<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 0-23795
----------------
EXODUS COMMUNICATIONS, INC.
--------------------------------------------------------
(Exact name of registrant as specified in its chapter)
Delaware 77-0403076
--------------------------- ------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2650 San Tomas Expressway, Santa Clara, CA 95051
--------------------------------------------------------
(Address of principal executive offices)
(Zip Code)
(408) 346-2200
--------------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes _______ No X
-----
The number of shares outstanding of the issuer's common stock, par value $0.001,
as of May 7, 1998 was 19,285,822 shares.
================================================================================
1
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EXODUS COMMUNICATIONS, INC.
INDEX
-----
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE NO.
--------------------- --------
<S> <C>
Item 1. Financial Statements 3
Condensed Balance Sheet - March 31, 1998 and
December 31, 1997
Condensed Statements of Operations - Three Month Periods
ended March 31, 1998 and 1997
Condensed Statements of Cash Flows - Three Month Periods
ended March 31, 1998 and 1997
Notes to Condensed Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and 9
Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk 23
PART II. OTHER INFORMATION
-----------------
Item 2. Changes in Securities and Use of Proceeds 23
Item 4. Submission of Matters to a Vote of Security Holders 25
Item 5. Other Information 26
Item 6. Exhibits and Reports on Form 8-K 26
Signatures 27
</TABLE>
2
<PAGE>
I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
EXODUS COMMUNICATIONS, INC.
CONDENSED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
ASSETS 1998 1997
------------------- -----------------
<S> <C> <C>
Current assets:
Cash and cash equivalents....................................................... $ 74,153 $ 10,270
Accounts receivable............................................................. 3,054 1,837
Prepaid expenses and other current assets....................................... 1,562 1,377
-------- --------
Total current assets........................................................ 78,769 13,484
Property and equipment, net........................................................ 31,509 25,170
Restricted cash equivalents........................................................ 1,938 1,753
Other assets....................................................................... 808 566
-------- --------
$113,024 $ 40,973
======== ========
LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED
STOCK AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Bank borrowings.............................................................. $ - $ 3,000
Current portion of debt...................................................... 4,075 3,777
Current portion of capital lease obligations................................. 1,915 1,143
Accounts payable............................................................. 8,923 6,252
Accrued expenses............................................................. 4,589 2,808
Deferred revenue............................................................. 165 211
-------- --------
Total current liabilities................................................... 19,667 17,191
Debt, less current portion......................................................... 20,227 12,693
Capital lease obligations, less current portion.................................... 4,415 2,442
-------- --------
Total liabilities........................................................... 44,309 32,326
-------- --------
Redeemable convertible preferred stock and warrants, $0.001 par value:
no shares and 74,960,124 shares authorized as of March 31, 1998 and December 31,
1997, respectively; no shares and 34,117,371 shares issued and outstanding as
of March 31, 1998 and December 31, 1997, respectively; aggregate liquidation
preference of $39,640 as of December 31, 1997.................................. - 39,247
-------- --------
Stockholders' equity (deficit):
Preferred stock, $0.001 par value: 5,000,000 shares authorized and no shares
issued or outstanding as of March 31, 1998; no shares authorized, issued or
outstanding as of December 31, 1997............................................ - -
Common stock, $0.001 par value: 50,000,000 and 53,281,579 shares authorized
as of March 31, 1998 and December 31, 1997, respectively; 19,266,123 and
2,067,253 shares issued and outstanding as of March 31, 1998 and December 31,
1997, respectively............................................................. 19 2
Additional paid-in capital...................................................... 114,741 2,508
Notes receivable from stockholders.............................................. (132) (140)
Deferred stock compensation..................................................... (2,015) (2,393)
Accumulated deficit............................................................. (43,898) (30,577)
-------- --------
Total stockholders' equity (deficit)........................................ 68,715 (30,600)
-------- --------
$113,024 $ 40,973
======== ========
</TABLE>
See accompanying notes to condensed financial statements.
3
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EXODUS COMMUNICATIONS, INC.
CONDENSED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------
MARCH 31, MARCH 31,
1998 1997
---------- ---------
<S> <C> <C>
Revenues: ................................................................. $ 7,105 $ 1,669
---------- ---------
Cost and expenses:
Cost of revenues......................................................... 9,881 1,899
Marketing and sales...................................................... 6,417 1,630
General and administrative............................................... 2,657 916
Product development...................................................... 645 203
---------- ---------
Total cost and expenses ................................................... 19,600 4,648
---------- ---------
Operating loss ............................................................ (12,495) (2,979)
Net interest expense ...................................................... 826 56
---------- ---------
Net loss................................................................. (13,321) (3,035)
Cumulative dividends and accretion on
redeemable convertible preferred stock .................................. (2,014) -
---------- ---------
Net loss attributable to common stockholders .............................. ($15,335) ($3,035)
========== =========
Basic and diluted net loss per share ...................................... ($4.46) ($1.57)
========== =========
Shares used in computing basic and diluted net loss per share ............. 3,436 1,933
========== =========
Pro forma basic and diluted net loss per share ............................ ($0.96)
==========
Shares used in computing pro forma basic and diluted
net loss per share ...................................................... 13,914
==========
</TABLE>
See accompanying notes to condensed financial statements.
4
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EXODUS COMMUNICATIONS, INC.
CONDENSED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION> THREE MONTHS ENDED
----------------------------------------
MARCH 31, MARCH 31,
1998 1997
---------------- -------------------
<S> <C> <C>
Cash flows from operating activities:
Net loss....................................................................... $(13,321) $ (3,035)
Adjustments to reconcile net loss to net cash used for operating activities:
Depreciation and amortization.............................................. 1,975 350
Non-cash warrant expense................................................... 525 -
Amortization of deferred stock compensation................................ 378 -
Amortization of debt issuance costs........................................ 122 -
Changes in operating assets and liabilities:
Accounts receivable.................................................... (1,217) (245)
Prepaid expenses and other current assets.............................. (628) 24
Accounts payable....................................................... 2,671 1,757
Accrued expenses....................................................... 1,781 (435)
Deferred revenue....................................................... (46) 30
------------- ---------------
Net cash used for operating activities............................. (7,760) (1,554)
------------- ---------------
Cash flows from investing activities:
Purchases of property and equipment............................................ (7,225) (2,606)
Other assets................................................................... 79 (196)
-------------- ---------------
Net cash used for investing activities.............................. (7,146) (2,802)
-------------- ---------------
Cash flows from financing activities:
Proceeds from issuance of redeemable convertible preferred stock and warrants.. 2,176 -
Proceeds from issuance of common stock......................................... 70,302 -
Proceeds from issuance of bridge financing convertible notes................... - 2,975
Repayment of notes receivable from stockholders................................ 8 (50)
Repayment of bank borrowings................................................... (3,000) -
Proceeds from sale-leaseback transactions...................................... 1,922 550
Payment on capital lease obligations........................................... (266) (88)
Proceeds from debt............................................................. 8,823 214
Repayment of debt.............................................................. (991) (105)
Restricted cash................................................................ (185) -
-------------- ---------------
Net cash provided by financing activities...................... 78,789 3,496
-------------- ---------------
Net increase (decrease) in cash and cash equivalents............................. 63,883 (860)
Cash and cash equivalents at beginning of period................................. 10,270 3,715
-------------- ---------------
Cash and cash equivalents at end of period....................................... 74,153 2,855
============== ===============
Supplemental disclosure of cash flow information:
Cash paid-interest............................................................. $ 765 $ 71
============== ===============
Noncash investing and financing activities:
Assets recorded under capital lease........................................ $ 1,089 $ -
============== ===============
Cumulative dividends and accretion on
Series C and D redeemable convertible
preferred stock and warrants............................................ $ 2,014 $ -
============== ===============
Conversion of redeemable convertible
preferred stock to common stock......................................... $ 43,437 $ -
============== ===============
</TABLE>
See accompanying notes to condensed financial statements.
5
<PAGE>
EXODUS COMMUNICATIONS, INC.
---------------------------
NOTES TO CONDENSED FINANCIAL STATEMENTS
---------------------------------------
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information, the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not contain all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, the accompanying unaudited
condensed financial statements have been prepared on the same basis as the
audited financial statements and include all adjustments, consisting only of
normal recurring adjustments, necessary for the fair statement of the Company's
financial condition as of March 31, 1998 and the results of its operations and
its cash flows for the three month periods ended March 31, 1998 and 1997. These
financial statements should be read in conjunction with the Company's audited
financial statements as of December 31, 1997 and 1996 and for each of the three
years in the period ended December 31, 1997, including notes thereto, included
in the Company's final prospectus filed pursuant to Rule 424(b) under the
Securities Act of 1933, as amended, in connection with the Company's
Registration Statement on Form S-1 (File No. 333-44469). Operating results for
the three month period ended March 31, 1998 are not necessarily indicative of
the results that may be expected for the year ending December 31, 1998.
NOTE 2 - NET LOSS PER SHARE
Basic and diluted net loss per share has been computed by dividing the net
loss attributable to common stockholders by the weighted average number of
shares of common stock outstanding. Diluted net loss per share for the three
month periods ended March 31, 1998 and 1997 does not include the effect of (i)
3,192,000 and 742,000 shares issuable under stock options outstanding as of
March 31, 1998 and March 31, 1997, respectively, (ii) 404,000 shares issuable
pursuant to warrants to purchase common stock and 555,000 shares issuable
pursuant to warrants to purchase common stock and redeemable convertible
preferred stock, as of March 31, 1998 and March 31, 1997, respectively and,
(iii) 11,987,000 shares (up to the date of the initial public offering) and
5,179,000 shares of redeemable convertible preferred stock on an "as if
converted" basis for the three month periods ended March 31, 1998 and 1997,
respectively as the effect of their inclusion is antidilutive during each
period.
Pro forma basic and diluted net loss per share is presented to reflect per
share data assuming the conversion of all outstanding shares of redeemable
convertible preferred stock into common stock on a one-for-three basis as if the
conversion had taken place at the beginning of 1998 or at the date of issuance,
if later. Pro forma basic and diluted net loss per share, before a one-time,
non-cash charge of $525,000 related to a warrant issued to At Home in connection
with a distribution alliance, was $0.92 for the three-month period ended March
31, 1998. Pro forma basic and diluted net loss per share (including the charge)
was $0.96 for the same period.
NOTE 3 - INITIAL PUBLIC OFFERING
On March 24, 1998, the Company completed its initial public offering of
5,125,000 shares of its Common Stock (the "IPO"). Net proceeds to the Company,
after deducting underwriting discounts and commissions and offering expenses,
aggregated approximately $69,700,000. At the closing of the IPO, all redeemable
convertible preferred stock was converted to Common Stock on a one-for-three
basis. In connection with the IPO, certain warrant holders exercised their
warrants to purchase preferred stock (which converted into Common Stock), which
resulted in additional proceeds of $1,842,000.
6
<PAGE>
NOTE 4 - REVENUE RECOGNITION
Revenues consist of monthly fees for server hosting, Internet connectivity,
collaborative systems management and Internet technology services, equipment
sales to customers and one-time fees for installation. Revenues (other than
installation fees and equipment sales to customers) are generally billed and
recognized ratably over the term of the contract, generally one year.
Installation fees are typically recognized at the time the installation occurs,
and equipment sales are typically recognized when the equipment is delivered to
the customer.
NOTE 5 - PROPERTY AND EQUIPMENT
Property and equipment consisted of the following (in thousands):
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
----------- -----------
<S> <C> <C>
Data centers and related equipment............................. $22,193 $16,316
Furniture, fixtures, computer equipment and other.............. 13,868 12,815
Construction in progress....................................... 1,383 --
------- -------
37,444 29,131
Less accumulated depreciation and amortization................. 5,935 3,961
------- -------
$31,509 $25,170
======= =======
</TABLE>
Computer equipment and certain data center equipment are recorded under
capital leases that aggregated $7,431,000 and $4,419,000 as of March 31, 1998
and December 31, 1997, respectively. Accumulated amortization on the assets
recorded under capital leases aggregated $1,138,000 and $722,000 as of March 31,
1998 and December 31, 1997, respectively.
7
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NOTE 6 - BANK BORROWINGS AND DEBT
The Company has a $5,000,000 bank line of credit bearing interest at the
bank's prime rate, which is collateralized by all of the Company's assets. The
bank line of credit expires in December 1998. No amount was outstanding under
the bank line of credit as of March 31, 1998. In May 1998, the Company increased
its bank line of credit to $7,000,000.
A summary of debt follows (in thousands):
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
----------------- ----------------
<S> <C> <C>
$850,000 equipment term loan with a financial institution;
prime rate plus 2.5% (11.0% as of March 31,1998);
principal and interest due monthly for 42 months................ $ 156 $ 178
$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....................................................... 1,296 1,393
$3,000,000 equipment line of credit facility;
effective interest rate of approximately 12.9%; principal
and interest due monthly through July 2001; collateralized
by equipment.................................................... 2,593 2,756
$6,500,000 equipment line of credit facility; effective interest
rate of approximately 15.9%; principal and interest due
monthly through July 2001; collateralized by
equipment....................................................... 5,932 6,312
$3,000,000 equipment line of credit facility;
effective interest rate of approximately 16.2%; principal
and interest due monthly through May 2001; collateralized
by equipment.................................................... 2,647 2,787
$5,000,000 equipment line of credit facility; effective interest
rate of approximately 16.2%; principal and interest due
monthly through September 2001; collateralized by
equipment....................................................... 3,678 3,044
$8,000,000 line of credit facility; interest rate of approximately
12.95%; principal and/or interest due monthly through January
2000; collateralized by all of the Company's assets............. 8,000 -
----------- ------------
24,302 16,470
Less current portion 4,075 3,777
------------ ------------
Debt, less current portion $20,227 $12,693
============ ============
</TABLE>
8
<PAGE>
NOTE 7 - COMPREHENSIVE INCOME
Effective January 1, 1998, the Company adopted the provisions of Statement
of Financial Accounting Standards (SFAS) No. 130, Reporting of Comprehensive
Income. SFAS No. 130 establishes standards for the reporting and display of
comprehensive income and its components in a full set of financial statements.
Comprehensive income includes all changes in equity during a period except those
resulting from the issuance of shares of stock and distributions to
stockholders. There were no material differences between net loss and
comprehensive loss during the three months ended March 31, 1998 and 1997.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This Form 10-Q contains forward-looking statements within the meaning of
Section 21E of the Securities Exchange Act of 1934, as amended, and Section 27A
of the Securities Act of 1933, as amended. These forward-looking statements
involve a number of risks and uncertainties, including the ability of the
Company to execute its current business plan, retain customers, attract new
customers, and other factors described throughout this Form 10-Q, including
under "Revenues" and "Other Factors That May Affect Future Operating
Results" (referred to herein as "Other Factors") and in the Company's final
prospectus filed pursuant to Rule 424(b) under the Securities Act of 1933, as
amended, in connection with the Company's Registration Statement on Form S-1
(File No. 333-44469) (the "Final Prospectus"). The actual results that the
Company achieves may differ materially from any forward-looking statements due
to such risks and uncertainties. The forward-looking statements within this Form
10-Q are identified by words such as "believes," "anticipates," "expects,"
"intends," "will," "may" and other similar expressions. In addition, any
statements which refer to expectations, projections or other characterizations
of future events or circumstances are forward-looking statements. The Company
undertakes no obligation to publicly release the results of any revisions to
these forward-looking statements which may be made to reflect events or
circumstances occurring subsequent to the filing of this Form 10-Q with the
Securities and Exchange Commission. In addition, the section labeled "Other
Factors That May Affect Future Operating Results" consists primarily of forward-
looking statements. Readers are urged to carefully review and consider the
various disclosures made by the Company in this report and in the Company's
other reports filed with the Securities and Exchange Commission, including its
Final Prospectus, that attempt to advise interested parties of the risks and
factors that may affect the Company's business.
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 national 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
9
<PAGE>
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 domestic Internet Data Centers in the metropolitan areas of New York
(March 1997), San Francisco (August 1997), Seattle (September 1997), Los Angeles
(October 1997) and Washington, D.C. (December 1997) and has a site in London.
Additionally, the Company plans to open a third Internet Data Center in the San
Francisco metropolitan area in the second quarter of 1998 and an Internet Data
Center in the Boston metropolitan area in the second half of 1998. See "Other
Factors --Risks Associated with Planned Business Expansion" for risks related to
the foregoing forward-looking statements. These 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 "Other Factors
- --Substantial Leverage and Debt Service" and "--Liquidity and Capital Resources"
below.
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 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. See "Other Factors--Risks Associated with Planned Business
Expansion" for risks related to the foregoing forward-looking statements.
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 March 31, 1998, the Company had an
accumulated deficit of approximately $43.9 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. See "Other Factors --Limited
Operating History; History of Losses" for risks related to the foregoing
forward-looking statements.
RESULTS OF OPERATIONS
The following table sets forth certain consolidated statement of operations
data as a percentage of total revenues for the three months ended March 31, 1998
and March 31, 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,
10
<PAGE>
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 in the Company's Final Prospectus. The operating results
in any quarter are not necessarily indicative of the results to be expected for
any future period.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------------------------
MARCH 31, MARCH 31,
1998 1997
------------------- ---------------------
<S> <C> <C>
Revenues 100.0% 100.0%
Cost and expenses:
Cost of revenues 139.0 113.8
Marketing and sales 90.3 97.7
General and administrative 37.4 54.9
Product development 9.1 12.1
------------------ ---------------------
Total cost and expenses 275.8 278.5
------------------- ---------------------
Operating loss (175.8) (178.5)
Net interest expense 11.6 3.4
------------------ ---------------------
Net loss (187.4)% (181.9)%
=================== =====================
</TABLE>
REVENUES
Revenues consist of monthly fees for server hosting, Internet connectivity,
collaborative systems management and Internet technology services, equipment
sales to customers and one-time fees for installation. The primary source of
the Company's revenues is derived from services fees. Revenues (other than
installation fees and equipment sales to customers) are generally billed and
recognized ratably over the term of the contract, generally one year.
Installation fees are typically recognized at the time the installation occurs,
and equipment sales are typically recognized when the equipment is delivered to
the customer. The Company sells third-party equipment to its customers as an
accommodation to facilitate their purchase of services.
The Company's revenues increased 326% to $7.1 million for the quarter ended
March 31, 1998 from $1.7 million in the same period of the prior year. This
growth in revenues resulted primarily from increases in the number of customers,
increases in revenues from existing customers, and the opening of new Internet
Data Centers.
COST OF REVENUES
The Company's cost of 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), depreciation, rent, repairs and utilities related
to the Company's Internet Data Centers and costs of third-party equipment sold
to customers.
The Company's cost of revenues increased 420% to $9.9 million for the
quarter ended March 31, 1998 from $1.9 million in the same period of the prior
year. Cost of revenues as a percentage of revenues increased to 139% for the
quarter ended March 31, 1998 from 114% in the same period of the prior year.
11
<PAGE>
These increases in cost of revenues in absolute dollars and as a percentage of
revenues were primarily the result of the Company's expansion and increased
capacity of its nationwide backbone network and costs associated with the
opening of additional Internet Data Centers in 1997, including the hiring of
additional employees.
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 expenses.
The Company's marketing and sales expenses increased 294% to $6.4 million
(including a one-time non-cash charge of $525,000 related to a warrant issued to
At Home Corporation in connection with a distribution alliance) for the quarter
ended March 31, 1998 from $1.6 million in the same period of the prior year.
Marketing and sales expenses increased as a result of additonal marketing and
sales personnel, increased travel and entertainment expenses, increased
consulting and public relations expenses, increased collateral expenses and
other marketing event expenses. Marketing and sales expenses as a percentage of
revenues decreased to 90% for the quarter ended March 31, 1998 from 98% in the
same period of the prior year. The Company expects that marketing and sales
expenses will continue to increase in absolute dollars during 1998 but will
continue 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.
However, the foregoing forward-looking statement is subject to risks and
uncertainties such as risks associated with the Company's achievement of
anticipated levels of revenues and expenses, and competition. See "Other
Factors--Competition," "--Dependence on New Market" and "--Uncertainty of
Acceptance of Services."
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. The Company's general and administrative expenses increased 190% to
$2.7 million for the quarter ended March 31, 1998 from $916,000 in the same
period of the prior year. General and administrative expenses increased
primarily as a result of additional personnel and increased professional and
consulting services. General and administrative expenses as a percentage of
revenues decreased to 37% for the quarter ended March 31, 1998 from 55% in the
same period of the prior year. The Company expects that general and
administrative expenses will continue to increase in absolute dollars but will
continue to decline as a percentage of total revenues as existing overhead is
spread over more substantial operations. However, the foregoing forward-looking
statement is subject to risks and uncertainties, such as risks associated with
the Company's achievement of anticipated levels of revenues and expenses. See
"Other Factors--Potential Fluctuations in Operating Results."
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 their efforts primarily on the
integration of best-of-breed products and services developed by leading
technology vendors with the Company's services. The Company's product
development expenses increased 218% to $645,000 million for the quarter ended
March 31, 1998 from $203,000 in the same period of the prior year. Product
development expenses increased as a result of additional personnel and the
increase in fees paid to consultants. Product development expenses as a
percentage of revenues decreased to 9% for the quarter ended March 31, 1998 from
12% in the same period of the prior year. 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 as existing costs
are spread over a more substantial revenue base.
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NET INTEREST EXPENSE
The Company's net interest expense increased significantly to $826,000 for
the quarter ended March 31, 1998 from $56,000 in the same period of the prior
year. The increase in net interest expense between the comparison periods was
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.
DEFERRED COMPENSATION EXPENSE
The Company's deferred compensation expense increased to $378,000 for the
quarter ended March 31, 1998 from $0 in the same period of the prior year. The
Company has recorded deferred stock compensation in connection with the grant of
certain stock options from March 1997 through December 1997, which is being
amortized over the 50 month vesting period of such options. This amortization
is being recorded in a manner consistent with FASB Interpretation No. 28.
EBITDA
The Company's earnings (loss) before interest, taxes, depreciation,
amortization and other non-cash charges ("EBITDA") increased to a loss of $9.6
million for the quarter ended March 31, 1998 from a loss of $2.6 million for the
quarter ended March 31, 1997. The increase between the comparison periods was
primarily due to increased expenditures needed to support the Company's growth
in operations, including network costs, salaries and benefits for additional
employees, rent, repairs, utilities and other costs related to the increase in
the number of Company's Internet Data Centers as well as increased marketing and
sales expenses, consulting fees and professional services. Although EBITDA
should not be used as an alternative to operating loss or net cash provided by
(used for) operating activities, investing activities or financing activities,
each as measured under generally accepted accounting principles, the Company's
management believes that EBITDA is an additional meaningful measure of
performance and liquidity.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company has financed its operations primarily through
private sales of preferred stock, its initial public offering in March 1998 and
through various types of equipment loans and lease lines and working capital
lines of credit. At March 31, 1998, the principal source of liquidity for the
Company was $74.2 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 $6.1 million
for purchases of equipment and for working capital. In addition, in May 1998,
the Company's working capital line was increased by an additional $2 million.
As of March 31, 1998, the Company's total bank borrowings, debt and capital
lease obligations were $30.6 million.
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 for the three months ended March 31, 1998 was
$7.8 million, primarily due to net losses, offset in part by increases in
accounts payable and accrued expenses and depreciation and amortization.
