(B) the sublease shall not provide for any work to be
done for the subtenant or for any initial rent concessions or
contain provisions inapplicable to a sublease, except that Tenant
shall pay to subtenant the cost of performing all work, including
the erection of demising walls, necessary to physically separate
the subleased premises from the remainder of the Demised Premises
and to provide direct access thereto from a public corridor in
the Building (if the subleased premises does not have such
access);
(C) the subtenant thereunder shall have the right to
underlet the subleased premises, in whole or in part, or assign
the sublease, without Tenant's consent;
(D) the subtenant thereunder shall have the right to
make, or cause to be made, any changes, alterations, decorations,
additions and improvements that such subtenant may desire or
authorize;
(E) the sublease shall expressly negate any intention
that any estate created by or under such sublease be merged with
any other estate held by either of the parties thereto;
(F) any consent required of Tenant, as lessor under
that sublease, shall be deemed granted if consent with respect
thereto is granted by Landlord;
(G) there shall be no limitation as to the use of the
sublet premises by the subtenant thereunder;
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(H) any failure of the subtenant thereunder to comply
with the provisions of the sublease, other than with respect to
the payment of rent to Tenant, shall not constitute a default
thereunder if Landlord has consented to such non-compliance by
subtenant or a default by Tenant hereunder; and
(I) such sublease shall provide that Tenant's
obligations with respect to vacating the Demised Premises and
removing any changes, alterations, decorations, additions or
improvements made in the subleased premises shall be limited to
those which accrued and related to such of the foregoing as were
made prior to the effective date of the sublease.
(c) Tenant shall reimburse Landlord on demand for any costs
incurred by Landlord to review a Notice of Intent, including without limitation
any reasonable attorneys' fees, which payment shall be payable even if Tenant
subsequently withdraws same.
(d) If Landlord shall not elect to terminate this Lease or
sublease a portion of the Demised Premises as set forth in paragraph (a) above,
Landlord shall not unreasonably withhold or delay its consent to an assignment
of this Lease or subletting of all or a portion of the Demised Premises as set
forth in the Notice of Intent provided the provisions of Section 11.06 are
complied with and provided further that such assignment or subletting is
accomplished within 180 days following the giving of the Response Notice failing
which Tenant must again comply with the provisions of this Section 11.05.
11.06. Landlord shall not unreasonably withhold or delay its consent
to an assignment of this Lease or a subletting of the whole or a part of the
Demised Premises provided:
(a) Tenant shall have complied with the provisions of Section
11.05 and Landlord shall not have made any of the termination elections provided
for therein.
(b) Tenant shall furnish Landlord with the name and business
address of the proposed subtenant or assignee, information with respect to the
nature and character of the proposed subtenant's or assignee's business, or
activities, such references and current financial information with respect to
net worth, credit and financial responsibility as are reasonably satisfactory to
Landlord;
(c) The proposed subtenant or assignee is a reputable party
whose financial net worth, credit and financial responsibility is, considering
the responsibilities involved and the standards of Landlord in those respects
for the Building, reasonably satisfactory to Landlord;
(d) Tenant shall deliver an executed assignment or sublease to
Landlord at the time Landlord's consent is requested;
(e) The nature and character of the proposed subtenant or
assignee, its business or activities and intended use of the Demised Premises
are, in Landlord's reasonable
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judgment, in keeping with the standards of the Building and the floor or floors
on which the Demised Premises are located;
(f) The proposed subtenant or assignee is not then an occupant
of any part of the Complex or a party who dealt with Landlord or Landlord's
agent (directly or through a broker) with respect to space in the Complex,
during the 12 months immediately preceding Tenant's request for Landlord's
consent;
(g) All costs incurred with respect to providing reasonably
appropriate means of ingress and egress from the sublet space or to separate the
sublet space from the remainder of the Demised Premises shall, subject to the
provisions of Article 6 with respect to alterations, installations, additions or
improvements, be borne by Tenant;
(h) Each assignment or sublease shall specifically state that
(i) it is subject to all of the terms, covenants, agreements, provisions, and
conditions of this Lease, (ii) the subtenant or assignee, as the case may be,
will not have the right to further assign or sublet all or part of the Demised
Premises or to allow same to be used by others, without the consent of Landlord
in each instance in accordance with this Article 11, (iii) a consent by Landlord
thereto shall not be deemed or construed to modify, amend or affect the terms
and provisions of this Lease, or Tenant's obligations hereunder, which shall
continue to apply to the premises involved, and the occupants thereof, as if the
sublease or assignment had not been made, (iv) if Tenant defaults in the payment
of any rent, Landlord is authorized to collect any rents due or accruing from
any assignee, subtenant or other occupant of the Demised Premises and to apply
the net amounts collected to the Basic Annual Rent and additional rent due
hereunder, (v) the receipt by Landlord of any amounts from an assignee or
subtenant, or other occupant of any part of the Demised Premises shall not be
deemed or construed as releasing Tenant from Tenant's obligations hereunder or
the acceptance of that party as a direct tenant;
(i) Tenant shall reimburse Landlord on demand for any costs
incurred by Landlord to review the proposed assignment or sublease in connection
with the requested consent, including without limitation the cost of making
investigations as to the acceptability of the proposed assignee or subleases and
any reasonable attorneys' fees incurred by Landlord;
(j) The proposed subtenant or assignee is not (i) a bank or
trust company, safe deposit business, savings and loan association or loan
company; (ii) employment or recruitment agency; (iii) school, college,
university or educational institution whether or not for profit; or (iv) a
government or any subdivision or agency thereof;
(k) In the case of a subletting of a portion of the Demised
Premises, the portion so sublet shall be regular in shape and suitable for
normal renting purposes;
(l) INTENTIONALLY DELETED;
(m) The subletting or assignment shall not be advertised at a
lower rental rate than that being charged by Landlord at the time for similar
space then available in the Building; and
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(n) Landlord and Tenant shall have agreed on the computation
required by Section 11.07 hereof.
11.07. If Landlord shall give its consent to any assignment of this
Lease or to any sublease, Tenant shall in consideration therefor, pay to
Landlord, as additional rent:
(i) in the case of an assignment, an amount equal to fifty percent
(50%) of all sums and other consideration paid to Tenant by the
assignee for or by reason of such assignment (including, but not
limited to, sums paid for the sale or rental of Tenant's fixtures,
leasehold improvements, equipment, furniture, furnishings or other
personal property, less, in the case of the sale thereof, the net
unamortized cost thereof determined on the basis of Tenant's federal
income tax returns), and less any expenses reasonably incurred by
Tenant in connection with such assignment, including without
limitation, costs of altering and preparing the Demised Premises for
new tenants, brokerage commissions and reasonable attorneys' fees and
disbursements; and
(ii) in the case of a sublease, fifty percent (50%) of any rents,
additional charges and other consideration payable under the sublease
to Tenant by the subtenant which is in excess of the Basic Annual Rent
and additional rent accruing during the term of the sublease in
respect of the subleased space (at the rate per square foot payable by
Tenant hereunder) pursuant to the terms hereof (including, but not
limited to, sums paid for the sale or rental of Tenant's fixtures,
leasehold improvements, equipment, furniture, furnishings or other
personal property, less, in the case of the sale thereof, the net
unamortized cost thereof determined on the basis of Tenant's federal
income tax returns), and less any expenses reasonably incurred by
Tenant in connection with such subletting, including without
limitation, costs of altering and preparing the Demised Premises for
subtenants, brokerage commissions and reasonable attorneys' fees and
disbursements, provided that for purposes of computing amount payable
to Landlord hereunder such alteration costs, brokerage commissions and
attorneys' fees and disbursements shall be amortized on a straight
line basis over the term of the sublease.
The sums payable under this Section 11.07 shall be paid to Landlord as
and when paid by the assignee or subtenant to Tenant.
11.08. If Landlord exercises any of its options under Section 11.05,
Landlord shall be free to, and shall have no liability to Tenant, if Landlord
shall lease the Demised Premises or any portion thereof with respect to which
one of such options exercised, to Tenant's proposed assignee or subtenant, as
the case may be if any such proposed assignee or subtenant shall exist.
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ARTICLE 12
CERTIFICATE OF OCCUPANCY
12.01. Tenant shall promptly and diligently proceed to obtain a
building permit for Tenant's Work and a temporary certificate of occupancy
(which Tenant shall cause to remain in effect until a permanent certificate of
occupancy is obtained) to use the Demised Premises for general, executive and
administrative office purposes, including as a data center and Tenant shall
provide Landlord with a copy of each such permit and certificate promptly after
receipt thereof. Landlord shall reasonably cooperate with Tenant to the extent
reasonably necessary to enable Tenant to obtain such building permit and
certificate of occupancy, at Tenant's cost and expense.
ARTICLE 13
ADJACENT EXCAVATION - SHORING
13.01. If an excavation or other substructure work shall be made upon
the Land or the land adjacent to the Land, or shall be authorized to be made,
Tenant shall afford to the person causing or authorized to cause such
excavation, license to enter upon the Demised Premises for the purpose of doing
such work as shall be necessary to preserve the wall of the Building from injury
or damage and to support the same by proper foundations without any claim for
damages or indemnity against Landlord, or diminution or abatement of rent.
ARTICLE 14
CONDEMNATION
14.01. (a) If all or substantially all of the Demised Premises shall
be lawfully condemned or taken by any Governmental Authority (as defined in
Article 22 (hereinafter "Condemned")), this Lease and the estate granted hereby
shall terminate as of the date of vesting of title in such Governmental
Authority.
(b) If less than all or substantially all of the rentable
area of the Demised Premises shall be Condemned, then this Lease shall continue
in effect as to the remaining portion of the Demised Premises but shall
terminate as to the portion so Condemned as of the date of vesting of title in
the Governmental Authority; provided, however, that if 25% or more of the
rentable area of the Demised Premises shall be Condemned, either Landlord or
Tenant may, at their option, terminate this Lease and the estate granted hereby
by giving written notice to the other within thirty (30) days after Landlord
shall have received notice of the vesting of title in the Governmental Authority
(a copy of which notice Landlord shall deliver to Tenant promptly after receipt
thereof) in which event this Lease and the estate granted hereby shall terminate
as of the last day of the month next succeeding the month in which such notice
is given.
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(c) If twenty five percent (25%) or more of Plaza II or Plaza
III or of the Complex (whether or not the Demised Premises is affected) shall be
Condemned or if so much of the parking area located on the Land shall be
Condemned so that the number of parking spaces remaining shall in Landlord's
judgment be insufficient for the continued operation of the Building or the
Complex, Landlord may, at Landlord's option, terminate this Lease and the estate
granted hereby by written notice given to Tenant within thirty (30) days after
Landlord shall have received notice of the vesting of title in the Governmental
Authority (a copy of which notice Landlord shall deliver to Tenant promptly
after receipt thereof) in which event this Lease and the estate granted hereby
will terminate on the last day of the month next succeeding the month in which
such notice is given.
(d) If neither Landlord nor Tenant elects to terminate this
Lease pursuant to paragraph (b) or (c) above, this Lease shall be and remain
unaffected by such condemnation, except that the Basic Annual Rent and the
additional rent payable under Article 3 shall be abated effective as of the date
of the vesting of title in the Governmental Authority in proportion to the
reduction in the rentable area of the Demised Premises resulting from such
condemnation.
14.02. In the event of termination of this Lease in any of the cases
herein before provided, this Lease and the term and estate hereby granted shall
expire as of the date of such termination with the same effect as if that were
the Expiration Date, and the Basic Annual Rent and additional rent payable
hereunder shall be apportioned as of such date.
14.03. In the event of any condemnation of all or a part of the
Property, Landlord shall be entitled to receive the entire award in the
condemnation proceeding, including any award made for the value of the estate
vested by this Lease in Tenant. Tenant hereby expressly assigns to Landlord any
and all right, title and interest of Tenant now or hereafter arising in or to
any such award or any part thereof, including, without limitation, any award for
the unexpired portion of the Term and agrees that it shall not be entitled to
receive any part of such award. Tenant shall, however, be entitled to make a
separate claim in such proceeding for loss of good will and moving expenses
provided such award is in addition to and not in reduction of Landlord's award
from the Governmental Authority.
14.04. In the event of any partial taking which does not result in a
termination of this Lease, Landlord, at its expense, shall proceed with
reasonable diligence to repair, alter and restore the remaining parts of the
Building and the Demised Premises to substantially their former condition to the
extent that the same may be feasible and so as to constitute a complete and
tenantable Building and Demised Premises except for Tenant's leasehold
improvements, furniture, furnishings, equipment and decorations, which shall be
repaired, altered and restored by Tenant at its expense. Landlord's obligation
under this Section 14.04 shall be limited in dollar amount to the net award
(after deducting all expenses incurred in obtaining same) available from the
Governmental Authority for the improvements taken or conveyed (exclusive of the
award for the Land or any portion thereof).
14.05. If the temporary use or occupancy of all or any part of the
Demised Premises shall be taken during the Term, Tenant shall be entitled,
except as hereinafter set forth, to receive that portion of the award or payment
for such taking which represents compensation
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for the use and occupancy of the Demised Premises (or portion thereof taken) and
for moving expenses, and Landlord shall be entitled to receive that portion
which represents reimbursement for the cost of restoration of the Demised
Premises. This Lease shall be and remain unaffected by such taking and Tenant
shall continue to be responsible for all of its obligations hereunder insofar as
such obligations are not affected by such taking and shall continue to pay Basic
Annual Rent and additional rent in full when due. If the period of temporary use
or occupancy shall extend beyond the Expiration Date, that part of the award or
payment which represents compensation for the use and occupancy of the Demised
Premises (or portion thereof taken) shall be divided between Landlord and Tenant
so that Tenant shall receive so much thereof as represents compensation for the
period up to and including the Expiration Date and Landlord shall receive so
much thereof as represents compensation for the period after the Expiration
Date.
ARTICLE 15
ACCESS TO DEMISED PREMISES; CHANGES
15.01. Tenant shall permit Landlord to erect, use and maintain pipes,
ducts and conduits in and through the Demised Premises, provided the same are
installed adjacent to or concealed behind walls and ceilings of the Demised
Premises. Landlord shall, to the extent practicable, install such pipes, ducts
and conduits by such methods and at such locations as will not materially
interfere with or impair Tenant's layout or use of the Demised Premises.
Landlord or its agents or designees shall have the right, but only upon notice
to Tenant or any authorized employee of Tenant at the Demised Premises, to enter
the Demised Premises, during and after business hours, at Landlord's option, (a)
for the making of such repairs or alterations or improvements as Landlord may
deem, in its sole judgment, necessary or appropriate for the Building or which
Landlord shall be required to or shall have the right to make by the provisions
of this Lease or any other lease in the Complex and (b) for the purpose of
inspecting them or exhibiting them to existing or prospective purchasers,
mortgagees or lessees of all or part of the Land, Building or Property or to
prospective assignees, agents or designees of any such parties. Landlord shall
be allowed to take all material into and upon the Demised Premises that may be
required for the repairs or alterations or improvements above mentioned and may
take over discrete portions of the Demised Premises not in excess of five
percent (5%) at any one time to the extent necessary to perform such work or to
ensure the safety of Tenant's personnel without the same constituting an actual
or constructive eviction of Tenant in whole or in part, and the rent reserved
hereunder shall not abate while said repairs or alterations or improvements are
being made by reason of loss or interruption of the business of Tenant because
of the prosecution of any such work. Landlord shall exercise reasonable
diligence so as to minimize the disturbance to Tenant but nothing contained
herein shall be deemed to require Landlord to perform the same on an overtime or
premium pay basis.
15.02. Landlord reserves the right, without the same constituting an
actual or constructive eviction and without incurring liability to Tenant
therefor, to change the arrangement and/or location of public entrances,
passageways, doors, doorways, corridors, elevators, stairways, toilets and other
public parts of the Building and common areas of the Complex (including without
limitation the Piers and parking areas); provided, however, that
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access to the Building shall not be cut off and that there shall be no
unreasonable obstruction of access to the Demised Premises.
15.03. Landlord may, at reasonable times and upon reasonable advance
notice to Tenant, (a) during the twelve (12) months prior to expiration of the
Term exhibit the Demised Premises to prospective tenants and (b) at any time
during the Term, exhibit the Demised Premises to actual and prospective holders
of Superior Instruments or purchasers of all or any portion of the Complex.
15.04. If Tenant shall not be personally present to open and permit
an entry into the Demised Premises at any time when for any reason an entry
therein shall be urgently necessary by reason of fire or emergency, Landlord or
Landlord's agents may forcibly enter the same without rendering Landlord or such
agents liable therefor (if during such entry Landlord or Landlord's agents shall
accord reasonable care to Tenant's property) and without in any manner affecting
the obligations and covenants of this Lease.
ARTICLE 16
CONDITIONS OF LIMITATION
16.01. This Lease and the term and estate hereby granted are subject
to the limitation that whenever Tenant or any guarantor of Tenant's obligations
hereunder shall become insolvent or generally fail to pay, or admit in writing
its inability to pay, debts as they become due; or Tenant or any such guarantor
shall apply for, consent to, or acquiesce in, the appointment of a trustee,
receiver, sequestrator or other custodian for Tenant or such guarantor or any
property of any thereof, or make a general assignment for the benefit of
creditors; or, in the absence of such application, consent or acquiescence, a
trustee, receiver, sequestrator or other custodian shall be appointed for Tenant
or any such guarantor or for a substantial part of the property of any thereof
and not be discharged within 30 days; or any bankruptcy, reorganization, debt
arrangement, or other case or proceeding under any bankruptcy or insolvency law,
or any dissolution, winding up or liquidation proceeding, shall be commenced in
respect of Tenant or any such guarantor, and, if not commenced by Tenant or such
guarantor, be consented to or acquiesced in by Tenant or such guarantor, shall
result in the entry of an order for relief or shall remain for thirty (30) days
undismissed; or Tenant or any such guarantor shall take any corporate action to
authorize, or in furtherance of, any of the foregoing, then Landlord may at any
time after receipt of notice of the occurrence of any such event, give Tenant a
notice of intention to end the Term at the expiration of five (5) days from the
date of service of such notice of intention, and upon the expiration of said 5
day period this Lease and the term and estate hereby granted, whether or not the
Term shall theretofore have commenced, shall terminate with the same effect as
if that day were the Expiration Date, but Tenant shall remain liable for damages
as provided in Article 18.
16.02. This Lease and the term and estate hereby granted are subject
to further limitation as follows:
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(a) whenever Tenant shall fail to pay any installment of Basic
Annual Rent or any additional rent or any other charge payable by Tenant to
Landlord, on the day the same is due and payable pursuant to the terms hereof,
and such default shall continue for five (5) days after Landlord shall have
given Tenant a notice specifying such default, or
(b) whenever Tenant shall do or permit anything to be done,
whether by action or inaction, contrary to any of Tenant's obligations hereunder
(except as provided in clauses (a), (c), (d), (e) and (f) of this Section 16.02)
and if such situation shall continue and shall not be remedied by Tenant within
fifteen (15) days after Landlord shall have given to Tenant a notice specifying
the same, or, in the case of a happening or default which cannot with due
diligence be cured within a period of fifteen ( 15) days and the continuation of
the period required for cure will not subject Landlord to the risk of criminal
liability (as more particularly described in Article 8 hereof) or termination of
any superior lease or foreclosure of any superior mortgage, if Tenant shall not
(i) within said fifteen (15) day period advise Landlord of Tenant's intention to
duly institute all steps necessary to remedy such situation and (ii) duly
institute within said fifteen (15) day period, and thereafter diligently and
continuously prosecute to completion, all steps necessary to remedy the same, or
(c) whenever any event shall occur or any contingency shall
arise whereby this Lease or the estate hereby granted or the unexpired balance
of the Term hereof would, by operation of law or otherwise, devolve upon or pass
to any person, firm or corporation other than Tenant, except as expressly
permitted by Article 11, or
(d) whenever Tenant shall vacate or abandon the Demised Premises
for a continuous period of at least thirty (30) days (unless as a result of a
casualty), or
(e) whenever Tenant shall default in complying with the
provisions of Section 6.02 with respect to the discharge of mechanic's liens
within the time period therein provided, or
(f) whenever Tenant shall default in the due keeping, observing
or performance of any covenant, agreement, provision or condition of Article 5
hereof on the part of Tenant to be kept, observed or performed and if such
default shall continue and shall not be remedied by Tenant within three (3)
business days after Landlord shall have given to Tenant a notice specifying the
same, then in any of said cases set forth in the foregoing clauses (a), (b),
(c), (d), (e) and (f), Landlord may give to Tenant a notice of intention to end
the Term at the expiration of five (5) days from the date of the service of such
notice of intention, and upon the expiration of said five (5) days this Lease
and the term and estate hereby granted, whether or not the Term shall
theretofore have commenced, shall terminate with the same effect as if that day
were the Expiration Date, but Tenant shall remain liable for damages as provided
in Article 18.
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ARTICLE 17
RE-ENTRY BY LANDLORD, INJUNCTION
17.01. If Tenant shall fail to pay any installment of Basic Annual
Rent, or of any additional rent payable by Tenant to Landlord on the date the
same is due and payable, and if such default shall continue for five (5) days
after Landlord shall have given to Tenant a notice specifying such default, or
if this Lease shall terminate as in Article 16 provided, Landlord or Landlord's
agents and employees may immediately or at any time thereafter re-enter the
Demised Premises, or any part thereof, either by summary dispossess proceedings
or by any suitable action or proceeding at law, or otherwise, without being
liable to indictment, prosecution or damages therefrom. The word re-enter, as
herein used, is not restricted to its technical legal meaning.
17.02. In the event of a breach or threatened breach by Tenant of any
of its obligations under this Lease, Landlord shall also have the right of
injunction. The special remedies to which Landlord may resort hereunder are
cumulative and are not intended to be exclusive of any other remedies or means
of redress to which Landlord may lawfully be entitled at any time and Landlord
may invoke any remedy allowed at law or in equity as if specific remedies were
not provided for herein.
17.03. If this Lease shall terminate under the provisions of Article
16, or if Landlord shall re-enter the Demised Premises under the provisions of
this Article 17, or in the event of the termination of this Lease, or of re-
entry by or under any summary dispossess or other proceeding or action or any
provision of law by reason of default hereunder on the part of Tenant, then (a)
Tenant shall thereupon pay to Landlord the Basic Annual Rent and additional rent
payable by Tenant to Landlord up to the time of such termination of this Lease,
or of such recovery of possession of the Demised Premises by Landlord, as the
case may be, and shall also pay to Landlord damages as provided in Article 18,
and (b) Landlord shall be entitled to retain all moneys, if any, paid by Tenant
to Landlord, whether as advance rent, security or otherwise, but such moneys
shall be credited by Landlord against any Basic Annual Rent or additional rent
due from Tenant at the time of such termination or re-entry or, at Landlord's
option, against any damages payable by Tenant under Articles 16 and 18 or
pursuant to law.
17.04. Tenant hereby expressly waives any and all rights of
redemption granted by or under any present or future laws in the event of Tenant
being evicted or dispossessed for any cause, or in the event of Landlord
obtaining possession of the Demised Premises, by reason of the violation by
Tenant of any of the covenants and conditions of this Lease or otherwise
ARTICLE 18
DAMAGES
18.01. If this Lease is terminated under the provisions of Article
16, or if Landlord shall re-enter the Demised Premises under the provisions of
Article 17, or in the event of the termination of this Lease, or of re-entry by
or under any summary dispossess or other
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proceeding or action or any provision of law by reason of default hereunder on
the part of Tenant, Tenant shall pay to Landlord as damages, at the election of
Landlord, either
(a) a sum which at the time of such termination of this Lease or
at the time of any such re-entry by Landlord, as the case may be, represents the
then value of the excess, if any, of
(1) the aggregate of the Basic Annual Rent and the
additional rent payable hereunder which would have been payable by
Tenant (conclusively presuming the additional rent to be the same as
was payable for the year immediately preceding such termination except
that additional rent on account of Taxes and Property Expenses shall
be presumed to increase at the average of the rates of increase
thereof previously experienced by Landlord during the period (not to
exceed 3 years) prior to such termination) for the period commencing
with such earlier termination of this Lease or the date of any such
re-entry, as the case may be, and ending with the Expiration Date, had
this Lease not so terminated or had Landlord not so re-entered the
Demised Premises, over
(2) the aggregate rental value of the Demised Premises for
the same period, or
(b) sums equal to the Basic Annual Rent and the additional rent
payable hereunder which would have been payable by Tenant had this Lease not so
terminated, or had Landlord not so re-entered the Demised Premises, payable upon
the due dates therefor specified herein following such termination or such re-
entry and until the Expiration Date; provided, however, that if Landlord shall
re-let the Demised Premises during said period, Landlord shall credit Tenant
with the net rents received by Landlord from such re-letting, such net rents to
be determined by first deducting from the gross rents as and when received by
Landlord from such reletting, the expenses incurred or paid by Landlord in
terminating this Lease or in re-entering the Demised Premises and in securing
possession thereof, as well as the expenses of re-letting, including altering
and preparing the Demised Premises for new tenants, brokers' commissions, legal
fees, and all other expenses properly chargeable against the Demised Premises
and the rental thereof; it being understood that any such re-letting may be for
a period shorter or longer than the remaining term of this Lease. In no event
shall Tenant be entitled to receive any excess of such net rents over the sums
payable by Tenant to Landlord hereunder for the period of such re-letting, nor
shall Tenant be entitled in any suit for the collection of damages pursuant to
this subsection to a credit in respect of any net rents from a re-letting,
except to the extent that such net rents are actually received by Landlord. If
the Demised Premises or any part thereof should be re-let in combination with
other space, then proper apportionment on a square foot basis shall be made of
the rent received from such re-letting and of the expenses of re-letting.
If the Demised Premises or any part thereof be re-let by Landlord for
the unexpired portion of the term of this Lease, or any part thereof, before
presentation of proof of such damages to any court, commission or tribunal, the
amount of rent payable pursuant to such re-letting shall, prima facie, be the
fair and reasonable rental value for the Demised Premises, or part thereof, so
re-let during the term of the re-letting.
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18.02. Suit or suits for the recovery of such damages, or any
installments thereof, may be brought by Landlord from time to time at its
election, and nothing contained herein shall be deemed to require Landlord to
postpone suit until the date when the Term would have expired if it had not been
so terminated under the provisions of Article 16, or under any provision of law,
or had Landlord not re-entered the Demised Premises. Nothing herein contained
shall be construed to limit or preclude recovery by Landlord against Tenant of
any sums or damages to which, in addition to the damages particularly provided
above, Landlord may lawfully be entitled by reason of any default hereunder on
the part of Tenant. Nothing herein contained shall be construed to limit or
prejudice the right of Landlord to prove for and obtain as liquidated damages by
reason of the termination of this Lease or re-entry of the Demised Premises for
the default of Tenant under this Lease, an amount equal to the maximum allowed
by any statute or rule of law in effect at the time when, and governing the
proceedings in which, such damages are to be proved whether or not such amount
be greater, equal to, or less than any of the sums referred to in Section 18.01.
ARTICLE 19
LANDLORD'S RIGHT TO PERFORM TENANT'S OBLIGATIONS
19.01. If Tenant shall default in the observance or performance of
any term or covenant on Tenant's part to be observed or performed under any of
the terms or provisions of this Lease, (a) Landlord may, but in no event shall
be required to, remedy such default for the account of Tenant, immediately and
without notice in case of emergency, or in any other case if Tenant shall fail
to remedy such default after Landlord shall have notified Tenant in writing of
such default and the applicable grace period for curing such default shall have
expired; and (b) if Landlord makes any expenditures or incurs any obligations
for the payment of money in connection with such default, including without
limitation, reasonable attorneys' fees in instituting, prosecuting or defending
any action or proceeding, such sums paid or obligations incurred, with interest
at the Interest Rate from the date paid or incurred, shall be deemed to be
additional rent hereunder and shall be paid by Tenant to Landlord upon rendition
of a bill to Tenant therefor. The provisions of this Article 19 shall survive
the expiration or other termination of this Lease.
ARTICLE 20
QUIET ENJOYMENT
20.01. Landlord covenants and agrees that subject to the terms and
provisions of this Lease, if, and so long as, Tenant keeps and performs each and
every covenant, agreement, term, provision and condition herein contained on the
part or on behalf of Tenant to be kept or performed, then Tenant's rights under
this Lease shall not be cut off or ended before the expiration of the term of
this Lease, subject however, to the provisions of this Lease (including without
limitation, the provisions of Article 25 hereof with respect to Superior
Instruments (as defined in Article 25 hereof) which affect this Lease).
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ARTICLE 21
SERVICES AND EQUIPMENT
21.01. Landlord shall:
(a) Provide necessary passenger elevator facilities on
Business Days from 8:00 A.M. to 6:00 P.M. and shall have at least one elevator
subject to call at all other times. At Landlord's option, the elevators shall be
operated by automatic control or by manual control, or by a combination of both
of such methods. Tenant shall use passenger elevators solely for the
transportation of its employees and invitees and not for freight handling, the
delivery of packages requiring hand trucks or other similar items or the removal
of refuse.
(b) Provide freight elevator service on Business Days from
9:00 A.M. to 12:00 Noon and 12:30 P.M. to 5:00 P.M. All deliveries to Tenant
shall be made at freight docks located on the ground floor or at such other
locations as Landlord may from time to time designate.
(c) Maintain and keep in good order and repair (i) the air
conditioning, heating and ventilating unit existing on the date of this Lease in
the Fourth Floor Space and (ii) the other base building structural systems in
accordance with Section 7.01; it being understood that in no event shall
Landlord be responsible for the maintenance or repair of any other air
conditioning, heating or ventilating systems (on portions thereof) (whether
installed by Landlord or Tenant), including, without limitation, systems that
are installed to service Tenant's data processing, computer or telephone
operations. Landlord shall provide reasonable amounts of condenser water to the
Demised Premises from locations designated by Landlord 24 hours per day, 7 days
per week. Tenant shall have the right to tap into the Building's condenser
water riser via the tap currently located on the 8th floor of Plaza III;
provided, that the performance of such work shall be performed in accordance
with Article 6 and all other applicable provisions of this Lease. Tenant
acknowledges that Tenant shall be responsible for installing, at its sole cost
and expense, heating, ventilation and air conditioning equipment in the Demised
Premises (other than the existing 4th floor unit). Landlord has informed Tenant
that the windows of the Demised Premises and the Building are sealed, and that
the Demised Premises may become uninhabitable and the air therein may become
unbreathable without such equipment or during the hours or days when Landlord is
not able to furnish condenser water to the Demised Premises. Any use or
occupancy of the Demised Premises without such equipment or during such hours
shall be at the sole risk, responsibility and hazard of Tenant, and Landlord
shall have no responsibility or liability therefor. Such condition of the
Demised Premises shall not constitute nor be deemed to be a breach or a
violation of this Lease or of any provision thereof, nor shall it be deemed an
actual or constructive eviction nor shall Tenant claim or be entitled to claim
any abatement of rent nor make any claim for any damages or compensation by
reason of such condition of the Demised Premises. Nothing contained herein
shall be deemed to require Landlord to furnish at Landlord's expense such
electric energy as is required to operate the air conditioning system serving
the Demised Premises. Subject to the provisions of Article 4 hereof all such
electric energy shall be furnished to Tenant at Tenant's cost and expense.
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(d) Provide the cleaning and janitorial services described on
Schedule E annexed hereto on Business Days. In the event Landlord's cost of
providing such services to the Existing Buildings shall increase after the date
hereof, Tenant agrees to pay to Landlord as additional rent on the first day of
each and every month after such increase an amount equal to Tenant's Expense
Share of the monthly increase of Landlord's cost of providing such services to
the Existing Buildings. Landlord shall promptly notify Tenant of any such
increase. Tenant shall employ Landlord to provide any cleaning and janitorial
services in excess of those specified in Schedule E and Tenant shall deliver to
Landlord a list setting forth in reasonable detail all such excess cleaning and
janitorial services. Landlord, its cleaning contractor and their employees
shall have access to the Demised Premises at all times after 5:30 P.M. and
before 8:00 A.M. and shall have the right to use, without charge therefor, all
light, power and water in the Demised Premises reasonably required to clean the
Demised Premises as required under this Section 21.01. Tenant shall comply with
any rules Landlord and/or its cleaning contractor and/or any consultant to
Landlord may establish regarding the management and recycling of solid waste, as
may be necessary for Landlord to comply with any Legal Requirements, including
without limitation the New Jersey Department of Environmental Protection Rules
on Coastal Resources and Development (N.J.A.C. 7:7E - 1.1).
(e) Furnish water for lavatory and drinking and office cleaning
purposes. If Tenant requires, uses or consumes water for any other purposes,
Tenant agrees that Landlord may install a meter or meters or other means to
measure Tenant's water consumption, and Tenant further agrees to reimburse
Landlord for the cost of the meter or meters and the installation thereof, and
to pay for the maintenance of said meter equipment and/or to pay Landlord's cost
of other means of measuring such water consumption by Tenant. Tenant shall
reimburse Landlord for the cost of all water consumed in excess of that
estimated to be consumed for lavatory, drinking and office cleaning purposes, as
measured by said meter or meters or as otherwise measured, including sewer
rents.
(f) Maintain the common areas of the Complex in good order and
repair.
(g) Permit Tenant to use sufficient shaft space in Plaza III to
accommodate three 4" diameter conduits for a telecommunication shaftway;
provided, that all work required for Tenant to use such shaftway shall be
subject to Landlord's prior approval and shall be performed at Tenant's expense
in accordance with this Article 6 and the other applicable provisions of this
Lease; provided, further, that Landlord makes no representation or warranty
whatsoever concerning the suitability of such shaft space for such use by Tenant
(Tenant hereby acknowledging that in order to obtain access to such shaft space
Tenant will require access to the premises of other tenants in Plaza III and
Tenant shall be solely responsible for negotiating for such right of access).
21.02. Landlord reserves the right without any liability whatsoever,
or abatement of Basic Annual Rent or additional rent, to stop the heating, air
conditioning, elevator, plumbing, electric and other systems when necessary by
reason of accident or emergency or for repairs, alterations, replacements or
improvements, provided that except in case of emergency, Landlord will notify
Tenant in advance, if possible, of any such stoppage and, if ascertainable, its
estimated duration, and will proceed diligently with the work necessary to
resume such service as
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promptly as possible and in a manner so as to minimize interference with
Tenant's use and enjoyment of the Demised Premises, but Landlord shall not be
obligated to employ overtime or premium labor therefor.
21.03. It is expressly agreed that only Landlord or any one or more
persons, firms or corporations authorized in writing by Landlord (which
authorization shall be granted only if the employment of such person, firm or
corporation would not result in jurisdictional disputes or strikes or cause
disharmony with other workers or servicers employed at the Property or conflict
with the terms of any contract with such workers or servicers) will be permitted
to furnish laundry, drinking water, ice, food or beverages, cable television and
other similar supplies and services to tenants and licensees in the Building.
Landlord may fix, in its reasonable judgment, at any time and from time to time,
the hours during which and the regulations under which such supplies and
services are to be furnished. Landlord expressly reserves the right to act as
or to designate, at any time and from time to time, an exclusive supplier of all
or any one or more of the said supplies and services, provided that the quality
thereof and the charges therefor are reasonably comparable to that of other
suppliers. Landlord expressly reserves the right to exclude from the Building
any messenger service. It is understood, however, that Tenant or regular office
employees or guests of Tenant who are not employed by any supplier of such food
or beverages or by any person, firm or corporation engaged in the business of
purveying such food or beverages, may on an occasional or incidental basis (i)
personally bring food or beverages into the Building for consumption within the
Demised Premises by employees or guests of Tenant, or (ii) order food or
beverages for delivery from take-out or catering establishments, provided that
such deliveries do not materially cause elevator delays nor inconvenience the
other tenants of the Building. No food or beverage may be brought into the
Building for resale to or for consumption by any other tenant.
21.04. Landlord will not be required to furnish any other services,
except as otherwise provided in this Lease.
ARTICLE 22
DEFINITIONS
22.01. "Landlord" means only the owner, or the mortgagee in
possession, for the time being of the Building and land underlying the Building
(or the owner of a lease of the Building or of the Building and said land), so
that in the event of any transfer of title to said land and Building or said
lease, or in the event of a lease of the Building, or of said land and Building,
upon notification to Tenant of such transfer or lease the said transferor
Landlord shall be and hereby is entirely freed and relieved of all future
covenants, obligations and liabilities of Landlord hereunder, and it shall be
deemed and construed as a covenant running with the land without further
agreement between the parties or their successors in interest, or between the
parties and the transferee of title to said land and Building or said lease, or
the said lessee of the Building or of said land and Building, that the
transferee or the lessee, as applicable, has assumed and agreed to carry out any
and all such future covenants, obligations and liabilities of Landlord
hereunder.
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22.02. "Business Days" or "business days" shall exclude Saturdays,
Sundays and all days observed as federal, state and municipal holidays and all
other days recognized as holidays under any union contract affecting the
Property.
22.03. "Interest Rate" means a rate per annum equal to the lesser of
(a) two percent (2%) above the prime commercial lending rate of Citibank N.A.,
as published from time to time in the New York Times (the "Prime Rate") or (b)
the maximum rate of interest, if any, which Tenant may legally contract to pay.
22.04. "Legal Requirements" means laws, statutes and ordinances,
including environmental laws and regulations, building codes and zoning
regulations and ordinances and the orders, rules, regulations, directives and
requirements of all federal, state, county, city and borough departments,
bureaus, boards including boards of fire underwriters, New Jersey fire insurance
rating organizations and all similar organizations, agencies, offices,
commissions and other subdivisions thereof, or of any official thereof, or of
any other governmental, public or quasi-public authority (each, a "Governmental
Authority"), whether now or hereafter in force, which may be applicable to the
Property or the Demised Premises or any part thereof, or the sidewalks, curbs or
areas adjacent thereto and all requirements, obligations and conditions of all
instruments of record on the date of this Lease.
22.05. "Common Areas" means those portions of the Land and/or the
Property intended at the applicable point in time at which the Common Areas are
to be delineated to be for the common use by the tenants and/or owners of the
Complex, or any portion thereof, and their respective customers, employees,
lessees, licensees and invitees, which Common Areas shall include, without
limitation, any so-called "Limited Common Areas" i.e., areas adjacent to one or
more of the buildings at the Complex, the use of which Common Areas may be
restricted in whole or in part to the tenant(s) of such building or buildings.
Common Areas shall include, without limitation, those portions of The Harborside
Financial Center designated from time to time by Landlord as (i) plaza areas,
(ii) pedestrian walkways, (iii) parking premises including, without limitation,
any parking garages, and (iv) those roads, exits, entrances, driveways, ramps,
streets, curb cuts, pedestrian walkways and sidewalks which are intended for use
as pedestrian and/or vehicle access, ingress and egress from various portions of
the Complex to the parking premises, other portions of the Complex and public
streets.
ARTICLE 23
INVALIDITY OF ANY PROVISION
23.01. If any term, covenant, condition or provision of this Lease or
the application thereof to any circumstance or to any person, firm or
corporation shall be invalid or unenforceable to any extent, the remaining
terms, covenants, conditions and provisions of this Lease shall not be affected
thereby and each remaining term, covenant, condition and provision of this Lease
shall be valid and shall be enforceable to the fullest extent permitted by law.
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ARTICLE 24
BROKERAGE
24.01. (a) Tenant covenants, represents and warrants that Tenant has
had no dealings or negotiations with any broker or agent other than Jones Lang
Wooton (representing Landlord's agent, Institutional Realty Management LLC) and
Cushman & Wakefield, Inc. (representing Tenant) in connection with the
consummation of this Lease, and Tenant covenants and agrees to pay, hold
harmless and indemnify Landlord from and against any and all cost, expense
(including reasonable attorneys' fees and court costs), loss and liability for
any compensation, commissions or charges claimed by any broker or agent, other
than the brokers set forth in this Section 24.01 (a), with respect to this Lease
or the negotiation thereof if such claim or claims by any such broker or agent
are based in whole or in part on dealing with Tenant or its representatives.
Landlord agrees to pay to the brokers specified in this Section 24.01(a) such
compensation, commissions or charges to which they are entitled pursuant to the
separate agreements between said brokers and Landlord.
(b) Landlord covenants and agrees to pay, hold harmless and
indemnify Tenant from and against any and all cost, expense (including
reasonable attorneys' fees and court costs), loss and liability for any
compensation, commissions or charges in connection with this Lease or the
negotiation thereof, claimed under any circumstances by the brokers specified in
Section 24.01 (a), or claimed by any other broker or agent if the claims by such
other brokers or agents are based in whole or part on dealing with Landlord or
its representatives and not with Tenant or its representatives.
ARTICLE 25
SUBORDINATION
25.01. This Lease is and shall be subject and subordinate to all
ground or underlying leases which may now or hereafter affect the Land, the
Building or the Complex and to all mortgages which may now or hereafter affect
such leases, the Land, the Building or the Complex, and to all renewals,
refinancings, modifications, replacements and extensions thereof (hereinafter
called "Superior Instruments"). The provisions of this Section 25.01 shall be
selfoperative and no further instrument of subordination shall be required. In
confirmation of such subordination, Tenant shall promptly execute and deliver at
its own cost and expense any instrument, in recordable form if required, that
Landlord, the holder of any Superior Instrument or any of their respective
successors in interest may request to evidence such subordination, within seven
(7) business days after such request.
25.02. In the event of a termination of any ground or underlying
lease, or if the interests of Landlord under this Lease are transferred by
reason of, or assigned in lieu of, foreclosure or other proceedings for
enforcement of any mortgage, or if the holder of any mortgage acquires a lease
in substitution therefor, then Tenant will, at the option to be exercised in
writing by the holder of any such Superior Instrument or any purchaser, assignee
or lessee, as
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the case may be, either (i) attorn to it and perform for its benefit all the
terms, covenants and conditions of this Lease on Tenant's part to be performed
with the same force and effect as if it were the landlord originally named in
this Lease, or (ii) enter into a new lease with it for the remaining term of
this Lease and otherwise on the same terms and conditions and with the same
options, if any, then remaining. The foregoing provisions of clause (i) of this
Section 25.02 shall inure to the benefit of such holder of a Superior
Instrument, purchaser, assignee or lessee, shall be self-operative upon the
exercise of such option, and no further instrument shall be required to give
effect to such option and to said provisions. Tenant, however, upon demand of
any such holder of a Superior Instrument, purchaser, assignee or lessee agrees
to execute, from time to time, within seven (7) business days after a request
therefor, instruments in confirmation of the foregoing provisions of this
Section 25.02, satisfactory to any such holder of a Superior Instrument,
purchaser, assignee or lessee, acknowledging such attainment and setting forth
the terms and conditions of its tenancy.
25.03. Notwithstanding anything contained herein to the contrary
under no circumstances shall any such holder of a Superior Instrument,
purchaser, assignee or lessee, as the case may be, whether or not it shall have
succeeded to the interests of the landlord under this Lease, be
(a) liable for any act, omission or default of any prior
landlord; or
(b) subject to any offsets, claims or defenses which Tenant
might have against any prior landlord; or
(c) bound by any Basic Annual Rent or additional rent which
Tenant might have paid to any prior landlord for more than one month in advance
or for more than three months in advance where such rent payments are payable at
intervals of more than one month; or
(d) bound by any modification, amendment or abridgment of the
Lease, or any cancellation or surrender of the same, made without its prior
written approval.
25.04. If, in connection with the financing of the Building or the
Complex, the holder of any mortgage shall request reasonable modifications in
this Lease as a condition of approval thereof, Tenant will not unreasonably
withhold, delay or defer making such modifications provided the same do not (i)
increase the Basic Annual Rent or additional rent payable by Tenant, (ii) reduce
the term hereof or (iii) extend the Term hereof other than as permitted in
Article 2 hereof.
25.05. Any holder of a Superior Instrument may at any time and from
time to time elect to have this Lease made prior to such Superior Instrument
and, upon notification of such election from such holder to Tenant, this Lease
shall have priority over such Superior Instrument, whether this Lease is dated,
executed, delivered and/or recorded prior or subsequent to the date such
Superior Instrument is dated, executed, delivered and/or recorded.
25.06. Tenant shall give each holder of a Superior Instrument a copy
of any notice of default served upon Landlord, provided that Tenant has been
notified of the address of
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such holder. If Landlord fails to cure any default as to which Tenant is
obligated to give notice pursuant to the preceding sentence within the time
provided for in this Lease, then each such holder shall have an additional
thirty (30) days after receipt of such notice within which to cure such default,
or if such default cannot be cured by such holder within that time (because such
holder must first obtain possession of the Demised Premises or other portions of
the Complex, or otherwise), then such additional time as may be necessary if,
within such 30 days, any such holder has commenced and is diligently pursuing
the remedies reasonably necessary to cure such default, in which event this
Lease shall not be terminated while such remedies are being so diligently
pursued.
ARTICLE 26
CERTIFICATE OF TENANT
26.01. Tenant shall, without charge, at any time and from time to
time, within ten ( 10) days after request by Landlord, execute, acknowledge and
deliver to Landlord, the holder of a Superior Instrument or any other person,
firm or corporation specified by Landlord, a written instrument in the form
attached hereto as Schedule F or such other form as may be required by the
holder of any Superior Instrument. If Tenant believes that any of the
certifications contained therein are inaccurate, said written instrument shall
set forth, in reasonable detail, the basis for Tenant's assertions that such
certifications are inaccurate.
26.02. Tenant agrees that, except for the first month's rent
hereunder, it will pay no rent under this Lease more than thirty (30) days in
advance of its due date, if so restricted by any existing or future Superior
Instrument or by an assignment of this Lease to the holder of such Superior
Instrument, and, in the event of any act or omission by Landlord which would
give Tenant the right to terminate this Lease, Tenant will not exercise such
right until Tenant shall have first given written notice of such act or omission
to the holder of any Superior Instrument who shall have furnished such holder's
last address to Tenant, and until a reasonable period for remedying such act or
omission shall have elapsed following the giving of such notices, during which
time such holder shall have the right, but shall not be obligated, to remedy or
cause to be remedied such act or omission. Tenant further agrees not to
exercise any such right if the holder of any such Superior Instrument commences
to cure such act or omission within a reasonable time after having received
notice thereof and diligently prosecutes such cure thereafter.
26.03. Tenant shall, without charge, at any time and from time to
time, deliver to Landlord within ten (10) days after request therefor (a) copies
of the most current financial statements of Tenant and of any guarantor of
Tenant's obligations under this Lease certified by an independent certified
public accountant and (b) such further detailed financial information with
respect to Tenant and any such guarantors as Landlord or the holder of any
Superior Instrument may request.
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ARTICLE 27
LEGAL PROCEEDINGS, WAIVER OF JURY
TRIAL, WAIVER OF TERMINATION RIGHTS
27.01. Landlord and Tenant hereby waive trial by jury in any action,
proceeding or counterclaim brought by either of the parties hereto against the
other on any matters whatsoever arising out of or in any way in connection with
this Lease, the relationship of Landlord and Tenant, Tenant's use or occupancy
of the Demised Premises, and/or any other claims (except claims for personal
injury or property damage), and any emergency statutory or any other statutory
remedy. It is further mutually agreed that in the event Landlord commences any
summary proceeding for non-payment of rent, Tenant will not interpose and does
hereby waive the right to interpose any counterclaim of whatever nature or
description in any such proceeding, unless Tenant receives an opinion from its
attorneys specifying the basis for the conclusion contained therein, that such
waiver will result in the waiver of its right to bring such claims in a separate
proceeding under applicable law. Tenant waives all rights now or hereafter
conferred by law (including, without limitation, the benefit of New Jersey
Revised Statutes, Title 46, Chapter 8, Sections 6 and 7), (a) to quit, terminate
or surrender this Lease or the Demised Premises or any part thereof, or (b) to
any abatement, suspension, deferment or reduction of the Basic Annual Rent or
additional rent payable under this Lease, regardless of whether such rights
shall arise from any present or future constitution, statute or rule of law.
ARTICLE 28
SURRENDER OF PREMISES
28.01. Upon the expiration or other termination of the Term, Tenant
shall quit and surrender to Landlord the Demised Premises, broom clean, in good
order and condition, ordinary wear and tear and damage by fire, the elements or
other casualty excepted, and Tenant shall remove all of its property as herein
provided. Tenant's obligation to observe or perform this covenant shall survive
the expiration or other termination of the Term.
28.02. If Tenant shall, without the written consent of Landlord, hold
over after the expiration of the Term, such tenancy shall be deemed a month-to-
month tenancy, which tenancy may be terminated as provided by applicable law.
During such tenancy, Tenant agrees to (a) pay to Landlord, each month, the
greater of the fair market rental value for the Demised Premises or one hundred
and fifty percent (150%) during the first thirty days of holding over, one
hundred and seventy five percent ( 175%) during the next thirty days of holding
over and two hundred percent (200%) thereafter of (x) the Basic Annual Rent and
(y) all additional rent payable by Tenant for the last month of the Term and (b)
be bound by all of the terms, covenants and conditions herein specified.
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ARTICLE 29
RULES AND REGULATIONS
29.01. Tenant and Tenant's servants, employees and agents shall
observe faithfully and comply strictly with the Rules and Regulations set forth
in Schedule G hereto entitled "Rules and Regulations" and such other and further
reasonable Rules and Regulations as Landlord or Landlord's agents may from time
to time adopt; provided, however, that in case of any conflict or inconsistency
between the provisions of this Lease and of any of the Rules and Regulations, as
originally or as hereafter adopted, the provisions of this Lease shall control.
Reasonable written notice of any additional Rules and Regulations shall be given
to Tenant.
29.02. Nothing in this Lease contained shall be construed to impose
upon Landlord any duty or obligation to enforce the Rules and Regulations or the
terms, covenants or conditions in any other lease, against any other tenant of
the Complex, and Landlord shall not be liable to Tenant for violation of the
same by any other tenant, its servants, employees, agents, visitors or
licensees.
29.03. No Rule or Regulation shall be enforced against Tenant unless
such Rule or Regulation is being enforced against other tenants or occupants of
the Building under similar circumstances, if a similar rule or regulation is
contained in or promulgated pursuant to the leases and occupancy agreements
between Landlord and such tenants or occupants.
ARTICLE 30
CONSENTS AND APPROVALS
30.01. (a) Whenever Landlord's consent or approval is required in
this Lease, Landlord shall not unreasonably delay notifying Tenant whether its
approval shall be granted or withheld.
(b) When in this Lease Landlord's consent or approval is
required and this Lease provides that Landlord's consent or approval shall not
be unreasonably withheld and Landlord shall refuse such consent or approval, or
in any instance in which Landlord shall delay its consent or approval, Tenant in
no event shall be entitled to make, nor shall Tenant make, any claim, and Tenant
hereby waives any claim, for money damages (nor shall Tenant claim any money
damages by way of set-off, counterclaim or defense) based upon any claim or
assertion by Tenant that Landlord unreasonably withheld or unreasonably delayed
its consent or approval. Tenant's sole remedy shall be an action or proceeding
to enforce any such provision, for specific performance, injunction or
declaratory judgment.
(c) Whenever Landlord's consent or approval is required in
this Lease and this Lease does not provide that such approval or consent shall
not be unreasonably withheld, Landlord may determine in its sole discretion
whether to grant such consent or approval, regardless of whether such refusal to
consent or approve may be deemed arbitrary.
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ARTICLE 31
NOTICES
31.01. Any notice or demand, consent, approval or disapproval, or
statement (collectively called "Notices") required or permitted to be given by
the terms and provisions of this Lease, or by any law or governmental
regulation, either by Landlord to Tenant or by Tenant to Landlord, shall be in
writing and unless otherwise required by such law or regulation, shall be
personally delivered or sent by United States mail postage prepaid as registered
or certified mail, return receipt requested. Any Notice shall be addressed to
Landlord or Tenant, as applicable, at its address set forth on page 1 of this
Lease as said address may be changed from time to time as hereinafter provided.
After Tenant shall occupy the Demised Premises, the address of Tenant for
Notices shall be the Building. By giving the other party at least ten (10) days
prior written notice, either party may, by Notice given as above provided,
designate a different address or addresses for Notices.
31.02. Any Notice shall be deemed given as of the date of delivery as
indicated by affidavit in case of personal delivery or by the return receipt in
the case of mailing; and in the event of failure to deliver by reason of changed
address of which no Notice was given or refusal to accept delivery, as of the
date of such failure as indicated by affidavit or on the return receipt or by
notice of the postal service, as the case may be.
31.03. In addition to the foregoing, either Landlord or Tenant may,
from time to time, request in writing that the other party serve a copy of any
Notice on one other person or entity designated in such request, such service to
be effected as provided in Section 31.01 hereof.
ARTICLE 32
NO WAIVER
32.01. No agreement to accept a surrender of this Lease shall be
valid unless such agreement is in writing and signed by Landlord. No employee
of Landlord or of Landlord's agents shall have any power to accept the keys of
the Demised Premises prior to the termination of this Lease. The delivery of
keys to any employee of Landlord or of Landlord's agent shall not operate as a
termination of this Lease or a surrender of the Demised Premises. In the event
Tenant at any time desires to have Landlord sublet the premises for Tenant's
account, Landlord or Landlord's agents are authorized to receive said keys for
such purpose without releasing Tenant from any of the obligations under this
Lease. The failure of Landlord or Tenant to seek redress for violation of, or
to insist upon the strict performance of, any covenant or condition of this
Lease or any of the Rules and Regulations set forth herein, or hereafter adopted
by Landlord, shall not prevent a subsequent act, which would have originally
constituted a violation, from having all the force and effect of an original
violation. The receipt by Landlord, or the payment by Tenant, of rent with
knowledge of the breach of any covenant of this Lease shall not be deemed a
waiver of such breach. The failure of Landlord to enforce any of the Rules and
Regulations set forth herein, or hereafter adopted, against Tenant and/or any
other tenant in the
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Complex shall not be deemed a waiver of any such Rules and Regulations. No
provision of this Lease shall be deemed to have been waived by Landlord or
Tenant unless such waiver be in writing signed by such party. No payment by
Tenant or receipt by Landlord of a lesser amount than the monthly rent herein
stipulated shall be deemed to be other than on the account of the earliest
stipulated rent, nor shall any endorsement or statement on any check or any
letter accompanying any check or payment of rent be deemed an accord and
satisfaction, and Landlord may accept such check or payment without prejudice to
Landlord's right to recover the balance of such rent or pursue any other remedy
in this Lease provided.
32.02. This Lease, including all schedules and exhibits hereto
contains the entire agreement between the parties, and any executory agreement
hereafter made shall be ineffective to change, modify, discharge or effect an
abandonment of it in whole or in part unless such executory agreement is in
writing and signed by the party against whom enforcement of the change,
modification, discharge or abandonment is sought.
ARTICLE 33
CAPTIONS
33.01. The captions are inserted only as a matter of convenience and
for reference, and in no way define, limit or describe the scope of this Lease
nor the intent of any provision thereof.
ARTICLE 34
INABILITY TO PERFORM
34.01. If, by reason of (1) strike, (2) labor troubles, (3)
governmental preemption in connection with a national emergency, (4) any rule,
order or regulation of any governmental agency, (5) conditions of supply or
demand which are affected by war or other national, state or municipal
emergency, or any other cause, (6) fire or other casualty, (7) adjustment of
insurance claims, (8) acts of God or (9) any other cause beyond Landlord's
reasonable control ("Force Majeure Causes"), Landlord shall be unable to fulfill
its obligations under this Lease or shall be unable to supply any service which
Landlord is obligated to supply, this Lease and Tenant's obligation to pay rent
hereunder shall in no wise be affected, impaired or excused.
34.02 If, by reason of Force Majeure Causes, Tenant shall be unable
to fulfill its obligations under this Lease (other than the obligation to pay
Basic Annual Rent or any other sums due and payable under his Lease), this Lease
and Landlord's obligations under this Lease shall in no wise be affected,
impaired or excused.
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ARTICLE 35
NO REPRESENTATIONS BY LANDLORD
35.01. Tenant accepts the Demised Premises as is, in their present
condition, subject only to the performance of Landlord's Work, if any such work
is provided for in Article 2 hereof, in accordance with this Lease and without
any representation or warranty whatsoever by Landlord or Landlord's Agents as to
the condition of the Demised Premises or the value thereof or the utility
thereof or usefulness for any particular purpose or any other matter or thing
relating in any way to the Demised Premises or the Property other than as
specifically provided in this Lease. Tenant acknowledges that Landlord, has not
made and does not make, and Tenant is not relying upon, any representations or
warranties as to the physical condition, quality, value or character or other
matter relating to or affecting the Demised Premises, the Building or the
Property other than those contained in this Lease.
ARTICLE 36
NAME OF COMPLEX/BUILDING
36.01. The name of the Complex shall be Harborside Financial Center
and the names making up the Building shall be Plaza II and Plaza III,
respectively. Landlord shall have the full right at any time to name and change
the name of the Complex or the Building and to change the designated address of
the Complex or the Building. The Complex or the Building may be named after any
person, firm, or otherwise, whether or not such name is, or resembles, the name
of a tenant of the Complex or the Building.
ARTICLE 37
PARKING
37.01. Landlord shall make 6 parking spaces ("Tenant's Parking
Spaces") available to Tenant and Tenant shall hire same from Landlord, in such
areas (the "Parking Areas") of the Property as Landlord shall periodically
designate for parking. Landlord makes no representations or guarantees
whatsoever as to the specific location of Tenant's Parking Spaces or whether
Tenant's Parking Spaces will be under cover or open. Tenant's Parking Spaces
shall be used exclusively for the parking of standard size passenger cars (or
smaller cars), or such other vehicles as may be otherwise permitted by Landlord
or the independent contractor conducting the parking operation at the Parking
Area, belonging to or leased to or operated by Tenant, any of Tenant's permitted
subtenants, and their respective employees, visitors and invitees, and for no
other purpose. Tenant shall not allow any parking of any cars of Tenant or
Tenant's permitted subtenants, or their employees, visitors or invitees, outside
of the Parking Areas or in parking spaces within the Property designated for use
by Landlord or other tenants or their respective employees, visitors or
invitees. Landlord reserves the right to relocate or alter Tenant's Parking
Spaces if, in Landlord's sole judgment, it becomes desirable to do so during the
Term. Tenant
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shall upon request promptly furnish to Landlord the license numbers of the cars
operated by Tenant and Tenant's permitted subtenants and their employees and
contractors.
37.02. All parking spaces used by Tenant, its employees, visitors and
invitees will be used at their own risk, and Landlord shall not be liable for
any injury to person or property, or for loss or damage to any automobile or its
contents, resulting from theft, collision, vandalism or any other cause
whatsoever, unless such injury or loss is caused by the negligence or willful
act of Landlord.
37.03. Landlord shall have the right to license an independent
operator or conduct a parking operation open to the public with respect to the
Parking Areas or to conduct such operation itself.
37.04. Tenant shall pay to Landlord monthly, as additional rent, on
the first day of each month, without any set-off or deduction whatsoever, or in
lieu thereof, to any parking operator who shall be licensed by Landlord to
conduct a parking operation with respect to the Parking Areas, the amount
obtained by multiplying the number of Tenant's Parking Spaces by the monthly
rate then charged by Landlord or such operator to the general public for an
equivalent space for such month. If Tenant's Parking Spaces shall be first made
available to Tenant other than on the first day of a month, then Tenant shall
make the payments in respect of such Spaces for such month on the date same are
so made available appropriately prorated.
37.05. Landlord, or the parking lot operator, as the case may be,
shall have the right to tow, at Tenant's sole cost and expense, any of Tenant's
or Tenant's permitted subtenants', or their employees', visitors' or invitees',
cars that are parked outside of Tenant's Parking Spaces to the extent specific
spaces are reserved for tenants.
37.06. Landlord shall have the right to require that all cars to be
parked in Tenant's Parking Spaces shall exhibit such identification as Landlord
may from time to time deem reasonably necessary to control the use of the
Parking Areas. Landlord shall have the right to tow, at Tenant's sole cost and
expense, any of Tenant's or Tenant's permitted subtenants' or their employees',
visitors' or invitees', cars not exhibiting such identification if required.
37.07. Landlord shall have the right to institute valet parking, as a
Building service or a service of the parking operator, in which event Tenant
shall comply with all rules promulgated by Landlord or such parking operator
relating thereto.
ARTICLE 38
INDEMNITY
Tenant shall indemnify, defend, pay on behalf of and hold harmless
Landlord and all holders of Superior Instruments, and its and their respective
partners, joint ventures, directors, officers, invitees, agents, servants and
employees (each an "indemnitee" for purposes of this provision), from and
against any loss, damage, liability, cost, claim or expense (including
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reasonable attorneys' fees) arising from or in connection with (a) any act,
omission or negligence of Tenant or any subtenants, or its or their respective
partners, joint ventures, directors, officers, invitees, agents, servants and
employees, (b) any accident, injury or damage whatsoever occurring in the
Demised Premises, (c) the use or occupation of the Demised Premises by Tenant or
anyone claiming under or through Tenant or (d) any breach of this Lease by
Tenant. This provision shall not be construed to exculpate an indemnitee, or to
make Tenant responsible for, any loss, damage, liability, cost, claim or expense
resulting solely from or caused (whether by act or omission) solely by the gross
negligence or willful misconduct of such indemnitee.
ARTICLE 39
MEMORANDUM OF LEASE
39.01. Tenant shall not record this Lease or a memorandum thereof.
Tenant shall, at the request of Landlord, execute and deliver to Landlord a
memorandum of lease in respect of this Lease sufficient for recording, but said
memorandum of this Lease shall not in any circumstances be deemed to modify or
to change any of the provisions of this Lease.
ARTICLE 40
SECURITY
40.01. Tenant has deposited with Landlord an unconditional
irrevocable letter of credit (as hereinafter defined) substantially in the form
attached hereto as Schedule H (as the same may be modified in accordance with
this section, the "letter of credit") in an amount equal to Two Hundred Forty
Thousand and 00/100 Dollars ($240,000), as security for the full and punctual
performance by Tenant of all of the terms of this Lease. In the event Tenant
defaults in the performance of any of the terms of this Lease, Landlord may draw
upon the letter of credit in full and any amounts not applied as hereinafter
provided shall be held by Landlord subject to and in accordance with the
provisions of this Section. Landlord may then apply the whole or any part of
the security so drawn upon to the extent required for the payment of (i) any
rent or (ii) any sum which Landlord may expend or may be required to expend by
reason of Tenant's default including, without limitation, any damages or
deficiency in the re-letting of the Demised Premises, whether accruing before or
after summary proceedings or other re-entry by Landlord. Upon each such
application, Tenant shall, on demand, pay to Landlord the sum so applied in cash
which shall be added to the remaining proceeds from the letter of credit so that
the security held by Landlord shall be restored to the amount first set forth
above. If Tenant shall fully and punctually comply with all of the terms of
this Lease, the letter of credit or the amount of the security deposit, as the
case may be, shall be returned to Tenant after the termination of this Lease,
delivery of exclusive possession of the Demised Premises to Landlord and the
payment to Landlord of all amounts payable hereunder. In the event of a sale or
lease of the Building, Landlord shall have the right to transfer the letter of
credit or the security deposit to the vendee or lessee and Landlord shall ipso
facto be released by Tenant from all liability for the return of such security;
and Tenant agrees to look solely to the new landlord for the return of said
security and it
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is agreed that the provisions hereof shall apply to every transfer or assignment
made of the letter of credit or security to a new landlord. If 30 days prior to
the date of such sale, Landlord shall be holding a letter of credit as Tenant's
security, Tenant will upon five (5) days prior written notice, deliver a
substitute letter of credit naming the new landlord as the new beneficiary
thereof. In the event Tenant shall default in such obligation, Landlord may draw
upon the letter of credit and transfer the proceeds thereof to the new landlord.
Tenant shall not assign or encumber or attempt to assign or encumber the monies
deposited herein as security and neither Landlord nor its successors or assigns
shall be bound by any such assignment, encumbrance, or attempted assignment or
encumbrance. In the event the letter of credit referred to above or any
substitute letter of credit is not renewed so that at all times the letter of
credit held by Landlord hereunder is valid for a period in excess of 30 days,
Landlord may draw upon said letter of credit and hold the proceeds thereof
subject to and in accordance with the terms of this Section.
40.02. So long as Tenant is not then in default under this Lease and
no monetary default or material non-monetary default under this Lease shall have
previously occurred, Tenant shall have the right, by notice (a "Reduction
Notice") given to Landlord at any time after each Reduction Date (as defined
below) to reduce the amount of security held by landlord pursuant to this
Article 40 by $24,000.00. If Tenant properly gives a Reduction Notice to
Landlord, Landlord shall return such letter of credit to Tenant; provided, that
Tenant has delivered to Landlord a substitute letter of credit in an amount
equal to the difference between the amount of the letter of credit which
Landlord is returning to Tenant less $24,000.00. Anything to the contrary
contained in this Section 40.02 notwithstanding, in no event shall the amount of
security held by Landlord pursuant to this Article 40 be less than $120,000.00.
"Reduction Date" means March 31, 1999, March 31, 2000, March 31, 2001, March 31,
2002 and March 31, 2003. Landlord agrees to reasonably cooperate with Tenant to
substitute any letter of credit in accordance with this Section 40.02; provided,
that such cooperation shall be without expense or liability to Landlord. If at
any time Tenant shall be in monetary default or material non-monetary default
under this Lease, this Section 40.02 shall be null and void and of no further
force and effect and Tenant shall have no further right to reduce the amount of
security held by Landlord pursuant to the Article 40.
ARTICLE 41
MISCELLANEOUS
41.01. Irrespective of the place of execution or performance, this
Lease shall be governed by and construed in accordance with the laws of the
State of New Jersey.
41.02. This Lease shall be construed without regard to any
presumption or other rule requiring construction against the party causing this
Lease to be drafted.
41.03. Except as otherwise expressly provided in this Lease, each
covenant, agreement, obligation or other provision of this Lease on Tenant's
part to be performed shall be deemed and construed as a separate and independent
covenant of Tenant, not dependent on any other provision of this Lease.
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41.04. All terms and words used in this Lease, regardless of the
number or gender in which they are used, shall be deemed to include any other
number and any other gender as the context may require.
41.05. Time shall be of the essence with respect to the exercise of
any option granted under this Lease.
41.06. Except as otherwise provided herein whenever payment of
interest is required by the terms hereof it shall be at the Interest Rate
41.07. If the Demised Premises or any additional space to be included
within the Demised Premises shall not be available for occupancy by Tenant on
the specific date herein before designated for the commencement of the term of
this Lease or for the inclusion of such space for any reason whatsoever, then
this Lease shall not be affected thereby but, in such case, said specific date
shall be deemed to be postponed until the date when the Demised Premises or such
additional space shall be available for occupancy by Tenant, and Tenant shall
not be entitled to possession of the Demised Premises or such additional space
until the same are available for occupancy by Tenant; provided, however, Tenant
shall have no claim against Landlord, and Landlord shall have no liability to
Tenant by reason of any such postponement of said specific date, and the parties
hereto further agree that any failure to have the Demised Premises or such
additional space available for occupancy by Tenant on said specific date or on
the Commencement Date shall in no wise affect the obligations of Tenant
hereunder nor shall the same be construed in any wise to extend the Term.
41.08. In the event that Tenant is in arrears in payment of Basic
Annual Rent or additional rent hereunder, Tenant waives Tenant's right, if any,
to designate the items against which any payments made by Tenant are to be
credited, and Tenant agrees that Landlord may apply any payments made by Tenant
to any items it sees fit, irrespective of and notwithstanding any designation or
request by Tenant as to the items against which any such payments shall be
credited.
41.09. All Schedules and Exhibits referred to in this Lease are
hereby incorporated in this Lease by reference.
41.10. The covenants, conditions and agreements contained in this
Lease shall bind and inure to the benefit of Landlord and Tenant and their
respective heirs, distributees, executors, administrators, successors, and
except as otherwise provided in this Lease, their assigns.
41.11. Tenant hereby acknowledges that in order to avoid delay, this
Lease has been prepared and submitted to Tenant for signature with the
understanding that it shall not be deemed an offer by Landlord or bind Landlord
unless and until it is executed and delivered by Landlord.
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41.12. The exterior walls of the Building, the portions of any window
sills outside the windows and the windows are not part of the premises demised
by this Lease and Landlord reserves all rights to such parts of the Building.
41.13. INTENTIONALLY DELETED
41.14. Upon the expiration or sooner termination of this Lease or
upon the closure of Tenant's operations in the Demised Premises or upon the sale
or other disposition of all or any part of the Building or land thereunder by
Landlord, Tenant shall, at its sole cost and expense, comply with all applicable
provisions of all Legal Requirements relating to environmental laws and
regulations, including, without limitation, the New Jersey Industrial Site
Recovery Act (and all amendments and successors thereto) (including, without
limitation, obtaining a letter of non-applicability within three months after
the Expiration Date confirming that Tenant is not an industrial establishment)
with respect to the Demised Premises and any other portion of the Property
affected by Tenant's operations. Notwithstanding the foregoing, Tenant shall
not be liable for any such compliance relating to environmental matters, whereby
such compliance is required as a direct result of any act or omission relating
to the Demised Premises, which took place prior to the Commencement Date.
Tenant shall indemnify and hold harmless Landlord and any holder of a Superior
Instrument, and its and their respective partners, joint venturers, directors,
officers, agents, servants and employees from and against any loss, damage,
liability, cost, claim or expense (including reasonable attorneys' fees) arising
from or in connection with Tenant's failure to so comply with all such
provisions.
41.15. This Lease constitutes the entire agreement of the parties
with respect to the matters hereof, and may not be modified except by a written
instrument executed by Landlord and Tenant.
ARTICLE 42
INTENTIONALLY OMITTED
ARTICLE 43
ARBITRATION
43.01. Landlord may at any time request arbitration, and Tenant may
at any time when not in default in the payment of any Basic Annual Rent or
additional rent request arbitration, of any matter in dispute with respect to
which arbitration is expressly provided for in this Lease. The party requesting
arbitration shall do so by giving notice to that effect to the other party
specifying the nature of the dispute. Said dispute shall be determined in
Newark, New Jersey, by a single arbitrator, in accordance with the rules then
obtaining of the American Arbitration Association (or any organization which is
the successor thereto). The award in such arbitration may be enforced on the
application of either party by the order or judgment of a court of competent
jurisdiction. The fees and expenses of any arbitration shall be borne by the
parties
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equally, but each party shall bear the expense of its own attorneys and experts
and the additional expenses of presenting its own proof.
ARTICLE 44
OPTION TO RENEW
44.01. (a) Provided that (i) the PR Newswire Tenant (as defined
below) renews or extends the PR Newswire Lease (as defined below) beyond March
31, 2007 and (ii) both when it exercises the option to extend described below
and when the Extended Term (as defined below) commences (a) this Lease is in
full force and effect and (b) the party executing this Lease occupies at least
90% of the Demised Premises, Tenant shall have the option to extend the term of
this Lease for an additional term which is coterminous with the term for which
the PR Newswire Tenant renews or extends the PR Newswire Lease (the "Extended
Term"). If the PR Newswire Tenant renews or extends the PR Newswire Lease
beyond March 31, 2007, Landlord shall notify Tenant thereof (the "PR Extension
Notice"). If the PR Newswire Lease is terminated prior to the termination date
provided for in the PR Newswire Lease, Landlord shall notify Tenant thereof.
Such option to extend the term of this Lease may be exercised only by Tenant
giving written notice to Landlord on or before the date that is sixty (60) days
after Landlord gives the PR Extension Notice to Tenant. It is expressly agreed
that Tenant shall not have an option to extend the term of this Lease beyond the
expiration of the Extended Term. If this Lease shall be terminated before the
commencement of the Extended Term, Tenant's option to extend the term of this
Lease, or its exercise thereof, or the Extended Term or lease created by any
such exercise, shall be abrogated and rendered null and void. If Tenant fails
to timely give such notice, Tenant's option to extend this Lease shall be
terminated and be deemed waived by Tenant. The "PR Newswire Tenant" means PR
Newswire Association, Inc. and its successors and assigns under that certain
lease dated April 9, 1982, as amended, pursuant to which PR Newswire
Association, Inc. leases certain space on the 8th floor of Plaza III (the "PR
Newswire Lease").
(b) Upon Tenant's giving notice of its election to extend the
term of this Lease for the Extended Term, pursuant to paragraph (a) above, this
Lease shall be deemed automatically amended as of the date following the
Expiration Date as follows: (i) the Basic Annual Rent shall be the greater of
(x) the Basic Annual Rent payable under this Lease immediately prior to the
original Expiration Date or (y) the fair market rent for the Demised Premises
for the Extended Term as determined pursuant to Section 44.02; and (ii) the
Expiration Date of the Extended Term shall be the last day of the term for which
the PR Newswire Tenant renews or extends the PR Newswire Lease. Tenant and
Landlord shall promptly execute and deliver an appropriate modification of this
Lease to evidence said amendment.
44.02. (a) For purposes of this Article 44, in such instances that
it is provided that Tenant shall pay a "fair market rent" as Basic Annual Rent,
such fair market rent shall be proposed by Landlord giving notice therefor (a
"FMR Notice"), not later than the later of (i) January 1, 2007 and (ii) thirty
(30) days after Tenant exercises the option to extend the term of this Lease
pursuant to this Article 44.
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(b) Within thirty (30) days after Landlord gives a FMR
Notice, Tenant shall notify Landlord as to whether or not it agrees with
Landlord's proposed fair market rent, and if it does not so agree, Tenant shall
in such notice submit to Landlord its proposed fair market rent. If Tenant fails
to respond as aforesaid within said 30 day period, Tenant hereby agrees that it
shall be deemed conclusively to have agreed to the fair market rent proposed by
Landlord.
(c) If Landlord and Tenant do not agree upon the fair market
rent, the matter shall be submitted to arbitration in accordance with the
provisions of Article 43 hereof, subject, however, to the following
modifications
(i) the arbitrator selected shall have at least five years'
experience in the leasing or management of office space in the
northern New Jersey office market. The fees and expenses of the
arbitrator and all other expenses (not including the attorneys' fees,
witness fees and similar expenses of the parties which shall be borne
separately by each of the parties) of the arbitration shall be borne
equally by the parties hereto;
(ii) within two business days after the appointment of the
arbitrator, there shall be submitted to the arbitrator the FMR Notice
containing Landlord's proposed fair market rent and a copy of Tenant's
response thereto containing Tenant's proposed fair market rent;
(iii) within ten (10) business days thereafter, the arbitrator shall
select either the fair market rent proposed by Landlord or Tenant,
whichever the arbitrator determines is closest to his determination of
the fair market rent for the Demised Premises.
(iv) in rendering such decision, the arbitrator shall determine the
fair market rent that would be agreed upon by Landlord and a new
unrelated third party tenant, and in connection therewith shall assume
all of the following: (A) the Landlord and prospective tenant are
typically motivated; (B) the Landlord and prospective tenant are well
informed and well advised and each is acting in what it considers its
own best interest; (C) a reasonable time under then-existing market
conditions is allowed for exposure of the Demised Premises on the open
market; (D) the rent is unaffected by concessions, special financing
amounts and/or terms, or unusual services, fees, costs or credits in
connection with the leasing transaction; (E) the Demised Premises are
fit for immediate occupancy and use "as-is" and require no additional
work by Landlord and that no work has been carried out thereon by the
Tenant, its subtenant, or their predecessors in interest during the
term which has diminished the rental value of the Demised Premises;
(F) in the event the Demised Premises have been destroyed or damaged
by fire or other casualty, they have been fully restored; (G) that the
demised premises are to be let with vacant possession and subject to
the provisions of this Lease for a term equal to the Extensino Term;
(H) market rents then being charged for comparable space in other
similar office buildings in the same area; (I) the computation of the
number of rentable square feet contained in the Demised Premises shall
be based on the
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standard of measurement for such square footage then obtaining in the
Building but in no event less than the square footage specified in
Section 1.01(b); (J) the Base Tax Year and the Base Operating Year
shall be as stated herein and (K) a full brokerage commission shall be
payable by Landlord, on then market terms. In rendering such decision
and award, the arbitrator shall not modify the provisions of this
Lease.
(v) the decision and award of the arbitrator shall be in writing and
be final and conclusive on all parties and counterpart copies thereof
shall be delivered to each of said parties. Judgment may be had on
the decision and award of the arbitrator so rendered in any court of
competent jurisdiction.
(d) In the event that any payment of Basic Annual Rent is due
hereunder prior to the determination of the arbitrator Tenant shall pay as the
Basic Annual Rent it is obligated to pay under this Lease the amount set forth
in the FMR Notice. If the arbitrator determines that the Basic Annual Rent
payable pursuant to this Article 44 is less than that set forth in the FMR
Notice, then Tenant shall be entitled to a credit in the amount of its
overpayment for such period against subsequent payments of Basic Annual Rent or
additional rent due hereunder.
(e) Nothing contained in this Section 44.02 shall be deemed
in any way to alter or modify the provisions of Article 3 hereof.
44.03. If the PR Newswire Tenant does not renew the PR Newswire Lease
beyond March 31, 2007 and Landlord fails to notify Tenant thereof (the "PR Non-
Extension Notice") at least 180 days prior to the Expiration Date (unless Tenant
otherwise knew that the PR Newswire Tenant did not renew or extend the PR
Newswire Lease), then the Expiration Date shall be automatically extended for an
extension period commencing on the day after the originally scheduled Expiration
Date and ending on the date that is the earliest to occur of (i) the date that
is 180 days after Landlord gives the PR Non-Extension Notice to Tenant, (ii) the
date that is 180 days after Tenant first knew that the PR Newswire Tenant did
not renew or extend the PR Newswire Lease and (iii) the date that is 180 days
after the originally scheduled Expiration Date and such extension period shall
be upon all of the terms and conditions of this Lease existing prior to the
originally scheduled Expiration Date, except that Tenant shall have no right to
extend the term of this Lease beyond such extension period.
ARTICLE 45
RIGHT OF FIRST OFFER
45.01 Offer Space Option. (a) As used herein:
"Available" as used in this Section 45.01 means that the PR Newswire
Space is free of any present or future possessory right now existing in favor of
any third party (other than the possessory right of the PR Newswire Tenant
through March 31, 2007). Tenant's right of first
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offer is subordinate to any right of offer, refusal right, extension right or
similar right or option in favor of any third party existing as of the date of
this Lease.
"Offer Space" as used in this Section 45.01 means all of the Demised
Premises and all of the PR Newswire Space. Landlord and Tenant confirm that the
Offer Space is conclusively deemed to contain 41,178 rentable square feet.
"PR Newswire Space" means all of the space on the eighth (8th) floor
of Plaza III substantially as shown hatched on the floor plan annexed as Exhibit
I. Landlord and Tenant confirm that the PR Newswire Space is conclusively
deemed to contain 29,326 rentable square feet.
(b) Provided (i) the PR Newswire Tenant shall not have
renewed or extended the PR Newswire Lease beyond March 31, 2007, (ii) this Lease
shall not have been terminated and (iii) Tenant shall not be in default under
this Lease, then if the PR Newswire Space becomes, or Landlord reasonably
anticipates that within the next 12 months the PR Newswire Space will become
Available as of April 1, 2007, Landlord shall give to Tenant notice (an "Offer
Notice") thereof, specifying (a) the fixed annual rental ("Offer Rental") which
Landlord is then considering for the lease of the Offer Space, (b) the proposed
term of the lease for such Offer Space and (c) such other matters as Landlord
may deem appropriate for such Offer Notice. It is understood that if the PR
Newswire Space becomes, or Landlord reasonably anticipates that the PR Newswire
Space will become Available prior to April 1, 2007, the Offer Space Option
contained in this Section 45.01 shall not be applicable thereto and the Offer
Space Option contained in Section 45.02 shall be applicable thereto subject to
the terms and provisions set forth therein.
(c) Provided that on the date that Tenant exercises the Offer
Space Option under this Section 45.01 and on the Offer Space Inclusion Date (i)
this Lease shall not have been terminated and (ii) Tenant shall not be in
default under this Lease, Tenant shall have the option (the "Offer Space
-----------
Option"), exercisable by notice (an "Acceptance Notice") given to Landlord on or
- ------ -----------------
before the date that is 30 days after the giving of the Offer Notice (time being
of the essence) to lease all (but not less than all) of the Offer Space upon all
of the terms and conditions specified herein.
(d) If Tenant timely delivers the Acceptance Notice, then,
effective as of April 1, 2007 (the "Offer Space Inclusion Date"), Tenant shall
--------------------------
lease the Offer Space upon all of the terms and conditions set forth in this
Lease, except (i) Basic Annual Rent shall be the Offer Rental, (ii) Tenant's Tax
Share and Tenant's Expense Share shall be proportionately increased based on the
rentable square feet of the Offer Space, (iii) the term of Tenant's leasing of
the Offer Space shall commence on the Offer Space Inclusion Date and expire on
the date set forth in the Offer Notice, (iv) Landlord shall not be required to
perform Landlord's Work or any other work, pay any contribution or any other
amount, or render any services to make the Building or the Offer Space ready for
Tenant's use or occupancy, and Tenant shall accept the Offer Space in its "as
is" condition on the Offer Space Inclusion Date, (v) all references in this
Lease to the Demised Premises shall mean the Offer Space and (vi) as may be
otherwise set forth in the Offer Notice.
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(e) If Tenant fails to give an Acceptance Notice within the
period provided in paragraph (c) above, time of the essence, then (i) Landlord
may enter into one or more leases of the Offer Space with third parties on such
terms and conditions as Landlord shall determine, the Offer Space Option under
this Section 45.01 and the Offer Space Option under Section 45.02 shall be null
and void and of no further force and effect and Landlord shall have no further
obligation to offer the Offer Space to Tenant, and (ii) Tenant shall, upon
demand by Landlord, execute an instrument confirming Tenant's waiver of, and
extinguishing, the Offer Space Option under this Section 45.01 and the Offer
Space Option under Section 45.02, but the failure by Tenant to execute any such
instrument shall not affect the provisions of clause (i) above.
----------
(f) Promptly after the occurrence of the Offer Space
Inclusion Date, Landlord and Tenant shall confirm the occurrence thereof and
Tenant's leasing of the Offer Space by executing an instrument reasonably
satisfactory to Landlord and Tenant; provided, that failure by Landlord or
Tenant to execute such instrument shall not affect Tenant's leasing of the Offer
Space in accordance with this Article.
(g) If Landlord is unable to deliver possession of any
portion of the PR Newswire Space to Tenant for any reason on or before April 1,
2007, the Offer Space Inclusion Date with respect to any such portion shall be
the date on which Landlord is able to so deliver possession and Landlord shall
have no liability to Tenant therefor and this Lease shall not in any way be
impaired. This Section 45.01(g) constitutes "an express provision to the
contrary" within the meaning of Section 223(a) of the New York Real Property Law
and any other law of like import now or hereafter in effect.
(h) Anything in this Lease to the contrary notwithstanding,
this Article 45 shall be null and void and of no force or effect if Exodus
Communications is no longer the Tenant under this Lease.
45.02 Offer Space Option. (a) As used herein:
"Available" as used in this Section 45.02 means that the PR Newswire
Space is free of any present or future possessory right now existing in favor of
any third party. Tenant's right of first offer is subordinate to any right of
offer, refusal right, extension right or similar right or option in favor of any
third party existing as of the date of this Lease.
"Offer Period" means the period commencing on the Commencement Date to
and including March 30, 2007.
"Offer Space" as used in this Section 45.02 means the PR Newswire
Space.
(b) Provided (i) the PR Newswire Tenant shall not have
renewed or extended the PR Newswire Lease beyond March 31, 2007, (ii) this Lease
shall not have been terminated and (iii) Tenant shall not be in default under
this Lease, if the Offer Space becomes, or Landlord reasonably anticipates that
within the next 12 months (but not later than the last day of the Offer Period),
such Offer Space will become Available, Landlord shall give to Tenant
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notice (an "Offer Notice") thereof, specifying (a) the fixed annual rental
("Offer Rental") which Landlord is then considering for the lease of the Offer
Space, (b) the date or estimated date that the Offer Space has or shall become
Available and (c) such other matters as Landlord may deem appropriate for such
Offer Notice.
(c) Provided that on the date that Tenant exercises the Offer
Space Option under this Section 45.02 and on the Offer Space Inclusion Date (i)
this Lease shall not have been terminated and (ii) Tenant shall not be in
default under this Lease, Tenant shall have the option (the "Offer Space
Option"), exercisable by notice (an "Acceptance Notice") given to Landlord on or
before the date that is 30 days after the giving of the Offer Notice (time being
of the essence) to include all (but not less than all) of the Offer Space in the
Premises.
(d) If Tenant timely delivers the Acceptance Notice, then, on
the date on which Landlord delivers vacant possession of the Offer Space to
Tenant, (the "Offer Space Inclusion Date"), the Offer Space shall become part of
the Premises upon all of the terms and conditions set forth in this Lease,
except (i) Basic Annual Rent with respect to the Offer Space shall be the Offer
Rental, (ii) Tenant's Tax Share and Tenant's Expense Share shall be
proportionately increased to reflect the additional rentable square feet of the
Offer Space, (iii) Landlord shall not be required to perform Landlord's Work or
any other work, pay any contribution or any other amount, or render any services
to make the Building or the Offer Space ready for Tenant's use or occupancy, and
Tenant shall accept the Offer Space in its "as is" condition on the Offer Space
Inclusion Date, (iv) all references in this Lease to the Demised Premises shall
include the Offer Space and (v) as may be otherwise set forth in the Offer
Notice.
(e) If Tenant fails to give an Acceptance Notice within the
period provided in paragraph (c) above, time of the essence, then (i) Landlord
may enter into one or more leases of the Offer Space with third parties on such
terms and conditions as Landlord shall determine, the Offer Space Option under
this Section 45.02 and the Offer Space Option under Section 45.01 shall be null
and void and of no further force and effect and Landlord shall have no further
obligation to offer the Offer Space to Tenant, and (ii) Tenant shall, upon
demand by Landlord, execute an instrument confirming Tenant's waiver of, and
extinguishing, the Offer Space Option under this Section 45.02 and the Offer
Space Option under Section 45.01, but the failure by Tenant to execute any such
instrument shall not affect the provisions of clause (i) above.
----------
(f) Promptly after the occurrence of the Offer Space
Inclusion Date, Landlord and Tenant shall confirm the occurrence thereof and the
inclusion of the Offer Space in the Premises by executing an instrument
reasonably satisfactory to Landlord and Tenant; provided, that failure by
Landlord or Tenant to execute such instrument shall not affect the inclusion of
the Offer Space in the Premises in accordance with this Article.
(g) If Landlord is unable to deliver possession of any
portion of the Offer Space to Tenant for any reason on or before the date on
which Landlord anticipates that the Offer Space shall be Available as set forth
on the Offer Notice, the Offer Space Inclusion Date with respect to any such
portion shall be the date on which Landlord is able to so deliver possession and
Landlord shall have no liability to Tenant therefor and this Lease shall not in
any way be
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impaired. This Section 45.01(g) constitutes "an express provision to the
contrary" within the meaning of Section 223(a) of the New York Real Property Law
and any other law of like import now or hereafter in effect.
(h) Anything in this Lease to the contrary notwithstanding,
this Article 45 shall be null and void and of no force or effect if Exodus
Communications is no longer the Tenant under this Lease.
ARTICLE 46
ROOF EQUIPMENT
46.01. Subject to Landlord's prior approval, not to be unreasonably
withheld or delayed, Tenant shall have the right, subject to and in accordance
with the provisions of this Article 46, to use a portion of the roof of Plaza
III as designated on Exhibit J attached hereto and made a part hereof consisting
of approximately 20' x 28' to install, maintain and operate, at its sole cost
and expense, a back-up generator and day tank (the "Roof Equipment"). Tenant
shall furnish detailed plans and specifications for the Roof Equipment (or any
modification thereof) to Landlord for its approval. Tenant's use of the rooftop
of Plaza III shall be a non-exclusive use and Landlord may permit the use of any
other portion of the roof to any other person for any use including without
limitation installation of communication equipment or other generators or tanks.
Tenant shall use its reasonable efforts to insure that its use of the rooftop
does not impair such other person's data transmission and reception via its
respective communication equipment. If Tenant's construction, installation,
maintenance, repair, operation or use of the Roof Equipment shall interfere with
the rights of Landlord (including, without limitation, Landlord's right to use
the remainder of the roof) or other tenants in the Building, Tenant shall
cooperate with Landlord or such other tenants in eliminating such interference;
provided, however, the cost of remedying such interference shall be borne by the
party which is suffering such interference, unless such party was using the
affected equipment prior to the use of the Roof Equipment by Tenant, in which
case the cost of remedying such interference shall be borne by Tenant. Tenant
shall secure and keep in full force and effect, from and after the time Tenant
begins construction and installation of the Roof Equipment, such supplementary
insurance with respect to the Roof Equipment as Landlord may reasonably require.
Tenant shall pay any additional or increased insurance premiums incurred by
Landlord with respect to the Roof Equipment.
46.02. In connection with the installation, maintenance and operation
of the Roof Equipment, Tenant, at Tenant's sole cost and expense, shall comply
with all Legal Requirements, including, without limitation, any requirement to
install screening surrounding such installations, and shall procure, maintain
and pay for all permits required therefor, and Landlord makes no warranties
whatsoever as to the permissibility of Roof Equipment under applicable Legal
Requirements or the suitability of the roof of Plaza III for the installation
thereof. If Landlord's structural engineer deems it advisable that there be
structural reinforcement of the roof in connection with the installation of the
Roof Equipment Landlord shall perform same at Tenants' cost and expense and
Tenant shall not perform any such installation prior to the completion of any
such structural reinforcement. The installation of the Roof Equipment shall be
subject to the
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provisions of Article 6 applicable to alterations and installations. For the
purpose of installing, servicing or repairing the Roof Equipment, Tenant shall
have access to the rooftop of Plaza III at reasonable times upon reasonable
notice to Landlord and Landlord shall have the right to require, as a condition
to such access, that Tenant (or its employee, contractor or other
representative) at all times be accompanied by a representative of Landlord,
whom Landlord agrees to make available upon reasonable notice. Landlord agrees
to use reasonable efforts to cooperate with Tenant in order to grant Tenant
access to the rooftop in the event of an emergency. Tenant shall pay for all
electrical service required for Tenant's use of the Roof Equipment, to be
measured and charged in accordance with the provisions set forth in Article 4
hereof.
46.03. Tenant, at its sole cost and expense, shall promptly repair
any and all damage to the rooftop or to any other part of the Building caused by
the installation, maintenance, repair, operation or removal of the Roof
Equipment. Tenant shall be responsible for all costs and expenses for repairs
and maintenance of the roof which result from Tenant's use of the roof for the
construction, installation, maintenance, repair, operation and use of the Roof
Equipment. All installations made by Tenant on the rooftop or in any other part
of the Building pursuant to the provisions of this Article 46 shall be at the
sole risk of Tenant, and neither Landlord, nor any agent or employee of
Landlord, shall be responsible or liable for any injury or damage to, or arising
out of, the Roof Equipment. Tenant's indemnity under Section 38.01 shall apply
with respect to the installation, maintenance, operation, repair, presence or
removal of the Roof Equipment.
46.04. Upon the expiration of the Term, the Roof Equipment shall be
removed by Tenant at its sole cost and expense, and Tenant shall repair any
damage to and restore the rooftop or any other portions of the Building to their
condition existing immediately prior to Tenant's installation of the Roof
Equipment.
46.05. Tenant shall not be required to pay rent for the use of such
Roof Equipment or use of the rooftop or any shaft space in connection with the
use of rooftop for the purposes permitted herein and none of the same shall be
included in the calculation of Tenant's Tax Share or Tenant's Expense Share.
46.06. Notwithstanding anything to the contrary contained in this
Article 46, Landlord shall have the right, at Landlord's expense, on not less
than thirty (30) days' prior notice, to relocate the Roof Equipment to another
location on the roof of the Building, and Tenant shall cooperate in all
reasonable respects with Landlord in any such relocation; provided, that if such
relocation is done pursuant to any Legal Requirement, the cost thereof charged
at Landlord's actual cost shall be borne by Tenant.
46.07. The rights granted in this Article 46 are given in connection
with, and as part of the rights created under, this Lease and are not separately
transferable or assignable but shall inure to and benefit Tenant and its
permitted successors and assigns.
46.08. If the installation of the Roof Equipment or act or omission
relating thereto should revoke, negate or in an any manner impair or limit any
roof warranty or guaranty obtained by Landlord, then Tenant shall reimburse
Landlord for any loss or damage sustained or costs or
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expenses incurred by Landlord as a result of such impairment or limitation,
provided Landlord shall use reasonable efforts to give Tenant reasonable notice
of any anticipated impairment and the opportunity to take any action necessary
to avoid or eliminate such impairment..
ARTICLE 47
FUEL TANK SPACE
47.01. (a) Landlord hereby leases to Tenant and Tenant hereby rents
from Landlord a portion of the first floor of Plaza III to be designated by
Landlord (not to exceed 100 square feet) (the "First Floor Space") for a term
(the "First Floor Term") commencing on the date of this Lease and expiring on
the Expiration Date (unless the Term shall sooner cease and terminate as herein
before provided) and otherwise upon the terms and conditions hereinafter set
forth.
(b) The basic annual rent for the First Floor Space shall be
at an annual rate equal to the product of [$10.00] multiplied by the number of
square feet contained in the First Floor Space, payable in equal monthly
installments appropriately prorated for any partial year and otherwise payable
in the same manner as the Basic Annual Rent with respect to the Demised
Premises.
(c) Tenant shall not be obligated to pay Tenant's share of
Existing Building Taxes, Common Area Taxes, Operating Expenses or Common Area
Operating Expenses with respect to the First Floor Space.
(d) Payment of basic annual rent with respect to the First
Floor Space shall commence as of the date of this Lease. If the date of this
Lease is not the first day of a month, then the basic annual rent with respect
to the First Floor Space shall be prorated on a per diem basis, and Tenant
agrees to pay the amount thereof for such partial month on the date of this
Lease.
(e) Tenant shall accept the First Floor Space on its "as is"
condition on the date of this Lease and Landlord shall have no obligation to
perform any work or make any contribution to ready the First Floor Space for
Tenant's use.
(f) Tenant shall not be entitled to any additional parking
spaces in connection with its leasing of the First Floor Space.
(g) Tenant shall pay, in accordance with the provisions of
Article 4 hereof, the amounts due for electrical current consumed by Tenant with
respect to the First Floor Space and shall pay to Landlord, as additional rent,
the costs of installing meters in the First Floor Space to measure such
consumption to the extent such meters have not already been installed.
(h) Tenant shall use the First Floor Space for the
installation, maintenance and operation of a fuel tank, and for no other
purpose.
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(i) Except as otherwise specifically provided in this Article
47, all references in this Lease to the Demised Premises shall be deemed to
include the First Floor Space, and all of the terms, provisions and conditions
of this Lease shall apply to the First Floor Space.
(j) Tenant shall construct and maintain in compliance with
all Legal Requirements a tank room in the First Floor Space in accordance with
Article 6 and all other applicable provisions of this Lease.
(k) Landlord shall not be required to provide any services
with respect to the First Floor Space.
IN WITNESS WHEREOF, Landlord and Tenant have respectively executed
this Lease as of the day and year first above written.
CAL HARBOR II & III URBAN RENEWAL ASSOCIATES L.P.
By: Cali Sub X Inc., a Delaware Corporation, its
General Partner
By: /s/ James G. Nugent 12/30/96
--------------------------------
James G. Nugent
Vice President
EXODUS COMMUNICATIONS, INC., Tenant
By: /s/ Richard S. Stoltz
--------------------------------
Name: Richard S. Stoltz
Title:COO/CFO
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SCHEDULE A-I
PLAZA II HARBORSIDE
FOURTH FLOOR FINANCIAL CENTER
A JONES LANG WOOTTON/US WEST PROJECT
BRADLEY P. GERTA
MARK RAVESLOOT
(212) 509-9600
[Diagram of Plaza II - Fourth Floor Plan]
A-I-1
<PAGE>
SCHEDULE A-II
PLAZA III HARBORSIDE
EIGHTH FLOOR FINANCIAL CENTER
A JONES LANG WOOTTON/US WEST PROJECT
BRADLEY P. GERTA
MARK RAVESLOOT
(212) 509-9600
[Diagram of Plaza III - Eighth Floor Plan]
A-II-1
<PAGE>
SCHEDULE B
DESCRIPTION OF LAND
All that certain tract or parcel of land and premises situate, lying and
being in the City of Jersey City, County of Hudson and the State of New Jersey,
being more particularly described as follows:
TRACT A
-------
PARCEL I
- --------
BEGINNING at the intersection of the northerly line of Christopher Columbus
Drive with easterly line of Greens Street; running thence
(1) Along said easterly line of Greene Street, North 8 degrees 43 minutes 40
seconds East 202.03 feet to the center line of Fotmer Pearl Street; thence
(2) Along said center line, South 81 degrees 26 minutes 50 seconds East 294.72
feet; thence
(3) On a curve to the right 22.84 feet, said curve having a radius of 35.00
feet and a chord of South 37 degrees 50 minutes 14 seconds East 22.44 feet;
thence
(4) North 8 degrees 33 minutes 10 seconds East 78.75 feet; thence
(5) North 81 degrees 28 minutes 00 seconds West 136.05 feet; thence
(6) North 8 degrees 49 minutes 51 seconds East 200.00 feet; thence
(7) North 81 degrees 10 minutes 09 seconds West 25.00 feet; thence
(8) North 8 degrees 49 minutes 51 seconds East 393.84 feet; thence
(9) North 10 degrees 55 minutes 09 seconds East 200.00 feet; thence
(10) South 81 degrees 26 minutes 50 seconds East 1575.52 feet to the pierhead
line as approved by the Secretary of War of the United States 31 July 1941
and adopted by the former Board of Commerce and Navigation of the State of
New Jersey 6 April 1942; thence
(11) Along said pierhead line, South 11 degrees 51 minutes 32.2 seconds West,
1207.01 feet; thence
(12) North 81 degrees 26 minutes 50 seconds West 693.49 feet; thence
(13) North 8 degrees 33 minutes 10 seconds East 125.00 feet; thence
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(14) North 81 degrees 26 minutes 50 seconds West 503.80 feet to and along the
northerly line of Christopher Columbus Drive to the easterly line of Hudson
Street; thence
(15) Along said easterly line of Hudson Street, North 8 degrees 37 minutes 10
seconds East 56.00 feet to the end of northerly line of Hudson Street;
thence
(16) Along said northerly line of Hudson Street, North 81 degrees, 26 minutes 50
seconds West 70.00 feet to the westerly line of Hudson Street; thence
(17) Along said westerly line of Hudson Street, South 8 degrees 37 minutes 10
seconds West 55.99 feet to the northerly line of Christopher Columbus
Drive; thence
(18) Along said line, on a curve to the right 401.02 feet to the point
beginning, said curve having a radius of 3960.00 feet and a chord of North
78 degrees 26 minutes 55 seconds West 400.84 feet.
Excepting from the above described premises all that certain plot, place of
parcel of land, with buildings and improvements thereon erected, situate, lying
and being in the City of Jersey City, County of Hudson, State of New Jersey,
known and designated as New Lot A-13 in Block 11, as set forth on that certain
subdivision map entitled "Subdivision of Lot A-10 in Block 11" prepared by Lange
Surveying & Mapping, dated January 1983, being Map No. 3033 recorded in the
Office of the Register of Deeds of Hudson County on June 23, 1983.
TRACT A
-------
PARCEL II
- ---------
ALL that certain tract or parcel of land and premises, hereinafter more
particularly described, situate, lying and being in the City of Jersey City,
County of Hudson, State of New Jersey:
BEGINNING at the intersection of the northerly line of Christopher Columbus
Drive with easterly line of Washington Street; thence
(1) Along said easterly line of Washington Street, North 8 degrees 44 minutes
40 seconds East 90.75 feet; thence
(2) South 86 degrees 45 minutes 20 seconds East 346.47 feet; thence
(3) South 83 degrees 52 minutes 45 seconds East 56.87 feet to the westerly line
of Greene Street; thence
(4) Along said westerly line of Greene Street, South 8 degrees 43 minutes 40
seconds West 193.94 feet to the northerly line of Christopher Columbus
Drive; thence
B-2
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(5) Along said northerly line of Christopher Columbus Drive on a curve to the
right 407.55 feet to the point of Beginning, said curve having a radius of
3960.00 feet and a chord of North 71 degrees 44 minutes 07 seconds West
407.36 feet.
TRACT A
-------
PARCEL III
- ----------
ALL that certain tract or parcel of land and premises, hereinafter more
particularly described, situate, lying and being in the City of Jersey City,
County of Hudson and the State of New Jersey:
BEGINNING at the intersection of the northerly line of Christopher Columbus
Drive with the westerly line of Hudson Street; running thence
(1) Along said westerly line of Hudson Street, North 8 degrees 37 minutes 10
seconds East 55.99 feet; thence
(2) South 81 degrees 26 minutes 50 seconds East 70.00 feet to the easterly line
of Hudson Street; thence
(3) Along said easterly line of Hudson Street; South 8 degrees 37 minutes 10
seconds West 56.00 feet to the northerly line of Christopher Columbus
Drive; thence
(4) Along said northerly line of Christopher Columbus Drive, North 81 degrees
26 minutes 50 seconds West 63.26 feet; thence
(5) Still along the northerly line of Christopher Columbus Drive, along a curve
to the right 6.74 feet to the point of beginning, said curve having a
radius of 3960 feet, and a chord of North 01 degrees 23 minutes 54 seconds
West 6.74 feet to the place of BEGINNING.
TRACT A
-------
PARCEL IV (DRIVEWAY EASEMENT)
- ---------
A driveway easement over all that certain tract or parcel of land and
premises, hereinafter more particularly described, situate, lying and being in
the City of Jersey City, County of Hudson and the State of New Jersey:
BEGINNING in the easterly line of Washington Street, distant 90.76 feet
northerly from the intersection of said easterly line of Washington Street with
the northerly line of Christopher Columbus Drive; running thence
(1) Along said easterly line of Washington Street, North 8 degrees 44 minutes
40 seconds East 60.28 feet; thence
(2) South 86 degrees 45 minutes 20 seconds East 342.20 feet; thence
B-3
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(3) South 83 degrees 52 minutes 45 seconds East 167.15 feet; thence
(4) South 81 degrees 28 minutes 00 seconds East 264.86 feet; thence
(5) South 8 degrees 33 minutes 10 seconds West 78.75 feet; thence
(6) Along a curve to the left 38.08 feet, said curve having a radius of 35.00
feet and a chord of North 50 degrees 17 minutes 52 seconds West 34.22 feet;
thence
(7) North 81 degrees 28 minutes 00 seconds West 232.58 feet; thence
(8) North 83 degrees 52 minutes 45 seconds West 164.38 feet; thence
(9) North 86 degrees 45 minutes 20 seconds West 346.47 feet to the point of
Beginning.
END OF TRACT A
--------------
TRACT B
-------
BEGINNING at a point distant 180.61 feet South of the South line of First
Street, and 286.02 feet East of the East line of Greene Street; running thence
(1) North 8 degrees 33 minutes 10 seconds East, a distance of 47.15 feet to a
point; thence
(2) South 81 degrees 26 minutes 50 seconds East, a distance of 387.00 feet to a
point; thence
(3) South 8 degrees 33 minutes 10 seconds West, a distance of 47.15 feet to a
point; thence
(4) North 81 degrees 26 minutes 50 seconds West, a distance of 387.00 feet to
the point or place of BEGINNING
NOTE FOR INFORMATION: Being known as Lot C-30 in Block 15 on the City of Jersey
City Tax Map.
B-4
<PAGE>
TRACT C
-------
ALL those three (3) (Parcels I, II and III) certain pieces or parcels of
land, situate in Jersey City, County of Hudson and State of New Jersey,
separately bounded and described in accordance with a Plat of Survey prepared by
Hermann K.F. Lange, New Jersey Land Surveyor No. 16982 of Lange Surveying and
Mapping, dated October, 1981 and April, 1983, and revised to December 22, 1983
as follows:
PARCEL I
- --------
BEGINNING at a point in the southerly line of First Street extended East,
distant 452.10 feet easterly from the intersection of said southerly line of
First Street, with the easterly line of Washington Street; running thence
(1) Along said southerly line of First Street extended East, South 82 degrees
59 minutes 30 seconds East, 64.46 feet; thence
(2) South 21 degrees 41 minutes 43 seconds East, 206.21 feet to the westerly
line of lands known as Harborside Terminal; thence
(3) Along said westerly line of Harborside Terminal, South 10 degrees 31
minutes 36 seconds West 200.00 feet; thence
(4) Still along said line South 8 degrees 26 minutes 18 seconds West 393.83
feet; thence
(5) Still along said line, South 81 degrees 33 minutes 42 seconds East, 25.00
feet; thence
(6) Still along said line, South 8 degrees 25 minutes 18 seconds West, 200.00
feet; thence
(7) South 81 degrees 51 minutes 33 seconds East, 136.04 feet; thence
(8) South 8 degrees 09 minutes 37 seconds West, 78.78 feet; thence
(9) On a curve to the left 22.87 feet, said curve having a radius of 35.00
feet, and a chord of North 38 degrees 11 minutes 55 seconds West 22.47
feet; thence
(10) North 81 degrees 59 minutes 23 seconds West, 322.19 feet; thence
(11) North 84 degrees 16 minutes 18 seconds West, 17.92 feet; thence
(12) On a curve to the right, 54.89 feet, said curve having a radius of 193.00
feet, and a chord of North 00 degrees 15 minutes 43 seconds East, 54.71
feet; thence
(13) North 8 degrees 24 minutes 35 seconds East, 237.97 feet; thence
(14) On a curve to the right, 120.67 feet, said curve having a radius of 513.00
feet, and a chord of North 15 degrees 08 minutes 54 seconds East 120.39
feet; thence
B-5
<PAGE>
(15) North 21 degrees 53 minutes 13 seconds East, 109.73 feet; thence
(16) On a curve to the left, 123.96 feet, said curve having a radius of 527.00
feet, and a chord of North 15 degrees 08 minutes 54 seconds East, 123.68
feet; thence
(17) North 8 degrees 24 minutes 35 seconds East, 261.71 feet; thence
(18) On a curve to the left, 133.23 feet, said curve having a radius of 762.00
feet, and a chord of North 3 degrees 24 minutes 03 seconds East, 133.06 to
the point of BEGINNING.
TRACT C
-------
PARCEL II
- ---------
BEGINNING at a point in the southerly line of First Street distant 252.16
feet easterly from the intersection of said southerly line of First Street, with
the easterly line of Washington Street; running thence
(1) Along said southerly line of First Street and its extension East, South 82
degrees 59 minutes 30 seconds East, 175.66 feet; thence
(2) On a curve to the right, 132.67 feet, said curve having a radius of 738.00
feet and a chord of South 3 degrees 15 minutes 35 seconds West, 132.49
feet; thence
(3) South 8 degrees 24 minutes 35 seconds West, 119.04 feet; thence
(4) North 81 degrees 53 minutes 42 seconds West, 37.33 feet; thence
(5) North 8 degrees 21 minutes 30 seconds East, 103.98 feet; thence
(6) North 37 degrees 59 minutes 28 seconds West, 207.25 feet to the point of
the Beginning.
TRACT C
-------
PARCEL III
- ----------
BEGINNING at a point in the easterly line of Washington Street, distant
90.76 feet northerly from the intersection of said easterly line of Washington
Street, with the northerly line of Christopher Columbus Drive; running thence
(1) Along said easterly line of Washington Street, North 8 degrees 21 minutes
18 seconds East, 60.28 feet; thence
(2) South 87 degrees 08 minutes 53 seconds East, 342.20 feet; thence
(3) South 84 degrees 16 minutes 18 seconds East, 44.05 feet; thence
(4) South 8 degrees 24 minutes 35 seconds West, 4.43 feet; thence
B-6
<PAGE>
(5) On a curve to the left, 55.92 feet said curve having a radius of 217.00
feet and a chord of South 01 degrees 01 minutes 37 seconds West 55.77 feet;
thence
(6) North 84 degrees 16 minutes 18 seconds West, 46.91 feet; thence
(7) North 87 degrees 08 minutes 53 seconds West 346.47 feet to the point of
Beginning.
TRACT C
-------
PARCEL IV
- ---------
BEING a railroad spur approximately 24 feet in width running through Block
15 Lots A and C9 on the tax map of the City of Jersey City and more particularly
described as follows:
BEGINNING at a point in the southerly line of First Street extended East
distant 427.82 feet easterly from the intersection of said southerly line of
First Street with the easterly line of Washington Street; running thence
(1) Along said southerly line of First Street extended East South 82 degrees 59
minutes 30 seconds East 24.28 feet; thence
(2) On a curve to the right 133.23 feet, said curve having a radius of 762.00
feet and a chord of South 3 degrees 24 minutes 03 seconds West 133.06 feet;
thence
(3) South 8 degrees 24 minutes 35 seconds West 261.71 feet; thence
(4) On a curve to the right 123.96 feet said curve having a radius of 527.00
feet and a chord of South 15 degrees 08 minutes 54 seconds West 123.68
feet; thence
(5) South 21 degrees 53 minutes 13 seconds West 109.73 feet; thence
(6) On a curve to the left 120.67 feet, said curve having a radius of 513.00
feet and a chord of South 15 degrees 08 minutes 54 seconds West 120.39
feet; thence
(7) South 8 degrees 24 minutes 35 seconds West 237.97 feet; thence
(8) On a curve to the left 54.89 feet, said curve having a radius of 193.00
feet and a chord of South 00 degrees 15 minutes 43 seconds West 54.71 feet;
thence
(9) North 84 degrees 16 minutes 18 seconds West 24.62 feet; thence
(10) On a curve to the right 55.92 feet, said curve having a radius of 217.00
feet and a chord of North 1 degree 1 minute 37 seconds East 55.77 feet;
thence
(11) North 8 degrees 24 minutes 35 seconds East 237.97 feet; thence
(12) On a curve to the right 126.31 feet, said curve having a radius of 537.00
feet and a chord of North 15 degrees 08 minutes 54 seconds East 126.02
feet; thence
B-7
<PAGE>
(13) North 21 degrees 53 minutes 13 seconds East 109.73 feet; thence
(14) On a curve to the left 118.32 feet said curve having a radius of 503.00
feet and a chord of North 15 degrees 08 minutes 54 seconds East 118.04
feet; thence
(15) North 8 degrees 24 minutes 35 seconds East 261.71 feet; thence
(16) On a curve to the left 132.67 feet said curve having a radius of 738.00
feet and a chord of North 3 degrees 15 minutes 35 seconds East 132.49 feet
to the point of BEGINNING.
TRACT D
-------
ALL that certain plot, piece or parcel of land, with the buildings and
improvements thereon erected, situate, lying and being in the City of Jersey
City, County of Hudson and the State of New Jersey, known and designated as New
Lot A-13 in Block 11, as set forth on that certain subdivision map entitled
"subdivision of Lot A-10 in Block 11" prepared by Lange Surveying & Mapping,
dated January 1983, being Map no. 3033 recorded in the Office of the Register of
Deeds of Hudson County on June 23, 1983.
B-8
<PAGE>
SCHEDULE C
LANDLORD'S WORK
1. Tap buss bar, provide #4 - 800 amps service and disconnect switch to 480
volts, meter pan and riser to a location in the 8th floor acceptable to
both Landlord and Tenant.
2. Landlord will provide perimeter baseboard heat along the eastern side of
the window line within the 8th Floor Space in the office area of such space
only.
3. The 8th Floor Space will be demised as per Schedule A-II.
4. Landlord will remove the access hatch located on the roof and replace it
with a poured concrete slab which is waterproofed, by December 24, 1996.
5. Landlord shall put up building standard demising walls along the western
side of the Eighth Floor Space, as to divide the Eighth Floor Space from PR
Newswire's space, as shown on Exhibit A-II, by December 18, 1996.
C-1
<PAGE>
SCHEDULE D
ARCADE AREA AND SECOND FLOOR SPACE
[Diagrams of Arcade Area and Second Floor Space]
D-1
<PAGE>
SCHEDULE E
CLEANING AND JANITORIAL SERVICES
--------------------------------
A. Nightly Personnel:
-----------------
1. All stone, ceramic, tile, marble, terrazzo and other unwaxed flooring
to be swept nightly using approved dust-down preparations; wash
flooring weekly, scrub when necessary.
All unwaxed flooring used as corridors adjacent to the core shall be
cleaned and wet mopped weekly.
2. All linoleum, vinyl, rubber, asphalt, tile and other similar types of
flooring (that may be waxed) to be swept nightly using approved dust-
down preparation. Waxing, if any, shall be done at Tenant's expense.
Mop up and wash floors for spills, smears and foot tracks throughout,
including the Demised Premises, as needed and wash floor in general as
required.
3. All carpeting and rugs to be vacuumed nightly.
4. Hand dust with treated cloth and wipe clean all furniture, fixtures
and custom wooden window enclosures nightly.
5. Empty and clean all waste receptacles nightly and remove from the
Demised Premises wastepaper to designated areas.
6. Empty and clean all ash trays and screen all sand urns nightly.
7. Dust interior of all waste disposal cans and baskets nightly; damp-
dust as necessary.
8. Wash clean all water fountains and coolers nightly.
9. Dust all floor and other ventilating louvres within reach; damp wipe
as necessary.
10. Dust all telephones as necessary.
11. Keep locker and slop sink rooms in a neat and orderly condition at all
times.
12. Wipe clean and polish all brass, if necessary, and other bright work
nightly.
13. Sweep all private staircases nightly.
14. Metal doors of all elevator cars to be properly maintained.
E-1
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15. Remove all gum and foreign matter on sight.
16. Clean all glass furniture tops as needed.
17. Collect and remove wastepaper, cardboard boxes and waster material.
18. Dust and wash closet and coat room shelving, coat racks and flooring.
B. Periodic Cleaning:
-----------------
1. Vacuum all furniture fabric and drapes not less than once a month.
2. Wash and remove all finger marks, ink stains, smudges, scuff marks and
other marks from metal partitions, sills, and all vertical surfaces
(doors, walls, window sills) including elevator doors, as necessary.
Clean and sweep all vacant areas as necessary.
3. Dust and clean electric fixtures, all baseboards and other fixtures or
fittings as necessary, but not less than once each month.
C. High Dusting. (To be performed once every three (3) months, unless
------------
otherwise specified), and to include, without limitation:
1. Vacuum and dust all pictures, frames, charts, graphs and similar wall
hangings not reached in nightly cleaning. Damp dust as required.
2. Vacuum and dust all vertical surfaces such as walls, partitions,
doors, bucks, ventilating louvres, grilles, high moldings and other
surfaces not reached in nightly cleaning.
3. Dust all overhead pipes, sprinklers, ventilating and air conditioning
louvres, ducts, high moldings and other high areas not reached in
nightly cleaning.
4. Dust all venetian blinds. Dust all window frames.
5. Dust exterior or lighting fixtures.
6. Wash all furniture glass as needed.
7. Vacuum and dust ceiling tiles around ventilators and clean air
conditioning diffusers as required.
E-2
<PAGE>
SCHEDULE F
FORM OF ESTOPPEL CERTIFICATE
The undersigned ______________ ("Tenant"), in consideration of One Dollar
($1.00) and other valuable consideration, the receipt and sufficiency of which
is hereby acknowledged, hereby certifies to __________________ ("Landlord"),
[the holder of any mortgage covering the property] (the "Mortgagee") and [the
vendee under any contract of sale with respect to the Property] (the
"Purchaser") as follows:
1. Tenant executed and exchanged with Landlord a certain lease (the
"Lease"), dated ______________, 1996, covering the fourth and eighth floor shown
hatched on the plan annexed hereto as Schedule A (the "Demised Premises") in the
building known as Plazas II and III in the office complex known as the
Harborside Financial Center located in Jersey City, New Jersey (the "Property"),
for a term to commence (or which commenced) on ____________, 1996, and to expire
on _______________.
2. The Lease is in full force and effect and has not been modified,
changed, altered or amended in any respect.
3. Tenant has accepted and is now in possession of the Demised Premises
and is paying the full rental under the Lease.
4. The Basic Annual Rent payable under this Lease is $___________. The
Basic Annual Rent and all additional rent and other charges required to be paid
under the Lease have been paid for the period up to and including
________________.
5. No rent under the Lease has been paid for more than thirty (30) days in
advance of its due date.
6. All work required under the Lease to be performed by Landlord has been
completed to the full satisfaction of Tenant.
7. There are no defaults existing under the Lease on the part of either
Landlord or Tenant.
8. There is no existing basis for Tenant to cancel or terminate the lease.
9. As of the date hereof, there exists no valid defense, offsets, credits,
deductions in rent or claims against the enforcement of any of the agreements,
terms, covenants or conditions of the Lease.
10. Tenant affirms that any disputes with Landlord giving rise to a claim
against Landlord is a claim under this Lease only and is subordinate to the
rights of the holder of the first institutional permanent mortgage of the fee or
leasehold of the building and shall be subject to all
F-1
<PAGE>
the terms, conditions and provisions thereof. Any such claims are not offsets to
or defense against enforcement of this Lease.
11. Tenant affirms that any dispute with Landlord giving rise to a claim
against Landlord is a claim under this Lease only and is subordinate to the
rights of the Purchaser pursuant to any contract of sale. Any such claims are
not offsets to or defense against enforcement of this Lease.
12. Tenant affirms that any claims pertaining to matters in existence at
the time Tenant took possession and which are known to or which were then
readily ascertainable by Tenant shall be enforced solely by money judgment
and/or specific performance against the Landlord named in the Lease and may not
be enforced as an offset to or defense against enforcement of this Lease.
13. There are no actions, whether voluntary or otherwise, pending against
the Tenant under the bankruptcy laws of the United State or any state thereof.
14. There has been no material adverse change in Tenant's financial
condition between the date hereof and the date of the execution and delivery of
the Lease.
15. Tenant acknowledges that Landlord has informed Tenant that an
assignment of Landlord's interest in the Lease has been or will be made to the
Mortgagee and that no modification, revision, or cancellation of the Lease or
amendments thereto shall be effective unless a written consent thereto of the
Mortgagee is first obtained, and that until further notice payments under the
Lease may continue as heretofore.
16. Tenant acknowledges that Landlord has informed Tenant that Landlord
has entered into a contract to sell the Property to Purchaser and that no
modification, revision or cancellation of the Lease or amendments thereto shall
be effective unless a written consent thereto of the Purchaser has been
obtained.
17. This certification is made to induce Purchaser to consummate a
purchase of the Property and to induce Mortgagee to make and maintain a mortgage
loan secured by the Property, knowing that said Purchaser and Mortgagee rely
upon the truth of this certification in making and/or maintaining such purchase
of mortgage, as applicable.
18. Except as modified herein, all other provisions of the Lease are
hereby ratified and confirmed.
Date:
By: /s/ Richard S. Stoltz
-----------------------------
TENANT
F-2
<PAGE>
SCHEDULE G
RULES AND REGULATIONS
1. The rights of tenants in the entrances, corridors, elevators and
escalators of the Building are limited to ingress to and egress from the
tenants' premises for the tenants and their employees, licensees and invitees,
and no tenant shall use, or permit the use of, the entrances, corridors,
escalators or elevators for any other purpose. No tenant shall invite to the
tenant's premises, or permit the visit of, persons in such numbers or under such
conditions as to interfere with the use and enjoyment of any of the plazas,
entrances, corridors, escalators, elevators, Common Areas and other facilities
of the Property by other tenants. Fire exits and stairways are for emergency
use only, and they shall not be used for any other purposes by the tenants,
their employees, licensees or invitees. No tenant shall encumber or obstruct,
or permit the encumbrance or obstruction of any of the sidewalks, plazas,
entrances, corridors, escalators, elevators, Common Areas, fire exits or
stairways of the Property. Landlord reserves the right to control and operate
the Common Areas in such manner as it deems best for the benefit of the tenants
generally.
2. The cost of repairing any damage to the Common Areas or to any
facilities used in common with other tenants, caused by a tenant or the
employees, licensees or invitees of the tenant, shall be paid by such tenant.
3. Landlord may refuse admission to the Building outside of ordinary
business hours to any person not known to the watchman in charge or not having a
pass issued by the Landlord or not properly identified, and may require all
persons admitted to or leaving the Building outside of ordinary business hours
to register. Tenant's employees, agents and visitors shall be permitted to
enter and leave the Building whenever appropriate arrangements have been
previously made between Landlord and Tenant with respect thereto. Each tenant
shall be responsible for all persons for whom he requests such permission and
shall be liable to the Landlord for all acts of such persons. Any person whose
presence in the Building at any time shall, in the judgment of Landlord, be
prejudicial to the safety, character, reputation and interests of the Building
or its tenants may be denied access to the Building or may be ejected therefrom.
In case of invasion, riot, public excitement or other commotion Landlord may
prevent all access to the Building during the continuance of the same, by
closing the doors or otherwise, for the safety of the tenants and protection of
property in the Building. Landlord may require any person leaving the Building
with any package or other object to exhibit a pass from the tenant from whose
premises the package or object is being removed, but the establishment and
enforcement of such requirements shall not impose any responsibility on Landlord
for the protection of any tenant against the removal of property from the
premises of the tenant. Landlord shall, in no way, be liable to any tenant for
damages or loss arising from the admission, exclusion or ejection of any person
to or from the tenant's premises or the Building under the provisions of this
rule.
G-1
<PAGE>
4. Except as permitted in Section 21.03 of the Lease, no tenant shall
obtain or accept or use in its premises ice, drinking water, food, beverage,
barbering, boot blacking, floor polishing, lighting maintenance, cleaning or
other similar services from any persons not authorized by Landlord in writing to
furnish such services, provided always that charges for such services by persons
authorized by Landlord are not excessive. Such services shall be furnished only
at such hours, in such places within the tenant's premises and under such
regulations as may be fixed by Landlord.
5. No awnings or other projections over or around the windows shall be
installed by any tenant and only such window blinds as are supplied or permitted
by Landlord shall be used in a tenant's premises.
6. There shall not be used in any space, or in the public halls of the
Building, either by any tenant or by jobbers or others, in the delivery or
receipt of merchandise or mail any hand trucks, except those equipped with
rubber tires and side guards. All deliveries to tenants, except mail, shall be
made to such place designated by Landlord and shall be distributed to tenants
only during the hours from 8:00 A.M. to 12:00 noon and 2:00 P.M. to 4:00 P.M.,
Monday through Friday.
7. All entrance doors in each tenant's premises shall be left locked when
the tenant's premises are not in use. Entrance doors shall not be left open at
any time. All windows in each tenant's premises shall be kept closed at all
times and all blinds or drapes therein above the ground floor shall be lowered
or closed when and as reasonably required because of the position of the sun,
during the operation of the Building air conditioning system to cool or
ventilate the tenant's premises.
8. No noise, including the playing of any musical instruments, radio or
television, which, in the judgment of Landlord, might disturb other tenants in
the Complex shall be made or permitted by any tenant and no cooking shall be
done in any tenant's premises except as expressly approved by Landlord. Nothing
shall be done or permitted in any tenant's premises, and nothing shall be
brought into or kept in any tenant's premises, which would impair or interfere
with any of the Building services or the proper and economic heating, cleaning
or other servicing of the Building or the premises, or the use or enjoyment by
any other tenant of any other premises, nor shall there be installed by any
tenant any ventilating air conditioning, electrical or other equipment of any
kind which, in the judgment of the Landlord, might cause any such impairment or
interference. No dangerous, inflammable, combustible or explosive object or
material shall be brought into the Building by any tenant or with the permission
of any tenant.
9. No tenant shall permit any cooking nor food odors emanating from the
tenant's premises to seep into other portions of the Building.
10. No acids, vapors or other materials shall be discharged or permitted
to be discharged into the waste lines, vents or flues of the Building which may
damage them. The water and wash closets and other plumbing fixtures in or
serving any tenant's premises shall not be used for any purpose other than the
purpose for which they were designed or constructed and
G-2
<PAGE>
no sweepings, rubbish, rags, acids or other foreign substances shall be
deposited therein. All damages resulting from any misuse of the fixtures shall
be borne by the tenant who, or whose servants, employees, agents, visitors or
licensees, shall have caused the same.
11. No signs, advertisement, notice or other lettering shall be exhibited,
inscribed, painted or affixed by any tenant on any part of the outside or inside
of the premises or the Building without the prior written consent of Landlord.
In the event of the violation of the foregoing by any tenant, Landlord may
remove the same without any liability, and may charge the expense incurred by
such removal to the tenant or tenants violating this rule. Interior signs and
lettering on doors and elevators shall be inscribed, painted, or affixed for
each tenant by Landlord at the expense of such tenant, and shall be of a size,
color and style acceptable to Landlord. Landlord shall have the right to
prohibit any advertising by any tenant which impairs the reputation of the
Building or its desirability as a building for offices, and upon written notice
from Landlord such tenant shall refrain from or discontinue such advertising.
12. No additional locks or bolts of any kind shall be placed upon any of
the doors or windows in any tenant's premises and no lock on any door therein
shall be changed or altered in any respect. Duplicate keys for a tenant's
premises and toilet rooms shall be procured only from Landlord, which may make a
reasonable charge therefor. Upon the termination of a tenant's lease, all keys
to the tenant's premises and toilet rooms shall be delivered to Landlord.
13. Except as provided in Article 6 of the Lease, no tenant shall mark,
paint, drill into, or in way deface any part of the Building or the premises
demised to such tenant. No boring, cutting or stringing of wires shall be
permitted, except with the prior written consent of Landlord, and as Landlord
may direct. No tenant shall install any resilient tile or similar floor
covering in the premises demised to such tenant, except in a manner approved by
Landlord.
14. No tenant or occupant shall engage or pay any employees in the
Building, except those actually working for such tenant or occupant in the
Building. No tenant shall advertise for laborers giving an address at the
Building.
15. No premises shall be used, or permitted to be used, at any time, as a
store for the sale or display of goods or merchandise of any kind, or as a
restaurant, shop, booth, bootblack or other stand, or for the conduct of any
business or occupation which involves direct patronage of the general public in
the premises demised to such tenant, or for manufacturing or for other similar
purposes.
16. The requirements of tenants will be attended to only upon application
at the office of the Building. Employees of Landlord shall not perform any work
or do anything outside of the regular duties, unless under special instructions
from the office of the Landlord.
17. Each tenant shall, at its expense, provide artificial light in the
premises demised to such tenant for Landlord's agents, contractors and employees
while performing janitorial or other cleaning services and making repairs or
alterations in said premises.
G-3
<PAGE>
18. No tenant shall permit its employees to loiter around the hallways,
stairways, elevators, front, roof or any other party of the Building used in
common by the occupants thereof.
19. Each tenant, at its sole cost and expense, shall cause its premises to
be exterminated, from time to time, to the satisfaction of Landlord, and shall
employ such exterminators therefor as shall be approved by Landlord.