Net cash used for investing activities in the three months ended March 31,
1998 was $7.1 million. Net cash used for investing activities was due to capital
expenditures for the continued construction of Internet Data Centers, leasehold
improvements, furniture and fixtures, and computers and other equipment. Cash
provided by financing activities for the three months ended March 31, 1998 was
$78.8 million, primarily due to the proceeds from the Company's initial public
offering.
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As of March 31, 1998, the Company had commitments under capital leases and
under noncancellable operating leases of $6.3 million and $32.8 million,
respectively, through 2010. The Company intends to make significant capital
expenditures, primarily for property equipment, in particular equipment needed
for existing and future Internet Data Centers, as well as office equipment,
computers and telephones. The Company expects to finance such capital
expenditures primarily through existing and future equipment loans and lease
lines and possibly other borrowings. The Company will need to obtain additional
financing during 1998 to fund all of its expected capital expenditures for the
year. 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, 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. Currently, the Company is negotiating to enter
into additional credit facilities and believes that it will obtain such
facilities on terms that are comparable to its existing facilities. The Company
may also seek 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.
If additional funds are raised through the issuance of equity securities, the
percentage ownership of the Company's 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 "Other Factors--
Risks Associated with Planned Business Expansion."
OTHER FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS
As referenced in the first paragraph of this Item 2, this section consists
primarily of forward-looking statements and accompanying risks.
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 in each quarterly and
annual period. 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.
POTENTIAL FLUCTUATIONS IN OPERATING RESULTS. 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
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and network availability; the ability to increase bandwidth as necessary; the
timing of customer installations; provisions for customer discounts and credits;
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 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.
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 currently has six Internet Data Centers located in five
metropolitan areas: San Francisco(2), New York, Los Angeles, Seattle and
Washington, D.C. and a site in London. The Company intends to expand
domestically and internationally, including the expected addition of an
additional Internet Data Center in the San Francisco metropolitan area in the
second quarter of 1998 and an Internet Data Center in the Boston metropolitan
area in the second 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. 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 which
could have a material adverse effect on the Company's business, results of
operations and financial condition. See "--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
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to approach break-even capacity utilization at each site. As a result, the
Company expects individual Internet Data Centers will generally experience
losses for in excess of 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.
SUBSTANTIAL LEVERAGE AND DEBT SERVICE. The Company is substantially
leveraged. On March 31, 1998, the Company's total bank borrowings, debt and
capital lease obligations were approximately $30.6 million and its borrowing
availability under existing equipment loans and working capital lines of credit
was approximately $6.1 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 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.
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.
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
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local telecommunications companies and Regional Bell Operating Companies
("RBOCs"); and (iv) large IT outsourcing firms. 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.
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.
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 Internet operations and the Company's
ability to market its services in a cost-effective manner to a sufficiently
large number of customers. 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 systems 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, or if 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.
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. 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.
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
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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. 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.
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 (including
the Company's dedicated clear channel network and transit access to ISPs) 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 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 were to emerge, or such alternative
providers were to increase 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 its
public and private peering interconnections. The Company and the operators of
these public and private peering interconnections have mutually agreed not to
charge each other a fee for the exchange of traffic between their respective
networks, which is a standard industry practice. If these organizations were to
refuse to continue to peer directly with the Company, the Company might be
required to purchase transit access services from these organizations in order
to allow the Company's customers to reach the customers of these organizations.
In those cases where the Company currently purchases transit access from other
organizations, if these organizations were to increase the pricing associated
with their transit access, the Company might 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.
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 Company's success will depend in large part
on
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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. 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.
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.
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. In addition, there can be no assurance that products,
services or technologies developed by others will not render the Company's
services uncompetitive or obsolete.
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.
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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, as well as its site in London.
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, if the Company desires to offer a service
that has a substantially similar functionality to that provided by Computer
Associates' Unicenter(R) TNG(TM) family of software, or its ARCserve or InocuLAN
products (the "CA Products"), the Company must generally utilize the CA
Products, as long as they meet the Company's requirements. In addition, the
Company is a beta test site for new versions of the CA Products and must, upon
commercial deployment, replace existing software with new CA Products if they
are substantially similar in functionality. During the term of the agreement,
the Company is obligated to pay Computer Associates a royalty equal to one
percent of the Company's gross revenues. Either party may terminate this
agreement upon 60 days' prior written notice with no penalties. 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 forty
percent discount from Computer Associates' prevailing standard prices for five
years and the Company will no longer be obligated to pay a royalty to 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,
expansion of its customer base and increase in the number of Company employees.
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,
including its President, 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.
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,
20
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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. 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 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. 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.
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. Also, 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.
RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS. A component of the
Company's long-term strategy is to expand into international markets, and the
Company recently opened a site in the London metropolitan area. 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 initial operation of its international Internet Data Centers and
sites. 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 and sites. 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
21
<PAGE>
enforced laws and regulations related to content distributed over the Internet
that are more strict than those currently in place in the United States.
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 Chief Executive Officer and
Chairman of the Board of Directors, K.B. Chandrasekhar. 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.
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 in
an unspecified amount 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.
From time to time the Company has been, and expects to continue to be,
subject to other legal proceedings and claims in the ordinary course of its
business, including, among others, contractual disputes with vendors and
customers, claims by employees, and claims of alleged infringement of the
trademarks and other intellectual property rights of third parties by the
Company. Such claims, even if not meritorious, could result in the expenditure
of significant financial and managerial resources.
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, but there can be no assurance that the
measures taken by the Company will be sufficient to prevent misappropriation of
its technology. The Company has no patented technology that would preclude or
inhibit competitors from entering the Company's market. 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. 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 or
services 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 services 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.
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
22
<PAGE>
evaluating and managing the risks and costs associated with this problem and
believes that its computer systems are currently Year 2000 compliant. 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 the
Company's customers to ensure that their servers are Year 2000 compliant 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.
VOLATILITY OF STOCK PRICE. The market price of the shares of Common Stock
is highly volatile and is 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 market fluctuations, as well
as general economic, political and market conditions such as recessions,
interest rates or international currency fluctuations, may adversely affect the
market price of the Common Stock.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable.
II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
During the quarter ended March 31, 1998, the Company's predecessor, Exodus
Communications, Inc., a California corporation ("Exodus California"), made the
following offers and sales of its securities, and the Company made offers and
sales of its securities, all in reliance on the exemptions from registration
pursuant to the exemption indicated (all information reflects the merger of
Exodus California into Exodus Delaware, the reverse one-for-three stock split
in connection therewith and the one-for-three conversion rate of Preferred Stock
into Common Stock):
<TABLE>
<CAPTION>
Purchaser Security Date of Sale Consideration Exemption
- --------- -------- ------------ ------------- ---------
<S> <C> <C> <C> <C>
John R. Dougery and 7,932 shares of Preferred 1/7/98 $27,424 Section 4(2)
affiliates Stock (which converted into Common
Stock upon the closing of the
Company's IPO)
Meier Mitchell & Co. Warrant to purchase 6,667 shares of 1/27/98 In connection with Section 4(2)
Series D Preferred Stock (which FINOVA Equipment Lease
converted into Common Stock upon
the closing of the Company's IPO);
exercise price $7.65 per share
Max Hopper/1/ 33,333 shares of Series D Preferred 2/3/98 $285,000 Section 4(2)/
Stock (which converted into Common Rule 701
Stock upon the closing of the
Company's IPO)
Dan Lynch/1/ 5,848 shares of Series D Preferred 2/5/98 $ 50,000 Section 4(2)/
Stock (which converted into Common Rule 701
Stock upon the closing of the
Company's IPO)
</TABLE>
23
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Ellen Hancock/1/ 50,000 shares of Common Stock 3/10/98 $450,000 Section 4(2)/
Rule 701
At Home Corporation Warrant to purchase 60,000 shares 3/18/98 In connection with Section 4(2)
of Common Stock; exercise price is Distribution Alliance
$15.00 per share
Holders of warrants 567,831 shares of Preferred Stock (which 3/24/98 Cash ($1,855,664) and Section 4(2)
issued in connection converted into Common Stock upon the shares valued at
with venture capital closing of the Company's IPO) and $449,352
financings and similar 16,666 shares of Common Stock
transactions
Holders of warrants 1,806 shares of Common Stock 3/24/98 Shares valued at $5,346 Section 4(2)
issued in connection
with equipment leasing
transactions
Employee-optionees 15,706 shares of Common Stock 1/5/98- $4,369 Section 4(2)/
3/19/98 Rule 701
</TABLE>
_______________
1 Messrs. Hopper and Lynch are directors of the Company and Ms. Hancock is a
director and an officer of the Company.
24
<PAGE>
The Registration Statement on Form S-1 (File No. 333-44469) of which the
Final Prospectus was a part was declared effective by the SEC on March 18, 1998.
A total of 5,175,000 shares of the Company's Common Stock was registered with
the SEC with an aggregate registered offering price of $77,625,000, which
consisted of 5,125,000 shares registered on behalf of the Company (with an
aggregate registered offering price of $76,875,000) and 50,000 shares registered
on behalf of certain stockholders of the Company (with an aggregate registered
offering price of $750,000). The offering commenced on March 18, 1998 and all
5,075,000 and 50,000 shares of Common Stock being offered by the Company and
certain stockholders of the Company, respectively, were sold for the aggregate
registered offering price through a syndicate of underwriters managed by
Goldman, Sachs & Co., BT Alex. Brown, and NationsBanc Montgomery Securities.
The Company and the selling stockholders paid to the underwriters
underwriting discounts and commissions totaling $5,381,250 and $52,500,
respectively, in connection with the offering. In addition the Company
reasonably estimates that it incurred additional expenses of approximately
$1,750,000 in connection with the offering, which when added to underwriting
discounts and commissions paid by the Company amounts to total estimated
expenses of $7,131,250. Thus the net offering proceeds to the Company and the
selling stockholders (after deducting underwriting discounts and commissions and
offering expenses) were approximately $69,743,750 and $697,500, respectively.
Except with respect to an aggregate underwriting discount of $118,650 paid to
First Analysis Securities Corporation, an affiliate of First Analysis
Corporation, a greater than ten percent (10%) stockholder of the Company, and a
$10,000 independent underwriting fee paid by the Company to Goldman, Sachs & Co.
in connection with the participation of First Analysis Securities Corporation in
the offering, no other offering expenses were made directly or indirectly to any
directors or officers of the Company (or their associates), or persons owning
ten percent (10%) or more of any class of equity securities of the Company or to
any other affiliates of the Company.
All net proceeds received by the Company from the Company's initial public
offering were invested in short term, interest-bearing treasury securities
through March 31, 1998.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
In February 1998, Exodus Communications, Inc. ("Exodus California"), the
California predecessor of the Company, solicited the written consents of its
shareholders to approve the following matters; (i) changing the state of
incorporation of Exodus California from California to Delaware by means of a
merger of Exodus California in to the Company, including the approval of a
related one-for-three reverse split of Exodus California's outstanding Common
Stock, the Agreement and Plan of Merger, the Certificate of Incorporation,
Certificate of Designation and Bylaws of the Company; (ii) the amendment and
restatement of the Company's Certificate of Incorporation, to be effected
following the Company's initial public offering of Common Stock and the
automatic conversion of the Company's outstanding shares of Preferred Stock into
Common Stock, in order to eliminate all references to the various designated
series of Preferred Stock following such conversion and to reduce the number of
shares of Preferred Stock authorized for issuance to 5,000,000; (iii) the
adoption of the Company's 1998 Directors Stock Option Plan and the reservation
of 200,000 shares of Common Stock (post-split) for issuance thereunder; (iv) the
adoption of the Company's 1998 Employee Stock Purchase Plan and the reservation
of 600,000 shares of Common Stock (post-split) for issuance thereunder; (v) the
adoption of the Company's 1998 Equity Incentive Plan and the reservation of
1,500,000 shares of Common Stock (post-split) for issuance thereunder; and (vi)
the form of Indemnity Agreement for use between the Company and each of its
officers and directors.
25
<PAGE>
Exodus California received the following written consents for the above-
referenced actions:
<TABLE>
<CAPTION>
For* Against* Abstentions*
---- -------- ------------
<S> <C> <C> <C>
Item (i) 39,844,288 (98.76%) 0 0
Item (ii) 39,821,788 (98.71%) 0 22,500
Item (iii) 39,652,922 (98.29%) 93,866 97,500
Item (iv) 39,841,488 (98.76%) 0 2,800
Item (v) 39,748,222 (98.53%) 27,200 68,866
Item (vi) 39,841,488 (98.76%) 0 2,800
</TABLE>
* Common and Preferred (on an as-if-converted basis), before the reverse stock
split.
In January 1998, the Company solicited the written consent of its then sole
stockholder, Exodus California, to approve the one-for-three reverse split of
the Company's outstanding Common Stock and the matters set forth above. The
Company received Exodus California's written consents approving each of such
matters as to all of the 1,000 shares of the Company's then outstanding stock.
ITEM 5. OTHER INFORMATION
On April 21, 1998, Ellen Hancock was appointed to the Board of Directors of
the Company by the unanimous vote of the Board of Directors of the Company.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibits
Exhibit No. Description of Exhibit
----------- ----------------------
3.07 Registrant's Restated Certificate of Incorporation, as filed
with the Delaware Secretary of State on March 24, 1998.
10.27* Facility Lease between 600 Winter Street, L.L.C. and Registrant,
dated as of December 23, 1997.
10.28 Amendment to Loan and Security Agreement between Silicon Valley
Bank and Registrant dated June 14, 1996.
27.01 Financial Data Schedule
B. Reports on Form 8-K
None
* Certain exhibits to this agreement have been omitted from this filing and will
be furnished supplementally to the Securities and Exchange Commission upon
request.
26
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EXODUS COMMUNICATIONS, INC.
May 14, 1998 /s/ K.B. Chandrasekhar
- ----------------------------------- ----------------------------------------
Date K.B. Chandrasekhar
Chief Executive Officer and
Chairman of the Board of Directors
May 14, 1998 /s/ Richard S. Stoltz
- ------------------------------------ ----------------------------------------
Date Richard S. Stoltz
Chief Financial Officer and
Chief Operating Officer
(Duly Authorized Officer and Chief
Accounting Officer)
27
<PAGE>
EXHIBIT INDEX
Exhibit No. Description of Exhibit
----------- ----------------------
3.07 Registrant's Restated Certificate of Incorporation, as filed
with the Delaware Secretary of State on March 24, 1998.
10.27* Facility Lease between 600 Winter Street, L.L.C. and Registrant,
dated as of December 23, 1997.
10.28 Amendment to Loan and Security Agreement between Silicon Valley
Bank and Registrant dated June 14, 1996.
27.01 Financial Data Schedule
* Certain exhibits to this agreement have been omitted from this filing and will
be furnished supplementally to the Securities and Exchange Commission upon
request.
<PAGE>
EXHIBIT 3.07
RESTATED CERTIFICATE OF INCORPORATION
OF
EXODUS COMMUNICATIONS, INC.
(Originally incorporated on January 6, 1998)
Exodus Communications, Inc., a Delaware corporation, hereby certifies that
the Restated Certificate of Incorporation of the corporation attached hereto as
Exhibit A, which is incorporated herein by this reference, and which restates,
- ---------
integrates and further amends the provisions of the Certificate of Incorporation
of this corporation, has been duly adopted by the corporation's Board of
Directors and stockholders in accordance with Sections 228, 242 and 245 of the
Delaware General Corporation Law.
IN WITNESS WHEREOF, said corporation has caused this Restated Certificate
of Incorporation to be signed by its duly authorized officers this 23rd day of
March, 1998.
EXODUS COMMUNICATIONS, INC.
a Delaware corporation
By: /s/ K.B. Chandrasekhar
--------------------------------------------
K.B. Chandrasekhar, Chief Executive Officer
and Chairman of the Board
ATTEST:
/s/ Adam W. Wegner
- --------------------------------
Adam W. Wegner, Secretary
<PAGE>
EXHIBIT A
---------
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.
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
<PAGE>
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.
Election of directors need not be by written ballot unless the Bylaws of
the corporation shall so provide.
<PAGE>
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.
<PAGE>
EXHIBIT 10.27
LEASE AGREEMENT
Between
600 WINTER STREET, L.L.C.,
a Delaware limited liability company
as Landlord
And
EXODUS COMMUNICATIONS, INC.
as Tenant
Dated as of December 25, 1997
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
<S> <C>
1. PREMISES; ACQUISITION CONTINGENCY................................................................. 1
1.1. Demise of Premises; Acquisition Contingency............................................... 1
1.2. Delay in Delivery of Premises............................................................. 2
2. CONDITION OF PREMISES; ENVIRONMENTAL MATTERS;..................................................... 2
2.1. Environmental Matters; Definitions........................................................ 2
2.2. Tenant's Environmental Covenants.......................................................... 4
2.2A. Tenant's Environmental Warranties......................................................... 7
2.3. Survival.................................................................................. 7
2.4. Tenant's Acceptance....................................................................... 7
2.5. Title and Condition....................................................................... 8
2A. CONSTRUCTION OF INITIAL IMPROVEMENTS............................................................. 9
3. USE OF PREMISES................................................................................... 11
3.1. Permitted Use............................................................................. 11
3.2. Certificate of Occupancy.................................................................. 12
3.3. Compliance with Legal Requirements and Insurance.......................................... 12
3.4. Failure to Comply......................................................................... 12
4. TERM.............................................................................................. 13
4.1. Primary Term.............................................................................. 13
4.2. Extended Term............................................................................. 13
5. RENT............................................................................................... 14
5.1. Basic Rent................................................................................ 14
5.2. Additional Rent........................................................................... 14
5.3. Inclusion in "Rent"....................................................................... 14
5.4. Late Payment of Rent...................................................................... 14
5.5. Lease Interest Rate....................................................................... 14
5.6. Security Deposit.......................................................................... 15
5.7. Transfer of Security Deposit.............................................................. 15
5.8. Rent Adjustments.......................................................................... 16
</TABLE>
(i)
<PAGE>
<TABLE>
<S> <C>
6. NET LEASE; NON-TERMINABILITY...................................................................... 23
6.1. Net Lease................................................................................. 23
6.2. Non-Terminability......................................................................... 23
7. CONTEST AND UTILITIES............................................................................. 24
7.1. Contest................................................................................... 24
8. INDEMNIFICATION AND WAIVER........................................................................ 26
8.1. Indemnification........................................................................... 26
8.2. Waiver.................................................................................... 26
9. LIENS; LANDLORD'S RIGHTS 27
9.1. Liens..................................................................................... 27
9.2. Landlord's Rights......................................................................... 28
10. MAINTENANCE AND REPAIR; ENCROACHMENTS; MAINTENANCE OF COMMON AREAS............................... 28
10.1. Maintenance and Repair.................................................................... 28
10.2. Encroachments or Violations of Improvements............................................... 29
10.3 Maintenance of Common Areas............................................................... 29
11. ALTERATIONS...................................................................................... 30
11.1. Permitted Alterations..................................................................... 30
11.2. Insurance in Connection with Alterations.................................................. 31
11.3. Compliance with Laws...................................................................... 31
11.4. Signs..................................................................................... 31
11.5. Alterations at Surrender.................................................................. 31
12. INSURANCE........................................................................................ 32
12.1. Liability Insurance....................................................................... 32
12.2. Property Insurance........................................................................ 32
12.3. Update of Value........................................................................... 32
12.4. Intentionally Deleted..................................................................... 33
12.5. Landlord's Rights......................................................................... 33
12.6. Waiver of Subrogation..................................................................... 33
12.7. Delivery to Landlord...................................................................... 33
13. DAMAGE OR DESTRUCTION............................................................................ 33
</TABLE>
(ii)
<PAGE>
<TABLE>
<S> <C>
13.1. Damage or Destruction..................................................................... 33
13.2. Abatement of Rent......................................................................... 35
14. CONDEMNATION..................................................................................... 35
14.1. Substantial Condemnation.................................................................. 35
14.2. Non-Substantial Condemnation.............................................................. 35
15. INTENTIONALLY DELETED............................................................................ 36
16. ASSIGNMENT AND SUBLETTING........................................................................ 36
16.1. Assignment and Subletting................................................................. 36
16.2. Rentals Based on Net Income............................................................... 36
16.3. Tenant to Remain Obligated................................................................ 36
16.4. Tenant's Notice; Landlord's Right to Terminate............................................ 37
16.5. Landlord's Consent........................................................................ 37
16.6. Profits................................................................................... 38
16.7. Assignee to Assume Obligations............................................................ 39
16.8. Change of Control......................................................................... 39
16.9. Permitted Subleases....................................................................... 39
17. LETTER OF CREDIT................................................................................. 40
17.1. Letter of Credit.......................................................................... 40
17.2. Release of Letter of Credit............................................................... 41
18. FINANCIAL STATEMENTS; INSPECTION................................................................. 41
18.1. Financial Statements...................................................................... 41
18.2. Inspection................................................................................ 41
19. FIXTURES......................................................................................... 42
19.1. Fixtures.................................................................................. 42
19.2. Equipment................................................................................. 42
19.3. Removal................................................................................... 42
20. EVENTS OF DEFAULT; REMEDIES...................................................................... 42
20.1. Event of Default......................................................................... 42
20.2. Landlord's Remedies...................................................................... 45
</TABLE>
(iii)
<PAGE>
<TABLE>
<S> <C>
20.3. Waiver................................................................................... 46
20.4. Injunction............................................................................... 47
20.5. Remedies Cumulative...................................................................... 47
20.6. Landlord's Right to Cure Events of Default............................................... 47
21. EXPENSES OF ENFORCEMENT.......................................................................... 48
21.1. Expenses of Enforcement.................................................................. 48
22. SUBORDINATION TO MORTGAGES....................................................................... 48
22.1. Subordination............................................................................. 48
22.2. Non-Disturbance and Attornment............................................................ 48
23. ESTOPPEL CERTIFICATE; CONSENT TO ASSIGNMENT...................................................... 49
23.1. Form Estoppel Certificate................................................................. 49
23.2. Consent to Assignment..................................................................... 49
23.3. Failure to Deliver........................................................................ 49
24. MERGER........................................................................................... 50
24.1. No Merger................................................................................. 50
25. SURRENDER........................................................................................ 50
25.1. Surrender................................................................................. 50
25.2. Equipment................................................................................. 51
25.3. Holding Over.............................................................................. 51
26. SEPARABILITY; SAVINGS CLAUSE..................................................................... 52
26.1. Separability.............................................................................. 52
26.2. Savings Clause............................................................................ 52
27. BROKERAGE........................................................................................ 52
27.1. Brokerage................................................................................. 52
28. RECORDING OF MEMORANDUM OF LEASE................................................................. 52
28.1. Recording................................................................................. 52
</TABLE>
(iv)
<PAGE>
<TABLE>
<S> <C>
29. NOTICES.......................................................................................... 52
29.1. Notices, Demands and Other Instruments.................................................... 52
30. SUCCESSORS AND ASSIGNS; MEANING OF LANDLORD;..................................................... 53
30.1. Successors and Assigns.................................................................... 53
30.2. Meaning of Landlord....................................................................... 54
30.3. Limitation on Landlord's Liability........................................................ 54
31. MISCELLANEOUS.................................................................................... 55
31.1. Captions.................................................................................. 55
31.2. Applicable Law............................................................................ 55
31.3. Amendment in Writing...................................................................... 55
31.4. Relationship of the Parties............................................................... 55
31.5. Payments.................................................................................. 55
31.6. Terms..................................................................................... 55
31.7. Lease Contains All Terms.................................................................. 56
31.8. Tenant's Representation and Warranty...................................................... 56
31.9 Landlord's Representation and Warranty.................................................... 56
32. COVENANT OF QUIET ENJOYMENT...................................................................... 56
32.1. Quiet Enjoyment........................................................................... 56
32.2. Control of Premises....................................................................... 56
33. EXHIBITS......................................................................................... 57
33.1. Exhibits.................................................................................. 57
EXHIBIT A Legal Description of Land Parcel........................................................... A-1
EXHIBIT B Basic Rent Exhibit......................................................................... B-1
EXHIBIT C Floor Plan................................................................................. C-1
EXHIBIT D Estoppel Certificate....................................................................... D-1
EXHIBIT E Letter of Credit........................................................................... E-1
EXHIBIT F List of Retained Property.................................................................. F-1
</TABLE>
(v)
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<TABLE>
<S> <C>
EXHIBIT G Initial Improvements....................................................................... H-1
EXHIBIT H Permitted Alterations...................................................................... H-1
</TABLE>
(vi)
<PAGE>
THIS LEASE AGREEMENT (this "Lease") is dated as of December ___, 1997
between 600 WINTER STREET, L.L.C., a Delaware limited liability company
("Landlord"), and EXODUS COMMUNICATIONS, INC. ("Tenant").