20. Any cuspidors or similar containers or receptacles used in any
tenant's premises shall be cared for and cleaned by and at the expense of the
tenant.
21. Tenants shall use only the service elevator for deliveries and only at
hours prescribed by Landlord. Bulky materials, as determined by Landlord, may
not be delivered during usual business hours but only thereafter. Tenants shall
pay for use of the service elevator at rates prescribed by Landlord.
22. The toilets, wash closets and plumbing fixtures shall not be used for
any purposes other than those for which they were designed or constructed and no
sanitary napkins, sweepings, rubbish, rags, acids or other substances shall be
deposited therein, and the expense of any breakage, stopping, or damage
resulting from the violation of this rule shall be borne by the tenant who, or
whose officers, agents, employees, contractors or invitees, shall have caused
it.
23. No tenant shall sweep or throw or permit to be swept or thrown from
its premises any dirt or materials or other substances into any of the corridors
or halls, elevators, or out of the doors or windows or stairways of the
Building. If Landlord has specifically agreed to remove a tenant's normal
office waste, same shall be placed in sealed plastic bags and delivered by
tenant to a single location designated by Landlord on tenant's floor.
24. No animals other live creatures may be kept in or about the Building.
25. Smoking or carrying lighted cigars or cigarettes in the elevators of
the Complex is prohibited.
26. All equipment using gas in any form, including without limitation
boilers, heaters, kilns, and cooking ovens, is required to have safety equipment
which will close off gas flow if the constant pilot or main flame is
extinguished. Gas leak detectors and alarms are to be used in all rooms and
areas where gas exists in any form. All areas must be vented and air
circulation guaranteed. All such equipment shall be installed only after
Landlord's written approval shall have been granted for same.
27. The speed limit within The Harborside Financial Center is 5 MPH.
Reckless, careless, or dangerous driving is forbidden. These restrictions will
be enforced by Property security and violators may have their right to drive
within The Harborside Financial Center revoked. Violators should immediately be
reported to the Building manager.
G-4
<PAGE>
SCHEDULE H
IRREVOCABLE DOCUMENTARY CREDIT NUMBER _____
APPLICANT
______________________________
______________________________
______________________________
______________________________
______________________________
BENEFICIARY AMOUNT
Institutional Realty Management LLC ______________________________
Plaza II ______________________________
______________________________
Harborside Financial Center EXPIRATION
Jersey City, New Jersey 07311 ______________________________
Dear Sir(s),
We hereby establish in your favor our Irrevocable Standby Letter of Credit
Number _____ which is available for payment of your drafts at sight, drawn on
the [Name of Bank] and bearing the clause "DRAWN UNDER [NAME OF BANK] CREDIT
NUMBER ___."
it is a condition of this Letter of Credit that it shall be deemed to be
automatically extended for a period of one year from the present or any future
expiration date unless we shall notify you by written notice mailed at least 30
days prior to such expiration date that we elect not to renew for such
additional period. In the event we elect not to renew for such additional
period, the amount of this Credit is available for payment of your draft credit
at sight, drawn on the [Name of Bank], Credit Number
We hereby engage with you that your drawings in conformity with the terms of
this Letter of Credit will be duly honored on presentation.
This Letter of Credit shall be transferable by the Beneficiary without
additional charge.
** This documentary credit is subject to the "Uniform Customs and Practice for
Documentary Credits" (1983 revision) International Chamber of Commerce
(Publication No. 400).
[NAME OF BANK]
______________________________ ______________________________
For Cashier For Cashier
H-1
<PAGE>
SCHEDULE J
ROOF PLAN
[Diagram of Roof Plan]
J-1
<PAGE>
EXHIBIT 10.11
LEASE
-----
THIS LEASE is made this ____ day of ________________ 1997, by and between
MCCANDLESS-SAN TOMAS NO. 2, a California general partnership ("Landlord"), and
EXODUS COMMUNICATIONS, INC., a California corporation ("Tenant").
W I T N E S S E T H :
Landlord leases to Tenant and Tenant leases from Landlord those certain
premises outlined in red on Exhibit A (the "Premises") commonly known as 2650
San Tomas Expressway, Santa Clara, California, which Landlord and Tenant hereby
agree consists of approximately forty-seven thousand four hundred thirty-two
(47,432) square feet. As used herein the term "Project" shall mean and include
all of the land described in Exhibit B and all the buildings, improvements,
fixtures and equipment now or hereafter situated on said land.
Tenant covenants, as a material part of the consideration of this lease, to
perform and observe each and all of the terms, covenants and conditions set
forth below, and this lease is made upon the condition of such performance and
observance.
1. USE
Subject to the restrictions contained in paragraph 6 hereof, Tenant
shall use the Premises for general office and research and development uses and
shall not use or permit the Premises to be used for any other purpose.
2. TERM
The term shall be for five (5) years (unless sooner terminated as
hereinafter provided) and, subject to paragraph 3, shall commence on May 1, 1997
and end on April 30, 2002.
3. POSSESSION
(a) If Landlord for any reason cannot deliver possession of the
Premises to Tenant by the date of commencement set forth in paragraph 2, this
lease shall not be void or voidable, Landlord shall not be liable to Tenant for
any loss or damage on account thereof and Tenant shall not be liable for rent
until Landlord delivers possession of the Premises to Tenant. If the term
commences on a date other than the date specified in paragraph 2 above, then the
parties shall immediately execute an amendment to this lease stating the actual
date of commencement and the revised expiration date. The expiration date of
the term shall be extended by the same number of days that Tenant's possession
of the Premises was delayed from that set forth in paragraph 2.
(b) Tenant's inability or failure to take possession of the Premises
when delivery is tendered by Landlord shall not delay the commencement of the
term of this lease or Tenant's obligation to pay rent. Tenant acknowledges that
Landlord shall incur significant
<PAGE>
expenses upon the execution of this lease, even if Tenant never takes possession
of the Premises, including without limitation brokerage commissions and fees,
legal fees and other professional fees. Tenant acknowledges that all of said
expenses shall be included in measuring Landlord's damages should Tenant breach
the terms of this lease.
(c) The Premises shall be delivered to Tenant in good, clean
condition, with all building systems in good working order and repair.
4. MONTHLY RENT
(a) Basic Rent. Tenant shall pay to Landlord as basic rent for the
----------
Premises, in advance and subject to adjustment as provided in paragraph 5, the
sum of Seventy-One Thousand One Hundred Forty-Eight Dollars ($71,148.00) on or
before the first day of the first full calendar month of the term and on or
before the first day of each and every successive calendar month. Basic rent
for any partial month shall be payable in advance and shall be prorated based on
the actual number of days during the lease term occurring in such month divided
by the total number of days in such month.
(b) Common Area Charges. In addition to the above basic rent and as
-------------------
additional rent, Tenant shall pay to Landlord, subject to adjustments and
reconciliation as provided in paragraph 16 of this lease, the sum of Nine
Thousand Five Hundred Thirty-Three and 83/100 Dollars ($9,533.83) on or before
the first day of the first full calendar month of the term and on the first day
of each and every successive calendar month, said sum representing Tenant's
estimated payment of its percentage share of common area charges as provided for
in paragraph 16 of this lease. Payment of common area charges for any partial
month shall be payable in advance and shall be prorated based on the actual
number of days during the lease term occurring in such month divided by the
total number of days in such month.
(c) Manner and Place of Payment. All payments of basic rent and
---------------------------
common area charges shall be paid to Landlord, without deduction or offset, in
lawful money of the United States of America, at the office of Landlord at 3945
Freedom Circle, Suite 640, Santa Clara, California 95054, or to such other
person or place as Landlord may from time to time designate in writing.
(d) First Month's Rent. Concurrently with Tenant's execution of this
------------------
lease, Tenant shall deposit with Landlord the sum of Seventy-One Thousand One
Hundred Forty-Eight Dollars ($71,148.00) to be applied against the basic rent
for the first lease month of the term.
(e) Security Deposit. Concurrently with Tenant's execution of this
----------------
lease, Tenant shall deposit with Landlord the sum of Seventy-Eight Thousand Two
Hundred Sixty-Two and 80/100 Dollars ($78,262 82), which sum shall be held by
Landlord as a security deposit for the faithful performance by Tenant of all of
the terms, covenants and conditions of this lease to be kept and performed by
Tenant. If Tenant defaults with respect to any provision of this lease,
including but not limited to, the provisions relating to the payment of basic
rent and common area charges, Landlord may (but shall not be required to) use,
apply, or retain all or any part of this security deposit for the payment of any
amount which Landlord may spend by
2
<PAGE>
reason of Tenant's default or to compensate Landlord for any other loss or
damage which Landlord may suffer by reason of default. If any portion of said
deposit is so used, Tenant shall, within ten (10) days after written demand
therefor, deposit cash with Landlord in the amount sufficient to restore the
security deposit to its original amount; Tenant's failure to do so shall be a
material breach of this lease. Landlord shall not be required to keep this
security deposit separate from its general funds and Tenant shall not be
entitled to interest on such deposit. If Tenant is not in default at the
expiration or termination of this lease, the security deposit or any balance
thereof shall be returned to Tenant within fifteen (15) days after Tenant has
vacated the Premises. In the event of termination of Landlord's interest in
this lease, Landlord shall transfer said deposit to Landlord's successor in
interest, and Tenant agrees that Landlord shall thereupon be released from
liability for the return of such deposit or any accounting therefor; provided
Landlord's successor assumes the obligations of the Landlord under this lease.
In addition to the above cash security deposit, Tenant shall deliver to
Landlord within ten (10) days following Tenant's execution of this lease an
unconditional irrevocable letter of credit in the amount of Three Hundred
Thousand Dollars ($300,000.00) in favor of Landlord to secure the faithful
performance by Tenant of all of the terms, covenants and conditions of this
lease to be kept and performed by Tenant. Said letter of credit shall be
available by draft at sight, subject only to receipt by the bank of a notarized
statement from Birk S. McCandless or Steven E. Sund stating the amount demanded
as due and owing to Landlord, and shall otherwise be in a form reasonably
satisfactory to Landlord and Landlord's attorney and drawn upon such bank as
Landlord may approve. Said letter of credit shall by its terms expire not less
than one ( 1 ) year from the date issued, provided that unless Tenant deposits
with Landlord a cash security deposit of like amount, the letter of credit shall
be renewed for an additional period of not less than one (1) year. The amount of
the letter of credit shall be reduced by $60,000 at the end of each lease year,
such that the amount of the letter of credit during the term of the lease shall
be as follows:
<TABLE>
<S> <C>
Year 1 $ 300,000
Year 2 $ 240,000
Year 3 $ 180,000
Year 4 $ 120,000
Year 5 $ 60,000
</TABLE>
The bank's written renewal of the letter of credit shall be delivered to
Landlord not less than sixty (60) days prior to the expiration of such letter of
credit. If Landlord does not receive such written renewal at least sixty (60)
days prior to the expiration date of the letter of credit, then Landlord shall
be entitled to make demand for the principal amount of said letter of credit
and, thereafter, hold such funds in accordance with the first paragraph of this
paragraph 4(e). Tenant's failure to so deliver, renew (including specifically
but not limited to the delivery to Landlord of such renewal not less than sixty
(60) days prior to expiration of the letter of credit) and maintain such letter
of credit shall be a material breach of this lease.
3
<PAGE>
If Tenant defaults in the performance of any provision of this lease to be
performed by Tenant, including without limitation the timely payment of basic
rent and direct expenses and other amounts due Landlord, Landlord may
immediately and without further notice resort to said letter of credit (or the
funds received therefrom) and use or apply all or any part of same to compensate
Landlord for any loss or expense occasioned thereby and for the payment of any
amount due Landlord under the terms of this lease. If any portion of said
letter of credit (or the funds received therefrom) is so used as specified
above, Tenant shall, within ten (10) days after written demand therefor, restore
the letter of credit (or the funds received therefrom) to its original amount,
and Tenant's failure to do so shall be a material breach of this lease.
Landlord's resort to said letter of credit (or use of the funds received
therefrom) shall in no way or manner constitute an acceptance of or waiver of
such default by Tenant; nor shall such resort or use terminate, or permit Tenant
to terminate, or constitute a forfeiture of, or be construed as an election by
Landlord to terminate, this lease; nor shall such resort or use affect
Landlord's remedies otherwise available under this lease or at law.
5. ADJUSTMENT OF BASIC RENT
The basic rent provided for in paragraph 4(a) shall be adjusted
periodically and the monthly basic rent for each period shall be as set forth
below:
<TABLE>
<S> <C>
Lease Months 1-12 $ 71,148.00 per month
Lease Months 13-24 $ 73,519.60 per month
Lease Months 25-36 $ 75,891.20 per month
Lease Months 37-48 $ 78,262.80 per month
Lease Months 49-60 $ 80,634.40 per month
</TABLE>
6. RESTRICTION ON USE
Tenant shall not do or permit to be done in or about the Premises or
the Project, nor bring or keep or permit to be brought or kept in or about the
Premises or Project, anything which is prohibited by or will in any way increase
the existing rate of, or otherwise affect, fire or any other insurance covering
the Project or any part thereof, or any of its contents, or will cause a
cancellation of any insurance covering the Project or any part thereof, or any
of its contents. Tenant shall not do or permit to be done anything in or about
the Premises or the Project which will constitute waste or which will in any way
obstruct or interfere with the rights of other tenants or occupants of the
Project or injure or annoy them, or use or allow the Premises to be used for any
unlawful purpose, nor shall Tenant cause, maintain or permit any nuisance in or
about the Premises or the Project. No loudspeaker or other device, system or
apparatus which can be heard outside the Premises shall be used in or at the
Premises without the prior written consent of Landlord. Tenant shall not use
the Premises in any manner that will cause or emit any objectionable odor, noise
or light into the adjoining premises or Common Area. Tenant shall not do
anything on the Premises that will cause damage to the Project and Tenant shall
not overload the floor capacity of the Premises or the Project. No machinery,
apparatus or other appliance shall be used or operated in or on the Premises
that will in any manner injure, vibrate or shake the Premises. Landlord shall
be the sole judge, of whether such odor, noise, light or
4
<PAGE>
vibration is such as to violate the provisions of this paragraph. No waste
materials or refuse shall be dumped upon or permitted to remain upon any part of
the Premises or the Project except in trash containers placed inside exterior
enclosures designated for that purpose by Landlord, or where otherwise
designated by Landlord; and no toxic or hazardous materials shall be disposed of
through the plumbing or sewage system. No materials, supplies, equipment,
finished products or semi-finished products, raw materials or articles of any
nature shall be stored or permitted to remain outside of the building proper.
No retail sales shall be made on the Premises. Tenant shall comply with any
covenant, condition or restriction ("C.C. & R.s") affecting the Premises upon
notice thereof to Tenant.
7. COMPLIANCE WITH LAWS
Tenant shall, in connection with its use and occupation of the
Premises, at its sole cost and expense, promptly observe and comply with (i) all
laws, statutes, ordinances and governmental rules, regulations and requirements
of federal, state, county, municipal and other governmental authorities, now or
hereafter in effect, which shall impose any duty upon Landlord or Tenant with
respect to the use, occupancy or alteration to the Premises, (ii) with the
requirements of any board of fire underwriters or other similar body now or
hereafter constituted and (iii) with any direction or occupancy certificate
issued pursuant to law by any public authority; provided, however, that no such
failure shall be deemed a breach of these provisions if Tenant, immediately upon
notification, commences to remedy or rectify said failure. The judgment of any
court of competent jurisdiction or the admission of Tenant in any action against
Tenant (whether or not Landlord is a party thereto) that Tenant has violated any
such law, statute, ordinance or governmental rule, regulation, requirement,
direction or provision, shall be conclusive of that fact as between Landlord and
Tenant. This lease shall remain in full force and effect notwithstanding any
loss of use or other effect on Tenant's enjoyment of the Premises by reason of
any governmental laws, statutes, ordinances, rules, regulations and requirements
now or hereafter in effect.
8. ALTERATIONS
Tenant shall not make or suffer to be made any alteration, addition or
improvement to or of the Premises or any part thereof (collectively referred to
herein as "alterations") without (i) the prior written consent of Landlord, (ii)
a valid building permit issued by the appropriate governmental authority and
(iii) otherwise complying with all applicable laws, regulations and requirements
of governmental agencies having jurisdiction and with the rules, regulations and
requirements of any board of fire underwriters or similar body. Notwithstanding
the foregoing, Tenant may make non-structural alterations costing in the
aggregate less than $10,000 in any one year of the term without the prior
written consent of Landlord, provided that Tenant promptly informs Landlord in
writing of the nature of the alterations, the cost thereof and the contractor
engaged or proposed to be engaged to perform such work, and provided further
that all such work complies with clauses (ii) and (iii) above. Landlord's
consent to any requested alteration shall not create on the part of Landlord or
cause Landlord to incur any responsibility or liability for such alteration's
compliance with all laws, rules and regulations of federal, state, county,
municipal and other governmental authorities. Any alteration made by Tenant
(excluding moveable furniture and trade fixtures not attached to
5
<PAGE>
the Premises) shall at once become a part of the Premises and belong to
Landlord. Without limiting the foregoing, all heating, lighting, electrical
(including all wiring, conduit, outlets, drops, buss ducts, main and subpanels),
air conditioning, partitioning, drapery and carpet installations made by Tenant,
regardless of how attached to the Premises, together with all other alterations
that have become an integral part of the Project in which the Premises are a
part, shall be and become part of the Premises and belong to Landlord upon
installation and shall not be deemed trade fixtures and, subject to Landlord's
right to require removal and restoration as specified herein, shall remain upon
and be surrendered with the Premises at the termination of the lease.
If Landlord consents to the making of any alteration by Tenant, the same
shall be made by Tenant at its sole risk, cost and expense and only after
Landlord's written approval of any contractor or person selected by Tenant for
that purpose, and the same shall be made at such time and in such manner as
Landlord may from time to time designate. Tenant shall, if required by
Landlord, secure at Tenant's cost a completion and lien indemnity bond for such
work. Upon the expiration or sooner termination of the term, Landlord may, at
its sole option, require Tenant, at Tenant's sole cost and expense, to promptly
remove any such alteration made by Tenant and designated by Landlord to be
removed, repair any damage to the Premises caused by such removal and restore
the Premises to their condition prior to Tenant's alteration, normal wear and
tear excepted. Any moveable furniture and equipment or trade fixtures remaining
on the Premises at the expiration or other termination of the term shall become
the property of the Landlord; provided, however, in addition to all other
remedies available to Landlord at law or in equity, Landlord may (i) require
Tenant to remove same or (ii) remove same at Tenant's cost, and Tenant shall be
liable to Landlord for all damages incurred by Landlord related thereto.
If during the term any alteration, addition or change of the Premises is
required by law, regulation, ordinance or order of any public authority, due to
Tenant's particular use, occupancy or alteration of the Premises, Tenant, at its
sole cost and expense, shall promptly make the same. If during the term any
alteration, addition or change to the Premises which is not due to Tenant's
particular use, occupancy or alteration of the Premises, to the Common Area, or
to the Project in which the Premises is located is required by law, regulation,
ordinance or order of any public or quasi-public authority, and it is
impractical in Landlord's judgment for the affected tenants to individually make
such alteration, addition or change, Landlord shall make such alteration,
addition or change and the cost thereof shall be a common area charge and Tenant
shall pay its percentage share of such cost to Landlord as provided in paragraph
16.
9. REPAIR AND MAINTENANCE
By entry hereunder, Tenant accepts the Premises as being in good and
sanitary order, condition and repair. Except as expressly provided below,
Tenant shall at its sole cost keep and maintain the entire Premises and every
part thereof including, without limitation, the windows, window frames, plate
glass, glazing, elevators within the Premises, truck doors, doors and all door
hardware, the interior walls and partitions, lighting and the electrical,
mechanical, and plumbing systems. Tenant shall also repair and maintain the
heating and air conditioning systems (unless Landlord has elected to keep and
maintain the heating and air conditioning systems as provided below) which shall
include, without limitation, a periodic maintenance
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agreement with a reputable and licensed heating and air conditioning service
company. If Tenant's use of the heating and air conditioning systems is limited
to normal business hours (8:00 a.m. to 6:00 p.m.), such agreement shall provide
for service at least as often as every 60 days; if Tenant's use of the heating
or air conditioning systems extends beyond such normal business hours this
service shall be as often as may be required by Landlord and in any event such
service shall meet all warranty enforcement requirements of such equipment and
comply with all manufacturer recommended maintenance. Landlord may elect, at
its option, to keep and maintain the heating and air conditioning systems of the
Premises and in such event, Tenant shall pay to Landlord upon demand the full
cost of such maintenance.
Subject to the provisions of paragraph 17, Landlord shall keep and maintain
the roof, structural elements, foundation and exterior walls of the buildings
constituting the Project and Common Area in good order and repair. Tenant
waives all rights under and benefits of California Civil Code Sections 1932(1),
1941, and 1942 and under any similar law, statute or ordinance now or hereafter
in effect. The cost of the repairs and maintenance which are the obligation of
Landlord hereunder, including without limitation, maintenance contracts and
supplies, materials, equipment and tools used in such repairs and maintenance
shall be a common area charge and Tenant shall pay its percentage share of such
costs to Landlord as provided in paragraph 16; provided, however, that if any
repairs or maintenance is required because of an act or omission of Tenant, or
its agents, employees or invitees, Tenant shall pay to Landlord upon demand the
full cost of such repairs or maintenance.
10. LIENS
Tenant shall keep the Premises and the Project free from any liens
arising out of any work performed, materials furnished or obligations incurred
by Tenant, its agents, employees or contractors. Upon Tenant's receipt of a
preliminary twenty (20) day notice filed by a claimant pursuant to California
Civil Code Section 3097, Tenant shall immediately provide Landlord with a copy
of such notice. Should any lien be recorded against the Project, Tenant shall
give immediate notice of such lien to Landlord. In the event that Tenant shall
not, within ten (10) days following the imposition of such lien, cause the same
to be released of record, Landlord shall have, in addition to all other remedies
provided herein and by law, the right, but no obligation, to cause the same to
be released by such means as it shall deem proper, including payment of the
claim giving rise to such lien. All sums paid by Landlord for such purpose, and
all expenses (including attorneys' fees) incurred by it in connection therewith,
shall be payable to Landlord by Tenant on demand with interest at the rate of
twelve percent (12%) per annum or the maximum rate permitted by law, whichever
is less. Landlord shall have the right at all times to post and keep posted on
the Premises any notices permitted or required by law, or which Landlord shall
deem proper for the protection of Landlord, the Premises and the Project and any
other party having an interest therein, from mechanics' and materialmen's liens
and like liens. Tenant shall give Landlord at least fifteen (15) days prior
notice of the date of commencement of any construction on the Premises in order
to permit the posting of such notices. In the event Tenant is required to post
an improvement bond with a public agency in connection with any work performed
by Tenant on or to the Premises, Tenant shall include Landlord as an additional
obligee.
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11. INSURANCE
Tenant, at its sole cost and expense, shall keep in force during the
term (i) commercial general liability and property damage insurance with a
combined single limit of at least $2,000,000 per occurrence insuring against
personal or bodily injury to or death of persons occurring in, on or about the
Premises or Project and any and all liability of the insureds with respect to
the Premises or arising out of Tenant's maintenance, use or occupancy of the
Premises and all areas appurtenant thereto, (ii) direct physical loss-special
insurance covering the leasehold improvements in the Premises and all of
Tenant's equipment, trade fixtures, appliances, furniture, furnishings, and
personal property from time to time located in, on or about the Premises, with
coverage in the amount of the full replacement cost thereof, and (iii) Worker's
Compensation Insurance as required by law, together with employer's liability
coverage with a limit of not less than $1,000,000 for bodily injury for each
accident and for bodily injury by disease for each employee. Tenant's
commercial general liability and property damage insurance and Tenant's Workers
Compensation Insurance shall be endorsed to provide that said insurance shall
not be cancelled or reduced except upon at least thirty (30) days prior written
notice to Landlord. Further, Tenant's commercial general liability and property
damage insurance shall be primary and shall be endorsed to provide that Landlord
and McCandless Management Corporation, and their respective partners, officers,
directors and employees and such other persons or entities as directed from time
to time by Landlord shall be named as additional insureds for all liability
using ISO Bureau Form CG20111185 (or a successor form) or such other endorsement
form reasonably acceptable to Landlord; shall contain a severability of interest
clause and a cross-liability endorsement; shall be endorsed to provide that the
limits and aggregates apply per location using ISO Bureau Form CG25041185 (or a
successor form) or such other endorsement form reasonably acceptable to
Landlord; and shall be issued by an insurance company admitted to transact
business in the State of California and rated A+VIII or better in Best's
Insurance Reports (or successor report). The deductibles for all insurance
required to be maintained by Tenant hereunder shall be satisfactory to Landlord.
The commercial general liability insurance carried by Tenant shall specifically
insure the performance by Tenant of the indemnification provisions set forth in
paragraph 18 of this lease provided, however, nothing contained in this
paragraph 11 shall be construed to limit the liability of Tenant under the
indemnification provisions set forth in said paragraph 18. If Landlord or any
of the additional insureds named on any of Tenant's insurance, have other
insurance which is applicable to the covered loss on a contributing, excess or
contingent basis, the amount of the Tenant's insurance company's liability under
the policy of insurance maintained by Tenant shall not be reduced by the
existence of such other insurance. Any insurance carried by Landlord or any of
the additional insureds named on Tenant's insurance policies shall be excess and
non-contributing with the insurance so provided by Tenant.
Tenant shall, prior to the commencement of the term and at least thirty
(30) days prior to any renewal date of any insurance policy required to be
maintained by Tenant pursuant to this paragraph, provide Landlord with a
completed Certificate of Insurance, using a form acceptable in Landlord's
reasonable judgement, attaching thereto copies of all endorsements required to
be provided by Tenant under this lease. Tenant agrees to increase the coverage
or otherwise comply with changes in connection with said commercial general
liability, property damage, direct physical loss and Worker's Compensation
Insurance as Landlord or Landlord's lender
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may from time to time require.
Landlord shall obtain and keep in force a policy or policies of insurance
covering loss or damage to the Premises and Project, in the amount of the full
replacement value thereof, providing protection against those perils included
within the classification of "all risk" insurance, with increased cost of
reconstruction and contingent liability (including demolition), plus a policy of
rental income insurance in the amount of one hundred percent (100%) of twelve
(12) months' rent (including sums paid as additional rent) and such other
insurance as Landlord or Landlord's lender may from time to time require.
Landlord may, but shall not be obligated to, obtain flood and/or earthquake
insurance. Landlord shall have no liability to Tenant if Landlord elects not to
obtain flood and/or earthquake insurance. The cost of all such insurance
purchased by Landlord, plus any charges for deferred payment of premiums and the
amount of any deductible incurred upon any covered loss within the Project,
shall be common area charges and Tenant shall pay to Landlord its percentage
share of such costs as provided in paragraph 16. If the cost of insurance is
increased due to Tenant's use of the Premises, then Tenant shall pay to Landlord
upon demand the full cost of such increase.
Landlord and Tenant hereby mutually waive any and all rights of recovery
against one another for real or personal property loss or damage occurring to
the Premises or the Project, or any part thereof, or to any personal property
therein, from perils insured against under fire and extended insurance and any
other property insurance policies existing for the benefit of the respective
parties so long as such insurance permits waiver of liability and contains a
waiver of subrogation without additional premiums.
If Tenant does not take out and maintain insurance as required pursuant to
this paragraph 11, Landlord may, but shall not be obligated to, take out the
necessary insurance and pay the premium therefor, and Tenant shall repay to
Landlord promptly on demand, as additional rent, the amount so paid. In
addition, Landlord may recover from Tenant and Tenant agrees to pay, as
additional rent, any and all reasonable expenses (including attorney fees) and
damages which Landlord may sustain by reason of the failure of Tenant to obtain
and maintain such insurance, it being expressly declared that the expenses and
damages of Landlord shall not be limited to the amount of the premiums thereon.
12. UTILITIES AND SERVICE
Tenant shall pay for all water, gas, light, heat, power, electricity,
telephone, trash pickup, sewer charges and all other services supplied to or
consumed on the Premises. In the event that any service is not separately
metered or billed to the Premises, the cost of such utility service or other
service shall be a common area charge and Tenant shall pay its percentage share
of such cost to Landlord as provided in paragraph 16. In addition, the cost of
all utilities and services furnished by Landlord to the Common Area shall be a
common area charge and Tenant shall pay its percentage share of such cost to
Landlord as provided in paragraph 16.
If Tenant's use of any such utility or service is materially in excess of
the average furnished to the other tenants of the Project, and such utility or
service is not separately metered, then Tenant shall pay to Landlord upon
demand, as additional rent, the full cost of such excess
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use, or Landlord may cause such utility or service to be separately metered, in
which case Tenant shall pay the full cost of such utility or service and
reimburse Landlord upon demand for the cost of installing the separate meter.
Except if caused by Landlord's active negligence or willful misconduct,
Landlord shall not be liable for, and Tenant shall not be entitled to any
abatement or reduction of rent by reason of, the failure of any person or entity
to furnish any of the foregoing services when such failure is caused by
accident, breakage, repairs, strikes, lockouts or other labor disturbances or
labor disputes of any character, governmental moratoriums, regulations or other
governmental actions, or by any other cause, similar or dissimilar, beyond the
reasonable control of Landlord. In addition, Tenant shall not be relieved from
the performance of any covenant or agreement in this lease because of any such
failure, and no eviction of Tenant shall result from such failure.
13. TAXES AND OTHER CHARGES
All real estate taxes and assessments and other taxes, fees and
charges of every kind or nature, foreseen or unforeseen, which are levied,
assessed or imposed upon Landlord and/or against the Premises, building, Common
Area or Project, or any part thereof by any federal, state, county, regional,
municipal or other governmental or quasi-public authority, together with any
increases therein for any reason, shall be a common area charge and Tenant shall
pay its percentage share of such costs to Landlord as provided in paragraph 16.
By way of illustration and not limitation, "other taxes, fees and charges" as
used herein include any and all taxes payable by Landlord (other than state and
federal personal or corporate income taxes measured by the net income of
Landlord from all sources, and premium taxes), whether or not now customary or
within the contemplation of the parties hereto, (i) upon, allocable to, or
measured by the rent payable hereunder, including, without limitation, any gross
income or excise tax levied by the local, state or federal government with
respect to the receipt of such rent, (ii) upon or with respect to the
possession, leasing, operation, management, maintenance, alteration, repair, use
or occupancy by Tenant of the Premises or any part thereof, (iii) upon or
measured by the value of Tenant's personal property or leasehold improvements
located in the Premises, (iv) upon this transaction or any document to which
Tenant is a party creating or transferring an interest or estate in the
Premises, (v) upon or with respect to vehicles, parking or the number of persons
employed in or about the Project, and (vi) any tax, license, franchise fee or
other imposition upon Landlord which is otherwise measured by or based in whole
or in part upon the Project or any portion thereof. If Landlord contests any
such tax, fee or charge, the cost and expense incurred by Landlord thereby
(including, but not limited to, costs of attorneys and experts) shall also be
common area charges and Tenant shall pay its percentage share of such costs to
Landlord as provided in paragraph 16 and Tenant shall be entitled to its
proportionate share of any resulting rebate. In the event the Premises and any
improvements installed therein by Tenant or Landlord are valued by the assessor
disproportionately higher than those of other tenants in the building or Project
or in the event alterations or improvements are made to the Premises, Tenant's
percentage share of such taxes, assessments, fees and/or charges shall be
readjusted upward accordingly and Tenant agrees to pay such readjusted share.
Such determination shall be made by Landlord from the respective valuations
assigned in the assessor's work sheet or such other information as may be
reasonably available and Landlord's determination thereof shall be conclusive.
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Tenant agrees to pay, before delinquency, any and all taxes levied or
assessed during the term hereof upon Tenant's equipment, furniture, fixtures and
other personal property located in the Premises, including carpeting and other
property installed by Tenant notwithstanding that such carpeting or other
property has become a part of the Premises. If any of Tenant's personal
property shall be assessed with the Project, Tenant shall pay to Landlord, as
additional rent, the amount attributable to Tenant's personal property within
ten (10) days after receipt of a written statement from Landlord setting forth
the amount of such taxes, assessments and public charges attributable to
Tenant's personal property.
14. ENTRY BY LANDLORD
Landlord reserves, and shall at all reasonable times have, the right
to enter the Premises upon twenty-four (24) hours prior notice (except in case
of emergency) (i) to inspect the Premises, (ii) to supply services to be
provided by Landlord hereunder, (iii) to show the Premises to prospective
purchasers, lenders or tenants and to put `for sale' or `for lease' signs
thereon, (iv) to post notices required or allowed by this lease or by law, (v)
to alter, improve or repair the Premises and any portion of the Project, and
(vi) to erect scaffolding and other necessary structures in or through the
Premises or the Project where reasonably required by the character of the work
to be performed. Tenant may accompany Landlord during any such entry to the
Premises. Landlord shall not be liable in any manner for any inconvenience,
disturbance, loss of business, nuisance or other damage arising from Landlord's
entry and acts pursuant to this paragraph and Tenant shall not be entitled to an
abatement or reduction of rent if Landlord exercises any rights reserved in this
paragraph. For each of the foregoing purposes, Landlord shall at all times have
and retain a key with which to unlock all of the doors in, on and about the
Premises (excluding Tenant's vaults, safes and similar areas designated in
writing by Tenant in advance), and Landlord shall have the right to use any and
all means which Landlord may deem proper to open said doors in an emergency in
order to obtain entry to the Premises. Any entry by Landlord to the Premises
pursuant to this paragraph shall not under any circumstances be construed or
deemed to be a forcible or unlawful entry into or a detainer of the Premises or
an eviction, actual or constructive, of Tenant from the Premises or any portion
thereof. Landlord shall use reasonable efforts to minimize disruption of
Tenant's business during any such entry.
15. COMMON AREA; PARKING
Subject to the terms and conditions of this lease and such rules and
regulations as Landlord may from time to time prescribe, Tenant and Tenant's
employees and invitees shall, in common with other occupants of the Project, and
their respective employees and invitees and others entitled to the use thereof,
have the nonexclusive right to use the access roads, parking areas and
facilities within the Project provided and designated by Landlord for the
general use and convenience of the occupants of the Project which areas and
facilities shall include, but not be limited to, sidewalks, parking, refuse,
landscape and plaza areas, roofs and building exteriors, which areas and
facilities are referred to herein as "Common Area". This right shall terminate
upon the termination of this lease.
Landlord reserves the right from time to time to make changes in the shape,
size, location, amount and extent of the Common Area. Landlord shall also have
the right at any
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time to change the name, number or designation by which the Project is commonly
known. Landlord further reserves the right to promulgate such rules and
regulations relating to the use of the Common Area, and any part thereof, as
Landlord may deem appropriate for the best interests of the occupants of the
Project. The rules and regulations shall be binding upon Tenant upon delivery
of a copy of them to Tenant and Tenant shall abide by them and cooperate in
their observance. Such rules and regulations may be amended by Landlord from
time to time, with or without advance notice, provided Tenant will not be in
default until it has received notice of such amendment or change.
Tenant shall have the nonexclusive use of one hundred eighty (180) parking
spaces in the Common Area as designated from time to time by Landlord. Landlord
reserves the right at its sole option to assign and label parking spaces, but it
is specifically agreed that Landlord is not responsible for policing any such
parking spaces. Tenant shall not at any time park or permit the parking of
Tenant's trucks or other vehicles, or the trucks or other vehicles of others,
adjacent to loading areas so as to interfere in any way with the use of such
areas; nor shall Tenant at any time park or permit the parking of Tenant's
vehicles or trucks, or the vehicles or trucks of Tenant's suppliers or others,
in any portion of the Common Area not designated by Landlord for such use by
Tenant. Tenant shall not park or permit any inoperative vehicle or equipment to
be parked on any portion of the Common Area.
Landlord shall operate, manage and maintain the Common Area. The manner in
which the Common Area shall be operated, managed and maintained and the
expenditures for such operation, management and maintenance shall be at the sole
discretion of Landlord. The cost of such maintenance, operation and management
of the Common Area, including but not limited to landscaping, repair of paving,
parking lots and sidewalks, security and exterminator services and salaries and
employee benefits (including union benefits) of on-site and accounting personnel
engaged in such maintenance and operations management, shall be a common area
charge and Tenant shall pay to Landlord its percentage share of such costs as
provided in paragraph 16.
16. COMMON AREA CHARGES
Tenant shall pay to Landlord, as additional rent, an amount equal to
(i) twenty percent (20%) of the common area charges of the Project and (ii) 100%
of the common area charges of the building in which the Premises are located.
There shall be no duplication of costs in items (i) and (ii) of the preceding
sentence. Tenant's percentage share of such common area charges shall be paid
as follows:
Tenant's estimated monthly payment of common area charges payable by Tenant
during the calendar year in which the term commences is set forth in paragraph
4(b) of this lease. Prior to the commencement of each succeeding calendar year
of the term (or as soon as practicable thereafter), Landlord shall deliver to
Tenant a written estimate of Tenant's monthly payment of common area charges.
Tenant shall pay, as additional rent, on the first day of each month during the
term in accordance with paragraph 4(b) of the lease, its monthly share of common
area charges as estimated by Landlord. Within one hundred twenty (120) days of
the end of each calendar year and of the termination of this lease (or as soon
as practicable thereafter), Landlord shall deliver to Tenant a statement of
actual common area charges incurred for the
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preceding year. Upon Tenant's written request made within ninety (90) days
after receipt of the statement, Landlord shall provide Tenant with copies of
invoices and other documentation in support thereof. If such statement shows
that Tenant has paid less than its actual percentage then Tenant shall on demand
pay to Landlord the amount of such deficiency. If Tenant fails to pay such
deficiency due within ten (10) days after demand, Tenant shall pay an additional
ten percent (10%) of the amount due as a penalty. If such statement shows that
Tenant has paid more than its actual percentage share then Landlord shall, at
its option, promptly refund such excess to Tenant or credit the amount thereof
to the rent next becoming due from Tenant. Landlord reserves the right to
revise any estimate of common area charges if actual or projected common area
charges show an increase or decrease in excess of 10% from any earlier estimate
for the same period. In such event, Landlord shall deliver the revised estimate
to Tenant, together with an explanation of the reasons therefor, and Tenant
shall revise its payments accordingly. Landlord's and Tenant's obligation with
respect to adjustments at the end of the term or earlier expiration of this
lease shall survive such termination or expiration.
As used in this lease, "common area charges" shall include, but not be
limited to, (i) all items identified in paragraphs 8, 9, 11, 12, 13 and 15 as
being common area charges; (ii) amortization of such capital improvements having
a useful life greater than one year as Landlord may have installed for the
purpose of reducing operating costs and/or to comply with all laws, rules and
regulations of federal, state, county, municipal and other governmental
authorities now or hereafter in effect (Tenant's share of any such capital
improvement shall equal Tenant's proportionate share of the fraction of the cost
of such capital improvement equal to the remaining term of the lease over the
useful life of such capital improvement); (iii) salaries and employee benefits
(including union benefits) of personnel engaged in the operation and maintenance
of the Project (or the building in which the Premises are located) and payroll
taxes applicable thereto; (iv) supplies, materials, equipment and tools used or
required in connection with the operation and maintenance of the Project; (v)
licenses, permits and inspection fees; (vi) a reasonable reserve for repairs and
replacement of equipment used in the maintenance and operation of the Project;
(vii) all other operating costs incurred by Landlord in maintaining and
operating the Project; and (viii) an amount equal to five percent (5%) of the
actual expenditures for the aggregate of all other common area charges as
compensation for Landlord's accounting and processing services.
17. DAMAGE BY FIRE; CASUALTY
In the event the Premises are damaged by any casualty which is covered
under an insurance policy required to be maintained by Landlord pursuant to
paragraph 11, Landlord shall be entitled to the use of all insurance proceeds
and shall repair such damage as soon as reasonably possible and this lease shall
continue in full force and effect.
In the event the Premises are damaged by any casualty not covered under an
insurance policy required to be maintained pursuant to paragraph 11, Landlord
may, at Landlord's option, either (i) repair such damage, at Landlord's expense,
as soon as reasonably possible, in which event this lease shall continue in full
force and effect, or (ii) give written notice to Tenant within thirty (30) days
after the date of the occurrence of such damages of Landlord's intention to
cancel and terminate this lease as of the date of the occurrence of the damages;
provided,
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however, that if such damage is caused by an act or omission of Tenant or its
agent, servants or employees, then Tenant shall repair such damage promptly at
its sole cost and expense. In the event Landlord elects to terminate this lease
pursuant hereto, Tenant shall have the right within ten (10) days after receipt
of the required notice to notify Landlord in writing of Tenant's intention to
repair such damage at Tenant's expense, without reimbursement from Landlord, in
which event this lease shall continue in full force and effect and Tenant shall
proceed to make such repairs as soon as reasonably possible. If Tenant does not
give such notice within the ten (10) day period, this lease shall be cancelled
and terminated as of the date of the occurrence of such damage. Under no
circumstances shall Landlord be required to repair any injury or damage to (by
fire or other cause), or to make any restoration or replacement of, any of
Tenant's personal property, trade fixtures or property leased from third
parties, whether or not the same is attached to the Premises.
If the Premises are totally destroyed during the term from any cause
(including any destruction required by any authorized public authority), whether
or not covered by the insurance required under paragraph 11, this lease shall
automatically terminate as of the date of such total destruction; provided,
however, that if the Premises can reasonably and lawfully be repaired or
restored within twelve (12) months of the date of destruction to substantially
the condition existing prior to such destruction and if the proceeds of the
insurance payable to the Landlord by reason of such destruction are sufficient
to pay the cost of such repair or restoration, then the insurance proceeds shall
be so applied, Landlord shall promptly repair and restore the Premises and this
lease shall continue, without interruption, in full force and effect. If the
Premises are totally destroyed during the last twelve (12) months of the term,
either Landlord or Tenant may at its option cancel and terminate this lease as
of the date of occurrence of such damage by giving written notice to the other
of its election to do so within thirty (30) days after the occurrence of such
damage.
If the Premises are partially or totally destroyed or damaged and Landlord
or Tenant repair them pursuant to this lease, the rent payable hereunder
(including Tenant's proportionate share of common area charges) for the period
during which such damage and repair continues shall be abated only in proportion
to the square footage of the Premises rendered untenantable to Tenant by such
damage or destruction. Tenant shall have no claim against Landlord for any
damage, loss or expense suffered by reason of any such damage, destruction,
repair or restoration. The parties waive the provisions of California Civil
Code sections 1932(2) and 1933(4) (which provisions permit the termination of a
lease upon destruction of the leased premises), and hereby agree that the
provisions of this paragraph 17 shall govern in the event of such destruction.
18. INDEMNIFICATION
Landlord shall not be liable to Tenant and Tenant hereby waives all
claims against Landlord for any injury to or death of any person or damage to or
destruction of property in or about the Premises or the Project by or from any
cause whatsoever except the failure of Landlord to perform its obligations under
this lease where such failure has persisted for an unreasonable period of time
after notice of such failure. Without limiting the foregoing, Landlord shall
not be liable to Tenant for any injury to or death of any person or damages to
or
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destruction of property by reason of, or arising from, any latent defect in the
Premises or Project or the act or negligence of any other tenant of the Project.
Tenant shall immediately notify Landlord of any defect in the Premises or
Project.
Except as to injury to persons or damage to property the principal cause of
which is (i) Landlord's active negligence or willful misconduct, or (ii) the
failure by Landlord to observe any of the terms and conditions of this lease,
Tenant shall hold Landlord harmless from and defend Landlord against any claim,
liability, loss, damage or expense (including attorney fees) arising out of any
injury to or death of any person or damage to or destruction of property
occurring in, on or about the Premises from any cause whatsoever or on account
of the use, condition, occupational safety or occupancy of the Premises. Tenant
shall further hold Landlord harmless from and defend Landlord against any claim,
liability, loss, damage or expense (including attorney fees) arising (i) from
Tenant's use of the Premises or from the conduct of its business or from any
activity or work done, permitted or suffered by Tenant or its agents or
employees in or about the Premises or Project, (ii) out of the failure of Tenant
to observe or comply with Tenant's obligation to observe and comply with laws or
other requirements as set forth in paragraph 7, (iii) by reason of Tenant's use,
handling, storage, or disposal of toxic or hazardous materials or waste, (iv) by
reason of any labor or service performed for, or materials used by or furnished
to, Tenant or any contractor engaged by Tenant with respect to the Premises, or
(v) from any other act, neglect, fault or omission of Tenant or its agents or
employees.
The provisions of this paragraph 18 shall survive the expiration or earlier
termination of this lease.
19. ASSIGNMENT AND SUBLETTING
Tenant shall not voluntarily assign, encumber or otherwise transfer
its interest in this lease or in the Premises, or sublease all or any part of
the Premises, or allow any other person or entity to occupy or use all or any
part of the Premises, without first obtaining
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Landlord's written consent, which consent shall not be unreasonably withheld,
and otherwise complying with the requirements of this paragraph 19. Any
assignment, encumbrance or sublease without Landlord's consent, shall constitute
a default.
If Tenant desires to sublet or assign all or any portion of the Premises,
upon obtaining a written letter of intent from a proposed subtenant or assignee,
Tenant shall give Landlord written notice thereof, specifying the projected
commencement date of the proposed sublet or assignment (which date shall be not
less than thirty (30) days or more than ninety (90) days after the date of
Landlord's receipt of such notice), the portions of the Premises proposed to be
sublet or assigned, the terms and conditions of the proposed assignment or
sublease (including the rent to be paid by the proposed assignee or subtenant)
and the name, address and telephone number of the proposed assignee or
subtenant. Tenant shall further provide Landlord with such other information
concerning the proposed assignee or subtenant as requested by Landlord. For a
period of thirty (30) days after Landlord's receipt of Tenant's written notice,
Landlord shall have the option, exercisable by delivering written notice to
Tenant, to terminate this lease as of the date specified in Landlord's written
notice to Tenant, which date shall not be less than thirty (30) days nor more
than ninety (90) days after the date of Landlord's written notice to Tenant. If
Landlord exercises its option to terminate this lease as provided in the
foregoing sentence, Landlord may, if it so elects, enter into a new lease for
the Premises or any portion thereof with the proposed assignee or subtenant or
any other third party on such terms as Landlord and such proposed assignee or
subtenant or other third party may agree; in such event, Tenant shall not be
entitled to any portion of the profit, if any, which Landlord may realize on
account of such termination and reletting. Notwithstanding the above,
Landlord's option to terminate this lease as specified above in this
subparagraph shall not apply to (i) subleases by Tenant to not more than two (2)
subtenants for not more than fifty percent (50%) of the Premises in the
aggregate and which expire not later than the last day of the twenty-fourth
(24th) lease month of the initial lease term; or (ii) subleases by Tenant to not
more than two (2) subtenants for not more than twenty-five percent (25%) of the
Premises in the aggregate and which expire not later than the last day of the
forty-eighth (48th) lease month of the initial lease term.
If Landlord does not elect to terminate this lease as provided hereinabove
in this paragraph 19 and if Landlord consents in writing to the proposed
assignment or sublet, Tenant shall be free to assign or sublet all or a portion
of the Premises subject to the following conditions: (i) any sublease shall be
on the same terms set forth in the notice given to Landlord; (ii) no sublease
shall be valid and no subtenant shall take possession of the sublet premises
until an executed counterpart of such sublease has been delivered to Landlord;
(iii) no subtenant shall have a further right to sublet; (iv) any sums or other
economic consideration received by Tenant as a result of such assignment or
sublet (except rental or other payments received which are attributable to the
amortization over the term of this lease of the cost of (a) leasehold
improvements constructed for such assignees or subtenant and (b) brokerage fees)
whether denominated rentals or otherwise, which exceed, in the aggregate, the
total sums which Tenant is obligated to pay Landlord under this lease (prorated
to reflect obligations allocable to that portion of the Premises subject to such
sublease), shall be payable to Landlord as additional rent under this lease
without affecting or reducing any other obligation of Tenant hereunder; (v) no
sublet or assignment shall release Tenant of Tenant's obligation or alter the
primary liability of Tenant to pay the rent and to perform all other obligations
to be performed by Tenant hereunder;
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and (vi) any assignee or subtenant must expressly agree to assume and perform
all of the covenants and conditions of Tenant under this lease. Tenant shall
pay to Landlord promptly upon demand as additional rent, Landlord's reasonable
attorneys' fees and other costs incurred for reviewing, processing or
documenting any requested assignment or sublease, whether or not Landlord's
consent is granted. Tenant shall not be entitled to assign this lease or
sublease all or any part of the Premises (and any attempt to do so shall be
voidable by Landlord) during any period in which Tenant is in default under this
lease.
If Tenant is a partnership, a withdrawal or change, voluntary or
involuntary or by operation of law, of any general partner or the dissolution of
the partnership shall be deemed an assignment of this lease subject to all the
conditions of this paragraph 19. If Tenant is a corporation any dissolution,
merger, consolidation or other reorganization of Tenant or the sale or other
transfer of a controlling percentage of the capital stock of Tenant or the sale
of more than fifty percent (50%) of the value of Tenant's assets shall be an
assignment of this lease subject to all the conditions of this paragraph 19.
The term "controlling percentage" means the ownership of, and the right to vote,
stock possessing more than 50% of the total combined voting power of all classes
of Tenant's capital stock issued, outstanding and entitled to vote. This
paragraph shall not apply if Tenant is a corporation the stock of which is
traded through an exchange.
The acceptance of rent by Landlord from any other person shall not be
deemed to be a waiver by Landlord of any provision hereof. Consent to one
assignment or sublet shall not be deemed consent to any subsequent assignment or
sublet. In the event of default by any assignee of Tenant or any successor of
Tenant in the performance of any of the terms hereof, Landlord may proceed
directly against Tenant without the necessity of exhausting remedies against
such assignee or successor. Landlord may consent to subsequent assignments or
sublets of this lease or amendments or modifications to this lease with
assignees of Tenant without notifying Tenant, or any successor of Tenant, and
without obtaining its or their consent thereto and such action shall not relieve
Tenant of liability under this lease; provided, however, Tenant shall not be
liable for any increase in Tenant's obligations under this lease without
Tenant's written consent thereto.
No interest of Tenant in this lease shall be assignable by operation of law
(including, without limitation, the transfer of this lease by testacy or
intestacy). Each of the following acts shall be considered an involuntary
assignment: (1) if Tenant is or becomes bankrupt or insolvent, makes an
assignment for the benefit of creditors or institutes a proceeding under the
Bankruptcy Act in which Tenant is the bankrupt; or, if Tenant is a partnership
or consists of more than one person or entity, if any partner of the partnership
or other person or entity is or becomes bankrupt or insolvent, or makes an
assignment for the benefit of creditors; (ii) if a writ of attachment or
execution is levied on this lease; or (iii) if, in any proceeding or action to
which Tenant is a party, a receiver is appointed with authority to take
possession of the Premises. An involuntary assignment shall constitute a
default by Tenant and Landlord shall have the right to elect to terminate this
lease, in which case this lease shall not be treated as an asset of Tenant.
Tenant 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 as
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permitted by this lease, and Landlord, as assignee and as attorney-in-fact for
Tenant, or a receiver of Tenant appointed on Landlord's application, may collect
such rent and apply it toward Tenant's obligations under this lease; except
that, until the occurrence of an act or default by Tenant, Tenant shall have the
right to collect such rent, subject to promptly forwarding to Landlord any
portion thereof to which Landlord is entitled pursuant to this paragraph 19.
Notwithstanding the above requirement that Tenant obtain the consent of
Landlord prior to any assignment or sublet, Tenant may, without obtaining the
prior consent of Landlord, assign or sublease the whole or any part of the
Premises to any corporation or other entity which controls, is controlled by, or
is under common control with Tenant, provided that (i) Tenant shall give written
notice thereof to Landlord in the manner required for other assignments or
subleases by this paragraph 19; (ii) Tenant shall continue to be fully obligated
under this lease; (iii) any such assignee or sublessee shall expressly assume
and agree to perform all the terms and conditions of this lease to be performed
by Tenant; and (iv) any such assignment or sublet shall be subject to all other
terms and conditions of this paragraph 19 pertaining to assignments and/or
sublets (excepting only the requirement concerning prior written consent of
Landlord).
20. DEFAULT
The occurrence of any of the following shall constitute a default by
Tenant: (i) failure of Tenant to pay any rent or other sum payable hereunder
within five (5) days after the date that such payment becomes due; (ii)
abandonment of the Premises (Tenant's failure to occupy and conduct business in
the Premises for fourteen (14) consecutive days shall be deemed an abandonment);
(iii) failure of Tenant to deliver to Landlord any instrument, assurance,
financial statement, subordination agreement or certificate of estoppel required
under this Lease within the time period specified for such performance if the
failure continues for five (5) days after written notice of the failure from
Landlord to Tenant; or (iv) failure of Tenant to perform any other obligation
under this lease if the failure to perform is not cured within thirty (30) days
after written notice thereof has been given to Tenant (provided that if such
default cannot reasonably be cured within thirty (30) days, Tenant shall not be
in default if Tenant commences to cure such failure to perform within the thirty
(30) day period and diligently and in good faith continues to cure the failure
to perform), except in the case of an emergency or dangerous condition, in which
case Tenant's time to perform shall be that time period which is reasonable
under the circumstances. The notice referred to in clauses (iii) and (iv) above
shall specify the failure to perform and the applicable lease provision and
shall demand that Tenant perform the provisions of this lease within the
applicable period of time. No notice shall be deemed a forfeiture or
termination of this lease unless Landlord so elects in the notice. No notice
shall be required in the event of abandonment or vacation of the Premises.
In addition to the above, the occurrence of any of the following events
shall also constitute a default by Tenant: (i) Tenant fails to pay its debts as
they become due or admits in writing its inability to pay its debts, or makes a
general assignment for the benefit of creditors (for purposes of determining
whether Tenant is not paying its debts as they become due, a debt shall be
deemed overdue upon the earliest to occur of the following: thirty (30) days
from the date a statement therefor has been rendered; the date on which any
action or proceeding therefor
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is commenced; or the date on which a formal notice of default or demand has been
sent); (ii) Tenant fails to furnish to Landlord a schedule of Tenant's aged
accounts payable within ten (10) days after Landlord's written request (not to
exceed two (2) requests per calendar year); or (iii) any financial statements
given to Landlord by Tenant, any assignee of Tenant, subtenant of Tenant, any
guarantor of Tenant, or successor in interest of Tenant (including, without
limitation, any schedule of Tenant's aged accounts payable) are materially
false. At any time during the term of this lease Landlord, at Landlord's
option, shall have the right to receive from Tenant, upon Landlord's request, a
current annual balance sheet for Landlord's review. If the balance sheet shows
a negative net worth, Landlord may terminate this lease by giving Tenant sixty
(60) days prior written notice.
In the event of a default by Tenant, then Landlord, in addition to any
other rights and remedies of Landlord at law or in equity, shall have the right
either to terminate Tenant's right to possession of the Premises (and thereby
terminate this lease) or, from time to time and without termination of this
lease, to relet the Premises or any part thereof for the account and in the name
of Tenant for such term and on such terms and conditions as Landlord in its sole
discretion may deem advisable, with the right to make alterations and repairs to
the Premises.
Should Landlord elect to keep this lease in full force and effect, Landlord
shall have the right to enforce all of Landlord's rights and remedies under this
lease, including but not limited to the right to recover and to relet the
Premises and such other rights and remedies as Landlord may have under
California Civil Code Section 1951.4 (or successor Code section) or any other
California statute. If Landlord relets the Premises, then Tenant shall pay to
Landlord, as soon as ascertained, the costs and expenses incurred by Landlord in
such reletting and in making alterations and repairs. Rentals received by
Landlord from such reletting shall be applied (i) to the payment of any
indebtedness due hereunder, other than basic rent and common area charges, from
Tenant to Landlord; (ii) to the payment of the cost of any repairs necessary to
return the Premises to good condition normal wear and tear excepted, including
the cost of alterations and the cost of storing any of Tenant's property left on
the Premises at the time of reletting; and (iii) to the payment of basic rent or
common area charges due and unpaid hereunder. The residue, if any, shall be
held by Landlord and applied in payment of future rent or damages in the event
of termination as the same may become due and payable hereunder and the balance,
if any at the end of the term of this lease, shall be paid to Tenant. Should
the basic rent and common area charges received from time to time from such
reletting during any month be less than that agreed to be paid during that month
by Tenant hereunder, Tenant shall pay such deficiency to Landlord. Such
deficiency shall be calculated and paid monthly. No such reletting of the
Premises by Landlord shall be construed as an election on its part to terminate
this lease unless a notice of such intention is given to Tenant or unless the
termination hereof is decreed by a court of competent jurisdiction.
Notwithstanding any such reletting without termination, Landlord may at any time
thereafter elect to terminate this lease for such previous breach, provided it
has not been cured.
Should Landlord at any time terminate this lease for any breach, in
addition to any other remedy it may have, it shall have the immediate right of
entry and may remove all persons and property from the Premises and shall have
all the rights and remedies of a landlord provided by California Civil Code
Section 1951.2 or any successor code section. Upon such termination, in
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addition to all its other rights and remedies, Landlord shall be entitled to
recover from Tenant all damages it may incur by reason of such breach, including
the cost of recovering the Premises and including (i) the worth at the time of
award of the unpaid rent which had been earned at the time of termination; (ii)
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 that Tenant proves could have been reasonably
avoided; (iii) the worth at the time of the 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 that Tenant proves could be reasonably avoided; and
(iv) any other amount necessary to compensate Landlord for all the detriment
proximately caused by Tenant's failure to perform its obligations under this
lease or which in the ordinary course of events would be likely to result
therefrom. The "worth at the time of award" of the amounts referred to in (i)
and (ii) above is computed by allowing interest at the rate of twelve percent
(12%) per annum. The "worth at the time of award" of the amount referred to in
(iii) above shall be computed by discounting such amount at the discount rate of
the federal reserve bank of San Francisco at the time of award plus one percent
(1%). Tenant waives the provisions of Section 1179 of the California Code of
Civil Procedure (which Section allows Tenant to petition of court of competent
jurisdiction for relief against forfeiture of this lease). Property removed
from the Premises may be stored in a public or private warehouse or elsewhere at
the sole cost and expense of Tenant. In the event that Tenant shall not
immediately pay the cost of storage of such property after the same has been
stored for a period of thirty (30) days or more, Landlord may sell any or all
thereof at a public or private sale in such manner and at such times and places
that Landlord, in its sole discretion, may deem proper, without notice to or
demand upon Tenant.
21. LANDLORD`S RIGHT TO CURE TENANT'S DEFAULT
Landlord, at any time after Tenant commits a default, may, but shall
not be obligated to, cure the default at Tenant's cost. If Landlord at any
time, by reason of Tenant's default, pays any sum or does any act that requires
the payment of any sum, the sum paid by Landlord shall be due immediately from
Tenant to Landlord and shall bear interest at the rate of twelve percent (12%)
per annum or the maximum rate permitted by law, whichever is less, from the date
the sum is paid by Landlord until Landlord is reimbursed by Tenant. Amounts due
Landlord hereunder shall be additional rent.
22. EMINENT DOMAIN
If all or any part of the Premises shall be taken by any public or
quasi-public authority under the power of eminent domain or conveyance in lieu
thereof, this lease shall terminate as to any portion of the Premises so taken
or conveyed on the date when title vests in the condemnor, and Landlord shall be
entitled to any and all payments, income, rent, award or any interest therein
whatsoever which may be paid or made in connection with such taking or
conveyance. Tenant shall have no claim against Landlord or otherwise for the
value of any unexpired term of this lease. Notwithstanding the foregoing,
Tenant shall be entitled to any compensation for depreciation to and cost of
removal of Tenant's equipment and fixtures and any compensation for its
relocation expenses necessitated by such taking, but in each case only to the
extent the condemning authority makes a separate award therefor or specifically
identifies
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a portion of the award as being therefor. Each party waives the provisions of
Section 1265.130 of the California Code of Civil Procedure (which section allows
either party to petition the Superior Court to terminate this lease in the event
of a partial taking of the Premises).
If any action or proceeding is commenced for such taking of the Premises or
any portion thereof or of any other space in the Project, or if Landlord is
advised in writing by any entity or body having the right or power of
condemnation of its intention to condemn the Premises or any portion thereof or
of any other space in the Project, and Landlord shall decide to discontinue the
use and operation of the Project or decide to demolish, alter or rebuild the
Project, then Landlord shall have the right to terminate this lease by giving
Tenant written notice thereof within sixty (60) days of the earlier of the date
of Landlord's receipt of such notice of intention to condemn or the commencement
of said action or proceeding. Such termination shall be effective as of the
last day of the calendar month next following the month in which such notice is
given or the date on which title shall vest in the condemnor, whichever occurs
first.
In the event of a partial taking, or conveyance in lieu thereof, of the
Premises and fifty percent (50%) or more of the number of square feet in the
Premises are taken then Tenant may terminate this lease. Any election by Tenant
to so terminate shall be by written notice given to Landlord within sixty (60)
days from the date of such taking or conveyance and shall be effective on the
last day of the calendar month next following the month in which such notice is
given or the date on which title shall vest in the condemnor, whichever occurs
first.
If a portion of the Premises is taken by power of eminent domain or
conveyance in lieu thereof and neither Landlord nor Tenant terminates this lease
as provided above, then this lease shall continue in full force and effect as to
the part of the Premises not so taken or conveyed and all payments of rent shall
be apportioned as of the date of such taking or conveyance so that thereafter
the amounts to be paid by Tenant shall be in the ratio that the area of the
portion of the Premises not so taken bears to the total area of the Premises
prior to such taking.
23. NOTICE AND COVENANT TO SURRENDER
On the last day of the term or on the effective date of any earlier
termination, Tenant shall surrender to Landlord the Premises in its condition
existing as of the commencement of the term and, except as otherwise provided by
Landlord pursuant to the terms of paragraph 8 of this lease, all of the
improvements and alterations made to the Premises in their condition existing as
of the date of completion of construction and/or installation (normal wear and
tear excepted), with all originally painted interior walls washed or repainted
if marked or damaged, interior vinyl covered walls cleaned and repaired or
replaced if marked or damaged, all carpets shampooed and cleaned, the air
conditioning and heating system serviced and repaired by a reputable and
licensed service firm (unless Landlord has elected to maintain such system
pursuant to paragraph 9 of this lease) and all floors cleaned and waxed; all to
the reasonable satisfaction of Landlord. On or prior to the last day of the
term or the effective date of any earlier termination, Tenant shall remove all
of Tenant's personal property and trade fixtures, together with improvements or
alterations that Tenant is obligated to remove pursuant to the provisions of
paragraph 8 of this lease, from the Premises, and all such property not removed
shall be deemed abandoned. In addition, on or prior to the expiration or
earlier
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termination of this lease, Tenant shall remove, at Tenant's sole cost and
expense, all telephone, other communication, computer and any other cabling and
wiring of any sort installed by or for Tenant in the space above the suspended
ceiling of the Premises or anywhere else in the Premises and shall promptly
repair any damage to the suspended ceiling, lights, light fixtures, walls and
any other part of the Premises resulting from such removal.
If the Premises are not surrendered as required in this paragraph. Tenant
shall indemnify Landlord against all loss, liability and expense (including but
not limited to, attorney fees) resulting from the failure by Tenant in so
surrendering the Premises, including, without limitation, any claims made by any
succeeding tenants. It is agreed between Landlord and Tenant that the
provisions of this paragraph shall survive termination of this lease.
24. TENANT'S QUITCLAIM
At the expiration or earlier termination of this lease, Tenant shall
execute, acknowledge and deliver to Landlord, within ten (10) days after written
demand from Landlord to Tenant, any quitclaim deed or other document required to
remove the cloud or encumbrance created by this lease from the real property of
which the Premises are a part. This obligation shall survive said expiration or
termination.
25. HOLDING OVER
Any holding over after the expiration or termination of this lease
with the written consent of Landlord shall be construed to be a tenancy from
month-to-month at the monthly rent agreed upon by Landlord and Tenant, but in no
event less than the monthly rent payable under this lease for the last lease
month before the date of such expiration or termination. All provisions of this
lease, except (i) as modified by the preceding sentence and (ii) those
provisions pertaining to the term, expansion rights and any option to extend
shall apply to the month-to-month tenancy.
If Tenant shall retain possession of the Premises or any part thereof
without Landlord's written consent following the expiration or sooner
termination of this lease for any reason, then Tenant shall pay to Landlord for
each day of such retention one hundred fifty percent (150%) of the amount of the
daily rental in effect during the last lease month prior to the date of such
expiration or termination. The term "daily rental" as used in the preceding
sentence shall mean the monthly rental divided by thirty. Tenant shall also
indemnify and hold Landlord harmless from any loss, liability and expense
(including, but not limited to, attorneys fees) resulting from delay by Tenant
in surrendering the Premises, including without limitation any claims made by
any succeeding tenant founded on such delay. Acceptance of rent by Landlord
following expiration or termination shall not constitute a renewal of this
lease, and nothing contained in this paragraph shall waive Landlord's right of
re-entry or any other right. Tenant shall be only a Tenant at sufferance,
whether or not Landlord accepts any rent from tenant, while Tenant is holding
over without Landlord's written consent.
The provisions of this paragraph 25 are in addition to, and do not affect,
Landlord's right of re-entry or other rights hereunder or provided by law.
Nothing in this paragraph 25 shall be
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construed as implied consent by Landlord to any holding over by Tenant.
Landlord expressly reserves the right to require Tenant to surrender possession
of the Premises to Landlord as provided in this Lease on expiration or other
termination of this Lease. The provisions of this paragraph 25 shall not be
considered to limit or constitute a waiver of any other rights or remedies of
Landlord provided in this Lease or at law. The provisions of this paragraph 25
shall survive the expiration or early termination of this lease.
26. SUBORDINATION
In the event Landlord's title or leasehold interest is now or
hereafter encumbered in order to secure a loan to Landlord, Tenant shall, at the
request of Landlord or the lender, execute in writing an agreement subordinating
its rights under this lease to the lien of such encumbrance, or, if so
requested, agreeing that the lien of lender's encumbrance shall be or remain
subject and subordinate to the rights of Tenant under this lease. Tenant hereby
irrevocably appoints Landlord the attorney-in-fact of Tenant to execute, deliver
and record any such instrument or instruments for and in the name and on behalf
of Tenant. Notwithstanding any such subordination, Tenant's possession under
this lease shall not be disturbed if Tenant is not in default and so long as
Tenant shall pay all amounts due hereunder and otherwise observe and perform all
provisions of this lease. In addition, if in connection with any such loan the
lender shall request reasonable modifications of this lease as a condition to
such financing, Tenant will not unreasonably withhold, delay or defer its
consent thereof, provided that such modifications do not increase the
obligations of Tenant hereunder or materially adversely affect the leasehold
interest hereby created or Tenant's rights hereunder.
27. CERTIFICATE OF ESTOPPEL
Each party shall, within five (5) calendar days after request
therefor, execute and deliver to the other party, in recordable form, a
certificate stating that the lease is unmodified and in full force and effect,
or in full force and effect as modified and stating the modifications. The
certificate shall also state the amount of the monthly rent, the date to which
monthly rent has been paid in advance, the amount of the security deposit and/or
prepaid monthly rent, and, if the request is made by Landlord, shall include
such other items as Landlord or Landlord's lender may reasonably request.
Failure to deliver such certificate within such time shall constitute a
conclusive acknowledgment by the party failing to deliver the certificate that
the lease is in full force and effect and has not been modified except as may be
represented by the party requesting the certificate. Any such certificate
requested by Landlord may be conclusively relied upon by any prospective
purchaser or encumbrancer of the Premises or Project. Further, within five (5)
calendar days following written request made from time to time by Landlord,
Tenant shall furnish to Landlord current financial statements of Tenant.
28. SALE BY LANDLORD
In the event the original Landlord hereunder, or any successor owner
of the Project or Premises, shall sell or convey the Project or Premises, all
liabilities and obligations on the part of the original Landlord, or such
successor owner, under this lease accruing thereafter shall terminate, and
thereupon all such liabilities and obligations shall be binding upon the new
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owner. Tenant agrees to attorn to such new owner and to look solely to such new
owner for performance of any and all such liabilities and obligations, provided
such new owner agrees to assume and be bound by the terms of this lease.
29. ATTORNMENT TO LENDER OR THIRD PARTY
In the event the interest of Landlord in the land and buildings in
which the Premises are located (whether such interest of Landlord is a fee title
interest or a leasehold interest) is encumbered by deed of trust, and such
interest is acquired by a lender or any other third party through judicial
foreclosure or by exercise of a power of sale at private trustee's foreclosure
sale, Tenant hereby agrees to release Landlord of any obligation arising on or
after any such foreclosure sale and provided such purchaser agrees to assume and
be bound by the terms of this lease, Tenant shall attorn to the purchaser at any
such foreclosure sale and to recognize such purchaser as the Landlord under this
lease.
30. DEFAULT BY LANDLORD
Landlord shall not be in default unless Landlord fails to perform
obligations required of Landlord within a reasonable time, but in no event
earlier than thirty (30) days after written notice by Tenant to Landlord and to
the holder of any first mortgage or deed of trust covering the Premises (whose
name and address shall be provided to Tenant upon written request) specifying
wherein landlord has failed to perform such obligations; provided, however, that
if the nature of Landlord's obligations is such that more than thirty (30) days
are required for performance, then Landlord shall not be in default if Landlord
commences performance within such thirty (30) day period and thereafter
diligently prosecutes the same to completion.
If Landlord is in default of this lease, Tenant's sole remedy shall be to
institute suit against Landlord in a court of competent jurisdiction, and Tenant
shall have no right to offset any sums expended by Tenant as a result of
Landlord's default against future rent and other sums due and payable pursuant
to this lease. 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 Project of
which the Premises are a part, and out of rent or other income from such real
property 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 Project of which the Premises are a part. Neither Landlord
nor any of the partners comprising the partnership designated as Landlord shall
be personally liable for any deficiency.
31. CONSTRUCTION CHANGES
It is understood that the description of the Premises and the location
of ductwork, plumbing and other facilities therein are subject to such changes
as Landlord or Landlord's architect determines to be desirable in the course of
construction of the Premises and/or the improvements constructed or being
constructed therein, and no such changes or any changes in plans for any other
portions of the Project, shall affect this lease or entitle Tenant to any
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reduction of rent hereunder or result in any liability of Landlord to Tenant,
provided such changes do not result in any permanent material detriment to the
operation of Tenant's business.
32. MEASUREMENT OF PREMISES
Tenant understands and agrees that any reference to square footage of
the Premises is approximate only and includes all interior partitions and
columns, one-half of exterior walls, and one-half of the partitions separating
the Premises from the rest of the Project, Tenant's proportionate share of the
Common Area and, if applicable, covered areas immediately outside the entry
doors or loading docks. Tenant waives any claim against Landlord regarding the
accuracy of any such measurement and agrees that there shall not be any
adjustment in basic rent or common area charges or other amounts payable
hereunder by reason of inaccuracies in such measurement.
33. ATTORNEY FEES
If either party commences an action 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 losing party all expenses of litigation, including,
without limitation, travel expenses, reasonable attorney fees, expert witness
fees, trial and appellate court costs, and deposition and transcript expenses.
If either party becomes a party to any litigation concerning this lease, or
concerning the Premises or the Project, by reason of any act or omission of the
other party or its authorized representatives, the party that causes the other
party to become involved in the litigation shall be liable to the other party
for all expenses of litigation, including, without limitation, travel expenses,
attorney fees, expert witness fees, trial and appellate court costs, and
deposition and transcript expenses.
34. SURRENDER
The voluntary or other surrender of this lease or the Premises by
Tenant, or a mutual cancellation of this lease, shall not work a merger, and at
the option of Landlord shall either terminate all or any existing subleases or
subtenancies or operate as an assignment to Landlord of all or any such
subleases or subtenancies.
35. WAIVER
No delay or omission in the exercise of any right or remedy of
Landlord on any default by Tenant shall impair such right or remedy or be
construed as a waiver. The receipt and acceptance by Landlord of delinquent
rent or other payments shall not constitute a waiver of any other default and
acceptance of partial payments shall not be construed as a waiver of the balance
of such payment due. No act or conduct of Landlord, including, without
limitation, the acceptance of keys to the Premises, shall constitute an
acceptance of the surrender of the Premises by Tenant before the expiration of
the term. Only a written notice from Landlord to Tenant shall constitute
acceptance of the surrender of the Premises and accomplish a termination of this
lease. Landlord's consent to or approval of any act by Tenant requiring
Landlord's consent or approval shall not be deemed to waive or render
unnecessary Landlord's
25
<PAGE>
consent to or approval of any subsequent act by Tenant. Any waiver by Landlord
of any default must be in writing and shall not be a waiver of any other default
concerning the same or any other provision of this lease.
36. EASEMENTS; AIRSPACE RIGHTS
Landlord reserves the right to alter the boundaries of the Project and
grant easements and dedicate for public use portions of the Project without
Tenant's consent, provided that no such grant or dedication shall interfere with
Tenant's use of the Premises or otherwise cause Tenant to incur cost or expense.
From time to time, and upon Landlord's demand, Tenant shall execute, acknowledge
and deliver to Landlord, in accordance with Landlord's instructions, any and all
documents, instruments, maps or plats necessary to effectuate Tenant's covenants
hereunder.
This lease confers no rights either with regard to the subsurface of or
airspace above the land on which the Project is located or with regard to
airspace above the building of which the Premises are a part. Tenant agrees
that no diminution or shutting off of light or view by a structure which is or
may be erected (whether or not by Landlord) on property adjacent to the building
of which the Premises are a part or to property adjacent thereto, shall in any
way affect this lease, or entitle Tenant to any reduction of rent, or result in
any liability of Landlord to Tenant.
37. RULES AND REGULATIONS
Landlord shall have the right from time to time to promulgate rules
and regulations for the safety, care and cleanliness of the Premises, the
Project and the Common Area, or for the preservation of good order. On delivery
of a copy of such rules and regulations to Tenant, Tenant shall comply with the
rules and regulations, and a violation of any of them shall constitute a default
by Tenant under this lease. If there is a conflict between the rules and
regulations and any of the provisions of this lease, the provisions of this
lease shall prevail. Such rules and regulations may be amended by Landlord from
time to time with or without advance notice.
38. NOTICES
Except for legal process which may also be served as provided by law
or as provided herein, all notices, demands, requests, consents and other
communications ("Notices") which may be given or are required to be given by
either party to the other shall be in writing and shall be deemed given to and
received by the party intended to receive such Notice (i) when hand delivered,
(ii) three (3) days after such Notice shall have been deposited, postage
prepaid, to the United States Mail, certified return receipt requested, properly
addressed to the address specified herein, or (iii) date of delivery if sent to
the address specified herein by reputable overnight courier (e.g. Federal
Express or other comparable service), as evidenced by such courier's records.
Prior to the commencement date, all such Notices from Landlord to Tenant
shall be
26
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served or addressed to Tenant at 1605 Wyatt Drive, Santa Clara, California
95054. On or after the commencement date all such Notices from Landlord to
Tenant shall be addressed to Tenant at the Premises.
All such Notices by Tenant to Landlord shall be sent to Landlord at its
offices at 3945 Freedom Circle, Suite 640, Santa Clara, California 95054.
Either party may change its address by notifying the other of such change.
39. NAME
Tenant shall not use the name of the Project for any purpose, other
than as the address of the business conducted by Tenant in the Premises, without
the prior written consent of Landlord.
40. GOVERNING LAW; SEVERABILITY
This lease shall in all respects be governed by and construed in
accordance with the laws of the State of California. If any provision of this
lease shall be held or rendered invalid, unenforceable or ineffective for any
reason whatsoever, all other provisions hereof shall be and remain in full force
and effect.
41. DEFINITIONS
As used in this lease, the following words and phrases shall have the
following meanings:
AUTHORIZED REPRESENTATIVE: any officer, agent, employee or independent
-------------------------
contractor retained or employed by either party, acting within authority given
him by that party.
ENCUMBRANCE: any deed of trust, mortgage or other written security
-----------
device or agreement affecting the Premises or the Project that constitutes
security for the payment of a debt or performance of an obligation, and the note
or obligation secured by such deed of trust, mortgage or other written security
device or agreement.
LEASE MONTH: the period of time determined by reference to the day of
-----------
the month in which the term commences and continuing to one day short of the
same numbered day in the next succeeding month; e.g., the tenth day of one month
to and including the ninth day in the next succeeding month.
LENDER: the beneficiary, mortgagee or other holder of an encumbrance,
------
as defined above.
LIEN: a charge imposed on the Promises by someone other than Landlord,
----
by which the Premises are made security for the performance of an act. Most of
the liens referred to in this lease are mechanic's liens.
27
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MAINTENANCE: repairs, replacement, repainting and cleaning.
-----------
MONTHLY RENT: the sum of the monthly payments of basic rent and common
------------
area charges.
PERSON: one or more human beings, or legal entities or other
------
artificial persons, including, without limitation, partnerships, corporations,
trusts, estates, associations and any combination of human being and legal
entities.
PROVISION: any term, agreement, covenant, condition, clause,
---------
qualification, restriction, reservation or other stipulation in the lease that
defines or otherwise controls, establishes or limits the performance required or
permitted by either party.
RENT: basic rent, common area charges, additional rent, and all other
----
amounts payable by Tenant to Landlord required by this lease or arising by
subsequent actions of the parties made pursuant to this lease.
Words used in any gender include other genders. If there be more than one
Tenant, the obligations of Tenant hereunder are joint and several. All
provisions whether covenants or conditions, on the part of Tenant shall be
deemed to be both covenants and conditions. The paragraph headings are for
convenience of reference only and shall have no effect upon the construction or
interpretation of any provision hereof.
42. TIME
Time is of the essence of this lease and of each and all of its
provisions.
43. INTEREST ON PAST DUE OBLIGATIONS; LATE CHARGE
Any amount due from Tenant to Landlord hereunder which is not paid
within five (5) days of when due shall bear interest at the rate of ten percent
(10%) per annum from when due until paid, unless otherwise specifically provided
herein, but the payment of such interest shall not excuse or cure any default by
Tenant under this lease. In addition, Tenant acknowledges that late payment by
Tenant to Landlord of basic rent or common area charges or of any other amount
due Landlord from Tenant, will cause Landlord to incur costs not contemplated by
this lease, the exact amount of such costs being extremely difficult and
impractical to fix. Such costs include, without limitation, processing and
accounting charges, and late charges that may be imposed on Landlord, e.g., by
the terms of any encumbrance and note secured by any encumbrance covering the
Premises. Therefore, if any such payment due from Tenant is not received by
Landlord within five (5) days of when due, Tenant shall pay to Landlord an
additional sum of five percent (5%) of the overdue payment 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. Acceptance of any late charge shall not constitute a waiver of Tenant's
default with respect to the overdue amount, nor prevent Landlord from exercising
any of the other rights and remedies available to Landlord. No notice to Tenant
of failure to pay shall be required prior to the imposition of such interest
and/or late charge, and any notice period provided for in paragraph 20 shall not
affect the imposition of
28
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such interest and/or late charge. Any interest and late charge imposed pursuant
to this paragraph shall be and constitute additional rent payable by Tenant to
Landlord.
44. ENTIRE AGREEMENT
This lease, including any exhibits and attachments, constitutes the
entire agreement between Landlord and Tenant relative to the Premises and this
lease and the exhibits and attachments may be altered, amended or revoked only
by an instrument in writing signed by both Landlord and Tenant. Landlord and
Tenant agree hereby that all prior or contemporaneous oral agreements between
and among themselves or their agents or representatives relative to the leasing
of the Premises are merged in or revoked by this lease.
45. CORPORATE AUTHORITY
If Tenant is a corporation, each individual executing this lease on
behalf of the corporation represents and warrants that he is duly authorized to
execute and deliver this lease on behalf of the corporation in accordance with a
duly adopted resolution of the Board of Directors of said corporation and that
this lease is binding upon said corporation in accordance with its terms If
Tenant is a corporation, Tenant shall deliver to Landlord, within ten (10) days
of the execution of this lease, a copy of the resolution of the Board of
Directors of Tenant authorizing the execution of this lease and naming the
officers that are authorized to execute this lease on behalf of Tenant, which
copy shall be certified by Tenant's secretary as correct and in full force and
effect.
46. RECORDING
Neither Landlord nor Tenant shall record this lease or a short form
memorandum hereof without the consent of the other.
47. REAL ESTATE BROKERS
Each party represents and warrants to the other party that it has not
had dealings in any manner with any real estate broker, finder or other person
with respect to the Premises and the negotiation and execution of this lease
except McCandless Management Corporation and CPS. Except for the commissions
and fees to be paid to McCandless Management Corporation and CPS as provided in
this paragraph, each party shall indemnify and hold harmless the other party
from all damage, loss, liability and expense (including attorneys' fees and
related costs) arising out of or resulting from any claims for commissions or
fees that have been or may be asserted against the other party by any broker,
finder or other person with whom Tenant or Landlord, respectively, has dealt, or
purportedly has dealt, in connection with the Premises and the negotiation and
execution of this lease. Landlord shall pay broker leasing commissions to
McCandless Management Corporation and CPS in connection with the Premises and
the negotiation and execution of this lease, to the extent agreed to between
Landlord and McCandless Management Corporation and CPS. Landlord and Tenant
agree that Landlord shall not be obligated to pay any broker leasing
commissions, consulting fees, finder fees or any other fees or commissions
arising out of or relating to any extended term of this
29
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lease or to any expansion or relocation of the Premises at any time.
48. EXHIBITS AND ATTACHMENTS
All exhibits and attachments to this lease are a part hereof.
49. ENVIRONMENTAL MATTERS
A. TENANT'S COVENANTS REGARDING HAZARDOUS MATERIALS.
------------------------------------------------
(1) HAZARDOUS MATERIALS HANDLING. Tenant, its agents, invitees,
employees, contractors, sublessees, assigns and/or successors shall not use,
store, dispose, release or otherwise cause to be present or permit the use,
storage, disposal, release or presence of Hazardous Materials (as defined below)
on or about the Premises or Project. As used herein "Hazardous Materials" shall
mean any petroleum or petroleum byproducts, flammable explosives, asbestos, urea
formaldehyde, radioactive materials or waste and any "hazardous substance",
"hazardous waste", "hazardous materials", "toxic substance" or "toxic waste" as
those terms are defined under the provisions of the California Health and Safety
Code and/or the provisions of the Comprehensive Environmental Response,
Compensation and Liability Act (42 U.S.C. Section 9601 et seq.), as amended by
the Superfund Amendments and Reauthorization Act of 1986 (42 U.S.C. Section 9601
et seq.), or any other hazardous or toxic substance, material or waste which is
or becomes regulated by any local governmental authority, the State of
California or any agency thereof, or the United States Government or any agency
thereof. Notwithstanding the above, Tenant shall be permitted to store
reasonable quantities of diesel fuel for use by Tenant with its generator (as
described in paragraph 56 below). Tenant shall:
(a) Use, store, and dispose of all such Hazardous Material
in strict compliance with all applicable statutes, ordinances, and regulations
in effect during the lease term that relate to public health and safety and
protection of the environment including the Hazardous Materials Laws as defined
in section 49.A.(2) below.
(b) Comply at all times during the lease term with all
Hazardous Materials Laws.
(2) NOTICES. Tenant shall immediately notify Landlord in writing
-------
of: (i) any enforcement, cleanup, removal or other governmental or regulatory
action instituted, completed or threatened pursuant to any law, regulation or
ordinance relating to the industrial hygiene, environmental protection or the
use, analysis, generation, manufacture, storage, presence, disposal or
transportation of any Hazardous Materials (collectively "Hazardous Materials
Laws"); (ii) any claim made or threatened by any person against Tenant, the
Premises, Project or buildings within the Project relating to damage,
contribution, cost recovery, compensation, loss or injury resulting from or
claimed to result from any Hazardous Materials; and (iii) any reports made to
any environmental agency arising out of or in connection with any Hazardous
Materials in, on or removed from the Premises, Project or buildings within the
Project, including any complaints, notices, warnings, reports or asserted
violations in connection therewith. Tenant shall also supply to Landlord as
promptly as possible, and in any event within
30
<PAGE>
five (5) business days after Tenant first receives or sends the same, with
copies of all claims, reports, complaints, notices, warnings or asserted
violations relating in any way to the Premises, Project or buildings within the
Project or Tenant's use thereof. Tenant shall promptly deliver to Landlord
copies of hazardous waste manifests reflecting the legal and proper disposal of
all Hazardous Materials removed from the Premises.
B. INDEMNIFICATION OF LANDLORD. Tenant shall indemnify, defend (by
---------------------------
counsel acceptable to Landlord), protect, and hold Landlord, and each of
Landlord's partners, employees, agents, attorneys, successors and assigns, free
and harmless from and against any and all claims, liabilities, penalties,
forfeitures, losses or expenses (including attorneys' fees) for death of or
injury to any person or damage to any property whatsoever (including water
tables and atmosphere), arising from or caused in whole or in part, directly or
indirectly, by Tenant's use, analysis, storage, transportation, disposal,
release, threatened release, discharge or generation of Hazardous Materials to,
in, on, under, about or from the Premises, Project or buildings within the
Project, or (ii) Tenant's failure to comply with any Hazardous Materials Laws
whether knowingly, unknowingly, intentionally or unintentionally. Tenant's
obligations hereunder shall include, without limitation, and whether foreseeable
or unforeseeable, all costs of any required or necessary repair, cleanup or
detoxification or decontamination of the Premises, Project or buildings within
the Project, and the preparation and implementation of any closure, remedial
action or other required plans in connection therewith. In addition, Tenant
shall reimburse Landlord for (i) losses in or reductions to rental income
resulting from Tenant's use, storage or disposal of Hazardous Materials, (ii)
all costs of refitting or other alterations to the Premises, Project or
buildings within the Project required as a result of Tenant's use, storage, or
disposal of Hazardous Materials including, without limitation, alterations
required to accommodate an alternate use of the Premises, Project or buildings
within the Project, and (iii) any diminution in the fair market value of the
Premises, Project or buildings within the Project caused by Tenant's use,
storage, or disposal of Hazardous Materials. For purposes of this paragraph 49,
any acts or omissions of Tenant, or by employees, agents, assignees, contractors
or subcontractors of Tenant or others acting for or on behalf of Tenant (whether
or not they are negligent, intentional, willful or unlawful) shall be strictly
attributable to Tenant.
C. LANDLORD'S REPRESENTATION. Landlord represents that to the actual
-------------------------
current knowledge of Ms. Brenda Meckenstock, Landlord's Property Manager,
without duty of inquiry or investigation, there are no Hazardous Materials on
the Premises in violation of any Hazardous Materials Laws as-of the date of
execution of this lease by Landlord.
D. SURVIVAL. The provisions of this paragraph 49 shall survive the
--------
expiration or earlier termination of the term of this lease.
50. SIGNAGE
Tenant shall not, without obtaining the prior written consent of
Landlord, install or attach any sign or advertising material on any part of the
outside of the Premises, or on any part of the inside of the Premises which is
visible from the outside of the Premises, or in the halls, lobbies, windows or
elevators of the building in which the Premises are located or on or about any
other portion of the Common Area or Project. If Landlord consents to the
installation
31
<PAGE>
of any sign or other advertising material, the location, size, design, color and
other physical aspects thereof shall be subject to Landlord's prior written
approval and shall be in accordance with any sign program applicable to the
Project. In addition to any other requirements of this paragraph 50, the
installation of any sign or other advertising material by or for Tenant must
comply with all applicable laws, statutes, requirements, rules, ordinances and
any C.C. & R.'s or other similar requirements. With respect to any permitted
sign installed by or for Tenant, Tenant shall maintain such sign or other
advertising material in good condition and repair and shall remove such sign or
other advertising material on the expiration or earlier termination of the term
of this lease. The cost of any permitted sign or advertising material and all
costs associated with the installation, maintenance and removal thereof shall be
paid for solely by Tenant. If Tenant fails to properly maintain or remove any
permitted sign or other advertising material, Landlord may do so at Tenant's
expense. Any cost reasonably incurred by Landlord in connection with such
maintenance or removal shall be deemed additional rent and shall be paid by
Tenant to Landlord within ten (10) days following written notice from Landlord.
Landlord may remove any unpermitted sign or advertising material without notice
to Tenant and the cost of such removal shall be additional rent and shall be
paid by Tenant within ten (10) days following notice from Landlord. Landlord
shall not be liable to Tenant for any damage, loss or expense resulting from
Landlord's removal of any sign or advertising material in accordance with this
paragraph 50. The provisions of this paragraph 50 shall survive the expiration
or earlier termination of this lease.
51. SUBMISSION OF LEASE
The submission of this lease to Tenant for examination or signature by
Tenant is not an offer to lease the Premises to Tenant, nor an agreement by
Landlord to reserve the Premises for Tenant. Landlord will not be bound to
Tenant until this lease has been duly executed and delivered by both Landlord
and Tenant.
52. PREMISES TAKEN "AS IS"
Tenant is leasing the Premises from Landlord "as is" in their
condition existing as of the date hereof. Landlord shall have no obligation to
alter or improve the Premises, except to paint the existing painted walls in the
Premises which Tenant does not plan on removing in its initial remodel.
53. ADDITIONAL RENT
All costs, charges, fees, penalties, interest and any other payments
(including Tenant's reimbursement to Landlord of costs incurred by Landlord)
which Tenant is required to make to Landlord pursuant to the terms and
conditions of this lease and any amendments to this lease shall be and
constitute additional rent payable by Tenant to Landlord when due as specified
in this lease and any amendments to this lease.
54. [INTENTIONALLY OMITTED]
55. OPTION TO EXTEND TERM
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Landlord grants to Tenant the option to extend the term for one period
of two (2) years (the "Extended Term") following the expiration of the initial
term set forth in paragraph 2 ("Initial Term") under all the provisions of this
lease except for the amount of the basic rent. The basic rent for the Extended
Term shall be adjusted to the market rate (as defined in paragraph (c) below);
provided that in no event shall the basic rent for the Extended Term be less
than the basic rent in effect at the expiration of the Initial Term. This
option is further subject to the following terms and conditions:
(a) Tenant must deliver its irrevocable written notice of Tenant's
exercise of this option to Landlord not less than six (6) lease months, nor more
than twelve (12) lease months, prior to the expiration of the Initial Term.
Time is of the essence with respect to the time period during which Tenant must
deliver to Landlord its written notice of exercise and, therefore, if Tenant
fails to give Landlord its irrevocable written notice of its exercise of this
option within the time period provided above then this option shall expire and
be of no further force or effect.
(b) The parties shall have thirty (30) days from the date Landlord
receives Tenant's notice of exercise in which to agree on the amount
constituting the market rate. If Landlord and Tenant agree on the amount of the
market rate, they shall immediately execute an amendment to this lease setting
forth the expiration date of the Extended Term and the amount of the basic rent
to be paid by Tenant during the Extended Term. If Landlord and Tenant are
unable to agree on the amount of the market rate within such time period, then
this option shall be of no further effect and this lease shall expire at the end
of the Initial Term.
(c) As used herein, the "market rate" shall be the monthly rent then
obtained for two (2) year fixed rate leases of comparable terms for premises in
the Project and in buildings and/or projects within the same geographical area
of similar types and identity, quality and location as the Project.
(d) Common area charges shall continue to be determined and payable as
provided in paragraphs 4 and 16 of this lease.
(e) Neither party shall have the right to have any court or other
third party determine the market rate or the basic rent. Tenant shall not
assign or otherwise transfer this option or any interest therein and any attempt
to do so shall render this option null and void. Tenant shall have no right to
extend the term beyond the Extended Term. If Tenant is in default under this
lease at the date of delivery of Tenant's notice of exercise to Landlord, then
such notice shall be of no effect and this lease shall expire at the end of the
Initial Term; if Tenant is in default under this lease on the last day of the
Initial Term, then Landlord may in its sole discretion elect to have Tenant's
exercise of this option be of no effect, in which case this lease shall expire
at the end of the Initial Term.
56. ADDITIONAL REQUIREMENTS
Landlord acknowledges that in the future Tenant may wish (i) to create
a raised-floor computer room (not to exceed five thousand [5,000] square feet)
on the first floor of
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the Premises, which would require the use of not more than two (2) adjacent
parking spaces for equipment necessary to support such computer room, and (ii)
to locate on the roof of the Premises a microwave dish (not to exceed five [5]
feet in diameter) to be used by Tenant exclusively. Installation of the
foregoing shall be at Tenant's sole cost and expense and shall be deemed
alterations subject to the provisions of paragraph 8 of this lease, provided
that Landlord's consent shall not be unreasonably withheld.
57. CAPITAL EXPENDITURES
Notwithstanding any provision to the contrary in paragraphs 7 and 8 of
this lease, the cost of any capital improvement to the Premises, the Project or
the Common Area which (i) is required to be made by Landlord under paragraph 7
or 8, (ii) has a useful life of more than one (1) year and (iii) the cost of
which exceeds $50,000, shall be amortized over its useful life (including
interest at a rate of two percent (2%) over the then current Prime Rate as
published by the Wall Street Journal) and the monthly amortized cost thereof so
determined shall be included within common area charges and Tenant shall pay its
percentage share thereof as provided in paragraph 16 of this lease throughout
the remaining term of this lease and any extensions thereof. Any determination
of what constitutes a capital improvement and the useful life of such capital
improvement, shall be made by Landlord in accordance with generally accepted
accounting principles.
[signatures on Next Page]
34
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IN WITNESS WHEREOF, Landlord and Tenant have executed and delivered this
lease on the date first above written.
Landlord: Tenant:
- -------- ------
SAN TOMAS NO. 2, a California EXODUS COMMUNICATIONS, INC.
general partnership a California corporation
By: Connecticut General Life Insurance By: /s/ Richard S. Stoltz
------------------------
Company, a Connecticut corporation,
General Partner Name: Richard S. Stoltz
------------------------
By: Cigna Investments, Inc., a Title: Coo/CFO
Delaware corporation, Its
Authorized Agent Date: ________________________
By: ___________________ By: /s/ K. B. Chandrasekhar
------------------------
Name: ___________________ Name: K. B. Chandrasekhar
------------------------
Its: ___________________ Title: Serectary/President
------------------------
Date: ___________________ Date: 4/18/97
------------------------
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EXHIBIT 10.12
[_]===========[_]
OFFICE LEASE AGREEMENT
BY AND BETWEEN
SABEY CORPORATION,
A WASHINGTON CORPORATION
LANDLORD
AND
EXODUS COMMUNICATIONS, INC.
A CALIFORNIA CORPORATION
TENANT
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. FUNDAMENTAL LEASE PROVISIONS; DEFINITIONS; EXHIBITS................... 1
1.1 Broker.......................................................... 1
1.2 Building........................................................ 1
1.3 Premises........................................................ 1
1.4 Tenant's Share.................................................. 1
1.5 Lease Year...................................................... 1
1.6 Commencement Date............................................... 1
1.7 Expiration Date................................................. 1
1.8 Term............................................................ 1
1.9 Base Rent....................................................... 1
1.10 Early Occupancy................................................. 2
1.11 Additional Rent................................................. 2
1.12 Base Year....................................................... 2
1.13 Security Deposit................................................ 2
1.14 Parking......................................................... 2
1.15 Landlord's Payment Address...................................... 2
1.16 Notice Addresses................................................ 2
1.17 Permitted Uses.................................................. 2
1.18 Landlord's Work................................................. 2
1.19 Tenant's Work................................................... 2
1.20 Guarantor....................................................... 3
1.21 Exhibits........................................................ 3
2. PREMISES.............................................................. 3
2.1 Acceptance of Premises.......................................... 3
2.2 Tenant Allowance................................................ 3
2.3 Tenant's Right of First Refusal................................. 3
3. LEASE TERM............................................................ 4
3.1 Duration of Lease Term.......................................... 4
3.2 Extension Option................................................ 4
3.3 Base Rent During Option Term.................................... 4
3.4 Tenant Termination Right........................................ 5
3.5 Confirmation of Commencement Date............................... 5
3.6 Surrender of Premises........................................... 5
3.7 Holding Over With Consent....................................... 5
3.8 Holding Over Without Consent.................................... 5
4. RENT.................................................................. 6
4.1 Payment......................................................... 6
4.2 Interest on Late Payments; Late Charge.......................... 6
4.3 Address for Payments............................................ 6
5. SECURITY DEPOSIT...................................................... 6
6. USES; COMPLIANCE WITH LAWS............................................ 6
6.1 Permitted Uses.................................................. 6
6.2 Duties and Prohibited Conduct................................... 7
6.3 Environmental, Health And Safety Laws........................... 7
7. SERVICES AND UTILITIES; REPAIRS AND MAINTENANCE....................... 8
7.1 Services and Utilities; Landlord's Obligations.................. 8
7.1.1 Additional Services Or Utilities......................... 9
7.2 Services and Utilities; Tenant's Obligations.................... 9
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
7.3 Interruption.................................................... 9
7.4 Landlord's Repair and Maintenance Obligations................... 9
7.5 Tenant's Repair and Maintenance Obligations..................... 10
8. ADDITIONAL RENT: OPERATING COSTS AND REAL ESTATE TAXES................ 10
8.1 Definitions..................................................... 10
8.1.1 Taxes.................................................... 10
8.1.2 Operating Costs.......................................... 10
8.1.3 Tenant's Share........................................... 11
8.2 Payment of Additional Rent for Estimated Increases in Operating
Costs and Taxes................................................. 11
8.3 Actual Operating Costs and Taxes................................ 11
8.4 Determinations.................................................. 12
8.5 Tenant's Personal Property Taxes................................ 12
8.6 Tenant's Utility and Janitorial Charges......................... 12
9. IMPROVEMENTS AND ALTERATIONS.......................................... 13
10. ACCESS................................................................ 13
11. DAMAGE OR DESTRUCTION................................................. 13
11.1 Damage and Repair............................................... 13
11.2 Destruction During Last Year of Term............................ 14
11.3 Business Interruption........................................... 14
11.4 Tenant Improvements............................................. 14
11.5 Express Agreement............................................... 14
12. WAIVER OF SUBROGATION................................................. 14
13. INDEMNIFICATION....................................................... 14
14. INSURANCE............................................................. 15
14.1 Liability Insurance............................................. 15
14.2 Property Insurance.............................................. 15
14.3 Insurance Policy Requirements................................... 16
15. ASSIGNMENT AND SUBLETTING............................................. 16
15.1 Assignment or Sublease.......................................... 16
15.2 Documentation and Expenses...................................... 16
15.3 Transferee Obligations.......................................... 17
16. SIGNS................................................................. 17
17. LIENS................................................................. 17
18. BANKRUPTCY............................................................ 17
18.1 Assumption of Lease............................................. 17
18.1.1 Definition of Adequate Assurances....................... 18
18.2 Assignment of Lease............................................. 18
18.3 Adequate Protection............................................. 18
19. DEFAULT............................................................... 18
19.1 Cumulative Remedies............................................. 18
19.2 Tenant's Default; Right to Cure................................. 18
19.3 Landlord's Rights And Remedies.................................. 19
19.3.1 Termination of Lease.................................... 19
19.3.2 Re-entry of the Premises................................ 19
19.3.3 Termination After Reentry............................... 19
</TABLE>
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<TABLE>
<S> <C>
19.4 Landlord's Damages.............................................. 19
19.4.1 Delinquent Rent......................................... 19
19.4.2 Rent After Termination Until Judgment................... 19
19.4.3 Rent After Judgment..................................... 19
19.4.4 Leasing Concessions..................................... 19
19.4.5 Other Compensation...................................... 20
19.4.6 Additional or Alternative Damages....................... 20
19.5 Fixtures........................................................ 20
19.6 No Waiver....................................................... 20
19.7 Waiver of Notice................................................ 20
19.8 Waiver of Redemption Rights..................................... 20
19.9 Default by Landlord............................................. 21
20. SUBORDINATION AND ATTORNMENT.......................................... 21
21. REMOVAL OF PROPERTY................................................... 21
22. CONDEMNATION.......................................................... 21
22.1 Entire Taking................................................... 22
22.2 Constructive Taking of Entire Premises.......................... 22
22.3 Partial Taking.................................................. 22
22.4 Awards and Damages.............................................. 22
23. NOTICES............................................................... 22
24. COSTS AND ATTORNEYS' FEES............................................. 22
25. LANDLORD'S LIABILITY.................................................. 22
26. LANDLORD'S CONSENT.................................................... 23
27. ESTOPPEL CERTIFICATES................................................. 23
28. RIGHT TO PERFORM...................................................... 23
29. PARKING............................................................... 23
30. AUTHORITY............................................................. 23
31. GENERAL............................................................... 24
31.1 Headings........................................................ 24
31.2 Heirs and Assigns............................................... 24
31.3 No Brokers...................................................... 24
31.4 Entire Agreement................................................ 24
31.5 Severability.................................................... 24
31.6 Force Majeure................................................... 24
31.7 Right to Change Public Spaces................................... 24
31.8 Governing Law................................................... 24
31.9 Building Directory.............................................. 24
31.10 Building Name................................................... 24
31.11 Quiet Enjoyment................................................. 24
31.12 Survival........................................................ 25
</TABLE>
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OFFICE LEASE AGREEMENT
THIS OFFICE LEASE AGREEMENT ("Lease") is made this 24 day of April, 1997
("Effective Date"), between Sabey Corporation, a Washington corporation, as
Landlord, ("Landlord"), and Exodus Communications, Inc., a California
corporation, as Tenant, ("Tenant"). The parties agree as follows:
1. FUNDAMENTAL LEASE PROVISIONS; DEFINITIONS; EXHIBITS. The capitalized
terms set forth below in this Section 1 shall have the meanings provided in this
Section 1, unless otherwise specifically modified by provisions of this Lease.
1.1 BROKER. "Broker" shall mean Cushman and Wakfield Inc. A
commission shall be paid by Landlord to Broker pursuant to a separate agreement
between Landlord and Broker.
1.2 BUILDING. "Building" shall mean the structure commonly known as
Riverfront Technical Park. The Building is situated on a portion of the real
property legally described in Exhibit A and has a postal address of 2811 S.
102nd Street, Seattle, Washington 98168. The Building together with the real
property described above shall constitute the "Property."
1.3 PREMISES. The "Premises" shall mean the space consisting of
approximately 12,000 net rentable square feet located on the 1st floor of the
Building and depicted on the floor plan attached to this Lease as Exhibit B,
subject to recalculation in accordance with Section 2. The Premises shall
include the tenant improvements, if any, described in Exhibit C.
1.4 TENANT'S SHARE. "Tenant's Share" shall mean "Tenant's Share of
the Property". "Tenant's Share of the Property" shall mean six and 99/100
percent (6.99%), calculated by dividing the net rentable area of the Premises by
the net rentable area of the Building (approximately 171,718 net rentable square
feet. The Building load factor is seven and 90/100 percent (7.90%). In the event
the rentable area of the Premises or Building is altered or recalculated in
accordance with Section 2, Landlord shall adjust Tenant's Share of the Building
to properly reflect such event. Landlord's adjustment of such Tenant's Share
shall be final.
1.5 LEASE YEAR. "Lease Year" shall mean the twelve-month period
commencing January 1 and ending December 31.
1.6 COMMENCEMENT DATE. Subject to Section 3.1, "Commencement Date"
shall mean July 1, 1997.
1.7 EXPIRATION DATE. "Expiration Date" shall mean the date that is
ten (10) years after the Commencement Date, unless sooner terminated or extended
in accordance with this Lease.
1.8 TERM. "Term" shall mean a period of Ten (10) years, commencing on
the Commencement Date and terminating on the Expiration Date, unless sooner
terminated or extended in accordance with this Lease.
1.9 BASE RENT. "Base Rent" from the Commencement Date through the
end of the 24th month shall mean the net rentable square feet multiplied by
$12.50 per square foot per year, based on 12,000 rentable square feet of
Premises, (Twelve thousand five hundred and 00/100 Dollars ($12,500.00) per
month). "Base Rent" from the start of month 25 through the end of month 60 shall
mean the net rentable square feet multiplied by $13.50 per square foot per year,
based on 12,000 rentable square feet of Premises (Thirteen thousand five hundred
and 00/100 Dollars ($13,500.00) per month). "Base Rent" from the start of month
61 through the Expiration Date shall mean the net rentable square feet
multiplied by $14.00 per square foot per
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year, based on 12,000 rentable square feet of Premises ( Fourteen thousand and
00/100 Dollars ($14,000.00) per month). Prior to the Commencement Date, the net
rentable square feet shall be recalculated in accordance with Section 2. Base
Rent shall be payable as provided in Section 4.
1.10 EARLY OCCUPANCY. The tenant will be allowed to occupy any square
feet they feel is ready for occupancy before the commencement date. Early
Occupancy shall mean any use of the space not directly related to the
installation of equipment or constructing the premises. "Base Rent" will be
calculated by multiplying the actual occupied square feet by $12.50 per rentable
square foot. Tenant will be responsible for all "Additional Rent" as described
in Section 8 on the portion of the space that they occupy early.
1.11 ADDITIONAL RENT. "Additional Rent" shall mean the amounts
described in Section 8 as Real Property Taxes, Personal Property Taxes,
Operating Costs, and all other amounts except Base Rent which are payable by
Tenant under this Lease.
1.12 BASE YEAR. The Base Year shall mean 1997.
1.13 SECURITY DEPOSIT AND MINIMUM NET WORTH REQUIREMENT. "Security
Deposit" shall mean Thirteen thousand and 00/100 Dollars ($13,000.00). The
Security Deposit shall be deposited with Landlord in accordance with Section 5.
1.14 PARKING. Subject to Section 29.
1.15 LANDLORD'S PAYMENT ADDRESS. "Landlord's Payment Address" shall
mean: Sabey Corporation, Dept. 599, P.O. Box 34935, Seattle, Washington
98124-1935.
1.16 NOTICE ADDRESSES.
If to Landlord: Sabey Corporation
101 Elliott Avenue W., Suite 330
Seattle, WA 98119
Attn: Executive Vice President
with a copy to: Sabey Corporation
101 Elliott Avenue W., Suite 330
Seattle, WA 98119
Attn.: Facilities Manager
If to Tenant: Exodus Communications, Inc.
2350 Mission College Blvd.
Regency Plaza - Suite 705
Santa Clara, CA 95054
Attn: Dick Stoltz
with a copy to: Mr. Fred Gregorus, Esq.
Fenwick & West, LLP
Two Palo Alto Square
Palo Alto, CA 94306
1.17 PERMITTED USES. "Permitted Uses" shall mean Tenant's use of the
Premises for a computer operations center, and general office purposes, subject
to the terms and conditions of this Lease.
1.18 LANDLORD'S WORK. "Landlord's Work" shall mean the improvements
to be made by Landlord in accordance with Exhibit C.
1.19 TENANT'S WORK. "Tenant's Work" shall mean the improvements, if
any,
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to be made by Tenant in accordance with Exhibit C.
1.20 GUARANTOR. Intentionally omitted.
1.21 EXHIBITS. The following exhibits or riders are attached to this
Lease and are incorporated into this Lease by this reference:
(a) Exhibit A - Legal Description
(b) Exhibit B - Floor Plan of Premises
(c) Exhibit C - Tenant Improvements
(d) Exhibit C-1 - Tenant's Removable Property
(e) Exhibit D - Rules And Regulations
(f) Exhibit E - Parking Area
(g) Exhibit F - General Conditions for Construction
2. PREMISES. Landlord hereby leases to Tenant, and Tenant hereby leases
from Landlord, the Premises described in Section 1.3 together with the tenant
improvements described on Exhibit C ("Tenant Improvements") and together with
rights of ingress and egress over public and common areas in the Building and on
the land legally described on Exhibit A ("Land"). Tenant's lease of the Premises
shall be subject to all of the terms and conditions of this Lease. The Premises,
Building, Land, and the improvements on the Land other than the Building, are
sometimes collectively referred to in this Lease as the "Property".
Landlord shall complete Landlord's Work in accordance with Exhibit C.
Landlord represents that the Building Improvements, upon substantial completion,
shall materially comply with all applicable codes, regulations, ordinances and
laws including without limitation the American With Disabilities Act.
Notwithstanding anything to the contrary in this Lease, Tenant shall provide
Landlord and Landlord's contractor with such access to the Premises as may be
required by Landlord and Landlord's contractor to efficiently perform Landlord's
Work. Tenant acknowledges and agrees that Landlord shall have no obligation to
improve the Premises except as may be expressly set forth on Exhibit C.
On or before the Commencement Date, Landlord shall recalculate the "net
rentable square feet" of the Premises. The recalculated net rentable square feet
shall be certified by Tenant's architect prior to the Commencement Date. Net
rentable square feet shall be calculated in accordance with BOMA standards,
utilizing a load factor of Seven and 90/100 percent (7.9%) for the Building
which may be changed upon the alteration of tenant spaces or building common
areas before the confirmation date letter to be sent according to section 3.5.
2.1 ACCEPTANCE OF PREMISES. Landlord and Tenant hereby agree that
Landlord's Work as set forth in Exhibit C shall be constructed by Landlord's
contractor, Sabey Construction Inc. Tenant's acceptance of the Premises shall be
"as-is" as of the date the Tenant commences construction on the Premises.
Within five (5) days ("Inspection Period") after the date Landlord informs
Tenant of such substantial completion of Landlord's Work, Tenant shall make such
inspection of the Premises as Tenant deems appropriate. Except as otherwise
specified by Tenant in writing to Landlord within the Inspection Period, Tenant
shall be deemed to have accepted the Landlord's Work in its condition and except
for latent defects, as of such date of substantial completion. If, as a result
of such inspection, Tenant discovers items of Landlord's Work of a nature
commonly found on a "punch list" (as such term is commonly used in the
construction industry), which it reasonably believes are not completed in
accordance with Exhibit C, Tenant shall notify Landlord of such items prior to
the expiration of the Inspection Period. Landlord shall promptly complete repair
of all punch list items identified in Tenant's notice which it reasonably
believes require repair. The existence of such punch list items shall not
postpone the Commencement Date or the obligation of Tenant to pay Base Rent or
Additional Rent.
2.2 TENANT ALLOWANCE. Intentionally Deleted.
2.3 TENANT'S RIGHT OF FIRST REFUSAL. Landlord grants Tenant the
right of first
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refusal during the Term of this Lease to lease the space consisting of
approximately 15,006 net rentable square feet and depicted on Exhibit B as the
First Refusal Space ("First Refusal Space") that Landlord proposes to lease,
subject to the terms and conditions of this Section 2.3. If Tenant is not then
in default under this Lease beyond applicable notice and cure periods and if
Landlord receives a bona fide offer to lease all or part of the First Refusal
Space (the "Offer"), then Landlord shall notify Tenant in writing ("Landlord's
Offer Notice") of the lease term, base rent and additional rent and all other
provisions of the Offer. Within ten (10) days of Tenant's receipt of Landlord's
Offer Notice, Tenant shall notify Landlord in writing ("Tenant's Offer Notice")
of Tenant's election to lease that portion of the First Refusal Space from
Landlord on the lease term, base rent and additional rent provisions of the
Offer. All of the other terms and provisions of such lease shall be the same as
those contained in this Lease (but not including the Tenant Improvement
Allowance described in Section 2.2), to the extent applicable. If Tenant fails
to give Tenant's Offer Notice as provided in this Section 2.3, then Tenant shall
be deemed to have waived its right of first refusal with respect to the First
Refusal Space offered. Time is of the essence with respect to this paragraph. If
Tenant elects not to lease the First Refusal Space, then Landlord shall have the
right to lease the First Refusal Space described in the Offer on any combination
of base rent and additional rent that in the aggregate is equal to or greater
than the base rent and additional rent contemplated by the Offer. In the event
Tenant assigns or subleases all or more than one-half (1/2) of the Premises,
Tenant's right of first refusal under this Section shall automatically terminate
as to such assignee or subtenant.
2.4 RELOCATION OR TERMINATION. Intentionally Deleted.
3. LEASE TERM.
3.1 DURATION OF LEASE TERM. Tenant's lease of the Premises shall
commence on the Commencement Date and terminate on the Expiration Date or such
earlier or later date as may be provided for under this Lease. Notwithstanding
anything to the contrary in Section 1.6, if Landlord is unable to deliver
possession of the Premises to Tenant with Landlord's Work constructed by
Landlord's contractor substantially completed in accordance with Exhibit C on
the date specified in Section 1.6 and such delay (to the extent of such delay)
is due to no fault on the part of Tenant, then the Commencement Date shall be
the earlier of the date on which Tenant first occupies the Premises or the date
that is Fifteen (15) days from the date of Landlord's written notice to Tenant
of substantial completion of Landlord's Work and Tenant Improvements constructed
by Landlord's contractor provided for in Section 2, above.
3.2 EXTENSION OPTION. Provided that Tenant is in compliance with all
the terms and conditions of this Lease or not in default beyond any applicable
cure period both at the time of Tenant's exercise of this option and at the time
the Option Term is scheduled to commence, Tenant shall have the option("Option")
to extend the term of this Lease for two (2) additional periods of five (5)
years (the "Option Term") on the same terms and conditions of this Lease as are
provided for in the initial Term, except as provided below in this Section 3.2
or in Section 3.3 and without any free rent periods or Tenant Improvement
allowances. The Option Term shall commence upon the date of expiration of the
initial Term, or first option term, of this Lease. To exercise its Option,
Tenant must give written notice to Landlord that Tenant is exercising its Option
at least six (6) months before the date of expiration of the initial Term, or
first option term. If, in Landlord's reasonable discretion, Landlord determines
that the creditworthiness of Tenant is materially less than the creditworthiness
of Tenant as of the Lease's execution date, Landlord may nullify Tenant's
exercise of its Option by written notice to Tenant. Tenant acknowledges and
agrees that notwithstanding anything to the contrary in this Lease, the right to
exercise the Option shall not extend to any assignee or subtenant of Tenant, or
to any space assigned or subleased by Tenant, and any attempt to exercise the
Option by any such assignee or subtenant, or by Tenant in connection with such
assigned or subleased space, shall be deemed null and void. Tenant further
acknowledges and agrees that the amount of the Security Deposit payable by
Tenant for the Option Term shall be increased to an amount equal to the first
monthly installment of Fixed Rent payable by Tenant during the Option Term.
3.3 BASE RENT DURING OPTION TERM. In the event that Tenant elects
to exercise its Option to extend the Term of this Lease in accordance with the
terms of Section 3.2, the Base Rent for the Option Term shall be equal to the
then-market rate for similarly improved
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space in comparable buildings for comparable use in the South Seattle/Tukwila
region; provided,however, that in no event shall the Base Rent during the Option
Term be less than the Base Rent for the last year of the initial Lease Term. The
adjusted Base Rent shall commence on and be payable on the first day of the
Option Term and shall continue thereafter throughout the Option Term.
3.4 TENANT TERMINATION RIGHT. Subject to the terms and conditions
of this Section 3.4, Tenant shall have a right to terminate this Lease at the
end of the 60th month of this Lease. Tenant's termination right under this
Section 3.4 may be exercised only by Tenant providing Landlord with written
notice, one hundred eighty (180) days prior to the end of the 60th month, of
this lease, of its intent to exercise its termination right and payment to
Landlord of a termination fee in the amount equal to the unamortized (at 10%)
costs of the Commission and Landlord's costs to provide the demising walls and
to replace or bring in the 1,200 amps of power to be provided in accordance with
Exhibit C, plus 5 months base rent. Landlord will provide Tenant such costs upon
completion of Landlord's Work in accordance with Exhibit C. Tenant's right to
terminate the Lease under this Section 3.4 shall be wholly conditioned upon
Tenant not being in default, after expiration of any applicable notice or cure
periods, under this Lease either at the time of Tenant's exercise of its
termination right or on the date of Tenant's termination of the Lease under this
Section 3.4. In the event Tenant does not exercise its termination right as set
forth in this Section 3.4, then Tenant's termination right shall expire
automatically and have no further force or effect without necessity of notice or
other action by Landlord. Any purported exercise by Tenant of its termination
right other than strictly in accordance with this Section 3.4 shall be void and
have no force or effect.
3.5 CONFIRMATION OF COMMENCEMENT DATE. Landlord shall confirm the
Commencement Date to Tenant in writing within a reasonable time after delivery
of the Premises in accordance with this Lease.
3.6 SURRENDER OF PREMISES. Subject to Section 12, Tenant shall
promptly and peacefully surrender the Premises to Landlord upon the termination
of the Lease Term in as good a condition as when received by Tenant from
Landlord and/or as thereafter improved, if applicable, normal wear and tear
excepted. Unless Landlord expressly provides otherwise in writing to Tenant,
upon the expiration or termination of this Lease, all improvements and additions
to the Premises except those items set forth on Exhibit C-1 shall be deemed
property of Landlord and shall not be removed by Tenant from the Premises.
Tenant shall be solely responsible for, and shall repair, all damage to the
Property arising out of its surrender of the Premises. In addition to all other
requirements under this Lease, Tenant shall remove any Hazardous Substances, as
such term is defined in Section 6.3, on the Premises which were placed on the
Premises by Tenant, its employees, agents, contractors and/or invitees, prior to
its surrender and vacation of the Premises.
3.7 HOLDING OVER WITH CONSENT. If Tenant remains in possession of
the Premises after termination or expiration of the Lease Term with Landlord's
written permission, such tenancy shall be deemed a month-to-month tenancy which
may be terminated by either party upon thirty (30) days notice. During such
tenancy, Tenant shall be bound by all of the terms, covenants and conditions in
this Lease so far as applicable, except that the Base Rent shall be increased to
the greater of (i) the then-quoted rates for similar space in the Building or
(ii) one hundred fifty percent (150%) multiplied by the sum of the monthly
installment of Base Rent and Additional Rent payable for the last month of the
Lease Term.
3.8 HOLDING OVER WITHOUT CONSENT. If Tenant remains in possession of
the Premises after the termination or expiration of the Lease Term without
Landlord's prior written consent, Tenant shall become a tenant at sufferance
only, subject to all the provisions of this Lease so far as applicable, except
that Base Rent shall be increased to an amount equal to two hundred percent
(200%) multiplied by the sum of the monthly installments of Base Rent and
Additional Rent payable by Tenant during the last month of the Lease Term,
prorated on a daily basis. Acceptance by Landlord of Rent after the termination
of the Lease Term shall not result in a renewal or extension of this Lease. The
provisions of Section 3.7 and this Section 3.8 are in addition to, and shall not
act as a waiver of or otherwise affect, Landlord's right of re-entry or any
other rights of Landlord under this Lease or as provided by law or in equity. If
Tenant fails to
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surrender the Premises upon the termination of the Lease Term, despite
Landlord's demand to do so, Tenant shall indemnify, defend and hold Landlord
harmless from and against all loss and liability, including, without limitation,
any claim made by any succeeding tenant founded on, or resulting from, such
failure to surrender, including without limitation, any attorneys' fees or costs
associated therewith.
4. RENT.
4.1 PAYMENT. Tenant shall pay Landlord the monthly installments of
Base Rent provided in Section 1.9 and Additional Rent provided in Section 1.11
in lawful money of the United States, in advance, on the Commencement Date and
thereafter on or before the first day of each month throughout the Lease Term.
Base Rent and Additional Rent shall be paid by Tenant without notice or demand,
deduction, abatement, or offset, except as expressly provided herein. Base Rent
and Additional Rent for any partial month at the beginning or end of the Lease
Term shall be prorated in proportion to the number of days in such month. Base
Rent and Additional Rent are collectively referred to in this Lease as "Rent."
4.2 INTEREST ON LATE PAYMENTS; LATE CHARGE. If any Base Rent or
Additional Rent is not paid on the due date thereof: (i) such overdue amounts
shall bear interest at a rate equal to three (3) percentage points above the
prime rate of interest stated from time to time by Seattle-First National Bank
or its successor, or, in the absence of an established prime rate, five (5)
percentage points over that bank's rate for one year certificates of deposit,
but not in excess of the highest lawful rate permitted under applicable laws,
calculated from the original due date thereof to the date of payment; and (ii)
Tenant shall pay Landlord a late charge equal to five percent (5%) of such
overdue amount. The parties hereby agree that such late charge represents a fair
and reasonable estimate of the costs Landlord will incur by reason of late
payment by Tenant, the exact amount of which would be difficult to ascertain.
Acceptance by Landlord of any partial amounts due under this Section 4 shall in
no event constitute a waiver of Tenant's default with respect to any overdue
amount, nor prevent Landlord from exercising any of its other rights and
remedies granted under this Lease or by law or in equity.
4.3 ADDRESS FOR PAYMENTS. Tenant shall pay all Rent to Landlord at
Landlord's Payment Address, or at such other place as may be designated by
Landlord from time to time by written notice to Tenant at least thirty (30) days
prior to the next ensuing payment date.
5. SECURITY DEPOSIT. As security for the full and faithful performance
of every covenant and condition of this Lease to be performed by Tenant, Tenant
shall pay to Landlord the Security Deposit specified in Section 1.13. If Tenant
defaults with respect to any covenant or condition of this Lease, including but
not limited to, the payment of Base Rent or Additional Rent, Landlord may apply
all or any part of the Security Deposit to the payment of any sum in default or
payment of any other sum which Landlord may be required or may in its reasonable
discretion deem necessary to spend or incur by reason of Tenant's default. In
such event, Tenant shall deposit with Landlord the amount so applied within five
(5) days of written demand from Landlord. If Tenant shall have fully complied
with all of the covenants and conditions of this Lease the amount of the
Security Deposit then held by Landlord shall be repaid to Tenant (or, at
Landlord's option, to the last assignee of Tenant's interest under this Lease)
within thirty (30) days after the expiration or sooner termination of this
Lease. In the event of Tenant's default under this Lease, Landlord's right to
retain the Security Deposit shall be deemed to be in addition to any and all
other rights and remedies available to Landlord under this Lease, at law or in
equity. Landlord shall not be required to keep any Security Deposit separate
from its general funds and Tenant shall not be entitled to any interest on the
Security Deposit.
6. USES; COMPLIANCE WITH LAWS.
6.1 PERMITTED USES. The Premises are to be used only for the
Permitted Uses, and for no other business or purpose without the prior written
consent of Landlord, which consent may be withheld if Landlord, in its
reasonable discretion, determines that any proposed use is inconsistent with or
detrimental to the maintenance and operation of the Building as a similar office
building or is inconsistent with any restriction on use of the Property
contained in
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any lease, mortgage or other agreement or instrument by which the Landlord may
be bound or to which any of the Property may be subject.
6.2 DUTIES AND PROHIBITED CONDUCT. Notwithstanding anything to the
contrary in this Lease, Tenant shall not commit any act that will increase the
then-existing rate of insurance on the Building without Landlord's prior written
consent. Tenant shall promptly pay upon demand the amount of any increase in
insurance rates caused by the Permitted Uses or by any act or acts of Tenant or
its employees, agents or representatives. Tenant shall not commit or allow to be
committed any waste upon the Premises, or any public or private nuisance or
other act which disturbs the quiet enjoyment of any other tenant of the Property
or which is unlawful. Tenant shall not, without the written consent of Landlord,
use any apparatus, machinery or device in or about the Premises, or act in any
way, which will cause any substantial noise, or any vibration, fumes, or
releases of Hazardous Substances into the surrounding environment. If any of
Tenant's office machines, equipment or activities should disturb the quiet
enjoyment of any other tenant in the Building, cause any substantial noise, or
cause any vibration, fumes or releases of Hazardous Substances, then Tenant, at
Tenant's sole expense, shall provide adequate insulation or take such other
action as may be necessary to eliminate such disturbance, noise, vibration,
fumes or releases. Tenant, at Tenant's expense, shall comply with all laws,
rules, regulations, orders, ordinances and permits relating to the Premises, or
its use or occupancy of the Premises, and shall observe such rules and
regulations as may be adopted by Landlord and made available to Tenant from time
to time. This Lease shall be subject to all applicable zoning ordinances and to
all municipal, county, state and federal laws and regulations governing or
regulating the use of the Premises.
6.3 ENVIRONMENTAL, HEALTH AND SAFETY LAWS. Without limiting Tenant's
obligations under this Section 6, Tenant in the exercise of its rights and the
performance of its obligations under this Lease shall comply, at Tenant's
expense, with all local, state, or federal laws, rules, regulations, ordinances,
orders and permits now existing, or as hereafter enacted, amended, or issued
concerning environmental, health, or safety matters (collectively, the
"Environmental Laws"). Tenant shall not use the Premises for, or permit anything
to be done in or about the Property which may subject Landlord, any guarantor,
or any mortgagee under any mortgage covering the Property, to liability for
remediation costs or other damages or penalties under any Environmental Laws
resulting from Tenant's use of, or conduct on, the Property, including without
limitation, the use, generation, transportation, management, handling,
treatment, storage, manufacture, emission, release, disposal or deposit of any
radioactive material, hazardous or toxic wastes, hazardous or toxic substances,
any material containing hazardous wastes or hazardous substances (except as they
occur in normal office products or household cleaning products), or any other
pollutant, contaminant, human pathogen or infectious agent as such terms may now
or in the future be defined in any Environmental Laws (collectively, "Hazardous
Substances"), on the Property, adjacent surface waters, soils, underground
waters, or air.
Landlord shall have the right at all reasonable times upon notice to Tenant
to conduct environmental investigations, including the taking of samples, for
the purpose of detecting or measuring the presence of Hazardous Substances on
the Property. Tenant shall keep Landlord continuously informed by written notice
of all Hazardous Substances which Tenant, or Tenant's employees, agents,
representatives, or contractors, generates, stores or otherwise allows on the
Property. Tenant shall provide Landlord with copies of all documents received or
prepared by Tenant concerning any release of a Hazardous Substance at the
Property, all documents Tenant receives or prepares in connection with any
violation, or alleged violation, of an Environmental Law by Tenant, and all
reports or other documents Tenant is required to provide any governmental
authority under any Environmental Law concerning any Hazardous Substance. Upon
request by Landlord, Tenant shall provide Landlord with all other information
which Landlord reasonably deems necessary or useful for the purpose of
determining whether Tenant is in compliance with all Environmental Laws and
whether the Property, or any part of the Property, is contaminated by any
Hazardous Substances. If Tenant or the Premises is in violation of any
Environmental Law, or in the event of a release of Hazardous Substances into or
on the Property or adjacent surface waters, soils, underground waters, or air,
Tenant shall (i) immediately notify Landlord in writing of such occurrence and
the action necessary to correct or mitigate such occurrence, and (ii) take such
action as is necessary to mitigate and correct such
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violation or release. Provided, however, Landlord reserves the right, but not
the obligation, to enter the Premises, to act in place of the Tenant (and Tenant
hereby appoints Landlord as its agent for such purposes) and to take such action
as Landlord deems necessary to ensure compliance or to mitigate the violation,
at Tenant's expense. If Landlord has a reasonable belief that Tenant is in
violation of any Environmental Law, or that Tenant's actions or inaction
presents a threat of violation or a threat of damage to the Property, Landlord
reserves the right to enter the Premises and take such corrective or mitigating
action as Landlord reasonably deems necessary. All costs and expenses incurred
by Landlord in connection with any such actions shall become immediately due and
payable by Tenant upon presentation of an invoice therefor.