RECITALS:
A. Landlord intends to purchase that certain parcel of improved real estate
commonly known as 600 Winter Street, Waltham, Massachusetts and more
particularly described on Exhibit A attached hereto (the "Land Parcel").
---------
B. Concurrently with Landlord's purchase and acquisition of ownership of the
Land Parcel, Landlord desires to lease to Tenant, and Tenant desires to lease
from Landlord the Premises (as hereinafter defined) on the terms, conditions and
provisions set forth herein.
1. PREMISES; ACQUISITION CONTINGENCY
1.1. Demise of Premises; Acquisition Contingency. In consideration of
-------------------------------------------
the rents and covenants herein stipulated to be paid and performed, Landlord
hereby demises and lets to Tenant, and Tenant hereby lets from Landlord, for the
term herein described, the premises (herein called the "Premises") within the
building (sometimes hereinafter referred to as the "Building" or the
"Improvements") situated on the Land Parcel as such Premises are outlined on the
Floor Plan in Exhibit C attached hereto. The Building, the Land Parcel and the
---------
buildings, structures and improvements from time to time located on the Land
Parcel are hereinafter together referred to as the "Real Property." Until June
1, 1998, the Premises shall be deemed to contain, for purposes of this Lease,
11,400 rentable square feet, as shown Exhibit C. Subject to Section 1.2,
---------
commencing on June 1, 1998 (the "Expansion Date"), as such Expansion Date may be
delayed as described in Section 1.2, and for the balance of the Term, the
Premises shall consist of the entire Building which shall be deemed, for
purposes of this Lease, to contain 30,400 rentable square feet. Landlord also
demises and lets to Tenant, and Tenant lets from Landlord, for such term, all
easements, rights and appurtenances relating to the Land Parcel and the
Building, all upon the terms and conditions herein specified. Notwithstanding
anything contained in this Lease to the contrary, Landlord and Tenant agree,
acknowledge and confirm that this Lease and Landlord's obligations under this
Lease are and shall be conditioned and contingent upon the consummation of
Landlord's purchase and acquisition of the Land Parcel, and if Landlord gives
Tenant written notice (the "Termination Notice") that Landlord
<PAGE>
has not consummated such purchase and acquisition, this Lease and the parties
respective rights and obligations hereunder shall be null and void and of no
further force and effect.
1.2. Delay in Delivery of Premises. In the event that Landlord is unable
-----------------------------
to deliver that portion of the Premises to be delivered on June 1, 1998 as a
result of a hold over by the prior occupant thereof, or for any other reason
beyond Landlord's reasonable control, Landlord shall not be liable for any
damages to Tenant as a result of such delay in delivery, and Tenant shall not
have the right to terminate this Lease. The sole result by reason of such delay
in delivery, is that the Expansion Date shall be the date on which Landlord
tenders to Tenant such portion of the Premises, and, until the Expansion Date,
Basic Rent shall continue to be payable at the rate and amounts as set forth in
Section 5.1 which are applicable prior to June 1, 1998.
1.3 Access By Other Tenant. Tenant agrees that, until the Expansion Date,
----------------------
but in no event any later than June 30, 1998, Tenant shall permit Mail America,
Inc. ("Mail"), another tenant of the Building, to have reasonable access through
the Premises during regular business hours so Mail may move its dollies of
materials to and from Mail's premises and the loading dock of the Building. At
Tenant's election, any personnel of Mail having such access may be accompanied
at all times by Tenant. The route through the Premises between Mail's premises
and the loading dock shall be as reasonably selected by Tenant, provided that,
if Tenant fails to reasonably select such route through the Premises, Tenant
gives Landlord the license to select such route, and nothing contained in this
Section 1.3 shall be deemed to be an interference with Tenant's quiet enjoyment
or use of the Premises. Landlord shall cause Mail to carry and maintain a
comprehensive general public liability insurance insuring Tenant against claims
for personal injury and property damage arising out Mail's access through the
Premises, and Landlord shall give Tenant a copy of a certificate of insurance
evidencing such coverage.
2. CONDITION OF PREMISES; ENVIRONMENTAL MATTERS; POSSESSION;
TITLE AND CONDITION
2.1. Environmental Matters; Definitions. For purposes of this Lease, the
----------------------------------
following terms shall have the following definitions:
(a) "Allowable Hazardous Materials" means such Hazardous Materials as are
customarily used for permitted normal business
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purposes in the operation of Tenant's business in the Premises, but only in such
quantities as are appropriate therefor and only to the extent that such uses are
in compliance with all Environmental Laws.
(b) "Environmental Laws" means applicable federal, state or local laws,
regulations, or ordinances pertaining to (i) air and water quality, or (ii) the
handling, generation, transportation, storage, treatment, usage or disposal of
Hazardous Materials, or (iii) health, industrial hygiene or the environmental or
ecological, conditions on, under or about the Premises.
(c) "Environmental Notifications" means any summons, citation, directive,
order, claim, complaint, litigation, investigation, proceeding, judgment, letter
or other written communication, actual or threatened, from any person,
concerning (i) any intentional or unintentional act or omission or any condition
or event which has resulted, or which may result, in the Release of Hazardous
Material at or from the Premises or any property adjacent to or within the
vicinity of the Premises, or any asserted liability therefor, (ii) the
imposition of any environmental lien on the Premises, or (iii) any violation of
any Environmental Law or any revocation or suspension of any environmental
permits.
(d) "Hazardous Material" means all of the following:
(1) "hazardous substances" or "toxic substances" as those terms are
defined by the Comprehensive Environmental Response, Compensation, and
Liability Act (CERCLA), 42 U.S.C. # 9601, et seq., or the Hazardous
Materials Transportation Act, 49 U.S.C. # 1801, et seq., both as amended to
and after this date;
(2) "hazardous wastes," as that term is defined by the Resource
Conservation and Recovery Act ("RCRA"), 42 U.S,C. # 6901, et seq., as
amended to and after this date;
(3) any pollutant or contaminant or hazardous, dangerous, or toxic
chemicals, materials, or substances within the meaning of any other
applicable federal, state, or local law, regulation, ordinance, or
requirement (including consent decrees and administrative orders) relating
to or imposing liability or standards of conduct concerning any hazardous,
toxic, or dangerous waste
3
<PAGE>
substance or material, all as amended to and after this date;
(4) crude oil or any fraction of it that is liquid at standard
conditions of temperature and pressure (60 degrees Fahrenheit and 14.7
pounds per square inch absolute);
(5) any radioactive material, including any source, special nuclear,
or by-product material as defined at 42 U.S.C. # 2011, et seq.;
(6) asbestos in any form or condition; and
(7) polychlorinated biphenyls (PCBs) or substances or compounds
containing PCBs.
(f) "Release" means the release, spill, emission, leaking, pumping, escape,
injection, deposit, disposal, discharge, dispersal, leaking or migration into
the indoor or outdoor environment or into or out of the Premises of Hazardous
Material through or in the air, soil, surface water, groundwater above, on or
under the Premises.
2.2. Tenant's Environmental Covenants. Tenant hereby agrees that:
--------------------------------
(a) During the Term of this Lease, Tenant will operate the Premises in
compliance with all Environmental Laws, unless the Premises were in violation of
any Environmental Laws prior to the Commencement Date. All governmental permits
relating to the use or operation of the Premises required by Environmental Laws
shall be obtained by Tenant and will remain in effect during the Term of the
Lease, and Tenant will comply with them.
(b) Tenant will not permit to occur during the Term of the Lease any
Release, generation, manufacture, storage, treatment, transportation, or
disposal of Hazardous Materials other than the Allowable Hazardous Materials on,
in, under, or from the Premises.
(c) If any Hazardous Material other than the Allowable Hazardous Materials
or any Hazardous Material located on the Premises prior to the Commencement Date
(except for asbestos which is to be removed by Tenant as part of the Initial
Improvements (as hereinafter defined)) is found on the Premises, Tenant, at its
own cost and expense, will
4
<PAGE>
immediately take such action as is necessary to detain the spread of and remove
such Hazardous Material to the reasonable satisfaction of Landlord and the
appropriate governmental authorities. If Tenant fails to comply with the
requirements of this subsection (c), Landlord may cause the removal of such
Hazardous Material from the Premises. The costs to Landlord of such Hazardous
Material removal (other than the removal of any Hazardous Material located on
the Premises prior to the Commencement Date) and any other cleanup (including
transportation and storage costs) will be additional sums falling due under this
Lease, whether or not a court has ordered the cleanup, and those costs will
become due and payable as Additional Rent on demand by Landlord. Tenant will
give Landlord, its agents, and employees access to the Premises to remove or
otherwise clean up any Hazardous Material. Landlord, shall have no affirmative
obligation to Tenant to remove or otherwise clean up any Hazardous Material (i)
except for any Hazardous Material located on the Premises prior to the
Commencement Date, other than asbestos to be removed by Tenant as part of the
Initial Improvements, or (ii) as a result of any action of Landlord or its
agents.
(d) Tenant will immediately notify Landlord and provide copies upon receipt
of any Environmental Notifications. Tenant, at Tenant's sole cost and expense,
will promptly cure and have dismissed with prejudice any actions and proceedings
referred to in such Environmental Notifications to the extent that those actions
or proceedings involve Tenant's storage, generation, Release, transportation,
manufacture or disposal of Hazardous Material.
(e) Landlord will, upon not less than 48 hours' prior notice to Tenant,
have the right at all reasonable times and from time to time to conduct
environmental audits of the Premises, and Tenant will cooperate in the conduct
of those audits. The audits will be conducted by a consultant of Landlord's
choosing, and if any Hazardous Material other than Allowable Hazardous Material
is detected or if a violation of any of the covenants contained in this Article
2 is discovered, the reasonable fees and expenses of such consultant and such
audit will be borne by Tenant and will be paid as Additional Rent under this
Lease on demand by Landlord. Notwithstanding anything to the contrary contained
in this subsection, Landlord shall have the right at any time after giving
Tenant reasonable prior notice to conduct an environmental audit of the Premises
and Tenant shall cooperate in the conduct of any audit should Landlord
reasonably believe (i) that any Hazardous Material has been deposited, stored,
disposed of, placed or otherwise located or
5
<PAGE>
allowed to be located on, in, under, or affecting all or any portion of the
Premises, or (ii) that Tenant has violated any Environmental Law.
(f) Tenant hereby agrees to, and does hereby, indemnify, defend, and hold
harmless Landlord (and, if Landlord is a Trust, its beneficiaries and trustees),
and its partners, members, managers, officers, employees, agents and contractors
from and against any claims, judgments, damages, penalties, fines, expenses,
liabilities or losses arising from or in connection with:
(1) any Hazardous Material which has been deposited, stored, disposed
of, placed or otherwise located or allowed to be located on, in, under, or
affecting all or any portion of the Premises subsequent to the Commencement
Date and prior to the later to occur of either the termination of this
Lease or Tenant's vacation of the Premises, unless any Hazardous Material
located on the Premises is the result of any action of Landlord or its
agents;
(2) any misrepresentation, inaccuracy, or breach of any warranty,
covenant, or agreement contained or referred to in this Article 2;
(3) any violation by Tenant of any Environmental Law; or
(4) the imposition of any lien for the recovery of any costs for
environmental cleanup or other response costs relating to the Release or
threatened release of Hazardous Materials prior to the later to occur of
either the termination of this Lease or Tenant's vacation of the Premises;
provided, however, that this clause (4) shall not apply to any Release or
threatened Release of any Hazardous Material located on the Premises prior
to the Commencement Date, other than asbestos which is to be removed by
Tenant as part of the Initial Improvements, or which are located on the
Premises as a result of any action of Landlord or its agents.
(g) Notwithstanding anything to the contrary contained in subsections 2.2(a)
through (f)above: (i) if any Hazardous Substance is present in, on or under the
Premises, and both (A) such Hazardous Substance became present on the Premises
only after both the
6
<PAGE>
termination of this Lease and the date on which the Tenant has fully vacated the
Premises, and (B) the presence of such Hazardous Substance on the Premises
(other than asbestos which is to be removed by Tenant as part of the Initial
Improvements) was not caused by, or did not arise out of, any act or omission of
Tenant, then none of Tenant's covenants in Subsections 2.2(a) through (f) shall
apply to such Hazardous Substance; and (ii) if within the first twelve (12)
months of the Term, Tenant delivers to Landlord a copy of a report prepared by a
licensed environmental engineer disclosing that asbestos, other than the
asbestos which is to be removed by Tenant as part of the Initial Improvements,
is present on the Premises, in quantities and condition which present a hazard
to the health and safety to Tenant's employees and invitees, and Landlord fails
to initiate reasonable measures within a reasonable time (but in no event any
sooner than thirty (30) days after Landlord has received a copy of such report)
to remove such asbestos or to otherwise abate such hazard, and once such
measures are initiated, Landlord fails to complete such removal or abatement
within a reasonable time, then, Tenant shall have the right to terminate this
Lease by giving Landlord twenty one (21) days' prior written notice of Tenant's
intent to so terminate. If Landlord fails within such twenty one (21)-day period
to either initiate such reasonable measures, or to proceed reasonably to
complete such removal or abatement, as the case may be, then this Lease shall
terminate and the parties hereto shall be relieved of any further obligations
under this Lease, except for such obligations which this Lease expressly
provides are to survive the termination or expiration of this Lease.
2.2A. Tenant's Environmental Warranties. Tenant represents and warrants,
---------------------------------
after due diligence, that:
(a) Tenant is not in violation of, nor is a subject of any existing,
pending or threatened investigation by any governmental authority under any
Environmental Laws in connection with any Hazardous Materials on, under or about
the Premises.
(b) There is no Hazardous Material in or on any building, building
component, equipment or machinery on the Premises, except Allowable Hazardous
Materials, and the asbestos which Tenant shall remove in accordance with
paragraph (d) of this Section 2.2A, and any Hazardous Material referred to on
any environmental report furnished to Tenant prior to the Commencement Date.
7
<PAGE>
(c) There has been no handling, transportation, storage, treatment or use
of Hazardous Materials on the Premises by Tenant or its agents or contractors to
the date hereof, except for Allowable Hazardous Materials.
(d) Tenant agrees that, notwithstanding anything contained in this Lease or
in Exhibit G to the contrary, Tenant shall remove from the Premises, and the
---------
Initial Improvements shall include Tenant's removal of, all asbestos-containing
floor and ceiling tiles.
2.3. Survival. The provisions of Sections 2.1, 2.2 and 2.2A shall
--------
survive the expiration or termination of this Lease.
2.4. Tenant's Acceptance.
-------------------
(a) Tenant conclusively accepts the Premises in its present "as is",
"where is" condition, without any representation or warranty of any kind by
Landlord concerning the physical or environmental condition thereof, or the
compliance or non-compliance of the Premises with any applicable laws, codes or
ordinances, including, without limitation, any Environmental Laws and the
Americans With Disabilities Act of 1990 (42 U.S.C. (S) 12101 et seq.) and
------
regulations and guidelines promulgated thereunder, as all of the same may be
amended and supplemented from time to time (collectively referred to herein as
the "ADA").
(b) NEITHER LANDLORD, NOR ANY AGENT OR REPRESENTATIVE OF LANDLORD,
HAS MADE, NOR WILL THEY MAKE, ANY INSPECTION OF ANY OF THE PREMISES. LANDLORD
LEASES AND WILL LEASE AND, AS DESCRIBED ABOVE, TENANT TAKES AND WILL TAKE, THE
PREMISES AS IS, WHERE IS, AND WITH ALL FAULTS, AND TENANT ACKNOWLEDGES THAT
NEITHER LANDLORD (WHETHER ACTING AS LANDLORD HEREUNDER OR IN ANY OTHER CAPACITY)
NOR ANY AGENT OR REPRESENTATIVE OF LANDLORD HAS MADE AND WILL NOT MAKE, NOR
SHALL LANDLORD NOR ANY AGENT OR REPRESENTATIVE OF LANDLORD BE DEEMED TO HAVE
MADE, ANY WARRANTY OR REPRESENTATION, EXPRESS OR IMPLIED, WITH RESPECT TO ANY OF
THE PREMISES, INCLUDING ANY WARRANTY OR REPRESENTATION AS TO ITS FITNESS FOR USE
OR PURPOSE, DESIGN OR CONDITION FOR ANY PARTICULAR USE OR PURPOSE, AS TO
LANDLORD'S TITLE THERETO, OR AS TO VALUE, COMPLIANCE WITH SPECIFICATIONS,
LOCATION, USE, CONDITION, MERCHANTABILITY, QUALITY, DESCRIPTION OR OPERATION, IT
BEING AGREED THAT ALL RISKS INCIDENT THERETO ARE TO BE BORNE BY TENANT. TENANT
ACKNOWLEDGES THAT THE PREMISES ARE OF ITS SELECTION AND TO ITS SPECIFICATIONS,
AND THAT THE PREMISES HAVE BEEN INSPECTED BY TENANT AND
8
<PAGE>
ARE SATISFACTORY TO IT. IN THE EVENT OF ANY DEFECT OR DEFICIENCY IN ANY OF THE
PREMISES OF ANY NATURE, NEITHER LANDLORD NOR ANY AGENT OR REPRESENTATIVE OF
LANDLORD SHALL HAVE ANY RESPONSIBILITY OR LIABILITY WITH RESPECT THERETO OR FOR
ANY INCIDENTAL OR CONSEQUENTIAL DAMAGES (INCLUDING STRICT LIABILITY IN TORT).
THE PROVISIONS OF THIS SECTION HAVE BEEN NEGOTIATED, AND THE FOREGOING
PROVISIONS ARE INTENDED TO BE A COMPLETE EXCLUSION AND NEGATION OF ANY
WARRANTIES BY LANDLORD OR ANY AGENT OR REPRESENTATIVE OF LANDLORD, EXPRESS OR
IMPLIED, WITH RESPECT TO ANY OF THE PREMISES, ARISING PURSUANT TO ANY LAW NOW OR
HEREAFTER IN EFFECT OR OTHERWISE.
2.5. Title and Condition. The Premises are demised and let subject to
-------------------
(a) any state of facts which an accurate survey or physical inspection thereof
might show, (b) all zoning regulations, restrictions, rules and ordinances,
building restrictions and other laws and regulations now in effect or hereafter
adopted by any governmental authority having jurisdiction, and (c) the condition
of the Improvements located thereon, as of the Commencement Date, without
representation or warranty by Landlord. Prior to the execution and delivery of
this Lease, Landlord shall provide Tenant with a copy of a title report covering
the title to the Premises. Tenant shall examine such title report, and Tenant
taking possession of the Premises shall evidence that title to the Premises
shall be deemed to be satisfactory for the purposes contemplated hereby and
Tenant acknowledges that Tenant has only the right of possession and use of the
Premises as provided in this Lease.
2A. CONSTRUCTION OF INITIAL IMPROVEMENTS
(a) Tenant, at Tenant's sole and exclusive cost, except as expressly
provided in (c) below, shall promptly construct and complete the Initial
Improvements described on Exhibit G attached hereto and made a part hereof.
---------
Tenant shall also obtain all permits and governmental approvals for the work
necessary to construct and complete the Initial Improvements then applicable to
the Premises, or any portion thereof.
(b) Tenant agrees and covenants that, when completed, the Initial
Improvements and the Premises shall be free from liens of materialmen,
contractors, subcontractors, laborers, and all other mechanic's liens, subject
to Tenant's right to contest any claim of lien in good faith, as provided in
Article 9. Tenant shall erect, construct, install and complete the Initial
Improvements in accordance
9
<PAGE>
with Legal Requirements (as hereinafter defined), all Insurance Requirements (as
hereinafter defined) then applicable to the Premises, or any portion thereof.
(c) So long as Tenant is not in default under this Lease and Tenant
furnishes Landlord with all construction contracts, lien waivers, certificates
of insurance and all other documents and things and performs all acts, necessary
for Landlord to remain in compliance with the requirements of any Lender (as
hereinafter defined) which is providing Project Financing (as hereinafter
defined), Landlord shall provide to Tenant the amount of not more than
$250,000.00 (the "Landlord Contribution") towards the costs of those specific
Initial Improvements listed on Exhibit G. Subject to the satisfaction of the
---------
conditions for Landlord providing the Landlord Contribution set forth in the
immediately preceding sentence, Landlord shall pay to Tenant the Landlord
Contribution within thirty (30) days after the Commencement Date. In no event
shall Landlord be obligated to advance any amount in excess of the Landlord's
Contribution. If the cost of those particular Initial Improvements listed on
Exhibit G is less than the Landlord Contribution, all savings shall be for the
- ---------
exclusive benefit of Landlord, and Tenant shall not be entitled to any portion
of such savings, either directly or through a credit against Rent. Tenant
acknowledges that the funds for the Landlord Contribution are derived from the
proceeds of a construction loan from the Lender providing Project Financing.
Tenant shall comply with all reasonable obligations and requirements of the
Lender that is providing the Project Financing and with any Loan Document (as
hereinafter defined) with respect to the Project Financing, and shall not either
commit any act or omit to perform any act which could result in Landlord
defaulting or place Landlord in default under any such Loan Document.
(d) At all times during construction, Landlord and its representatives
shall have the right to enter upon the Premises for the purpose of inspecting
construction and progress of the Initial Improvements. Tenant agrees that
Landlord's entry onto and occupation of the Premises prior to the Commencement
Date shall be subject to all of the terms, covenants and conditions of this
Lease as the same shall be applicable thereto, except the covenants to pay Basic
Rent.
(e) In addition to the insurance required pursuant to Article 12, Tenant
shall procure and maintain, during construction of the Initial Improvements, All
Risk Property Insurance (as hereinafter
10
<PAGE>
defined) in the amount of the full replacement value of the Initial
Improvements.
(f) For purposes of this Lease, the following terms shall have the
following definitions:
(i) "Insurance Requirement" or "Insurance Requirements" shall
mean, as the case may be, any one or more of the terms of
each insurance policy required to be carried by Tenant under
this Lease and the requirements of the issuer of such
policy, and whenever Tenant shall be engaged in making any
alteration, addition or improvement to the Premises, repairs
or construction work of any kind, including without
limitation, the Initial Improvements, the term "Insurance
Requirement" or "Insurance Requirements" shall be deemed to
include a requirement that Tenant obtain or cause its
contractor to obtain completed value builder's risk
insurance when the estimated cost of the Work in any one
instance exceed the sum of Five Thousand ($5,000.00) Dollars
and that Tenant or its contractor shall obtain worker's
compensation insurance or other adequate insurance coverage
covering all persons employed in connection with the Work,
whether by Tenant, its contractors or subcontractors and
with respect to whom death or bodily injury claims could be
asserted against Landlord.
(ii) "Legal Requirement" or "Legal Requirements" shall mean, as
the case may be, any one or more of all present or future
laws, codes, ordinances, orders, judgments, decrees,
injunctions, rules, regulations and requirements, even if
unforeseen or extraordinary, of every duly constituted
governmental authority or agency (but excluding those which
by their terms are not applicable to and do not impose any
obligation on Tenant, Landlord or the Premises) and all
covenants, restrictions and conditions now or hereafter of
record which may be applicable to Tenant, to Landlord or to
any of the Premises, or to the
11
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use, manner of use, occupancy, possession, operation,
maintenance, alteration, repair or reconstruction of any of
the Premises, even if compliance therewith (i) necessitates
structural changes or improvements (including changes
required to comply with the ADA) or results in interference
with the use or enjoyment of any of the Premises or (ii)
requires Tenant to carry insurance other than as required by
the provisions of this Lease.
(iii) "Lender" shall mean any financial institution or other
entity, its successors and/or assigns, which provides the
Project Financing to Landlord.
(iv) "Loan Document" shall mean, as the case may be, any one or
more of any instruments, agreements or other documents
evidencing or securing or given in connection with the
Project Financing.
(v) "Project Financing" shall mean the amount borrowed by
Landlord to acquire to Land Parcel and/or to pay for the
construction of the Initial Improvements and any and all
other amounts borrowed by or advanced from Landlord in
connection therewith.
3. USE OF PREMISES
3.1. Permitted Use. Tenant may occupy and use the Premises solely for
-------------
commercial and light industrial purposes, including the installation, operation,
maintenance and repair of telecommunications equipment and facilities, and for
no other purpose. Tenant shall not create or suffer to exist any public or
private nuisance, hazardous or illegal condition or waste on or with respect to
the Premises.
3.2. Certificate of Occupancy. Tenant shall not conduct its business
------------------------
operation in the Premises unless and until (and only during such time as) all
necessary certificates of occupancy, permits, licenses and consents from any and
all appropriate governmental authorities have been obtained by Tenant and are in
full force and effect.
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3.3. Compliance with Legal Requirements and Insurance Requirements.
-------------------------------------------------------------
Tenant shall, at its expense, in connection with the operation or conduct of
Tenant's business in the Premises, and the operation or conduct of the business
of any of Tenant's sublessees from time to time, and in the performance of
Tenant's maintenance and repair obligations pursuant to Section 10.1 hereof,
comply with, and Tenant shall cause the Premises to comply with, all present and
future Legal Requirements, and all orders, rules and regulations of the National
Board of Fire Underwriters, or any other body or bodies exercising similar
functions, the failure to comply with which at any time would affect the
Premises or any part thereof, or the use thereof, including those Legal
Requirements which require the making of any unforeseen or extraordinary
changes, whether or not any of the same involve a change of policy on the part
of the body enacting the same; Tenant shall, at its expense, comply with all
changes required in order to obtain the insurance described hereunder, and with
the provisions of all contracts, agreements, instruments and restrictions
existing as of the Commencement Date of this Lease or thereafter suffered or
permitted by Tenant affecting the Premises or any part thereof or the ownership,
occupancy or use thereof.
3.4. Failure to Comply. Tenant shall pay all reasonable costs,
-----------------
expenses, claims, fines, penalties and damages that may in any manner arise out
of or be imposed because of the failure of Tenant to comply with the provisions
of this Lease, and in any event agrees to indemnify Landlord against all
liability incurred by Landlord resulting from Tenant's non-compliance. Tenant
shall promptly give notice to Landlord of any notice of violation received by
Tenant. Without diminishing the obligation of Tenant, if Tenant shall at any
time after five (5) days written notice (from Landlord which notice shall
identify the Legal Requirement concerning or affecting the Premises, or the use
or occupancy thereof) fail or neglect to comply, or fail to commence to comply
as expeditiously as is reasonably feasible, with any of such laws, rules,
requirements, orders, directions, ordinances or regulations concerning or
affecting the Premises, or the use and occupancy thereof, as hereinbefore
provided, and, if a stay is necessary, shall have failed to obtain a stay or
continuance thereof, Landlord shall be at liberty to comply therewith, and all
reasonable expenses consequent thereon shall be borne and paid by Tenant; and
upon Tenant's failure so to pay, Landlord may pay the same, and any payments so
made by Landlord, together with the interest thereon at the Lease Interest Rate
(as hereinafter defined) from the date of payment, shall immediately become due
and payable by Tenant as Additional Rent.
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4. TERM
4.1. Primary Term. Subject to the terms and conditions hereof, Tenant
------------
shall have and hold the Premises for a term (herein called the "Primary Term")
commencing as of the date (the "Commencement Date") which is the closing date of
Landlord's Purchase of the Premises and continuing thereafter for ten (10)
successive Lease Years (as hereinafter defined).
4.2. Extended Term. So long as no default by Tenant under this Lease or
-------------
Event of Default shall then exist or have occurred, Tenant shall have the right
and option to extend this Lease for one (1) consecutive term of ten (10) Lease
Years (herein called the "Extended Term" (or called the "Extended Term") and
together with the Primary Term, called either the "Term" or the "Term of this
Lease") unless this Lease shall be sooner terminated pursuant to the terms
hereof. If no default or Event of Default shall exist and be continuing
hereunder, the Extended Term shall commence on the day immediately succeeding
the expiration date of the Primary Term. Tenant may exercise each such option
to extend this Lease for the Extended Term by giving written notice to Landlord
at least 180 days prior to the end of the Primary Term of Tenant's intention to
so extend this Lease. No instrument of renewal needs to be executed. The
Extended Term shall not take effect unless this Lease is in full force and
effect and no default or Event of Default exists immediately prior to the
commencement thereof. If Tenant fails to give such notice of Tenant's intention
to so extend this Lease, the Tenant shall have no further option to extend this
Lease unless otherwise provided by a written agreement executed by Landlord.
Landlord shall have the right at any time during the Term of this Lease to
advertise the availability of the Premises for sale or reletting and to erect
upon the Premises signs appropriate for the purpose of indicating such
availability; provided, however, during the first eight (8) Lease Years, if
Tenant shall not be in default under this Lease, Landlord shall not erect any
signs on the Premises advertising the reletting thereof. The term "Lease Year"
shall mean (i) if the Commencement Date is the first day of a calendar month,
the twelve (12)-month period commencing on the Commencement Date, or (ii) if the
Commencement Date is not the first day of a calendar month, the period
commencing on the Commencement Date and ending on the last day of the twelfth
(12th) full calendar month of the Term, and, in either case, each succeeding
twelve (12) month period thereafter which falls in whole or in part during the
Term.
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5. RENT
5.1. Basic Rent. Tenant covenants to pay to Landlord as and for base or
----------
minimum rent (herein called the "Basic Rent") for the Premises during the Term,
the annual amounts on Exhibit B hereto. The Basic Rent shall be due and payable
---------
in equal monthly installments on or before the Commencement Date and on or
before the first day of each calendar month thereafter through the Term. If the
Term commences on a day other than the first day of a calendar month, or ends on
a day other than the last day of a calendar month, then the Basic Rent for such
month shall be prorated on a per diem basis, based upon the number of days of
such calendar month occurring within the Term. Basic Rent shall be paid by
Tenant to Landlord or to such other person at such place or account as Landlord
from time to time may designate to Tenant in writing.
5.2. Additional Rent. Tenant covenants that all other amounts,
---------------
liabilities and obligations which Tenant assumes or agrees to pay or discharge
pursuant to this Lease, including, but not limited to, the Rent Adjustments (as
hereinafter defined), together with every fine, penalty, interest and cost which
may be added for nonpayment or late payment thereof, shall constitute additional
rent hereunder (herein called "Additional Rent").
5.3. Inclusion in "Rent". The Basic Rent, together with all Additional
-------------------
Rent payable hereunder (including, without limitation, Tenant's payments of Rent
Adjustments and utilities as described in Article 7) is collectively sometimes
herein called "Rent".
5.4. Late Payment of Rent. In the event of any failure by Tenant to pay
--------------------
or discharge any of the foregoing, Landlord shall have all rights, powers and
remedies provided herein or by law in the case of nonpayment of Rent. Tenant
also covenants to pay to Landlord on demand an amount equal to five percent (5%)
of the payment amount then due, on all overdue installments of Basic Rent or
Additional Rent which are payable to Landlord and not received by Landlord on or
before five days of when due. Said late charge shall become automatically due
and payable, without any cure or grace period (unless otherwise provided
hereunder) before said late charge is imposed.
5.5. Lease Interest Rate. Tenant further covenants to pay to Landlord
-------------------
on demand interest at a rate equal to the prime rate plus two of eighteen
percent (2%) (or at the maximum rate not prohibited by
15
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applicable law, whichever is less) (the "Lease Interest Rate") on all past due
Rent and all other obligations which Landlord shall have paid on behalf of
Tenant from the date of such payment by Landlord until Landlord is paid in full.
As used herein, "prime rate" means the rate of interest announced from time to
time by First National Bank of Chicago NBD, Chicago, Illinois (or by any other
national bank selected by Landlord), as its prime, reference or corporate base
rate, changing as and when said prime, reference, or corporate base rate
changes.
5.6. Security Deposit. Tenant has deposited with Landlord (or its
----------------
beneficiary, if Landlord is a trustee) the "Letter of Credit" described in
Article 17 and in the form attached hereto as Exhibit E (the "Security
---------
Deposit"), as security for the full and faithful performance of every provision
of this Lease to be performed by Tenant. Upon the occurrence of an Event of
Default, including, but not limited to, the provisions relating to the payment
of Rent, Landlord may use, apply or retain any part or all of the Security
Deposit for the payment of any Rent or for the payment of any other amount which
Landlord may spend or become obligated to spend by reason of an Event of Default
or to compensate Landlord for any other loss or damage which Landlord may suffer
by reason of an Event of Default. If any portion of the Security Deposit is to
be used or applied, Tenant shall, within five (5) days after written demand
therefor, deposit cash with Landlord in an amount sufficient to restore the
Security Deposit to its original amount, and Tenant's failure to do so shall be
an Event of Default under this Lease. Landlord shall not be required to keep
the Security Deposit separate from its general funds, and Tenant shall not be
entitled to interest on the Security Deposit. If Tenant shall fully and
faithfully perform every provision of this Lease to be performed by it, the
Security Deposit or any balance thereof shall be returned to Tenant (or, at
Landlord's option, to the last assignee of Tenant's interest hereunder) within
fifteen (15) days after the expiration or earlier termination of the Term and
Tenant's vacation of the Premises. Subject to the terms and conditions of
Article 17, if there exists no default hereunder by Tenant, and Tenant shall
fully and faithfully perform every provision of this Lease to be performed by it
and no portion of the Security Deposit has been applied and not restored, the
Letter of Credit shall be released by Landlord and thereafter, the Security
Deposit shall be reduced to and consist of the sum of $53,200. If Landlord
gives Tenant the Termination Notice, such Termination Notice shall be
accompanied with a return of the Security Deposit.
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5.7. Transfer of Security Deposit. Tenant hereby agrees not to look to
----------------------------
any mortgagee as mortgagee, mortgagee-in-possession or successor in title to the
Land Parcel for accountability for the Security Deposit required by Landlord
hereunder, unless said sums have actually been received by said mortgagee as
security for Tenant's performance of this Lease. Landlord may deliver the funds
and/or the Letter of Credit deposited hereunder by Tenant to the purchaser of
Landlord's interest in the Land Parcel, in the event that such interest is sold,
and upon such delivery, such purchaser shall be deemed to have agreed to hold
such funds and/or the Letter of Credit in accordance with and subject to the
terms and condition of Section 5.6 hereof, and Landlord shall be discharged from
any further liability with respect to the Security Deposit.
5.8. Rent Adjustments.
----------------
(a) In addition to paying the Basic Rent specified in Section 5.1 hereof,
Tenant shall also pay as Additional Rent the amounts determined in accordance
with this Section 5.8 (hereinafter referred to as "Rent Adjustments"):
(b) As used in this Lease,
(i) "Adjustment Date" shall mean the Commencement Date and each June
1 thereafter falling within the Term.
(ii) "Adjustment Year" shall mean each period of twelve calendar
months during which an Adjustment Date falls, except that the first Adjustment
Year shall be the period between the Commencement Date and May 31, 1998.
(iii) "Common Areas" shall mean (A) parking areas, landscaped areas,
driveways, lobbies, shared bathrooms and other facilities located on the Land
Parcel which are available for joint use by tenants of the Building, but shall
exclude any portion of the Building which may be leased from time to time to
tenants; (B) sidewalks adjacent to the Land Parcel; and (C) any areas serving or
benefitting the Land Parcel, or any portion thereof, such as water detention
areas, and utility lines running through or adjacent to the Land Parcel.
(iv) "Expenses" shall mean and include (A) those reasonable costs and
expenses actually paid or incurred by or on behalf of
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Landlord for owning, maintaining and repairing the Common Areas, and the
personal property used in conjunction therewith, including, without limitation,
snow and ice and trash removal; cleaning and sweeping; planting and replacing
decorations, flowers and landscaping; maintenance, repair and replacement of
utility systems serving the Common Areas (but including replacement only to the
extent of replacement of parts and components incidental to the maintenance and
repair thereof, and not to the extent replacement of any item would constitute a
capital improvement or a capital expenditure which is excluded from Expenses as
hereinafter provided); electricity, steam, water, sewers, fuel, heating,
lighting and air conditioning serving the Common Areas; window cleaning;
janitorial service; painting; wages and salaries of all persons engaged in the
maintenance and repair of the Common Areas, or any other reasonable cost or
expense which Landlord pays or incurs to provide benefits for employees so
engaged in the operation, management, maintenance and repair of the of the
Common Areas (provided, however, that if any person engaged with respect to the
Building devotes services on a part-time basis, such person's wages and benefits
shall, for purposes of computing "Expenses", be equitably adjusted to reflect
such part-time engagement); the charges of any independent contractor who, under
contract with Landlord or its representatives, does any of the work of
operating, managing, maintaining or repairing the Common Areas; and any other
expense or charge, whether or not hereinbefore mentioned, which, in accordance
with generally accepted management practices, would be considered as an expense
of owning, managing, operating, maintaining or repairing the Common Areas; (B)
Insurance Costs; and (C) an overhead charge equal to fifteen percent (15%) of
those "Expenses" described in subclause (A) of this clause (iv). Expenses shall
not include costs or other items included within the meaning of the term "Taxes"
(as hereinafter defined), costs of capital improvements (except as hereinafter
provided), depreciation charges, interest and principal payments on mortgages,
ground rental payments; the Landlord Contribution, and any expenditures for
which Landlord has been reimbursed (other than pursuant to this Article 5 or
provisions in other leases requiring the tenants thereunder to pay a share of
expenses associated with the Building), except as hereinafter provided.
Notwithstanding anything contained in this clause (iv) to the contrary:
(A) the cost of any capital improvements to the Common Areas
made after the date of this Lease which are intended
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<PAGE>
to reduce Expenses or which are required under any governmental laws,
regulations or ordinances which were not applicable to the Building at
the time it was constructed, amortized over the useful life of such
capital improvements shall be included in "Expenses"; and
(B) if any item of Expenses, though paid or incurred in one
year, relates to more than one calendar year, then at the option of
Landlord such item may be proportionately allocated among such related
calendar years.
(v) "Insurance Costs" shall mean and include Landlord's annual total
costs for (A) commercial general liability insurance on the Real Property; and
(B) all risk property insurance covering fire and extended coverage and other
perils of physical loss or damage insuring the improvements and betterments
located on the Real Property and all appurtenances thereto, to the extent that
such costs and coverages are reasonable and customary with respect to light
industrial properties located in the greater Boston area of an age, size and
construction similar to the Real Property.
(vi) "Taxes" shall mean real estate taxes, assessments (whether they
be general or special), sewer rents, rates and charges, transit and transit
district taxes, taxes based upon the receipt of rent, and any other federal,
state or local governmental charge, general, special, ordinary or extraordinary
(but not including income or franchise taxes or any other taxes imposed upon or
measured by Landlord's income or profits, except as provided herein), which may
now or hereafter be levied, assessed or imposed against the Real Property.
"Taxes" shall include all reasonable legal fees and expenses relating to
seeking or obtaining reductions in and refunds of real estate taxes.
Notwithstanding anything contained in this clause (iv) to the contrary:
(A) If at any time the method of taxation then prevailing shall be
altered so that any new or additional tax, assessment, levy,
imposition or charge or any part thereof shall be imposed upon
Landlord in place or partly in place of any such Taxes or contemplated
increase therein, or in addition to Taxes, and shall be measured by or
be based in whole or in part upon the Real Property or the rents or
other income therefrom, then all such new taxes, assessments, levies,
impositions or charges or parts thereof, to the extent that they are
so measured or based,
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shall be included in Taxes levied, assessed or imposed against the
Real Property to the extent that such items would be payable if the
Real Property were the only property of Landlord subject thereto and
the income received by Landlord from the Real Property were the only
income of Landlord.
(B) Notwithstanding the year for which any such taxes or
assessments are levied, (1) in the case of taxes or special
assessments which may be paid in installments, the amount of each
installment, plus any interest payable thereon, paid during a calendar
year shall be included in Taxes for that year, and (2) if any taxes or
assessments payable during any calendar year shall be computed with
respect to a period in excess of twelve calendar months, then taxes or
assessments applicable to the excess period shall be included in
"Taxes" for that year. Except as provided in the preceding sentence,
all references to Taxes "for" a particular year shall be deemed to
refer to taxes levied, assessed or otherwise imposed for such year
without regard to when such taxes are payable.
(C) Taxes shall also include any personal property taxes
(attributable to the calendar year in which paid) imposed upon the
furniture, fixtures, machinery, equipment, apparatus, systems and
appurtenances which are components of the Real Property.
(D) Taxes shall not include any franchise, inheritance, estate,
succession, or transfer tax of Landlord or any income or excess
profits tax assessed upon or in respect of any income of Landlord or
chargeable to or required to be paid by Landlord unless such tax shall
be specifically levied against the rental income of Landlord derived
hereunder, in lieu of, as and for a substitute for, or in addition to,
the real estate taxes, in whole or in part, upon the Building situated
thereon, in which event said rent shall be considered as the sole
income of Landlord.
(vii) "Tenants Proportionate Share" shall mean 37 1/2% until the
Expansion Date, and 100% beginning on the Expansion Date and for the balance of
the Term.
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(viii) "Rent Adjustments" shall mean all amounts determined
pursuant to this Section 5.8, including all amounts payable by Tenant to
Landlord on account thereof.
(c) During the Term, Tenant shall pay Rent Adjustments for each Adjustment
Year determined as hereinafter set forth. Rent Adjustments payable by Tenant
with respect to each Adjustment Year during which an Adjustment Date falls shall
include the following amounts:
(i) the product of Tenant's Proportionate Share multiplied by the
amount of Taxes for such Adjustment Year (said product being hereinafter
referred to as the "Tax Adjustment"); plus
(ii) the product of Tenant's Proportionate Share multiplied by the
amount of Expenses for such Adjustment Year (said product being hereinafter
referred to as the "Expense Adjustment").
Tenant agrees and acknowledges that Landlord has made no representation,
warranty or guaranty relating to the amount of Taxes and Expenses. Tenant has
had an opportunity to consult with Landlord with respect to the Taxes and
Expenses projected for the operation of the Building but has not relied upon any
statements or representations of Landlord or any agent or affiliate of Landlord
in regard thereto in executing this Lease and agreeing to perform the terms and
covenants hereof and shall make no claim against Landlord based thereon.
(d) Tenant shall make payments on account of the Tax Adjustment and Expense
Adjustment (the aggregate of such payments with respect to any Adjustment Year
being hereinafter referred to as the "Rent Adjustment Deposit" or "Rent
Adjustment Deposits") as follows:
(i) Landlord may, prior to each Adjustment Date and from time to time
during the Adjustment Year in which such Adjustment Date falls, deliver to
Tenant a written notice or notices (each such notice being hereinafter referred
to as a "Projection Notice") setting forth (A) Landlord's reasonable estimates,
forecasts or projections (collectively, the "Projections") of either or both of
Taxes and Expenses for such Adjustment Year, and (B) Tenant's Rent Adjustment
Deposits with respect to the Tax Adjustment and Expense Adjustment components of
Rent Adjustments for such Adjustment Year based upon the Projections.
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(ii) Tenant shall commence payments of monthly installments of Rent
Adjustment Deposits on the first day of the first calendar month during the Term
following Landlord's delivery of the first Projection Notice hereunder. On such
date, and on or before the first day of each calendar month thereafter of the
Adjustment Year covered by such Projection Notice, Tenant shall pay to Landlord
one-twelfth (1/12) of the Rent Adjustment Deposits shown in the Projection
Notice. Within fifteen (15) days following Landlord's delivery of a Projection
Notice for an Adjustment Year in progress, Tenant shall also pay Landlord a lump
sum equal to the Rent Adjustment Deposits shown in the Projection Notice less
the sum of (A) any previous payments on account of Rent Adjustment Deposits made
with respect to such Adjustment Year, and (B) monthly installments on account of
Rent Adjustment Deposits due for the remainder of such Adjustment Year. Until
such time as Landlord furnishes a Projection Notice for an Adjustment Year,
Tenant shall continue to pay monthly installments of Rent Adjustment Deposits in
the amount shown by the most recent Projection Notice or, if the Tax and Expense
Adjustment for the Adjustment Year covered by such Projection Notice has been
determined, one-twelfth (1/12) of such Tax and Expense Adjustment, whichever is
greater.
(e) The following readjustments shall be made by Landlord and Tenant for
the Expense Adjustment and the Tax Adjustment:
(i) Following the end of each Adjustment Year and after Landlord shall
have determined the amount of Expenses to be used in calculating the Expense
Adjustment for such Adjustment Year, Landlord shall notify Tenant in writing
(any such notice being hereinafter referred to as "Landlord's Expense
Statement") of such Expenses and Tenant's Expense Adjustment for such Adjustment
Year. If the Expense Adjustment owed for such Adjustment Year exceeds the
Expense Adjustment component of the Rent Adjustment Deposit paid by Tenant
during such Adjustment Year, then Tenant shall, within thirty (30) days after
the date of Landlord's Expense Statement, pay to Landlord an amount equal to the
excess of the Expense Adjustment over the Expense Adjustment component of the
Rent Adjustment Deposit paid by Tenant during such Adjustment Year. If the
Expense Adjustment component of the Rent Adjustment Deposit paid by Tenant
during such Adjustment Year exceeds the Expense Adjustment owed for such
Adjustment Year, then Landlord shall credit such excess to Rent payable after
the date of Landlord's Expense Statement, or may, at its option, credit such
excess to any Rent theretofore due and owing, until such excess has been
exhausted. If this Lease shall expire or be terminated prior to full application
22
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of such excess, Landlord shall pay to Tenant the balance thereof not theretofore
applied against Rent and not reasonably required for payment of Rent for the
Adjustment Year in which this Lease expires, subject to Tenant's obligations
under Section 4.08 hereof, provided Tenant shall have vacated the Premises and
otherwise surrendered the Premises to Landlord in accordance with this Lease and
Tenant is not then in default under this Lease.