Tenant shall not conduct or permit others to conduct environmental testing
on the Premises without first obtaining Landlord's written consent. Tenant shall
promptly inform Landlord of the existence of any environmental study,
evaluation, investigation or results of any environmental testing conducted on
the Premises whenever the same becomes known to Tenant and Tenant shall provide
copies to Landlord, upon request by Landlord and at no cost to Landlord.
Notwithstanding the foregoing, in no event shall Tenant be responsible for or
liable to Landlord for any Hazardous Substances located in the Premises that
existed or were released upon the Premises prior to the Commencement Date of
this Lease. In addition, Landlord hereby agrees to indemnify Tenant for all
remediation costs and other damages resulting form any spill or discharge of
hazardous substances caused by the gross negligence of Landlord to the full
extent of Landlord's negligence. Landlord represents and warrants that to the
best of its knowledge, the Premises are free of any Hazardous Substances.
7. SERVICES AND UTILITIES; REPAIRS AND MAINTENANCE.
7.1 SERVICES AND UTILITIES; LANDLORD'S OBLIGATIONS.
Landlord warrants that the Building's mechanical, electrical and plumbing
systems are designed and suitable for the delivery of heating, ventilation, air-
conditioning ("HVAC"), electrical and water (including sewer) services
sufficient for standard office use. Landlord shall supply the Premises with HVAC
(at 5 watts per square foot), electricity (at 8 watts per square foot connected
load) and, if applicable, water sufficient for standard office use, the cost of
which shall be paid by the Tenant in accordance with Section 8.6. HVAC service
will be limited to 7:00 a.m to 6:00 p.m on weekdays (excluding holidays
recognized by Landlord) ("Normal Business Hours"), except for additional service
as provided for in this Lease. Landlord shall supply Landlord's standard
Building and Property security and fire monitoring services and elevator
service, Landlord's standard trash removal services (excluding disposal of
Hazardous Substances or medical or biological waste) from the Building
compactor, bulb replacement services for Building standard light fixtures, and
Landlord's standard exterior window washing services for Premises' windows.
Landlord shall also provide any janitorial services to the Premises if so
requested by tenant.
Any service or utility which is separately metered to the Premises by the
utility provider shall be billed directly to Tenant and paid directly by Tenant
to the utility provider. The Base rental rate excludes the cost of janitorial
services to the Premises, and utilities to the Premises, including the estimated
utilities to supply the Premises with building standard HVAC. All other services
or utilities which are required to be provided by Landlord under Section 7.1
which are not separately metered by the service or utility provider shall be
included within "Operating Costs" and shall be paid by Tenant each month as
provided in Section 8. The cost for any services or utilities which are not
separately metered or sub-metered shall be based on Landlord's reasonable
estimate of Tenant's consumption of such utilities. If in the Landlord's
reasonable opinion the Tenant's consumption of any utility is extraordinary,
Landlord shall be entitled to install, maintain and operate, at Tenant's cost, a
monitoring/ metering system(s) in the Premises to measure Tenant's consumption
of water, electricity (including electricity to Tenant's signage, if any) HVAC
or other utilities or services, or to measure the added demands on the Premises
electrical or HVAC systems resulting from Tenant's equipment or lights,
including without limitation, Tenant's improvements pursuant to Exhibit C.
Landlord's obligation to provide the services and utilities described in
this Section 7.1 is subject to Section 11 (Damage And Destruction) and Section
22 (Condemnation).
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7.1.1 ADDITIONAL SERVICES OR UTILITIES. The Building standard
mechanical system is designed to accommodate standard office use heating loads
generated by lights or equipment using up to Five (5) watts per square foot.
Before installing fixtures, lights or equipment in the Premises which in the
aggregate exceed such amount, or which otherwise consume or require services or
utilities exceeding standard office-type levels, Tenant shall obtain the written
permission of Landlord. Landlord may refuse to grant such permission unless
Tenant agrees to pay Landlord's costs, including Landlord's administrative fee,
for installation of supplementary air conditioning capacity or electrical
systems as necessitated by such equipment or lights. In addition, Tenant shall
pay Landlord as Additional Rent the amount estimated by Landlord (including
Landlord's administrative fee) as the cost of furnishing services or utilities
for the operation of such equipment or lights and the cost of operation and
maintenance of any supplementary air conditioning units necessitated by Tenant's
use of such equipment or lights.
Landlord may restrict access to the Building in accordance with the
Building's security system, provided that Tenant shall have at all times during
the term of this Lease (24 hours of all days) reasonable access to the Premises.
If after request by Tenant, Landlord furnishes HVAC or other services or
utilities in addition to the utilities or services required to be provided by
Landlord under this Lease, including without limitation, furnishing utilities or
services at times other than Normal Business Hours or in amounts exceeding
standard office use, then the cost of such non-standard or additional services
or utilities, as reasonably established by Landlord, shall be paid by Tenant as
Additional Rent.
7.2 SERVICES AND UTILITIES; TENANT'S OBLIGATIONS. Tenant shall be
solely responsible for providing, and shall pay directly, all charges for
janitorial services to the Premises and for any security services desired by
Tenant in addition to Landlord's standard Building and site security services.
Tenant shall be solely responsible for providing, at Tenant's cost, any backup
electricity generator desired by Tenant. It is understood that except as
provided in Sections 7.1 or 7.4, Landlord shall not be required to provide any
services or utilities to Tenant, and Tenant shall make all necessary
arrangements to have such services and utilities billed directly to Tenant and
paid directly by Tenant. Tenant shall pay its share, as reasonably determined by
Landlord, of any unique services or equipment used by Tenant which are shared by
other tenants of the Building, such as generators, dilution tanks and air
compressors.
7.3 INTERRUPTION. Landlord shall not be liable for any loss, injury
or damage to persons or property caused by or resulting from any variation,
interruption, or failure of services or utilities to be provided by Landlord
under this Lease due to any cause whatsoever, including without limitation,
Landlord's failure to make any repairs or perform any maintenance required to be
performed by Landlord under this Lease. However, if Landlord fails to make
repairs within a reasonable time after receiving written notice of the need for
repairs, Tenant shall be allowed to an abatement for rent to the extent said
failure to make said repairs interferes with Tenant's reasonable occupancy of
the Premises. No temporary variation, interruption or failure of services or
utilities to be provided by Landlord under this Lease incident to the making of
repairs, alterations or improvements, or due to accident, strike or conditions
or events beyond Landlord's reasonable control, shall be deemed an eviction of
Tenant or relieve Tenant from any of Tenant's obligations under this Lease.
7.4 LANDLORD'S REPAIR AND MAINTENANCE OBLIGATIONS. Except as provided
in Sections 9 (Improvements and Alterations by Tenant), 11 (Damage or
Destruction) or 22 (Condemnation), Landlord shall cause to be maintained in
reasonably good order and condition the Premises and the public and common areas
of the Property, such as lobbies, elevators, stairs, corridors, restrooms,
foundation, exterior walls and all aspects of the roof, except with respect to
Tenant's modification of any or all of these areas; provided, however, Tenant
shall be responsible for the cost of repair of damage occasioned by any act or
omission of Tenant or Tenant's officers, contractors, agents, invitees,
licensees or employees, subject to Section 12, Waiver of Subrogation. Landlord
shall maintain and repair the Premises, water, if applicable, and elevator
service at all times during the term of the Lease.
7.5 TENANT'S REPAIR AND MAINTENANCE OBLIGATIONS. Except for
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maintenance, replacements and repairs required to be made or provided by
Landlord under Sections 7.1 or 7.4, Tenant, at its sole cost and expense, shall
provide for the maintenance, repair and replacement within the Premises and all
built-in appliances and equipment which are in the Premises for Tenant's
exclusive use and any security systems or services desired by Tenant in addition
to any such systems or services as may be provided by Landlord under this Lease.
In performing its obligations under this Section 7, Tenant, at Tenant's
expense, shall comply with all Environmental Laws and all other applicable laws,
ordinances, codes, orders, rules or regulations of any governmental authority.
Tenant shall retain, and shall provide Landlord upon request, copies of Tenant's
maintenance and service contract(s). Except as provided in Section 9 in
connection with Alterations, before making or performing any work, repairs, or
replacement of any kind in the Premises, if such work shall affect the building
systems or costs of operation to Landlord then Tenant shall obtain Landlord's
prior written approval, which approval may be conditioned, on Tenant providing
Landlord with plans and specifications therefor, if applicable, which are
reasonably acceptable to Landlord. All work, maintenance, repairs and
replacements by Tenant under this Lease shall be performed by licensed
contractors acceptable to Landlord. Tenant shall provide Landlord with copies of
all contracts or purchase orders, for such work, maintenance, repairs and
replacements prior to having such work, maintenance, repairs or replacements
performed. Before installing any heavy equipment or fixtures in the Premises,
Tenant shall submit the plans and specifications therefor to Landlord for
Landlord's written approval.
8. ADDITIONAL RENT: OPERATING COSTS AND REAL ESTATE TAXES
8.1 DEFINITIONS. In addition to the Base Rent, Tenant shall pay to
Landlord each month as Additional Rent Tenant's Share of Taxes and of Operating
Costs as provided in this Section 8, using the following definitions:
8.1.1 TAXES. "Taxes" shall mean taxes on real property and
personal property, charges and assessments (or any installments thereof due
during the Lease Year) levied with respect to the Property, any improvements,
fixtures and equipment on the Property, and all other property of Landlord, real
or personal, used directly in the operation of the Property, and any taxes
levied or assessed (or any installment thereof due during the Lease Year) in
addition to or lieu of, in whole or in part, such real property or personal
property taxes, or any other tax upon leasing of the Property and/or Building or
rents collected, but not including any federal or state income, estate, business
and occupation, inheritance or franchise tax.
8.1.2 OPERATING COSTS. "Operating Costs" shall mean all expenses
other than Taxes paid or incurred by Landlord for obtaining services and
products for maintaining, operating, equipment replacement, and repairing the
Property, including without limitation, the Property public and common areas,
and the personal property used in conjunction therewith, and which shall
include, without limitation, the costs of Landlord performing its maintenance
and repair obligations under this Lease, depreciation and amortization of
capital improvements made subsequent to the initial development of the Property
or Building which are designed with a reasonable probability of enhancing the
health and/or safety of the Property or improving the operating efficiency of
the Property or Building, security services for the Property, fire alarm system
monitoring and testing, refuse collection, maintaining water, sewer, storm
drainage and other utility systems and services, common area electricity, gas
and other similar energy sources (excluding electricity for the Premises which
will be charged to the Tenant subject to paragraph 8.6 below), supplies, common
area janitorial and cleaning services, exterior window washing, landscape
planting, maintenance and irrigation, services of independent contractors
(including any market-rate management fees which may be or become payable to
third parties), compensation (including employment taxes and fringe benefits) of
all persons who perform duties in connection with the operation, maintenance and
repair of the Property and its equipment, the maintenance, resurfacing, repair
and striping of parking areas and curbs, downspouts and gutters, lighting and
outdoor facilities, premiums for Landlord's insurance, licenses, permits and
inspection fees, a management fee, reasonable legal, administrative and
accounting expenses, and any other expense or charge whether or not hereinabove
described, which in accordance with generally accepted accounting principles and
management practices would be considered an expense of maintaining, operating,
or repairing the Property, excluding
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or deducting, as appropriate costs of any special services rendered to
individual tenants (including Tenant) for which a special charge is collected
including, without limitation, any specially metered charges. Notwithstanding
the foregoing, Operating Costs shall not include the following:
(1) attorney's fees, accounting fees and other expenditures incurred in
connection with negotiations, disputes and claims of other tenants or occupants
of the Building, except as specifically otherwise provided in the Lease;
(2) costs directly attributable to or for the sole benefit of a tenant,
including Tenant;
(3) rental on ground leases or other underlying leases;
(4) cost of any work or services to the extent performed for any facility
other than the Building (provided Landlord shall have the right to reasonably
allocate the cost of services provided to more than one facility);
(5) costs due to Landlord's willful violation of any governmental rule or
authority;
(6) charitable or political contributions;
(7) any fees paid to related parties of Landlord which exceed the market
rate for similar services; and
(8) costs of refinancing or selling the property.
8.1.3 TENANT'S SHARE. "Tenant's Share" in connection with
Operating Costs and Taxes shall mean Tenant's Share of the Property multiplied
by actual or estimated, as the case may be, Operating Costs or Taxes allocated
to the Property, respectively. Notwithstanding anything to the contrary in this
Section 8.1.3, for purposes of the determination of Operating Costs, to the
extent Operating Costs vary depending upon occupancy type or level of the areas
served, such varying Operating Costs shall be adjusted so that such Operating
Costs shall not reflect material changes to the extent attributable to changes
in occupancy type and/or levels.
8.2 PAYMENT OF ADDITIONAL RENT FOR ESTIMATED INCREASES IN OPERATING
COSTS AND TAXES. Within ninety (90) days of the Commencement Date or the close
of each Lease Year, as applicable, or as soon thereafter as is practicable,
Landlord shall provide Tenant with a written statement of Tenant's Share of
estimated Operating Costs and increases in Operating Costs and Taxes for such
Lease Year over actual Operating Costs and Taxes for the Base Year. Tenant shall
pay 1/12 of the amount of such estimated Operating Costs, and increases in
Operating Costs and Taxes as Additional Rent as provided in Section 4 each month
during such Lease Year and until such time as Landlord provides Tenant with a
statement of estimated increases for the subsequent Lease Year. If at any time
or times during such Lease Year, it appears to Landlord that Tenant's Share of
actual Operating Costs and/or actual Taxes will vary from the estimated
Operating Costs and/or Taxes by more than five percent (5%) on an annual basis,
Landlord may, by written notice to Tenant, revise its estimate for such Lease
Year and Additional Rent payable by Tenant under this Section 8.2 for such Lease
Year shall be increased based on Landlord's revised estimate.
8.3 ACTUAL OPERATING COSTS AND TAXES. Landlord will make reasonable
efforts within ninety (90) days after the close of each Lease Year during the
Term hereof for which an estimated statement was delivered to Tenant pursuant to
Section 8.2, to deliver to Tenant a written statement ("Reconciliation
Statement") setting forth Tenant's Share of the actual Operating Costs and Taxes
paid or incurred by Landlord during the preceding Lease Year (or such prorated
portion of such Lease Year if this Lease commences or terminates on a day other
than the first or last day of a Lease Year, based on a 365-day Lease Year). If
the actual Operating Costs and/or Taxes shown on the Reconciliation Statement
for any Lease Year exceed estimated Operating Costs and/or Taxes paid by Tenant
to Landlord pursuant to Section 8.2, Tenant shall pay the excess to Landlord as
Additional Rent within thirty (30) days after the date
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of the Reconciliation Statement. If the Reconciliation Statement shows that
actual Operating Costs and/or Taxes are less than the estimated Operating Costs
and/or Taxes paid by Tenant to Landlord pursuant to Section 8.2, then the amount
of such overpayment shall be credited by Landlord to the next Additional Rent
payable by Tenant (or refunded to Tenant in the event of the termination or
expiration of this Lease within thirty (30) business days of the date of said
termination or expiration ). Notwithstanding anything to the contrary in this
Section 8.3, Tenant's Share of Operating Costs and Taxes for any partial Lease
Year at the end of the Term shall be as shown on Landlord's statement of
estimated Operating Costs and Taxes furnished to Tenant pursuant to Section 8.2.
8.4 DETERMINATIONS. The determination of actual and estimated
Operating Costs and Taxes shall be made by Landlord. Landlord or its agent shall
keep records in reasonable detail showing all expenditures made for the items
enumerated in this Section 8.
Tenant shall have the right at its own cost and expense to review and/or
inspect Landlord's records once in any calendar year with respect to any
Operating Costs shown on Landlord's annual reconciliation statement provided to
Tenant. Tenant shall give Landlord written notice of its intention to conduct
any such audit within ninety (90) days of the date of Landlord's annual
reconciliation statement or Tenant shall be deemed to have waived its audit and
inspection right with respect to the period of time covered in such statement.
Tenant's audit shall be conducted at Landlord's main business office, or at such
other location as Landlord may keep its relevant business records, and on a date
mutually agreed upon by Landlord and Tenant, but in no event earlier than sixty
(60) days from the date of Tenant's notice. Tenant, and its employees, agents,
attorneys and representatives agree that any and all information concerning
Operating Costs or any other information disclosed by Landlord pursuant to any
such audit shall not be disclosed to any other person or entity without the
prior written consent of Landlord, which consent shall be at Landlord's sole
discretion. Prior to providing such confidential information to any of Tenant's
employees, agents, attorneys or representatives, Tenant shall deliver to
Landlord a written acknowledgement of such parties' agreement to be bound by the
terms of this paragraph, in a form satisfactory to Landlord. Nothing in this
paragraph shall relieve Tenant of its obligation under Section 8 to pay
Additional Rent without notice, demand, offset or deduction.
8.5 TENANT'S PERSONAL PROPERTY TAXES. Tenant shall pay prior to
delinquency all Personal Property Taxes payable with respect to all Property of
Tenant located on the Premises or the Property and, upon Landlord's request,
shall promptly provide Landlord with written proof of such payment. Solely for
purposes of this Section 8.5, "Property of Tenant" shall include Landlord's
Work, Tenant's Work and all other improvements which are paid for by Tenant, and
"Personal Property Taxes" shall include all property taxes assessed against the
Property of Tenant, whether assessed as real or personal property.
8.6 TENANT'S UTILITY AND JANITORIAL CHARGES. Landlord and Tenant
agree that utilities to the Premises including the cost of utilities to provide
Building standard HVAC are not included in the Base Rent. Landlord will
estimate, by meter if possible, the cost of the Tenant's usage of electricity
and natural gas for its Premises, including the cost of utilities to heat and
cool the Premises. Tenant shall pay to the Landlord as Additional Rent each
month the Landlord's estimate of such charges. At the end of each calendar year
the Landlord shall compare the previous 12 months actual charges to its
estimates. Any amounts owing shall be paid by Tenant, and credit amounts shall
be refunded to Tenant in accordance with Section 8.3. Landlord shall adjust its
estimates as provided for in Section 8.2.
Tenant will also be responsible for any Janitorial services to be provided
to the Premises, but at all times must maintain or have a Janitorial plan in
place to keep the Premises in a clean and orderly condition. Landlord may
request in writing to see such plan or contract of third party service provider.
9. IMPROVEMENTS AND ALTERATIONS BY TENANT. Except for the Tenant
Improvements, Tenant shall not make any changes, alterations, additions or
improvements in or to the Premises ("Alterations"), including, without
limitation, changes to locks on doors or to plumbing or wiring, without first
obtaining the written consent of Landlord,
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which shall not unreasonably be withheld, and, where required by Landlord, such
Alterations shall be made under the supervision of a competent architect and/or
a licensed structural engineer, and in accordance with plans and specifications,
approved by Landlord, which approval shall not be unreasonably withheld. Prior
to commencing any Alterations, Tenant shall notify Landlord of such work and
Landlord shall perform a good faith asbestos inspection in accordance with
applicable laws and regulations. All work with respect to any Alterations shall
be done in a good and workmanlike manner and shall be diligently prosecuted to
completion. In no event shall Tenant's Alterations change or affect the
strength, exterior appearance, or the mechanical, electrical, or plumbing
services or systems, of the Building without Landlord's consent. Tenant shall
reimburse Landlord upon demand for any sums expended by Landlord for examination
and approval of plans and specifications for any and all Alterations. Tenant
shall also pay Landlord a sum equal to the costs incurred by Landlord during any
inspection or supervision of any and all Alterations. All damages or injury to
the Property caused by any act or omission of Tenant, or Tenant's officers,
contractors, agents, invitees, licensees or employees, or by any persons who may
be in or upon the Property with the express or implied consent of Tenant,
including but not limited to, damage from cracked or broken glass in windows or
doors, shall be paid by Tenant upon demand by Landlord.
10. ACCESS. During other than Normal Business Hours, Landlord may restrict
access to the Building in accordance with the Building's security system,
provided that Tenant shall have at all times during the Lease Term (24 hours of
all days) reasonable access to the Premises. Landlord, at Tenant's cost, shall
provide Tenant with security access cards to the Premises if such cards are a
part of the Building's security system at Landlord's cost. Tenant shall permit
Landlord and its agents to enter the Premises at all reasonable times (except in
cases of emergency) for the purpose of inspecting or improving the Premises or
the Building or for performing any of its obligations under this Lease, upon
advance notice to Tenant. Nothing contained in this Section 10 shall be deemed
to impose any obligation upon Landlord not expressly stated elsewhere in this
Lease. When reasonably necessary Landlord may temporarily close entrances,
doors, corridors, elevators or other facilities without liability to Tenant by
reason of such closure and without such action by Landlord being construed as an
eviction of Tenant or release of Tenant from the duty of observing and
performing any of the provisions of this Lease, so long as such action does not
materially and unreasonably interfere with Tenant's access to the leased
Premises. Landlord shall have the right to enter the Premises for the purpose of
showing the Premises to prospective tenants within the period of one hundred
eighty (180) days prior to the expiration or sooner termination of the Lease
Term, provided, Landlord gives at least twenty-four (24) hour notice and abides
by Tenant's reasonable security measures to protect Tenant's trade secrets.
11. DAMAGE OR DESTRUCTION.
11.1 DAMAGE AND REPAIR. If the Building is damaged by fire or any
other cause to such extent that the cost of restoration, as estimated by
Landlord, will equal or exceed thirty percent (30%) of the replacement value of
the Building (exclusive of foundations) just prior to the occurrence of the
damage, or if insurance proceeds sufficient for restoration are for any reason
unavailable, then Landlord may no later than the one hundred twentieth (120th)
day following the damage, give Tenant a notice of its election to terminate this
Lease. In the event of such election; (a) this Lease shall be deemed to
terminate on the date that is thirty (30) days from the date of Tenant's receipt
of such notice ("Termination Date"); (b) Tenant shall surrender possession of
the Premises on the Termination Date; and (c) Rent and Additional Rent shall be
apportioned as of the date of Tenant's surrender and any Rent paid for any
period beyond such date shall be repaid to Tenant. If the cost of restoration
as estimated by Landlord shall amount to less than thirty percent (30%) of said
replacement value of the Building or Property and insurance proceeds sufficient
for restoration are available, or if Landlord does not elect to terminate this
Lease, Landlord shall restore the Building and the Premises (to the extent of
the improvements to the Premises originally provided by Landlord hereunder but
excluding any improvements paid for by Landlord with any tenant allowance or
credits) with reasonable promptness, subject to delays beyond Landlord's control
and delays in the making of insurance adjustments by Landlord, and Tenant shall
have no right to terminate this Lease except as provided in this Section 11. To
the extent that the Premises are rendered untenantable by such damage or by
Landlord's restoration work under this Section, the Base Rent (but not
Additional
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Rent) shall proportionately abate, provided, however, in the event such damage
resulted from or was contributed to, directly or indirectly, by the act, fault
or neglect of Tenant, Tenant's officers, contractors, agents, employees,
invitees or licensees, Base Rent shall abate only to the extent Landlord
receives proceeds from any rental income insurance policy received by Landlord
for loss of Rent under this Lease.
11.2 DESTRUCTION DURING LAST YEAR OF TERM. Notwithstanding anything
to the contrary in this Lease, in case the Building shall be substantially
destroyed by fire or other cause at any time during the last Lease Year of this
Lease, either Landlord or Tenant may terminate this Lease upon written notice to
the other given within thirty (30) days of the date of such destruction.
11.3 BUSINESS INTERRUPTION. No damages, compensation or claim shall
be payable by Landlord for inconvenience, loss of business or annoyance arising
from any damage or destruction, repair or restoration of any portion of the
Premises or the Building. Landlord shall use reasonable efforts to effect such
repairs promptly.
11.4 TENANT IMPROVEMENTS. Landlord will not carry insurance of any
kind on any improvements or alterations paid for by Tenant under this Lease or
paid for pursuant to any tenant allowance or credits from Landlord, or on
Tenant's furniture, furnishings, fixtures, equipment or appurtenances of Tenant
under this Lease and Landlord shall not be obligated to repair any damage
thereto or replace the same. Tenant shall insure its improvements in accordance
with Section 14.2 and proceeds of such insurance shall be used in any repair or
restoration of the Premises.
11.5 EXPRESS AGREEMENT. The provisions of this Section 11 shall be
considered an express agreement governing any case of damage or destruction of
the Building or Premises by fire or other casualty.
12. WAIVER OF SUBROGATION. Whether loss or damage is due to the negligence
of either Landlord or Tenant, their agents or employees, or any other cause,
Landlord and Tenant do each hereby release and relieve the other, their agents
or employees, from responsibility for, and waive their entire claim of recovery
for, (i) any loss or damage to the real or personal property of either party
located anywhere on the Property, including the Building itself, arising out of
or incident to the occurrence of any of the perils which are covered, or are
required to be covered under this Lease, by their respective property and
related insurance policies, and (ii) any loss resulting from business
interruption at the Premises or loss of rental income from the Building, arising
out of or incident to the occurrence of any of the perils covered by any
business interruption insurance policy, or by any loss of rental income
insurance policy, which may be held by Landlord or Tenant. Each party shall use
best efforts to cause its insurance carriers to consent to the foregoing waiver
of rights of subrogation against the other party. Notwithstanding the foregoing,
no such release shall be effective unless and to the extent the aforesaid
insurance policy or policies shall expressly permit such a release or contain a
waiver of the carrier's right to be subrogated.
13. INDEMNIFICATION. Landlord shall not be liable for, and Tenant shall
defend (unless Landlord waives its right to such defense, and in any event with
counsel reasonably satisfactory to Landlord), indemnify, hold harmless and
protect Landlord and its employees and agents from any claim, demand, liability,
judgment, award, fine, mechanics' lien or other lien, loss, damage, expense,
penalty, charge or cost of any kind or character (including actual attorney fees
and court costs) which may be made, incurred or asserted by Tenant, Tenant's
agents or employees, contractors, or any third parties (including but not
limited to Landlord's agents, servants or employees), arising directly or
indirectly from: (a) any labor dispute involving Tenant or its agents or
contractors (but excluding labor disputes involving Landlord or its contractors,
subcontractors, or agents); (b) the construction, repair, alteration,
improvement, use, occupancy or enjoyment of the Premises by Tenant its
contractors, agents, employees and/or customers or invitees, (c) injury to, or
death of, any person or persons or damage to, or destruction of, any property
(including without limitation the costs of investigation, removal or remedial
action and disposal of any hazardous or toxic substances, as such terms may be
defined under any applicable federal, state, or municipal law, statute, rule or
regulation) occurring in, on or about
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the Premises, unless it is the result of Landlord's negligence or (d) Tenant's
breach of this Lease or the acts or omissions of Tenant or its officers,
directors, shareholders, employees, contractors, subcontractors, or agents (the
"Claims"). Notwithstanding anything to the contrary in this Section 13, nothing
in this Section 13 shall relieve Landlord from responsibility for its
proportionate share of its fault attributable to its negligence or wilful
misconduct in causing any such Claims. TENANT HEREBY WAIVES ITS IMMUNITY WITH
RESPECT TO LANDLORD UNDER THE INDUSTRIAL INSURANCE ACT (RCW TITLE 51) AND/OR THE
LONGSHOREMEN'S AND HARBOR WORKER ACT, AND/OR ANY EQUIVALENT ACTS AND TENANT
EXPRESSLY AGREES TO ASSUME POTENTIAL LIABILITY FOR ACTIONS BROUGHT AGAINST
LANDLORD BY TENANT'S EMPLOYEES. THIS WAIVER HAS BEEN SPECIFICALLY NEGOTIATED BY
THE PARTIES TO THIS LEASE AND TENANT HAS HAD THE OPPORTUNITY TO, AND HAS BEEN
ENCOURAGED TO, CONSULT WITH INDEPENDENT COUNSEL REGARDING THIS WAIVER.
Without limiting Tenant's obligations under this Section 13, Tenant agrees
to defend, indemnify and hold Landlord harmless from and against any and all
claims, causes of action, regulatory demands, liabilities, fines, penalties,
losses, and expenses, including without limitation, clean-up or other remedial
costs (including attorneys' fees, costs and all other reasonable litigation
expenses when incurred and whether incurred in defense of actual litigation or
in reasonable anticipation of litigation), arising from the existence or
discovery of any Hazardous Substance on the Premises, or the migration of any
Hazardous Substance from the Premises to other properties or into the
surrounding environment, whether (i) made, commenced or incurred during the term
of this Lease, or (ii) made, commenced or incurred after the expiration or
termination of this Lease if arising out of events occurring during the term of
this Lease.
Tenant shall not be liable for, and Landlord shall defend (unless Tenant
waives its rights to defense, and in any event with counsel reasonably
satisfactory to Tenant), indemnify, hold harmless and protect Tenant and its
employees and agents from any claim, demand, liability, judgment, award, fine,
mechanics lien or other lien, loss, damage, expense, penalty, change or cost of
any kind of character (including reasonable attorneys' fees and court costs)
which may be made, incurred or asserted against Tenant by third parties arising
or resulting from damage to property or injury to person to the extent caused by
the negligence or willful misconduct of Landlord, its employees, agents,
servants or representatives.
14. INSURANCE.
14.1 LIABILITY INSURANCE. Commencing on the earlier of the
Commencement Date or the date Tenant first enters onto the Premises and
continuing throughout the term of this Lease and any renewal hereof, Tenant
shall, at its own expense, keep and maintain in full force and effect, a policy
of commercial general liability insurance including a contractual liability
endorsement covering Tenant's obligations under Section 13, insuring Tenant's
activities upon, in or about the Premises or the Building against claims of
bodily injury or death or property damage or loss with a limit of not less than
$2,000,000 combined single limit per occurrence and annual aggregate.
14.2 PROPERTY INSURANCE. Commencing on the earlier of the
Commencement Date or the date Tenant first enters onto the Premises and
continuing throughout the Term of this Lease and any renewal hereof, Tenant
shall, at its own expense, keep and maintain in full force and effect, what is
commonly referred to as "all risk" coverage insurance (but excluding earthquake
and flood) on Tenant's leasehold improvements, including without limitation, any
improvements made by Landlord on behalf of Tenant or pursuant to a tenant
allowance or credit, in an amount not less than the current 100% replacement
value thereof. Landlord shall not carry insurance on Tenant's leasehold
improvements.
14.3 INSURANCE POLICY REQUIREMENTS. All policies of insurance required
under this Section 14 shall be issued by companies qualified to do business in
the State of Washington and holding a general policy holder's rating of not less
than "A" and a financial rating of not less than "Class XI" as rated in the most
current available edition of "Best's
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Insurance Reports." All such policies shall contain cross-liability endorsements
and shall name Sabey Corporation, David A. Sabey and Sandra L. Sabey ,
Landlord's mortgagees or beneficiaries and such additional individuals or
entities as Landlord may from time to time designate as primary additional
insureds. No insurance policy required under this Section 14 shall be cancelled
or reduced in coverage and each insurance policy shall provide that it is not
subject to cancellation or a reduction in coverage except after thirty (30) days
prior written notice to Landlord. Tenant shall deliver to Landlord upon
Commencement Date or the date Tenant first enters onto the Premises and from
time to time thereafter, a cop of the certificate of insurance evidencing the
existence, endorsements, and amounts of same as required by Landlord. In no
event shall the limits of any insurance policy required under Section 14 be
considered as limiting the liability of Tenant under this Lease. All public
liability, property damage and other policies shall be written as primary
policies, not contributing with or secondary to coverage which Landlord may
carry.
15. ASSIGNMENT AND SUBLETTING.
15.1 ASSIGNMENT OR SUBLEASE. Tenant shall not assign, mortgage,
encumber or otherwise transfer this Lease or sublet the whole or any part of the
Premises without in each case first obtaining Landlord's prior written consent,
which consent may not be unreasonably conditioned, delayed or withheld.
In no event shall an assignment, subletting or other transfer of the Lease
relieve Tenant of any of its obligations under this Lease. Consent to any such
assignment, subletting or transfer shall not operate as a waiver of the
necessity for consent to any subsequent assignment, subletting or transfer.
If such consent is requested and Tenant has subleased at least fifty
percent (50%) of the net rentable square footage of the Premises at any given
time during the term of this Lease, Landlord reserves the right to terminate
this Lease, or, if consent is requested for subletting less than the entire
Premises, to terminate this Lease with respect to the portion for which such
consent is requested, at the proposed effective date of such subletting, in
which event Landlord shall enter into the relationship of Landlord and Tenant
with any such subtenant or assignee, based on the rent (and/or other
compensation) and the term agreed to by such subtenant or assignee and otherwise
upon the terms and conditions of this Lease.
If Tenant is a corporation, any transfer of this Lease by merger,
consolidation or liquidation, or any change in the ownership of a majority of
its outstanding voting stock, or power to vote a majority of its outstanding
voting stock, shall constitute an assignment for the purpose of this Section 15;
provided, however, for the purposes of this Section 15, a public offering of
stock registered with the SEC, shall not constitute a transfer. Notwithstanding
any of the foregoing in this Section 15.1, Tenant may merge with or be acquired
by another corporation, Landlord's consent will not be unreasonably withheld
provided that the successor entity (upon consummation of such transaction) has a
net worth at least equal to the net worth of Tenant as of the date of the
execution of this Lease. If Tenant is a partnership, any transfer of this
Lease by merger, consolidation, liquidation, dissolution, or any change in the
ownership of a majority of the partnership interests shall constitute an
assignment for the purpose of this Section 15.
15.2 DOCUMENTATION AND EXPENSES. In connection with each request for
an assignment or subletting Tenant shall: (i) submit in writing to Landlord the
name and legal composition of the proposed subtenant or assignee, the nature of
the proposed subtenant's or assignee's business to be carried on in the
Premises, the terms and provisions of the proposed sublease or assignment and
such reasonable financial information as Landlord may request concerning the
proposed subtenant or assignee; and (ii) pay Landlord's reasonable costs of
processing such assignment or subletting, including attorneys' fees, upon demand
of Landlord. Tenant shall provide Landlord with copies of all assignments,
subleases and assumption instruments.
15.3 TRANSFEREE OBLIGATIONS. As a condition to Landlord's approval of
an assignment, any potential assignee otherwise acceptable to Landlord shall
assume, in writing, all of Tenant's obligations under this Lease and Tenant and
such assignee shall agree, in writing, to
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be jointly and severally liable for the performance of all of Tenant's
obligations under this Lease. As a condition to Landlord's approval of any
sublessee otherwise acceptable to Landlord such sublessee shall assume, in
writing, all of Tenant's obligations under this Lease as to the subleased
portion of the Premises and Tenant and such sublessee shall agree, in writing,
to be jointly and severally liable with Tenant for rent and performance of all
of the terms, covenants, and conditions of such approved sublease.
16. SIGNS. Tenant shall not inscribe any inscription, or post, place, or
in any manner display any sign, graphics, notice, picture, placard or poster, or
any advertising matter whatsoever, anywhere in or about the Property at places
visible (either directly or indirectly as an outline or shadow on a glass pane)
from anywhere outside the Premises without first obtaining Landlord's written
consent, such consent to be at Landlord's sole discretion. Any such consent by
Landlord shall be upon the understanding and condition that Tenant shall remove
the same at the expiration or sooner termination of this Lease and Tenant, at
its expense, shall repair any damage to the Property, or any portion thereof,
caused by such removal. Notwithstanding the foregoing, Tenant is permitted to
place signage on the Building in a location that is acceptable on the East
facade of the building. Tenant will also be permitted to place their name on a
monument sign to be constructed at the main entrance to the property. Such
signage must be pre-approved by Landlord's architect and must comply with local
laws. The cost of such signage, maintenance, repair and operation shall be
borne exclusively by Tenant.
17. LIENS. Tenant shall keep its interest in this Lease, any property of
Tenant located on the Property (other than the unattached personal property set
forth on Exhibit C-1), and the Property free from any liens arising out of any
work performed or materials ordered or obligations incurred by or on behalf of
Tenant and Tenant hereby agrees to indemnify, defend and hold Landlord harmless
from and against any liability from any such lien, including without limitation,
liens arising from Tenant's Work. In the event any lien is filed against the
Property, or any portion thereof, by any person claiming by, through or under
Tenant, Tenant shall, upon request of Landlord and at Tenant's expense,
immediately either cause such lien to be released of record or furnish to
Landlord a bond, in form and amount and issued by a surety, satisfactory to
Landlord, indemnifying Landlord and the Property against all liability, costs
and expenses, including attorneys' fees, which Landlord may incur as a result
thereof. Provided that such bond has been furnished to Landlord, Tenant, at its
sole cost and expense and after written notice to Landlord, may contest, by
appropriate proceedings conducted in good faith and with due diligence, any
lien, encumbrance or charge against the Property arising from work done or
materials provided to and for Tenant, if, and only if, such proceedings suspend
the collection thereof against Landlord, Tenant and the Property and neither the
Property nor any part thereof or interest therein is or will be in any danger of
being sold, forfeited or lost.
18. BANKRUPTCY.
18.1 ASSUMPTION OF LEASE. In the event Tenant becomes a Debtor under
Chapter 7 of the Bankruptcy Code ("Code") or a petition for reorganization or
adjustment of debts is filed concerning Tenant under Chapters 11 or 13 of the
Code, or a proceeding is filed under Chapter 7 of the Code and is transferred to
Chapters 11 or 13 of the Code, the Trustee or Tenant, as Debtor and as Debtor-
In-Possession, may not elect to assume this Lease unless, at the time of such
assumption, the Trustee or Tenant has: (i) Cured all defaults under the Lease
and paid all sums due and owing under the Lease or provided Landlord with
"Adequate Assurance" (as defined below) that: (i) within ten (10) days from the
date of such assumption, the Trustee or Tenant will completely pay all sums due
and owing under this Lease and compensate Landlord for any actual pecuniary loss
resulting from any existing default or breach of this Lease, including without
limitation, Landlord's reasonable costs, expenses, accrued interest, and
attorneys' fees incurred as a result of the default or breach; (ii) within
twenty (20) days from the date of such assumption, the Trustee or Tenant will
cure all non-monetary defaults and breaches under this Lease, or, if the nature
of such non-monetary defaults is such that more than twenty (20) days are
reasonably required for such cure, that the Trustee or Tenant will commence to
cure such non-monetary defaults within twenty (20) days and thereafter
diligently prosecute such cure to completion; and (iii) the assumption will be
subject to all of the provisions of this Lease.
18.1.1 DEFINITION OF ADEQUATE ASSURANCES. For purposes of this
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Section 18, Landlord and Tenant acknowledge that in the context of a bankruptcy
proceeding involving Tenant, at a minimum, "Adequate Assurance" shall mean: (i)
the Trustee or Tenant has and will continue to have sufficient unencumbered
assets after the payment of all secured obligations and administrative expenses
to assure Landlord that the Trustee or Tenant will have sufficient funds to
fulfill the obligations of Tenant under this Lease; and (ii) the Bankruptcy
Court shall have entered an Order segregating sufficient cash payable to
Landlord and/or the Trustee or Tenant shall have granted a valid and perfected
first lien and security interest and/or mortgage in or on property of Trustee or
Tenant acceptable as to value and kind to Landlord, to secure to Landlord the
obligation of the Trustee or Tenant to cure the monetary and/or non-monetary
defaults and breaches under this Lease within the time periods set forth above;
and (iii) the Trustee or Tenant, at the very minimum, shall deposit a sum equal
to 2 month's Base Rent to be held by Landlord (without any allowance for
interest thereon) to secure Tenant's future performance under the Lease.
18.2 ASSIGNMENT OF LEASE. If the Trustee or Tenant has assumed the
Lease pursuant to the provisions of this Section 18 for the purpose of assigning
Tenant's interest hereunder to any other person or entity, such interest may be
assigned only after the Trustee, Tenant or the proposed assignee have complied
with all of the terms, covenants and conditions of this Lease, including,
without limitation, those with respect to Additional Rent. Landlord and Tenant
acknowledge that such terms, covenants and conditions are commercially
reasonable in the context of a bankruptcy proceeding of Tenant. Any person or
entity to which this Lease is assigned pursuant to the provisions of the Code
shall be deemed without further act or deed to have assumed all of the
obligations arising under this Lease on and after the date of such assignment.
Any such assignee shall upon request execute and deliver to Landlord an
instrument confirming such assignment.
18.3 ADEQUATE PROTECTION. Upon the filing of a petition by or against
Tenant under the Code, Tenant, as Debtor and as Debtor-In-Possession, and any
Trustee who may be appointed agree to adequately protect Landlord as follows:
(i) to perform each and every obligation of Tenant under this Lease until such
time as this Lease is either rejected or assumed by Order of the Bankruptcy
Court; (ii) to pay all monetary obligations required under this Lease, including
without limitation, payment of Rent and Additional Rent payable hereunder which
is considered reasonable compensation for the use and occupancy of the Premises;
(iii) provide Landlord a minimum of thirty (30) days prior written notice,
unless a shorter period is agreed to in writing by the parties, of any
proceeding relating to any assumption of this Lease or any intent to abandon the
Premises, which abandonment shall be deemed a rejection of this Lease; and (iv)
to perform to the benefit of Landlord as otherwise required under the Code. The
failure of Tenant to comply with the above shall result in an automatic
rejection of this Lease.
19. DEFAULT.
19.1 CUMULATIVE REMEDIES. All rights of Landlord in this Lease shall
be cumulative, and none shall exclude any other right or remedy allowed by law
in force when the default occurs or in equity. In addition to the other
remedies provided in this Lease, Landlord shall be entitled to restrain by
injunction (without bond) the violation or attempted violation of any of the
covenants, agreements or conditions of Tenant under this Lease.
19.2 TENANT'S DEFAULT; RIGHT TO CURE. The failure of Tenant to perform
any obligation of Tenant as provided in this Lease shall be a default under this
Lease. Tenant shall have a period of five (5) business days from the date of
Tenant's receipt of written notice from Landlord to Tenant within which to cure
any default in the payment of Rent or Additional Rent. Tenant shall have a
period of ten (10) business days from the date of written notice from Landlord
to Tenant to cure any other default under this Lease; provided, however, that
with respect to any such default which cannot be cured within such ten (10) day
period, the default shall not be deemed to be uncured if Tenant commences to
cure within ten (10) days and for so long as Tenant is diligently prosecuting
the cure thereof.
19.3 LANDLORD'S RIGHTS AND REMEDIES. Upon the occurrence of an uncured
default by Tenant, Landlord, in addition to all other rights or remedies it may
have, at its option, may exercise any of the following rights without further
notice or demand of any kind to Tenant
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or any other person, except as required by applicable State law:
19.3.1 TERMINATION OF LEASE. The right of Landlord to
terminate this Lease and Tenant's right to possess the Premises and to reenter
the Premises, take possession thereof and remove all person from the Premises,
following which Tenant shall have no further claim thereon or hereunder;
19.3.2 RE-ENTRY OF THE PREMISES. The right of Landlord,
without terminating this Lease and Tenant's right to possess the Premises, to
reenter the Premises and occupy the whole or any part of the Premises for and on
account of Tenant
and to collect any unpaid Rents which have become payable, or which may
thereafter become payable; or
19.3.3 TERMINATION AFTER REENTRY. The right of Landlord, even
though it may have reentered the Premises in accordance with Section 19.3.2, to
elect thereafter to terminate this Lease and Tenant's right to possess the
Premises.
Should Landlord reenter the Premises under Section 19.3.2, Landlord shall
not be deemed to have terminated this Lease or to have accepted a surrender
thereof by any such reentry, unless Landlord shall have notified Tenant in
writing that it has so elected to terminate this Lease and Tenant's right of
possession. Tenant further covenants that Landlord's service of any notice
pursuant to the unlawful detainer statutes of the State of Washington and
Tenant's surrender of possession pursuant to such notice shall not (unless
Landlord elects to the contrary at the time of, or at any time subsequent to,
the serving of such notice and such election is evidenced by a notice to Tenant)
be deemed to be a termination of this Lease. In the event of any reentry or
taking of possession of the Premises as provided above in this Section 19,
Landlord shall have the right, but not the obligation, to remove from the
Premises all or any part of Tenant's property located in the Premises and to
place such property in storage at a public warehouse at the expense and risk of
Tenant.
19.4 LANDLORD'S DAMAGES. If Landlord terminates this Lease and
Tenant's right to possession of the Premises pursuant to the terms of this
Section 19, Landlord may recover from Tenant as damages, all of the following:
19.4.1 DELINQUENT RENT. The worth at the time of award of any
unpaid Rent earned at the time of such termination;
19.4.2 RENT AFTER TERMINATION UNTIL JUDGMENT. The worth at the
time of award of the amount by which the unpaid Rent that would have been earned
after termination until the time of award exceeds such rent loss that Tenant
proves could have been reasonably avoided;
19.4.3 RENT AFTER JUDGMENT. The worth at the time of award of
the amount by which the unpaid Rent for the balance of the Lease Term after the
time of award exceeds the amount of such rent loss that Tenant proves could be
reasonably avoided;
19.4.4 LEASING CONCESSIONS. The unamortized portion of any
financial concessions incurred by Landlord on Tenant's behalf to arrange for
Tenant's leasing of the Premises that Landlord conditionally waived at the
commencement of the Lease in consideration of Tenant's full performance of this
Lease, but which upon termination of the Lease pursuant to this Section 19 shall
accrue as rent, which costs include, but are not limited to, leasing
commissions, tenant allowances and improvements (including without limitation,
the cost of any improvements to the Premises by Landlord pursuant to Exhibit C),
"free rent" allowances and other such concessions in this Lease, amortized on a
straight-line basis over the number of months during the Lease Term in which
Tenant is obligated to pay Base Rent, and such amounts shall become immediately
due and payable as Rent earned at the time of such termination of the Lease;
19.4.5 OTHER COMPENSATION. Any other amount necessary to
compensate Landlord for all the detriment proximately caused by Tenant's failure
to perform its
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obligations under this Lease or which in the ordinary course of things would be
likely to result therefrom, including, without limitation, any cost or expense
incurred by Landlord in (i) retaking possession of the Premises, including
reasonable attorney fees therefor, (ii) maintaining or preserving the Premises
after such default, (iii) preparing the Premises for reletting to a new tenant,
including repairs necessary to the Premises for such reletting, (iv) leasing
commissions, limited to those years remaining in the initial term, and (v) any
other costs necessary or appropriate to relet the Premises; and
19.4.6 ADDITIONAL OR ALTERNATIVE DAMAGES. At Landlord's
election, such other amounts in addition to or in lieu of the foregoing in this
Section 19.4 as may be permitted from time to time by the laws of the State of
Washington; and
19.4.7 CALCULATION OF DAMAGES. As used in Sections 19.4.1 and
19.4.2, the "worth at the time of award" is to be computed by allowing interest
at the rate specified in Section 4.2. As used in Section 19.4.3, the "worth at
the time of award" is computed by discounting such amount at a discount rate
equal to six percent (6%) per year or the maximum rate allowed by any usury or
similar law, if any, of the State of Washington applicable to Tenant, whichever
is less. All Rent, other than Base Rent, shall, for the purposes of calculating
any amount due under the provisions of Section 19.4.3 be computed on the basis
of the average monthly amount thereof accruing during the immediately preceding
sixty (60) month period, except that if it becomes necessary to compute such
rent before such a sixty (60) month period has occurred, then such rent shall be
computed on the basis of the average monthly amount hereof accruing during such
shorter period.
19.5 FIXTURES. Without limiting any of Landlord's rights under this
Lease, in the event of Tenant's default, Tenant's property specified on Exhibit
C-l and any other property which pursuant to the terms of this Lease may be
removed by Tenant at the termination of this Lease shall (i) remain on the
Premises and continuing during the length of such default Landlord shall have
the right to take the exclusive possession of such property and to use such
property free of rent or charge until all defaults have been cured, (ii) be
removed by Landlord from the Premises and placed in storage at a public
warehouse at the expense and risk of Tenant, or (iii) be removed by Tenant upon
demand by Landlord.
19.6 NO WAIVER. The waiver by Landlord of any breach of any term,
covenant or condition contained in this Lease shall not be deemed to be a waiver
of such term, covenant or condition or any subsequent breach thereof, or of any
other term, covenant or condition contained in this Lease. Landlord's
subsequent acceptance of partial rent or performance by Tenant shall not be
deemed to be an accord and satisfaction or a waiver of any preceding breach by
Tenant of any term, covenant or condition of this Lease or of any right of
Landlord to a forfeiture of the Lease by reason of such breach, regardless of
Landlord's knowledge of such preceding breach at the time of Landlord's
acceptance. No term, covenant or condition of this Lease shall be deemed to
have been waived by Landlord unless such waiver is in writing and signed by
Landlord.
19.7 WAIVER OF NOTICE. Notwithstanding anything to the contrary in
this Section 19, Tenant waives (to the fullest extent permitted under law) any
written notice, other than such notice as this Section 19 or any other provision
of this Lease specifically requires, which any statute or law now or hereafter
in force prescribes be given Tenant.
19.8 WAIVER OF REDEMPTION RIGHTS. Tenant, for itself, and on behalf
of any and all persons claiming through or under it, including creditors of all
kinds, does hereby waive and surrender all right and privilege which they or any
of them might have under or by reason of any present or future law, to redeem
the Premises or to have a continuance of this Lease for the term hereof, as it
may have been extended, after having been dispossessed or ejected therefrom by
process of law or under the terms of this Lease or after the termination of this
Lease as herein provided.
19.9 DEFAULT BY LANDLORD. 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 thirty (30) days after written notice by Tenant
to Landlord and any mortgagee whose name
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and address has been provided to Tenant in writing ("Mortgagee"); provided,
however, that if the nature of Landlord's obligation is such that more than
thirty (30) days are required for performance, then Landlord shall not be in
default if Landlord commences performance within such 30-day period and
thereafter diligently prosecutes the same to completion. Any mortgagee may also
cure such default within the above time period. If Landlord fails to cure any
such default within the allotted time, Tenant may, with reasonable written
notice, undertake cure of such default itself and Landlord shall pay the
reasonable cost thereof on demand.
20. SUBORDINATION AND ATTORNMENT. This Lease shall be subordinate to any
mortgage or deed of trust now existing or hereafter placed upon the Land, the
Building or the Premises, created by or at the instance of Landlord, and to any
and all advances to be made thereunder and to interest thereon and all
modifications, renewals and replacements or extensions thereof ("Landlord's
Mortgage"); provided, however, that the holder of any Landlord's Mortgage or any
person or persons purchasing or otherwise acquiring the Land, Building or
Premises at any sale or other proceeding under any Landlord's Mortgage may elect
to continue this Lease in full force and effect and, in such event, Tenant shall
attorn to such person or persons. Notwithstanding the foregoing, if a lender
requires that the Lease be subordinate to any mortgage recorded after the date
the Lease affecting the Property, the Lease shall be subordinate to such
mortgage if Landlord first obtains from such lender a written statement
providing that so long as Tenant performs its obligations under the Lease, no
foreclosure of, deed given in lieu of foreclosure of, or sale under the
mortgage, and no steps or procedures, taken under the mortgage, shall affect
Tenant's rights under this Lease. Tenant shall execute, acknowledge and deliver
documents which the Holder of any Landlord's Mortgage may require to effectuate
the provisions of this Section 20 within ten (10) days of the date of Landlord's
request therefor. In the event of any transfer of Landlord's interest in the
Premises or in the Property, other than a transfer for security purposes only,
the transferor shall be automatically relieved of any and all obligations and
liabilities on the part of Landlord accruing from and after the date of such
transfer and such transferee shall have no obligation or liability with respect
to any matter occurring or arising prior to the date of such transfer. Tenant
agrees to attorn to such transferee, provided transferee assumes all of
Landlord's responsibilities.
21. REMOVAL OF PROPERTY. Subject to Section 19.5, upon the expiration or
sooner termination of the Lease, Tenant shall remove Tenant's personal property
not permanently affixed to the Premises and as specified on Exhibit C-1, and
shall pay Landlord any damages for injury to the Premises or Property resulting
from such removal. If Tenant fails to remove any such property from the
Premises at the termination of this Lease or when Landlord has the right of re-
entry, Landlord may remove and store said property without liability for loss
thereof or damage thereto, provided Landlord uses commercially reasonable
standards in performance of such removal rights. Such storage shall be for the
account and at the expense of Tenant. If Tenant fails to pay the cost of
storing any such property after it has been stored for a period of thirty (30)
days or more, Landlord may, at its option, sell, or permit to be sold, any or
all such property at public or private sale, in such manner and at such times
and places as Landlord in its sole discretion may deem proper, without notice to
Tenant, unless notice is required under applicable statutes, and shall apply the
proceeds of such sale first, to the cost and expense of such sale, including
reasonable attorneys' fees actually incurred; second, to the payment of the
costs or charges for storing any such property; third, to the payment of any
other sums of money which may then be or thereafter become due Landlord from
Tenant under any of the terms of this Lease; and, fourth, the balance, if any,
shall be paid to Tenant.
22. CONDEMNATION.
22.1 ENTIRE TAKING. If all of the Premises, or such portion of the
Building as may be required for the reasonable use of the Premises, in
Landlord's determination, are taken by eminent domain, this Lease shall
automatically terminate as of the date title vests in the condemning authority
and all Rent, Additional Rent and other payments shall be paid to that date.
22.2 CONSTRUCTIVE TAKING OF ENTIRE PREMISES. In the event of a
taking by eminent domain of a material part of but less than all of the
Building, if Landlord determines that
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the remaining portions of the Building cannot be economically and effectively
used by it (whether on account of physical, economic, aesthetic or other
reasons) or if Landlord determines the Building should be restored in such a way
as to materially alter the Premises, then Landlord shall forward a written
notice to Tenant of such determination not more than sixty (60) days after the
date of taking. The term of this Lease shall expire upon the date specified by
Landlord in such notice but not earlier than sixty (60) days after the date of
such notice.
22.3 PARTIAL TAKING. Subject to the provisions of the preceding
Section 22.2, in case of taking by eminent domain of a part of the Premises, or
a portion of the Building not required for the reasonable use of the Premises,
then this Lease shall continue in full force and effect and the Rent shall be
equitably reduced based on the proportion by which the floor area of the
Premises is reduced, such Rent reduction to be effective as of the date title to
such portion vests in the condemning authority. If more than twenty-five
percent (25%) of the Premises is taken and Landlord cannot replace such space
with space in the Building which is mutually acceptable to Landlord and Tenant,
then with sixty (60) days written notice by either party, Landlord or Tenant
shall have the right to terminate this Lease.
22.4 AWARDS AND DAMAGES. Landlord reserves all rights to damages to
the Premises for any partial, constructive, or entire taking by eminent domain,
and Tenant hereby assigns to Landlord any right Tenant may have to such damages
or award, and Tenant shall make no claim against Landlord or the condemning
authority for damages for termination of the leasehold interest or interference
with Tenant's business. Tenant shall have the right, however, to claim and
recover from the condemning authority compensation for any loss to which Tenant
may be put for Tenant's moving expenses, business interruption, loss of
goodwill, or taking of Tenant's personal property (not including Tenant's
leasehold interest) provided that such damages may be claimed only if they are
awarded separately in the eminent domain proceedings and not out of or as part
of the damages recoverable by Landlord.
23. NOTICES. All notices under this Lease shall be in writing and
delivered in person or sent by registered or certified mail, postage prepaid, or
by facsimile, to Landlord and to Tenant at their respective Notice Addresses set
forth in Section 1.16 (provided that after the Commencement Date any such notice
shall be mailed, delivered by hand or transmitted by facsimile to Tenant at the
Premises) or such other addresses as may from time to time be designated by any
such party in writing. Notices mailed as provided in this Section shall be
deemed given and received on the date that is Three (3) business days following
the date of post mark, in the case of mailing, or the date of transmission
confirmation by the sender's facsimile machine, in the case of facsimile
transmission.
24. COSTS AND ATTORNEYS' FEES. If Tenant or Landlord bring any action
for any relief against the other, declaratory or otherwise, arising out of this
Lease, each party shall, and hereby does to the extent permitted by law, waive
trial by jury and the losing party shall pay the substantially prevailing
party's attorneys' fees in connection with such suit, at trial and on appeal,
and such attorneys' fees shall be deemed to have accrued on the commencement of
such action.
25. LANDLORD'S LIABILITY. Notwithstanding anything in this Lease to the
contrary, covenants, undertakings and agreements herein made on the part of
Landlord in this Lease are made and intended not as personal covenants,
undertakings and agreements for the purpose of binding Landlord personally or
the assets of Landlord except Landlord's interest in the Premises and Building
and rents and proceeds thereof, but are made and intended for the purpose of
binding only the Landlord's interest in the Premises and Building, as the same
may from time to time be encumbered. No personal liability or personal
responsibility is assumed by Landlord, nor shall at any time be asserted or
enforceable against Landlord or its heirs, legal representatives, successors or
assigns on account of the Lease or on account of any covenant, undertaking or
agreement of Landlord in this Lease.
26. LANDLORD'S CONSENT. Except as may be provided otherwise in this
Lease, whenever Landlord's consent is required under this Lease, such consent
shall not be unreasonably withheld, conditioned or delayed, provided, however,
Landlord's withholding of consent due to any mortgagee's refusal to grant its
consent shall not be deemed unreasonable.
22
<PAGE>
27. ESTOPPEL CERTIFICATES. Tenant shall, from time to time upon the
written request of Landlord, execute, acknowledge and deliver to Landlord or its
designee a written statement stating: the Effective Date, Commencement Date and
Expiration Date, the date the term commenced and the date Tenant accepted the
Premises; the amount of Base Rent and the date to which such Base Rent has been
paid; and certifying such additional information as may be requested by
Landlord. It is intended that any such statement delivered pursuant to this
Section may be relied upon by a prospective purchaser of Landlord's interest or
assignee of any mortgage upon Landlord's interest in the Building. If Tenant
shall fail to respond within ten (10) days of receipt by Tenant of a written
request by Landlord as herein provided, Tenant shall be deemed to have given
such certificate as above provided without modification and shall be deemed to
have admitted the accuracy of any information supplied by Landlord to a
prospective purchaser or mortgagee and to have certified that this Lease is in
full force and effect, that this Lease represents the entire agreement between
the parties as to this leasing, that there are no existing claims, defenses or
offsets which Tenant has against enforcement of the Lease by Landlord, that
there are no uncured defaults in Landlord's performance, that the security
deposit is as stated in the Lease, and that not more than one month's Base Rent
or Additional Rent has been paid in advance.
28. RIGHT TO PERFORM. If Tenant fails to pay any sum of money required to
be paid by it under this Lease or fails to perform any other act on its part to
be performed under this Lease, and such failure continues for ten (10) days
after notice thereof by Landlord, Landlord may, but shall not be obligated so to
do, and without waiving or releasing Tenant from any obligations of Tenant, make
such payment or perform any such other act on Tenant's part to be made or
performed as provided in this Lease. Landlord shall have (in addition to any
other right or remedy of Landlord) the same rights and remedies in the event of
the nonpayment of sums due under this Section 28 as in the case of default by
Tenant in the payment of Rent.
29. PARKING. Landlord shall provide, at no cost to Tenant for the term of
this Lease, Tenant twenty-five (25) unassigned and five (5) assigned parking
stalls in the parking area(s) servicing the Building, as outlined on Exhibit E.
The assigned parking stalls will be in a mutually agreeable location near the
Tenant's entrance and shall be identified as Tenant's spaces. The provision of
parking stalls under this Lease shall be subject to such rules and regulations
as Landlord and/or Landlord's parking operator may adopt from time to time.
Landlord retains the right to alter such rules and regulations and to relocate
within the area as outlined on Exhibit E, or reconfigure the parking area in
which Tenant's parking stalls are located, with reasonable notice to Tenant, but
Landlord shall at all times continue to provide the designated number of spaces
to Tenant. Tenant shall pay, upon demand by Landlord, Landlord's costs incurred
to stencil any changes to reserved parking stalls provided to Tenant under this
Lease.
30. AUTHORITY. If Tenant is a corporation, each individual executing this
Lease on behalf of Tenant represents and warrants that he or she is duly
authorized to execute and deliver this Lease on behalf of Tenant, in accordance
with a duly adopted resolution of the Board of Directors of Tenant and in
accordance with the bylaws of Tenant, and that this Lease is binding upon Tenant
in accordance with its terms. If Tenant is a partnership, each individual
executing this Lease on behalf of Tenant represents and warrants that he or she
is duly authorized to execute and deliver this Lease on behalf of Tenant, in
accordance with the partnership agreement of Tenant, and that this Lease is
binding upon Tenant in accordance with its terms.
31. GENERAL.
31.1 HEADINGS. Titles to Sections of this Lease are not a part of
this Lease and shall have no effect upon the construction or interpretation of
this Lease.
31.2 HEIRS AND ASSIGNS. All of the covenants, agreements, terms and
conditions contained in this Lease shall inure to and be binding upon the
Landlord and Tenant and their respective heirs, executors, administrators,
successors and assigns.
31.3 NO BROKERS. Except as provided in Section 1, Landlord and
Tenant represent and warrant to one another that they have not engaged any
broker, finder or other
23
<PAGE>
person who would be entitled to any commission or fees in respect of the
negotiation, execution or delivery of this Lease and Landlord and Tenant shall
indemnify and hold one another harmless from and against any loss, cost,
liability or expense incurred by the other party as a result of any claim
asserted by any such broker, finder or other person on the basis of any
arrangements or agreements made or alleged to have been made by or on behalf of
Tenant.
31.4 ENTIRE AGREEMENT. This Lease contains all covenants and
agreements between Landlord and Tenant relating in any manner to the leasing,
use and occupancy of the Premises, to Tenant's use of the Building and other
matters set forth in this Lease. No prior agreements or understanding
pertaining to the same shall be valid or of any force or effect and the
covenants and agreements of this Lease shall not be altered, modified or added
to except in writing signed by Landlord and Tenant.
31.5 SEVERABILITY. Any provision of this Lease which shall prove to
be invalid, void or illegal shall in no way affect, impair or invalidate any
other provision hereof and the remaining provisions hereof shall nevertheless
remain in full force and effect.
31.6 FORCE MAJEURE. Except for the payment of Rent, time periods
for Tenant's or Landlord's performance under any provisions of this Lease shall
be extended for periods of time during which Tenant's or Landlord's performance
is prevented due to circumstances beyond Tenant's or Landlord's respective
control, including without limitation, strikes, embargoes, shortages of labor or
materials, governmental regulations, acts of God, war or other strife.
31.7 RIGHT TO CHANGE PUBLIC SPACES. Landlord shall have the right at
any time without thereby creating an actual or constructive eviction or
incurring any liability to Tenant therefor, to change the arrangement or
location of such of the following as are not contained within the Premises or
any part thereof: entrances, passageways, doors and doorways, corridors,
stairs, toilets and other public portions of the Property. In no event,
however, shall Landlord diminish any service provided by Landlord under this
Lease, make any change which reduces the area of the Premises, make any change
which, on other than a temporary basis, either changes the character of the
Building from that of an office building or materially interferes with Tenant's
access to and use of the Building.
31.8 GOVERNING LAW. This Lease shall be governed by and construed in
accordance with the laws of the State of Washington.
31.9 BUILDING DIRECTORY. In the event Landlord maintains in the
lobby of Building a directory of tenants, such directory shall include the name
of Tenant and any other names reasonably requested by Tenant in proportion to
the number of listings given to comparable tenants of the Building. Tenant will
also be required to provide suite signage consistent with the Building standard
or subject to Landlord's architects' approval.
31.10 BUILDING NAME. The Building will be known as Riverfront
Technical Park or by such name as Landlord may designate from time to time.
31.11 QUIET ENJOYMENT. Landlord agrees that Tenant, upon paying the
Rent and performing all other terms, covenants and conditions of this Lease to
be performed by Tenant, may quietly have, hold and enjoy the Premises from and
after the Commencement Date until the Expiration Date, subject, however, to the
provisions of Section 11 (Damage Or Destruction), 22 (Condemnation), and to any
sale or Landlord's Mortgage to which this Lease is, or may become, subordinate.
31.12 SURVIVAL. The representations, warranties and indemnification
obligations of the parties to this Lease shall survive the termination or
expiration of this Lease.
IN WITNESS WHEREOF this Lease has been executed the day and year first
above set forth.
24
<PAGE>
LANDLORD:
SABEY CORPORATION
By: /s/ ILLEGIBLE
------------------------------
Date: 4/24/97 Its: EXECUTIVE V.P
----------- -----------------------------
TENANT:
EXODUS COMMUNICATIONS, INC.
By: /s/ Richard S. Stoltz
------------------------------
Date: 4/22/97 Its: Coo/CFO
----------- -----------------------------
25
<PAGE>
STATE OF WASHINGTON )
) ss.
COUNTY OF KING )
On this _______ day of April, 1997, before me, the undersigned, a Notary
Public in and for the State of Washington, duly commissioned and sworn as such,
personally appeared __________________________________, to me known to be the
___________________ of SABEY CORPORATION, the corporation that executed the
within and foregoing instrument, and acknowledged the said instrument to be the
free and voluntary act and deed of said corporation for the uses and purposes
therein mentioned, and on oath stated that he was authorized to execute said
instrument, and that the seal affixed is the corporate seal of said corporation.
WITNESS my hand and official seal the day and year in this certificate
first above written.
_____________________________________________
Printed Name:___________________________
NOTARY PUBLIC in and for the State of
Washington, residing at
_____________________________________________
STATE OF WASHINGTON )
) ss.
COUNTY OF KING )
On this _______ day of April, 1997, before me, the undersigned, a Notary
Public in and for the State of Washington, duly commissioned and sworn as such,
personally appeared __________________________________, to me known to be the
_______________ of Exodus Communications, Inc., the corporation that executed
the within and foregoing instrument, and acknowledged the said instrument to be
the free and voluntary act and deed of said corporation for the uses and
purposes therein mentioned, and on oath stated that he/she was authorized to
execute said instrument, and that the seal affixed is the corporate seal of said
corporation.
WITNESS my hand and official seal the day and year in this certificate
first above written.
_____________________________________________
Printed Name:___________________________
NOTARY PUBLIC in and for the State of
California, residing at __________________________
26
<PAGE>
EXHIBIT A
TO
LEASE AGREEMENT
LEGAL DESCRIPTION
A-1
[Diagram of Premises]
<PAGE>
EXHIBIT B
TO
LEASE AGREEMENT
FLOOR PLAN OF PREMISES
B-1
[Diagram of Premises]
<PAGE>
EXHIBIT C
TO
LEASE AGREEMENT
LANDLORD'S WORK AND TENANT'S WORK
I. IMPROVEMENTS PROVIDED BY LANDLORD
Landlord's Work to the Premises shall consist of the following:
1. Build any new demising walls surrounding the Premises, and any common area
corridor necessitated by the location of Exodus in the building.
2. Make available 1,200 amps of connected load electrical service for the
discretionary use of Exodus.
3. Landlord will make available an adequate amount of rooftop space and access
to the roof for the installation of satellite dishes, antenna and other forms of
communications equipment at Tenant's sole expense and maintenance.
4. Landlord will make a second location available for a backup generator. The
location will be in a mutually agreeable location to both Tenant and Landlord,
and will comply with all rules and regulations from the City of Tukwila for
screening. The Tenant will be responsible for all costs associated with said
generator, including the payment for any parking which may be removed to
accommodate the generator.
Except for such Landlord's Work, Landlord shall deliver, and Tenant shall
accept (except as provided for in Section IV. G. below), the Premises in its
"AS-IS" condition and configuration as provided in the Lease. Without limiting
the foregoing, Landlord shall not be required to modify or improve the existing
heating, exhaust, ventilation or air-conditioning equipment, to reinforce or
level the flooring of the Premises or the existing electrical system, to
accommodate Tenant.
II. IMPROVEMENTS BY TENANT/CONSTRUCTED BY LANDLORD'S CONTRACTOR
Design and construction of all improvements in the Premises beyond
Landlord's Work listed in Section I of this Exhibit C shall be provided at
Tenant's expense, subject to Landlord's payment of the Tenant Allowance if any.
III. BUILDING STANDARD IMPROVEMENTS
Landlord will choose the contractor to do Landlord Improvements if any.
IV. CONSTRUCTION OF TENANT IMPROVEMENTS
A. AUTHORIZATION TO PROCEED. Upon completion of Tenant's Final Plans,
Landlord shall provide to Tenant written notice of the price for such
improvements. Within five (5) days of receipt of such price, Tenant shall give
Landlord written authorization to complete the Premises in accordance with such
Final Plans. Tenant may in such authorization delete any or all items of extra
cost; however, if Landlord deems these changes to be extensive, at it option,
Landlord may refuse to accept the authorization to proceed until all changes
have been incorporated in the Final Plans signed by Tenant and written
acceptance of the revised price has been received by Landlord from Tenant. In
the absence of such written authorization to proceed, Landlord shall not be
obligated to commence work on the Premises and Tenant shall be responsible for
any costs due to any resulting delay in completion of the Premises.
B. PAYMENTS. Landlord's contractor shall complete Tenant's improvements
if chosen to do so in accordance with Tenant's approved Final Plans. Tenant
shall pay, within ten (10)
C-1
<PAGE>
days after receipt of monthly progress statements from Landlord, the full amount
of such progress billing. Tenant may retain an amount equal to five percent (5%)
of the estimated cost of such improvements from the last payment due before
acceptance of the premises. Final billing shall be rendered and payable within
ten (10) days after acceptance of the Premises by Tenant in accordance with the
terms of the Lease. Retainage pursuant to the terms of this paragraph shall be
payable with such final billing. In the event acceptance of the Premises is
subject to punch list items as provided in the Lease, a portion of the retainage
equal to the cost to complete each outstanding punch list item may be retained
until such punch list item is complete.
C. FINAL PLANS AND MODIFICATIONS. If Tenant shall request any change,
Tenant shall request such change in writing to Landlord and such request shall
be accompanied by all plans and specifications necessary to show and explain
changes from the approved Final Plans. After receiving this information,
Landlord shall give Tenant a written price for the cost of engineering and
design services to incorporate the changes in Tenant's Final Plans. If Tenant
approves such price in writing, Landlord shall have such Final Plans changes
made and Tenant shall promptly pay Landlord for this cost. Promptly upon
completion of such changes in the Final Plans, Landlord shall notify Tenant in
writing of the cost, if any, which shall be chargeable or credited to Tenant for
such change, addition or deletion. The cost for such change, whether chargeable
or credited to Tenant, shall include Landlord coordination fee equal to fifteen
percent (15%) of the amount of such change. Tenant shall within five (5) days
notify Landlord in writing to proceed with such change, addition or deletion.
In the absence of such notice, Landlord shall proceed in accordance with the
previously approved Final Plans before such change, addition or deletion was
requested. Tenant shall also be responsible for any demolition work required as
a result of the change.
D. IMPROVEMENTS CONSTRUCTED BY TENANT, EXCEPT FOR THOSE CONSTRUCTED BY
LANDLORD'S CONTRACTOR. If any work is to be performed in connection with Tenant
Improvements on the Premises by Tenant or Tenant's contractor:
(1) Such work shall proceed upon Landlord's written approval of (i)
Tenant's contractor, (ii) public liability and property damage insurance
satisfactory to Landlord carried by Tenant's contractor, and (iii) detailed
plans and specifications for such work.
(2) All work shall be done in conformity with a valid building
permit when required, a copy of which shall be furnished to Landlord before such
work is commenced, and in any case, all such work shall be performed in
accordance with all applicable governmental regulations. Notwithstanding any
failure by Landlord to object to any such work, Landlord shall have no
responsibility for Tenant's failure to meet all applicable regulations.
(3) All work by Tenant or Tenant's contractor shall be scheduled
through Landlord.
(4) Tenant or Tenant's contractor shall arrange for necessary
utility, hoisting and elevator service with Landlord's contractor and shall pay
such reasonable charges for such services as may be charged by Landlord's
contractor. Tenant shall reimburse Landlord upon demand for any sums expended by
Landlord for examination and approval of plans and specifications for any and
all Alterations. Tenant shall also pay Landlord a sum equal to the costs
incurred by Landlord during any inspection or supervision of any and all
Alterations.
(5) Tenant shall promptly reimburse Landlord for costs incurred by
Landlord due to faulty work done by Tenant or its contractors, or by reason of
any delays caused by such work, or by reason of inadequate clean-up.
(6) Prior to commencement of any work on the Premises by Tenant or
Tenant's contractor, Tenant and Tenant's contractor shall enter into an
indemnity agreement and a lien priority agreement satisfactory to Landlord
indemnifying and holding harmless Landlord and Landlord's contractor for any
liability, losses or damages directly or indirectly from lien claims affecting
the Land, the Building or the Premises arising out of Tenant's or Tenant's
contractor's work or that of subcontractors or suppliers, and subordinating any
such liens to the liens of
C-2
<PAGE>
construction and permanent financing for the Building.
(7) Landlord shall have the right to post a notice or notices in
conspicuous places in or about the Premises announcing its non-responsibility
for the work being performed therein.
(8) Notwithstanding the foregoing, Tenant and Tenant's contractor
shall comply with the general conditions for construction, as referenced in
Exhibit F.
E. TENANT'S ENTRY TO PREMISES. Tenant's entry to the Premises for any
purpose, including without limitation, inspection or performance of Tenant
Construction by Tenant's agents, prior to the Commencement Date as specified in
Section 1.6 of the Lease shall be scheduled in advance with Landlord and shall
be subject to all the terms and conditions of the Lease, except the payment of
Rent. Tenant's entry shall mean entry by Tenant, its officers, contractors,
office planner, licensees, agents, servants, employees, guests, invitee, or
visitors.
F. TENANT'S TELEPHONE. Tenant is responsible for Tenant's telephone
service. Tenant shall select Tenant's telephone system and shall coordinate its
installation with the Landlord.
G. LANDLORD'S WARRANTIES. Landlord shall complete any Tenant
Improvements in the Premises, if chosen as the contractor, in a good and
workmanlike manner. All warranties provided with such work shall be assigned to
Tenant.
C-3
<PAGE>
EXHIBIT C-1
TO
LEASE AGREEMENT
TENANT'S REMOVABLE PROPERTY
Subject to the terms and conditions of this Lease, the fixtures,
improvements, furniture, equipment and other property of Tenant which may be
removed by Tenant from the Premises at the expiration or earlier termination of
this Lease are as set forth below in this Exhibit C-1. No other improvements,
alterations or property shall be removed from the Premises at the expiration or
termination of this Lease except as may be provided otherwise in the Lease or as
may be agreed upon by Landlord and Tenant and added to this Exhibit C-1 by
amendment to this Lease.
1. Upon the termination or expiration of this Lease Tenant, at Tenant's
expense, shall remove all cabling and wiring included within the scope of
Tenant's Work, Landlord's Work, Tenant's Alterations, or which was otherwise
installed by Tenant, from all interstitial/ceiling plenum areas.
2. Furniture, and personal property.
C-1-1
<PAGE>
EXHIBIT D
TO
LEASE AGREEMENT
RULES AND REGULATIONS
1. Any directory provided by Landlord for the Building will be for the display
of the name and location of tenants of the Building, and Landlord reserves
the right to exclude any other names from inclusion in any such directory.
2. Tenant shall not place any new or additional locks on any doors of the
Premises or re-key any existing locks without the prior written consent of
landlord.
3. Landlord reserves the right to exclude or expel from the common areas any
person who, in the sole judgment of Landlord, is intoxicated, under the
influence of drugs or who shall in any manner violate any of these Rules
and Regulations.
4. Tenant shall not do or permit to be done within the Premises, the building
or parking loading or other adjoining common areas, anything which would
unreasonably annoy or interfere with the rights of other tenants of the
Building.
5. Tenant shall not permit its employees or invitees to loiter in or about the
common areas or obstruct any of the parking, truck maneuvering or other
common areas, or to place, empty or throw away rubbish, litter, trash or
material of any nature upon any common areas.
6. No storage of materials, equipment or property of any kind is permitted
outside the Premises unless otherwise approved in writing by Landlord and
any such property may be removed by Landlord at Tenant's risk and expense.
7. Tenant shall not make or permit any use of the Premises which in the sole
judgment of Landlord, may be dangerous to persons or property; permit any
noise, odor or vibrations to emit from the Premises which are objectionable
to Landlord or other occupants of the Building; or to create, maintain or
permit a nuisance or any violation of any regulation of any governmental
agency thereon.
8. Tenant shall not commit or permit to be committed any waste, damage or
injury to the Premises, the Building or parking, loading and other common
areas adjoining and shall promptly notify Landlord in writing of such
waste, damage or injury and repair the same at its expense.
9. Tenant understands that any equipment required for maintenance of the
Premises is Tenant's responsibility and that Landlord has no equipment
available for Tenant's use therefore (e.g. ladders or lifts for re-lamping,
etc.).
10. Tenant shall use the Premises and shall operate its equipment on the
Premises in a safe and prudent manner, and any damage or cracks occurring
in the floor of the Premises caused by Tenant shall be promptly brought to
the attention of Landlord by written notice and repaired by Tenant at its
expense.
11. Tenant shall not at any time display a "For Rent" sign upon the Premises.
12. Tenant shall be responsible for keeping a copy of the Lease and Landlord's
current rules and regulations upon the Premises.
13. Tenant agrees to cause its employees to park only in such designated areas
as may be designated by Landlord from time to time for employee parking and
shall abide by any rules or regulations concerning parking promulgated by
Landlord, or Landlord's
D-1
<PAGE>
agent, from time to time.
14. Tenant shall not waste electricity or water and agrees to cooperate fully
with Landlord to assure the most effective and economical use of utilities
services as may be provided to the Building by Landlord.
15. Tenant shall keep Landlord advised of current telephone numbers of Tenant's
employees who may be contacted in an emergency, i.e., fire, break-in,
vandalism, etc., and shall also post such telephone numbers in a location
which is clearly visible from the exterior of the Premises. If Landlord
shall deem it necessary, in its sole judgment, to respond to such emergency
in Tenant's behalf, Tenant shall pay all costs incurred for services
ordered by Landlord to secure or otherwise protect the Premises and the
contents thereof, including a premium charge for any time spent by
Landlord's employees in responding to such emergency.
16. Tenant shall not smoke, and shall cause its employees, contractors, agents
and invitees to refrain from smoking, in the Building except in such areas
as may be designated as smoking areas by Landlord, if any. In the event
that Tenant desires to allow smoking in its Premises and such smoking is
permitted under applicable laws, then Tenant, at Tenant's sole expense and
subject to the requirements of Section 9 (Improvements And Alterations By
Tenant), shall first take such action as may be necessary to have a smoke
exhaust system installed in the Premises that is acceptable to Landlord.
17. No pets or other animals are permitted on the Property, including the
Premises, at any time except: (i) dogs which are present on the Property or
Premises in their capacity of providing assistance to a disabled person;
and (ii) laboratory animals of tenants leasing laboratory space and
pursuant to terms agreed upon by Landlord in writing prior to such animals
being brought onto the Property.
D-2
<PAGE>
EXHIBIT 10.13
THIS AGREEMENT or LEASE is made this 27th day of June, 1997,
BETWEEN:
THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.), a company
domiciled in the State of Michigan and having an office at 200
Bloor Street East, Toronto, Ontario M4W 1E5, CANADA, and having a
local office at 865 South Figuero Street, Suite 2300,
in the City
of Los Angeles, State of California 90017
(hereinafter called the "Landlord"),
OF THE FIRST PART,
--and--
EXODUS COMMUNICATIONS, INC.,
a California corporation
having an office at 1605 Wyatt Drive
in the City
of Santa Clara, State of California 95054
(hereinafter called the "Tenant"),
OF THE SECOND PART.
In consideration of the "Rent" (as hereinafter defined), covenants and
agreements hereinafter contained, the Landlord and Tenant hereby agree as
follows:
1. LEASED PREMISES
Leased The Landlord does demise and lease to the Tenant the premises
Premises located in the building (the "Building") having a municipal
address of 72 Corporate Park in the City of Irvine, State of
California 92606, and known as Suite 100 (the "Leased
Premises") (the Leased Premises, the Building, together with
the lands described in Schedule "A" attached hereto and
-----------
present and future improvements, additions and changes thereto
being herein called the "Property"), with the Leased Premises
consisting of approximately sixteen thousand seven hundred
fifty (16,750) rentable square feet on the first (1st)
floor(s) of the Building as outlined on the plan or plans
marked Schedule(s) "B-1" and attached hereto, excluding the
----------------
exterior surfaces of the exterior walls
INITIAL
---------------------
Landlord Tenant
1
<PAGE>
of the Leased Premises. As of the date of this Lease, the
parties hereto agree that the rentable square footage of the
Leased Premises is approximately sixteen thousand seven
hundred fifty (16,750) square feet. Within ten (10) days prior
to the "Commencement Date" of the "Term" (as both terms are
hereinafter defined), Landlord shall provide to Tenant, in
writing, the actual rental square footage of the Leased
Premises, as calculated by Landlord's architect or space
planner, with supporting documentation from same, in
accordance with the then-current standards promulgated by the
Building Owners and Managers Association for use in the
Southern California area (the "BOMA Standard") (for example,
ANSI 265.1-1989), which BOMA Standard will be adjusted to
reflect any particularities of the Building and/or the
Property; provided, however, if the determination of the
actual rental square footage of the Leased Premises is
different from sixteen thousand seven hundred fifty (16,750)
rentable square feet, Landlord and Tenant will execute an
amendment to this Lease prior to the Commencement Date, as
prepared by Landlord and reasonably approved and executed by
Tenant, which amendment shall modify the "Basic Rent,"
"Tenant's Proportionate Share" (as both terms are hereinafter
defined), and any other applicable provisions of this Lease,
to reflect the actual rentable square footage of the Leased
Premises. See Schedules "F," "L" and "N" attached hereto.
------------------ ---
2. TERM
Term (a) TO HAVE AND TO HOLD the Leased Premises for and during the
term of ten (10) years and no days/months (the "Term") to be
computed from the first (1st) day of September, 1997 (the
"Commencement Date"), and to be fully complete and ended on
the thirty-first (31st) day of August, 2007 (the "Expiration
Date"), unless otherwise terminated. See Schedules "F," "H"
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and "I" attached hereto.
---
Delay in (b) If the Leased Premises or any part thereof are not ready
Occupancy for occupancy on the Commencement Date (as a result of a delay
in Landlord's construction and completion of "Landlord's Work"
(as hereinafter defined)), no part of the Rent or only a
proportionate part thereof, in the event that the Tenant shall
occupy a part of the Leased Premises, shall be payable for the
period prior to the date when the entire Leased Premises are
ready for occupancy and the full Rent shall accrue only after
such last mentioned date. The Tenant agrees to accept any such
abatement of Rent in full settlement of all claims which the
Tenant might otherwise have by reason of the Leased Premises
not being ready for occupancy on the Commencement Date;
provided that when the Landlord has completed construction of
such part of the Leased Premises as it is obliged hereunder to
construct, the Tenant shall not be entitled to any abatement
of Rent for any delay in occupancy due to the Tenant's failure
or delay to provide plans or to complete any special
installations or other work required for its purposes or due
to any other reason, nor shall the Tenant be entitled to any
abatement of Rent for any delay in occupancy if the Landlord
has been unable
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to complete construction of the Leased Premises by reason of
such failure or delay by the Tenant. A certificate of the
Landlord as to the date the Leased Premises were ready for
occupancy and such construction as the Landlord is obliged to
complete is substantially completed, or as to the date upon
which the same would have been ready for occupancy and
completed, respectively, but for the failure or delay of the
Tenant, shall be conclusive and binding on the Tenant and Rent
in full shall accrue and become payable from the date set out
in the said certificate. See Schedule "I" attached hereto.
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Over-holding (c) If at the expiration of the Term or sooner termination
hereof, the Tenant shall remain in possession without any
further written agreement or in circumstances where a tenancy
would thereby be created by implication of law or otherwise, a
tenancy from year to year shall not be created by implication
of law or otherwise, but the Tenant shall be deemed to be a
monthly tenant only, at one hundred fifty percent (150%) of
the then-current Basic Rent (payable monthly in advance) plus
all "Additional Rent" (as hereinafter defined) and otherwise
upon and subject to the same terms and conditions as herein
contained, excepting provisions for renewal (if any) and
leasehold improvement allowance (if any), contained herein,
and nothing, including the acceptance of any Rent by the
Landlord, for periods other than monthly periods, shall extend
this Lease to the contrary except an agreement in writing
between the Landlord and the Tenant, and Tenant hereby
authorizes the Landlord to apply any monies received from the
Tenant in payment of such monthly Rent. The Tenant hereby
agrees to indemnify, defend and hold Landlord, the Leased
Premises and the Property harmless from and against any and
all losses, costs, damages and liabilities (including
reasonable attorneys' fees and costs, and court costs, but
excluding any consequential or punitive damages claimed by
Landlord) which the Landlord may suffer as a result of the
Tenant's failure to timely surrender exclusive possession of
the Leased Premises to Landlord, as set forth herein.
3. RENT
Basic Rent (a) The Tenant shall without deduction or right of offset pay
to the Landlord yearly and every year during the Term as
rental (herein called "Basic Rent"), the sum of Two Hundred
Fifty-One Thousand Two Hundred Fifty Dollars (US$251,250.00)
of lawful money of the jurisdiction in which the Leased
Premises are located, in equal monthly installments of Twenty
Thousand Nine Hundred Thirty-Seven and 50/100 Dollars
(US$20,937.50) each in advance on the first day of each month
during the Term, the first payment to be made upon the
Tenant's execution of this Lease and applied by Landlord to
the first month of the Term; provided, however, the Basic Rent
shall be increased in accordance with Schedule "K" attached
------------
hereto.
Additional (b) The Tenant shall, without deduction or right of offset
Rent pay to the Landlord yearly and every year during the Term, as
additional rental (herein
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called "Additional Rent"):
(i) the amounts of any Taxes payable by the Tenant to
the Landlord pursuant to the provisions of Schedule "C"
------------
attached hereto; and
(ii) the amounts required to be paid to the Landlord
pursuant to the provisions of Schedule "D" attached hereto.
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Payment- (c) Additional Rent shall be paid and adjusted with
Additional reference to a fiscal period of twelve (12) calendar months
Rent ("Fiscal Period"), which shall be a calendar year unless the
Landlord shall from time to time have selected a Fiscal Period
which is not a calendar year by written notice to the Tenant.
The Landlord shall advise the Tenant in writing of its
estimate of the Additional Rent to be payable by the Tenant
during the Fiscal Period (or broken portion of the Fiscal
Period, as the case may be, if applicable at the Commencement
Date or because of a change in Fiscal Period) which commenced
upon the Commencement Date and for each succeeding Fiscal
Period or broken portion thereof which commences during the
Term. Such estimate shall in every case be a reasonable
estimate and, if requested by the Tenant, shall be accompanied
by reasonable particulars of the manner in which it was
calculated. The Additional Rent payable by the Tenant shall be
paid in equal monthly installments in advance at the same time
as payment of Basic Rent is due hereunder based on the
Landlord's estimate as aforesaid. From time to time, the
Landlord may re-estimate, on a reasonable basis, the amount of
Additional Rent for any Fiscal Period or broken portion
thereof, in which case the Landlord shall advise the Tenant in
writing of such re-estimate and fix new equal monthly
installments for the remaining balance of such Fiscal Period
or broken portion thereof. After the end of each such Fiscal
Period or broken portion thereof the Landlord shall submit to
the Tenant a statement of the actual Additional Rent payable
in respect of such Fiscal Period or broken portion thereof and
a calculation of the amounts by which the Additional Rent
payable by the Tenant exceeds or is less than (as the case may
be) the aggregate installments paid by the Tenant on account
of Additional Rent for such Fiscal Period. Within thirty (30)
days after the submission of such statement either the Tenant
shall pay to the Landlord any amount by which the amount found
payable by the Tenant with respect to such Fiscal Period or
broken portion thereof exceeds the aggregate of the monthly
payments made by it on account thereof during such Fiscal
Period or broken portion thereof, or the Landlord shall pay to
the Tenant any amount by which the amount found payable as
aforesaid is less than the aggregate of such monthly payments.
Accrual of (d) Basic Rent and Additional Rent (herein collectively
Rent called "Rent") shall be considered as accruing from day to
day, and Rent for an irregular period of less than one year or
less than one calendar month shall be apportioned and
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adjusted by the Landlord for the Fiscal Periods of the
Landlord in which the tenancy created hereby commences and
expires. Where the calculation of Additional Rent for a period
cannot be made until after the termination of this Lease, the
obligation of the Tenant to pay Additional Rent shall survive
the termination hereof and Additional Rent for such period
shall be payable by the Tenant upon demand by the Landlord. If
the Term commences or expires on any day other than the first
or the last day of a month, Rent for such fraction of a month
shall be apportioned and adjusted as aforesaid and paid by the
Tenant on the actual Commencement Date of the Term.
Recovery of (e) Rent and any other amounts required to be paid by the
Rent Tenant to the Landlord under this Lease shall be deemed to
be, and will be treated as, Rent, and be payable and
recoverable as Rent, and the Landlord shall have all rights
against the Tenant for default in any payment of Rent and
other amounts as in the case of arrears in Rent.
Limitations (f) The information set out in statements, documents or other
writings setting out the amount of Additional Rent submitted
to the Tenant under or pursuant to this Lease shall be binding
on the Tenant and deemed to be accepted by it and shall not be
subject to amendment for any reason unless the Tenant gives
written notice to the Landlord within sixty (60) days of the
Landlord's submission of such statement, document, or writing
identifying the statement , document, or writing and setting
out in reasonable detail the reason why such statement,
document or writing should not be binding on the Tenant.
However, and within the sixty (60) day period provided to the
Tenant herein, Tenant shall have the right, after at least
five (5) business days' prior written notice to Landlord and
only at reasonable times during normal business hours at
Landlord's offices in Los Angeles, California, to review
Landlord's records pertaining to the calculation of Additional
Rent , all at Tenant's sole cost and expense (except as
otherwise provided herein). Landlord hereby agrees to use
commercially reasonable efforts to cooperate with Tenant in
and during such review; provided, Landlord shall not be
obligated to expend any monies in connection therewith. If,
after such review, Tenant disputes the amount of Additional
Rent billed to Tenant, Tenant may retain a reputable,
independent, certified public accountancy firm to audit
Landlord's records regarding the disputed item or items in
order to determine the proper amount of Additional Rent. If
such audit reveals that Landlord has overcharged Tenant, then
within thirty (30) days after the results of such audit are
made available to Landlord, Landlord shall reimburse Tenant
for the amount of such overcharge. If the audit reveals that
Tenant was undercharged, then within thirty (30) days after
the results of such audit are made available to Tenant, Tenant
shall reimburse Landlord for the amount of such undercharge.
Tenant hereby agrees to pay all costs and expenses associated
with any such audit; provided, however, Landlord shall pay
such costs and expenses if the audit reveals that Landlord's
determination of Additional Rent was in error by more than
five percent (5%). Landlord shall use commercially reasonable
efforts to maintain the records
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regarding the Additional Rent charged to Tenant after their
billing to Tenant, but Tenant will not be entitled to audit or
adjust any calculation of Additional Rent after the above-
referenced sixty (60) day period has elapsed from the date of
the billing of the applicable Additional Rent.
4. SECURITY DEPOSIT
Security The Tenant shall pay to the Landlord on execution of this
Deposit Lease by the Tenant the sum of Twenty Thousand Nine Hundred
Thirty-Seven and 50/100 Dollars ($20,937.50) as the "security
deposit" and/or "Security Deposit" for the payment by the
Tenant of any and all present and future debts and liabilities
of the Tenant to the Landlord and for the performance by the
Tenant of all of its obligations arising under or in
connection with this Lease (the "Debts , Liabilities and
Obligations"). The Landlord shall not be required to keep the
Security Deposit separate from its general funds. In the event
of the Landlord disposing of its interest in this Lease, the
Landlord shall credit the Security Deposit to its successor
and thereupon shall have no liability to the Tenant to repay
the Security Deposit to the Tenant; provided, Landlord will
have delivered to Tenant written notice of Landlord's transfer
or disposition of all or any portion of Landlord's interest in
this Lease. Subject to the foregoing and to the Tenant not
being in default under this Lease, the Landlord shall repay
the Security Deposit to the Tenant without interest at the end
of the Term or sooner termination of the Lease; provided, that
all Debts, Liabilities and Obligations of the Tenant to the
Landlord are paid and performed in full, failing which the
Landlord may on notice to the Tenant elect to retain the
Security Deposit and to apply it in reduction of the Debts,
Liabilities and Obligations and the Tenant shall remain fully
liable to the Landlord for payment and performance of the
remaining Debts, Liabilities and Obligations. See Schedule "M"
------------
attached hereto.
Landlord's (a) The Landlord covenants with the Tenant:
Covenant
(i) for quiet enjoyment of the Leased Premises; and
(ii) to observe and perform all the covenants and
obligations of the Landlord herein.
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Tenants'
Covenant (b) The Tenant covenants with the Landlord:
(i) to pay Rent; and
(ii) to observe and perform all the covenants and
obligations of the Tenant herein.
6. USE AND OCCUPANCY
The Tenant covenants with the Landlord:
Use (a) not to use the Leased Premises for any purpose other than
as an office for the conduct of the Tenant's business, which
is as a data center with administrative and research
functions, and general office uses.
Waste,
Nuisance, etc. (b) not to commit, or permit, any waste, injury or damage to
the Property, including the "Leasehold Improvements" (as
hereinafter defined) and any trade fixtures therein, any
loading of the floors thereof in excess of the maximum degree
of loading as determined by the Landlord acting reasonably
(with the degree of loading not to be less than "live load" of
one hundred twenty-five pounds (125 lbs.) per square foot of
floor area for the Leased Premises only during the Term), any
nuisance therein or any use or manner of use causing annoyance
to other tenants and occupants of the Property or to the
Landlord;
Insurance (c) not to do, omit or permit to be done or omitted to be
Risks done upon the Property anything which would cause to be
increased the Landlord's cost of insurance or the costs of
insurance of another tenant of the Property against perils as
to which the Landlord or such other tenant has insured or
which shall cause any policy of insurance on the Property to
be subject to cancellation;
Compliance (d) to comply at its own expense with all governmental laws,
with Law regulations and requirements pertaining to the occupation and
use of the Leased Premises, the condition of the Leasehold
Improvements, trade fixtures, furniture and equipment
installed by or on behalf of the Tenant therein and the making
by the Tenant of any repairs, changes or improvements therein.
In connection with Tenant's obligations under this Paragraph
6(d) and in Paragraph 6(e) of this Lease, and after the
Commencement Date, Tenant hereby acknowledges and agrees that
any changes or modifications to the common areas or any other
part of the Building and/or the Property, which are required
to be made pursuant to the applicable federal, state, local,
municipal, governmental or quasi-governmental laws, rules,
regulations or orders (including, but not limited to, the
Americans with Disabilities Act of 1990, as amended ("ADA"),
and also including, without limitation, any modifications to
the bathrooms within the Building), shall be paid for by
Tenant as part of Tenant's Proportionate Share of the
Operating Costs, but with regard to any Leasehold Improvements
or
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alterations, additions or improvements to the Leased Premises
made after the Commencement Date, they shall be paid for by
Tenant, at Tenant's sole cost and expense. Prior to the
Commencement Date, Landlord hereby agrees that the building
and the Property will be in compliance with applicable laws,
regulations and requirements, including ADA and "Environmental
Laws" (as hereinafter defined).
Environmental (e) (i) to conduct and maintain its business and
Compliance operations at the Leased Premises so as to comply
in all respects with common law and with all
present and future applicable federal,
provincial/state, local, municipal, governmental
or quasi-governmental laws, bylaws, rules,
regulations, licenses, orders, guidelines,
directives, permits, decisions or requirements
concerning occupational or public health and
safety or the environment and any order,
injunction, judgment, declaration, notice or
demand issued thereunder (collectively,
"Environmental Laws").
(ii) not to permit or suffer any substance which is
hazardous or is prohibited, restricted, regulated
or controlled under any Environmental Laws to be
present at, on or in the Leased Premises and/or
the Property, unless it has received the prior
written consent of the Landlord, which consent may
be arbitrarily withheld by the Landlord (except
for general business supplies (such as copier
toner, liquid paper, glue, ink and/or cleaning
solvents) for use in the manner in which they were
designed and only in types and amounts necessary
for normal business operations). Notwithstanding
anything to the contrary set forth in this
Paragraph 6(e)(ii), Landlord hereby consents to
Tenant's use of diesel fuel on the Property for
the sole purpose of the "UPS Generator" (as
hereinafter defined), pursuant to Schedule "F"
------------
attached hereto, which shall be in compliance by
Tenant with all Environmental Laws, and shall be
used only in the manner for which it was designed
and only in the type and amount necessary for
normal operation of the UPS Generator.
(iii) Except as the result of Tenant's negligence and/or
willful misconduct or as caused by any act or
omission of Tenant and/or Tenant's agents,
contractors and representatives, the Tenant will
not be responsible for the violation of any
Environmental Laws affecting the Property arising
either prior to the Commencement Date or the
"Improvement Period" (as hereinafter defined)
described in Schedule "I" attached hereto.
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Rules and
Regulations (f) to observe and perform, and to cause its employees,
invitees and others over whom the Tenant can reasonably be
expected to exercise control to
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observe and perform, the Rules and Regulations contained in
Schedule "E" attached hereto, and such further and other
------------
reasonable rules and regulations and amendments and additions
therein as may hereafter be made by the Landlord and notified
in writing to the Tenant, except that no change or addition
may be made that is inconsistent with this Lease, unless as
may be required by governmental regulation or unless the
Tenant consents thereto. The imposition of such Rules and
Regulations shall not create or imply any obligation of the
Landlord to enforce them or create any liability of the
Landlord for their non-enforcement or otherwise.
7. ASSIGNMENT AND SUB-LETTING
No Assignment
and Sub-letting (a) The Tenant covenants that it will not assign this Lease
or sub-let the Leased Premises in whole or in part without the
prior written consent of the Landlord, which consent the
Landlord covenants not to unreasonably withhold or delay, (i)
as to any assignee or sub-lessee who is in a satisfactory
financial condition, agrees to use the Leased Premises for
those purposes permitted hereunder, and (ii) as to any portion
of the Leased Premises which, in the Landlord's reasonable
judgment, is a proper and rational division of the Leased
Premises, subject to the Landlord's right of termination
arising under this Paragraph 7. Without limitation, the Tenant
shall for the purpose of this Paragraph 7 be considered to
assign or sub-let in any case where it permits the Leased
Premises or any portion thereof to be, or the Leased Premises
or any portion thereof are, occupied by persons other than the
Tenant, its employees and others engaged in carrying on the
business of the Tenant, whether pursuant to assignment, sub-
letting, license or other right, or where any of the foregoing
occurs by operation of law. Notwithstanding anything to the
contrary set forth in this Lease, Tenant may assign this Lease
at any time, or sublease all or a part of the Leased Premises,
upon prior written notice to Landlord but without receipt of
Landlord's prior written consent, to any entity which acquires
a majority of Tenant's assets or stock, or is merged or
consolidated with Tenant, or which controls, is controlled by
or is under common control with, Tenant (collectively, an
"Affiliate"), so long as (i) such transaction was not entered
into as a subterfuge to avoid the obligations and restrictions
of this Lease, (ii) at least ten (10) days prior to the
effective date of the transaction, Tenant notifies Landlord of
such transaction and supplies Landlord with any documents or
information reasonably requested by Landlord regarding such
transaction or such Affiliate, (iii) in the case of an
assignment, such Affiliate conclusively agrees, in writing
delivered to Landlord prior to the effective date of the
transaction, to assume all of Tenant's obligations under this
Lease, and (iv) the net worth of such Affiliate, as of the
effective date of the assignment or sublease, is at least
equal to the net worth of Tenant as of the date of this Lease.
Any such assignment or subletting to an Affiliate pursuant to
this Paragraph 7 shall neither release nor relieve Tenant from
any of Tenant's obligations under this Lease.
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Assignment or (b) The Tenant shall not assign this Lease or sub-let the
Sub-letting whole or any part of the Leased premises unless:
Procedures
(i) it shall have received or procured a bona fide
written offer to take an assignment or sub-lease,
which is not inconsistent with this Lease and
would not breach any provisions of this Lease, and
(ii) it shall have first requested and obtained the
consent in writing of the Landlord thereto.
Any request for consent shall be in writing and accompanied by
a copy of the offer certified by the Tenant to be true and
complete, and the Tenant shall furnish to the Landlord all
information available to the Tenant and requested by the
Landlord as to the responsibility, financial standing and
business of the proposed assignee or sub-tenant.
Notwithstanding anything to the contrary set forth in
Paragraph 7(a) of this Lease (except for any assignment or
subleasing to an Affiliate, as set forth in such Paragraph
7(a) above), and commencing on and after September 1, 2000
(unless Tenant attempts to assign a portion of this Lease or
sublet a portion of the Leased Premises which, in the
aggregate, are in excess of twenty-five percent (25%) of
Tenant's total interest in this Lease or the Leased Premises,
respectively, in which event Landlord's termination right
hereunder shall apply immediately, if so elected by Landlord),
then within twenty (20) days after the receipt by the Landlord
of such request for consent and of all information which the
Landlord shall have requested hereunder, the Landlord shall
have the right upon written notice of termination submitted to
the Tenant, if the request is to assign this Lease or sub-let
the whole of the Leased Premises, to cancel and terminate this
Lease, or if the request is to sub-let a part of the Leased
Premises only, to cancel and terminate this Lease with respect
to such part, in each case as of a termination date to be
stipulated in the notice of termination which shall be not
less than sixty (60) days or more than ninety (90) days
following the giving of such notice. In such event the Tenant
shall surrender the whole or part, as the case may be, of the
Leased Premises in accordance with such notice of termination
and Basic Rent and Additional Rent shall be apportioned and
paid to the date of surrender and, if a part only of the
Leased Premises is surrendered, Basic Rent and Additional Rent
shall after the date of surrender abate proportionately. If
such consent shall be given the Tenant shall assign or sub-
let, as the case may be, only upon the terms set out in the
offer submitted to the Landlord as aforesaid and not
otherwise.
Assumption of (c) No assignment or sub-letting of this Lease shall be
Obligations effective unless the assignee or sub-lessee shall execute an
assumption agreement on the Landlord's commercially reasonable
form, assuming all the obligations of the Tenant hereunder,
and shall pay to the Landlord its reasonable fee for
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processing the assignment or sub-letting, which fee will not
exceed $l,200.00 per request.
Tenant's (d) The Tenant agrees that any consent to an assignment or
Continuing sub-letting of this Lease or Leased Premises shall not thereby
Obligations release the Tenant of its obligations hereunder.
8. REPAIR & DAMAGE
Landlord's (a) The Landlord covenants with the Tenant to keep in a
Repairs to good and reasonable state of repair and decoration:
Building and
Property
(i) those portions of the Property consisting of the
entrance, lobbies, stairways, corridors, landscaped areas,
parking areas, and other facilities from time to time provided
for use in common by the Tenant and other tenants of the
Building or Property, and the exterior portions (including
foundations, exterior walls and all aspects of the roof) of
the Building and structures from time to time forming part of
the Property and affecting its general appearance;
(ii) the Building (other than the Leased Premises and
premises of other tenants) including the systems for interior
climate control, the elevators and escalators (if any),
entrances, lobbies, stairways, corridors and washrooms from
time to time provided for use in common by the Tenant and
other tenants of the Building or Property and the systems
provided for use in common by the Tenant and other tenants of
the Building or Property and the systems provided for bringing
utilities to the Leased Premises.
Landlord's (b) Except as the result of the Tenant's negligence and/or
Repairs to the willful misconduct, the Landlord covenants with the Tenant to
Leased Premises repair, so far as reasonably feasible, and as expeditiously as
reasonably feasible, defects in standard demising walls or in
structural elements, exterior walls of the Building, suspended
ceiling, electrical and mechanical installations standard to
the Building installed by the Landlord in the Leased Premises
(if and to the extent that such defects are sufficient to
impair the Tenant's use of the Leased Premises while using
them in a manner consistent with this Lease) and "Insured
Damage" (as hereinafter defined). The Landlord shall in no
event be required to make repairs to Leasehold Improvements
made by the Tenant, or by the Landlord on behalf of the Tenant
or another tenant or to make repairs to wear and tear within
the Leased Premises.
Tenant's (c) The Tenant covenants with the Landlord to repair,
Repairs maintain and keep at the Tenant's own cost, except insofar as
the obligation to repair rests upon the Landlord pursuant to
this Paragraph 8, the Leased Premises, including Leasehold
Improvements in good and substantial repair, reasonable wear
and
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tear excepted, provided that this obligation shall not extend
to structural elements or to exterior glass or to repairs
which the Landlord would be required to make under this
Paragraph 8 but for the exclusion therefrom of defects not
sufficient to impair the Tenant's use of the Leased Premises
while using them in a manner consistent with this Lease. The
Landlord, upon at least twenty-four (24) hours prior written
notice to the Tenant (except in the event of an emergency,
when no prior notice will be required), may enter the Leased
Premises and view the condition thereof and the Tenant
covenants with the Landlord to repair, maintain and keep the
Leased Premises in good and substantial repair according to
notice in writing, reasonable wear and tear excepted;
provided, that the Landlord will use commercially reasonable
efforts to observe Tenant's reasonable security precautions.
If the Tenant shall fail to repair as aforesaid after
reasonable notice to do so, the Landlord may effect the
repairs and the Tenant shall pay the reasonable cost thereof
to the Landlord on demand. The Tenant covenants with the
Landlord that the Tenant will at the expiration of the Term or
sooner termination thereof peaceably surrender the Leased
Premises in good and substantial repair and condition,
reasonable wear and tear excepted.
Indemnifi- (d) If any part of the Property becomes out of repair,
cation damaged or destroyed through the negligence of, willful
misconduct or misuse by, the Tenant or its employees, agents,
invitees or others under its control, the Tenant shall pay the
Landlord on demand the expense of repairs or replacements,
including the Landlord's reasonable attorneys' fees and costs,
and court costs and administration charges thereof,
necessitated by such negligence, willful misconduct or misuse.
It is the intention of the parties hereto that the terms of
this Lease govern the respective obligations of the parties
hereto for the maintenance and repair of the Leased Premises,
and Tenant hereby expressly waives the benefits of any
statute, law and/or ordinance, now or hereafter in effect, to
the extent it is inconsistent with the terms of this Lease,
including, but not limited to, Tenant's right to make repairs
under Sections 1941 and 1942 of the California Civil Code.
Damage and (e) It is agreed between the Landlord and the Tenant that:
Destruction
(i) In the event of damage to the Property or to any
part thereof, if the damage is such that the Leased Premises
or any substantial part thereof is rendered not reasonably
capable of use and occupancy by the Tenant for the purposes of
its business for any period of time in excess of thirty (30)
days, then
(A) unless the damage was primarily caused by the
Tenant or its employees, agents, invitees or others under its
control, from the date of occurrence of the damage and until
the Leased Premises are again reasonably capable for use and
occupancy as aforesaid, the Rent payable pursuant to this
Lease shall abate from time to time in proportion to the part
or parts of the
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Leased Premises not reasonably capable of such use and
occupancy, and
(B) unless this Lease is terminated as
hereinafter provided, the Landlord or the Tenant as the case
may be (according to the nature of the damage and their
respective obligations to repair as provided in sub-paragraphs
(a), (b) and (c) of this Paragraph 8) shall repair such damage
with all reasonable diligence, but to the extent that any part
of the Leased Premises is not reasonably capable of such use
and occupancy by reason of damage which the Tenant is
obligated to repair hereunder, any abatement of Rent to which
the Tenant would otherwise be entitled hereunder shall not
extend later than the time by which, in the reasonable opinion
of the Landlord, repairs by the Tenant ought to have been
completed with reasonable diligence; and
(ii) if the Leased Premises are substantially damaged
or destroyed by any cause and if in the reasonable opinion of
the Landlord, given in writing within thirty (30) days of the
occurrence the damage, cannot reasonably be repaired within
one hundred and eighty (180) days after the occurrence
thereof, then this Lease shall terminate, in which event
neither the Landlord nor the Tenant shall be bound to repair
as provided in sub-paragraphs (a), (b) and (c) of this
Paragraph 8, and the Tenant shall instead deliver up
possession of the Leased Premises to the Landlord with
reasonable expedition and Rent shall be apportioned and paid
to the date of the occurrence; and
(iii) if half or more of the total number of square
feet of rentable office area in the Property or half or more
of the total number of square feet of rentable office area in
the Building (as determined by the Landlord) or portions of
the Property which affect access or services essential
thereto, are substantially damaged or destroyed by any cause
and if in the reasonable opinion of the Landlord the damage
cannot reasonably be repaired within one hundred and eighty
(180) days after the occurrence thereof, then the Landlord
may, by written notice to the Tenant given within thirty (30)
days after the occurrence of such damage or destruction,
terminate this Lease, in which event neither the Landlord nor
the Tenant shall be bound to repair as provided in sub-
paragraphs (a) (b) and (c) of this Paragraph 8, and the Tenant
shall instead deliver up possession of the Leased Premises to
the Landlord with reasonable expedition but in any event
within sixty (60) days after delivery of such notice of
termination, and Rent shall be apportioned and paid to the
date upon which possession is so delivered up (but subject to
any abatement to which the Tenant may be entitled under sub-
paragraph(e) (i) of this Paragraph 8).
(iv) Landlord and Tenant hereby agree that the terms
of this Lease shall govern the effect of any damage to or the
destruction of the Leased Premises with respect to the
termination of this Lease, and hereby waive any present or
future statutes, ordinances and/or laws to the extent
inconsistent herewith, including but not limited to, Sections
1932(2) and 1933(4) of the
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California Civil Code.
9. INSURANCE AND LIABILITY
Landlord's (a) The Landlord shall take out and keep in force during the
insurance Term insurance with respect to the Property, except for the
Leasehold Improvements in the Leased Premises. The insurance
to be maintained by the Landlord shall be in respect of perils
and to amounts and on terms and conditions which, from time to
time, are insurable at a reasonable premium and which are
normally insured by reasonable prudent owners of properties
similar to the Property, all as from time to time determined
at reasonable intervals by insurance advisors selected by the
Landlord, and whose opinion shall be conclusive. Unless and
until the insurance advisors shall state that any such perils
are not customarily insured against by owners of properties
similar to the Property, the perils to be insured against by
the Landlord shall include, without limitation, public
liability, boilers and machinery, fire and extended perils,
and may include, at the option of the Landlord, losses
suffered by the Landlord through business interruption.
Notwithstanding anything to the contrary set forth in this
Lease, and without affecting the rights or remedies of the
parties hereto, Landlord and Tenant each hereby release and
relieve the other, and waive their right to recover damages
against each other, for loss of or damage to their respective
property arising out of or incident to the perils insured
against under this Paragraph 9. The effect of any such
releases and waivers is not limited by the amount of insurance
carried or by any deductible applicable hereto. Landlord and
Tenant hereby agree to have their respective insurance
carriers waive any right to subrogation that such carriers may
have against either Landlord or Tenant, as the case may be, so
long as any insurance is not invalidated thereby.
Tenant's (b) The Tenant shall take out and keep in force during the
Insurance Term:
(i) comprehensive Commercial General Liability insurance
on an all occurrence basis with respect to Tenant's business
carried on, in or from the Leased Premises and the Tenant's
use and occupancy of the Leased Premises and any other part of
the Property, with coverage for any one occurrence or claim of
not less than Two Million Dollars ($2,000,000.00) or such
other amount as the Landlord may reasonably require (but not
more often than once during each Fiscal Period) upon not less
than one (1) month's notice during the Term, which insurance
shall include the Landlord as a named insured and shall
protect the Landlord in respect of claims by the Tenant as if
the Landlord were separately insured;
(ii) insurance in respect of fire and such other perils as
are from time to time in the usual extended coverage
endorsement covering the Leasehold Improvements, trade
fixtures, and the furniture and equipment in the Leased
Premises for not less than the full replacement cost thereof,
and
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which insurance shall include the Landlord as a named insured
as the Landlord's interest may appear; and
(iii) insurance against such other perils and in such
amounts as the Landlord may from time to time reasonably
require (but not more often than once during each Fiscal
Period) upon not less than ninety (90) days' written notice,
such requirement to be made on the basis that the required
insurance is customary at the time for prudent tenants of
properties similar to the Property.
All insurance required to be maintained by the Tenant shall be
on terms and with insurers with a General Policy Holders
Rating of not less than "A:X" as rated in the most current
issue of "Best's Insurance Guide." Each policy shall contain a
waiver by the insurer of any rights of subrogation or
indemnity or any other claim to which the insurer might
otherwise be entitled, as set forth above, and shall also
contain an undertaking by the insurer that no material change
adverse to the Landlord or the Tenant will be made, and the
policy will not lapse or be cancelled, except after not less
than thirty (30) days' written notice to the Landlord of the
intended change, lapse or cancellation. The Tenant shall
furnish to the Landlord, if and whenever requested by it,
certificates or other evidence acceptable to the Landlord as
to the insurance from time to time effected by the Tenant and
its renewal or continuation in force, together with evidence
as to the method of determination of full replacement cost of
the Tenant's Leasehold Improvements, trade fixtures, furniture
and equipment, and if the Landlord reasonably concludes that
the full replacement cost has been underestimated, the Tenant
shall forthwith arrange for any consequential increase in
coverage required under sub-paragraph(b) of this Paragraph 9.
If the Tenant shall fail to take out, renew and keep in force
such insurance, or if the evidence submitted to the Landlord
is unacceptable to the Landlord (or no such evidence is
submitted within a reasonable period after request therefor by
the Landlord), then the Landlord may give to the Tenant
written notice requiring compliance with this sub-paragraph
and specifying the respects in which the Tenant is not then in
compliance with this sub-paragraph. If the Tenant does not
within forty-eight (48) hours provide appropriate evidence of
compliance with this subparagraph, the Landlord may (but shall
not be obligated to) obtain one or all of the additional
coverage or other insurance which the Tenant shall have failed
to obtain, without prejudice to any other rights of the
Landlord under this Lease or otherwise, and the Tenant shall
pay all premiums and other reasonable expenses incurred by the
Landlord upon demand. Notwithstanding anything to the contrary
set forth in this Paragraph 9(b) and/or elsewhere in this
Lease, and in the event that the Tenant fails to obtain and
maintain the insurance required under this Paragraph 9 and/or
otherwise in this Lease for any reason whatsoever, the Tenant
shall be conclusively deemed to have self-insured such
insurance obligations with the full waiver of subrogation set
forth in Paragraph 9(a) of this Lease; provided, however,
nothing contained herein grants to the Tenant the right or
option to self-insure the Tenant's
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insurance obligations under this Lease.
Limitation of (c) The Tenant agrees that the Landlord shall not be liable
Landlord's for any bodily injury or death of, or loss or damage to any
Liability property belonging to, the Tenant or its employees, invitees
or licensees or any other person in, on or about the Property,
unless resulting from the actual willful misconduct or
negligence of the Landlord or its own employees. In no event
shall the Landlord be liable for any damage which is caused by
steam, water, rain or snow or other thing which may leak into,
issue or flow from any part of the Property or from the pipes
or plumbing works, including the sprinkler system (if any)
therein or from any other place or for any damage caused by or
attributable to the condition or arrangement of any electric
or other wiring or of sprinkler heads (if any) or for any
damage caused by anything done or omitted by any other tenant.
Notwithstanding anything to the contrary set forth in this
Lease, the obligations of the Landlord, and the Landlord's
partners (either general or limited), directors, officers and
shareholders, under this Lease, do not constitute personal
obligations. Tenant, and the Tenant's successors and assigns,
hereby agree not to seek any recourse against the personal
assets of the Landlord, or the Landlord's partner (either
general or limited), directors, officers and shareholders, for
the satisfaction of any actual or alleged liability of
Landlord to Tenant under this Lease, but Tenant shall look
only to the Landlord's interest in the Property for the
satisfaction of any liability of Landlord to Tenant hereunder.
Indemnity of (d) Except with respect to claims or liabilities in respect
Landlord of any damage which is Insured Damage to the extent of the
cost of repairing such Insured Damage, the Tenant agrees to
indemnify, defend (with counsel reasonably acceptable to
Landlord) and hold harmless the Landlord and the Property in
respect of:
(i) all claims for bodily injury or death, property
damage or other loss or damage arising from the conduct of any
work or any act or omission of the Tenant or any assignee,
sub-tenant, agent, employee, contractor, invitee or licensee
of the Tenant, and in respect of all costs, expenses and
liabilities incurred by the Landlord in connection with or
arising out of all such claims, including the expenses of any
action or proceeding pertaining thereto; and
(ii) any reasonable loss, cost (including, without
limitation, reasonable attorneys' fees and costs, and court
costs), expense or damage suffered by the Landlord arising
from any breach by the Tenant of any of its covenants and
obligations under this Lease.
Definition of (e) For purposes of this Lease, "Insured Damage" means
"Insured that part of any damage occurring to the Property of which
Damage" the entire cost of repair (or the entire cost of repair other
than deductible amount properly collectable by the Landlord as
part of the Additional Rent) is actually recovered by the
Landlord
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under a policy or policies of insurance from time to time
effected by the Landlord pursuant to sub-paragraph(a) of this
Paragraph 9. Where an applicable policy of insurance contains
an exclusion for damages recoverable from a third party,
claims as to which the exclusion applies shall be considered
to constitute Insured Damage only if the Landlord successfully
recovers from the third party.
10. EVENTS OF DEFAULT AND REMEDIES
Events of (a) In the event of the happening of any one of the
Default and following events:
Remedies
(i) the Tenant shall have failed to pay any Basic
Rent, Additional Rent or any other Rent when due, and such
failure shall be continuing for a period of more than five (5)
days after Tenant's receipt of Landlord's written notice of
late payment;
(ii) there shall be a default of or with any
condition, covenant, agreement or other obligation on the part
of the Tenant to be kept, observed or performed hereunder
(other than a condition, covenant, agreement or other
obligation to pay Basic Rent, Additional Rent or any other
Rent) and such default shall be continuing for a period of
more than thirty (30) days after written notice by the
Landlord to the Tenant specifying the default and requiring
that it discontinue;
(iii) if any policy of insurance upon the Property or
any part thereof from time to time effected by the Landlord
shall be cancelled or about to be cancelled by the insurer by
reason of the use or occupation of the Leased Premises by the
Tenant or any assignee, sub-tenant or licensee of the Tenant
or anyone permitted by the Tenant to be upon the Leases
Premises, and the Tenant, after receipt of notice in writing
from the Landlord, shall have failed to take such immediate
steps in respect of such use or occupation as shall enable the
Landlord to reinstate or avoid cancellation (as the case may
be) of such policy of insurance;
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(iv) the Leased Premises shall, without the prior
written consent of the Landlord, be used by any other persons
than the Tenant or its permitted assigns or sub-tenants or for
any purpose other than that for which they were leased or
occupied or by any persons whose occupancy is prohibited by
this Lease;
(v) the Leased Premises shall be vacated or
abandoned, and the Tenant shall have failed to pay any Basic
Rent, Additional Rent or any other Rent when due;
(vi) the balance of the Term of this Lease or any of
the goods and chattels of the Tenant located in the Leased
Premises, shall at any time be seized in execution or
attachment; or
(vii) the Tenant shall make any assignment for the
benefit of creditors or become bankrupt or insolvent or take
the benefit of any statute for bankrupt or insolvent debtors
or, if a corporation, shall take any steps or suffer any order
to be made for its winding-up or other termination of its
corporate existence, or if a trustee, receiver or receiver-
manager or agent or other like person shall be appointed for
any of the assets of the Tenant,
then the Landlord shall have the following rights and
remedies, all of which are cumulative and not alternative and
not to the exclusion of any other or additional rights and
remedies in law or equity available to the Landlord by statute
or otherwise:
(A) to remedy or attempt to remedy any default of the
Tenant, and in so doing to make any payments due or alleged to
be due by the Tenant to third parties and to enter upon the
Leased Premises to do any work or other things therein, and in
such event all reasonable expenses of the Landlord in
remedying or attempting to remedy such default shall be
payable by the Tenant to the Landlord on demand;
(B) with respect to unpaid overdue Rent (beginning
with the period five (5) days after Tenant's receipt of
Landlord's written notice of late payment), the payment by the
Tenant of the Rent and of interest (which said interest shall
be deemed included herein in the term "Rent") thereon at a
rate equal to the lesser of (i) three percent (3%) above the
prime commercial loan rate charged to borrowers having the
highest credit rating form time to time by the Landlord's
principal bank from the date upon which the same was due until
actual payment thereof, or (ii) the maximum amount allowed
under the laws of the jurisdiction in which the Building is
located;
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(C) to terminate this Lease forthwith and the Tenant's
right to possession of the Leased Premises by any lawful
means, in which case this Lease shall terminate and the Tenant
shall immediately surrender possession to the Landlord, and
thereafter the Landlord shall be entitled to recover any and
all of Landlord's unpaid Rent and damages as are recoverable,
or Landlord may reserve the right to recover all or any part
thereof in a separate suit, as now or hereafter available
under the laws or judicial decisions of the jurisdiction in
which the Building is located;
(D) to enter the Leased Premises as agent of the Tenant
and as such agent to re-let them and to receive the rent
therefor and as the agent of the Tenant to take possession of
any furniture or other property thereon and upon giving ten
(10) business days' written notice to the Tenant to store the
same at the expense and risk of the Tenant or to sell or
otherwise dispose of the same at public or private sale
without further notice and to apply the proceeds thereof and
any rent derived from re-letting the Leased Premises upon
account of the Rent due and to become due under this Lease and
the Tenant shall be liable to the Landlord for the deficiency,
if any; and
(E) pursue any remedy now or hereafter available under
the laws or judicial decisions of the jurisdiction in which
the Building is located (including, but not limited to,
California Civil Code Section 1951.4 (where a landlord may
continue a lease in effect after a tenant's breach and recover
rent as it becomes due, if the tenant has the right to sublet
or assign, subject only to reasonable limitations)). The
expiration and termination of this Lease and/or the
termination of the Tenant's right to possession shall not
relieve the Tenant from liability under any indemnity
provisions of this Lease as to matters occurring or accruing
during the Term or by reason of the Tenant's occupancy of the
Leased Premises.
Payment of (b) Upon the giving by the Landlord of a notice in writing
Rent, etc. on terminating this Lease under sub-paragraph (a)(C) of this
Termination Paragraph 10, this Lease and the Term shall terminate, Rent
and any other payments for which the Tenant is liable under
this Lease shall be computed, apportioned and paid in full to
the date of such termination forthwith, and there shall
immediately become due and payable forthwith in one lump sum,
and not as a penalty, the aggregate of all Rent (as estimated
by the Landlord, acting reasonably) due and payable to the
Landlord.
Attorneys' (c) The Tenant shall pay to the Landlord on demand all
Fees reasonable costs and expenses, including attorneys' fees and
costs, and court costs, incurred by the Landlord in enforcing
any of the obligations of the Tenant under this Lease.
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ADDITIONAL PROVISIONS
Relocation of 11. [Intentionally Deleted].
leased Premises
Subordination 12. This Lease and all rights of the Tenant hereunder are
and Attornment subject and subordinate to all underlying leases and charges,
or mortgages now or hereafter existing (including charges, and
mortgages by way of debenture, note, bond, deeds of trust and
mortgage, and all instruments supplemental thereto), which may
now or hereafter affect the Property or any part thereof and
to all renewals, modifications, consolidations, replacements
and extensions thereof provided the lessor, chargee, mortgagee
or trustee agrees to accept this Lease if not in default; and
in recognition of the foregoing the Tenant agrees that it
will, whenever requested, attorn to such lessor, chargee,
mortgagee as a tenant upon all the terms of this Lease. The
Tenant agrees to execute promptly whenever requested by the
Landlord or by the holder of any such lease, charge, or
mortgage an agreement of Subordination, Nondisturbance and
Attornment (the "SNDA"), as may be reasonably required of it.
Landlord hereby represents and warrant to Tenant that, prior
to the Commencement Date, there are no underlying ground
leases, mortgages or deeds of trust encumbering the Property,
including the Building and the Leased Premises. In
consideration of and as a condition precedent to Tenant's
agreement to be bound by this Paragraph 12, Landlord shall use
good-faith efforts and diligence to provide Tenant with a
commercially reasonable SNDA from a subsequent ground lessor,
mortgage holder or beneficiary under a deed of trust
respecting the Property, who later may come into existence
during the Term. Tenant hereby expressly waives the provisions
of any statute, rule or law which may give or purport to give
Tenant the right or election to terminate or otherwise
adversely affect this Lease and the obligations of Tenant
hereunder solely in the event of any foreclosure proceeding or
sale, and Tenant hereby agrees that this Lease shall not be
affected in any way whatsoever by any such foreclosure
proceeding or sale.
Certificates 13. The Tenant agrees that it shall, as requested by the
Landlord (but not more often then twice during each Fiscal
Period), execute and deliver to the Landlord, and if required
by the Landlord, to any lessor, chargee, or mortgagee
(including any trustee) or other person designated by the
Landlord, a reasonable acknowledgment in writing as to the
then-status of this Lease, including as to whether it is in
full force and effect, is modified or unmodified, confirming
the Basic Rent and Additional Rent payable hereunder and the
status of the account between Landlord and the Tenant, the
existence or non-existence of defaults, and any other matters
pertaining to this Lease as to which the Landlord shall
request an acknowledgment.
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Inspection of 14. The Landlord shall be permitted, at any time and from
and Access to time to time, to enter and to have its authorized agents,
the Leased employees and contractors enter the Leased Premises for the
Premises purposes of inspection, window cleaning, maintenance, making
repairs, alterations or improvements to the Leased Premises or
the Property, or to have access to utilities and services
(including all ducts and access panels (if any), which the
Tenant agrees not to obstruct) and the Tenant shall provide
free and unhampered access for the purpose, and shall not be
entitled to compensation for any inconvenience, nuisance or
discomfort caused thereby. The Landlord and its authorized
agents and employees shall be permitted entry to the Leased
Premises for the purpose of exhibiting them to prospective
tenants. The Landlord in exercising its rights under this
Paragraph 14 shall do so to the extent reasonable necessary so
as to minimize interference with the Tenant's use and quiet
enjoyment of the Leased Premises, subject to the terms of this
Lease (specifically including Paragraph 8(c) above); provided,
that in an emergency, the Landlord or persons authorized by it
may enter the Leased Premises, at any time, without regard to
minimizing interference.