(ii) Following the end of each Adjustment Year and after Landlord
shall have determined the actual amount of Taxes to be used in calculating the
Tax Adjustment for such Adjustment Year, Landlord shall notify Tenant in writing
(any such notice being hereinafter referred to as "Landlord's Tax Statement;
Landlord's Expense Statement and Landlords Tax Statement are sometimes
hereinafter referred to as "Landlord's Statement") of such Taxes for such
Adjustment Year. If the Tax Adjustment owed for such Adjustment Year exceeds the
Tax Adjustment component of the Rent Adjustment Deposit paid by Tenant during
such Adjustment Year, then Tenant shall, within thirty (30) days after the date
of Landlord's Tax Statement, pay to Landlord an amount equal to the excess of
the Tax Adjustment over the Tax Adjustment component of the Rent Adjustment
Deposit paid by Tenant during such Adjustment Year. If the Tax Adjustment
component of the Rent Adjustment Deposit paid by Tenant during such Adjustment
Year exceeds the Tax Adjustment owed for such Adjustment Year, then Landlord
shall credit such excess to Rent payable after the date of Landlord's Tax
Statement, or may, at its option, credit such excess to any Rent theretofore due
and owing, until such excess has been exhausted. If this Lease shall expire or
be terminated prior to full application of such excess, Landlord shall pay to
Tenant the balance thereof not theretofore applied against Rent and not
reasonably required for payment of Rent for the Adjustment Year in which this
Lease expires, subject to Tenant's obligations under Section 4.08 hereof,
provided Tenant shall have vacated the Premises and otherwise surrendered the
Premises to Landlord in accordance with this Lease and Tenant is not then in
default under this Lease.
(f) Landlord shall maintain books and records showing Taxes and Expenses in
accordance with sound accounting and management practices. Tenant or its
representative shall have the right to examine Landlord's books and records
showing Taxes and Expenses upon reasonable prior notice and during normal
business hours at any time within thirty (30) days following the furnishing by
Landlord to Tenant of Landlord's Statement provided for in Section 5.8(e).
Unless Tenant shall take written exception to any item within thirty (30) days
after the
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furnishing of the Landlord's Statement containing such item, such Landlord's
Statement shall be considered as final and accepted by Tenant.
(g) If Tenant shall notify Landlord within such thirty (30) day period that
Tenant disputes any specific item or items in any such Landlord's Statement and
such dispute is not resolved between Landlord and Tenant within thirty (30) days
after the date such notice is given by Tenant, either party may, during the
fifteen (15) day period next following the expiration of the thirty (30) day
period commencing on the date such notice is given, refer such disputed item or
items for determination to an independent certified public accountant selected
by such party and approved by the other party, which approval shall not be
unreasonably withheld, and the determination of such accountant shall be final,
conclusive and binding upon Landlord and Tenant. Tenant agrees to pay all costs
involved in such determination except in the case of the Tax Adjustment and the
Expense Adjustment for any Adjustment Year where it is determined that Landlord
has overcharged Tenant for Tax Adjustment and Expense Adjustment for such
Adjustment Year by more than five percent (5%), in which case Landlord shall pay
such costs.
(h) With respect to any Adjustment Year which does not fall entirely within
the Term, Tenant shall be obligated to pay as Rent Adjustments for such
Adjustment Year only a pro rata share of Rent Adjustments as hereinabove
determined, based upon the number of days of the Term falling within the
Adjustment Year. Following expiration or termination of this Lease, Tenant shall
pay any Rent Adjustments due to Landlord within fifteen (15) days after the date
of each Landlord's Statement sent to Tenant. Without limitation of other
obligations of Tenant which shall survive the expiration of the Term, the
obligation of Tenant to pay Rent Adjustments provided for in this Article 4
accruing during the Term shall survive the expiration or termination of this
Lease.
(i) In no event shall any Rent Adjustments result in a decrease of the
Basic Rent payable hereunder as set forth in Section 3.01 hereof.
(j) All amounts payable by Tenant as or on account of Rent Adjustments
shall be deemed to be Additional Rent becoming due under this Lease.
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6. NET LEASE; NON-TERMINABILITY
6.1. Net Lease. It is the intent of the parties hereto that the Basic
---------
Rent payable under this Lease shall be an absolutely net return to Landlord and
that Tenant shall pay all costs and expense relating to the Premises and the
business carried on therein, unless otherwise expressly provided in this Lease.
Any amount or obligation herein relating to the Premises which is not expressly
declared to be that of Landlord shall be deemed to be an obligation of Tenant to
be performed by Tenant at Tenant's expense. Basic Rent, Additional Rent and all
other sums payable hereunder by Tenant, shall be paid without notice (except as
expressly provided herein), demand, setoff, counterclaim, abatement, suspension,
deduction or defense.
6.2. Non-Terminability.
-----------------
(a) This Lease shall not terminate, nor shall Tenant have any right to
terminate this Lease, nor shall Tenant be entitled to any abatement or reduction
of Rent hereunder nor shall the obligations of Tenant under this Lease be
affected, by reason of (i) any damage to or destruction of all or any part of
the Premises from whatever cause, whether with or without fault on part of
Tenant, except as otherwise expressly set forth in this Lease; (ii) the taking
of the Premises or any portion thereof by condemnation, requisition or
otherwise, except as otherwise expressly set forth in this Lease; (iii) the
prohibition, limitation or restriction of Tenant's use of all or any part of the
Premises, or any interference with such use; (iv) any eviction by paramount
title or otherwise; (v) Tenant's acquisition or ownership of all or any part of
the Premises otherwise than as expressly provided herein; (vi) any default on
the part of Landlord under this Lease, or under any other agreement to which
Landlord and Tenant may be parties; (vii) the failure of Landlord to deliver
possession of the Premises on the Commencement Date; or (viii) any other cause
whether similar or dissimilar to the foregoing, any present or future law to the
contrary notwithstanding. It is the intention of the parties hereto that the
obligations of Tenant hereunder shall be separate and independent covenants and
agreements, that the Basic Rent, the Additional Rent and all other sums payable
by Tenant hereunder shall continue to be payable in all events and that the
obligations of Tenant hereunder shall continue unaffected, unless the
requirement to pay or perform the same shall have been terminated pursuant to an
express provision of this Lease.
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(b) Except as may be otherwise expressly set forth in this Lease, Tenant
agrees that it will remain obligated under this Lease in accordance with its
terms, and that it will not take any action to terminate, rescind or avoid this
Lease, notwithstanding (i) the bankruptcy, insolvency, reorganization,
composition, readjustment, liquidation, dissolution, or winding-up or other
proceeding affecting Landlord or its successors in interest or (ii) any action
with respect to this Lease which may be taken by any trustee or receiver of
Landlord or its successors in interest or by any court in any such proceeding.
(c) Except as may be otherwise expressly set forth in this Lease, Tenant
waives all rights which may now or hereafter be conferred by law (i) to quit,
terminate or surrender this Lease or the Premises or any part thereof or (ii) to
any abatement, suspension, deferment or reduction of the Basic Rent, Additional
Rent or any other sums payable under this Lease.
7. CONTEST AND UTILITIES
7.1. Contest. So long as Tenant is leasing the entire rentable square
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footage of the Building, Tenant shall have the right, but not the obligation, in
good faith and due diligence, to contest any tax, assessment, tax lien or other
charge or imposition upon or against the Premises or any part thereof or the
Building by appropriate legal proceedings which shall have the effect of
preventing the collection of the tax, assessment, tax lien or other imposition
or charge so contested; provided that Tenant shall not be relieved from
continuing to make payment to Landlord on account of the Tax Adjustment as
provided in Section 5.8 as if such contest was not being made by Tenant, or
Tenant shall give Landlord or any mortgagee of Landlord as required by Landlord,
such reasonable security as may be demanded by Landlord to insure payment of the
amount of the tax, assessment, tax lien or other imposition or charge, and all
interest and penalties thereon. All costs and expenses engendered by any such
contest by Tenant shall be borne and paid by Tenant, and Landlord shall join
with Tenant when requested and execute any and all documents prepared at
Tenant's expense as Tenant may reasonably request in connection with any such
contest. In the event that Tenant fails to contest any tax, assessment, tax
lien or other imposition, and Landlord determines in good faith that it is
reasonable to do so, Landlord shall have the right, at Landlord's expense
(except to the extent the expense is included in "Taxes" as provided in Section
5.8(a)(vi)), to contest the same, and Tenant shall join with Landlord when
requested and execute
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any and all documents prepared at Landlord's expense as Tenant may reasonably
request in connection with any such contest.
7.2. Utilities.
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(a) Electricity shall not be furnished by Landlord, but shall be furnished
by an electric utility company serving the area in which the Building is
located. Landlord shall permit Tenant to receive such service directly from such
utility company at Tenant's cost, and shall permit Landlord's wire and conduits,
to the extent available, suitable and safely capable, to be used for such
purposes. Tenant shall make all necessary arrangements with the utility company
for metering and paying for electric current furnished by it to Tenant, and
Tenant shall pay for all charges for electric current consumed on the Premises
during Tenant's occupancy thereof. Tenant shall make no alterations or
additions to the electric equipment or appliances without the prior written
consent of Landlord in each instance. Tenant covenants and agrees that at all
times its use of electric current shall never exceed the capacity of the feeders
to the Building or the risers or wiring installed thereon.
(b) During the Term of this Lease and any extension thereof, Tenant shall
at its own cost and expense pay for any and all utilities and services necessary
for its use and operation of the Premises, including without limitation charges
for electricity, water, fuels, scavenger service, gas, light, heat, telephone,
power and other utilities and communication services rendered or used on or
about the Premises, and any fees, costs, charges, or assessments levied with
respect to the Premises pursuant to covenants contained in any industrial park
declaration recorded against the title to the Premises relating to any events
occurring between (i) the earlier of Tenant's possession of the Premises and the
Commencement Date, and (ii) the later of Tenant vacating the Premises and the
expiration of the Term, or the earlier termination of this Lease in accordance
with the terms and conditions of this Lease.
(c) Tenant agrees that Landlord and its agents shall not be liable in
damages, by abatement of Rent or otherwise, for failure to furnish or delay in
furnishing any service when such failure or delay is occasioned, in whole or in
part, by repairs, renewals or improvements, by any strike, lockout or other
labor trouble, by inability to secure electricity, water or other services at
the Building, by any accident or casualty whatsoever (other than as a
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result of Landlord's gross negligence or willful misconduct), by the act or
default of Tenant or other parties, or by any cause beyond the reasonable
control of Landlord; and such failures or delays shall never be deemed to
constitute an eviction or disturbance of Tenant's use and possession of the
Premises or relieve Tenant from paying Rent or performing any of its obligations
under this Lease.
8. INDEMNIFICATION AND WAIVER
8.1. Indemnification. Tenant agrees to pay, and to protect, defend,
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indemnify and save harmless Landlord and for purposes of this Article 8, the
term "Landlord" shall include its trustees, beneficiaries, managers, members,
shareholders, partners, officers, directors, employees, agents and their
successors and/or assigns from and against any and all liabilities, losses,
damages, costs, expenses (including all reasonable attorney's fees and
reasonably necessary expenses of Landlord), causes of action, suits, claims,
demands or judgments of any nature whatsoever arising from (i) any injury to, or
the death of, any person or damage to property on the Premises or upon adjoining
sidewalks, streets or right of ways, in any manner growing out of or connected
with the use, failure to use condition or occupation of the Premises, adjoining
sidewalks, streets or right of ways, unless any such injury, death or damage is
the result of any breach by Landlord or any of Landlord's obligations under this
Lease, and/or (ii) any violation by Tenant of any agreement or condition of this
Lease, or any contract or agreement to which Tenant is a party or any
restriction, law, ordinance or regulation, in each case affecting the Premises
or any part thereof or the occupancy or use thereof, (iii) performance by or at
the request of Tenant or its agents or contractors of any labor or services or
the furnishing of any materials or other property in respect of the Premises or
any part thereof, or (iv) any instrument which Landlord is requested by Tenant
to execute pursuant to Sections 7.6 or 7.7. If Landlord or any beneficiary of
Landlord, (if Landlord is a trustee) or any agent or employee of either of them)
shall be made a party to any such litigation commenced against Tenant, and if
Tenant, at its expense, shall fail to provide Landlord or any such beneficiary,
or their respective agents with counsel (upon Landlord's request) reasonably
approved by Landlord, Tenant shall pay all reasonable costs and attorneys' fees
and expenses incurred or paid by Landlord or any such beneficiary, or their
respective agents in connection with such litigation, unless any such injury,
death or damage is the result of any breach by Landlord or any of Landlord's
obligations under this Lease. The Tenant's obligations and liabilities
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under this Section 8.1 herein shall survive the termination or expiration of
this Lease,
8.2. Waiver. Tenant waives all claims it may have against Landlord for
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damage or injury to person or property sustained by Tenant or any persons
claiming through Tenant or by any occupant of the Premises, or by any other
person, resulting from any part of the Premises or any of the Improvements,
equipment or appurtenances becoming out of repair, or resulting from any
accident on or about the Premises or resulting directly or indirectly from any
act or neglect of any person, including Landlord (except for Landlord's gross
negligence or willful misconduct or breach of Landlord's obligations under this
Lease) to the extent permitted by law. This Section 8.2 shall include, but not
by way of limitation, damage caused by water, snow, frost, steam, excessive heat
or cold, sewage, gas, odors, or noise, or caused by bursting or leaking of pipes
or plumbing fixtures, and shall apply equally whether any such damage results
from the act or neglect of Tenant or of any other person, including Landlord to
the extent permitted by law, and whether such damage be caused or result from
any thing or circumstance above mentioned or referred to, or to any other thing
or circumstance whether of a like nature or of a wholly different nature. All
personal property belonging to Tenant or any occupant of the Premises that is in
or on any part of the Premises shall be at the risk of Tenant or of such other
person only, and Landlord shall not be liable for any damage thereto or for the
theft or misappropriation thereof.
9. LIENS; LANDLORD'S RIGHTS
9.1. Liens. Tenant shall not do any act which shall in any way encumber
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the title of Landlord in and to the Premises, nor shall any interest or estate
of Landlord in the Premises be in any way subject to any claim by way of lien or
encumbrance, whether by operation of law or by virtue of any express or implied
contract by Tenant, and any claim to or lien upon the Premises arising from any
act or omission of Tenant shall accrue only against the leasehold estate of
Tenant and shall in all respects be subject and subordinate to the paramount
title and rights of Landlord in and to the Premises. Tenant will not permit the
Premises to become subject to any mechanics', laborers' or materialmen's lien on
account of labor or material furnished to Tenant or claimed to have been
furnished to Tenant in connection with work of any character performed or
claimed to have been performed on the Premises by or at the direction or
sufferance of Tenant; provided,
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however, that Tenant shall have the right to contest in good faith and with
reasonable diligence, the validity of any such lien or claimed lien if Tenant
shall first give to Landlord such security as may be reasonably demanded by
Landlord (and required by any Mortgagee of Landlord) to insure payment thereof
and to prevent any sale, foreclosure, or forfeiture of the Premises by reason of
non-payment thereof. On any final determination of the lien or claim for lien,
Tenant will immediately pay any judgment rendered, with all proper costs and
charges, and will, at its own expense, have the lien released and any judgment
satisfied.
9.2. Landlord's Rights. If Tenant shall fail to contest the validity of
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any lien or claimed lien or if reasonably demanded by Landlord (and required by
any Mortgagee of Landlord) fail to give security to Landlord to insure payment
thereof, or shall fail to prosecute such contest with diligence, or shall fail
to have the same released and satisfy any judgment rendered thereon, then
Landlord may, at its election (but shall not be so required) remove or discharge
such lien or claim for lien (with the right, in its discretion, to settle or
compromise the same), and any amounts advanced by Landlord, including reasonable
attorneys' fees, for such purposes shall be so much Additional Rent due from
Tenant to Landlord at the next rent payment date after any such payment, with
interest at the Lease Interest Rate from the date of payment thereof.
10. MAINTENANCE AND REPAIR; ENCROACHMENTS; MAINTENANCE OF COMMON AREAS.
10.1. Maintenance and Repair. Tenant agrees that, at its expense, it
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shall keep and maintain the Premises, including any altered, rebuilt,
substituted buildings, improvements thereto, in good repair and appearance,
except for ordinary wear and tear. Tenant shall also make promptly, all
nonstructural, foreseen and unforeseen, ordinary and extraordinary changes and
repairs of every kind which may be required to be made to keep and maintain the
Premises in such good condition, repair and appearance and it will keep the
Premises orderly and free and clear of rubbish, subject to local rubbish removal
schedules. Tenant covenants to perform or observe all terms, covenants or
conditions of any reciprocal easement or maintenance agreement to which it may
at any time be a party or to which the Premises are currently subject. Tenant
shall, at its expense, use commercially reasonable efforts to enforce compliance
with any reciprocal easement or maintenance agreement benefitting the Premises
by any other person
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subject to such agreement. Landlord shall not be required to maintain, repair or
rebuild, or to make any alterations, replacements or renewals of any nature to
the Premises, or any part thereof or to maintain the Premises or any part
thereof in any way, except as expressly set forth in this Section 10.1. Landlord
agrees, at Landlord's expense, (except to the extent that such expense is within
the definition of "Expenses") to make all necessary structural repairs or
replacements to the Improvements, including the foundation, walls and roof,
unless any such repairs are made necessary due to or arising out of (i) the
specific nature (as opposed to the general use for light industrial purposes) of
the operation or conduct of Tenant's business, or the specific nature (as
opposed to the general use for light industrial purposes) of the operation or
conduct of the business of any of Tenant's sublessees; or (ii) the act or
omission of Tenant or any sublessees of Tenant or their respective employees,
agents or contractors, in which event Tenant, notwithstanding anything contained
in this Section 10.1 to the contrary, shall promptly reimburse to Landlord, as
Additional Rent hereunder, the reasonable cost of such structural repairs
incurred by Landlord. Tenant hereby expressly waives the right to make repairs
at the expense of Landlord which may be provided for in any law in effect at the
Commencement Date or which may thereafter be enacted. If Tenant shall abandon
the Premises, it shall give Landlord immediate notice thereof.
10.2. Encroachments or Violations of Improvements. If any Improvements
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hereafter constructed by or on behalf of Tenant and situated on the Premises at
any time during the Term of this Lease shall encroach upon any property, street
or right-of-way adjoining or adjacent to the Premises, or shall violate the
agreements or conditions contained in any restrictive covenant affecting the
Premises or any part thereof, or shall impair the rights of others under or
hinder or obstruct any easement or right-of-way to which the Premises are
subject, then, promptly after the written request of Landlord or any person
affected by any such encroachment, violation, impairment, hindrance or
obstruction, Tenant shall, at its expense, either (i) obtain effective waivers
or settlements of all claims, liabilities and damages resulting from each such
encroachment, violation, impairment, hindrance or obstruction whether the same
shall affect Landlord, Tenant or both, or (ii) make such changes in the
Improvements on the Premises and take such other action as shall be necessary to
remove such encroachments, hindrances or obstructions and to end such violations
or impairments, including, if necessary, the alteration or removal of any
improvement on the Premises. Any such alteration or removal shall be
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made in conformity with the requirements of Section 11.1 to the same extent as
if such alteration or removal were an alteration under the provisions of Section
11.1.
10.3 Maintenance of Common Areas. Landlord covenants and agrees that,
---------------------------
so long as no Event of Default has occurred and Tenant shall have completed in
accordance with applicable Legal Requirements any and all Initial Improvements
which affect or pertain to any portion of the Real Property, including paving
and striping the parking areas and providing for handicapped parking stalls,
Landlord shall maintain or cause to be maintained the Real Property, exclusive
of the Premises and any other areas from time to time leased to tenants, in a
manner comparable to the manner in which light industrial properties located in
the greater Boston area of the age, size, and construction similar to the Real
Property are from time to time maintained.
11. ALTERATIONS
11.1. Permitted Alterations. Except as otherwise expressly set forth in
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this Section 11.1, Tenant shall not at any time during the Term of this Lease
make any material alteration, addition or improvement to the Premises or any
Improvements located thereon without in each instance the prior written consent
of Landlord. Landlord shall not unreasonably withhold or delay its consent to
minor, non-structural alterations and improvements made by Tenant, provided such
alterations do not affect the roof or electrical, plumbing HVAC or sewage
systems of any building located on the Premises and the costs of any such
alterations or improvements shall not exceed, in the aggregate, in any
consecutive twelve (12) month period, $100,000. It shall not be deemed
unreasonable for Landlord to withhold its consent to a proposed alteration,
addition or improvement, if, in Landlord's good faith reasonable opinion, such
proposed alteration, addition or improvement would be likely to materially
impair or diminish the value of the Premises. Notwithstanding anything
contained in this Section 11.1 to the contrary, Tenant shall not be obligated to
obtain Landlord's prior consent to the alterations and improvements (jointly and
collectively, the "Permitted Alterations") listed on Exhibit H attached hereto,
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as long as (i) except as hereinafter permitted, any such Permitted Alterations
will not affect the structure, roof, or the electrical, heating, air
conditioning, plumbing or sewage systems located in or serving the Building or
any other portions of the Real Property; (ii) Tenant submits plans and
specifications for the Permitted Alterations
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for Landlord's review, obtains necessary permits and insurance, and delivers to
Landlord copies of all contracts and subcontracts, affidavits listing all
contractors, subcontractors and suppliers, and requirements as to the manner and
times in which the Permitted Alterations shall be done; (iii) the Permitted
Alterations comply with any and all reasonable requirements of Landlord's
insurers, and with all Laws; and (iv) the Permitted Alterations are performed in
a good and workmanlike manner and all material used are of a quality comparable
to or better than those in the Premises and are in accordance with the plans and
specifications delivered to Landlord. Notwithstanding anything contained in
clause (i) of this Section 11.1, provided that Tenant otherwise complies with
the requirements set forth in this Section 11.1, such Permitted Alterations may
comprise alterations to the existing electrical and heating, ventilation, and
air-conditioning systems of the Building, so long as (x) such systems being
altered by Tenant do not materially impair or diminish the value of the
Premises, and (y) upon the end of the Term or earlier termination of this Lease,
Tenant, at Landlord's request, restores such systems to their condition as of
the Commencement Date. Landlord's approval or right of approval, if any, of
Tenant's plans and specifications shall create no responsibility or liability on
the part of Landlord and their agents for the completeness, design, sufficiency,
or compliance with Laws of such plans and specifications. If Landlord consents
to our supervises the Permitted Alterations, consent or supervision shall not be
deemed a warranty by Landlord or their agents as to the adequacy of the
workmanship or quality or materials, and Landlord hereby expressly disclaims any
responsibility or liability for the same. Landlord shall under no circumstances
have any obligation to repair, maintain or replace any portion of the Permitted
Alterations.
11.2. Insurance in Connection with Alterations. No alteration, addition
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or improvement to the Premises shall be commenced by Tenant until Tenant has
furnished Landlord with a satisfactory certificate or certificates from an
insurance company acceptable to Landlord, evidencing workmen's compensation
coverage, and insurance coverage in amounts satisfactory to Landlord and
protecting Landlord against public liability and property damage to any person
or property, on or off the Premises, arising out of and during the making of
such alterations, additions or improvements.