Delay 15. Except as herein otherwise expressly provided, if and
whenever and to the extent that either the Landlord or the
Tenant shall be prevented, delayed or restricted in the
fulfillment of any obligation hereunder in respect of the
supply or provision of any service or utility, the making of
any repair, the doing of any work or any other thing (other
than the payment of any monies required to be paid by the
Tenant to the Landlord under this Lease by reason of:
(a) strikes or work stoppages;
(b) being unable to obtain any material, service,
utility or labor required to fulfill such obligation;
(c) any statute, law or regulation of, or inability to
obtain any permission from any governmental authority having
lawful jurisdiction preventing, delaying or restricting such
fulfillment;
or
(d) other unavoidable occurrence,
the time for fulfillment of such obligation shall be extended
during the period in which such circumstance operates to
prevent, delay or restrict the fulfillment thereof, and the
other party to this Lease shall not be entitled to
compensation for any inconvenience, nuisance or discomfort
thereby occasioned; provided, that nevertheless the Landlord
will use commercially reasonable efforts to maintain services
essential to the use and enjoyment of
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the Leased Premises; and provided further, that if the
Landlord shall be prevented, delayed or restricted in the
fulfillment of any such obligation hereunder by reason of any
of the circumstances set out in sub-paragraph (c) of this
Paragraph 15 and to fulfill such obligation could not, in the
reasonable opinion of the Landlord, be completed without
substantial additions to or renovations of the Property, the
Landlord may on sixty (60) days' written notice to the Tenant
terminate this Lease.
Waiver 16. If either the Landlord or the Tenant shall overlook,
excuse, condone or suffer any default, breach, non-observance,
improper compliance or non-compliance by the other of any
obligation hereunder, this shall not operate as a waiver of
such obligation in respect of any continuing or subsequent
default, breach, or non-observance, and no such waiver shall
be implied but shall but shall only be effective if expressed
in writing and executed by the waiving party.
Sale, 17. (a) The term "Landlord" as used in this Lease, means
Demolition and only the owner for the time being of the Property, so that in
Renovation the event of any sale or sales, transfer or transfers of the
Property, or the making of any lease or leases thereof, or the
sale or sales or the transfer or transfers or the assignment
or assignments of any such lease or leases; previous landlords
shall be and hereby are relieved of all covenants and
obligations of Landlord hereunder for the period of time after
any such sale, transfer, etc. It shall be deemed and construed
without further agreement between the parties, or their
successors in interest, or between the parties and the
transferee or acquiror, at any such sale, transfer or
assignment, or lessee on the making of any such lease, that
the transferee, acquiror or lessee has assumed and agreed to
carry out any and all of the covenants and obligations of
Landlord hereunder to Landlord's exoneration, and Tenant shall
thereafter be bound to and shall attorn to such transferee,
acquiror or lessee, as the case may be, as Landlord under this
Lease, subject to the terms of paragraph 12 above.
(b) [Intentionally Deleted].
Public Taking 18. The Landlord and Tenant shall cooperate, each with the
other, in respect of any "Public Taking" (as hereinafter
defined) of the Leased premises or any part thereof so that
the Tenant may receive the maximum award to which it is
entitled in law for relocation costs, business interruption
and loss of goodwill, if any, and so that the Landlord may
receive the maximum award for al other compensation arising
from or relating to such Public Taking (including all
compensation for the value of the Tenant's leasehold interest
subject to the Public Taking) which shall be the property of
the Landlord, and the Tenant's rights to such compensation are
hereby assigned to the Landlord. If the whole or any part of
the Leased Premises is Publicly Taken, as between the parties
hereto, their respective rights and obligations under this
Lease shall continue until the day on which the Public Taking
authority takes possession
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thereof. If the whole or any part of the Leased Premises is
Publicly Taken, the Landlord shall have the option, to be
exercised by written notice to the Tenant, to terminate this
Lease and such termination shall be effective on the day the
Public Taking authority takes possession of the whole or the
portion of the Property. Rent and all other payments shall be
adjusted as of the date of such termination and the Tenant
shall, on the date of such Public Taking, vacate the Leased
Premises and surrender the same to the Landlord, with the
Landlord having the right to re-enter and re-possess the
Leased Premises discharged of this Lease and to remove all
persons therefrom. In this Paragraph 18, the words "Public
Taking" shall include expropriation and condemnation and shall
include a sale by the Landlord to an authority with powers of
expropriation, condemnation or taking, in lieu of or under
threat of expropriation or taking, and "Publicly Taken" shall
have a corresponding meaning. The Tenant hereby waives any and
all rights the Tenant might otherwise have pursuant to
Sections 1265.110, 1265.120 and 1265.130 of the California
Code of Civil Procedure and any successor sections or
statutes.
Registration of 19. The Tenant agrees with the Landlord not to register or
Lease record this Lease in any recording office and not to register
or record notice of this Lease in any form without the prior
written consent of the Landlord. If such consent is provided
such notice of Lease or caveat shall be in such form as the
Landlord shall have approved and upon payment of the
Landlord's reasonable fee for same and all applicable transfer
or recording taxes or charges. The Tenant shall remove and
discharge, at Tenant's expense, registration or recordation of
such a notice at the Expiration Date or earlier termination of
the Term, and in the event of Tenant's failure to so remove or
discharge such notice after ten (10) days' written notice by
Landlord to Tenant, the Landlord may in the name and on behalf
of the Tenant execute a discharge of such a notice in order to
remove and discharge such notice and for the purpose thereof
the Tenant hereby irrevocably constitutes and appoints any
officer of the Landlord the true and lawful attorney of the
Tenant.
Lease Entire 20. The Tenant acknowledges that there are no covenants,
Agreement representations, warranties, agreements or conditions, express
or implied, collateral or otherwise forming part of or in any
way affecting or relating to this Lease, save as expressly set
out in this Lease and the Schedules attached hereto, and that
this Lease and such Schedules constitute the entire agreement
between the Landlord and the Tenant and may not be modified
except as herein explicitly provided or except by agreement in
writing executed by the Landlord and the Tenant.
Notices 21. Any notice, advice, document or writing required or
contemplated by any provision hereof shall be given in writing
and if to the Landlord, either delivered or mailed by prepaid
mail addressed to the Landlord at the said local office
address of the Landlord shown above, and if to the Tenant,
either delivered personally to the Tenant (or to an officer of
the Tenant, if a
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corporation) or mailed by prepaid mail addressed to the Tenant
at the Leased Premises, or if an address of the Tenant is
shown in the description of the Tenant above, to such address.
Every such notice, advice, document or writing shall be deemed
to have been given when delivered personally, or if mailed as
aforesaid, upon the fifth day after being mailed. The Landlord
may from time to time by notice in writing to the Tenant
designate another address as the address to which notices are
to be mailed to it, or specify with greater particularity the
address and persons to which such notices are to be mailed and
may require that copies of notices be sent to an agent
designated by it. The Tenant may, if an address of the Tenant
is shown in the description of the Tenant above, from time to
time by notice in writing to the Landlord, designate another
address as the address to which notices are to be mailed to
it, or specify with greater particularity the address to which
such notices are to be mailed.
Interpretation 22. In this Agreement "herein", "hereof", "hereby",
"hereunder", "hereto", "hereinafter" and similar expressions
refer to this Lease and not to any particular paragraph,
clause or other portion thereof, unless there is something in
the subject matter or context inconsistent therewith; and the
parties agree that all of the provisions of this Lease are to
be construed as covenants and agreements as though words
importing such covenants and agreements were used in each
separate paragraph hereof, and that should any provision or
provisions of this Lease be illegal or not enforceable it or
they shall be considered separate and severable from the Lease
and its remaining provisions shall remain in force and be
binding upon the parties hereto as though the said provision
or provisions had never been included, and further that the
captions appearing for the provisions of this Lease have been
inserted as a matter of convenience and for reference only and
in no way define, limit or enlarge the scope or meaning of
this Lease or of any provisions hereof. Furthermore, this
Lease shall be construed without regard to any presumption or
other rule requiring construction against the party drafting a
document and shall be construed neither for nor against either
the Landlord or the Tenant, but shall be given a reasonable
interpretation in accordance with the plain meaning of its
terms and the intent of the parties hereto.
Extent of Lease 23. This Agreement and everything herein contained shall
Obligations inure to the benefit of and be binding upon the respective
heirs, executors, administrators, successors, assigns and
other legal representatives, as the case may be, of each and
every of the parties hereto, subject to the granting of
consent by the Landlord to any assignment or sublease, and
every reference herein to any party hereto shall include the
heirs, executors, administrators, successors, assigns and
other legal representatives of such party, and where there is
more than one tenant or there is a male or female party the
provisions hereof shall be read with all grammatical changes
thereby rendered necessary and all covenants shall be deemed
joint and several hereunder.
INITIAL
---------------------
Landlord Tenant
24
<PAGE>
Use and 24. If the Tenant shall for any reason use or occupy the
Occupancy Leased Premises in any way prior to the Commencement Date, and
Prior to Term with there being this Lease or other agreement between the
Landlord and Tenant in place, then during such prior use or
occupancy the Tenant shall be a Tenant of the Landlord and
shall be subject to the same covenants and agreements as set
forth in this Lease. See Schedule "I" attached hereto.
------------
Time of 25. Except as otherwise expressly provided in Paragraph 15
Essence of this Lease, time is of the essence with respect to the
performance of all obligations to be performed or observed by
the parties hereto.
Choice of Law 26. This Lease shall be construed and enforced in
accordance with the laws of the State of California. Landlord
and Tenant hereby consent and agree to the jurisdiction of the
state or federal courts sitting in the County of Los Angeles,
State of California, and waive any objection based on venue or
forum non conveniens with respect to any action instituted
therein, and further agree that any dispute concerning the
relationship between the parties hereto or this Lease, or
otherwise, shall be heard only in the courts described above.
Auctions 27. The Tenant shall not conduct, nor permit to be
conducted, any auction upon the Leased Premises and/or the
Property without the Landlord's prior written consent, which
consent shall be at the Landlord's sole and absolute
discretion.
Termination 28. Unless specifically stated otherwise in writing by the
and Merger Landlord, any expiration or earlier termination of this Lease
shall automatically terminate any sublease or lesser estate in
the Leased Premises; provided, however, that the Landlord may
elect to continue any one or all existing subtenancies.
Landlord's failure, within thirty (30) days following such
expiration or termination to elect to the contrary by written
notice to the holder of any such lesser estate or interest
shall constitute the Landlord's election to have such
expiration or termination constitute the termination of such
lesser estate or interest.
Reservations 29. Landlord reserves to itself the right, from time to
time, to grant any such easements, rights, and dedications
that the Landlord deems necessary, and to cause a recordation
of parcel maps and restrictions, so long as such easements,
rights, dedications and restrictions do not unreasonably
interfere with the use of the Leased Premises by the Tenant.
The Tenant hereby agrees, at the Tenant's cost and expense, to
sign any documents reasonably requested by Landlord to
effectuate any such easements, rights, dedications, maps or
restrictions.
Schedules 30. The provisions of the following Schedules attached
hereto shall form a part of this Lease as if the same were
embodied herein:
INITIAL
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Landlord Tenant
25
<PAGE>
Schedule "A" Legal Description of Property
Schedule "B-1" Outline of Leased Premises
Schedule "B-2" Outline of Opportunity Space
Schedule "C" Taxes Payable by Landlord and Tenant
Schedule "D" Services and Costs
Schedule "E" Rules and Regulations
Schedule "F" Leasehold Improvements
Schedule "G" Tenant Improvement Allowance
Schedule "H" Option to Renew
Schedule "I" Occupancy Prior to Commencement Date
Schedule "J" [Intentionally Deleted]
Schedule "K" Increases in Basic Rent
Schedule "L" Right of First Opportunity to Lease
Schedule "M" Letter of Credit
Schedule "N" Miscellaneous
Parking Agreement
[Remainder of this page intentionally left blank]
INITIAL
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Landlord Tenant
26
<PAGE>
IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease as of the date
set forth on page 1 hereof.
Landlord:
THE MANUFACTURERS LIFE INSURANCE
COMPANY (U.S.A.),
a Michigan corporation
By:____________________________________
Name:______________________________
Title:_____________________________
Tenant:
EXODUS COMMUNICATIONS, INC.,
a California corporation
By:_____________________________________
Name: Richard Stolz
Title: Chief Operating Officer and
Chief Financial Officer
INITIAL
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Landlord Tenant
27
<PAGE>
SCHEDULE "A"
LEGAL DESCRIPTION OF PROPERTY
The Property is located in the City of Irvine, County of Orange, State of
California, and is more particularly described as follows:
Parcel 1:
Parcel 28 in the City of Irvine, County of Orange, State of
California, as shown on Parcel Map No. 83-0613 filed May 29, 1984 in Book 188,
Pages 28-33 of Parcel Maps, in the office of the County Recorder of said County.
Parcel 2:
An undivided 4.910 interest in Lots A, B, C, D, F, G and H in the City
of Irvine, County of Orange, State of California, as shown on Parcel Map No. 83-
0613 filed May 29, 1984 in Book 188, Pages 28-33 of Parcel Maps, in the office
of the County Recorder of said County.
Excepting from Parcels 1 and 2 any and all oil, oil rights, mineral,
mineral rights, natural gas rights, and other hydrocarbons by whatsoever name
known, geothermal steam or other resources, and all products derived from any of
the foregoing, that may be within or under the land, together with the perpetual
right of drilling, mining or exploring and operating therefor and storing in and
removing the same from the land or any other land, including the right to
whipstock or directionally drill and mine from the lands other than those
conveyed hereby, oil or gas wells, tunnels and shafts into, through or across
the subsurface of the land, and to bottom such whipstocked or directionally
drilled wells, tunnels and shafts under and beneath or beyond the exterior
limits thereof, and to redrill, retunnel, equip, maintain, repair, deepen and
operate any such wells or mines; without, however, the right to drill, mine,
store, explore and operate through the surface of the upper five hundred (500)
feet of the subsurface of the land, as reserved by The Irvine Company in deed
recorded December 27, 1985 as Instrument No. 85-519768 of Official Records.
INITIAL
---------------------
Landlord Tenant
A-1
<PAGE>
SCHEDULE "A"
LEGAL DESCRIPTION OF PROPERTY
The Property is located in the City of Irvine, County of Orange, State of
California, and is more particularly described as follows:
Parcel 1:
Parcel 28 in the City of Irvine, County of Orange, State of California, as
shown on Parcel Map No. 83-0613 filed May 29, 1984 in Book 188, Pages 28-33 of
Parcel Maps, in the office of the County Recorder of said County.
Parcel 2:
An undivided 4.910 interest in Lots A, B, C, D, F, G and H in the City of
Irvine, County of Orange, State of California, as shown on Parcel Map No. 83-
0613 filed May 29, 1984 in Book 188, Pages 28-33 of Parcel Maps, in the office
of the County Recorder of said County.
Expecting from Parcels 1 and 2 any and all oil, oil rights, minerals,
mineral rights, natural gas rights, and other hydrocarbons by whatsoever name
known, geothermal steam or other resources, and all products derived from any of
the foregoing, that may be within or under the land, together with the perpetual
right of drilling, mining or exploring and operating therefor and storing in and
removing the same from the land or any other land, including the right to
whipstock or directionally drill and mine from the lands other than those
conveyed hereby, oil or gas wells, tunnels and shafts into, through or across
the subsurface of the land, and to bottom such whipstocked or directionally
drilled wells, tunnels and shafts under and beneath or beyond the exterior
limits thereof, and to redrill, retunnel, equip, maintain, repair, deepen and
operate any such wells or mines; without, however, the right to drill, mine,
store, explore and operate through the surface of the upper five hundred (500)
feet of the subsurface of the land, as reserved by The Irvine Company in deed
recorded December 27, 1985 as Instrument No. 85-519768 of Official Records.
A-1
<PAGE>
SCHEDULE "B-1"
OUTLINE OF LEASED PREMISES
[GRAPHIC APPEARS HERE]
B-1
<PAGE>
SCHEDULE "B-2"
OUTLINE OF OPPORTUNITY SPACE
[GRAPHIC APPEARS HERE]
B-2
<PAGE>
SCHEDULE "C"
TAXES PAYABLE BY LANDLORD AND TENANT
TENANT'S TAXES 1. (a) The Tenant covenants to pay all of
"Tenant's Taxes" (as hereinafter
defined), as and when the same become due
and payable. Where any Tenant's Taxes are
payable by the Landlord to the relevant
taxing authorities, the Tenant covenants
to pay the amount thereof to the
Landlord.
(b) The Tenant covenants to pay to Landlord
the Tenant's Proportionate Share of the
excess of the amount of the "Landlord's
Taxes" (as hereinafter defined) in each
Fiscal Period over the Landlord's Taxes
in the "Base Year" (as hereinafter
defined).
(c) The Tenant covenants to pay to Landlord
the Tenant's Proportionate Share of the
costs and expenses (including attorneys'
and other professional fees, and interest
and penalties on deferred payments)
incurred in good-faith by the Landlord in
contesting, resisting or appealing any of
the "Taxes" (as hereinafter defined),
subject to Tenant's audit rights set
forth in Paragraph 3(f) of this Lease.
LANDLORD'S TAXES (d) The Landlord covenants to pay Landlord's
Taxes subject to the payments on account
of Landlord's Taxes required to be made
by the Tenant elsewhere in this Lease.
The Landlord may appeal any official
assessment or the amount of any Taxes or
other taxes based on such assessment and
relating to the Property. In connection
with any such appeal, the Landlord may
defer payment of any Taxes or other
taxes, as the case may be, payable by it
to the extent permitted by law, and the
Tenant shall cooperate with the Landlord
in connection with any such appeal.
SEPARATE (e) In the event that the Landlord is unable
ALLOCATION to obtain from the taxing ALLOCATION
authorities any separate allocation of
Landlord's Taxes, Tenant's Taxes or
assessments as required by the Landlord
to make calculations of Additional Rent
under this Lease, such allocation shall
be made by the Landlord acting
reasonably, and shall be subject to
Tenant's audit rights set forth in
Paragraph 3(f) of this Lease.
INFORMATION (f) Whenever requested by the Landlord, the
Tenant shall deliver to it receipts for
payment of all the Tenant's Taxes and
furnish such other information in
connection therewith as the Landlord may
reasonably require.
TAX ADJUSTMENT (g) If the Building has not been taxed as a
completed and fully occupied building for
the Base Year, the Landlord's Taxes will
be determined by the Landlord as if the
Building had been taxed as a completed
and fully occupied building for any such
Fiscal Period.
DEFINITION 2. In this Lease:
(a) "Landlord's Taxes" shall mean the
aggregate of all Taxes attributable to
the Property, the Rent or the Landlord in
respect thereof, including, without
limitation, any amounts imposed,
assessed, levied or charged in
substitution for or in lieu of any such
Taxes, but excluding such taxes as
capital gains taxes, corporate income,
profit or excess profit, estate or
inheritance taxes to the extent such
taxes are not levied in lieu of any of
the foregoing against the Property or the
Landlord in respect thereof;
(b) "Taxes" shall mean all taxes, rates,
duties, levies, fees, charges, local
improvement rates, capital taxes, rental
taxes and assessments whatsoever,
including fees, rents, and levies for air
rights and encroachments on or over
municipal property imposed, assessed,
levied or charged by any school,
municipal, regional, state, provincial,
federal, parliamentary or other body,
corporation, authority, agency or
commission, or resulting from any sale,
refinancing or change of ownership of all
or any portion of the Property; provided,
that any such local improvements rates,
assessed and paid prior to or in the Base
Year shall be excluded from the Base Year
and any year during the Term; and
provided further, that "Taxes" shall not
include any special utility, levies, fees
or charges imposed, assessed, levied or
charged which are directly associated
with initial construction of the
Property.
(c) "Tenant's Taxes" shall mean the
aggregate of:
(i) all Taxes (whether imposed upon
the Landlord or the Tenant)
attributable to the personal
property, trade fixtures,
business, income, occupancy or
sales of the Tenant or any other
occupant of the Leased Premises,
and to any Leasehold
Improvements or fixtures
installed by or on behalf of the
Tenant within the Leased
Premises, and to the use by the
Tenant of any of the Property;
and
C-1
<PAGE>
(ii) the amount by which Taxes
(whether imposed upon the
Landlord or the Tenant) are
increased above the Taxes which
would have otherwise been
payable as a result of the
Leased Premises or the Tenant or
any other occupant of the Leased
Premises being taxed or assessed
in support of separate schools;
and
(d) "Tenant's Proportionate Share" shall mean
fifty-one percent (51%), subject to
adjustment as determined solely by the
Landlord and notified to the Tenant in
writing for physical increases or decreases
in the total rentable area of the Property;
provided, that total rentable area of the
Property and the rentable area of the Leased
Premises shall exclude areas designated
(whether or not rented) for parking and for
storage.
(e) "Base Year" shall mean calendar year 1998.
C-2
<PAGE>
SCHEDULE "D"
SERVICES AND COSTS
INTERIOR CLIMATE 1. The Landlord covenants with the Tenant:
CONTROL
(a) [Intentionally Deleted.]
JANITOR SERVICE (b) To provide, five (5) days per week,
janitor and cleaning services to the
common areas of the Building only,
consisting of reasonable services in
accordance with the standards of
similar office buildings;
ELEVATORS, (c) To keep available the following
LOBBIES, ETC. facilities for use by the Tenant and
its employees and invitees in common
with other persons entitled thereto:
(i) passenger and freight elevator
service to each floor upon which
the Leased Premises are located
provided such service is
installed in the Building and
provided that the Landlord may
prescribe the hours during which
and the procedures under which
freight elevator service shall
be available and may limit the
number of elevators providing
service outside normal business
hours;
(ii) common entrances, lobbies,
stairways and corridors giving
access to the Building and the
Leased premises, including such
other areas from time to time
which may be provided by the
Landlord for common use and
enjoyment within the Property;
(iii) the washrooms as the Landlord
may assign from time to time
which are standard to the
Building, provided that the
Landlord and the Tenant
acknowledge that, where an
entire floor is leased to the
Tenant or some other tenant, the
Tenant or such other tenant, as
the case may be, may exclude
others from the washrooms
thereon.
ELECTRICITY 2. The Landlord covenants with the Tenant to
furnish electricity to the Leased Premises
(except areas of the Leased Premises which have
separate meters) for normal office use for
lighting and for office equipment capable of
operating from the circuits available to the
Leased Premises and standard to the Building
twenty-four (24) hours per day, seven (7) days
per week, subject to governmental regulations;
(a) The amount of electricity consumed on
the Leased Premises in excess of
electricity required by the Tenant for
normal office use shall be as
determined by the Landlord acting
reasonably or by a metering device
installed by the Tenant at the
Tenant's expense (except as otherwise
provided in this Lease). The Tenant
shall pay the Landlord for all
electricity on demand or as otherwise
set forth herein.
(b) The Tenant covenants to pay to the
Landlord the Tenant's Proportionate
Share of all electricity consumed on
the Property (except the amounts
recovered from and paid by tenants
separately metered), and except as
related to the Leased Premises.
(c) In calculating electricity costs for
any Fiscal Period, if less than one
hundred percent (100%) of Building is
occupied by tenants, then the amount
of such electricity costs shall be
deemed for the purposes of this
Schedule "D" to be increased to an
-----------
amount equal to the like electricity
costs which normally would be expected
by the Landlord to have been incurred
had such occupancy been one hundred
percent (100%) during such entire
period.
3. The Landlord shall maintain and keep in repair
the facilities required for the systems(s) for
heating and cooling, filtering and circulation
air ("HVAC") (but not HVAC in, or servicing,
the Leased Premises), elevator (if installed in
the Building), and other services referred to
in sub-paragraphs (b) and (c) of Paragraph 1
and sub-paragraph (a) of Paragraph 2 of this
Schedule "D" in accordance with the standards
-----------
of office buildings similar to the Building,
but reserves the right to stop the use of any
of these facilities and the supply of the
corresponding services when necessary by reason
of accident or breakdown or during the making
of repairs, alterations or improvements shall
have been completed to the satisfaction of the
Landlord
ADDITIONAL 4. (a) The Landlord may (but shall not be
SERVICES obligated to ), on request of the
Tenant, supply services or materials
to the Leased Premises and the
Property which are not provided for
under this Lease and which are used by
the Tenant (the "Additional
Services"), including, without
limitation:
(i) replacement of non-Building
standard tubes and ballasts;
(ii) carpet shampooing;
(iii) drapery cleaning;
(iv) locksmithing;
(v) removal of bulk garbage;
(vi) picture hanging; and
(vii) special security arrangement.
D-1
<PAGE>
(b) When Additional Services are supplied
or furnished by the Landlord, accounts
therefor shall be rendered by the
Landlord and shall be payable by the
Tenant to the Landlord, within thirty
(30) days after demand therefor as
Rent under this Lease. In the event
the Landlord shall elect not to supply
or furnish Additional Services, only
persons with prior written approval by
the Landlord (which approval shall not
be unreasonably withheld) shall be
permitted by the Landlord or the
Tenant to supply or furnish Additional
Services to the Tenant and the
supplying and furnishing shall be
subject to the reasonable rules fixed
by the Landlord with which the Tenant
undertakes to cause compliance and to
comply; provided, such Additional
Services shall be at no greater cost
than Tenant is able to obtain in
arm's-length negotiations with
reputable service providers.
OPERATING 5. (a) The Tenant covenants to pay to the
CHARGES PAYABLE Landlord the Tenant's Proportionate
Share of the excess of the amount of
the Operating Costs in each Fiscal
Period over the Operating Costs in the
Base Year.
(b) In this Lease, "Operating Costs" shall
mean all costs incurred or which will
be incurred by the Landlord in the
maintenance, operation, administration
and management of the Property,
including, without limitation:
(i) cost of heating, ventilating and
air-conditioning (HVAC);
(ii) cost of water and sewer charges;
(iii) cost of insurance carried by the
Landlord pursuant to Paragraph
9(a) of this Lease and cost of
any deductible amount paid by
the Landlord in connection with
each claim made by the Landlord
under such insurance;
(iv) costs of building office
expenses, including telephone,
rent, stationery and supplies;
(v) cost of fuel and electricity;
(vi) costs of all elevator and
escalator (if installed in the
Building) maintenance and
operation;
(vii) costs of operating staff,
management staff and other
administrative personnel,
including salaries and wages,
along with a management fee
directly related to the Property
(which management fee shall be
commensurate with the management
fees charged at similar
buildings located in the major
business district of the City of
Irvine, State of California);
(viii)cost of providing security, if
any;
(ix) cost of providing janitorial
services, window cleaning,
garbage and snow removal and
pest control;
(x) cost of supplies and materials;
(xi) cost of decoration of common
areas;
(xii) cost of landscaping;
(xiii)cost of maintenance and
operation of the parking area;
(xiv) cost of consulting, and
professional fees including
expenses;
(xv) cost of replacements, additions
and modifications, and cost of
repair; and
(xvi) the Tenant covenants to pay to
the Landlord the Tenant's
Proportionate Share of the costs
in respect of each "Major
Expenditure" (as hereinafter
defined) as amortized over the
period of the Landlord's
reasonable estimate of the
economic life of the Major
Expenditure, but not to exceed
fifteen (15) years, using equal
monthly installments of
principal and interest at ten
percent (10%) per annum
compounded semi-annually. For
the purposes hereof, "Major
Expenditure" shall mean any
expenditure incurred after the
Commencement Date for
replacement of machinery,
equipment, systems or facilities
forming a part of or used in
connection with the Property or
for modifications, upgrades or
additions to the Property or
facilities used in connection
therewith; provided, that in
each case, such expenditure is
more than ten percent (10%) of
the total Operating Costs of the
immediately preceding Fiscal
Period.
(c) In this Lease there shall be excluded
from Operating Costs the following:
(i) interest on debt and capital
retirement of debt, and
refinancing costs;
(ii) such of the Operating Costs as
are recovered from insurance
proceeds;
(iii) costs as determined by the
Landlord of acquiring tenants
for the Property;
(iv) commissions, attorneys' fees,
costs and disbursements and
other expenses, all of which are
incurred in connection with
solicitations, negotiations or
disputes of any kind with other
tenants, occupants, including
subtenants and assignees,
purchasers, lenders or otherwise
on the Property;
(v) renovating or otherwise
improving or decorating,
painting or redecorating
(including architectural,
engineering, permitting and
other related costs) leased
space for tenants or other
occupants or vacant tenant
space), other than ordinary
maintenance provided to all
tenants, including the Tenant,
except for any common areas;
(vi) Landlord's costs of utilities
and other services or items sold
separately to other tenants for
which Landlord is entitled to be
reimbursed by such tenant as an
additional charge over and above
the rent and operating expense
or other rental adjustments
payable with
D-2
<PAGE>
respect to such
tenant;
(vii) any charge for depreciation of
the Building for equipment and
expenses relating to financing,
including interest on debt or
amortization payments on any
mortgage or mortgages, including
rental, created under any ground
or underlying leases;
(viii)any particular items and
services for which another
tenant or occupant otherwise
reimburses Landlord by direct
payment over and above rent and
operating expense adjustments;
(ix) charitable or political
contributions, advertising and
promotional expenditures,
including cost of staging
special events;
(x) expenses for period not covered
under this Lease (except as a
result of Tenant's negligence
and/or willful misconduct or
caused by any act or omission of
Tenant or Tenant's agents,
contractors and/or
representatives); and
(xi) expenses (such as real estate
taxes, insurance, cleaning,
salary and the like) incurred as
a result of special improvements
or special uses (such as a
newsstand, daycare, building
rental office, garage and other
areas) which do not relate
directly to the Landlord's
services under this Lease and
are designed to specifically
benefit another tenant or
occupant on the Property.
6. In calculating Operating Costs for any Fiscal
Period, including the Base Year, if less than one
hundred percent (100%) of Building is occupied by
tenants, then the amount of such Operating Costs
shall be deemed for the purposes of this Schedule
--------
"D" to be increased to an amount equal to the like
---
Operating Costs which normally would be expected by
the Landlord to have been incurred had such
occupancy been one hundred percent (100%) during
such entire period.
7. In this Lease:
(i) "Tenant's Proportionate Share"
shall mean fifty-one percent
(51%), subject to adjustment as
determined solely by the
Landlord and notified to the
Tenant in writing for physical
increases or decreases in the
total rentable area of the
Property; provided, the total
rentable area of the Property
and the rentable area of the
Leased Premises shall exclude
areas designated (whether or not
rented ) for parking and for
storage.
(ii) "Base Year" shall mean calendar
year 1998.
8. Notwithstanding anything to the contrary set
forth in this Schedule "D" or elsewhere in this
------------
Lease, and including as may already be charged
by Landlord to Tenant as Additional Rent and/or
Additional Services under this Lease, the
Tenant shall be responsible to obtain and pay
for all HVAC, telephone, and janitorial and
cleaning services supplied to the Leased
Premises, together with any of Tenant's Taxes
thereon (pursuant to Paragraph 2 of Schedule
--------
"C" attached hereto).
---
D-3
<PAGE>
SCHEDULE "E"
RULES AND REGULATIONS
1. The sidewalks, entry passages, elevators (if installed in the Building) and
common stairways shall not be obstructed by the Tenant or used for any other
purpose than for ingress and egress to and form the Leased Premises. The Tenant
will not place or allow to be placed in the Building corridors or public
stairways any waste paper, dust, garbage, refuse or anything whatever.
2. The washroom plumbing fixtures and other water apparatus shall not be used
for any purposed other than those for which they were constructed, and no
sweepings, rubbish, rags, ashes or other substances shall be thrown therein.
The expense of any damage resulting from misuse by the Tenant shall be borne by
the Tenant.
3. The Tenant shall permit window cleaners to clean the windows of the Leased
Premises, upon at least twenty-four (24) hours prior written notice to Tenant,
including during normal business hours.
4. No birds or animals shall be kept in or about the Property nor shall the
Tenant operate or permit to be operated any musical or sound-producing
instruments or device or make or permit any improper noise inside or outside the
Leased Premises which may be heard outside such Leased Premises.
5. No one shall use the Leased Premises for residential purposes, or for the
storage of personal effects or articles other than those required for business
purposes.
6. [Intentionally Deleted].
7. No dangerous or explosive materials shall be kept or permitted to be kept in
the Leased Premises.
8. The Tenant shall not permit any cooking in the Leased Premises. The Tenant
shall not install or permit the installation or use of any machine dispensing
goods for sale in the Leased Premises without the prior written approval of the
Landlord. Only persons authorized by the Landlord shall be permitted to deliver
or to use the elevators (if installed in the Building) for the purpose of
delivering food or beverages to the Leased Premises.
9. The Tenant shall not bring in or take out, position, construct, install or
move any safe, business machine or other heavy office equipment without first
obtaining the prior written consent of the Landlord. In giving such consent,
the Landlord shall have the right in its sole discretion, to prescribe the
weight permitted and the position thereof, and the use and design of planks,
skids or platform to distribute the weight thereof. All damage done to the
Building by moving or using any such heavy equipment or other office equipment
or furniture shall be repaired at the expense of the Tenant. The moving of all
heavy equipment or other office equipment or furniture shall occur only at times
consented to by the Landlord and the persons employed to move the same in and
out of the Building must be acceptable to the Landlord. Safes and other heavy
office equipment will be moved through the halls and corridors only upon steel
bearing plates. No freight or bulky matter of any description will be received
into the Building or carried in the elevators ( if installed in the Building)
except during hours approved by the Landlord.
10. The Tenant shall give the Landlord prompt notice of any accident to, or any
defect in the plumbing, HVAC, mechanical or electrical apparatus or any other
part of, the Building and/or the Property.
11. Pursuant to the Parking Agreement between Landlord and Tenant attached
hereto, the parking of automobiles shall be subject to the reasonable
regulations of the Landlord and any future reasonable parking charges imposed by
any governmental or quasi-governmental authority during the Term. The Landlord
shall not be responsible for damage to or theft of any car, its accessories or
contents whether the same be the result of negligence, willful misconduct or
otherwise.
12. The Tenant shall not mark, drill into or in any way deface the walls,
ceilings, partitions, floors or other parts of the Leased Premises and the
Building.
13. Except with the prior written consent of the Landlord, Tenant shall not use
or engage any person or persons, other than the janitor or janitorial contractor
reasonably approved by the Landlord, for the purpose of any cleaning of the
Leased Premises; provided, such cleaning services shall be at no greater cost
than Tenant is able to obtain in arm's length negotiations with reputable
service providers.
14. If the Tenant desires any electrical or communications wiring, the Landlord
reserves the right to direct qualified person as to where and how the wires are
to be introduced, and without such directions no borings or cutting for wires
shall take place. No other wires or pipes of any kind shall be introduced
without the prior written consent of the Landlord pursuant to Schedule "F"
------------
attached hereto.
15. The Tenant shall not place or cause to be place any additional locks upon
any doors of the Leased Premises without the approval of the Landlord and
subject to any conditions imposed by the Landlord. Additional keys may be
obtained form the Landlord at the cost of the Tenant.
16. The Tenant shall be entitled to have its name shown upon the directory
board of the Building, if applicable, and the exterior main entrance doors to
the Leased Premises, all at the Tenant's expense, but the Landlord shall in its
sole discretion design the style
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<PAGE>
of such identification and allocate the space on the directory board for the
Tenant, if applicable, pursuant to Schedule "N" attached hereto.
------------
17. The Tenant shall not interfere with or obstruct any perimeter HVAC units.
18. The Tenant shall not conduct, and shall not permit any, canvassing in the
Building.
19. The Tenant shall take care of the rugs and drapes (if any) in the Leased
Premises and shall arrange for the carrying-out of regular janitorial cleaning
of the Leased Premises, and spot cleaning and shampooing of carpet and dry
cleaning of drapes in a manner reasonably acceptable to the Landlord.
20. The Tenant shall permit the periodic closing of lanes, driveways and
passages for the purpose of preserving the Landlord's rights over such lanes,
driveways and passages.
21. Subject to the Tenant's signage rights set forth in Schedule "N" attached
------------
hereto, the Tenant shall not place or permit to be placed any sign,
advertisement, notice or other display on any part of the exterior of the Leased
Premises or elsewhere if such sign, advertisement, notice or other display is
visible from outside the Leased Premises without the prior written consent of
the Landlord which may be arbitrarily withheld. The Tenant, upon request of the
Landlord, shall immediately remove any sign, advertisement, notice or other
display which the Tenant has placed or permitted to be place which, in the
opinion of the Landlord, is objectionable, and if the Tenant shall fail to do
so, the Landlord may remove the same at the expense of the Tenant.
22. The Landlord shall have the right to make such other and further reasonable
rules and regulations and to alter the same, as in its judgment may from time to
time be needful, for the safety, care, cleanliness and appearance of the Leased
Premises and the Building and for the preservation of good order therein, and
the same shall be kept and observed by Tenant and tenant's employees and
servants. The Landlord also has the right to suspend or cancel any or all of
these rules and regulations herein set out.
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<PAGE>
SCHEDULE "F"
LEASEHOLD IMPROVEMENTS
DEFINITION OF 1. For purposes of this Lease, the term "Leasehold
LEASEHOLD Improvements" includes, without limitation, all fixtures,
IMPROVEMENTS improvements, installations, alterations and additions
from time to time made, erected or installed by or on
behalf of other tenants in other premises in the Building
(including the Landlord if an occupant of the Building),
including all partitions, doors and hardware however
affixed, and whether or not movable, all mechanical,
electrical and utility installations and all carpeting and
drapes, with the exception only of the Landlord's Work and
Tenant's trade fixtures, furniture and equipment not of
the nature of fixtures.
INSTALLATION OF 2. The Landlord shall include in the Leased Premises the
IMPROVEMENTS Landlord's Work. The Tenant shall not make, erect, install
AND FIXTURES or alter any Leasehold Improvements in the Leased Premises
without having requested and obtained the Landlord's prior
written approval. The Landlord's approval shall not, if
given, under any circumstances be construed as a consent
to the Landlord having its estate charged with the cost of
work. The Landlord shall not unreasonably withhold its
approval to any such request, but failure to comply with
the Landlord's reasonable requirements from time to time
for the Building shall be considered sufficient reason for
refusal. In making, erecting, installing or altering any
Leasehold Improvements the Tenant shall not, without the
prior written approval of the Landlord, alter or interfere
with any installations which have been made by the
Landlord or others and in no event shall alter or
interfere with window coverings (if any) or other light
control devices (if any) installed in the Building. The
Tenant's request for any approval hereunder shall be in
writing and accompanied by an adequate description of the
contemplated work and, where appropriate, working drawings
and specifications thereof. If the Tenant requires from
the Landlord drawings or specifications of the Building in
connection with any Leasehold Improvements, the Tenant
shall pay the cost thereof to the Landlord on demand. Any
reasonable costs and expenses incurred by the Landlord in
connection with the Tenant's Leasehold Improvements shall
be paid by the Tenant to the Landlord on demand. All work
to be performed in the Leased Premises shall be performed
by competent contractors and sub-contractors of whom the
Landlord shall have approved in writing prior to
commencement of any work, such approval not to be
unreasonably withheld. All such work, including the
deliver, storage and removal of materials, shall be
subject to the reasonable supervision of the Landlord,
shall be performed in accordance with any reasonable
conditions or regulations imposed by the Landlord
including, without limitation, payment of Landlord's
reasonable out-of-pocket construction supervision fee, and
shall be completed in good and workmanlike manner in
accordance with the description of the work approved by
the Landlord and in accordance with all laws, regulations
and by-laws of all regulatory authorities. Copies of
required building permits or authorizations shall be
obtained by the Tenant at its expense and copies thereof
shall be provided to the Landlord. No locks shall be
installed on the entrance doors or in any doors in the
Leased Premises that are not keyed to the Building's
master key system with copies of any keys delivered to
Landlord.
LIENS AND 3. In connection with the making, erection, installation
ENCUMBRANCES ON or alteration of Leasehold Improvements and all other work
IMPROVEMENTS or installations made by or for the Tenant in the Leased
AND FIXTURES Premises the Tenant shall comply with all the provisions
of the mechanics' lien and other similar statutes form
time to time applicable thereto (including any proviso
requiring or enabling the retention by way of holdback of
portions of any sums payable) and, except as to any such
holdback, shall promptly pay all accounts relating
thereto. Except in the ordinary course of Tenant's
business, the Tenant will not create any mortgage, deed of
trust or conditional sale agreement in respect of its
Leasehold Improvements or, without the written consent of
the Landlord, with respect to its trade fixtures nor shall
the Tenant take any action as a consequence of which any
such mortgage, deed of trust or conditional sale agreement
would attach to the Property or any part thereof. If and
whenever any mechanics' or other lien for work, labor,
services or materials supplied to or for the Tenant or for
the cost of which the Tenant may be in any way liable or
claims therefor shall arise or be filed or any such
mortgage, conditional sale agreement or other encumbrance
shall attach, the Tenant shall within twenty (20) days
after submission by the Landlord of notice thereof procure
the discharge thereof, including any certificate of action
registered in respect of any lien, by payment or giving
security or in such other manner as may be required or
permitted by law, and failing which the Landlord may avail
itself of any of its remedies hereunder for default of the
Tenant and may make any payments or take any steps or
proceedings required to procure the discharge of any such
liens or encumbrances, and shall be entitled to be repaid
by the Tenant on demand for any such payments and to be
paid on demand by the Tenant for all costs and expenses
(including attorneys' fees and costs, and court costs) in
connection with steps or proceedings taken by the Landlord
and the Landlord's right to reimbursement and to payment
shall not be affected or impaired if the Tenant shall then
or subsequently establish or claim that any lien or
encumbrances so discharged was without merit or excessive
or subject to any abatement, set-off or defense. The
Tenant agrees to indemnify, defend (with counsel
reasonably acceptable to Landlord) and hold harmless
Landlord and the Property form all claims, costs and
expenses (including attorneys' fees and costs, and court
costs) which may be incurred by the Landlord in any
proceedings brought by any person against the Landlord
alone or with another of others for or in respect of work,
labor, services or materials supplied to or at the request
of Tenant.
F-1
<PAGE>
REMOVAL OF 4. All Leasehold Improvements in or upon the Leased
IMPROVEMENTS Premises shall immediately upon their placement be and
AND FIXTURES become the Landlord's property without compensation
therefor to the Tenant; however; and to the extent
otherwise expressly agreed to by the Landlord in writing,
no Leasehold Improvements, furniture or equipment shall be
removed by the Tenant from the Leased Premises either
during or at the expiration or sooner termination of the
Term, except that:
(a) the Tenant shall, prior to the end of the
Term, (i) remove such of the Leasehold
Improvements and trade fixtures in the
Leased Premises as the Landlord shall
require to be removed (as reasonably
determined by Landlord, in writing delivered
to Tenant, prior to installation), and (ii)
Tenant shall be entitled to remove the
following items from the Leased Premises
(subject to the terms of this Lease):
parabolic light fixtures (so long as Tenant
has replaced any such removed light fixtures
with operational Building standard light
fixtures in good condition); the raised
floor in the Leased Premises only; the UPS
Generator and any other generators installed
by Tenant, and any above-ground storage tank
for diesel fuel servicing the UPS Generator
and/or the other generators, if at all; the
Liebert-brand or similar brand of HVAC unit;
the "FM200 System" (as hereinafter defined)
(so long as the original water fire
suppression (sprinkler) system is
operational and in good condition); the
security/surveillance system (pursuant to
Paragraph 5(a)(vi) blow); furniture and
systems furniture; cabinets, cages and
racks; computer equipment; the Telco-brand
system; consoles; full-height glass walls;
specific power system upgrades installed by
Tenant in the Leased Premises only;
communications equipment; and condensers.
(b) [Intentionally Deleted].
The Tenant shall, in the case of every removal, make good
at the expense of the Tenant any damage caused to the
Property by the installation and removal. In the event of
the non-removal by the end of the Term or sooner
termination of this Lease of such trade fixtures or
Leasehold Improvements required by the Landlord of the
Tenant to be removed, the Landlord shall have the option,
in addition to its other remedies under this Lease, to
declare to the Tenant that such trade fixtures are the
property of the Landlord and the Landlord upon such a
declaration may dispose of such trade fixtures and retain
any proceeds of disposition as security for the Debts,
Liabilities and Obligations, and the Tenant shall be
liable to the Landlord for any expenses incurred by the
Landlord in connection therewith.
5. For the purpose of this Lease,
(a) the term "Tenant's Work" shall mean the
initial Leasehold Improvements and all work
required to be done to complete the Leased
Premises for occupancy by the Tenant,
excluding the Landlord's Work, which may
include the following:
(i) Landlord will provide to Tenant,
during the Term (including any
"Renewal Term" (as hereinafter
defined)), at no additional cost to
Tenant, a space measuring 12' x 20'
and located in the exterior parking
area of the Property along the
southern boundary of the Building
(adjacent to the Building's roll-up
door/doors) for Tenant's design,
construction and operation of a UPS
Generator capable of providing 500-
1,000 KVA for Tenant's exclusive use,
including an enclosure around the UPS
Generator, an umbilical line from the
Leased Premises to the UPS Generator,
and the installation and maintenance
of a temporary generator and all
wiring in connection therewith
(collectively, the "UPS Generator");
(ii) Tenant shall be entitled to bring into
the Building a minimum of five (5)
fiber optic cable services form the
street outside of the Property to the
Leased Premises, for services to same;
(iii) tenant shall be entitled to design,
construct and install the "Antennas"
(as hereinafter defined) on the roof
of the Building (including Landlord-
approved roof penetrations thereon),
all in accordance herewith and with
Schedule "N" attached hereto;
-----------
(iv) Tenant shall be entitled to design and
construct the relocation of the
existing restrooms located on the
first (1st) floor of the Building to
area located adjacent to the main
lobby of the Building, and also to
remove the existing stairwell located
adjacent to the existing restrooms on
the first (1st) floor of the Building;
(v) Tenant will install a FM200 and
preactivated dry water fire
suppression system (the "FM200
System") in the Leased Premises and
elsewhere on the first (1st) floor of
the Building; and
F-2
<PAGE>
(vi) Tenant shall be entitled to construct
and install video surveillance cameras
in the Leased Premises and no more
than two (2) such video surveillance
cameras outside of the Leased
Premises, along with a card-key or
other security system linking the
points of entry to the Leased
Premises.
(b) Notwithstanding anything to the contrary set
forth in this Lease, Tenant's design,
location, construction, maintenance and
removal of the Tenant's Work, including the
UPS Generator, any fiber optic cable
services installed by or on behalf of
Tenant, the Antennas, Tenant's relocation of
the existing restrooms, removal of the
existing stairwell located adjacent to the
existing restrooms, and installation of the
FM200 System, and all of Tenant's security
cameras and systems (all as set forth in
Paragraphs 5(a)(i)-(vi) above), shall be
consistent with the first-class quality and
character of the Building and the Property,
shall remain subject to the prior approval
of Landlord (including the location of and
wiring for all of Tenant's Work), and shall
comply with all applicable federal, state
and local rules, regulation, laws, permits
and approvals. During the Term, including
any Renewal Term, all of Tenant's work,
shall be maintained at Tenant's sole cost
and expense, pursuant to a repair and
maintenance program reasonably approved by
Landlord and otherwise in accordance with
this Lease. At the expiration or earlier
termination of this Lease, the Tenant's
work, as applicable, shall be subject to
Paragraph 4 of this Schedule "F", all at
-----------
Tenant's sole cost and expense (including
the removal of any lingering identification
on the Leased Premises, the Building and/or
the Property, where such Tenant's Work was
located).
(c) Within fifteen (15) days after the delivery
of a fully-executed original of this Lease
by Landlord to Tenant, Tenant shall cause
Tenant's architect to prepare a space plan,
which shall show the basic configuration of
all of Tenant's Work (the "Space Plan").
Within five (5) business days after Landlord
and Landlord's architect receive the Space
Plan from Tenant, Landlord and/or Landlord's
architect shall either approve or disapprove
such Space Plan in writing delivered to
Tenant, noting with reasonable particularity
any changes or corrections therein. Within
five (5) business days after Landlord's
written approval of the Space Plan, Tenant
shall cause Tenant's architect to prepare
and deliver to Landlord the final working
drawings and specifications for the Tenant's
Work, which shall be based substantially
upon the Space Plan (the "Final Plans").
Within five (5) business days after Landlord
and Landlord's architect receive the Final
Plans from Tenant, Landlord and/or
Landlord's architect shall either approve or
disapprove the Final Plans in writing
delivered to Tenant, noting with reasonable
particularity any changes or corrections
therein. If Landlord makes any changes or
corrections to the Final Plans, Tenant's
architect shall resubmit the revised Final
Plans to Landlord and Landlord's architect
within three (3) business days after receipt
by Tenant of Landlord's changes or
corrections, and thereafter, Landlord and/or
Landlord's architect shall either approve or
disapprove the revised Final Plans within
three (3) business days after Landlord and
Landlord's architect receive same, in
writing delivered to Tenant, noting with
reasonable particularity any further changes
or corrections therein. All costs to
Landlord, including Landlord's architect and
engineers, if any, in reviewing the Space
Plan and any Final Plans shall be deducted
form the "Tenant Improvement Allowance" (as
hereinafter defined), along with the costs
of Tenant, and Tenant's architects,
engineers and/or consultants, in preparing,
reviewing and revising the Space Plan and
the Final Plans.
(d) Tenant shall diligently and in good-faith
commence and complete the construction of
the Tenant's Work by selecting a general
contractor, construction manager,
subcontractors and/or engineers of Tenant's
choice, subject to Landlord's reasonable
approval (which approval shall not be
unreasonably withheld or delayed) and
provided that each of the foregoing must be
licensed and insured in the State of
California. Landlord shall not charge any
provisory or other fee in connection with
the Tenant's work, except for Landlord's
reasonable out-of-pocket construction
supervision fee and other actual out-of-
pocket expenses incurred in connection
therewith. Tenant's contractors, employees,
and all other designated personnel shall
have the unimpeded access to the Leased
Premises and certain other parts of the
Building (upon prior written notice to, and
the reasonable approval of, Landlord, which
approval shall not be unreasonably withheld
or delayed, and provided that Landlord
and/or Landlord's designated representative
may accompany Tenant to certain other parts
of the Building), for the construction of
the Tenant's Work, all in accordance wit the
terms of this Lease, including, but not
limited to, the Rules and Regulations for
the Building attached as Schedule "E"
-----------
hereto. Tenant shall cause Tenant's
architect or such general contractor, or
both, to apply for the required permits and
approvals to construct the Tenant's Work,
which permits and approvals shall be charged
against the Tenant Improvement Allowance;
provided, however, Landlord makes no
representation nor warranty, either express
or implied, with respect to whatever
permits, certificates or approvals will be
required for the Tenant's Work, if any, or
if required, at what costs and how quickly
they can be obtained.
(e) Following Tenant's receipt of all required
permits and approvals (which shall be
available for
F-3
<PAGE>
Landlord's review concurrent with Tenant's
review), Tenant's general contractor shall
diligently pursue the construction and
completion of the Tenant's Work, subject
only to delays set forth in Paragraph 15 of
this Lease. Notwithstanding anything to the
contrary set forth herein or elsewhere in
this Lease, however, and regardless of the
then-current status of Tenant's design
permitting, construction and completion of
the Tenant's Work, the actual Commencement
Date of the Term shall be defined as, and
will be deemed to occur on September 1, 1997
(as set forth in Paragraph 2(a) of this
Lease).
(f) Landlord shall contribute an amount up to,
but in no event to exceed, the Tenant
Improvement Allowance, which amount shall be
applied by Landlord's review and approval of
the Space Plan and the Final Plans, all
permits and approvals, construction and
completion of the Tenant's Work in the
Leased Premises, but shall not be applied
against the Landlord's Work. Tenant shall,
within twenty (20) days after written demand
by Landlord to Tenant, be obligated to pay
for all costs related to or in connection
with Tenant's Work which are in excess of
the Tenant Improvement Allowance. Tenant
shall not be entitled to receive any payment
or credit, or nay off-set or deduction
against any monetary obligation of Tenant
under this Lease, for any portion of the
Tenant Improvement Allowance which is not
expended hereunder or in accordance with
Schedule "G" attached hereto.
-----------
6. For the purposes of this Lease, the term "Landlord's
Work" shall mean only the following (which shall not be a
part of the Leasehold Improvements, and shall immediately
upon their placement be and become the Landlord's
property):
(a) Landlord will relocate the existing
telephone equipment and telephone room from
the first (1st) floor of the Building to the
second (2nd) floor of the Building;
(b) Landlord will provide Tenant with a separate
meter or meters, and related metering
equipment, for the utilities and services to
be used by Tenant in the Leased Premises, as
set forth in Schedule "D" attached hereto;
-----------
and
(c) Landlord will design and construct an
upgrade of the base system for the Building
to provide a new 1,600 amp, 480/277 volt
three (3) phase electrical service delivered
to the electrical room of the Building (the
"Electrical Service Upgrade"), for Tenant's
exclusive use in the Leased Premises.
(d) All of the Landlord's Work shall be
designed, constructed and completed by
Landlord (including the location of and any
wiring related to the Landlord's Work), at
Landlord's sole discretion, and will be
completed by Landlord on or before the
Commencement Date. The Landlord's Work shall
be at Landlord's sole cost and expense
(except as otherwise provided herein), and
shall not be a part of the Tenant
Improvement Allowance. Notwithstanding
anything to the contrary set forth herein,
as additional consideration for the
performance of Landlord's obligations under
this Lease, Tenant hereby agrees to
reimburse Landlord for a portion of the
total cost of the Electrical Service Upgrade
as follows: after Landlord's completion of
the Electrical Service Upgrade and the
calculation by Landlord of the total cost of
same (the "Electrical Service Upgrade
Cost"), Landlord hereby agrees to pay the
first Twenty Thousand Dollars (US$20,000.00)
of the Electrical Service Upgrade Cost, and
thereafter, Landlord hereby further agrees
to pay one-half ( 1/2) of the remaining
balance of the Electrical Service Upgrade
Cost. Thereafter, the remaining balance of
the Electrical Service Upgrade Cost will be
payable by Tenant to Landlord, as part of
the Rent due under this Lease commencing on
the Commencement Date and continuing on the
first (1st) day of each month thereafter,
amortized over the initial one hundred
twenty (120) month Term at an interest rate
of ten percent (10%) per annum. If, for
example and as a means of illustration only,
the actual amount of the Electrical Service
Upgrade Cost is Fifty-Nine Thousand Nine
Hundred Thirty-One Dollars (US$59,931.00),
then after Landlord's contribution to the
Electrical Service Upgrade Cost of Thirty-
Nine Thousand Nine Hundred Sixty-Five and
50/100 Dollars (US$39,965.50) (the first
US$20,000.00 plus one-half ( 1/2) of the
----
remaining balance of the Electrical Service
Upgrade Cost [US$19,965.50, in this case]),
Tenant will be obligated to reimburse
Landlord for the remaining US$19,965.50 (the
remaining balance of the Electrical Service
Upgrade Cost), in a monthly amount amortized
and at the interest rate set forth herein.
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<PAGE>
SCHEDULE "G"
TENANT IMPROVEMENT ALLOWANCE
The Landlord hereby agrees to contribute to Tenant for the Tenant's Work, but
not as part of the Landlord's Work, a "Tenant Improvement Allowance" in an
amount up to, but in no event to exceed, Ten Dollars (US$10.00) per square foot
multiplied by the total rentable square feet of the Leased Premises, as
calculated by Landlord pursuant to Paragraph 1 of this Lease (approximately One
Hundred Sixty-Seven Thousand Five Hundred Dollars (US$167,500.00) [16,750
rentable square feet multiplied by US$10.00 per square foot]), which Tenant
Improvement Allowance shall be contributed by Landlord following Landlord's
receipt of evidence reasonably satisfactory to Landlord that all contractors,
workmen, material and service suppliers and all the persons having claims
against the Tenant for payment of work done or materials or services supplied in
connection with the Tenant's Work have been paid in full. Landlord's
contribution of the Tenant Improvement Allowance is for the purpose set forth in
Paragraph 5(f) of Schedule "F" attached hereto. It is a condition precedent to
------------
Landlord's obligation to contribute the Tenant Improvement Allowance hereunder
that a claim for said contribution of the Tenant Improvement Allowance be made
by Tenant, along with the delivery by Tenant of reasonably satisfactory evidence
of all of the foregoing, to Landlord. Landlord may, but shall not be obligated
to, pay any contractor, workmen, material and/or service suppliers and all the
persons who performed work or supplied materials or services in connection with
the Tenant's Work, if the Tenant has failed to do so, and the Tenant shall pay
the Landlord on demand the amount the Landlord has so paid, unless such payment
is made by Landlord prior to the Landlord's contribution to the Tenant of any of
the Tenant Improvement Allowance, in which case the amount of such payment by
Landlord shall be deducted from all or any remaining portion of the Tenant
Improvement Allowance.
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<PAGE>
SCHEDULE "H"
OPTION TO RENEW
(a) The Landlord covenants with the Tenant that if the Tenant duly and
regularly pay s the Rent and any and all other amounts required to be paid
pursuant to this Lease and performs each and every covenant, proviso and
agreement on the part of the Tenant to be paid, rendered, observed and
performed herein, the Landlord hereby, upon written notice by the Tenant
and received by the Landlord not more than nine (9) months nor less than
six (6) months prior to the expiration of the ten-expiring Term of the
first Renewal Term, as applicable, grants to the Tenant two (2) consecutive
options to renew (an "Option" or, collectively, the "Options") this Lease
for an additional five (5) year period each (a "Renewal Term" or,
collectively, the "Renewal Terms"), on the same terms and conditions as in
this Lease at the commencement of the applicable Renewal Term, save and
except for Tenant's right to any further renewal (except for the Renewal
Terms), Landlord's Work, Basic Rent, and any Tenant Improvement Allowance.
(b) The Basic Rent for each applicable Renewal Term shall be determined by
negotiations between the parties hereto, and it is agreed that during such
negotiations in respect of Basic Rent, they will be guided by the "Fair
Market Rental Rate" (as hereinafter defined) for the Leased Premises and by
the provisions of Paragraphs (c) and (d) below; provided, however, in no
event shall the Basic Rent per annum applicable to the Renewal Terms be
lower that the Basic Rent per annum for the last year of the Term just
ending.
(c) For the purposes of this Schedule "H" and Schedule "L" attached hereto
------------ ------------
only, the term "Fair Market Rental Rate" shall mean the annual amount per
rentable square foot that a willing, comparable non-renewal, non-equity,
non-expansion tenant would pay for unencumbered space, and Landlord would
accept, at arm's length, giving appropriate consideration to annual rental
rates per rentable square foot, escalations (including type, gross or net,
and if gross, whether base year or expense stop), abatement provisions
reflecting free rent, if any, brokerage commissions, if any, length of the
lease term, and size and location of the premises being leased. To allow
for a decision as to the Fair Market Rental Rate, the parties hereto may
consider, for comparison purposes, transactions in comparable,
unencumbered, non-renewal space in "Comparable Buildings," which shall mean
Comparable Buildings to the Building in use, quality and size, and located
in the major business district of the City of Irvine, State of California.
Landlord shall give written notice of Landlord's determination of the Fair
Market Rental Rate to Tenant promptly after Landlord's receipt of Tenant's
written notice to exercise an Option hereunder, and the parties hereto will
then proceed to determine the Basic Rent for the applicable Renewal Term in
accordance with this Schedule "H".
------------
(d) In the event Tenant rejects the determination of the Fair Market
Rental Rate submitted by Landlord, then Landlord and Tenant shall attempt
in good-faith to agree upon such Fair Market Rental Rate. If Landlord and
Tenant fail to reach agreement within fifteen (15) days following Tenant's
receipt of Landlord's determination of the Fair Market Rental Rate (the
"Outside Agreement Date"), then each party's determination of the Fair
Market Rental Rate shall be submitted to appraisal in accordance with the
following:
(i) Landlord and Tenant shall each appoint one independent appraiser
who shall by profession be a real estate broker active over the previous
five (5) year period ending on the date of such appointment in the leasing
of commercial properties in the City of Irvine, California. Each such
appraiser shall be appointed within fifteen (15) days after the Outside
Agreement Date If either Landlord or Tenant fails to timely appoint an
appraiser, as the other party's request, JAMS/Endispute or an "Arbitrator"
(as defined in clause (d)(v) below) shall appoint their or its appraiser.
(ii) The two (2) appraisers so appointed shall, within fifteen (15)
days after the appointment of the last appraiser, agree upon and appoint a
third appraiser who shall be qualified under the same criteria.
(iii) The three (3) appraisers shall, within thirty (30) days after the
appointment of the third appraiser, decide whether the parties shall use
Landlord's or Tenant's submitted Fair-Market Rental Rate, and shall notify
Landlord and Tenant in writing thereof. The appraisers' determination shall
be limited solely to the issue of whether Landlord's or Tenant's submitted
Fair Market Rental Rate for the applicable Renewal Term is closest to the
then-prevailing Fair Market Rental Rate, as determined by the appraisers
taking into account the requirements set forth in this Schedule "H". Such
------------
decision shall be based upon the projected, then-prevailing Fair Market
Rental Rate as of the proposed commencement date of the applicable Renewal
Term.
(iv) The three (3) appraisers' majority decision shall be binding
upon Landlord and Tenant, without any right of appeal or objection,
judicial or otherwise.
(v) If the appraisers fail to agree upon and appoint a third
appraiser, both appraisers shall be dismissed and the matter shall be
submitted to arbitration under the provisions of JAMS/Endispute in Orange
County, California, with a determination within thirty (30) days thereafter
based upon the same procedures set forth above (i.e., by selecting either
----
Landlord's or Tenant's submitted Fair Market Rental Rate only, as closest
----
to the then-prevailing Fair Market Rental Rate). If JAMS/Endispute no
longer exists, then the matter shall be settled by binding arbitration
before a single arbitrator appointed pursuant to the Rules of the American
Arbitration Association in effect at the time of the arbitration (the
"Rules") and shall otherwise be conducted pursuant to such Rules. The
"Arbitrator"
H-1
<PAGE>
shall be a lawyer or judge having at least twenty (20) years professional
experience, and the arbitration shall be held in Orange County, California,
and be conducted in confident and without public disclosure by the
Arbitrator or any party or their representatives of any matters relevant to
the arbitration. Judgment may be entered on any arbitration award in any
court having competent jurisdiction thereof.
(vi) All costs of appraisal hereunder, and arbitration if necessary,
shall be shared equally by the parties hereto.
(e) The Tenant agrees to execute the Landlord's commercially reasonable
lease amendment agreement then, at the commencement of each applicable
Renewal Term, being used by the Landlord for the Building to give effect to
an Option, if exercised by the Tenant. The Tenant shall execute such
commercially reasonable agreement prior to the commencement date of the
applicable Renewal Term.
(f) Notwithstanding the above, if the Tenant does not exercise Tenant's
first Option in accordance with this Schedule "H," then the Options are
-----------
hereby automatically terminated and of not further force and effect.
NOTICE: BY INITIALING THIS SCHEDULE "H" YOU ARE AGREEING TO HAVE ANY
-----------
DISPUTE ARISING OUT OF THE DETERMINATION OF FAIR MARKET RENTAL RATE FOR ANY
OPTION DECIDED BY NEUTRAL ARBITRATION AS PROVIDED BY CALIFORNIA LAW, AND
YOU ARE GIVING UP ANY RIGHTS YOU MIGHT POSSESS TO HAVE SUCH DISPUTE
LITIGATED IN A COURT OR JURY TRIAL. BY INITIALING THIS SCHEDULE "H" YOU ARE
GIVING UP YOUR JUDICIAL RIGHTS TO DISCOVERY AND APPEAL, UNLESS SUCH RIGHTS
ARE SPECIFICALLY INCLUDED IN THIS SCHEDULE "H". IF YOU REFUSE TO SUBMIT TO
-----------
ARBITRATION AFTER AGREEING TO THIS SCHEDULE "H", YOU MAY BE COMPELLED TO
-----------
ARBITRATE UNDER THE AUTHORITY OF THE CALIFORNIA CODE OF CIVIL PROCEDURE.
YOUR AGREEMENT TO THIS ARBITRATION IS VOLUNTARY. THE PARTIES HERETO HAVE
READ AND UNDERSTAND THE FOREGOING AND AGREE TO SUBMIT ANY DISPUTE ARISING
OUT OF THE DETERMINATION OF THE FAIR MARKET RENTAL RATE FOR ANY OPTION TO
NEUTRAL ARBITRATION.
<TABLE>
<CAPTION>
<S> <C>
/s/ Illegible /s/ Illegible
- ------------------------------------------- ---------------------------------------------
LANDLORD'S INITIALS TENANT'S INITIALS
</TABLE>
H-2
<PAGE>
SCHEDULE "I"
OCCUPANCY PRIOR TO COMMENCEMENT DATE
The Tenant may enter the Property, including the Leased Premises, upon full
execution and delivery of this Lease between Landlord and Tenant, for the sole
purpose of the Tenant's Work (the "Improvement Period"). Tenant's use of the
Property, including the Leased Premises, during the Improvement Period shall be
upon and subject to the following conditions:
1. During the Improvement Period, the Tenant, its servants, agents, employees,
contractors, subcontractors, officers and directors, shall be subject to
and bound by all of the terms and conditions of this Lease, including,
without limiting the generality of the foregoing, all insurance and
indemnification obligations of Tenant, subject only to the following:
(a) During the Improvement Period, the Tenant shall not be obligated to
pay Basic Rent (except as otherwise provided herein); and
(b) In the event the Tenant commences to conduct Tenant's business from
the Leased Premises during the Improvement Period, all Basic Rent
shall commence form the date of such commencement, notwithstanding
that the Term has not yet begun.
(c) [Intentionally Deleted].
2. Should Tenant enter upon the Property, including the Leased Premises, under
the terms of this Schedule "I" during the Improvement Period, it is hereby
-----------
agreed that Tenant, and Tenant's servants, agents, employees, contractors,
subcontractors, officers and directors or any other persons under Tenant's
control (collectively, "Tenant's Representatives"), shall be subject to the
direction of Landlord and Landlord's general contractor. If in the sole
and absolute discretion of Landlord, the presence of Tenant's
Representatives and their work interferes with the construction and
completion of the Landlord's Work or shall detrimentally affect Landlord's
ability to comply with Landlord's commitment for completing same or causes
any labor difficulties, Landlord shall have the right to order that portion
of the work of Tenant's Representatives, which is detrimental to Landlord,
to cease upon prior written notice to Tenant, and Landlord may also require
that Tenant and Tenant's Representatives remove from the Property all of
their tools, equipment and materials.
3. Except as otherwise provided in Paragraph 1(b) of this Schedule "I,"
-----------
Tenant's use of the Property, including the Leased Premises, during the
Improvement Period shall not be deemed the taking of possession of the
Leased Premises by Tenant for the purposes of either setting or
establishing the Commencement Date.
I-1
<PAGE>
SCHEDULE "K"
INCREASES IN BASIC RENT
1. Notwithstanding anything to the contrary set forth in Paragraph 3 or
elsewhere in this Lease, and following August 31, 1998, the Basic Rent payable
by Tenant for the Leased Premises shall be increased in accordance with the
following:
(a) Commencing on September 1, 1998 and continuing through and including
August 31, 1999, the Basic Rent shall increase to approximately
US$261,300.00 per annum in lawful money of the jurisdiction in which the
Leased Premises are located, payable in equal monthly installments of
approximately US$21,775.00 each (which shall equal and reflect US$1.30 per
rentable square foot multiplied by the total rentable square feet of the
Leased Premises), in advance on the first (1st) day of each month during
the initial Term, with the first payment to be made on September 1, 1998;
(b) Commencing on September 1, 1999 and continuing through and including
August 31, 2000, the Basic Rent shall increase to approximately
US$271,350.00 per annum in lawful money of the jurisdiction in which the
Leased Premises are located, payable in equal monthly installments of
approximately US$22,617.50 each (which shall equal and reflect US$1.35 per
rentable square foot multiplied by the total rentable square feet of the
Leased Premises), in advance on the first (1st) day of each month during
the initial Term, with the first payment to be made on September 1, 1999;
(c) Commencing on September 1, 2000 and continuing through and including
August 31, 2001, the Basic Rent shall increase to approximately
US$281,400.00 per annum in lawful money of the jurisdiction in which the
Leased Premises are located, payable in equal monthly installments of
approximately US$23,450.00 each (which shall equal and reflect US$1.40 per
rentable square foot multiplied by the total rentable square feet of the
Leased Premises), in advance on the first (1st) day of each month during
the initial Term, with the first payment to be made on September 1, 2000;
(d) Commencing on September 1, 2001 and continuing through and including
August 31, 2002, the Basic Rent shall increase to approximately
US$291,450.00 per annum in lawful money of the jurisdiction in which the
Leased Premises are located, payable in equal monthly installments of
approximately US$24,287.50 each (which shall equal and reflect US$1.45 per
rentable square foot multiplied by the total rentable square feet of the
Leased Premises), in advance on the first (1st) day of each month during
the initial Term, with the first payment to be made on September 1, 2001;
(e) Commencing on September 1, 2002 and continuing through and including
August 31, 2003, the Basic Rent shall increase to approximately
US$301,500.00 per annum in lawful money of the jurisdiction in which the
Leased Premises are located, payable in equal monthly installments of
approximately US$25,125.00 each (which shall equal and reflect US$1.50 per
rentable square foot multiplied by the total rentable square feet of the
Leased Premises), in advance on the first (1st) day of each month during
the initial Term, with the first payment to be made on September 1, 2002;
(f) Commencing on September 1, 2003 and continuing through and including
August 31, 2004, the Basic Rent shall increase to approximately
US$311,550.00 per annum in lawful money of the jurisdiction in which the
Leased Premises are located, payable in equal monthly installments of
approximately US$25,962.50 each (which shall equal and reflect US$1.55 per
rentable square foot multiplied by the total rentable square feet of the
Leased Premises), in advance on the first (1st) day of each month during
the initial Term, with the first payment to be made on September 1, 2003;
(g) Commencing on September 1, 2004 and continuing through and including
August 31, 2005, the Basic Rent shall increase to approximately
US$321,600.00 per annum in lawful money of the jurisdiction in which the
Leased Premises are located, payable in equal monthly installments of
approximately US$26,800.00 each (which shall equal and reflect US$1.60 per
rentable square foot multiplied by the total rentable square feet of the
Leased Premises), in advance on the first (1st) day of each month during
the initial Term, with the first payment to be made on September 1, 2004;
(h) Commencing on September 1, 2005 and continuing through and including
August 31, 2006, the Basic Rent shall increase to approximately
US$331,650.00 per annum in lawful money of the jurisdiction in which the
Leased Premises are located, payable in equal monthly installments of
approximately US$27,637.50 each (which shall equal and reflect US$1.65 per
rentable square foot multiplied by the total rentable square feet of the
Leased Premises), in advance on the first (1st) day of each month during
the initial Term, with the first payment to be made on September 1, 2005;
and
(i) Commencing on September 1, 2006 and continuing through and including
August 31, 2007, the Basic Rent shall increase to approximately
US$341,700.00 per annum in lawful money of the jurisdiction in which the
Leased Premises are located, payable in equal monthly installments of
approximately US$28,475.00 each (which shall equal and reflect US$1.70 per
rentable square foot multiplied by the total rentable square feet of the
Leased Premises), in advance on the first (1st) day of each month during
the initial Term, with the first payment to be made on September 1, 2006.
K-1
<PAGE>
SCHEDULE "L"
RIGHT OF FIRST OPPORTUNITY TO LEASE
(a) Provided that the Tenant duly and regularly pays the Rent and any and
all other amounts required to be paid pursuant to this Lease and performs
each and every covenant, proviso and agreement on the part of the Tenant to
be paid, rendered, observed and performed herein, the Landlord hereby
grants to the Tenant the right of first opportunity to lease (herein called
the "Right of First Opportunity Lease") all of the then-available,
additional space located on the second (2nd) floor of the Building, as
outlined on the attached floor plan(s) marked Schedule "B-2" and attached
-------------
to this Lease (herein called the "Opportunity Space").
(b) The Right of First Opportunity of Lease shall be subject to the
Opportunity Space becoming vacant and available for lease. The Opportunity
Space shall be deemed "available for lease" only to the extent that such
space is not subject to a lease of another tenant(s) (i.e., right of
---
expansion, first offer, renewal or any other rights of a third party).
(c) The Landlord will notify the Tenant in writing (herein called the
"Notification") of the date on which the Opportunity Space will become
vacant and available for lease by the Tenant, subject to any existing
tenant of the Opportunity Space vacating on such date (herein called the
"Opportunity Space Commencement Date"). The Tenant must indicate its
intention to lease the Opportunity Space by giving notice in writing to the
Landlord within thirty (30) days after such Notification, failing which the
Right of First Opportunity to Lease shall automatically terminate and be of
no further force and effect, and Landlord will have the right to lease the
Opportunity Space to any third party.
(d) The Notification will be sent to the Tenant no later than seven (7)
months prior to the Opportunity Space Commencement Date.
(e) The expiration date of the term of the lease for the Opportunity Space
shall coincide with the Expiration Date of this Lease or the applicable
Renewal Term, if exercised.
(f) The Basic Rent per square foot for the Opportunity Space shall be at
the Fair Market Rental Rate, as reasonably determined by Landlord and
Tenant solely in accordance with Paragraph (c) of Schedule "H" attached
-----------
hereto (without the use of the appraisal/arbitration procedures set forth
in Paragraph (d) of such Schedule "H").
-----------
(g) Landlord shall give written notice of Landlord's determination of the
Fair Market Rental Rate to Tenant concurrently with Landlord's delivery of
the Notification to Tenant. Thereafter, the Basic Rent per square foot for
the Opportunity Space shall be agreed upon between the Landlord and the
Tenant in writing within sixty (60) days after the Notification, failing
which the Right of First Opportunity to Lease as to the specific
Opportunity Space may, at Landlord's option, automatically terminate and be
of no further force and effect, and the Landlord will have the right to
lease the Opportunity Space to any third party.
(h) The Opportunity Space shall be subject to the same terms and
conditions as in this Lease, except that there will be no Landlord's Work,
no Tenant Improvement Allowance, and the Tenant's Proportionate Share will
be increased accordingly.
(i) Subject to Tenant's prior inspection, the Tenant agrees to accept the
Opportunity Space in its then-current "AS/IS-WHERE/IS" condition "WITH ALL
FAULTS" as of the Opportunity Space Commencement Date.
(j) The Tenant agrees to execute the Landlord's commercially reasonable
lease amendment agreement then, at the Opportunity Space Commencement Date,
being used by the Landlord for the Building to give effect to the Right of
First Opportunity to Lease, if exercised by the Tenant.
(k) Notwithstanding the above, if the Tenant does not exercise the Right
of First Opportunity to Lease in accordance with this Schedule "L", then
------------
the Right of First Opportunity to Lease shall automatically terminate and
be of no further force and effect, and Landlord will have the right to
lease the Opportunity Space to any third party.
L-1
<PAGE>
SCHEDULE "M"
LETTER OF CREDIT
(a) Concurrent with Tenant's execution and delivery of this Lease to
Landlord and Tenant's delivery of the Security Deposit pursuant to
Paragraph 4 of this Lease, and as additional security for the payment and
performance by the Tenant of all Debts, Liabilities and Obligations and all
of Tenant's other obligations arising under or in connection with this
Lease, Tenant hereby agrees to deliver to Landlord a fully-executed,
original standby, irrevocable "Letter of Credit" from, and to be honored
by, the main office of Silicon Valley Bank located at 3003 Tasman Drive,
Santa Clara, California 95054 Attn: International Department (the "Bank"),
in the amount of Two Hundred Thousand Dollars (US$200,000.00) in favor of
Landlord, as "beneficiary," and dated as of the date of this Lease, which
Letter of Credit shall be available to Landlord upon Landlord's draft(s) to
be accompanied only by the following: (i) a signed statement or other
----
writing from the then-current Director of Real Estate for Landlord's local
office set forth on the first page of this Lease, confirming that a default
or breach by the Tenant has occurred under this Lease, and (ii) the
original, fully-executed Letter of Credit presented for endorsement with
each draft or draw requested and, thereafter, immediately returned to
Landlord by the Bank; provided, however, and although the Letter of Credit
will be renewed annually by Tenant through and including August 31, 2000,
the Letter of Credit may be decreased thereafter in accordance with the
following: (A) on September 1, 2000, the amount of the Letter of Credit may
be decreased by Tenant to One Hundred Fifty Thousand Dollars
(US$150,000.00); (B) on September 1, 2002, the amount of the Letter of
Credit may be decreased by Tenant to One Hundred Thousand Dollars
(US$100,000.00); (C) on September 1, 2002, the amount of the Letter of
Credit may be decreased by Tenant to Fifty Thousand Dollars (US$50,000.00);
and on and after September 1, 2003, Tenant shall no longer be obligated to
renew and/or deliver the Letter of Credit to Landlord. Tenant hereby
acknowledges and agrees that, as of the date of this Lease, Tenant has
reviewed and approved the form of the Letter of Credit, and Tenant hereby
also agrees, as the "applicant" and/or the "account party," to be bound by
all of the terms, covenants and conditions of the Letter of Credit.
(b) Landlord hereby agrees to accept an annually renewable Letter of
Credit for the purposes set forth herein; provided, that the Bank agrees to
notify Landlord and Tenant by certified mail at least sixty (60) days in
advance of the expiration of each twelve (12)-month term (or other term) of
the Letter of Credit, if the Bank intends not to renew the Letter of
Credit. In the event that the Bank intends not to renew the Letter of
Credit, Tenant hereby agrees to provide a substitute Letter of Credit in
like amount drawn from one of the three (3) then-largest commercial lending
institutions in the State of California (i.e., Bank of America, Wells
----
Fargo, etc.) or to provide Landlord with the required amount of cash in
lieu of the new Letter of Credit no later than thirty (30) days prior to
the expiration of the existing Letter of Credit. In the event a replacement
Letter of Credit or the required cash amount is not provided or paid by
Tenant by the time specified herein, then Landlord may declare Tenant in
default of this Lease, and, in addition to all of Landlord's rights and
remedies herein provided, Landlord may draw down payment under the existing
Letter of Credit.
M-1
<PAGE>
SCHEDULE "N"
MISCELLANEOUS
1. Security. Landlord does not warrant, represent or guaranty, in any manner
--------
whatsoever, to protect Tenant and/or Tenant's Representatives or property from
loss or injury in, on or about the Leased Premises, the Building and/or the
Property. Subject to Landlord having access to, and Landlord's prior written
approval of, any Tenant security system and its installation, along with the
satisfaction of all other applicable provisions of this Lease, Tenant may, at
Tenant's sole cost and expense (except as otherwise provided in this Lease),
install reasonable security measures and systems in the Leased Premises, and
Tenant is encouraged by Landlord to do so, including, but not limited to,
Tenant's video surveillance cameras and security system set forth as part of
Tenant's Work in Paragraph 5(a)(vi) on Schedule "F" attached hereto.
------------
2. Antenna and Satellite Dish. Tenant may install, from time to time during
--------------------------
the Term, and maintain, up to two (2) lightweight antennas (pole type, not to
exceed 1-1/2" in diameter and not to be greater than 15' in height from the roof
of the Building), eight (8) lightweight aluminum satellite dishes (not to exceed
3' in diameter and not to be greater than 3' in height from the roof of the
Building), and six (6) HVAC condensers and other forms of equipment
(collectively, the "Antennas"), to be located on one thousand two hundred square
feet (1,200) of space on the roof of the Building, at no additional cost to
Tenant, in accordance with this Lease and all of the following:
(a) Notwithstanding anything to the contrary set forth in this Lease, and
upon and subject to the terms and conditions provided below, Tenant may, at
Tenant's option and at Tenant's sole cost and expense (except as otherwise
provided in this Lease), install, maintain and operate the Antennas (and
all related equipment with non-penetrating roof mounts) on the roof of the
Building in a location reasonably approved in writing by Landlord.
(b) Landlord shall have no responsibility for and shall not be obligated to
provide any utilities, including, but not limited to, electricity or other
power for the operation of the Antennas. tenant shall procure the
arrangement of all utility services to be sued in connection with the
Antennas with the appropriate local utility companies, which arrangements,
other than the cost and expense of same, shall be subject to the written
approval of Landlord, which approval shall not be unreasonably withheld or
delayed. Tenant shall directly pay for the cost of all such utility
services in accordance with Schedule "D" attached hereto.
------------
(c) Prior to the installation and operation of the Antennas, Tenant shall
obtain, and shall thereafter at all times maintain, all permits,
certificates and approvals required by applicable federal, state and local
laws, ordinances and agencies in connection with or related to the
installation, operation and maintenance of the Antennas. Upon request at
any time by Landlord, Tenant shall produce such permits, certificates and
approvals for inspection by Landlord or Landlord's authorized
representative. Tenant shall promptly pay any taxes and license fees
imposed by applicable federal, state or local governmental agencies in
connection with the Antennas for any reason whatsoever. Tenant's failure
to obtain any such permit, certificate or approval shall not entitle Tenant
to any rent abatement, right to terminate or nay other remedy under this
lease or to otherwise with respect to Landlord; it being acknowledged and
agreed that Landlord has made no representation nor warranty, either
express or implied with respect to whether any such permits, certificates
or approvals shall be required or, if required, whether they may be
obtained and, if so, at what cost and how quickly.
(d) Tenant shall maintain the Antennas, at Tenant's own cost and expense,
in good working order and condition an free form any hazard to person
and/or property. Tenant shall not place any load upon the roof of the
Building which will exceed the load per square foot which the roof was
designed to carry. Upon written request from Tenant, Landlord shall
provide Tenant with such information, as may be in Landlord's actual
possession, that Tenant may reasonably require to properly distribute any
load on the roof of the Building. Any damage caused to the Building or any
part thereof which results from the installation, operation, maintenance,
repair, replacement or removal of the Antennas shall be promptly repaired
or replaced by Tenant, under Landlord's reasonable supervision (if Landlord
elects) and at Tenant's sole cost and expense.
(e) Subject to Exhibit "I" attached hereto, Landlord hereby grants to
-----------
Tenant the limited right to enter upon and have access to and from the roof
of the Building, at reasonable times, for the purposes of installation,
maintenance and/or removal of the Antennas, as permitted hereunder.
Landlord agrees not to unreasonably interfere with the Antennas, subject to
any repairs, replacements, alternation or additions required to be
performed with respect to the roof of the Building by Landlord or at the
request of any governmental authority or agency.
(f) Tenant's Antennas shall not exceed the height restriction of any zoning
ordinance, agreement with any other tenant/lessee, restrictive covenant or
recorded instrument or building or fire safety code affecting the Building
and/or the Property, and shall not be installed or maintained in a manner
which would void or negate Landlord's roof warranty, if any, or the
structural integrity of the Building, including the roof. In addition,
Tenant's plans and specifications treated to the method and manner of the
construction, installation and maintenance of the Antennas shall be subject
to Schedule "F" attached hereto; provided, that Landlord's approval of the
------------
specifications and other items shall not constitute the assumption of any
responsibility by
N-1
<PAGE>
Landlord for the accuracy or sufficiency of any specifications, drawings or
other information covered thereby, and Tenant shall be solely responsible
therefor. The giving of any such approval shall not eliminate any of
Tenant's obligations hereunder, including, without limitation, Tenant's
obligation to obtain all required permits and compliance with all codes and
insurance requirements set forth in this Lease and as set forth herein.
(g) Tenant hereby agrees to indemnify, defend (with counsel reasonably
acceptable to Landlord) and hod harmless Landlord, the Leased Premises, the
Building and the Property from and against any and all loss, cost, injury,
claim, demand, cost and expense of every kind and nature (including
reasonable attorneys' fees and costs, and court costs) which arise form
tenant's use of the roof of the building and/or Tenant's Antennas for any
reason whatsoever or any breach or default on the part of Tenant in the
performance of any agreement of Tenant to be performed pursuant to the
terms set forth herein.
3. Signage. Notwithstanding anything to he contrary set forth in this Lease,
-------
Tenant shall be entitled to one (1) non-illuminated, exterior sign to be located
on the western facing exterior parapet of the Building, and certain signage on
the exterior, main entrance doors to the Leased Premises and upon the directory
board of the Building, if available, all in a location, appearance, size,
material, lettering and styling as is currently customary and available for the
Building, if at all, which signage shall be installed, maintained, repaired and
removed from the Building and/or the Property, at Tenant's sole cost an expense,
subject to the applicable terms, covenants and conditions set forth herein or as
otherwise set forth in this Lease. The appearance, size, material, lettering
and styling regarding Tenant's signage shall be consistent with the first-class
quality and character of the Building and the Property, shall remain subject to
the prior approval of Landlord and compliance with all applicable covenants,
conditions and restrictions, and other recorded instruments, affecting the
Building and/or the Property resulting from such removal. If Tenant fails to
remove such signage and repair any such damage to the Leased Premises the
building and/or the Property within thirty (30) days after Landlord's written
request therefor, then Landlord may perform such work, an all costs and expenses
incurred by the Landlord will be reimbursed by tenant within ten (10) business
days after Tenant's receipt of Landlord's written demand therefor.
4. Access. Subject to the terms, covenants and conditions of this Lease and as
------
of the Commencement Date and thereafter, Tenant shall have access to the Leased
Premises twenty-four (24) hours per day, sever (7) days per week.
N-2
<PAGE>
PARKING AGREEMENT
THIS AGREEMENT is made this 27th day of June, 1997, BY AND BETWEEN: EXODUS
COMMUNICATIONS, INC., a California corporation (hereinafter called the
"Licensee"), OF THE FIRST PART, and THE MANUFACTURERS LIFE INSURANCE COMPANY
(U.S.A.), a Michigan corporation (hereinafter called "Manufacturers"), OF THE
SECOND PART,
WHEREAS, by lease (the "Lease") dated June 27, 1997, the Licensee leased
from Manufacturers the "Leased Premises" located on the first (1st) floor of the
Building" known as 72 Corporate Park in the City of Irvine, State of California
92606, and in connection therewith wishes to park automobile(s) in the parking
lot/structure adjacent to the Building.
NOW, THEREFORE, in consideration of TWO ($2.00) DOLLARS now paid by the
Licensee to Manufacturers, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
1. Manufacturers grants to License the right to sixty-two (62) non-reserved
parking spaces (which will not including any such spaces designated for the UPS
Generators and the Electrical Service Upgrade) (as such terms are defined in the
Lease), the a term commencing on the Commencement Date of the Lease. Licensee
agrees to park only in those spaces designated for Licensee, at no charge to
Licensee; provided, however, Licensee shall pay for any future reasonable
parking charges imposed by any governmental or quasi-governmental authority
during the Term, including any Renewal Term (as defined in the Lease).
2. Licensee agrees to indemnify, defend (with counsel reasonably acceptable to
Manufacturers), and hold harmless Manufacturers and the Property from and
against all liabilities, claims, damages or expense (including attorneys' fees
and costs, and court costs) due to or arising out of any act, omission or
neglect by the Licensee, his or its agents, servants, invitees or licensees on
or about the said parking area or due to or arising out of any breach by the
Licensee of the provisions of this Agreement or of the "Parking Rules" (as
hereinafter defined).
3. The Licensee agrees to comply with such rules (the "Parking Rules") as may
be established, from time to time, by Manufacturers covering the use of the said
parking area.
4. Manufacturers shall not be liable for any loss, injury or damage caused to
persons using the parking area or to automobiles or their contents or any other
property thereon, however caused, and the Licensee agrees that such vehicles,
contents and Property shall be in the parking area at the sole risk of the
Licensee.
5. Payment, if any, required to be made by the Licensee herein shall be paid
monthly in advance on the first day of each month, but shall be net of any
parking tax or assessment by the authorities of competent jurisdiction not
controlled by Manufacturers, and any such parking taxes or assessment so imposed
shall be paid by the Licensee on demand by Manufacturers.
-1-
<PAGE>
6. It is acknowledged that the parking cards or keys (if any) are the property
of Manufacturers and are to be returned upon the expiration or earlier
termination of this Agreement. Inoperative cards or keys will be replaced at no
charge, but lost cards or keys will be replaced at a cost established by
Manufacturers from time to time.
IN WITNESS WHEREOF, Licensee and Manufacturers have executed this Agreement
as of the date set forth on page 1 hereof.
Licensee:
EXODUS COMMUNICATIONS, INC.,
a California corporation
By: /s/ Richard Stoltz
--------------------------------------------
Name: Richard Stoltz
Title: Chief Operating Officer and
Chief Financial Officer
Manufacturers:
THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.),
a Michigan corporation
By:/s/ Thomas A. Pattin
--------------------------------------------
Name: Thomas A. Pattin
-------------------------------------
Title: Regional Director, AVP
------------------------------------
-2-
<PAGE>
EXHIBIT 10.14
================================================================================
DEED OF LEASE
between
JBG/SPRING PARK LIMITED PARTNERSHIP,
a Virginia limited partnership,
as Landlord,
and
EXODUS COMMUNICATIONS, INC.,
a California corporation,
as Tenant
Dated: June 30, 1997
================================================================================
For Premises Located at
470 Spring Park Place, Suite 1000
Herndon, Virginia 22070
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE 1
BASIC LEASE PROVISIONS 1
1.1 Premises........................................................................ 1
1.2 Building........................................................................ 1
1.3 Park............................................................................ 1
1.4 Term............................................................................ 1
1.5 Commencement Date............................................................... 1
1.6 Expiration Date................................................................. 1
1.7 Base Rent....................................................................... 1
1.8 Security Deposit................................................................ 2
1.9 Tenant's Proportionate Share of Building Operating Expenses ("BOE")............. 2
1.10 Tenant's Proportionate Share of Park Common Area Maintenance Expenses ("PCAM").. 2
1.11 Tenant's Proportionate Share of Real Estate Taxes............................... 2
1.12 Parking Space Allocation........................................................ 3
1.13 Permitted Use................................................................... 3
1.14 Broker(s)....................................................................... 3
1.15 Building Tax Parcel............................................................. 3
1.16 Landlord's Address.............................................................. 3
1.17 Tenant's Address................................................................ 3
ARTICLE 2
DEFINITIONS................................................................................. 3
2.1 Additional Rent................................................................. 3
2.2 Agents.......................................................................... 3
2.3 Alterations..................................................................... 3
2.4 BOE............................................................................. 4
2.5 Calendar Year................................................................... 4
2.6 Event of Default................................................................ 4
2.7 Herein, hereafter, hereunder and hereof......................................... 4
2.8 Interest Rate................................................................... 4
2.9 Land............................................................................ 4
2.10 Lease Year...................................................................... 4
2.11 Mortgage........................................................................ 4
2.12 Mortgagee....................................................................... 4
2.13 Park Common Area................................................................ 4
2.14 PCAM............................................................................ 4
2.15 Parking Facilities.............................................................. 4
2.16 Real Estate Taxes............................................................... 5
2.17 Rent............................................................................ 5
2.18 Rules and Regulations........................................................... 5
2.19 Substantial Completion.......................................................... 5
2.20 Substantial Part................................................................ 5
2.21 Work Agreement.................................................................. 5
ARTICLE 3
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
THE PREMISES.................................................................................. 5
3.1 Lease of Premises................................................................. 5
3.2 Landlord's Reservations........................................................... 5
3.3 Access............................................................................ 5
ARTICLE 4
TERM.......................................................................................... 5
ARTICLE 5
RENT.......................................................................................... 6
5.1 Base Rent......................................................................... 6
5.2 Payment of Base Rent.............................................................. 6
5.3 Additional Rent................................................................... 6
5.4 Acceptance of Rent................................................................ 6
ARTICLE 6
SECURITY DEPOSIT.............................................................................. 6
6.1 General........................................................................... 6
6.2 Security in the Form of Cash...................................................... 6
6.3 Security in the Form of an Irrevocable Letter of Credit........................... 7
6.4 Post Move-Out Inspection.......................................................... 7
ARTICLE 7
PARK COMMON AREA MAINTENANCE EXPENSES ("PCAM") AND
BUILDING OPERATING EXPENSES ("BOE")........................................................... 7
7.1 Tenant's Proportionate Shares of PCAM and BOE..................................... 7
7.2 PCAM Defined...................................................................... 7
7.3 BOE Defined....................................................................... 9
7.4 Exclusions from PCAM and BOE...................................................... 10
7.5 Estimated Payments................................................................ 10
7.6 Actual PCAM and BOE............................................................... 10
7.7 Tenant's Right to Audit........................................................... 11
ARTICLE 8
TAXES......................................................................................... 11
ARTICLE 9
PARKING....................................................................................... 12
9.1 Parking Spaces.................................................................... 12
9.2 Changes to Parking Facilities..................................................... 12
ARTICLE 10
USE........................................................................................... 12
ARTICLE 11
ASSIGNMENT AND SUBLETTING..................................................................... 12
11.1 Consent........................................................................... 12
11.2 Surrender......................................................................... 13
11.3 Assignment or Subletting to Subsidiary or Affiliate of Tenant..................... 13
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
ARTICLE 12
MAINTENANCE AND REPAIR........................................................................ 13
12.1 Landlord's Obligation............................................................. 13
12.2 Tenant's Obligation............................................................... 13
12.3 Landlord's Right to Maintain or Repair............................................ 14
ARTICLE 13
INITIAL CONSTRUCTION; ALTERATIONS............................................................. 14
13.1 Initial Construction.............................................................. 14
13.2 Alterations....................................................................... 14
13.3 Removal of Alterations............................................................ 15
13.4 Landlord Alterations.............................................................. 15
ARTICLE 14
SIGNS......................................................................................... 15
ARTICLE 15
TENANT'S EQUIPMENT AND PROPERTY............................................................... 15
15.1 Moving Tenant's Property.......................................................... 15
15.2 Installing and Operating Tenant's Equipment....................................... 16
ARTICLE 16
RIGHT OF ENTRY................................................................................ 16
ARTICLE 17
INSURANCE..................................................................................... 16
17.1 Insurance Rating.................................................................. 16
17.2 Liability Insurance............................................................... 16
17.3 Insurance for Personal Property................................................... 16
17.4 Requirements of Insurance Coverage................................................ 16
17.5 Waiver of Subrogation............................................................. 17
17.6 Security.......................................................................... 17
17.7 Landlord's Insurance.............................................................. 17
ARTICLE 18
LANDLORD SERVICES AND UTILITIES............................................................... 17
18.1 Ordinary Services to the Premises................................................. 17
18.2 Utility Charges................................................................... 17
ARTICLE 19
LIABILITY OF LANDLORD......................................................................... 18
19.1 No Liability...................................................................... 18
19.2 Indemnity of Tenant in Favor of Landlord.......................................... 18
19.3 Indemnity of Landlord in Favor of Tenant.......................................... 18
ARTICLE 20
RULES AND REGULATIONS......................................................................... 18
</TABLE>
iii
<PAGE>
<TABLE>
<S> <C>
ARTICLE 21
DAMAGE; CONDEMNATION.......................................................................... 19
21.1 Damage to the Premises........................................................... 19
21.2 Condemnation..................................................................... 19
ARTICLE 22
DEFAULT....................................................................................... 20
22.1 Events of Default................................................................ 20
22.2 Landlord's Remedies.............................................................. 20
22.3 Rights Upon Possession........................................................... 20
22.4 No Waiver........................................................................ 21
22.5 Right of Landlord to Cure Tenant's Default....................................... 21
22.6 Late Payment..................................................................... 21
22.7 Landlord Default................................................................. 21
ARTICLE 23
MORTGAGES..................................................................................... 21
23.1 Subordination.................................................................... 21
23.2 Mortgagee Protection............................................................. 22
23.3 Modification Due to Financing.................................................... 22
23.4 Non-Disturbance.................................................................. 22
ARTICLE 24
SURRENDER; HOLDING OVER....................................................................... 22
24.1 Surrender of the Premises........................................................ 22
24.2 Holding Over..................................................................... 23
ARTICLE 25
QUIET ENJOYMENT............................................................................... 23
ARTICLE 26
TENANT'S COVENANTS REGARDING HAZARDOUS MATERIALS.............................................. 23
26.1 Definition....................................................................... 23
26.2 General Prohibition.............................................................. 23
26.3 Notice........................................................................... 24
26.4 Survival......................................................................... 24
ARTICLE 27
MISCELLANEOUS................................................................................. 25
27.1 No Representations by Landlord................................................... 25
27.2 No Partnership................................................................... 25
27.3 Brokers.......................................................................... 25
27.4 Estoppel Certificate............................................................. 25
27.5 Waiver of Jury Trial............................................................. 25
27.6 Notices.......................................................................... 26
27.7 Invalidity of Particular Provisions.............................................. 26
27.8 Gender and Number................................................................ 26
27.9 Benefit and Burden............................................................... 26
27.10 Entire Agreement................................................................. 26
27.11 Authority........................................................................ 26
</TABLE>
iv
<PAGE>
<TABLE>
<S> <C>
27.12 Attorneys' Fees.................................................................. 26
27.13 Interpretation................................................................... 27
27.14 No Personal Liability; Sale...................................................... 27
27.15 Time of the Essence.............................................................. 27
27.16 Force Majeure.................................................................... 27
27.17 Headings......................................................................... 27
27.18 Memorandum of Lease.............................................................. 27
27.19 Intentionally Omitted............................................................ 27
27.20 Intentionally Omitted............................................................ 27
27.21 Effectiveness.................................................................... 27
27.22 Right of Second Offer............................................................ 27
</TABLE>
LIST OF EXHIBITS
----------------
Exhibit A-1 Plan Showing Premises
Exhibit A-2 Plat Showing Land and Building
Exhibit A-3 Location of Back-up Electrical Generator
Exhibit B Work Agreement
Exhibit C Rules and Regulations
Exhibit D Form of Security Deposit Letter of Credit
v
<PAGE>
DEED OF LEASE
THIS DEED OF LEASE (this "Lease") is made as of the 30th day of June, 1997
(the "Date of Lease") by JBG/SPRING PARK LIMITED PARTNERSHIP, a Virginia limited
partnership ("Landlord"), and EXODUS COMMUNICATIONS, INC., a California
corporation ("Tenant").
Landlord and Tenant, intending legally to be bound, hereby covenant and
agree as set forth below.
ARTICLE 1
BASIC LEASE PROVISIONS
The following terms, when used herein, shall have the meanings set forth
below.
1.1 PREMISES. For purposes of this Lease, the gross rentable square
--------
footage of the Premises shall be deemed to be 15,911 square feet (determined in
accordance with the standard method of measurement employed by the Washington,
D.C. Association of Realtors, Inc. as of January 1, 1989), known as of the Date
of Lease as Suite 1000 and located on the lower level of the Building, as
outlined on Exhibit A-1 attached hereto and made a part hereof.
-----------
1.2 BUILDING. The building containing approximately 52,855 gross rentable
--------
square feet shown on Exhibit A-2 attached hereto and made a part hereof, and all
alterations, additions, improvements, restorations or replacements now or
hereafter made thereto, with an address of:
470 Spring Park Place
Herndon, Virginia 22070
The Building is a part of the Park.
1.3 PARK. Spring Park Technology Center, which is developed with eight
----
(8) buildings containing a total of approximately 359,323 gross rentable square
feet of space. The Park consists, collectively, of four (4) separate tax
parcels, each designated by the local government having jurisdiction with
respect to Real Estate Taxes, and which for purposes of this Lease, shall be
referred to as "Tax Parcel No. 1" (containing the buildings known as 450 Spring
Park Place and 460 Spring Park Place), "Tax Parcel No. 2" (containing the
buildings known as 455 Spring Park Place and 465 Spring Park Place), "Tax Parcel
No. 3" (containing the buildings known as 470 Spring Park Place and 480 Spring
Park Place), and "Tax Parcel No. 4" (containing the buildings known as 475
Spring Park Place and 485 Spring Park Place).
1.4 TERM. Seven (7) years and three (3) months.
----
1.5 COMMENCEMENT DATE. July 1, 1997.
-----------------
1.6 EXPIRATION DATE. September 30, 2004.
---------------
1.7 BASE RENT. $15.00 for each rentable square foot of the Premises for
---------
the first (1st) Lease Year, which is equal to a total of $238,665.00 for the
first (1st) Lease Year payable in equal monthly installments of $19,888.75. The
Base Rent shall be increased annually by an amount equal to three percent (3%)
of the Base Rent for the previous Lease Year, commencing the second (2nd) Lease
Year, in accordance with the following schedule:
<TABLE>
<CAPTION>
LEASE YEAR ANNUAL BASE RENT MONTHLY INSTALLMENT
---------- ---------------- -------------------
<S> <C> <C>
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
2 $245,824.95 $20,485.41
3 $253,199.69 $21,099.97
4 $260,795.68 $21,732.97
5 $268,619.55 $22,384.96
6 $276,678.13 $23,056.51
7 $284,978.47 $23,748.21
8 $293,527.82 $24,460.65
</TABLE>
Notwithstanding anything to the contrary set forth elsewhere in this Lease,
Tenant shall have no obligation to pay any Base Rent to Landlord for or in
connection with the months of July, August or September of 1997. If the
Expiration Date is not the last day of a calendar month, the Base Rent payable
by Tenant to Landlord with respect to such calendar month shall be prorated.
1.8 SECURITY DEPOSIT. $125,000.00 in the form of a letter of credit
----------------
meeting the requirements of Article 6 of this Lease; provided, however, that if
on June 30, 1998 no Event of Default shall exist and no event or circumstances
shall exist which, with the passage of the time or the giving of notice, or
both, might constitute an Event of Default, then and on and after such date, the
Security Deposit which Tenant shall be required to provide to Landlord pursuant
to this Lease for and with respect to the remainder of the Term shall be reduced
by $25,000.00 to $100,000.00; and, provided further, that if on June 30, 1999 no
Event of Default shall exist and no event or circumstances shall exist which,
with the passage of the time or the giving of notice, or both, might constitute
an Event of Default, then and on and after such date, the Security Deposit which
Tenant shall be required to provide to Landlord pursuant to this Lease for and
with respect to the remainder of the Term shall be reduced by $25,000.00 to (a)
$75,000.00, if in accordance with the terms and conditions of this Section 1.8
the Security Deposit shall have been reduced by $25,000.00 on June 30, 1998, or
(b) to $100,000.00, if in accordance with the terms and conditions of this
Section 1.8 no reduction of the amount of Security Deposit shall have been made
on June 30, 1998. Notwithstanding anything to the contrary set forth in the
preceding provisions of this Section 1.8, Landlord and Tenant acknowledge and
agree that if both of the reductions in the amount of the Security Deposit
described in the preceding provisions of Section 1.8 shall have become effective
in accordance with the terms and conditions hereof, the amount of the Security
Deposit which Tenant shall be required to maintain in effect on and after July
1, 1999 shall be $75,000.00.
1.9 TENANT'S PROPORTIONATE SHARE OF BUILDING OPERATING EXPENSES ("BOE").
-------------------------------------------------------------------
30.10% of the BOE (which percentage is based upon the Premises containing
15,911 gross rentable square feet of the total Building containing 52,855 gross
rentable square feet).
1.10 TENANT'S PROPORTIONATE SHARE OF PARK COMMON AREA MAINTENANCE EXPENSES
---------------------------------------------------------------------
("PCAM"). 4.43% of the PCAM (which percentage is based upon the Premises
- --------
containing 15,911 gross rentable square feet and the Park containing 359,323
gross rentable square feet).
1.11 TENANT'S PROPORTIONATE SHARE OF REAL ESTATE TAXES. 15.16% of Real
-------------------------------------------------
Estate Taxes (which percentage is based upon the Premises containing 15,911
gross rentable square feet and the Building Tax Parcel containing 104,922 gross
rentable square feet).
1.12 PARKING SPACE ALLOCATION. Fifty-seven (57) spaces; provided,
------------------------
however, that if after the Date of Lease, the size of the Premises shall be
increased, the Parking Space Allocation shall be increased by that number of
spaces as shall equal the product of (a) 0.0036 and (b) the number of gross
rentable square feet comprising such
<PAGE>
additional space in the Building leased by Tenant.
1.13 PERMITTED USE. General offices, including, without limitation,
-------------
general offices for the conduct of a data center with related administrative
functions.
1.14 BROKER(S). Landlord's: JBG Properties, Inc.
---------
Tenant's: Cushman & Wakefield of Virginia, Inc.
1.15 BUILDING TAX PARCEL. Tax Parcel No. 3, as defined in Section 1.3 of
-------------------
this Lease.
1.16 LANDLORD'S ADDRESS.
------------------
JBG/Spring Park Limited Partnership
c/o JBG Properties, Inc.
2751 Prosperity Avenue, Suite 150
Fairfax, Virginia 22031
Attention: Mr. Thomas E. Finan, Portfolio Manager
1.17 TENANT'S ADDRESS.
----------------
Before occupancy:
Exodus Communications, Inc.
1605 Wyatt Drive
Santa Clara, California 95054
Attention: Ms. Janice Fetzer, Director of Facilities
After Occupancy:
Exodus Communications, Inc.
470 Spring Park Place, Suite 1000
Herndon, Virginia 22070
Attention: Ms. Janice Fetzer, Director of Facilities
ARTICLE 2
DEFINITIONS
The following terms, when used herein, shall have the meanings set forth
below.
2.1 ADDITIONAL RENT. As defined in Section 5.3 of this Lease.
---------------
2.2 AGENTS. Officers, partners, directors, employees, agents, licensees,
------
customers, contractors and invitees.
2.3 ALTERATIONS. Alterations, decorations, additions or improvements of
-----------
any kind or nature to the Premises or the Building, whether structural or non-
structural, interior, exterior or otherwise.
2.4 BOE. As defined in Section 7.3 of this Lease.
---
<PAGE>
2.5 CALENDAR YEAR. A period of twelve (12) months commencing on each
-------------
January 1 during the Term, except that the first Calendar Year shall be that
period from and including the Commencement Date through December 31 of that same
year, and the last Calendar Year shall be that period from and including the
last January 1 of the Term through the earlier of the Expiration Date or the
date of termination of this Lease.
2.6 EVENT OF DEFAULT. As defined in Article 22 of this Lease.
----------------
2.7 HEREIN, HEREAFTER, HEREUNDER AND HEREOF. Under this Lease,
---------------------------------------
including, without limitation, all Exhibits and any Riders.
2.8 INTEREST RATE. The per annum interest rate listed as the base rate
-------------
on corporate loans at large U.S. money center commercial banks as published from
time to time under "Money Rates" in The Wall Street Journal plus three percent
-----------------------
(3%), but in no event greater than the maximum rate permitted by law. In the
event The Wall Street Journal ceases to publish such rates, Landlord shall
-----------------------
choose at Landlord's reasonable discretion a similar publication which publishes
such rates.
2.9 LAND. The piece or parcel of land described in Exhibit A-2 and all
---- -----------
rights, easements and appurtenances thereunto belonging or pertaining, or such
portion thereof as shall be allocated by Landlord to the Building.
2.10 LEASE YEAR. Each consecutive twelve (12) month period elapsing after
----------
(i) the Commencement Date, if the Commencement Date occurs on the first (1st)
day of a calendar month, or (ii) the first (1st) day of the calendar month
following the Commencement Date if the Commencement Date does not occur on the
first day of a month; provided, however, if the Commencement Date shall not
occur on the first (1st) day of a calendar month, then the first (1st) Lease
Year, as defined herein, shall begin on the Commencement Date and end on the
first (1st) anniversary of the last day of the calendar month in which the
Commencement Date shall occur.
2.11 MORTGAGE. Any mortgage, deed of trust, security interest or title
--------
retention interest affecting the Building or the Land.
2.12 MORTGAGEE. The holder of any note or obligation secured by a
---------
mortgage, deed of trust, security interest or title retention interest affecting
the Building or the Land, including, without limitation, lessors under ground
leases, sale-leasebacks and lease-leasebacks.
2.13 PARK COMMON AREA. All areas, improvements, facilities and equipment
----------------
from time to time designated by Landlord for the common use or benefit of
Tenant, other tenants of the Building or the Park and their Agents, including,
without limitation, roadways, entrances and exits, landscaped areas, open areas,
park areas, exterior lighting, service drives, loading areas, pedestrian
walkways, sidewalks, atriums, courtyards, concourses, stairs, ramps, washrooms,
maintenance and utility rooms and closets, exterior utility lines, hallways,
lobbies, elevators and their housing and rooms, common window areas, common
walls, common ceilings, common trash areas and Parking Facilities.
2.14 PCAM. As defined in Section 7.2 of this Lease.
----
2.15 PARKING FACILITIES. All parking areas now or hereafter made
------------------
available by Landlord for use by tenants, including, without limitation, open-
air parking, parking decks and parking areas under or within the Building,
whether reserved, exclusive, non-exclusive or otherwise.
2.16 REAL ESTATE TAXES. As defined in Article 8 of this Lease.
-----------------
<PAGE>
2.17 RENT. Base Rent and Additional Rent.
----
2.18 RULES AND REGULATIONS. The rules and regulations set forth in
---------------------
Exhibit B attached to and hereby made a part of this Lease, as the same may be
amended or supplemented from time to time.
2.19 SUBSTANTIAL COMPLETION. As defined in the Work Agreement.
----------------------
2.20 SUBSTANTIAL PART. More than fifty percent (50%) of the rentable
----------------
square feet of the Premises or the Building, as the case may be.
2.21 WORK AGREEMENT. As set forth in Exhibit B.
-------------- ---------
ARTICLE 3
THE PREMISES
3.1 LEASE OF PREMISES. In consideration of the agreements contained
-----------------
herein, Landlord hereby leases the Premises to Tenant, and Tenant hereby leases
the Premises from Landlord, for the Term and upon the terms and conditions
hereinafter provided. As an appurtenance to the Premises, Tenant shall have the
non-exclusive right, together with other tenants of the Building and their
Agents, to use the Park Common Area. Landlord shall retain absolute dominion and
control over the Park Common Area and shall operate and maintain the Park Common
Area in such manner as Landlord, in its sole discretion, shall determine.
Landlord expressly reserves the right permanently to change, modify or
eliminate, or temporarily to close, any portion of the Park Common Area;
provided, however, that no such change, modification or elimination of any
portion of the Park Common Area shall materially adversely affect Tenant's right
to use the Premises for the Permitted Use. The Premises are leased subject to,
and Tenant agrees not to violate, all present and future covenants, conditions
and restrictions of record which affect the Park.
3.2 LANDLORD'S RESERVATIONS. In addition to the other rights of Landlord
----------------------
under this Lease, Landlord reserves the right: (i) to change the street address
and/or name of the Building; (ii) to install, erect, use, maintain and repair
mains, pipes, conduits and other such facilities to serve the Building's tenants
in and through the Premises; (iii) to grant to anyone the exclusive right to
conduct any particular business or undertaking in the Building; and (iv) to
control the use of the roof and exterior walls of the Building for any purpose.
Landlord may exercise any or all of the foregoing rights without being deemed to
be guilty of an eviction, actual or constructive, or a disturbance or
interruption of the business of Tenant or Tenant's use or occupancy of the
Premises. Notwithstanding anything to the contrary set forth in the preceding
provisions of this Section 3.2, no exercise by Landlord of any of the rights
reserved to Landlord pursuant to clause (iii) of this Section 3.2 shall be made
in such a manner as to materially adversely affect the right of Tenant to use
the Premises for the Permitted Use.
3.3 ACCESS. Tenant shall have access to the Premises twenty-four (24)
------
hours per day, three hundred sixty-five (365) days per year, except in the case
of emergency.
ARTICLE 4
TERM
The Term shall commence on the Commencement Date and expire at midnight on
the Expiration Date.
<PAGE>
ARTICLE 5
RENT
5.1 BASE RENT. Tenant shall pay to Landlord the Base Rent as specified in
---------
Section 1.7 of this Lease.
5.2 PAYMENT OF BASE RENT. Base Rent for each Lease Year shall be payable
-------------------
in equal monthly installments, in advance, without demand, notice, deduction,
offset or counterclaim, on or before the first (1st) day of each and every
calendar month during the Term; provided, however, that the installment of the
Base Rent payable for the first (1st) full calendar month of the Term (and, if
the Commencement Date occurs on a date other than on the first (1st) day of a
calendar month, Base Rent prorated from such date until the first (1st) day of
the following month) shall be due and payable on the full execution and delivery
of this Lease. Tenant shall pay Base Rent and all Additional Rent, by good
check, made payable to Landlord, or in lawful currency of the United States of
America, to Landlord at P.O. Box 631047, Baltimore, Maryland 21263-1047 or to
such other address or in such other manner as Landlord from time to time
specifies by written notice to Tenant. Any payment made by Tenant to Landlord on
account of Base Rent may be credited by Landlord to the payment of any late
charges then due and payable and to any Base Rent or Additional Rent then past
due before being credited to Base Rent currently due.
5.3 ADDITIONAL RENT. All sums payable by Tenant under this Lease, other
---------------
than Base Rent, shall be deemed "Additional Rent," and, unless otherwise set
forth herein, shall be payable in the same manner as set forth above for Base
Rent.
5.4 ACCEPTANCE OF RENT. If Landlord shall direct Tenant to pay Base Rent
------------------
or Additional Rent to a "lockbox" or other depository whereby checks issued in
payment of Base Rent or Additional Rent (or both, as the case may be) are
initially cashed or deposited by a person or entity other than Landlord (albeit
on Landlord's authority), then, for any and all purposes under this Lease: (i)
Landlord shall not be deemed to have accepted such payment until ten (10) days
after the date on which Landlord shall have actually received such funds; and
(ii) Landlord shall be deemed to have accepted such payment if (and only if)
within said ten (10) day period, Landlord shall not have refunded (or attempted
to refund) such payment to Tenant. Nothing contained in the immediately
preceding sentence shall be construed to place Tenant in default of Tenant's
obligation to pay Rent if and for so long as Tenant shall timely pay the Rent
required pursuant to this Lease in the manner designated by Landlord.
ARTICLE 6
SECURITY DEPOSIT
6.1 GENERAL. Simultaneously with the execution of this Lease, Tenant
-------
shall deposit in the form of cash or an irrevocable letter of credit the
Security Deposit with Landlord, which shall be held by Landlord, without
obligation for interest, as security, for the performance of Tenant's
obligations and covenants under this Lease. It is expressly understood and
agreed that such deposit is not an advance rental deposit or a measure of
Landlord's damages in case of an Event of Default. The terms and conditions of
this Article 6 shall survive the Expiration Date and any sooner termination of
the Term in accordance with the terms and conditions of this Lease.
6.2 SECURITY IN THE FORM OF CASH. If an Event of Default shall occur or
----------------------------
if Tenant fails to surrender the Premises in the condition required by this
Lease, Landlord shall have the right (but not the obligation), and without
prejudice to any other remedy which Landlord may have on account thereof, to
apply all or any portion of the Security Deposit to cure such default or to
remedy the condition of the Premises. If Landlord so applies the Security
Deposit or any portion thereof before the Expiration Date or earlier termination
of this Lease, Tenant shall deposit with Landlord, upon demand, the amount
necessary to restore the Security Deposit to its original amount. If Landlord
shall sell or transfer its interest in the Building, Landlord shall have the
right to transfer the Security Deposit to such purchaser or transferee, in which
event Tenant shall look solely to the new landlord for the return of the
Security Deposit, and
<PAGE>
Landlord, after having given notice of such transfer to Tenant, shall thereupon
shall be released from all liability to Tenant for the return of the Security
Deposit to the extent of all or any portion thereof so transferred. Although the
Security Deposit shall be deemed the property of Landlord, any remaining balance
of the Security Deposit shall be returned to Tenant at such time after the
Expiration Date or earlier termination of this Lease that all of Tenant's
obligations under this Lease have been fulfilled.
6.3 SECURITY IN THE FORM OF AN IRREVOCABLE LETTER OF CREDIT. The
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irrevocable letter of credit shall be in both form and substance acceptable to
Landlord and must be maintained throughout the Term and for a period of sixty
(60) days thereafter by Tenant. Any letter of credit delivered to Landlord by
Tenant in fulfillment of its obligations to Landlord pursuant to this Article 6
shall have a term of not less than one (1) year. In the event that any letter of
credit delivered by Tenant to Landlord pursuant to its obligations under this
Lease shall have a term which expires prior to that date which is sixty (60)
days after the Expiration Date, then and in such event, not later than thirty
(30) days prior to the expiration date of the term of such letter of credit,
Tenant shall deliver to Landlord a successor letter of credit meeting the
requirements of this Lease. The failure of Tenant to deliver a successor letter
of credit to Landlord meeting the requirements of this Lease not later than
thirty (30) days prior to the expiration date of such letter of credit, as
aforesaid, shall constitute an Event of Default. In the event of default by
Tenant hereunder, Landlord shall have the right to redeem all or any portion of
such letter of credit to cure such default by notifying in writing both Tenant
and the credit institution issuing the letter of credit of such default
following expiration of the period to cure such default as provided in Article
22 of this Lease. In the event any portion of such letter of credit has been
redeemed by Landlord, Tenant shall be required to restore such letter of credit
to its full amount as provided herein. Not later than sixty (60) days after the
expiration of the Term, Landlord shall return such letter of credit to Tenant,
after the Post Move-Out Inspection and upon final receipt of any sums owed to
Landlord pursuant to the provisions of the terms of this Lease. If Landlord
shall sell or transfer its interest in the Building, Tenant shall, at Landlord's
request, amend said letter of credit so that it is payable to such purchaser or
transferee, in which event Tenant shall look solely to such purchaser or
transferee for the return of the letter of credit, and Landlord thereupon shall
be released from all liability to Tenant for the return of the Security Deposit.
In the event that said letter of credit shall be amended by Tenant, at
Landlord's request, so that it is payable to such purchaser or transferee, any
reasonable fee paid by Tenant to the financial institution issuing said letter
of credit in connection with such amendment of the letter of credit shall be
reimbursed to Tenant by Landlord within thirty (30) days after written request
shall be made therefor by Tenant to Landlord (which request shall be accompanied
by evidence of Tenant's payment of such fee).
6.4 POST MOVE-OUT INSPECTION. Landlord and Tenant shall conduct a "Post
------------------------
Move-Out Inspection" of the Premises within fifteen (15) days after the
Expiration Date or earlier termination of this Lease, but in any event prior to
reentry by Landlord for the purpose of preparing the Premises for re-letting.
Failure on Tenant's part to attend the Post Move-Out Inspection, after not less
than five (5) days' prior notice from Landlord of the exact date(s) thereof,
within said fifteen (15) day period shall be deemed an acceptance by Tenant of
Landlord's assessment of the condition of the Premises.
ARTICLE 7
PARK COMMON AREA MAINTENANCE EXPENSES ("PCAM") AND
BUILDING OPERATING EXPENSES ("BOE")
7.1 TENANT'S PROPORTIONATE SHARES OF PCAM AND BOE. Tenant shall pay to
---------------------------------------------
Landlord throughout the Term, as Additional Rent, (a) Tenant's Proportionate
Share of PCAM, and (b) Tenant's Proportionate Share of BOE. In the event that
the Commencement Date or the Expiration Date are other than the first (1st) day
of a Calendar Year, then Tenant's Proportionate Shares of PCAM and BOE shall be
adjusted to reflect the actual period of occupancy during the Calendar Year.
7.2 PCAM DEFINED. As used herein, the term "PCAM" shall mean all expenses
------------
and costs of every kind
<PAGE>
and nature which Landlord incurs because of or in connection with the
maintenance and operation of the Park. In any event, PCAM shall include, without
limitation, all costs, expenses and disbursements incurred or made in connection
with the following:
(a) Wages and salaries of all employees, including without limitation
an on-site management agent and staff, whether employed by Landlord or the
Landlord's management company, engaged in the operation and maintenance or
security of the Park and all costs related to or associated with such employees
or the carrying out of their duties, including uniforms and their cleaning,
taxes, motor vehicle mileage reimbursements, and insurance and benefits
(including, without limitation, contributions to pension and/or profit sharing
plans and vacation or other paid absences);
(b) All utilities, including, without limitation, electricity,
telephone, water, sewer, power, gas, heating, lighting and air conditioning for
the Building, except to the extent such utilities are charged directly to or
paid directly by, a tenant of the Building;
(c) All insurance purchased by Landlord or Landlord's management
company relating to the Park and any equipment or other property contained
therein or located thereon including, without limitation, casualty, liability,
rental loss, sprinkler and water damage insurance;
(d) All repairs to the Building (excluding repairs paid for by the
proceeds of insurance or by Tenant or other third parties other than as a part
of the PCAM), including interior, exterior, and structural or non-structural;
(e) All assessments, whether general, special or otherwise, levied
against Landlord or the Building pursuant to any declaration or other instrument
affecting the Building or any part thereof;
(f) Any capital improvements made to the Building after the
Commencement Date (other than those made for the addition of rentable square
footage to the Building or for the sole benefit of a Building tenant pursuant to
its lease), the cost of which shall be amortized over the useful life of the
same, as determined in accordance with generally accepted accounting principles,
consistently applied, together with interest on the unamortized balance of such
cost at the Interest Rate or such higher rate as may have been paid by Landlord
on funds borrowed for the purposes of constructing said capital improvements but
only to the extent that such capital improvement actually results in the
reduction of PCAM;
(g) All maintenance of the Park, including, without limitation, trash
removal, painting, ice and snow removal, landscaping, groundskeeping and the
patching, painting and resurfacing of roads, driveways and parking lots;
(h) A reasonable and customary management fee payable to Landlord or
the company or companies managing the Park, if any;
(i) Accounting and legal fees incurred in connection with the
operation and maintenance of the Park or related thereto;
(j) Utility costs and other expenses associated with any security
systems for the Building, including but not limited to those associated with the
telephone line which monitors the operation of the Building sprinkler system;
and
(k) Other expenses and costs reasonably necessary for operating and
maintaining the Park.
7.3 BOE DEFINED. As used herein, the term "BOE" shall mean all expenses
-----------
and costs of every kind and
<PAGE>
nature which Landlord incurs because of or in connection with the maintenance,
management and operation of the Building. BOE shall include, without limitation,
all costs, expenses and disbursements incurred or made in connection with the
following:
(i) Wages and salaries of all employees, including without limitation an
on-site management agent and staff, whether employed by Landlord or the
Building's management company, engaged in the operation and maintenance or
security of the Building and all costs related to or associated with such
employees or the carrying out of their duties, including uniforms and their
cleaning, taxes, auto allowances and insurance and benefits (including, without
limitation, contributions to pension and/or profit sharing plans and vacation or
other paid absences);
(ii) All supplies and materials, including janitorial and lighting
supplies, used directly in the operation and maintenance of the Building;
(iii) All utilities, including, without limitation, electricity,
telephone, water, sewer, power, gas, heating, lighting and air conditioning for
the Building, except to the extent such utilities are charged directly to or
paid directly by, a tenant of the Building;
(iv) All insurance purchased by Landlord or Landlord's management company
relating to the Building and any equipment or other property contained therein
or located thereon including, without limitation, casualty, liability, rental
loss, sprinkler and water damage insurance;
(v) All repairs to the Building (excluding repairs paid for by the
proceeds of insurance or by Tenant or other third parties other than as a part
of BOE), including interior, exterior, structural or non-structural, and
regardless of whether foreseen or unforeseen;
(vi) All maintenance of the Building, including, without limitation,
painting, ice and snow removal, landscaping, groundskeeping and the patching,
painting and resurfacing of roads, driveways and parking lots;
(vii) A reasonable and customary management fee payable to Landlord or the
company or companies managing the Building, if any;
(viii) Accounting and legal fees incurred in connection with the operation
and maintenance of the Building or related thereto;
(ix) Any additional services not provided to the Building at the
Commencement Date but thereafter provided by Landlord as Landlord shall deem
reasonably necessary or desirable in connection with the management or operation
of the Building;
(x) All assessments, whether general, special or otherwise, levied
against Landlord or the Building pursuant to any declaration or other instrument
affecting the Building or any part thereof;
(xi) Any capital improvements made to the Building after the Commencement
Date (other than those made for the addition of rentable square footage to the
Building or for the sole benefit of a Building tenant pursuant to its lease),
the cost of which shall be amortized over the useful life of the same, as
determined in accordance with generally accepted accounting principles,
consistently applied, together with interest on the unamortized balance of such
cost at the Interest Rate or such higher rate as may have been paid by Landlord
on funds borrowed for the purposes of constructing said capital improvements but
only to the extent that such capital improvement actually results in the
reduction of BOE; and
(xii) Other expenses and costs reasonably necessary for operating and
maintaining the Building.
<PAGE>
7.4 EXCLUSIONS FROM PCAM AND BOE. PCAM and BOE shall not include the
----------------------------
following:
(a) Legal fees, space planners' fees, real estate brokers' leasing
commissions and advertising expenses incurred in connection with the original or
future leasing of space in the Park;
(b) Legal fees incurred in connection with any disputes with other
tenants of the Park;
(c) Costs and expenses of alterations or improvements of the Premises
or the leasehold premises of other individual tenants;
(d) Costs of correcting defects in, or inadequacy of, the design or
construction of the Building or in the Park or the materials used in the
construction of the Building or the Park or the equipment or appurtenances
thereto to the extent covered by warranties and recovered by Landlord;
(e) Depreciation, interest and principal payments on mortgages and
other debt costs, if any, other than amortization of and the interest factor
attributable to permitted capital improvements;
(f) Costs and expenses associated with the operation of the business
of the person or entity which constitutes Landlord as the same are distinguished
from the costs of operation of the Building and the Park, including accounting
and legal matters, costs of defending any lawsuits with any mortgagee (except to
the extent the actions of Tenant or any other tenant may be in issue), costs of
selling or financing any of Landlord's interest in the Building and/or the Park;
and
(g) Costs and expenses directly resulting from the gross negligence
or willful misconduct of Landlord or its Agents.
In addition, in the calculation of any costs or expenses under this Article 7,
it is expressly understood that no cost or expense shall be charged more than
once.
7.5 ESTIMATED PAYMENTS. Landlord shall submit to Tenant, before the
------------------
beginning of each Calendar Year, a statement of Landlord's estimates of the PCAM
and BOE payable by Tenant during such Calendar Year. In addition to the Base
Rent, Tenant shall pay to Landlord on or before the first day of each month
during such Calendar Year an amount equal to one-twelfth (1/12) the estimated
PCAM and BOE payable by Tenant for such Calendar Year as set forth in Landlord's
statement. If Landlord fails to give Tenant notice of its estimated payments due
under this Section for any Calendar Year, then Tenant shall continue making
monthly estimated payments in accordance with the estimate for the previous
Calendar Year until a new estimate is provided. If Landlord determines that,
because of unexpected increases in PCAM or BOE or other reasons, Landlord's
estimate of the PCAM and/or BOE was too low, then Landlord shall have the right
to give a new statement of the estimated PCAM and BOE due from Tenant for such
Calendar Year or the balance thereof and to bill Tenant for any deficiency which
may have accrued during such Calendar Year, and Tenant shall thereafter pay
monthly estimated payments based on such new statement; provided, however, that
Landlord shall not exercise its right to give a new statement of estimated PCAM
and/or BOE for any Calendar Year or the balance thereof on more than two (2)
occasions during or with respect to any Calendar Year.