11.3. Compliance with Laws. Any alteration, addition or improvement by
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Tenant hereunder shall be done in a good and workmanlike
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manner, lien free, and in strict compliance with any applicable governmental
law, statute, ordinance or regulation.
11.4. Signs. Tenant may, in compliance with applicable law, place, erect
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and maintain any signs on the facia, walls, and any other place on or about the
Premises, which signs shall remain the property of Tenant and may be removed at
any time during the Term of this Lease, or any extensions thereof, provided
Tenant shall repair or reimburse Landlord for the cost of any damage to the
Premises resulting from the installation or removal of such signs, ordinary wear
and tear excepted.
11.5. Alterations at Surrender. Except as may be otherwise expressly set
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forth in this Lease and subject to the terms and conditions contained in Article
25, all alterations, additions and improvements (except Tenant's equipment, as
hereinafter defined) put in at the expense of Tenant shall become the property
of the Landlord and shall remain upon and be surrendered with the Premises as a
part thereof at the termination of this Lease, other than the alterations,
additions, improvements and equipment set forth on Exhibit F attached hereto and
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made a part hereof (collectively and individually, the "Retained Property").
12. INSURANCE
12.1. Liability Insurance. Tenant agrees that it will at all times
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during the Term of this Lease at its sole cost and expense, carry and maintain,
for the benefit of Landlord, and Landlord's beneficiaries, mortgagees, managers,
members, and agents, and Tenant, comprehensive general public liability
insurance against claims for personal injury, sickness or disease, including
death and property damage, in, on or about the Premises, such insurance to
afford protection in such amounts as Landlord may, from time to time, require,
but no less than $1,000,000.00 in respect to each person, and no less than
$2,000,000.00, in respect to any one occurrence causing bodily injury, personal
injury or death, and to the limit of not more than $1,000,000.00, in respect to
property damage. Each of the foregoing stated minimum limits shall be increased
from time to time as reasonably required by Landlord, taking into account any
increase in the full replacement value as determined in accordance with Section
12.3. All such insurance shall be procured from a responsible insurance company
or companies satisfactory to Landlord and to Landlord's mortgagee, if any, and
authorized to do business in the
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state in which the Premises are located and may be obtained by Tenant by
endorsement on its blanket insurance policies. All such policies shall provide
that the same may not, without Landlord's prior written consent, be cancelled or
altered except upon thirty (30) days' prior written notice of Landlord and shall
specifically name Landlord and Landlord's mortgagees, if any, as additional
named insureds.
12.2. Property Insurance. Tenant further agrees that Tenant shall, at
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all times during the Term of this Lease at its sole cost and expense, carry and
maintain policies of insurance insuring all improvements and betterments to the
Premises made by Tenant, regardless of whether such improvements were paid for
in whole or in part of Landlord, and all contents, and Tenant's trade fixtures,
machinery, equipment, furniture and furnishings, in the Premises to the extent
of at least ninety percent (90%) of their replacement cost under standard fire
and extended coverage insurance, including, without limitation, vandalism and
malicious mischief endorsements. The insurance to be carried by Tenant under
this Lease shall be procured from responsible companies reasonably satisfactory
to Landlord and to Landlord's mortgagee and authorized to do business in the
State of Massachusetts.
12.3. Update of Value. Not less frequently than once in each three (3)
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years after the Commencement Date, Tenant shall cause the full replacement value
to be revalued by indexing in accordance with the then current Industrial Cost
Trends Index for the state in which the Premises is located published by the
Factory Mutual Insurance Company, or, in the absence of such publication, in
accordance with a comparable index published by a major bank, financial
institution, university or recognized financial publication, as chosen by
Landlord in its sole discretion.
12.4. Intentionally Deleted.
12.5. Landlord's Rights. In the event Tenant shall at any time fail,
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neglect or refuse to procure such insurance and keep the same in full force as
provided for in this Lease, then Landlord may, at its election, procure or renew
such insurance, and any amounts paid therefor by Landlord shall be so much
Additional Rent due at the next rent payment day after any such payment, with
interest at the Lease Interest Rate from the date of payment thereof by
Landlord.
12.6. Waiver of Subrogation. Landlord and Tenant agree to have all
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policies required under this Lease or which may be carried by
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either of them, endorsed with a clause providing that any release from liability
of, or waiver of claim for, recovery from the other party entered into in
writing by the insured thereunder prior to any loss or damage shall not affect
the validity of said policy or the right of the insured to recover thereunder,
and providing further that the insurer waives all rights of subrogation which
such insurer might have against the other party. Without limiting any release or
waiver of liability or recovery set forth elsewhere in this Lease, and
notwithstanding anything in this Lease which may appear to be to the contrary,
each of the parties hereto waives all claims for recovery from the other party
for any loss or damage to any of its property insured under valid and
collectible insurance policies to the extent of any recovery collectible under
such insurance policies.
12.7. Delivery to Landlord. Tenant shall deliver to Landlord, at least
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ten (10) days prior to the date on which Tenant has the right to occupy the
Premises or any portion thereof, or the Commencement Date, whichever is the
earlier, a duplicate original insurance policy, or an insurance binder
(countersigned by the insurer), or Evidence of Insurance (in form ACCORD 27) for
each of the insurance policies Tenant is required to carry in compliance with
its obligations under this Lease.
13. DAMAGE OR DESTRUCTION
13.1. Damage or Destruction. If the Premises shall be damaged by fire or
---------------------
other casualty and if such damage does not render all or a substantial portion
of the Premises untenantable, then Landlord shall proceed to repair and restore
the same with reasonable promptness, subject to reasonable delays for insurance
adjustments and delays caused by matters beyond Landlord's reasonable control.
If any such damage renders all of or a substantial portion of the Premises
untenantable, Landlord shall, within ninety (90) days after the occurrence of
such damage, estimate the length of time that will be required to substantially
complete the repair and restoration of such damage and shall by notice (the
"Estimate Notice") advise Tenant of such estimate. If it is so estimated that
the amount of time required to substantially complete such repair and
restoration will exceed two hundred seventy (270) days from the date Landlord
gives Tenant the Estimate Notice, then either Landlord or Tenant (but as to
Tenant, only if all or a substantial portion of the Premises are rendered
untenantable or otherwise unusable for the operation of an Internet data center)
shall have the right to terminate this Lease as of the
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date of such damage upon giving notice to the other at any time within twenty
(20) days after Landlord gives Tenant the Estimate Notice (it being understood
that Landlord may, if it elects to do so, also give such notice of termination
together with the Estimate Notice). Unless this Lease is terminated as provided
in the preceding sentence, Landlord shall proceed with reasonable promptness to
repair and restore the Premises, subject to reasonable delays for insurance
adjustments and delays caused by matters beyond Landlord's reasonable control,
and also subject to zoning laws and building codes then in effect. Landlord
shall have no liability to Tenant, and Tenant shall not be entitled to terminate
this Lease (except as hereinafter provided) if such repairs and restoration are
not in fact completed within the time period estimated by Landlord, as
aforesaid, or within said two hundred seventy (270) days. If the Premises are
not repaired or restored within eighteen (18) months after the date of such fire
or other casualty, then either party may terminate this Lease, effective as of
the date of such fire or other casualty, by written notice to the other party
not later than thirty (30) days after the expiration of said eighteen (18) month
period, but prior to substantial completion of repair or restoration.
Notwithstanding anything to the contrary herein set forth, (a) Landlord shall
have no duty pursuant to this Section 13.1 to repair or restore any portion of
the alterations, additions or improvements owned or made by Tenant in the
Premises (regardless if any such alterations, additions or improvements were
paid for in whole or in part by Landlord) or to expend for any repair or
restoration amounts in excess of insurance proceeds actually received by
Landlord and available for repair or restoration; (b) Tenant shall not have the
right to terminate this Lease pursuant to this Section 13.1 if the damage or
destruction was caused by the act or neglect of Tenant or its agents or
employees, and (c) if any such damage rendering all or a substantial portion of
the Premises or the Building untenantable shall occur during the last two (2)
years of the Term, Landlord shall have the option to terminate this Lease by
giving written notice to Tenant within sixty (60) days after the date such
damage occurred, and if such option is so exercised, this Lease shall terminate
as of the date of such notice.
13.2. Abatement of Rent. In no event shall Rent abate or be reduced
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as a result of the Premises having been rendered untenantable as a result of any
such fire or casualty. In the event of termination of this Lease pursuant to
Section 13.1, Rent shall be apportioned on a per diem basis and be paid to the
date of the fire or other casualty.
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14. CONDEMNATION
14.1. Substantial Condemnation. In the event the whole of the Premises
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or a portion of the Land Parcel shall be taken as a result of the exercise of
the power of eminent domain or condemned for a public or quasi-public use or
purpose by any competent authority or sold to the condemning authority under
threat of condemnation, or in the event a portion of the Premises shall be taken
or sold as a result of such event, or if the grade of any street or alley
adjacent to the Land Parcel is changed by any competent authority, and as a
result of any such taking, sale or change of grade, in the reasonable
determination of Landlord, the Premises or the balance thereof, as the case may
be, cannot be used for the same purpose as before such taking, sale or
condemnation, then and in either of such events, the Term of this Lease shall
terminate as of the date of vesting of title pursuant to such proceeding or
sale. The total award, compensation or damages received from such proceeding or
sale (hereinafter called the "award"), shall be paid to and be the property of
Landlord, and Tenant shall have no right to share in any such award. Tenant
shall execute, immediately upon Landlord's demand, such documents as may be
necessary to facilitate Landlord's collection of any such award, compensation or
damages in accordance with this Section 14.1.
14.2. Non-Substantial Condemnation. In the event only a part of the
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Premises shall be taken as a result of the exercise of the power of eminent
domain or condemned for a public or quasi-public use or purpose by any competent
authority or sold to the condemning authority under threat of condemnation, and
as a result thereof in Landlord's reasonable determination the balance of said
premises can be used for the same purpose as before such taking, sale or
condemnation, this Lease shall not terminate and Landlord, at its sole cost and
expense, shall promptly repair and restore the Premises and all Improvements;
provided, however, Landlord shall have no duty pursuant to this Section 14.2 to
expend for any repair or restoration amounts in excess of any award actually
received by Landlord.
15. INTENTIONALLY DELETED
16. ASSIGNMENT AND SUBLETTING
16.1. Assignment and Subletting. Tenant shall not, without the
-------------------------
prior written consent of Landlord in each instance, (a) assign,
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transfer, mortgage, pledge, hypothecate or encumber, or subject to or permit to
exist upon or be subjected to any lien or charge, this Lease or any interest
under it; (b) allow to exist or occur any transfer of or lien upon this Lease or
Tenant's interest herein by operation of law; (c) sublet the Premises or any
part thereof, except as expressly permitted in Section 16.9; (d) permit the use
or occupancy of the Premises or any part thereof for any purpose not provided
for under Section 3.1 hereof or by anyone other than Tenant, Tenant's employees,
and Tenant's customers; or (e) cause, suffer or permit to occur any "Change of
Control" (as such term is defined in Section 16.8 hereof). Notwithstanding
anything contained in this Lease to the contrary, Tenant shall have the right to
assign this Lease to an entity formed for the sole purpose of effectuating a
reincorporation of Tenant into a Delaware corporation (the "Reincorporated
Entity"), so long as the identity of the owners of 100% of the corporate shares
of the Reincorporated Entity are, at the time of the reincorporation, the same
as the shareholders of Tenant. Landlord has the absolute right to withhold its
consent without giving any reason whatsoever, except as herein expressly
provided to the contrary. In no event shall this Lease be assigned or assignable
by voluntary or involuntary bankruptcy proceedings or otherwise, and in no event
shall this Lease or any rights or privileges hereunder be an asset of Tenant
under any bankruptcy, insolvency or reorganization proceedings.
16.2. Rentals Based on Net Income. Without thereby limiting the
---------------------------
generality of the foregoing provisions of this Article 16, Tenant expressly
covenants and agrees not to enter into any lease, sublease or license,
concession or other agreement for use, occupancy or utilization of the Premises
which provides for rental or other payment for such use, occupancy or
utilization based in whole or in part on the net income or profits derived by
any person from the property leased, used, occupied or utilized (other than an
amount based on a fixed percentage or percentages of receipts or sales), and
that any such purported lease, sublease or license, concession or other
agreement shall be absolutely void and ineffective as a conveyance of any right
to or interest in the possession, use, occupancy or utilization of any part of
the Premises.
16.3. Tenant to Remain Obligated. Notwithstanding anything
--------------------------
contained in this Article 16 to the contrary, consent by Landlord to any
assignment, subletting, use, occupancy or transfer shall not operate to relieve
Tenant from any covenant or obligation under or pursuant to this Lease, or be
deemed to be a consent to or relieve
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Tenant from obtaining Landlord's consent to any subsequent assignment, transfer,
lien, charge, subletting, use or occupancy. Tenant shall pay all of Landlord's
reasonable costs and expenses, including attorneys' fees, incurred in connection
with any assignment, transfer, lien, charge, subletting, use or occupancy made
or requested by Tenant. Tenant agrees that all advertising by Tenant or on
Tenant's behalf with respect to the assignment of this Lease or subletting of
space must be approved in writing by Landlord prior to publication.
16.4. Tenant's Notice; Landlord's Right to Terminate. Tenant shall,
----------------------------------------------
by notice in writing, advise Landlord of its intention from, on and after a
stated date (which shall not be less than sixty (60) days after the date of
Tenant's notice) to assign this Lease or sublet any part or all of the Premises
for the balance of any part of the Term, and, in such event, Landlord shall have
the right, to be exercised by giving written notice to Tenant within thirty (30)
days after receipt of Tenant's notice, to recapture the space described in
Tenant's notice, and such recapture notice shall, if given, terminate this Lease
with respect to the space therein described as of the date stated in Tenant's
notice. Tenant's said notice shall state the name and address of the proposed
subtenant or assignee, and a true and complete copy of the proposed sublease or
assignment and sufficient information to permit Landlord to determine the
financial responsibility and character of the proposed subtenant or assignee
shall be delivered to Landlord with said notice. If Tenant's notice shall cover
all of the space hereby demised, and if Landlord shall give the aforesaid
recapture notice with respect thereto, the Term of this Lease shall expire on
the date stated in Tenant's notice as fully and completely as if that date had
been herein definitely fixed for the expiration of the Term. If, however, this
Lease shall be terminated pursuant to the foregoing with respect to less than
the entire Premises, the Basic Rent and Tenant's share of taxes and all other
expenses relating to the maintenance and operation of the Premises shall be
adjusted on the basis of the number of rentable square feet retained by Tenant,
and this Lease, as so amended, shall continue thereafter in full force and
effect; provided that Tenant shall pay all costs in connection with the physical
subdivision of any portion of the Premises. This Section 16.4 shall not apply
to any sublet of a portion of the Premises complying with Section 16.9 hereof.
16.5. Landlord's Consent. If Landlord, upon receiving Tenant's said
------------------
notice with respect to any such space, shall not exercise its right to terminate
as aforesaid, Landlord will not unreasonably
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withhold its consent to Tenant's assignment of this Lease or subletting the
space covered by its notice. Landlord shall not be deemed to have unreasonably
withheld its consent to a sublease of all or part of the Premises or an
assignment of this Lease if its consent is withheld because: (a) Tenant is then
in default hereunder; (b) any notice of termination of this Lease or termination
of Tenant's possession shall have been given under Article 20 hereof; (c) the
portion of the Premises which Tenant proposes to sublease, including the means
of ingress to and egress from and the proposed use thereof, and the remaining
portion of the Premises will violate any laws, ordinances, orders, rules,
regulations or requirements of any federal, state, municipal or local
government, department, commission, or board; (d) the proposed use of the
Premises by the subtenant or assignee does not conform with the use permitted by
Section 3.1 hereof; or (e) in the reasonable judgment of Landlord, the proposed
subtenant or assignee is of a character or is engaged in a business which would
be deleterious to the reputation of the Premises, or the subtenant or assignee
is not sufficiently financially responsible to perform its obligations under the
proposed sublease or assignment; provided, however, that the foregoing are
merely examples of reasons for which Landlord may withhold its consent and shall
not be deemed exclusive of any permitted reasons for reasonably withholding
consent, whether similar to or dissimilar from the foregoing examples.
16.6. Profits. If Tenant, having first obtained Landlord's consent
-------
to any sublease or assignment, or if Tenant or a trustee in bankruptcy for
Tenant pursuant to any Bankruptcy Law (as hereinafter defined), shall assign
this Lease or sublet the Premises, or any part thereof, at a rental or for other
consideration in excess of the Rent or pro rata portion thereof due and payable
by Tenant under this Lease, then Tenant shall pay to Landlord as additional rent
(a) in the case of an assignment, any such excess rent or other monetary
consideration immediately upon receipt thereof, or (b) in the case of a
sublease, (i) on the first day of each month during the term of any sublease,
the excess of all rent and other consideration due from the subtenant for such
month over the Rent then payable to Landlord pursuant to the provisions of this
Lease for said month (or if only a portion of the Premises is being sublet, one-
half of the excess of all rent and other consideration due from the subtenant
for such month over the portion of the Rent then payable to Landlord pursuant to
the provisions of this Lease for said month which is allocable on a square
footage basis to the space sublet), and (ii) immediately upon receipt thereof,
one-half of any other consideration realized by Tenant from such subletting; it
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being agreed, however, that Landlord shall not be responsible for any deficiency
if Tenant shall assign this Lease or sublet the Premises or any part thereof at
a rental less than that provided for herein.
16.7. Assignee to Assume Obligations. If Tenant shall assign this Lease
------------------------------
as permitted herein, the assignee shall expressly assume all of the obligations
of Tenant hereunder in a written instrument satisfactory to Landlord and
furnished to Landlord not later than fifteen (15) days prior to the effective
date of the assignment. If Tenant shall sublease the Premises as permitted
herein, Tenant shall obtain and furnish to Landlord, not later than fifteen (15)
days prior to the effective date of such sublease and in form satisfactory to
Landlord, the written agreement of such subtenant stating that the subtenant
will attorn to Landlord, at Landlord's option and written request, in the event
this Lease terminates before the expiration of the sublease. No such assignment
or assumption or attornment shall affect or reduce any of the obligations of
Tenant under or pursuant to this Lease, and all such obligations shall continue
in full force and effect as obligations of a principal and not as obligations of
a guarantor or surety, to the same extent as though no assignment or subletting
had been made. No assignment or sublease by Tenant made as permitted under this
Article 16 shall impose any obligations on Landlord or otherwise affect any of
the rights of Landlord under this Lease.
16.8. Change of Control. Notwithstanding anything to the contrary
-----------------
in this Article 16, if Tenant is a corporation (other than a corporation the
stock of which is publicly traded), the term "Change of Control" shall mean any
change in the ownership of the shares of stock which constitute control of
Tenant other than by reason of gift or death. The term "control" as used herein
means the power to directly or indirectly direct or cause the direction of the
management or policies of Tenant. If Tenant is a partnership (general or
limited) the term "Change of Control" shall mean any change in the ownership of
the partnership interests which constitute control of Tenant other than by
reason of gift or death. If Tenant is a limited liability company, the term
"Change of Control" shall mean any change in the ownership of the membership
interests which constitute control of Tenant other than by reason of gift or
death.
16.9. Permitted Subleases. Notwithstanding anything contained in
-------------------
Section 16.1 hereof to the contrary, Tenant shall have the right from time to
time during the Term to sublease portions of the
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Premises provided that (i) no more than fifty percent (50%) of the Premises,
including that portion of the Premises which Tenant intends to sublease, are not
at such time subject to one or more subleases; (ii) no Event of Default then
exists; (iii) the portion(s) of the Premises subleased or to be subleased,
including the means of ingress or egress thereto and egress therefrom and the
proposed use thereof, and the remaining portion of the Premises, will not
violate any Laws; (iv) in the reasonable judgment of Landlord, the proposed
sublessee is of a character or is engaged in a business which would not be
deleterious to the reputation of the Building; and (v) the proposed sublessee is
not a government or a government agency.
17. LETTER OF CREDIT
17.1. Letter of Credit. As a material inducement to Landlord to
----------------
enter into this Lease, Tenant shall deliver to Landlord at the time that Tenant
executes and delivers this Lease, that certain unconditional irrevocable letter
of credit in the original amount of $500,000 (the "Letter of Credit"), a copy of
which is attached here to as Exhibit E. The Letter of Credit (or any
---------
replacement thereof as described below) shall: (a) be in the form and substance
approved by Landlord; (b) name Landlord or such person or entity which Landlord
may from time to time designate, as the beneficiary under the Letter of Credit;
(c) specifically allow Landlord to draw upon it at any time and from time to
time by delivering to the issuer of the Letter of Credit written notice
certified as being true by Landlord certifying to such issuer that Landlord is
entitled to draw thereunder pursuant to the terms of this Lease; (d) expire no
earlier than ninety (90) days after the end of the Term of the Lease and (e) be
drawn under an FDIC-insured financial institution located in the central
business district of the City of Chicago approved by Landlord. The Letter of
Credit shall have an expiration date no earlier than one (1) year after the date
of issue, and Tenant agrees to cause the issuer of the Letter of Credit to renew
the Letter of Credit, from time to time until such time as it has been released
by Landlord as required herein, at least ninety (90) days prior to the
expiration of the Letter of Credit upon the same terms and conditions. If the
Premises are conveyed by Landlord, Tenant, upon written request, shall amend the
Letter of Credit to change the beneficiary thereunder to the successor landlord.
In the event: (i) Tenant defaults in the performance of its obligations under
this Lease, and such default is not cured within the applicable notice period
provided in this Lease (provided, however that, for purposes of this Section
17.1, Tenant shall not have the right to receive any notice
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with respect to a monetary default more than twice during the Term); or (ii)
Tenant fails to deliver, renew or replace the Letter of Credit within the
applicable time limits and as otherwise provided herein, then, in any such
event, Landlord or its successor or assign, in addition to all rights and
remedies which Landlord or its successor or assign, may have under this Lease or
at law, shall have the right to present the Letter of Credit for payment and
require the issuer of the Letter of Credit to make payment to Landlord or its
successor or assign the entire amount represented by the Letter of Credit. Any
proceeds obtained by Landlord by presenting the Letter of Credit shall be used
and applied by Landlord as the Security Deposit as provided in Section 5.6.
17.2. Release of Letter of Credit. If, during any Lease Year: (i)
---------------------------
Tenant has, to Landlord's reasonable satisfaction, not to be unreasonably
withheld, reported and achieved an annual net profit for two (2) consecutive
fiscal years, and for the same two consecutive fiscal years has a net worth
equal to or exceeding $25,000,000;(ii) Tenant deposits with Landlord an amount
equal to two monthly installments of the then applicable Basic Rent, which
deposit shall then be deemed to be the Security Deposit under this Lease; (iii)
there then exists no Event of Default; and (iv) no portion of the Security
Deposit has theretofore been applied and not restored, then, the amount of the
Letter of Credit shall be reduced by $100,000. Any reduction of the Letter of
Credit pursuant to the immediately preceding sentence shall not occur more
frequently than once each Lease Year. For purposes of this Section 17.2, "net
profit", and Tenant's reporting and achievement of the same shall be as
determined by Landlord in accordance with generally accepted accounting
principles pursuant to the financial statements delivered pursuant to Section
18.1 and such further financial information and statements as Landlord may
reasonably require.