7.6 ACTUAL PCAM AND BOE. Within one hundred twenty (120) days after the
-------------------
end of each Calendar Year, Landlord shall submit a statement to Tenant showing
the actual PCAM and BOE for such Calendar Year and Tenant's Proportionate Shares
of the amount of such PCAM and BOE. If for any Calendar Year, Tenant's estimated
monthly payments exceed Tenant's Proportionate Share of the actual PCAM and BOE
for such Calendar Year, then Landlord shall give Tenant a credit in the amount
of the overpayment toward Tenant's next monthly payments of
<PAGE>
estimated PCAM and BOE. If for any Calendar Year Tenant's estimated monthly
payments are less than Tenant's Proportionate Share of the actual PCAM and BOE
for such Calendar Year, then Tenant shall pay the total amount of such
deficiency to Landlord within thirty (30) days after receipt of the statement
from Landlord. Landlord's and Tenant's obligations with respect to any
overpayment or underpayment of PCAM and BOE shall survive the expiration or
termination of this Lease.
7.7 TENANT'S RIGHT TO AUDIT. In the event Tenant shall dispute the amount
----------------------
set forth in Landlord's statement of actual PCAM and BOE, Tenant shall have the
right, not later than sixty (60) days following receipt of such statement, to
cause Landlord's books and records with respect to the preceding Calendar Year
to be audited by an independent Certified Public Accountant mutually acceptable
to Landlord and Tenant. Such audit shall occur upon not less than five (5) days
prior written notice to Landlord, at Landlord's place of business or the actual
location of Landlord's books and records if different from Landlord's place of
business, during Landlord's normal business hours. The amounts payable under
this Article by Landlord to Tenant or by Tenant to Landlord, as the case may be,
shall be appropriately adjusted on the basis of such audit. If such audit
discloses a liability for further refund by Landlord to Tenant in excess of
three percent (3%) of the payments previously made by Tenant for such Calendar
Year, the cost of such audit shall be borne by Landlord and shall not be
considered as a PCAM or BOE for purposes of this Lease; otherwise, the cost of
such audit shall be borne by Tenant. Notwithstanding the foregoing, in no event
shall Landlord's cost for such audit exceed One Thousand Five Hundred Dollars
($1,500.00). If Tenant shall not request an audit in accordance with the
provisions of this Section within sixty (60) days of receipt of Landlord's
statement of actual PCAM and BOE, such statement shall be conclusively binding
upon Landlord and Tenant.
ARTICLE 8
TAXES
Tenant shall pay to Landlord throughout the Term, as Additional Rent,
Tenant's Proportionate Share of Real Estate Taxes. In the event that the
Commencement Date or the Expiration Date are other than the first day of a
Calendar Year, the Tenant's Proportionate Share of Real Estate Taxes shall be
adjusted to reflect the actual period of occupancy during the Calendar Year.
"Real Estate Taxes" shall mean all taxes and assessments, including but not
limited to, general or special, ordinary or extraordinary, foreseen or
unforeseen, assessed, levied or imposed by any governmental authority upon the
Building and the Building Tax Parcel and upon the fixtures, machinery, equipment
or systems in, upon or used in connection with any of the foregoing, and the
rental, revenue or receipts derived therefrom, under the current or any future
taxation or assessment system or modification of, supplement to, or substitute
for such system. Real Estate Taxes also shall include special assessments which
are in the nature of or in substitution for real estate taxes, including,
without limitation, road improvement assessments, special use area assessments
and school district assessments. If at any time the method of taxation
prevailing at the Date of Lease shall be altered so that in lieu of, as a
substitute for or in addition to the whole or any part of the taxes now levied
or assessed, there shall be levied or assessed a tax of whatever nature, then
the same shall be included as Real Estate Taxes hereunder. Further, for the
purposes of this Article, Real Estate Taxes shall include the reasonable
expenses (including, without limitation, attorneys' fees) incurred by Landlord
in challenging or obtaining or attempting to obtain a reduction of such Real
Estate Taxes, regardless of the outcome of such challenge. Notwithstanding the
foregoing, Landlord shall have no obligation to challenge Real Estate Taxes. If,
as a result of any such challenge, a tax refund is made to Landlord, then the
amount of such refund less the expenses of the challenge shall be deducted from
Real Estate Taxes due in the Lease Year such refund is received. Landlord shall
charge Tenant for its Proportionate Share of Real Estate Taxes in accordance
with the procedures established under Sections 7.5 and 7.6 for payment of PCAM
and BOE.
ARTICLE 9
PARKING
9.1 PARKING SPACES. During the Term, Tenant shall have the right to use
--------------
the Parking Space Allocation,
<PAGE>
which shall be unreserved and non-exclusive parking spaces available in the
Parking Facilities.
9.2 CHANGES TO PARKING FACILITIES. Landlord shall have the right, from
-----------------------------
time to time, without Tenant's consent, to change, alter, add to, temporarily
close or otherwise affect the Parking Facilities in such manner as Landlord, in
its sole discretion, deems appropriate, including, without limitation, the right
to designate reserved spaces available only for use by one or more tenants
(however, in such event, those parking spaces shall still be deemed Park Common
Area for the purpose of the definitions of PCAM and BOE), provided that, except
in emergency situations or situations beyond Landlord's control, Landlord shall
provide alternative Parking Facilities. Notwithstanding anything to the contrary
set forth in the preceding provisions of this Section 9.2, Landlord shall not
exercise any of the rights reserved to Landlord pursuant to this Section 9.2 to
change, alter or otherwise permanently affect the Parking Facilities in such a
fashion as to materially adversely affect Tenant's right to use the Premises for
the Permitted Use.
ARTICLE 10
USE
Tenant shall occupy the Premises solely for the Permitted Use. The Premises
shall not be used for any other purpose without the prior written consent of
Landlord. Tenant shall comply, at Tenant's expense, with (i) all present and
future laws, ordinances, regulations and orders of the United States of America,
the Commonwealth of Virginia and any other public or quasi-public federal, state
or local authority having jurisdiction over the Premises, and (ii) any
reasonable requests of Mortgagee or any insurance company providing coverage
with respect to the Premises. Tenant shall not use or occupy the Premises in any
manner that is unlawful or dangerous or that shall constitute waste,
unreasonable annoyance or a nuisance to Landlord or the other tenants of the
Park. Tenant shall not use, store or dispose of any hazardous, dangerous,
inflammable, toxic or explosive materials on the Premises.
ARTICLE 11
ASSIGNMENT AND SUBLETTING
11.1 CONSENT. Tenant shall not assign, transfer, mortgage or otherwise
-------
encumber this Lease or sublet or rent (or permit a third party to occupy or use)
the Premises, or any part thereof, nor shall any assignment or transfer of this
Lease or the right of occupancy hereunder be effected by operation of law or
otherwise, without the prior written consent of Landlord which shall not be
unreasonably withheld or delayed. For purposes of the foregoing prohibitions, a
transfer at any one time or from time to time of forty-nine percent (49%) or
more of an interest in Tenant (whether stock, partnership interest or other form
of ownership or control) by any person(s) or entity(ties) having an interest in
ownership or control of Tenant at the Date of Lease shall be deemed to be an
assignment of this Lease. If Landlord consents to the proposed assignment or
subletting, the initial Tenant shall remain liable under this Lease and the
initial Tenant shall pay to Landlord one-half (1/2) of the "net" amount (such
"net" amount being the gross amount thereof less any reasonable expenses
incurred by Tenant for legal fees, brokerage commissions or subleasehold
improvements) of any amount of rent or other sums directly or indirectly
received by Tenant from any subtenant or assignee which exceeds the Rent. Any
assignment, encumbrance, or sublease without Landlord's written consent shall be
voidable by Landlord and, at Landlord's election, constitute an Event of Default
hereunder. Neither the consent by Landlord to any assignment, transfer,
encumbrance or subletting, nor the assignment or subletting to any subsidiary or
affiliate of Tenant made without the necessity of consent from Landlord in
accordance with Section 11.3 of this Lease, nor the collection or acceptance by
Landlord of rent from any assignee, subtenant or occupant shall be construed as
a waiver or release of the initial Tenant from the terms and conditions of this
Lease or relieve Tenant or any subtenant, assignee or other party from obtaining
the consent in writing of Landlord to any further assignment, transfer,
encumbrance or subletting. Tenant hereby assigns to Landlord the rent and other
sums due from any subtenant, assignee or other occupant of the Premises and
hereby authorizes and directs each such subtenant, assignee or other occupant to
pay such rent or other sums directly to Landlord; provided, however, that until
the occurrence of an Event of Default, Tenant shall have the license to continue
collecting such rent and other sums.
<PAGE>
11.2 SURRENDER. Except as set forth in the last sentence of this Section
---------
11.2, in the event of any assignment or subletting (including any assignment or
subletting approved by Landlord or not requiring the prior written consent of
Landlord), Landlord shall have the right, by notice to Tenant, to terminate this
Lease at any time during the Term on or after the effective date of such
assignment or subletting, in the event of an assignment as to all of the
Premises and, in the event of a sublease, as to the subleased portion of the
Premises, and to require that all or part, as the case may be, of the Premises
be surrendered to Landlord for the balance of the Term. Landlord hereby agrees
that it shall not exercise any of the rights granted to Landlord pursuant to
this Section 11.2 in connection with any sublease or subleases approved by
Landlord and entered into by Tenant, as sublandlord, and parties unrelated to
Tenant, as subtenants, prior to that date which is the third (3rd) anniversary
of the Commencement Date so long as the aggregate area subleased pursuant to all
such subleases shall not exceed one-half (1/2) of the rentable square footage of
the Premises as of the Date of Lease.
11.3 ASSIGNMENT OR SUBLETTING TO SUBSIDIARY OR AFFILIATE OF TENANT.
-------------------------------------------------------------
Notwithstanding anything to the contrary set forth in this Article 11, Tenant
shall have the right to assign this Lease or to sublet the Premises, in whole or
in part, without the prior written consent of Landlord, so long as any such
assignment or subletting is made with or to any wholly-owned subsidiary or
affiliate of Tenant. For purposes hereof, "affiliate" means any corporation,
partnership, association, or other legal entity which, directly or indirectly,
controls or is controlled by or is under common control with Tenant. For
purposes of the definition "affiliate," the word "control" (including, without
limitation, "controlled by" and "under common control with") as used with
respect to any such legal entity, shall mean the possession, directly or
indirectly, of the power to direct or cause the direction of the management and
policy of such legal entity, whether through the ownership of voting securities,
by contract or otherwise. Tenant shall give prompt notice to Landlord of any
assignment of this Lease or subletting of the Premises made with or to any
wholly-owned subsidiary or affiliate of Tenant in accordance with the terms and
conditions of this Section 11.3.
ARTICLE 12
MAINTENANCE AND REPAIR
12.1 LANDLORD'S OBLIGATION. As long as no Event of Default has occurred
---------------------
and is continuing, Landlord shall, at its expense, maintain only the roof,
foundation and the structural soundness of the exterior walls of the Building in
good repair, reasonable wear and tear excepted. Tenant shall repair and pay for
any damage caused by the negligence of Tenant or Tenant's employees, agents or
invitees, or caused by Tenant's default hereunder. The term "walls" as used in
this Section shall not include windows, glass, doors, special store fronts or
office entries. Tenant shall immediately give Landlord written notice of any
defect or need for repairs. Subject to Force Majeure, Landlord shall commence
the cure of any such defect or such repair within five (5) days after Landlord's
receipt of such notice from Tenant thereof and shall thereafter diligently
prosecute the cure of such defect or such repair so as to complete such cure or
repair within a reasonable period of time. Landlord's liability with respect to
any defects, repairs or maintenance for which Landlord is responsible under any
of the provisions of this Lease shall be limited to the cost of such repairs or
maintenance or the curing of such defect.
12.2 TENANT'S OBLIGATION. Tenant shall, at its own expense, maintain all
-------------------
parts of the Premises (except those for which Landlord is either expressly
responsible or elects to undertake pursuant to Section 12.1 or 12.3 of this
Lease) in good condition, promptly making all necessary repairs and
replacements, including, but not limited to, windows, glass and plate glass,
doors, any special office entry, interior walls and finish work, floors and
floor covering, downspouts, gutters, lighting and electrical systems, dock
boards, truck doors, dock bumpers, paving, HVAC systems (including fixtures and
equipment), plumbing work and fixtures, termite and pest extermination, regular
removal of trash and debris. Tenant shall not be obligated to repair any damage
caused by fire, tornado or other casualty not caused by Tenant's fault or
negligence, when repair of such damage is undertaken by Landlord pursuant to
Section 21.1 below, except that Tenant shall be obligated to repair all wind
damage to windows, glass and plate glass doors, and all other
<PAGE>
glass in the Premises. Tenant shall, at its own expense, keep the sidewalks in
front of the Premises free from obstructions of any and all nature, keep the
Premises in a clean and sanitary condition, maintain suitable receptacles for
trash and refuse, and promptly remove from the Premises all accumulations of
trash and refuse. In order to fulfill the immediately foregoing obligations,
Tenant shall, at its expense, enter into a contract for janitorial and/or char
service with a contractor reasonably acceptable to Landlord. Unless otherwise
provided for by Landlord, Tenant shall, at its expense, enter into a regularly
scheduled preventive maintenance/service contract for all hot water, heating and
air conditioning systems and equipment within the Premises. The maintenance
contractor, the contract and the maintenance schedule must be given prior
approval in writing by Landlord. The service contract must include all services
suggested by the equipment manufacturer in the operation/maintenance manual and
must become effective (and a copy thereof delivered to Landlord) within thirty
(30) days of the date Tenant takes possession of the Premises. Except as and
upon the conditions set forth elsewhere in this Lease, without the prior written
consent of Landlord, Tenant shall not have access to the roof of the Building
for any purpose whatsoever.
12.3 LANDLORD'S RIGHT TO MAINTAIN OR REPAIR. If, within five (5) days
--------------------------------------
following notice to Tenant, Tenant fails to commence to repair or replace any
damage to the Premises or Building which is Tenant's obligation to perform, and
diligently pursue timely completion of such repair and replacement, Landlord
may, at its option, cause all required maintenance, repairs or replacements to
be made. Tenant shall promptly pay Landlord all costs incurred in connection
therewith plus interest thereon at the Interest Rate from the due date until
paid.
ARTICLE 13
INITIAL CONSTRUCTION; ALTERATIONS
13.1 INITIAL CONSTRUCTION. Landlord and Tenant agree that the
--------------------
construction of the Tenant Work and other initial construction with respect to
the Premises shall be performed in accordance with the Work Agreement.
13.2 ALTERATIONS. Tenant shall not make or permit any Alterations without
-----------
the prior written consent of Landlord. Landlord may impose any reasonable
conditions to its consent, including, without limitation: (i) delivery to
Landlord of written and unconditional waivers of mechanic's and materialmen's
liens as to the Premises, the Building and the Land for all work, labor and
services to be performed and materials to be furnished, signed by all
contractors, subcontractors, materialmen and laborers participating in the
Alterations; (ii) prior approval of the plans and specifications and Tenant's
contractor(s) with respect to the Alterations; (iii) supervision by Landlord's
representative of the Alterations; and (iv) in the case of any Alterations
having a cost of $100,000.00 or more, delivery to Landlord of payment and
performance bonds naming Landlord and Mortgagee as obligees. The Alterations
shall conform to the requirements of Landlord's and Tenant's insurers and of the
Federal, state and local governments having jurisdiction over the Premises,
shall be performed in accordance with the terms and provisions of this Lease in
a good and workmanlike manner befitting a first class office building and shall
not adversely affect the value, utility or character of the Premises. If the
Alterations are not performed as herein required, Landlord shall have the right,
at Landlord's option, to halt any further Alterations, or to require Tenant to
perform the Alterations as herein required or to require Tenant to return the
Premises to its condition before such Alterations. Notwithstanding the
foregoing, if any mechanic's or materialmen's lien is filed against the
Premises, the Building or the Land for work claimed to have been done for, or
materials claimed to have been furnished to or for the benefit of, Tenant, such
lien shall be discharged of record by Tenant within ten (10) days by the payment
thereof or the filing of any bond required by law. If Tenant shall fail to
discharge any such lien, Landlord may (but shall not be obligated to) discharge
the same, the cost of which shall be paid by Tenant within three (3) days of
demand by Landlord. Such discharge by Landlord shall not be deemed to waive or
release the default of Tenant in not discharging the same. Neither Landlord's
consent to the Alterations nor anything contained in this Lease shall be deemed
to be the agreement or consent of Landlord to subject Landlord's interest in the
Premises, the Building or the Land to any mechanic's or materialmen's liens
which may be filed in respect of the Alterations.
13.3 REMOVAL OF ALTERATIONS. Except to the extent Tenant requests and
Landlord designates otherwise at
<PAGE>
the time Landlord approves such Alterations, all or any part of the Alterations
(including, without limitation, wall-to-wall carpet and wiring), whether made
with or without the consent of Landlord, shall, at the election of Landlord,
either be removed by Tenant at its expense before the expiration of the Term or
shall remain upon the Premises and be surrendered therewith at the Expiration
Date or earlier termination of this Lease as the property of Landlord without
disturbance, molestation or injury. If Landlord requires the removal of all or
part of the Alterations, Tenant, at its expense, shall repair any damage to the
Premises or the Building caused by such removal. If Tenant fails to remove the
Alterations upon Landlord's request, then Landlord may (but shall not be
obligated to) remove the same and the cost of such removal and repair of any
damage caused by the same, together with any and all damages which Landlord may
suffer and sustain by reason of the failure of Tenant to remove the same, shall
be charged to Tenant and paid upon demand.
13.4 LANDLORD ALTERATIONS. Landlord shall have no obligation to make any
--------------------
Alterations in or to the Premises, the Building, the Common Area or the Land
except as specifically provided in the Work Agreement. Landlord hereby reserves
the right, from time to time, to make Alterations to the Building, change the
Building dimensions, erect additional stories thereon and attach other buildings
and structures thereto, and to erect such scaffolding and other aids to
construction as Landlord deems appropriate, and no such Alterations, changes,
construction or erection shall constitute an eviction, constructive or
otherwise, or permit Tenant any abatement of Rent or claim. Notwithstanding the
foregoing, Landlord agrees that it shall not exercise any of the rights reserved
to Landlord pursuant to this Section 13.4 in a manner as shall materially
adversely affect the ability of Tenant to use the Premises for the Permitted
Use.
ARTICLE 14
SIGNS
No sign, advertisement or notice shall be inscribed, painted, affixed,
placed or otherwise displayed by Tenant on any part of the Land or the outside
or the inside (including, without limitation, the windows) of the Building or
the Premises. Any permitted signs shall be installed and maintained by Landlord
at Tenant's sole expense. If any prohibited sign, advertisement or notice is
nevertheless exhibited by Tenant, Landlord shall have the right to remove the
same, and Tenant shall pay any and all expenses incurred by Landlord in such
removal, together with interest thereon at the Interest Rate, upon demand.
Landlord shall have the right to prohibit any sign, advertisement, notice or
statement to the public by Tenant which, in Landlord's opinion, tends to impair
the reputation of the Building or its desirability as a first class office
building. Notwithstanding the foregoing, Tenant shall have the right, at its
sole cost and expense, to exhibit its corporate name, in a manner satisfactory
to Landlord, in Landlord's reasonable opinion, on the suite entry door of the
Premises and on a pedestal sign supplied by Landlord to be located in front of
the Premises.
ARTICLE 15
TENANT'S EQUIPMENT AND PROPERTY
15.1 MOVING TENANT'S PROPERTY. Any and all damage or injury to the
------------------------
Premises or the Building caused by moving the property of Tenant into or out of
the Premises, or due to the same being on the Premises, shall be repaired by
Landlord, at the expense of Tenant. Tenant shall promptly remove from the Common
Area any of Tenant's furniture, equipment or other property there deposited.
15.2 INSTALLING AND OPERATING TENANT'S EQUIPMENT. Without first obtaining
-------------------------------------------
the written consent of Landlord, Tenant shall not install or operate in the
Premises any equipment which causes the floor load to exceed the load limit set
by Landlord for the Building. The floor load limit set by Landlord for the
Building is, as of the Date of Lease, 125 pounds per square foot. Machines and
equipment which cause noise or vibration that may be transmitted to the
structure of the Building or to any space therein so as to be objectionable to
Landlord or any other Building tenant shall be installed and maintained by
Tenant, at its expense, on vibration eliminators or other devices sufficient to
<PAGE>
ARTICLE 16
RIGHT OF ENTRY
Tenant shall permit Landlord or its Agents, at any time after twenty-four
(24) hours' prior notice thereof (except in the case of emergency, in which case
no notice shall be required), to enter the Premises, without charge therefor to
Landlord and without diminution of Rent: (i) to examine, inspect and protect the
Premises and the Building; (ii) to make such alterations and repairs or perform
such maintenance which in the sole judgment of Landlord may be deemed necessary
or desirable; (iii) to exhibit the same to prospective purchasers of the
Building or to present or future Mortgagees; or (iv) to exhibit the same to
prospective tenants during the last nine (9) months of the Term.
ARTICLE 17
INSURANCE
17.1 INSURANCE RATING. Tenant shall not conduct or permit any activity,
----------------
or place any equipment or material, in or about the Premises, the Building or
the Common Area which will increase the rate of fire or other insurance on the
Building or insurance benefitting any other tenant of the Building; and if any
increase in the rate of insurance is stated by any insurance company or by the
applicable insurance rating bureau to be due to any activity, equipment or
material of Tenant in or about the Premises, the Building or the Common Area,
such statement shall be conclusive evidence that the increase in such rate is
due to the same and, as a result thereof, Tenant shall pay such increase to
Landlord upon demand.
17.2 LIABILITY INSURANCE. Tenant shall, at its sole cost and expense,
-------------------
procure and maintain throughout the Term a commercial general liability policy
insuring against claims, demands or actions for bodily injury, death, personal
injury, and loss or damage to property arising out of or in connection with: (i)
the Premises; (ii) the condition of the Premises; (iii) Tenant's operations in,
maintenance and use of the Premises, Building and Common Area; and (iv) Tenant's
liability assumed under this Lease. Such insurance shall have such combined
single limit as reasonably required by Landlord from time to time, but in no
event less than Two Million Dollars ($2,000,000.00) per occurrence, on an
occurrence basis, and shall be primary over any insurance carried by Landlord.
Endorsements shall be obtained for cross-liability and contractual liability.
17.3 INSURANCE FOR PERSONAL PROPERTY. Tenant shall, at its sole cost and
-------------------------------
expense, procure and maintain throughout the Term a property insurance policy
(written on an "All Risk" basis) insuring all of Tenant's personal property,
including but not limited to equipment, furniture, fixtures, furnishings and
leasehold improvements which are the responsibility of Tenant, for not less than
the full replacement cost of said property. All proceeds of such insurance shall
be used to repair or replace Tenant's property. In addition, Tenant shall, at
its sole cost and expense, procure and maintain business interruption insurance
in an amount not less than the Base Rent due hereunder for the first (1st) Lease
Year.
17.4 REQUIREMENTS OF INSURANCE COVERAGE. All such insurance required to
----------------------------------
be carried by Tenant herein shall be with an insurance company licensed to do
business in the Commonwealth of Virginia and rated not lower than A-XII in the
A.M. Best Rating Guide. Such insurance (i) shall contain an endorsement that
such policy shall remain in full force and effect notwithstanding that the
insured has released its right of action against any party before the occurrence
of a loss; (ii) shall name Landlord and, at Landlord's request, any Mortgagee or
ground lessor, as additional insured parties; and (iii) shall provide that the
policy shall not be cancelled, failed to be renewed or materially amended
without at least thirty (30) days' prior written notice to Landlord and, at
Landlord's request, any Mortgagee. On or before the Commencement Date and,
thereafter, not less than thirty (30) days before the expiration date of the
insurance policy, an original of the policy (including any renewal or
replacement policy) or a certified copy thereof, together with
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evidence satisfactory to Landlord of the payment of all premiums for such
policy, shall be delivered to Landlord and, at Landlord's request, to any
Mortgagee.
17.5 WAIVER OF SUBROGATION. Each party hereby releases the other party
---------------------
hereto from liability for any loss or damage to any building, structure or
tangible personal property, or any resulting loss of income, or losses under
worker's compensation laws and benefits, notwithstanding that such loss, damage
or liability may arise out of the negligent or intentionally tortious act or
omission of the other party or its Agents, if such loss or damage is covered by
insurance benefitting the party suffering such loss or damage or was required to
be covered by insurance pursuant to this Lease. Each party hereto shall use
reasonable efforts to have a waiver of subrogation clause (providing that such
waiver of right of recovery against the other party shall not impair the
effectiveness of such policy or the insured's ability to recover thereunder)
included in its said policies, and shall promptly notify the other in writing if
such clause cannot be included in any such policy; if such waiver of subrogation
clause shall not be available, then the foregoing waiver of right of recovery
shall be void.
17.6 SECURITY. In the event that Landlord engages the services of a
--------
professional security system for the Building, it is understood that such
engagement shall in no way increase Landlord's liability for occurrences and/or
consequences which such a system is designed to detect or avert and that Tenant
shall look solely to its insurer as set out above for claims for damages or
injury to any person or property.
17.7 LANDLORD'S INSURANCE. Landlord shall procure and maintain throughout
--------------------
the Term fire and extended coverage insurance on the Building in such coverage
and amounts as reasonably determined by Landlord in its prudent management of
the Building and as necessary to satisfy the requirements of Landlord's
Mortgagee, if any.
ARTICLE 18
LANDLORD SERVICES AND UTILITIES
18.1 ORDINARY SERVICES TO THE PREMISES. Landlord agrees to furnish
---------------------------------
landscaping and grounds maintenance and snow clearing for the areas used in
common by the tenants of the Building or the Park. The foregoing services shall
be furnished by Landlord and reimbursed by Tenant as part of PCAM; provided,
however, that Landlord shall be under no responsibility or liability for failure
or interruption in such services caused by breakage, accident, strikes, repairs
or for any other cause or causes beyond the control of Landlord, nor in any
event for any indirect or consequential damages; and failure or omission on the
part of Landlord to furnish such service shall not be construed as an eviction
of Tenant, nor work an abatement of Rent, nor render Landlord liable in damages,
nor release Tenant from prompt fulfillment of any of the covenants under this
Lease. Notwithstanding anything to the contrary set forth elsewhere in this
Lease, Tenant shall have the right, at all times during the Term, on a 24-hour a
day, 365-day a year basis, to operate and control the heating, ventilating and
air conditioning systems serving the Premises.
18.2 UTILITY CHARGES. All telephone, electricity, gas, heat and other
---------------
utility service furnished to the Premises shall be paid for by Tenant except to
the extent the cost of same is included within PCAM or BOE. Landlord reserves
the right separately to meter or monitor the utility services provided to the
Premises. The cost of any such meter shall be borne by Tenant.
ARTICLE 19
LIABILITY OF LANDLORD
19.1 NO LIABILITY. Except where due to Landlord or its Agents' gross
------------
negligence or willful misconduct, Landlord and its Agents shall not be liable to
Tenant or its Agents for, and Tenant, for itself and its Agents, does hereby
release Landlord and its Agents from liability for, any damage, compensation or
claim arising from: (i) the necessity of repairing any portion of the Premises
or the Building or the Common Area or any structural defects thereto; (ii) any
17
<PAGE>
interruption in the use of the Premises or the Common Area for any reason
including any interruption or suspension of utility service; (iii) fire or other
casualty or personal or property injury, damage or loss resulting from the use
or operation (by Landlord, Tenant, or any other person whomsoever) of the
Premises or the Building or the Common Area; (iv) the termination of this Lease;
(v) robbery, assault or theft; or (vi) any leakage in the Premises or the
Building from water, rain, snow or other cause whatsoever. No such occurrence
shall give rise to diminution or abatement of Rent or constructive eviction.
Notwithstanding the foregoing, any goods, automobiles, property or personal
effects stored or placed by Tenant or its Agents in or about the Premises, the
Building or the Common Area shall be at the sole risk of Tenant; Tenant hereby
expressly waives its right to recover against Landlord and its Agents therefor.
Tenant hereby waives any claim it might have against Landlord or its Agents for
any consequential damages or business losses sustained by Tenant arising out of
the loss or damage to any person or property of Tenant, or any interruption in
the use of the Premises or the Common Area, for any reason. Tenant acknowledges
its obligation to insure against such losses and damages.
19.2 INDEMNITY OF TENANT IN FAVOR OF LANDLORD. Tenant shall indemnify,
----------------------------------------
defend, protect and hold Landlord and its Agents harmless from and against any
and all damages, claims, liabilities, costs or expenses (including, without
limitation, the reasonable fees of attorneys or other professionals) of every
kind and nature (including, without limitation, those arising from any injury or
damage to any person, property or business) incurred by or claimed against
Landlord or its Agents, directly or indirectly, as a result of, arising from or
in connection with: (i) Tenant's or its Agents' use and occupancy of the
Premises, the Building or the Common Area; (ii) Tenant's breach of any provision
of this Lease; or (iii) any act, omission or negligence of Tenant or its Agents;
provided, however, that the foregoing obligations of Tenant to indemnify
Landlord and its Agents shall not apply in the instance of any negligence of
willful misconduct on the part of Landlord or any of its Agents.
19.3 INDEMNITY OF LANDLORD IN FAVOR OF TENANT. Landlord shall indemnify,
----------------------------------------
defend, protect and hold Tenant harmless from and against any and all damages,
claims, liabilities, costs or expenses (including, without limitation, the
reasonable fees of attorneys or other professionals) of every kind and nature
incurred by or claimed against Tenant, directly or indirectly, as a result of,
arising from or in connection with Landlord's breach of any provision of this
Lease; provided, however, that the foregoing obligation of Landlord to indemnify
Tenant shall not apply in the instance of any negligence or willful misconduct
on the part of Tenant or any of its Agents.
ARTICLE 20
RULES AND REGULATIONS
Tenant and its Agents shall at all times abide by and observe the Rules and
Regulations and any amendments thereto that may be promulgated from time to time
by Landlord for the operation and maintenance of the Building and the Common
Area and the Rules and Regulations shall be deemed to be covenants of the Lease
to be performed and/or observed by Tenant. Nothing contained in this Lease
shall be construed to impose upon Landlord any duty or obligation to enforce the
Rules and Regulations, or the terms or provisions contained in any other lease,
against any other tenant of the Building. Landlord shall not be liable to
Tenant for any violation by any party of the Rules and Regulations or the terms
of any other Building lease. If there is any inconsistency between this Lease
and the Rules and Regulations, this Lease shall govern. Landlord reserves the
right to amend and modify the Rules and Regulations as it deems necessary.
ARTICLE 21
DAMAGE; CONDEMNATION
21.1 DAMAGE TO THE PREMISES. If the Premises shall be damaged by fire or
----------------------
other cause without the fault or negligence of Tenant or its Agents, Landlord
shall diligently and as soon as practicable after such damage occurs (taking
into account the time necessary to effect a satisfactory settlement with any
insurance company involved) repair such damage at the expense of Landlord;
provided, however, that Landlord's obligation to repair such damage shall not
18
<PAGE>
exceed the proceeds of insurance available to Landlord (reduced by any proceeds
retained pursuant to the rights of Mortgagee). Notwithstanding the foregoing, if
the Premises or the Building is damaged by fire or other cause to such an extent
that, in Landlord's sole judgment, the damage cannot be substantially repaired
within two hundred (200) days after the date of such damage, or if the Premises
are damaged during the last two (2) Lease Years, then Landlord or Tenant within
thirty (30) days from the date of such damage may terminate this Lease by notice
to the other. If either Landlord or Tenant terminates this Lease, the Rent shall
be apportioned and paid to the date of such termination. If neither Landlord nor
Tenant so elects to terminate this Lease but the damage required to be repaired
by Landlord is not repaired within two hundred (200) days from the date of such
damage (such two hundred (200) day period of time to be extended by the period
of time of any delay outside the direct control of Landlord plus a reasonable
period of time for a satisfactory settlement with any insurance company
involved), Tenant, within thirty (30) days from the expiration of such two
hundred (200) day period of time (as the same may be extended), may terminate
this Lease by notice to Landlord. During the period of time that Tenant is
deprived of the use of the damaged portion of the Premises, and provided such
damage is not the consequence of the fault or negligence of Tenant or its
Agents, Base Rent and Tenant's Proportionate Share shall be reduced by the ratio
that the rentable square footage of the Premises damaged bears to the total
gross rentable square footage of the Premises before such damage. All injury or
damage to the Premises or the Building resulting from the fault or negligence of
Tenant or its Agents shall be repaired by Tenant, at Tenant's expense, and Rent
shall not abate. If Tenant shall fail to do so or if Landlord shall so elect,
Landlord shall have the right to make such repairs, and any expense so incurred
by Landlord, together with interest thereon at the Interest Rate, shall be paid
by Tenant upon demand. Notwithstanding anything herein to the contrary, Landlord
shall not be required to rebuild, replace or repair any non-standard tenant
improvements, tenant extras or Alterations or any personal property of Tenant.
21.2 CONDEMNATION. If the whole or a Substantial Part of the Premises or
------------
the Building shall be taken or condemned by any governmental or quasi-
governmental authority for any public or quasi-public use or purpose (including,
without limitation, sale under threat of such a taking), then the Term shall
cease and terminate as of the date when title vests in such governmental or
quasi-governmental authority, and Rent shall be prorated to the date when title
vests in such governmental or quasi-governmental authority. If less than a
Substantial Part of the Premises is taken or condemned by any governmental or
quasi-governmental authority for any public or quasi-public use or purpose
(including, without limitation, sale under threat of such a taking), Base Rent
and Tenant's Proportionate Share shall be reduced by the ratio that the portion
so taken bears to the rentable square footage of the Premises before such
taking, effective as of the date when title vests in such governmental or quasi-
governmental authority, and this Lease shall otherwise continue in full force
and effect. Tenant shall have no claim against Landlord (or otherwise) as a
result of such taking, and Tenant hereby agrees to make no claim against the
condemning authority for any portion of the amount that may be awarded as
compensation or damages as a result of such taking; provided, however, that
Tenant may, to the extent allowed by law, claim an award for moving expenses and
for the taking of any of Tenant's property (other than its leasehold interest in
the Premises) which does not, under the terms of this Lease, become the property
of Landlord at the termination hereof, as long as such claim is separate and
distinct from any claim of Landlord and does not diminish Landlord's award.
Tenant hereby assigns to Landlord any right and interest it may have in any
award for its leasehold interest in the Premises.
ARTICLE 22
DEFAULT
22.1 EVENTS OF DEFAULT. Each of the following shall constitute an Event
-----------------
of Default: (i) Tenant fails to pay Rent within five (5) days after notice from
Landlord; provided that no such notice shall be required if at least two such
notices shall have been given during the same Lease Year; (ii) Tenant fails to
observe or perform any other term, condition or covenant herein binding upon or
obligating Tenant within twenty (20) days after notice from Landlord; (iii)
Tenant abandons or vacates the Premises; (iv) Tenant makes or consents to a
general assignment for the benefit of creditors or a common law composition of
creditors, or a receiver of the Premises or all or substantially all of the
assets of Tenant is appointed, or (v) Tenant files a voluntary petition in any
bankruptcy or insolvency proceeding, or an
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involuntary petition in any bankruptcy or insolvency proceeding is filed against
Tenant and is not discharged by Tenant within sixty (60) days.
22.2 LANDLORD'S REMEDIES. Upon the occurrence of an Event of Default,
-------------------
Landlord, at its option, without further notice or demand to Tenant, may in
addition to all other rights and remedies provided in this Lease, at law or in
equity:
(a) Terminate this Lease and Tenant's right of possession of the
Premises, and recover all damages to which Landlord is entitled under law,
specifically including, but without limitation, all of Landlord's expenses of
re-letting (including, without limitation, rental concessions to new tenants,
repairs, Alterations, legal fees and brokerage commissions). If Landlord elects
to terminate this Lease, every obligation of the parties shall cease as of the
date of such termination, except that Tenant shall remain liable for payment of
Rent and performance of all other terms and conditions of this Lease to the date
of termination.
(b) Terminate Tenant's right of possession of the Premises without
terminating this Lease, in which event Landlord may, but shall not be obligated
to, re-let the Premises, or any part thereof, for the account of Tenant, for
such rent and term and upon such other conditions as are acceptable to Landlord.
For purposes of such re-letting, Landlord is authorized to redecorate, repair,
alter and improve the Premises to the extent necessary in Landlord's sole
discretion. Until Landlord re-lets the Premises, Tenant shall remain obligated
to pay Rent to Landlord as provided in this Lease. If and when the Premises are
re-let and if a sufficient sum is not realized from such re-letting after
payment of all Landlord's expenses of re-letting (including, without limitation,
rental concessions to new tenants, repairs, Alterations, legal fees and
brokerage commissions) to satisfy the payment of Rent due under this Lease for
any month, Tenant shall pay Landlord any such deficiency upon demand. Tenant
agrees that Landlord may file suit to recover any sums due Landlord under this
Section from time to time and that such suit or recovery of any amount due
Landlord shall not be any defense to any subsequent action brought for any
amount not previously reduced to judgment in favor of Landlord.
(c) Terminate this Lease and Tenant's right of possession of the
Premises, and recover from Tenant the net present value of the Rent due from the
date of termination until the Expiration Date, discounted at the lesser of the
Interest Rate as of the date of termination or seven percent (7%) per annum.
(d) Re-enter and repossess the Premises and remove all persons and
effects therefrom, by summary proceeding, ejectment or other legal action or by
using such force as may be necessary. Landlord shall have no liability by reason
of any such re-entry, repossession or removal.
(e) Recover from Tenant, to the extent permitted under the laws of
the Commonwealth of Virginia, the value and/or cost of all concessions to Tenant
under this Lease.
22.3 RIGHTS UPON POSSESSION. If Landlord takes possession pursuant to
----------------------
this Article, with or without terminating this Lease, Landlord may, at its
option, enter into the Premises, remove Tenant's Alterations, signs, personal
property, equipment and other evidences of tenancy, and store them at Tenant's
risk and expense or dispose of them as Landlord may see fit, and take and hold
possession of the Premises; provided, however, that if Landlord elects to take
possession only without terminating this Lease, such entry and possession shall
not terminate this Lease or release Tenant, in whole or in part, from the
obligation to pay the Rent reserved hereunder for the full Term or from any
other obligation under this Lease or any guaranty thereof.
22.4 NO WAIVER. If Landlord shall institute proceedings against Tenant
---------
and a compromise or settlement thereof shall be made, the same shall not
constitute a waiver of any other covenant, condition or agreement herein
contained, nor of any of Landlord's rights hereunder. No waiver by Landlord of
any breach shall operate as a waiver of
20
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such covenant, condition or agreement, or operate as a waiver of such covenant,
condition or agreement itself, or of any subsequent breach thereof. No payment
of Rent by Tenant or acceptance of Rent by Landlord shall operate as a waiver of
any breach or default by Tenant under this Lease. No payment by Tenant or
receipt by Landlord of a lesser amount than the monthly installment of Rent
herein stipulated shall be deemed to be other than a payment on account of the
earliest unpaid Rent, nor shall any endorsement or statement on any check or
communication accompanying a check for the payment of 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 to pursue
any other remedy provided in this Lease. No re-entry by Landlord, and no
acceptance by Landlord of keys from Tenant, shall be considered an acceptance of
a surrender of the Lease.
22.5 RIGHT OF LANDLORD TO CURE TENANT'S DEFAULT. If an Event of Default
------------------------------------------
shall occur, then Landlord may (but shall not be obligated to) make such payment
or do such act to cure the Event of Default, and charge the amount of the
expense thereof, together with interest thereon at the Interest Rate, to Tenant.
Such payment shall be due and payable upon demand; however, the making of such
payment or the taking of such action by Landlord shall not be deemed to cure the
Event of Default or to stop Landlord from the pursuit of any remedy to which
Landlord would otherwise be entitled. Any such payment made by Landlord on
Tenant's behalf shall bear interest until paid at the Interest Rate.
22.6 LATE PAYMENT. If Tenant fails to pay any Rent when due and payable,
------------
and such failure continues for five (5) days after notice thereof is given by
Landlord to Tenant, Tenant shall pay to Landlord a late charge of five percent
(5%) of the amount of such overdue Rent. In addition, any such late Rent payment
shall bear interest from the date such Rent became due and payable to the date
of payment thereof by Tenant at the Interest Rate. Such late charge and interest
shall be due and payable within two (2) days after written demand from Landlord.
22.7 LANDLORD DEFAULT. If Landlord shall fail to keep or perform any of
----------------
its obligations under this Lease, then Tenant may (but shall not be obligated to
do so) upon the continuance of such failure on Landlord's part for twenty (20)
days after Landlord's receipt of notice from Tenant specifying the failure (or,
in the case of any such failure which cannot with due diligence be cured within
twenty (20) days, within such additional period, if any, as may be reasonably
required by Landlord to cure such failure with due diligence), and without
waiving or releasing Landlord from any obligation, make such payment or perform
such obligation and all sums so paid by Tenant and all necessary and incidental
costs and expenses, including reasonable attorney's fees paid to independent
legal counsel, incurred by Tenant in making such payment or performing such
obligation, together with interest thereon at the Interest Rate from the date of
payment, shall be paid by Landlord to Tenant on demand, and if not so paid by
Landlord, Tenant shall have the right to pursue any legal remedies available to
it to collect payment, but shall not be entitled to offset such payment against
Rent thereafter payable under this Lease.
ARTICLE 23
MORTGAGES
23.1 SUBORDINATION. This Lease is subject and subordinate to all ground
-------------
or underlying leases and to any first Mortgage(s) which may now or hereafter
affect such leases or the Land and to all renewals, modifications,
consolidations, replacements and extensions thereof. This subordination shall be
self-operative; however, in confirmation thereof, Tenant shall execute promptly
any instrument that Landlord or any first Mortgagee may request confirming such
subordination. Tenant hereby constitutes and appoints Landlord as Tenant's
attorney-in-fact to execute any such instrument on behalf of Tenant.
Notwithstanding the foregoing, before any foreclosure sale under a Mortgage, the
Mortgagee shall have the right to subordinate the Mortgage to this Lease, and,
in the event of a foreclosure, this Lease may continue in full force and effect
and Tenant shall attorn to and recognize as its landlord the purchaser of
Landlord's interest under this Lease. Tenant shall, upon the request of a
Mortgagee or purchaser at foreclosure, execute, acknowledge and deliver any
instrument that has for its purpose and effect the subordination of the lien of
any Mortgage
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to this Lease or Tenant's attornment to such Purchaser.
23.2 MORTGAGEE PROTECTION . Tenant agrees to give any Mortgagee by
--------------------
certified mail, return receipt requested, a copy of any notice of default served
upon Landlord, provided that before such notice Tenant has been notified in
writing of the address of such Mortgagee. Tenant further agrees that if Landlord
shall have failed to cure such default within the time provided for in this
Lease, then Mortgagee shall have an additional thirty (30) days within which to
cure such default; provided, however, that if such default cannot be reasonably
cured within that time, then such Mortgagee shall have such additional time as
may be necessary to cure such default so long as Mortgagee has commenced and is
diligently pursuing the remedies necessary to cure such default (including,
without limitation, the commencement of foreclosure proceedings, if necessary),
in which event this Lease shall not be terminated or Rent abated while such
remedies are being so diligently pursued. In the event of the sale of the Land
or the Building, by foreclosure or deed in lieu thereof, the Mortgagee or
purchaser at such sale shall be responsible for the return of the Security
Deposit only to the extent that such Mortgagee or purchaser actually received
the Security Deposit.
23.3 MODIFICATION DUE TO FINANCING. If, in connection with obtaining
-----------------------------
construction or permanent financing for the Premises, the Building or the Land,
any lender (or Mortgagee) shall request reasonable modifications of this Lease
as a condition to such financing, Tenant shall promptly execute a modification
of this Lease, provided such modifications do not materially increase the
financial obligations of Tenant hereunder or materially adversely affect the
leasehold interest hereby created or Tenant's reasonable use and enjoyment of
the Premises. Tenant shall prior to execution and throughout the Term, upon
request from time to time, provide such financial information and documentation
about itself to Landlord or Mortgagee as may be requested.
23.4 NON-DISTURBANCE. Landlord agrees to utilize its reasonable efforts
---------------
to obtain from any Mortgagee under any Mortgage recorded as of or after the Date
of Lease and encumbering the Premises an agreement in writing, on the standard
form for such agreement employed by such Mortgagee, providing in substance that
so long as Tenant shall not be in default with respect to, and shall faithfully
discharge, the obligations on its part to be kept and performed under the terms
of this Lease, its tenancy shall not be disturbed. Tenant hereby acknowledges
that the decision by any such Mortgagee holding a Mortgage encumbering the
Premises to grant such non-disturbance protection to Tenant is a determination
that will be made by such Mortgagee and is not within the control of Landlord.
Tenant agrees to cooperate fully with Landlord in connection with Landlord's
efforts to obtain such non-disturbance protection for Tenant, and in such
regard, Tenant shall supply to Landlord and such Mortgagee, if requested,
Tenant's most recent audited financial statements and unaudited financial
statements prepared by Tenant for the period following that period reflected in
Tenant's most recent audited financial statements, with such unaudited financial
statements being certified as true and accurate by Tenant's chief financial
officer to the best of his knowledge.
ARTICLE 24
SURRENDER; HOLDING OVER
24.1 SURRENDER OF THE PREMISES. Tenant shall peaceably surrender the
-------------------------
Premises to Landlord on the Expiration Date or earlier termination of this
Lease, in broom-clean condition and in as good condition as when Tenant took
possession, including, without limitation, the repair of any damage to the
Premises caused by the removal of any of Tenant's personal property or trade
fixtures from the Premises, except for reasonable wear and tear and loss by fire
or other casualty not caused by Tenant or its Agents. Any of Tenant's personal
property left on or in the Premises, the Building or the Common Area after the
Expiration Date or earlier termination of this Lease shall be deemed to be
abandoned, and, at Landlord's option, title shall pass to Landlord under this
Lease.
24.2 HOLDING OVER. In the event that Tenant shall not immediately
------------
surrender the Premises to Landlord on the Expiration Date or earlier termination
of this Lease, Tenant shall be deemed to be a month to month tenant upon all of
the terms and provisions of this Lease, except the monthly Base Rent during the
period of any such holdover shall be
22
<PAGE>
(a) during and with respect to each of the first (1st) and second (2nd) months
of any such holdover period, one hundred fifty percent (150%) of the monthly
Base Rent in effect during the last month of the Term, (b) during and with
respect to each of the third (3rd) and fourth (4th) months of any such holdover
period, one hundred seventy-five percent (175%) of the monthly Base Rent in
effect during the last month of the Term, and (c) during and with respect to the
fifth (5th) month and any succeeding month of any such holdover period, twice
the monthly Base Rent in effect during the last month of the Term.
Notwithstanding the foregoing, if Tenant shall hold over after the Expiration
Date or earlier termination of this Lease, and Landlord shall desire to regain
possession of the Premises, then Landlord may forthwith re-enter and take
possession of the Premises without process, or by any legal process in force in
the Commonwealth of Virginia. Tenant shall indemnify Landlord against all
liabilities and damages sustained by Landlord by reason of such retention of
possession.
ARTICLE 25
QUIET ENJOYMENT
Landlord covenants that if Tenant shall pay Rent and perform all of the
terms and conditions of this Lease to be performed by Tenant, Tenant shall
during the Term peaceably and quietly occupy and enjoy possession of the
Premises without molestation or hindrance by Landlord or any party claiming
through or under Landlord, subject to the provisions of this Lease and any
Mortgage to which this Lease is subordinate and easements, conditions and
restrictions of record affecting the Land.
ARTICLE 26
TENANT'S COVENANTS REGARDING HAZARDOUS MATERIALS
26.1 DEFINITION. As used in this Lease, the term "Hazardous Material"
----------
means any flammable items, explosives, radioactive materials, hazardous or toxic
substances, material or waste or related materials, including any substances
defined as or included in the definition of "hazardous substances," "hazardous
wastes," "infectious wastes," "hazardous materials" or "toxic substances" now or
subsequently regulated under any federal, state or local laws, regulations or
ordinances including, without limitation, oil, petroleum-based products, paints,
solvents, lead, cyanide, DDT, printing inks, acids, pesticides, ammonia
compounds and other chemical products, asbestos, PCBs and similar compounds, and
including any different products and materials which are subsequently found to
have adverse effects on the environment or the health and safety of persons.
26.2 GENERAL PROHIBITION. Tenant shall not cause or permit any Hazardous
-------------------
Material to be generated, produced, brought upon, used, stored, treated,
discharged, released, spilled or disposed of on, in, under or about the
Premises, the Building, the Land or the Park by Tenant or its Agents,
affiliates, sublessees or assignees without the prior written consent of
Landlord (which consent of Landlord may be withheld, conditioned or delayed by
Landlord in its sole and absolute discretion); provided, however, that
notwithstanding the foregoing, Tenant shall have the right to use and store
diesel fuel in connection with its operation of the back-up electrical generator
described in Section 5 of the Work Agreement, in accordance with all applicable
laws, rules and regulations, after obtaining all applicable permits, and in such
amounts approved in advance by Landlord as shall be commensurate with the proper
use and operation of such back-up electrical generator. Tenant shall indemnify,
defend and hold Landlord harmless from and against any and all actions
(including, without limitation, remedial or enforcement actions of any kind,
administrative or judicial proceedings, and orders or judgments arising out of
or resulting therefrom), costs, claims, damages (including, without limitation,
punitive damages), expenses (including, without limitation, attorneys',
consultants' and experts' fees, court costs and amounts paid in settlement of
any claims or actions), fines, forfeitures or other civil, administrative or
criminal penalties, injunctive or other relief (whether or not based upon
personal or bodily injury, property damage or contamination of, or adverse
effects upon, the environment, water tables or natural resources), liabilities
or losses arising from (i) a breach of the foregoing prohibition by Tenant, its
Agents, affiliates, sublessees or assignees, and (ii) the storage and/or use of
the diesel fuel described in the preceding provisions of this Section 26.2.
Except for any fuel
23
<PAGE>
storage tank that is a part of the back-up electrical generator described in
Section 5 of the Work Agreement, in no event shall Landlord be required to
consent to the installation or use of any storage tanks in, on or under the
Premises, the Building, the Land or the Park. If Landlord consents to the
generation, production, use, storage, treatment or disposal of Hazardous
Materials in or about the Premises by Tenant, its Agents, affiliates, sublessees
or assignees (which consent shall include the approval by Landlord set forth in
this Section 26.2 of Tenant's storage and use of diesel fuel for the back-up
electrical generator described in Section 5 of the Work Agreement), then and in
addition to any other requirements or conditions that Landlord may impose in
connection with such consent, (a) Tenant promptly shall deliver to Landlord
copies of all permits, approvals, filings, and reports reflecting the legal and
proper generation, production, use, storage, treatment or disposal of all
Hazardous Materials generated, used, stored, treated or removed from the
Premises, the Building, the Land and the Park and, upon Landlord's request,
copies of all hazardous waste manifests relating thereto, and (b) upon
expiration or earlier termination of this Lease, Tenant shall cause all
Hazardous Materials arising out of or related to the use or occupancy of the
Premises by Tenant or its Agents, affiliates, sublessees or assignees to be
removed from the Premises, the Building, the Land and the Park and transported
for use, storage or disposal in accordance with all applicable laws, regulations
and ordinances and Tenant shall provide Landlord with evidence reasonably
satisfactory to Landlord of the same.
26.3 NOTICE. In the event that Hazardous Materials are discovered upon,
------
in or under the Premises, the Building, the Land or the Park and any
governmental agency or entity having jurisdiction over the Premises, the
Building, the Land or the Park requires the removal of such Hazardous Materials,
Tenant shall be responsible for removing those Hazardous Materials arising out
of or related to the use or occupancy of the Premises by Tenant or its Agents,
affiliates, sublessees or assignees but not those of its predecessors.
Notwithstanding the foregoing, Tenant shall not take any remedial action in or
about the Premises, the Building, the Land or the Park, nor enter into any
settlement agreement, consent decree or other compromise with respect to any
claims relating to any Hazardous Material in any way connected with the
Premises, the Building, the Land or the Park, without first notifying Landlord
of Tenant's intention to do so and affording Landlord the opportunity to appear,
intervene or otherwise appropriately assert and protect Landlord's interest with
respect thereto. Tenant immediately shall notify Landlord in writing of: (i) any
spill, release, discharge or disposal of any Hazardous Material in, on or under
the Premises, the Building, the Land, the Park or any portion thereof; (ii) any
enforcement, cleanup, removal or other governmental or regulatory action
instituted, contemplated or threatened (if Tenant has notice thereof) pursuant
to any Hazardous Materials Laws; (iii) any claim made or threatened by any
person against Tenant, the Premises, the Building, the Land or the Park relating
to damage, contribution, cost recovery, compensation, loss or injury resulting
from or claimed to result from any Hazardous Materials; and (iv) any reports
made to any environmental agency or entity arising out of or in connection with
any Hazardous Materials in, on, under or about or removed from the Premises, the
Building, the Land or the Park, including any complaints, notices, warnings,
reports or asserted violations in connection therewith. Tenant also shall supply
to Landlord as promptly as possible, and in any event within five (5) business
days after Tenant first receives or sends the same, copies of all claims,
reports, complaints, notices, warnings or asserted violations relating in any
way to the Premises, the Building, the Land, the Park or Tenant's use or
occupancy thereof.
26.4 SURVIVAL. The respective rights and obligations of Landlord and
--------
Tenant under this Article 26 shall survive the expiration or earlier termination
of this Lease.
ARTICLE 27
MISCELLANEOUS
27.1 NO REPRESENTATIONS BY LANDLORD. Tenant acknowledges that neither
------------------------------
Landlord or its Agents nor any broker has made any representation or promise
with respect to the Premises, the Building, the Land or the Common Area, except
as herein expressly set forth, and no rights, privileges, easements or licenses
are acquired by Tenant except as herein expressly set forth. Tenant, by taking
possession of the Premises shall accept the Premises and the Building "AS IS,"
and such taking of possession shall be conclusive evidence that the Premises and
the Building are in good and
24
<PAGE>
satisfactory condition at the time of such taking of possession.
27.2 NO PARTNERSHIP. Nothing contained in this Lease shall be deemed or
--------------
construed to create a partnership or joint venture of or between Landlord and
Tenant, or to create any other relationship between Landlord and Tenant other
than that of landlord and tenant.
27.3 BROKERS. Landlord recognizes Broker(s) as the sole broker(s)
-------
procuring this Lease and shall pay Broker(s) a commission therefor pursuant to a
separate agreement between Broker(s) and Landlord. Landlord and Tenant each
represents and warrants to the other that it has not employed any broker, agent
or finder other than Broker(s) relating to this Lease. Landlord shall indemnify
and hold Tenant harmless, and Tenant shall indemnify and hold Landlord harmless,
from and against any claim for brokerage or other commission arising from or out
of any breach of the indemnitor's representation and warranty.
27.4 ESTOPPEL CERTIFICATE. Tenant shall, without charge, at any time and
--------------------
from time to time, within fifteen (15) days after request therefor by Landlord,
Mortgagee, any purchaser of the Land or the Building or any other interested
person, execute, acknowledge and deliver to such requesting party a written
estoppel certificate certifying, as of the date of such estoppel certificate,
the following: (i) that this Lease is unmodified and in full force and effect
(or if modified, that the Lease is in full force and effect as modified and
setting forth such modifications); (ii) that the Term has commenced (and setting
forth the Commencement Date and Expiration Date); (iii) that Tenant is presently
occupying the Premises; (iv) the amounts of Base Rent and Additional Rent
currently due and payable by Tenant; (v) that any Alterations required by the
Lease to have been made by Landlord have been made to the satisfaction of
Tenant; (vi) that there are no existing set-offs, charges, liens, claims or
defenses against the enforcement of any right hereunder, including, without
limitation, Base Rent or Additional Rent (or, if alleged, specifying the same in
detail); (vii) that no Base Rent (except the first installment thereof) has been
paid more than thirty (30) days in advance of its due date; (viii) that Tenant
has no knowledge of any then uncured default by Landlord of its obligations
under this Lease (or, if Tenant has such knowledge, specifying the same in
detail); (ix) that Tenant is not in default; (x) that the address to which
notices to Tenant should be sent is as set forth in the Lease (or, if not,
specifying the correct address); and (xi) any other certifications requested by
Landlord. In addition, within fifteen (15) days after request by Landlord,
Tenant shall deliver to Landlord audited financial statements of Tenant for its
most recently ended fiscal year and interim unaudited financial statements for
its most recently ended quarter.
27.5 WAIVER OF JURY TRIAL. TENANT HEREBY WAIVES TRIAL BY JURY IN ANY
--------------------
ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY LANDLORD AGAINST TENANT WITH
RESPECT TO ANY MATTER WHATSOEVER ARISING OUT OF OR IN ANY WAY CONNECTED WITH
THIS LEASE, THE RELATIONSHIP OF LANDLORD AND TENANT HEREUNDER OR TENANT'S USE OR
OCCUPANCY OF THE PREMISES. IN THE EVENT LANDLORD COMMENCES ANY PROCEEDINGS FOR
NONPAYMENT OF RENT, TENANT SHALL NOT INTERPOSE ANY COUNTERCLAIMS. THIS SHALL
NOT, HOWEVER, BE CONSTRUED AS A WAIVER OF TENANT'S RIGHT TO ASSERT SUCH CLAIMS
IN ANY SEPARATE ACTION BROUGHT BY TENANT.
27.6 NOTICES. All notices or other communications hereunder shall be in
-------
writing and shall be deemed duly given if delivered in person or upon the
earlier of receipt, if mailed by certified or registered mail, or three (3) days
after certified or registered mailing, return receipt requested, postage
prepaid, addressed and sent, if to Landlord to Landlord's Address specified in
Section 1.15 of this Lease or if to Tenant to Tenant's Address specified in
Section 1.16 of this Lease. Landlord and Tenant may from time to time by written
notice to the other designate another address for receipt of future notices.
27.7 INVALIDITY OF PARTICULAR PROVISIONS. If any provisions of this Lease
-----------------------------------
or the application thereof to any person or circumstances shall to any extent be
invalid or unenforceable, the remainder of this Lease, or the application of
25
<PAGE>
such provision to persons or circumstances other than those to which it is
invalid or unenforceable, shall not be affected thereby, and each provision of
this Lease shall be valid and be enforced to the full extent permitted by law.
27.8 GENDER AND NUMBER. All terms and words used in this Lease,
-----------------
regardless of the number or gender in which they are used, shall be deemed to
include any other number or gender as the context may require.
27.9 BENEFIT AND BURDEN. Subject to the provisions of Article 11 of this
------------------
Lease and except as otherwise expressly provided, the provisions of this Lease
shall be binding upon, and shall inure to the benefit of, the parties hereto and
each of their respective representatives, heirs, successors and assigns.
Landlord may freely and fully assign its interest hereunder.
27.10 ENTIRE AGREEMENT. This Lease (which includes the Exhibits and Rider
----------------
attached hereto) contains and embodies the entire agreement of the parties
hereto, and no representations, inducements or agreements, oral or otherwise,
between the parties not contained in this Lease shall be of any force or effect.
This Lease (other than the Rules and Regulations, which may be changed from time
to time as provided herein) may not be modified, changed or terminated in whole
or in part in any manner other than by an agreement in writing duly signed by
Landlord and Tenant.
27.11 AUTHORITY.
---------
(a) If Tenant signs as a corporation, the person executing this
Lease on behalf of Tenant hereby represents and warrants that Tenant is a duly
formed and validly existing corporation, in good standing, qualified to do
business in the Commonwealth of Virginia, that the corporation has full power
and authority to enter into this Lease and that he or she is authorized to
execute this Lease on behalf of the corporation.
(b) If Tenant signs as a partnership, the person executing this
Lease on behalf of Tenant hereby represents and warrants that Tenant is a duly
formed and validly existing partnership, in good standing, qualified to do
business in the Commonwealth of Virginia, that the partnership has full power
and authority to enter into this Lease, and that he or she is authorized to
execute this Lease on behalf of the partnership.
(c) If Tenant signs as a limited liability company, the person
executing this Lease on behalf of Tenant hereby represents and warrants that
Tenant is a duly formed and validly existing limited liability company, in good
standing, qualified to do business in the Commonwealth of Virginia, that the
limited liability company has full power and authority to enter into this Lease
and that he or she is authorized to execute this Lease on behalf of the limited
liability company.
27.12 ATTORNEYS' FEES. If either party to this Lease shall bring an
---------------
action regarding any of the terms and conditions of this Lease or any of its
rights hereunder, the party to this Lease prevailing in any such action, on
trial or appeal, shall be entitled to reasonable attorneys' fees as fixed by the
Court, to be paid by the non-prevailing party to this Lease. The term
"attorneys' fees" shall include, but shall not be limited to, reasonable
attorneys' fees incurred in any and all judicial, bankruptcy, reorganization,
administrative or other proceedings, including appellate proceedings, whether
the proceedings arise before or after the entry of a final judgment and all
costs and disbursements in connection with the matter.
27.13 INTERPRETATION. This Lease is governed by the laws of the
--------------
Commonwealth of Virginia.
27.14 NO PERSONAL LIABILITY; SALE. Neither Landlord nor its Agents,
---------------------------
whether disclosed or undisclosed, shall have any personal liability under any
provision of this Lease. In the event of a judgment in favor of Tenant which
remains unpaid, Tenant's right of redress, execution and levy shall be limited
to the equity of Landlord in the Building. In the event that the original
Landlord hereunder, or any successor owner of the Building, shall sell or convey
the
26
<PAGE>
Building, all liabilities and obligations on the part of the original Landlord,
or such successor owner, under this Lease occurring thereafter shall terminate
as of the day of such sale, and thereupon all such liabilities and obligations
shall be binding on the new owner. Tenant agrees to attorn to such new owner.
Any successor to Landlord's interest shall not be bound by: (i) any payment of
Base Rent or Additional Rent for more than one (1) month in advance, except for
the payment of the first installment of First Year Base Rent; or (ii) as to any
Mortgagee or any purchaser at foreclosure, any amendment or modification of this
Lease made without the consent of such Mortgagee.
27.15 TIME OF THE ESSENCE. Time is of the essence as to Tenant's
-------------------
obligations contained in this Lease.
27.16 FORCE MAJEURE. Landlord shall not be required to perform any of its
-------------
obligations under this Lease, nor shall Landlord be liable for loss or damage
for failure to do so, nor shall Tenant thereby be released from any of its
obligations under this Lease, where such failure arises from or through acts of
God, strikes, lockouts, labor difficulties, explosions, sabotage, accidents,
riots, civil commotions, acts of war, results of any warfare or warlike
conditions in this or any foreign country, fire or casualty, legal requirements,
energy shortage or other causes beyond the reasonable control of Landlord,
unless such loss or damage results from the willful misconduct or gross
negligence of Landlord.
27.17 HEADINGS. Captions and headings are for convenience of reference
--------
only.
27.18 MEMORANDUM OF LEASE. Tenant shall, at the request of Landlord,
-------------------
execute and deliver a memorandum of lease in recordable form. Tenant shall not
record such a memorandum or this Lease without Landlord's consent. In the event
Tenant requests recordation of a memorandum of this Lease, Tenant shall be
obligated to pay all costs, fees and taxes, if any, associated with such
recordation.
27.19 INTENTIONALLY OMITTED.
---------------------
27.20 INTENTIONALLY OMITTED.
---------------------
27.21 EFFECTIVENESS. The furnishing of the form of this Lease shall not
-------------
constitute an offer and this Lease shall become effective upon and only upon its
execution by and delivery to each party hereto.
27.22 RIGHT OF SECOND OFFER. Promptly after Landlord shall become aware
---------------------
of the availability or impending availability for lease of that certain space,
comprising approximately 13,745 gross rentable square feet, designated as Suite
1000 in that certain building in the Park known as 480 Spring Park Place (the
"Offer Space"), Landlord shall notify Tenant thereof. The notice given by
Landlord to Tenant with respect to the availability of such Offer Space shall
describe the Offer Space and the date as of which such Offer Space shall be
available for lease. If Tenant shall elect to exercise its option pursuant to
this Section 27.22 to lease the Offer Space, then and in such event, the Offer
Space shall be leased by Landlord to Tenant pursuant to all the terms and
conditions of this Lease pertaining to the Premises, except that: (i) Landlord
shall have no obligation whatsoever to make any alterations or improvements to
the Offer Space for the benefit of Tenant; (ii) no rental concessions or any
"free rent" period shall be applicable with respect to the leasing of the Offer
Space by Landlord to Tenant; (iii) the Base Rent that shall be payable by Tenant
to Landlord for and with respect to the Offer Space shall at all times be equal,
on a per gross rentable square foot per annum basis, to the Base Rent then
required to be paid by Tenant to Landlord for and with respect to the original
Premises demised pursuant to this Lease; (iv) all of the payments which Tenant
shall be required to make pursuant to this Lease with respect to PCAM, Real
Estate Taxes and BOE shall be adjusted, proportionately, to reflect the increase
in the aggregate amount of space in the Park demised by Landlord to Tenant as a
result of the leasing by Tenant from Landlord of the Offer Space; and (v) the
term pursuant to which the Offer Space shall be leased by Tenant from Landlord
shall commence on the date set forth for such commencement in the notice given
by Landlord to Tenant and shall end on the Expiration Date. Tenant shall have
five (5) business days from the date of such notice from Landlord to notify
Landlord that Tenant intends to enter into an amendment to this Lease with
Landlord so as to include the Offer Space on such terms and conditions.
27
<PAGE>
Provided that Tenant shall have given the notice described in the preceding
sentence to Landlord before the expiration of such five (5) business day period
of time, Tenant shall have fifteen (15) business days from the date of such
notice from Landlord to enter into an amendment to this Lease with Landlord so
as to include the Offer Space on such terms and conditions. If Tenant does not
give notice of its intention to enter into such amendment with Landlord as
aforesaid or does not enter into such amendment as aforesaid with Landlord,
Landlord shall have the right to enter into a lease with any third party for the
Offer Space on any terms and conditions as upon which Landlord and such third
party shall agree. The rights extended in this Section 27.22 to Tenant by
Landlord are exclusively granted by Landlord to the original Tenant named under
this Lease, Exodus Communications, Inc., and shall not inure to the benefit of
or be exercisable by any party other than the original Tenant named under this
Lease. Notwithstanding the foregoing, Tenant's rights under this Section 27.22
shall: (a) terminate automatically upon the issuance of any notice of default by
Landlord to Tenant with respect to any of Tenant's obligations under this Lease;
(b) terminate automatically upon the failure of Tenant to have given notice to
Landlord of its intention to enter into an amendment of this Lease with Landlord
on the terms and conditions set forth in the preceding provisions of this
Section 27.22 within five (5) business days after the date of the giving by
Landlord of notice to Tenant with respect to the availability of Offer Space;
(c) terminate automatically upon the failure of Tenant to enter into an
amendment to this Lease with Landlord on the terms and conditions set forth in
the preceding provisions of this Section 27.22 within fifteen (15) business days
after the date of the giving by Landlord of notice to Tenant with respect to the
availability of Offer Space; (d) terminate automatically as of October 1, 1997
unless on or prior to such date Tenant shall have exercised its rights under
this Section 27.22 to lease the Offer Space; and (e) be subject and subordinate,
in all respects and at all times, to any and all Preferential Rights (herein
defined) applicable to the Offer Space or any portion thereof, or to any other
space in the Building of which the Offer Space or any portion thereof shall be a
part, extended by Landlord (or any predecessor-in-interest to Landlord) prior to
the date of this Lease for the benefit of any existing tenant or occupant of the
Building. For purposes hereof, "Preferential Rights" means all rights of
renewal, rights of first refusal, rights of first offer, rights to expansion
space or any other rights or agreements similar or dissimilar to the foregoing
concerning the future or potential leasing of the Offer Space or any portion
thereof or any other space in the Building of which the Offer Space or any
portion thereof shall be a part. Notwithstanding anything to the contrary set
forth elsewhere in this Section 27.22, Tenant acknowledges and agrees that all
of the rights granted to it with respect to the Offer Space pursuant to this
Section 27.22 are subject and subordinate, in all respects, to the Preferential
Rights with respect to the Offer Space granted by Landlord to another tenant of
the Park, Value Health Sciences, Inc., pursuant to, and in accordance with, the
lease agreement in effect as of the Date of Lease between Landlord and Value
Health Sciences, Inc. Furthermore, Tenant acknowledges and agrees that Landlord
shall have no obligation pursuant to this Section 27.22 to give any notice to
Tenant of the availability or pending availability for lease of the Offer Space
until Landlord, in good faith, shall have determined, in its sole discretion,
that the holders of all Preferential Rights (including, without limitation,
Value Health Sciences, Inc.) shall have elected not to exercise any such
Preferential Rights with respect to the Offer Space.
IN WITNESS WHEREOF, LANDLORD AND TENANT HAVE EXECUTED THIS LEASE UNDER SEAL
AS OF THE DATE OF LEASE.
LANDLORD:
WITNESS: JBG/SPRING PARK LIMITED PARTNERSHIP
BY: JBG REAL ESTATE ASSOCIATES VIII, INC.,
GENERAL PARTNER
/s/ Karen Dinder BY: /s/ Brian P. Coulter (SEAL)
- ----------------------------- -------------------------------
NAME: Brian P. Coulter
------------------------------
TITLE: Vice President
-----------------------------
DATE: JUNE 30, 1997
28
<PAGE>
TENANT:
ATTEST/WITNESS: EXODUS COMMUNICATIONS, INC.
/s/ Kathy Woolner BY: /s/ R.V. Sanford III (SEAL)
- ------------------------------ ------------------------------------
DATE: JUNE 26 , 1997
29
<PAGE>
EXHIBIT A-1
-----------
(Plan Showing Premises)
A-1-1
<PAGE>
EXHIBIT A-2
-----------
(Plat Showing the Land and the Building)
A-2-1
<PAGE>
EXHIBIT A-3
-----------
LOCATION OF BACK-UP ELECTRICAL GENERATOR
----------------------------------------
A-3-1
<PAGE>
EXHIBIT B
---------
WORK AGREEMENT
--------------
This WORK AGREEMENT (the "Work Agreement") is attached to and made a part
of that certain Deed of Lease dated the Date of Lease (the "Lease") between
JBG/SPRING PARK LIMITED PARTNERSHIP, a Virginia limited partnership
("Landlord"), and EXODUS COMMUNICATIONS, INC., a California corporation
("Tenant"). The defined terms used in this Work Agreement that are defined in
the Lease shall have the same meanings as provided in the Lease.
1. General.
-------
1.1 Purpose. This Agreement sets forth the terms and conditions governing
-------
the design, permitting and construction of the Tenant Improvements by
Tenant.
1.2 Tenant's Representative. Tenant acknowledges that Tenant has
-----------------------
appointed ________________ as its authorized representative (the
"Tenant's Representative") with full power and authority to bind
Tenant for all actions taken with regard to the Tenant Improvements.
Tenant hereby ratifies all actions and decisions with regard to the
Tenant Improvements that Tenant's Representative may have taken or
made prior to the execution of this Work Agreement. Landlord shall
not be obligated to respond to or act upon any plan, drawing, change
order or approval or other matter relating to the Tenant Improvements
until it has been executed by Tenant's Representative.
2. Tenant Improvements.
-------------------
2.1 Tenant Improvements. Tenant shall construct the Tenant Improvements
-------------------
(herein defined) in accordance with the Tenant Improvements Drawings
and Specifications (as defined below). The Tenant Improvements
Drawings and Specifications shall be conclusive as to the entire scope
of work to be performed by Tenant (the "Tenant Improvements").
2.2 Tenant's Architect. Landlord and Tenant hereby agree that the
------------------
architect to be employed by Tenant, at its sole cost and expense, in
connection with the design of the Tenant Improvements shall be
_______________________ (the "Tenant's Architect"). Tenant shall
provide promptly to Landlord, upon execution and delivery of same, a
photocopy of the full and complete contract made between the Tenant's
Architect and Tenant with respect to Tenant Improvements, which
contract shall be acceptable to Landlord in all respects, in its
reasonable judgment.
2.3 Tenant's General Contractor. Landlord and Tenant hereby agree that
---------------------------
the general contractor to be employed by Tenant in connection with the
construction and installation of the Tenant Improvements shall be
selected by Tenant after the completion of a competitive bid process
designed and implemented by Tenant (the "Tenant's General
Contractor"). Not later than ten (10) days after the Date of Lease
Landlord shall advise Tenant, in writing, of the name of at least one
(1) general contractor with whom Landlord has had satisfactory
experience in the past and which Landlord believes to have expertise
in connection with the construction of alterations and improvements
similar to the Tenant Improvements. Tenant shall provide promptly to
Landlord, upon execution and delivery of same, a photocopy of the full
and complete contract made between the Tenant's General Contractor and
Tenant with respect to the Tenant Improvements, which contract shall
be acceptable to Landlord in all respects, in its reasonable judgment.
B-1
<PAGE>
2.4 Tenant's Construction Manager. Landlord and Tenant hereby agree that
-----------------------------
Tenant shall employ a construction manager in connection with the
construction and installation of the Tenant Improvements (the
"Tenant's Construction Manager"). If Tenant's Construction Manager
shall not be an employee of Tenant, Tenant shall promptly supply to
Landlord, upon execution and delivery of the same, a photocopy of the
full and complete contract made between the Tenant's Construction
Manager and Tenant with respect to the Tenant Improvements, which
contract shall be acceptable to Landlord in all respects, in its
reasonable judgment. All fees and costs charged by and relating to the
Tenant's Construction Manager and its services shall be paid by
Tenant, at the sole cost and expense of Tenant.
2.5 Landlord's Construction Manager. Landlord and Tenant hereby agree
-------------------------------
that Landlord shall have the right, at the sole option of Landlord, to
employ a construction manager (the "Landlord's Construction Manager")
in connection with the supervision of the construction and
installation of the Tenant Improvements. All costs and expenses of
the Landlord's Construction Manager shall be paid by Landlord, at its
sole cost and expense.
2.6 Payment of Costs of Tenant Improvements. Each and all of the costs of
---------------------------------------
the Tenant Improvements (including, without limitation, all hard or
direct costs of construction, all architectural, engineering and
planning fees, the costs of all building and other governmental
permits, and all other soft or indirect costs of construction of any
kind whatsoever) shall be paid by Tenant, at Tenant's sole cost and
expense.
3. Tenant Improvements Drawings and Specifications. Within five (5) business
-----------------------------------------------
days after Landlord receives detailed construction drawings and
specifications for the Tenant Improvements from Tenant's Architect,
Landlord shall either approve or disapprove the same, such approval not to
be unreasonably withheld, conditioned or delayed, except that Landlord
shall have the right, in its sole discretion, to approve or disapprove any
portions of the Tenant Improvements which, in the sole opinion of Landlord,
have an adverse effect upon the structural integrity of the Building or the
heating, ventilating, air conditioning, plumbing, electrical, and other
mechanical systems serving the Premises. In the event of a disapproval by
Landlord (except in the case of a disapproval by Landlord arising in
connection with Landlord's concerns regarding the structural integrity of
the Building or the various systems serving the Premises, as aforesaid),
Landlord shall require, and Tenant shall make, the minimum changes
necessary to such plans and specifications in order to correct or to
address the concerns of Landlord, and Tenant's Architect shall return the
drawings and specifications to Landlord for its review again, which
Landlord shall approve or disapprove within five (5) business days after
Landlord receives the revised plans and specifications. The aforedescribed
procedure shall be repeated until such plans and specifications are finally
approved by Landlord and written approval has been delivered to and
received by Tenant. Notwithstanding the foregoing, Landlord shall have
complete discretion with regard to granting or withholding approval of any
such drawings and specifications to the extent they impact the Building's
structure or systems or would be visible from the exterior of the Building
or any Common Area within the Building. The detailed construction drawings
and specifications for the Tenant Improvements, as submitted by Tenant and
approved by Landlord in accordance with the terms and conditions of this
Section 3, are sometimes in this Work Agreement referred to as the "Tenant
Improvements Drawings and Specifications". Any changes, additions or
modifications that Tenant desires to make to the Tenant Improvements
Drawings and Specifications after approval by Landlord shall also be
subject to Landlord's prior approval, which shall not be unreasonably
withheld, conditioned or delayed in accordance with the provisions set
forth in the preceding provisions of this Section 3, except as provided
above for Building structure, system or appearance impact.
4. Construction of Tenant Improvements.
-----------------------------------
4.1 General. Tenant shall use reasonable efforts to Substantially
-------
Complete (as defined below) the Tenant
B-2
<PAGE>
Improvements on or before September 30, 1997, but neither the validity
of this Lease nor any of the monetary or other obligations of Tenant
under this Lease shall be affected in any way by a failure to
Substantially Complete the Tenant Improvements by such date.
4.2 Construction of Tenant Improvements. Prior to the commencement of
-----------------------------------
construction of the Tenant Improvements, Tenant shall: (a) obtain the
approval of Landlord to the Tenant Improvements Drawings and
Specifications, as set forth above; (b) obtain, at the sole cost and
expense of Tenant, all building and other permits required to be
issued in connection with the construction of the Tenant Improvements;
(c) supply to Landlord, at Landlord's option but at the sole cost and
expense of Tenant, payment and performance bonds naming Landlord as an
obligee with respect to the construction contract for completion of
the Tenant Improvements, each of such bonds being in an amount not
less than the maximum amount of the construction contract made between
Tenant and Tenant's General Contractor; and (d) provide, at the sole
cost and expense of Tenant, to Landlord such builder's risk,
liability, property damage and other insurance, covering Landlord,
Tenant, Tenant's General Contractor and such other parties as Landlord
shall reasonably deem necessary, in such amounts and with such
coverages as Landlord, in its reasonable judgment, shall require. The
Tenant Improvements shall be constructed by Tenant with new, first
class materials, as typically employed in the construction of first
class office buildings, and by skilled workmen. Upon Substantial
Completion of the Tenant Improvements, Tenant shall supply to Landlord
fully executed waivers of liens from the Tenant's General Contractor
and each of the subcontractors employed by Tenant's General Contractor
in connection with the Tenant Improvements. In the event that any
mechanics' or materialmen's lien shall be filed against the Property
in connection with, or as a result of, the construction of the Tenant
Improvements, Tenant shall immediately cause the same to be discharged
or bonded off, at Tenant's sole cost and expense. Furthermore, Tenant
shall indemnify and hold Landlord harmless from and against any and
all losses, damages, liabilities, costs or expenses that Landlord may
suffer or incur as a result of, or in connection with, (i) the filing
of any mechanics' or materialsmen's liens in connection with the
Tenant Improvements, or (ii) the making of the Tenant Improvements by
Tenant and any of the actions or omissions of Tenant or any of the
agents, employees or contractors of Tenant in connection therewith.
4.3 Substantial Completion. "Substantial Completion" of the Tenant
----------------------
Improvements shall be conclusively deemed to have occurred as soon as
the Tenant Improvements have been constructed in accordance with the
approved Tenant Improvements Drawings and Specifications and approved
change orders, and the Tenant Improvements are ready to be utilized
for their intended purpose, as certified by Tenant's Architect. Upon
Substantial Completion of the Tenant Improvements, Tenant shall supply
to Landlord a copy of a duly issued temporary certificate of occupancy
from the proper governmental entity having jurisdiction with respect
thereto and, as soon as possible thereafter, shall provide to Landlord
a photocopy of the final certificate of occupancy. Notwithstanding
the above, the Tenant Improvements shall be considered Substantially
Complete and ready to be utilized for their intended purpose even
though there remain to be completed in the Premises punch list items
involving minor or insubstantial details of construction, decoration
or mechanical adjustment, the lack of completion of which will not
materially interfere with Tenant's Permitted Use of the Premises.
B-3
<PAGE>
5. Supplemental Power. Landlord hereby acknowledges that as of the Date of
------------------
Lease the Premises is served by 800 amps, three-phase high voltage electrical
power. Tenant shall have the right, at its sole cost and expense, in connection
with the making of the Tenant Improvements or at any later time during the Term,
but only after Landlord's review and approval of detailed plans and
specifications therefor (which approval may be withheld by Landlord, in its sole
and absolute discretion), to (a) make such modifications to the electrical
system serving the Premises as shall be necessary so as to increase the
electrical power serving the Premises so that Tenant may operate such machinery
and equipment as shall be necessary in connection with its business operations
at the Premises, and (b) install a back-up electrical generator in the rear of
the Building at the location shown on Exhibit A-3 attached to and hereby made a
-----------
part of this Lease. Landlord shall have the right, at its sole option, in
connection with Tenant's request to install any back-up electrical generator as
described above, to condition its approval thereof upon, among other things,
Tenant's construction and/or installation, at Tenant's sole cost and expense, of
such containment structures and safety systems relating thereto (including,
without limitation, containment structures and safety systems protecting against
any environmental hazards arising from Tenant's use or storage of diesel fuel
and any diesel fuel storage tank in connection therewith) as Landlord shall deem
necessary or prudent, in Landlord's sole and absolute discretion. All such
modifications to the electrical system made by Tenant pursuant to the preceding
provisions of this Section 5, as well as any such back-up electrical generator
installed by Tenant pursuant to the preceding provisions of this Section 5,
shall be deemed to be Alterations governed by the terms and conditions of this
Lease. Notwithstanding anything to the contrary set forth elsewhere in this
Lease, upon the written request of Landlord made at any time at or prior to the
expiration date of the Term or the sooner termination thereof in accordance with
this Lease, Tenant, at Tenant's sole cost and expense, shall remove any back-up
electrical generator installed by Tenant at the expiration of the Term or the
sooner termination thereof in accordance with this Lease.
6. Fiber Optics Conduits. Tenant shall have the right, at its sole cost and
---------------------
expense, in connection with the making of the Tenant Improvements or at any time
thereafter during the Term, but only after Landlord's review and approval of
detailed plans and specifications therefor (which approval may be withheld by
Landlord, in its sole and absolute discretion), to install and maintain in the
Park conduits, at locations approved by Landlord, in its sole and absolute
discretion, pursuant to which fiber optic lines serving the Premises may be
connected to the Building. Tenant shall also, at all times during the Term and
at its sole cost and expense, maintain in good condition, repair and working
order, or cause to be maintained in good condition, repair and working order,
all such fiber optic lines serving the Premises. On the expiration date of the
Term or the sooner termination thereof in accordance with this Lease, Tenant
shall, upon request by Landlord and at Tenant's sole cost and expense,
disconnect and cap any such fiber optic lines (but shall not be obligated to
remove any such lines); provided, however, if Landlord shall not request that
such fiber optic lines be disconnected and/or kept as of the termination date of
the Term or the sooner termination thereof in accordance with this Lease, all
such fiber optic lines shall become the property of Landlord at such time and
Tenant shall have no further rights or obligations with respect to such fiber
optic lines.
7. Communications Equipment. Tenant shall have the right, at its sole cost
------------------------
and expense, in connection with the making of the Tenant Improvements or at any
later time during the Term, but only upon obtaining the prior written consent
thereto of Landlord (which consent may be withheld by Landlord, in its sole and
absolute discretion) after Landlord's review and approval of detailed plans and
specifications therefor (which approval may be withheld by Landlord, in its sole
and absolute discretion), to install such communications equipment in the
Premises as Tenant shall deem necessary in connection with its normal business
operations at the Premises. In connection with making its determination as to
whether to approve Tenant's request to install any such communications equipment
in the Premises, Landlord shall have the right, in its sole discretion, to take
into consideration such factors and issues as Landlord shall deem relevant,
including, without limitation, the soundness of the equipment, the safety of the
equipment and its installation, compliance by Tenant with all applicable laws,
rules and regulations, and the effect of the installation of any such equipment
upon any roof warranty. Any such communications equipment installed by Tenant
pursuant to the preceding provisions of this Section 7 shall be deemed to be
Alterations governed by the terms and conditions of this Lease. Notwithstanding
anything to the contrary set forth elsewhere in this Lease: (a) Landlord shall
have the right to disapprove the placement of any communications equipment on
the exterior of the Premises in a location that shall be
B-4
<PAGE>
visible from the ground level of the Park; and (b) Upon the written request of
Landlord made at any time at or prior to the expiration date of the Term or the
sooner termination thereof in accordance with this Lease, Tenant, at Tenant's
sole cost and expense, shall remove any such communication equipment installed
by Tenant at the expiration date of the Term or the sooner termination thereof
in accordance with this Lease.
8. Roof Rights. Tenant shall have the right, at its sole cost and expense, in
-----------
connection with the making of the Tenant Improvements or at any time thereafter
during the Term, but only upon obtaining the prior written consent thereto of
Landlord (which consent of Landlord shall not be unreasonably conditioned,
withheld or delayed) after Landlord's review and approval of detailed plans and
specifications therefor (which approval may be withheld by Landlord, in its sole
and absolute discretion), to install on the roof up to, but not more than, six
(6) condenser units at a location, of a size, and otherwise in a manner
satisfactory to Landlord. Tenant shall also have the right, from time to time,
to enter upon the roof, but only after notifying Landlord of the need therefor
and obtaining Landlord's prior consent thereto, to maintain and make necessary
repairs to such condenser units, all such maintenance and repairs to be made at
the sole cost and expense of Tenant. Notwithstanding anything to the contrary
set forth elsewhere in this Lease, (a) all such condenser units shall be placed
on the roof centerline, side-to-side, and front-to-back, so as not to be visible
from the ground level of the Park, and (b) Tenant shall employ, at Tenant's sole
cost and expense, a roofer designated by Landlord for any penetrations of the
roof of the Building required in connection with the installation of such
condenser units. Tenant hereby acknowledges and agrees that Landlord would not
have extended the rights set forth in this Section 8 to Tenant but for the
agreement on the part of Tenant to use a roofer designated by Landlord for any
penetrations of the roof of the Building required in connection with the
installation of such condenser units. Furthermore, Tenant acknowledges and
agrees that if that for any reason whatsoever Tenant shall utilize a roofer
other than one that is designated by Landlord for the making of any penetrations
of the roof of the Building in connection with the installation of any such
condenser units, then and in any such event, (i) Landlord shall have the right,
at its sole option, and at the sole cost and expense of Tenant, to remove and
repair any such penetrations of the roof of the Building made by Tenant, and
Tenant shall reimburse Landlord for the costs thereof within fifteen (15) days
after being billed therefor by Landlord, (ii) an Event of Default shall be
deemed to have occurred pursuant to the terms and conditions of this Lease, and
(iii) Tenant shall indemnify and hold Landlord harmless from and against any and
all costs, losses or liabilities that Landlord shall suffer or incur at any time
thereafter (including, without limitation, at any time after the Expiration Date
or the date of any sooner termination of the Term of this Lease) that, but for
the penetrations of the roof of the Building made by Tenant in contravention of
the terms and conditions of this Section 8, would have been covered by the terms
and conditions of any warranty or guaranty with respect to the roof of the
Building available to Landlord. Any such condenser units installed by Tenant
pursuant to the preceding provisions of this Section 8 shall be deemed to be
Alterations governed by the terms and conditions of the Lease. Notwithstanding
anything to the contrary set forth elsewhere in this Lease, upon the written
request of Landlord made at any time at or prior to the expiration date of the
Term or the sooner termination thereof in accordance with this Lease, Tenant, at
Tenant's sole cost and expense, shall remove any such condensers installed by
Tenant at the expiration date of the Term or the sooner termination thereof in
accordance with this Lease.
B-5
<PAGE>
EXHIBIT C
---------
RULES AND REGULATIONS
---------------------
The following rules and regulations have been formulated for the safety and
well-being of all the tenants and become effective upon occupancy. Strict
adherence to these rules and regulations is necessary so that each and every
tenant will enjoy safe and unannoyed occupancy. Any repeated or continuing
violation of these rules and regulations by Tenant after notice from Landlord,
shall be sufficient cause for termination of this Lease at the option of
Landlord.
Landlord may, upon request by any tenant, waive compliance by such tenant
of any of the rules and regulations set forth in this Exhibit C provided that:
---------
(i) no waiver shall be effective unless signed by Landlord or Landlord's
authorized agent; (ii) any such waiver shall not relieve such tenant from the
obligation to comply with such rule or regulation in the future unless expressly
consented to by Landlord; and (iii) no waiver granted to any tenant shall
relieve any other tenant from the obligation of complying with the foregoing
rules and regulations unless such other tenant has received a similar waiver in
writing from Landlord.
1. The sidewalks, entrances, passages, courts, vestibules, stairways, and
other parts of the Building not occupied by any tenant shall not be obstructed
or encumbered by any tenant or used for any purpose other than ingress and
egress to and from any tenant's premises. Landlord shall have the right to
control and operate the public portions of the Park, and the facilities
furnished for the common use of the tenants, in such manner as Landlord deems
best for the benefit of the tenants generally. No tenant shall permit the visit
to its premises of persons in such numbers or under such conditions as to
interfere with the use and enjoyment by other tenants of the entrances,
corridors, elevators, and other public portions or facilities of the Park.
2. No signs, awnings or other projections shall be attached to the
outside walls of any building without the prior written consent of Landlord. No
drapes, blinds, shades or screens shall be attached to or hung in, or used in
connection with, any window or door of the Premises, without the prior consent
of Landlord. Such signs, awnings, projections, curtains, blinds, screens and
other fixtures shall be of a quality, type, design and color approved by
Landlord and shall be attached in a manner approved by Landlord.
3. No show cases or other articles shall be put in front of or affixed to
any part of the exterior of the Building, nor placed in any interior Common Area
without the prior written consent of Landlord.
4. The water and wash closets and other plumbing fixtures shall not be
used for any purpose other than those for which they were constructed, and no
sweepings, rubbish, rags, or other substances shall be thrown therein. The cost
of repairing all damages resulting from any misuse of the fixtures by a tenant
or any of its agents, employees, contractors, servants, visitors or licensees
shall be paid by such tenant.
5. There shall be no marking, painting, drilling into or in anyway
defacing any part of the Premises or the Building. No boring, cutting or
stringing or wires shall be permitted. No tenant shall construct, maintain, use
or operate within its Premises or elsewhere within or on the outside of the
Building, any electrical device, wiring or apparatus in connection with a loud
speaker system or other sound system.
6. Tenant will fill out move-in/move-out sheets and will return such
sheets signed and dated within ten (10) days of moving in or out of the
Premises.
7. No animals, birds or pets of any kind shall be brought into or kept in
or about the Premises, and no cooking shall be done or permitted by any tenant
on its premises except for a tenant's employee's own use. No tenant shall cause
or permit any unusual or objectionable odors to be produced or permeate from its
premises.
C-1
<PAGE>
8. No tenant shall make, or permit to be made, any unseemly or disturbing
noises or disturb or interfere with occupants of this or any neighboring
building or premises or with any person having business with such occupants. No
tenant shall throw anything out of the doors or windows or down the corridors or
stairs.
9. Except as otherwise provided in this Lease, no inflammable,
combustible, or explosive fluid, chemical or radioactive substance shall be
brought or kept upon the Premises.
10. No additional locks or bolts of any kind shall be placed upon any of
the doors, or windows, by any tenant, nor shall any changes be made in existing
locks or the mechanism thereof without prior approval from Landlord. Each tenant
shall, upon termination of its tenancy, restore to Landlord all keys of stores,
offices, storage, and toilet rooms either furnished to, or otherwise procured
by, such tenant, and in the event of the loss of any keys so furnished such
tenant shall pay to Landlord the cost of replacement thereof.
11. All removals, or the carrying in or out of any safes, freight,
furniture or bulky matter of any description must take place during the hours
which Landlord or its authorized agent may determine from time to time.
Landlord reserves the right to inspect all freight to be brought into the
Premises and to exclude from the Premises all freight which violates any of
these rules and regulations or the Lease.
12. Any person employed by any tenant to do janitorial work within its
premises must obtain Landlord's consent and such person shall, while in the
Building and outside of the premises, comply with all instructions issued by the
superintendent of the Building. No tenant shall engage or pay any employees on
its premises, except those actually working for such tenant on its premises.
13. No tenant shall purchase spring water, ice, coffee, soft drinks,
towels, or other like service, from any company or persons whose repeated
violations of these rules and regulations have caused, in Landlord's opinion, a
hazard or nuisance to the Park and/or its occupants.
14. Landlord reserves the right to exclude from the Building at all times
any person who is not known or does not properly identify himself to the
Building management. Landlord may at its option require all persons admitted to
or leaving the Building between the hours of 6 p.m. and 8 a.m., Monday through
Friday, and at all times on Saturday, Sunday, and legal holidays, to register.
Each tenant shall be responsible for all persons for whom he authorizes entry
into or exit out of the Building and shall be liable to Landlord for all acts of
such persons.
15. The Premises shall not be used for lodging or sleeping or for any
immoral or illegal purpose.
16. No tenant shall occupy or permit any portion of its premises to be
used or occupied for the possession, storage, manufacture, or sale of liquor,
narcotics, tobacco in any form, or as a barber or manicure shop, or as an
employment bureau, unless said tenant's lease expressly grants permission to do
so. No tenant shall engage or pay any employees on its premises, except those
actually working for such tenant on said premises, nor advertise for laborers
giving an address at said premises.
17. Landlord's employees shall not perform any work for Tenant or do
anything outside of their regular duties, unless under special instruction from
the management of the Park.
18. Canvassing, soliciting, and peddling on the Premises is prohibited and
Tenant shall cooperate to prevent the same.
19. No plumbing or electrical fixtures shall be installed by any Tenant
without the prior written consent of Landlord.
C-2
<PAGE>
20. There shall not be used in any space, or in the public halls of the
Building, either by any tenant or by jobbers or others in the delivery or
receipt of merchandise, any hand trucks, except those equipped with rubber tires
and side guards.
21. Where carpet is installed over access plates to under-floor ducts,
Tenant will be required, at Tenant's expense, to provide access to said access
plates when necessary.
22. Mats, trash, or other objects shall not be placed in the public
corridors.
23. Tenant shall not overload the floors or exceed the maximum floor
weight limits of the Premises.
24. If Landlord designates a certain portion of parking area for employee
parking, Tenant covenants that it will require its employees to park in such
area to the extent of spaces available. Landlord shall not be responsible for
enforcing Tenant's parking rights against any third parties.
25. Tenant shall, to the greatest extent possible, to park commercial
vehicles, trucks and equipment at the rear of the Building and to prevent any
vehicles from blocking traffic lanes in front of the Building. Tenant shall not
have inoperative or non-registered vehicles stored in the parking lot for longer
than twenty-four (24) hours.
26. Tenant shall conduct any vehicle or machine repair, painting, or
similar work only inside the Premises.
27. Tenant shall not operate any machinery in the Premises which may cause
vibration or damage to the Premises; or use a loudspeaker which can be heard
outside the Premises, or to extend curb service to customers.
C-3
<PAGE>
EXHIBIT D
---------
[Bank Letterhead]
IRREVOCABLE LETTER OF CREDIT
----------------------------
(Date)
Our Letter of Credit No.________________________
To:
JBG/Spring Park Limited Partnership
c/o JBG Properties, Inc.
2751 Prosperity Avenue, Suite 150
Fairfax, Virginia 22031
Attention: Mr. Thomas E. Finan, Portfolio Manager
Dear Sir:
We hereby authorize you to draw on us for the account of Exodus
Communications, Inc., a California corporation, in the aggregate amount not
exceeding $125,000.00, available by your draft or drafts at sight accompanied
by:
1. The original of this letter of credit.
2. A written statement executed by JBG/Spring Park Limited Partnership
stating: "(a) Exodus Communications, Inc., a California corporation ("Tenant"),
is in default with respect to one or more of its obligations and agreements
pursuant to that certain Deed of Lease dated June __, 1997 between JBG/Spring
Park Limited Partnership ("Landlord"), as lessor, and Tenant, as lessee with
respect to certain premises in Herndon, Virginia in the building known as 470
Spring Park Place, and such default or defaults have continued after the giving
of all required notices by Landlord to Tenant and the expiration of all
applicable cure periods; and (b) Landlord is authorized to draw upon this letter
of credit."
All drafts must be drawn and negotiated not later than __________________,
199_ at our counters.
Each draft must state that it is "Drawn under Letter of Credit No.
_______________ [state name of bank] dated _____________________, 199_" and the
amount thereof must be endorsed on this letter of credit.
This credit is subject to the "Uniform Customs and Practice for Documentary
Credits, 1993 Revision, International Chamber of Commerce, Publication No. 500."
D-1
<PAGE>
We hereby engage with you that each draft drawn under and within the terms
and the amount of this credit, and accompanied by the documents specified
herein, will be duly honored upon presentation to the drawee.
Very truly yours,
[Insert Name of Bank]
By:_______________________________________________
Authorized Signature
D-2
<PAGE>
EXHIBIT 10.15
[LOGO OF WORLD COM]
WORLDCOM DATA SERVICES
(REVENUE PLAN)
This Application for Data Services (THE "AGREEMENT") is made by EXODUS
COMMUNICATIONS, INC., a California corporation with its principal office at 1605
WYATT DRIVE, SANTA CLARA, CALIFORNIA 95054, ("CUSTOMER"), and WORLDCOM, INC., a
Georgia corporation ("WORLDCOM"), for service described below.
1. SERVICES: Interexchange telecommunications service (THE "PRIVATE LINE
--------
SERVICE") and frame relay service (THE "FRAME RELAY SERVICE") ATM Service (THE
"WORLDCOM ATM SERVICE") international frame relay service (THE "INTERNATIONAL
FRAME RELAY SERVICE") and international private line services (THE
"INTERNATIONAL PRIVATE LINE SERVICE") shall be provided by WorldCom pursuant to
the applicable tariffs of WorldCom Network Services, Inc., a wholly owned
subsidiary of WorldCom, (THE "TARIFFS"). The Tariffs provide terms and
conditions of the Service which include, but are not limited to, taxes, credit
approval procedures, Customer credits, termination liability, and limitations
with respect to the assignment of the Service. The Tariffs may be modified from
time to time by WorldCom in accordance with law and thereby affect the Service
furnished to customer For purposes of this Agreement, Private Line Service,
Frame Relay Service, ATM Service, International Private Line and International
Frame Relay shall be collectively referred to as (the "Service").
2. TERMS AND CONDITIONS: The parties agree that the terms and conditions of
--------------------
this Agreement shall supplement, or to the extent they are inconsistent with the
Tariffs, supersede the terms and conditions of the Tariffs. For purposes of this
Agreement, any references to "Service" in the Tariffs shall also be deemed to
refer to the applicable WorldCom Service in the Tariffs.
3. MINIMUM MONTHLY COMMITMENT: Commencing as of the Commitment Commencing
--------------------------
Date set forth below and continuing through the Commitment Ending Date below,
Customer agrees to maintain each month:
(i) the aggregate base rate charges for Domestic Private Line Service(before the
application of discounts) and/or (ii) the aggregate base rate charges for
Domestic Frame Relay Services (before the application of discounts) and/or (iii)
the aggregate base rate charges for Domestic ATM Services (before the
application of discounts) (collectively the
"Aggregate Base Rate Charges") as follows:
MINIMUM MONTHLY COMMITMENT: $230,000.00
(Based on Customer's actual monthly Aggregate Base Rate Charges before the
application of discounts.)
4. REVENUE PLAN SERVICE TERM/COMMENCEMENT COMMITMENT:
-------------------------------------------------
CUSTOMER COMMITMENT PERIOD: SIXTY (60) MONTH(S)
COMMENCEMENT DATE: For the purposes of this Agreement, the "COMMENCEMENT
DATE" will be the next billing cycle following the date this Agreement has been
fully executed by both parties and Customer has received a satisfactory credit
review and approval from WorldCom's Credit Department, and all security
documentation, if any, required by WorldCom has been properly executed and
delivered to WorldCom (collectively, the "CREDIT REVIEW").
Commitment Commencement Date: is to be the same as the Commencement Date
above Commitment Ending Date: is to be sixty (60) months following the
Commitment Commencement Date above
5. APPLICATION OF DISCOUNTS: Commencing as of the Commencement Date set forth
------------------------
in Section 4 above and continuing through the Commitment Ending Date, WorldCom
agrees to aggregate:
(i) monthly recurring charges for Domestic Private Line Service (before the
application of discounts), and
(ii) monthly recurring Network Node charges for Domestic Frame Relay Service
(before the application of discounts) in determining Customer's corresponding
discount for Domestic Private Line, Domestic Frame Relay and Domestic ATM
Service.
TERMS AND CONDITIONS CONTAINED HEREIN WILL BE OFFERED FOR FIFTEEN (15) DAYS FROM
SEPTEMBER 17, 1997
MAIL TO: SALES CONTRACT ADMIN., WORLDCOM, INC., 515 EAST AMITA, SUITE 400,
JACKSON, MS 39201
PAGE 1 OF 5
<PAGE>
6. PROPRIETARY INFORMATION:
-----------------------
(a) Confidential Information: The parties understand and agree that the
------------------------
terms and conditions of this Agreement, all documents referenced and invoices to
Customer for Service provided hereunder, communications between the parties
regarding this Agreement (including price quotes to Customer for any Service
proposed to be provided or actually provided hereunder), as well as such non-
public information relevant to any other agreement between the parties
(collectively "CONFIDENTIAL INFORMATION"), are confidential as between Customer
and WorldCom.
(b) Limited Disclosure: A party shall not disclose Confidential Information
------------------
unless subject to discovery or disclosure pursuant to legal process, or to any
party other than the directors, officers, and employees of a party or a party's
agents including their respective brokers, lenders, insurance carriers or bona
fide prospective purchasers who have specifically agreed in writing to
nondisclosure of the terms and conditions hereof. Any disclosure hereof required
by legal process shall only be made after providing the non-disclosing party
with notice thereof in order to permit the non-discIosing party to seek an
appropriate protective order or exemption. Violation by a party or its agents of
the foregoing provisions shall entitle the non-disclosing party, at its option,
to obtain injunctive relief without a showing of irreparable harm or injury and
without bond.
(c) Press Releases: The parties further agree that any press release,
--------------
advertisement or publication generated by a party regarding this Agreement, will
be submitted to the non-publishing party for its written approval prior to
publication.
(d) Survival of Confidentiality: The provisions of this Section 6 will be
---------------------------
effective as of the date of this Agreement and remain in full force and effect
for a period which will be the longer of (i) one (1) year following the date of
this Agreement, or (ii) one (1) year from the termination of all Service
hereunder
7. LETTER OF AGENCY ("LOA"): The Undersigned [duly authorized representative
------------------------
of Customer] hereby authorizes WorldCom, if requested in writing by Customer, to
provision Customer's Local Access. This LOA supersedes all previous LOAs and
shall remain in effect until canceled by Customer in writing.
8. PRICING: (a) Rates for Domestic Private Line Service and Domestic Frame
-------
Relay Service are as set forth in the applicable WorldCom tariffs. Discounts for
both Domestic Private Line and Frame Relay Service are as described below.
(b) Rates and discounts for International Service shall be as set forth in
WorldCom's Service Orders (THE "SERVICE ORDERS").
(c) Rates for ATM Service shall be as set forth in WorldCom's Service
Orders (the "Service Orders"). Discounts for domestic ATM Service are as
described below.
A. WORLDCOM PRIVATE LINE - DS-0 PRICE SCHEDULE
-------------------------------------------
(BASED ON FIVE (5) YEARS/$230,000 PER MONTH)
Monthly Volume DS-0 Discount Schedule
-------------- ----------------------
$230,000 & OVER 23%
B. WORLDCOM PRIVATE LINE - FT-1 PRICE SCHEDULE
-------------------------------------------
(BASED ON FIVE (5) YEARS/$230,000 PER MONTH)
Monthly Volume FT-1 Discount Schedule
-------------- ----------------------
$230,000 -$349,999 32%
$350,000 -$499,999 33%
$500,000 -$749,999 34%
$750,000 -$1,000,000 35%
MULTI-CHANNEL DISCOUNTS
-----------------------
# Channels Discounts
---------- ---------
2-3 7.5%
4-7 15.0%
8-11 20.0%
12 & OVER 35.0%
C. WORLDCOM PRIVATE LINE - DS-1 PRICE SCHEDULE
-------------------------------------------
(BASED ON FIVE (5) YEARS/$230,000 PER MONTH)
TERMS AND CONDITIONS CONTAINED HEREIN WILL BE OFFERED FOR FIFTEEN (15) DAYS FROM
SEPTEMBER 17, 1997
MAIL TO: SALES CONTRACT ADMIN., WORLDCOM, INC., 515 EAST AMITE, SUITE 400,
JACKSON, MS 39201
PAGE 2 OF 5
<PAGE>
MONTHLY VOLUME DS-1 DISCOUNT SCHEDULE
-------------- ----------------------
$230,000- $349,999 51%
$350,000 - $499.999 52%
$500,000 -$749,999 53%
$750,000- $1,000,000 56%
D. WORLDCOM PRIVATE LINE - DS-3 PRICE SCHEDULE
-------------------------------------------
(BASED ON FIVE (5) YEARS/$230,000 PER MONTH)
Monthly Volume DS-3 Discount*
-------------- -------------
$230,000 - $349,999 38%
$350,000 -$499,999 39%
$500,000 -$749,999 41%
$750,000 & over 42%
* Discounts are applicable to Tier A city pairs only. LEC charges are
additional and are not discountable. No further discounts may be applied.
With the following exception:
Below is a listing of Customer's existing circuits ("Existing Circuits").
Existing Circuits shall remain unchanged.
Discounts above do not apply to Existing Circuits.
<TABLE>
<CAPTION>
- ----------------------------------------------------------
Discounted
Location A Location Z Circuit ID WorldCom
Monthly IXC
- ----------------------------------------------------------
<S> <C> <C> <C>
San Francisco El Segundo WZ563648 $15,290.44
Santa Clara Seattle WZ563540 $36,423.14
Seattle Riverdale WZ563643 $43,747.20
Riverdale Jersey City WZ563635 $24,001.44
Jersey City Vienna WZ563565 $13,168.80
- ----------------------------------------------------------
</TABLE>
E. WORLDCOM DOMESTIC FRAME RELAY DISCOUNT SCHEDULE
-----------------------------------------------
(BASED ON FIVE (5)-YEAR, /$230,000 PER MONTH)
Monthly Volume Discount
-------------- --------
$230,000 -$349,999 34%
$350,000 - $499,999 35%
$500,000 -$749,999 36%
$750,000 -$1,000,000 37%
TERMS AND CONDITIONS CONTAINED HEREIN WILL BE OFFERED FOR FIFTEEN (15) DAYS FROM
SEPTEMBER 17, 1997
MAIL TO: SALES CONTRACT ADMIN., WORLDCOM, INC., 515 EAST AMITE, SUITE 400,
JACKSON, MS 39201
PAGE 3 OF 5
<PAGE>
F. WORLDCOM DOMESTIC ATM DISCOUNT SCHEDULE
---------------------------------------
(BASED ON FIVE (5)-YEAR, /$230,000 PER MONTH)
Monthly Volume Discount
-------------- --------
$230,000- $349,999 34%
$350,000 - $499,999 35%
$500,000 - $749,999 36%
$750,000- $1.000,000 37%
G. WORLDCOM INTERNATIONAL PRIVATE LINE DISCOUNT SCHEDULE
-----------------------------------------------------
(BASED ON FIVE (5)-YEAR)
Monthly Volume Discount
-------------- --------
$0-$9,999 10%
$10,000 -$24,999 15%
$25,000- $49,999 17%
$50,000 -$99,999 19%
$100,000 & OVER 21%
H. WORLDCOM INTERNATIONAL FRAME RELAY DISCOUNT SCHEDULE
----------------------------------------------------
(BASED ON FIVE (5)-YEAR)
Monthly Volume Discount
-------------- --------
$0-$24,999 14%
$25,000 - $74,999 19%
$75,000 -$124,999 22%
$125,000 -$199,999 25%
10. WAIVER OF PRIVATE LINE INSTALLATION CHARGES: Commencing with the
-------------------------------------------
Commencement Date and continuing through the Commitment Ending Date, WorldCom
agrees to waive WorldCom installation charges and LEC installation charges
(collectively "Installation Waiver") in an amount not to exceed four (4)) times
the Monthly Recurring IXC charges for Private Line Service ordered following the
Commencement Date (the "New Service"). In the event Customer cancels a New
Service on a date prior to twelve (12) months following the Start of Service
Date for such New Service, WorldCom will have the right to charge Customer an
amount equal to the Installation Waivers for such New Service.
11. WAIVER OF FRAME RELAY INSTALLATION CHARGES: Commencing with the
------------------------------------------
Commencement Date and continuing through the Commitment Ending Date, WorldCom
agrees to waive WorldCom installation charges and LEC installation charges
(collectively "Installation Waivers") in an amount not to exceed four (4) times
the Monthly Recurring Network Node and PVC charges for Frame Relay Service
ordered following the Commencement Date (the "New Service"). In the event
Customer cancels a New Service on a date prior to twelve (12) months following
the Start of Service Date for such New Service, WorldCom will have the right to
charge Customer an amount equal to the Installation Waivers for such New
Service.
TERMS AND CONDITIONS CONTAINED HEREIN WILL BE OFFERED FOR FIFTEEN (15) DAYS FROM
SEPTEMBER 17, 1997
MAIL TO: SALES CONTRACT ADMIN., WORLDCOM, INC., 515 EAST AMITE, SUITE 400,
JACKSON, MS 39201
PAGE 4 OF 5
<PAGE>
ENTIRE AGREEMENT: This Agreement (including any documents incorporated herein by
- ----------------
reference) constitutes the entire understanding between the parties and
supersedes any prior agreements and proposals between the parties whether oral
or written, for Service provided hereunder.
WORLDCOM, INC. EXODUS COMMUNICATIONS, INC.
/s/ B. V. Jagadeesh
__________________________ ---------------------------------
(Authorized Signature) (Authorized Signature)
FRANK M. GRILLO B. V. Jagadeesh
- -------------------------- ---------------------------------
(Print Name) (Print Name)
9/18/97
__________________________ ---------------------------------
(Date Received) (Date Signed)
TERMS AND CONDITIONS CONTAINED HEREIN WILL BE OFFERED FOR FIFTEEN (15) DAYS FROM
SEPTEMBER 17, 1997
MAIL TO: SALES CONTRACT ADMIN., WORLDCOM, INC., 515 EAST AMITE, SUITE 400,
JACKSON, MS 39201
PAGE 5 0F 5
<PAGE>
EXHIBIT 10.16
SOFTWARE LICENSE AND MARKETING AGREEMENT
This Agreement is entered into as of April ___, 1997 (the "Effective Date") by
and between Computer Associates International, Inc., a Delaware corporation
having a place of business at One Computer Associates Plaza, Islandia, NY 11788-
7000 ("CA") and Exodus Communications, Inc. a California corporation having a
place of business at 1605 Wyatt Drive, Santa Clara, CA 95054 ("Exodus").
WHEREAS, CA and Exodus agree to provide for the cooperative marketing, services
and support of certain CA computer software programs;
WHEREAS, CA and Exodus agree to provide cooperative marketing services for
Exodus' Internet-based Co-location Services; and
NOW, THEREFORE, the parties agree as follows:
1. DEFINITIONS
The following capitalized terms shall have the meaning set forth below for
purposes of this Agreement:
"CA" means Computer Associates International, Inc. and any corporation which is
now or hereafter owned or controlled, directly or indirectly, by Computer
Associates International, Inc.
"CA Product" means CA Unicenter(R) TNG(TM), all generally available versions,
current as well as future, on all generally available platforms and with all
generally available options, with associated technical manuals and end-user
documentation documentation (current products as of the date of this Agreement
are listed Appendix A to this Agreement) and Unicenter TNG Software Development
Kit ("SDK"). CA shall provide foreign language versions of the CA Product on an
as needed basis solely determined within CA's discretion. CA will provide beta
versions of the CA Product on an as needed basis, solely determined within CA's
discretion pursuant to CA's standard license agreement and Beta Addendum,
attached as Appendix B to this Agreement.
"Cheyenne Products" means Cheyenne's ARCserve(R) and InocuLAN(R) products, all
generally available versions, current as well as future, on all generally
available platforms and with all generally available options, with associated
technical manuals and end-user documentation. CA shall provide foreign language
versions of the Cheyenne Products on an as needed basis solely determined within
CA's discretion. CA will provide beta versions of the Cheyenne Products on an as
needed basis, solely determined within CA's discretion pursuant to CA's standard
license agreement and Beta Addendum, attached as Appendix B to this Agreement.
"Gross revenues" means all actual monies received from Exodus clients and
resellers, less rebates, and discounts.
"Internet-based Co-location Services" means Exodus's Network Management, Data
Traffic Management, Enterprise-class Security, Telco Line Management, and System
Management as described in Appendix C.
<PAGE>
Such definitions will be updated from time to time.
2. APPOINTMENT
2.1 CA appoints Exodus as a non-exclusive, worldwide marketing representative
to promote the CA Product and the Cheyenne Products to prospective clients with
rights in accordance with the terms and conditions of this Agreement.
2.2 Exodus appoints CA as a non-exclusive, worldwide marketing representative
to promote Internet-based Co-Location Services to prospective clients with
rights in accordance with the terms and conditions of this Agreement.
3. GRANT OF LICENSES AND MARKETING RIGHTS
3.1 CA hereby grants to Exodus and Exodus accepts the following non-exclusive,
nontransferable, limited-use, worldwide rights and licenses:
(i) to use, and to copy solely for such use, the CA Product solely
on the designated CPUs at the Exodus Internet Data Sites ("Exodus
Sites") identified in the standard CA Order Form attached as Appendix
D and only for the internal operations of Exodus and processing its
own and such client data necessary to manage client's servers at such
Exodus Sites identified in Appendix E. CA will provide authorization
keys upon receipt of such order form supplying written notification of
the location, make, model, serial number, and other required
information for CA to issue the authorization key.
(ii) to use, copy and distribute CA marketing collateral relating to
the CA Product, including product brochures and presentations for
client demonstration purposes.
(iii) to use and to copy solely for such use, the Cheyenne Products
solely on the designated CPUs at the Exodus Sites identified in the
standard CA Order Form attached as Appendix D and only for the
internal operations of Exodus and processing its own and such client
data necessary to manage client servers at such Exodus Sites
identified in Appendix E. CA will provide authorization keys upon
receipt of such order form supplying written notification of the
location, make, model, serial number, and other required information
for CA to issue the authorization key.
(iv) to use in accordance with this Agreement associated end user
documentation for the CA Product and Cheyenne Products.
(v) to use in accordance with this Agreement and Appendix F, CA
trademarks, tradenames, service marks and logos relating to the CA
Product and Cheyenne Products ("CA Marks") in connection with the
joint marketing efforts as listed in Appendix G. If Exodus uses any CA
Marks, ownership of such CA Marks shall be attributed to the CA.
3.2 Without prior written consent of CA, Exodus shall not:
<PAGE>
(a) except as provided in this Agreement, make copies or permit others to
make copies of or reproduce any part of the CA Product or Cheyenne
Product.
(b) modify, reverse compile, reverse engineer or reverse assemble all or
any portion of the CA Product or Cheyenne Products.
(c) distribute, market, rent, lease, transfer or sublicense the CA Product
or Cheyenne Products to third parties for the benefit of third parties
except as provided in this Agreement.
(d) unless such client has procured a license from CA or an authorized CA
reseller for such product(s), provide its clients access to or permit its
clients to access the CA Product installation materials or management
stations or the Cheyenne Products code.
(e) make the results of any benchmarking or competitive analysis relating
to the CA Product or Cheyenne Products known to the public, any potential
customer or any existing customer.
3.3 Exodus agrees to keep and maintain installation records and usage records
(including SMF records) relating to the CA Product and Cheyenne Products and to
furnish CA copies of such records and access to its facilities as CA may
reasonably request from time to time in order to verify compliance with the
provisions hereof.
3.4 All CA Marks remain the exclusive property of CA. Exodus will not register
the CA Marks or take any action that jeopardizes CA's proprietary rights in the
CA Marks. Exodus agrees to follow CA's instructions and adhere to CA's quality
control procedures relating to the CA's Marks and only use the CA's Marks in
unaltered form. CA reserves the right to require Exodus to submit advertising
and marketing material referencing CA, CA Marks, the CA Product, or the Cheyenne
Products to CA for advance review and approval and upon request to discontinue
any advertising or marketing material relating to CA, CA Marks, CA Product, or
Cheyenne Products.
3.5 Exodus hereby grants to CA the following nonexclusive, filly paid-up,
worldwide rights and licenses:
(i) to use, copy and distribute Exodus marketing collateral
relating to its Internet-based Co-location Services, including product
brochures and presentations; and
(ii) to use in accordance with this Agreement and Appendix F the
Exodus trademarks, tradenames, service marks and logos relating to its
Internet-based Co-location Services ("Exodus Marks") in connection
with marketing efforts as listed in Appendix G. CA shall be under no
obligation to use such Exodus Marks. If CA uses any Exodus Marks,
ownership of such Marks shall be attributed to Exodus.
3.6 All Exodus Marks remain the exclusive property of Exodus. CA will not
register the Marks or take any action that jeopardizes Exodus's proprietary
rights in the Exodus Marks. CA agrees to follow Exodus' instructions and adhere
to Exodus' quality control procedures relating to
<PAGE>
the Exodus Marks and shall only use the Exodus Marks in unaltered form. Exodus
reserves the right to require CA to submit advertising and marketing material
referencing Exodus, Exodus' Marks, or Exodus' Internet-based Co-location
Services to Exodus for advance review and approval and to discontinue any
advertising and marketing material relating to Exodus, Exodus' Marks or the
Internet-based Co-location Services upon request.
3.7 Exodus agrees not to export or disclose, directly or indirectly, the CA
Product, Cheyenne Products or end-user documentation and related technical
manuals without the prior written consent, if required, of the US Department of
Commerce, Washington, D.C. 20230.
3.8 During the term of this Agreement, the parties agree to cooperate in the
joint marketing activities described in Appendix G. Except as otherwise set
forth in Appendix G, each party shall be responsible for its own costs and
expenses in connection with such agreed marketing activities. Exodus understands
and agrees that CA is not guaranteeing any volume of business or referrals to
Exodus as a result of this Agreement. Except for the specific marketing
activities in this Agreement, CA retains full freedom and flexibility to
determine the nature and extent of its marketing efforts regarding CA Product in
CA's own business judgment and discretion.
3.9 This Agreement does not authorize Exodus to distribute or sublicense the
CA Product or Cheyenne Products. CA shall remain responsible for the licensing
and support of its own proprietary software, and Exodus shall have only the
rights and obligations with respect to CA's products as described in this
Agreement. Exodus is not authorized to quote prices for such software. Any
quotations, licenses, contracts or other agreements relating to the licensing or
support of such software shall be in the sole discretion of the CA.
3.10 The parties may supplement the Appendixes to this Agreement from time to
time, which shall in each instance be incorporated as an Amendment to this
Agreement at the time it is signed by an authorized representative of CA and
Exodus.
4. EXODUS' RESPONSIBILITIES
4.1 Under a separate agreement with terms to be mutually agreed upon by the
parties, Exodus will co-locate CA's hosting servers at sites to be later
determined by the parties. For the first 35 hosting servers co-located with
Exodus, Exodus agrees to charge CA a co-location price that is the lower of
thirty-eight percent (38%) of Exodus' current prices, the most favorable charge
Exodus has provided to any other of its commercial or government customers or
cost for similar services. For the co-location of hosting servers above 35 and
below 200, Exodus agrees to charge CA a price that is the lower of thirty-three
percent (33%) of Exodus' current prices, the most favorable charge provided to
any other of its commercial and government customers or cost for similar
services. For the co-location of servers above 200, Exodus agrees to charge CA a
price that is the lower of thirty-five (35%) of Exodus' current prices, the most
favorable charge provided to any other of its commercial and government
customers or cost for similar services. Upon request, CA shall have the right to
request supporting documentation of Exodus' costs and most favorable charge and
if such cost and most favorable charge is not reasonably verified by such
documentation, CA shall have the right to examine Exodus' records and verify
such cost and most favorable charge in accordance with Section 7.4.
4.2 Exodus shall use reasonable efforts to perform the joint marketing
activities set forth in Appendix B.
<PAGE>
4.3 Exodus shall provide CA access to its Exodus Sites listed in Appendix E
for client visits and demonstration of the CA Product. Thirty-three percent
(33%) of Exodus's conference room space at each Exodus Sites will be available
for CA's use on a commercially reasonable basis. An Exodus employee will be
available at all such times to answer questions relating to the Exodus Sites.
4.4 (a) During the term of this Agreement, Exodus agrees that it shall not
utilize with its clients computer software programs substantially similar in
functionality to or identical in functionality to the CA Product or Cheyenne
Products, including selling such substantially similar or identical software
into CA's confidential client base. Such programs substantially similar in
functionality to or identical to the CA Product or Cheyenne Products shall
include, but shall not be limited to, IBM's system management software,
including Tivoli, HP OpenView, Remedy, Cabletron Spectrum and SunNet Manager,
and for back-up and antivirus software products generally available from
Seagate, Legato, McAfee, Stac, Software Mogul, and Symantec (and such successor
software versions or updates). Exodus and CA agree to discuss each software
program, tool or agent used, employed or proposed to be used by Exodus at its
Exodus Sites which is substantially similar in functionality to or identical in
functionality to the CA Product or Cheyenne Products. The parties will work
together to ascertain whether the proposed product is substantially similar in
functionality to or identical in functionality to the CA Product or the Cheyenne
Products and can reasonably satisfy Exodus requirements as to functionality and
compatibility (hereinafter referred to as "substantially similar
functionality"). CA agrees to consider any suggested changes to improve, expand
or augment the functionality of the CA Product or Cheyenne Products as a result
of this functionality assessment.
In accordance with the following Exodus agrees:
(i) to convert within ninety (90) days, from the provision of the
engineer by CA to each Exodus Site, from HP OpenView and Remedy to
Unicenter-TNG .
(ii) to convert within ninety (90) days of the final determination that
Exodus' proposed product is substantially similar to or identical in
functionality to the CA Product or Cheyenne Products for competing
products to generally available CA Product or Cheyenne Products. At
the end of such ninety (90) days, if Exodus has employed its best
efforts to convert to such CA Product or Cheyenne Products and has
been unable to complete such conversion, CA, in its sole discretion,
shall extend the conversion time period by thirty (30) days.
(iii) to become a CA beta test site for beta CA Product or Cheyenne
Products, and to convert from any competing product that has been
determined during the beta test period to be substantially similar
to or identical in functionality to the CA Product or Cheyenne
Products within ninety (90) days of such CA Product or Cheyenne
Products becoming generally available.
This clause shall not prohibit Exodus from licensing computer software programs
which the parties mutually decide under this provision are not substantially
similar or are not identical in functionality to the CA Product or Cheyenne
Products.
(b) During the term of this Agreement, Exodus agrees that it shall not
market or provide Intranet or web-based design and development services similar
to the services marketed or sold by CA to into CA's confidential client base.
<PAGE>
4.5 Exodus will provide CA with sales leads and support for appropriate mutual
opportunities. Exodus may provide CA with pro-sales support as deemed
appropriate in accordance with Exodus's reasonable business judgment and
discretion.
4.6 Exodus represents to CA that it and its clients are parties to a bona fide
Co-location Agreement, pursuant to the terms and conditions of Exodus' standard
agreements, under which Exodus has undertaken or will undertake the management
of client's server on behalf of client. Exodus shall ensure that no client shall
be granted access to the management stations or installation materials of the CA
Product or Cheyenne Products code installed on their machines unless such client
has procured a license from CA or an authorized CA reseller for such product(s).
5. CA RESPONSIBILITIES
5.1 CA will use reasonable efforts to perform the joint marketing activities
set forth in Appendix G.
5.2 CA will provide Exodus with one full-time implementation engineer for each
Exodus Site listed in Appendix E within forty-five (45) days of such location
becoming operational under the terms and conditions of this Agreement. Such
personnel shall be managed by CA and shall work with Exodus personnel on the
implementation of the integration of the CA-Product and Cheyenne Products with
Exodus' Internet-based Co-location Services described in Appendix A. Upon mutual
agreement, these engineers will be redeployed to other Exodus locations. For
those sites which are operational at the time of execution of this Agreement by
both parties, CA will provide Exodus with such engineers within thirty (30) days
of such execution.
5.3 CA will provide Exodus with training as reasonably necessary on the CA
Product and Cheyenne Products at times and places mutually acceptable to both
parties at no charge.
5.4 CA will provide Exodus with sales leads support for appropriate mutual
opportunities. CA may provide Exodus with pre-sales support as deemed
appropriate in accordance with CA's reasonable business judgment and discretion.
5.5 Under a separate Agreement with terms to be mutually agreed upon by both
parties, CA agrees to co-locate and have Exodus host all of its current and
proposed web servers at Exodus' Internet Data Site, provided that CA's client
base agrees to such co-location. Notwithstanding the foregoing, CA shall not be
obligated to co-locate and host such servers with Exodus if CA's contractually
negotiated professional services price is less than Exodus' charge for such
services.
5.6 If feasible, CA will offer excess real estate to Exodus to be used as
Exodus Sites at CA's cost and under a separate agreement to be negotiated by the
parties.
5.7 During the term of this Agreement, CA agrees not to market co-location
services into Exodus' confidential customer base.
6. CONFIDENTIAL AND PROPRIETARY INFORMATION
<PAGE>
6.1 Each party acknowledges that during the term of this Agreement, the other
party may disclose confidential and proprietary business or technical
information and agrees that it will not use such confidential and proprietary
business or technical information except as provided in this Agreement. As used
in this Agreement, Confidential and Proprietary Information means any
proprietary computer software programs, marketing collateral, technical manuals,
client list, or documentation or other information that is designated by either
party to be confidential (hereinafter referred to as "Confidential
Information"). The party who receives such Confidential Information pursuant to
this Agreement is referred to as the "Receiving Party" and the party making such
information available is referred to as the "Supplying Party."
For the purposes of this Agreement, Confidential Information shall not
include such information that: (i) is or becomes publicly available through no
fault of the Receiving Party; (ii) is made publicly available by the Supplying
Party; (iii) becomes known by the Receiving party through lawful disclosure from
a third party that is not subject to a confidentiality duty to the Supplying
Party; (iv) is required to be disclosed by law, provided notice is given to the
Supplying Party of such requirement as soon as practicable and reasonable
assistance is rendered to the Supplying Party, if requested, to prevent such
disclosure; (v) was known by the Receiving Party prior to disclosure without an
obligation of confidentiality; or (vi) was developed by the Receiving Party
independent of any reference to the Confidential Information and independent of
the participation of any person who had access to the Confidential Information.
Each Receiving Party agrees that in absence of prior written consent by
the Supplying Party, it shall not, directly or indirectly, disclose to a third
party, the existence or contents of the Confidential Information, whether
disclosed either orally, in writing or by any other means. Each Receiving Party
warrants and agrees to use its best efforts to prevent the disclosure of the
Confidential Information by its employees by taking at least such steps to
protect such Confidential Information as it takes to protect its own
Confidential Information.