18. FINANCIAL STATEMENTS; INSPECTION
18.1. Financial Statements. The Tenant shall provide Landlord within
--------------------
90 days of the end of each fiscal year of Tenant and any guarantor of this
Lease, including Guarantor, annual audited balance sheets, income statements and
statements of cash flow for tenant and Guarantor and any other guarantor of this
Lease, in form acceptable to Landlord from an independent auditor certifying
such statements.
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18.2. Inspection. Landlord shall, upon not less than 48 hours
----------
notice and not more than twice during any Lease Year have the right, at
Landlord's sole expense, during normal business hours, to visit and inspect the
Premises, to examine all of Tenants books of account, records, reports and other
papers, to make copies and extras therefrom, and to discuss the respective
affairs, finances and accounts with Tenant's respective officers, employees and
independent public accountants (and by this provision, the Tenant authorizes
said accountants to discuss with the Landlord the affairs and finances of the
Tenant) all at such reasonable times and costs and as often as may be reasonably
requested. Tenant shall not be required to pay or reimburse Landlord for such
expenses unless an Event of Default has occurred.
19. FIXTURES
19.1. Fixtures. All buildings on the Premises, all Improvements and
--------
all plumbing, heating, lighting, electrical, sprinkler, ventilation and air-
conditioning fixtures and equipment, and other articles of personal property
used in the operation of the Premises (as distinguished from operations incident
to the business of Tenant and the Retained Property), whether or not attached or
affixed to the Premises (hereinafter referred to as "building fixtures"), shall
be and remain a part of the Premises and shall constitute the property of
Landlord.
19.2. Equipment. All of Tenant's trade fixtures and all personal
---------
property, fixtures, apparatus, machinery and equipment now or hereafter located
upon the Premises, including those items listed on Exhibit F hereto, other than
---------
building fixtures as defined in Section 19.1 hereof, shall be and remain the
personal property of Tenant, and the same are herein referred to as "Tenant's
equipment."
19.3. Removal. Tenant's equipment may be removed from time to time
-------
by Tenant, provided, however, that if such removal shall injure or damage the
Premises, Tenant shall repair the damage and place the Premises in the same
condition as it would have been if such equipment had not been installed.
20. EVENTS OF DEFAULT; REMEDIES
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20.1. Event of Default. Any of the following occurrences or acts
----------------
shall constitute an event of default (herein called an "Event of Default") under
this Lease:
(i) if Tenant, at any time during the continuance of this Lease (and
regardless of the pendency of any bankruptcy, reorganization,
receivership, insolvency or other proceedings, at law, in equity,
or before any administrative tribunal, which have or might have
the effect of preventing Tenant from complying with the terms of
this Lease), shall
(A) fail to make any payment when due of Basic Rent, Additional
Rent or other sum herein required to be paid by Tenant
hereunder and such failure continues for five (5) days, or
(B) fail to observe or perform any of the other covenants or
conditions in this Lease which Tenant is required to observe
and perform and such failure shall continue for fifteen (15)
days after a written notice to Tenant (provided however that
if a non-monetary, non-hazardous covenant is in default
which by its nature cannot be fully cured within said 15 day
period and within said 15 day period Tenant takes all
reasonable steps needed to commence its cure and correction
and diligently continues to prosecute such cure and does in
fact cure or correct such default within a reasonable period
thereafter, but in no event more than 30 days after the
expiration of said 15-day period, then such occurrence shall
not be an Event of Default hereunder), or
(C) if a default involves a hazardous condition for which Tenant
is obligated pursuant to the terms of this Lease, and is not
cured by Tenant immediately upon written notice to Tenant,
or
(D) cease to operate its business and operations at abandon the
Premises during the Term;
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(ii) if any representation or warranty of Tenant or any guarantor of
Tenant's obligations under this Lease, including Guarantor
("guarantor"), set forth in any notice, certificate, demand,
request or other instrument delivered pursuant to, or in
connection with this Lease shall prove to be either false or
misleading in any material respect as of the time when the same
shall have been made;
(iii) if Tenant or any guarantor, shall file a petition commencing a
voluntary case under the Federal Bankruptcy Code or any other
federal or state law (as now or hereafter in effect) relating to
bankruptcy, insolvency, reorganization, winding-up or adjustment
of debts (hereinafter collectively called "Bankruptcy Law") or
if Tenant or any guarantor, shall
(A) apply for or consent to the appointment of, or the taking of
possession by, any receiver, custodian, trustee, United
States Trustee or liquidator (or other similar official) of
the Premises or any part thereof or of any substantial
portion of Tenant's or any guarantor's, or
(B) make a general assignment for the benefit of its creditors,
or
(C) fail to controvert in timely and appropriate manner, or in
writing acquiesce to, any petition commencing an involuntary
case against Tenant or any guarantor, or otherwise filed
against Tenant or any guarantor, pursuant to any Bankruptcy
Law, or
(D) take any action in furtherance of any of the foregoing;
(iv) if an order for relief against Tenant or any guarantor, shall be
entered in any involuntary case under the Federal Bankruptcy
Code or any similar order against Tenant shall be entered
pursuant to any other Bankruptcy Law, or if a petition
commencing an
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involuntary case against Tenant or any guarantor, or proposing
the reorganization of Tenant or any guarantor, under any
Bankruptcy Law shall be filed and not be discharged or denied
within ninety (90) days after such filing, or if a proceeding or
case shall be commenced in any court of competent jurisdiction
seeking
(A) the liquidation, reorganization, dissolution, winding-up or
adjustment of debts of Tenant or any guarantor, or
(B) the appointment of a receiver, custodian, trustee, United
States Trustee or liquidator (or any similar official) of
the Premises or any part thereof or of Tenant or any
guarantor, or of any substantial portion of Tenant's or any
guarantor's, or
(C) any similar relief as to Tenant or any guarantor, pursuant
to any Bankruptcy Law, and any such proceeding or case shall
continue undismissed, or an order, judgement or decree
approving or ordering any of the foregoing shall be entered
and continue unstayed and in effect for ninety (90) days;
(v) if the Premises shall be left both abandoned and without
maintenance as provided herein, for a period of ten (10) days; or
(vi) if Tenant or any guarantor of this Lease, shall commit a default
under, fail to perform or breach any obligation or covenant under
such guarantor's guaranty, and such default, failure or breach
shall continue for 30 days after written notice to Tenant.
20.2. Landlord's Remedies. Upon the occurrence and continuation of
-------------------
any one or more of the foregoing Events of Default, Landlord at its option may,
with or without notice or demand of any kind to Tenant or any other person, have
any one or more of the following described remedies in addition to all other
rights and remedies provided at law or in equity or elsewhere herein:
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(i) Landlord may terminate this Lease and the Term created
hereby, in which event Landlord may forthwith repossess the Premises
and be entitled to recover forthwith, in addition to any other sums or
damages for which Tenant may be liable to Landlord, as damages a sum
of money equal to the excess of the value of the Rent provided to be
paid by Tenant for the balance of the Term over the fair market rental
value of the Premises (which fair market value shall be computed using
a present value calculation utilizing the Federal Reserve Board's then
current Discount Rate), after deduction of all anticipated expenses of
reletting, for said period. Should the fair market rental value of the
Premises, after deduction of all anticipated expenses of reletting,
for the balance of the Term exceed the value of the Rent provided to
be paid by Tenant for the balance of the Term, Landlord shall have no
obligation to pay to Tenant the excess or any part thereof or to
credit such excess or any part thereof against any other sums or
damages for which Tenant may be liable to Landlord.
(ii) Landlord may terminate Tenant's right of possession and may
repossess the Premises by forcible entry and detainer suit, by taking
peaceful possession or otherwise, without terminating this Lease, in
which event Landlord may, but shall be under no obligation to, relet
the same for the account of Tenant, for such Rent and upon such terms
as shall be satisfactory to Landlord, and it is understood that
Landlord may give priority in its efforts to renting other unleased
comparable real estate which Landlord may then have available. For the
purpose of such reletting, Landlord is authorized to decorate, repair,
remodel or alter the Premises. If Landlord shall fail to relet the
Premises, Tenant shall pay to Landlord as damages a sum equal to the
amount of the Rent reserved in this Lease for the balance of the Term.
If the Premises are relet and a sufficient sum shall not be realized
from such reletting after paying all of the costs and expenses of all
decoration, repairs, remodeling, alterations and additions and the
expenses of such reletting and of the collection of the Rent accruing
therefrom to satisfy the Rent provided for in this Lease, Tenant shall
satisfy and pay the difference upon demand therefor from time to time.
Tenant agrees that Landlord may file suit to recover any sums falling
due under the terms of
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this Section 20.2 from time to time and that no suit or recovery of
any portion due Landlord hereunder shall be any defense to any
subsequent action brought by Landlord for any further amounts alleged
to be due.
Notwithstanding the cure or grace periods set forth above, Tenant agrees and
acknowledges that (x) sums remaining unpaid shall continue to accrue interest
during any such cure or grace period, at the Lease Interest Rate; (y) Tenant
shall not be entitled to more than two (2) such written notices and cure or
grace periods in any consecutive 12 month period during the Term of this Lease;
and (z) in addition to any and all other remedies to which Landlord is entitled
for the non-payment or late payment of Rent (including interest on sums due but
not yet received), Landlord shall also be entitled to collect a late charge as
set forth in Section 5.4.
20.3. Waiver. (a) Tenant hereby expressly waives, so far as permitted
------
by law, the service of any notice of intention to re-enter the Premises provided
for in any statute, and except as is herein otherwise provided Tenant, for and
on behalf of itself and all persons claiming through or under Tenant (including
any leasehold mortgagee or other creditor), also waives any and all right of
redemption or re-entry or re-possession in case Tenant shall be dispossessed by
a judgment or by warrant of any court or judge or in case of re-entry or
repossession by Landlord or in case of any expiration or termination of this
Lease. The terms "enter", "re-enter", "entry" or "re-entry" as used in this
Lease are not restricted to their technical legal meanings.
(b) No failure by Landlord to insist upon the strict performance of any
agreement, term, covenant or condition hereof or to exercise any right or remedy
consequent upon an Event of Default hereof, and no acceptance of full or partial
Rent during the continuance of any such Event of Default, shall constitute a
waiver of any such Event of Default or of such agreement, term, covenant or
condition. No agreement, term, covenant or condition hereof to be performed or
complied with by Tenant, and no Event of Default hereof, shall be waived,
altered or modified except by a written instrument executed by Landlord. No
waiver of any Event of Default shall affect or alter this Lease, but each and
every agreement, term, covenant and condition hereof shall continue in full
force and effect with respect to any other then existing or subsequent Event of
Default hereof.
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(c) Tenant hereby waives and surrenders for itself and all those claiming
under it, including creditors of all kinds, (i) any right or privilege which it
or any of them may have under any present or future constitution, statute or
rule of law to redeem the Premises or to have a continuance of this Lease for
the term hereby demised after termination of Tenant's right of occupancy by
order or judgment of any court or by any legal process or writ, or under the
Terms of this Lease or after the termination of the term of this Lease as herein
provided, and (ii) the benefits of any present or future constitution, statute
or rule of law which exempts property from liability for debt or for distress
for Rent.
20.4. Injunction. In the event of any default hereunder by Tenant or
----------
threatened Event of Default by Tenant of any of the agreements, terms, covenants
or conditions contained in this Lease, Landlord shall be entitled to enjoin such
default or Event of Default or threatened Event of Default and shall have the
right to invoke any right and remedy allowed at law or in equity or by statute.
20.5. Remedies Cumulative. Each right and remedy provided for in this
-------------------
Lease shall be cumulative and shall be in addition to every other right or
remedy provided for in this Lease or now or hereafter existing at law or in
equity or by statute or otherwise, and the exercise or beginning of the exercise
by Landlord or Tenant of any one or more of the rights or remedies provided for
in this Lease or now or hereafter existing at law or in equity or by statute or
otherwise shall not preclude the simultaneous or later exercise by the party in
question of any or all other rights or remedies provided for in this Lease or
now or hereafter existing at law or in equity or by statute or otherwise.
20.6. Landlord's Right to Cure Events of Default. Landlord may, but
------------------------------------------
shall not be obligated to, cure, at any time, without notice, any default by
Tenant under this Lease. Whenever Landlord so elects, all reasonable costs and
expenses incurred by Landlord, including, without limitation, reasonable
attorneys' fees, together with interest thereon at the Lease Interest Rate shall
be paid by Tenant to Landlord upon demand therefor.
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21. EXPENSES OF ENFORCEMENT
21.1. Expenses of Enforcement. Tenant shall pay upon demand all
-----------------------
Landlord's reasonable expenses, including reasonable attorneys' fees and court
costs (together with interest on the amount of said fees, costs and expenses at
the Lease Interest Rate) incurred either directly or indirectly in enforcing any
obligation of Tenant under this Lease after an event of Default and in defending
or otherwise participating in any legal proceedings initiated by or on behalf of
Tenant wherein Landlord is not adjudicated to be in default under this Lease.
22. SUBORDINATION TO MORTGAGES
22.1. Subordination. Subject to Section 22.2, this Lease and the rights
-------------
and interest of Tenant hereunder are subject and subordinate to any and all
present and future ground or underlying leases (individually and collectively,
"Ground Leases") and to the lien of any mortgage, trust deed, or other security
interest, including, but not limited to any purchase money mortgage or other
financing arising out of or in connection with, Landlord's purchase of the Land
Parcel (individually and collectively, "Mortgages"), and to any advances made or
hereafter to be made thereunder, and to the interest thereon, and all
extensions, renewals, consolidations, modifications, and amendments thereof,
unless the holders ("Mortgagee" or Mortgagees") of such Mortgages, or the
lessors ("Ground Lessor" or "Ground Lessors") under such Ground Leases require
in writing that this Lease be superior thereto. Such subordination shall be
automatic and self-operative, and shall not require the execution of any further
instrument to be effective. Notwithstanding the foregoing, Tenant shall at
Landlord's request or at the request of any Mortgagee or Ground Lessor, as the
case may be, execute such further instruments or assurances as Landlord or the
Mortgagee or the Ground Lessor, as the case may be, may reasonably deem
necessary to further evidence or confirm the subordination or superiority of
this Lease to any such Mortgages, or Ground Leases. Tenant hereby irrevocably
authorizes Landlord to execute and deliver in the name of Tenant any such
instrument or instruments if Tenant fails to do so within 10 days of request by
Landlord, provided that such failure shall in no way relieve Tenant from the
obligation of executing such instruments of subordination or superiority.
52
<PAGE>
22.2. Non-Disturbance and Attornment. As a condition to the
------------------------------
subordination set forth in Section 22.1 above, Landlord shall deliver to Tenant,
and Tenant shall execute, as soon as practical after the execution hereof, a
non-disturbance and attornment agreement from any present Mortgagee, using said
Mortgagee's customary form. Landlord further agrees that it shall be a condition
to the subordination set forth in Section 22.1 above with respect to any future
Mortgagee that Landlord deliver a non-disturbance and attornment agreement from
said future Mortgagee or Ground Lessor using such Mortgagee's or Ground Lessor's
then customary form, as the case may be. Tenant agrees that no action taken by
the Mortgagee to enforce the Mortgage by foreclosure, or by accepting a deed in
lieu of foreclosure, or by resorting to any other remedies available to the
Mortgagee, shall terminate this Lease or invalidate any of the terms thereof and
that Tenant will attorn to the Mortgagee, to the purchaser at a foreclosure
sale, or to a grantee in a voluntary conveyance, and will recognize such entity
as Landlord for the balance of the Term of the Lease, providing that, as a
condition to the subordination set forth in Section 22.1 above, the Mortgagee
will agree with the Tenant that, as long as no Event of Default shall exist and
be continuing hereunder, Tenant's possession will not be disturbed by the
Mortgagee. Such attornment shall be automatic and self-operative and no further
instrument shall be required for said attornment to be effective.
Notwithstanding the foregoing, Tenant shall at the request of Landlord or any
Mortgagee execute such further instruments as Landlord or such Mortgagee may
reasonably deem necessary to further evidence or confirm the attornment and non-
disturbance set forth herein.
23. ESTOPPEL CERTIFICATE; CONSENT TO ASSIGNMENT
23.1. Form Estoppel Certificate. Tenant shall at any time and from time
-------------------------
to time, within ten (10) days of request by Landlord execute, acknowledge and
deliver to Landlord an executed Estoppel Certificate on the form attached hereto
as Exhibit D or such other form as Landlord may from time to time reasonably
---------
require. Any such certificate may be relied upon by any Mortgagee, assignee,
prospective purchaser, prospective Mortgagee or Ground Lessor of the Premises.
23.2. Consent to Assignment. From time to time during the Term of this
---------------------
Lease, Landlord expects to secure financing of its interest in the Premises by
assigning Landlord's interest in this Lease and the sums payable hereunder. In
the event of any such assignment, Tenant will, within ten (10) days of request
by Landlord, execute, acknowledge
53
<PAGE>
and deliver to Landlord a consent to such assignment addressed to such assignee
in a form satisfactory to such assignee and Tenant will produce, at Tenant's
expense, such certificates, opinions of counsel and other documents as may be
reasonably requested by such assignee.
23.3. Failure to Deliver. Tenant hereby appoints Landlord as attorney-
------------------
in-fact for Tenant with full power and authority to execute and deliver in the
name of Tenant, if Tenant fails to execute and deliver within 10 days of a
request by Landlord, any such Estoppel Certificate or consent to assignment as
described in this Article 23 so requested by Landlord or any existing or
prospective purchaser, mortgagee, assignee or ground lessor. In the event that
Tenant fails to deliver a fully executed and complete Estoppel Certificate or
consent to assignment within the aforesaid ten (10) day period, such failure by
Tenant shall be conclusive evidence, upon which Landlord and any such purchaser,
mortgagee, assignee or ground lessor shall be entitled to rely, that this Lease
is in full force and effect and that Landlord is not in default, and Tenant
shall be estopped from asserting against Landlord or any such purchaser,
mortgagee, assignee, or any ground lessor any defaults of Landlord existing at
that time; provided, however, that Tenant shall not thereby be relieved of the
affirmative obligation to give such statement. Tenant's failure to complete,
execute and deliver any such Estoppel Certificate or consent to assignment
within the aforesaid ten (10) day period shall be deemed to be an Event of
Default under this Lease.
24. MERGER
24.1. No Merger. There shall be no merger of this Lease or the leasehold
---------
estate hereby created with the fee estate in the Premises or any part thereof by
reason of the same person acquiring or holding, directly or indirectly, this
Lease or the leasehold estate hereby created or any interest in this Lease or in
such leaseholder estate as well as the fee estate in the Premises or any portion
thereof.
25. SURRENDER
25.1. Surrender. Except as otherwise expressly provided in this Lease or
---------
in any of the Exhibits hereto, upon the termination of this Lease whether by
forfeiture, lapse of time or otherwise, or upon the termination of Tenant's
right to possession of the Premises, Tenant will at once surrender and deliver
up the Premises, together with all improvements thereon (regardless of whether
such improvements were
54
<PAGE>
constructed by Tenant at Tenant's expense), except the Retained Property, in
their then as is condition, to Landlord. All additions, hardware, improvements,
temporary or permanent, in or upon the Premises placed there by Tenant, except
the Retained Property, shall become Landlord's property and shall remain upon
the Premises upon such termination of this Lease by lapse of time or otherwise,
without compensation or allowance or credit to Tenant, unless Landlord requests
their removal. If Landlord so requests removal of said additions, hardware, or
improvements and/or the Retained Property, and Tenant does not make such removal
by the termination of this Lease, or within ten (10) days after such request,
whichever is later, Landlord may remove the same and deliver the same to any
other place of business of Tenant or warehouse the same, and Tenant shall pay
the cost of such removal, delivery and warehousing to Landlord on demand.
25.2. Equipment. Upon the termination of this Lease by lapse of time, or
---------
otherwise Tenant may remove Tenant's equipment in addition to any Retained
property, provided, however, that the Tenant shall repair any injury or damage
to the Premises which may result from such removal. If Tenant does not remove
Tenant's equipment or Retained Property from the Premises prior to the end of
the Term, however ended, Landlord may, at its option, remove the same and
deliver the same to any other place of business of Tenant or warehouse the same,
and Tenant shall pay the cost of such removal (including the repair of any
injury or damage to the Premises resulting from such removal), delivery and
warehousing to Landlord on demand. If Tenant, within thirty (30) days after the
termination of this Lease, fails to recover Tenant's equipment and/or the
Retained Property and pay to Landlord all amounts due and payable by Tenant to
Landlord under this Section 25.2, then, Landlord may treat Tenant's equipment
and/or the Retained Property, as having been conveyed to Landlord with this
Lease as a Bill of Sale, without further payment or credit by Landlord to
Tenant.
25.3. Holding Over. Any holding over by Tenant of the Premises after the
------------
expiration or sooner termination of this Lease shall operate and be construed to
be a tenancy from month to month only, at 150% of the most recent monthly rate
of Rent and other charges payable hereunder for the then Term, or at the
election of Landlord expressed in a written notice to Tenant, and not otherwise,
such holding over shall constitute a renewal of this Lease for one (1) year at
150% of the most recent annual Rent and upon all of the other covenants and
agreements contained in this Lease, provided, however, that if Tenant quits and
fully vacates the Premises within ten (10) days following
55
<PAGE>
such Landlord's notice then no such one year renewal shall be created, and
Tenant shall be liable for the month-to-month tenancy Rent set forth above. If
Tenant continues to hold over after a written demand by Landlord for possession
at the expiration of this Lease or after termination by either party of a month-
to-month tenancy created pursuant to this Section, or after termination of the
Lease or of Tenant's right to possession pursuant to any other section hereof,
Tenant shall pay monthly Rent at a rate equal to double the rate of Rent payable
hereunder immediately prior to the expiration or other termination of the Lease
or Tenant's right to possession. Nothing contained in this Section 25.3 shall be
construed to give Tenant the right to hold over at any time, and Landlord may
exercise any and all remedies at law or in equity to recover possession of the
Premises, as well as any damages incurred by Landlord due to Tenant's failure to
vacate the Premises and deliver possession to Landlord as herein provided.
26. SEPARABILITY; SAVINGS CLAUSE
26.1. Separability. Each and every covenant and agreement contained in
------------
this Lease is separate and independent, and the breach of any thereof by
Landlord shall not discharge or relieve Tenant from any obligation hereunder.
If any term or provision of this Lease or the application thereof to any person
or circumstances shall at any time be invalid and unenforceable, the remainder
of this Lease, or the application of such term or provision to persons or
circumstances or at any time other than those to which it is invalid or
unenforceable, shall not be affected thereby, and each term and provision of
this Lease shall be valid and shall be enforced to the extent permitted by law.
26.2. Savings Clause. No provision contained in this Lease which
--------------
purports to obligate the Tenant to pay any amount of interest or any fees, costs
or expenses which are in excess of the maximum permitted by applicable law,
shall be effective to the extent that it calls for payment of any interest or
other sums in excess of such maximum.
27. BROKERAGE
27.1. Brokerage. Each party represents and warrants to the other party
---------
that it has had no dealings with a broker or agent in connection with this Lease
other than Markley Stearns Partners and each party covenants to pay, hold
harmless and indemnify the other party from and
56
<PAGE>
against any and all cost, expense or liability for any compensation, commissions
and charges claimed by any other broker or other agent with respect to this
Lease or the negotiation thereof.