The obligations imposed on each Receiving Party under this Agreement shall
expire on the earlier of: (a) the date upon which the Supplying Party consents
in writing to The disclosure of its Confidential Information by the Receiving
Party; or (b) the date upon which the disclosing party formally announces,
releases, or otherwise discloses its Confidential Information to the public or
otherwise without an accompanying written undertaking by the Receiving Party to
protect the Confidential Information from unauthorized disclosure.
7. ROYALTIES
7.1 During the term and in consideration of the obligations undertaken by CA
under this Agreement, Exodus will pay CA one percent (1%) of its gross revenues
("Royalties").
7.2 Within forty-five (45) days of the end of each calendar quarter (March 31,
June 30, September 30, and December 31), Exodus agrees to provide CA with a
complete reporting statement reflecting accurate records its gross revenues and
Royalties owed for the preceding quarter. Such statement shall include any
commercially reasonable information, including but not limited to all Internet-
based Co-Location Services fees invoiced and collected, and all applicable
discounts and rebates during the relevant quarter to address listed above Attn:
Sales Accounting.
7.3 Exodus shall include payment of Royalties to CA for such sales with its
quarterly report. In the event the client makes payment for the services or
products in installments, CA, on a
<PAGE>
quarterly basis, shall receive its pro-rata Royalty included in the gross
revenues as each installment payment is received or such services are performed
by Exodus.
7.4 Exodus shall maintain for a period of three (3) years after the date of
payment complete and accurate records of business activities relating to the
payment of Royalties under this Agreement, and the calculation of Royalties
which shall include, at a minimum, client name, address, total amount of
contract, services fees billed, services fees collected, license fees, and
services performed, rebates, discounts together with a copy of applicable
contracts, and invoices. During this three-year period, CA or its designated
representative shall have the right, upon reasonable prior notice, to examine
and audit during normal business hours Exodus's records solely to determine the
Royalties owed to CA. CA's right to examine and audit Exodus' records shall be
exercised by CA only one time during any twelve month period, except in the
event where such audit reveals any discrepancy, exceeding 5%, in the amount of
Royalties paid to CA' CA shall have the right under the terms of this section to
audit Exodus until such discrepancy is resolved or cured. CA shall bear the
expenses of such audit; however, in the event any such audit reveals that Exodus
has understated the amount of Royalties that it is obligated to pay under this
Agreement by more than 5% of the amount paid during the applicable period,
Exodus shall pay, in addition to other fees contractually due, all reasonable
costs associated with the audit.
8. SUPPORT AND UPDATES
8.1 CA shall be responsible for all support and maintenance activities
relating to the CA Products and Cheyenne Products, unless otherwise agreed by
the parties in writing. CA shall provide to Exodus all upgrades and Level 1 and
Level 2 support, as described in CA's then current Client Support policies, free
of charge.
9. TITLE
9.1 Exodus shall retain all title, trademarks, and other proprietary rights
for or relating to the Exodus Marks. All rights not expressly granted herein are
reserved by Exodus.
9.2 CA shall retain all title, copyright, patent, trademark, trade secret or
other proprietary rights in or relating to the CA Product or Cheyenne Products
and related CA Marks. All rights not expressly granted herein are reserved by
CA. In the event that Exodus makes any changes, translations, or modifications
to the CA Product or Cheyenne Products such changes, translations, improvements,
or modifications shall be the property of CA.
10. REPRESENTATIONS AND WARRANTIES
10.1 Exodus and CA represent and warrant that each has the right to grant the
licenses and rights granted in this Agreement.
10.2 CA represents and warrants that it has general liability insurance and
worker's compensation insurance covering its employees at Exodus Sites and that
such employees shall adhere to Exodus rules and regulations at Exodus Sites, as
well as all applicable local laws and regulations, provided that Exodus provides
its rules and regulations in writing to such employees and to CA.
11. INDEMNITY
<PAGE>
11.1 (a) Exodus shall fully indemnify CA against any and all losses, costs,
expenses and liability in connection with, and defend CA against any
claims (i) that the provision of its Internet based Co-location Services
infringes any copyrights, patents, trademarks, trade secrets or other
intellectual property rights of third parties; or (ii) which result from a
breach of the warranties of Exodus set forth above in Sections 10.1;
provided that Exodus is given written notice of such claim and its details
by CA, and any claim of infringement is not caused by or contributed to by
acts of CA other than in accordance with this Agreement;
(b) Exodus shall, with CA's prior written consent, have the opportunity to
conduct and control solely the claim's settlement or compromise; and
(c) CA shall give Exodus all reasonable assistance in connection therewith
at Exodus's expense.
11.2 (a) CA shall fully indemnify Exodus against any and all losses, costs,
expenses and liability m connection with, and defend Exodus against any
claims (i) that the CA Product and Cheyenne Products infringe any
copyrights, patents, trademarks, trade secrets or other intellectual
property rights of third parties; or (ii) which result from a breach of
the warranties of CA set forth above in Section 10.1-10.2; provided that
CA is given written notice of such claim and its details by Exodus, and
any claim of infringement is not caused by or contributed to by acts of
Exodus other than in accordance with this Agreement;
(b) CA shall, with Exodus's prior written consent, have the opportunity to
conduct and control solely the claim's settlement or compromise; and
(c) Exodus shall give CA all reasonable assistance in connection therewith
at CA's expense.
12. TERM AND TERMINATION
12.1 This Agreement shall commence upon its Effective Date and shall continue
for a period two years and shall thereafter automatically renew for
additional one-year periods unless either party notifies the other of its
intention to terminate the Agreement at least sixty (60) days prior to the
termination date. Notwithstanding the foregoing, this Agreement may be
terminated as follows:
(a) By either party at any time upon sixty (60) days written notice;
(b) By either party if the other party commits any material breach of its
obligations hereunder and fails within sixty (60) days of written notice
to cure the same. Any such termination shall be without prejudice to any
other rights which may have accrued to it hereunder;
(c) By either party immediately by written notice if the other party files
a petition in bankruptcy, goes into liquidation, admits that it is
insolvent, makes an assignment for the
<PAGE>
benefit of creditors, or has a petition in bankruptcy or receivership
filed against it and such petition is not dismissed with within sixty (60)
days following filing; or
(d) By CA, immediately in the event of a change of control of the majority
ownership or interest or transfer to a successor corporation of the
ownership interest of Exodus, however in its sole discretion CA may choose
not automatically exercise such termination in every change of control
situation. This provision may not be invoked by CA if Exodus solely
reincorporates under the laws of Delaware.
12.2 In the event of termination of this Agreement, Exodus shall certify in
writing to CA that all copies or partial copies of the CA Product or Cheyenne
Products have been either returned to CA or otherwise destroyed and deleted from
any computer libraries or storage devices and are no longer in use by Exodus,
unless Exodus continues to license such products from CA. In such event CA shall
grant Exodus a 40% discount from CA's then prevailing Price Book or published
license fees for the CA Product and the Cheyenne Products, exclusive of usage
and maintenance, over a five year period. Continued maintenance of the CA
Product and Cheyenne Products shall be subject to CA's then prevailing annual
maintenance fee. CA shall reduce such license fee by the amount of Royalties
paid by Exodus to CA, pursuant to Section 7, for the twelve-month period
preceding the execution of such license agreement.
12.3 In addition to this Section 12, the obligations set forth in Sections 6,
7.3, 9, 10, 11, 13 and 14 shall survive termination of this Agreement and shall
bind the parties and the legal representatives, successors, heirs and assigns.
13. LIMITATION OF LIABILITY
13.1 Except as set forth above in the INDEMNITY and CONFIDENTIAL AND
PROPRIETARY INFORMATION Sections of this Agreement, IN NO EVENT SHALL EITHER
PARTY BE LIABLE TO THE OTHER PARTY OR ANY OTHER PARTY, WHETHER IN CONTRACT OR
TORT, FOR ANY LOSS INCLUDING TIME, MONEY, GOODWILL, LOST PROFITS, INDIRECT OR
CONSEQUENTIAL DAMAGES FROM THE USE OF THE CA PRODUCT, CHEYENNE PRODUCTS, CA
MARKS, EXODUS MARKS OR OTHERWISE UNDER THIS AGREEMENT.
14. GENERAL
14.1 All notices, consents and other communications required or permitted under
this Agreement shall be in writing and sent by registered or certified mail,
postage pre-paid, to the addresses indicated on the first page of this
Agreement, or such other address as either party may indicate by at least 10
days prior notice to the other party.
14.2 Both parties agree that the personnel of one party shall not for any
purposes be considered employees or agents of the other party and that the
parties shall be deemed independent contractors. Nothing in this Agreement shall
be construed to constitute either party as an agent, partner or legal
representative of the other party. Each party will be solely responsible for the
payment of any compensation and expenses owed to their respective employees, as
well as the payment of employment-related taxes and workers' compensation
insurance.
14.3 The parties agree to keep the terms and conditions of this Agreement in
confidence.
<PAGE>
14.4 The captions used in this Agreement are for convenience only and are not
intended to have any legal effect.
14.5 Except in connection with a re-incorporation by Exodus into a Delaware
corporation with no change in its majority ownership, interest or a transfer to
a successor corporation of the ownership interest, Exodus may not assign this
Agreement and the rights and obligations provided herein, without the written
consent of CA. CA, however, may assign this Agreement or the obligations
contained herein to any third party, provided that such third party assumes the
obligations of CA under this Agreement.
14.6 If any provision of this Agreement is held by a court of competent
jurisdiction to be illegal, invalid, or unenforceable, the validity or
enforceability of the remainder of this Agreement shall not be affected.
14.7 This Agreement shall be governed by and construed in accordance with the
laws of the State of New York, excluding its conflict of laws principles.
14.8 This Agreement represents the entire agreement between the parties with
respect to the subject matter contained herein and supersedes any and all
communications, representations and arrangements whether written or oral. No
alteration, modification, waiver or addition to this Agreement shall be valid
unless made in writing and signed by both parties' duly authorized
representatives. In the event of any conflict between the terms of this
Agreement and any Appendix, the terms of this Agreement shall prevail.
14.9 In the event either party is delayed or prevented from performing this
Agreement due to any cause beyond its reasonable control, including but not
limited to, strike, labor or civil unrest or dispute, embargo, blockage, work
stoppage, delay, protest, acts of God, such delay shall be excused during the
continuance of such delay, and the period of performance shall be extended to
such extent as may be reasonable to perform after the cause of delay has been
removed.
COMPUTER ASSOCIATES EXODUS
INTERNATIONAL
By: /s/ Marc Sokol By: /s/ Barry James Folsom
--------------------------- -----------------------------
Name: Marc Sokol Name: Barry James Folsom
------------------------- ---------------------------
Title: SVP Title: SR VP Sales & Marketing
------------------------ --------------------------
<PAGE>
APPENDIX A
Advanced Help Desk
Advanced AntiVirus Opt
Advanced DocServer
Advanced Storage
Automation Point
DASD Manager
Directory Management
MS-SQL Server Agent
Netware Agent
OpenIngres Agent
Oracle Agent
Single Sign On
SNA Manager
Software Delivery
Sybase Agent
Unix Agent
Win 3.1 Agent
WIN 95 Agent
WIN NT Agent
<PAGE>
APPENDIX B
(CA Standard License Agreement and Beta Addendum)
<PAGE>
LIMITED WARRANTY
CA warrants that it can grant the license described in this Agreement and the
Order Form(s) and CA will defend or, at its option, settle any action at law
against Licensee based upon a claim that Licensee's use of the Licensed Program
in accordance with this Agreement infringes any patent, copyright or other
intellectual property right of any third party. CA also represents that the
Licensed Program will operate according to the specifications published by CA
for the Licensed Program. If it is determined that the Licensed Program does not
operate according to such Specifications, CA's only responsibility will be to
use its best efforts, consistent with industry standards, to cure the defect.
Any warranties made by CA (other than that of noninfringement) will extend and
be in effect only for the period that Licensee is entitled to use the Licensed
Program and for which Licensee shall have paid the Usage and Maintenance Fee, if
applicable. With respect to hardware equipment supplied by CA, CA will, upon
request, assign to Licensee any warranties which may be made by the original
manufacturer of such hardware equipment.
In the event that Licensee makes any changes or modifications to the Licensed
Program, Licensee agrees that such changes and modifications shall be the
property of CA, unless CA shall have given its prior written consent to the
contrary. Furthermore, any such changes or modifications made by Licensee to a
Licensed Program will mean that the foregoing limited warranty of CA with
respect to such Licensed Program shall no longer apply, and CA shall have the
right to charge Licensee for additional support services at CA's then prevailing
service rate, but CA shall have no obligation to provide such services.
WARRANTY AND LIABILITY LIMITATIONS
EXCEPT AS SET FORTH ABOVE, NO OTHER WARRANTIES, WHETHER EXPRESS OR IMPLIED,
INCLUDING, WITHOUT LIMITATION, THE IMPLIED WARRANTIES OF MERCHANTABILITY AND
FITNESS FOR A PARTICULAR PURPOSE, ARE MADE BY CA AND CA MAKES NO WARRANTIES WITH
RESPECT TO ANY HARDWARE EQUIPMENT WHICH CA MAY SUPPLY TOGETHER WITH THE LICENSED
PROGRAM OR FOR THE IMPLEMENTATION THEREOF. IN NO EVENT WILL CA BE LIABLE TO
LICENSEE OR ANY OTHER PARTY FOR ANY LOSS, INCLUDING TIME, MONEY, GOODWILL AND
CONSEQUENTIAL DAMAGES, WHICH MAY ARISE FROM THE USE, OPERATION OR MODIFICATION
OF THE LICENSED PROGRAM.
DISASTER RECOVERY
In the event that Licensee certifies in writing to CA that it has a bona fide
disaster recovery plan with respect to the computer software programs used in
its operations, Licensee may make one copy of the Licensed Program for archival
purposes and use such archival copy on a CPU other than the Designated CPU or at
an installation site other than that identified on the Order Form, such other
CPU or installation site to be owned or controlled by Licensee. The use of such
archival copy shall be limited (a) for the purpose of conducting limited testing
of the disaster recovery plan's procedures and effectiveness (which testing
shall not exceed one week in any three month period) and (b) during any period
subsequent to the occurrence of an actual disaster during which the Licensee
cannot operate the Licensed Program on the Designated ___________ or at the
installation site identified on the Order Form. Licensee agrees to furnish such
further documentation with respect to its disaster recovery plan and procedures
as CA may request from time to time.
ASSIGNMENT
Licensee may not assign this Agreement, the use of any Licensed Program or its
rights and obligations under this Agreement without the prior written consent of
CA. CA, however, may assign this Agreement to any third party, provided that
such party assumes the obligations of CA under this Agreement. CA may also
assign its right to payment under this Agreement or grant a security interest in
this Agreement or such payment right to any third party without requiring that
such third party be liable for the obligations of CA under this Agreement.
ESCROW OF SOURCE CODE
CA has deposited a copy of the source code of the Licensed Program with
Mendelsohn, Kary, Bell & Natoli, 666 Fifth Avenue, New York, NY 10103. Such
source code will be updated with each new release of the Licensed Program which
will also be deposited with the escrow agent. Such copies of the source code
will be held in escrow and in the event of a final adjudication of CA as
bankrupt, Licensee will, upon payment of the duplication cost and other handling
charges of the escrow agent, be entitled to obtain a copy of such source code
from the escrow agent. Licensee will, however, only use such copy of the source
code internally to support the Licensed Program. The escrow agent's only
responsibility will be to use its good faith efforts to cause a copy of the
source code, in the form as delivered by CA, to be delivered to Licensee at the
appropriate time.
TAXES AND DUTIES
The amounts set forth on any Order Form are exclusive of any tariffs, duties
or taxes imposed or levied by any government or governmental agency including,
without limitation, federal, state and local sales, use, value added and
personal property taxes, and Licensee agrees to pay any such tariffs, duties or
taxes (other than franchise and income taxes for which CA is responsible) upon
presentation of invoices by CA. Any claimed exemption from such tariffs duties
or taxes must be supported by proper documentary evidence delivered to CA.
BREACH AND TERMINATION
If Licensee breaches any term of this Agreement or any Order Form or fails to
pay when due any valid invoice rendered by CA, or if the Licensee becomes
insolvent or if bankruptcy or receivership proceedings are initiated by or
against Licensee, CA shall have the right to terminate this Agreement
immediately and, in addition to all other rights of CA, all amounts which would
have become due and payable under this Agreement and any Order Form will
immediately become due and payable to CA. Any invoice which is unpaid by
Licensee when due shall be subject to an interest charge of 2% per month or part
thereof plus such late payment charge as CA may reasonably require to cover its
additional costs of administration and collection.
<PAGE>
COMPUTER(R) Computer Associates International, Inc. BETA ADDENDUM
ASSOCIATES One Computer Associates Plaza
Software superior by Islandia, NY 11788-7000
design 1-516-DIAL CAI (342-5224)
License Agreement # _______________
Site ID # _______________
Addendum Effective Date _______________
Addendum to License Agreement Between_______________________________ ("Licensee"
And Computer Associates International, Inc. ("CA") For_________________________
__________________________ ("Licensed Program")
The "Beta Product" is a release of the Licensed Program which is not generally
available for distribution when shipped to the Licensee. The Beta Product is
provided to Licensee for installation in the Licensee's operational environment.
Use of the Beta Product provides the Licensee early operational experience with
the Beta Product and provides CA specific information regarding the Licensee's
experiences with the installation and operation of the Beta Product.
The referenced License Agreement is hereby supplemented and modified by this
Addendum only as to Licensee's use of the Beta Product. In the event of any
conflict between the License Agreement and this Addendum, the terms and
conditions of this Addendum shall prevail.
Prior to shipment of the Beta Product by CA, Licensee will establish a
mutually acceptable plan for installation, implementation and reporting. Such
plan may be modified from time to time upon the mutual written agreement of the
parties.
The period of Beta testing and Beta support (the "Beta Period") shall commence
upon the effective date of this Addendum and shall end upon the earlier of (a)
the date of General Availability ("GA") of the Beta Product, as CA may determine
in its sole discretion, or (b) the date of termination of this Addendum by
either party on not less than 15 days prior written notice to the other.
A. During the Beta Period, CA will provide the following services:
--------------------------------------------------------------
1. Assign a Beta representative to serve as the primary point of contact with
the Licensee;
2. Provide planning assistance for installation and operation of the Beta
Product;
3. Schedule and ship the Beta Product to the Licensee prior to its General
Availability;
4. Provide available publications, education materials and other documentation
respecting the Beta Product (the "Documentation") to the Licensee: all such
Documentation, whether or not marked with a trademark notice, copyright
notice or restrictive legend, such as "CA Confidential," shall be considered
the confidential and proprietary property of CA and shall be provided to the
Licensee subject to the provisions of the referenced License Agreement as
amended hereby; and
5. Provide support and maintenance, including reasonable remote or, when
necessary, on-site assistance for the resolution of issues associated with
the Beta Product.
B. During the Beta Period, the Licensee will provide the following services:
------------------------------------------------------------------------
1. Assign a Beta representative to serve as the primary point of contact with
CA;
2. Staff the Beta project with appropriate personnel to provide planning,
implementation, operation and reporting with respect to the Beta Product;
3. Participate in conversion and installation planning sessions with CA;
4. Use its reasonable efforts to commence operation of the Beta Product
promptly;
5. Use the Beta Product and Documentation for testing purposes only and report
to CA on a weekly basis all errors discovered by Licensee, and not use the
Beta Product to perform any production activities during the Beta Period
unless CA shall have otherwise approved in writing;
6. Document its experiences during the Beta Period and participate in
conference calls with CA personnel to report on the operational status of
the Beta Product and to keep CA advised of experiences and any problems
encountered;
7. Allow CA personnel reasonable access to the Beta Product during the Beta
Period for service and observation purposes; and
8. Furnish to CA at the end of the Beta Period a final written report based on
the Licensee's experiences, containing the Licensee's evaluation of the
functions, performance and serviceability of the Beta Period and related
Documentation.
(over please)
2.150
<PAGE>
CA agrees to use its reasonable efforts to correct errors in the Beta Product
and Documentation within a reasonable time. CA does not guarantee or assume
responsibility for any impact of use of the Beta Product on Licensee's existing
production or other environment or on CPU performance. The Documentation may be
in draft form and will, in many cases, be incomplete. Licensee agrees that the
Beta Product and Documentation are being delivered "AS IS" WITHOUT WARRANTIES OF
ANY KIND INCLUDING, WITHOUT LIMITATION, ANY IMPLIED WARRANTY OF MERCHANTABILITY
OR FITNESS FOR A PARTICULAR PURPOSE. IN NO EVENT WILL CA BE LIABLE TO LICENSEE
OR ANY OTHER PERSON FOR DAMAGES, DIRECT OR INDIRECT, OF ANY DESCRIPTION OR
EXPENSES INCURRED BY LICENSEE IN CONNECTION WITH THE USE OF THE BETA PRODUCT.
LICENSEE'S SOLE AND EXCLUSIVE REMEDY SHALL BE TO TERMINATE THE BETA TEST AND
THIS ADDENDUM BY WRITTEN NOTICE TO CA.
CA cannot guarantee that the generally available release of the Licensed
Program will be identical to the Beta Product and therefore a re-installation of
the generally available released version may be required. If, at the conclusion
of the Beta Period, the software and Documentation are not generally released by
CA to its clients, Licensee shall have the right to receive from CA without any
additional charge, a perpetual license to use the Beta Product and Documentation
for its internal use only, provided that CA shall have no responsibility or
liability to Licensee for any further support or maintenance of the Beta Product
or Documentation.
Licensee agrees that it will not disclose the Beta Product, the Documentation,
or any information gained from its use of the Beta Product and Documentation to
any third party without the prior written consent of CA. CA agrees to maintain
the confidentiality of any live customer data utilized at any time during the
Beta Period which comes into CA's possession. With reasonable notification,
Licensee agrees to be a positive reference for CA during and after the Beta
Period.
The Licensee agrees that the reports prepared by the Licensee and delivered to
CA may be used by CA for all business purposes without any further consent or
accounting in the development, manufacture, marketing and maintenance of the
Beta Product and other CA products and services, including reproduction and
preparation of derivative works based upon such reports, as well as distribution
of such derivative works.
Nothing contained herein shall be construed as conferring upon Licensee or CA
any right to use in advertising, publicity or other marketing activities, any
name, trade name, trademark, or other designation of the other party or to refer
to the existence hereof in any promotional activity without the express written
consent of such other party.
This Addendum shall not be construed to prohibit either CA or Licensee from
entering into a similar agreement with any other party nor from independently
developing, offering, selling or marketing materials, products or services which
are similar to the materials, products or services provided hereunder.
If the Beta Product is a new release of an already Licensed Program, future
usage and maintenance fees shall be payable in accordance with the terms and
conditions of the License Agreement for the already Licensed Program.
If the Beta Product is being newly licensed by the client, then the initial
license fee shall be payable in accordance with the License Agreement and Order
Form with subsequent usage and maintenance fees payable on each anniversary of
the date on which the Licensee shall have received a version of the Licensed
Program in General Availability status or received CA's notification that the
Beta Product has reached General Availability status.
COMPUTER ASSOCIATED INTERNATIONAL, INC LICENSEE
By:______________________________________ By:________________________________
(Authorized Signature) (Authorized Signature)
_________________________________________ ___________________________________
(Name) (Name)
_________________________________________ ___________________________________
(Title) (Title)
_________________________________________ ___________________________________
(Date) (Date)
2.150.1
<PAGE>
APPENDIX C
Exodus's Network Management:
Installation, line and data center network monitoring, problem management
(notification and resolution).
Systems Management:
Installation, monitoring, event management, backup/restore, software delivery,
and secure administration.
Problem Management (notification and resolution)
Reports on systems management services and system performance and health.
Enterprise-class Security:
Managed Firewall protection.
Telco Line Management:
Management of private data lines in co-located datacenters.
Data Traffic Management:
Utilization reports
Line and protocol bandwidth reservation and restriction
Web access analysis reports.
<PAGE>
XY OPTION PLAN DESCRIPTIONS
Five equal annual payments inclusive of usage and maintenance for the five-year
period. Thereafter, continued usage of the Licensed Program and maintenance will
be subject to the same UMF as is applicable under option G1 below.
Three equal annual payments inclusive of usage and maintenance for the three-
year period. Thereafter, continued usage of the Licensed Program and maintenance
will be subject to the same UMF as is applicable under option G1 below.
G1. One-time fee ("OTF") inclusive of usage and maintenance for a one-year
period. Thereafter, continued usage of the Licensed Program and maintenance will
be subject to ? usage and maintenance fee ("UMF") equal to the then prevailing
OTF for the Licensed Program multiplied by the then prevailing UMF rate for the
Licensed Program.
G2. Thirty-six equal monthly payments inclusive of usage and maintenance for
the three-year period. Thereafter, continued usage of the Licensed Program and
maintenance will be subject to the same UMF as is applicable under option G1
above.
G3. A single payment for a three-year term license, inclusive of usage and
maintenance for the three-year period. Thereafter, the license will be renewed
on the same terms and conditions, but subject to the then prevailing G3 license
fee.
G4. A single payment for a two-year term license, inclusive of usage and
maintenance for the two-year period. Thereafter, the license will be renewed
on the same terms and conditions, but subject to the then prevailing G4 license
fee.
G5. A single payment for a one-year term license inclusive of usage and
maintenance for the one-year period. Thereafter, the license will be renewed on
the same terms and conditions, but subject to the then prevailing G5 license
fee.
G6. Three equal annual payments for a three-year term license, inclusive of
usage and maintenance for the three-year period. Thereafter, the license will be
renewed on the same terms and conditions, but subject to the then prevailing G6
license fee.
G7. Thirty-six equal monthly payments for a three-year term license, inclusive
of usage and maintenance for the three-year period. Thereafter, the license will
be renewed on the same terms and conditions, but subject to the then prevailing
G7 license fee.
G8. A single payment for limited purpose(s) set forth on the face of this Order
Form without effecting any change in any existing license except as specifically
set forth.
RENEWALS
All renewals shall be automatic unless either CA or Licensee shall,
within thirty days prior to the expiration of the license period or any renewal
period, give written notice to the other party of its intention not to renew. If
the applicable UMF shall be discontinued at any time, reinstatement shall be
subject to a reinstatement charge equal to 150% of the then prevailing UMF
multiplied by the number of years and part thereof during which usage and
maintenance of the Licensed Program shall have been discontinued.
SCHEDULE OF TERMS
Unless otherwise indicated, license fees, OTFs and UMFs are per CPU and
are applicable only to Designated CPU(s) and licensed installation sites of
Licensee. The right to use or benefit from the Licensed Program (if initially
licensed after November 1, 1992) extends to any majority-owned subsidiary of
Licensee (notwithstanding more restrictive provisions which may be found in the
License Agreement referenced by this Order Form) provided such subsidiary
agrees to comply with the referenced License Agreement and this Order Form. Such
use of the Licensed Program is restricted to the internal operations of the
Licensee and any such subsidiary for the processing of its own data. Any
proposed change in any of the foregoing, including a change of control of the
Licensee or Licensee's business, shall be subject to CA's prior written consent
and payment of all applicable charges. Licensee shall furnish to CA such
documentation and access to its facilities as CA may request from time to time
to verify compliance with the provisions hereof. All fees and charges are
payable in advance upon receipt of invoice.
UPGRADE
License restrictions (such as the Designated CPU limitation) may be
upgraded or expanded at any time during the term of the Order upon prior written
notice to CA. The expiration date of the term of the Order or the then current
usage and maintenance period for the existing license shall not change, and it
shall apply to the upgraded or expanded license. All applicable upgrade fees
and adjustments to the license fees and applicable UMFs for an upgraded or
expanded license shall be determined in accordance with CA's policy and prices
prevailing at the time of the upgrade.
ADDITIONAL CPU(s)
Additional CPU(s) at the same installation site may be licensed to use
the Licensed Program. In order to add one or more CPU(s), one copy of the
Licensed Program at the installation site must either have an existing license
to run on a CPU in the highest CPU group at the installation site, or be
upgraded to a CPU in that highest CPU group in accordance with the "Upgrade"
policy of CA. The license for additional CPU(s) may be an Option G1, G2, A0 or
A8 only if the license for the Licensed Program in the highest CPU group shall
be an Option G1, G2, A0 or A8. Provided that the first CPU has been upgraded to
or is licensed for use in the highest CPU group at the installation site, the
license fee, and any subsequent UMF, for each additional CPU at the same
installation site shall be the then prevailing license fee or UMF, as the case
may be, applicable to the additional CPU. In all cases, such additional CPU
license fee or UMF shall only apply during such time as the Order and UMF for
the Licensed Program in the highest CPU group shall be current and in effect.
CONVERSION CREDIT
A "Rightsizing Credit" may be available when Licensee decides to change
the hardware platform or operating system for which the Licensed Program was
originally licensed to another platform or different operating system such as a
workstation or personal computer. In qualifying instances, the Rightsizing
Credit will be equal to the license fee actually paid for the original Licensed
Program on the original hardware platform or operating system (less a usage
charge of 2% per month) up to a maximum credit of one-half of the fee otherwise
applicable. (No cash refunds will be payable under any circumstance.)
Rightsizing Credit are available only in respect to Licensed Programs under
active maintenance status and to Licensees that maintain enrollment in CA's
Total Client Care Program.
CLIENT SERVICES
New releases or Licensed Program upgrades are not included as a part of
annual maintenance and support services for workstation and micro computer
software. All of the terms and conditions contained in the License Agreement
referred to in this Order Form shall apply to the Services ordered hereunder.
All programs, documentation, reports, techniques, designs and other materials
prepared or created by CA shall remain the property of CA and shall not
constitute work made for hire under the Copyright Act. The fees set forth in
this Order Form for Services, as more fully set forth in the attached
description(s), do not include out-of-pocket expenses (such as transportation,
lodging, meal per diem, and other expenses) incurred by CA while providing the
Services ordered, which expenses will be charged to the Licensee from time to
time or upon completion of the ordered Services. If performance of the Services
is delayed due to Licensee's failure to provide required computer access or
personnel or similar reasons, Licensee shall pay CA's then prevailing daily
charge, plus reimbursement of all such out-of-pocket expenses, for each
additional day for each person assigned by CA to provide the Services.
REFERENCED LICENSE AGREEMENT
The terms and conditions of the License Agreement or prior Order Form,
as the case may be, referenced by this Order Form shall apply to this Order
Form. If any provision of the License Agreement or prior Order Form, as the case
may be, shall contradict any provision of this Order Form, the provisions of
this Order Form shall apply with respect to the Licensed Program(s) described
herein. If the License Agreement referred to in this Order Form currently
provides for a license of Licensed Program(s) for use on an "installation or
site basis," then the same shall be amended for purposes of the Licensed
Program(s) covered by this Order Form, to a license for use on a "per CPU"
basis.
NOTICES
All notices, invoices and other communications hereunder shall be
delivered to Licensee and CA at their respective addresses set forth in this
Order Form unless changed by similar notice.
<PAGE>
APPENDIX D
(See attached Standard CA Order Form)
<PAGE>
COMPUTER ASSOCIATES(R) ORDER FORM
Software superior by design.
================================================================================
COMPUTER ASSOCIATES INTERNATIONAL, INC. ONE COMPUTER ASSOCIATES PLAZA ISLANDIA,
NY 11788-7000 (516) 342-5224 FAX (516) 342-5329
<TABLE>
<S> <C>
Licensee Name and Address:______________________________________________________________________________________________
________________________________________________________________________________________________________________________
License Agreement No.: _____________________________________ If Tax Exempt, Number: ________________(attach certificate)
Installation/Service Site Location: (If different from above)___________________________________________________________
Installation/Service Site I.D. No.:_____________________________________________________________________________________
Licensee Technical Contact Person: ____________________________________________Phone:___________________________________
Licensee Billing Address: (If different from above)_____________________________________________________________________
Licensee Billing Contact Person: (If different from above)_____________________Phone:___________________________________
Licensee Shipping Address: (If different from above)____________________________________________________________________
Licensee Shipping Contact Person:______________________________________________Phone:___________________________________
Installation No. ________________________ for password protected products. Licensee P.O. No. (If required) _____________
Initial Media Type (check one): T1600_______ T6250 _______ C3480 _______ Other__________________________________________
(Describe)
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
CA Supplement No. Licensed Designated CPU(s) Information
To be completed Program(s), Maximum Initial Invoice
by Sales Services or Power Units Amount
Accounting Materials Manufacturer Model Operating System CPU Serial No. or Users (Net of Taxes)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
EFFECTIVE DATE OF THIS ORDER: _________________________
[_] A0: Five equal payments in the amount $_________ per year
[_] A8: Three equal payments in the amount of $______ per year
[_] G1: A single payment in the amount of $ ____________
[_] G2: Thirty-six equal payments in the amount of $_________ per month
[_] G3: A single payment in the amount of $_______________
[_] G4: A single payment in the amount of $_______________
[_] G5: A single payment in the amount of $_______________
[_] G6: Three equal payments in the amount of $________ per year
[_] G7: Thirty-six equal payments in the amount of $__________ per month
[_] If applicable, change to Pay Option specified above from Pay Option ______
for Licensed Program ______________
[_] G0: A single payment in the amount of $________________ for:
[_] Services (attach description)
[_] Upgrade to CPU designated above
from CPU _____________________________________________________________
Mfg. Model Op.Sys Serial No
[_] Maintenance Reinstatement through ____________________________________
Date
[_] Transfer Fee (attach Description)
[_] Other Supplemental Fee (attach description)
(SEE REVERSE SIDE FOR A DETAILED DESCRIPTION OF EACH PAY OPTION AND FOR
ADDITIONAL IMPORTANT PROVISIONS.)
COMPUTER ASSOCIATES INTERNATIONAL, INC
By: _______________________________________________
(Authorized Signature)
___________________________________________________
(Name of Person Signing)
By: _______________________________________________
Date
LICENSEE
By: _______________________________________________
(Authorized Signature)
___________________________________________________
(Type or Print Name of Person Signing)
By: _______________________________________________
Date
<PAGE>
APPENDIX E
EXODUS INTERNET DATA SITES
Mega Data Centers:
Exodus Communications Inc.
Harborside Financial Center
1 Harborside Drive, Plaza iii, Suite 800
Jersey City, NJ 07311-3988
Exodus Communications, Inc.
1605 Wyatt Drive
Santa Clara 95054
Exodus Communications, Inc.
Regency Plaza, Suite 705
2350 Mission College Blvd.
Santa Clara, CA 95054
Exodus Communications, Inc.
1500 Wyatt Drive
Santa Clara, CA 95054
<PAGE>
APPENDIX F
Exodus Software trademarks, tradenames and logos:
EXODUS
Exodus
Exodus
Exodus Usage guidelines:
The Exodus logos and Marks shown above are Marks that may be used by CA
only pursuant to the terms of this Agreement, CA may not alter this artwork
in any way. CA may not combine Exodus logos with any other feature
including, but not limited to, other logos, words, symbols, graphics,
photos, slogans, numbers, or design features. CA may not display Exodus
logos or other Exodus Marks of packaging, documentation, collateral or
advertising in a manner to suggest "Exodus", "Exodus Communications", or
the above logos are part of CA's tradename or product name. The logos
cannot be larger or more prominent than CA's product name, trademark, logos
or tradename.
<PAGE>
CA Software trademarks, tradenames and logos
UNICENTER(R) TNG(TM)
CA's Usage guidelines:
The Computer Associates logos and Marks shown above are Marks that may be used
by Exodus only pursuant to the terms of this Agreement. You may not alter this
artwork in any way. You may not combine logos with any other feature including,
but not limited to, other logos, words, symbols, graphics, photos, slogans,
numbers, design features or symbols. You may not display the CA logos or other
CA Marks on packaging, documentation, collateral, or advertising manner that
suggest "CA", "Computer Associates", or the above logos are part of your
tradename or product name. The logos cannot be larger or more prominent than
your product name, trademark, logos or tradename.
<PAGE>
APPENDIX G
JOINT MARKETING TERMS
1. Joint Press Releases
2. Joint advertising and marketing materials
3. Participation by Exodus at CA World for the term of this Agreement, free of
charge, excluding Exodus' travel and other expenses.
<PAGE>
EXHIBIT 10.17
EXECUTIVE EMPLOYMENT POLICY
---------------------------
It is the policy of Exodus Communications, Inc. to administer the following
guidelines with respect to the employment of its Executives.
Executives
- ----------
An employee will be considered an Executive for purposes of this policy if they
are presented a copy of this document, execute it and return it to the Company.
It is the intention of this policy that employees with the following titles will
be covered by this policy: CEO, President, COO, CFO, Vice President (excluding
Regional Sales Vice Presidents) and certain other executive positions. A list
of "Executives" actually covered by this policy will be maintained by the
Company.
Stock Vesting in Connection with a Change of Control
- ----------------------------------------------------
Immediately prior to a change of control the Executive shall become vested in
fifty percent of his then remaining unvested stock option shares.
Termination in Connection with a Change of Control
- --------------------------------------------------
In the event of a Termination resulting from or related to the change of control
of the Company, the Executive's then effective base salary and medical benefits
will continue in accordance with the following:
1. CEO for 18 months,
2. CFO/COO for 12 months,
3. Vice Presidents for 6 months, or
4. Other Executives for 3 months.
A resignation by an Executive within sixty days after the occurrence or
threatened occurrence of one or more of the following events shall be considered
a "termination" under this section:
1. A material reduction in the Executive's job title or responsibilities;
2. Any reduction in the Executive's base salary or any material reduction
in benefits or target annual compensation; or
3. A directive that the Executive relocate to an office located more than
a thirty mile radius from the Executive's office immediately prior to
the Change of Control.
<PAGE>
Change of Control
- -----------------
A Change of Control means the occurrence of any of the following events: (i) a
merger or consolidation involving the Company in which the shareholders of the
Company immediately prior to such merger or consolidation own less than fifty
percent of the voting power of the surviving corporation; (ii) the sale of all
or substantially all, of the assets of the Company; or (iii) any person or group
(as defined in the Securities Exchange Act of 1934, as amended) becoming the
beneficial owner (within the meaning of Rule 13d-3 of the Securities Exchange
Act of 1934, as amended), directly or indirectly, of securities representing
more than fifty percent of the voting power of the Company then outstanding.
Termination for Any Other Reason
- --------------------------------
In the event of an Involuntary Termination other than as stated above, and not
- ------------------------------------------------------------------------------
for "cause," the Executive's then effective base salary and medical benefits
- ----
will continue in accordance with the following:
1. CEO for 12 months,
2. CFO/COO for 6 months,
3. Vice Presidents for 3 months, or
4. Other Executives for 2 months.
In addition, Employee's stock options shall continue to vest during this same
period.
Voluntary Termination
- ---------------------
An Executive that voluntarily terminates the employment relationship does not
receive any compensation, stock or benefits under this policy.
Termination for Cause
- ---------------------
An Executive that is terminated for "cause" does not receive any compensation,
stock or benefits under this policy.
Termination for "cause" means any termination of employment by the Company due
to gross misconduct, criminal behavior, breach of security or misrepresentation.
<PAGE>
Agreement Not to Compete
- ------------------------
In consideration of the compensation, stock and benefits provided under this
policy, and only for the duration of time covered by those payments, the
Executive shall not manage, operate, control, participate in the management,
operation or control of or be employed by any other person or entity which is
engaged in providing services which are directly competitive with the services
offered by the Company.
Release
- -------
Prior to any benefits being provided under this policy the Executive, at the
time of termination, must execute a Release.
In addition, the compensation, stock and benefits provided under this policy are
subject to cancellation in the event that the Executive takes any action or
engages in any conduct that is defamatory towards the Company.
Acknowledgement
- ---------------
I acknowledge that I have read this policy and there is no other agreement
between me and the Company addressing these issues. I agree that any deviations
to this policy must be approved by the Board of Directors.
______________________________________________
Executive's Signature
______________________________________________
Executive's Name
______________________________________________
Date
<PAGE>
GRANDFATHERED PROVISIONS
------------------------
To the extent that the following benefits exceed, or obligations are in
addition to, those described in the Policy, the employees listed below shall be
entitled to receive such additional benefits or shall be subject to such
additional obligations.
Name Benefit(s)
- ---- ----------
Sam Mohamad Involuntary Termination: 12 months extension of
then-current base compensation and 12 months vesting
acceleration on all then-unvested options.
Dick Stoltz Involuntary Termination: 9 months extension of
then-current base compensation.
Bob Sanford Involuntary Termination: 6 months extension of
then-current base compensation and continuation of
vesting for a period of 6 months in any then-unvested
options.
<PAGE>
EXHIBIT 10.18
TRANSAMERICA
BUSINESS CREDIT
August 26, 1997
Mr. Richard Stoltz
Chief Financial Officer
EXODUS COMMUNICATIONS, INC.
2650 San Tomas Expressway
Santa Clara, CA 95051
Dear Dick:
Transamerica Business Credit Corporation - Technology Finance Division
("Lender") is pleased to offer financing for the Equipment described in this
letter to Exodus Communications, Inc. ("Borrower"). This Commitment supersedes
all prior correspondence, proposals, and oral or other communications relating
to financing arrangements between Borrower and Lender.
The outline of this offer is as follows:
Borrower: EXODUS COMMUNICATIONS, INC.
- --------
Lender: Transamerica Business Credit Corporation -
- ------ Technology Finance Division
Equipment: Data Center Equipment, including computers,
- --------- servers, routers, switches, CSU/DSU, UPS, and other
related equipment. Software and leasehold
improvements financed hereunder may comprise up to
40% of Equipment Cost. All Equipment subject to
review and approval by Lender prior to funding.
Equipment Cost: Up to $6,5000,000.00.
- --------------
Equipment Location: To be identified by Borrower and acceptable to
- ------------------ Lender. Collateral Access Agreement will be
required for each Data Center location.
Security: Lender shall receive a perfected first priority
- -------- security interest in the Equipment described above,
including, without limitation, all additions,
improvements, repairs, appurtenances, substitutions
and attachments, and all cash and non-cash proceeds
(including insurance proceeds) of the foregoing.
Anticipated Delivery: September 1, 1997 - December 31, 1997
- --------------------
<PAGE>
Loan Term Commencement: Upon delivery of the Equipment or upon each
- ---------------------- completion of deliveries of items of Equipment
with aggregate cost of not less than $150,000, but
no later than December 31, 1997.
Term: From each Loan Term Commencement until 42 months
- ---- from the first day of the month next following or
coincident with that Loan Term Commencement.
Monthly Payment: Monthly Payment equal to 2.89131% of Equipment Cost
- --------------- will be payable monthly in advance. The first
month's payment will be due and payable upon
signing each Loan.
Adjustment to The Lender reserves the right to increase or
- ------------- decrease the Monthly Payment as of the Loan Term
Payments Commencement proportionally to the change in the
- -------- weekly average of the interest rates of like date
of each term US Treasury Securities from 6.30%. As
of the date of each Loan Term Commencement, the
Monthly Payment will be fixed for the term. A
schedule of the actual Monthly Payment will be
provided by the Lender following each Loan Term
Commencement.
Interim Payment: An Interim Payment will accrue from each Loan Term
- --------------- Commencement until the next following first day of
a month (unless the Loan Term Commencement is on
the first day of a month). The Interim Payment will
be calculated at the daily equivalent of the all-in
rate and will be payable with the first payment.
Balloon Payment: At the end of the 42 month Loan, the Borrower will
- --------------- make one final balloon payment equal to 10% of the
original principal amount of each Loan, plus any
other amounts due and owing to Lender.
Insurance: Prior to any delivery of Equipment, the Borrower
- --------- will furnish confirmation of insurance acceptable
to the Lender covering the Equipment including
primary, all risk, physical damage, property damage
and bodily injury with appropriate loss payee
endorsement in favor of the Lender.
2
<PAGE>
Condition Precedent Each Loan will be subject to the following:
- ------------------- 1. No material adverse change in the financial
to Lending: condition, operations or prospects of the
- ---------- Borrower prior to funding.
2. Completion of the documentation and final terms
of the proposed financing satisfactory to
Lender and Lender's counsel.
3. Results of all due diligence, including lien,
judgment and tax searches, reference calls and
other matters Lender may request shall be
satisfactory to Lender and Lender's counsel.
4. Receipt by Lender of duly executed loan
documentation in form and substance
satisfactory to Lender and its counsel.
5. Lender shall receive a valid and perfected
first priority lien and security interest in
the Equipment and Lender shall have received
satisfactory evidence that there are no liens
on the Equipment except as expressly permitted
herein.
6. Lender shall receive an option of Borrower's
counsel in form and substance satisfactory to
Lender and its counsel.
Warrant Coverage: In consideration of the Lender's commitment to the
- ---------------- Borrower to provide equipment financing in
accordance with the terms generally outlined
herein, Lender will be granted Warrants to purchase
95,588 shares of the common stock of the Borrower
at an exercise price of $1.36 per share. The
Warrants will be exercisable for 7 years. The
Lender will have the option to exercise the
Warrants without payment of the exercise price and
receive only that number of shares which represents
the value of the difference between the fair market
value of the shares and the exercise price (i.e.,
"net issuance" or "cashless exercise"). Lender may
retain or transfer the Warrants or shares issuable
thereunder, in whole or in part, whether or not
Lender sells the Loan or any participation therein.
The Warrants will be issued in two certificates for
47,794 shares each (one certificate in Lender's
name and the other to Meirer Mitchell) upon
execution of initial Loan documents.
Additional Covenants: There will be no actual or threatened conflict
- -------------------- with, or violation of, any regulatory statute,
standard or rule relating to the Borrower, its
present or future operations, or the Equipment.
Borrower will be required to provide quarterly
financial information. All information supplied by
the Borrower will be correct and will not omit any
statement necessary to make the information
supplied not be misleading. There will be no
material breach of the representations and
warranties of the Borrower in the Loan.
3
<PAGE>
Fees and Expenses: The Borrower will be responsible for the Lender's
- ----------------- reasonable expenses, not to exceed $5,000.00, in
connection with the closing of this transaction.
Law: This letter and the proposed Loan are intended to
- --- be governed by and construed in accordance with
Illinois law without regard to its conflict of law
provisions.
Indemnity: Borrower agrees to indemnify and to hold harmless
- --------- Lender and its officers, directors and employees
against all claims, damages, liabilities and
expenses which may be incurred by or asserted
against any such person in connection with or
arising out of this letter and the transactions
contemplated hereby, other than claims, damages,
liability, and expense resulting from such person's
gross negligence or willful misconduct.
Confidentiality: This letter is delivered to you with the
- --------------- understanding that neither it nor its substance
shall be disclosed publicly or privately to any
third person except those who are in a confidential
relationship to you (such as your legal counsel and
accountants), or where the same is required by law
and then only on the basis that it not be further
disclosed, which conditions Borrower and its agents
agree to be bound by upon acceptance of this
letter.
Without limiting the generality of the foregoing,
none of such persons shall use or refer to Lender
or to any affiliate name in any disclosures made in
connection with any of the transactions without
Lender's prior written consent.
Upon completion of the initial takedown by
Borrower, the Borrower will no longer be required
to obtain Lender's prior written consent to
disclose the transaction contemplated hereby. In
addition, the Borrower agrees to provide camera
ready artwork of typestyles and logos of the
Borrower for use in promotional material by the
Lender.
Conditions of Acceptance: This Commencement Letter is intended to be a
- ------------------------ summary of the most important elements of the
agreement to enter into a loan transaction with
Borrower, and it is subject to all requirements and
conditions contained in Loan documentation proposed
by Lender or its counsel in the course of closing
the Loans described herein. Not every provision
that imposes duties, obligations, burdens, or
limitations on Borrower is contained herein, but
shall be contained in the final Loan documentation
satisfactory to Lender and its counsel.
4
<PAGE>
EACH OF THE PARTIES HERETO IRREVOCABLE AND
UNCONDITIONALLY WAIVES ALL RIGHT TO TRIAL BY JURY
IN ANY SUIT, ACTION, PROCEEDING OR COUNTERCLAIM
ARISING OUT OF OR RELATED TO THIS LETTER OR THE
TRANSACTION DESCRIBED IN THIS LETTER.
Application Fee: The $20,000 Application Fee previously paid by
- --------------- Borrower to Meier Mitchell will be forwarded to
Lender and will be first applied to the costs and
expenses of the Lender in connection with the
transaction (not to exceed $5,000), and any
remainder shall be applied pro-rata to the second
month's payment due under each Loan.
Commitment Expiration: This Commitment shall expire on September 3, 1997,
- --------------------- unless prior thereto either extended in writing by
the Lender or accepted as provided below by the
Borrower.
Should you have any questions, please call me. If you wish to accept this
Commitment, please so indicate by signing and returning the enclosed duplicate
copy of this letter to me by September 3, 1997.
Yours truly,
TRANSAMERICA BUSINESS CREDIT CORP.
TECHNOLOGY FINANCE DIVISION
/s/ Gerald A. Michaud
By: --------------------------------
Gerald A. Michaud
Senior Vice President - Marketing
Accepted this 28 day of August, 1997
EXODUS COMMUNICATIONS, INC.
/s/ Richard S. Stoltz and Adam W. Wegner
By: -----------------------------------------
Typed or Printed Name:
Title: COO/CFO
5
<PAGE>
EXHIBIT 10.19
================================================================================
================================================================================
EXODUS COMMUNICATIONS, INC.
LOAN AND SECURITY AGREEMENT
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
1. DEFINITIONS AND CONSTRUCTION........................................... 1
1.1 Definitions..................................................... 1
1.2 Accounting Terms................................................ 6
2. LOAN AND TERMS OF PAYMENT.............................................. 6
2.1 Advances........................................................ 6
2.2 Overadvances.................................................... 8
2.3 Interest Rates, Payments, and Calculations...................... 9
2.4 Crediting Payments.............................................. 9
2.5 Fees............................................................ 9
2.6 Additional Costs................................................ 10
2.7 Term............................................................ 10
3. CONDITIONS OF LOANS.................................................... 10
3.1 Conditions Precedent to Initial Advance......................... 10
3.2 Conditions Precedent to all Advances............................ 11
4. CREATION OF SECURITY INTEREST.......................................... 11
4.1 Grant of Security Interest...................................... 11
4.2 Delivery of Additional Documentation Required................... 11
4.3 Right to Inspect................................................ 11
5. REPRESENTATIONS AND WARRANTIES......................................... 11
5.1 Due Organization and Qualification.............................. 11
5.2 Due Authorization; No Conflict.................................. 11
5.3 No Prior Encumbrances........................................... 12
5.4 Bona Fide Eligible Accounts..................................... 12
5.5 Merchantable Inventory.......................................... 12
5.6 Name; Location of Chief Executive Office........................ 12
5.7 Litigation...................................................... 12
5.8 No Material Adverse Change in Financial Statements.............. 12
5.9 Solvency........................................................ 12
5.10 Regulatory Compliance........................................... 12
5.11 Environmental Condition......................................... 12
5.12 Taxes........................................................... 13
5.13 Subsidiaries.................................................... 13
5.14 Government Consents............................................. 13
5.15 Full Disclosure................................................. 13
6. AFFIRMATIVE COVENANTS.................................................. 13
6.1 Good Standing................................................... 13
6.2 Government Compliance........................................... 13
6.3 Financial Statements, Reports, Certificates..................... 13
6.4 Inventory; Returns.............................................. 14
6.5 Taxes........................................................... 14
6.6 Insurance....................................................... 14
6.7 Principal Depository............................................ 15
6.8 Quick Ratio..................................................... 15
6.9 Debt-Net Worth Ratio............................................ 15
6.10 Tangible Net Worth.............................................. 15
6.11 Liquidity....................................................... 15
6.12 Registration of Intellectual Property Rights.................... 15
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
6.13 Further Assurances.............................................. 15
7. NEGATIVE COVENANTS..................................................... 15
7.1 Dispositions.................................................... 15
7.2 Change in Business.............................................. 16
7.3 Mergers or Acquisitions......................................... 16
7.4 Indebtedness.................................................... 16
7.5 Encumbrances.................................................... 16
7.6 Distributions................................................... 16
7.7 Investments..................................................... 16
7.8 Transactions with Affiliates.................................... 16
7.9 Subordinated Debt............................................... 16
7.10 Inventory....................................................... 16
7.11 Compliance...................................................... 16
8. EVENTS OF DEFAULT...................................................... 17
8.1 Payment Default................................................. 17
8.2 Covenant Default................................................ 17
8.3 Material Adverse Change......................................... 17
8.4 Attachment...................................................... 17
8.5 Insolvency...................................................... 17
8.6 Other Agreements................................................ 17
8.7 Subordinated Debt............................................... 18
8.8 Judgments....................................................... 18
8.9 Misrepresentations.............................................. 18
9. BANK'S RIGHTS AND REMEDIES............................................. 18
9.1 Rights and Remedies............................................. 18
9.2 Power of Attorney............................................... 19
9.3 Accounts Collection............................................. 19
9.4 Bank Expenses................................................... 19
9.5 Bank's Liability for Collateral................................. 19
9.6 Remedies Cumulative............................................. 20
9.7 Demand; Protest................................................. 20
10. NOTICES................................................................ 20
11. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER............................. 20
12. GENERAL PROVISIONS..................................................... 21
12.1 Successors and Assigns.......................................... 21
12.2 Indemnification................................................. 21
12.3 Time of Essence................................................. 21
12.4 Severability of Provisions...................................... 21
12.5 Amendments in Writing, Integration.............................. 21
12.6 Counterparts.................................................... 21
12.7 Survival........................................................ 21
12.8 Confidentiality................................................. 21
</TABLE>
<PAGE>
This LOAN AND SECURITY AGREEMENT is entered into as of June 14, 1996, by
and between SILICON VALLEY BANK ("Bank") and EXODUS COMMUNICATIONS, INC.
("Borrower").
RECITALS
--------
Borrower wishes to obtain credit from time to time from Bank, and Bank
desires to extend credit to Borrower. This Agreement sets forth the terms on
which Bank will advance credit to Borrower, and Borrower will repay the amounts
owing to Bank.
AGREEMENT
---------
The parties agree as follows:
1. DEFINITIONS AND CONSTRUCTION
----------------------------
1.1 Definitions. As used in this Agreement, the following terms
-----------
shall have the following definitions:
"Accounts" means all presently existing and hereafter arising
accounts, contract rights, and all other forms of obligations owing to Borrower
arising out of the sale or lease of goods (including, without limitation, the
licensing of software and other technology) or the rendering of services by
Borrower, whether or not earned by performance, and any and all credit
insurance, guaranties, and other security therefor, as well as all merchandise
returned to or reclaimed by Borrower and Borrower's Books relating to any of the
foregoing.
"Advance" or "Advances" means an Advance under the Revolving
Facility.
"Affiliate" means, with respect to any Person, any Person that
owns or controls directly or indirectly such Person, any Person that controls or
is controlled by or is under common control with such Person, and each of such
Person's senior executive officers, directors, and partners.
"Bank Expenses" means all: reasonable costs or expenses
(including reasonable attorneys' fees and expenses) incurred in connection with
the preparation, negotiation, administration, and enforcement of the Loan
Documents; and Bank's reasonable attorneys' fees and expenses incurred in
amending, enforcing or defending the Loan Documents (including fees and expenses
of appeal), whether or not suit is brought.
"Borrower's Books" means all of Borrower's books and records
including: ledgers; records concerning Borrower's assets or liabilities, the
Collateral, business operations or financial condition; and all computer
programs, or tape files, and the equipment, containing such information.
"Borrowing Base" has the meaning set forth in Section 2.1 hereof.
"Business Day" means any day that is not a Saturday, Sunday, or
other day on which banks in the State of California are authorized or required
to close.
"Closing Date" means the date of this Agreement.
"Code" means the California Uniform Commercial Code.
"Collateral" means the property described on Exhibit A attached
---------
hereto.
"Committed Line" means One Million Dollars ($1,000,000).
"Contingent Obligation" means, as applied to any Person, any
direct or indirect liability,
<PAGE>
contingent or otherwise, of that Person with respect to (i) any indebtedness,
lease, dividend, letter of credit or other obligation of another, including,
without limitation, any such obligation directly or indirectly guaranteed,
endorsed, co-made or discounted or sold with recourse by that Person, or in
respect of which that Person is otherwise directly or indirectly liable; (ii)
any obligations with respect to undrawn letters of credit issued for the account
of that Person; and (iii) all obligations arising under any interest rate,
currency or commodity swap agreement, interest rate cap agreement, interest rate
collar agreement, or other agreement or arrangement designated to protect a
Person against fluctuation in interest rates, currency exchange rates or
commodity prices; provided, however, that the term "Contingent Obligation" shall
not include endorsements for collection or deposit in the ordinary course of
business. The amount of any Contingent Obligation shall be deemed to be an
amount equal to the stated or determined amount of the primary obligation in
respect of which such Contingent Obligation is made or, if not stated or
determinable, the maximum reasonably anticipated liability in respect thereof as
determined by such Person in good faith; provided, however, that such amount
shall not in any event exceed the maximum amount of the obligations under the
guarantee or other support arrangement.
"Current Assets" means, as of any applicable date, all amounts
that should, in accordance with GAAP, be included as current assets on the
consolidated balance sheet of Borrower and its Subsidiaries as at such date.
"Current Liabilities" means, as of any applicable date, all
amounts that should, in accordance with GAAP, be included as current liabilities
on the consolidated balance sheet of Borrower and its Subsidiaries, as at such
date, plus, to the extent not already included therein, all outstanding Advances
made under this Agreement, including all Indebtedness that is payable upon
demand or within one year from the date of determination thereof unless such
Indebtedness is renewable or extendable at the option of Borrower or any
Subsidiary to a date more than one year from the date of determination, but
excluding Subordinated Debt.
"Daily Balance" means the amount of the Obligations owed at the
end of a given day.
"Eligible Accounts" means those Accounts that arise in the
ordinary course of Borrower's business that comply with all of Borrower's
representations and warranties to Bank set forth in Section 5.4; provided, that
--------
standards of eligibility may be fixed and revised from time to time by Bank in
Bank's reasonable judgment and upon notification thereof to Borrower in
accordance with the provisions hereof. Unless otherwise agreed to by Bank,
Eligible Accounts shall not include the following:
(a) Accounts that the account debtor has failed to pay within
ninety (90) days of invoice date, provided that Accounts arising out of
Borrower's connecting customers to the internet as to which the account debtor
has failed to pay within sixty (60) days of invoice date shall not be Eligible
Accounts;
(b) Accounts with respect to an account debtor, fifty percent
(50%) of whose Accounts the account debtor has failed to pay within ninety (90)
days of invoice date;
(c) Accounts with respect to which the account debtor is an
officer, employee, or agent of Borrower;
(d) Accounts with respect to which goods are placed on
consignment, guaranteed sale, sale or return, sale on approval, bill and hold,
or other terms by reason of which the payment by the account debtor may be
conditional;
(e) Accounts with respect to which the account debtor is an
Affiliate of Borrower;
(f) Accounts with respect to which the account debtor does not
have its principal place of business in the United States, except for Eligible
Foreign Accounts;
(g) Accounts with respect to which the account debtor is the
United States or any department, agency, or instrumentality of the United
States;
<PAGE>
(h) Accounts with respect to which Borrower is liable to the
account debtor for goods sold or services rendered by the account debtor to
Borrower, but only to the extent of any amounts owing to the account debtor
against amounts owed to Borrower;
(i) Accounts with respect to an account debtor, including
Subsidiaries and Affiliates, whose total obligations to Borrower exceed twenty-
five percent (25%) of all Accounts, to the extent such obligations exceed the
aforementioned percentage, except as approved in writing by Bank;
(j) Accounts with respect to which the account debtor disputes
liability or makes any claim with respect thereto as to which Bank believes, in
its sole discretion, that there may be a basis for dispute (but only to the
extent of the amount subject to such dispute or claim), or is subject to any
Insolvency Proceeding, or becomes insolvent, or goes out of business; and
(k) Accounts the collection of which Bank reasonably determines
to be doubtful.
"Eligible Foreign Accounts" means Accounts with respect to which
the account debtor does not have its principal place of business in the United
States and that are: (1) covered by credit insurance in form and amount, and by
an insurer satisfactory to Bank less the amount of any deductible(s) which may
be or become owing thereon; or (2) supported by one or more letters of credit in
favor of Bank as beneficiary, in an amount and of a tenor, and issued by a
financial institution, acceptable to Bank; or (3) that Bank approves on a case-
by-case basis.
"Equipment" means all present and future machinery, equipment,
tenant improvements, furniture, fixtures, vehicles, tools, parts and attachments
in which Borrower has any interest.
"ERISA" means the Employment Retirement Income Security Act of
1974, as amended, and the regulations thereunder.
"GAAP" means generally accepted accounting principles as in
effect from time to time.
"Indebtedness" means (a) all indebtedness for borrowed money or
the deferred purchase price of property or services, including without
limitation reimbursement and other obligations with respect to surety bonds and
letters of credit, (b) all obligations evidenced by notes, bonds, debentures or
similar instruments, (c) all capital lease obligations and (d) all Contingent
Obligations.
"Insolvency Proceeding" means any proceeding commenced by or
against any person or entity under any provision of the United States Bankruptcy
Code, as amended, or under any other bankruptcy or insolvency law, including
assignments for the benefit of creditors, formal or informal moratoria,
compositions, extension generally with its creditors, or proceedings seeking
reorganization, arrangement, or other relief.
"Inventory" means all present and future inventory in which
Borrower has any interest, including merchandise, raw materials, parts,
supplies, packing and shipping materials, work in process and finished products
intended for sale or lease or to be furnished under a contract of service, of
every kind and description now or at any time hereafter owned by or in the
custody or possession, actual or constructive, of Borrower, including such
inventory as is temporarily out of its custody or possession or in transit and
including any returns upon any accounts or other proceeds, including insurance
proceeds, resulting from the sale or disposition of any of the foregoing and any
documents of title representing any of the above, and Borrower's Books relating
to any of the foregoing.
"Investment" means any beneficial ownership of (including stock,
partnership interest or other securities) any Person, or any loan, advance or
capital contribution to any Person.
"IRC" means the Internal Revenue Code of 1986, as amended, and
the regulations thereunder.
"Landlord Letter of Credit" means the standby letter of credit in
the face amount of One
<PAGE>
Hundred Thirty-Eight Thousand Dollars ($138,000) issued for the benefit of
Washeop Associates Limited Partnership.
"Lien" means any mortgage, lien, deed of trust, charge, pledge,
security interest or other encumbrance.
"Loan Documents" means, collectively, this Agreement, any note or
notes executed by Borrower, and any other agreement entered into between
Borrower and Bank in connection with this Agreement, all as amended or extended
from time to time.
"Material Adverse Effect" means a material adverse effect on (i)
the business operations or condition (financial or otherwise) of Borrower and
its Subsidiaries taken as a whole or (ii) the ability of Borrower to repay the
Obligations or otherwise perform its obligations under the Loan Documents.
"Maturity Date" means June 13, 2000.
"Monthly Attrition" means a reduction in the aggregate number of
subscribers to Borrower's service, measured as of the last day of a month as
against the last day of the immediately preceding month.
"Negotiable Collateral" means all of Borrower's present and
future letters of credit of which it is a beneficiary, notes, drafts,
instruments, securities, documents of title, and chattel paper, and Borrower's
Books relating to any of the foregoing.
"Obligations" means all debt, principal, interest, Bank Expenses
and other amounts owed to Bank by Borrower pursuant to this Agreement or any
other agreement, whether absolute or contingent, due or to become due, now
existing or hereafter arising, including any interest that accrues after the
commencement of an Insolvency Proceeding and including any debt, liability, or
obligation owing from Borrower to others that Bank may have obtained by
assignment or otherwise.
"Periodic Payments" means all installments or similar recurring
payments that Borrower may now or hereafter become obligated to pay to Bank
pursuant to the terms and provisions of any instrument, or agreement now or
hereafter in existence between Borrower and Bank.
"Permitted Indebtedness" means:
(a) Indebtedness of Borrower in favor of Bank arising under this
Agreement or any other Loan Document;
(b) Indebtedness existing on the Closing Date and disclosed in
the Schedule;
(c) Subordinated Debt; and
(d) Indebtedness to trade creditors incurred in the ordinary
course of business.
"Permitted Investment" means:
(a) Investments existing on the Closing Date disclosed in the
Schedule; and
(b) (i) marketable direct obligations issued or unconditionally
guaranteed by the United States of America or any agency or any State thereof
maturing within one (1) year from the date of acquisition thereof, (ii)
commercial paper maturing no more than one (1) year from the date of creation
thereof and currently having the highest rating obtainable from either Standard
& Poor's Corporation or Moody's Investors Service, Inc., and (iii) certificates
of deposit maturing no more than one (1) year from the date of investment
therein issued by Bank.
<PAGE>
"Permitted Liens" means the following:
(a) Any Liens existing on the Closing Date and disclosed in the
Schedule or arising under this Agreement or the other Loan Documents;
(b) Liens for taxes, fees, assessments or other governmental
charges or levies, either not delinquent or being contested in good faith by
appropriate proceedings, provided the same have no priority over any of Bank's
--------
security interests;
(c) Liens (i) upon or in any equipment acquired or held by
Borrower or any of its Subsidiaries to secure the purchase price of such
equipment or indebtedness incurred solely for the purpose of financing the
acquisition of such equipment, or (ii) existing on such equipment at the time of
its acquisition provided that the Lien is confined solely to the property so
--------
acquired and improvements thereon, and the proceeds of such equipment;
(d) Liens incurred in connection with the extension, renewal or
refinancing of the indebtedness secured by Liens of the type described in
clauses (a) through (c) above, provided that any extension, renewal or
--------
replacement Lien shall be limited to the property encumbered by the existing
Lien and the principal amount of the indebtedness being extended, renewed or
refinanced does not increase.
"Person" means any individual, sole proprietorship, partnership,
limited liability company, joint venture, trust, unincorporated organization,
association, corporation, institution, public benefit corporation, firm, joint
stock company, estate, entity or governmental agency.
"Prime Rate" means the variable rate of interest, per annum, most
recently announced by Bank, as its "prime rate," whether or not such announced
rate is the lowest rate available from Bank.
"Quick Assets" means, at any date as of which the amount thereof
shall be determined, the consolidated cash, cash-equivalents, accounts
receivable and investments, with maturities not to exceed 90 days, of Borrower
determined in accordance with GAAP.
"Responsible Officer" means each of the Chief Executive Officer,
the Chief Financial Officer and the Controller of Borrower.
"Revolving Maturity Date" means the date immediately preceding
the first anniversary of the date of this Agreement.
"Revolving Facility" means the facility under which Borrower may
request Bank to issue cash advances, as specified in Section 2.1 hereof.
"Schedule" means the schedule of exceptions attached hereto, if
any.
"Subordinated Debt" means any debt incurred by Borrower that is
subordinated to the debt owing by Borrower to Bank on terms acceptable to Bank
(and identified as being such by Borrower and Bank).
"Subscription-based Revenue" means the revenue received by
Borrower from account debtors on account of invoices delivered for services to
be rendered during the month in which the invoices are delivered, which invoices
are paid by customers in the ordinary course of business within thirty (30) days
after receipt of such invoices.
"Subsidiary" means any corporation or partnership in which (i)
any general partnership interest or (ii) more than 50% of the stock of which by
the terms thereof ordinary voting power to elect the Board of Directors,
managers or trustees of the entity shall, at the time as of which any
determination is being made, be owned by Borrower, either directly or through an
Affiliate.
<PAGE>
"Tangible Net Worth" means at any date as of which the amount
thereof shall be determined, the consolidated total assets of Borrower and its
Subsidiaries minus, without duplication, (i) the sum of any amounts attributable
-----
to (a) goodwill, (b) intangible items such as unamortized debt discount and
expense, patents, trade and service marks and names, copyrights and research and
development expenses except prepaid expenses, and (c) all reserves not already
deducted from assets, and (ii) Total Liabilities.
---
"Total Liabilities" means at any date as of which the amount
thereof shall be determined, all obligations that should, in accordance with
GAAP be classified as liabilities on the consolidated balance sheet of Borrower,
including in any event all Indebtedness, but specifically excluding Subordinated
Debt.
1.2 Accounting Terms. All accounting terms not specifically defined
----------------
herein shall be construed in accordance with GAAP and all calculations made
hereunder shall be made in accordance with GAAP. When used herein, the terms
"financial statements" shall include the notes and schedules thereto.
2. LOAN AND TERMS OF PAYMENT
-------------------------
2.1 Advances. Subject to and upon the terms and conditions of this
--------
Agreement, Bank agrees to make Advances to Borrower in an aggregate amount not
to exceed the lesser of the Committed Line or the Borrowing Base minus, in each
case, the face amount of outstanding Letters of Credit (including drawn but
unreimbursed Letters of Credit). For purposes of this Agreement, "Borrowing
Base" shall mean an amount equal to (i) eighty (80%) of Eligible Accounts plus
(ii) an amount equal to Ninety Percent (90%) of Borrower's aggregate
Subscription-based Revenue for the three (3) months immediately preceding the
month in which an Advance is requested; provided that the amount in clause (ii)
--------
shall be excluded from the Borrowing Base after any month in which Borrower has
suffered a Monthly Attrition of more than Fifteen Percent (15%) or a Monthly
Attrition for two (2) consecutive months except to the extent such Monthly
Attrition in each instance is due to a customer's converting its billing from a
monthly to an annual basis. Subject to the terms and conditions of this
Agreement, amounts borrowed pursuant to this Section 2.1 may be repaid and
reborrowed at any time prior to the Revolving Maturity Date.
Whenever Borrower desires an Advance, Borrower will notify Bank by
facsimile transmission or telephone no later than 3:00 p.m. California time, on
the Business Day that the Advance is to be made. Each such notification shall
be promptly confirmed by a Payment/Advance Form in substantially the form of
Exhibit B hereto. Bank is authorized to make Advances under this Agreement,
- ---------
based upon instructions received from a Responsible Officer, or without
instructions if in Bank's discretion such Advances are necessary to meet
Obligations which have become due and remain unpaid. Bank shall be entitled to
rely on any telephonic notice given by a person who Bank reasonably believes to
be a Responsible Officer, and Borrower shall indemnify and hold Bank harmless
for any damages or loss suffered by Bank as a result of such reliance. Bank
will credit the amount of Advances made under this Section 2.1 to Borrower's
deposit account.
The Revolving Facility shall terminate on the Revolving Maturity Date at
which time all Advances under this Section 2.1 shall be immediately due and
payable.
2.1.1 Letters of Credit.
-----------------
(a) Subject to the terms and conditions of this
Agreement, Bank agrees to issue or cause to be issued letters of credit for the
account of Borrower in an aggregate face amount not to exceed (i) the lesser of
the Committed Line or the Borrowing Base minus (ii) the then outstanding
principal balance of the Advances provided that the face amount of outstanding
Letters of Credit (including drawn but unreimbursed Letters of Credit) shall not
in any case exceed Two Hundred Thousand Dollars ($200,000). Each such letter of
credit shall have an expiry date no later than the Maturity Date; provided that
Borrower's letter of credit reimbursement obligation shall be secured by cash on
terms acceptable to Bank at any time after the Revolving Maturity Date if the
term of the Revolving Facility is not extended by Bank. All such letters of
credit shall be, in form and substance, acceptable to Bank in its sole
discretion and shall be subject to the terms and conditions of Bank's form of
application and letter of credit agreement. All amounts actually paid by Bank in
respect of a letter of credit shall,
<PAGE>
when paid, constitute an Advance under this Agreement.
(b) The Obligation of Borrower to immediately reimburse
Bank for drawings made under Letters of Credit shall be absolute, unconditional
and irrevocable, and shall be performed strictly in accordance with the terms of
this Agreement and such Letters of Credit, under all circumstances whatsoever.
Borrower shall indemnify, defend and hold Bank harmless from any loss, cost,
expense or liability, including, without limitation, reasonable attorneys' fees,
arising out of or in connection with any letters of credit, except as caused by
Bank's gross negligence or wilful misconduct.
2.1.2 Letter of Credit Reimbursement; Reserve.
---------------------------------------
(a) Borrower may request that Bank issue a letter of
credit payable in a currency other than United States Dollars. If a demand for
payment is made under any such letter of credit, Bank shall treat such demand as
an advance to Borrower of the equivalent of the amount thereof (plus cable
charges) in United States currency at the then prevailing rate of exchange in
San Francisco, California, for sales of that other currency for cable transfer
to the country of which it is the currency .
(b) Upon the issuance of any letter of credit payable in
a currency other than United States Dollars, Bank shall create a reserve under
the Committed Line for letters of credit against fluctuations in currency
exchange rates, in an amount equal to twenty percent (20%) of the face amount of
such letter of credit. The amount of such reserve may be amended by Bank from
time to time to account for fluctuations in the exchange rate. The availability
of funds under the Committed Line shall be reduced by the amount of such reserve
for so long as such letter of credit remains outstanding.
2.1.4 Equipment Advances.
------------------
(a) At any time from the date hereof through the
Revolving Maturity Date, Borrower may from time to time request advances (each
an "Equipment Advance" and, collectively, the "Equipment Advances") from Bank in
an aggregate principal amount of up to Eight Hundred Fifty Thousand Dollars
($850,000). Each Equipment Advance shall be in a minimum amount of Twenty Five
Thousand Dollars ($25,000). The Equipment Advances shall be used to purchase
Equipment approved from time to time by Bank and shall not exceed one hundred
percent (100%) of the cost of such Equipment, excluding installation expense,
freight discounts, warranty charges and taxes. Not more than twenty five percent
(25%) of each Equipment Advance may be for software or Equipment purchased
before the Closing Date, except (i) one (1) Equipment Advance may fund the
prepayment and termination of equipment leases for Equipment acquired since June
1, 1995 and (ii) one (1) Equipment Advance in an amount up to Three Hundred
Thousand Dollars ($300,000) (of which no more than Seventy Five Thousand Dollars
($75,000) may be for installation, freight, warranty charges and taxes) may
finance the acquisition of Equipment in connection with Borrower's occupancy of
its new offices.
(b) Interest shall accrue from the date of each Equipment
Advance made on or prior to December 13, 1996 at the rate specified in Section
2.3(a), and shall be payable monthly on the thirteenth day of each month
immediately following the date of such Equipment Advance through December 13,
1996. The Equipment Advance or Equipment Advances that are outstanding on
December 13, 1996 shall be payable in thirty-six (36) equal monthly installments
of principal, plus accrued interest, beginning on January 13, 1997.
Interest shall accrue from the date of each Equipment
Advance made from December 14, 1996 through June 13, 1997 at the rate specified
in Section 2.3(a), and shall be payable monthly on the thirteenth day of each
month from the date of such Equipment Advance through June 13, 1997. The
Equipment Advance or Equipment Advances that are outstanding on June 13, 1997
shall be payable in thirty-six (36) equal monthly installments of principal,
plus accrued interest, beginning on July 13, 1997. The entire unpaid principal
balance of the Equipment Advances plus accrued but unpaid interest shall be due
and payable on the Maturity Date.
(c) When Borrower desires to obtain an Equipment Advance,
Borrower shall notify Bank (which notice shall be irrevocable) by facsimile
transmission received no later than 3:00 p.m. California time one (1) Business
Day before the day on which the Equipment Advance is to be made. Such notice
<PAGE>
shall be in substantially the form of Exhibit B. The notice shall be signed by
---------
a Responsible Officer and include a copy of the invoice for the Equipment to be
financed.
2.2 Overadvances. If, at any time or for any reason, the amount of
------------
Obligations owed by Borrower to Bank pursuant to Section 2.1 of this Agreement
is greater than the lesser of (i) the Committed Line or (ii) the Borrowing Base,
Borrower shall immediately pay to Bank, in cash, the amount of such excess.
2.3 Interest Rates, Payments, and Calculations.
------------------------------------------
(a) Interest Rate. Except as set forth in Section 2.3(b), any
-------------
Advances shall bear interest, on the average Daily Balance, at a rate equal to
one (1.0) percentage points above the Prime Rate. Except as set forth in Section
2.3(b), any Equipment Advances shall bear interest on the average Daily Balance,
at a rate equal to two and one-half (2.5) percentage points above the Prime
Rate.
(b) Default Rate. All Obligations shall bear interest, from
------------
and after the occurrence of an Event of Default, at a rate equal to five (5)
percentage points above the interest rate applicable immediately prior to the
occurrence of the Event of Default.
(c) Payments. Interest hereunder shall be due and payable on
--------
the thirteenth calendar day of each month during the term hereof. Bank shall, at
its option, charge such interest, all Bank Expenses, and all Periodic Payments
against any of Borrower's deposit accounts or against the Committed Line, in
which case those amounts shall thereafter accrue interest at the rate then
applicable hereunder. Any interest not paid when due shall be compounded by
becoming a part of the Obligations, and such interest shall thereafter accrue
interest at the rate then applicable hereunder.
(d) Computation. In the event the Prime Rate is changed from
-----------
time to time hereafter, the applicable rate of interest hereunder shall be
increased or decreased effective as of 12:01 a.m. on the day the Prime Rate is
changed, by an amount equal to such change in the Prime Rate. All interest
chargeable under the Loan Documents shall be computed on the basis of a three
hundred sixty (360) day year for the actual number of days elapsed.
2.4 Crediting Payments. Prior to the occurrence of an Event of
------------------
Default, Bank shall credit a wire transfer of funds, check or other item of
payment to such deposit account or Obligation as Borrower specifies. After the
occurrence of an Event of Default, the receipt by Bank of any wire transfer of
funds, check, or other item of payment shall be immediately applied to
conditionally reduce Obligations, but shall not be considered a payment on
account unless such payment is of immediately available federal funds or unless
and until such check or other item of payment is honored when presented for
payment. Notwithstanding anything to the contrary contained herein, any wire
transfer or payment received by Bank after 12:00 noon California time shall be
deemed to have been received by Bank as of the opening of business on the
immediately following Business Day. Whenever any payment to Bank under the Loan
Documents would otherwise be due (except by reason of acceleration) on a date
that is not a Business Day, such payment shall instead be due on the next
Business Day, and additional fees or interest, as the case may be, shall accrue
and be payable for the period of such extension.
2.5 Fees. Borrower shall pay to Bank the following:
----
(a) Facility Fee. A Facility Fee equal to Two Thousand Five
------------
Hundred Dollars ($2,500), which fee shall be due upon the making of the first
Advance (which shall not include issuing the Landlord Letter of Credit), plus
Two Thousand Five Hundred Dollars ($2,500), which shall be payable when the
aggregate Advances (excluding the Landlord Letter of Credit) exceed Five Hundred
Thousand Dollars ($500,000), plus Four Thousand Two Hundred Fifty Dollars
($4,250), which shall be due on the Closing Date and shall be fully earned and
nonrefundable;
(b) Financial Examination and Appraisal Fees. Bank's customary
----------------------------------------
fees and out-of-pocket expenses for Bank's audits of Borrower's Accounts (not to
exceed $400 per audit), and for each appraisal of Collateral and financial
analysis and examination of Borrower performed from time to time by Bank or its
agents
<PAGE>
conducted in compliance with Section 6.3 herein;
(c) Bank Expenses. Upon the date hereof, all Bank Expenses
-------------
incurred through the Closing Date, including reasonable attorneys' fees and
expenses (not to exceed $1,500), and, after the date hereof, all Bank Expenses,
including reasonable attorneys' fees and expenses, as and when they become due.
2.6 Additional Costs. In case any change in any law, regulation,
----------------
treaty or official directive or the interpretation or application thereof by any
court or any governmental authority charged with the administration thereof or
the compliance with any guideline or request of any central bank or other
governmental authority (whether or not having the force of law), in each case
after the date of this Agreement:
(a) subjects Bank to any tax with respect to payments of
principal or interest or any other amounts payable hereunder by Borrower or
otherwise with respect to the transactions contemplated hereby (except for taxes
on the overall net income of Bank imposed by the United States of America or any
political subdivision thereof);
(b) imposes, modifies or deems applicable any deposit insurance,
reserve, special deposit or similar requirement against assets held by, or
deposits in or for the account of, or loans by, Bank; or
(c) imposes upon Bank any other condition with respect to its
performance under this Agreement,
and the result of any of the foregoing is to increase the cost to Bank, reduce
the income receivable by Bank or impose any expense upon Bank with respect to
any loans, Bank shall notify Borrower thereof. Borrower agrees to pay to Bank
the amount of such increase in cost, reduction in income or additional expense
as and when such cost, reduction or expense is incurred or determined, upon
presentation by Bank of a statement of the amount and setting forth Bank's
calculation thereof, all in reasonable detail, which statement shall be deemed
true and correct absent manifest error; provided, however, that the Borrower
shall not be liable for any such amount attributable to any period prior to the
date one hundred and eighty (180) days prior to the date of such certificate.
Bank agrees that it will allocate all such increased costs among its customers
similarly affected in good faith and in a manner consistent with Bank's
customary practice.
2.7 Term. This Agreement shall become effective on the Closing Date
----
and, subject to Section 12.7, shall continue in full force and effect for a term
ending on the Maturity Date. Notwithstanding the foregoing, Bank shall have the
right to terminate its obligation to make Advances under this Agreement
immediately and without notice upon the occurrence and during the continuance of
an Event of Default. Notwithstanding termination, Bank's Lien on the Collateral
shall remain in effect for so long as any Obligations are outstanding.
3. CONDITIONS OF LOANS
-------------------
3.1 Conditions Precedent to Initial Advance. The obligation of Bank
---------------------------------------
to make the initial Advance is subject to the condition precedent that Bank
shall have received, in form and substance satisfactory to Bank, the following:
(a) this Agreement;
(b) a certificate of the Secretary of Borrower with respect to
incumbency and resolutions authorizing the execution and delivery of this
Agreement;
(c) a collateral assignment and patent mortgage;
(d) an audit of Borrower's Accounts (provided the Landlord
Letter of Credit shall not be deemed an "Advance" for the purpose of this clause
(d);
(e) financing statement (Form UCC-1);
<PAGE>
(f) insurance certificate;
(g) payment of the fees and Bank Expenses then due specified in
Section 2.5 hereof; and
(h) such other documents, and completion of such other matters,
as Bank may reasonably deem necessary or appropriate.
3.2 Conditions Precedent to all Advances. The obligation of Bank
------------------------------------
to make each Advance, including the initial Advance, is further subject to the
following conditions:
(a) timely receipt by Bank of the Payment/Advance Form as
provided in Section 2.1; and
(b) the representations and warranties contained in Section 5
shall be true and correct in all material respects on and as of the date of such
Payment/Advance Form and on the effective date of each Advance as though made at
and as of each such date, and no Event of Default shall have occurred and be
continuing, or would result from such Advance. The making of each Advance shall
be deemed to be a representation and warranty by Borrower on the date of such
Advance as to the accuracy of the facts referred to in this Section 3.2(b).
4. CREATION OF SECURITY INTEREST
-----------------------------
4.1 Grant of Security Interest. Borrower grants and pledges to Bank
--------------------------
a continuing security interest in all presently existing and hereafter acquired
or arising Collateral in order to secure prompt repayment of any and all
Obligations and in order to secure prompt performance by Borrower of each of its
covenants and duties under the Loan Documents. Except as set forth in the
Schedule, such security interest constitutes a valid, first priority security
interest in the presently existing Collateral, and will constitute a valid,
first priority security interest in Collateral acquired after the date hereof.
4.2 Delivery of Additional Documentation Required. Borrower shall
---------------------------------------------
from time to time execute and deliver to Bank, at the request of Bank, all
Negotiable Collateral, all financing statements and other documents that Bank
may reasonably request, in form satisfactory to Bank, to perfect and continue
perfected Bank's security interests in the Collateral and in order to fully
consummate all of the transactions contemplated under the Loan Documents.
4.3 Right to Inspect. Bank (through any of its officers, employees,
----------------
or agents) shall have the right, upon reasonable prior notice, from time to time
during Borrower's usual business hours, to inspect Borrower's Books and to make
copies thereof and to check, test, and appraise the Collateral in order to
verify Borrower's financial condition or the amount, condition of, or any other
matter relating to, the Collateral.
5. REPRESENTATIONS AND WARRANTIES
------------------------------
Borrower represents and warrants as follows:
5.1 Due Organization and Qualification. Borrower and each
----------------------------------
Subsidiary is a corporation duly existing and in good standing under the laws of
its state of incorporation and qualified and licensed to do business in, and is
in good standing in, any state in which the conduct of its business or its
ownership of property requires that it be so qualified.
5.2 Due Authorization; No Conflict. The execution, delivery, and
------------------------------
performance of the Loan Documents are within Borrower's powers, have been duly
authorized, and are not in conflict with nor constitute a breach of any
provision contained in Borrower's Articles of Incorporation or Bylaws, nor will
they constitute an event of default under any material agreement to which
Borrower is a party or by which Borrower is bound. Borrower is not in default
under any agreement to which it is a party or by which it is bound, which
default could
<PAGE>
have a Material Adverse Effect.
5.3 No Prior Encumbrances. Borrower has good and indefeasible title
---------------------
to the Collateral, free and clear of Liens, except for Permitted Liens.
5.4 Bona Fide Eligible Accounts. The Eligible Accounts are bona fide
---------------------------
existing obligations. The property giving rise to such Eligible Accounts has
been delivered to the account debtor or to the account debtor's agent for
immediate shipment to and unconditional acceptance by the account debtor.
Borrower has not received notice of actual or imminent Insolvency Proceeding of
any account debtor that is included in any Borrowing Base Certificate as an
Eligible Account.
5.5 Merchantable Inventory. All Inventory is in all material
----------------------
respects of good and marketable quality, free from all material defects.
5.6 Name; Location of Chief Executive Office. Except as disclosed in
----------------------------------------
the Schedule, Borrower has not done business under any name other than that
specified on the signature page hereof. The chief executive office of Borrower
is located at the address indicated in Section 10 hereof.
5.7 Litigation. Except as set forth in the Schedule, there are no
----------
actions or proceedings pending by or against Borrower or any Subsidiary before
any court or administrative agency in which an adverse decision could have a
Material Adverse Effect or a material adverse effect on Borrower's interest or
Bank's security interest in the Collateral. Borrower does not have knowledge of
any such pending or threatened actions or proceedings.
5.8 No Material Adverse Change in Financial Statements. All
--------------------------------------------------
consolidated financial statements related to Borrower and any Subsidiary that
have been delivered by Borrower to Bank fairly present in all material respects
Borrower's consolidated financial condition as of the date thereof and
Borrower's consolidated results of operations for the period then ended. There
has not been a material adverse change in the consolidated financial condition
of Borrower since the date of the most recent of such financial statements
submitted to Bank.
5.9 Solvency. Borrower is solvent and able to pay its debts
--------
(including trade debts) as they mature.
5.10 Regulatory Compliance. Borrower and each Subsidiary has met the
---------------------
minimum funding requirements of ERISA with respect to any employee benefit plans
subject to ERISA. No event has occurred resulting from Borrower's failure to
comply with ERISA that is reasonably likely to result in Borrower's incurring
any liability that could have a Material Adverse Effect. Borrower is not an
"investment company" or a company "controlled" by an "investment company" within
the meaning of the Investment Company Act of 1940. Borrower is not engaged
principally, or as one of the important activities, in the business of extending
credit for the purpose of purchasing or carrying margin stock (within the
meaning of Regulations G, T and U of the Board of Governors of the Federal
Reserve System). Borrower has complied with all the provisions of the Federal
Fair Labor Standards Act. Borrower has not violated any statutes, laws,
ordinances or rules applicable to it, violation of which could have a Material
Adverse Effect.
5.11 Environmental Condition. None of Borrower's or any Subsidiary's
-----------------------
properties or assets has ever been used by Borrower or any Subsidiary or, to the
best of Borrower's knowledge, by previous owners or operators, in the disposal
of, or to produce, store, handle, treat, release, or transport, any hazardous
waste or hazardous substance other than in accordance with applicable law; to
the best of Borrower's knowledge, none of Borrower's properties or assets has
ever been designated or identified in any manner pursuant to any environmental
protection statute as a hazardous waste or hazardous substance disposal site, or
a candidate for closure pursuant to any environmental protection statute; no
lien arising under any environmental protection statute has attached to any
revenues or to any real or personal property owned by Borrower or any
Subsidiary; and neither Borrower nor any Subsidiary has received a summons,
citation, notice, or directive from the Environmental Protection Agency or any
other federal, state or other governmental agency concerning any action or
omission by Borrower or any Subsidiary resulting in the releasing, or otherwise
disposing of hazardous waste or hazardous substances into the environment.
<PAGE>
5.12 Taxes. Borrower and each Subsidiary has filed or caused to be
-----
filed all tax returns required to be filed, and has paid, or has made adequate
provision for the payment of, all taxes reflected therein.
5.13 Subsidiaries. Borrower does not own any stock, partnership
------------
interest or other equity securities of any Person, except for Permitted
Investments.
5.14 Government Consents. Borrower and each Subsidiary has obtained
-------------------
all consents, approvals and authorizations of, made all declarations or filings
with, and given all notices to, all governmental authorities that are necessary
for the continued operation of Borrower's business as currently conducted.
5.15 Full Disclosure. No representation, warranty or other statement
---------------
made by Borrower in any certificate or written statement furnished to Bank
contains any untrue statement of a material fact or omits to state a material
fact necessary in order to make the statements contained in such certificates or
statements not misleading.
6. AFFIRMATIVE COVENANTS
---------------------
Borrower covenants and agrees that, until payment in full of all
outstanding Obligations, and for so long as Bank may have any commitment to make
an Advance hereunder, Borrower shall do all of the following:
6.1 Good Standing. Borrower shall maintain its and each of its
-------------
Subsidiaries' corporate existence and good standing in its jurisdiction of
incorporation and maintain qualification in each jurisdiction in which the
failure to so qualify could have a Material Adverse Effect. Borrower shall
maintain, and shall cause each of its Subsidiaries to maintain, to the extent
consistent with prudent management of Borrower's business, in force all
licenses, approvals and agreements, the loss of which could reasonably be likely
to have a Material Adverse Effect.
6.2 Government Compliance. Borrower shall meet, and shall cause each
---------------------
Subsidiary to meet, the minimum funding requirements of ERISA with respect to
any employee benefit plans subject to ERISA. Borrower shall comply, and shall
cause each Subsidiary to comply, with all statutes, laws, ordinances and
government rules and regulations to which it is subject, noncompliance with
which could reasonably be likely to have a Material Adverse Effect or a material
adverse effect on the Collateral or the priority of Bank's Lien on the
Collateral.
6.3 Financial Statements, Reports, Certificates. Borrower shall
-------------------------------------------
deliver to Bank: (a) as soon as available, but in any event within thirty (30)
days after the end of each month, a company prepared consolidated balance sheet
and income statement covering Borrower's consolidated operations during such
period, certified by a Responsible Officer; (b) as soon as available, but in any
event within ninety (90) days after the end of Borrower's fiscal year, audited
consolidated financial statements of Borrower prepared in accordance with GAAP,
consistently applied, together with an unqualified opinion on such financial
statements of an independent certified public accounting firm reasonably
acceptable to Bank (provided that the audited financial statements and opinion
for the fiscal year ending December 31, 1995, shall be due by July 30, 1996);
(c) within five (5) days upon becoming available, copies of all statements,
reports and notices sent or made available generally by Borrower to its security
holders or to any holders of Subordinated Debt and all reports on Form 10-K and
10-Q filed with the Securities and Exchange Commission; (d) promptly upon
receipt of notice thereof, a report of any legal actions pending or threatened
against Borrower or any Subsidiary that could reasonably be likely to result in
damages or costs to Borrower or any Subsidiary of One Hundred Thousand Dollars
($100,000) or more; and (e) such budgets, sales projections, operating plans or
other financial information as Bank may reasonably request from time to time.
Within twenty (20) days after the last day of each month, Borrower shall
deliver to Bank a Borrowing Base Certificate signed by a Responsible Officer in
substantially the form of Exhibit C hereto, together with aged listings of
---------
accounts receivable and accounts payable, a pre-billing schedule and a
subscriber base schedule.
Borrower shall deliver to Bank with the monthly financial statements a
Compliance Certificate signed by a Responsible Officer in substantially the form
of Exhibit D hereto.
---------
<PAGE>
Bank shall have a right from time to time hereafter to audit Borrower's
Accounts at Borrower's expense, provided that such audits will be conducted no
more often than every six (6) months unless an Event of Default has occurred and
is continuing.
6.4 Inventory; Returns. Borrower shall keep all Inventory in good
------------------
and marketable condition, free from all material defects. Returns and
allowances, if any, as between Borrower and its account debtors shall be on the
same basis and in accordance with the usual customary practices of Borrower, as
they exist at the time of the execution and delivery of this Agreement. Borrower
shall promptly notify Bank of all returns and recoveries and of all disputes and
claims, where the return, recovery, dispute or claim involves more than Fifty
Thousand Dollars ($50,000).
6.5 Taxes. Borrower shall make, and shall cause each Subsidiary to
-----
make, due and timely payment or deposit of all material federal, state, and
local taxes, assessments, or contributions required of it by law, and will
execute and deliver to Bank, on demand, appropriate certificates attesting to
the payment or deposit thereof; and Borrower will make, and will cause each
Subsidiary to make, timely payment or deposit of all material tax payments and
withholding taxes required of it by applicable laws, including, but not limited
to, those laws concerning F.I.C.A., F.U.T.A., state disability, and local,
state, and federal income taxes, and will, upon request, furnish Bank with proof
satisfactory to Bank indicating that Borrower or a Subsidiary has made such
payments or deposits; provided that Borrower or a Subsidiary need not make any
payment if the amount or validity of such payment is contested in good faith by
appropriate proceedings and is reserved against (to the extent required by GAAP)
by Borrower.
6.6 Insurance.
---------
(a) Borrower, at its expense, shall keep the Collateral insured
against loss or damage by fire, theft, explosion, sprinklers, and all other
hazards and risks, and in such amounts, as ordinarily insured against by other
owners in similar businesses conducted in the locations where Borrower's
business is conducted on the date hereof. Borrower shall also maintain
insurance relating to Borrower's ownership and use of the Collateral in amounts
and of a type that are customary to businesses similar to Borrower's.
(b) All such policies of insurance shall be in such form, with
such companies, and in such amounts as reasonably satisfactory to Bank. All such
policies of property insurance shall contain a lender's loss payable
endorsement, in a form satisfactory to Bank, showing Bank as an additional loss
payee thereof and all liability insurance policies shall show the Bank as an
additional insured, and shall specify that the insurer must give at least twenty
(20) days notice to Bank before canceling its policy for any reason. Upon Bank's
request, Borrower shall deliver to Bank certified copies of such policies of
insurance and evidence of the payments of all premiums therefor. All proceeds
payable under any such policy shall, at the option of Bank, be payable to Bank
to be applied on account of the Obligations.
6.7 Principal Depository. Borrower shall within sixty (60) days of
--------------------
the date of this Agreement establish its principal depository and operating
accounts with Bank and shall thereafter maintain its principal depository and
operating accounts with Bank.
6.8 Quick Ratio. Borrower shall maintain, as of the last day of each
-----------
calendar month, a ratio of Quick Assets to Current Liabilities (excluding
deferred revenues) of at least 1.25 to 1.0.
6.9 Debt-Net Worth Ratio. Borrower shall maintain, as of the last
--------------------
day of each calendar month, a ratio of Total Liabilities (excluding deferred
revenue) less Subordinated Debt to Tangible Net Worth plus Subordinated Debt of
not more than 4.0 to 1.0.
6.10 Tangible Net Worth. Borrower shall maintain, as of the last day
------------------
of each calendar month, a Tangible Net Worth of not less than Five Hundred
Thousand Dollars ($500,000), plus seventy-five percent (75%) of the proceeds
from the sale of Borrower's equity securities.
6.11 Liquidity. Borrower shall maintain, as of the last day of each
---------
month, a balance of (i)
<PAGE>
unencumbered and unrestricted cash and cash equivalents plus (ii) the lesser of
----
the Committed Line or the Borrowing Base minus the aggregate outstanding
-----
Advances, of not less than two (2) times the aggregate outstanding Equipment
Advances.
6.12 Registration of Intellectual Property Rights. Borrower shall
--------------------------------------------
register or cause to be registered (to the extent not already registered) with
the United States Patent and Trademark Office or the United States Copyright
Office, as applicable, those intellectual property rights listed on Exhibits A,
B and C to the Collateral Assignment, Patent Mortgage and Security Agreement
delivered to Bank by Borrower in connection with this Agreement within thirty
(30) days of the date of this Agreement. Borrower shall register or cause to be
registered with the United States Patent and Trademark Office or the United
States Copyright Office, as applicable, those additional intellectual property
rights developed or acquired by Borrower from which any of the Borrower's
revenue is generated from time to time in connection with any product prior to
the sale or licensing of such product to any third party, including without
limitation revisions or additions to the intellectual property rights listed on
such Exhibits A, B and C. Borrower shall execute and deliver such additional
instruments and documents from time to time as Bank shall reasonably request to
perfect Bank's security interest in such additional intellectual property
rights.
6.13 Further Assurances. At any time and from time to time Borrower
------------------
shall execute and deliver such further instruments and take such further action
as may reasonably be requested by Bank to effect the purposes of this Agreement.
7. NEGATIVE COVENANTS
------------------
Borrower covenants and agrees that, so long as any credit hereunder
shall be available and until payment in full of the outstanding Obligations or
for so long as Bank may have any commitment to make any Advances, Borrower will
not do any of the following:
7.1 Dispositions. Convey, sell, lease, transfer or otherwise dispose
------------
of (collectively, a "Transfer"), or permit any of its Subsidiaries to Transfer,
all or any part of its business or property, other than: (i) Transfers of
Inventory in the ordinary course of business; (ii) Transfers of non-exclusive
licenses and similar arrangements for the use of the property of Borrower or its
Subsidiaries; or (iii) Transfers of worn-out or obsolete Equipment.
7.2 Change in Business. Engage in any business, or permit any of its
------------------
Subsidiaries to engage in any business, other than the businesses currently
engaged in by Borrower and any business substantially similar or related thereto
(or incidental thereto), or suffer a material change in Borrower's ownership.
Borrower will not, without thirty (30) days prior written notification to Bank,
relocate its chief executive office.
7.3 Mergers or Acquisitions. Merge or consolidate, or permit any of
-----------------------
its Subsidiaries to merge or consolidate, with or into any other business
organization, or acquire, or permit any of its Subsidiaries to acquire, all or
substantially all of the capital stock or property of another Person.
7.4 Indebtedness. Create, incur, assume or be or remain liable with
------------
respect to any-Indebtedness, or permit any Subsidiary so to do, other than
Permitted Indebtedness.
7.5 Encumbrances. Create, incur, assume or suffer to exist any Lien
------------
with respect to any of its property, or assign or otherwise convey any right to
receive income, including the sale of any Accounts, or permit any of its
Subsidiaries so to do, except for Permitted Liens.
7.6 Distributions. Pay any dividends or make any other distribution
-------------
or payment on account of or in redemption, retirement or purchase of any capital
stock.
7.7 Investments. Directly or indirectly acquire or own, or make any
-----------
Investment in or to any Person, or permit any of its Subsidiaries so to do,
other than Permitted Investments.
<PAGE>
7.8 Transactions with Affiliates. Directly or indirectly enter into
----------------------------
or permit to exist any material transaction with any Affiliate of Borrower
except for transactions that are in the ordinary course of Borrower's business,
upon fair and reasonable terms that are no less favorable to Borrower than would
be obtained in an arm's length transaction with a nonaffiliated Person.
7.9 Subordinated Debt. Make any payment in respect of any
-----------------
Subordinated Debt, or permit any of its Subsidiaries to make any such payment,
except in compliance with the terms of such Subordinated Debt, or amend any
provision contained in any documentation relating to the Subordinated Debt
without Bank's prior written consent.
7.10 Inventory. Store the Inventory with a bailee, warehouseman, or
---------
similar party unless Bank has received a pledge of the warehouse receipt
covering such Inventory. Except for Inventory sold in the ordinary course of
business and except for such other locations as Bank may approve in writing,
Borrower shall keep the Inventory only at the location set forth in Section 10
hereof and such other locations of which Borrower gives Bank prior written
notice and as to which Borrower signs and files a financing statement where
needed to perfect Bank's security interest.
7.11 Compliance. Become an "investment company" controlled by an
----------
"investment company," within the meaning of the Investment Company Act of 1940,
or become principally engaged in, or undertake as one of its important
activities, the business of extending credit for the purpose of purchasing or
carrying margin stock, or use the proceeds of any Advance for such purpose. Fail
to meet the minimum funding requirements of ERISA, permit a Reportable Event or
Prohibited Transaction, as defined in ERISA, to occur, fail to comply with the
Federal Fair Labor Standards Act or violate any law or regulation, which
violation could reasonably be likely to have a Material Adverse Effect or a
material adverse effect on the Collateral or the priority of Bank's Lien on the
Collateral, or permit any of its Subsidiaries to do any of the foregoing.
8. EVENTS OF DEFAULT
-----------------
Any one or more of the following events shall constitute an Event of
Default by Borrower under this Agreement:
8.1 Payment Default. If Borrower fails to pay the principal of, or
---------------
any interest on, any Advances when due and payable; or fails to pay any portion
of any other Obligations not constituting such principal or interest, including
without limitation Bank Expenses, within thirty (30) days of receipt by Borrower
of an invoice for such other Obligations;
8.2 Covenant Default. If Borrower fails to perform any obligation
----------------
under Sections 6.7, 6.8, 6.9, 6.10, or 6.11 or violates any of the covenants
contained in Article 7 of this Agreement, or fails or neglects to perform, keep,
or observe any other material term, provision, condition, covenant, or agreement
contained in this Agreement, in any of the Loan Documents, or in any other
present or future agreement between Borrower and Bank and as to any default
under such other term, provision, condition, covenant or agreement that can be
cured, has failed to cure such default within ten (10) days after Borrower
receives notice thereof or any officer of Borrower becomes aware thereof;
provided, however, that if the default cannot by its nature be cured within the
ten (10) day period or cannot after diligent attempts by Borrower be cured
within such ten (10) day period, and such default is likely to be cured within a
reasonable time, then Borrower shall have an additional reasonable period (which
shall not in any case exceed thirty (30) days) to attempt to cure such default,
and within such reasonable time period the failure to have cured such default
shall not be deemed an Event of Default (provided that no Advances will be
required to be made during such cure period);
8.3 Material Adverse Change. If there occurs a material adverse
-----------------------
change in Borrower's business or financial condition, or if there is a material
impairment of the prospect of repayment of any portion of the Obligations or a
material impairment of the value or priority of Bank's security interests in the
Collateral;
8.4 Attachment. If any material portion of Borrower's assets is
----------
attached, seized, subjected to a writ or distress warrant, or is levied upon, or
comes into the possession of any trustee, receiver or person acting in a
<PAGE>
similar capacity and such attachment, seizure, writ or distress warrant or levy
has not been removed, discharged or rescinded within ten (10) days, or if
Borrower is enjoined, restrained, or in any way prevented by court order from
continuing to conduct all or any material part of its business affairs, or if a
judgment or other claim becomes a lien or encumbrance upon any material portion
of Borrower's assets, or if a notice of lien, levy, or assessment is filed of
record with respect to any of Borrower's assets by the United States Government,
or any department, agency, or instrumentality thereof, or by any state, county,
municipal, or governmental agency, and the same is not paid within ten (10) days
after Borrower receives notice thereof, provided that none of the foregoing
shall constitute an Event of Default where such action or event is stayed or an
adequate bond has been posted pending a good faith contest by Borrower (provided
that no Advances will be required to be made during such cure period);
8.5 Insolvency. If Borrower becomes insolvent, or if an Insolvency
----------
Proceeding is commenced by Borrower, or if an Insolvency Proceeding is commenced
against Borrower and is not dismissed or stayed within ten (10) days (provided
that no Advances will be made prior to the dismissal of such Insolvency
Proceeding);
8.6 Other Agreements. If there is a default in any agreement to
----------------
which Borrower is a party with a third party or parties resulting in a right by
such third party or parties, whether or not exercised, to accelerate the
maturity of any Indebtedness in an amount in excess of One Hundred Thousand
Dollars ($100,000) or that could have a Material Adverse Effect;
8.7 Subordinated Debt. If Borrower makes any payment on account of
-----------------
Subordinated Debt, except to the extent such payment is allowed under any
subordination agreement entered into with Bank;
8.8 Judgments. If a judgment or judgments for the payment of money
---------
in an amount, individually or in the aggregate, of at least Fifty Thousand
Dollars ($50,000) shall be rendered against Borrower and shall remain
unsatisfied and unstayed for a period of ten (10) days (provided that no
Advances will be made prior to the satisfaction or stay of such judgment); or
8.9 Misrepresentations. If any material misrepresentation or
------------------
material misstatement exists now or hereafter in any warranty or representation
set forth herein or in any certificate delivered to Bank by any Responsible
Officer pursuant to this Agreement or to induce Bank to enter into this
Agreement or any other Loan Document.
9. BANK'S RIGHTS AND REMEDIES
--------------------------
9.1 Rights and Remedies. Upon the occurrence and during the
-------------------
continuance of an Event of Default, Bank may, at its election, without notice of
its election and without demand, do any one or more of the following, all of
which are authorized by Borrower:
(a) Declare all Obligations, whether evidenced by this
Agreement, by any of the other Loan Documents, or otherwise, immediately due and
payable (provided that upon the occurrence of an Event of Default described in
Section 8.5 all Obligations shall become immediately due and payable without any
action by Bank);
(b) Cease advancing money or extending credit to or for the
benefit of Borrower under this Agreement or under any other agreement between
Borrower and Bank;
(c) Demand that Borrower (i) deposit cash with Bank in an amount
equal to the amount of any Letters of Credit remaining undrawn, as collateral
security for the repayment of any future drawings under such Letters of Credit,
and Borrower shall forthwith deposit and pay such amounts, and (ii) pay in
advance all Letters of Credit fees scheduled to be paid or payable over the
remaining term of the Letters of Credit;
(d) Settle or adjust disputes and claims directly with account
debtors for amounts, upon terms and in whatever order that Bank reasonably
considers advisable;
<PAGE>
(e) Without notice to or demand upon Borrower, make such
payments and do such acts as Bank considers necessary or reasonable to protect
its security interest in the Collateral. Borrower agrees to assemble the
Collateral if Bank so requires, and to make the Collateral available to Bank as
Bank may designate. Borrower authorizes Bank to enter the premises where the
Collateral is located, to take and maintain possession of the Collateral, or any
part of it, and to pay, purchase, contest, or compromise any encumbrance,
charge, or lien which in Bank's determination appears to be prior or superior to
its security interest and to pay all expenses incurred in connection therewith.
With respect to any of Borrower's owned premises, Borrower hereby grants Bank a
license to enter into possession of such premises and to occupy the same,
without charge, in order to exercise any of Bank's rights or remedies provided
herein, at law, in equity, or otherwise ;
(f) Without notice to Borrower set off and apply to the
Obligations any and all (i) balances and deposits of Borrower held by Bank, or
(ii) indebtedness at any time owing to or for the credit or the account of
Borrower held by Bank;
(g) Ship, reclaim, recover, store, finish, maintain, repair,
prepare for sale, advertise for sale, and sell (in the manner provided for
herein) the Collateral. Bank is hereby granted a license or other right, solely
pursuant to the provisions of this Section 9.1, to use, without charge,
Borrower's labels, patents, copyrights, rights of use of any name, trade
secrets, trade names, trademarks, service marks, and advertising matter, or any
property of a similar nature, as it pertains to the Collateral, in completing
production of, advertising for sale, and selling any Collateral and, in
connection with Bank's exercise of its rights under this Section 9.1, Borrower's
rights under all licenses and all franchise agreements shall inure to Bank's
benefit;
(h) Sell the Collateral at either a public or private sale, or
both, by way of one or more contracts or transactions, for cash or on terms, in
such manner and at such places (including Borrower's premises) as Bank
determines is commercially reasonable, and apply any proceeds to the Obligations
in whatever manner or order Bank deems appropriate;
(i) Bank may credit bid and purchase at any public sale; and
(j) Any deficiency that exists after disposition of the
Collateral as provided above will be paid immediately by Borrower.
9.2 Power of Attorney. Effective only upon the occurrence and during
-----------------
the continuance of an Event of Default, Borrower hereby irrevocably appoints
Bank (and any of Bank's designated officers, or employees) as Borrower's true
and lawful attorney to: (a) send requests for verification of Accounts or notify
account debtors of Bank's security interest in the Accounts; (b) endorse
Borrower's name on any checks or other forms of payment or security that may
come into Bank's possession; (c) sign Borrower's name on any invoice or bill of
lading relating to any Account, drafts against account debtors, schedules and
assignments of Accounts, verifications of Accounts, and notices to account
debtors; (d) make, settle, and adjust all claims under and decisions with
respect to Borrower's policies of insurance; and (e) settle and adjust disputes
and claims respecting the accounts directly with account debtors, for amounts
and upon terms which Bank determines to be reasonable; provided Bank may
exercise such power of attorney to sign the name of Borrower on any of the
documents described in Section 4.2 regardless of whether an Event of Default has
occurred. The appointment of Bank as Borrower's attorney in fact, and each and
every one of Bank's rights and powers, being coupled with an interest, is
irrevocable until all of the Obligations have been fully repaid and performed
and Bank's obligation to provide advances hereunder is terminated, provided that
such appointments triggered by an Event of Default shall be irrevocable until
the Event of Default is cured, to the extent such Event of Default may be cured.
9.3 Accounts Collection. At any time from the date of this
-------------------
Agreement, Bank may notify any Person owing funds to Borrower of Bank's security
interest in such funds and verify the amount of such Account. Borrower shall
collect all amounts owing to Borrower for Bank, receive in trust all payments as
Bank's trustee, and immediately deliver such payments to Bank in their original
form as received from the account debtor, with proper endorsements for deposit.
9.4 Bank Expenses. If Borrower fails to pay any amounts or furnish
-------------
any required proof of
<PAGE>
payment due to third persons or entities, as required under the terms of this
Agreement, then Bank may do any or all of the following: (a) make payment of the
same or any part thereof; (b) set up such reserves under the Revolving Facility
as Bank deems necessary to protect Bank from the exposure created by such
failure; or (c) obtain and maintain insurance policies of the type discussed in
Section 6.6 of this Agreement, and take any action with respect to such policies
as Bank deems prudent. Any amounts so paid or deposited by Bank shall constitute
Bank Expenses, shall be immediately due and payable, and shall bear interest at
the then applicable rate hereinabove provided, and shall be secured by the
Collateral. Any payments made by Bank shall not constitute an agreement by Bank
to make similar payments in the future or a waiver by Bank of any Event of
Default under this Agreement.
9.5 Bank's Liability for Collateral. So long as Bank complies with
-------------------------------
reasonable banking practices, Bank shall not in any way or manner be liable or
responsible for: (a) the safekeeping of the Collateral; (b) any loss or damage
thereto occurring or arising in any manner or fashion from any cause; (c) any
diminution in the value thereof; or (d) any act or default of any carrier,
warehouseman, bailee, forwarding agency, or other person whomsoever. All risk of
loss, damage or destruction of the Collateral shall be borne by Borrower.
9.6 Remedies Cumulative. Bank's rights and remedies under this
-------------------
Agreement, the Loan Documents, and all other agreements shall be cumulative.
Bank shall have all other rights and remedies not inconsistent herewith as
provided under the Code, by law, or in equity. No exercise by Bank of one right
or remedy shall be deemed an election, and no waiver by Bank of any Event of
Default on Borrower's part shall be deemed a continuing waiver. No delay by Bank
shall constitute a waiver, election, or acquiescence by it. No waiver by Bank
shall be effective unless made in a written document signed on behalf of Bank
and then shall be effective only in the specific instance and for the specific
purpose for which it was given.
9.7 Demand; Protest. Borrower waives demand, protest, notice of
---------------
protest, notice of default or dishonor, notice of payment and nonpayment, notice
of any default, nonpayment at maturity, release, compromise, settlement,
extension, or renewal of accounts, documents, instruments, chattel paper, and
guarantees at any time held by Bank on which Borrower may in any way be liable.
10. NOTICES
-------
Unless otherwise provided in this Agreement, all notices or demands by
any party relating to this Agreement or any other agreement entered into in
connection herewith shall be in writing and (except for financial statements and
other informational documents which may be sent by first-class mail, postage
prepaid) shall be personally delivered or sent by a recognized overnight
delivery service, certified mail, postage prepaid, return receipt requested, or
by telefacsimile to Borrower or to Bank, as the case may be, at its addresses
set forth below:
If to Borrower: Exodus Communications, Inc.
948 Benecia Avenue
Sunnyvale, CA 94086
Attn: Richard Stoltz
FAX: (408) 736-6843
If to Bank: Silicon Valley Bank
3003 Tasman Drive
Santa Clara, CA 95054
Attn: Peter Kidder
FAX: (408) 748-9478
The parties hereto may change the address at which they are to receive
notices hereunder, by notice in writing in the foregoing manner given to the
other.
11. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER
------------------------------------------
This Agreement shall be governed by, and construed in accordance with,
the internal laws of the State of California, without regard to principles of
conflicts of law. Each of Borrower and Bank hereby submits to
<PAGE>
the exclusive jurisdiction of the state and Federal courts located in the County
of Santa Clara, State of California. BORROWER AND BANK EACH HEREBY WAIVE THEIR
RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR
ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED
THEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL
OTHER COMMON LAW OR STATUTORY CLAIMS. EACH PARTY RECOGNIZES AND AGREES THAT THE
FOREGOING WAIVER CONSTITUTES A MATERIAL INDUCEMENT FOR IT TO ENTER INTO THIS
AGREEMENT. EACH PARTY REPRESENTS AND WARRANTS THAT IT HAS REVIEWED THIS WAIVER
WITH ITS LEGAL COUNSEL AND THAT IT KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY
TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL.
12. GENERAL PROVISIONS
------------------
12.1 Successors and Assign. This Agreement shall bind and inure to
---------------------
the benefit of the respective successors and permitted assigns of each of the
parties; provided, however, that neither this Agreement nor any rights hereunder
-------- -------
may be assigned by Borrower without Bank's prior written consent, which consent
may be granted or withheld in Bank's sole discretion. Bank shall have the right
without the consent of or notice to Borrower to sell, transfer, negotiate, or
grant participation in all or any part of, or any interest in, Bank's
obligations, rights and benefits hereunder.
12.2 Indemnification. Borrower shall defend, indemnify and hold
---------------
harmless Bank and its officers, employees, and agents against: (a) all
obligations, demands, claims, and liabilities claimed or asserted by any other
party in connection with the transactions contemplated by this Agreement; and
(b) all losses or Bank Expenses in any way suffered, incurred, or paid by Bank
as a result of or in any way arising out of, following, or consequential to
transactions between Bank and Borrower whether under this Agreement, or
otherwise (including without limitation reasonable attorneys fees and expenses),
except for losses caused by Bank's gross negligence or willful misconduct.
12.3 Time of Essence. Time is of the essence for the performance of
---------------
all obligations set forth in this Agreement.
12.4 Severability of Provisions. Each provision of this Agreement
--------------------------
shall be severable from every other provision of this Agreement for the purpose
of determining the legal enforceability of any specific provision.
12.5 Amendments in Writing, Integration. This Agreement cannot be
----------------------------------
amended or terminated orally. All prior agreements, understandings,
representations, warranties, and negotiations between the parties hereto with
respect to the subject matter of this Agreement, if any, are merged into this
Agreement and the Loan Documents.
12.6 Counterparts. This Agreement may be executed in any number of
------------
counterparts and by different parties on separate counterparts, each of which,
when executed and delivered, shall be deemed to be an original, and all of
which, when taken together, shall constitute but one and the same Agreement.
12.7 Survival. All covenants, representations and warranties made in
--------
this Agreement shall continue in full force and effect so long as any
Obligations remain outstanding. The obligations of Borrower to indemnify Bank
with respect to the expenses, damages, losses, costs and liabilities described
in Section 12.2 shall survive until all applicable statute of limitations
periods with respect to actions that may be brought against Bank have run.
12.8 Confidentiality. In handling any confidential information Bank
---------------
shall exercise the same degree of care that it exercises with respect to its own
proprietary information of the same types to maintain the confidentiality of any
non-public information thereby received or received pursuant to this Agreement
except that disclosure of such information may be made (i) to the subsidiaries
or affiliates of Bank in connection with their present or prospective business
relations with Borrower, (ii) to prospective transferees or purchasers of any
interest
<PAGE>
in the Loans, provided that they have entered into a comparable confidentiality
agreement in favor of Borrower and have delivered a copy to Borrower, (iii) as
required by law, regulations, rule or order, subpoena, judicial order or similar
order, (iv) as may be required in connection with the examination, audit or
similar investigation of Bank and (v) as Bank may determine in connection with
the enforcement of any remedies hereunder. Confidential information hereunder
shall not include information that either: (a) is in the public domain or in the
knowledge or possession of Bank when disclosed to Bank, or becomes part of the
public domain after disclosure to Bank through no fault of Bank; or (b) is
disclosed to Bank by a third party, provided Bank does not have actual knowledge
that such third party is prohibited from disclosing such information.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.
EXODUS COMMUNICATIONS, INC.
By: /s/ Richard S. Stoltz
-------------------------------
Title: COO
----------------------------
SILICON VALLEY BANK
By: /s/ Peter Kidder
-------------------------------
Title: VP
----------------------------
<PAGE>
EXHIBIT A
---------
The Collateral shall consist of all right, title and interest of Borrower
in and to the following:
(a) All goods and equipment now owned or hereafter acquired, including,
without limitation, all machinery, fixtures, vehicles (including motor vehicles
and trailers), and any interest in any of the foregoing, and all attachments,
accessories, accessions, replacements, substitutions, additions, and
improvements to any of the foregoing, wherever located;
(b) All inventory, now owned or hereafter acquired, including, without
limitation, all merchandise, raw materials, parts, supplies, packing and
shipping materials, work in process and finished products including such
inventory as is temporarily out of Borrower's custody or possession or in
transit and including any returns upon any accounts or other proceeds, including
insurance proceeds, resulting from the sale or disposition of any of the
foregoing and any documents of title representing any of the above, and
Borrower's Books relating to any of the foregoing;
(c) All contract rights and general intangibles now owned or hereafter
acquired, including, without limitation, goodwill, trademarks, servicemarks,
trade styles, trade names, patents, patent applications, leases, license
agreements, franchise agreements, blueprints, drawings, purchase orders,
customer lists, route lists, infringements, claims, computer programs, computer
discs, computer tapes, literature, reports, catalogs, design rights, income tax
refunds, payments of insurance and rights to payment of any kind;
(d) All now existing and hereafter arising accounts, contract rights,
royalties, license rights and all other forms of obligations owing to Borrower
arising out of the sale or lease of goods, the licensing of technology or the
rendering of services by Borrower, whether or not earned by performance, and any
and all credit insurance, guaranties, and other security therefor, as well as
all merchandise returned to or reclaimed by Borrower and Borrower's Books
relating to any of the foregoing;
(e) All documents, cash, deposit accounts, securities, letters of credit,
certificates of deposit, instruments and chattel paper now owned or hereafter
acquired and Borrower's Books relating to the foregoing;
(f) All copyright rights, copyright applications, copyright registrations
and like protections in each work of authorship and derivative work thereof,
whether published or unpublished, now owned or hereafter acquired; all trade
secret rights, including all rights to unpatented inventions, know-how,
operating manuals, license rights and agreements and confidential information,
now owned or hereafter acquired; all mask work or similar rights available for
the protection of semiconductor chips, now owned or hereafter acquired; all
claims for damages by way of any past, present and future infringement of any of
the foregoing; and
(g) Any and all claims, rights and interests in any of the above and all
substitutions for, additions and accessions to and proceeds thereof.
<PAGE>
EXHIBIT B
---------
LOAN PAYMENT/ADVANCE TELEPHONE REQUEST FORM
DEADLINE FOR SAME DAY PROCESSING IS 3:00 P.M., P.S.T.
TO: CENTRAL CLIENT SERVICE DIVISION DATE: __________________________
FAX#: (408) 496-2426 TIME: __________________________
- --------------------------------------------------------------------------------
FROM:___________________________________________________________________________
CLIENT NAME (BORROWER)
REQUESTED BY:___________________________________________________________________
AUTHORIZED SIGNER'S NAME
AUTHORIZED SIGNATURE:___________________________________________________________
PHONE NUMBER:___________________________________________________________________
FROM ACCOUNT # ______________ TO ACCOUNT #____________________________________
REQUESTED TRANSACTION TYPE REQUEST DOLLAR AMOUNT
- -------------------------- ---------------------
PRINCIPAL INCREASE (ADVANCE) $___________________________________________
PRINCIPAL PAYMENT (ONLY) $___________________________________________
INTEREST PAYMENT (ONLY) $___________________________________________
PRINCIPAL AND INTEREST (PAYMENT) $___________________________________________
OTHER INSTRUCTIONS:_____________________________________________________________
- --------------------------------------------------------------------------------
All representations and warranties of Borrower stated in the Loan Agreement
are true, correct and complete in all material respects as of the date of the
telephone request for and Advance confirmed by this Borrowing Certificate;
provided, however, that those representations and warranties expressly referring
to another date shall be true, correct and complete in all material respects as
of such date.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
BANK USE ONLY
TELEPHONE REQUEST:
- -----------------
The following person is authorized to request the loan payment transfer/loan
advance on the advance designated account and is known to me.
________________________________ _______________________________
Authorized Requester Phone #
________________________________ _______________________________
Received By (Bank) Phone #
________________________________
Authorized Signature (Bank)
- --------------------------------------------------------------------------------
<PAGE>
EXHIBIT C
BORROWING BASE CERTIFICATE
================================================================================
Borrower: EXODUS COMMUNICATIONS, INC. Lender: Silicon Valley Bank
Commitment Amount: $1,000,000
================================================================================
<TABLE>
<CAPTION>
ACCOUNTS RECEIVABLE
<S> <C> <C>
1. Accounts Receivable Book Value as of____ $________
2. Additions (please explain on reverse) $________
3. TOTAL ACCOUNTS RECEIVABLE $________
ACCOUNTS RECEIVABLE DEDUCTIONS (without duplication)
4. Services Amounts over 90 days due $________
5. Connection Amounts over 60 days due $________
6. Balance of 50% over 90 day accounts $________
7. Concentration Limits $________
8. Foreign Accounts $________
9. Governmental Accounts $________
10. Contra Accounts $________
11. Promotion or Demo Accounts $________
12. Intercompany/Employee Accounts $________
13. TOTAL ACCOUNTS RECEIVABLE DEDUCTIONS $________
14. Eligible Accounts (#3 minus #13) $________
15. LOAN VALUE OF ACCOUNTS (80% of #14) $________
SUBSCRIBER REVENUE
16. Subscriber Revenue for previous three months $________
17. LOAN VALUE OF SUBSCRIBER REVENUE (90% of #16) $________
BALANCES
18. Maximum Loan Amount $________
19. Total Funds Available [Lesser of #18 or (#15 plus #17)] $________
20. Present balance owing on Line of Credit $________
21. Outstanding under Sublimits ( ) $________
22. RESERVE POSITION (#19 minus #20 and #21) $________
</TABLE>
The undersigned represents and warrants that the foregoing is true, complete and
correct, and that the information reflected in this Borrowing Base Certificate
complies with the representations and warranties set forth in the Loan and
Security Agreement between the undersigned and Silicon Valley Bank.
COMMENTS:
-------------------------
BANK USE ONLY
---- --- ----
Rec'd by ___________
Auth. Signer
EXODUS COMMUNICATIONS, INC. Date:_______________
Verified:___________
By:___________________________ Auth. Signer
Authorized Signer Date:_______________
____________________
-------------------------
<PAGE>
EXHIBIT D
COMPLIANCE CERTIFICATE
TO: SILICON VALLEY BANK
FROM: EXODUS COMMUNICATIONS, INC.
The undersigned authorized officer of EXODUS COMMUNICATIONS, INC. hereby
certifies that in accordance with the terms and conditions of the Loan and
Security Agreement between Borrower and Bank (the "Agreement"), (i) Borrower is
in complete compliance for the period ending ______________ with all required
covenants except as noted below and (ii) all representations and warranties of
Borrower stated in the Agreement are true and correct in all material respects
as of the date hereof. Attached herewith are the required documents supporting
the above certification. The Officer further certifies that these are prepared
in accordance with Generally Accepted Accounting Principles (GAAP) and are
consistently applied from one period to the next except as explained in an
accompanying letter or footnotes.
PLEASE INDICATE COMPLIANCE STATUS BY CIRCLING YES/NO UNDER "COMPLIES" COLUMN.
<TABLE>
<CAPTION>
Reporting Covenant REQUIRED COMPLIES
------------------ -------- --------
<S> <C> <C> <C>
Monthly financial statements Monthly within 30 days Yes No
Annual (CPA Audited) FYE within 90 days* Yes No
A/R & A/P Agings, BBC, Subscriber Base,
Pre-billing Schedule Monthly within 15 days Yes No
A/R Audit Initial and Semi-Annual Yes No
Financial Covenant REQUIRED ACTUAL COMPLIES
------------------ -------- ------ --------
Maintain on a Monthly Basis:
Minimum Quick Ratio 1.25:1.0 _____:1.0 Yes No
Minimum Liquidity 2x Advances _____:1.0 Yes No
Minimum Tangible Net Worth $500,000** $________ Yes No
Maximum Debt/Tangible Net Worth 4.0:1.0 _____:1.0 Yes No
</TABLE>
* FY 95 auditeds due July 30, 1996
** Plus 75% of Equity Proceeds
-------------------------------
COMMENTS REGARDING EXCEPTIONS: See Attached. BANK USE ONLY
Received by:_________________
AUTHORIZED SIGNER
Sincerely,
__________________________________ Date:________________________
SIGNATURE
Verified:____________________
AUTHORIZED SIGNER
__________________________________
TITLE Date:________________________
__________________________________ Compliance Status: Yes No
DATE
-------------------------------
<PAGE>
DISBURSEMENT REQUEST AND AUTHORIZATION
Borrower: Exodus Communications, Inc. Bank: Silicon Valley Bank
================================================================================
LOAN TYPE. This is a Variable Rate, Revolving Line of Credit of a principal
amount up to $______________.
PRIMARY PURPOSE OF LOAN. The primary purpose of this loan is for business.
SPECIFIC PURPOSE. The specific purpose of this loan is: Short Term Working
Capital.
DISBURSEMENT INSTRUCTIONS. Borrower understands that no loan proceeds will be
disbursed until all of Bank's conditions for making the loan have been
satisfied. Please disburse the loan proceeds as follows:
<TABLE>
<CAPTION>
Revolving Line Equipment Lease
-------------- ---------------
<S> <C> <C>
Amount paid to Borrower directly: $____ $____
Undisbursed Funds $____ $____
Principal $1,000,000 $850,000
</TABLE>
CHARGES PAID IN CASH. Borrower has paid or will pay in cash as agreed the
following charges:
<TABLE>
<S> <C>
Prepaid Finance Charges Paid in Cash: $____
$_____ Loan Fee
$_____ Accounts Receivables Audit
Other Charges Paid in Cash: $____
$120 UCC Search Fees
$_____ UCC Filing Fees
$_____ Patent Filing Fees
$_____ Trademark Filing Fees
$_____ Copyright Filing Fees
$1,500 Outside Counsel Fees and Expenses (Estimate)
Total Charges Paid in Cash $____
</TABLE>
AUTOMATIC PAYMENTS. Borrower hereby authorizes Bank automatically to deduct
from Borrower's account numbered ______________ the amount of any loan payment.