28. RECORDING OF MEMORANDUM OF LEASE
28.1. Recording. This Lease shall not be recorded, but the parties agree,
---------
at the request of either of them, to execute a Memorandum of Lease for
recording, containing the names of the parties, the legal description and the
Term of this Lease and such other information, if any, that may be required
under applicable law.
29. NOTICES
29.1. Notices, Demands and Other Instruments. All notices, demands,
--------------------------------------
requests, consents, approvals and other instruments required or permitted to be
given pursuant to the terms of this Lease shall be in writing and shall be
deemed delivered on the earlier of (a) actual receipt, or (b) the next business
day after the date when sent by Federal Express or other nationally recognized
overnight courier, addressed as follows:
If to Landlord:
Markley Stearns, Inc.
875 North Michigan Avenue
26th Floor
Chicago, Illinois 60611
Attn: Eli Stearns and Dan Sullivan
with a duplicate copy to:
Levenfeld, Eisenberg,
Janger & Glassberg
33 West Monroe Street, 21st Flr.
Chicago, Illinois 60603
Abraham Trieger, Esq.
57
<PAGE>
If to Tenant:
Exodus Communications, Inc.
2650 San Tomas Expressway
Santa Clara, California 95051
Attn: Richard Stoltz
with a duplicate copy to:
Exodus Communications, Inc.
2650 San Tomas Expressway
Santa Clara, California 95051
Attn: Adam Wegner, Esq.
Landlord and Tenant shall each have the right from time to time to specify as
its address for purposes of this Lease any other address in the United States of
America upon fifteen (15) days' written notice thereof, similarly given, to the
other party.
30. SUCCESSORS AND ASSIGNS; MEANING OF LANDLORD;
LIMITATION ON LANDLORD'S LIABILITY
30.1. Successors and Assigns. All of the covenants, agreements,
----------------------
conditions and undertakings in this Lease contained shall extend and inure to
and be binding upon not only Landlord and Tenant, but also all of their heirs,
executors, administrators, successors and assigns the same as if they were in
every case specifically named, and wherever in this Lease reference is made to
either of the parties hereto, it shall be held to include and apply to, wherever
applicable, the heirs, executors, administrators, successors and assigns of such
party, but this Section shall not operate to permit any transfer, assignment,
mortgage, encumbrance, lien, charge or subletting contrary to the provisions
contained in this Lease. Nothing herein contained shall be construed to grant
or confer upon any person or persons, firm, corporation or governmental
authority, other than the parties herein, their heirs, executors,
administrators, successors and assigns, any right, claim or privilege by virtue
of any covenant, agreement, condition or undertaking in this Lease contained.
30.2. Meaning of Landlord. The term "Landlord" as used in this Lease, so
-------------------
far as covenants or obligations on the part of Landlord are concerned, shall be
limited to mean and include only the owner or
58
<PAGE>
owners at the time in question of the fee of the Premises, and in the event of
any transfer or transfers of the title to such fee, the Landlord herein named
(and in case of any subsequent transfers or conveyances, the then grantor) shall
be automatically freed and relieved, from and after the date of such transfer or
conveyance, of all personal liability as respects the performance of any
covenants or obligations on the part of Landlord contained in this Lease to be
performed after the date of such assignment; provided that this Lease is
assigned and transferred in full, and the assignee assumes all of Landlord's
obligations to be performed under this Lease after the date of such assignment;
and provided, further, that any funds in the hands of such Landlord or the then
grantor at the time of such transfer, in which Tenant has an interest, shall be
turned over to the grantee, and any amount then due and payable to Tenant by
Landlord or the then grantor under any provisions of this Lease, shall be paid
to Tenant.
30.3. Limitation on Landlord's Liability. If Landlord or any successors
----------------------------------
in interest shall be an individual, joint venture, tenancy in common, firm,
limited liability company or partnership, general or limited, there shall be no
personal liability on such individual, limited liability company, or partnership
joint venture, tenancy in common, firm, or partnership, or on the members or
partners of such joint venture, tenancy in common, firm, or partnership or on
such joint venture, tenancy in common, firm, or partnership, in respect to any
of the covenants or conditions of this Lease, and in the event of any default or
breach by Landlord with respect to any of the terms, covenants and conditions of
this Lease to be observed, honored or performed by Landlord, Tenant shall look
solely to the estate and property of Landlord in the Land Parcel and
Improvements owned by Landlord comprising the Premises for the collection of any
judgment (or any other judicial procedures, requiring the payment of money by
Landlord) and no other property or assets of Landlord shall be subject to levy,
execution, or other procedures for satisfaction of Tenant's remedies.
31. MISCELLANEOUS
31.1. Captions. The captions of this Lease are for convenience only and
--------
are not to be construed as part of this Lease and shall not be construed as
defining or limiting in any way the scope or intent of the provisions hereof.
59
<PAGE>
31.2. Applicable Law. This Lease shall be construed and enforced in
--------------
accordance with the laws of the state in which the Premises are located.
31.3. Amendment in Writing. None of the covenants, terms or conditions
--------------------
of this Lease, to be kept and performed by either party, shall in any manner be
altered, waived, modified, changed or abandoned, except by a written instrument,
duly signed, acknowledged and delivered by the other party.
31.4. Relationship of the Parties. Nothing contained herein shall be
---------------------------
deemed or construed by the parties herein, nor by any third party, as creating
the relationship of principal and agent or of partnership, or of joint venture
by the parties hereto, it being understood and agreed that no provisions
contained in this Lease nor any acts of the parties hereto shall be deemed to
create any relationship other than the relationship of Landlord and Tenant.
31.5. Payments. No payment by Tenant or receipt by Landlord of a lesser
--------
amount than the Basic Rent herein stipulated and Additional Rent shall be deemed
to be other than on account of the earliest stipulated Rent, nor shall any
endorsement or statement on any check or any letter accompanying any check or
payment as Rent be deemed an accord and satisfaction, and Landlord may accept
such check or payment without prejudice to Landlord's right to recover the
balance of such Rent or pursue any other remedy in this Lease provided. Landlord
shall have the right to apply payments received from Tenant pursuant to this
Lease (regardless of Tenant's designation of such payments) to satisfy any
obligations of Tenant hereunder, in such order and amounts, as Landlord in its
sole discretion, may elect.
31.6. Terms. The necessary grammatical changes required to make the
-----
provisions hereof apply either to corporations or partnerships or individuals,
men or women, as the case may require, shall in all cases be assumed as though
in each case fully expressed.
31.7. Lease Contains All Terms. All prior negotiations, representations
------------------------
and understandings between Landlord and Tenant are merged and incorporated
herein. No other agreement between Landlord and Tenant with respect to the
Premises exists, unless set forth in writing and executed by the parties.
60
<PAGE>
31.8. Tenant's Representation and Warranty. By the execution hereof,
------------------------------------
Tenant and each individual signing on behalf of Tenant, does hereby represent
and warrant that: (1) Tenant has the full power and authority to enter into this
Lease and perform the obligations of Tenant hereunder; (2) by the execution
hereof this Lease is a valid, binding obligation of Tenant, enforceable in
accordance with its terms, except for the application of bankruptcy and other
debtor's and creditor's laws generally; (3) all financial statements of Tenant
and Guarantor of Tenant submitted to Landlord are true, correct and complete in
all material respects as of the date of execution hereof. Tenant acknowledges
and agrees that each and all of the foregoing representations and warranties are
being relied upon by Landlord as a material inducement to Landlord's execution
of this Lease.
31.9 Landlord's Representation and Warranty. By the execution hereof,
--------------------------------------
Landlord and each individual signing on behalf of Landlord does hereby represent
that: (1) Landlord has the full power and authority to enter into this Lease and
perform the obligations of Landlord hereunder; and (2) by the execution hereof,
this Lease is a valid, binding obligation of Landlord, enforceable in accordance
with its terms, except for the application of bankruptcy and other debtor's and
creditor's laws generally.
32. COVENANT OF QUIET ENJOYMENT
---------------------------
32.1. Quiet Enjoyment. Subject to the terms of this Lease, Landlord
---------------
covenants and represents that Landlord has full right and power to execute and
perform this Lease and to grant the estate demised herein, and that at all times
when Tenant is not in default under the terms of and during the term of this
Lease, Tenant's quiet and peaceful enjoyment of the Premises shall not be
disturbed or interfered with by Landlord or by any person claiming by, through
or under Landlord.
32.2. Control of Premises. It is understood and agreed that Tenant,
-------------------
during the term of this Lease and any extensions thereof, shall have exclusive
control of the Premises, except as otherwise specifically provided for in this
Lease, and neither Landlord nor any Ground Lessor or any Mortgagee may take any
action pertaining to the Premises without the prior written consent of the
Tenant, except as otherwise specifically provided for in this Lease.
61
<PAGE>
33. EXHIBITS
33.1. Exhibits. The following are Exhibits A, B, C, D, E, F and G
--------
referred to in this Lease, which are hereby incorporated by reference herein and
made a part thereof.
(a) Exhibit A
To Lease: Legal Description of Land Parcel *
(b) Exhibit B
To Lease: Basic Rent Exhibit
(c) Exhibit C
to Lease: Floor Plan *
(d) Exhibit D
to Lease: Estoppel Certificate
(e) Exhibit E
to Lease: Letter of Credit Form *
(f) Exhibit F
to Lease: List of Retained Property
(g) Exhibit G
to Lease: Initial Improvements *
(h) Exhibit H
to Lease: Permitted Alterations *
62
* Omitted from the copy of this agreement with the Securities and Exchange
Commission. Copies of those exhibits will be furnished supplementally to the
Securities and Exchange Commission upon request.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Lease of
the day and year first above written.
LANDLORD: TENANT:
600 Winter Street, L.L.C. Exodus Communications, Inc.
a Delaware Limited
Liability Company
By: /s/ Eli Stearns By: /s/ Dick Stoltz
------------------------- -----------------------------
Its: Manager Name: Dick Stoltz
------------------------ ---------------------------
Its: CFO/COO
----------------------------
(Title)
Attest:
-------------------------
Name:
---------------------------
Its:
----------------------------
(Title)
63
<PAGE>
EXHIBIT A
---------
Legal Description of Land Parcel
A-1
<PAGE>
EXHIBIT B
---------
Basic Rent Exhibit
------------------
LEASE YEAR ANNUAL AMOUNT OF BASE RENT
---------- --------------------------
Primary Term
------------
1
((a) Months 1 through ($19,950.00 per month)
day immediately
preceding the
Expansion Date)
((b) Expansion Date ($53,200.00 per month)
through last day of
first Lease Year)
<TABLE>
<CAPTION>
<S> <C>
2 $651,168.00
3 $664,191.36
4 $677,475.19
5 $691,024.69
6 $704,845.18
7 $718,942.09
8 $733,320.93
9 $747,987.35
10 $762,947.10
First Extended Term
- -------------------
11 $778,206.04
12 $793,770.16
13 $809,645.57
14 $825,838.48
15 $842,355.25
16 $859,202.35
17 $876,386.40
18 $893,914.13
19 $911,792.41
</TABLE>
B-1
<PAGE>
20 $930,028.26
B-2
<PAGE>
EXHIBIT C
---------
Floor Plan
C-1
<PAGE>
EXHIBIT D
---------
Estoppel Certificate
The undersigned, ___________________________________ (the "Tenant") is the
tenant under a lease (the "Lease") dated ___________________ (the "Lease")
between the Tenant and _______________________________________________, an
________________________ (the "Landlord") of certain real property located in
the County of _________ in the State of ______________ as described on attached
Exhibit A (the "Premises") to the Lease. With the understanding that
________________________________ ("Lender") will rely upon the representations
made herein in making a mortgage loan of $________ (the "Loan") to
_____________________________________ evidenced by a Secured Promissory Note
(the "Note") executed by Landlord in favor of Lender and secured by a
____________________ _______________________________________ (the "Deed of
Trust") creating a first lien on the Premises and an Assignment of Leases and
Rents creating a direct and absolute assignment to Lender all of Landlord's
rights, title and interest as Landlord in and to the Lease, Tenant hereby
represents and certifies as follows:
1. The Tenant is the owner and holder of all rights, title and interest in
the Tenant's leasehold estate created by the Lease. Tenant has no actual
knowledge of any prior assignment of the Landlord's interest in the Lease.
2. To Tenant's knowledge, Landlord does not have any unsatisfied
obligations to the Tenant arising out of or incurred in connection with the
construction of the Improvements on the Premises, the sale of the Premises to
the Landlord or the leasing of the Premises to the Tenant, and no right of
termination or offset exists with respect to any Rent or other sums payable or
to become payable by the Tenant under the Lease.
3. All building permits and certificates of occupancy, if any, required
for the operation of the Premises by the Tenant have been obtained, and under
applicable zoning and use laws, ordinances, rules and regulations, as well as
environmental protection laws, the Premises may be used for the purposes
contemplated by the Tenant.
D-1
<PAGE>
4. The Lease is in full force and effect and has not been modified,
supplemented, canceled or amended in any respect except as stated above.
5. The term of the Lease commenced on or before ___________ and continues
through at least _______________. The Tenant is obligated to pay Rent in
monthly installments in an amount not less than $___________, which Rent
obligation is continuing and is not past due or delinquent in any respect. No
installment of Rent has been or will be prepaid more than one month in advance.
6. The Premises comprise a light industrial facility.
7. To the best of Tenant's knowledge after reasonable inquiry, no event
has occurred or is continuing which would constitute a default by Tenant under
the Lease or would constitute such a default but for the requirement that notice
be given or that a period of time elapse or both.
8. The Tenant agrees to deliver to Lender duplicate original copies of all
notices, offers, undertakings, demands, statements, documents or other
communications which it may deliver pursuant to the Lease.
9. The Tenant agrees that its obligations set forth in Section 2.1 of the
Lease concerning indemnification are modified to include Lender, its successors
and assigns and its agents, servants, employees, officers and directors.
10. Any provisions of the Lease notwithstanding and so long as the Loan is
outstanding, Tenant agrees that it will not cause or permit any termination of
the Lease (except in accordance with the terms of the Lease).
11. Without the prior written consent of the Lender, Tenant agrees not to
enter into any agreement subordinating or terminating the Lease (except in
accordance with the terms of the Lease) nor to enter into any agreement amending
or modifying the Lease and any attempted subordination or amendment or
termination (except in accordance with the terms of the Lease) shall be void.
In the event that the Lease shall be amended, modified or supplemented with the
Lender's prior written consent, the Lease as so amended, modified or
supplemented shall continue to be subject to the provisions of this Certificate,
D-2
<PAGE>
Tenant covenants and agrees with Lender that Tenant shall remain obligated under
the Lease in accordance with its terms and that it will not take any action to
terminate, rescind or void the Lease notwithstanding the bankruptcy, insolvency,
reorganization, composition, readjustment, liquidation, dissolution, winding up
or other proceedings affecting the Landlord or any assignee of the Landlord, and
notwithstanding any action with respect to the Lease which may be taken by an
assignee or receiver of the Landlord or any such assignee or by any court in any
such proceedings.
12. This Certificate shall inure to the benefit of and be binding upon the
parties hereto, and their respective successors and assigns, and to no other
person or entities, and any representations, warranties and agreements made
herein shall survive the closing of the Loan between the Lender and Landlord.
13. For so long as the loan is outstanding, Lender or its designee may
upon reasonable notice enter upon the property during regular business hours to
visit or inspect the Premises at such reasonable times as Lender or its designee
may request.
14. To the best of Tenant's knowledge after reasonable inquiry, neither
the execution, delivery nor performance of the Lease or this Certificate by
Tenant shall violate any applicable law, order, writ, injunction or decree of
any court or government authority of competent jurisdiction or result in any
default in the terms of any agreement or instrument to which Tenant is a party
or create any lien, charge or encumbrance upon said property except those
expressly created or permitted by the Lease.
15. The Lease and this Certificate have been duly authorized, executed and
delivered by Tenant and constitute legal, valid and binding instruments
enforceable against Tenant in accordance with their respective terms, except to
the extent such terms may be limited by bankruptcy, insolvency or similar laws
affecting creditor's rights generally.
16. The provisions of the Lease, including those providing for payments
thereunder, were negotiated at arms length and no consent, authorization or
approval of any government authority is necessary in connection with Tenants
execution, delivery or performance of the Lease or this Certificate.
D-3
<PAGE>
17. Except as set forth herein, between Landlord and Tenant, the execution
and delivery of this Tenant's Estoppel Certificate shall in no way expand the
rights and obligations of Tenant arising under the Lease.
In witness whereof, this Certificate has been duly executed and delivered
by the authorized officers of the undersigned as of ____________________.
_________________________________
Attest:____________________ By:______________________________
Name:______________________ Name:____________________________
Its:_______________________ Its:_____________________________
(Title) (Title)
D-4
<PAGE>
EXHIBIT E
---------
Letter of Credit
E-1
<PAGE>
EXHIBIT F
---------
List of Retained Property
1. All generators, fuel tanks and enclosures.
2. All UPS systems, battery cabinets, and associated transformers.
3. All electrical upgrade equipment including transformers, automatic transfer
switches, breaker panels and distribution panels.
4. All parabolic light fixtures.
5. Computer raised floor tile and supports.
6. FM200 fire suppressions system.
7. Security/surveillance system.
8. Furniture and systems furniture, consoles, cabinets, cages and racks.
9. Computer equipment, servers, phone switch, telco system equipment.
10. Full height glass walls.
11. HVAC units and associated condensers.
12. Appliances.
F-1
<PAGE>
EXHIBIT G
---------
Initial Improvements
G-1
<PAGE>
EXHIBIT H
---------
Permitted Alterations
H-1
<PAGE>
EXHIBIT 10.28
LOAN MODIFICATION AND ASSUMPTION AGREEMENT
This Loan Modification Agreement is entered into as of April 14, 1998, by
and among Exodus Communications, Inc., a California corporation ("Exodus
California"), Exodus Communication, Inc., a Delaware corporation ("Exodus
Delaware") 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. WHEREAS, Among other indebtedness which may be owing by Exodus California
-------
to Bank, Exodus California 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") and an equipment loan in the original principal amount of Eight
Hundred Fifty Thousand Dollars ($850,000) (the "Equipment Line"). 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.
2. WHEREAS, hereinafter, all indebtedness owing by Exodus California to Bank
-------
shall be referred to as the "Indebtedness."
3. WHEREAS, 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.
4. WHEREAS, 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".
5. WHEREAS, Exodus California merged with and into Exodus Delaware. The sole
-------
purpose of the merger was the re-incorporation of Exodus California in the State
of Delaware (the "Reincorporation").
6. WHEREAS, Exodus Delaware desires to assume the Indebtedness owing by Exodus
-------
California, prior to the Reincorporation, to Bank under the Existing Loan
Documents (the "Assumption").
NOW THEREFORE, in consideration of the foregoing and the agreements contained
herein, the parties agree as follows:
A.
1. Assumption. Exodus Delaware hereby assumes and agrees to pay and
----------
perform when due all present and future indebtedness, liabilities and
obligations under, based upon, or arising out of the Existing Loan Documents.
Exodus Delaware agrees to honor, perform and comply with, in all respects, all
terms and provisions of all of the Existing Loan Documents. All references in
the Existing Loan Documents to "Borrower" shall be deemed to refer to Exodus
Delaware. Furthermore, all present and future obligations of Exodus California
shall be deemed to refer to all present and future obligations of Exodus
Delaware. Exodus Delaware shall execute any and all documents required by Bank
to perfect Bank's security interest in Collateral as described in the Loan
Agreement.
2. Obligations. Exodus Delaware acknowledges that the obligations are due
-----------
and owing to Bank from Exodus California, and now on the part of Exodus
Delaware, without any defense, offset or counterclaim of any kind or nature
whatsoever as of the date hereof.
3. Representations and Warranties. Exodus Delaware hereby represents and
------------------------------
warrants to Bank that all representations and warranties in the Existing Loan
Documents made on the part of Exodus California are true
<PAGE>
and correct on the date hereof with respect to Exodus Delaware, with the same
force and effect as if Exodus Delaware were named as the Borrower in the
Existing Loan Documents in place of Exodus California.
4. Consent. Bank hereby consents to the Reincorporation and waives any
-------
and all defaults or Events of Default under the Existing Loan Documents that may
have occurred or shall occur as a result of the Reincorporation. The execution
and delivery in this Loan Modification and Assumption Agreement shall constitute
a cure of any such default or Event of Default. Bank's consent to the current
Reincorporation shall in no way be deemed a consent to future reincorporations
by Borrower.
B. DESCRIPTION OF CHANGE IN TERMS.
------------------------------
1. Modification(s) to Loan Agreement.
---------------------------------
a. The term "Committed Line" as defined in Section 1.1 entitled
"Definitions" is hereby amended to mean Seven Million Dollars ($7,000,000).
b. Item "(a)" of Section 2.1.1 entitled "Letters of Credit" is hereby
amended in its entirety to read as follows:
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 Seven Million
Dollars ($7,000,000). Each such letter of credit shall have an expiry date no
later than one hundred eighty (180) days after the Revolving 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 Agreement is not extended by Bank.
Notwithstanding the foregoing, Borrower shall provide Bank with a cash secured
letter, in form and substance acceptable to Bank, to support any letters of
credit with an expiry date later than 180 days after the Revolving Maturity
Date. 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.
c. Item "(a)" under Section 2.3 entitled "Interest Rates, Payments, and
Calculations" is hereby amended in its entirety to read as follows:
Except as set forth in Section 2.3(b), any Advances shall bear interest at
a rate equal to the Prime Rate. Except as set forth in Section 2.3(b), any
Equipment Advances shall bear interest at a rate equal to two and one-half
(2.50) percentage points above the Prime Rate.
C. CONSISTENT CHANGES. The Existing Loan Documents are hereby amended wherever
------------------
necessary to reflect the changes described above.
D. PAYMENT OF LOAN FEE. Borrower shall pay to Bank a fee in the amount of
-------------------
Three Thousand Two Hundred Forty Seven Dollars ($3,247) (the "Loan Fee"), plus
all out-of-pocket expenses.
E. NO DEFENSES OF BORROWER. Borrower (and each guarantor and pledgor signing
-----------------------
below) agrees that, as of this date, it has no defenses against the obligations
to pay any amounts under the Indebtedness.
F. 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 and Assumption 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
and Assumption Agreement in no way shall obligate Bank to make any future
modifications to the Indebtedness. Nothing in this Loan Modification and
Assumption Agreement shall constitute a satisfaction of the Indebtedness. It
<PAGE>
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 and Assumption Agreement. The terms of this paragraph
apply not only to this Loan Modification and Assumption Agreement, but also to
all subsequent loan modification agreements.
G. CONDITION. The effectiveness of this Loan Modification and Assumption
---------
Agreement is conditioned upon payment of the Loan Fee.
This Loan Modification and Assumption Agreement is executed as of the date
first written above.
EXODUS CALIFORNIA: BANK:
EXODUS COMMUNICATIONS, INC., SILICON VALLEY BANK,
A CALIFORNIA CORPORATION
By: /s/ Dick Stolz By: /s/ Peter Kidder
------------------------- ---------------------------
Name: Dick Stoltz Name: Peter Kidder
----------------------- -------------------------
Title: CFO/COO Title: SVP
---------------------- ------------------------
EXODUS DELAWARE:
EXODUS COMMUNICATIONS, INC.,
A DELAWARE CORPORATION
By: /s/ Dick Stoltz
--------------------------
Name: Dick Stoltz
------------------------
Title: CFO/COO
-----------------------
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<PAGE>
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<PERIOD-START> JAN-01-1998
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0
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