If the funds in the account are insufficient to cover any payment, Bank shall
not be obligated to advance funds to cover the payment.
FINANCIAL CONDITION. BY SIGNING THIS AUTHORIZATION, BORROWER REPRESENTS AND
WARRANTS TO BANK THAT THE INFORMATION PROVIDED ABOVE IS TRUE AND CORRECT AND
THAT THERE HAS BEEN NO ADVERSE CHANGE IN BORROWER'S FINANCIAL CONDITION AS
DISCLOSED IN BORROWER'S MOST RECENT FINANCIAL STATEMENT TO BANK. THIS
AUTHORIZATION IS DATED AS OF __________, 19___.
BORROWER:
EXODUS COMMUNICATIONS, INC.
___________________________________
Authorized Officer
================================================================================
<PAGE>
AGREEMENT TO PROVIDE INSURANCE
GRANTOR: EXODUS COMMUNICATIONS, INC. BANK: Silicon Valley Bank
================================================================================
INSURANCE REQUIREMENTS. EXODUS COMMUNICATIONS, INC. ("Grantor")
understands that insurance coverage is required in connection with the extending
of a loan or the providing of other financial accommodations to Grantor by Bank.
These requirements are set forth in the Loan Documents. The following minimum
insurance coverages must be provided on the following described collateral (the
"Collateral"):
Collateral: All Inventory, Equipment and Fixtures.
Type: All risks, including fire, theft and liability.
Amount: Full insurable value.
Basis: Replacement value.
Endorsements: Loss payable clause to Bank with stipulation that
coverage will not be cancelled or diminished without a
minimum of twenty (20) days' prior written notice to
Bank.
INSURANCE COMPANY. Grantor may obtain insurance from any insurance company
Grantor may choose that is reasonably acceptable to Bank. Grantor understands
that credit may not be denied solely because insurance was not purchased through
Bank.
FAILURE TO PROVIDE INSURANCE. Grantor agrees to deliver to Bank, on or
before closing, evidence of the required insurance as provided above, with an
effective date of June 14, 1996, or earlier. Grantor acknowledges and agrees
that if Grantor fails to provide any required insurance or fails to continue
such insurance in force, Bank may do so at Grantor's expense as provided in the
Loan and Security Agreement. The cost of such insurance, at the option of Bank,
shall be payable on demand or shall be added to the indebtedness as provided in
the security document. GRANTOR ACKNOWLEDGES THAT IF BANK SO PURCHASES ANY SUCH
INSURANCE, THE INSURANCE WILL PROVIDE LIMITED PROTECTION AGAINST PHYSICAL DAMAGE
TO THE COLLATERAL, UP TO THE BALANCE OF THE LOAN; HOWEVER, GRANTOR'S EQUITY IN
THE COLLATERAL MAY NOT BE INSURED. IN ADDITION, THE INSURANCE MAY NOT PROVIDE
ANY PUBLIC LIABILITY OR PROPERTY DAMAGE INDEMNIFICATION AND MAY NOT MEET THE
REQUIREMENTS OF ANY FINANCIAL RESPONSIBILITY LAWS.
AUTHORIZATION. For purposes of insurance coverage on the Collateral,
Grantor authorizes Bank to provide to any person (including any insurance agent
or company) all information Bank deems appropriate, whether regarding the
Collateral, the loan or other financial accommodations, or both.
GRANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS AGREEMENT TO
PROVIDE INSURANCE AND AGREES TO ITS TERMS. THIS AGREEMENT IS DATED JUNE 14,
1996.
GRANTOR:
EXODUS COMMUNICATIONS, INC.
x
Authorized Officer
================================================================================
______________________________ FOR BANK USE ONLY
INSURANCE VERIFICATION
DATE: PHONE:
AGENT'S NAME:
INSURANCE COMPANY:
POLICY NUMBER:
------ __________
EFFECTIVE DATES:_____________________________________________________________
COMMENTS: _____________________________________________________________
================================================================================
_____________________________________________________________
_____________________________________________________________
<PAGE>
CORPORATE RESOLUTIONS TO BORROW
================================================================================
BORROWER: EXODUS COMMUNICATIONS, INC.
================================================================================
I, the undersigned Secretary or Assistant Secretary of EXODUS
COMMUNICATIONS, INC. (the "Corporation"), HEREBY CERTIFY that the Corporation is
organized and existing under and by virtue of the laws of the State of
California.
I FURTHER CERTIFY that attached hereto as Attachments 1 and 2 are true and
complete copies of the Articles of Incorporation and Bylaws of the Corporation,
each of which is in full force and effect on the date hereof.
I FURTHER CERTIFY that at a meeting of the Directors of the Corporation,
duly called and held, at which a quorum was present and voting (or by other duly
authorized corporate action in lieu of a meeting), the following resolutions
were adopted.
BE IT RESOLVED, that ANY ONE (1) of the following named officers,
employees, or agents of this Corporation, whose actual signatures are shown
below:
<TABLE>
<CAPTION>
NAMES POSITIONS ACTUAL SIGNATURES
--------------------------------------------------------------------
<S> <C> <C>
______________________ _________________________
_______________________
______________________ _________________________
_______________________
______________________ _________________________
_______________________
______________________ _________________________
_______________________
______________________ _________________________
_______________________
</TABLE>
acting for an on behalf of this Corporation and as its act and deed be, and they
hereby are, authorized and empowered:
BORROW MONEY. To borrow from time to time from Silicon Valley Bank
------------
("Bank"), on such terms as may be agreed upon between the officers, employees,
or agents and Bank, such sum or sums of money as in their judgment should be
borrowed, without limitation, including such sums as are specified in that
certain Loan and Security Agreement dated as of June 14, 1996 (the "Loan
Agreement").
EXECUTE NOTES. To execute and deliver to Bank the promissory note or notes
of the Corporation, on Lender's forms, at such rates of interest and on such
terms as may be agreed upon, evidencing the sums of money so borrowed or any
indebtedness of the Corporation to Bank, and also to execute and deliver to
Lender one or more renewals, extensions, modifications, refinancings,
consolidations, or substitutions for one or more of the notes, or any portion of
the notes.
GRANT SECURITY. To grant a security interest to Bank in the Collateral
described in the Loan Agreement, which security interest shall secure all of the
Corporation's Obligations, as described in the Loan Agreement.
NEGOTIATE ITEMS. To draw, endorse, and discount with Bank all drafts,
trade acceptances, promissory notes, or other evidences of indebtedness payable
to or belonging to the Corporation or in which the Corporation may have an
interest, and either to receive cash for the same or to cause such proceeds to
be credited to the account of the Corporation with Bank, or to cause such other
disposition of the proceeds derived therefrom as they may deem advisable.
<PAGE>
LETTERS OF CREDIT; FOREIGN EXCHANGE. To execute letters of credit
applications, foreign exchange agreements and other related documents pertaining
to Bank's issuance of letters of credit and foreign exchange contracts.
FURTHER ACTS. In the case of lines of credit, to designate additional or
alternate individuals as being authorized to request advances thereunder, and in
all cases, to do and perform such other acts and things, to pay any and all fees
and costs, and to execute and deliver such other documents and agreements as
they may in their discretion deem reasonably necessary or proper in order to
carry into effect the provisions of these Resolutions.
BE IT FURTHER RESOLVED, that any and all acts authorized pursuant to these
resolutions and performed prior to the passage of these resolutions are hereby
ratified and approved, that these Resolutions shall remain in full force and
effect and Bank may rely on these Resolutions until written notice of their
revocation shall have been delivered to and received by Bank. Any such notice
shall not affect any of the Corporation's agreements or commitments in effect at
the time notice is given.
I FURTHER CERTIFY that the officers, employees, and agents named above are
duly elected, appointed, or employed by or for the Corporation, as the case may
be, and occupy the positions set forth opposite their respective names; that the
foregoing Resolutions now stand of record on the books of the Corporation; and
that the Resolutions are in full force and effect and have not been modified or
revoked in any manner whatsoever.
IN WITNESS WHEREOF, I have hereunto set my hand on June 13, 1996 and attest
that the signatures set opposite the names listed above are their genuine
signatures.
CERTIFIED TO AND ATTESTED BY:
X
================================================================================
_______________________________________
<PAGE>
LOAN MODIFICATION AGREEMENT
This Loan Modification Agreement is entered into as of August 27, 1996, by
and between Exodus Communications, Inc. ("Borrower") whose address is 1605 Wyatt
Drive, Santa Clara, CA 95054, and Silicon Valley Bank ("Bank") whose address is
3003 Tasman Drive, Santa Clara, CA 95054.
1. DESCRIPTION OF EXISTING INDEBTEDNESS: Among other indebtedness which may
------------------------------------
be owing by Borrower to Bank, Borrower is indebted to Bank pursuant to, among
other documents, a Loan and Security Agreement, dated June 14, 1996, together
with all schedules thereto (the "Loan Agreement"), as may be amended from time
to time. The Loan Agreement provided for, among other things, a Revolving
Facility in the original principal amount of One Million and 00/100 Dollars
($1,000,000.00) (the "Committed Line") and an equipment loan in the original
principal amount of Eight Hundred Fifty Thousand and 00/100 Dollars
($850,000.00) (the "Equipment Line"). Defined terms used but not otherwise
defined herein shall have the same meanings as in the Loan Agreement.
Hereinafter, all indebtedness owing by Borrower to Bank shall be referred to as
the "Indebtedness".
2. DESCRIPTION OF COLLATERAL AND GUARANTIES. Repayment of the Indebtedness is
----------------------------------------
secured by the Collateral as defined in the Loan Agreement, and a Collateral
Assignment, Patent Mortgage and Security Agreement dated June 13, 1996.
Hereinafter, the above-described security documents and guaranties, together
with all other documents securing repayment of the Indebtedness shall be
referred to as the "Security Documents". Hereinafter, the Security Documents,
together with all other documents evidencing or securing the Indebtedness shall
be referred to as the "Existing Loan Documents".
3. DESCRIPTION OF CHANGE IN TERMS.
------------------------------
A. Modification(s) to Loan Agreement.
---------------------------------
1. The following is hereby added to the defined term "Permitted
Indebtedness":
(e) Indebtedness secured by Permitted Liens.
2. The following is hereby added to the defined term "Permitted
Liens" as subparagraph (d). Accordingly, the existing
subparagraph (d) shall be amended to become subparagraph (e) :
(d) Liens on Equipment leased by Borrower or any Subsidiary
pursuant to operating or capital leases in the ordinary course of
business (including proceeds thereof and accessions thereto)
incurred solely for the purpose of financing the lease of such
Equipment (including Liens pursuant to leases permitted pursuant
to Section 7.1 and Liens arising from UCC financing statements
regarding leases permitted by this Agreement); and
(e) Liens incurred in connection with the extension, renewal or
refinancing of the indebtedness secured by Liens of the type
described in clauses (a) through (d) above, provided that any
--------
extension, renewal or replacement Lien shall be limited to the
property encumbered by the existing Lien and the principal amount
of the indebtedness being extended, renewed or refinanced does
not increase.
4. CONSISTENT CHANGES. The Existing Loan Documents are hereby amended
------------------
wherever necessary to reflect the changes described above.
1
<PAGE>
5. NO DEFENSES OF BORROWER. Borrower (and each guarantor and pledgor signing
-----------------------
below) agrees that it has no defenses against the obligations to pay any amounts
under the Indebtedness.
6. CONTINUING VALIDITY. Borrower (and each guarantor and pledgor signing
-------------------
below) understands and agrees that in modifying the existing Indebtedness, Bank
is relying upon Borrower's representations, warranties, and agreements, as set
forth in the Existing Loan Documents. Except as expressly modified pursuant to
this Loan Modification Agreement, the terms of the Existing Loan Documents
remain unchanged and in full force and effect. Bank's agreement to
modifications to the existing Indebtedness pursuant to this Loan Modification
Agreement in no way shall obligate Bank to make any future modifications to the
Indebtedness. Nothing in this Loan Modification Agreement shall constitute a
satisfaction of the Indebtedness. It is the intention of Bank and Borrower to
retain as liable parties all makers and endorsers of Existing Loan Documents,
unless the party is expressly released by Bank in writing. No maker, endorser,
or guarantor will be released by virtue of this Loan Modification Agreement.
The terms of this paragraph apply not only to this Loan Modification Agreement,
but also to all subsequent loan modification agreements.
This Loan Modification Agreement is executed as of the date first written
above.
BORROWER: BANK:
EXODUS COMMUNICATIONS, INC. SILICON VALLEY BANK
By:_________________________ By:________________________________
Name:_______________________ Name:______________________________
Title:______________________ Title:_____________________________
2
<PAGE>
LOAN MODIFICATION AGREEMENT
This Loan Modification Agreement is entered into as of March 25, 1997, by
and between Exodus Communications Inc. ("Borrower') whose address is 1605 Wyatt
Drive, Santa Clara, CA 95054, and Silicon Valley Bank ("Bank")") whose address
is 3003 Tasman Drive, Santa Clara, CA 95054.
1. DESCRIPTION OF EXISTING INDEBTEDNESS: Among other indebtedness which may
------------------------------------
be owing by Borrower to Bank, Borrower is indebted to Bank pursuant to, among
other documents, a Loan and Security Agreement, dated June 14, 1996, together
with all schedules thereto (the "Loan Agreement"), as may be amended from time
to time. The Loan Agreement provided for, among other things, a Revolving
Facility in the original principal amount of One Million and 00/100 Dollars
($1,000,000.00) (the "Committed Line") and an equipment loan in the original
principal amount of Eight Hundred Fifty Thousand and 00/100 Dollars
($850,000.00) (the "Equipment Line"). Defined terms used but not otherwise
defined herein shall have the same meanings as in the Loan Agreement.
Hereinafter, all indebtedness owing by Borrower to Bank shall be referred to as
the "Indebtedness".
2. DESCRIPTION OF COLLATERAL AND GUARANTEES. Repayment of the Indebtedness
----------------------------------------
is secured by the Collateral as defined in the Loan Agreement, and a Collateral
Assignment, Patent Mortgage and Security Agreement dated June 13, 1996.
Hereinafter, the above-described security documents and guaranties, together
with all other documents securing repayment of the Indebtedness shall be
referred to as the "Security Documents". Hereinafter, the Security Documents,
together with all other documents evidencing or securing the Indebtedness shall
be referred to as the "Existing Loan Documents".
3. DESCRIPTION OF CHANGE IN TERMS.
------------------------------
A. Modification(s) to Loan Agreement.
---------------------------------
1. Section 2.1 entitled "Advances" is hereby amended in part to
provide that the defined term "Borrowing Base" shall mean:
Prior to Private Placement (as defined herein): an amount equal
--------------------------
to (I) forty percent (40%) of Eligible Accounts plus (ii) an
amount equal to ninety percent (90%) of the sum of one and one-
half times the recurring monthly revenue for the month
immediately preceding the month in which an Advance is requested.
Upon and after Private Placement: an amount equal to (i) eighty
--------------------------------
percent (80%) of Eligible Accounts plus (ii) an amount equal to
ninety percent (90%) of the sum of three times the recurring
monthly revenue for the month immediately preceding the month in
which an Advance is requested.
2. Section 2.1.1 entitled "Letters of Credit" is hereby amended in
part to provide that the amount referenced therein shall be
increased to Three Hundred Thousand and 00/100 Dollars
($300,000.00).
1
<PAGE>
3. Section 6.8 entitled "Quick Ratio" is hereby amended as follows:
Upon the earlier to occur of: (a) the Private Placement closing or
(b) May 31, 1997. Borrower shall maintain, on a monthly basis, a
ratio of Quick Assets to Current Liabilities (excluding deferred
revenue) of at least 1.25 to 1.00.
4. Section 6.9 entitled "Debt-Net Worth Ratio" is hereby amended as
follows:
Upon the earlier to occur of: (a) the Private Placement closing or
(b) May 31, 1997. Borrower shall maintain, on a monthly basis, a
ratio of Total Liabilities (excluding deferred revenue) less
Subordinated Debt to Tangible Net Worth plus Subordinated Debt of
not more than 1.50 to 1.00.
5. Section 6.10 entitled "Tangible Net Worth" is hereby deleted in
its entirety and replaced with, the following:
Maximum Loss (Tested quarterly). Borrower shall not permit a loss
of more than: $4,000,000.00 for the quarter ending March 31, 1997;
$5,000,000.00 for the quarter ending June 30, 1997; $5,200,000.00
for the quarter ending September 30, 1997; and $4,500,000.O0 for
the quarter ending December 31, 1997.
6. Section 6.14 is hereby incorporated to read as follows:
Private Placement. Borrower shall be in receipt of no less than
-----------------
$15,000,000.00 from its Series C private placement (the "Private
Placement") no later than May 31, 1997.
B Waiver of Covenant Defaults.
---------------------------
Bank hereby waives Borrower's existing default under the Loan
Agreement by virtue of Borrower's failure to comply with the Quick
Ratio and Debt-Net Worth Ratio covenants as of the, months ended
September 30 1996, October 31, 1996, November 30, 1996, December
31, 1996, January 31, 1997, and February 28, 1997. Bank's waiver
of Borrower's compliance of these covenants shall apply to the
foregoing periods. Accordingly, for the month end in which the
Borrower receives the Private Placement, Borrower shall be in
compliance with these covenants, as amended pursuant to this Loan
Modification Agreement.
Bank's agreement to waive the above-described default (1) in no
way shall be deemed an agreement by the Bank to waive Borrower's
compliance with the above-described covenants as of all other
dates and (2) shall not limit or impair the Bank's right to demand
strict performance of these covenants as of all other dates and
(3) shall not limit or impair the Bank's right to demand strict
performance of all other covenants as of any date.
4. CONSISTENT CHANGES. The Existing Loan Documents are hereby amended wherever
------------------
necessary to reflect the changes described above.
5. NO DEFENSES OF BORROWER. Borrower (and each guarantor and pledgor signing
-----------------------
below) agrees that it has no defenses against the obligations to pay any amounts
under the Indebtedness.
2
<PAGE>
6. CONTINUING VALIDITY. Borrower (and each guarantor and pledgor signing
-------------------
below) understands and agrees that in modifying the existing Indebtedness, Bank
is relying upon Borrower's representations, warranties, and agreements, as set
forth in the Existing Loan Documents. Except as expressly modified pursuant to
this Loan Modification Agreement, the terms of the Existing Loan Documents
remain unchanged and in full force and effect. Bank's agreement to modifications
to the existing Indebtedness pursuant to this Loan Modification Agreement in no
way shall obligate Bank to make any future modifications to the Indebtedness.
Nothing in this Loan Modification Agreement shall constitute a satisfaction of
the Indebtedness. It is the intention of Bank and Borrower to retain as liable
parties all makers and endorsers of Existing Loan Documents, unless the party is
expressly released by Bank in writing. No maker, endorser, or guarantor will be
released by virtue of this Loan Modification Agreement. The terms of this
paragraph apply not only to this Loan Modification Agreement, but also to all
subsequent loan modification agreements.
This Loan Modification Agreement is executed as of the date first written
above.
BORROWER: BANK:
EXODUS COMMUNICATIONS, INC. SILICON VALLEY BANK
By: [ILLEGIBLE] By: Peter Akidder
------------------------------ ------------------------------
Name:[ILLEGIBLE] Name: Peter Akidder
----------------------------- -----------------------------
Title:[ILLEGIBLE] Title: Vice President
---------------------------- ----------------------------
3
<PAGE>
LOAN MODIFICATION AGREEMENT
This Loan Modification Agreement is entered into as of June 13, 1997, by
and between Exodus Communications, Inc. ("Borrower") whose address is 1605 Wyatt
Drive, Santa Clara, CA 95054, and Silicon Valley Bank ("Bank") whose address is
3003 Tasman Drive, Santa Clara, CA 95054.
1. DESCRIPTION OF EXISTING INDEBTEDNESS: Among other indebtedness which may be
------------------------------------
owing by Borrower to Bank, Borrower is indebted to Bank pursuant to, among other
documents, a Loan and Security Agreement, dated June 14, 1996, together with all
schedules thereto (the "Loan Agreement"), as may be amended from time to time.
The Loan Agreement provided for, among other things, a Committed Line in the
original principal amount of One Million and 00/100 Dollars ($1,000,000.00) (the
"Revolving Facility") and an equipment loan in the original principal amount of
Eight Hundred Fifty Thousand and 00/100 Dollars ($850,000.00) (the "Equipment
Line"). Defined terms used but not otherwise defined herein shall have the same
meanings as in the Loan Agreement.
Hereinafter, all indebtedness owing by Borrower to Bank shall be referred to as
the "Indebtedness".
2. DESCRIPTION OF COLLATERAL AND GUARANTIES. Repayment of the Indebtedness is
----------------------------------------
secured by the Collateral as defined in the Loan Agreement, and a Collateral
Assignment, Patent Mortgage and Security Agreement dated June 13, 1996.
Hereinafter, the above-described security documents and guaranties, together
with all other documents securing repayment of the Indebtedness shall be
referred to as the "Security Documents". Hereinafter, the Security Documents,
together with all other documents evidencing or securing the Indebtedness shall
be referred to as the "Existing Loan Documents".
3. DESCRIPTION OF CHANGE IN TERMS.
------------------------------
A. Modification(s) to Loan Agreement.
---------------------------------
1. The term "Revolving Maturity Date" shall mean July 13, 1997.
2. Section 6.3 entitled "Financial Statements, Reports,
Certificates" is hereby amended to allow Borrower to deliver to
Bank as soon as available but in any event, no later than July
13, 1997, Borrower's audited financial statements and opinion for
the fiscal year ended December 31, 1996.
3. The "Quick Ratio" and the "Debt - Net Worth Ratio" covenants, as
described in Section 6.8 and Section 6.9, respectively, shall not
be tested by Bank for the month ending June 30, 1997.
4. Section 6.14 entitled "Private Placement" is hereby deleted in
its entirety.
5. The following definition is hereby incorporated into the Loan
Agreement.
"Private Placement" means the date in which Borrower is in
receipt of no less than $15,000,000.00 from its Series C private
placement.
1
<PAGE>
B. Waiver of Covenant Defaults.
----------------------------
Bank hereby waives Borrower's existing defaults under the Loan
Agreement by virtue of Borrower's failure to comply with the
Quick Ratio, Debt-Net Worth Ratio and Private Placement covenants
as of the month ended May 31, 1997. Bank's waiver of Borrower's
compliance of these covenants shall apply only to the foregoing
periods. Accordingly, for the month end in which the Borrower
receives the Private Placement Borrower shall be in compliance
with the foregoing covenants, as amended herein.
Bank's agreement to waive the above-described defaults (1) in no
way shall be deemed an agreement by the Bank to waive Borrower's
compliance with the above-described covenants as of all other
dates and (2) shall not limit or impair the Bank's right to
demand strict performance of these covenants as of all other
dates and (3) shall not limit or impair the Bank's right to
demand strict performance of all other covenants as of any date.
4. CONSISTENT CHANGES. The Existing Loan Documents are hereby amended wherever
------------------
necessary to reflect the changes described above.
5. NO DEFENSES OF BORROWER. Borrower (and each guarantor and pledgor signing
-----------------------
below) agrees that it has no defenses against the obligations to pay any amounts
under the Indebtedness.
6. CONTINUING VALIDITY. Borrower (and each guarantor and pledgor signing
-------------------
below) understands and agrees that in modifying the existing Indebtedness, Bank
is relying upon Borrower's representations, warranties, and agreements, as set
forth in the Existing Loan Documents. Except as expressly modified pursuant to
this Loan Modification Agreement, the terms of the Existing Loan Documents
remain unchanged and in full force and effect. Banks agreement to modifications
to the existing Indebtedness pursuant to this Loan Modification Agreement in no
way shall obligate Bank to make any future modifications to the Indebtedness.
Nothing in this Loan Modification Agreement shall constitute a satisfaction of
the Indebtedness. It is the intention of Bank and Borrower to retain as liable
parties all makers and endorsers of Existing Loan Documents, unless the party is
expressly released by Bank in writing. No maker, endorser, or guarantor will be
released by virtue of this Loan Modification Agreement. The terms of this
paragraph apply not only to this Loan Modification Agreement, but also to all
subsequent loan modification agreements.
This Loan Modification Agreement is executed as of the date first written
above.
BORROWER: BANK:
EXODUS COMMUNICATIONS, INC. SILICON VALLEY BANK
By: [SIGNATURE ILLEGIBLE] By: /s/ Peter A. Kidder
--------------------------- --------------------------
Name: illegible Name: Peter A. Kidder
------------------------- ------------------------
Title: illegible Title: Vice President
------------------------- ------------------------
2
<PAGE>
AMENDMENT
TO
LOAN AND SECURITY AGREEMENT
---------------------------
This Amendment to Loan and Security Agreement is entered into as of
December 8, 1997 by and between SILICON VALLEY BANK ("Bank") and EXODUS
COMMUNICATIONS, INC. ("Borrower").
RECITALS
--------
Borrower and Bank are parties to that certain Loan and Security Agreement
dated as of June 14, 1996, as amended (the "Agreement"). The parties desire to
amend the Agreement in accordance with the terms of this Amendment.
NOW, THEREFORE, the parties agree as follows:
1. The following definitions in Section 1.1 are amended to read as
follows:
"Committed Line" means Five Million Dollars ($5,000,000).
"Current Liabilities" means, as of any applicable date, all amounts
that should, in accordance with GAAP, be included as current liabilities on the
consolidated balance sheet of Borrower and its Subsidiaries, as at such date,
plus, to the extent not already included therein, all outstanding Advances made
under this Agreement and the current month's scheduled principal payments of
long term debt.
"Pre-billed Revenue" means the revenue received by Borrower from
account debtors on account of invoices delivered for services to be
rendered in the ordinary course of Borrower's business during the period
following receipt of such invoices, which invoices are to be paid by
customers in the ordinary course of business within thirty (30) days after
receipt of such invoices.
"Quick Assets" means, at any date as of which the amount thereof shall
be determined, the consolidated unrestricted cash, cash-equivalents,
accounts receivable, current month's Pre-billed Revenue and investments
with maturities not to exceed 90 days, of Borrower determined in accordance
with GAAP.
"Revolving Maturity Date" means December 7, 1998.
2. Section 2.1 is amended to read as follows:
2.1 Advances. Subject to and upon the terms and conditions of this
--------
Agreement, Bank agrees to make Advances to Borrower in an aggregate amount
not to exceed the lesser of the Committed Line or the Borrowing Base minus,
in each case, the face amount of outstanding Letters of Credit (including
drawn but unreimbursed Letters of Credit). For purposes of this Agreement,
"Borrowing Base" shall mean an amount equal to eighty (80%) of Borrower's
aggregate Pre-billed Revenue for the month immediately preceding the month
in which an Advance is requested times four (4); provided that no Advances
--------
may be outstanding after any month in which Borrower has suffered a decline
in Pre-billed Revenue from the immediately previous month. Subject to the
terms and conditions of this Agreement, amounts borrowed pursuant to this
Section 2.1 may be repaid and reborrowed at any time prior to the Revolving
Maturity Date.
Whenever Borrower desires an Advance, Borrower will notify Bank by
facsimile transmission or telephone no later than 3:00 p.m. California
time, on the Business Day that the Advance is to be made. Each such
notification shall be promptly confirmed by a Payment/Advance Form in
substantially the form of Exhibit B hereto. Bank is authorized to make
---------
Advances under this Agreement, based upon instructions received from a
Responsible Officer, or without instructions if in Bank's discretion such
Advances are necessary to meet Obligations which have become due and remain
unpaid. Bank shall be entitled to rely on any telephonic notice given by a
person who Bank reasonably believes to be a Responsible Officer, and
1
<PAGE>
Borrower shall indemnify and hold Bank harmless for any damages or loss
suffered by Bank as a result of such reliance. Bank will credit the amount
of Advances made under this Section 2.1 to Borrower's deposit account.
The Revolving Facility shall terminate on the Revolving Maturity Date
at which time all Advances under this Section 2.1 shall be immediately due
and payable.
3. The reference in Section 2.1.1 to "Three Hundred Thousand Dollars
($300,000)" is amended to be "One Million Five Hundred Thousand Dollars
($1,500,000)."
4. Section 2.3(a) is amended to read as follows:
(a) Interest Rate. Except as set forth in Section 2.3(b), any
-------------
Advances under Section 2.1 shall bear interest, on the average Daily Balance, at
a rate equal to one percent (1.00%) above the Prime Rate and, after the Borrower
closes its initial public offering, at a rate equal to the Prime Rate.
5. Sections 6.8, 6.9, and 6.10 are amended to read as follows:
6.8 Quick Ratio. Borrower shall maintain, as of the last day of each
-----------
calendar month, a ratio of Quick Assets to Current Liabilities of at least 1.00
to 1.00, provided that such ratio for the month ending December 31, 1997 shall
be at least 0.75 to 1.00. Beginning February 28, 1998, Borrower shall maintain,
as of the last day of each month, a ratio of Quick Assets to Current Liabilities
of at least 1.50 to 1.0.
6.9 Profitability. Borrower shall not suffer a loss in excess of
-------------
$7,700,000 for the fiscal quarter ending December 31, 1997; a loss in excess of
$9,000,000 for the fiscal quarter ending March 31, 1998; a loss in excess of
$7,800,000 for the fiscal quarter ending June 30, 1998; or a loss in excess of
$5,100,000 for the fiscal quarter ending September 30, 1998.
6.10 Monthly Decline in Pre-billed Revenue. Borrower shall not suffer
-------------------------------------
any decline in the Pre-billed Revenue for any month from the immediately
preceding month.
6. The Borrowing Base Certificate and Compliance Certificate to be
delivered after the date of this Amendment shall be in substantially the form of
Exhibit C and Exhibit D hereto. The Borrowing Base Certificate and aged listings
- --------- ---------
of Accounts Receivable and Accounts Payable shall be due only for months in
which any Advances are outstanding.
7. Unless otherwise defined, all capitalized terms in this Amendment
shall be as defined in the Agreement. Except as amended, the Agreement remains
in full force and effect.
8. Borrower represents and warrants that the Representations and
Warranties contained in the Agreement are true and correct as of the date of
this Amendment, and that no Event of Default has occurred and is continuing.
9. This Amendment may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one instrument.
10. As a condition to the effectiveness of this Amendment, Borrower shall
pay a Facility Fee in an amount equal to Twenty Five Thousand Dollars ($25,000),
payable upon the date hereof, plus all Bank Expenses incurred in connection with
the preparation of this Amendment, and shall deliver to Bank a warrant to
purchase stock in a form reasonably acceptable to Bank.
IN WITNESS WHEREOF, the undersigned have executed this Amendment as of the
first date above written.
2
<PAGE>
EXODUS COMMUNICATIONS, INC.
By:__________________________________
Title:_______________________________
SILICON VALLEY BANK
By:__________________________________
Title:_______________________________
3
<PAGE>
EXHIBIT C
BORROWING BASE CERTIFICATE
________________________________________________________________________________
Borrower: EXODUS COMMUNICATIONS, INC. Lender: Silicon Valley Bank
Commitment Amount: $5,000,000
________________________________________________________________________________
<TABLE>
<CAPTION>
<S> <C> <C>
SUBSCRIBER REVENUE
1. Pre-billed Revenue for previous month, times 4 $________
2. LOAN VALUE OF SUBSCRIBER REVENUE (80% of #1) $________
BALANCES
3. Maximum Loan Amount $_________
4. Total Funds Available (Lesser of #2 or #3) $________
5. Present balance owing on Line of Credit $________
6. Outstanding under Sublimits ( ) $_________
7. RESERVE POSITION (#4 minus #5 and #6) $________
</TABLE>
The undersigned represents and warrants that the foregoing is true, complete and
correct, and that the information reflected in this Borrowing Base Certificate
complies with the representations and warranties set forth in the Loan and
Security Agreement between the undersigned and Silicon Valley Bank.
COMMENTS:
EXODUS COMMUNICATIONS, INC.
By: _____________________________
Authorized Signer
- ----------------------------------------------
BANK USE ONLY
---- --- ----
Rec'd By:________
Auth. Singner
Date:_________
Verified:_______
Auth. Singner
Date:_________
- ----------------------------------------------
4
<PAGE>
FORM OF COMPLIANCE CERTIFICATE
EXHIBIT D
TO: SILICON VALLEY BANK
FROM: EXODUS COMMUNICATIONS, INC.
The undersigned authorized officer of EXODUS COMMUNICATIONS, INC. hereby
certifies that in accordance with the terms and conditions of the Loan and
Security Agreement between Borrower and Bank (the "Agreement"), (i) Borrower is
in complete compliance for the period ending ______________ with all required
covenants except as noted below and (ii) all representations and warranties of
Borrower stated in the Agreement are true and correct in all material respects
as of the date hereof. Attached herewith are the required documents supporting
the above certification. The Officer further certifies that these are prepared
in accordance with Generally Accepted Accounting Principles (GAAP) and are
consistently applied from one period to the next except as explained in an
accompanying letter or footnotes.
PLEASE INDICATE COMPLIANCE STATUS BY CIRCLING YES/NO UNDER "COMPLIES"
COLUMN.
<TABLE>
<CAPTION>
Reporting Covenant REQUIRED COMPLIES
------------------ -------- --------
<S> <C> <C> <C>
Monthly financial statements Monthly within 30 days Yes No
Annual (CPA Audited) FYE within 90 days Yes No
A/R & A/P Agings Monthly within 20 days/1/ Yes No
A/R Audit Initial and Semi-Annual Yes No
Financial Covenant REQUIRED ACTUAL COMPLIES
------------------ -------- ------ --------
Maintain on a Monthly Basis:
Minimum Liquidity 2xEquip.Advances _____:1.0 Yes No
Minimum Quick Ratio 1.00:1.00/2/ _____:1.0 Yes No
Quarterly Profitability /3/ $________ Yes No
</TABLE>
COMMENTS REGARDING EXCEPTIONS: See Attached.
1 When Advances outstanding
2 0.75:1.00 for 12/31/97. 1.50:1.00 for 2.28.97 and thereafter
3 Loss not to exceed $7,700,000 at 12/31/97; $9,000,000 at 3/31/98;
$7,800,000 at 6/30/98; or $5,100,000 at 9/30/98.
Sincerely,
______________________________
Signature
______________________________
Title
______________________________
Date
- --------------------------------------------
BANK USE ONLY
Received By:______________________
Authorized Signer
Date:_____________________________
Verified:_________________________
Authorized Signer
Date:_____________________________
Compliance Status: Yes No
- --------------------------------------------
5
<PAGE>
CORPORATE RESOLUTIONS TO BORROW
================================================================================
BORROWER: EXODUS COMMUNICATIONS, INC.
================================================================================
I, the undersigned Secretary or Assistant Secretary of Exodus
Communications, Inc. (the "Corporation"), HEREBY CERTIFY that the Corporation is
organized and existing under and by virtue of the laws of the State of Delaware.
I FURTHER CERTIFY that at a meeting of the Directors of the Corporation
duly called and held, at which a quorum was present and voting, (or by other
duly authorized corporate action in lieu of a meeting), the following
resolutions were adopted.
BE IT RESOLVED, that ANY ONE (1) of the following named officers,
employees, or agents of this Corporation, whose actual signatures are shown
below:
NAMES POSITIONS ACTUAL SIGNATURES
--------------------------------------------------------------
________________ _________________ ____________________
________________ _________________ ____________________
________________ _________________ ____________________
________________ _________________ ____________________
________________ _________________ ____________________
acting for an on behalf of this Corporation and as its act and deed be, and they
hereby are, authorized and empowered:
BORROW MONEY. To borrow from time to time from Silicon Valley Bank
("Bank"), on such terms as may be agreed upon between the officers, employees,
or agents and Bank, such sum or sums of money as in their judgment should be
borrowed, without limitation, including such sums as are specified in the
Amendment to Loan and Security Agreement dated as of December 8, 1997, as
amended from time to time by Bank and Corporation.
EXECUTE NOTES. To execute and deliver to Bank the promissory note or notes
of the Corporation, on Bank's forms, at such rates of interest and on such terms
as may be agreed upon, evidencing the sums of money so borrowed or any
indebtedness of the Corporation to Bank, and also to execute and deliver to Bank
one or more renewals, extensions, modifications, refinancings, consolidations,
or substitutions for one or more of the notes, or any portion of the notes.
GRANT SECURITY. To grant a security interest to Bank in the Collateral
described in the Loan Agreement, which security interest shall secure all of the
Corporation's Obligations, as described in the Loan Agreement.
NEGOTIATE ITEMS. To draw, endorse, and discount with Bank all drafts, trade
acceptances, promissory notes, or other evidences of indebtedness payable to or
belonging to the Corporation or in which the Corporation may have an interest,
and either to receive cash for the same or to cause such proceeds to be credited
to the account of the Corporation with Bank, or to cause such other disposition
of the proceeds derived therefrom as they may deem advisable.
LETTERS OF CREDIT. To execute letters of credit applications and other
related documents pertaining to Bank's issuance of letters of credit.
FOREIGN EXCHANGE CONTRACTS. To request Bank to enter into foreign exchange
contracts on its behalf.
1
<PAGE>
FURTHER ACTS. In the case of lines of credit, to designate additional or
alternate individuals as being authorized to request advances thereunder, and in
all cases, to do and perform such other acts and things, to pay any and all fees
and costs, and to execute and deliver such other documents and agreements as
they may in their discretion deem reasonably necessary or proper in order to
carry into effect the provisions of these Resolutions.
BE IT FURTHER RESOLVED, that any and all acts authorized pursuant to these
resolutions and performed prior to the passage of these resolutions are hereby
ratified and approved, that these Resolutions shall remain in full force and
effect and Bank may rely on these Resolutions until written notice of their
revocation shall have been delivered to and received by Bank. Any such notice
shall not affect any of the Corporation's agreements or commitments in effect at
the time notice is given.
I FURTHER CERTIFY that the officers, employees, and agents named above are
duly elected, appointed, or employed by or for the Corporation, as the case may
be, and occupy the positions set forth opposite their respective names; that the
foregoing Resolutions now stand of record on the books of the Corporation; and
that the Resolutions are in full force and effect and have not been modified or
revoked in any manner whatsoever.
I FURTHER CERTIFY that attached hereto are true and correct copies of the
Certificate of Incorporation and Bylaws of the Corporation.
IN WITNESS WHEREOF, I have hereunto set my hand on December 8, 1997 and
attest that the signatures set opposite the names listed above are their genuine
signatures.
CERTIFIED TO AND ATTESTED BY:
X______________________________________
================================================================================
2
<PAGE>
LOAN MODIFICATION AGREEMENT
This Loan Modification Agreement is entered into as of December 30, 1997,
by and between Exodus Communications, Inc. ("Borrower") whose address is 2650
San Tomas Expressway, Santa Clara, CA 95051, and Silicon Valley Bank ("Bank")
whose address is 3003 Tasman Drive, Santa Clara, CA 95054.
1. DESCRIPTION OF EXISTING INDEBTEDNESS: Among other indebtedness which may
------------------------------------
be owing by Borrower to Bank, Borrower is indebted to Bank pursuant to, among
other documents, a Loan and Security Agreement, dated June 14, 1996, together
with all schedules thereto (the "Loan Agreement"), as may be amended from time
to time. The Loan Agreement provided for, among other things, a Committed Line
in the original principal amount of One Million Dollars ($1,000,000) (the
"Revolving Facility"). The Revolving Facility has been modified pursuant to,
among other documents, an Amendment to Loan and Security Agreement dated
December 8, 1997, pursuant to, among other things the Committed Line was
increased to Five Million Dollars ($5,000,000). Defined terms used but not
otherwise defined herein shall have the same meanings as in the Loan Agreement.
Hereinafter, all indebtedness owing by Borrower to Bank shall be referred to as
the "Indebtedness".
2. DESCRIPTION OF COLLATERAL AND GUARANTIES. Repayment of the Indebtedness is
----------------------------------------
secured by the Collateral as defined in the Loan Agreement, and a Collateral
Assignment, Patent Mortgage and Security Agreement dated June 13, 1996.
Hereinafter, the above-described security documents and guaranties, together
with all other documents securing repayment of the Indebtedness shall be
referred to as the "Security Documents". Hereinafter, the Security Documents,
together with all other documents evidencing or securing the Indebtedness shall
be referred to as the "Existing Loan Documents".
3. DESCRIPTION OF CHANGE IN TERMS.
------------------------------
A. Waiver of Covenant Defaults.
---------------------------
Bank hereby waives Borrower's existing defaults under the Loan
Agreement by virtue of Borrower's failure to comply with (i) the Quick
Ratio and Debt-Net Worth Ratio covenants as of the month ended
November 30, 1997 and (ii) the Profitability covenant as of the fiscal
quarter ending December 31, 1997. Bank's waiver of Borrower's
compliance of these covenants shall apply only to the foregoing
periods. Accordingly, Borrower shall be in compliance with (a) the
Quick Ratio covenant as of month ending December 31, 1997 and (b) the
Profitability covenant as of the fiscal quarter ending March 31, 1998.
Pursuant to an Amendment to Loan and Security Agreement dated December
8, 1997, the Debt-Net Worth Ratio covenant is no longer required.
Bank's agreement to waive the above-described defaults (1) in no way
shall be deemed an agreement by the Bank to waive Borrower's
compliance with the above-described covenants as of all other dates
and (2) shall not limit or impair the Bank's right to demand strict
performance of these covenants as of all other dates and (3) shall not
limit or impair the Bank's right to demand strict performance of all
other covenants as of any date.
4. CONSISTENT CHANGES. The Existing Loan Documents are hereby amended
------------------
wherever necessary to reflect the changes described above.
5. NO DEFENSES OF BORROWER. Borrower (and each guarantor and pledgor signing
-----------------------
below) agrees that it has no defenses against the obligations to pay any amounts
under the Indebtedness.
1
<PAGE>
6. CONTINUING VALIDITY. Borrower (and each guarantor and pledgor signing
-------------------
below) understands and agrees that in modifying the existing Indebtedness, Bank
is relying upon Borrower's representations, warranties, and agreements, as set
forth in the Existing Loan Documents. Except as expressly modified pursuant to
this Loan Modification Agreement, the terms of the Existing Loan Documents
remain unchanged and in full force and effect. Bank's agreement to
modifications to the existing Indebtedness pursuant to this Loan Modification
Agreement in no way shall obligate Bank to make any future modifications to the
Indebtedness. Nothing in this Loan Modification Agreement shall constitute a
satisfaction of the Indebtedness. It is the intention of Bank and Borrower to
retain as liable parties all makers and endorsers of Existing Loan Documents,
unless the party is expressly released by Bank in writing. No maker, endorser,
or guarantor will be released by virtue of this Loan Modification Agreement.
The terms of this paragraph apply not only to this Loan Modification Agreement,
but also to all subsequent loan modification agreements.
This Loan Modification Agreement is executed as of the date first written
above.
BORROWER: BANK:
EXODUS COMMUNICATIONS, INC. SILICON VALLEY BANK
By:___________________________ By:___________________________
Name:_________________________ Name:_________________________
Title:________________________ Title:________________________
2
<PAGE>
EXHIBIT 10.20
LOAN AND SECURITY AGREEMENT
Agreement No. ___________ Dated as of December 31, 1997
between
MMC/GATX PARTNERSHIP NO. I
and
TRANSAMERICA BUSINESS CREDIT CORPORATION
as Lenders
and
EXODUS COMMUNICATIONS, INC.
a California corporation
2650 San Tomas Expressway
Santa Clara, California 95051
as Borrower
CREDIT AMOUNT: $8,000,000
Commitments: MMC/GATX Partnership No. I: $4,000,000
Transamerica Business Credit Corporation $4,000,000
Repayment Period: 12 months
---------
Treasury Note Maturity: 36 months
---------
Loan Margin: 709 basis points
---------
Commitment Termination Date: March 31, 1998
The defined terms and information set forth on this cover page are a part of
the LOAN AND SECURITY AGREEMENT, dated as of the date first written above (this
"Agreement"), entered into by and between MMC/GATX PARTNERSHIP NO. I and
TRANSAMERICA BUSINESS CREDIT CORPORATION (each individually a "Lender" and
collectively, "Lenders") and the borrower ("Borrower") set forth above. The
terms and conditions of this Agreement agreed to between Lenders and Borrower
are as follows:
<PAGE>
ARTICLE I
INTERPRETATION
--------------
I.1. Certain Definitions. Unless otherwise indicated in this Agreement or any
-------------------
other Operative Document, the following terms, when used in this Agreement or
any other Operative Document, shall have the following respective meanings:
"Borrower's Home State" shall mean the state in which Borrower's principal
---------------------
place of business is located.
"Business Day" shall mean any day other than a Saturday, Sunday or public
------------
holiday under the laws of California, Illinois or Borrower's Home State or other
day on which banking institutions are authorized or obligated to close in
California, Illinois or Borrower's Home State.
"Claim" has the meaning given to that term in Section 10.03.
----- -------------
"Collateral" has the meaning given to that term in Section 5.01(a).
---------- ---------------
"Commitment Fee" has the meaning given to that term in Section 2.04.
-------------- ------------
"Commitment Termination Date" shall mean the date specified on the cover
---------------------------
page of this Agreement.
"Commitment" means, with respect to each Lender, the amount set forth
----------
following such term on the cover page of this Agreement and "Commitments" means
-----------
all such amounts collectively.
"Credit Amount" shall mean the maximum amount that Lenders are committed to
-------------
lend (if the conditions specified in Schedule 3 are satisfied), which amount is
set forth following such term on the cover page of this Agreement.
"Current Assets" shall mean the aggregate amount of all of the consolidated
--------------
assets of Borrower and its Subsidiaries that would, in accordance with GAAP, be
classified on a balance sheet as current assets.
"Current Liabilities" shall mean the aggregate amount of all of the
-------------------
consolidated liabilities of Borrower and its Subsidiaries that would, in
accordance with GAAP, be classified on a balance sheet as current liabilities.
"Default" shall mean any event which with the passing of time or the giving
-------
of notice or both would become an Event of Default hereunder.
"Default Rate" shall mean the per annum rate of interest equal to the
------------
higher of (i) 18% or (ii) the Prime Rate plus 6%, but such rate shall in no
event be more than the highest rate permitted by applicable law.
"Disclosure Schedule" has the meaning set forth in the definition of the
-------------------
term "Permitted Liens."
"Environmental Law" shall mean the Resource Conservation and Recovery Act
-----------------
of 1987, the Comprehensive Environmental Response, Compensation and Liability
Act, and any other federal, state or local statute, law, ordinance, code, rule,
regulation, order or decree (in each case having the force of law)
<PAGE>
regulating or imposing liability or standards of conduct concerning any
Hazardous Material, as now or at any time hereafter in effect.
"Equity Securities" of any Person shall mean (a) all common stock,
-----------------
preferred stock, participations, shares, partnership interests or other equity
interests in and of such Person (regardless of how designated and whether or not
voting or non-voting) and (b) all warrants, options and other rights to acquire
any of the foregoing.
"Event of Default" has the meaning given to that term in Section 9.01.
---------------- ------------
"Funding Date" shall mean the date on which the Loan is made to or on
------------
account of Borrower under this Agreement.
"GAAP" shall mean generally accepted accounting principles and practices as
----
in effect in the United States of America from time to time, consistently
applied.
"Hazardous Material" means any hazardous, dangerous or toxic constituent
------------------
material, pollutant, waste or other substance, whether solid, liquid or gaseous,
which is regulated by any federal, state or local governmental authority.
"Indebtedness" shall mean, with respect to Borrower or any Subsidiary, the
------------
aggregate amount of, without duplication, (a) all obligations of such Person for
borrowed money, (b) all obligations of such Person evidenced by bonds,
debentures, notes or other similar instruments, (c) all obligations of such
Person to pay the deferred purchase price of property or services (excluding
trade payables aged less than 180 days), (d) all capital lease obligations of
such Person, (e) all obligations or liabilities of others secured by a lien on
any asset of such Person, whether or not such obligation or liability is
assumed, (f) all obligations or liabilities of others guaranteed by such Person;
and (g) any other obligations or liabilities which are required by GAAP to be
shown as debt on the balance sheet of such Person. Unless otherwise indicated,
the term "Indebtedness" shall include all Indebtedness of Borrower and the
------------
Subsidiaries.
"Intellectual Property" shall mean all of Borrower's right, title and
---------------------
interest in and to patents, patent rights (and applications therefor),
trademarks and service marks (and applications and registrations therefor),
inventions, copyrights, mask works (and applications and registrations
therefor), trade names, trade styles, software and computer programs, trade
secrets, methods, processes, know how, drawings, specifications, descriptions,
and all memoranda, notes, and records with respect to any research and
development, all whether now owned or subsequently acquired or developed by
Borrower and whether in tangible or intangible form or contained on magnetic
media readable by machine together with all such magnetic media.
"Lien" shall mean any pledge, bailment, lease, mortgage, hypothecation,
----
conditional sales and title retention agreements, charge, claim, encumbrance or
other lien in favor of any Person.
"Loan" means the Loan advanced by Lenders to Borrower under this Agreement
----
according to their respective pro rata share of the Credit Amount based on each
Lender's respective commitment.
"Loan Margin" shall mean the number of basis points set forth following
-----------
such term on the cover page of this Agreement.
"Loan Rate" shall mean, with respect to the Loan, the per annum rate of
---------
interest (based on a year of twelve 30 day months) equal to the sum of (a) the
U.S. Treasury note rate of a term equal to the Treasury
<PAGE>
Note Maturity as quoted in The Wall Street Journal on the date the Notes are
-----------------------
prepared, plus (b) the Loan Margin.
"Make-Whole Premium" shall mean an amount equal to the greater of (i) zero
------------------
and (ii) the excess of (x) the sum of the present values, at the date of
prepayment of the amount of each remaining scheduled payment of interest on and
principal on the Loan, or portion of such payment, which will not be required to
be made as a result of such prepayment (each such payment an "Amount Payable")
--------------
(each such Amount Payable discounted separately at the Treasury Rate, determined
on the date three (3) Business Days before the date of prepayment, compounded
monthly, from the date such Amount Payable would be due), over (y) the principal
amount of such Note to be prepaid. The "Treasury Rate" shall be the yield (as
quoted in The Wall Street Journal on the date which is three (3) Business Days
-----------------------
prior to the date of prepayment) on U.S. Treasury securities adjusted to a
constant maturity equal to the then remaining number of full months to maturity
of the Note.
"Note"shall mean the secured promissory note of Borrower substantially in
----
the form of Exhibit A.
---------
"Obligations" has the meaning given to that term in Section 5.01.
----------- ------------
"Operative Documents" shall mean this Agreement, the Note, the Warrant, the
-------------------
Landlord Waiver and Consent(s) and all other documents, instruments and
agreements executed and delivered in connection herewith or therewith or in
respect of the closing of the transactions contemplated hereby or thereby.
"Payment Date" means the first Business Day of each calendar month.
------------
"Permitted Indebtedness" shall mean and include:
----------------------
(a) Indebtedness of Borrower to Lenders;
(b) Indebtedness of Borrower secured by Liens permitted under clause (e)
of the definition of Permitted Liens;
(c) Indebtedness arising from the endorsement of instruments in the
ordinary course of business;
(d) Indebtedness existing on the date hereof and set forth on the
Disclosure Schedule;
(e) Subordinated Indebtedness; and
(f) Other Indebtedness of Borrower not exceeding One Hundred Thousand
Dollars ($100,000) at any time.
"Permitted Investments" shall mean and include:
---------------------
(b) Deposits with commercial banks organized under the laws of the
United States or a state thereof to the extent such deposits are fully
insured by the Federal Deposit Insurance Corporation;
(c) Investments in marketable obligations issued or fully guaranteed by
the United States and maturing not more than one (1) year from the date of
issuance; and
<PAGE>
(d) Investments in open market commercial paper rated at least "A1" or
"P1" or higher by a national credit rating agency and maturing not more
than one (1) year from the creation thereof.
(e) Investments pursuant to or arising under currency agreements or
interest rate agreements entered into in the ordinary course of business;
(f) Investments consisting of deposit accounts of Borrower in which
Lenders have a perfected security interest; and
(g) Other Investments aggregating not in excess of Two Hundred Fifty
Thousand Dollars ($250,000) at any time.
"Permitted Liens" shall mean (a) the Lien created by this Agreement, (b)
---------------
Liens for fees, taxes, levies, imposts, duties or other governmental charges of
any kind which are not yet delinquent or which are being contested in good faith
by appropriate proceedings which suspend the collection thereof (provided,
--------
however, that such proceedings do not involve any substantial danger of the
- -------
sale, forfeiture or loss of any item of equipment and that Borrower has
adequately bonded such Lien or reserves sufficient to discharge such Lien have
been provided on the books of Borrower), (c) Liens identified on the disclosure
schedule attached hereto as Schedule 2 ("Disclosure Schedule"), (d) Liens to
---------- -------------------
secure payment of worker's compensation, employment insurance, old age pensions
or other social security obligations of Borrower in the ordinary course of
business of Borrower, (e) Liens upon any equipment or other personal property
acquired by Borrower after the date hereof to secure (i) the purchase price of
such equipment or other personal property or (ii) lease obligations or
indebtedness incurred solely for the purpose of financing the acquisition of
such equipment or other personal property; provided that (A) such Liens are
--------
confined solely to the equipment or other personal property so acquired and the
amount secured does not exceed the acquisition price thereof, and (B) no such
Lien shall be created, incurred, assumed or suffered to exist in favor of
Borrower's officers, directors or shareholders holding five percent (5%) or more
of Borrower's Equity Securities, (f) carriers', warehousemen's, mechanics',
landlords', materialmen's, repairmen's or other similar Liens arising in the
ordinary course of business which are not delinquent or remain payable without
penalty or which are being contested in good faith and by appropriate
proceedings, and (g) non-exclusive licenses of Intellectual Property entered
into in the ordinary course of business and licenses, Liens or similar
arrangements entered into in connection with joint ventures and corporate
collaborations and (h) Liens securing Indebtedness to working capital lenders.
"Person" shall mean and include an individual, a partnership, a
------
corporation, a business trust, a joint stock company, a limited liability
company, an unincorporated association or other entity and any domestic or
foreign national, state or local government, any political subdivision thereof,
and any department, agency, authority or bureau of any of the foregoing.
"Prime Rate" shall mean the interest rate per annum specified in the "Money
----------
Rates" column of The Wall Street Journal, but such rate shall in no event be
-----------------------
more than the highest interest rate permitted by applicable law.
"Subordinated Indebtedness" shall mean Indebtedness subordinated to the
-------------------------
Obligations on terms and conditions acceptable to Lenders in their sole
discretion.
"Subsidiary" shall mean any corporation of which a majority of the
----------
outstanding capital stock entitled to vote for the election of directors
(otherwise than as the result of a default) is owned by Borrower directly
<PAGE>
or indirectly through Subsidiaries.
"Term" shall mean the period from and after the date hereof until the
----
payment or satisfaction in full of all Obligations under this Agreement and the
other Operative Documents.
"Treasury Note Maturity" shall mean the period of months set forth
----------------------
following such term on the cover page of this Agreement.
"Warrants" shall mean the separate warrants in favor of each of the Lenders
-------
to purchase securities of Borrower substantially in the forms of Exhibits B-1
------------
and B-2.
- -------
I.2. Headings Headings. in this Agreement and each of the other Operative
-----------------
Documents are for convenience of reference only and are not part of the
substance hereof or thereof.
I.3. Plural Terms. All terms defined in this Agreement or any other
------------
Operative Document in the singular form shall have comparable meanings when
used in the plural form and vice versa.
----------
I.4. Construction. This Agreement is the result of negotiations among,
------------
and has been reviewed by, Borrower and Lenders and their respective counsel.
Accordingly, this Agreement shall be deemed to be the product of all parties
hereto, and no ambiguity shall be construed in favor of or against Borrower or
Lenders.
I.5. Entire Agreement. This Agreement, together with the terms set forth
----------------
in each of the other Operative Documents, taken together, constitute and,
contain the entire agreement of Borrower and Lenders and, with regard to their
respective subject matters, supersede any and all prior agreements, term sheets,
negotiations, correspondence, understandings and communications among the
parties, whether written or oral, with respect to their respective subject
matters.
I.6. Other Interpretive Provisions. References in this Agreement to
-----------------------------
"Articles," "Sections," "Exhibits," "Schedules" and "Annexes" are to recitals,
articles, sections, exhibits, schedules and annexes herein and hereto unless
otherwise indicated. References in this Agreement and each of the other
Operative Documents to any document, instrument or agreement shall include (a)
all exhibits, schedules, annexes and other attachments thereto, (b) all
documents, instruments or agreements issued or executed in replacement thereof,
and (c) such document, instrument or agreement, or replacement or predecessor
thereto, as amended, modified and supplemented from time to time and in effect
at any given time. The words "hereof," "herein" and "hereunder" and words of
similar import when used in this Agreement or any other Operative Document shall
refer to this Agreement or such other Operative Document, as the case may be, as
a whole and not to any particular provision of this Agreement or such other
Operative Document, as the case may be. The words "include" and "including" and
words of similar import when used in this Agreement or any other Operative
Document shall not be construed to be limiting or exclusive. Unless otherwise
indicated in this Agreement or any other Operative Document, all accounting
terms used in this Agreement or any other Operative Document shall be construed,
and all accounting and financial computations hereunder or thereunder shall be
computed, in accordance with generally accepted accounting principles as in
effect in the United States of America from time to time.
ARTICLE II
THE CREDIT
----------
II.1. Credit Facility
---------------
<PAGE>
(a) The Credit Amount. Subject to the terms and conditions of this
-----------------
Agreement and relying upon the representations and warranties herein set forth
as and when made or deemed to be made, each Lender agrees to lend to Borrower
such Lender's pro rata share of the Credit Amount (based upon the respective
Commitment of each Lender). The Loan may not be prepaid except in accordance
with Section 2.02(e).
(b) Loan Interest Rate. Borrower shall pay interest on the unpaid
------------------
principal amount of the Loan from the date of the Loan until the Loan is paid in
full, at a per annum rate of interest equal to the Loan Rate determined in
accordance with the definition of Loan Rate. The Loan Rate applicable to the
Loan shall not be subject to change in the absence of manifest error. All
computations of interest on the Loan shall be based on a year of twelve 30 day
months. If Borrower pays interest on the Loan which is determined to be in
excess of the then legal maximum rate, then that portion of each interest
payment representing an amount in excess of the then legal maximum rate shall be
deemed a payment of principal and applied against the principal of the Loan.
(c) Payments of Principal and Interest. Borrower shall make payments of
----------------------------------
accrued interest only on the outstanding principal amount of the Loan on each
Payment Date, commencing on the next Payment Date after the Loan is made,
through and including December 1, 1998. If not earlier prepaid pursuant to
Section 2.02(e), on January 4, 1999, Borrower shall repay the entire outstanding
principal amount of the Loan, plus accrued interest through and including such
date. Notwithstanding the preceding sentence, if Borrower closes an initial
public offering of its common stock having aggregate net proceeds of not less
than $25,000,000, prior to January 4, 1999, then payments shall be made as set
forth in the first two sentences of this Section 2.01(c), but the principal of
the Loan shall be payable in twelve equal installments plus accrued interest on
the outstanding principal balance on each Payment Date, commencing on January 4,
1999; provided, that only if Borrower and both Lenders agree, Borrower may
prepay all of the principal and accrued interest on January 4, 1999.
(d) Loan Fee. On January 4, 1999, in addition to any outstanding
--------
principal, accrued interest and other amounts then due, Borrower shall pay to
each Lender a separate loan fee in the amount of $60,000.
II.2.
Use of Proceeds; the Loan and the Note; Disbursement.
----------------------------------------------------
(a) Use of Proceeds. The proceeds of the Loan shall be used solely for
---------------
working capital or general corporate purposes of Borrower.
(b) The Loan and the Note. The obligation of Borrower to repay each
---------------------
Lender's pro rata share of the unpaid principal amount of and interest on the
Loan shall be evidenced by a Note issued to each Lender and each Lender is
authorized to endorse on a grid annexed to its Note appropriate notations
regarding payments made on the Note; provided, however, that the failure to
-------- -------
make, or an error in making, any such notation shall not limit or otherwise
affect the obligations of Borrower hereunder.
(c) Disbursement. Each Lender shall disburse its pro rata portion of the
------------
Loan by wire transfer to Borrower unless otherwise directed in writing by
Borrower. Notwithstanding anything stated herein to the contrary, neither
Lender shall have any obligation to advance funds on behalf of the other Lender.
(d) Termination of Commitment to Lend. Notwithstanding anything to the
---------------------------------
contrary in the Operative Documents, Lenders' obligations to advance the Loan
hereunder shall terminate on the earlier of (i) the occurrence of any Event of
Default hereunder, and (ii) the Commitment Termination Date.
<PAGE>
(e) Prepayment. If Borrower has received a commitment for debt financing
----------
(in the form of an executed term sheet or proposal letter which is subject to
agreement on definitive documentation, but not credit approval), which would be
senior to or on parity with the Loan in lien priority or senior to the Loan in
right of payment, in an aggregate principal amount of not less than $15,000,000,
Borrower shall give Lenders written notice thereof and Lenders shall have the
option to cause Borrower to prepay to the Lenders at the closing of the new debt
financing the outstanding principal amount of the Loan, at a prepayment price
equal to the principal amount of the Loan outstanding, plus interest accrued
thereon through and including the date of such prepayment, plus a premium equal
to the Make-Whole Premium. Lenders shall give written notice to Borrower within
ten (10) Business Days of receipt of notice from Borrower of whether Lenders
will require such prepayment. If Lenders do not require such prepayment but are
unwilling to amend this document to permit the incurrence of the Indebtedness in
connection with the new debt financing on the terms and conditions proposed,
Borrower shall have the right to prepay all and not less than all of the
principal amount of the Loan at the prepayment price specified above.
II.3. Other Payment Terms.
-------------------
(a) Place and Manner. Borrower shall make all payments due to Lenders in
----------------
lawful money of the United States, in immediately available funds, at the
address for payments and in the manner specified in Section 10.05(b).
----------------
(b) Date. Whenever any payment due hereunder shall fall due on a day
----
other than a Business Day, such payment shall be made on the next succeeding
Business Day, and such extension of time shall be included in the computation of
interest or fees, as the case may be.
(c) Default Rate. If either (i) any amounts required to be paid by
------------
Borrower under this Agreement or the other Operative Documents (including
principal or interest payable on the Loan, any fees or other amounts) remain
unpaid after such amounts are due, or (ii) an Event of Default has occurred and
is continuing, Borrower shall pay interest on the outstanding principal balance
hereunder from the date due or from the date of the Event of Default, as
applicable, until such past due amounts are paid in full or until all Events of
Defaults are cured, as applicable, at a per annum rate equal to the Default
Rate, such rate to change from time to time as the Prime Rate shall change. All
computations of such interest at the Default Rate shall be based on a year of
360 days and actual days elapsed.
II.4. Commitment Fee. Borrower has paid a Commitment Fee in the
--------------
aggregate amount of $20,000 (the "Commitment Fees"). Any portion of the
---------------
Commitment Fees not utilized to pay Lenders' expenses in connection with the
negotiation, documentation and funding of the Loan will be applied to amounts
due under one or both of the Notes, as determined by Lenders, in the order in
which such amounts are due. If the Loan is not made, any remaining balance of
the Commitment Fees shall be retained by one or both of the Lenders as they
shall determine.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
------------------------------
III.1. Representations and Warranties. Except as set forth in the
------------------------------
Disclosure Schedule, Borrower makes the following representations and warranties
to Lenders as of the date hereof and again on the Funding Date:
<PAGE>
(a) Organization and Qualification. Borrower is a corporation duly
------------------------------
organized, validly existing and in good standing under the laws of its state of
incorporation and is duly qualified to do business in Borrower's Home State.
Borrower has no Subsidiaries.
(b) Authority. Borrower has all necessary corporate power, authority and
---------
legal right and has obtained all approvals and consents and has given all
notices necessary to execute and deliver this Agreement and the other Operative
Documents and to perform the terms hereof and thereof. Borrower has all
requisite corporate power and authority to own and operate its properties and to
carry on its businesses as now conducted.
(c) Conflict with Other Instruments, etc. Neither the execution and
-------------------------------------
delivery of any Operative Document to which Borrower is a party nor the
consummation of the transactions therein contemplated nor compliance with the
terms, conditions and provisions thereof will conflict with or result in a
breach of any of the terms, conditions or provisions of the charter or the
bylaws of Borrower or, to its knowledge, any law or any regulation, order, writ,
injunction or decree of any court or governmental instrumentality or any
material agreement or instrument to which Borrower is a party or by which it or
any of its properties is bound or to which it or any of its properties is
subject, or constitute a default thereunder or result in the creation or
imposition of any Lien, other than Permitted Liens.
(d) Title to Properties. Borrower has good and marketable title to the
-------------------
Collateral, free and clear of all Liens, other than Permitted Liens. Borrower
has title and ownership of, or is licensed under, all Intellectual Property,
with no known infringement of the rights of others. Borrower has not received
any communications alleging that Borrower has violated, or by conducting its
business as proposed, would violate any proprietary rights of any other Person.
Borrower has no knowledge of any infringement or violation by it of the
intellectual property rights of any third party and has no knowledge of any
violation or infringement by a third party of any of its Intellectual Property.
The Collateral and the Intellectual Property constitute substantially all of the
assets and property of Borrower. Borrower does not own any right, title or
interest in or to any real property or motor vehicles, other than motor vehicles
leased for executives as part of a benefit arrangement.
(e) Authorization, Governmental Approvals, etc. The execution and
-------------------------------------------
delivery by Borrower of each Operative Document, the granting of the security
interest in the Collateral, the issuance of the Warrant, the issuance of the
securities into which the Warrant is exercisable, the issuance of any securities
into which the securities issuable upon exercise of the Warrant are convertible,
and the performance of the obligations herein and therein contemplated have each
been duly authorized by all necessary action on the part of Borrower. No
authorization, consent, approval, license or exemption of, and no registration,
qualification, designation, declaration or filing with, or notice to, any Person
is, was or will be necessary to (i) the valid execution and delivery of any
Operative Document to which Borrower is a party, (ii) the performance of
Borrower's obligations under any Operative Document, or (iii) the granting of
the security interest in the Collateral, except for filings in connection with
the perfection of the security interest in any of the Collateral or the issuance
of the Warrant. The Operative Documents have been or will be duly executed and
delivered and constitute or will constitute legal, valid and binding obligations
of Borrower, enforceable in accordance with their respective terms, except as
the enforceability thereof may be limited by bankruptcy, insolvency or other
similar laws of general application relating to or affecting the enforcement of
creditors' rights or by general principles of equity.
(f) Litigation. There are no actions, suits, proceedings or
----------
investigations pending or, to the
<PAGE>
knowledge of Borrower, threatened against or affecting Borrower, or the business
or any property or asset owned by it, before any court or governmental
department, agency or instrumentality which, if adversely determined, could
reasonably be expected to have a material adverse effect on the financial
condition, business or operations of Borrower.
(g) Security Interest. Assuming the proper filing of one or more
-----------------
financing statement(s) identifying the Collateral with the proper state and/or
local authorities, the security interests in the Collateral granted to Lenders
pursuant to this Agreement (i) constitute and will continue to constitute first
priority security interests (except to the extent any other Permitted Lien
existing on the date of this Agreement may create any priority to Lenders' Lien
under this Agreement) and (ii) are and will continue to be superior and prior to
the rights in the Collateral of all other creditors of Borrower (except to the
extent of such Permitted Liens).
(h) Executive Offices. The principal place of business and chief
-----------------
executive office of Borrower, and the office where Borrower will keep all
records and files regarding the Collateral, is set forth on the cover page of
this Agreement.
(i) Solvency, Etc. Borrower is Solvent (as defined below) and, after
-------------
the execution and delivery of the Operative Documents and the consummation of
the transactions contemplated thereby, Borrower will be Solvent. "Solvent" shall
-------
mean, with respect to any Person on any date, that on such date (a) the fair
value of the property of such Person is greater than the fair value of the
liabilities (including, without limitation, contingent liabilities) of such
Person, (b) the present fair saleable value of the assets of such Person is not
less than the amount that will be required to pay the probable liability of such
Person on its debts as they become absolute and matured, (c) such Person does
not intend to, and does not believe that it will, incur debts or liabilities
beyond such Person's ability to pay as such debts and liabilities mature and (d)
such Person is not engaged in business or a transaction, and is not about in
business or a transaction, for which such Person's property would constitute an
unreasonably small capital.
(j) Catastrophic Events; Labor Disputes. None of Borrower or its
-----------------------------------
properties is or has been affected by any fire, explosion, accident, strike,
lockout or other labor dispute, drought, storm, hail, earthquake, embargo, act
of God or other casualty that could reasonably be expected to have a material
adverse effect on the financial condition, business or operations of Borrower.
There are no disputes presently subject to grievance procedure, arbitration or
litigation under any of the collective bargaining agreements, employment
contracts or employee welfare or incentive plans to which Borrower is a party,
and there are no strikes, lockouts, work stoppages or slowdowns, or, to the best
knowledge of Borrower, jurisdictional disputes or organizing activity occurring
or threatened which could reasonably be expected to have a material adverse
effect on the financial condition, business or operations of Borrower.
(k) No Material Adverse Effect . No event has occurred and no condition
--------------------------
exists which could reasonably be expected to have a material adverse effect on
the financial condition, business or operations of Borrower since December 31,
1996.
(l) Accuracy of Information Furnished. None of the Operative Documents
---------------------------------
and none of the other certificates, statements or information furnished to
Lenders by or on behalf of Borrower in connection with the Operative Documents
or the transactions contemplated thereby contains or will contain any untrue
statement of a material fact or omits or will omit to state a material fact
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading. Lenders recognize that all financial
projections furnished to Lenders by or on behalf of Borrower in connection with
the Operative Documents or the transactions contemplated thereby are not to be
viewed as facts and that actual results
<PAGE>
during the period or periods covered by such projections may differ from the
projected or forecasted results.
(m) Certain Agreements of Officers, Employees and Consultants.
---------------------------------------------------------
(i) No officer, employee or consultant of Borrower is, or is now
expected to be, in violation of any term of any employment contract, proprietary
information agreement, nondisclosure agreement, noncompetition agreement, or any
other contract or agreement or any restrictive covenant relating to the right of
any such officer, employee or consultant to be employed by Borrower because of
the nature of the business conducted or to be conducted by Borrower or relating
to the use of trade secrets or proprietary information of others, and to the
best of Borrower's knowledge, after due inquiry, the continued employment of
Borrower's officers, employees and consultants do not subject Borrower to any
liability for any claim or claims arising out of or in connection with any such
contract, agreement, or covenant.
(ii) To the knowledge of Borrower, no officers of Borrower, and no
employee or consultant of Borrower whose termination, either individually or in
the aggregate, could reasonably be expected to have a Material Adverse Effect,
has any present intention of terminating his or her employment or consulting
relationship with Borrower.
ARTICLE IV
REPORTING REQUIREMENTS
----------------------
IV.1. Furnishing Reports . Borrower shall furnish to Lenders:
------------------
(a) Financial Statements. So long as Borrower is not subject to the
--------------------
reporting requirements of Section 12 or Section 15 of the Securities and
Exchange Act of 1934, as amended, promptly as they are available, unaudited
monthly and audited annual financial statements of Borrower and such other
financial information as Lenders may reasonably request from time to time. From
and after such time as Borrower becomes a publicly reporting company, promptly
as they are available and in any event: (i) at the time of filing of Borrower's
Form 10-K with the Securities and Exchange Commission after the end of each
fiscal year of Borrower, the financial statements of Borrower filed with such
Form 10-K; and (ii) at the time of filing of Borrower's Form 10-Q with the
Securities and Exchange Commission after the end of each of the first three
fiscal quarters of Borrower, the financial statements of Borrower filed with
such Form 10-Q.
(b) Notice of Defaults. As soon as possible, and in any event within
------------------
five (5) Business Days after the discovery of a Default or Event of Default
provide Lenders with an Officer's Certificate of Borrower setting forth the
facts relating to or giving rise to such Default or Event of Default and the
action which Borrower proposes to take with respect thereto.
(b) Miscellaneous. Such other information as Lenders may reasonably
-------------
request from time to time.
ARTICLE V
GRANT OF SECURITY INTEREST
GENERAL PROVISIONS CONCERNING SECURITY
--------------------------------------
V.1. Grant of Security Interest. Borrower, in order to secure the payment
--------------------------
of the principal and interest with respect to the Loan made pursuant to this
Agreement, all other sums due under and in respect hereof and of the other
Operative Documents, including fees, charges, expenses and attorneys' fees and
costs
<PAGE>
and the performance and observance by Borrower of all other terms, conditions,
covenants and agreements herein and in the other Operative Documents (all such
amounts and obligations being herein sometimes called the "Obligations"), does
-----------
hereby grant to Lenders and their successors and assigns, a security interest in
and to the following property (collectively, the "Collateral"): All right,
----------
title, interest, claims and demands of Borrower in and to:
(a) All goods and equipment now owned or hereafter acquired, including,
without limitation, all laboratory equipment, computer equipment, office
equipment, machinery, fixtures, vehicles (including motor vehicles and
trailers), and any interest in any of the foregoing, and all attachments,
accessories, accessions, replacements, substitutions, additions, and
improvements to any of the foregoing, wherever located;
(b) All inventory now owned or hereafter acquired, including, without
limitation, all merchandise, raw materials, parts, supplies, packing and
shipping materials, work in process and finished products including such
inventory as is temporarily out of Borrower's custody or possession or in
transit and including any returns upon any accounts or other proceeds, including
insurance proceeds, resulting from the sale or disposition of any of the
foregoing and any documents of title representing any of the above, and
Borrower's books relating to any of the foregoing;
(c) All contract rights and general intangibles (except to the extent
included within the definition of Intellectual Property), now owned or
hereafter acquired, including, without limitation, goodwill, license agreements,
franchise agreements, blueprints, drawings, purchase orders, customer lists,
route lists, infringements, claims, computer programs, computer disks, computer
tapes, literature, reports, catalogs, design rights, income tax refunds,
payments of insurance and rights to payment of any kind;
(d) All now existing and hereafter arising accounts, contract rights,
royalties, license rights and all other forms of obligations owing to Borrower
arising out of the sale or lease of goods, the licensing of technology or the
rendering of services by Borrower (subject, in each case, to the contractual
rights of third parties to require funds received by Borrower to be expended in
a particular manner), whether or not earned by performance, and any and all
credit insurance, guaranties, and other security therefor, as well as all
merchandise returned to or reclaimed by Borrower and Borrower's books relating
to any of the foregoing;
(e) All documents, cash, deposit accounts, letters of credit, certificates
of deposit, instruments, chattel paper and investment property, including,
without limitation, all securities, whether certificated or uncertificated,
security entitlements, securities accounts, commodity contracts and commodity
accounts, and all financial assets held in any securities account or otherwise,
wherever located, now owned or hereafter acquired and Borrower's books relating
to the foregoing;
(f) Any and all claims, rights and interests in any of the above and all
substitutions for, additions and accessions to and proceeds thereof, including,
without limitation, insurance, condemnation, requisition or similar payments and
proceeds of the sale or licensing of Intellectual Property to the extent such
proceeds no longer constitute Intellectual Property; but
(g) Excluding, all Intellectual Property.
---------
V.2. Duration of Security Interest. Lenders' security interest in the
-----------------------------
Collateral shall continue until the payment in full and the satisfaction of all
Obligations, whereupon such security interest shall terminate. Lenders, upon
payment in full and the satisfaction of the Obligations, shall execute such
further documents and take such further actions as may be necessary to effect
the release and/or termination contemplated by
<PAGE>
this Section 5.02, including duly executing and delivering termination
------------
statements for filing in all relevant jurisdictions.
V.3. Possession of Collateral. Except as set forth in Section 5.04, so
------------------------
long as no Event of Default has occurred and is continuing, Borrower shall
remain in full possession, enjoyment and control of the Collateral (except only
as may be otherwise required by Lenders for perfection of its security interest
therein) and to manage, operate and use the same and each part thereof with the
rights and franchises appertaining thereto; provided, however, that the
possession, enjoyment, control and use of the Collateral shall at all times be
subject to the observance and performance of the terms of this Agreement.
V.4. Location of Collateral. The Collateral is and shall remain in the
----------------------
possession of Borrower at Borrower's address stated on the cover page of this
Agreement.
V.5. Lien Subordination. Lenders agree that the Liens granted to them
------------------
hereunder shall be subordinate to the Liens of existing and future lenders
providing equipment financing and equipment lessors, and to the Lien of Silicon
Valley Bank; provided that, in the case of equipment financings and leasing,
--------
such Liens are confined solely to the equipment so financed and the proceeds
thereof; and provided, further, that the Obligations hereunder shall not be
-------- -------
subordinate in right of payment to any obligations to other lenders or equipment
lessors and Lenders' rights and remedies hereunder shall not in any way be
subordinate to the rights and remedies of any such lenders or equipment lessors.
Lenders agree to execute and deliver such agreements and documents as may be
reasonably requested by Borrower from time to time which set forth the lien
subordination described in this Section 5.05 and are reasonably acceptable to
------------
Lenders. Lenders shall have no obligation to execute any agreement or document
which would impose obligations, restrictions or lien priority on Lenders which
are less favorable to Lenders than those described in this Section 5.05.
------------
ARTICLE VI
AFFIRMATIVE COVENANTS
---------------------
VI.1. Affirmative Covenants
---------------------
(a) Payment of Taxes, etc. Borrower shall pay and discharge all taxes,
---------------------
assessments and governmental charges or levies imposed upon it or upon its
income or profits, or upon any properties belonging to it, prior to the date on
which penalties attach thereto, and all lawful claims which, if unpaid, might
become a Lien upon any of its properties; provided that there shall be no
--------
requirement to pay any such tax, assessment, charge, levy or claim (i) which is
being contested in good faith and by appropriate proceedings or which presents
no risk of seizure, forfeiture, levy or other event which could jeopardize any
Collateral or (ii) for which payment in full is bonded or reserved in Borrower's
financial statements.
(b) Inspection Rights. Borrower shall, at any reasonable time and from
-----------------
time to time, permit Lenders or any of its agents or representatives to inspect
the Collateral, to examine and make copies of and abstracts from the records and
books of account of, and visit the properties of, Borrower and to discuss the
affairs, finances and accounts of Borrower with any of its officers or directors
relating in each case to Lenders' capacity as lenders and secured party
hereunder and with respect to the Collateral.
(c) Maintenance of Equipment and Similar Assets. Borrower shall keep and
-------------------------------------------
maintain all items of equipment and other similar types of personal property
that form any significant portion or portions of the Collateral in good
operating condition and repair and shall make all necessary replacements thereof
and
<PAGE>
renewals thereto so that the value and operating efficiency thereof shall at all
times be maintained and preserved. Borrower shall not permit any such material
item of Collateral to become a fixture to real estate or an accession to other
personal property, without the prior written consent of Lenders. Borrower shall
not permit any such material item of Collateral to be operated or maintained in
violation of any applicable law, statute, rule or regulation. With respect to
items of leased equipment (to the extent Lenders have any security interest in
any residual Borrower's interest in such equipment under the lease), Borrower
shall keep, maintain, repair, replace and operate such leased equipment in
accordance with the terms of the applicable lease.
(d) Insurance.
---------
(i) Borrower shall, obtain and maintain for the Term, at its own
expense, (x) "all risk" insurance against loss or damage to the Collateral, (y)
commercial general liability insurance (including contractual liability,
products liability and completed operations coverages) reasonably satisfactory
to Lenders, and (z) such other insurance against such other risks of loss and
with such terms, as shall in each case be reasonably satisfactory to or
reasonably required by Lenders (as to carriers, amounts and otherwise). The
amount of the "all risk" insurance shall be determined to Lenders' reasonable
satisfaction as of each anniversary date of this Agreement and the appropriate
amount of coverage shall be put in effect on the next succeeding renewal or
inception date of such insurance.
(ii) The deductible with respect to "all-risk" insurance required by
clause (x) above and product liability insurance required by clause (y) above
shall not exceed $25,000; otherwise there shall be no deductible with respect to
any insurance required to be maintained hereunder. The amount of commercial
general liability insurance (other than products liability coverage and
completed operations insurance) required by clause (y) above shall be at least
$5,000,000 per occurrence. The amount of the products liability and completed
operations insurance required by clause (y) above shall be at least $5,000,000
per occurrence. Each "all risk" policy shall: (x) name Lenders as loss payees,
(y) provide for each insurer's waiver of its right of subrogation against
Lenders, and (z) provide that such insurance (A) shall not be invalidated by any
action of, or breach of warranty by, Borrower of a provision of any of its
insurance policies, and (B) shall waive set-off, counterclaim or offset against
Lenders. Each liability policy shall (w) name Lenders as additional insureds in
the full amount of Borrower's liability coverage limits (or the coverage limits
of any successor to Borrower or such successor's parent which is providing
coverage) and (x) provide that such insurance shall have cross-liability and
severability of interest endorsements (which shall not increase the aggregate
policy limits of Borrower's insurance). All insurance policies shall (y)
provide that Borrower's insurance shall be primary without a right of
contribution of Lenders' insurance, if any, or any obligation on the part of
Lenders to pay premiums of Borrower, and (z) shall contain a clause requiring
the insurer to give Lenders at least 30 days' prior written notice of its
cancellation (other than cancellation for non-payment for which 10 days' notice
shall be sufficient). Borrower shall on or prior to the first Funding Date and
prior to each policy renewal, furnish to Lenders certificates of insurance or
other evidence satisfactory to Lenders that such insurance coverage is in
effect.
ARTICLE VII
NEGATIVE COVENANTS
------------------
VII.1. Negative Covenants. So long as the Obligations remain outstanding,
------------------
Borrower shall not:
(a) Name; Location of Chief Executive Office and Collateral. Without
-------------------------------------------------------
thirty (30) days prior
<PAGE>
written notice to Lenders, change its chief executive office or principal place
of business or remove or cause to be removed from the location set forth on the
cover page hereof or move any Collateral to a location other than that set forth
on the cover page hereof.
(b) Liens on Collateral. Create, incur, assume or suffer to exist any Lien
-------------------
of any kind upon any Collateral, whether now owned or hereafter acquired, except
Permitted Liens.
(c) Negative Pledge Regarding Intellectual Property. Create, incur, assume
-----------------------------------------------
or suffer to exist any Lien of any kind upon any Intellectual Property, whether
now owned or hereafter acquired, except Permitted Liens.
(d) Dispositions of Collateral or Intellectual Property. Convey, sell,
---------------------------------------------------
offer to sell, lease, transfer, exchange or otherwise dispose of (collectively,
a "Transfer") all or any part of the Collateral or Intellectual Property to any
--------
Person, other than: (i) transfers of inventory in the ordinary course of
business; (ii) transfers of non-exclusive licenses and similar arrangements for
the use of the property of Borrower in the ordinary course of business; or (iii)
transfers of worn-out or obsolete equipment.
(e) Distributions. (i) Pay any dividends or make any distributions on its
-------------
Equity Securities; (ii) purchase, redeem, retire, defease or otherwise acquire
for value any of its Equity Securities (other than repurchases by cancellation
of indebtedness pursuant to the terms of employee stock purchase plans, employee
restricted stock agreements or similar arrangements in an aggregate amount not
to exceed $100,000); (iii) return any capital to any holder of its Equity
Securities as such; (iv) make any distribution of assets, Equity Securities,
obligations or securities to any holder of its Equity Securities as such; or (v)
set apart any sum for any such purpose; provided, however, that Borrower may pay
dividends payable solely in Common Stock.
(f) Mergers or Acquisitions. Merge or consolidate with or into any other
-----------------------
Person or acquire or all or substantially all of the capital stock or assets of
another Person.
(g) Transactions With Affiliates. Enter into any contractual obligation
----------------------------
with any affiliate or engage in any other transaction with any affiliate except
upon terms at least as favorable to Borrower as an arms-length transaction with
unaffiliated Persons.
(h) Maintenance of Accounts. Maintain any deposit accounts or accounts
-----------------------
holding securities owned by Borrower except (i) accounts located at Silicon
Valley Bank and Citibank, N.A. and (ii) other accounts with respect to which
Lenders take such action as they deem necessary to obtain a perfected security
interest in such account.
(i) Indebtedness Payments. (i) Without the prior written consent of
---------------------
Lenders (which shall not be unreasonably withheld or delayed), prepay, redeem,
purchase, defease or otherwise satisfy in any manner prior to the scheduled
repayment thereof any Indebtedness for borrowed money (other than amounts due
under this Loan Agreement or the Note) or lease obligations, (ii) amend, modify
or otherwise change the terms of any Indebtedness for borrowed money (other than
the Obligations) or lease obligations so as to accelerate the scheduled
repayment thereof or (iii) repay any notes to officers, directors or
shareholders.
(j) Subsidiaries. Without the prior written consent of Lenders, form any
------------
Subsidiary (other than in connection with the reincorporation of Borrower in
Delaware).
(k) Indebtedness. Create, incur, assume or permit to exist any
------------
Indebtedness except Permitted
<PAGE>
Indebtedness.
(l) Investments. Make any Investment except for Permitted Investments.
-----------
ARTICLE VIII
CONDITIONS PRECEDENT
--------------------
VIII.1. Closing. At the time of execution and delivery of this Agreement,
-------
Borrower shall have duly executed and/or delivered to Lenders the items set
forth in Part I of Schedule 3.
--------------------
VIII.2. Other Conditions. The obligation of Lenders to make the Loan
----------------
shall be subject to the execution and/or delivery to Lenders of each of the
items set forth in Part I of Schedule 3 and the satisfaction of by Borrower of
--------------------
each condition set forth in Part II of Schedule 3.
---------------------
VIII.3. Covenant to Deliver. Borrower agrees (not as a condition but as a
-------------------
covenant) to deliver to Lenders each item required to be delivered to Lenders as
a condition to the Loan, if the Loan is advanced. Borrower expressly agrees that
the extension of the Loan prior to the receipt by Lenders of any such item shall
not constitute a waiver by Lenders of Borrower's obligation to deliver such
item.
ARTICLE IX
DEFAULT AND REMEDIES
--------------------
IX.1. Events of Default. An "Event of Default" shall mean the
-----------------
occurrence of one or more of the following described events:
(a) Borrower shall (i) default in the payment of principal of or interest
on the Loan when the same is due, or (ii) default in the payment of any expense
or other amount payable hereunder or thereunder for five (5) days after receipt
of written notice from Lenders that the same is due; or
(b) Borrower shall breach any provision of Section 7.01 or Section
------------ -------
6.01(d); or
(c) Borrower shall default in the performance of any covenant, agreement
or obligation (other than a covenant, agreement or obligation referred to in,
Section 9.01(a) or Section 9.01(b)) contained in any Operative Document (other
- --------------- ---------------
than the Warrant) and Borrower shall fail to cure within thirty (30) days after
receipt of written notice from Lenders any default in the performance of any
such covenant, agreement or obligation contained therein; or
(d) Borrower shall have breached the terms of the Warrant; or
(e) Any representation or warranty made herein or on the Funding Date by
Borrower in any Operative Document, or any certificate or financial statement
furnished pursuant to the provisions of any Operative Document, shall prove to
have been false or misleading in any material respect as of the time made or
furnished; or
(f) Any Operative Document shall in any material respect cease to be, or
Borrower shall assert that any Operative Document is not, a legal, valid and
binding obligation of Borrower enforceable in accordance with its terms; or
<PAGE>
(g) A default shall exist under any agreement with any third party or
parties which consists of the failure to pay any Indebtedness at maturity or
which results in a right by such third party or parties, whether or not
exercised, to accelerate the maturity of any Indebtedness of Borrower in an
amount in excess of Two Hundred Fifty Thousand Dollars ($250,000) or a default
shall exist under any financing agreement with a Lender or any of such Lender's
affiliates; or
(h) A proceeding shall have been instituted in a court of competent
jurisdiction seeking a decree or order for relief in respect of Borrower in an
involuntary case under any applicable bankruptcy, insolvency or other similar
law now or hereafter in effect, or for the appointment of a receiver,
liquidator, assignee, custodian, trustee (or similar official) of Borrower or
for any substantial part of its property, or for the winding-up or liquidation
of its affairs, and such proceeding shall remain undismissed or unstayed and in
effect for a period of thirty (30) consecutive days or such court shall enter a
decree or order granting the relief sought in such proceeding; or
(i) Borrower shall commence a voluntary case under any applicable
bankruptcy, insolvency or other similar law now or hereafter in effect, shall
consent to the entry of an order for relief in an involuntary case under any
such law, or shall consent to the appointment of or taking possession by a
receiver, liquidator, assignee, trustee, custodian (or other similar official)
of Borrower or for any substantial part of its property, or shall make a general
assignment for the benefit of creditors, or shall fail generally to pay its
debts as they become due, or shall take any corporate action in furtherance of
any of the foregoing; or
(j) A final judgment or order for the payment of money in excess of One
Hundred Thousand Dollars ($100,000) (exclusive of amounts covered by insurance
issued by an insurer not an affiliate of Borrower) shall be rendered against
Borrower and the same shall remain undischarged for a period of thirty (30) days
during which execution shall not be effectively stayed, or any judgment, writ,
assessment, warrant of attachment, or execution or similar process shall be
issued or levied against a substantial part of the property of Borrower and such
judgment, writ, or similar process shall not be released, stayed, vacated or
otherwise dismissed within thirty (30) days after issue or levy.
IX.2. Consequences of Event of Default.
--------------------------------
(a) If an Event of Default specified under any of clauses (a) through (g)
-----------------------
or (j) of Section 9.01 shall occur and be continuing, Lenders may (i) declare
- ------ ------------
the Loan, together with interest thereon, plus any premium and all other
liabilities of Borrower hereunder and under the other Operative Documents to be
immediately due and payable, without presentment, demand, protest or further
notice of any kind, all of which are hereby expressly waived, and (ii) terminate
its commitment to make the Loan and terminate any commitment to advance money or
extend credit to or for the benefit of Borrower pursuant to any other agreement
or commitment extended by Lenders to Borrower.
(b) If an Event of Default specified under clause (h) or (i) of Section
----------------------------
9.01 shall occur, then immediately and without notice (i) the Loan, together
- ----
with interest thereon, plus premium, if any, and all other liabilities of
Borrower hereunder and under the other Operative Documents shall automatically
become due and payable, without presentment, demand, protest or notice of any
kind, all of which are hereby expressly waived, and (ii) Lenders' commitment
hereunder to make the Loan and any other commitment of Lenders to Borrower to
advance money or extend credit pursuant to any other agreement or commitment
shall be terminated.
IX.3. Rights Regarding Collateral. Borrower agrees that when any Event
---------------------------
of Default has occurred
<PAGE>
and is continuing, Lenders shall have the rights, options, duties and remedies
of a secured party as permitted by law and, in addition to and without limiting
the foregoing, Lenders may exercise any one or more or all, and in any order, of
the remedies herein set forth, including the following:
(a) Lenders, personally or by agents or attorneys, shall have the right
(subject to compliance with any applicable mandatory legal requirements) to
require Borrower to assemble the Collateral and make it available to Lenders at
a place to be designated by Lenders or to take immediate possession of the
Collateral, or any portion thereof, and for that purpose may pursue the same
wherever it may be found, and may enter any of premises of Borrower, with or
without notice, demand, process of law or legal procedure, to the extent
permitted by applicable law, and search for, take possession of, remove, keep
and store the same, or use and operate or lease the same until sold. In
furtherance of Lenders' rights hereunder, Borrower hereby grants to Lenders an
irrevocable, non-exclusive license (exercisable without royalty or other payment
by Lenders) to use, license or sublicense any patent, trademark, trade name,
copyright or other intellectual property in which Borrower now or hereafter has
any right, title or interest together with the right of access to all media in
which any of the foregoing may be recorded or stored; provided, however, that
such license shall only be exercisable in connection with the disposition of
Collateral upon Lenders' exercise of their remedies hereunder.
(b) Lenders may, if at the time such action may be lawful and always
subject to compliance with any mandatory legal requirements, either with or
without taking possession and either before or after taking possession, without
instituting any legal proceedings whatsoever, having first given notice of such
sale by registered or certified mail to Borrower once at least ten (10) days
prior to the date of such sale, and having first given any other notice which
may be required by law, sell and dispose of the Collateral, or any part thereof,
at a private sale or at public auction, to the highest bidder, in one lot as an
entirety or in separate lots, and either for cash or on credit and on such terms
as Lenders may determine, and at any place (whether or not it be the location of
the Collateral or any part thereof) designated in the notice referred to above.
To the extent permitted by applicable law, any such sale or sales may be
adjourned from time to time by announcement at the time and place appointed for
such sale or sales, or for any such adjourned sale or sales, without further
published notice, and Borrower, Lenders or the holder or holders of the Note, or
of any interest therein, may bid and become the purchaser at any such sale.
(c) Lenders may proceed to protect and enforce this Agreement and the
other Operative Documents by suit or suits or proceedings in equity, at law or
in bankruptcy, and whether for the specific performance of any covenant or
agreement herein contained or in execution or aid of any power herein granted;
or for foreclosure hereunder, or for the appointment of a receiver or receivers
for any real property security or any part thereof, or for the recovery of
judgment for the Obligations or for the enforcement of any other proper, legal
or equitable remedy available under applicable law.
IX.4. Waiver by Borrower. Upon the occurrence of an Event of Default,
------------------
to the extent permitted by law, Borrower covenants that it will not at any time
insist upon or plead, or in any manner whatsoever claim or take any benefit or
advantage of, any stay or extension law now or at any time hereafter in force,
nor claim, take nor insist upon any benefit or advantage of or from any law now
or hereafter in force providing for the valuation or appraisement of the
Collateral or any part thereof prior to any sale or sales thereof to be made
pursuant to any provision herein contained, or to the decree, judgment or order
of any court of competent jurisdiction; nor, after such sale or sales, claim or
exercise any right under any statute now or hereafter made or enacted by any
state or otherwise to redeem the property so sold or any part thereof, and, to
the full extent legally permitted, except as to rights expressly provided
herein, hereby expressly waives for itself and on behalf of each and every
Person, except decree or judgment creditors of Borrower, acquiring
<PAGE>
any interest in or title to the Collateral or any part thereof subsequent to the
date of this Agreement, all benefit and advantage of any such law or laws, and
covenants that it will not invoke or utilize any such law or laws or otherwise
hinder, delay or impede the execution of any power herein granted and delegated
to Lenders, but will suffer and permit the execution of every such power as
though no such power, law or laws had been made or enacted.
IX.5. Effect of Sale. Any sale, whether under any power of sale
--------------
available to Lenders or by virtue of judicial proceedings, shall operate to
divest all right, title, interest, claim and demand whatsoever, either at law or
in equity, of Borrower in and to the property sold, and shall be a perpetual
bar, both at law and in equity, against Borrower, its successors and assigns,
and against any and all persons claiming the property sold or any part thereof
under, by or through Borrower, its successors or assigns.
IX.6. Application of Collateral Proceeds. The proceeds and/or avails
----------------------------------
of the Collateral, or any part thereof, and the proceeds and the avails of any
remedy hereunder (as well as any other amounts of any kind held by Lenders at
the time of, or received by Lenders after, the occurrence of an Event of Default
hereunder) shall be paid to and applied as follows:
(a) First, to the payment of reasonable costs and expenses, including all
-----
amounts expended to preserve the value of the Collateral, of foreclosure or
suit, if any, and of such sale and the exercise of any other rights or remedies,
and of all proper fees, expenses, liability and advances, including reasonable
legal expenses and attorneys' fees, incurred or made hereunder by Lenders;
(b) Second, to the payment to Lenders of the amount then owing or unpaid
------
on the Note, and in case such proceeds shall be insufficient to pay in full the
whole amount so due, owing or unpaid upon the Note, then first, to the unpaid
-----
interest thereon, second, to unpaid principal thereof and third to the remaining
------ -----
balance of the Obligations under the Note; such application to be made upon
presentation of the Note, and the notation thereon of the payment, if partially
paid, or the surrender and cancellation thereof, if fully paid;
(c) Third, to the payment of other amounts then payable to Lenders under
-----
any of the Operative Documents; and
(d) Fourth, to the payment of the surplus, if any, to Borrower, its
------
successors and assigns, or to whomsoever may be lawfully entitled to receive the
same.
IX.7. Reinstatement of Rights. If Lenders shall have proceeded to
-----------------------
enforce any right under this Agreement or any other Operative Document by
foreclosure, sale, entry or otherwise, and such proceedings shall have been
discontinued or abandoned for any reason or shall have been determined
adversely, then and in every such case (unless otherwise ordered by a court of
competent jurisdiction), Lenders shall be restored to their former position and
rights hereunder with respect to the property subject to the security interest
created under this Agreement.
ARTICLE X
MISCELLANEOUS
-------------
X.1. Modifications, Amendments or Waivers. The provisions of any
------------------------------------
Operative Document may be modified, amended or waived only by a written
instrument signed by the parties thereto.
<PAGE>
X.2. No Implied Waivers; Cumulative Remedies; Writing Required. No
---------------------------------------------------------
delay or failure of Lenders in exercising any right, power or remedy hereunder
shall affect or operate as a waiver thereof; nor shall any single or partial
exercise thereof or any abandonment or discontinuance of steps to enforce such a
right, power or remedy preclude any further exercise thereof or of any other
right, power or remedy. The rights and remedies hereunder of Lenders are
cumulative and not exclusive of any rights or remedies which it would otherwise
have. Any waiver, permit, consent or approval of any kind or character on the
part of Lenders of any breach or default under this Agreement or any such waiver
of any provision or condition of this Agreement must be in writing and shall be
effective only in the specified instance and to the extent specifically set
forth in such writing.
X.3. Expenses; Indemnification. Borrower agrees upon demand to pay
-------------------------
or reimburse Lenders for all liabilities, obligations and out-of-pocket
expenses, including reasonable fees and expenses of counsel for Lenders, from
time to time arising in connection with the enforcement or collection of sums
due under the Operative Documents. Borrower shall indemnify, reimburse and hold
Lenders, each of Lenders' partners, and each of their respective successors,
assigns, agents, officers, directors, shareholders, servants, agents and
employees harmless from and against all liabilities, losses, damages, actions,
suits, demands, claims of any kind and nature (including claims relating to
environmental discharge, cleanup or compliance), all costs and expenses
whatsoever to the extent they may be incurred or suffered by such indemnified
party in connection therewith (including reasonable attorneys' fees and
expenses), fines, penalties (and other charges of applicable governmental
authorities), licensing fees relating to any item of Collateral, damage to or
loss of use of property (including consequential or special damages to third
parties or damages to Borrower's property), or bodily injury to or death of any
person (including any agent or employee of Borrower) (each, a "Claim"), directly
or indirectly relating to or arising out of the use of the proceeds of the Loan
or otherwise, the falsity of any representation or warranty of Borrower or
Borrower's failure to comply with the terms of this Agreement or any other
Operative Document during the Term. The foregoing indemnity shall cover, without
limitation, (i) any Claim in connection with a design or other defect (latent or
patent) in any item of equipment included in the Collateral, (ii) any Claim for
infringement of any patent, copyright, trademark or other intellectual property
right, (iii) any Claim resulting from the presence on or under or the escape,
seepage, leakage, spillage, discharge, emission or release of any Hazardous
Materials on the premises of Borrower, including any Claims asserted or arising
under any Environmental Law, or (iv) any Claim for negligence or strict or
absolute liability in tort; provided, however, that Borrower shall not indemnify
-----------------
Lenders for any liability incurred by Lenders as a direct and sole result of
Lenders' gross negligence or willful misconduct. Such indemnities shall continue
in full force and effect, notwithstanding the expiration or termination of this
Agreement. Upon Lenders' written demand, Borrower shall assume and diligently
conduct, at its sole cost and expense, the entire defense of Lenders, each of
its partners, and each of their respective, agents, employees, directors,
officers, shareholders, successors and assigns against any indemnified Claim
described in this Section 10.03. Borrower shall not settle or compromise any
-------------
Claim against or involving Lenders without first obtaining Lenders' written
consent thereto, which consent shall not be unreasonably withheld.
X.4. Waivers. (a) Borrower shall give Lenders written notice within
-------
one hundred eighty (180) days of obtaining knowledge of the occurrence of any
claim or cause of action it believes it has, or may seek to assert to allege
against Lenders whether such claim is based in law or equity, arising under or
related to this Agreement or any of the other Operative Documents or to the
transactions contemplated hereby or thereby, or any act or omission to act by
Lenders with respect hereto or thereto, and that if it shall fail to give such
notice to Lenders with regard to any such claim or cause of action, Borrower
shall be deemed to have waived, and shall be forever barred from bringing or
asserting such claim or cause of action in any suit, action or proceeding in any
court or before any governmental agency or authority or any arbitrator.
<PAGE>
(b) NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN THIS AGREEMENT OR
ANYWHERE ELSE, BORROWER AGREES THAT IT SHALL NOT SEEK FROM LENDERS UNDER ANY
THEORY OF LIABILITY (INCLUDING ANY THEORY IN TORTS), ANY SPECIAL, INDIRECT,
CONSEQUENTIAL OR PUNITIVE DAMAGES.
X.5. Notices; Payments.
-----------------
(a) All notices and other communications given to or made upon any party
hereto in connection with this Agreement shall be in writing (including telexed,
telecopied or telegraphic communication) and mailed (by certified or registered
mail), telexed, telegraphed, telecopied or delivered to the respective parties,
as follows:
Borrower: At the address set forth on the cover page of this
Agreement.
Lenders: MMC/GATX PARTNERSHIP NO. I
c/o GATX Capital Corporation
Four Embarcadero Center
Suite 2200
San Francisco, California 94111
Telephone No.: 415-955-3200
Telecopier No.: 415-955-3493
Attention: Contract Administration
with a copy of all financial information to:
MEIER MITCHELL & COMPANY
4 Orinda Way, Suite 200B
Orinda, California 94563
and
TRANSAMERICA BUSINESS CREDIT CORPORATION
76 Batterson Park Road
Farmington, Connecticut 060032-2571
or in accordance with any subsequent written direction from either party to the
other. All such notices and other communications shall, except as otherwise
expressly herein provided, be effective when received; or in the case of
delivery by messenger or overnight delivery service, when left at the
appropriate address.
(b) Unless Lenders specify otherwise in writing, all payments shall be
made by wire transfer to:
MMC/GATX PARTNERSHIP NO. I
c/o GATX Capital Corporation, as Agent
Bank Name: NationsBank
Bank Address: Dallas Texas 75202
Account No.: 3750878673
<PAGE>
ABA Routing No.: 111000012
Reference: Exodus Communications, Inc.
Account Name: GATX Capital Corporation
and
TRANSAMERICA BUSINESS CREDIT CORPORATION
Bank Name: The First National Bank of Chicago
Bank Address: One First National Plaza
Chicago, IL 60670
Account No.: 55-75427
ABA Routing No.: 071-000-013
Reference: Exodus Communications, Inc.
Customer No. 1077-001
Account Name: Transamerica Technology Finance
X.6. Termination. This Agreement shall terminate at the end of the
-----------
Term; provided, however, that the termination of this Agreement shall not affect
-------- -------
any of the rights and remedies of Lenders hereunder, it being understood and
agreed that all such rights and remedies shall continue in full force and effect
until payment of all amounts owed to Lenders under or in connection with the
Operative Documents, whether on account of principal, interest, fees or
otherwise.
X.7. Severability. If any provision of any Operative Document is held
------------
invalid or unenforceable to any extent or in any application, the remainder of
such Operative Document and all other Operative Documents, or the application of
such provision to different Persons or circumstances or in different
jurisdictions, shall not be affected thereby.
X.8. Survival. All representations, warranties, covenants and
--------
agreements of Borrower contained herein or made in writing in connection
herewith shall survive the execution and delivery of the Operative Documents,
the making of the Loan hereunder, the granting of security and the issuance of
the Note.
X.9. Relationship of Parties. Subject to a separate Intercreditor
-----------------------
Agreement between the Lenders, Borrower and each Lender acknowledge, understand
and agree that:
(a) The relationship between the Borrower, on the one hand, and Lenders,
on the other, is, and at all time shall remain solely that of a borrower and
lenders. Lenders shall not under any circumstances be construed to be partners
or joint venturers of Borrower or any of its Affiliates; nor shall Lenders under
any circumstances be deemed to be in a relationship of confidence or trust or a
fiduciary relationship with Borrower or any of its Affiliates, or to owe any
fiduciary duty to Borrower or any of its Affiliates. Lenders do not undertake
or assume any responsibility or duty to Borrower or any of its Affiliates to
select, review, inspect, supervise, pass judgment upon or otherwise inform the
Borrower or any of its Affiliates of any matter in connection with its or their
Property, any Collateral held by any Lender or the operations of Borrower or any
of its Affiliates. Borrower and each of its Affiliates shall rely entirely on
their own judgment with respect to such matters, and any review, inspection,
supervision, exercise of judgment or supply of information undertaken or assumed
by any Lender in connection with such matters is solely for the protection of
Lenders and neither Borrower nor any Affiliate is entitled to rely thereon.
<PAGE>
(b) The relationship between the Lenders is, and at all time shall remain
solely that of co-lenders. Lenders shall not under any circumstances be
construed to be partners or joint venturers of each other; nor shall the Lenders
under any circumstances be deemed to be in a relationship of confidence or trust
or a fiduciary relationship with each other, or to owe any fiduciary duty to
each other. Lenders do not undertake or assume any responsibility or duty to
each other to select, review, inspect, supervise, pass judgment upon or
otherwise inform each other of any matter in connection with Borrower or
Borrower's Property, any Collateral held by any Lender or the operations of
Borrower. Each Lender shall rely entirely on its own judgment with respect to
such matters, and any review, inspection, supervision, exercise of judgment or
supply of information undertaken or assumed by any Lender in connection with
such matters is solely for the protection of such Lender.
X.10. Governing Law. This Agreement, the other Operative Documents
-------------
and the rights and obligations of the parties hereto and thereto shall be
governed by and construed and enforced in accordance with the laws of the State
of California. Any action to enforce this Agreement against Borrower may be
brought in California or, with regard to Collateral, may also be brought
wherever such Collateral is located.
X.11. Successors and Assigns. This Agreement and the other Operative
----------------------
Documents shall be binding upon and inure to the benefit of Lenders, all future
holders of the Note, Borrower and their respective successors and permitted
assigns, except that Borrower may not assign or transfer its rights hereunder or
any interest herein without the prior written consent of Lenders; provided, that
the reincorporation of Borrower from a California corporation to a Delaware
corporation shall not be deemed an assignment or transfer under this Section
10.11. Lenders may sell to any other financial entity (a "Participant")
participation interests in Lenders' rights under this Agreement and the other
Operative Documents; provided that notwithstanding the sale of participations,
Lenders shall remain solely responsible for the performance of its obligations
under this Agreement, Lenders shall remain the holder of the Note for all
purposes under this Agreement and Borrower shall continue to deal solely and
directly with Lenders in connection with this Agreement and the other Loan
Documents. Lenders may disclose the Operative Documents and any other financial
or other information relating to Borrower or any Subsidiary to any potential
Participant, provided that such Participant agrees to protect the
confidentiality of such documents and information using the same measures that
it uses to protect its own confidential information.
X.12. Counterparts. This Agreement may be executed in any number of
------------
counterparts and by different parties hereto on separate counterparts, each of
which, when so executed and delivered, shall be an original, but all such
counterparts shall together constitute one and the same instrument.
X.13. Further Assurances. Borrower will, at its own expense, from
------------------
time to time do, execute, acknowledge and deliver all further acts, deeds,
conveyances, transfers and assurances, and all financing and continuation
statements and similar notices, reasonably necessary or proper for the
perfection of the security interest being herein provided for in the Collateral,
whether now owned or hereafter acquired.
X.14. Power of Attorney in Respect of the Collateral. Borrower does
----------------------------------------------
hereby irrevocably appoint Lenders (which appointment is coupled with an
interest), the true and lawful attorney-in-fact of Borrower with full power of
substitution, for it and in its name (a) to perform (but Lenders shall not be
obligated to and shall incur no liability to Borrower or any third party for
failure to perform) any act which Borrower is obligated by this Agreement to
perform, (b) to ask, demand, collect, receive, receipt for, sue for, compound
and give acquittance for any and all rents, issues, profits, avails,
distributions, income, payment draws and
<PAGE>
other sums in which a security interest is granted under Section 5.01 with full
------------
power to settle, adjust or compromise any claim thereunder as fully as if
Lenders were Borrower itself, (c) to receive payment of and to endorse the name
of Borrower to any items of Collateral (including checks, drafts and other
orders for the payment of money) that come into Lenders' possession or under
Lenders' control, (d) to make all demands, consents and waivers, or take any
other action with respect to, the Collateral, (e) in Lenders' discretion, to
file any claim or take any other action or institute proceedings, either in its
own name or in the name of Borrower or otherwise, which Lenders may reasonably
deem necessary or appropriate to protect and preserve the right, title and
interest of Lenders in and to the Collateral, and (f) to otherwise act with
respect thereto as though Lenders were the outright owner of the Collateral;
provided, however, that the power of attorney herein granted shall be
- -------- -------
exercisable only upon the occurrence and during the continuation of an Event of
Default unless in Lenders' reasonable opinion immediate action is necessary to
preserve or protect the Collateral. Borrower agrees to reimburse Lenders upon
demand for all reasonable costs and expenses, including attorneys' fees and
expenses, which Lenders may incur while acting as Borrower's attorney in fact
hereunder, all of which costs and expenses are included within the Obligations.
X.15. Confidentiality. All information (other than periodic reports
---------------
filed by Borrower with the Securities and Exchange Commission) disclosed by
Borrower to Lenders in writing or through inspection pursuant to this Agreement
shall be considered confidential. Lenders agree to use the same degree of care
to safeguard and prevent disclosure of such confidential information as Lenders
uses with its own confidential information, but in any event no less than a
reasonable degree of care. Lenders shall not disclose such information to any
third party (other than Lenders' or Lenders' partner's attorneys and auditors
subject to the same confidentiality obligation set forth herein) and shall use
such information only for purposes of evaluation of its investment in Borrower
and the exercise of Lenders' rights and the enforcement of their remedies under
this Agreement and the other Operative Agreements. The obligations of
confidentiality shall not apply to any information that (a) was known to the
public prior to disclosure by Borrower under this Agreement, (b) becomes known
to the public through no fault of Lenders, (c) is disclosed to Lenders by a
third party' having a legal right to make such disclosure, or (d) is
independently developed by Lenders.
<PAGE>
IN WITNESS WHEREOF, the parties hereto, by their officers thereunto
duly authorized, have executed this Agreement as of the day and year first above
written.
EXODUS COMMUNICATIONS, INC.
By:______________________________________
Name:____________________________________
Title:___________________________________
MMC/GATX PARTNERSHIP NO. I
By: Meier Mitchell & Company, as general partner
By:______________________________________
Name:____________________________________
Title:___________________________________
TRANSAMERICA BUSINESS CREDIT CORPORATION
By:______________________________________
Name:____________________________________
Title:___________________________________
<PAGE>
SCHEDULES
1 Funding Certificate
2 Disclosure Schedule
3 Conditions Precedent
EXHIBITS
A Form of Secured Promissory Note
B Form of Warrant
C Form of Opinion of Counsel
<PAGE>
SCHEDULE 1
FUNDING CERTIFICATE
The undersigned, ____________________________________,being the duly
elected and acting __________________________________ of EXODUS COMMUNICATIONS,
INC., a California corporation ("Borrower"), does hereby certify to MMC/GATX
Partnership No. I, and TRANSAMERICA BUSINESS CREDIT CORPORATION in connection
with that certain Loan and Security Agreement dated as of December 31, 1997,
(the "Loan Agreement"; with other capitalized terms used below having the
meanings ascribed thereto in the Loan Agreement) that:
1. The representations and warranties made by Borrower in Article III of
-----------
the Loan Agreement and in the other Operative Documents are true and
correct as of the date hereof.
2. No event or condition has occurred and is continuing that would
constitute a Default or an Event of Default under the Loan Agreement
or any other Operative Document.
3. Borrower is in compliance with the covenants and requirements
contained in Articles IV, VI and VII of the Loan Agreement.
-----------------------
4. All conditions referred to in Article VIII of the Loan Agreement to
------------
the making of the Loan to be made on or about the date hereof been
satisfied.
5. No material adverse change in the general affairs, management, results
of operations, condition (financial or otherwise) or prospects of
Borrower, whether or not arising from transactions in the ordinary
course of business, has occurred.
Dated: _____________, 1998
EXODUS COMMUNICATIONS, INC.
By:_________________________________________
Name:_______________________________________
Title:______________________________________
<PAGE>
SCHEDULE 2
DISCLOSURE SCHEDULE
<PAGE>
SCHEDULE 3
CONDITIONS PRECEDENT
PART I:
- ------
At the time of execution and delivery of this Agreement, there shall also
have been duly executed and delivered to Lenders:
(a) The Warrants;
(b) Copies, certified by the Secretary, Assistant Secretary or Chief
Financial Officer of Borrower as of the closing date, of Borrower's
charter documents and bylaws and of all documents evidencing corporate
action taken by Borrower authorizing the execution, delivery and
performance of the Operative Documents to which Borrower is a party,
in form and substance satisfactory to Lenders and its counsel;
(c) Good standing certificate from Borrower's state of incorporation and
the state in which Borrower's principal place of business is located,
together with certificates of the applicable governmental authorities
that Borrower is in compliance with the franchise tax laws of each
such state, each dated as of a recent date;
(d) Evidence of the insurance coverage required by Section 6.01(d) of this
---------------
Agreement;
(e) All necessary consents of shareholders and other third parties with
respect to the execution, delivery and performance of this Agreement,
the Warrant, the Note and the other Operative Documents;
(f) Form UCC-1 Financing Statements, duly executed by Borrower, or other
documents, and Borrower shall have taken such actions, if any, as
Lenders shall reasonably determine are necessary or desirable to
perfect and protect its security interest in the Collateral;
(g) All other documents as Lenders shall have reasonably requested.
PART II
- -------
On or prior to the Funding Date of the Loan, each of the items set forth in
Part I of this Schedule 3 shall have been delivered to Lenders and the following
- -------------------------
conditions shall have been satisfied or waived by Lenders:
(a) Borrower shall have provided to Lenders such documents, instruments
and agreements as Lenders shall reasonably request to evidence the
perfection and priority of the security interests granted to Lenders
pursuant to Article V;
---------
(b) No Event of Default or Default shall have occurred and be continuing;
(c) Borrower shall have duly executed and delivered to each Lender a Note
in the amount of the pro rata portion of the Loan made by such Lender;
<PAGE>
(d) In Lenders' sole discretion, there shall not have occurred any
material adverse change in the general affairs, management, results of
operations, condition (financial or otherwise) or prospects of
Borrower, whether or not arising from transactions in the ordinary
course of business, and there shall not have occurred since the date
first written on the cover page of this Agreement any material adverse
deviation by Borrower from the business plan of Borrower presented to
and not disapproved by Lenders;
(e) The representations and warranties contained in this Agreement and the
other Operative Documents to which Borrower is a party shall be true
and correct in all material respects as if made on such Funding Date;
(f) Each of the Operative Documents remains in full force and effect;
(g) A favorable opinion of counsel for Borrower, dated as of the closing
date, in the form attached hereto as Exhibit C;
---------
(h) Notices of Security Interest to Depository Banks or Securities Account
Control Agreements in the forms provided by Lenders; and
(h) The Funding Date of the Loan shall not be later than the Commitment
Termination Date.
<PAGE>
EXHIBIT A
SECURED PROMISSORY NOTE
$_________________ Dated: ___________, 1998
FOR VALUE RECEIVED, the undersigned, EXODUS COMMUNICATIONS, INC.
("Borrower"), a California corporation, HEREBY PROMISES TO PAY to the order of
--------
[MMC/GATX PARTNERSHIP NO. I, a California general partnership] [TRANSAMERICA
BUSINESS CREDIT CORPORATION] ("Lender") the principal amount of Four Million
------
Dollars ($4,000,000) or such lesser amount as shall equal the outstanding
principal balance of the of the pro rata portion of the Loan made to Borrower
pursuant to the Loan and Security Agreement referred to below (the "Loan
----
Agreement"), and to pay all other amounts due with respect to the Loan on the
- ---------
dates and in the amounts set forth in the Loan Agreement.
Interest on the principal amount of this Note from the date of this Note
shall accrue at the Loan Rate or, if applicable, the Default Rate. The Loan
Rate for this Note is _________% per annum based on a year of twelve 30 day
months. Principal, accrued interest and other amounts due under this Note shall
be paid as set forth in the Loan Agreement.
Principal, interest and all other amounts due with respect to the Loan, are
payable in lawful money of the United States of America to Lender by wire
transfer according to the wire transfer instructions set forth in the Loan
Agreement. The principal amount of this Note and the interest rate applicable
thereto, and all payments made with respect thereto, shall be recorded by Lender
and, prior to any transfer hereof, endorsed on the grid attached hereto which is
part of this Note.
This Note is one of the Notes referred to in, and is entitled to the
benefits of, the Loan and Security Agreement, dated as of December 31, 1997, to
which Borrower and Lender are parties. The Loan Agreement, among other things,
(a) provides for the making of a secured Loan to Borrower, and (b) contains
provisions for acceleration of the maturity hereof upon the happening of certain
stated events.
This Note may be prepaid only as set forth in the Loan Agreement.
This Note and the obligation of Borrower to repay the unpaid principal
amount of the Loan, interest on the Loan and all other amounts due Lenders under
the Loan Agreement is secured under the Loan Agreement.
Presentment for payment, demand, notice of protest and all other demands
and notices of any kind in connection with the execution, delivery, performance
and enforcement of this Note are hereby waived.
Borrower shall pay all reasonable fees and expenses, including, without
limitation, reasonable attorneys' fees and costs, incurred by Lenders in the
enforcement or attempt to enforce any of Borrower's obligations hereunder not
performed when due. This Note shall be governed by, and construed and
interpreted in accordance with, the laws of the State of California.
IN WITNESS WHEREOF, Borrower has caused this Note to be duly executed by
one of its officers thereunto duly authorized on the date hereof.
EXODUS COMMUNICATIONS, INC.
<PAGE>
By:______________________________________________
Name:____________________________________________
Title:___________________________________________
<PAGE>
LOAN INTEREST RATE AND PAYMENTS OF PRINCIPAL
<TABLE>
<CAPTION>
Principal Scheduled
Date Amount Interest Rate Payment Amount Notation By
---- --------- ------------- -------------- -----------
<S> <C> <C> <C> <C>
</TABLE>
<PAGE>
EXHIBIT B-1
FORM OF WARRANT
<PAGE>
EXHIBIT B-2
FORM OF WARRANT
<PAGE>
EXHIBIT C
FORM OF OPINION OF COUNSEL
___________, 199__
MMC/GATX Partnership No. I
c/o GATX Capital Corporation, Agent
Four Embarcadero Center
Suite 2200
San Francisco, California 94111
and
Transamerica Business Credit Corporation
Gentlemen:
We have acted as counsel for EXODUS COMMUNICATIONS, INC. (the
"Borrower") in connection with (i) the execution of the Loan and Security
Agreement of even date herewith (the "Loan") between Borrower and MMC/GATX
Partnership No. I and TRANSAMERICA BUSINESS CREDIT CORPORATION ("Lenders"), (ii)
the issuance of two warrants to purchase Borrower's Series D Preferred Stock
(the "Warrants") and (iii) the transactions contemplated thereby. This opinion
is being rendered to you pursuant to Section 8.01 of the Loan Agreement.
Capitalized terms not otherwise defined in this opinion have the meaning given
them in the Loan Agreement.
In connection with this opinion and our representation, we have
examined originals, or copies certified or otherwise identified to our
satisfaction, of the following:
(i) The Loan Agreement;
(ii) The Warrants;
(iii) The Notes dated as of December 31, 1997;
(iv) The Restated Articles of Incorporation and the Bylaws of Borrower,
each as in effect on the date hereof;
(v) The certificate of an officer of Borrower as to certain factual
matters ("Officer Certificate");
(vi) Certificates issued by the Secretary of State of the State of
California dated _______________________, _____, certifying the good
standing of Borrower;
(vii) Such other documents, records, and certificates as we have deemed
necessary or appropriate as a basis for the opinions hereafter
expressed.
The Loan Agreement, the Note and the Warrant are hereinafter referred to as
the "Transaction
<PAGE>
Documents."
In such examinations we have assumed the genuineness of all signatures, the
authenticity of all documents submitted to us as originals and the conformity to
originals of all documents submitted to us as certified, facsimile, telecopied
or photostatic copies thereof. As to certain matters of fact material to our
opinion, we have relied upon the Officer Certificate and upon your
representations in the Transaction Documents.
As used in this opinion, the expression "to the best of our knowledge,"
means the actual present knowledge or belief of those attorneys in our firm who
have or who are currently representing Borrower. We have not undertaken any
independent investigation to determine the existence or nonexistence of other
facts, and no inference as to our knowledge of the existence or nonexistence of
other facts should be drawn from the fact of this firm's representation of
Borrower in connection with the Transaction Documents.
Based upon and subject to the foregoing and subject to the qualifications
contained herein, we are of the opinion that:
(a) Borrower is a corporation duly organized, validly existing and in
good standing under the laws of the State of California.
(b) Borrower has the requisite corporate power and authority to
execute, deliver and perform the Transaction Documents and to issue the Warrant.
All action on the part of Borrower, its directors and its shareholders necessary
for the authorization, execution, delivery and performance of the Transaction
Documents, has been taken. The Transaction Documents have been duly executed
and delivered by an authorized officer of Borrower.
(c) The execution, delivery and performance of the Transaction
Documents do not conflict with or violate any provision of Borrower's Restated
Articles of Incorporation or Bylaws or of applicable law and, to the best of our
knowledge, do not conflict with or constitute a default under any provision of
any judgment, writ, decree, order or material agreement, indenture, or
instrument to which Borrower is a party or by which it is bound.
(d) The Transaction Documents constitute legal, valid and binding
obligations of Borrower, enforceable in accordance with their respective terms.
To our knowledge, no filing need be made with any governmental authority with
respect to the Transaction Documents in connection with an exemption from state
usury laws or in connection with any other matter.
(e) The Series D Preferred Stock issuable upon exercise of the Warrant
have been duly authorized and reserved for issuance upon such exercise, and when
issued in accordance with the terms of the Warrant, will be duly authorized,
validly issued, fully paid and non-assessable.
(f) The shares of Common Stock issuable upon conversion of the Series
D Preferred Stock into which the Warrant is convertible, have been duly
authorized and reserved and for issuance, when so issued in accordance with the
terms of Borrower's Restated Articles of Incorporation, will be validly issued,
fully paid and non-assessable.
The opinions set forth above are subject to the following additional
qualifications, assumptions, limitations and exceptions:
(A) The effect of bankruptcy, insolvency, reorganization, fraudulent
conveyance, moratorium and other similar laws relating to or affecting the
rights and remedies of creditors generally.
<PAGE>
(B) Limitations imposed by general equitable principles upon the
specific enforceability of any of the provisions of the Transaction Documents
and upon the availability of injunctive relief or other equitable remedies.
(C) We express no opinion as to the enforceability of any choice of
law provision in the documents.
(D) We express no opinion as to the compliance or noncompliance with
applicable antifraud statutes under the rules and regulations of state and
federal securities laws concerning the issuance of the Warrant.
(E) We express no opinion herein concerning any law other than the law
of the State of California and the federal laws of the United States of America.
This opinion is furnished to you solely for your benefit and may not be
relied upon by any other person (other than assignees of any of your rights)
without our prior written consent, which consent shall not be unreasonably
withheld or delayed.
Very truly yours,
<PAGE>
EXHIBIT 10.21
================================================================================
LOAN AGREEMENT
Dated as of December 23, 1991
between
EXODUS COMMUNICATIONS, INC.
as Borrower,
and
VENTURE LENDING & LEASING II, INC.,
as Lender
================================================================================
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE 1 - DEFINITIONS................................................... 1
ARTICLE 2 - THE COMMITMENT AND LOANS..................................... 4
2.1 The Commitment............................................. 4
2.2 Limitation on Loans........................................ 4
2.3 Notes Evidencing Loans; Repayment.......................... 5
2.4 Procedures for Borrowing................................... 5
2.5 Interest................................................... 5
2.6 Interest Rate Calculation.................................. 5
2.7 Default Interest........................................... 5
2.8 Lender's Records........................................... 6
2.9 Security................................................... 6
2.10 Issuance of Warrant to Lender.............................. 6
ARTICLE 3 - REPRESENTATIONS AND WARRANTIES................................ 6
3.1 Due Organization........................................... 6
3.2 Authorization, validity and Enforceability................. 6
3.3 Compliance with Applicable Laws............................ 7
3.4 Copyrights, Patents, Trademarks and Licenses............... 7
3.5 No Conflict................................................ 7
3.6 No Litigation, Claims or proceedings....................... 7
3.7 correctness of Financial Statements........................ 7
3.8 No Subsidiaries............................................ 7
3.9 Environmental Matters...................................... 7
3.10 No Event of Default........................................ 7
3.11 Full Disclosure............................................ 8
ARTICLE 4 - CONDITIONS PRECEDENT.......................................... 8
4.1 Conditions to First Loan................................... 8
4.2 Conditions to All Loans.................................... 9
ARTICLE 5 - AFFIRMATIVE COVENANTS......................................... 9
5.1 Notice to Lender........................................... 9
5.2 Financial Statements....................................... 10
5.3 Managerial Assistance from Lender.......................... 10
5.4 Existence.................................................. 11
5.5 Accounting Records......................................... 11
5.6 Compliance with Laws....................................... 11
5.7 Taxes and Other Liabilities................................ 11
5.8 Financial Covenants........................................ 11
5.9 Use of Proceeds............................................ 11
ARTICLE 6 - NEGATIVE COVENANTS............................................ 11
6.1 Dividends.................................................. 12
6.2 Changes/Mergers............................................ 12
6.3 Sales of Assets............................................ 12
ARTICLE 7 - EVENTS OF DEFAULT............................................ 12
7.1 Events of Default.......................................... 12
ARTICLE 8 - GENERAL PROVISIONS............................................ 13
8.1 Notices.................................................... 13
8.2 Binding Effect............................................. 13
8.3 No waiver.................................................. 14
8.4 Rights Cumulative.......................................... 14
8.5 Unenforceable Provisions................................... 14
8.6 Accounting Terms........................................... 14
8.7 Indemnification; Exculpation............................... 14
8.8 Reimbursement.............................................. 14
8.9 Execution in Counterparts.................................. 15
8.10 Entire Agreement........................................... 15
8.11 Governing Law and Jurisdiction............................. 15
8.12 Waiver of Jury Trial....................................... 15
</TABLE>
<PAGE>
LIST OF EXHIBITS
----------------
Exhibit "A" Form of Note
Exhibit "B" Form of Borrowing Request
Exhibit "C" Security Agreement (Equipment)
Exhibit "D" Form of Warrant
<PAGE>
LOAN AGREEMENT
This LOAN AGREEMENT is entered into as of December 23, 1997, between
EXODUS COMMUNICATIONS, INC., a California corporation ("Borrower"), and VENTURE
LENDING & LEASING II, INC., a Maryland corporation ("VLLI" or "Lender").
WHEREAS, Lender has agreed to make available to Borrower a loan
facility upon the terms and conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the mutual agreements, provisions
and Covenants contained herein, the parties agree as follows:
ARTICLE 1 - DEFINITIONS
The definitions appearing in this Agreement or any supplement or
addendum to this Agreement, shall be applicable to both the singular and plural
forms of the defined terms:
"ADDITIONAL INTEREST" means, with respect to each Loan, an amount of
interest payable thereon, in addition to Basic Interest, payable on the Maturity
Date of such Loan in an amount equal to fifteen percent (15.00%) of the original
principal amount of such Loan.
"AFFILIATE" means any Person which directly or indirectly controls, is
controlled by, or is under common control with, Borrower. "Control," "controlled
by" and "under common control with" means direct or indirect possession of the
power to direct or cause the direction of management or policies (whether
through ownership of voting securities, by contract or otherwise) ; provided
that control shall be conclusively presumed when any Person or affiliated group
directly or indirectly owns five percent or more of the securities having
ordinary voting power for the election of directors of a corporation.
"AGREEMENT" means this Loan Agreement as it may be amended or
supplemented from time to time.
"BANKRUPTCY CODE" means the Federal Bankruptcy Reform Act of 1978 (11
U.S.C. (S)101, et seq.), as amended.
-- ---
"BASIC INTEREST" means the fixed rate of interest payable on the
outstanding balance of each Loan at the applicable Designated Rate.
"BORROWING DATE" means the Business Day on which the proceeds of a
Loan are disbursed by Lender.
"BUSINESS DAY" means any day other than a Saturday, Sunday or other
day on which commercial banks in New York City or San Francisco are authorized
or required by law to close.
"CLOSING DATE" means the date of this Agreement.
<PAGE>
"COLLATERAL" has the meaning ascribed thereto in the Security
Agreement.
"COMMITMENT" means the obligation of Lender to make Loans to Borrower
in an aggregate, original principal amount not exceeding Five Million Dollars
($5,000,000.00).
"DEFAULT" means an event which with the giving of notice, passage of
time, or both would constitute an Event of Default.
"DEFAULT RATE" is defined in Section 2.7.
-----------
"DESIGNATED RATE" means a fixed rate of interest per annum applicable
to a Loan calculated at ten and 10/100 percent (10.10%).
"ENVIRONMENTAL LAWS" means all federal, state or local laws, statutes,
common law duties, rules, regulations, ordinances and codes, together with all
administrative orders, directed duties, requests, licenses, authorizations and
permits of, and agreements with, any governmental authorities, in each case
relating to environmental, health, or safety matters.
"EQUIPMENT" means all of Debtor's specific equipment identified and
described on Schedule 1 attached to the Security Agreement and incorporated
----------
herein by reference (as such Schedule may be amended or supplemented from time
to time) all replacements, parts, accessions and additions thereto, and all
proceeds thereof arising from the sale, lease, rental or other use or
disposition thereof, including all rights to payment with respect to insurance
or condemnation, returned premiums, or any cause of action relating to any of
the foregoing.
"EVENT OF DEFAULT" means any event described in Article 7,
"GAAP" means generally accepted accounting principles and practices
consistent with those principles and practices promulgated or adopted by the
Financial Accounting Standards Board and the Board of the American Institute of
Certified Public Accountants, their respective predecessors and successors.
Each accounting term used but not otherwise expressly defined herein shall have
the meaning given it by GAAP.
"INDEBTEDNESS" of any Person means at any date, without duplication
and without regard to whether matured or unmatured, absolute or contingent: (i)
all obligations of such Person for borrowed money; (ii) all obligations of such
Person evidenced by bonds, debentures, notes, or other similar instruments;
(iii) all obligations of such Person to pay the deferred purchase price of
property or services, except trade accounts payable arising in the ordinary
course of business; (iv) all obligations of such Person as lessee under capital
leases; (v) all obligations of such Person to reimburse or prepay any bank or
other Person in respect of amounts paid under a letter of credit, banker's
acceptance, or similar instrument, whether drawn or undrawn; (vi) all
obligations of such Person to purchase securities which arise out of or in
connection with the sale of the same or substantially similar securities; (vii)
all obligations of such Person in connection with any agreement to purchase,
redeem, exchange, convert or otherwise acquire for
<PAGE>
value any capital stock of such Person or any warrants, rights or options to
acquire such capital stock, now or hereafter outstanding, except to the extent
that such obligations remain performable solely at the option of such Person;
(viii) all obligations to repurchase assets previously sold (including any
obligation to repurchase any accounts or chattel paper under any factoring,
receivables purchase, or similar arrangement) (ix) obligations of such Person
under interest rate swap, cap, collar or similar hedging arrangements; and (x)
all obligations of others of any type described in clause (i) through clause
---------- ------
(ix) above guaranteed by such Person.
- ----
"INSOLVENCY PROCEEDING" means (a) any case, action or proceeding
before any court or other governmental authority relating to bankruptcy,
reorganization, insolvency, liquidation, receivership, dissolution, winding-up
or relief of debtors, or (b) any general assignment for the benefit of
creditors, composition, marshalling of assets for creditors, or other, similar
arrangement in respect of its creditors generally or any substantial portion of
its creditors, undertaken under U.S. Federal, state or foreign law, including
the Bankruptcy Code.
"LIEN" means any voluntary or involuntary security interest, mortgage,
pledge, claim, charge, encumbrance, title retention agreement, or third party
interest, covering all or any part of the property of Borrower or any other
Person.
"LOAN" means an extension of credit by Lender under Section 2 of this
---------
Agreement.
"LOAN DOCUMENTS" means, individually and collectively, this Agreement,
each Note, the Security Agreement and any other security or pledge agreement(s),
and all other contracts, instruments, addenda and documents executed in
connection with this Agreement or the extensions of credit which are the subject
of this Agreement.
"MATERIAL ADVERSE EFFECT" OR "MATERIAL ADVERSE CHANGE" means (a) a
material adverse change in, or a material adverse effect upon, the operations,
business, properties, or condition (financial or otherwise) of Borrower; (b) a
material impairment of the ability of Borrower to perform under any Loan
Document and to avoid any Event of Default; or (c) a material adverse effect
upon the legality, validity, binding effect or enforceability against Borrower
of any Loan Document
"MATURITY DATE". means, with regard to each Note, the date on which
payment of all outstanding principal and accrued interest, including Additional
Interest, is due, whether at stated maturity or by acceleration.
"NOTE" means a promissory note substantially in the form of Exhibit
-------
"A" hereto, executed by Borrower evidencing each Loan.
- ---
"OBLIGATIONS" means all advances, debts, liabilities, obligations,
covenants and duties arising under any Loan Document, owing by Borrower to
Lender, whether direct or indirect (including those acquired by assignment),
absolute or contingent, due or to become due, now existing or hereafter arising.
<PAGE>
"PERSON" means any individual or entity.
"QUALIFIED PUBLIC OFFERING" means the closing of a firmly underwritten
public offering of Borrower's common stock with aggregate proceeds of not less
than $10,000,000 (prior to underwriting expenses and commissions)
"RELATED PERSON" means any Affiliate of Borrower, or any officer,
employee, director or shareholder of Borrower or any Affiliate.
"SECURITY AGREEMENT" means the Security Agreement substantially in the
form of Exhibit "C" hereto, executed by Borrower.
-----------
"TERMINATION DATE" means the earlier of: (a) the date Lender may
terminate making loans or extending the credit pursuant to the rights of Lender
under Article 7, or (b) June 30, 1998.
"UCC" means the Uniform Commercial Code as enacted in the applicable
jurisdiction, in effect on the Closing Date and as amended from time to time.
ARTICLE 2 - THE COMMITMENT AND LOANS
2.1 THE COMMITMENT. Subject to the terms and conditions of this
Agreement, Lender agrees to make term loans to Borrower from time to time from
the Closing Date and to, but not including, the Termination Date in an aggregate
principal amount not exceeding the Commitment for purposes of financing Borrower
5 acquisition of Equipment. The Commitment is not a revolving credit
commitment, and Borrower shall not have the right to repay and reborrow
hereunder.
2.2 LIMITATION ON LOANS. Each Loan shall be in an amount not to exceed
one hundred percent (100%) of the amount paid or payable by Borrower to a non-
affiliated manufacturer, vendor or dealer for an item of Equipment as shown on
an invoice therefor (excluding any commissions and any portion of the payment
which relates to the servicing of the equipment and sales taxes payable by
Borrower upon acquisition, and delivery charges)
(A) Lender shall not be obligated to make any Loan under its
Commitment if at the time of or after giving effect to the proposed Loan
Lender would no longer qualify as: (A) a "venture capital operating
company" under U.S. Department of Labor Regulations Section 2510.3-101(d),
Title 29 of the Code of Federal Regulations, as amended; and (B) a
"business development company" under the provisions of federal Investment
Company Act of 1940, as amended; and (C) a "regulated investment company"
under the provisions of the Internal Revenue Code of 1986, as amended.
Each Loan requested by Borrower to be made on a single Business Day shall
be for a principal amount of Two Hundred Fifty Thousand Dollars
($250,000.00) or a multiple thereof, except to the extent the remaining
Commitment is a lesser amount.
2.3 NOTES EVIDENCING LOANS; REPAYMENT. Each Loan shall be evidenced
by a separate Note payable to the order of Lender substantially in the form of
Exhibit "A" to this Agreement, in the total principal amount of the Loan.
- -----------
<PAGE>
Each Note shall be payable as follows: Principal and Basic Interest shall be
paid in forty two (42) equal and successive monthly payments, in advance,
beginning on the Borrowing Date and continuing on the first Business Day of each
month thereafter; provided, that if the Borrowing Date of a Loan is not the
--------
first day of a month, then (i) the 42-month amortization period shall commence
on the first day of the next month following the Borrowing Date, and (ii)
Borrower shall pay to Lender, in advance on the Borrowing Date a payment of
Basic Interest that will accrue on such Loan from the Borrowing Date through the
last day of such month. Borrower shall also prepay on the Borrowing Date the
first amortization installment payment. The Additional Interest on each Loan
shall be paid on the first Business Day of the forty third (43rd) full month
after the Borrowing Date of such Loan. The payment of amortization installments
of principal of and interest on a Loan in advance results in a higher effective
rate of interest than the stated Designated Rate applicable to such Loan.
2.4 PROCEDURES FOR BORROWING.
(a) Borrower shall give Lender at least five (5) Business Days' prior
to a proposed Borrowing Date written notice of any request for borrowing
hereunder (a "Borrowing Request"). Each Borrowing Request shall be in
substantially the form of Exhibit "B" hereto, shall be executed by the chief
-----------
financial officer of Borrower, and shall state how much is requested, and shall
be accompanied by copies of invoices for the Equipment to be financed and such
additional information and documentation as Lender may deem reasonably necessary
to determine whether the proposed borrowing will comply with the limitations in
Section 2.2. To the Borrower's best knowledge after due inquiry of its senior
- -----------
officers, the Borrowing Request shall also certify that all Equipment to be
financed thereby is owned by Borrower free and clear of all Liens except in
favor of Lender
(b) No later than 1:00 p.m. Pacific Standard Time on the Borrowing
Date, if Borrower has satisfied the conditions precedent in Article 4, Lender
shall make the Loan available to Borrower in immediately available funds
2.5 INTEREST. Basic Interest on the outstanding principal balance of
the each Loan shall accrue daily from the Borrowing Date until the Maturity Date
at the Designated Rate. On the Maturity Date of a Loan, Borrower shall pay the
Additional Interest thereon.
2.6 INTEREST RATE CALCULATION. Basic Interest, along with charges and
fees under this Agreement and any Loan Document, shall be calculated for actual
days elapsed on the basis of a 360-day year, which results in higher interest,
charge or fee payments than if a 365-day year were used. In no event shall
Borrower be obligated to pay Lender interest, charges or fees at a rate in
excess of the highest rate permitted by applicable law from time to time in
effect.
2.7 DEFAULT INTEREST. Any unpaid payments of principal or interest with
respect to any Loan shall bear interest from their respective maturities,
whether scheduled or accelerated, at the Designated Rate for such Loan plus five
----
percent (5.00%) per annum, until paid in full, whether before or after judgment
(the "Default Rate"). Borrower shall pay such interest on demand.
<PAGE>
2.8 LENDER'S RECORDS. Principal, Basic Interest, Additional Interest
and all other sums owed under any Loan Document shall be evidenced by entries in
records maintained by Lender for such purpose. Each payment on and any other
credits with respect to principal, Basic Interest, Additional Interest and all
other sums outstanding under any Loan Document shall be evidenced by entries in
such records. Absent manifest error, Lender's records shall be conclusive
evidence thereof.
2.9 SECURITY. As security for all Obligations to Lender, Borrower shall
grant concurrently to Lender, or ensure that Lender is concurrently granted,
perfected security interests of first priority in all of the . Equipment and
other Collateral pursuant to the Security Agreement, subject only to Liens
disclosed to and approved by Lender prior to the Closing Date to this Agreement.
2.10 ISSUANCE OF WARRANT TO LENDER. As additional consideration for the
making of the Loans under this Agreement, upon the making of, and as a condition
to, the initial Loan, Lender shall be entitled to receive a warrant to purchase
125,000 shares of Series Dl Preferred Stock of Borrower ("Warrant Shares") with
a per share price equal to $2.85. The warrant issued under this Agreement shall
be in substantially the form attached hereto as Exhibit "D".
-----------
ARTICLE 3 - REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants that as of the Closing Date and each
Borrowing Date:
3.1 DUE ORGANIZATION. Borrower is a corporation duly organized and
validly existing in good standing under the laws of California, and is duly
qualified to conduct business and is in good standing in each other jurisdiction
in which its business is conducted or its properties are located.
3.2 AUTHORIZATION, VALIDITY AND ENFORCEABILITY. The execution,
delivery and performance of all Loan Documents executed by Borrower are within
Borrower 5 powers, have been duly authorized, and are not in conflict with
Borrower 5 articles of incorporation or by-laws, or the terms of any charter or
other organizational document of Borrower, as amended from time to time; and all
such Loan Documents constitute valid and binding obligations of Borrower,
enforceable in accordance with their terms (except as may be limited by
bankruptcy, insolvency and similar laws affecting the enforcement of creditors'
rights in general, and subject to general principles of equity).
3.3 COMPLIANCE WITH APPLICABLE LAWS. Borrower has complied with all
licensing, permit and fictitious name requirements necessary to lawfully conduct
the business in which it is engaged, and to any sales, leases or the furnishing
of services by Borrower, including without limitation those requiring consumer
or other disclosures, the noncompliance with which would have a Material Adverse
Effect.
3.4 COPYRIGHTS, PATENTS, TRADEMARKS AND LICENSES.
(a) To its knowledge, Borrower owns or is licensed or otherwise has
the right to use all of the patents, trademarks, service marks, trade names,
copyrights, contractual franchises, authorizations and other rights
<PAGE>
that are reasonably necessary for the operation of its business, without
conflict with the rights of any other Person.
(b) To Borrower's knowledge, no slogan or other advertising device,
product, process, method, substance, part or other material now employed, or now
contemplated to be employed, by Borrower infringes upon any rights held by any
other Person.
(c) No claim or litigation regarding any of the foregoing is pending
or to Borrower's knowledge, threatened, which, in either case, could reasonably
be expected to have a Material Adverse Effect.
3.5 NO CONFLICT. The execution, delivery, and performance by Borrower of
all Loan Documents are not in conflict with any law, rule, regulation, order or
directive, or any indenture, agreement, or undertaking to which Borrower is a
party or by which Borrower may be bound or affected.
3.6 NO LITIGATION, CLAIMS OR PROCEEDINGS. Except for the pending
action of Michael Blackman verus Exodus communications, Inc., which involves a
claim for breach of an alleged oral agreement regarding compensation by the
Company to a former consultant to the Company. There is no litigation, tax
claim, proceeding or dispute pending, or, to the knowledge of Borrower,
threatened against or affecting Borrower or its property.
3.7 CORRECTNESS OF FINANCIAL STATEMENTS. Borrower's financial
statements which have been delivered to Lender fairly and accurately reflect
Borrower 5 financial condition as of August 31, 1997; and, since that date there
has been no Material Adverse Change.
3.8 NO SUBSIDIARIES. Borrower is not a majority owner of or in a
control relationship with any other business entity.
3.9 ENVIRONMENTAL MATTERS. Borrower has reviewed, or caused to be
reviewed on its behalf, all Environmental Laws applicable to its business
operations and materials handled therein, and as a result thereof has reasonably
concluded that Borrower is in compliance with such Environmental Laws, except to
the extent a failure to be in such compliance could not reasonably be expected
to have a Material Adverse Effect on Borrower 5 operations, properties or
financial condition.
3.10 NO EVENT OF DEFAULT. No Default or Event of Default has occurred
and is continuing.
3.11 FULL DISCLOSURE. None of the representations or warranties made by
Borrower in the Loan Documents as of the date such representations and
warranties are made or deemed made, and none of the information contained in any
exhibit, report or certificate furnished by or on behalf of Borrower in
connection with the Loan Documents (including disclosure materials delivered by
or on behalf of Borrower to Lender prior to the Closing Date), contains any
untrue statement of a material fact or omits any material fact required to be
stated therein or necessary to make the statements made therein, in [light of
the circumstances under which they are made, not misleading as of the time when
made or delivered.
<PAGE>
ARTICLE 4 - CONDITIONS PRECEDENT
4.1 CONDITIONS TO FIRST LOAN. The obligation of Lender to make its
first Loan hereunder is, in addition to the conditions precedent specified in
Section 4.2, subject to the fulfillment of the following conditions and to the
- -----------
receipt by Lender of the documents described below, duly executed and in form
and substance satisfactory to Lender and its counsel:
(A) RESOLUTIONS. A certified copy of the resolutions of the Board
of Directors of Borrower authorizing the execution, delivery and performance by
Borrower of the Loan Documents.
(B) INCUMBENCY AND SIGNATURES. A certificate of the secretary of
Borrower certifying the names of the officer or officers of Borrower authorized
to sign the Loan Documents, together with a sample of the true signature of each
such officer.
(C) OPINION OF COUNSEL. The opinion of Fenwick & West LLP, counsel
for Borrower, together with any opinions, certificates and other matters on
which such opinion relies.
(D) ARTICLES AND BY-LAWS. Certified copies of the Articles of
Incorporation and By-Laws of Borrower, as amended through the Closing Date.
(E) THE AGREEMENT. A counterpart of this Agreement with all
schedules completed and attached thereto, and disclosing such information as is
acceptable to Lender.
(F) SECURITY AGREEMENT. A Security Agreement executed by Borrower,
substantially in the form of Exhibit "C", together with filing copies (or other
-----------
evidenced of filing satisfactory to Lender and its Counsel) of such Uniform
Commercial Code financing statements, collateral assignments and termination
statements, with respect to the Collateral (as defined in such Security
Agreement) as Lender shall request.
(G) LIEN SEARCHES. Uniform Commercial Code lien, judgment, bankruptcy
and tax lien searches of Borrower from the California Secretary of State, as of
a date reasonably satisfactory to Lender and its counsel.
(H) GOOD STANDING CERTIFICATE. A Certificate of Good Standing as of
a date acceptable to Lender with respect to Borrower from the California
Secretary of State.
(I) WARRANT. A warrant issued by Borrower to Lender exercisable for
the Warrant Shares, as described in Section 2.10 hereof.
------------
4.2 CONDITIONS TO ALL LOANS. The obligation of Lender to make its initial
Loan and each subsequent Loan is subject to the following further conditions
precedent that:
(A) NO DEFAULT. No Default or Event of Default has occurred and is
continuing or will result from the making of any such Loan, and the
representations and warranties of Borrower contained in Article 3 of this
Agreement are true and correct as of the Borrowing Date of such Loan.
<PAGE>
(B) NO ADVERSE MATERIAL CHANGE. No Material Adverse Change shall have
occurred since the date of the most recent financial statements submitted to
Lender.
(C) NOTE. Borrower shall have delivered an executed Note evidencing
such Loan, in form and substance satisfactory to Lender.
(D) BORROWING REQUEST. Borrower shall have delivered to Lender a
Borrowing request for such Loan.
(E) VCOC LIMITATION. The making of the Loan will not result in a
violation of the condition applicable to Lender described in Section 2.2.
-----------
ARTICLE 5 - AFFIRMATIVE COVENANTS
During the term of this Agreement and until its performance of all
obligations to Lender, Borrower will:
5.1 NOTICE TO LENDER. Promptly give written notice to each Lender of:
(a) Any litigation or administrative or regulatory proceeding
affecting Borrower where the amount claimed against Borrower is Fifty Thousand
Dollars ($50,000) or more, or where the granting of the relief requested would
have a Material Adverse Effect.
(b) Any substantial dispute which may exist between Borrower or any
governmental or regulatory authority.
(c) The occurrence of any Event of Default or any event which with the
giving of notice, the passage of time, or both, would constitute an Event of
Default.
(d) Any change in the location of any of Borrower's places of business
at least thirty (30) days in advance of such change, or of the establishment of
any new, or the discontinuance of any existing, place of business.
(e) Any other matter which has resulted or might result in a Material
Adverse Change.
5.2 FINANCIAL STATEMENTS. Deliver to each Lender or cause to be
delivered to Lender, in form and detail satisfactory to Lender the following
financial information, which Borrower warrants shall be accurate and complete in
all material respects:
(A) MONTHLY FINANCIAL STATEMENTS. As soon as available but no later
than thirty (30) days after the end of each month, Borrower's balance sheet as
of the end of such period, and Borrower's income statement for such period and
for that portion of Borrower's financial reporting year ending with such period,
prepared and attested by a responsible financial officer of Borrower as being
complete and correct and fairly presenting Borrower's
<PAGE>
financial condition and the results of Borrower's operations. After a Qualified
public offering, the foregoing interim financial statements shall be delivered
no later than 45 days after each fiscal quarter and for the quarter-annual
fiscal period then ended.
(B) YEAR-END FINANCIAL STATEMENTS. As soon as available but no later
than ninety (90) days after and as of the end of each financial reporting year,
a complete copy of Borrower's audit report, which shall include balance sheet,
income statement, statement of changes in equity and statement of cash flows for
such year, prepared and certified by an independent certified public accountant
selected by Borrower and reasonably satisfactory to Lender (the "Accountant").
The Accountant's certification shall not be qualified or limited due to a
restricted or limited examination by the Accountant of any material portion of
Borrower's records or otherwise.
(C) COMPLIANCE CERTIFICATES. Simultaneously with the delivery of each
set of financial statements referred to in paragraphs (a) and (b) above, a
certificate of the chief financial officer of Borrower stating whether any
Default or Event of Default exists on the date of such certificate, and if so,
setting forth the details thereof and the action which Borrower is taking or
proposes to take with respect thereto.
(D) GOVERNMENT REQUIRED REPORTS; PRESS RELEASES. Promptly after
sending, issuing, making available, or filing, copies of all statements released
to any news media for publication, all reports, proxy statements, and financial
statements that Borrower sends or makes available to its stockholders, and, not
later than ten (10) days after actual filing or the date such filing was first
due, all registration statements and reports that Borrower files or is required
to file with the Securities and Exchange Commission.
(E) OTHER INFORMATION. Such other statements, lists of property and
accounts, budgets, forecasts, reports, or other information as any Lender may
reasonably from time to time request.
5.3 MANAGERIAL ASSISTANCE FROM LENDER. Without creating any affirmative
obligation for Borrower to follow any advice from Lender or otherwise obligate
Borrower to incur any expenses or cost, permit Lender, as a "venture capital
operating company" to participate in, and influence the conduct of management of
Borrower through the exercise of "management rights," as such terms are defined
in 29 C.F.R. (S) 2510.3-101(d), and:
(a) Permit Lender to make available to Borrower, at no cost to
Borrower, "significant managerial assistance", as defined in Section 2(a) (47)
of the Investment Company Act of 1940, as amended, either in the form of: (i)
consulting arrangements with Lender or any of its officers, directors, employees
or affiliates, (ii) Borrower 5 allowing Lender to provide recommendations of
prospective candidates for election to Borrower's Board of Directors, or (iii)
Lender, at Borrower's request, seeking the services of third-party consultants
to aid Borrower with respect to its management and operations;
(b) Permit Lender to make available consulting and advisory services
to officers of Borrower regarding Borrower's equipment acquisition and financing
plans, and such other matters affecting the business, financial
<PAGE>
condition and prospects of Borrower as Lender shall reasonably deem relevant;
and
(c) If Lender reasonably believes that financial or other developments
affecting Borrower have impaired or are likely to impair Borrower's ability to
perform its obligations under this Agreement, permit Lender reasonable access to
Borrower's management and/or Board of Directors and opportunity to present
Lender's views with respect to such developments.
5.4 EXISTENCE. Maintain and preserve Borrower 5 existence, present form
of business, and all rights and privileges necessary or desirable in the normal
course of its business.
5.5 ACCOUNTING RECORDS. Maintain adequate books, accounts and records,
and prepare all financial statements in accordance with GAAP, and in compliance
with the regulations of any governmental or regulatory authority having
jurisdiction over Borrower or Borrower's business; and permit employees or
agents of Lender at such reasonable times as Lender may request, at Borrower 5
expense, to inspect Borrower's properties, and to examine, and make copies and
memoranda of Borrower 5 books, accounts and records.
5.6 COMPLIANCE WITH LAWS. Comply with all laws (including Environmental
Laws), rules, regulations applicable to, and all orders and directives of any
governmental or regulatory authority having jurisdiction over, Borrower or
Borrower's business, and with all material agreements to which Borrower is a
party.
5.7 TAXES AND OTHER LIABILITIES. Pay all Borrower's obligations when
due; pay all taxes and other governmental or regulatory assessments before
delinquency or before any penalty attaches thereto, except as may be contested
in good faith by the appropriate procedures and for which Borrower shall
maintain appropriate reserves; and timely file all required tax returns.
5.8 FINANCIAL COVENANTS. Comply with the terms of all financial covenants
contained in any addendum to this Agreement.
5.9 USE OF PROCEEDS. Use the proceeds of Loans only as set forth in
Article 2 of this Agreement; and not use such proceeds directly or indirectly to
purchase or carry any margin stock, as defined from time to time by the Board of
Governors of the Federal Reserve System in Federal Regulation U.
ARTICLE 6 - NEGATIVE COVENANTS
During the term of this Agreement and until the performance of all
obligations to Lender, Borrower will not:
6.1 CHANGES/MERGERS. Liquidate or dissolve, or enter into any
consolidation, merger, partnership, joint venture or other combination except
for joint ventures, strategic alliances, licensing and similar arrangements
customary in Borrower's industry for businesses in the development stage of
Borrower and which do not require Borrower to assume or otherwise become liable
for the obligations of any third party not directly related to or arising out of
such arrangement or, without the prior written consent of Lender, require
Borrower to transfer ownership of assets to such joint venture
<PAGE>
or other entity; prepay any subordinated debt, debt for borrowed money, or debt
secured by any permitted Lien, or enter into or modify any agreement as a result
of which the terms of payment of any such debt are waived or modified provided,
however, Borrower may prepay its revolving Loan with Silicon valley Bank.
6.2 SALES OF ASSETS. Sell, transfer, lease or otherwise dispose of any
of the Collateral except for fair consideration and in the ordinary course of
its business; or enter into any sale or leaseback agreement covering any of
Borrower 5 fixed or capital assets.
ARTICLE 7 - EVENTS OR DEFAULT
7.1 EVENTS OF DEFAULT. Upon the occurrence and during the continuation
of any Default, the obligation of Lender to make any additional Loan shall be
suspended. The occurrence of any of the following shall terminate any
obligation of Lender to make any additional Loan; and shall, at the option of
Lender (1) make all sums of Basic Interest, principal, Additional Interest and
any other amounts owing under any Loan Documents immediately due and payable
without notice of default, presentment or demand for payment, protest or notice
of nonpayment or dishonor or any other notices or demands, and (2) give Lender
the right to exercise any other right or remedy provided by contract or
applicable law:
(a) Borrower shall fail to make any payment of principal or interest
under this Agreement, or to pay any fees or other charges when due under any
Loan Document, and such failure continues for three (3) Business Days or more
after the same first becomes due; or an Event of Default as defined in any other
Loan Document shall have occurred.
(b) Any representation or warranty made, or financial statement,
certificate or other document provided, by Borrower shall prove to have been
false or misleading in any material respect when made or deemed made herein.
(c) Borrower shall fail to pay its debts generally as they become due
or shall commence any Insolvency Proceeding with respect to itself; an
involuntary Insolvency Proceeding shall be filed against Borrower, or a
custodian, receiver, trustee, assignee for the benefit of creditors, or other
similar official, shall be appointed to take possession, custody or control of
the properties of Borrower, and such involuntary Insolvency Proceeding, petition
or appointment is acquiesced to by Borrower or is not dismissed within sixty
(60) days; or the dissolution or termination of the business of Borrower.
(d) Borrower shall be in default beyond any applicable period of grace
or cure under any other agreement involving the borrowing of money, the purchase
of property, the advance of credit or any other monetary liability of any kind
to Lender or to any Person which results in the acceleration of payment of such
obligation in an amount in excess of One Hundred Thousand Dollars ($100,000).
(e) Any governmental or regulatory authority shall take any judicial
or administrative action against Borrower, or any defined benefit pension plan
maintained by Borrower shall have any unfunded liabilities, any
<PAGE>
of which, in the reasonable judgment of Lender, might have a Material Adverse
Effect
(f) Any sale, transfer or other disposition of all or a substantial or
material part of the assets of Borrower, including without limitation to any
trust or similar entity, shall occur.
(g) Any judgment(s) singly or in the aggregate in excess of One
Hundred Thousand Dollars ($100,000) shall be entered against Borrower which
remain unsatisfied, unvacated or unstayed pending appeal for ten (10) or more
days after entry thereof.
(h) Any Person or two or more Persons acting in concert shall have
acquired beneficial ownership (within the meaning of Rule 13d-3 of the
Securities and Exchange Commission) of fifty percent (50%) or more of the
outstanding shares of voting stock of Borrower
(i) Borrower shall fail to perform any of its duties or obligations
under any Loan Document not specifically referenced in this Article 7, and such
failure shall be material,
ARTICLE 8 - GENERAL PROVISIONS
8.1 NOTICES. Any notice given by any party under any Loan Document
shall be in writing and personally delivered, sent by overnight courier, or
United States mail, postage prepaid, or sent by facsimile, to be promptly
confirmed in writing, or other authenticated message, charges prepaid, to the
other party's or parties' addresses shown on the signature pages hereto. Each
party may change the address or facsimile number to which notices, requests and
other communications are to be sent by giving written notice of such change to
each other party. Notice given hand delivery shall be deemed received on the
date delivered; if sent by overnight courier, on the next business day after
delivery to the courier service; if by first class mail, on the third business
day after deposit in the U.S. Mail; and if by telecopy, on the date of
transmission.
8.2 BINDING EFFECT. The Loan Documents shall be binding upon and inure
to the benefit of Borrower and Lender and their respective successors and
assigns; provided, however, that Borrower may not assign or transfer Borrower 5
rights or obligations under any Loan Document without each Lender's prior
written consent. Lender reserves the right to sell, assign, transfer, negotiate
or grant participations in all or any part of, or any interest in, Lender's
rights and obligations under the Loan Documents. In connection with any of the
foregoing, Lender may disclose all documents and information which Lender now or
hereafter may have relating to the Loans, Borrower, or its business.
8.3 NO WAIVER. Any waiver, consent or approval by Lender of any Event
of Default or breach of any provision, condition, or covenant of any Loan
Document must be in writing and shall be effective only to the extent set forth
in writing. No waiver of any breach or default shall be deemed a waiver of any
later breach or default of the same or any other provision of any Loan Document.
No failure or delay on the part of Lender in exercising any power, right, or
privilege under any Loan Document shall operate as a waiver thereof, and no
single or partial exercise of any such power, right, or privilege shall
<PAGE>
preclude any further exercise thereof or the exercise of any other power, right
or privilege. Lender has the right at its sole option to continue to accept
interest and/or principal payments due under the Loan Documents after default,
and such acceptance shall not constitute a waiver of said default or an
extension of the Maturity Date unless Lender agrees otherwise in writing.
8.4 RIGHTS CUMULATIVE. All rights and remedies existing under the Loan
Documents are cumulative to, and not exclusive of, any other rights or remedies
available under contract or applicable law.
8.5 UNENFORCEABLE PROVISIONS. Any provision of any Loan Document
executed by Borrower which is prohibited or unenforceable in any jurisdiction,
shall be so only as to such jurisdiction and only to the extent of such
prohibition or unenforceability, but all the remaining provisions of any such
Loan Document shall remain valid and enforceable.
8.6 ACCOUNTING TERMS. Except as otherwise provided in this Agreement,
accounting terms and financial covenants and information shall be determined and
prepared in accordance with GAAP.
8.7 INDEMNIFICATION; EXCULPATION. Provided Borrower is given reasonable
notice and an opportunity to control any action or proceeding, Borrower shall
pay and protect, defend and indemnify Lender and Lender's employees, officers,
directors, shareholders, affiliates, correspondents, agents and representatives
(other than Lender, collectively "Agents") against, and hold Lender and each
such Agent harmless from, all claims, actions, proceedings, liabilities,
damages, losses, expenses (including, without limitation, attorneys' fees and
costs) and other amounts incurred by Lender and each such Agent, arising from
(i) the matters contemplated by this Agreement or any other Loan Documents or
(ii) any contention that Borrower has failed to comply with any law, rule,
regulation, order or directive applicable to Borrower's business; provided,
however, that this indemnification shall not apply to any of the foregoing
incurred solely as the result of Lender's or any Agent's gross negligence or
willful misconduct. This indemnification shall survive the payment and
satisfaction of all of Borrower's obligations to Lender. Notwithstanding the
forgoing, Borrower shall not be liable under this Section 8.7 or otherwise for
any form of special, incidental, indirect, consequential or punitive damages,
whether or not foreseen, whether based on breach of contract or otherwise.
Borrower 5 minimum liability, arising from or related to this Agreement shall
not exceed the aggregate of all monies borrowed hereunder from Lender, including
accrued but unpaid interest.
8.8 REIMBURSEMENT. Borrower shall reimburse Lender for all costs and
expenses, including without limitation reasonable attorneys' fees and
disbursements expended or incurred by Lender in any arbitration, mediation,
judicial reference or legal action in connection with (a) the preparation,
negotiation, amendment, interpretation and enforcement of the Loan Documents,
including without limitation during any workout, attempted workout, and/or in
connection with the rendering of legal advice as to Lender's rights, remedies
and obligations under the Loan Documents, (b) collecting any sum which becomes
due Lender under any Loan Document, (c) any proceeding for declaratory relief,
any counterclaim to any proceeding, or any appeal, or (d) the protection,
preservation or enforcement of any rights of Lender. For the purposes of this
section, attorneys' fees shall include, without limitation, fees incurred in
connection with the following: (1) contempt proceedings; (2) discovery; (3)
<PAGE>
any motion, proceeding or other activity of any kind in connection with an
Insolvency Proceeding; (4) garnishment, levy, and debtor and third party
examinations; and (5) postjudgment motions and proceedings of any kind,
including without limitation any activity taken to collect or enforce any
judgment. All of the foregoing costs and expenses shall be payable upon demand
by Lender, and if not paid within forty-five (45) days of presentation of
invoices shall bear interest at the highest applicable Default Rate.
Notwithstanding the foregoing, Borrower shall not be liable to Lender under this
Section 8.8 for any action or dispute that is resolved favorably for Borrower.
8.9 EXECUTION IN COUNTERPARTS. This Agreement may be executed in any
number of counterparts which, when taken together, shall constitute but one
agreement.
8.10 ENTIRE AGREEMENT. The Loan Documents are intended by the parties as
the final expression of their agreement and therefore contain the entire
agreement between the parties and supersede all prior understandings or
agreements concerning the subject matter hereof. This Agreement may be amended
only in a writing signed by Borrower and Lender.
8.11 GOVERNING LAW AND JURISDICTION.
(a) THIS AGREEMENT AND THE LOAN DOCUMENTS SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF CALIFORNIA.
(b) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR
ANY OTHER LOAN DOCUMENT MAY BE BROUGHT IN THE COURTS OF THE STATE OF
CALIFORNIA OR OF THE UNITED STATES FOR THE NORTHERN, CENTRAL OR SOUTHERN
DISTRICT OF CALIFORNIA, AND BY EXECUTION AND DELIVERY OF THIS AGREEMENT,
EACH OF BORROWER AND LENDER CONSENTS, FOR ITSELF AND IN RESPECT OF ITS
PROPERTY, TO THE NON-EXCLUSIVE JURISDICTION OF THOSE COURTS. EACH OF
BORROWER AND LENDER IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING ANY
OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON
CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY
ACTION OR PROCEEDING IN SUCH JURISDICTION IN RESPECT OF THIS AGREEMENT OR
ANY DOCUMENT RELATED HERETO. BORROWER AND LENDER EACH WAIVE PERSONAL
SERVICE OF ANY SUMMONS, COMPLAINT OR OTHER PROCESS, WHICH MAY BE MADE BY
ANY OTHER MEANS PERMITTED BY CALIFORNIA LAW.
8.12 WAIVER OF JURY TRIAL. BORROWER AND LENDER EACH WAIVES ITS
RESPECTIVE RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION BASED UPON
OR ARISING OUT OF OR RELATED TO THIS AGREEMENT, THE OTHER LOAN DOCUMENTS, OR THE
TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY, IN ANY ACTION, PROCEEDING OR OTHER
LITIGATION OF ANY TYPE BROUGHT BY ANY OF THE PARTIES AGAINST ANY OTHER PARTY OR
ANY PARTICIPANT OR ASSIGNEE, WHETHER WITH RESPECT TO CONTRACT CLAIMS, TORT
CLAIMS, OR OTHERWISE. BORROWER AND LENDER EACH AGREES THAT ANY SUCH CLAIM OR
CAUSE OF ACTION SHALL BE TRIED BY A COURT TRIAL WITHOUT A JURY. WITHOUT LIMITING
THE FOREGOING, THE PARTIES FURTHER AGREE THAT THEIR RESPECTIVE RIGHT TO A TRIAL
BY JURY IS WAIVED BY OPERATION OF THIS SECTION AS TO ANY ACTION, COUNTERCLAIM OR
OTHER PROCEEDING WHICH SEEMS, IN WHOLE OR IN PART, TO CHALLENGE THE VALIDITY OR
ENFORCEABILITY OF THIS AGREEMENT OR THE
<PAGE>
OTHER LOAN DOCUMENTS OR ANY PROVISION HEREOF OR THEREOF. THIS WAIVER SHALL
APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO
THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS.
IN WITNESS WHEREOF, Borrower and Lender have executed this Agreement as of
the date set forth in the preamble.
Addresses for Notices: EXODUS COMMUNICATIONS, INC.
- ---------------------
2650 San Tomas Expressway By: /s/ Dick Stoltz
--------------------------------
Santa Clara, CA 95051 Name: Dick Stoltz
-----------------------------
Attn: Dick Stoltz Its: CFO/COO
------------------------------
Fax No.: 408-346-2206
Venture Lending & Leasing II, Inc. VENTURE LENDING & LEASING II, INC.
2010 North First Street, Suite 310
San Jose, CA 95131 By:________________________________
Attn: Salvador 0. Gutierrez Name:______________________________
Chief Financial Officer Its:_______________________________
Fax No. 408-435-8625
<PAGE>
EXHIBIT A
[Note No. X-XXX]
FORM OF PROMISSORY NOTE
$____________________ ___________________, 199__
San Jose, California
The undersigned ("Borrower") promises to pay to the order of VENTURE
LENDING & LEASING II, INC., a Maryland corporation ("Lender") at its office at
2010 North First Street, Suite 310, San Jose, California 95131, or at such other
place as Lender may designate in writing, in lawful money of the United States
of America, the principal sum of _____________________________________
____________ Dollars ($__________), with Basic Interest thereon from the date
hereof until maturity, whether scheduled or accelerated, at a fixed rate per
annum of _____________ percent (___%) , and with Additional Interest in the sum
of [15% of face amount] Dollars ($__________) payable on the Maturity Date.
This Note is one of the Notes referred to in, and is entitled to all the
benefits of, a Loan Agreement dated ___________________, 199__ , between
Borrower and Lender. Each capitalized term not otherwise defined herein shall
have the meaning set forth in the Loan Agreement. The Loan Agreement contains
provisions for the acceleration of the maturity of this Note upon the happening
of certain stated events.
Principal of and interest on this Note shall be payable as follows:
On the Borrowing Date, Borrower shall pay (i) Basic Interest, in advance,
on the outstanding principal balance of this Note at the Designated Rate for the
period from the Borrowing Date through [the last day of the same month]; and
(ii) a first (1st) amortization installment of principal and Basic Interest in
the amount of ___________________, in advance for the month of [ first full
month after Borrowing Date].
Commencing on the first day of the second full month after the Borrowing
Date, and continuing on the first day of each consecutive month thereafter,
principal and Basic Interest shall be payable, in advance, in
____________________ equal consecutive installments of ____________________
_______________________ Dollars ($__________) each, with a ____________________
______) installment equal to the entire unpaid principal balance and accrued
Basic Interest on _________________, 199 . The Additional Interest amount shall
be payable on (one month later], 199____.
Any unpaid payments of principal or interest on this Note shall bear
interest from their respective maturities, whether scheduled or accelerated, at
a rate per annum equal to the Default Rate. Borrower shall pay such interest on
demand.
<PAGE>
Interest, charges and fees shall be calculated for actual days elapsed on
the basis of a 360-day year, which results in higher interest, charge or fee
payments than if a 365-day year were used. In no event shall Borrower be
obligated to pay interest, charges or fees at a rate in excess of the highest
rate permitted by applicable law from time to time in effect.
This Note shall be governed by, and construed in accordance with, the laws
of the State of California.
Exodus Communications, Inc.
By:_________________________________
Name:_______________________________
Its:________________________________
<PAGE>
EXHIBIT B
BORROWER REQUEST
_________,1997
Venture Lending & Leasing II, Inc.
2010 North First Street, Suite 310
San Jose, CA 95131
Re: EXODUS COMMUNICATIONS, INC.
Gentlemen:
Reference is made to the Loan Agreement dated as of _______________ 1997
(as it has been and may be amended from time to time, the "Loan Agreement", the
capitalized terms used herein as defined therein), between Venture Lending &
Leasing II, Inc. and Exodus Communications, Inc. (the "Company").
The undersigned is the Chief Financial Officer of the Company, and hereby
requests a Loan under the Loan Agreement, and in that connection certifies as
follows:
1. The amount of the proposed Loan is $___________. The Business Day
of the proposed Loan is _______ 1997.
2. As of this date, no Default or Event of Default has occurred and is
continuing, or will result from the making of the proposed Loan, and the
representations and warranties of the Company contained in Article 3 of the Loan
Agreement are true and correct.
3. No Material Adverse Change has occurred since the date of the most
recent financial statements submitted to you by the Company.
The Company agrees to notify you promptly before the funding of the Loan if
any of the matters to which I have certified above shall not be true and correct
on the Borrowing Date.
Very Truly Yours,
___________________________________
Chief Financial Officer
<PAGE>
EXHIBIT C
SECURITY AGREEMENT
(EQUIPMENT)
This Agreement is made as of December 23, 1997, by EXODUS COMMUNICATIONS,
INC., a California Corporation ("Debtor") in favor of VENTURE LENDING & LEASING
II, INC., a Maryland corporation ("Secured Party").
ARTICLE 1 - DEFINITIONS
The following definitions shall be applicable to both the singular and
plural forms of the defined terms:
"AGREEMENT" means this Security Agreement, as it may be amended from time
to time.
"COLLATERAL" means all Debtor's Equipment and Fixtures now owned or
hereafter acquired, wherever located, and whether held by Debtor or any third
party, and all proceeds and products thereof, including all insurance and
condemnation proceeds ("Proceeds"), and all Records relating or useful to, or
used in connection with any of the foregoing.
"EQUIPMENT" means all of Debtor's specific equipment identified and
described on schedule 1 attached to this Agreement and incorporated herein by
reference (as such Schedule may be amended or supplemented from time to time),
all replacements, parts, accessions and additions thereto, and all proceeds
thereof arising from the sale, lease, rental or other use or disposition
thereof, including all rights to payment with respect to insurance or
condemnation, returned premiums, or any cause of action relating to any of the
foregoing.
"EVENT OF DEFAULT" means an event described in Article 6.
"FIXTURES" means all items of Equipment that are so related to the real
property upon which they are located that an interest in them arises under real
property law, and all proceeds thereof arising from the sale, lease, rental or
other use or disposition thereof.
"INDEBTEDNESS" means all debts, obligations and liabilities of Debtor to
Secured Party currently existing or now or hereafter made, incurred or created,
whether pursuant to the Loan Documents, whether voluntary or involuntary and
however arising or evidenced, whether direct or a acquired by Secured Party by
assignment or succession, whether due or not due, absolute or contingent,
liquidated or unliquidated, determined or undetermined, and whether Debtor may
be liable individually or jointly, or whether recovery upon such debt may be or
become
<PAGE>
barred by any statute of limitations or otherwise unenforceable and all
renewals, extensions and modifications thereof, and all attorneys' fees and
costs incurred by Secured Party in connection with the collection and
enforcement thereof.
"LIEN" means any voluntary or involuntary security interest, mortgage,
pledge, claim, charge, encumbrance, title retention agreement, or third party
interest Covering all or any part of the property of Debtor or any other Person.
"LOAN AGREEMENT" means that certain Loan Agreement between Debtor and
Secured Party of even date herewith, as amended from time to time.
"PERSON" means any individual or entity, including without limitation
Secured Party where the context so permits and in Secured Party's sole
discretion.
"RECORDS" means all Debtor's computer programs, software, hardware, source
codes and data processing information, all written documents, books, invoices,
ledger sheets, financial information and statements, and all other writings
concerning Debtor's business.
"UNIFORM COMMERCIAL CODE" means the California Uniform Commercial Code, as
amended from time to time.
Terms not specifically defined in this Agreement have the meanings
prescribed in the Loan Agreement, and if not defined therein then the meanings
prescribed in the Uniform Commercial Code.
ARTICLE 2 - GRANT OR SECURITY INTEREST
To secure the timely payment of the Indebtedness and performance of all
obligations of Debtor to Secured Party, Debtor grants to Secured Party a
security interest in the Collateral.
ARTICLE 3 - REPRESENTATIONS AND WARRANTIES
Debtor represents and warrants that, at all times during the term of this
Agreement:
3.1 GOVERNMENTAL ACTIONS. Debtor has obtained all consents and actions
of, and has performed all filings with, any governmental or regulatory authority
required to authorize the execution, delivery or performance of this Agreement.
Debtor has, at the time Lender makes a Loan with respect to an item of equipment
in accordance with Section 2.2 of the Loan Agreement, and at all times
thereafter while such Loan is outstanding,
<PAGE>
obtained all Consents and actions of, and has performed all filings with, any
governmental or regulatory authority required to grant and perfect Secured
Party's security interest in such item of equipment which is part of the
Collateral.
3.2 TITLE. Except for the security interests created by this Agreement,
Debtor is and will be the unconditional legal and beneficial owner of the
Collateral. The Collateral is subject to no Liens, rights or defenses of
others, except Liens permitted under the Loan Agreement.
3.3 NO MISREPRESENTATION. No representation, warranty or statement by
Debtor contained in this Agreement, in any Loan Document or certificate or other
writing furnished by Debtor to Secured Party in connection with any Loan
Document contains any untrue statement of material fact, or omits to state a
material fact necessary to make the statements made therein not misleading in
any material respect.
3.4 COLLATERAL NOT INVENTORY. Debtor is not in the business of selling
goods of the kind included within the Collateral subject to this Agreement.
3.5 CHIEF EXECUTIVE OFFICE. Debtor's chief executive office is located
at:
2650 San Tomas Expressway
Santa Clara, CA 95051
3.6 RECORDS LOCATION. Other than as set forth in Section 3.5, Records are
maintained at:
2650 San Tomas Expressway
Santa Clara, CA 95051
3.7 EQUIPMENT OR FIXTURES LOCATION. Other than as set forth in Section
3.5, Equipment or Fixtures are located at:
Wyatt Drive, Santa Clara, CA
Jersey City, NJ
Seattle, WA
Irvine, CA
Herndon, VA
3.8 OTHER PLACES OF BUSINESS. In addition to the locations set forth in
Sections 3.5 through 3.7, Debtor maintains the following place(s) of business:
None
<PAGE>
3.9 BUSINESS NAMES. Debtor has conducted business in the following names
other than as stated in the preamble to this Agreement:
Exodus
3.10 FINANCING STATEMENTS. Copies of all financing statements and all
other. documents publicly recorded or filed naming Debtor as debtor or obligor
have been delivered to Secured Party, prior to the date of this Agreement.
ARTICLE 4 - AFFIRMATIVE COVENANTS
During the term of this Agreement and until payment of all the Indebtedness
and performance of all obligations to Secured Party, Debtor will, unless Secured
Party otherwise consents in writing:
4.1 USE OF PROCEEDS. Use the proceeds of any credit extended by Secured
Party to Debtor only in accordance with the terms of the Loan Documents.
4.2 DELIVERY OF CERTAIN ITEMS. Deliver to Secured Party promptly (a)
after an Event of Default, all Proceeds; (b) such specific acknowledgments,
assignments or other agreements as Secured Party may reasonably request relating
to the Collateral; and (c) copies of such Records and other reports in such form
and detail and at such times as Secured Party may reasonably require relating to
the Collateral.
4.3 MAINTENANCE OF COLLATERAL; INSPECTION. Do all things reasonably
necessary to maintain, preserve, protect and keep all Collateral in good working
order and saleable condition, dealing with the Collateral in all ways as are
considered good practice by owners of like property, and use the Collateral
lawfully and only as permitted by Debtor's insurance policies. Debtor hereby
authorizes Secured Party's officers, employees, representatives and agents, upon
reasonable notice, at reasonable times and with reasonable frequency, to inspect
the Collateral and to discuss the Collateral and the Records relating thereto
with Debtor's officers.
4.4 MAINTENANCE OF RECORDS; INSPECTION. Maintain, or cause to be
maintained, complete and accurate records relating to the Collateral. Secured
Party, its officer's, employees, agents and representatives, upon reasonable
notice, shall have the right, from time to time, to examine the Records relating
to the Collateral and to make copies or extracts therefrom.
<PAGE>
4.5 DEBTOR'S DUTY TO GIVE NOTICE. Give prompt notice to Secured Party of:
(a) any decrease in the value of any Collateral and the amount of such decrease
(other than depreciation calculated in the ordinary course of business under
applicable tax laws and regulations and in accordance with generally accepted
accounting principles); (b) any threatened or asserted dispute or claim with
respect to the Collateral; (c) any litigation or administrative or regulatory
proceeding which is reasonably likely to have a material adverse effect on
Debtor or its business; (d) any change in ownership of any property on which any
Collateral is located; and (e) the occurrence of any Event of Default or of any
other development, financial or otherwise, which is reasonably likely to
materially adversely affect the Collateral or Debtor's ability to pay the
indebtedness or perform its obligations to Secured Party.
4.6 FINANCING STATEMENTS AND OTHER ACTIONS. Execute and deliver to
Secured Party, and file or record at Debtor's expense all financing statements,
notices and other documents from time to time requested by Secured Party to
maintain a first perfected security interest in the Collateral in favor of
Secured Party, all in form and substance satisfactory to Secured Party, perform
such other acts and execute and deliver to Secured Party such additional
conveyances, assignments, agreements and instruments, as Secured Party may at
any time reasonably request in connection with the administration and
enforcement of this Agreement or Secured Party's rights, powers and remedies
hereunder.
4.7 DECALS, MARKINGS. At the request of Secured Party, firmly affix a
decal, stencil or other marking to designated items of Collateral, indicating
thereon the security interest of Secured Party.
4.8 AGREEMENT WITH REAL PROPERTY OWNER/LANDLORD. Obtain and maintain such
acknowledgments, consents, waivers and agreements from the owner, lienholder,
mortgagee and landlord with respect to any real property on which Collateral is
located as Secured Party may require, all in form and substance satisfactory to
Secured Party.
ARTICLE 5 - NEGATIVE COVENANTS
During the term of this Agreement and until payment of all the Indebtedness
and performance of all obligations to secured Party, Debtor will not, without
Secured Party's prior written consent:
5.1 LIENS. Create, incur, assume or permit to exist any Lien on any
Collateral, except Liens permitted under the Loan Agreement.
<PAGE>
5.2 DOCUMENTS OF TITLE. Sign or authorize the signing of any financing
statement or other document naming Debtor as debtor or obligor, except those
which do not relate to the Collateral or which, with respect to the Collateral
are permitted under the Loan Agreement, or acquiesce or cooperate in the
issuance of any warehouse receipt or other document of title with respect to any
Collateral, except those negotiated to Secured Party or those naming Secured
Party as secured party.
5.3 Disposition of Collateral. Sell, transfer, lease or otherwise dispose
of any Collateral.
5.4 CHANGE IN LOCATION, NAME, LEGAL STRUCTURE. If and to the extent the
same would in any manner impair the creation, perfection or priority of Secured
Party's security interest in the Collateral, (a) maintain Records, its chief
executive office or residence, or a place of business at a location other than
as specified in Article 3; or (b) change its name, mailing address, the nature
of its business, or its legal structure.
ARTICLE 6 - EVENTS OF DEFAULT
6.1 EVENTS OF DEFAULT. The occurrence of any of the following shall
constitute an Event of Default:
(A) Any "Event of Default" as defined in the Loan Agreement.
(B) Secured Party shall not have a first perfected security interest
in any Collateral for ten (10) or more days after notice to Debtor;
(C) secured Party reasonably determines, in good faith, that its
security interest in the Collateral is materially impaired for ten (10) or more
days after notice to Debtor;
(D) secured Party reasonably determines, in good faith, that any or
all of the Collateral, including any proceeds, is in danger of dissipation,
loss, theft, damage or destruction, or otherwise in jeopardy such as would
materially impair the value of the Collateral (with due consideration to
applicable insurance coverage);
(E) Debtor shall fail to perform any of its duties or obligations
under this Agreement not specifically referenced in this Article 6 and such
failure remains uncured for ten (10) or more days after notice to Debtor;
6.2 ACCELERATION AND REMEDIES. Upon the occurrence of any Event of
Default secured Party shall be entitled to, at Secured
<PAGE>
Party's option, without notice or demand of any kind, (a) declare all or any
part of the Indebtedness immediately due and payable; (b) exercise any or all of
the rights and remedies available to a secured party under the Uniform
Commercial Code or any other applicable law; and (c) exercise any or all of
Secured Party's rights and remedies provided for in this Agreement and in any
other Loan Document. The obligations of Debtor under this Agreement shall
continue to be effective or be reinstated, as the case nay be, if at any time
any payment of any Indebtedness is rescinded or must otherwise be returned by
Secured Party upon, on account of, or in connection with, the insolvency,
bankruptcy or reorganization of Debtor, or otherwise, all as though such payment
had not been made.
6.3 SALE OF COLLATERAL. After the occurrence of an Event of Default
Secured Party may sell all or any part of the Collateral, at public or private
sales, to itself, a wholesaler, retailer or investor, for cash, upon credit or
for future delivery, and at such price or prices as Secured Party may deem
commercially reasonable. To the extent permitted by law, Debtor hereby
specifically waives all rights of redemption and any rights of stay or appraisal
which it has or may have under any applicable law in effect from time to time.
Any such public or private sales shall be held at such times and at such
place(s) as Secured Party may determine. In case of the sale of all or any part
of the Collateral on credit or for future delivery, the Collateral so sold may
be retained by Secured Party until the selling price is paid by the purchaser,
but Secured Party shall not incur any liability in case of the failure of such
purchaser to pay for the Collateral and, in case of any such failure, such
Collateral may be resold. Secured Party may, instead of exercising its power of
sale, proceed to enforce its security interest in the Collateral by seeking a
judgment or decree of a court of competent jurisdiction.
6.4 DEBTOR'S OBLIGATION UPON DEFAULT. Upon the request of Secured Party
after the occurrence of an Event of Default Debtor will:
(A) Assemble and make available to Secured Party the Collateral at
such place(s) as Secured Party shall designate, segregating all Collateral so
that each item is capable of identification; and
(B) Permit Secured Party, by Secured Party's officers, employees,
agents and representatives, to enter any premises where any Collateral is
located, to take possession of the Collateral and to remove the Collateral or to
conduct any public or private sale of the Collateral, all without any liability
of Secured Party for rent or other compensation for the use of Debtor's
premises.
<PAGE>
ARTICLE 7 - SPECIAL COLLATERAL PROVISIONS
7.1 PERFORMANCE OF DEBTOR'S OBLIGATIONS. Without having any obligation to
do so, Secured Party may perform or pay any obligation which Debtor has agreed
to perform or pay under this Agreement, including, without limitation, the
payment or discharge of taxes or Liens levied or placed on or threatened against
the Collateral. In so performing or paying, Secured Party shall determine the
action to be taken and the amount necessary to discharge such obligations.
Debtor shall reimburse Secured Party on demand for any amounts paid by Secured
Party pursuant to this Section, which amounts shall constitute Indebtedness
secured by the Collateral and shall bear interest from the date of demand at the
rate applicable to overdue payments under the Loan Agreement.
7.2 POWER OF ATTORNEY. For the purpose of protecting, preserving and
enforcing the Collateral and Secured Party's rights under this Agreement, Debtor
hereby irrevocably appoints Secured Party, with full power of substitution, as
its attorney-in-fact with full power and authority to do any act which Debtor is
obligated to do, or Secured Party has the right to do, hereunder; to exercise
such rights with respect to the Collateral as Debtor might exercise; to use such
Collateral; to enter Debtor's premises; to give notice of Secured Party's
security interest in and to collect the Collateral and the Proceeds; and to
execute and file in Debtor's name any financing statements, amendments and
continuation statements necessary or desirable to perfect or continue the
perfection of Secured Party's security interests in the Collateral. Debtor
hereby ratifies all that Secured Party shall lawfully do or cause to be done by
virtue of this appointment.
7.3 AUTHORIZATION FOR SECURED PARTY TO TAKE CERTAIN ACTION. The power of
attorney created in Section 7.3 is a power coupled with an interest and shall be
irrevocable. The powers conferred on Secured Party hereunder are solely to
protect its interests in the Collateral and shall not impose any duty upon
Secured Party to exercise such powers. Secured Party shall be accountable only
for amounts that it actually receives as a result of the exercise of such powers
and in no event shall Secured Party or any of its directors, officers,
employees, agents or representatives be responsible to Debtor for any act or
failure to act, except for gross negligence or willful misconduct. Secured
Party may exercise this power of attorney without notice to or assent of Debtor,
in the name of Debtor, or in Secured Party's own name, from time to time in
Secured Party's sole discretion and at Debtor's expense. To further carry out
the terms of this Agreement, Secured Party may upon the occurrence of an Event
of Default:
<PAGE>
(A) Execute any statements or documents to take possession of, and
endorse and collect and receive delivery or payment of, any checks, drafts,
notes, acceptances or other instruments and documents constituting the payment
of amounts due and to become due or any performance to be rendered with respect
to the Collateral;
(B) Sign and endorse any invoices, freight or express bills, bills of
lading, storage or warehouse receipts; drafts, certificates and statements under
any commercial or standby letter of credit, assignments, leases, bills of sale,
or any other documents relating to the Collateral, including without limitation
the Records;
(C) Use or operate Collateral or any other property of Debtor for the
purpose of preserving or liquidating Collateral;
(D) File any claim or take any other action or proceeding in any court
of law or equity or as otherwise deemed appropriate by Secured Party for the
purpose of collecting any and all monies due or securing any performance to be
rendered with respect to the Collateral;
(E) Commence, prosecute or defend any suits, actions or proceedings or
as otherwise deemed appropriate by Secured Party for the purpose of protecting
or collecting the Collateral. In furtherance of this right, upon the occurrence
of an Event of Default Secured Party may apply for the appointment of a receiver
or similar official to operate Debtor's business, and, to the fullest extent
permitted by law, Debtor hereby waives any right to oppose such appointment;
(F) Prepare, adjust, execute, deliver and receive payment under
insurance claims, and collect and receive payment of and endorse any instrument
in payment of loss or returned premiums or any other insurance refund or return,
and apply such amounts, at Secured Party's sole discretion, toward repayment of
the Indebtedness or replacement of the Collateral.
7.4 APPLICATION OF PROCEEDS. Any Proceeds and other monies or property
received by Secured Party pursuant to the terms of this Agreement or any Loan
Document may be applied by Secured Party first to the payment of expenses of
collection, including without limitation to reasonable attorneys' fees, and then
to the payment of the Indebtedness in such order of application as Secured Party
may elect. Notwithstanding the rights given to Debtor pursuant to California
Civil Code sections 1479 and 2822 or equivalent provisions in the laws of the
state specified in the governing law clause of this document (and any amendments
or successors thereto), to designate how payments will be applied, Debtor hereby
waives such rights and Secured Party shall have the right in its sole discretion
to determine the order and method of
<PAGE>
the application of payments received from Debtor or from the sale or disposition
of the Collateral and to revise such application prospectively or retroactively
at its discretion.
7.5 DEFICIENCY. If the proceeds of any sale of the Collateral are
insufficient to cover all costs and expenses of such sale and the payment in
full of all Indebtedness, plus all other sums required to be expended or
distributed by Secured Party, then Debtor shall be liable for any such
deficiency.
7.6 SECURED PARTY TRANSFER. Upon the transfer of all or any part of the
Indebtedness, Secured Party may transfer all or any part of its interest in the
Collateral and shall be fully discharged thereafter from all liability and
responsibility with respect to such interest in the Collateral so transferred,
and the transferee shall be vested with all the rights and powers of Secured
Party hereunder with respect to such interest in the Collateral so transferred.
ARTICLE 8 - GENERAL PROVISIONS
8.1 NOTICES. Any notice given by any party under this Agreement shall be
given in the manner prescribed in the Loan Agreement.
8.2 BINDING EFFECT. This Agreement shall be binding upon Debtor, its
permitted successors, representatives and assigns, and shall inure to the
benefit of Secured Party and its successors, representatives and assigns;
provided however that Debtor may not assign or transfer Debtor's obligations
under this Agreement without Secured Party's prior written consent. Secured
Party reserves the right to sell, assign, or transfer its rights and powers
under this Agreement in whole or in part without notice to Debtor. In that
connection, Secured Party may disclose all documents and information which
Secured Party now or hereafter may have relating to this Agreement, Debtor or
Debtor's business.
8.3 NO WAIVER. Any waiver, consent or approval by Secured Party of any
Event of Default or breach of any provision, condition or covenant of this
Agreement or any Loan Document must be in writing and shall be effective only to
the extent set forth in writing. No waiver or any breach of default shall be
deemed a waiver of any later breach or default of the same or any other
provision of this Agreement or any of the Loan Documents. No failure or delay
on the part of Secured Party in exercising any power, right or privilege under
this Agreement or any Loan Document shall operate as a waiver thereof, and no
single or partial exercise of any such power, right or privilege shall preclude
any further exercise thereof, or the exercise of any further power, right or
privilege.
<PAGE>
8.4 RIGHTS CUMULATIVE. All rights and remedies existing under this
Agreement are cumulative to, and not exclusive of, any other rights or remedies
available under contract or applicable law.
8.5 UNENFORCEABLE PROVISIONS. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall be so only as to such
jurisdiction and only to the extent of such prohibition or unenforceability, but
all the remaining provisions of this Agreement shall remain valid and
enforceable.
8.6 GOVERNING LAW, WAIVER OF NOTICE. Except as nay be otherwise provided
by the Uniform Commercial Code or in any addendum hereto, this Agreement shall
be governed by and construed in accordance with the laws of the State of
California. To the fullest extent permitted by law, Debtor hereby waives
presentment, demand, protest, notice of dishonor and all other notices and
demands as well as any applicable statute of limitations.
8.7 ENTIRE AGREEMENT. This Agreement, together with the other Loan
Documents, is intended by Debtor and Secured Party as the final expression of
Debtor's obligations to Secured Party in connection with the Collateral and
supersedes all prior understandings or agreements concerning the subject matter
hereof. This Agreement may be amended only by a writing signed by Debtor and
accepted by Secured Party in writing.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date set
forth in the preamble.
EXODUS COMMUNICATION, INC. VENTURE LENDING & LEASING II, INC.
By:___________________________ By: _________________________
RONALD W. SWENSON
Chief Executive Officer
<PAGE>
EXHIBIT D
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT
AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE
SECURITIES LAWS. SUCH SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE
OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT AND ANY APPLICABLE
STATE SECURITIES LAWS.
WARRANT TO PURCHASE A MAXIMUM OF
125,000 SHARES OF SERIES Dl PREFERRED STOCK OF
EXODUS COMMUNICATIONS, INC.
(Void after June 30, 2003)
This certifies that VENTURE LENDING & LEASING II, INC., a Maryland
corporation, or assigns (the "Holder"), for value received, is entitled to
purchase from EXODUS COMMUNICATIONS, INC., a California corporation (the
"Company"), fully paid and nonassessable shares of the Company's Series Dl
Preferred Stock ("Preferred Stock") with a per share exercise price equal to
$2.85 (the "Stock Purchase Price"). The purchase may be made at any time or from
time to time up to and including 5:00 p.m. (Pacific time) on June 30, 2003 (the
"Expiration Date"), upon surrender to the Company at its principal office at
2650 San Tomas Expressway, Santa Clara, CA 95051 (or at such other location as
the Company may advise Holder in writing) of this Warrant properly endorsed with
the Form of Subscription attached hereto duly filled in and signed and upon
payment in cash or by check of the aggregate Stock Purchase Price for the number
of shares for which this Warrant is being exercised determined in accordance
with the provisions hereof. The Stock Purchase Price and the number of shares
purchasable hereunder are subject to adjustment as provided in Section 4 of this
Warrant.
This Warrant is subject to the following terms and conditions:
1. Exercise; Issuance of Certificates; Payment for Shares.
------------------------------------------------------
(a) Unless an election is made pursuant to clause (b) of this Section
1, this Warrant shall be exercisable at the option of the Holder, at any time or
from time to time, on or before the Expiration Date for all or any portion of
the shares of Preferred Stock (but not for a fraction of a share) which may be
purchased hereunder for the Stock Purchase Price multiplied by the number of
shares to be purchased. In the event, however, that pursuant to the Company's
Articles of Incorporation, as amended, an event
<PAGE>
causing automatic conversion of the Company's Preferred Stock shall have
occurred prior to the exercise of this warrant, in whole or in part, then this
Warrant shall be exercisable for the number of shares of Common Stock of the
Company into which the Preferred Stock not purchased upon any prior exercise of
the Warrant would have been so converted (and, where the context requires,
reference to "Preferred Stock" shall be deemed to include such Common Stock).
The Company agrees that the shares of Preferred Stock purchased under this
Warrant shall be and are deemed to be issued to the holder hereof as the record
owner of such shares as of the close of business on the date on which this
Warrant shall have been surrendered and payment made for such shares. Subject to
the provisions of Section 2, certificates for the shares of Preferred Stock so
purchased, together with any other securities or property to which the Holder
hereof is entitled upon such exercise, shall be delivered to the Holder hereof
by the Company at the Company's expense within a reasonable time after the
rights represented by this Warrant have been so exercised. Except as provided in
clause (b) of this Section 1, in case of a purchase of less than all the shares
which may be purchased under this Warrant, the Company shall cancel this Warrant
and execute and deliver a new Warrant or Warrants of like tenor for the balance
of the shares purchasable under the Warrant surrendered upon such purchase to
the Holder hereof within a reasonable time. Each stock certificate so delivered
shall be in such denominations of Preferred Stock as may be reasonably requested
by the Holder hereof and shall be registered in the name of such Holder or such
other name as shall be designated by such Holder, subject to the limitations
contained in Section 2.
(b) The Holder, in lieu of exercising this Warrant by the payment of
the Stock Purchase Price pursuant to clause (a) of this Section 1, may elect, at
any time on or before the Expiration Date, to receive that number of shares of
Preferred Stock equal to the quotient of: (i) the difference between (A) the Per
Share Price (as hereinafter defined) of the Preferred Stock, less (B) the Stock
Purchase Price then in effect, multiplied by the number of shares of Preferred
Stock the Holder would otherwise have been entitled to purchase hereunder
pursuant to clause (a) of this Section 1 (or such lesser number of shares as the
Holder may designate in the case of a partial exercise of this Warrant); over
(ii) the Per Share Price.
(c) For purposes of clause (b) of this Section 1, "Per Share Price"
means the product of: (i) the greater of (A) the average of the closing bid
and asked prices of the Company's Common Stock as quoted by NASDAQ or listed on
any exchange, whichever is applicable, as published in the Western Edition of
The Wall Street Journal for the ten (10) trading days prior to the date of the
- -----------------------
Holder's election hereunder or, (B) if applicable at the time of or in
2
<PAGE>
connection with the exercise under clause (b) of this Section 1, the gross sales
price of one share of the Company's Common Stock pursuant to a registered public
offering or that amount which shareholders of the Company will receive for each
share of Common Stock pursuant to a merger, reorganization or sale of assets;
and (ii) that number of shares of Common Stock into which each share of
Preferred Stock is convertible. If the Company's Common Stock is not quoted by
NASDAQ or listed on an exchange, the Per Share Price of the Preferred Stock (or
the equivalent number of shares of Common Stock into which such Preferred Stock
is convertible) shall be the price per share which the Company would obtain from
a willing buyer for shares sold by the Company from authorized but unissued
shares as such price shall be agreed upon by the Holder and the Company or, if
agreement cannot be reached within ten (10) business days of the Holder's
election hereunder, as such price shall be determined by a panel of three (3)
appraisers, one (1) to be chosen by the Company, one (1) to be chosen by the
Holder and the third to be chosen by the first two (2) appraisers. If the
appraisers cannot reach agreement within 30 days of the Holder's election
hereunder, then each appraiser shall deliver its appraisal and the appraisal
which is neither the highest nor the lowest shall constitute the Per Share
Price. In the event either party fails to choose an appraiser within 30 days of
the Holder's election hereunder, then the appraisal of the sole appraiser shall
constitute the Per Share Price. Each party shall bear the cost of the appraiser
selected by such party and the cost of the third appraiser shall be borne
one-half by each party. In the event either party fails to choose an appraiser,
the cost of the sole appraiser shall be borne one-half by each party.
2. Limitation on Transfer.
-----------------------
(a) The Warrant and the Preferred Stock shall not be transferable
except upon the conditions specified in this Section 2, which conditions are
intended to insure compliance with the provisions of the Securities Act. Each
holder of this Warrant or the Preferred Stock issuable hereunder will cause any
proposed transferee of the Warrant or Preferred Stock to agree to take and hold
such securities subject to the provisions and upon the conditions specified in
this Section 2.
(b) Each certificate representing (i) this Warrant, (ii) the
Preferred Stock, (iii) shares of the Company's Common Stock issued upon
conversion of the Preferred Stock and (iv) any other securities issued in
respect of the Preferred Stock or Common Stock issued upon conversion of the
Preferred Stock upon any stock split, stock dividend, recapitalization, merger,
consolidation or similar event, shall (unless otherwise permitted by the
provisions of this Section 2 or unless such securities have been registered
3
<PAGE>
under the Securities Act or sold under Rule 144) be stamped or otherwise
imprinted with a legend substantially in the following form (in addition to any
legend required under applicable state securities laws):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR
ANY STATE SECURITIES LAWS. SUCH SECURITIES MAY NOT BE SOLD OR TRANSFERRED
IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID
ACT AND ANY APPLICABLE STATE SECURITIES LAWS.
(c) The Holder of this Warrant and each person to whom this Warrant
is subsequently transferred represents and warrants to the Company (by
acceptance of such transfer) that it will not transfer the Warrant (or
securities issuable upon exercise hereof unless a registration statement under
the Securities Act was in effect with respect to such securities at the time of
issuance thereof) except pursuant to (i) an effective registration statement
under the Securities Act, (ii) Rule 144 under the Securities Act (or any other
rule under the Securities Act relating to the disposition of securities), or
(iii) an opinion of counsel, reasonably satisfactory to counsel for the Company,
that an exemption from such registration is available. This Warrant may be
transferred in whole and not in part, except that it may be transferred in part
only to affiliates of the Initial Holder, all pursuant to the other restrictions
or transfer declared in this Section 2.
3. Shares to be Fully Paid; Reservation of Shares. The Company covenants
----------------------------------------------
and agrees that all shares of Preferred Stock which may be issued upon the
exercise of the rights represented by this Warrant will, upon issuance, be duly
authorized, validly issued, (assuming appropriate consideration is tendered by
the Holder to the Company) fully paid and nonassessable and free from all
preemptive rights of any shareholder and free of all taxes, liens and charges
with respect to the issue thereof. The Company further covenants and agrees
that during the period within which the rights represented by this Warrant may
be exercised, the Company will at all times have authorized and reserved, for
the purpose of issue or transfer upon exercise of the subscription rights
evidenced by this Warrant, a sufficient number of shares of authorized but
unissued Preferred Stock, or other securities and property, when and as required
to provide for the exercise of the rights represented by this Warrant. The
Company will take all such action as may be necessary to assure that such shares
of Preferred Stock may be issued as provided herein without violation of any
applicable law or regulation, or of any requirements of any domestic securities
exchange upon which the Preferred Stock or other securities into which this
Warrant is ultimately
4
<PAGE>
convertible may be listed. The Company will not take any action which would
result in any adjustment of the Stock Purchase Price (as defined in Section 4
hereof) (i) if the total number of shares of Preferred Stock issuable after such
action upon exercise of all outstanding warrants, together with all shares of
Preferred Stock then outstanding and all shares of Preferred Stock then issuable
upon exercise of all options and upon the conversion of all convertible
securities then outstanding, would exceed the total number of shares of
Preferred Stock then authorized by the company's Articles of Incorporation, or
(ii) if the total number of shares of Common Stock issuable after such action
upon the conversion of all such shares of Preferred Stock together with all
shares of Common Stock then outstanding and then issuable upon exercise of all
options and upon the conversion of all convertible securities then outstanding
would exceed the total number of shares of Common Stock then authorized by the
Company's Articles of Incorporation.
4. Adjustment of Stock Purchase Price Number of Shares. The Stock
---------------------------------------------------
Purchase Price and the number of shares purchasable upon the exercise of this
Warrant shall be subject to adjustment from time to time upon the occurrence of
certain events described in this Section 4. Upon each adjustment of the Stock
Purchase Price, the Holder of this Warrant shall thereafter be entitled to
purchase, at the Stock Purchase Price resulting from such adjustment, the number
of shares obtained by multiplying the Stock Purchase Price in effect immediately
prior to such adjustment by the number of shares purchasable pursuant hereto
immediately prior to such adjustment, and dividing the product thereof by the
Stock Purchase Price resulting from such adjustment.
4.1 Subdivision or Combination of Stock. In case the Company shall
-----------------------------------
at any time subdivide its outstanding shares of Preferred Stock into a greater
number of shares, the Stock Purchase Price in effect immediately prior to such
subdivision shall be proportionately reduced, and conversely, in case the
outstanding shares of Preferred Stock of the Company shall be combined into a
smaller number of shares, the Stock Purchase Price in effect immediately prior
to such combination shall be proportionately increased.
4.2 Dividends in Preferred Stock, Other Stock, Property,
---------------------------------------------------
Reclassification. If at any time or from time to time the holders of Preferred
- ----------------
Stock (or any shares of stock or other securities at the time receivable upon
the exercise of this Warrant) shall have received or become entitled to receive,
without payment therefor,
(a) Preferred Stock, or any shares of stock or other securities
whether or not such securities are at any time directly or indirectly
convertible into or exchangeable for Preferred Stock, or any rights or options
to subscribe
5
<PAGE>
for, purchase or otherwise acquire any of the foregoing by way of dividend or
other distribution, or
(b) any cash paid or payable otherwise than as a cash dividend,
or
(c) Preferred Stock or other or additional stock or other
securities or property (including cash) by way of spinoff, split-up,
reclassification, combination of shares or similar corporate rearrangement,
(other than shares of Preferred Stock issued as a stock split, adjustments in
respect of which shall be covered by the terms of Section 4.1 above), then and
in each such case, the Holder hereof shall, upon the exercise of this Warrant,
be entitled to receive, in addition to the number of shares of Preferred Stock
receivable thereupon, and without payment of any additional consideration
therefore, the amount of stock and other securities and property (including cash
in the cases referred to in clauses (b) and (c) above) which such Holder would
hold on the date of such exercise had he been the holder of record of such
Preferred Stock as of the date on which holders of Preferred Stock received or
became entitled to receive such shares and/or all other additional stock and
other securities and property.
4.3 Reorganization, Reclassification, Consolidation, Merger or Sale.
---------------------------------------------------------------
If any capital reorganization of the capital stock of the Company, or any
consolidation or merger of the Company with another corporation, or the sale of
all or substantially all of its assets to another corporation shall be effected
in such a way that holders of Preferred Stock shall be entitled to receive
stock, securities or assets with respect to or in exchange for Preferred Stock,
then, as a condition of such reorganization, reclassification, consolidation,
merger or sale, lawful and adequate provisions shall be made whereby the holder
hereof shall thereafter have the right to purchase and receive(in lieu of the
shares of the Preferred Stock of the Company immediately theretofore purchasable
and receivable upon the exercise of the rights represented hereby) such shares
of stock, securities or assets as may be issued or payable with respect to or in
exchange for a number of outstanding shares of such Preferred Stock equal to the
number of shares of such stock immediately theretofore purchasable and
receivable upon the exercise of the rights represented hereby. In any such
case, appropriate provision shall be made with respect to the rights and
interests of the holder of this Warrant to the end that the provisions hereof
(including, without limitation, provisions for adjustments of the Stock Purchase
Price and of the number of shares purchasable and receivable upon the exercise
of this Warrant) shall thereafter be applicable, as nearly as nay be possible,
in relation to any shares of stock, securities or assets thereafter deliverable
upon the exercise hereof. The Company will not effect any such
6
<PAGE>
consolidation, merger or sale unless, prior to the consummation thereof, the
successor corporation (if other than the Company) resulting from such
consolidation or the corporation purchasing such assets shall assume by written
instrument, executed and mailed or delivered to the registered Holder hereof at
the last address of such Holder appearing on the books of the Company, the
obligation to deliver to such Holder such shares of stock, securities or assets
as, in accordance with the foregoing provisions, such Holder may be entitled to
purchase.
4.4 Notice of Adjustment. Upon any adjustment of the stock Purchase
--------------------
Price, and/or any increase or decrease in the number of shares purchasable upon
the exercise of this Warrant the Company shall give written notice thereof, by
first class mail, postage prepaid, addressed to the registered holder of this
Warrant at the address of such holder as shown on the books of the Company. The
notice shall be signed by the Company's chief financial officer and shall state
the Stock Purchase Price resulting from such adjustment and the increase or
decrease, if any, in the number of shares purchasable at such price upon the
exercise of this Warrant, setting forth in reasonable detail the method of
calculation and the facts upon which such calculation is based.
4.5 Other Notices. If at any time:
-------------
(a) the Company shall declare any cash dividend upon its
Preferred stock;
(b) the Company shall declare any dividend upon its Preferred
Stock payable in stock or make any special dividend or other distribution to the
holders of its Preferred Stock;
(c) there shall be any capital reorganization or
reclassification of the capital stock of the Company, or consolidation or merger
of the Company with, or sale of all or substantially all of its assets to,
another corporation;
(d) there shall be a voluntary or involuntary dissolution,
liquidation or winding-up of the Company; or
(e) the Company shall take or propose to take any other action,
notice of which is actually provided to holders of the Preferred Stock;
then, in any one or more of said cases, the Company shall give, by first class
mail, postage prepaid, addressed to the holder of this Warrant at the address of
such holder as shown on the books of the Company, (i) at least 10 day's prior
written notice of the date on which the books of the Company shall close or a
record shall be taken for such dividend,
7
<PAGE>
distribution or subscription rights or for determining rights to vote in respect
of any such reorganization, reclassification, consolidation, merger, sale,
dissolution, liquidation or winding-up, or other action and (ii) in the case of
any such reorganization, reclassification, consolidation, merger, sale,
dissolution, liquidation or winding-up, or other action, at least 10 day's
written notice of the date when the same shall take place. Any notice given in
accordance with the foregoing clause (i) shall also specify, in the case of any
such dividend, distribution or subscription rights, the date on which the
holders of Preferred Stock shall be entitled thereto. Any notice given in
accordance with the foregoing clause (ii) shall also specify the date on which
the holders of Preferred Stock shall be entitled to exchange their Preferred
Stock for securities or other property deliverable upon such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding-up, or other action as the case may be.
4.6 Certain Events. If any change in the outstanding Preferred Stock
--------------
of the Company or any other event occurs as to which the other provisions of
this Section 4 are not strictly applicable or if strictly applicable would not
fairly protect the purchase rights of the Holder of the Warrant in accordance
with the essential intent and principles of such provisions, then the Board of
Directors of the Company shall make an adjustment in the number and class of
shares available under the Warrant, the Stock Purchase Price and/or the
application of such provisions, in accordance with such essential intent and
principles, so as to protect such purchase rights as aforesaid. The adjustment
shall be such as will give the Holder of the Warrant upon exercise for the same
aggregate Stock Purchase Price the total number, class and kind of shares as he
would have owned had the Warrant been exercised prior to the event and had he
continued to hold such shares until after the event requiring adjustment.
5. Issue Tax. The issuance of certificates for shares of Preferred Stock
---------
upon the exercise of the Warrant shall be made without charge to the Holder of
the Warrant for any issue tax in respect thereof; provided, however, that the
Company shall not be required to pay any tax which may be payable in respect of
any transfer involved in the issuance and delivery of any certificate in a name
other than that of the then Holder of the Warrant being exercised.
6. Closing of Books. The Company will at no time close its transfer
----------------
books against the transfer of any Warrant or of any shares of Preferred Stock
issued or issuable upon the exercise of any warrant in any manner which
interferes with the timely exercise of this Warrant.
8
<PAGE>
7. No Voting or Dividend Rights; Limitation of Liability. Nothing
-----------------------------------------------------
contained in this Warrant shall be construed as conferring upon the Holder
hereof the right to vote or to consent as a shareholder in respect of meetings
of shareholders for the election of directors of the Company or any other
matters or any rights whatsoever as a shareholder of the Company. No dividends
or interest shall be payable or accrued in respect of this Warrant or the
interest represented hereby or the shares purchasable hereunder until, and only
to the extent that, this Warrant shall have been exercised. No provisions
hereof, in the absence of affirmative action by the holder to purchase shares of
Preferred Stock, and no mere enumeration herein of the rights or privileges of
the Holder hereof, shall give rise to any liability of such Holder for the Stock
Purchase Price or as a shareholder of the Company, whether such liability is
asserted by the Company or by its creditors.
8. Intentionally Deleted.
---------------------
9. Registration Rights. The Holder hereof shall be entitled, with
-------------------
respect to the shares of Common Stock or other securities issued upon conversion
of such Preferred Stock to the "piggyback" registration rights set forth in
section 1.3 of the Second Amended and Restated Investors Rights Agreement dated
as of June 25, 1997, as amended from time to time to the same extent and on the
same terms and conditions as possessed by the other Warrant Holders thereof.
The company shall take such action as may be reasonably necessary to assure that
the granting of such registration rights to the Holder does not violate the
provisions of such agreement or any of the Company's charter documents or rights
of prior Grantees of registration rights.
10. Rights and Obligations Survive Exercise of Warrant. The rights and
--------------------------------------------------
obligations of the Company, of the Holder of this Warrant and of the holder of
shares of Preferred stock issued upon exercise of this Warrant, contained in
Sections 6, 8 and 9 shall survive the exercise of this Warrant.
11. Modification and Waiver. This Warrant and any provision hereof may be
-----------------------
changed, waived, discharged or terminated only by an instrument in writing
signed by the party against which enforcement of the same is sought.
12. Notices. Any notice, request or other document required or permitted
-------
to be given or delivered to the holder hereof or the Company shall be deemed to
have been given (i) upon receipt if delivered personally or by courier (ii) upon
confirmation of receipt if by telecopy or (iii) three business days after
deposit in the US mail, with postage prepaid and certified or registered, to
each such holder at its address as shown on the books of the Company or to the
9
<PAGE>
Company at the address indicated therefor in the first paragraph of this
Warrant.
13. Binding Effect on Successors. This Warrant shall be binding upon any
----------------------------
corporation succeeding the Company by merger, consolidation or acquisition of
all or substantially all of the Company's assets. All of the obligations of the
Company relating to the Preferred Stock issuable upon the exercise of this
Warrant shall survive the exercise and termination of this Warrant. All of the
covenants and agreements of the Company shall inure to the benefit of the
permitted successors and assigns of the Holder hereof. The Company will, at the
time of the exercise of this Warrant, in whole or in part, upon request of the
Holder hereof but at the Company's expense, acknowledge in writing its
continuing obligation to the Holder hereof in respect of any rights (including,
without limitation, any right to registration of the shares of Common Stock) to
which the Holder hereof shall continue to be entitled after such exercise in
accordance with this Warrant; provided, that the failure of the Holder hereof to
make any such request shall not affect the continuing obligation of the Company
to the Holder hereof in respect of such rights.
14. Descriptive Headings and Governing Law. The descriptive headings of
--------------------------------------
the several sections and paragraphs of this Warrant are inserted for convenience
only and do not constitute a part of this Warrant. This Warrant shall be
construed and enforced in accordance with, and the rights of the parties shall
be governed by, the laws of the State of California, without regard to the
conflict of law provisions.
15. Lost Warrants or Stock Certificates. The Company represents and
-----------------------------------
warrants to the Holder hereof that upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction, or mutilation of
any Warrant or stock certificate and, in the case of any such loss, theft or
destruction, upon receipt of an indemnity reasonably satisfactory to the
Company, or in the case of any such mutilation upon surrender and cancellation
of such Warrant or stock certificate, the Company at its expense will make and
deliver a new Warrant or stock certificate, of like tenor, in lieu of the lost,
stolen, destroyed or mutilated Warrant or stock certificate.
16. Fractional Shares. No fractional shares shall be issued upon exercise
-----------------
of this Warrant. The Company shall, in lieu of issuing any fractional share,
pay the holder entitled to such fraction a sum in cash equal to such fraction
multiplied by the then effective Stock Purchase Price.
17. Representations of Holder. With respect to this Warrant, Holder
-------------------------
represents and warrants to the Company as follows:
10
<PAGE>
17.1 Experience. It is experienced in evaluating and investing in
----------
companies engaged in businesses similar to that of the Company; it understands
that investment in the Warrant involves substantial risks; it has made detailed
inquiries concerning the Company, its business and services, its officers and
its personnel; the officers of the Company have made available to Holder any and
all written information it has requested; the officers of the Company have
answered to Holder's satisfaction all inquiries made by it; in making this
investment it has relied upon information made available to it by the Company;
and it has such knowledge and experience in financial and business matters that
it is capable of evaluating the merits and risks of investment in the Company
and it is able to bear the economic risk of that investment.
17.2 Investment. It is acquiring the Warrant for investment for its
----------
own account and not with a view to, or for resale in connection with, any
distribution thereof. It understands that the Warrant, the shares of Preferred
Stock issuable upon exercise thereof and the shares of Common Stock issuable
upon conversion of the Preferred Stock, have not been registered under the
Securities Act of 1933, as amended (the "Securities Act"), nor qualified under
applicable state securities laws.
17.3 Rule 144. It acknowledges that the Warrant, the Preferred Stock
--------
and the Common Stock must be held indefinitely unless they are subsequently
registered under the Securities Act or an exemption from such registration is
available. It has been advised or is aware of the provisions of Rule 144
promulgated under the Securities Act and there applicability hereto.
17.4 Access to Data. It has had an opportunity to discuss the
--------------
Company's business, management and financial affairs with the Company's
management and has had the opportunity to inspect the Company's facilities.
18. Additional Representations and Covenants of the Company. The Company
-------------------------------------------------------
hereby represents, warrants and agrees as follows:
18.1 Corporate Power. The Company has all requisite corporate power
---------------
and corporate authority to issue this warrant and to carry out and perform its
obligations hereunder.
18.2 Authorization. All corporate action on the part of the Company,
-------------
its directors and shareholders necessary for the authorization, execution,
delivery and performance by the Company of this Warrant has been taken. This
Warrant is
11
<PAGE>
a valid and binding obligation of the Company, enforceable in accordance with
its terms.
18.3 Offering. Subject in part to and in reliance on the truth and
--------
accuracy of Holder's representations set forth in Section 17 hereof, the offer,
issuance and sale of the Warrant is, and the issuance of Preferred Stock upon
exercise of the Warrant and the issuance of Common Stock upon conversion of the
Preferred Stock will be exempt from the registration requirements of the
securities Act, and are exempt from the qualification requirements of California
state securities laws; and neither the Company nor anyone acting on its behalf
will take any action hereafter that would cause the loss of such exemptions.
18.4 Stock Issuance. Upon exercise of the Warrant, the Company will
--------------
use its best efforts to cause stock certificates representing the shares of
preferred Stock purchased pursuant to the exercise to be issued in the
individual names of Holder, its nominees or assignees, as appropriate at the
time of such exercise. Upon conversion of the shares of Preferred Stock to
shares of Common Stock, the Company will issue the Common Stock in the
individual names of Holder, its nominees or assignees, as appropriate.
18.5 Articles and By-Laws. The Company has provided Holder with true
--------------------
and complete copies of the Company's Articles or Certificate of Incorporation,
By-Laws, and each Certificate of Determination or other charter document
setting, forth any rights, preferences and privileges of Company's capital
stock, each as amended and in effect on the date of issuance of this Warrant.
18.6 Conversion of Preferred Stock. As of the date hereof, each
-----------------------------
share of the Preferred Stock is convertible into one share of the Common Stock.
18.7 Financial and Other Reports. From time to time up to the
----------------------------
earlier of the Expiration Date or the complete exercise of this Warrant, the
Company shall furnish to Holder (i) within 90 days after the close of each
fiscal year of the Company an audited balance sheet and statement of changes in
financial position at and as of the end of such fiscal year, together with an
audited statement of income for such fiscal year; (ii) within 45 days after the
close of each fiscal quarter of the Company, an unaudited balance sheet and
statement of cash flows at and as of the end of such quarter, together with an
unaudited statement of income for such quarter; and (iii) promptly after
sending, making available, or filing, copies of all reports, proxy statements,
and financial statements that the Company sends or makes available to its
shareholders and all public versions of all
12
<PAGE>
final registration statements and reports that the Company files with the SEC.
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed by its officers, thereunto duly authorized this ___ day of December,
1997.
EXODUS COMMUNICATIONS, INC.
By:_____________________________
Title:__________________________
13
<PAGE>
FORM OF SUBSCRIPTION
--------------------
(To be signed only upon exercise of Warrant)
To: ____________________________
The undersigned, the holder of the within Warrant, hereby irrevocably
elects to exercise the purchase right represented by such Warrant for, and to
purchase thereunder, ________________________________ (_____) (1) shares of
Preferred Stock of __________________________________ and herewith makes payment
of _____________________________________ Dollars ($________ therefor, and
requests that the certificates for such shares be issued in the name of, and
delivered to, ___________________________________________, whose address is
_________________________________.
The undersigned represents that it is acquiring such Preferred Stock
for its own account for investment and not with a view to or for sale in
connection with any distribution thereof (subject, however, to any requirement
of law that the disposition thereof shall at all times be within its control.
DATED: _________________________
________________________________
(Signature must conform in all respects to name of
holder as specified on the face of the Warrant)
(Address)
________________________________
________________________________
(1) Insert here the number of shares called for on the face of the Warrant (or,
in the case of a partial exercise, the portion thereof as to which the
Warrant is being exercised), in either case without making any adjustment
for additional Preferred Stock or any other stock or other securities or
property or cash which, pursuant to the adjustment provisions of the
Warrant, may be deliverable upon exercise.
14
<PAGE>
ASSIGNMENT
----------
FOR VALUE RECEIVED, the undersigned, the holder of the within Warrant,
hereby sells, assigns and transfers all of the rights of the undersigned under
the within Warrant, with respect to the number of shares of Preferred Stock
covered thereby set forth hereinbelow, unto:
Name of Assignee Address No. of Shares
- -----------------------------------------------------------------
Dated: __________________________
_________________________________
(Signature must conform in all respects to name of
holder as specified on the face of the Warrant)
15
<PAGE>
SECURITY AGREEMENT
(EQUIPMENT)
This Agreement is made as of December 23, 1997, by EXODUS COMMUNICATIONS,
INC., a California Corporation ("Debtor") in favor of VENTURE LENDING & LEASING
II, INC., a Maryland corporation ("Secured Party").
ARTICLE 1 - DEFINITIONS
The following definitions shall be applicable to both the singular and
plural forms of the defined terms:
"AGREEMENT" means this Security Agreement, as it may be amended from time
to time.
"COLLATERAL" means all Debtor's Equipment and Fixtures now owned or
hereafter acquired, wherever located, and whether held by Debtor or any third
party, and all proceeds and products thereof, including all insurance and
condemnation proceeds ("Proceeds"), and all Records relating or useful to, or
used in connection with any of the foregoing.
"EQUIPMENT" means all of Debtor's specific equipment identified and
described on schedule 1 attached to this Agreement and incorporated herein by
----------
reference (as such Schedule may be amended or supplemented from time to time),
all replacements, parts, accessions and additions thereto, and all proceeds
thereof arising from the sale, lease, rental or other use or disposition
thereof, including all rights to payment with respect to insurance or
condemnation, returned premiums, or any cause of action relating to any of the
foregoing.
"EVENT OF DEFAULT" means an event described in Article 6.
"FIXTURES" means all items of Equipment that are so related to the real
property upon which they are located that an interest in them arises under real
property law, and all proceeds thereof arising from the sale, lease, rental or
other use or disposition thereof.
"INDEBTEDNESS" means all debts, obligations and liabilities of Debtor to
Secured Party currently existing or now or hereafter made, incurred or created,
whether pursuant to the Loan Documents, whether voluntary or involuntary and
however arising or evidenced, whether direct or a acquired by Secured Party by
assignment or succession, whether due or not due, absolute or contingent,
liquidated or unliquidated, determined or undetermined, and whether Debtor may
be liable individually or jointly, or whether recovery upon such debt may be or
become
<PAGE>
barred by any statute of limitations or otherwise unenforceable and all
renewals, extensions and modifications thereof, and all attorneys' fees and
costs incurred by Secured Party in connection with the collection and
enforcement thereof.
"LIEN" means any voluntary or involuntary security interest, mortgage,
pledge, claim, charge, encumbrance, title retention agreement, or third party
interest Covering all or any part of the property of Debtor or any other Person.
"LOAN AGREEMENT" means that certain Loan Agreement between Debtor and
Secured Party of even date herewith, as amended from time to time.
"PERSON" means any individual or entity, including without limitation
Secured Party where the context so permits and in Secured Party's sole
discretion.
"RECORDS" means all Debtor's computer programs, software, hardware, source
codes and data processing information, all written documents, books, invoices,
ledger sheets, financial information and statements, and all other writings
concerning Debtor's business.
"UNIFORM COMMERCIAL CODE" means the California Uniform Commercial Code, as
amended from time to time.
Terms not specifically defined in this Agreement have the meanings
prescribed in the Loan Agreement, and if not defined therein then the meanings
prescribed in the Uniform Commercial Code.
ARTICLE 2 - GRANT OR SECURITY INTEREST
To secure the timely payment of the Indebtedness and performance of all
obligations of Debtor to Secured Party, Debtor grants to Secured Party a
security interest in the Collateral.
ARTICLE 3 - REPRESENTATIONS AND WARRANTIES
Debtor represents and warrants that, at all times during the term of this
Agreement:
3.1 GOVERNMENTAL ACTIONS. Debtor has obtained all consents and actions
of, and has performed all filings with, any governmental or regulatory authority
required to authorize the execution, delivery or performance of this Agreement.
Debtor has, at the time Lender makes a Loan with respect to an item of equipment
in accordance with Section 2.2 of the Loan Agreement, and at all times
thereafter while such Loan is outstanding,
<PAGE>
obtained all Consents and actions of, and has performed all filings with, any
governmental or regulatory authority required to grant and perfect Secured
Party's security interest in such item of equipment which is part of the
Collateral.
3.2 TITLE. Except for the security interests created by this Agreement,
Debtor is and will be the unconditional legal and beneficial owner of the
Collateral. The Collateral is subject to no Liens, rights or defenses of
others, except Liens permitted under the Loan Agreement.
3.3 NO MISREPRESENTATION. No representation, warranty or statement by
Debtor contained in this Agreement, in any Loan Document or certificate or other
writing furnished by Debtor to Secured Party in connection with any Loan
Document contains any untrue statement of material fact, or omits to state a
material fact necessary to make the statements made therein not misleading in
any material respect.
3.4 COLLATERAL NOT INVENTORY. Debtor is not in the business of selling
goods of the kind included within the Collateral subject to this Agreement.
3.5 CHIEF EXECUTIVE OFFICE. Debtor's chief executive office is located
at:
2650 San Tomas Expressway
Santa Clara, CA 95051
3.6 RECORDS LOCATION. Other than as set forth in Section 3.5, Records are
maintained at:
2650 San Tomas Expressway
Santa Clara, CA 95051
3.7 EQUIPMENT OR FIXTURES LOCATION. Other than as set forth in Section
3.5, Equipment or Fixtures are located at:
Wyatt Drive, Santa Clara, CA
Jersey City, NJ
Seattle, WA
Irvine, CA
Herndon, VA
3.8 OTHER PLACES OF BUSINESS. In addition to the locations set forth in
Sections 3.5 through 3.7, Debtor maintains the following place(s) of business:
None
<PAGE>
3.9 BUSINESS NAMES. Debtor has conducted business in the following names
other than as stated in the preamble to this Agreement:
Exodus
3.10 FINANCING STATEMENTS. Copies of all financing statements and all
other documents publicly recorded or filed naming Debtor as debtor or obligor
have been delivered to Secured Party, prior to the date of this Agreement.
ARTICLE 4 - AFFIRMATIVE COVENANTS
During the term of this Agreement and until payment of all the Indebtedness
and performance of all obligations to Secured Party, Debtor will, unless Secured
Party otherwise consents in writing:
4.1 USE OF PROCEEDS. Use the proceeds of any credit extended by Secured
Party to Debtor only in accordance with the terms of the Loan Documents.
4.2 DELIVERY OF CERTAIN ITEMS. Deliver to Secured Party promptly (a)
after an Event of Default, all Proceeds; (b) such specific acknowledgments,
assignments or other agreements as Secured Party may reasonably request relating
to the Collateral; and (c) copies of such Records and other reports in such form
and detail and at such times as Secured Party may reasonably require relating to
the Collateral.
4.3 MAINTENANCE OF COLLATERAL; INSPECTION. Do all things reasonably
necessary to maintain, preserve, protect and keep all Collateral in good working
order and saleable condition, dealing with the Collateral in all ways as are
considered good practice by owners of like property, and use the Collateral
lawfully and only as permitted by Debtor's insurance policies. Debtor hereby
authorizes Secured Party's officers, employees, representatives and agents, upon
reasonable notice, at reasonable times and with reasonable frequency, to inspect
the Collateral and to discuss the Collateral and the Records relating thereto
with Debtor's officers.
4.4 MAINTENANCE OF RECORDS; INSPECTION. Maintain, or cause to be
maintained, complete and accurate records relating to the Collateral. Secured
Party, its officer's, employees, agents and representatives, upon reasonable
notice, shall have the right, from time to time, to examine the Records relating
to the Collateral and to make copies or extracts therefrom.
<PAGE>
4.5 DEBTOR'S DUTY TO GIVE NOTICE. Give prompt notice to Secured Party of:
(a) any decrease in the value of any Collateral and the amount of such decrease
(other than depreciation calculated in the ordinary course of business under
applicable tax laws and regulations and in accordance with generally accepted
accounting principles); (b) any threatened or asserted dispute or claim with
respect to the Collateral; (c) any litigation or administrative or regulatory
proceeding which is reasonably likely to have a material adverse effect on
Debtor or its business; (d) any change in ownership of any property on which any
Collateral is located; and (e) the occurrence of any Event of Default or of any
other development, financial or otherwise, which is reasonably likely to
materially adversely affect the Collateral or Debtor's ability to pay the
indebtedness or perform its obligations to Secured Party.
4.6 FINANCING STATEMENTS AND OTHER ACTIONS. Execute and deliver to
Secured Party, and file or record at Debtor's expense all financing statements,
notices and other documents from time to time requested by Secured Party to
maintain a first perfected security interest in the Collateral in favor of
Secured Party, all in form and substance satisfactory to Secured Party, perform
such other acts and execute and deliver to Secured Party such additional
conveyances, assignments, agreements and instruments, as Secured Party may at
any time reasonably request in connection with the administration and
enforcement of this Agreement or Secured Party's rights, powers and remedies
hereunder.
4.7 DECALS, MARKINGS. At the request of Secured Party, firmly affix a
decal, stencil or other marking to designated items of Collateral, indicating
thereon the security interest of Secured Party.
4.8 AGREEMENT WITH REAL PROPERTY OWNER/LANDLORD. Obtain and maintain such
acknowledgments, consents, waivers and agreements from the owner, lienholder,
mortgagee and landlord with respect to any real property on which Collateral is
located as Secured Party may require, all in form and substance satisfactory to
Secured Party.
ARTICLE 5 - NEGATIVE COVENANTS
During the term of this Agreement and until payment of all the Indebtedness
and performance of all obligations to secured Party, Debtor will not, without
Secured Party's prior written consent:
5.1 LIENS. Create, incur, assume or permit to exist any Lien on any
Collateral, except Liens permitted under the Loan Agreement.
<PAGE>
5.2 DOCUMENTS OF TITLE. Sign or authorize the signing of any financing
statement or other document naming Debtor as debtor or obligor, except those
which do not relate to the Collateral or which, with respect to the Collateral
are permitted under the Loan Agreement, or acquiesce or cooperate in the
issuance of any warehouse receipt or other document of title with respect to any
Collateral, except those negotiated to Secured Party or those naming Secured
Party as secured party.
5.3 DISPOSITION OF COLLATERAL. Sell, transfer, lease or otherwise dispose
of any Collateral.
5.4 CHANGE IN LOCATION, NAME, LEGAL STRUCTURE. If and to the extent the
same would in any manner impair the creation, perfection or priority of Secured
Party's security interest in the Collateral, (a) maintain Records, its chief
executive office or residence, or a place of business at a location other than
as specified in Article 3; or (b) change its name, mailing address, the nature
of its business, or its legal structure.
ARTICLE 6 - EVENTS OF DEFAULT
6.1 EVENTS OF DEFAULT. The occurrence of any of the following shall
constitute an Event of Default:
(A) Any "Event of Default" as defined in the Loan Agreement.
(B) Secured Party shall not have a first perfected security interest
in any Collateral for ten (10) or more days after notice to Debtor;
(C) secured Party reasonably determines, in good faith, that its
security interest in the Collateral is materially impaired for ten (10) or more
days after notice to Debtor;
(D) secured Party reasonably determines, in good faith, that any or
all of the Collateral, including any proceeds, is in danger of dissipation,
loss, theft, damage or destruction, or otherwise in jeopardy such as would
materially impair the value of the Collateral (with due consideration to
applicable insurance coverage);
(E) Debtor shall fail to perform any of its duties or obligations
under this Agreement not specifically referenced in this Article 6 and such
failure remains uncured for ten (10) or more days after notice to Debtor;
6.2 ACCELERATION AND REMEDIES. Upon the occurrence of any Event of
Default secured Party shall be entitled to, at Secured
<PAGE>
Party's option, without notice or demand of any kind, (a) declare all or any
part of the Indebtedness immediately due and payable; (b) exercise any or all of
the rights and remedies available to a secured party under the Uniform
Commercial Code or any other applicable law; and (c) exercise any or all of
Secured Party's rights and remedies provided for in this Agreement and in any
other Loan Document. The obligations of Debtor under this Agreement shall
continue to be effective or be reinstated, as the case nay be, if at any time
any payment of any Indebtedness is rescinded or must otherwise be returned by
Secured Party upon, on account of, or in connection with, the insolvency,
bankruptcy or reorganization of Debtor, or otherwise, all as though such payment
had not been made.
6.3 SALE OF COLLATERAL. After the occurrence of an Event of Default
Secured Party may sell all or any part of the Collateral, at public or private
sales, to itself, a wholesaler, retailer or investor, for cash, upon credit or
for future delivery, and at such price or prices as Secured Party may deem
commercially reasonable. To the extent permitted by law, Debtor hereby
specifically waives all rights of redemption and any rights of stay or appraisal
which it has or may have under any applicable law in effect from time to time.
Any such public or private sales shall be held at such times and at such
place(s) as Secured Party may determine. In case of the sale of all or any part
of the Collateral on credit or for future delivery, the Collateral so sold may
be retained by Secured Party until the selling price is paid by the purchaser,
but Secured Party shall not incur any liability in case of the failure of such
purchaser to pay for the Collateral and, in case of any such failure, such
Collateral may be resold. Secured Party may, instead of exercising its power of
sale, proceed to enforce its security interest in the Collateral by seeking a
judgment or decree of a court of competent jurisdiction.
6.4 DEBTOR'S OBLIGATION UPON DEFAULT. Upon the request of Secured Party
after the occurrence of an Event of Default Debtor will:
(A) Assemble and make available to Secured Party the Collateral at
such place(s) as Secured Party shall designate, segregating all Collateral so
that each item is capable of identification; and
(B) Permit Secured Party, by Secured Party's officers, employees,
agents and representatives, to enter any premises where any Collateral is
located, to take possession of the Collateral and to remove the Collateral or to
conduct any public or private sale of the Collateral, all without any liability
of Secured Party for rent or other compensation for the use of Debtor's
premises.
<PAGE>
ARTICLE 7 - SPECIAL COLLATERAL PROVISIONS
7.1 PERFORMANCE OF DEBTOR'S OBLIGATIONS. Without having any obligation to
do so, Secured Party may perform or pay any obligation which Debtor has agreed
to perform or pay under this Agreement, including, without limitation, the
payment or discharge of taxes or Liens levied or placed on or threatened against
the Collateral. In so performing or paying, Secured Party shall determine the
action to be taken and the amount necessary to discharge such obligations.
Debtor shall reimburse Secured Party on demand for any amounts paid by Secured
Party pursuant to this Section, which amounts shall constitute Indebtedness
secured by the Collateral and shall bear interest from the date of demand at the
rate applicable to overdue payments under the Loan Agreement.
7.2 POWER OF ATTORNEY. For the purpose of protecting, preserving and
enforcing the Collateral and Secured Party's rights under this Agreement, Debtor
hereby irrevocably appoints Secured Party, with full power of substitution, as
its attorney-in-fact with full power and authority to do any act which Debtor is
obligated to do, or Secured Party has the right to do, hereunder; to exercise
such rights with respect to the Collateral as Debtor might exercise; to use such
Collateral; to enter Debtor's premises; to give notice of Secured Party's
security interest in and to collect the Collateral and the Proceeds; and to
execute and file in Debtor's name any financing statements, amendments and
continuation statements necessary or desirable to perfect or continue the
perfection of Secured Party's security interests in the Collateral. Debtor
hereby ratifies all that Secured Party shall lawfully do or cause to be done by
virtue of this appointment.
7.3 AUTHORIZATION FOR SECURED PARTY TO TAKE CERTAIN ACTION. The power of
attorney created in Section 7.3 is a power coupled with an interest and shall be
irrevocable. The powers conferred on Secured Party hereunder are solely to
protect its interests in the Collateral and shall not impose any duty upon
Secured Party to exercise such powers. Secured Party shall be accountable only
for amounts that it actually receives as a result of the exercise of such powers
and in no event shall Secured Party or any of its directors, officers,
employees, agents or representatives be responsible to Debtor for any act or
failure to act, except for gross negligence or willful misconduct. Secured
Party may exercise this power of attorney without notice to or assent of Debtor,
in the name of Debtor, or in Secured Party's own name, from time to time in
Secured Party's sole discretion and at Debtor's expense. To further carry out
the terms of this Agreement, Secured Party may upon the occurrence of an Event
of Default:
<PAGE>
(A) Execute any statements or documents to take possession of, and
endorse and collect and receive delivery or payment of, any checks, drafts,
notes, acceptances or other instruments and documents constituting the payment
of amounts due and to become due or any performance to be rendered with respect
to the Collateral;
(B) Sign and endorse any invoices, freight or express bills, bills of
lading, storage or warehouse receipts; drafts, certificates and statements under
any commercial or standby letter of credit, assignments, leases, bills of sale,
or any other documents relating to the Collateral, including without limitation
the Records;
(C) Use or operate Collateral or any other property of Debtor for the
purpose of preserving or liquidating Collateral;
(D) File any claim or take any other action or proceeding in any court
of law or equity or as otherwise deemed appropriate by Secured Party for the
purpose of collecting any and all monies due or securing any performance to be
rendered with respect to the Collateral;
(E) Commence, prosecute or defend any suits, actions or proceedings or
as otherwise deemed appropriate by Secured Party for the purpose of protecting
or collecting the Collateral. In furtherance of this right, upon the occurrence
of an Event of Default Secured Party may apply for the appointment of a receiver
or similar official to operate Debtor's business, and, to the fullest extent
permitted by law, Debtor hereby waives any right to oppose such appointment;
(F) Prepare, adjust, execute, deliver and receive payment under
insurance claims, and collect and receive payment of and endorse any instrument
in payment of loss or returned premiums or any other insurance refund or return,
and apply such amounts, at Secured Party's sole discretion, toward repayment of
the Indebtedness or replacement of the Collateral.
7.4 APPLICATION OF PROCEEDS. Any Proceeds and other monies or property
received by Secured Party pursuant to the terms of this Agreement or any Loan
Document may be applied by Secured Party first to the payment of expenses of
collection, including without limitation to reasonable attorneys' fees, and then
to the payment of the Indebtedness in such order of application as Secured Party
may elect. Notwithstanding the rights given to Debtor pursuant to California
Civil Code sections 1479 and 2822 or equivalent provisions in the laws of the
state specified in the governing law clause of this document (and any amendments
or successors thereto), to designate how payments will be applied, Debtor hereby
waives such rights and Secured Party shall have the right in its sole discretion
to determine the order and method of
<PAGE>
the application of payments received from Debtor or from the sale or disposition
of the Collateral and to revise such application prospectively or retroactively
at its discretion.
7.5 DEFICIENCY. If the proceeds of any sale of the Collateral are
insufficient to cover all costs and expenses of such sale and the payment in
full of all Indebtedness, plus all other sums required to be expended or
distributed by Secured Party, then Debtor shall be liable for any such
deficiency.
7.6 SECURED PARTY TRANSFER. Upon the transfer of all or any part of the
Indebtedness, Secured Party may transfer all or any part of its interest in the
Collateral and shall be fully discharged thereafter from all liability and
responsibility with respect to such interest in the Collateral so transferred,
and the transferee shall be vested with all the rights and powers of Secured
Party hereunder with respect to such interest in the Collateral so transferred.
ARTICLE 8 - GENERAL PROVISIONS
8.1 NOTICES. Any notice given by any party under this Agreement shall be
given in the manner prescribed in the Loan Agreement.
8.2 BINDING EFFECT. This Agreement shall be binding upon Debtor, its
permitted successors, representatives and assigns, and shall inure to the
benefit of Secured Party and its successors, representatives and assigns;
provided however that Debtor may not assign or transfer Debtor's obligations
under this Agreement without Secured Party's prior written consent. Secured
Party reserves the right to sell, assign, or transfer its rights and powers
under this Agreement in whole or in part without notice to Debtor. In that
connection, Secured Party may disclose all documents and information which
Secured Party now or hereafter may have relating to this Agreement, Debtor or
Debtor's business.
8.3 NO WAIVER. Any waiver, consent or approval by Secured Party of any
Event of Default or breach of any provision, condition or covenant of this
Agreement or any Loan Document must be in writing and shall be effective only to
the extent set forth in writing. No waiver or any breach of default shall be
deemed a waiver of any later breach or default of the same or any other
provision of this Agreement or any of the Loan Documents. No failure or delay
on the part of Secured Party in exercising any power, right or privilege under
this Agreement or any Loan Document shall operate as a waiver thereof, and no
single or partial exercise of any such power, right or privilege shall preclude
any further exercise thereof, or the exercise of any further power, right or
privilege.
<PAGE>
8.4 RIGHTS CUMULATIVE. All rights and remedies existing under this
Agreement are cumulative to, and not exclusive of, any other rights or remedies
available under contract or applicable law.
8.5 UNENFORCEABLE PROVISIONS. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall be so only as to such
jurisdiction and only to the extent of such prohibition or unenforceability, but
all the remaining provisions of this Agreement shall remain valid and
enforceable.
8.6 GOVERNING LAW, WAIVER OF NOTICE. Except as nay be otherwise provided
by the Uniform Commercial Code or in any addendum hereto, this Agreement shall
be governed by and construed in accordance with the laws of the State of
California. To the fullest extent permitted by law, Debtor hereby waives
presentment, demand, protest, notice of dishonor and all other notices and
demands as well as any applicable statute of limitations.
8.7 ENTIRE AGREEMENT. This Agreement, together with the other Loan
Documents, is intended by Debtor and Secured Party as the final expression of
Debtor's obligations to Secured Party in connection with the Collateral and
supersedes all prior understandings or agreements concerning the subject matter
hereof. This Agreement may be amended only by a writing signed by Debtor and
accepted by Secured Party in writing.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date set
forth in the preamble.
EXODUS COMMUNICATION, INC. VENTURE LENDING & LEASING II, INC.
/s/
By:___________________________ By: _________________________
RONALD W. SWENSON
Chief Executive Officer
<PAGE>
SCHEDULE 1 TO SECURITY AGREEMENT
DESCRIPTION OF EQUIPMENT
QUANTITY ARTICLE MAKE Y. MFG. MODEL SERIAL OR
- -------- ------- ---- ------- ----- ---------
MOTOR NO.
- ---------
See attached continuation to Schedule 1
together with all improvements, replacements, accessions and additions thereto,
wherever located, and all Proceeds thereof arising from the sale, lease, rental
or other use or disposition of any such property, including all rights to
payment with respect to insurance or condemnation, returned premiums, or any
cause of action relating to any of the foregoing.
EXODUS COMMUNICATIONS, INC.
/s/
By: ____________________________
VENTURE LENDING & LEASING II, INC.
By: ____________________________
RONALD W. SWENSON
Chief Executive Officer
<PAGE>
EXHIBIT A TO FINANCING STATEMENT
BETWEEN
EXODUS COMMUNICATIONS, INC.,
AS DEBTOR,
AND
VENTURE LENDING & LEASING II, INC.,
AS SECURED PARTY
____________________________________
Item 6 continued:
-----------------
All of Debtor's right, title and interest in and to the Collateral, as such
term is defined below.
"COLLATERAL" means all Debtor's Equipment and Fixtures now owned or
hereafter acquired, wherever located, and whether held by Debtor or any third
party, and all proceeds and products thereof, including all insurance and
condemnation proceeds ("Proceeds"), and all Records relating or useful to, or
used in connection with any of the foregoing.
"EQUIPMENT" means all of Debtor's specific equipment identified and
described on Schedule 1 attached to this Agreement and incorporated herein by
reference (as such Schedule maybe amended or supplemented from time to time),
all replacements, parts, accessions and additions thereto, and all proceeds
thereof arising from the sale, lease, rental or other use or disposition
thereof, including all rights to payment with respect to insurance or
condemnation, returned premiums, or any cause of action relating to any of the
foregoing.
"FIXTURES" means all items of Equipment that are so related to the real
property upon which they are located that an interest in them arises under real
property law, and all proceeds thereof arising from the sale, lease, rental or
other use or disposition thereof.
"RECORDS" means all Debtor's computer programs, software, hardware, source
codes and data processing information, all written documents, books, invoices,
ledger sheets, financial information and statements, and all other writings
concerning Debtor's business.
<PAGE>
EXHIBIT 10.22
TECHNOLOGY GROUP
FINOVA FINANCIAL INNOVATORS
FINOVA TECHNOLOGY FINANCE, INC.
a subsidiary of
FINOVA CAPITAL CORPORATION
10 WATERSIDE DRIVE
FARMINGTON, CT 06032-3065
TEL 860 676 1818
860 678 4374
FAX 860 676 1814
December 17, 1997
Mr. Richard Stoltz
Chief Financial Officer
Exodus Communications, Inc.
2650 San Tomas Expressway
Santa Clara, CA 95051
Dear Richard:
FINOVA Technology Finance, Inc. (the "Lessor") is pleased to offer to lease the
Equipment described below to Exodus Communications, Inc. (the "Lessee").
The outline of this Commitment is as follows:
Lessee: Exodus Communications, Inc.
- -------
Lessor: FINOVA Technology Finance, Inc.
- -------
Equipment: The Equipment to be financed shall include not less
- ----------
than 60% Hard Assets (including, but not limited to:
computers, workstations, generators, shelving, routers,
office furniture and equipment) and not more than 40%
Soft Costs (including, but not limited to: software,
cabling, construction building, and leasehold
improvements). Prior to delivery, the Lessee shall
provide the Lessor with the detail of the Equipment to
include the manufacturer, model and cost of the
Equipment to include the manufacturer, model and cost
of the Equipment. All Equipment shall be subject to
review by the Lessor for its acceptability to the
Lessor for this lease and shall have been acquired
since June 30, 1997.
Equipment Cost: Not to exceed $4,000,000. At Lease Term Commencement,
- ---------------
the Lessor shall hold back 10% of the Equipment Cost to
be funded. At the time the Lessee completes its Initial
Public Offering of common stock, with net proceeds to
the Lessee of at least $30 million, the amount held
back from funding shall be funded to the Lessee.
Equipment Location: Santa Clara, CA and Jersey City, NJ.
- -------------------
Lease Term
- ----------
Commencement: Upon delivery of the Equipment or upon each completion
- -------------
of deliveries of items of Equipment with aggregate cost
of not less than $500,000, but no later than March 31,
1998.
1
<PAGE>
Term: From each Lease Term Commencement until forty-two (42)
- -----
months from the 30th day of the month following or
coincident with that Lease Term Commencement.
Rent: Monthly Rent equal to 2.8672% of Equipment Cost shall
- -----
be payable monthly in advance. The first month's rent
shall be payable upon signing the lease.
Adjustment to
- --------------
Rental Payments: The Monthly Rent Payments as of the date of each Lease
- ----------------
Term Commencement shall be increased or decreased
proportionally to the change in highest yields on four-
year U.S. Treasury Securities from the week ending
November 143, 1997 ("Index Yield") to the week
preceding the date of each Lease Term Commencement, as
published in The Wall Street Journal. The Index Yield
for this commitment shall be 5.77%. As of the date of
each Lease Term Commencement, the Monthly Rent Payments
shall be fixed for the term.
Interim Rent: Interim Rent shall accrue from each Lease Term
- -------------
Commencement until the 29th day of the month (27th day
of the month in the case of February unless the Lease
Term Commencement is on the 30th or 31st day of a month
(28th day of the month in the case of February).
Interim Rent shall be at the daily equivalent of the
currently adjusted Monthly Payment.
Net Lease: The lease shall be a net lease containing the usual
- ----------
provisions in the Lessor's lease agreements and such
other or different provisions that are agreed to be the
parties. The Lessee shall be responsible for
maintenance, insurance, taxes, and all other costs and
expenses.
Taxes: Sales or use taxes shall be added to the Equipment
- ------
Cost or collected on the gross rentals, as appropriate.
Insurance: Prior to any delivery of Equipment, the Lessee shall
- ----------
furnish confirmation of insurance acceptable to the
Lessor covering the Equipment including against all
risks of loss damage with the Lessor as the loss payee
and for comprehensive public liability and property
damage with the Lessor as an additional insured.
Conditions to Closing: Conditions precedent to every Lease Term Commencement
- ---------------------
shall include that no payment is then past due to the
Lessor or any assign of the Lessor from the Lessee,
that the Lessee is in compliance with the provisions of
this Commitment and the lease, that information
requested by the Lessor and all documentation then
required by the Lessor's counsel has been received by
the Lessor
2
<PAGE>
including resolutions of the Board of Directors of the
Lessee authorizing the transactions contemplated by
this Commitment and an opinion of counsel for the
Lessee satisfactory to counsel for the Lessor is not in
default under any material contract to which it is a
party or by which it or its property is bound, and that
there has not been any material adverse change or
threatened material adverse change in the financial or
other condition, business, operations, properties,
assets or prospects of the Lessee since October 31,
1997 or from the written information that has been
supplied to the Lessor prior to the date of this
Commitment by the Lessee.
The Lessor shall not be responsible for any failure of
suppliers or manufacturers of the Equipment or their
distributors to perform their obligations to the Lessor
or the Lessee. The Lessee shall provide monthly
financial statements and status reports during the
commitment period.
Purchase Agreement: The Lessee shall purchase all (but not less than all)
- -------------------
the Equipment at the expiration of the term of the
lease for ten percent (10.)%) of the Equipment Cost,
plus applicable sales and other taxes.
Additional Covenants: There shall be no actual or threatened conflict with,
- ---------------------
or violation of, any regulatory statute, standard or
rule relating to the Lessee, its present or future
operations, or the Equipment.
All information supplied by the Lessee shall be correct
and shall not omit any statement necessary to make the
information supplied not be misleading. There shall be
no material breach of the representations and
warranties of the Lessee in the lease. The
representations shall include that the Equipment Cost
of each item of the Equipment does not exceed the fair
and usual price for like quantity purchases of such
item and reflects all discounts, rebates and allowances
for the Equipment given to Lessee, any affiliate of
Lessee by the manufacturer, supplier or anyone else
including, without limitation, discounts for
advertising, prompt payment, testing or other services.
Lessee shall provide confirmation that the facilities
lease at each of the locations at which the equipment
is located, has remaining term of at lease 125% of the
term contemplated herein.
Fees and Expenses: The Lessee and the Lessor shall be responsible for
- ------------------
their own respective fees and expenses in connection
with the transaction.
Commitment Fee: Simultaneously with the acceptance of the Commitment
- ---------------
by the Lessee, a nonrefundable Commitment Fee of
$40,000 shall be then
3
<PAGE>
due to the Lessor. The Commitment Fee shall be applied
on a pro-rata basis to the second month's Rent Payment
due under the lease. The Application Fee of $10,000
previously paid by the Lessee to Meier Mitchell &
Company shall be applied to the Commitment Fee.
Commitment Expiration: This commitment shall expire on December 23, 1997
- ----------------------
unless prior thereto either extended in writing by the
Lessor or accepted as provided below by the Lessee.
Survival: This Commitment Letter shall survive closing. However,
- ---------
if there is any conflict between the terms and
conditions of the Master Lease Agreement (or Lease
Schedules) and those of this Commitment Letter, the
Master Lease Agreement (Lease Schedules) shall control.
Should you have any questions, please call me. If you wish to accept this
commitment, please do so indicate by signing and returning the enclosed
duplicate copy of this letter together with your check for $30,000 to me by
December 23, 1997.
Very truly yours,
Robert E. Schenkel
Vice President, Credit
Accepted this 23rd day of December, 1997
EXODUS COMMUNICATIONS, INC.
By: /s/ K. B. Chandrasekhar
---------------------------
Typed or Printed Name: K. B. Chandrasekhar
Title: President
4
<PAGE>
EXHIBIT 11.01
EXODUS COMMUNICATIONS, INC.
STATEMENT REGARDING COMPUTATION OF PRO FORMA NET LOSS PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
<S> <C> <C>
Net loss............................................ $(4,133) $(14,572)
======= ========
Weighted average common shares outstanding.......... 1,914 1,930
Weighted average redeemable convertible preferred
stock.............................................. 2,808 6,933
Common equivalent shares............................ -- --
Staff Accounting Bulletin No. 83: (1)
Options and warrants.............................. 1,524 1,524
Redeemable convertible preferred stock............ 6,138 4,384
------- --------
Shares used in computing pro forma net loss per
share............................................ 12,384 14,771
======= ========
Pro forma net loss per share...................... $ (0.33) $ (0.99)
======= ========
</TABLE>
- --------
(1) Pursuant to Securities and Exchange Commission Staff Accounting Bulletin
No. 83, common stock and convertible preferred stock issued for
consideration below the assumed initial public offering ("IPO") price, and
stock options and warrants granted with exercise prices below the IPO
price, during the 12-month period preceding the date of the initial filing
of the Registration Statement, have been included in the calculation of
common equivalent shares, using the treasury stock method for stock
options and warrants, as if they were outstanding for all periods
presented.
<PAGE>
EXHIBIT 23.02
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the use of our form of report included herein and to the
references to our firm under the headings "Experts," "Summary Financial
Information" and "Selected Financial Data" in the Prospectus.
KPMG PEAT MARWICK LLP
San Jose, California
January 16, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 3,883
<SECURITIES> 0
<RECEIVABLES> 1,892
<ALLOWANCES> (141)
<INVENTORY> 95
<CURRENT-ASSETS> 6,175
<PP&E> 19,546
<DEPRECIATION> (2,294)
<TOTAL-ASSETS> 24,875
<CURRENT-LIABILITIES> 9,242
<BONDS> 0
28,948
0
<COMMON> 2
<OTHER-SE> (19,322)
<TOTAL-LIABILITY-AND-EQUITY> 24,875
<SALES> 489
<TOTAL-REVENUES> 7,505
<CGS> 361
<TOTAL-COSTS> 9,542
<OTHER-EXPENSES> 12,293
<LOSS-PROVISION> 126
<INTEREST-EXPENSE> 242
<INCOME-PRETAX> (15,395)
<INCOME-TAX> 0
<INCOME-CONTINUING> (15,395)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (15,395)
<EPS-PRIMARY> (.99)
<EPS-DILUTED> (.99)
</TABLE>
